KEIO HOLDINGS LIMITED

Transcription

1 The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Application Proof, 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 Application Proof. APPLICATION PROOF OF KEIO HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) WARNING The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the Stock Exchange ) and the Securities and Futures Commission (the Commission ) solely for the purpose of providing information to the public in Hong Kong. This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with Keio Holdings Limited (the Company ), its sponsor, advisers and members of the underwriting syndicate that: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document; the publication of this document or any supplemental, revised or replacement pages on the Stock Exchange s website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering; the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document; this Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on the Stock Exchange; this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities; this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended; neither the Company nor any of its affiliates, sponsor, advisers or members of its underwriting syndicate is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document; no application for the securities mentioned in this document should be made by any person nor would such application be accepted; the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States; as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and the application to which this document relates has not been approved for listing and the Stock Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing. If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.

2 IMPORTANT If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. KEIO HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) Number of [REDACTED] under the [REDACTED] [REDACTED] : [REDACTED] Shares (subject to the [REDACTED]) Number of [REDACTED] : [REDACTED] Shares (subject to adjustment) Number of [REDACTED] : [REDACTED] Shares (subject to adjustment and the [REDACTED]) [REDACTED] : Not more than HK$[REDACTED] per [REDACTED] and expected to be not less than HK$[REDACTED] per [REDACTED] (payable in full on application in Hong Kong dollars, plus brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005% and subject to refund) Nominal value : HK$0.01 per Share Stock code : [REDACTED] Sole Sponsor South China Financial [REDACTED], [REDACTED] and [REDACTED] [ ] Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. A copy of this document, having attached thereto the documents specified in the section headed Documents Delivered to the Registrar of Companies in Hong Kong in Appendix V headed Documents Delivered to the Registrar of Companies and Available for Inspection to this document, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission of Hong Kong, The Stock Exchange of Hong Kong Limited and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this document or any other documents referred to above. The [REDACTED] is expected to be fixed by the [REDACTED] to be entered into between the [REDACTED] (for itself and on behalf of the [REDACTED] and our Company on the [REDACTED], which is expected to be on or about [REDACTED] or such later date as the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company may agree. The [REDACTED] will not be more than HK$[REDACTED] per [REDACTED] and is expected to be not less than HK$[REDACTED] per [REDACTED]. If, for any reason, the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company are unable to reach an agreement on the [REDACTED] by the [REDACTED], the [REDACTED] will not become unconditional and will lapse immediately. The [REDACTED] (for itself and on behalf of the [REDACTED]) may, with our consent, reduce the indicative [REDACTED] range below that stated in this document at any time prior to the [REDACTED]. In such a case, notices of reduction of the indicative [REDACTED] will be published on the website of the Stock Exchange at and our Company s website at The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities laws of the U.S. and may not be offered, sold, pledged, or transferred within the U.S., except pursuant to an exemption from, or in a traction not subject to, the registration requirements of the U.S. Securities Act and in accordance with any applicable U.S. securities law. The [REDACTED] are being offered and sold only outside the U.S. in offshore transactions in reliance on Regulation S. Prior to making an investment decision, prospective investors should carefully consider all the information set out in this document, including the risk factors set out in Risk Factors in this document. Prospective investors of the [REDACTED] should note that the obligations of the [REDACTED] under the [REDACTED] are subject to termination by the [REDACTED] (for itself and on behalf of the [REDACTED]) upon the occurrence of any of the events set forth in [REDACTED] [REDACTED] Arrangements and Expenses The [REDACTED] Grounds for termination in this document at any time prior to 8:00 a.m. (Hong Kong time) on the [REDACTED]. Further details of these termination provisions are set out in [REDACTED] in this document. [REDACTED]

3 EXPECTED TIMETABLE (1) [REDACTED] i

4 EXPECTED TIMETABLE (1) [REDACTED] ii

5 EXPECTED TIMETABLE (1) [REDACTED] iii

6 CONTENTS IMPORTANT NOTICE TO INVESTORS This document is issued by our Company solely in connection with the [REDACTED] and does not constitute an offer to sell or a solicitation of an offer to buy any security other than the [REDACTED] offered by this document pursuant to the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction or in any other circumstances. No action has been taken to permit a [REDACTED] of the [REDACTED] or the distribution of this document in any jurisdiction other than Hong Kong. You should rely only on the information contained in this document and the [REDACTED] to make your investment decision. Our Company has not authorized anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on by you as having been authorized by our Company, the [REDACTED], the [REDACTED], the Sole Sponsor, any of the [REDACTED], any of their respective directors, or any other person involved in the [REDACTED]. EXPECTED TIMETABLE.... CONTENTS... i iv SUMMARY... 1 DEFINITIONS GLOSSARY OF TECHNICAL TERMS FORWARD-LOOKING STATEMENTS RISK FACTORS INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] CORPORATE INFORMATION INDUSTRY OVERVIEW REGULATORY OVERVIEW HISTORY, REORGANIZATION AND CORPORATE STRUCTURE iv

7 CONTENTS BUSINESS RELATIONSHIP WITH CONTROLLING SHAREHOLDERS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES SHARE CAPITAL SUBSTANTIAL SHAREHOLDERS FINANCIAL INFORMATION FUTURE PLANS AND [REDACTED] [REDACTED] STRUCTURE AND CONDITIONS OF THE [REDACTED] HOW TO APPLY FOR THE [REDACTED] APPENDICES APPENDIX I: ACCOUNTANTS REPORT... I-1 APPENDIX II: UNAUDITED PRO FORMA FINANCIAL INFORMATION... II-1 APPENDIX III: SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW... III-1 APPENDIX IV: STATUTORY AND GENERAL INFORMATION... IV-1 APPENDIX V: DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION... V-1 v

8 SUMMARY This summary aims to give you an overview of the information contained in this document. Since it is a summary, it does not contain all the information that may be important to you. You should read the Document in its entirety before you decide whether to invest in our Shares. There are risks associated with any investment. Some of the particular risks in investing in our Shares are set out in the section headed Risk Factors in this document. You should read that section carefully before you decide to invest in our Shares. OVERVIEW We are an established provider of E&M engineering services for multiple segments in the private sector in Hong Kong with over 23 years of operating history. We specialize in providing integrated solutions for E&M engineering services in respect of the installation and maintenance of building service systems, namely (a) electrical systems; (b) MVAC systems; (c) plumbing and drainage systems; and (d) fire services systems. Our E&M engineering services and solutions can be broadly categorized into two major segments, namely (i) E&M engineering services, and (ii) maintenance services, delivering design, supply, installation, testing and commissioning and maintenance services for a wide range of buildings and facilities. We are committed to develop and offer innovative E&M engineering services and solutions by using advanced and green and smart technologies towards sustainability in building development. We generated all revenue from Hong Kong through performance of our contracts. The table below sets forth the breakdown of our revenue by our business segments during the Track Record Period: FY2016 FY2017 FY2018 Number of contracts (Note) Revenue recognized Number of contracts (Note) Revenue recognized Number of contracts (Note) Revenue recognized HK$ 000 % HK$ 000 % HK$ 000 % (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) E&M engineering services , , , Maintenance services 58 10, , , Total: , , , Note: The number of contracts refers to the number of contracts which generated revenue recognized by our Group during the relevant financial period. The table below sets forth the breakdown of our gross profit and gross profit margin by our business segments for the periods indicated: FY2016 FY2017 FY2018 Gross Profit Gross Profit Gross Profit Gross Profit Margin Gross Profit Margin Gross Profit Margin HK$ 000 % HK$ 000 % HK$ 000 % (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) E&M engineering services 34, , , Maintenance services 2, , , Total: 37, , ,

9 SUMMARY We offer our E&M engineering solutions to a wide variety of buildings and facilities spanning from (i) commercial and residential buildings, such as Grade A office space, shopping malls and arcades, residential villas and properties, and mixed use developments, etc, which place heavy demands on engineering services and require high standards of maintenance; (ii) leisure and recreation facilities, e.g. 5-star hotels, jockey, sport and other private clubs, etc which require energy efficiency optimisation without compromising user comfort; and (iii) industrial, logistics and institutional facilities, such as warehouses and logistics facilities, data centres, educational institutions and centres, etc which require a constant supply of electricity with high standards of technology reliability and security. During the Track Record Period, we have participated in over 200 contracts for a wide range of buildings and facilities in various scale and complexity with an aggregate contract sum of more than HK$1,704.0 million, with contract sum for an individual contract generally ranging from approximately HK$0.5 million to HK$175.9 million. During the Track Record Period, we have completed a total of approximately 70 E&M engineering services contracts of which approximately 20 were Major Contracts, being those with initial contract sums of HK$10.0 million or above. Set out below are examples of high profile/notable projects we served since our establishment: Type of building/ facility Commercial and residential Leisure and recreation Industrial, logistics and institutional Example(s) of high profile/notable projects we served The tallest building in Hong Kong with 108-floors (consisting of a Grade A skyscraper and the highest renowned international branded 5-star hotel in Hong Kong which is situated in West Kowloon) which was designated as an intelligent building of 2011 by the Asian Institute of Intelligent Buildings. The second tallest building in Hong Kong (consisting of two Grade A skyscrapers with over 30 floors and over 77-floors, a large scale luxury shopping arcade, a renowned international branded 5-star hotel situated on the waterfront of Central district). Cruise terminal buildings (consisting of Grade A offices and the largest shopping arcade in Hong Kong with over 2.0 million sq.ft that houses the flagship stores of well-known global brands situated in Tsim Sha Tsui). A luxurious residential development in Shouson Hill. Renovation of buildings at racecourses in Happy Valley and Shatin including restaurants, lounges and related facilities owned and operated by a jockey club in Hong Kong. A luxurious international branded 5-star resort hotel with 471 rooms featuring a green theme situated in the theme park of a landmark tourist destination in Hong Kong. Warehouse buildings in Tsing Yi for storing high fashion, luxury goods, and high end accessories of the world s well-known French high fashion brand. A data centre in Shatin for a leading Hong Kong data centre solution provider listed on the Main Board. New student residence halls with a gross floor area of more than 14,000 sq.m. providing 1,200 hostel places of a non-profit, private university-level institution in Shatin that was attained the Platinum rating of BEAM Plus (V1.2) certification. During the Track Record Period, we obtained all relevant licenses and qualifications in delivering a comprehensive range of E&M engineering and maintenance services as a subcontractor and served customers across a wide spectrum of market sectors such as real estate, retail, hospitality, banking, sports and recreation, IT, logistics, education, government departments, etc. for the private sector. In July 2018, Keio became registered on the list of Approved Suppliers of Materials and Specialist Contractor for Public Works with Development Bureau under the Plumbing Installation Group II and Electrical Installation Group III categories with a probationary status. With such licence and qualification, we are seeking to not only extend our engagement as a main contractor, but also diversify into the public sector so as to mitigate the risk of our revenue and profitability being impacted on account of a slowdown in a particular market segment or industry sector. 2

10 SUMMARY Our revenue increased by approximately HK$74.0 million or approximately 22.9% from approximately HK$322.9 million for FY2016 to HK$396.9 million for FY2017 and slightly decreased by approximately HK$12.1 million or 3.1% to approximately HK$384.8 million for FY2018. Excluding the non-recurring [REDACTED] expenses, our profit for the year increased by approximately HK$30.5 million or 307.9% from approximately HK$9.9 million for FY2016 to HK$40.4 million for FY2017 and further increased by approximately HK$5.0 million or 12.3% to approximately HK$45.3 million for FY2018. OUR BUSINESS MODEL Our services The following simplified diagram illustrates our business model for our E&M engineering services: Construction or major renovation projects Subcontracting of E&M engineering works Subcontracting of specialized and advanced E&M systems and equipment with associated installation works and intensive labour works Clients (e.g. property owners and developers) Main contractors E&M engineering maintenance works Our Group Procurement of E&M equipment, building products and materials Subcontractors Suppliers Our E&M engineering services are cornerstone of our services. During the Track Record Period, we mostly acted as a subcontractor of our customers, who are generally main contractors of building construction projects on a project basis with a contract term generally ranging from approximately six months to 24 months. As a subcontractor, we undertake the designated E&M engineering works under the supervision of the main contractor. We are sometimes responsible for procuring and purchasing the equipment and parts, materials we use from suppliers. We may also engage subcontracters to carry out part of the works with respect to certain specialist and labour intensive works depending on the type, complexity and specification of the contract. Revenue from our E&M engineering services contracts is recognized based on the stage of completion of the contracts. All of our revenue recognized for the Track Record Period have been agreed as set out in the original contracts with or have been certified by our customers or their agents as at the Latest Practicable Date. Our maintenance services primarily include providing repair and servicing of E&M systems for existing and new buildings and facilities which can be categorized into (i) preventative and scheduled maintenance services within a fixed contract period typically of approximately one year and (ii) other miscellaneous maintenance services on an on-demand basis. Revenue from our maintenance service contracts is recognized over the scheduled period on a straight line or upon delivery of the services. Pricing and payment We typically fix our initial contract sum at an agreed lump sum on a fixed amount basis when we submit our tender or quotation. Our pricing for services is determined based on a cost-plus basis taking into account a number of the factors, including but not limited to, (i) nature, scope and complexity of the contract; (ii) the estimated cost of E&M equipment and materials required; (iii) the estimated subcontracting fees and direct labour costs; (iv) the duration and materials of the contract; (v) tender and/or quotation records and experience for 3

11 SUMMARY contracts of similar nature, scope and complexity; (vi) the current fee level in the market and market demand; (vii) our Group s capacity and resources at the relevant time; and (viii) the customers reputation and portfolio in arriving at our final tender price or quotation fee. Upon commencement of our contracts, we generally receive progress payments, which are based upon works completed pursuant to the contracts. In the course of a contract, we may be given variation orders where our customers may request for additional services, amend the specifications and scope of works from the originally contract. A variation order may expand, reduce or vary the original scope of work and alter the contract sum. The final fee for the variation orders may therefore be determined upon negotiations and agreement with the customers. Variation orders may in some cases vary the contract sums, resulting in the final contract sums being materially different from the initial contract sums. The final payment, including provision for contract sum, would generally be paid together with the release of retention money, upon the issue of final accounts of the relevant contract, which is generally six to 12 months after the defect liability period. Contract backlog As at Latest Practicable Date, we had approximately 10 ongoing contracts and 2 new contracts with an aggregate contract sum of approximately HK$514.9 million, of which approximately HK$302.1 million has been recognized as at 31 May Based on our Directors estimation, taking into account the respective timetable, it is estimated that our contract backlog arising from our completed contracts and these ongoing and new contracts would amount to approximately HK$235.7 million. We had a contract backlog in an aggregate amount of approximately HK$235.7 million as at the Latest Practicable Date. The following table sets out details of the expiry profile of our contract backlog as at the Latest Practicable Date which shall be undertaken for the periods indicated: Revenue to be recognized in FY2019 in FY2020 subsequent to FY2020 Total (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (approx.) (approx.) (approx.) (approx.) Contract backlog arising from: Completed and ongoing contracts 208, ,739 New contracts as at the Latest Practicable Date 23,340 2,440 1,220 27,000 Total 232,079 2,440 1, ,739 Expiry profile 98.5% 1.0% 0.5% 100.0% In addition to the total contract backlog of approximately HK$235.7 million, we had (i) received certified variation orders of approximately HK$12.9 million for the two months ended 31 July 2018; and (ii) applied approximately HK$32.7 million variation orders which were pending certification from our customers or their agents as at 31 July The amount of revenue to be recognized is subject to variations including but not limited to the actual progress and the commencement and completion dates of the respective contracts. Our tender and quotation process We generally secure contracts through tenders and/or quotations. During the Track Record Period, revenue from our tendered contracts accounted for approximately 96.0%, 93.7% and 95.8% of our total revenue respectively while revenue from the quotations accounted for approximately 4.0%, 6.3% and 4.2%, respectively, of our total revenue for the same periods. 4

12 SUMMARY During the Track Record Period, our tender success rate was approximately 27.3%, 17.1% and 23.2% in terms of the number of tenders submitted respectively and 21.1%, 6.6% and 15.2% in terms of the initial contract sum of the tenders submitted respectively. Our quotation success rate was approximately 100.0%. OUR PROFESSIONAL AND EXPERIENCED WORKFORCE We have a team of qualified and experienced operational professionals and personnel (including engineers and technicians, project managers and planners, safety officers and surveyors, and site workers) who have the requisite licenses and/or registrations, technical skills and experience to handle our contracts of different types, scale and complexity. As at the Latest Practicable Date, our workforce team had approximately 91 full-time employees, out of which approximately 28 employees possess the requisite licenses and/or registrations. During the Track Record Period, our direct labour costs amounted to approximately HK$27.7 million, HK$31.7 million and HK$30.3 million, representing approximately 9.7%, 9.6% and 9.5% of our cost of sales, respectively. OUR CUSTOMERS Our major customers generally included main contractors, property owners and/or developers. During the Track Record Period, we had more than 130 customers. For the Track Record Period, our five largest customers accounted for approximately 71.2%, 61.7% and 81.2%, respectively of our total revenue, whereas revenue attributable to our largest customer accounted for approximately 22.6%, 28.2% and 30.8%, respectively, of our total revenue. Up to the Latest Practicable Date, we had established business relationships with our top five customers ranging from approximately one year to 17 years. For further details of our major customers profile, please refer to the section headed Business Our Customers in this document. OUR SUPPLIERS AND OUR SUBCONTRACTORS Suppliers Our major suppliers mainly include suppliers of E&M equipment, products, parts and building materials such as cables, cable accessories, assorted electrical accessories, lighting products and chillers. During the Track Record Period, we had more than 230 suppliers. The five largest suppliers accounted for approximately 60.1%, 52.9% and 56.8% of our total direct material costs, respectively, while the largest supplier accounted for approximately 27.1%, 20.5% and 24.4% of our total direct material costs, respectively for the same period. Up to the Latest Practicable Date, we had established business relationships with our top five suppliers ranging from approximately one year to 13 years. For further details, please refer to the section headed Business Our Suppliers in this document. Subcontractors We may subcontract certain parts of works to our subcontractors, in particular, those relating to certain specialist work that involved the supply, engineering, and installation of specialized E&M equipment and products or require advanced technologies for engineering and installation services or where the works are labour intensive. We had more than 140 subcontractors during the Track Record Period. The subcontracting fees incurred attributable to our five largest subcontractors account for approximately 36.7%, 38.3% and 53.9% of our total subcontracting fees respectively and the subcontracting fees incurred attributable to our largest subcontractor represented approximately 9.7%, 11.2% and 18.6% of our total subcontracting fees, respectively for the same period. Up to the Latest Practicable Date, we had established business relationships with our five largest subcontractors ranging from approximately one year to 10 years. For further details, please refer to the section headed Business Our Subcontractors in this document. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths contribute to our success and distinguish us from our competitors: (i) well-established reputation with a proven track record in the E&M engineering services industry in Hong Kong; (ii) strong project management and execution 5

13 SUMMARY capabilities; (iii) a diverse base of customers, suppliers and subcontractors with solid business relationships; (iv) experienced management and professional team. For further details of our strengths, please refer to the section headed Business Competitive Strengths in this document. BUSINESS STRATEGIES Our principal business objectives are to develop our business and achieve sustainable growth in the E&M engineering services in Hong Kong. We intend to achieve our business objectives by pursuing the following strategies: (i) enhancing our supply and sourcing capabilities; (ii) expanding our design and technical capabilities; (iii) expanding our contracting and maintenance capabilities for plumbing and drainage systems and fire systems services; (iv) diversifying into the public E&M engineering sector; (v) upgrading and investment in our information systems to enhance our operational efficiency; and (vi) selectively pursuing strategic investments, joint ventures and acquisitions. For further details, please refer to the section headed Business Business Strategies in this document. COMPETITIVE LANDSCAPE Hong Kong E&M engineering industry is characterized by a small number of large local contractors, a large number of overseas contractors, and a high level of subcontracting, with a substantial proportion of companies being both developers and contractors. According to the Ipsos Report, there are currently over approximately 12,000 number of registered E&M engineering services contractors in Hong Kong. The top five contractors accounted for a market share of approximately 25.1% to the industry revenue in Most of the industry players are small in size. Companies who carry out construction work worth less than HK$10 million in terms of annual gross value account for as much as 96% of the industry. Majority of the small ones act as subcontractors for the large companies, which tend to be main contractors. There are also a number of sizeable construction companies capable of handling contracts requiring sophisticated technology and strong financial backing, which are expanding their business across the Asia Pacific region. There are no formal restrictions on entry to the contracting business in Hong Kong. Foreign and local contractors are treated alike, and all are allowed to tender local public sector projects. Because of the growing size and complexity of building contracts, it is now common to award large and complex building contracts as a single package to multi-disciplinary contractors. Our Directors believe that our Group s competitive strengths, details of which are set out in section headed Business Competitive Strengths, distinguish us from our competitors. For further details on the competitive landscape of the industry in which we operate in, please refer to the section headed Industry overview in this document. SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION The following tables set forth a summary of our financial information during the Track Record Period, and should be read in conjunction with our financial information and the notes thereto included in the Accountants Report set out in Appendix I to this document. Selected Consolidated Profit or Loss Items FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 Revenue 322, , ,758 Gross profit 37,055 65,833 65,708 Profit for the year 9,894 40,353 39,970 Adjusted net profit 9,894 40,353 45,306 (1) Note: 1. Adjusted net profit was calculated based on our profit for the year excluding non-recurring [REDACTED] expenses during the Track Record Period. This is a non-hkfrs measure. 6

14 SUMMARY Selected Consolidated Balance Sheet Items As at 31 May HK$ 000 HK$ 000 HK$ 000 Non-current assets 96, ,729 11,358 Current assets 116, , ,369 Current liabilities 121, ,331 93,115 Net current (liabilities)/assets (4,310) 28,454 51,254 Net assets/total equity 91, ,096 61,976 Selected Consolidated Cash Flows Items FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 Net cash flows from operating activities 29,591 47,662 20,462 Net cash flows used in investing activities (21,846) (2,166) (7,148) Net cash flow used in financing activities (12,253) (6,918) (20,642) Net (decrease)/increase in cash and cash equivalents (4,508) 38,578 (7,328) Cash and cash equivalents at beginning of year (13,546) (18,054) 20,524 Cash and cash equivalents at end of year (18,054) 20,524 13,196 Key Financial Ratios 1 FY2016 FY2017 FY2018 Gross profit margin (%) Net profit margin (%) (2) Return on equity (%) (2) Return on total assets (%) (2) Interest coverage (times) (2) Current ratio (times) Quick ratio (times) Gearing ratio (%) N/A Net debt to equity ratio (%) 36.9 N/A N/A Notes: 1 For further details on the above ratios, please refer to section headed Financial Information Key Financial Ratios in this document. 2. Ratio calculation excluded the non-recurring [REDACTED] expenses of approximately HK$5.3 million. This is a non-hkfrs measure. OUR CONTROLLING SHAREHOLDERS Immediately after completion of the [REDACTED] and the [REDACTED], Green Yield will directly hold [REDACTED] of the issued share capital of our Company (without taking into account any Shares which may be allotted and issued upon the exercise of options under the Share Option Scheme and assuming the [REDACTED] is not exercised). Green Yield is held as to 50% by Mrs. So and approximately as to approximately 16.67% by Ms. YY So, approximately 16.67% by Mr. MK So and approximately 16.67% by Mr. MH So respectively and jointly controlled by Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So. As such, Green Yield, Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So are regarded as a Controlling Shareholders. For further details, please refer to the section headed Relationship with Controlling Shareholders in this document. DIVIDENDS During FY2016, Keio declared dividends of approximately HK$8.2 million to its then shareholders which was settled by offsetting the balance due from them. During FY2018, our Company declared a dividend of approximately HK$100.0 million to Green Yield, of which the balance was fully settled by offsetting the balance due from Green Yield which arose from the disposal of the Disposed Properties as a result of the Reorganization. As at the Latest Practicable Date, our Group did not have any dividend policy. For further details, please refer to the section headed Financial Information Dividends in this document. 7

15 SUMMARY [REDACTED] STATISTICS [REDACTED] REASONS FOR THE [REDACTED] AND [REDACTED] The Hong Kong government has recently promulgated the Smart City Blueprint for Hong Kong are driving, inter alia, the growth of building constructions for private and public residential, cultural facilities and infrastructures, the acceleration of urban renewal, the demand for green buildings in coming years, thereby increasing the needs of E&M engineering and maintenance services. Together with the continual growth of building construction works for office, commercial and residential spaces under the steady economic growth in Hong Kong which, according to the Ipsos Report, the gross output value for the private sector in Hong Kong, is forecasted to increase from approximately HK$22.4 billion in 2018 to approximately HK$26.7 billion in 2022, while for the public sector it is forecasted to increase from approximately HK$18.5 billion in 2018 to approximately HK$22.0 billion in Increasing awareness regarding smart solutions and favourable government initiatives to build a smart city are the major drivers for smart buildings in Hong Kong. Furthermore, the surging need for environmental protection is creating an increasing demand for green buildings which will largely focus on the maximum energy utilization with the help of smart systems. Smart and green building technology has become one of the important aspects of future building development in Hong Kong. To cater for the evolving industry dynamics and strive for market competitiveness, our Directors believe that it is an imminent and genuine need of our Group to develop multi-disciplinary E&M engineering capabilities in diverse fields of diverse smart technologies and digital techniques which is a key driver for our sustainable business growth going forward. Prior to the [REDACTED], funding of our business primarily came from our internal resources and/or bank borrowings. Our cash and bank balances amounted to approximately HK$13.2 million while our unutilized banking facilities amounted to approximately HK$31.1 million as at 31 May 2018, which would not be sufficient to finance the implementation plan of our business strategies, particularly for enhancement of our service capabilities, investments in advanced building technologies and IT infrastructure, and strategic investments and acquisitions which involves significant capital outlay will require considerable additional financial resources. Having considered our Group s current bank borrowing level, our Directors believe that [REDACTED] is strategically significant to the long-term growth of our Group s business as it provides financial resources for our Group s organic and external growth. In tendering potential contracts, financial strengths with sufficient and stable source of financial resources is, among other things, our clients key assessment criteria for facility services providers, especially when large-scale private and/or public sector contracts are involved. Our Directors also believe that after obtaining a [REDACTED] status, our brand recognition can be strengthened and our credibility can be enhanced, which would in turn provide us with more leverage and competitive advantages in the tendering process and in securing new clients. 8

16 SUMMARY The [REDACTED] from the issue of the [REDACTED] under the [REDACTED] based on the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of the indicative [REDACTED] range, are estimated to be approximately HK$[REDACTED], after deducting the estimated [REDACTED] commission and total expenses in the aggregate amount of approximately HK$[REDACTED], paid and payable by our Company from the gross [REDACTED] ofthe[redacted] and assuming the [REDACTED] is not exercised. We intend to apply the [REDACTED] of the issue of the [REDACTED] under the [REDACTED] in the following manner: approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used to enhance our various service capabilities in respect of (i) supply and sourcing capabilities of E&M systems, equipment, and products for which approximately HK$[REDACTED] will be used for direct supply arrangement of ELV systems; (ii) our design and technical capabilities for which approximately HK$[REDACTED] will be used for acquiring BIM and BMS systems and for working capital relating to the hiring of additional E&M consultants, draftsman and specialists in this aspect; and (iii) our engineering and maintenance capabilities in our plumbing and drainage and fire services system works for which approximately HK$[REDACTED] will be used for acquiring equipment for inspection, testing and maintenance and working capital relating to the hiring of additional specialists in this aspect; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used to upgrade and invest in our information systems to increase operational efficiency for acquiring advanced ERP, tender management and advanced human resources system with mobile application modules; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used to fund the payment obligations of performance bonds for diversifying into the public E&M engineering services sector; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used for strategic investments, joint ventures and acquisitions, all of which will be set aside in this regards; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be set aside as general working capital. Please refer to the section headed Future Plans and [REDACTED] for further details. LEGAL PROCEEDINGS AND NON-COMPLIANCE As at the Latest Practicable Date, there were ten outstanding employee s compensation claims and six of the relevant applicants were not our Group s employees. During the Track Record Period and up to the Latest Practicable Date, our Group was convicted of three charges and had one outstanding charge in relation to the non-compliance with the CSSR. For further details, please refer to the section headed Business Legal Proceedings and Non-Compliance in this document. Save as disclosed above, our Directors confirm that there was no other pending litigation involving non-compliance by our Group as at the Latest Practicable Date. [REDACTED] EXPENSES The [REDACTED] expenses in connection with the [REDACTED] primarily consist of [REDACTED] commission and professional fees and, assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the proposed [REDACTED] range and that the [REDACTED] is not exercised, are estimated to be HK$[REDACTED]. During the Track Record Period, we incurred [REDACTED] expenses of approximately HK$[REDACTED], of which approximately HK$[REDACTED] was recognized in the consolidated statements of profit or loss and approximately HK$[REDACTED] was recognized as prepayments in the consolidated statements of financial position which will be 9

17 SUMMARY accounted for as a deduction from equity upon [REDACTED]. Subsequent to the Track Record Period, we expect to further incur [REDACTED] expenses of approximately HK$[REDACTED] prior to and upon completion of the [REDACTED], of which (i) approximately HK$[REDACTED] is expected to be recognized as expenses in our consolidated statements of profit or loss during FY2019; and (ii) approximately HK$[REDACTED] is expected to be accounted for as a deduction from equity upon [REDACTED] under the relevant accounting standard. The actual amounts to be recognized to the consolidated statements of profit or loss of our Group or to be capitalised are subject to adjustments based on audit and changes in variables and assumptions. Prospective investors should note that our financial results for the year ending 31 May 2019 will be adversely affected by the non-recurring [REDACTED] expenses described above, and may not be comparable to the financial performance of our Group in the past. RECENT DEVELOPMENT AND MATERIAL CHANGE Our Group s business model and revenue and cost structure have remained unchanged subsequent to the Track Record Period and up to the document date. Up to 13 August 2018, we have submitted approximately 33 tenders and two quotations for contracts in the private sector and approximately one tender for contract in the public sector, with an aggregate proposed initial contract sums of approximately HK$747.2 million. The impact of the [REDACTED] expenses on our consolidated statements of profit or loss has posted a material adverse change in the financial or trading position or prospect of our Group since 31 May 2018 (being the date of the latest audited consolidated financial statements were made up). Our Directors consider that our financial performance for the year ending 31 May 2019 would be significantly adversely affected by the recognition of [REDACTED] expenses. The final amount of these amounts to be recognized to the profit or loss of our Group is subject to adjustment based on audit and the changes in variables and assumptions. As a result of these expenses, our net profit for the year ending 31 May 2019 may decline as compared with the prior financial year. Prospective investors should be aware of the impact of the [REDACTED] expenses on the financial performance of our Group for the year ending 31 May Save as disclosed above, our Directors confirmed that, up to the date of this document, there has been no material adverse change in our financial or trading positions of our Group since 31 May 2018 (being the date to which the latest audited consolidated financial statements of our Group were made up) which would materially affect the information shown in the Accountants Report, the text of which is set out in Appendix I to this document. RISK FACTORS There are risks associated with any investment. Some of the relatively material risks relating to our Group include: We make estimation of the risks involved, time and costs required in our tenders. Failure to make accurate estimations may lead to cost overruns or incur losses on the contracts Our revenue is mainly derived from our E&M engineering services contracts which are non-recurrent in nature and any failure of our Group to secure tender contracts would affect our operations and financial results The price of our variation works may not be clearly determined Our Group s past revenue and profit margin may not be indicative of our Group s future revenue and gross profit margin, in particular majority of our Group s revenue is derived from E&M engineering services contracts, which are on non-recurring basis We rely on the performance, quality and supply of our suppliers and subcontractors to complete certain part of our E&M engineering services contracts and maintenance services A detailed discussion of the risk factors is set forth in the section headed Risk Factors in this document. 10

18 DEFINITIONS In this document, unless the context otherwise requires, the following expressions have the following meanings: 10% Keio Acquisition the acquisition of 235,000 shares of Keio from Mr. CC So by Zhuoyi Ventures at a cash consideration of HK$10 million on 30 November 2017 affiliate(s) any other person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person [REDACTED] ArchSD Articles of Association or Articles associate(s) Board or Board of Directors Building Authority Buildings Department Buildings Ordinance Business Day or business day the Architectural Services Department of the Government the amended and restated articles of association of our Company conditionally adopted on [ ] which shall become effective on the [REDACTED], a summary of which is set out in Appendix III to this document, and as amended, supplemented or otherwise modified from time to time has the meaning ascribed thereto under the Listing Rules the board of Directors of our Company the Building Authority of Hong Kong the Buildings Department of the Government the Buildings Ordinance (Chapter 123 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time any day (other than a Saturday, Sunday or public holiday and any day on which a tropical cyclone warning No. 8 or above or a black rainstorm warning is hoisted at any time between 9:00 a.m. and 5:00 p.m. in Hong Kong) on which licensed banks in Hong Kong are generally open for normal banking business 11

19 DEFINITIONS BVI CAGR Capitalization Issue Cayman Companies Law or Companies Law CCASS CCASS Clearing Participant CCASS Custodian Participant CCASS Investor Participant CCASS Participant CEDD the British Virgin Islands compound annual growth rate the issue of [REDACTED] Shares to be made upon capitalization of certain sums standing to the credit of the share premium account of our Company referred to in the section headed Statutory and general information A. Further information about our Company 3. Written Resolutions of our Shareholders in Appendix IV to this document the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands the Central Clearing and Settlement System established and operated by HKSCC a person admitted to participate in CCASS as a direct clearing participant or general clearing participant a person admitted to participate in CCASS as a custodian participant a person admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a corporation a CCASS Clearing Participant, or a CCASS Custodian Participant or a CCASS Investor Participant the Civil Engineering and Development Department of the Government China or PRC the People s Republic of China, excluding for the purposes of this document, Hong Kong, the Macau Special Administrative Region of the People s Republic of China and Taiwan, unless otherwise specified close associate(s) Companies Ordinance has the meaning ascribed to it under the Listing Rules the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented, or otherwise modified from time to time 12

20 DEFINITIONS Companies (Winding Up and Miscellaneous Provisions) Ordinance 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 Company or our Company Keio Holdings Limited ( ), an exempted company incorporated in the Cayman Islands with limited liability on 25 August 2017 and registered as a non-hong Kong Company under Part 16 of the Companies Ordinance on 10 November 2017 Concert Party Deed connected person(s) Controlling Shareholder(s) core connected person(s) CSSR Deed of Indemnity Deed of Non-competition a confirmatory deed dated 10 August 2018 and entered into among Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So to confirm their acting in concert (having the meaning as ascribed to is under the Takeovers Code) arrangement in respect of our Group has the meaning ascribed to it under the Listing Rules has the meaning given to it under the Listing Rules and, in the context of this document, collectively refers to Green Yield, Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So has the meaning ascribed to it in the Listing Rules the Construction Site (Safety) Regulations (Chapter 59I of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the deed of indemnity dated [ ] entered into by our Controlling Shareholders in favour of our Company (for ourselves and as trustee for each member of our Group) to provide certain indemnities, particulars of which are set out in the section headed Statutory and general information E. Other Information 1. Tax and other indemnities in Appendix IV to this document the deed of non-competition dated [ ] and entered into by our Controlling Shareholders in favour of our Company (for ourselves and as trustee of our subsidiaries), particulars of which are set out in the section headed Relationship with our Controlling Shareholders Deed of Non-competition in this document 13

21 DEFINITIONS Development Bureau Director(s) or our Director(s) Electricity Ordinance EMSD Environmental Protection Department Fire Services Department FIUO the Development Bureau of the Government the directors of our Company the Electricity Ordinance (Chapter 406 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Electrical and Mechanical Services Department of the Government the Environmental Protection Department of the Government the Fire Services Department of the Government the Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time FY2016 financial year of our Company ended 31 May 2016 FY2017 financial year of our Company ended 31 May 2017 FY2018 financial year of our Company ended 31 May 2018 FY2019 financial year of our Company ending 31 May 2019 FY2020 financial year of our Company ending 31 May 2020 GEM GEM operated by the Stock Exchange [REDACTED] Green Yield Green Yield Enterprises Limited ( ), a company incorporated in BVI with limited liability on 26 July 2017, one of the Controlling Shareholders and being owned as to 50% by Mrs. So, approximately 16.67% by Ms. YY So, approximately 16.67% by Mr. MK So and approximately 16.67% by Mr. MH So respectively 14

22 DEFINITIONS Group, our Group, we or us HK$ or HK dollar(s) our Company and its subsidiaries, or any of them, at the relevant time or, where the context so requires, in respect of the period prior to our Company becoming the holding company of its present subsidiaries, such subsidiaries as if they were subsidiaries of our Company at the relevant time Hong Kong dollar(s), the lawful currency of Hong Kong [REDACTED] HKFRSs Hong Kong Financial Reporting Standards, which includes Hong Kong Accounting Standards and their interpretations issued by the Hong Kong Institute of Certified Public Accountants HKSCC HKSCC Nominees Hong Kong or HK Hong Kong Share Registrar HK Legal Counsel HyD Independent Third Party(ies) Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC the Hong Kong Special Administrative Region of the PRC [REDACTED], our Hong Kong branch share registrar and transfer office Mr. Yan Kwok Wing, barrister-at-law in Hong Kong and an Independent Third Party the Highways Department of the Government person(s) or company(ies) who or which, as far as our Directors are aware after having made all reasonable enquiries, is not or are not connected person(s) (within the meaning of the Listing Rules) of our Company or our subsidiaries or any of our respective associates 15

23 DEFINITIONS [REDACTED] Ipsos Ipsos Limited, a market research institution and an Independent Third Party Ipsos Report the industry research report commissioned by our Company and prepared by Ipsos, an extract of which is set out in the section headed Industry Overview in this document Keio Keio Engineering Company Limited ( ), a company incorporated in Hong Kong with limited liability on 22 December 1983, and an indirect whollyowned subsidiary of our Group 16

24 DEFINITIONS KEM Latest Practicable Date Keio E&M Engineering Company Limited ( ), a company incorporated in Hong Kong with limited liability on 11 July 2013, and an indirect whollyowned subsidiary of our Group 6 August 2018, being the latest practicable date for the purpose of ascertaining certain information contained in this document prior to its publication [REDACTED] Listing Rules Main Board Memorandum of Association or Memorandum Mr. CC So Mr. CF So Mr. MH So the Rules Governing the Listing of Securities on the Main Board, as amended, supplemented or otherwise modified from time to time the stock exchange operated by the Stock Exchange before the establishment of GEM and which continues to be operated by the Stock Exchange in parallel with GEM the amended and restated memorandum of association of our Company adopted on [ ], a summary of which is set out in Appendix III to this document, and as amended, supplemented or otherwise modified from time to time Mr. So Chung Chau ( ), brother of Mr. CF So Mr. So Chung Fat ( ), a Controlling Shareholder, the business development director of the Company, spouse of Mrs. So and father of Ms. YY So, Mr. MK So and Mr. MH So Mr. So Man Ho ( ), a Controlling Shareholder, an executive Director, son of Mr. CF So and Mrs. So and brother of Ms. YY So and Mr. MK So 17

25 DEFINITIONS Mr. MK So Mrs. So Ms. YY So Mr. So Man Kit ( ), a Controlling Shareholder, an executive Director, son of Mr. CF So and Mrs. So and brother of Ms. YY So and Mr. MH So Ms. Sin Wai Chun ( ), a Controlling Shareholder, an executive Director, spouse of Mr. CF So and mother of Mr.MKSoandMr.MHSo Ms. So Yuen Yee ( ), a Controlling Shareholder, an executive Director, daughter of Mr. CF So and sister of Mr.MKSoandMr.MHSo [REDACTED] 18

26 DEFINITIONS Property Holdco A Property Holdco B Iron Shield Investments Limited, a company incorporated in Hong Kong on 15 November 2017 with limited liability which is wholly owned by Green Yield New Fusion Holdings Limited, a company incorporated in Hong Kong on 15 November 2017 with limited liability which is wholly owned by Green Yield Property Holdco C Pacific Riches Developments Limited, a company incorporated in Hong Kong on 15 November 2017 with limited liability which is wholly owned by Green Yield Property Holdco D Property Holdco E Silver Voyage Limited, a company incorporated in Hong Kong on 15 November 2017 with limited liability, which is owned as to 86.5% by Green Yield and 13.5% by So Sze Ki, daughter of Mr. CF So and Mrs. So and sister of Ms. YY So, Mr. MK So and Mr. MH So Enlightenment Rich Limited, a company incorporated in Hong Kong on 15 November 2017 with limited liability which is wholly owned by Green Yield Property Holdco F Glory Cresent Limited ( ), a company incorporated in Hong Kong on 15 November 2017 with limited liability which is wholly owned by Green Yield Property Holdcos the Property Holdco A, the Property Holdco B, the Property Holdco C, the Property Holdco D, the Property Holdco E and the Property Holdco F collectively [REDACTED] 19

27 DEFINITIONS [REDACTED] Regulation S Reorganization Regulation S under the U.S. Securities Act the reorganization of our Group in preparation for the [REDACTED], details of which are set out in the section headed History, reorganization and corporate structure Reorganization in this document Repurchase Mandate the general unconditional mandate granted to our Directors by our Shareholders in relation to the repurchase of our Shares, further information on which is set forth in the section headed Statutory and general information A. Further information about our Company 3. Written resolutions of our Shareholders in Appendix IV to this document SFC SFO Share(s) Share Option Scheme Shareholder(s) Shatin Property the Securities and Futures Commission of Hong Kong the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time ordinary share(s) with a nominal value of HK$0.01 each in the share capital of our Company the share option scheme conditionally approved and adopted by our Company on [ ], a summary of the principal terms of which are set out in the section headed Statutory and general information D. Share Option Scheme in Appendix IV to this document holder(s) of the Share(s) has the meaning ascribed thereto in the section headed Business Properties Owned properties of this document 20

28 DEFINITIONS So Family Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So collectively [REDACTED] Sole Sponsor or South China Capital South China Capital Limited, a corporation licensed under the SFO and permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO, being the sole sponsor of the [REDACTED] [REDACTED] [REDACTED] Stock Exchange subsidiary(ies) Substantial Shareholders Takeovers Code Track Record Period The Stock Exchange of Hong Kong Limited has the meaning ascribed thereto in section 2 of the Companies Ordinance has the meaning given to it under the Listing Rules the Hong Kong Code on Takeovers and Mergers issued by the SFC, as amended, supplemented or otherwise modified from time to time FY2016, FY2017 and FY2018 [REDACTED] United States or U.S. the United States of America, its territories and possessions, any state of the United States and the District of Columbia US$, US dollar(s) or USD United States dollar(s), the lawful currency of the United States 21

29 DEFINITIONS U.S. Securities Act the United States Securities Act of 1933, as amended from time to time Water Authority the Water Authority of Hong Kong Waterworks Ordinance the Waterworks Ordinance (Chapter 102 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time Waterworks Regulations the Waterworks Regulations (Chapter 102A of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time WBDB Works Branch of the Development bureau of the Government [REDACTED] WSD the Water Supplies Department of the Government [REDACTED] Zhuoyi Ventures Zhuoyi Ventures Limited ( ), a company incorporated in BVI with limited liability on 26 July 2017, and a direct wholly-owned subsidiary of our Company % per cent In this document, unless the context otherwise requires, the terms associate, close associate, connected person, connected transaction, controlling shareholder, core connected person, subsidiary and substantial shareholder shall have the meanings given to such terms in the Listing Rules, unless the context otherwise requires. Unless expressly stated or the context requires otherwise, amounts and percentage figures, including share ownership and operating data in this document, may 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 the individual items. 22

30 GLOSSARY OF TECHNICAL TERMS This glossary contains certain technical terms used in this document in connection with our Company. Such terms and their meanings may not correspond to standard industry definitions or usage. air handling unit a factory-made encased equipment consisting of a blower, heating and cooling elements, filter chambers and other necessary parts to regulate and circulate air as a component of a heating, ventilating and air conditioning system approved contractor Authorized Signatory(ies) building management system(s) or BMS system(s) building information modeling or BIM chiller(s) commercial buildings contract sum E&M a contractor who is usually included in a customer s list of the contractors and may be selected to conduct certain work of the customer the person appointed to act for a registered contractor for the purpose of the Buildings Ordinance otherwise known as building automation system(s), a computer-based control(s) system installed in buildings that controls and monitors the buildings E&M systems computer-based software programs used to assist building system design and analysis. BIM can be divided into 3D or 4D modeling. 3D building information modeling services enable physical building visualization, previewing the whole architectural structures, including the internal E&M engineering system. 4D building information modeling services refer to 3D BIM assemblies with time-or schedule-related information a refrigerator machine that utilizes a vapour compression or vapour absorption cycle to remove excessive heat from water to certain temperature such that it can be used for producing cooling effect in integration with other cooling system components office buildings, shopping malls, retail facilities, hotels, restaurants or facilities for hospitalities purposes the price payable to the party carrying out the works, which under some contracts may be subject to adjustment in accordance with their respective terms electrical and mechanical 23

31 GLOSSARY OF TECHNICAL TERMS E&M system(s) electrical and mechanical engineering systems. In the context of our Group E&M systems generally cover (i) electrical systems; (ii) MVAC systems; (iii) plumbing and drainage systems; and (iv) fire services systems ELV extra-low voltage, according to Electrical and Mechanical Services Department, it means voltage normally not exceeding 50V root mean square alternating current or 120V direct current, between conductors or between a conductor and earth ERP system low-voltage switchboard(s) List of Approved Contractors for Public Works or Contractor List main contractor(s) MVAC system(s) practical completion private sector public sector REC enterprise resource planning system a device that directs all-incoming power supplies from one or more sources to several separate circuits each of which is managed and safeguarded by the fuses or switchgears of the switchboard the List of Approved Contractors for Public Works maintained by the Development Bureau which comprises those contractors who are approved for carrying out public works in Hong Kong in one or more of the five major categories of building and civil engineering works, that is, buildings, port works, roads & drainage, site formation and waterworks a contractor who is usually appointed by government authorities, land owners or property developers, who is generally responsible for undertaking an entire construction project and outsource their works to specialized subcontractors mechanical ventilation and air-conditioning system(s) a stage of substantial completion of works and handover of work site, which is usually marked by the issue of a completion certificate to that effect contracts that are not in the public sector contracts under the public sector in which the ultimate employer is a Government department or Governmentrelated organisations a registered electrical contractor registered with the EMSD under the Electricity Ordinance 24

32 GLOSSARY OF TECHNICAL TERMS REW List of Approved Suppliers of Materials and Specialist Contractors for Public Works or Specialist List subcontractor a registered electrical worker registered with the EMSD under the Electricity Ordinance the List of Approved Suppliers of Materials and Specialist Contractors for Public Works maintained by the Development Bureau comprises suppliers of materials/specialist contractors who are approved for carrying out public works in one or more of the 50 categories of specialist works classified by the Development Bureau a contractor employed by the main contractor or a superior contractor of a construction contract to perform part or all of their works Technical Director(s) in respect of any registered contractor which is a corporate entity, a director authorized by the board of directors of such contractor to ensure the works are carried out in accordance with the Buildings Ordinance Ten Major Infrastructure Projects tender(s)/quotation(s) success rate variation order(s) ten major infrastructure projects announced in the policy address issued by the then chief executive of Hong Kong including the South Island Line, Lok Ma Chau Loop, Sha Tin to Central Link, West Kowloon Cultural District, Tuen Mun-Chek Lap Kok Line and Tuen Mun Western Bypass, Kai Tak Development, Guangzhou-Shenzhen-Hong Kong Express Rail Link, Hong Kong-Zhuhai-Macau Bridge, North East New Territories New Development Areas and Hong Kong- Shenzhen Western Express Line the percentage is calculated by dividing the number of contracts awarded in respect of the tender(s)/quotation(s) submitted by the number of tender(s)/quotation(s) submitted changes to the original scope of a construction contract to achieve the satisfactory completion and functioning of the works 25

33 FORWARD-LOOKING STATEMENTS This document contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. The forward-looking statements are contained principally in the sections headed Summary, Risk Factors, Industry Overview, Business, Financial Information and Future Plans and Use of [REDACTED] in this document. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under the section headed Risk Factors in this document, which may cause our actual results, performance or achievements to be materially different from performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements include, without limitation, statements relating to: our business strategies and operating plans; our capital expenditure and expansion plans; our ability to identify and successfully take advantage of new business development opportunities; our dividend policy; and our profit estimate and other prospective financial information. The words anticipate, believe, could, estimate, expect, intend, may, plan, seek, will, would and the negative of these terms and other similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of uncertainties and factors, including but not limited to: any changes in the laws, rules and regulations of the Hong Kong relating to any aspect of our business or operations; general economic, market and business conditions in Hong Kong; macroeconomic policies of the Hong Kong Government; inflationary pressures or changes or volatility in interest rates, foreign exchange rates or other rates or prices; various business opportunities that we may pursue; and the risk factors discussed in this document as well as other factors beyond our control. 26

34 FORWARD-LOOKING STATEMENTS Subject to the requirements of applicable laws, rules and regulations, we do not have any obligation to update or otherwise revise the forward-looking statements in this document, 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 document might not occur in the way we expect, or at all. Accordingly, you should not place undue reliance on any forward-looking information. All forward looking statements contained in this document are qualified by reference to the cautionary statements set out in this section as well as the risks and uncertainties discussed in the section headed Risk Factors in this document. 27

35 RISK FACTORS Potential investors should consider carefully all the information set out in this document and, in particular, should consider and evaluate the following risks associated with an investment in our Company before making any investment decision in relation to the [REDACTED]. Additional risks and uncertainties not presently known to us or that we currently deem immaterial could also harm our business, financial condition and results operations. RISKS RELATING TO OUR BUSINESSES We make estimation of the risks involved, time and costs required in our tenders. Failure to make accurate estimations may lead to cost overruns or incur losses on the contracts Our contracts are normally awarded through a competitive tendering process. We determine the tender price by taking into account factors including the (i) nature, scope and complexity of the contract; (ii) the estimated cost of materials and equipment, including the expected fluctuations in material costs, such as cables; (iii) the estimated labour costs and subcontracting fees; (iv) the duration of the contract; (v) tender and/or quotation records and experience for works of similar nature, scope and complexity; (vi) the current fee level in the market and market demand; (vii) our Group s capacity and resources at the relevant time; and (viii) the customers reputation and portfolio in arriving at our final tender price or quotation fee. We are typically responsible for all our costs, including subcontracting fees and direct material costs, and our ability to achieve our target profitability on any contract is largely dependent on our ability to accurately estimate and control these costs. Implementation of a contract would often takes months or years to complete and once the tender price is fixed, we are obliged to complete the contract at such price. In the event that we fail to accurately estimate the contract costs or if there is any unforeseen factor such as variations in labour and material costs over the term of a contract, changes in contract scope or conditions, disputes with subcontractors, it may lead to an increase in cost, causing cost overruns, which will in turn result in lower profit margin or even a loss for a contract. Furthermore, any of the above-mentioned adverse factors may give rise to delay in, or failure of, completion of works or even unilateral termination of our contracts by our customers which may in turn adversely affect our reputation, financial conditions, profitability or liquidity. Our Group may also be subject to liquidated damages claims due to delay in completing the contract if extension of time is not granted by our customers. The amount of liquidated damages is based on the rate as set out in the contract. Our revenue is mainly derived from our E&M engineering services contracts which are non-recurrent in nature and any failure of our Group to secure tender contracts would affect our operations and financial results During the Track Record Period, our revenue generally was derived from the provision of E&M engineering services on a contract-by-contract basis, which is not recurring in nature. We did not enter into any long-term agreement or retainer service agreement with our E&M engineering services customers as at the Latest Practicable Date and a vast majority of our contracts during the Track Record Period were awarded through tendering. We submit new 28

36 RISK FACTORS tenders or bids for new contracts from time to time, for the Track Record Period, we achieved a tender success rate of approximately 27.3%, 17.1% and 23.2% respectively. As part of our strategy to expand our customer base, we have been adjusting our contract selection strategy to increasingly weigh in customer base diversification, and have been expanding our efforts in exploring and securing contracts from new customers through participation of tendering. Such efforts, however, may negatively affect our tender success rate as we increase our tendering frequency and respond to tender invitations from customers with which we have no prior business relationship. There is no guarantee that going forward we can achieve a comparatively similar tender success rate and should we fail to achieve a similar success rate, our results of operations and financial conditions could 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, industry expertise, financial capability, reputation and regulatory compliance which may change from time to time. There is no assurance that we will continue to meet our customers tendering requirements in the future, in which case we may not be able to tender for new contracts and our reputation, business operations, financial condition and results of operations may be adversely affected. Notwithstanding the above, the terms and conditions of our tenders vary from case to case, together with the size of the contracts we tender. We may, depending on our desire to begin or maintain business relationships with a particular customer, offer favourable terms to such customers for example, clauses requiring us to complete the works at a specified deadline regardless of when the site is handed to us. There is no assurance that the terms and conditions and contract size of our future contracts would be comparable to our existing contracts or our tenders would be selected by customers. The price of our variation works may not be clearly determined Our customers may, in the course of contract implementation, make variation orders to alter the scope of works or require us to perform additional works on top of the terms and scope of original contracts. The rates and prices of the variations shall be the same as those specified in the contracts for the like or analogous work. If there are no like or analogous works under the contract which we could make reference to, our customers will negotiate a new rate with us. Our financial performance is affected by the amount of variation orders certified by our customers and the timing of their certification, which depends on, including but not limited to, the practice and procedure of our customers or their agents, the scale and completion of the variation orders and the number of variation orders involved. If we and our customers or their agents fail to reach an agreement on the rate at which the variation works are determined, or if our customers or their agents take different views on the valuation on variation work, there may arise dispute and the settlement of our payment applications may be prolonged, if not denied all together, which may affect our liquidity and financial position. There is also no assurance that we will be able to maintain the same or similar profit margins for works performed under these variation orders. 29

37 RISK FACTORS Our Group s past revenue and profit margin may not be indicative of our Group s future revenue and gross profit margin, in particular majority of our Group s revenue is derived from E&M engineering services contracts, which are on non-recurring basis For the Track Record Period, our revenue was approximately HK$322.9 million, HK$396.9 million and HK$384.8 million of which approximately 96.9%, 95.8% and 96.5% was derived from our E&M engineering services contracts. Our gross profit during the same period amounted to approximately HK$37.1 million, HK$65.8 million and HK$65.7 million while gross profit margin was approximately 11.5%, 16.6% and 17.1%, respectively. Inherent to our business, our revenue and profit margins may be subject to fluctuations, given that we secure our E&M engineering services contracts mainly through tendering and for which we may adopt different strategies in regards to different contracts. Further our revenue and profit margins may be subject to the amount of variation orders we are required to perform and for which we are certified, which will vary from contract to contract. As such, the number and scale of E&M engineering services contracts and the amount of revenue driven from such contracts may vary significantly from period to period. We cannot assure you that we will continue to secure new E&M engineering services contracts in the future and thus it may be difficult to forecast the volume of future business. As such, our historical growth rate, revenue and gross profit margin may not be indicative of our future performance. They are subject to many factors, including but not limited to overall condition in the market, intensity of competition among contractors and costs of labour. There is no assurance that the demand of E&M engineering services in Hong Kong will not decrease in the future. For example, an economic downturn in Hong Kong where our Group operates may cause setback to the construction plans, as a result of which our Group s business, financial condition and results of operations could be materially and adversely affected. We rely on the performance, quality and supply of our suppliers and subcontractors to complete certain part of our E&M engineering services and maintenance services Our five largest suppliers accounted for approximately 60.1%, 52.9% and 56.8% of our total material cost for the Track Record Period, respectively. Our five largest subcontractors accounted for approximately 36.7%, 38.3% and 53.9% of our subcontracting fees for the Track Record Period, respectively. We are dependent on the performance, quality and continued supply of these materials and services to maintain the provision of our E&M engineering services and maintenance services. We do not enter into any long term contracts with our suppliers and subcontractors. As such, there is no assurance that they will be able to continue to provide stable and quality supplies and services to our Group at prices acceptable to us or that our Group can maintain our relationships with them in the future. 30

38 RISK FACTORS If any of the major suppliers and subcontractors are unable to provide us with the required suppliers and services to our Group and we are unable to obtain alternative providers on similar or better quality and pricing terms, our business, results of operations, profitability and liquidity may be adversely affected. During the Track Record Period, our Group had one loss-making contract which was related to the performance of our subcontractors. Please refer to the section headed Financial Information for further details. There is also no assurance that we are able to monitor the performance of our subcontractors as closely as with our own employees. If our subcontractors fail to carry out their works in accordance with our requirements and standards, we may experience delay in contract completion or incur higher costs than anticipated which could impact our profitability. If the subcontractor s performance does not meet our standards and we are unable to rectify the issues, our reputation may be harmed and it could potentially expose us to litigation and damage claims. Our customers or their agents may not certify our works completed or release our retention money In general, we are entitled to receive progress payments from our customers, which are payable with reference to works completed. Our payment applications are normally made on a monthly basis based on completed works and will generally set out details of works completed, variation orders (if any) and the costs of the materials delivered. Once a payment application is approved, a payment certificate may be issued to us, where upon, we will issue an invoice to customers. In line with industry practice, there is generally a contract term for our customer to secure our Group s due performance by retaining a portion of the money from the progress payment. In general, our customers will retain up to 10% of each progress payment and up to a maximum cap of 5% of the contract sum as retention money for the contract. The retention money will usually be released to us after expiry of the defect liability period subject to the confirmation from our customer regarding satisfaction with our works. As at 31 May 2016, 31 May 2017 and 31 May 2018, retention receivables of approximately HK$3.0 million, HK$3.2 million and HK$3.0 million respectively, were retained by our customers. There can be no assurance that our customers will certify the full value of our work or at all, or release our retention money in full and without deductions, on a timely basis. Any failure by our customers to certify our payment applications or release our retention money may have an adverse effect on our cash flows and financial performance. We are exposed to our customers credit risks and our liquidity position may be adversely affected if our customers fail to make payment on time or in full In general we submit monthly payment applications to our customers and our customers will make progress payments calculated in accordance with the value of works completed, which may include variation works and claims, if any. For further details, please refer to the section headed Business Our Contracts Major terms of our E&M engineering services contracts in this document. 31

39 RISK FACTORS The credit terms granted to our customers vary from customer to customer. In general, we allow a credit period of days upon the date of invoice to our customers. Our trade receivables were approximately HK$11.4 million and HK$26.3 million and HK$31.9 million as at the Track Record Period, respectively. We cannot assure you that the financial position of our customers and/or its ultimate holding company will remain healthy in the future. We also cannot assure you that we will be able to collect trade receivables from our customers on a timely basis or that there will not be any future dispute in terms of collection of receivables with our customers which may result in significant delay in receivables collection. In addition, retention monies are generally required by our customers to secure our Group s due performance of the contract. Typically, the amount of retention money is subject to negotiation between the parties and ranges from 5% to 10% of the certified amount specified in the interim payment certification with a maximum cap of 5% of the total contract value. In the event our customers fail to pay the retention monies on a timely basis or at all, our liquidity could be adversely affected. We may be engaged in prolonged negotiations of the settlement of payment applications, in particular in respect of final payment, which is not uncommon in the industry. If our customers experience financial distress or are unable to settle their payments due to us or release the retention money to us in a timely manner or at all, our business and financial conditions and operating results could be adversely affected. Our cash flows may deteriorate due to potential mismatch in time between receipt of progress payments from our customers, and payments to our subcontractors and suppliers From time to time, we would delegate specific work tasks to different subcontractors. We also rely on the materials we purchase from our suppliers to implement our contracts. As such, we would record significant cash outflow in the event that we take up too many substantial contracts during a particular period of time. On the other hand, we rely on cash inflow from our customers to meet our payment obligations to our subcontractors and suppliers, which is dependent on the prompt settlement of our invoices and timely release of retention monies by our customers. If such payment is delayed, we may be required to fund the cost of works for a lengthy period of time until the payment application is approved and paid for. Nevertheless, even if our customers settle such payments on time and in full, there can be no assurance that we would not experience any significant cash flow mismatch. Further, there can be no assurance that our cash flow management measures could function properly or at all. If there were any significant and substantial cash flow mismatch, we might have to raise funds by resorting to internal resources and/or banking facilities in order to meet our payment obligations in full and on time. 32

40 RISK FACTORS We may face allegations, complaints or reports by our customers, third parties or the general public, and any failure to deal with such complaints or negative publicity could materially and adversely affect our reputation, business, prospects or our Share price We undertake works and provide services that are generally used by the general public as end users. There may be complaints or negative press reports regarding our works, operations or contracts in which we are involved, and we may face allegations and complaints made by our customers or third parties and in media reports in relation to our operation, our works or compliance with applicable laws, such as the tendering process, our safety standards and procedures, the quality of our works and the materials we use, and our treatment of subcontractors and staff. We can be adversely affected by the complaints or allegations relating to our works and services, our operations, the non-performance or sub-standard performance of subcontractors, or negative media publicity thereof, whether meritorious or not. Negative comments, complaints, negative publicity or claims against our Group, whether meritorious or not, will place burden on our Group and divert management and other resources from other business operations, which may adversely affect our business operations. Any incidents, regulatory investigations or reports through the media or other third parties of possible work or service issues, or non-compliance with any laws or regulations involving our Group, our Directors, officer, staff, or shareholders, could significantly damage our reputation, goodwill, and our corporate and brand image, or otherwise affect our ability to conduct or expand our business, and may therefore have a material adverse effect on our business, cash flow, financial condition, results of operations, prospects and Share price. We require various approvals licences and permits to operate many of our businesses, and the loss of, or failure to obtain or renew, any or all of these approvals, licences and permits could materially and adversely affect our businesses in Hong Kong In accordance with the laws and regulations of Hong Kong we are required to maintain various approvals, licences and permits in order to operate our business. Please see the section Business Major Qualifications and Licences for a summary of our licences, approvals or permits and the section Regulatory overview in this document for a summary of the licenses we are required to obtain. Failure to comply with these laws and regulations, or the loss of or failure to renew our licences and permits or any change in the government policies, could lead to temporary or permanent suspension of some of our business operations or the imposition of penalties on us, which could adversely affect our results of operations and financial condition. For works in the public sector, in order to tender for government contracts, we are required to obtain certain licenses and be on the appropriate list of approved contractors of the relevant government departments. If our capability, performance, tendering record or financial standing is found to be unsatisfactory by the government, or if we fail to implement sufficient safety measures and procedures at work sites resulting personal injuries or fatal accidents, the government may remove us from such list or take other regulatory actions against us such as revocation, suspension, extending probationary period, downgrading to probationary status, or demotion to a lower group in respect of all or any work category in which we are listed. In 33

41 RISK FACTORS addition, if defects are discovered in our works, including latent defects which may be undiscovered for years after completion, we may be removed or suspended from the relevant list of approved contractors, and even if there has been no breach of the relevant contract terms, our reputation may still be adversely affected, and it might become more difficult for us to be selected for future contracts. If we violated any law or regulation, the relevant government authority may take disciplinary actions against us, such as amendment, variation (e.g. demotion of licences to a lower grade), suspension and revocation of licences. Furthermore, even if our license is not revoked or suspended, in awarding contracts, the government authorities will take into account our performance and track record and whether disciplinary action has been taken against it. In the event of a withdrawal, revocation or downgrading, there would be a detrimental impact on our operations and prospects. In addition to the above, any changes or alterations in the licensing requirements and/or standards for admission into the list of approved contractors may require us to make necessary corresponding adjustments to meet any new requirements and/or standards resulting from such changes, thus requiring us to incur extra costs which may affect our profitability and financial results. We rely on the service of technical personnel for the Group s registrations maintained with the relevant government departments We are required to obtain certain qualifications and registrations for our business operations. In order to maintain such qualifications and registrations, we must comply with the relevant requirements set out in ordinances in regards to the number of technical personnel. The relevant ordinances will also set out various requirements in regards to the qualifications and experiences required of such technical personnel. For further details, please refer to the section Regulatory Overview in this document. Departure or disqualification of these technical personnel may result in suspension of our Group s registrations if no replacement is identified and applied for. In the event that the technical personnel leave our Group and we are unable to fulfill the requirements of the relevant ordinances in a timely manner and at reasonable costs, our competitiveness may be impaired and our business operations and financial performance would thus be adversely affected. 34

42 RISK FACTORS Failure to implement safety measures and procedures on work sites by our staff and/or third party service providers may lead to personal injuries, property damage or fatal accident. We are exposed to litigation claims including employees compensation claims and common law personal injury claims, and our insurance coverage may not adequately protect us against certain risks We have in place safety measures and procedures for our work sites, in the event that our employees and/or subcontractors and/or third party service providers fail to implement the safety measures and procedures on our work sites, there may be heightened risks of serious personal injuries, property damages or fatal accidents, which may again lead to interruption of our operations and adversely affect our reputation, financial conditions and results of operations to the extent not covered by our insurance policies. As at the Latest Practicable Date, to the best of our Directors knowledge, there were 10 outstanding employees compensation claims from our employees or ex-employees or employee of our subcontractors. For details, please refer to Business Work Safety and Insurance Health and work safety in this document. Employees who suffer from bodily injuries or death as a result of accidents occurred and diseases contracted during the course of their employment may claim damages and compensation against us under the Employees Compensation Ordinance as well as under the common law in Hong Kong. Such claims may not be covered by our employees compensation insurance fully or at all due to various reasons. Due to the nature of our business, we may also, from time to time, face other miscellaneous litigation claims from our employees or third parties, who suffer personal injuries at premises where we provide our services, which may or may not be meritorious. We have taken out insurance policies to cover these potential claims, including employees compensation insurance and public liability insurance. The outcome of any claim is subject to the relevant parties negotiation or the decision of the court or the relevant arbitration authorities, and the result may be unfavourable to us. There is also no assurance that the insurance company will not challenge any such claims on the ground that they fall outside the scope and/or limit of our insurance coverage or bring a counterclaim against us for any breach of the terms and conditions of the relevant policy. In either event, our financial conditions may be adversely affected. Regardless of the merits of such claims, we may need to divert management resources and incur costs to handle these claims, which may affect our corporate image and reputation in the industry, especially if they become public, and may adversely affect our revenue, results of operation and financial conditions. There is no assurance that all risks are adequately insured against by our insurance policies. As a result, we may have to pay out of our own resources for any uninsured financial or other losses, damages and liabilities, litigation or business disruption. The occurrence of certain incidents, including earthquake, fire, severe weather, war, floods, power outages, terrorist attacks or other disruptive events and the consequences, damages and disruptions resulting from such events may not be covered by our insurance policies fully or at all due to various reasons. If our business operations are disrupted or interrupted for a substantial period of time, we could incur costs and losses that could materially and adversely affect our business, financial conditions and results of operations. 35

43 RISK FACTORS In addition, there may be new laws and regulations relating to health and safety protection in workplaces in the future, and our operating costs may be increased to comply with such new laws and regulations. Any failure to comply with such new laws or regulations may have an adverse effect on our business and results of operations. If we fail to meet the requirements of our contracts or quality standards of our services, we may face litigation, be required to pay damages and additional costs, and experience delay or difficulties in receiving payments, which may adversely affect our business and reputation We are typically required to complete each contract according to a fixed schedule by an agreed date as stated in the relevant contract. If we fail to complete a contract in a timely manner resulting in a breach of our contractual obligations, we may be liable to compensate our customers for losses or damages caused by the delay. For the contracts undertaken by us, it is common for a clause for payment of damages for delay of works to be included in the contract made between us and the customer involved. Such a clause usually provides that in case of our delay in the completion of works, a sum of liquidated damages calculated on the basis of a fixed sum of money per day (as stated in the contracts) will have to be paid by us to the customer for the period during which the works remain incomplete due to our default. Any delay in the completion of a contract could also lead to additional costs being incurred, including costs to hire additional manpower and to provide temporary storage for construction materials used. Since there is always a risk that works under our work scope in construction contracts may not be completed in accordance with the pre-set time schedule, we are subject to exposure to claims for the said liquidated damages when a construction contract undertaken by us is not completed on time. Such claims for liquidated damages will affect our profitability if no extension of time is granted, as the customer is entitled to deduct such liquidated damages from the contract sum under the relevant contract. The effect to us depends on the length of the delay in completion due to our default. Furthermore, any failure on our part to complete a contract in a timely manner could harm our reputation in the industry and hinder our ability to secure future contracts and, as a result, our business, financial condition and results of operations could be materially and adversely affected. In addition, we may be liable to compensate our customers for any losses sustained by them if any of our employees, contract workers or installation service providers do not complete contracts in accordance with the terms specified in the relevant contracts. These litigation costs, together with the payment of damages, could adversely affect our profitability and financial performance. Our Group has a concentrated client base and any decrease in the number of contracts with our major customers would adversely affect our operations and financial performance During the Track Record Period, our revenue was mainly derived from a limited number of customers. Our five largest customers accounted for approximately 71.2%, 61.7% and 81.2% of our revenue for the Track Record Period respectively. For the Track Record Period, our largest customer accounted for approximately 22.6%, 28.2% and 30.8% of our revenue respectively. 36

44 RISK FACTORS Our Group did not enter into any long-term agreement with any of our five largest customers during the Track Record Period and up to the Latest Practicable Date. As such, there is no guarantee that we will be able to secure new business from them 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 contracts awarded by our five largest customers, and we fail to secure suitable contracts as replacement, our financial performance would be adversely affected. In addition, if any of our customers experience any liquidity problem, it may result in delay or default of progress payments to us, which in turn would have an adverse impact on our cash flow and financial position. Our business could be affected by the fluctuation in price of direct materials During the Track Record Period, the key materials used by our Group include cables, cable accessories, assorted electrical accessories, lighting products and chillers. For the Track Record Period, our direct material costs amounted to approximately HK$75.8 million, HK$75.5 million and HK$63.9 million, respectively, representing approximately 26.5%, 22.8% and 20.0% of our total cost of sales respectively. In the event there is a material increase in direct material costs, we may not necessarily be able to shift such increase, to our customers, where that is the case, our Group s operations and profitability may be adversely affected. Increase in wages and shortage of labour may affect our ability to perform our works under our contracts and our performance Generally, works under our contracts are labour intensive. For any given contract, a large number of workers with different skills, in particular qualified technical personnel may be required, accordingly we may be susceptible to labour shortage, and our subcontracting fees including labour costs of our subcontractors may escalate if there is a labour shortage. If there is a significant increase in the costs of labour, our staff cost and/or subcontracting fees, and materials costs 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 contracts, we may not be able to timely complete our contracts, resulting in liquidated damages and/or financial losses. There is no assurance that the supply of labour (especially experienced and skilled labour) will be sufficient going forward. Our insurance coverage may not be sufficient to cover all losses or potential claims which would affect our business, financial condition and results of operations In line with industry practice, we generally rely on the insurance policies taken out and maintained by the relevant main contractors and will only take out separate insurance policies if the contracts we signed were directly with property management or landlords or where it is specifically required in the contracts. During the Track Record Period, we had purchased insurance policies to cover amongst other things, work and personal injury as well as property 37

45 RISK FACTORS damage. For details, please refer to the section headed Business Work safety and Insurance in this document. It cannot be guaranteed that our main contractor has taken out insurance policy or that the insurance policy taken out by our main contractors or us is sufficient to cover all potential risks and losses. We may become subject to liabilities against which we are not insured adequately or at all or liabilities against which cannot be insured. Should any significant property damage or personal injury occur to our facilities or employees as a result of accidents, natural disasters, or similar events which are not covered or inadequately covered by insurance taken by the main contractors or us, may adversely affect our business, financial condition and results of operations. We are exposed to claims arising from latent defects that may be caused by us or our subcontractors in the past, the discovery of which may have material negative impact on our reputation, business and results of operation We may face claims arising from latent defects that might be existing but not yet discovered or developed. Such possible latent defects may be caused by us or our subcontractors or suppliers in the past. If there are claims against us for such latent defects when they are discovered, even if the defects are caused by our subcontractors or suppliers without our fault, we may not be able to locate the relevant subcontractors or suppliers, or may fail to procure the relevant subcontractor/supplier to rectify the defect, if it is rectifiable, or may fail to hold the relevant subcontractors/supplier liable or obtain compensation for any loss or damages caused by such defects. Such latent defects may include use of materials not meeting the specifications in the contracts, which may not be discovered despite the inspection and acceptance by the clients of the works prior to completion and remain undiscovered for years after the completion of the relevant contract. In the event that there are any significant claims against us by our customers or other party for any latent defects, our results of operation and financial positions may be materially and adversely affected. Even if such latent defects do not involve any non-compliance with laws or regulations, or breach of any contractual obligations on our part, we may be required to rectify such defects or take preventive or remedial measures, such as conducting reviews, tests or examinations on our works in the past, because of the negative publicity or to prevent our brands and reputation from being negatively affected. As a result, our operation, business and results of operation may be materially and adversely affected. We recorded net current liabilities as at 31 May 2016 and we cannot assure you that we will not experience net current liabilities in the future Our Group had net current liabilities approximately HK$4.3 million as at 31 May 2016, which was primarily due to uses of cash to finance the prepayments regarding the purchase of property development interests and a piece of land, which are classified as non-current assets. As a result of such acquisition, we recorded a decrease in our current assets and a significant increase in our non-current assets as at 31 May Please refer to the paragraph headed Financial Information Liquidity and Capital Resources Net current assets/(liabilities) in this document for further details. We cannot assure you that we will not record net current liabilities in the future which may have a material adverse impact on our business, financial condition and results of operations. 38

46 RISK FACTORS Legal and arbitration proceedings may arise and affect our Group s business, operations and financial results We may be involved in claims or complaints arising from our business operations, which may lead to legal and arbitration proceedings. Such claims or complaints may include disputes for compensation for late completion of works, or when our customers and our Group take different views on the valuation on the variation works in accordance with the terms of a contract. We may have to incur costs to defend our Group in legal and arbitration proceedings. If we are not successful in defending our Group in any proceedings, we may be liable to pay damages. Such payments may be significant and if fall outstand the scope and/or limit of our insurance coverage or monies retained from subcontractors, our business operations and financial position may be adversely affected. RISKS RELATING TO OUR INDUSTRY Our performance depends on the market conditions and trends in the construction and E&M engineering industry All our operations are located in Hong Kong during the Track Record Period. The future growth and conditions of the construction and E&M engineering industry in Hong Kong are likely to depend primarily upon the continued availability of major construction contracts. The availability of construction contracts from the public sector, private sector or institutional bodies will be determined by the interplay of a variety of factors. These factors include the governments spending patterns on the construction and E&M engineering industry and its land supply and public housing policy, the approval of the relevant budgets and plans on construction contracts by the legislative council of Hong Kong, the investment of property developers and general conditions and prospects of the economy in Hong Kong. If there is any recurrence of recession in Hong Kong, any changes in Hong Kong s land supply and public housing policy, or if the local authorities adopt regulations that place additional restrictions or burdens on the construction industry, the demand for construction and E&M engineering works in Hong Kong may deteriorate and our operations and profitability could be adversely affected. Competition in the E&M engineering services industry may put downward pricing pressures on our Group which could materially and adversely affecting our profitability According to the Ipsos Report, there are currently over approximately 12,000 number of registered E&M contractors in Hong Kong and the E&M engineering services industry in Hong Kong is highly fragmented. New participants could enter in to the industry if they have the appropriate skills, local experience, necessary machinery and capital and are granted the requisite licences by the relevant regulatory bodies. Due to the large number of competitors, we may face significant downward pricing pressure which would reduce our profit margins. Thus, if we fail to compete effectively or maintain our competitiveness in the market, our business financial condition and results of operations will be adversely affected. 39

47 RISK FACTORS There is a shortage of skilled labour in the E&M engineering industry The E&M engineering services industry in Hong Kong is suffering from labour shortage, which is exacerbated by an ageing workface and the lack of skilled talent. According to the Ipsos Report, approximately over 41.1% of the registered construction workers in Hong Kong were over the age of 50 and as quoted by the Ipsos Report from the Construction Industry Council, amongst others, plumbers, fire service electrical and mechanical fitter and airconditioning mechanic (air system and water system) are amongst the 26 trades with prominent manpower shortages. Given the growing E&M engineering services industry in Hong Kong and the shortage of experienced and skillful labour, the average wage of construction workers in Hong Kong has increased. As we are in a labour intensive industry, we rely on our workers for our business operations. We may have to increase our staff costs in order to attract or maintain our workers and if we are unable to retain or replace such workers, we may be forced to increase our reliance on subcontractors to maintain a sufficient labour force necessary for us to execute our business. The potential increase in labour costs could materially and adversely affect our business operations and financial conditions. Change in government policies, rules and regulations and other regulatory control may affect our business, financial condition and results of operations We are required to hold certain qualifications or license in order to undertake our E&M engineering works. Any change or alterations of government legislation and regulations may require us to make necessary corresponding adjustments of whatever kind and nature in order to meet any new requirements and/or standards resulting from such changes, which may require us to incur extra compliance costs. For instance, there were various news in 2015 reporting that a number of buildings in Hong Kong have a lead content exceeding the provision value for lead of 10 micrograms per litre recommended in the World Organisation Guidelines for Drinkingwater Quality in their drinking water samples. Accordingly, the Water Supplies Department responded by issuing the circular letter no. 1/2015 on 13 July 2015 to set out additional drinking water test parameters to be required from relevant subsequent plumbing and draining system contracts. In the event that we are unable to follow tightly on the latest additional test parameters, our ability to undertake contracts, and our revenue, may be adversely affected. RISKS RELATING TO CONDUCTING BUSINESS IN HONG KONG Economic, political and social considerations Our performance and financial conditions depend on the state of economy of Hong Kong. All our Group s operations are based in and revenue is derived from Hong Kong 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 which 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. 40

48 RISK FACTORS 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 headquarters 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 position. 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 conditions, results of operations and prospects. RISKS RELATING TO THE [REDACTED] Termination of the [REDACTED] Prospective investors should note that the [REDACTED] (for itself and on behalf of the [REDACTED] [REDACTED] are entitled to terminate the obligations of the [REDACTED] under the [REDACTED] by giving notice in writing to us upon the occurrence of any of the events set out in the section [REDACTED] [REDACTED] Arrangements and Expenses The [REDACTED] Grounds for termination of this document at any time prior to 8:00 a.m. (Hong Kong time) on the [REDACTED]. Such event may include, without limitation, acts of government, strikes, lock-outs, fire, explosion, flooding, civil commotion, war, threat of war, acts of God, acts of terrorism, riot, public disorder, economic sanctions, outbreak of diseases or epidemics including SARS and avian influenza. There is no existing public market for our Shares, and the liquidity and market price may fluctuate Prior to the [REDACTED], there has not been a public market for our Shares. We have applied for the [REDACTED] of, and the permission to deal in, our Shares on the Stock Exchange. However, even if approved, we cannot assure you that an active and liquid public trading market for our Shares will develop following the [REDACTED], or if it does develop, it will be sustained. The financial market in Hong Kong and other countries have in the past experienced significant price and volume fluctuations. Volatility in the price of our Shares may be caused by factors outside our control and may be unrelated or disproportionate to our operating results. Accordingly, we cannot assure you that the liquidity and market price of our Shares will not fluctuate. The initial [REDACTED] range for our Shares was the result of negotiations among us and the [REDACTED] (for itself and on behalf of the [REDACTED] and may not be indicative of prices that will prevail in the trading market after the [REDACTED]. 41

49 RISK FACTORS Should the [REDACTED] be higher than the net tangible book value per Share, our Shareholders may experience an immediate dilution and may experience further dilution if we issue additional Shares in the future The [REDACTED] of our Shares may be higher than our net tangible assets value per Share immediately prior to the [REDACTED]. Therefore, our Shareholders may experience an immediate dilution in pro forma consolidated net tangible assets value. In addition, in order to expand our business, we may need to raise additional funds in the future to finance expansion of or new development relating to our existing operations or new acquisitions. If we issue additional Shares or equity-linked securities of our Company in the future other than on a pro-rata basis to the existing Shareholders, the percentage ownership of the existing Shareholders in our Company may be reduced or such new securities may confer rights and privileges that take priority over those conferred by the Shares under the [REDACTED]. If we fail to utilise the additional funds to generate the expected earnings, this could adversely affect our financial results and in turn exerts pressure to the market price of the Shares. Even if additional funds are raised by means of debt financing, any additional debt financing may, apart from increasing interest expense and gearing, contain restrictive covenants with respect to dividends, future fund raising exercises and other financial and operation matters. The options which may be granted under the Share Option Scheme may result in dilution of our Shares We may grant share options to eligible participants under the Share Option Scheme, who may be employees, senior management and Directors. The exercise of share options under the Share Option Scheme will result in an increase in the number of Shares, and may result in a dilution to the percentage of ownership of the Shareholders of our Company, the earnings per Share and net asset value per Share depending on the exercise price. Further details of the Share Option Scheme are summarised in Statutory and General Information Share Option Scheme of Appendix IV to this document. Future sales or major divestment of Shares by any of our Controlling Shareholder(s) or Substantial Shareholders could adversely affect the market price of our Shares The sale of a significant number of Shares by our Controlling Shareholders or Substantial Shareholders in the public market after the [REDACTED], or the perception that such sales may occur, could adversely affect the market price of our Shares. Except as otherwise described in [REDACTED] in this document and the restrictions set out by the Listing Rules, there is no restriction imposed on our Controlling Shareholders or Substantial Shareholders of our Company to dispose of their shareholdings. In addition, these disposals may make it more difficult for our Group to issue new Shares in the future at a time and price that our Directors deem appropriate, which in turn may limit our ability to raise capital. 42

50 RISK FACTORS Since there will be a gap of several days between pricing and trading of the Shares, holders of the Shares are subject to the risk that the price of the Shares could fall during the period before trading of the Shares begins The [REDACTED] of our Shares is expected to be determined on the [REDACTED], however, our Shares will not commence trading on the Stock Exchange until they are delivered and there may be a gap of several days between the two. As a result, investors may not be able to sell or otherwise deal in Shares during that period. Accordingly, holders of Shares are subject to the risk that the price of their Shares could fall before trading begins as a result of adverse market conditions or other adverse developments that could occur between the time of sale and the time trading begins. Our Controlling Shareholder may exert substantial influence over our operation and may not act in the best interests of our independent Shareholders Immediately after completion of the [REDACTED] and the Capitalization Issue, our Controlling Shareholders will own, directly or indirectly, approximately [REDACTED]% of our issued share capital, without taking into account of the Shares which may be issued upon the exercise of the [REDACTED] and issued upon the exercise of options under the Share Option Scheme. Therefore, they will be able to exercise significant influence over all matters requiring Shareholders approval, including the election of Directors and the approval of significant corporate transactions. They will also have veto power with respect to any shareholder action or approval requiring a majority vote except where they are required by relevant rules to abstain from voting. Such concentration of ownership also may have the effect of delaying, preventing or deterring a change in control of our Group that would otherwise benefit our Shareholders. The interests of our Controlling Shareholders may not always align with our Company or your best interests. If the interests of our Controlling Shareholders conflict with the interest of our Company or our other Shareholders, or if our Controlling Shareholders choose to cause out business to pursue strategic objectives that conflict with the interests of our Company or other Shareholders, including you, may be disadvantaged as a result. Future sales or issuances or perceived sales or issuances of our Shares could have a material adverse effect on the prevailing market price of our Shares and our ability to raise additional capital Based on our current structure outlined in Structure and Conditions of the [REDACTED], there will be [REDACTED] Shares outstanding immediately following the [REDACTED] assuming no exercise of the [REDACTED] and not taking into account options which were granted under the Share Option Scheme. Our Controlling Shareholders are subject to certain lock-up periods beginning on the [REDACTED]. However, after the expiry of the lock-up periods, subject to certain conditions, our Controlling Shareholders are free to dispose their Shares at their own discretion and the sale or disposal of any substantial amounts of our Shares in the public market or the perception that such sales could occur, could have a material and adverse effect on the market price of our Shares. This may also consequently affect our future ability to raise capital through offering of our Shares. 43

51 RISK FACTORS There can be no assurance if and when we will pay dividends in the future During FY2016, Keio declared dividends of approximately HK$8.2 million to its then shareholders which was settled by offsetting the balance due from them. During FY2018, the Company declared a dividend of approximately HK$100.0 million to Green Yield, of which the balance was fully settled by offsetting the balance due from Green Yield. The amount of dividends that were declared in the past should not be used as a reference or basis upon which future dividends will be determined. Any future dividend declaration and distribution by us will be at the discretion of our Directors and will depend on a number of factors including but not limited to our future plans, operations, annual and retained earnings, capital requirements and surplus, our financial situation, contractual restrictions, contingent liabilities and any other factors that our Directors consider relevant. In addition, our Directors discretion will be subject to our constitutional documents and Companies Law as well as (when required) the approval of our Shareholders. See Financial Information Dividends for further details on our dividend and distribution policy. Investors should not place undue reliance on facts, forecasts, estimates and other statistics in this document relating to the economy and our industry Facts, forecasts, estimates and other information in this document relating to the economy and the industry in which we operate our business on have been collected from materials from various sources, including the Ipsos Report. While we have exercised reasonable care in compiling and reproducing such information and statistics, we cannot assure you nor make any representation as to the accuracy or completeness of such information. Neither we or any of our respective affiliates or advisors, nor the [REDACTED] orany of its affiliates or advisors, have independently verified the accuracy or completeness of such information directly or indirectly derived from official government sources. In particular, due to possible flawed or ineffective collection methods or discrepancies between published information and market practice, such information may be inaccurate or may not be comparable to information and statistics produced with respect to other countries. Statistics, industry data and other information relating to the economy and the industry used in this document may not be consistent with other information available from other sources and therefore, investors should not unduly rely upon such facts, forecasts, estimates and statistics while making investment decisions. You should read the entire document and we strongly caution you not to place any reliance on any information contained in the press articles, other media and/or research analyst reports regarding us, our business, our industry and the [REDACTED] There may be subsequent to the date of this document but prior to the completion of the [REDACTED], press, media, and/or research analysis coverage regarding us, our business, our industry and the [REDACTED]. You should rely solely upon the information contained in this document in making your investment decisions regarding our Shares and we do not accept any responsibility for the accuracy or completeness of the information contained in such press 44

52 RISK FACTORS articles, other media, and/or research analysis coverage nor the fairness or the appropriateness of any forecasts, views or opinions expressed by the press, other media and/or research analyst regarding the Shares, the [REDACTED], our business, our industry or us. We make no representation as to the appropriateness, accuracy, completeness or reliability of any such information, forecasts, views or opinions expressed or any such publications. To the extent that such statements, forecasts, views or opinions are inconsistent or conflict with the information contained in this document, we disclaim them. Accordingly, prospective investors are cautioned to make their investment decisions on the basis of information contained in this document only and should not rely on any other information. You may experience difficulties in protecting your interest because we are a Cayman Islands company and the laws of the Cayman Islands for minority shareholders protection may be different from those under the laws of Hong Kong or certain other jurisdictions Our corporate affairs are governed by, among other things, the Articles of Association, the Companies Law and the common law of the Cayman Islands. The rights of Shareholders to take action against our Directors, action by minority shareholder and the fiduciary responsibilities of our Directors to use under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands and the Articles of Association. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The laws of the Cayman Islands relating to the protection of the interests of minority shareholders differ in some respect from those in Hong Kong and other jurisdictions. Such differences mean that the remedies available to out minority Shareholders may be different from those they would have under the laws of Hong Kong and other jurisdictions. For detailed information, see Summary of the constitution of our Company and Cayman Islands Companies Law in Appendix III to this document We cannot guarantee the accuracy of certain facts and statistics contained in this document Certain facts and statistics in this document have been derived from various official government and other publication generally believed to be reliable. We believe that the sources of such information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading in any material respect. Such information has not been independently verified by us or any of the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED] or any of our or their respective directors, officers or representatives or any other person involved in the [REDACTED] and no representation is given as to its accuracy. Due to possible flawed or ineffective collection methods or discrepancies between published information and market practice, the facts and statistics in this document may be inaccurate or may not be comparable to facts and statistics produced with respect to other economies. Further, we cannot assure you that they are stated or complied on the same basis or with the same degree of accuracy (as the case may be) in other jurisdictions. As a result, you should not unduly rely upon such facts, forecasts and statistics contained in this document. 45

53 RISK FACTORS Forward-looking information contained in this document are subject to risks and uncertainties This document contains certain statements that are forward-looking and uses forwardlooking terminology such as anticipate, believe, estimate, expect, may, plan, consider, ought to, should, would and will. These statements include, among other things, the discussion of our business strategy and the expectations of our future operations, liquidity and capital resources. Purchasers of our Shares are cautioned that reliance on any forward-looking statement involves risk and uncertainties and that, any or all of those assumptions could prove to be inaccurate and as a result, the forward-looking statements based on those assumptions could also be incorrect. The uncertainties in this regard include those identified in the risk factors discussed above. In light of these and other uncertainties, the inclusion of forward-looking statements in this document should not be regarded as representations or warranties by us that our Company s plans and objectives will be achieved and these forward-looking statements should be considered in light of various important factors, including those set forth in this section. We do not intend to update these forward-looking statements in addition to our on-going disclosure obligations pursuant to the Listing Rules or other requirements of the Stock Exchange. Investors should not place undue reliance on such forward looking information. 46

54 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 47

55 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 48

56 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 49

57 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 50

58 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] DIRECTORS Name Residential address Nationality Executive Directors Ms. Sin Wai Chun ( ) Mr. So Man Ho ( ) Ms. So Yuen Yee ( ) Mr. So Man Kit ( ) No. 28 Willow Path Palm Springs Yuen Long New Territories Hong Kong House 12, San Francisco Avenue Phase B, Royal Palms Yuen Long New Territories Hong Kong Flat 4, 3/F, Block A, Villa Rocha 10 Broadwood Road Happy Valley Hong Kong House 16, San Francisco Avenue Phase B, Royal Palms Yuen Long New Territories Hong Kong Chinese Chinese Chinese Chinese Independent Non-executive Directors Mr. Cheng Lui ( ) Flat 2911, Yee Kui House 10 Fung Shue Wo Road Tsing Yi Estate Tsing Yi New Territories Hong Kong Chinese Mr. Law Chi Yung ( ) Flat A, 25/F, Block 5 Tierra Verde Tsing Yi New Territories Hong Kong Chinese Mr. Wong Siu Cheung ( ) Room 203, Feng Yuan Building 17 Tingzi Xia Dajie Shiqi District Zhongshan PRC Chinese Further information of our Directors can be found in the section headed Directors, senior management and employees in this document. 51

59 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] PARTIES INVOLVED IN THE [REDACTED] Sole Sponsor South China Capital Limited 28/F, Bank of China Tower 1 Garden Road Central Hong Kong [REDACTED] Legal Advisers to our Company As to Hong Kong laws Michael Li & Co. 19th Floor, Prosperity Tower 39 Queen s Road Central Central Hong Kong Mr. Yan Kwok Wing Barrister-at-law 901 Dina House 11 Duddell Street Central Hong Kong As to Cayman Islands laws Conyers Dill & Pearman Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands 52

60 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] Legal Advisers to the Sole Sponsor and the [REDACTED] Auditors and Reporting Accountants Compliance Adviser Industry Consultant As to Hong Kong laws Locke Lord 21st Floor, Bank of China Tower 1 Garden Road Central Hong Kong Ernst & Young Certified Public Accountants 22/F, CITIC Tower 1 Tim Mei Avenue Central Hong Kong South China Capital Limited 28/F, Bank of China Tower 1 Garden Road Central Hong Kong Ipsos Limited 22nd Floor Leighton Centre 77 Leighton Road Causeway Bay Hong Kong [REDACTED] 53

61 CORPORATE INFORMATION Registered office Headquarters and principal place of business in Hong Kong Company secretary Authorized representatives (for the purpose of the Listing Rules) Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands Suite /F, Pacific Plaza 418 Des Voeux Road West Hong Kong Mr. Choi Ho Yin HKICPA Room 2605, 26/F Wan Ying House Chai Wan Estate Chai Wan Hong Kong Mr. So Man Ho House 12, San Francisco Avenue Phase B, Royal Palms Yuen Long New Territories Hong Kong Ms. So Yuen Yee Flat 4, 3/F, Block A, Villa Rocha 10 Broadwood Road Happy Valley Hong Kong Authorized representative (for the purpose of the Companies Ordinance) Audit committee Mr. So Man Ho House 12, San Francisco Avenue Phase B, Royal Palms Yuen Long New Territories Hong Kong Mr. Law Chi Yung (Chairman) Mr. Cheng Lui Mr. Wong Siu Cheung 54

62 CORPORATE INFORMATION Remuneration committee Nomination committee Mr. Law Chi Yung (Chairman) Mr. So Man Ho Ms. So Yuen Yee Mr. Cheng Lui Mr. Wong Siu Cheung Ms. Sin Wai Chun (Chairlady) Mr. So Man Ho Mr. Cheng Lui Mr. Law Chi Yung Mr. Wong Siu Cheung Principal share registrar and transfer office [REDACTED] Hong Kong branch share registrar and transfer office [REDACTED] Principal banker Hongkong and Shanghai Banking Corporation Limited HSBC Main Building 1 Queen s Road Central Hong Kong Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong Company website (information contained in this website does not form part of this document) 55

63 INDUSTRY OVERVIEW We have extracted and derived the information and statistics in the section below, unless otherwise specified, from the Ipsos Report. We believe that the sources of the information and statistics in this section are appropriate sources for such information and statistics and have taken reasonable care in the extraction and reproduction of such information and statistics. We have no reason to believe that such information and statistics is false or misleading or that any fact has been omitted that would render such information and statistics false or misleading. The information in this section has not been independently verified by us, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], the [REDACTED], any of our or their respective affiliates, directors or advisers or any other persons or parties involved in the [REDACTED], and no representation is given as to its completeness, accuracy or fairness. Accordingly, you should not place undue reliance on the information in this section. SOURCE AND RELIABILITY OF INFORMATION Background of Ipsos We commissioned Ipsos Business Consulting to conduct an analysis of, and to report on, the E&M engineering industry in Hong Kong at a fee of HK$578,000 and our Directors believe such fee reflects market rates. Ipsos is an independent market research company wholly-owned by Ipsos Group S.A.. Founded in Paris, France, in 1975 and publicly-listed on the NYSE Euronext Paris in Ipsos Group S.A. acquired Synovate Limited in October 2011 and employs approximately 16,000 personnel across 88 countries. Ipsos Group S.A. conducts research on market profiles, market size, share and segmentation analyses, distribution and value analyses, competitor tracking and corporate intelligence. Ipsos Business Consulting, a division of Ipsos, has solid experience in conducting market research for various industries in initial public offerings of companies listed on the Stock Exchange. Research methodology The information in the Ipsos Report is derived from data and intelligence obtained by (i) conducting desk research covering government and regulatory statistics, industry and analyst reports, industry associations, industry journals and other online sources and data from the research database of Ipsos; (ii) performing client consultation to obtain background information on our Group; and (iii) conducting primary research by interviewing key stakeholders and industry experts including but not limited to the E&M engineering contractors and companies providing such services. The information and statistics set forth in this section have been extracted from the Ipsos Report. Assumptions and parameters used in the Ipsos Report The following assumptions are used in the Ipsos Report: (i) (ii) It is assumed that the global economy remains in steady growth across the period from 2018 to The external environment is assumed to have no shocks, such as financial crises or natural disasters, that will influence the demand and supply of the E&M engineering industry in the Hong Kong from 2018 to The following parameters are used in the Ipsos Report: (i) GDP and GDP growth rate in Hong Kong from 2013 to (ii) Population and population growth rate in Hong Kong from 2013 to (iii) Gross fixed capital formation value in Hong Kong from 2013 to (iv) Total investment value in construction projects in Hong Kong from 2013 to (v) Public expenditure on infrastructure in Hong Kong from 2013 to (vi) Number of workers engage in the overall construction and E&M engineering industries in Hong Kong from 2013 to

64 INDUSTRY OVERVIEW (vii) Average hourly wage of workers engaged in the construction industry in Hong Kong from 2013 to (viii)average daily wage of workers engaged in the E&M engineering industry in Hong Kong from 2013 to (ix) Accidental and fatality rate in the construction industry in Hong Kong from 2013 to (x) Gross output value of overall construction works performed at construction sites in (xi) Hong Kong from 2013 to Historical price trends of (1) air-conditioning machine, (2) wire, cable and other electric apparatus, (3) water pipe, and (4) electric fire alarms in Hong Kong from 2013 to (xii) Gross output value and segmented gross output value of the E&M engineering industry in Hong Kong from 2013 to Our Directors confirmed that, as at the Latest Practicable Date, 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. Except as otherwise noted, all of the data and forecasts contained in this section are derived from the Ipsos Report. OVERVIEW OF THE CONSTRUCTION INDUSTRY IN HONG KONG AND THE MACROECONOMIC ENVIRONMENT AFFECTING THE CONSTRUCTION INDUSTRY IN HONG KONG Value chain of the construction industry Note: Arrows indicate direct engagement Source: Ipsos research and analysis Total investment value in construction projects in Hong Kong The graph below sets forth the total investment value in construction projects in Hong Kong from 2013 to 2016: CAGR % HK$ billion

65 INDUSTRY OVERVIEW Notes: (1) Investment value in construction projects in Hong Kong includes a) compensation of employees and payments to labor-only sub-contractors ; b) consumption of materials and supplies; fuels, electricity and water, and maintenance services ; c) payment for sub-contract works rendered by fee sub-contractors ; and d) miscellaneous operating expenses. (2) Data includes both private and public sectors. (3) Data includes construction of buildings, civil engineering, demolition and site preparation, E&M engineering services installation and maintenance activities, building finishing and other specialized construction activities. Sources: Census and Statistics Department, HKSAR and Ipsos research and analysis The total investment value in construction projects in Hong Kong recorded a growth at a CAGR of approximately 10.3% from 2013 to The increase in the investment value of overall construction projects can be explained by (i) increasing investment in infrastructure and new development areas, and (ii) increasing construction cost. Gross output value of overall construction works performed at construction sites in Hong Kong The graph below sets forth the gross output value of overall construction works performed at construction sites in Hong Kong by sub-contractors, public sector main contractor, private sector main contractor from 2013 to 2017 and forecast from 2018 to 2022: HK$ billion F 2019F 2020F 2021F 2022F CAGR Main contractor public Main contractor private Subcontractor Total % 3.8% 10.9% 1.4% 9.2% 2.9% 9.7% 2.8% Main contractors public Main contractors private Subcontractors Notes: (1) Data refers to the gross output value of construction works in nominal terms performed by main contractors and subcontractors at construction sites. (2) Total output value of construction works may not equal to the summation of values of the main contractor for both public and private sectors and subcontractors due to round-off issues. Sources: Census and Statistics Department; Ipsos research and analysis The gross output value of overall construction works performed at construction sites in Hong Kong increased at a CAGR of 9.7% from 2013 to Over the forecast period, the gross output value of overall construction works performed at construction sites in Hong Kong is expected to grow at a slower CAGR of 2.8%. The decelerated growth over the forecast period is due to the coming completion of most of Ten Major Infrastructure projects. The gross output value of overall construction works, nonetheless, will be supported by the increasing supply for residential building, office, commercial and industrial space from 2018 to Driver of demand of the construction industry in Hong Kong The key drivers of the construction industry in recent years include construction works on infrastructure, residential housing, office and commercial building. 58

66 INDUSTRY OVERVIEW Continual demand for office and commercial space The floor area of completed private office of Hong Kong recorded a growth at a CAGR of approximately 12.7%, increasing from 122,700 m 2 in 2013 to 198,100 m 2 in 2017, while the total floor area of private commercial space completed in Hong Kong from about 38,400 m 2 in 2013 to about 105,000 m 2 in 2017, at a CAGR of approximately 28.6%. The government will continue to increase the supply of commercial floor area. According to the 2017 policy address, the commercial floor area in Kowloon East, the new business district which amounts to over 2.3 million square meters, will further increase by approximately 4.7 million square meters. Specifically, as announced in budget, approximately 560,000 square metres of commercial or office floor area is expected to be released through reprovisioning the existing government facilities in the two action areas in Kowloon East. Strong growth in infrastructure projects and increased supply of public and private housing units The public expenditure on infrastructure in Hong Kong, for instance, rose from HK$73.7 billion in 2013 to HK$87.3 billion in 2017 at a CAGR of 4.3%. According to the Budget, the annual expenditure on infrastructure projects will soon exceed $100 billion and such projection has not fully reflected the expenditure that may be incurred by all the land development, highway and railway projects under planning. Such investment on infrastructure is expected to further drive the construction industry and also the E&M engineering industry in Hong Kong. OVERVIEW OF THE E&M ENGINEERING INDUSTRY IN HONG KONG The E&M engineering industry covers a broad range of services, including building system design, material and equipment supply, installation, testing, repair and maintenance. Repair and maintenance refer to routine inspection, refurbishment, alteration and addition of E&M engineering systems previously installed in the building. Repair and maintenance works are often being provided as an after-sale service of a new system installed by the E&M engineering contractors. The E&M engineering works can be chiefly segmented by the work nature into electrical works, MVAC works, fire services, plumbing and drainage works, and other services. Electrical works: Electrical works include ELV systems, electrical wiring, general electrical installation and electrical control and power panel assembly. The common electrical systems include general lighting, emergency lighting, HT&MV distribution cabling, wiring, and other electrical related systems. Examples of ELV systems include but not limited to intercom systems, audio and video electronics systems, voice evacuation systems, and satellite or TV distribution. Mechanical, ventilation and air-conditioning (MVAC) works: MVAC system is a set of components help to change or replace the indoor air with air from outdoor, to control temperature, moisture, heat, carbon dioxide or other air combinations. The services can be further segmented into pipework, mechanical fitting works, MVAC control, sheet metal and ducting works, and insulation works. Fire service works: Fire services works help to set up fire detection, alarm and protection system of the building. Fire detector, alarm, and sprinkler are common components used in a fire system. Generally, the fire services installation works can be divided into fire service pipework and electrical fittings. 59

67 INDUSTRY OVERVIEW Plumbing and drainage works: Plumbing system is used for water supply, while drainage system is used for removing sanitary waste or stormwater within the building. In general, the plumbing and drainage works includes the plumbing works and building drainage and sewer works. Gross output value of the E&M engineering industry in Hong Kong from 2013 to 2022 The graph below sets forth the gross output value of the E&M engineering industry in Hong Kong from 2013 to 2017 and forecast from 2018 to 2022: 60 CAGR HK$ billion Private 8.4% 4.5% Public 13.4% 4.4% Total 10.6% 4.5% F 2019F 2020F 2021F 2022F Private Sector Public Sector Sources: Construction Industry Council; Ipsos research and analysis 60 CAGR HK$ billion F 2019F 2020F 2021F 2022F MVAC Fire Service P&D Electrical 10.8% 4.2% 10.7% 4.8% 10.7% 4.5% 10.8% 4.5% MVAC Fire Service P&D Electrical Source: Ipsos research and analysis Notes: Data refers to the value of MVAC, fire service, plumbing and drainage and electrical works performed by E&M engineering contractors. The gross output value of E&M engineering industry in Hong Kong recorded a growth at a CAGR of approximately 10.6% from 2013 to In comparison, the gross output value of E&M engineering industry in the public sector in Hong Kong recorded a higher CAGR of 13.4% compared to the one in the private sector at a CAGR of 8.4% from 2013 to The gross output value of the E&M engineering industry in Hong Kong is forecasted to increase at a CAGR of approximately 4.5%. The expected gross output value of the E&M engineering industry in Hong Kong is expected to be driven by the government s land supply policy and initiative to increase the residential and commercial building supply. 60

68 INDUSTRY OVERVIEW COMPETITIVE LANDSCAPE OF THE E&M ENGINEERING INDUSTRY IN HONG KONG Competitive situation The E&M engineering industry in Hong Kong is considered as highly fragmented, with the top five contractors accounted for a market share of approximately 25.1% to the industry revenue in As at 10 August 2018, there are 12,643 registered electrical contractors under the Electrical and Mechanical Services Department of Hong Kong and 174 registered specialist contractors (ventilation works category) under the Buildings Department of Hong Kong. Meanwhile, as at 6 July 2018, there are 356 registered fire service installation contractors under the Fire Services Department of Hong Kong. Although there are many players in the E&M engineering services industry, there are only a small proportion of companies that hold several registrations from the authorities in various sectors. For instance, as of August 2018, there were approximately 50 to 60 contractors which are concurrently registered as (i) electrical contractor with the Electrical and Mechanical Services Department, (ii) specialist contractor (ventilation works category) with the Buildings Department and (iii) fire service installation contractor with the fire service department. In addition, among these contractors, there are approximately 30 contractors who do not belong to any property developers in Hong Kong. The contractors with more licenses are generally more capable to carry out different scales of work. Top 5 E&M Engineering Contractors in Hong Kong (by Revenue) in 2017 The table below sets forth the top five E&M engineering contractors in Hong Kong (by Revenue) in 2017: Rank Company Revenue Market in 2017 Share (HK$ million) (%) Key Product and Service Scope 1 Competitor A 2, % Installation and maintenance of HVAC systems; fire services systems; plumbing and drainage systems; electrical and ELV systems; lift and escalators; and IT and green building technologies solutions. 2 Competitor B 2, % Installation and maintenance of MVAC systems; fire-service systems; plumbing and drainage systems; and electrical and ELV systems. 3 Competitor C 1, % Installation and maintenance of MVAC systems; fire-service system; plumbing and drainage system; electrical and ELV system; building automation system; and trading and distribution of aviation, plastic and chemical products. 4 Competitor D 1, % Installation and maintenance MVAC systems; fire-service systems; plumbing and drainage systems; electrical and ELV systems; and gas systems. 5 Competitor E % Electrical installation works; MVAC installation works; and fire services installation works. Others 28, % Total 38, % Notes: (1) Percentages may not total 100% due to rounding. (2) Some totals may not correspond to the sum of the separate figures due to rounding. Sources: Ipsos research and analysis 61

69 INDUSTRY OVERVIEW In FY2018, the Company recorded approximately HK$371.5 million of revenue by performing E&M engineering works in Hong Kong, which accounted for approximately a market share of approximately 1.0% to the total industry revenue. For the competitive strength of the Group, please refer to the section headed Business Competitive Strengths for a detailed discussion. Market drivers and opportunities Growing demands for E&M engineering services from building activities and refurbishment According to the government budget and 2017 Policy address announced, there will be increasing land sales in Hong Kong and is expected that there are 94,500 public housing will be constructed in the near five years. The Hong Kong government has also increased its support for building rehabilitation projects through tightened regulations and enhanced subsidies to improve the safety of residential buildings. The Mandatory Building Inspection Scheme in 2012, and the Integrated Building Maintenance Assistance Scheme (IBMAS) in 2015 are the schemes that implemented by the Hong Kong government to promote ageing building safeness and necessary building refurbishment and maintenance. The increasing number of ageing buildings in Hong Kong together with growing need for building refurbishment drives customers demand for repair and maintenance works in the E&M engineering industry. Growing popularity of the concept of smart and green buildings With the increasing awareness of energy saving, safety and security concerns, the concept of smart buildings arise and become increasingly popular across the globe. Compared to the ordinary buildings, the smart buildings emphasize efficient operation of building systems, reduction in energy consumption and operating costs, and improved life cycle of utilities. As the smart buildings always involved with an integrated building system covers on lighting, HVAC, safety control and power management that are all linked and centralized, the demand and requirements on buildings network system and building automation system which help to detect, monitor and control the environmental parameters in the buildings are higher than the counterparts. Under this circumstance, complex and advanced designs on electrical works, especially ELV system works, are therefore often involved. As a result, the growth of the E&M engineering industry in the future will be driven by the introduction of greener, smarter and higher-performance building systems. Increasing needs for latest technology and design As green and smart buildings are becoming the trends, the players in E&M engineering industry are thus encouraged to adopt latest technology, such as performing ELV system works, adopting building information modeling technology, installation of advanced building management systems and etc. In addition, an increasing number of E&M engineering systems are moving towards a trend of computerization and automation. With more advanced computerized networking, the E&M engineering systems are able to be controlled conveniently through a central computer system, which further urges contractors to adopt new technology in order to compete in this industry. Raising public awareness on environmental friendly and safety of buildings The increasing environmental awareness provides opportunities for the E&M engineering industry. In general, the energy saving design projects cost higher than the traditional designs due the value-added functions and using updated facilities, which will support the growth of the gross output value of the E&M engineering industry. Due to the 2015 Hong Kong heavy 62

70 INDUSTRY OVERVIEW metal in drinking water incidents, more owners of buildings started to initiate inspection, repair and maintenance or replacement works of the plumbing and drainage systems installed, which is expected to continuously drive the demand for plumbing and drainage works in Hong Kong. In addition, the government has implemented the Action Plan for Enhancing Drinking Water Safety in Hong Kong to test and replace the non-compliant pipes and fittings or the whole plumbing system. Also, the practitioners have made efforts to ensure the fire safety of the buildings in Hong Kong. The government has planned to deploy HK$2.0 billion to subsidize owners of old buildings to carry out fire safety improvement measures under the Fire Safety (Buildings) Ordinance. Threats and challenges Labour shortage and increasing labour costs Labour shortage and increasing labour costs are the threats of the E&M engineering industry, potentially slowing their growth. Although the problem of labour shortage has been slightly relieved by the increasing wage as an incentive to attract new workers, the labour shortage problem in Hong Kong is still in a severe situation given the increasing demand for construction works. Furthermore, contractors are required to employ registered workers in order to maintain its license, which lead to a even more fierce competition. Hence, the players who fail to pass these increased labour cost to their customers with such contracts without price adjustments will be negatively affected by the reduction of profitability. Rising price of equipment and raw materials The profitability of performing electrical works and MVAC works, the major two types of E&M engineering works, are largely affected by the price of raw materials. Hence, in the event that the increase in equipment and raw material costs is higher than expected, the operations and profitability of electrical works and MVAC works may be adversely affected. Entry barriers High operating standard in project management on proven track record One of the success criteria of contractors in winning the E&M engineering work tenders is to demonstrate a proven track record of previous projects. In an industry that value on the quality of works, project management are of the utmost importance in this industry. The contractors who are able to meet the project timeline, provide high-quality work and with flexibility and capability to handle any ad-hoc tasks are considered to have a good track record. New entrants who lack of project experience will find it hard to prove their capabilities. High initial capital requirement for registration of licenses and operation The E&M engineering contractors require a large amount of initial capital to fulfil the capital requirement for registration and perform operation for projects. They have to fulfil numerous minimum capital requirements to register under different government departments. Furthermore, the E&M contractors also need capital for the prepayments and deposits to ensure the projects can proceed as scheduled. Hence, the new entrants in the E&M engineering industry may face difficulties in surviving if they do not have sufficient amount of initial capital. 63

71 INDUSTRY OVERVIEW Future trends and development of the E&M engineering industry Hong Kong Building information modelling (BIM) for E&M engineering system design BIM can be viewed as the computer-based software programs which enables E&M engineering contractors for more informed decision making during different stages of their operation from the preparation of tender documents to project implementation. Several government authorities, such as the Electrical and Mechanical Services Department and the Architectural Services Department, have started incorporating the BIM in their design or maintenance projects, and other government bodies will start adopting BIM technology in the design of major government capital works projects schedule to start in It was also mentioned in the policy agenda that the government will collaborate with the CIC to strengthen BIM training for relevant professionals and promote the use of the technology in private construction projects. Hence, BIM for E&M engineering system design will potentially be another developing trend for the market. Increasing demand for building management systems (BMS) An increasing number of E&M engineering systems are moving towards a trend of computerization and automation which requires the support of a BMS. Therefore, this is expected to increase the demand for the installation of advanced BMS. For instance, a MVAC system, with programmed settings and integration to a BMS, allows users to have a well-controlled on the temperature across different office areas according to the headcount in that particular area by a few clicks on the central control system. Stakeholders initiatives to improve energy efficiency To improve energy efficiency, the Government actively initiates different programme or policies. Take for instance, as announced in March 2018, the Government is going to provide an enhanced tax incentive for energy-efficient building installations to further encourage adoption of energy saving in the community. Meanwhile, the CLP has established the Eco Building Fund since 2014 to provide financial assistance to eligible residential buildings and their nearby ancillary facilities to implement energy efficiency improvement works. In October 2018, the scope of the fund will be extended to cover commercial buildings, industrial buildings and composite buildings. Price Trend of Major Cost Components The graph below sets forth the average daily wages for workers engaging in the E&M engineering industry in Hong Kong from 2013 to 2017: HK$ per day 1,200 1,101.6 CAGR , % Notes: (1) Data as reported by Main Contractors. (2) Data is based on the average of all months. (3) Data includes cable joiner, building services maintenance mechanic, electrical fitter, fire service mechanic, general workers, general welder, lift and escalator mechanic, mechanical fitter and plumber, refrigeration/air-conditioning/ventilation mechanic. Sources: Census and Statistics Department, HKSAR; Ipsos research and analysis 64

72 INDUSTRY OVERVIEW The average daily wage of a worker in the E&M engineering industry in Hong Kong grew at a CAGR of 6.5% from 2013 to Rising demand for building construction projects and infrastructure projects, coupled with labour shortage within the industry, continually drive the wage from 2013 to The table below sets forth the historical price trend of key raw materials used in the E&M engineering industry in Hong Kong from 2013 to 2017: Raw materials CAGR Cable (HK$ per Kg) 1, % Other electric apparatus (HK$ per Kg) 1, % Air-conditioning machine (HK$ per unit) 1,4 2, , , , , % Notes: (1) Figures refer to the import prices to Hong Kong instead of retail prices. (2) Cable here refers to insulated coaxial cable, insulated electric cables and insulated optical fibre cables. (3) Other electrical apparatus here refers to tools used for switching, protecting, connecting to or in electrical circuits. (4) Figures refer to the average import price of (i) air conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, incorporating a refrigerating unit and a valve for reversal of the cooling/heat cycle (reversible heat pumps), (ii) air conditioning machines nesoi, incorporating a refrigerating unit, nesoi, and (iii) air conditioning machines nesoi, not incorporating a refrigerating unit. Sources: Census and Statistics Department, HKSAR; Ipsos research and analysis From 2013 to 2017, the average price of cable decreased at a CAGR of -1.9%, mainly explained by the decreasing metal price across the globe. Meanwhile, the average price of other electric apparatus surged at a CAGR of approximately 11.6%, resulted from the growing popularity of green-building technology which led to an increasing demand for such apparatus. During the same period, the average price of air-conditioning machine increased at a CAGR of 3.5% which can be attributed to the surging demand benefited from the robust increase in property units completed. 65

73 REGULATORY OVERVIEW This section sets forth a summary of the material laws and regulations applicable to our Group s business operations in Hong Kong. CONTRACTORS REGISTRATION REGIMES A. Contractors Registration System for Building Works Under section 2 of the Buildings Ordinance, building works include any kind of building construction, site formation works, ground investigation in the scheduled areas, foundation works, repairs, demolition, alteration, addition and every kind of building operation, as well as drainage works. A contractor carrying out building works in Hong Kong must register with the Building Authority as a general building contractor, a specialist contractor or a minor works contractor. Registered specialist contractor Under the current contractor registration system in Hong Kong, the Building Authority keeps a register of specialist contractors or minor works contractors. Specialist contractors may only carry out specialized works in their corresponding categories under the sub-registers in which they have been entered. There are 5 different categories of building works specified by the Building Authority as specialist works including demolition works, foundation works, ground investigation field works, site formation works and ventilation works. Requirements for registration as a registered specialist contractor Under section 8B(2) of the Buildings Ordinance, an applicant for registration as a specialist contractor must satisfy the Building Authority on the following aspects: (1) if the applicant is a corporation, the adequacy of its management structure; (2) the appropriate experience and qualifications of the applicant s personnel; (3) the applicant s ability to have access to plant and resources; and (4) the ability of the person appointed to act for the applicant for the purposes of the Buildings Ordinance to understand building works and street works through relevant experience and a general knowledge of the basic statutory requirements. In considering each application for registration as a registered specialist contractor, the Building Authority is to have regard to the qualifications, competence and experience of the following key personnel of the applicant: (1) a minimum of one person appointed by the applicant to act for the applicant for the purposes of the Buildings Ordinance, that is the Authorized Signatory(ies) ; (2) for a corporation a minimum of one director from the board of directors of the applicant, that is the Technical Director(s) who is authorized by the board to (i) have access to plant and resources; (ii) provide technical and financial support for the execution of building works and street works; and (iii) make decisions for the company and supervise the Authorized Signatory and other personnel for the purpose of ensuring that the works are carried out in accordance with the Buildings Ordinance; and 66

74 REGULATORY OVERVIEW (3) for a corporation which appoints a director who does not possess the required qualification or experience as Technical Director to manage the carrying out of building works and street works an other officer or an Authorized Signatory authorized by the board of directors to assist the Technical Director. As at the Latest Practicable Date, Keio was registered as a specialist contractor under the sub-register of ventilation works. The minimum requirements of the Buildings Department on the qualifications and experience of the key personnel of a specialist contractor under the ventilation works category which Keio was registered under such sub-register as at the Latest Practicable Date are summarised as follows: (1) A Technical Director must have either (a) 5 years local experience in ventilating system works and a diploma, higher certificate or equivalent in a relevant field; or (b) 8 years experience in managing a ventilation contractor company or equivalent; or (c) 8 years local experience in managing a ventilation contractor company or equivalent and was an authorized signatory under the previous registration system, and has completed a recognized top-up course. (2) An Authorized Signatory must have either (a) 3 years local experience in ventilating system works and a diploma, ordinary certificate or equivalent in a relevant field; or (b) 8 years local experience in ventilating system works, of which 5 years were endorsed experience and shall be an authorized signatory under the previous registration system and have completed a recognized top-up course; and was an authorized signatory under the previous registration system, and has completed a recognized top-up course. Note to (1)(c) and (2)(b): These requirements are only applicable to those applicants who had applied for registration under these requirements on or before 31 March These applicants may continue to apply under these requirements. In addition to the above key personnel, the applicant is also required to demonstrate that it has employed appropriate qualified staff to assist the applicant and the above key personnel to execute, manage and supervise the building works and street works. For details regarding the Authorized Signatory and Technical Director of our Group, please refer to the paragraph headed Business Major qualifications and licences in this document. Renewal of registration as a registered specialist contractor Under section 8C(2)(c) of the Buildings Ordinance, a registered contractor should apply to the Building Authority for renewal of registration not earlier than four months and not later than 28 days prior to the date of expiry of the relevant registration. According to section 8C(5) of the Buildings Ordinance, the Building Authority may refuse an application for renewal of registration if: (1) he is satisfied that the applicant is no longer suitable (for any reason) for registration on the relevant register; or (2) the applicant fails to provide relevant information and documentary proof required by the Building Authority. Minor works contractor The Building (Minor Works) Regulation (Chapter 123N of the Laws of Hong Kong) provides for a simplified procedure and requirements to regulate building works which have been specified as minor works. Under the Building (Minor Works) Regulation, minor works are classified into three classes according to their nature, scale and complexity and the risk and 67

75 REGULATORY OVERVIEW safety they pose. The works are further classified into types and items that correspond to the specialisation of works in the industry. Class I minor works are relatively more complicated and require higher technical experience and more stringent supervision and thus requires the appointment of a prescribed building professional (such as an authorized person and where necessary, may include a registered structural engineer and/or a registered geotechnical engineer) and a prescribed registered contractor. The other two classes of minor works, Class II and Class III, can be carried out by a prescribed registered contractor (which can be a registered general building contractor, a registered specialist contractor registered under the category of demolition works/site formation works/foundation works/ground investigation field works or a registered minor works contractor) without the involvement of a prescribed building professional. The Building Authority maintains a register of minor works contractors who are qualified to carry out minor works belonging to the class, type and item specified in the register in which they are registered. As at the Latest Practicable Date, Keio was registered as a minor works contractor (Class II and Class III) for (i) alteration and additional works, (ii) repair works, (iii) works relating to signboards, (iv) drainage works, (v) works relating to structures for amenities, (vi) finishes works, and (vii) demolition works. Under the Buildings Ordinance, there are currently no tender limit for registered minor works contractor. Requirements for registration as Registered Minor Works Contractor (the RMWC (Co) ) Under section 12(5) of the Building (Minor Works) Regulation, an applicant for registration as RMWC (Co) must satisfy the Building Authority on the following aspects: (1) the appropriate qualifications and experience of its key personnel; (2) it has access to plants and resources; (3) if it is a corporation, its management structure is adequate; (4) the ability of the persons appointed to act for the applicant for the purposes of the Buildings Ordinance to understand the minor works under application through relevant experience and a general knowledge of the basic statutory requirements; and (5) the applicant is suitable for registration in the register of minor works contractors. In considering each application for registration as an RMWC (Co), the Building Authority is to have regard to the qualifications, experience and suitability of the following key personnel of the applicant: (1) a minimum of one person appointed by the applicant to act for the applicant for the purposes of the Buildings Ordinance hereinafter referred to as the Authorized Signatory(ies); and (2) for a corporation a minimum of one director from the board of directors of the applicant, hereinafter referred to as the Technical Director(s), who is authorized by the board to (a) have access to plants and resources; (b) provide technical and financial support for the execution of minor works; and (c) make decisions for the company and supervise the Authorized Signatory and other personnel for the purpose of ensuring that the works are carried out in accordance with the Buildings Ordinance. 68

76 REGULATORY OVERVIEW The table below summarises the minimum requirements of the Buildings Department on the qualifications and experience of the key personnel of a RMWC (Co) for the respective class of minor works which Keio was registered under such registers as at the Latest Practicable Date: Technical Director Class and type of minor works Qualifications Minimum experience in building industry Minimum experience in managing a building contractor company in Hong Kong All Certificate, diploma or equivalent in a relevant field 3 years including 1 year in Hong Kong All N/A N/A 5 years Class II & III only N/A 5 years 3 years Class III only N/A 5 years 1 year All For demolition works For works relating to structures for amenities Authorized Signatory Technical Director or Authorized Signatory of a registered general building contractor Technical Director or Authorized Signatory of a registered specialist contractor (demolition) Technical Director or Authorized Signatory of a registered specialist contractor (ventilation) N/A N/A N/A N/A N/A N/A N/A Class and type of minor works Qualifications Minimum experience in building industry Minimum experience in relevant number of minor works items involved in Hong Kong All All Certificate, diploma or equivalent in a relevant field A recognized top-up course certificate 3 years including 1 year in Hong Kong 5 years including 1 year in Hong Kong Drainage works Grade I plumber s licence 5 years including 1 year in Hong Kong All Authorized Signatory of a registered general building contractor N/A 7 including 1 completed in past 3 years 10 including 2 completed in past 3 years 10 including 2 completed in past 3 years N/A 69

77 REGULATORY OVERVIEW Class and type of minor works Qualifications Minimum experience in building industry Minimum experience in relevant number of minor works items involved in Hong Kong Demolition works Works relating to structures for amenities Authorized Signatory of a registered specialist contractor (demolition) Authorized Signatory of a registered specialist contractor (ventilation) and complete a building technology subject at certificate level or possess a certificate of a recognized continuing professional development course with building technology module N/A N/A N/A 7 including 1 completed in past 3 years Validity period and renewal of registration as registered minor contractors Unless registration is removed by a disciplinary order, registration is valid for a period of three years from the date on which a person s name is included in the register. Registration can be renewed upon its expiry by making prior application to the Building Authority in accordance with section 8C of the Buildings Ordinance and section 14 of the Building (Minor Works) Regulation for registered minor works contractors. Application for renewal of registration should be made by the registered contractor to the Building Authority not earlier than four months and not later than 28 days prior to the date of expiry of the registration. Provided the application is made within the time limit and the renewal fee is paid, the existing registration will remain in force until the application for renewal is finalised by the Building Authority. Once renewed, a registration is valid for a period of three years from the expiry date of the previous registration. Regulatory actions Under section 13 of the Buildings Ordinance, a registered contractor (including a registered specialist contractor or a registered minor works contractor), or the director, officer or person appointed by the registered contractor to act on its behalf for the purposes of the Buildings Ordinance (collectively, the persons subject to inquiry ) may be subject to inquiry by the disciplinary board appointed by the Building Authority. The disciplinary board may, among others, order that: (1) the name of the person subject to inquiry be removed from the relevant register, either permanently or for such period as the disciplinary board thinks fit; (2) the person subject to inquiry be fined, in the case of building works (other than minor works), a sum not exceeding HK$250,000 or in the case of minor works, a sum not exceeding HK$150,000; (3) the person subject to inquiry be reprimanded; and (4) the person subject to inquiry be prohibited from certifying or carrying out certain works, either permanently or for such period as the disciplinary board thinks fit. There were no regulatory actions taken by the Buildings Department against our Group during the Track Record Period and up to the Latest Practicable Date. 70

78 REGULATORY OVERVIEW B. List of approved contractors suppliers of materials and specialist contractors for public works Contractor List The Contractor List comprises contractors who are approved for carrying out the public works in one or more of the five work categories including the buildings, port works, roads and drainage, site formation and waterworks categories. Contractors within each of the above five categories are further divided into Group A, Group B and Group C according to the value of contracts for which they are normally eligible to tender. The current tender limits for Group A contractors, Group B contractors and Group C contractors are HK$100 million, HK$300 million and exceeding HK$300 million, respectively. As at the Latest Practicable Date, our Group has not been admitted to the Contractor List and therefore is not eligible to undertake construction works in the relevant categories in the public sector. Specialist List The Specialist List comprises suppliers of materials/specialist contractors who are approved for carrying out public works in one or more of the 50 categories of specialist works classified by the Development Bureau which are managed by any of ArchSD, CEDD, HyD, the Lands Department or WSD. Contractors within certain categories under the Specialist List are further divided into classes according to the types of works within that particular category or groups according to the value of contracts for which they are normally eligible to tender. Group tender limits are applicable to eight categories of works and are periodically adjusted. Some categories of works under the Specialist List have probationary status. As at the Latest Practicable Date, Keio has been admitted to the electrical installation Group III and plumbing installation Group II categories with a probationary status under the Specialist List and is eligible to undertake construction works under the electrical installation and plumbing installation categories. A specialist contractor under the electrical installation Group III with a probationary status is eligible for the award of any number of Group I and Group II contracts/subcontracts; and a maximum of two Group III contracts/subcontracts provided that the total value of Group III work does not exceed HK$20 million. A specialist contractor under the plumbing installation Group II with a probationary status is eligible for the award of any number of Group I contracts/subcontracts; and a maximum of two Group II contracts/subcontracts provided that the total value of Group II works does not exceed HK$8.2 million. Currently, there is no tender limit for a specialist contractor under the electrical installation Group III and plumbing installation Group II categories with a confirmed status and such specialist contractor may tender for public works contracts only in the respective categories. Requirements for admission and retention on the Specialist List Electrical Installation The major specific financial, technical and management criteria for admission and retention on the Specialist List for electrical installation under Group III are set out below: Financial criteria shall generally possess at least a positive capital value; shall meet the following minimum capital requirement: Minimum employed capital Minimum working capital HK$4.7 million HK$3.4 million 71

79 REGULATORY OVERVIEW shall be able to rectify shortfalls in capital requirements by approved sources of funding; if a contractor s business is at a loss, the average loss rate shall not be greater than 30%; and shall be able to complete the contractor s outstanding contracts in both public and private sectors Technical and management criteria Job Experience shall have adequate experience in the type and size of work of the category, with satisfactory quality of work compatible with Government standard; and shall have adequate experience in contract management of work of the category, solely and fully, including coordination with building contractor and other building services/electrical and mechanical contractors Registration with relevant authorities in Hong Kong shall be a REC registered under the Electricity Ordinance and have full time technical staff of number not less than that described below shall be accredited with the relevant quality management system certification Minimum number of technical staff Qualified engineer: 1 qualified engineer (electrical or building services discipline) Technical support staff: 2 technicians 4 site supervisors 2 draftsmen Craftsman: employ adequate numbers of craftsman Statutory registration: minimum 1 REW in Grade C0 minimum 2 REWs in Grade C2 minimum 5 REWs in Grade A2 Plumbing Installation The major specific financial, technical and management criteria for admission and retention on the Specialist List for plumbing installation under Group II are set out below: Financial criteria shall generally possess at least a positive capital value; shall be able to rectify shortfalls in capital requirements by approved sources of funding; if a contractor s business is at a loss, the average loss rate shall not be greater than 30%; and shall be able to complete the contractor s outstanding contracts in both public and private sectors 72

80 REGULATORY OVERVIEW Technical and management criteria Job Experience shall have adequate experience in the type and size of work of the category, with satisfactory quality of work compatible with Government standard; and shall have adequate experience in contract management of work of the category, solely and fully, including coordination with building contractor and other building services/electrical and mechanical contractors Registration with relevant authorities in Hong Kong shall be a REC registered under the Electricity Ordinance and have full time technical staff of number not less than that described below shall be accredited with the relevant quality management system certification Minimum number of technical staff Qualified engineer: 1 qualified engineer (mechanical, building services or electrical discipline) Technical support staff: 2 technicians 4 site supervisors 2 draftsmen Craftsman: employ adequate numbers of craftsman Statutory registration: minimum 1 licensed plumber, Grade I, registered under Waterworks Ordinance minimum 1 REW in Grade A2 Generally, upon satisfaction of the above requirements, an approved contractor will be admitted initially on probation in the appropriate work category and group, during which it will be limited in the number and value of contracts for which it is eligible to tender as mentioned above. Upon reaching the required financial, technical and management criteria, a probationary contractor may apply to the WBDB for a confirmed status and subsequently for elevation to a higher group in the works category in order to tender for contracts of higher or unlimited values. 73

81 REGULATORY OVERVIEW Renewal of Registration While admissions to the WBDB approved lists are not subject to expiry and renewal requirements, approved contractors intending to be retained on the approved lists shall submit audited accounts to the WBDB annually for ensuring their compliance with the minimum financial criteria. Any approved contractor failing to meet the designated financial requirements will not be recommended for tender awards for contracts in this prevailing group or category. Regulatory actions The WBDB may take regulatory actions against a contractor who is on the Specialist List to ensure that certain standards of financial capability, expertise, management and safety are maintained by the contractor carrying out Government works. These regulatory actions include: (i) removal from all categories or from a particular category in which the contractor is listed; (ii) suspension from tendering in all categories or from a particular category in which the contractor is listed. A time limit for review will be set in all cases but will not be longer than six months; (iii) downgrading or demotion in a particular category in which the contractor is listed. Circumstances which may lead to the taking of regulating actions include, but are not limited to, failure to submit accounts or meet the financial criteria within the prescribed time, and violation of laws. There were no regulatory actions taken by the WBDB against our Group during the Track Record Period and up to the Latest Practicable Date. C. Electrical Works Registration under the Electricity Ordinance Under section 2 of the Electricity Ordinance, electrical work means work in relation to the installation, commissioning, inspection, testing, maintenance, modification or repair of a low voltage or high voltage fixed electrical installation and includes the supervision and certification of that work and the certification of design of that installation. Examples of fixed electrical installations are distribution boards, wiring installations and lighting fittings that are fixed in premises. However, persons who are engaged in work on electrical installations other than fixed electrical installations need not be registered. Examples of electrical installations other than fixed electrical installations are portable electrical home appliances such as table lamps, television sets, refrigerators, etc. Electrical works are further classified into five grades based on the voltage and capacity of electricity involved in an electrical installation and industry specialisation. 74

82 REGULATORY OVERVIEW Registered electrical workers Only a REW shall do the electrical works specified in his certificate of registration. However, where a non-rew works under the oral or written instruction of a REW who is aware of and responsible for that non-rew s work, the non-rew may do electrical works of the kind specified in the supervising REW s certificate of registration, except (1) certifying that a fixed electrical installation complies with the Electricity Ordinance; or (2) carrying out works on energised parts of a fixed electrical installation when the non-rew is not immediately adjacent to the supervising REW. To register as a REW to do electrical works in at least one grade, an individual shall satisfy the director of the EMSD that he has the qualification to do electrical work in the relevant grades as set out in Part 3 of the Electricity (Registration) Regulations (Chapter 406D of the Laws of Hong Kong), such as completion of the prescribed apprenticeship or training, possessing craftsmanship, academic qualification or practical experience in electrical engineering and electrical works, or passing the prescribed examination or trade test. As at the Latest Practicable Date, our Group had employed 26 REWs. Registered electrical contractors To qualify as a REC, a corporate applicant must employ at least one REW. No contractor shall do business as an electrical contractor or carry out electrical works unless it is a REC. A REC may tender for electrical works as defined under the Electricity Ordinance. There is currently no tender limit for a REC. As at the Latest Practicable Date, Keio and KEM were RECs. Validity period and renewal of registration A registration for REW or REC is valid for a 3-year period shown on the certificate of registration. Under regulation 13 of the Electricity (Registration) Regulations, a REW or REC shall apply to the director of the EMSD for renewal of its/his registration within one to four months prior to the date of expiry of the registration. Regulatory actions Where the director of the EMSD considers that there is evidence that a REW or a REC has failed to comply with the Electricity Ordinance, he may: (1) reprimand the worker or contractor, and/or fine a worker up to HK$1,000 and a contractor up to HK$10,000; or (2) refer the matter to the Secretary for the Environment for hearing by a disciplinary tribunal, who may (a) reprimand the registrant; (b) fine a worker up to HK$10,000 and a contractor up to HK$100,000; (c) suspend or cancel the registration of the registrant; or (d) suspend the registrant s right to apply for registration or renewal of registration for a prescribed period. The director of the EMSD may cancel a registration if he considers that: (1) the registrant obtained registration by fraud or on the basis of misleading or inaccurate information; (2) the registration was made in error; or (3) the registrant is no longer qualified under the Electricity Ordinance to be registered. 75

83 REGULATORY OVERVIEW There were no regulatory actions taken by the EMSD against our Group during the Track Record Period and up to the Latest Practicable Date. Specialist Contractors for Electrical Installation A company must be registered as a specialist contractor for electrical installation in order to undertake contracts in the public sector, a registrant shall satisfy the applicable financial, technical and management criteria, which is set out in the paragraph headed Requirements for admission and retention on the Specialist List in this section above. Contractors registered with the WBDB as specialist contractors for electrical installation are eligible to tender for and carry our public works in Hong Kong concerning the supply, installation and maintenance of low voltage electrical installation comprising incoming electricity supply, main and submain distribution system, final circuits, power points, lighting points, lighting fittings, electrical appliances, lightning protection and earthing system for building and amenity projects subject to certain tender limits. As at the Latest Practicable Date, Keio has been admitted to the electrical installation under Group III category with a probationary status under the Specialist List. D. Fire Service Installation Works Registration under the Fire Services (Installation Contractors) Regulations (Chapter 95A of the Laws of Hong Kong) The registration of fire service installation contractors is governed by Fire Service (Installation Contractors) Regulations. Under regulation 3(1) of the Fire Services (Installation Contractors) Regulations, a contractor may apply to the Director of Fire Services to register as a fire service installation contractor in class 1 and/or class 2 if it has at least a director, partner or employee who is (a) 21 years of age or more; (b) resident in Hong Kong; and (c) holding qualifications specified in regulations 4(2) and (3) of the Fire Service (Installation Contractors) Regulations. Any person, who is 21 years of age or more and resident in Hong Kong, may apply to the Director of Fire Services for registration as a fire service installation contractor in class 3 and the Director of Fire Services shall notify him of the day fixed for a written examination or interview and for a workshop inspection. The classification of registered fire service installation contractors are as follows: (1) Class 1: registered contractors who are fit to install, maintain, repair and inspect any fire service installation or equipment (other than portable equipment) which contains an electrical circuit or other apparatus for the detection and warning, by alarm or otherwise, of smoke or fire; (2) Class 2: registered contractors who are fit to install, maintain, repair and inspect any fire service installation or equipment (other than portable equipment) which contains: (i) pipes and fittings designed or adapted to carry water or some other fire extinguishing medium; or (ii) any type of electrical apparatus other than those specified in Class 1; and (3) Class 3: registered contractors who are fit to maintain, repair and inspect portable equipment. 76

84 REGULATORY OVERVIEW As at the Latest Practicable Date, Keio was a registered fire service installation contractor in Class 1 and Class 2 under the Fire Service (Installation Contractors) Regulations. The Directors confirm that during the Track Record Period and up to the Latest Practicable Date, the registrations of Keio in Classes 1 and 2 have not been suspended or revoked by the Fire Services Department and Keio has met the applicable criteria and requirements on retention on the registers. Pursuant to regulation 10 of the Fire Service (Installations and Equipment) Regulations (Chapter 95B of the Laws of Hong Kong), the Director of Fire Services has published the Code of Practice for Inspection, Testing and Maintenance of Installations and Equipment to govern the inspection and testing of fire service equipment. The said code of practice (1) indicates the type and nature of inspections and tests which installations and equipment (such as fire alarm system, exit sign and emergency lighting, etc.) must normally pass in order to satisfy the Director of Fire Services; and (2) gives guidance as to the conduct of inspections and tests. Regulatory Actions Pursuant to regulation 14 of the Fire Service (Installations Contractors) Regulations, a registered fire service installation contractor who undertakes any work in connection with fire service installation or equipment outside his registered class, shall be guilty of an offence and liable on conviction to a fine at level 3 (currently at HK$10,000). According to regulation 9 of the Fire Service (Installations and Equipment) Regulations, whenever a registered fire service installation contractor installs, maintains, repairs or inspects any fire service installation or equipment in any premises, he shall within 14 days after completion of the work issue to the person on whose instructions the work was undertaken a certificate and forward thereof to the Director of Fire Services. Pursuant to regulation 3A of the Fire Service (Installations Contractors) Regulations, the said certificate shall be signed by such director, employee or other officer of such registered contractor (in the case of a company) as the registered contractor may appoint. Any person who signs a certificate which is false or misleading in any material particular commits an offence and is liable on conviction to a fine at level 5 (currently at HK$50,000). A registered fire service installation contractor who (1) fails to issue the said certificate and forward a copy thereof to the Director of Fire Services; or (2) issues or forwards such certificate, or a copy thereof, which is false or misleading in a material particular, also commits an offence and is liable on conviction to a fine at level 5 (currently at HK$50,000). Pursuant to regulation 10 of Fire Service (Installation Contractors) Regulations, where the disciplinary board (appointed under regulation 9 of Fire Service (Installation Contractors) Regulations) is satisfied that a registered fire service installation contractor has been convicted of an offence or has been guilty of improper conduct or negligence in the installation, maintenance, repair or inspection of any fire service installation or equipment, the disciplinary board may order (1) that the name of the registered fire service installation contractor be removed, either permanently or for such period as it thinks appropriate, from the register; or (2) that the registered fire service installation contractor be reprimanded. 77

85 REGULATORY OVERVIEW E. Plumbing and Drainage Works Registration as licensed plumbers and renewal of registration Plumbing installation that receives water supply from the Water Authority has to comply with the provisions of the Waterworks Ordinance and the Waterworks Regulations, Hong Kong Waterworks Standard Requirements for Plumbing Installation in Buildings, and Water Supplies Department Circular Letters issued to licensed plumbers and authorized persons. Approval from the Water Authority is also required in order to construct, install, alter or remove a plumbing installation. Under section 15(1) of the Waterworks Ordinance, only a licensed plumber or a public officer authorized by the Water Authority shall construct, install, maintain, alter, repair or remove pipes and fittings in buildings and between the building and a connection to the Government s main ( ) for (1) a supply of water solely for the purposes of fire fighting ( fire service ); and (2) a supply of water provided by the Water Authority from any property occupied, used or maintained by the Water Authority ( inside service ). To register as a Grade I licensed plumber, a person shall hold a Craft Certificate in Plumbing and Pipefitting issued by the Vocational Training Council after 1987 or an equivalent qualification in the opinion of the Water Authority. Where an applicant for plumber s licence relies on any qualification obtained 5 or more years before the application, he shall satisfy the Water Authority that he has adequate knowledge of the type of work involved in respect of a plumber s licence; and the provisions of the Waterworks Ordinance relating to such work. A plumber s licence may be issued in either of the following grades and shall be valid only for the type of work indicated in the licence: (1) Grade I: for the construction, installation, maintenance, alteration, repair or removal of a fire service or inside service of any type; (2) Grade II: for the maintenance and repair of a fire service or inside service; and for the installation, maintenance, repair or removal of water appliances. (Note: No new Grade II plumber s licence has been issued after 1 October 1993.) As at the Latest Practicable Date, our Group had employed 3 licensed plumbers. A plumber s licence shall be valid up till and including 31 December in the year in which it is issued and may be renewed annually upon payment of a prescribed fee for a further period of 12 months from the date of expiry. Regulatory Actions Any person shall be guilty of an offence if he contravenes section 15(1) of the Waterworks Ordinance; or employs or permits a person other than a licensed plumber or an authorized public officer to construct, install, maintain, alter, repair or remove a fire service or inside service and liable on summary conviction to a fine at level 4 (currently at HK$25,000). Where a licensed plumber contravenes any of the provisions of the Waterworks Ordinance in respect of the construction, installation, maintenance, alteration, repair or removal of a fire service or inside service, the Water Authority may cancel or suspend his plumber s licence for any period not exceeding 6 months. Specialist Contractors for Plumbing Installation A company must be registered as a specialist contractor for plumbing installation in order to undertake contracts in the public sector, a registrant shall satisfy the applicable financial, technical and management criteria, which is set out in the paragraph headed Requirements for admission and retention on the Specialist List in this section above. 78

86 REGULATORY OVERVIEW As at the Latest Practicable Date, Keio has been admitted to the plumbing installation category under Group II with a probationary status under the Specialist List. LABOUR, HEALTH AND SAFETY LAWS AND REGULATIONS A. 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 reasonably practicable, take care of the safety and health at work of all persons employed by the proprietor at the industrial undertaking by (1) providing and maintaining plant and systems of work that are safe and without risks to health; (2) making arrangements for ensuring safety and absence of risks to health in connection with the use, handling, storage and transport of articles and substances; (3) providing such information, instruction, training and supervision to ensure health and safety at work of all persons employed by the proprietor at the industrial undertaking; (4) providing and maintaining safe access to and egress from the workplaces; and (5) providing and maintaining a safe and healthy working environment. 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 imprisonment for six months. The Construction Sites (Safety) Regulations (Chapter 59I of the Laws of Hong Kong) provides for (1) prohibition of employment of persons under 18 years of age on construction sites (save for certain exceptions); (2) construction, maintenance and inspection of hoist; (3) duty to ensure safety of places of work; (4) prevention of falls; (5) safety of excavations; (6) duty to comply with miscellaneous safety requirements; and (7) provision of first aid facilities. Any contractor who contravenes the foregoing without reasonable excuse commits an offence and is liable to a maximum fine of up to HK$200,000 and imprisonment for 12 months. B. 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. Employers must, as far as reasonably practicable, ensure the safety and health of their employees in workplace by (1) providing and maintaining plant and systems of work that are safe and without risks to health; (2) making arrangements for ensuring safety and absence of risks to health in connection with the use, handling, storage or transport of plant or substances; (3) as regards any workplace under the employer s control, maintaining the workplace in a condition that is safe and without risks to health and providing and maintaining means of access to and egress from the workplace that are safe and without any such risks or providing or maintaining means of access to and egress from the workplace that are safe and without any such risks; (4) providing all the necessary information, instructions, training and supervision for ensuring safety and health; and (5) providing and maintaining a working environment for the employer s employees 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 imprisonment for 6 months. The Commissioner for Labour may also issue improvement notices against non-compliance of the Occupational Safety and Health Ordinance or the FIUO; or suspension notices against activity or condition of workplace which may create imminent hazard to the employees. Failure to comply with such notices without reasonable 79

87 REGULATORY OVERVIEW excuse constitutes an offence by a fine of HK$200,000 and HK$500,000 respectively and imprisonment of up to 12 months and a further fine of $50,000 for each day or part of a day during which the offender knowingly and intentionally continues the contravention of the suspension notice. C. 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 employee who suffers incapacity or death arising from an occupational disease is entitled to receive the same compensation as that payable to employees injured in occupational accidents. 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. An employer who fails to comply with the Employees Compensation Ordinance to secure an insurance cover is liable on conviction upon indictment to a fine at level 6 (currently at HK$100,000) and imprisonment for two years and on summary conviction to a fine at level 6 (currently at HK$100,000) and imprisonment for one year. 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. D. 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. The liability of a principal contractor and superior contractor (where applicable) shall be limited 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 to the wages due to such an employee for two months without any deductions (such months shall be the first two months of the period in respect of which the wages are due). An employee who has outstanding wage payments from the subcontractor must serve a notice in writing on the principal contractor within 60 days after the wage due date or another 90 days if permitted by the Commissioner for Labour. The 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 80

88 REGULATORY OVERVIEW 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, as the case may be. The principal contractor or superior subcontractor may either 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 deduct by way of set-off the amount paid by it from any sum due or may become due to the subcontractor in respect of the work that it has subcontracted. E. Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) The Construction Workers Registration Ordinance provides for the registration of construction workers and related matters. According to section 3 of the Construction Workers Registration Ordinance, a person shall not personally carry out construction work on a construction site unless the person is a registered construction worker. Any person who contravenes this requirement commits an offence and is liable on conviction to a fine of HK$10,000. Further, section 5 of the Construction Workers Registration Ordinance provides that no person shall employ unregistered construction workers to carry out construction work on construction sites. Any person who contravenes this requirement commits an offence and is liable on conviction to a fine of HK$50,000. The Construction Workers Registration Ordinance also contains a designated workers for designated skills provision, which provides that only registered skilled or semi-skilled workers of designated trade divisions are permitted to carry out construction works on construction sites relating to those trade divisions independently. Unregistered skilled or semi-skilled workers are only allowed to carry out construction works of designated trade divisions (1) under the instruction and supervision of registered skilled or semi-skilled workers of relevant designated trade division(s); (2) in proposed emergency works (i.e. construction works which are made or maintained consequential upon the occurrence of emergency incidents); or (3) in small-scale construction works (e.g. value of works not exceeding HK$100,000). F. Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong) The Occupiers Liability Ordinance regulates the obligations of a person in control of the premises for 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 a 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. G. 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 prevent having illegal immigrants from being on the construction site, and to prevent illegal workers who are not lawfully employable from taking employment on the construction site. Where it is proved that an illegal immigrant was on a construction site, or 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,

89 REGULATORY OVERVIEW H. Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong) The Minimum Wage Ordinance provides for a prescribed minimum hourly wage rate (currently at HK$34.5 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. I. Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) Under the Mandatory Provident Fund Schemes Ordinance, employers are required to enrol 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 scheme within the first 60 days of employment. ENVIRONMENTAL PROTECTION A. 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. B. 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. Under the Noise Control Ordinance, noisy construction work and the use of powered mechanical equipment are not allowed between 7 p.m. and 7 a.m. or at any time on general holidays unless construction noise permits have been granted by the Environmental Protection Department. Certain equipment is also subject to restrictions on 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 shall be liable on a first conviction to a fine of HK$100,000, on a 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. C. 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. All industry/trade generating wastewater discharge (except domestic sewage that is discharged into communal foul sewers or unpolluted water to storm drains) are subject to licensing control by the Environmental Protection Department. 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 six months, and, for a first offence, to a fine of HK$200,000, and for a second or subsequent offence, to 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. 82

90 REGULATORY OVERVIEW D. Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) The Waste Disposal Ordinance controls and regulates the production, storage, collection, treatment, recycling and disposal of wastes. Under the Waste Disposal (Charges For Disposal of Construction Waste) Regulation (Chapter 354N of the Laws of Hong Kong), 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 within 21 days after the contract is awarded to pay any disposal charges payable in respect of the construction waste generated from construction work undertaken under that contract. Under the Waste Disposal (Chemical Waste) (General) Regulation (Chapter 354C of the Laws of Hong Kong), 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 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 imprisonment for six months for a first offence, HK$500,000 and imprisonment for six months for a second or subsequent offence, and in addition, to a further fine of HK$10,000 for each day during which the offence continues. E. Environmental Impact Assessment Ordinance (Chapter 499 of the Laws of Hong Kong) The purpose of 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 on a first conviction on indictment to a fine of HK$2,000,000 and imprisonment for six months, on a second or subsequent conviction on indictment to a fine of HK$5,000,000 and imprisonment for two years, on a first summary conviction to a fine at level six (currently at HK$100,000) and imprisonment for six months, on a second or subsequent summary conviction to a fine of HK$1,000,000 and 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 that the offence continued. F. 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. The maximum penalty is a fine at level 3 (currently at HK$10,000) upon conviction with a daily fine of HK$200. Any accumulation of water on any premises found to contain mosquito larvae or pupae is actionable under the Public Health and Municipal Services Ordinance. The maximum penalty is a fine at level 4 (currently at HK$25,000) upon conviction and a daily fine of HK$

91 REGULATORY OVERVIEW Any accumulation of refuse which is a nuisance or injurious or dangerous to health is actionable under the Public Health and Municipal Services Ordinance. The maximum penalty is a fine at level 3 (currently at HK$10,000) upon conviction and a daily fine of HK$200. Any premises in such a state as to be a nuisance or injurious or dangerous to health is actionable under the Public Health and Municipal Services Ordinance. The maximum penalty is a fine at level 3 (currently at HK$10,000) upon conviction and a daily fine of HK$200. Any premises in such a state as to be a nuisance or injurious or dangerous to health is actionable under the Public Health and Municipal Services Ordinance. The maximum penalty is a fine at level 3 (currently at HK$10,000) upon conviction and a daily fine of HK$200. G. Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Chapter 360 of the Laws of Hong Kong) The Pneumoconiosis and Mesothelioma (Compensation) Ordinance establishes the Pneumoconiosis Compensation Fund, which consists of monies received from the Government and the relevant levies, surcharges and penalties received from contractors in relation to pneumoconiosis and mesothelioma. Under the Pneumoconiosis and Mesothelioma (Compensation) Ordinance, our Group is required to pay a levy for any construction operations carried out by our Group in Hong Kong with a total value exceeding HK$3 million, at a rate of 0.15% of the total value of the construction operations concerned. OTHERS A. 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 Competition 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 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. 84

92 REGULATORY OVERVIEW 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. LAW ENACTED TO COME INTO FORCE WHICH MAY IMPACT THE BUSINESS OF OUR GROUP Security of Payment Legislation for the Construction Industry ( SOPL ) The SOPL is intended to encourage fair payment, rapid dispute resolution and increase cash flow in the contractual chain. When SOPL comes into force, it will apply to all public sector construction contracts, whereas in the private sector, only contracts relating to a new building (as defined by the Buildings Ordinance) which has a value in excess of HK$5 million for construction contracts and HK$500,000 for consultancy services and supply only contracts will be caught by the legislation. Where the SOPL applies to the main contract, it also automatically applies to all subcontracts in the contractual chain. Based on the consultation document of SOPL, the SOPL will, among others: prohibit pay when paid and similar clauses in contracts. Payers will not be able to rely on such clauses in dispute resolution forums; prohibit payment periods of more than 60 calendar days for interim payments or 120 calendar days for final payments; enable amounts due for construction work or materials of plant supplies to be claimed as statutory payment claims, upon receipt of which the payer has 30 calendar days to serve payment response, and either party has a statutory right to refer the matter to adjudication for decision (typically a 60-day process); and give parties the right to suspend or reduce the rate of progress of works after either non-payment of an adjudicator s decision or non-payment of amounts admitted as due. When the SOPL comes in force, it is possible that some of our Group s contracts will be caught by the proposed SOPL and as such, our Group will have to ensure that their terms comply with the SOPL. As the SOPL is designed to assist contractors, including our Group, to ensure cash-flow and access to a swift dispute resolution process, our Directors does not expect the SOPL to have any negative implication on our Group s business operation and liquidity management. Nevertheless, as our Group generally pays its subcontractors within 30 to 60 days upon the date of invoice, our Directors consider that our Group s payment pattern does not deviate from the requirements stipulated in the SOPL and our Group s payment policy and cash management will not be materially affected by the SOPL if it comes into force. 85

93 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE BUSINESS AND CORPORATE DEVELOPMENT Overview Our Company was incorporated in the Cayman Islands as an exempted company with limited liabilities on 25 August 2017 and is the holding company of our Group. As at the Latest Practicable Date, the subsidiaries of our Company comprised Zhuoyi Ventures, Keio and KEM. Details of these subsidiaries and the corporate structure of our Group are set out in the subsection headed Our Group s structure and corporate development below under this section. Prior to the [REDACTED], our Group underwent the Reorganization and immediately following the completion of the Reorganization, the entire issued share capital of our Company was owned by Green Yield, which is in turn owned as to 50% by Mrs. So, approximately 16.67% by Ms. YY So, approximately 16.67% by Mr. MK So and approximately 16.67% by Mr. MH So respectively. Immediately following the completion of the [REDACTED] and the [REDACTED], Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So will effectively hold, through Green Yield, [REDACTED] of the voting rights in our Company (assuming the [REDACTED] is not exercised and without taking into account any Shares which will be allotted and issued upon exercise of any options which may be granted under the Share Option Scheme). Business Development Our Group s history can be traced back to December 1983 when Keio was established by Mr. CF So, our business development director and Ms. So Miu Lin ( Ms. ML So ), sister of Mr. CF So. In late December 1983, Mr. CC So, brother of Mr. CF So joined Keio as a shareholder and was appointed as a director in March Since the inception stage, the Group has focused on the provision of electrical and mechanical engineering services and maintenance services in Hong Kong. In November 1990, Ms. ML So transferred all her 70,000 shares of Keio to Mr. CF So and left the Group to devote more time to her other business engagement. Over the years, we started to establish our relationships with our customers and gradually built our reputation and track record in the electrical and mechanical engineering services industry which enable us to secure more electrical and mechanical engineering contracts. On 2 June 2016, Mr. CF So ceased to be a director of Keio and transferred 1,057,500, 352,500, 352,500 and 352,500 shares of Keio to Mrs. So, Ms YY So, Mr. MK So and Mr. MH So respectively for estate planning purposes. After Mr. CF So ceased to be a director and a shareholder of Keio, he continues to maintain an active senior management role on a full-time basis and responsible for business development and strategic planning of our Group and was designated as the business development director of Keio on 1 April On 30 November 2017, Mr. CC So transferred 235,000 shares of Keio, representing 10% of the then issued share capital of Keio to Zhuoyi Ventures in order to focus on his other business engagement. Upon completion of such shares transfer, Keio was beneficially owned by Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So. 86

94 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE On 7 July 2013, KEM was formed based on a unanimous consent of the So Family. Leveraging on Keio s core competencies and proven track record, the So Family would like to diversify the risks and collectively decided to establish KEM with a focus on undertaking small-scale electrical and mechanical projects including but not limited to maintenance projects which were considered to be of higher-risk for the purpose of risk diversification. The So Family, which includes Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So who are close family members and have influence on each other, have been acting in concert and are regarded as group of controlling shareholders to, directly or indirectly, exert control over all material management affairs and/or execution of all commercial decision of our Group. The So Family has confirmed this arrangement in the Concert Party Deed. For details, please refer to the paragraph headed Relationship with Controlling Shareholders Concert Party Deed in this document. MILESTONES below: The chronological overview of the key events of our corporate development is set out Time Milestone December 1983 Keio was incorporated in Hong Kong on 22 December 1983 June 1992 Keio was first registered as a Registered Electrical Contractor under the EMSD February 1996 Keio was awarded a contract to provide MVAC works for a racecourse in Hong Kong June 1998 Keio was awarded an intergrated contract for guest rooms of a five-star hotel in Hong Kong Island August 1999 Keio was awarded an intergrated contract for a luxurious residential development at Peak Road March 2000 Keio was first accredited the ISO 9002:1994 certification June 2000 Keio was awarded a contract to provide electrical works for the second tallest building in Hong Kong consisting of two Grade A skyscrapers with over 30 floors and over 77 floors, a large scale luxury shopping arcade, a renowned international branded 5-star hotel situated on the waterfront of Central district and electrical works for offices of several global investment banks located in such building 87

95 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE Time September 2001 July 2002 October 2005 Milestone Keio was awarded an integrated contract for a data center in Shatin for a leading Hong Kong data centre solution provider listed on the Main Board Keio was awarded a contract to provide electrical works for offices of a global investment bank in a Grade A office building in Hong Kong Island Keio was awarded a contract to provide electrical installation works for the tallest building in Hong Kong with 108 floors consisting of Grade A skyscraper and the highest renowned international branded 5-star hotel situated in West Kowloon which was designated as an intelligent building of 2011 by the Asian Institute of Intelligent Buildings and electrical works for offices of several global investment banks located in such building February 2006 Keio was awarded an integrated contract including E&M enhancement installation works for a treasury of a bank in Hong Kong November 2008 November 2009 December 2010 May 2012 Keio was awarded a contract to supply and install general lighting and lighting system for a bank building in Hong Kong Island Keio was awarded a contract to provide MVAC works for an entire 28-storey Grade A office tower in Hong Kong Island Keio was awarded an integrated contract for a shopping complex in the New Territories Keio was first registered as a Registered Minor Works Contractor (Type A-G) (Classes II and III) with the Buildings Department July 2013 KEM was incorporated in Hong Kong on 11 July 2013 October 2013 June 2014 KEM was first registered as a Registered Electrical Contractor under the EMSD Keio was first registered as a Registered Specialist Contractor with the Buildings Department in the ventilation works category 88

96 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE Time August 2014 March 2015 August 2015 June 2015 August 2016 March 2017 August 2017 July 2018 Milestone Keio was awarded an integrated contract for a new student residence halls with a gross floor area of more than 14,000 sq.m. providing 1,200 hostel places of a non-profit, private universitylevel institution in Shatin that was attained the Platinum rating of BEAM Plus (V1.2) certification in the New Territories Keio was awarded an integrated contract for buildings at a racecourse in Shatin Keio was awarded an integrated contract for cruise terminal buildings consisting of Grade A offices and the largest shopping arcade in Hong Kong with over 2.0 million sq. ft that houses the flag-ship stores of well-known global brands situated in Tsim Sha Tsui Keio was awarded an integrated contract for logistics facilities in Tsing Yi Keio was awarded a contract to provide electrical and ELV installation works for a luxurious international branded 5-star resort hotel with 471 rooms featuring a green theme situated in the theme park of a landmark tourist destination in Hong Kong Keio was first registered as a Registered Fire Service Installation Contractor (Classes 1 and 2 with the Fire Services Department) Keio was awarded an integrated contract for an international electronic company in the New Territories Keio was first registered on the List of Approved Suppliers of Materials and Specialist Contractors for Public Works with the Development Bureau under the Plumbing Installation Group II and Electrical Installation Group III categories with a probationary status 89

97 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE OUR GROUP S STRUCTURE AND CORPORATE DEVELOPMENT Our Company was incorporated in the Cayman Islands as an exempted company with limited liability on 25 August 2017 with a share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. The Company was registered in Hong Kong under Part 16 of the Companies Ordinance as a non-hong Kong company on 10 November Upon completion of the Reorganization, it became the ultimate holding company of our Group with the business conducted through the operating subsidiaries of our Group. Set forth below is the history of the operating subsidiaries of our Group: Principal operating subsidiaries Zhuoyi Ventures Zhuoyi Ventures is an investment holding company incorporated in BVI as part of the Reorganization. Please refer to the paragraph headed Reorganization below for further details. Keio Keio is a company incorporated in Hong Kong with limited liability on 22 December Upon incorporation, Mr. CF So and Ms. ML So each held one fully-paid subscriber share of Keio. On 31 December 1983, 69,999 shares, 19,999 shares and 10,000 shares of Keio were allotted and issued at par to Ms. ML So, Mr. CF So and Mr. CC So, respectively. On 9 November 1990, Ms. ML So transferred 70,000 shares of Keio to Mr. CF So, at the consideration of HK$1 per share with reference to the then par value. On 30 April 1999, 2,025,000 shares and 225,000 shares of Keio were allotted and issued at par to Mr. CF So and Mr. CC So, respectively. On 2 June 2016, Mr. CF So transferred 1,057,500 shares, 352,500 shares, 352,500 shares and 352,500 shares of Keio to Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So, respectively at the consideration of HK$1 per share with reference to the then par value. Keio was legally and beneficially owned as to 45% by Mrs. So, 15% by Ms. YY So, 15% by Mr. MK So, 15% by Mr. MH So and 10% by Mr. CC So respectively immediately prior to the commencement of the 10% Keio Acquisition and the Reorganization. Keio is principally engaged in the provision of electrical and mechanical engineering services and maintenance services in Hong Kong. KEM KEM is a company incorporated in Hong Kong with limited liability on 11 July Upon incorporation, 5,000 shares and 5,000 shares of KEM were allotted and issued at par to Mr. MK So and Mr. MH So, respectively. 90

98 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE KEM was legally and beneficially owned as to 50% by Mr. MK So and 50% by Mr. MH So respectively immediately prior to the commencement of the Reorganization. KEM is principally engaged in the provision of electrical and mechanical engineering services and maintenance services in Hong Kong, and focuses on undertaking small-scale electrical and mechanical projects including but not limited to maintenance projects. 10% KEIO ACQUISITION On 30 November 2017, since Mr. CC So wished to focus on his other business engagement, Zhuoyi Ventures acquired 235,000 shares of Keio from Mr. CC So, the brother of Mr. CF So at a cash consideration of HK$10 million, which was determined after arm s length negotiation with reference to the net asset value of Keio as at 31 May 2017 pursuant to the terms and conditions of a sale and purchase agreement dated 30 November 2017 and entered into between Mr. CC So as vendor and Zhuoyi Ventures as purchaser (the Sale and Purchase Agreement ). The consideration was paid by Mrs. So on behalf of Zhuoyi Ventures to Mr. CC So upon completion of the acquisition on 30 November 2017 in consideration of Zhuoyi Ventures assuming a liability owing to Mrs. So of an amount equal to the sum of HK$10 million (the Keio SPA Debt ). Details of the investment by Zhuoyi Ventures are as follows: Name of parties to the Sale and Purchase Agreement: Total consideration: Zhuoyi Ventures as purchaser and Mr. CC So as vendor HK$10 million Payment date: 30 November 2017 Number of Shares and percentage of shareholding in our Company held by the purchaser upon the [REDACTED]: Effective acquisition cost per Share: Approximate discount to the [REDACTED]: [REDACTED]: Zhuoyi Ventures is a direct wholly-owned subsidiary of our Company which holds the entire issued share capital of Keio and KEM. Zhuoyi Ventures does not and will not hold any Shares upon the [REDACTED] N/A [REDACTED] [REDACTED] Zhuoyi Ventures is not entitled to any special rights or privileges under the acquisition of shares of Keio or otherwise in connection with its acquisition of shares of Keio. Zhuoyi Ventures was incorporated in BVI with limited liability on 26 July 2017 and is wholly and beneficially owned by our Company. Its principal business activity is investment holding. For further details of the background of Zhuoyi Ventures, please refer to the sub-paragraph headed History, reoganisation and corporate structure principal operating subsidiaries in this document. 91

99 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE Zhuoyi Ventures has not been involved in any pre-[redacted] investment save for the acquisition of 235,000 shares of Keio from Mr. CC So and Zhuoyi Ventures has not been involved in any investment or dealings with the Directors, Controlling Shareholders, our Group s subsidiaries and any of their respective associates save for the Reorganization steps as disclosed in this document. Such acquisition was an arrangement between the So Family and their relative and did not involve introduction of a new third party investor to our Group. Zhuoyi Ventures does not hold any Shares and will not hold any Shares immediately after the [REDACTED] and therefore there is no lock-up arrangement and no public float implication under Rule 8.08 of the Listing Rules. The Directors confirmed that the shares transfer in Keio was entered into on normal commercial terms. The Sole Sponsor confirms that the above transfer of 235,000 shares of Keio from Mr. CC So to Zhuoyi Ventures is in compliance with Guidance Letter HKEx-GL29-12 and Guidance Letter HKEx-GL43-12, given that (i) no atypical special rights/obligations were attached to the 10% Keio Acquisition; and (ii) the 10% Keio Acquisition was completed more than 28 clear days before the date of first submission of the first application form for the [REDACTED]. Non-competition undertaking Pursuant to the Sale and Purchase Agreement, Mr. CC So irrevocably and unconditionally undertakes to and covenants with Zhuoyi Ventures (for itself and for the benefit of our Company, Keio, KEM and members of our Group) that: (a) (b) he shall not, and shall procure (Shanghai Keio Construction and Decoration Engineering Company Limited*) ( Keio Shanghai ), a company established in the PRC with limited liability, and/or his close associates (other than any members of our Group) not to, whether on his own account or in conjunction with or on behalf of any person, firm or company and whether directly or indirectly, carry on a business which is, or be interested or involved or engaged in or acquire or hold any rights or interest or otherwise involved in (in each case whether as a shareholder, partner, principal, agent, director, employee or otherwise and whether for profit, reward or otherwise) any business which competes or is likely to compete directly or indirectly with the business currently and from time to time engaged by our Group (including but not limited to the provision of electrical and mechanical engineering services and maintenance services in Hong Kong and business ancillary to any of the foregoing, in each case, to be more particularly described or contemplated in this document) in Hong Kong (the Vendor Restricted Business ); he or any of his close associates including Keio Shanghai will not on his or any of his close associates own accounts nor for any other person, firm, company or reorganization solicit or entire or endeavor to solicitor or entice away from our Group for the period of 24 months after the date of the Sale and Purchase Agreement, any director, manager or employee or any company in our Group, whether or not any such person would commit any breach of his/her contract employment by reason or leaving the service of the relevant company of our Group; 92

100 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE (c) (d) (e) for the period of 24 months after the date of the Sale and Purchase Agreement, he or any of his close associates including Keio Shanghai will not solicit customers, supplier, subcontractor, partner of our Group, whether on his or any of his close associates own accounts or on behalf of any other person, firm, or corporation, joint venture, partnership; he or any of his close associates including Keio Shanghai will not use any trademark, patent, technological or proprietary knowledge owned by any member of our Group; and the above undertakings shall not apply to the Vendor Restricted Business in the PRC carried out by the business undertaking(s) beneficially owned by Mr. CC So as at the date of the Sale and Purchase Agreement. REORGANIZATION The following chart sets out the corporate structure of our Group immediately before the 10% Keio Acquisition, the Reorganization, the [REDACTED] and the Capitalization Issue: Mrs. So Mr. MH So Mr. MK So Ms. YY So Mr. CC So 45% 15% 15% 15% 10% Keio (Hong Kong) Mr. MH So Mr. MK So 50% 50% KEM (Hong Kong) In contemplation of [REDACTED], our Group has undergone the Reorganization which involved the following steps: (i) Incorporation of Green Yield and Zhuoyi Ventures On 26 July 2017, Green Yield was incorporated in BVI with limited liability and is authorized to issue a maximum of 50,000 shares of a single class each with a par value of US$1.00, of which three shares, one share, one share and one share of Green Yield were allotted and issued as fully paid to Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So respectively on 17 August 2017 when Green Yield was acquired as a shelf company. 93

101 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE On 26 July 2017, Zhuoyi Ventures was incorporated in BVI with limited liability and is authorized to issue a maximum of 50,000 shares of a single class each with a par value of US$1.00, of which one share of Zhuoyi Ventures was allotted and issued as fully paid to Green Yield on 17 August 2017 when Zhuoyi Ventures was acquired as a shelf company. (ii) Incorporation of our Company On 25 August 2017, our Company was incorporated in the Cayman Islands as an exempted company with limited liability with an authorized share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. On the day of incorporation, one Share was allotted and issued nil paid to the initial subscriber, and was subsequently transferred to Green Yield on the same day at nil consideration. (iii) Incorporation of the Property Holdcos On 15 November 2017, the Property Holdco A, the Property Holdco B, the Property Holdco C, the Property Holdco D, the Property Holdco E and the Property Holdco F (collectively the Property Holdcos ) were incorporated in Hong Kong with limited liability and one share of each of the Property Holdcos was allotted and issued to Green Yield at HK$1.00. On 3 January 2018, 864 shares and 135 shares of the Property Holdco D were allotted and issued to Green Yield and So Sze Ki respectively. So Sze Ki is the daughter of Mr. CF So and Mrs. So, sister of Ms. YY So, Mr. MK So and Mr. MH So. (iv) Acquisition of Keio and KEM by Zhuoyi Ventures In addition to the 10% Keio Acquisition, on 30 November 2017, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So respectively transferred the beneficial interests in 1,057,500, 352,500, 352,500 and 352,500 shares of Keio, representing 45%, 15%, 15% and 15% of the issued share capital of Keio respectively to Zhuoyi Ventures and in return, Zhuoyi Ventures allotted and issued four shares of Zhuoyi Ventures, credited as fully paid at par, to Green Yield under the instructions of Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So respectively on 30 November The acquisition of Keio by Zhuoyi Ventures has been properly and legally completed and settled. After completion of the 10% Keio Acquisition and the above transactions, Keio is wholly owned by Zhuoyi Ventures. On 30 November 2017, Mr. MK So and Mr. MH So respectively transferred the beneficial interests in 5,000 and 5,000 shares of KEM, representing 50% and 50% of the issued share capital of KEM respectively to Zhuoyi Ventures and in return, Zhuoyi Ventures allotted and issued two shares of Zhuoyi Ventures, credited as fully paid at par, to Green Yield under the instructions of Mr. MK So and Mr. MH So respectively. The acquisition of KEM by Zhuoyi Ventures has been properly and legally completed and settled. After completion of the above transactions, KEM is wholly owned by Zhuoyi Ventures. 94

102 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE (v) Acquisition of Zhuoyi Ventures by our Company On 30 November 2017, Green Yield transferred seven shares of Zhuoyi Ventures, being the entire issued share capital of Zhuoyi Ventures to our Company in consideration that (i) our Company allotted and issued, credited as fully paid, 999,999 Shares to Green Yield; and (ii) the one Share issued nil paid owned by Green Yield has been credited as fully-paid at par. The acquisition of Zhuoyi Ventures by our Company has been properly and legally completed and settled. After completion of the above transaction, Zhuoyi Ventures is wholly owned by our Company. (vi) Transfer of the Disposed Properties and Prepayments from Keio to the Property Holdcos On 6 February 2018, Keio respectively transferred four properties comprising residential property, shop, office and land not utilised by our Group (collectively, the Disposed Properties ) and two prepayments regarding property development interest (collectively, the Prepayments ) to the respective Property Holdcos at the total consideration of approximately HK$110 million with reference to the market value of the Disposed Properties as appraised by an independent valuer and the amount of the Prepayments. Upon completion of the transfer of the Disposed Properties and the Prepayments, the Property Holdcos were indebted to Keio in the amount equivalent to the total consideration of the Disposed Properties and the Prepayments (the Debts ), which amounted to approximately HK$110 million. The Debts were fully settled through a series of declaration of dividends by Keio, Zhuoyi Ventures and our Company, assignments and novations of the dividends payable, the Debts and the Keio SPA Debt. Upon completion of the declaration of dividends and the necessary assignments and novations, the whole aggregate amount of the dividends payable to Green Yield and the Keio SPA Debt were set off against the whole amount of the Debts. After that, there were no longer any outstanding debts or liabilities between (i) our Group on the one part; and (ii) Green Yield, the Property Holdcos and Mrs. So on the other part. (vii) Increase in issued share capital of Keio On 30 April 2018, the issued share capital of Keio has been increased from HK$2,350,000 divided into 2,350,000 shares of Keio to HK$4,700,000 divided into 2,350,000 shares of Keio by capitalising Keio s retained profits without allotting and issuing new shares of Keio. (viii) Increase in authorized share capital of our Company On [ ], the authorized share capital of our Company was increased from HK$[380,000.00] divided into [38,000,000] Shares to HK$[100,000,000] divided into [10,000,000,000] Shares by the creation of additional [9,962,000,000] Shares. 95

103 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE The corporate structure of our Group and our subsidiaries immediately after completion of the 10% Keio Acquisition and the Reorganization and completion of the transfer of the Disposed Properties and the Prepayments but before completion of the [REDACTED] and the Capitalization Issue: 50% Mrs. So Mr. MH So Mr. MK So Ms. YY So 16.67% 16.67% 16.67% Green Yield (BVI) So Sze Ki (Note 1) 100% 100% 86.5% 13.5% Company (Cayman Islands) 100% Zhuoyi Ventures (BVI) Property Holdcos A, B, C, E and F (Hong Kong) (Note 2) Property Holdco D (Hong Kong) (Note 2) 100% 100% Keio (Hong Kong) KEM (Hong Kong) Note: 1. So Sze Ki is the daughter of Mr. CF So and Mrs. So, and sister of Ms. YY So, Mr. MK So and Mr. MH So. 2. Property Holdcos do not form part of our Group. 96

104 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE The corporate structure of our Group and our subsidiaries immediately after the completion of the [REDACTED] and the Capitalization Issue (assuming the [REDACTED] is not exercised and without taking into account any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Scheme): 50% Mrs. So Mr. MH So Mr. MK So Ms. YY So 16.67% 16.67% 16.67% So Sze Ki (Note 1) Public Green Yield (BVI) [REDACTED] [REDACTED] 100% 86.5% 13.5% Company (Cayman Islands) 100% Zhuoyi Ventures (BVI) Property Holdcos A, B, C, E and F (Hong Kong) (Note 2) Property Holdco D (Hong Kong) (Note 2) 100% 100% Keio (Hong Kong) KEM (Hong Kong) Note: 1. So Sze Ki is the daughter of Mr. CF So and Mrs. So, and sister of Ms. YY So, Mr. MK So and Mr. MH So. 2. Property Holdcos do not form part of our Group after completion of the [REDACTED] and Capitalization Issue. 97

105 BUSINESS OVERVIEW We are an established provider of E&M engineering services for multiple segments in the private sector in Hong Kong with over 23 years of operating history. We specialize in providing integrated solutions for E&M engineering services in respect of the installation and maintenance of building service systems, namely (a) electrical systems; (b) MVAC systems; (c) plumbing and drainage systems; and (d) fire services systems. Our E&M engineering services and solutions can be broadly categorized into two major segments, namely (i) E&M engineering services, and (ii) maintenance services, delivering design, supply, installation, testing and commissioning and maintenance services for a wide range of buildings and facilities. We are committed to develop and offer innovative E&M engineering services and solutions by using advanced and green and smart technologies towards sustainability in building development. During the Track Record Period, we obtained all relevant licenses and qualifications in delivering a comprehensive range of E&M engineering and maintenance services as a subcontractor and served customers across a wide spectrum of market sectors such as real estate, retail, hospitality, banking, sports and recreation, IT, logistics, education, government departments, etc. for the private sector. In July 2018, Keio became registered on the list of Approved Suppliers of Materials and Specialist Contractor for Public Works with Development Bureau under the Plumbing Installation Group II and Electrical Installation Group III categories with a probationary status. With such licence and qualification, we are seeking to not only extend our engagement as a main contractor, but also diversify into the public sector so as to mitigate the risk of our revenue and profitability being impacted on account of a slowdown in a particular market segment or industry sector. Our revenue increased by approximately HK$74.0 million or approximately 22.9% from approximately HK$322.9 million for FY2016 to HK$396.9 million for FY2017 and slightly decreased by approximately HK$12.1 million or 3.1% to approximately HK$384.8 million for FY2018. Excluding the non-recurring [REDACTED] expenses, our profit for the year increased by approximately HK$30.5 million or 307.9% from approximately HK$9.9 million for FY2016 to HK$40.4 million for FY2017 and further increased by approximately HK$5.0 million or 12.3% to approximately HK$45.3 million for FY

106 BUSINESS The following simplified diagram illustrates our business model for our E&M engineering services: Construction or major renovation projects Subcontracting of E&M engineering works Subcontracting of specialized and advanced E&M systems and equipment with associated installation works and intensive labour works Clients (e.g. property owners and developers) Main contractors E&M engineering maintenance works Our Group Procurement of E&M equipment, building products and materials Subcontractors Suppliers Our E&M engineering services are cornerstone of our services. During the Track Record Period, we mostly acted as a subcontractor of our customers, who are generally main contractors of building construction projects on a project basis with a contract term generally ranging from approximately six months to 24 months. As a subcontractor, we undertake out the designated E&M engineering works under the supervision of the main contractor. We are sometimes responsible for procuring and purchasing the equipment, and parts materials we use from suppliers. We may also engage subcontracters to carry out part of the works with respect to certain specialist and labour intensive works depending on the type, complexity and specification of the contract. Revenue from our E&M engineering services contracts is recognized based on the stage of completion of the contracts. All of our revenue recognized for the Track Record Period have been agreed as set out in the original contracts with or have been certified by our customers and their agents as at the Latest Practicable Date. Our maintenance services primarily include providing repair and servicing of E&M systems for existing and new buildings and facilities which can be categorized into (i) preventative and scheduled maintenance services within a fixed contract period typically of approximately one year and (ii) other miscellaneous maintenance services on an on-demand basis. Revenue from our maintenance service contracts is recognized over the scheduled period on a straight line or upon delivery of the services. COMPETITIVE STRENGTHS We believe our success is attributed to, among other things, the following competitive strengths: Well-established reputation with a proven track record in the E&M engineering industry in Hong Kong Our Group has over 23 years of operating history in the E&M engineering industry in Hong Kong under our brand Keio. 99

107 BUSINESS Since our establishment, we have accumulated a wide range experiences in a variety of E&M engineering services works, covering E&M systems, including electrical systems, MVAC systems, plumbing and drainage systems and fire services systems for renowned customers. During this time, the works we have performed for our customers have been in respect of a variety of commercial and residential, leisure and recreation, industrial logistics and institutional buildings and facilities in Hong Kong. During the Track Record Period, notable examples of our works have included providing E&M engineering services for (a) the tallest building in Hong Kong with 108-floors (consisting of a Grade A office skyscraper and the highest renowned international branded 5-star hotel in Hong Kong which is situated in West Kowloon) which was designated as an intelligent building of 2011 by the Asian Institute of Intelligent Buildings; (b) the second tallest building in Hong Kong (consisting of two Grade A skyscrapers with over 30-floors and over 77-floors, a large scale luxury shopping arcade, a renowned international branded 5-star hotel situated on the waterfront of Central district); (c) cruise terminal buildings (consisting of Grade A offices and the largest shopping arcade in Hong Kong with over 2.0 million sq.ft that houses the flagship stores of well-known global brands situated in Tsim Sha Tsui; and (d) a luxurious international branded 5-star resort hotel with 471 rooms featuring a green theme situated in the theme park of a landmark tourist destination in Hong Kong. In addition to being awarded such notable works, we have also received letters of appreciation commending our diligence from our customers. Our Directors believe that to be awarded such works and receiving such letters of appreciation from our customers is a testament of our capabilities and a recognition of our well-established reputation in the E&M engineering services industry in Hong Kong. During the Track Record Period, we have completed a total of approximately 70 E&M engineering services contracts of which approximately 20 were Major Contracts, being those with initial contract sums of HK$10.0 million or above. Our Directors believe that given the length of our history in the E&M engineering industry in Hong Kong and our well-established reputation, we are in a strong position to continue to capture new opportunities in the E&M engineering industry as they develop. Strong project management and execution capabilities Our Directors believe that our ability to deliver timely and quality services to our customers is crucial to our Group s success. We are capable of providing to our customers integrated solutions for E&M engineering services, from project planning and design, supply and installation to testing and commissioning of E&M systems. During the Track Record Period, we obtained all relevant licenses and qualifications to our business for E&M engineering and maintenance services in the private sector. In July 2018, Keio became registered on the List of Approved Suppliers of Materials and Specialist Contractor for Public Works with Development Bureau under the Plumbing Installation Group II and Electrical Installation Group III categories with a probationary status. During the Track Record Period, we have participated in over 200 contracts for a wide range of buildings and facilities in various scale and complexity with an aggregate contract sum of more than HK$1,704.0 million, with contract sum for a single contract generally ranging from approximately HK$0.5 million to HK$175.9 million. Accordingly, our Directors believe that given our range of services and licenses and ability to undertake contracts of varying sizes, we are capable of undertaking and completing a wide variety of E&M engineering services, which in turn will allow us to adapt to changes in the E&M engineering industry as they develop. 100

108 BUSINESS We have adopted various measures for monitoring, verifying and validating the works and materials used during the implementation of a contract. As recognition of our efforts, we have been accredited with ISO 9001:2015 since Our Directors believe that the various measures we have adopted will enable us better monitor the quality of our works and those of our subcontractors which, which in turn will minimise the risk of cost overrun and allow us to meet the expectations of our customers. As a testament to our execution abilities, some of our customers have after the completion of our E&M engineering services contracts engaged us to provide subsequent maintenance services. Our Directors believe that with our broad and flexible range of services and strong execution capabilities, we are able to offer to our customers diverse solutions to suit their needs and expectations. A diverse base of customers, suppliers and subcontractors with solid business relationships Due to our operating history, we have established long term business relationships with sizeable customers in the private sector in Hong Kong and suppliers and subcontractors in the E&M engineering industry. During the Track Record Period, the majority of our five largest customers, were members of listed groups in Hong Kong and our customers have ranged from main contractors to construction firms, property management companies, banks, international chain hotel and subsidiaries and/or members of listed groups in Hong Kong. Amongst our top five largest customers during the Track Record Period, we have been providing services to some of them for up to approximately 17 years as at the Latest Practicable Date. For FY2016, FY2017 and FY2018, we have served more than 130 customers, with revenue attributable to our five largest customers amounting to approximately HK$230.0 million, HK$244.9 million and HK$312.3 million, representing approximately 71.2%, 61.7% and 81.2% of our revenue, respectively. Whereas revenue attributable to our largest customer amounted to approximately HK$72.8 million, HK$112.1 million and HK$118.6 million, representing approximately 22.6%, 28.2% and 30.8% of our revenue, respectively. Our Directors believe that our long standing relationships with our sizeable customers have enabled us to capture a significant amount of the E&M engineering services works required by them. As for our suppliers and subcontractors, during the Track Record Period, we had business relationships with more than 230 suppliers and 140 subcontractors respectively. We maintained business relationships with some of our five largest suppliers during the Track Record Period for up to approximately 13 years and with some of our five largest subcontractors for up to approximately 10 years as at the Latest Practicable Date. Our Directors believe that our relationships with our suppliers will provide us with stable access to quality materials for us in our E&M engineering and maintenance services, whereas our relationships with our subcontractors will allow us to procure stable subcontracting services, which in turn gives us the flexibility to deploy our resources in a more cost and time effective manner. Our Directors believe that given our length of relationship with our five largest customers, the majority of whom are members of listed groups in Hong Kong and our suppliers and subcontractors, our Group has a solid foundation from which to expand and develop while having access to the resources which will allow us to do so. 101

109 BUSINESS Experienced management and technical team Our management team and key technical personnel have extensive industry knowledge and expertise and project management experience in the E&M engineering industry. Mr. MH So, our executive Director and chief executive officer and Mr. MK So, our executive Director, have more than 10 years and 17 years of experience, respectively, in the E&M engineering services industry. As for our senior management, Mr. So Chung Fat, our founder and our business development director has more than 41 years of experience in the E&M engineering services industry, while Mr. Alex Chan, our senior project manager has more than 22 years of experience in the E&M engineering services industry and Mr. Felix Chan, our contracts manager has more than 23 years of experience in the engineering and building services industry. Most of our key personnel have on average over 22 years of experience in the E&M engineering industry and have, on average, served us for more than 15 years. Amongst our 91 full time employees, 28 employees possess the requisite licenses and/or registrations relating to our business. We believe that their qualifications and experiences provide us with the industry knowhow to remain competitive and to secure new tenders. We believe that, given the experience of our management team and key technical personnel, we are well equipped to handle various challenges that may arise during the implementation of a contract. For further details, please refer to the section headed Directors, Senior Management and Employees in this document. BUSINESS STRATEGIES Our principal objectives are to develop our business and to achieve sustainable growth in the E&M engineering industry in Hong Kong. Market potential The Hong Kong government has recently promulgated the Smart City Blueprint for Hong Kong which is expected to, inter alia, drive the growth of building construction for private and public residential, cultural facilities and infrastructures, the acceleration of urban renewal and the demand for green and intelligent buildings in coming years. This gives rise to vast opportunities for advance building methods and techniques, integrated with information technology and automation technology, thereby increasing the needs of specialized E&M engineering and maintenance services. Together with the continual growth of building construction works for office, commercial and residential spaces under the steady economic growth in Hong Kong, the gross output value of the E&M engineering industry in Hong Kong is projected to continue to grow from approximately HK$40.9 billion in 2018 to approximately HK$48.7 billion in 2022 at a CAGR of approximately 4.5% in accordance with the Ipsos Report. According to the Ipsos Report, for the private sector in Hong Kong, the gross output value is forecast to increase from approximately HK$22.4 billion in 2018 to approximately HK$26.7 billion in 2022 at a CAGR of approximately 4.5% while the gross output value of the E&M engineering industry for the public sector in Hong Kong is also projected to grow from approximately HK$18.5 billion in 2018 to approximately HK$22.0 billion in 2022 at a CAGR 102

110 BUSINESS of approximately 4.4%. To cater to evolving industry trends, we intend to achieve our business objectives primarily by advancing our various capabilities and seeking out innovative technologies: Enhancing our supply and sourcing capabilities Smart and green building technologies has become one of the important aspects of future building development. According to the Ipsos Report, global smart building market was valued at approximately US$10.5 billion in 2017 and is expected to reach approximately US$27.5 billion by The global smart building market is expected to exhibit a CAGR of more than 27.2% between 2017 and The Asia Pacific Region is a rapidly growing region in terms of smart buildings due to increasing commercial and industrial development activities in growing economies countries such as Hong Kong. Increasing awareness regarding smart solutions and favourable government initiatives to build a smart city are the major drivers for smart buildings in Hong Kong. Furthermore, the surging need for environmental protection is creating an increasing demand for green buildings which will largely focus on the maximum energy utilization with the help of smart systems. The adoption of smart and green technologies for building construction activities, particularly for large commercial premises such as office buildings, retail facilities, hotels and restaurants and mixed-used developments, has propelled the increasingly use of ELV systems. The Government has introduced legislation to require new buildings and buildings that are undergoing major retrofitting to comply with minimum energy efficiency standards in order to enhance the energy efficiency performance of buildings. ELV system is a type of electrical works which is installed in all types of buildings and infrastructure. Our Directors believe that our ELV capability will not only enable us to capture market growth going forward, but also create synergy across different lines of our E&M engineering and maintenance services. During the Track Record Period, we usually engaged subcontractors to supply and install ELV systems. ELV systems are generally used in connection with intercom systems, audio and video electronic systems, voice evacuation systems and satellite/tv distribution which accounted for a range of approximately 10% to 35% of the contract sum of each electrical systems contract which contain ELV works. Subcontracting fees incurred by us relating to the supply and installation of ELV systems were approximately HK$0.1 million, HK$8.5 million and HK$40.6 million, respectively, for the Track Record Period. Given that the value of ELV works represented a significant portion of the contract sum of the contracts for electrical systems which contained ELV works and in light of the industry trend for widespreading adoption of ELV systems, we plan to develop our in-house capability in the supply, installation and maintenance of ELV systems by establishing strategic business cooperation with or obtaining the dealership qualifications from one or more suppliers or manufacturers of renowned ELV system brands to secure a direct and stable supply of ELV systems for onward direct sales to our customers. We intend to approach such suppliers or manufacturers that specialise in the design and manufacture of ELV systems with proven track records, personnel with the relevant experience and expertise, technology and technical know-how, necessary financial strength and credibility, the necessary licenses and qualifications and work references. In order to minimise capital outlay and for prudent financial management, we intend to enter into such direct ELV supply arrangement with target partners for a term of at least one year, with instalment payments, which may require us to provide a deposit upon the entering of the relevant purchase contract of ELV system and the remaining balance would be paid over a period of the contract term until the delivery of ELV systems to us. As at the Latest Practicable Date, we have not commenced the process of identifying such target ELV partners and have not entered into any agreement with any target ELV partners. 103

111 BUSINESS Our Directors consider that our current scale of our E&M engineering services business operation have grown to a scale that is sufficiently large (as evidenced by the amount and the increasing trend of subcontracting fees incurred by us in respect of ELV systems as mentioned above) which would enable us to incur less cost under the direct ELV supply arrangement, as opposed to engaging subcontractors who typically factor profit mark-ups on both the purchase costs of ELV systems and installation fees charged by them on a contract-by-contract basis. Our Directors further consider that under direct ELV supply arrangements, we will be able to offer more competitive pricing to our customers, thereby improving our market competitiveness. Other than ELV systems, we intend to further enhance our supply and sourcing capabilities of other E&M systems equipment, such as air-conditioning and ventilation systems, lighting solutions, green building solutions, fire prevention and protection, security, other fittings or products, to serve our customers direct requirements for any scale of contract at a later stage. Based on the best estimates of our Directors in light of the current market conditions, the estimated costs for the direct supply of ELV systems would be approximately HK$[REDACTED] million on the assumption that (i) the estimated purchase costs of each ELV systems based on the quotations obtained; (ii) the estimated number of ELV systems to be applied in the submitted tenders, quotations and potential contracts pursuant to the proposed terms; and (iii) the anticipated key terms of the direct ELV supply arrangement with potential ELV partners. Our Directors consider that this could hypothetically result in a cost saving effect ranging from approximately 10-20% as opposed to engaging subcontractors on a contracts-by-contracts basis, which is estimated based on the anticipated discount under the direct supply of ELV systems and the estimated profit mark-up charged by our subcontractors and assuming that there are no material changes to our above assumptions which may be affected by various macro and micro economic and other conditions. We expect to use the [REDACTED] ofthe[redacted] to enhance our supply and sourcing capability in providing our E&M Engineering Business. For further details, please refer to the section headed Future Plans and [REDACTED] in this document. Expanding our design and technical capabilities The use of IT and automation technologies has increased across the building and construction industry in Hong Kong. In order to strive under this competitive industry environment, it is critical for us to keep abreast of technology innovation by adopting modern building methods and techniques, information technology and automation technology. We intend to deploy the following building-related information technology systems to enhance our design and technical capability: Building Information Management ( BIM ) system: BIM systems has now become one of our most important tools and platforms in the development of building contracts. The Hong Kong Housing Authority has started piloting BIM systems for the construction of public housing contracts since The introduction of Construction Industry Council BIM Standards allows industry participants to manage and assess BIM deliverables. We intend to enhance our design capability by 104

112 BUSINESS purchasing BIM systems starting from the 1st half of FY2020. BIM systems are an intelligent 3D model-based software to produce enhanced 3D combined services drawings, virtual programming and work sequence as well as generates digital representations of the physical and functional characteristics of buildings throughout the building life cycle, from design to documentation, construction and facility management. This can be used to provide virtual construction of a building prior to its actual physical construction, in order to assess project feasibility and validate design, which then reduces uncertainty, improves safety and works out problems. BIM systems aims to enable successful and smooth project execution with tight budgets, limited manpower, accelerated schedules, and limited or conflicting information. This will enable us to pre-fabricate or pre-assemble some systems off-site, minimise waste on-site and deliver products on a just-in-time basis and avoid stock-piled on-site. Building management system (BMS): We intend to enhance our technical capability by introducing BMS in the 2nd half of FY2020. BMS is a computer-based control system consisting of software and hardware installed in buildings that controls and monitors the building s mechanical and electrical equipment such as ventilation, air conditioning, lighting, power systems, fire systems, and security systems. We intend to develop our in-house BMS capabilities by purchasing BMS and/or hiring technical personnels. BMS can detect information on the building environment through sensors or other input devices and then process it through intelligent controllers. Appropriate commands are then issued to output devices such as valves and actuators. The system is viewed through a specially configured computer running BMS software, This BMS software allows automated change of control parameters and energy analysis and maintenance functions. Aside from acquiring the relevant software and hardware, in order to facilitate the above, we plan to hire a total of not more than 8 new engineers, consultant and draftsmen and who are experienced in the operation and application of BIM and BMS and other related fields starting from FY2020. The following table sets out the number, qualifications and years of experience required for the positions we intend to recruit: Position Not more than Major qualifications or other requirements Approximate years of experience in BMS Engineers 2 Degree in Electronics Engineering, Electrical Engineering, IT or above

113 BUSINESS Position Not more than Major qualifications or other requirements Approximate years of experience in E&M consultant 3 Degree in Building Services/Mechanical/Electrical Engineering or above MHKIE, MCIBSE or MIMechE or equivalent Draftsman 3 Certificate/Diploma in CAD draftsmanship 3-5 Total 8 Based on the best estimate of our Directors in light of the current market conditions, the estimated costs for enhancing our design and technical capabilities would be approximately HK$[REDACTED] million which primarily includes (i) the estimated purchase costs and associated costs of BIM and BMS in an aggregate estimated amount of approximately HK$5.3 million based on the quotations obtained; and (ii) the costs to be incurred for hiring the BMS engineers, E&M consultants and draftsmen of approximately HK$4.9 million. To finance this, we expect to use the [REDACTED] ofthe[redacted]. For further details, please refer to the section headed Future Plans and [REDACTED] in this document. Expand our contracting and maintenance capabilities for fire, plumbing and drainage systems services works The rising number of aging building in Hong Kong has prompted the redevelopment of community by renovation and demolition of existing buildings and facilities, which is followed by conversion, alteration and addition of building and facilities, such as the fire, plumbing and drainage system systems. Moreover, the Urban Renewal Authority has announced its environmental sustainability policy for future urban renewal projects. For example, under the Mandatory Building Inspection Scheme, owners of buildings aged 30 years or above (except domestic buildings not exceeding three-storeys) served with statutory notices are required to appoint a registered inspector to carry out the prescribed inspection and supervise the prescribed repair works found necessary of the building facilities. The ongoing urban redevelopment projects with rising requirements and strict enforcement of mandatory fire and building safety laws and regulations leads to the surging demand for refurbishment and maintenance of fire, plumbing and drainage system systems. According to the Ipsos Report, from 2018 to 2022, the gross output value of the fire service work segment and the plumbing and drainage work segment in Hong Kong are projected to grow from approximately HK$5.8 billion to HK$7.0 billion and from approximately HK$6.8 billion to HK$8.1 billion, representing a CAGR of 4.5% and 4.8% respectively. To tap on such emerging opportunities, we plan to expand our testing and commission capabilities for our fire, plumbing and drainage system works services by acquiring additional typical equipment such as but not limited to the following: Typical equipment Detector tester Description Used for functional testing of smoke, heat and carbon monoxide detectors 106

114 BUSINESS Typical equipment Alarm component testers Flow meter and pressure gauge Threading machines Welding machines Description Used for the testing of various components of fire alarms Used in our context for measuring water flow and pressure Used for the threading of various water and other pipes Used for the welding of various water and other pipes In view of the above, in the next two years until FY2020, we intend to recruit approximately 2 additional engineering and technical employees who are specialized and experienced in testing and inspection of fire, plumbing and drainage system works and detecting the aging building posting higher risk of triggering fire incidents or other hazards. To cope with the anticipated growth of maintenance services specially for fire, plumbing and drainage works, we intend to expand our in-house maintenance team of not more than 15 operational staff and two administration staff in FY2019 and FY2020. The following table sets out the number, qualifications and years of experience required for the positions we intend to recruit: Position Not more than Major qualifications or other requirements Approximate years of experience in Project Manager 2 Degree in Electrical Engineering, Mechanical Engineering, Building Services 15 years or above MHKIE/MIMechE/ MIET/MCIBSE Senior Engineer 4 Degree in Electrical Engineering, Mechanical Engineering, Building Services 5-10 years Relevant license in E&M engineering services Engineer 6 Degree in Electrical Engineering, Mechanical Engineering, Building Services Site Supervisor 2 Diploma or above in Engineering or equivalent discipline 3-5 years 3-5 years Safety Supervisor (Construction) Certificate 107

115 BUSINESS Position Not more than Major qualifications or other requirements Approximate years of experience in Safety Officer 1 Diploma or above in Engineering, Occupational Health & Safety or equivalent discipline 5-10 years Registered Safety Officer under Factories and Industrial Undertakings Ordinance Cap 59 Safety Supervisor 2 Diploma or above in Engineering, Occupational Health & Safety or equivalent discipline 3-5 years Safety Supervisor (Construction) Certificate Project Clerk 2 Form 5 or above 1-3 years Total 19 Based on the quotations obtained by and the best estimate of our Directors in light of the current market conditions, the estimated total funding requirements for expanding our capabilities for fire, plumbing and drainage system works would be approximately HK$[REDACTED], of which approximately HK$[REDACTED] would be used for acquiring new equipments and approximately HK$[REDACTED] would be used as working capital for recruiting additional workforce. We expect to use the [REDACTED] ofthe[redacted] to enhance our capability in providing fire, plumbing and drainage system works services. For further details, please refer to the section headed Future Plans and [REDACTED] in this document. Diversifying into the public E&M engineering sector In July 2018, Keio became registered on the list of Approved Suppliers of Materials and Specialist Contractor for Public Works with Development Bureau under the Plumbing Installation Group II and Electrical Installation Group III categories with a probationary status. With this licence, we plan to diversify our E&M engineering services into the public sector by acting as a main contractor to undertake public works. For public sector contracts, our financial capability would be assessed by our clients. It is expected that an amount equivalent to 5% to 10% of the contract sum may be payable directly or if so required by Hong Kong Government as performance bond, for each contract at start of our engagement in accordance with the relevant contracts. Furthermore, we may experience mismatch in time between receipt of payments from our clients and payments of our operating expenses while our employee benefit expenses, being our most significant component of our operating expenses, are paid on a monthly basis. Therefore, we need the additional working capital to undertake, recruit for each of the additional public contracts. 108

116 BUSINESS Based on the best estimates of our Directors in light of the current market conditions the estimated amount for the payment obligation of performance bonds in respect of public contracts would be approximately HK$[REDACTED] which is primarily determined based on (i) one tender submitted and one potential contract identified for public works as at the Latest Practicable Date; (ii) the expected amount of contract sum of each public contracts ranging from approximately HK$20.0 million to HK$50.0 million based on historical contract sums awarded; (iv) the estimated success rate for tendering; and (iv) the requirements of performance bonds generally adopted by Hong Kong government. To finance this, we expect to use the [REDACTED] ofthe[redacted]. For further details, please refer to the section headed Future Plans and [REDACTED] in this document. Upgrading and investment in our information systems to enhance our operational efficiency We will continue to improve operational efficiency and productivity by upgrading or investing in IT infrastructure and systems: Advanced ERP system: we plan to upgrade our ERP system as an integrated IT platform to enhance overall management covering the entire chain of our business operations starting from the 1st half of FY2020. It unifies our various business processes and enables centralized management and application of our database in order to automate and streamline our operational processes from preparing quotation and tendering, project planning, issuing purchase and work orders, issuing variation orders, progress billing and invoicing to electronic approval of these processes and record the approval stages efficiently and in a timely manner. Each of our other information systems will interface with this ERP system that will build up a centralized database of project information and data of each contract, such as the amount of awarded contract sum, the duration of contracts, costs incurred, variation orders, progress billing, etc, across different departments. We expect that, with the centralized database, our operation team can readily access to project information and data for tender preparation and project implementation and monitoring. In addition, our accounting and finance system will be synchronized with the ERP system that will allow our finance team to share and retrieve project information and data more readily and comprehensively which would facilitate our preparation of financial reports as well as review and analysis on our financial performance; Tender management system: we plan to invest in a central web-based tender management system to automate the bidding process starting from the 1st half of FY2020. Through such a tender management system, our operational team can readily create work packages for tenders and quotations by using documents already in the system and assembling packages with documents, design drawings, and specifications. All information is securely captured in one place so our operational team can easily review submissions, evaluate proposals and awarded contracts. Our bid and tender process will be shortened and administration costs will also be saved. 109

117 BUSINESS Advanced human resource system with mobile application modules: we intend to upgrade our human resource system into a web-based human resources integrated system start from the 1st half of FY2020. Such system keeps track of key employment information such as basic personal data, current employment information, remuneration package, educational background, employment history and dependents contact information. It is designed to allow us to view or manage key human resources information online and reduce the time consuming administration and clerical work. The mobile application modules shall be installed on hand-held devices we issue to our employees to track, monitor and supervise our employees in performing different duties at various construction sites, offices or locations through the hand-held devices, increasing operating efficiency. Based on the quotations obtained by and the best estimate of our Directors in light of the current market conditions, the estimated costs for upgrading and investment in the above together with the necessary IT infrastructure would be approximately HK$[REDACTED]. To finance this, we expect to use the [REDACTED] ofthe[redacted]. For further details, please refer to the section headed Future Plans and [REDACTED] in this document. Selectively pursuing strategic investments, joint ventures and acquisitions While pursuing organic growth, we will actively seek accretive and synergistic acquisitions of, participation in joint ventures or other strategic alliances with other companies in Hong Kong, the PRC and other selective countries. Through this strategy, we aim to strength our market position, gain new technologies and technical know-how acquire new talents or penetrate into existing market and expand into new geographies. We will carefully consider and evaluate each potential target, to ensure that they provide synergies to our business and are capable of being successfully integrated into our existing business platform. In evaluating targets, we set the following investment priorities: (i) companies and businesses will bring new technologies, technical know-how, innovations and capabilities to extend our service offerings; (ii) companies and businesses are of similar kind to our current business to expand our operational scale and geographical footprints; and (iii) companies and businesses will facilitate us in broadening our existing services offerings. With the popularity of smart and green building technologies backed by governmental supports, we intend to possible investment in, acquisition of and/or formation of strategic cooperation with one or more companies engaged in the installation and maintenance of ELV system, BMS system, other system equipment and products that are involved in specialized technologies and technical know-how. In pursuing this strategy, we will be flexible in transactional structures. We may acquire full ownership, controlling interest or minority interest in the targets. We may also conduct acquisitions in stages. As at the Latest Practicable Date, we have not identified any specific target. We intend to utilise approximately [REDACTED]% of our [REDACTED], or approximately HK$[REDACTED], from the [REDACTED] our internal resources and/or bank borrowings, if necessary, for pursuing external growth. For further details, please refer to the section headed Future Plans and [REDACTED] in this document. 110

118 BUSINESS OUR BUSINESS AND SERVICES Our principal business is the provision of integrated E&M engineering services and solutions from project planning, design, supply, installation to commissioning, testing and maintenance of various E&M systems which are broadly categorized into two major segments: (i) our E&M engineering services and (ii) maintenance services in respect of E&M systems. The table below sets forth the breakdown of our revenue by our business segments during the Track Record Period: FY2016 FY2017 FY2018 Number of contracts (Note) Revenue recognized Number of contracts (Note) Revenue recognized Number of contracts (Note) Revenue recognized HK$ 000 % HK$ 000 % HK$ 000 % (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) E&M engineering services , , , Maintenance services 58 10, , , Total: , , , Note: The number of contracts refers to the number of contracts which generated revenue recognized by our Group during the relevant financial period. E&M engineering services We provide multi-disciplinary E&M engineering services on an integrated basis. Our E&M engineering services include providing a comprehensive range of services from project planning and design, supply and installation to testing and commissioning of E&M systems over a contract period generally ranging from six months to 24 months. Our main scope of works generally consists of (i) providing advice on the design of building service systems and engineering solutions to suit the needs of our customers; (ii) supplying, procuring and sourcing E&M equipment, products, parts and materials; (iii) installing the relevant systems and materials; (iv) commissioning and testing to ensure compliance of the systems with the relevant standards and statutory requirements in Hong Kong. Our E&M engineering services provided for E&M systems generally covered electrical systems, MVAC systems, plumbing and drainage systems and fire services systems, details of works in respective of these are set out below. 111

119 BUSINESS (1) Electrical system works Electrical systems are used to supply, transfer and regulate the use of electricity for other buildings systems. Common examples of where electrical systems include: High/low voltage systems and ELV systems, distribution boards and switchgear Communication lines, telephone lines and IT networks Lighting systems and solutions BIM or building automation systems Security and alarm systems High/low voltage systems and ELV systems are commonly deployed in a wide range of buildings and facilities for the purposes of better control and security. There are a broad usage and application of low/high voltage systems and ELV in Hong Kong. High/low voltage systems normally consist of a network of electrical components which is used to monitor and control the power supply to buildings to ensure other systems can function properly. ELV system is a type of electrical works which is installed in all types of buildings and infrastructure and can serve to regulate voltages to eliminate the risk of electrical shock with increasing awareness on the importance of safety, comfort and convenience, property developers have spent more effort on developing intelligent buildings, giving rise to the demand of ELV systems. Materials used will generally include, switch boards, distribution boards, cable containments, power cables and final circuits. (2) MVAC system works MVAC systems perform ventilating and cooling for residential, commercial, industrial buildings. Common examples of MVAC systems include: Energy supply e.g. electricity sources Air-conditioning, air handling units and other application of refrigeration Ventilation systems Chillers Heating including low-energy solutions MVAC systems generally consist of air handling units and chillers which are used to remove heat generated in an occupied space to improve thermal comfort, provide conditioned spaces for storing goods or equipment, control airflow by introducing a constant supply of fresh air and maintain humidity. MVAC systems can also be used to provide heating functions and to provide ventilation for clean rooms in hospitals and labs. For smart and green buildings, passive cooling technologies may introduced which will allow for the regulating of temperature in a building with low or minimal use of energy. Materials used will generally include, chillers, air handling units, fan-coil units, chilled water pumps, sensors, duckwork and pipework control and monitoring. 112

120 BUSINESS (3) Plumbing and drainage system works Plumbing and drainage system is a system of watercourses or drains that conveys fluids for various applications. Common examples include: Plumbing solutions for potable cold water and hot water Drainage of waste water Solutions hygiene and sanitation Plumbing and drainage provides (i) clean and stable water supply, (ii) carrying off excess water, (iii) ensure proper functioning of fire service system and MVAC system inside a building. A plumbing and drainage system generally comprises of pipes, valves, plumbing fixtures, tanks and other plumbing apparatus. (4) Fire services system works Fire systems are used to prevent, detect and extinguish fires. Common examples include: Fire services control panels Fire detector Alarm systems Fire suppression systems Fire systems in addition to preventing, detecting and extinguish fires will also be used to provide access to any premises for the purposes of extinguishing or limiting a fire and facilitating evacuation from any premises in case of a fire. Types of buildings and facilities we serve We offer our E&M engineering solutions to a wide variety of buildings and facilities spanning from (i) commercial and residential buildings, such as Grade A office space, shopping malls and arcades, residential villas and properties, and mixed use developments, etc, which place heavy demands on engineering services and require high standards of maintenance; (ii) leisure and recreation facilities, e.g. 5-star hotels, jockey, sport and other private clubs, etc which require energy efficiency optimisation without compromising user comfort; and (iii) industrial, logistics and institutional facilities, such as warehouses and logistics facilities, data centres, educational institutions and centres, etc which require a constant supply of electricity with high standards of technology reliability and security. 113

121 BUSINESS Set out below are examples of high profile/notable projects we served since our establishment: Type of building/facility Example(s) of high profile/notable projects we served Commercial and residential The tallest building in Hong Kong with 108-floors (consisting of a Grade A skyscraper and the highest renowned international branded 5-star hotel in Hong Kong which is situated in West Kowloon) which was designated as an intelligent building of 2011 by the Asian Institute of Intelligent Buildings. The second tallest building in Hong Kong (consisting of two Grade A skyscrapers with over 30 floors and over 77-floors, a large scale luxury shopping arcade, a renowned international branded 5-star hotel situated on the waterfront of Central district). Cruise terminal buildings (consisting of Grade A offices and the largest shopping arcade in Hong Kong with over 2.0 million sq.ft that houses the flagship stores of well-known global brands situated in Tsim Sha Tsui). A luxurious residential development in Shouson Hill. Leisure and recreation Renovation of buildings at racecourses in Happy Valley and Shatin including restaurants, lounges and related facilities owned and operated by a jockey club in Hong Kong. A luxurious international branded 5-star resort hotel with 471 rooms featuring a green theme situated in the theme park of a landmark tourist destination in Hong Kong. Industrial, logistics and institutional Maintenance services Warehouse buildings in Tsing Yi for storing high fashion, luxury goods, and high end accessories of the world s well-known French high fashion brand. A data centre in Shatin for a leading Hong Kong data centre solution provider listed on the Main Board. New student residence halls with a gross floor area of more than 14,000 sq.m. providing 1,200 hostel places of a non-profit, private university-level institution in Shatin that was attained the Platinum rating of BEAM Plus (V1.2) certification. Our maintenance services mainly cover the provision of repair and servicing, including preventive and scheduled maintenance to ensure proper functioning of the existing E&M systems. The maintenance services undertaken by us generally require us to perform specific works in accordance with work orders from our customers during a fixed contract period. 114

122 BUSINESS OUR CONTRACTS All of our revenue from the provision of our services was derived in Hong Kong. During the Track Record Period, contracts undertaken have generally been in the private sector in respect of both our (i) E&M engineering services and (ii) maintenance services. We have participated in over 200 contracts for a wide range of buildings and facilities in various scale and complexity with an aggregate contract sum of more than HK$1,704.0 million, with contract sum for an individual contract generally ranging from approximately HK$0.5 million to HK$175.9 million. Set out below is the breakdown of our revenue by contract sum: Number of contracts (Note) (approx.) FY2016 FY2017 FY2018 Revenue Number of Revenue Number of Revenue recognized contracts (Note) recognized contracts (Note) recognized HK$ 000 % HK$ 000 % HK$ 000 (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) % (approx.) E&M engineering services Over HK$50 million 6 204, , , HK$10 million and below 13 85, , , HK$50 million Below HK$10 million 56 22, , , Subtotal , , , Maintenance services Below HK$5.0 million 58 10, , , Total , , , Notes: The number of contracts refers to the number of contracts which generated revenue recognized by our Group during the relevant financial period. With respect to our E&M engineering services contracts, during the Track Record Period, we have completed a total of approximately 70 E&M engineering services contracts of which approximately 20 were major contracts, being those with initial contract sums of HK$10 million or above ( Major Contracts ). The individual contract sum of our E&M engineering services contracts generally ranged from approximately HK$0.5 million to HK$175.9 million. The duration of our E&M engineering services contracts generally range from six months to 24 months, depending on the size of the contract, nature of works and the complexity of the works undertaken. With respect to our maintenance services contracts, the individual contract sum of our maintenance services contracts we participated during the Track Record Period was generally not more than HK$4.0 million. The duration of our maintenance services contracts is generally approximately one year. 115

123 BUSINESS (i) Completed contracts During the Track Record Period, we have completed a total of approximately 70 E&M engineering services contracts, of which approximately 20 were Major Contracts with an initial contract sum of HK$10.0 million or above. Completion of contracts refers to those contracts where (i) the certificates of practical completion have been issued by our customers or their agents to us; or (ii) we have agreed with our customers on practical completion by exchange of correspondence; or (iii) we have handed over the work site to our customers. The following table sets out the details of such Major Contracts during the Track Record Period: Revenue recognized Code Particulars Major scope of works (1) Start date (2) End date (3) Initial contract sum (4) before the Track Record Revenue to be recognized subsequent to FY2018 Period in FY2016 in FY2017 in FY2018 (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) 503 Residential property at Ho Man Tin Elect (incl. ELV) August 2012 November Renovation of the largest shopping arcade of Hong Kong as part of the cruise terminal in Tsim Sha Tsui Integrated April 2013 June Residential building at the Mid-levels Elect (incl. ELV) September 2013 January P007 Residential property in Tseung Kwan O Elect October 2013 February Mixed use building on Jaffe Road, Causeway Bay MVAC December 2013 September Retail store of a multinational computer and smartphone developer from United States located in Tsim Sha Tsui Integrated December 2013 July New student residence halls of a non-profit, private and university-level institution in Shatin Integrated (incl. ELV) August 2014 July (5) (2.1) (6) P009 Residential villa on Chung Hom Kok Road MVAC September 2014 June

124 BUSINESS Revenue recognized Code Particulars 563 Training centre in Shek Mun of the largest commercial bank in Hong Kong which is duallisted in London and Hong Kong Major scope of works (1) Integrated Start date (2) October 2014 End date (3) August 2016 Revenue Initial contract sum (4) before the Track Record Period in FY2016 in FY2017 in FY2018 to be recognized subsequent to FY2018 (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) Renovation of a building at a racecourse in Shatin of a jockey club Integrated (incl. ELV) February 2015 July Restaurant at a racecourse in Shatin of a jockey club Integrated March 2015 June Residential property in To Kwa Wan Elect (incl. ELV) April 2015 June The largest shopping arcade of Hong Kong as part of the cruise terminal in Tsim Sha Tsui Integrated (incl. ELV) May 2015 September Three floors of a logistics facility in Tsing Yi Integrated (incl. ELV) July 2015 September Data centre in Shatin for a Hong Kong leading data centre solution provider listed on Main Board 583 Clubhouse of a fraternity club in Central Elect January 2016 November 2016 Integrated June 2016 September Two floors of a logistics facility in Tsing Yi Integrated October 2016 November

125 BUSINESS Revenue recognized Code Particulars Major scope of works (1) Start date (2) End date (3) Initial contract sum (4) before the Track Record Revenue to be recognized subsequent to FY2018 Period in FY2016 in FY2017 in FY2018 (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) 591 Building facilities at a racecourse in Shatin of a jockey club Integrated March 2017 December Private sports club in Happy Valley MVAC June 2017 April Two floors of a logistics facility in Tsing Yi Integrated (incl. ELV) August 2017 April Total: Notes: 1. Elect stands for our electrical system works; MVAC stands for our MVAC system works; P/D stands for our plumbing and drainage system works; Fire stands for fire service system works; ELV stands for extra low voltage system works; BMS stands for building managements system works; and Integrated stands for the provision of works in respect of more than one of the aforementioned. 2. The start date refers to the date of commencement of our works as set out in the letter of award, letter of acceptance and/or written agreement (as the case may be) between our customers and us. 3. The end date refers to the actual date of completion of our works, which is (i) the completion date in the certificates of practical completion issued by our customers or their agents to us; or (ii) the date of practical completion agreed between us and our customers by exchange of correspondences; or (iii) the date when we handed over the work site to our customers. Revenue to be recognized for completed contracts refers to the Directors best estimates for revenue to be recognized based on the remaining service expected to be performed during the defect liability period. 4. The initial contract sum represents the contract sum stated in the letter of award, letter of acceptance and/or written agreement (as the case may be), which is subject to certain changes, including but not limited to variation orders. 5 Works for 560 were undertaken pursuant to three separate contracts entered into by our Company. Save and except 560, the scope of works represented by each code is governed by an individual contract. 6. Revenue recognized was primarily attributable to contra charges which have been agreed and deducted in the final account. 118

126 BUSINESS (ii) Ongoing contracts as at 31 May 2018 As at 31 May 2018, we had ten ongoing contracts in respect of our E&M engineering services, of which five were Major Contracts and have contributed revenue during the Track Record Period. The following table sets out the details of such Major Contracts as at 31 May 2018: Revenue recognized in Code Particulars Major scope of works (1) Start date (2) End date (3) Initial contract sum (4) Revenue to be recognized subsequent to FY2018 FY2016 FY2017 FY2018 (HK$ million) (HK$ million) (HK$ million) (HK$ million) (HK$ million) (approx.) (approx.) (approx.) (approx.) (approx.) P011 Podium and shopping mall at Nam Cheong Station Elect October 2014 December International chain hotel at Kwun Tong Elect (incl. ELV) March 2015 December International branded 5-star resort hotel in a theme park in Shouson Hill Integrated (incl. ELV) May 2016 September Offices with the largest shopping arcade of Hong Kong as part of the cruise terminal in Tsim Sha Tsui Integrated (incl. ELV) March 2018 October Office of a global financial institution in the second tallest building in Hong Kong Integrated April 2018 September Total: Notes: 1. Elect stands for our electrical system works; MVAC stands for our MVAC system works; P/D stands for our plumbing and drainage system works; Fire stands for fire service system works; ELV stands for extra low voltage system works ; and Integrated stands for the provision of works in respect of more than one of the aforementioned. 2. The start date refers to the date of commencement of our works as set out in the letter of award, letter of acceptance and/or written agreement (as the case may be) between our customers and us. 3. The expected end date refers to the expected date of completion of our works 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 written agreement (if any), the extension period granted by our customers (if any) and the actual work schedule. 4. The initial contract sum is represents the contract sum stated in the letter of award, letter of acceptance and/or written agreement (as the case may be), which is subject to certain changes, including but not limited to variation orders. 119

127 BUSINESS (iii) New contracts As at the Latest Practicable Date, we have entered into two new E&M engineering services contracts with an aggregate initial contract sum of approximately HK$27.0 million but for which no substantial work has been commenced such that no cost has been incurred and no revenue has been derived as at 31 May The following table sets out the details of such new contracts: Code Particulars Major scope of works (1) Start date (2) End date (3) Initial contract sum (4) (HK$ million) (approx.) 606 Luxurious residential development in Shouson Hill MVAC May 2018 May The largest commercial bank in Hong Kong which is duallisted in London and Hong Kong Integrated June 2018 October Notes: 1. Elect stands for our electrical system works; MVAC stands for our MVAC system works; P/D stands for our plumbing and drainage system works; Fire stands for fire service system works; and Integrated stands for the provision of works in respect of more than one of the aforementioned. 2. The expected start date refers to the date of commencement of our works as set out in the letter of award, letter of acceptance and/or written agreement (as the case may be) between our customers and us. 3. The expected end date refers to the expected date of completion of our works 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 written agreement (if any), the extension period granted by our customers (if any) and the actual work schedule. 4. The initial contract sum represents the contract sum stated in the letter of award, letter of acceptance and/or written agreement (as the case may be), which is subject to certain changes, including but not limited to variation order. 120

128 BUSINESS (iv) Tenders and quotations submitted Up to 13 August 2018, we have submitted (a) approximately 29 tenders for Major Contracts with an aggregate proposed initial contract sum of approximately HK$680.7 million submitted in the private sector; (b) approximately one tender for Major Contracts in the public sector with an initial estimated contract sum of approximately HK$19.1 million; (c) other tenders for non-major Contracts with individual initial estimated contract sum of approximately below HK$10.0 million; and (d) approximately two quotations for Major Contracts with an aggregate initial contract sum of approximately HK$35.0 million subsequent to the Track Record Period and as at the Latest Practicable Date. (a) Tenders submitted in the private sector Tender code Particulars Proposed major scope of works Date of tender submission Proposed initial contract sum (HK$ million) (approx.) T3060 A proposed commercial building in Central Integrated (incl. ELV and BMS) 14 February T3073 A proposed composite development project Integrated (incl. ELV) 6 April T3082 The chief executive suite at an international branded 5-star hotel in Wan Chai Integrated (incl. ELV) 6 April T3090 A proposed office development in Sheung Wan Integrated (incl. ELV) 18 April T3088 A residential development in Tin Shui Wai Integrated (incl. ELV) 26 April T3083 A residential development in Ho Man Tin Elect (incl. ELV and BMS) 27 April T3107 A Spanish retail shop of the largest shopping arcade of Hong Kong as part of the cruise terminal in Tsim Sha Tsui Integrated 23 May T3099 A proposed residential redevelopment in Kowloon Tong Integrated (incl. ELV) 24 May T3076 T3118 A proposed residential development in Ho Man Tin A retail store of a global luxury brand with British heritage in Central PD 28 May Elect 9 June T3111 A commercial building redevelopment in Central Elect (incl. ELV and BMS) 15 June T3120 A new department store in To Kwa Wan Fire 21 June

129 BUSINESS Tender code Particulars Proposed major scope of works Date of tender submission Proposed initial contract sum (HK$ million) (approx.) T3121 T3117 T3125 A new department store in To Kwa Wan A commercial building redevelopment at Central Building facilities located in Tseung Kwan O of the largest commercial bank in Hong Kong which is dual-listed in London and Hong Kong P/D 26 June MVAC 3 July Elect 3 July T3126 A proposed commercial redevelopment at Tin Hau Integrated (incl. ELV) 9 July T3128 T3133 A higher education institution in Tseung Kwan O Public stands at a jockey club in Happy Valley Fire 12 July P/D 12 July T3123 A floor of the headquarter building of a jockey club in Happy Valley in Hong Kong Integrated (incl. ELV and BMS) 13 July T3130 A new department store in To Kwa Wan Integrated (incl. ELV) 16 July T3127 Two floors of a new waterfront skyscraper in Tsim Sha Tsui Integrated (incl. ELV) 20 July T3132 Shopping arcade in Tsim Sha Tsui Integrated (incl. ELV) 25 July T3144 T3145 The kitchen of a golf club at Deep Water Bay A golf club at Deep Water Bay in Hong Kong MVAC 25 July MVAC 26 July T3138 Two office units separately located at two skyscrappers Elect (incl. ELV) 30 July T3135 A commercial building of a statecontrolled commercial bank which is dual-listed in Hong Kong and Shanghai MVAC (incl. BMS) 27 July T3154 The plant room of an international insurance financial institution in Hong Kong P/D 3 August

130 BUSINESS Tender code Particulars Proposed major scope of works Date of tender submission Proposed initial contract sum (HK$ million) (approx.) T3156 T3139 The lobby area of an international branded 5-star luxury hotel in Admiralty The Kowloon Bay office of a leading American global financial and banking institution MVAC 6 August Integrated (incl. ELV) 8 August Subtotal: (b) Tender submitted in the public sector Tender code Particulars Main category of works Date of tender submission Proposed initial contract sum (HK$ million) (approx.) T3150 Various venues of the largest disciplined service under the Security Bureau in Hong Kong Elect (incl. ELV) 10 August Subtotal: 19.1 (c) Other tenders submitted (2) Subtotal: 12.4 Total: Notes: 1. Elect stands for our electrical system works; MVAC stands for our MVAC system works; P/D stands for our plumbing and drainage system works; Fire stands for fire service system works; ELV stands for extra low voltage system works; BMS stands for building managements system works; and Integrated stands for the provision of works in respect of more than one of the aforementioned. 2. Other tenders submitted refer to four tenders with a work scope of integrated services and/or builder s work where the initial estimated contract sum is below HK$10.0 million. 123

131 BUSINESS (d) Quotations submitted Quotation code Particulars Proposed major scope of works Date of quotation submission Proposed initial contract sum (HK$ million) (approx.) Q1 Two floors of the main building of the largest commercial bank in Hong Kong which is dual-listed in London and Hong Kong Integrated 13 August Q2 The whole floor of a logistics facility in Tsing Yi Integrated 13 August Total: 35.0 Contract backlog Backlog might not be indicative of our future operating results. Difficulties in contract performance could lead to inaccuracies with respect to the ultimate revenue from contracts that have not been completed. The contracts we entered into with our customers are normally fixed price contracts but they are subject to amongst others additional works, variation orders or other requirements as determined by our customers. Further, the termination or modification of any one of more sizeable contracts or the addition of other contracts could have a substantial and immediate effect on the amount of our backlog and the revenue and profits we may earn from such contracts, and could have a material adverse effect on our profitability and financial condition. As a result, our backlog information presented in this document should not be relied on as an indicator of our future earnings. During the Track Record Period, we experienced a backlog of works in respect of our completed and on-going contracts. Backlog represents our estimate of the aggregate contract sum of the work that has been awarded to us and remains to be completed as of a certain date from the contract date. As the work on these contracts advances, amounts are progressively removed from the backlog. Backlog is not an audited measure defined by HKFRSs and our methodology in determining backlog may not be comparable to the methodology used by other companies. 124

132 BUSINESS The following table sets forth the movement of our contract backlog as at the Latest Practicable Date: (1) Completed and on-going contracts FY2016 FY2017 FY2018 HK$000 HK$000 HK$000 (approx.) (approx.) (approx.) Opening balance 295, , ,778 Aggregate initial contract sum of new contracts and certified variation order 1 464, , ,432 Revenue recognized: Initial contract sum (297,521) (351,492) (276,675) Variation orders (15,348) (28,837) (94,796) Subtotal (312,869) (380,329) (371,471) Closing balance 2 446, , ,739 (2) New contracts as at Latest Practicable Date 1 Initial contract sum 27,000 Total contract backlog 3 235,739 Note: 1. Representing the aggregate amount of the initial contract sum of the new contracts awarded and the certified variation order during the relevant periods. 2. All amount of such balance have been agreed with/certified by our customers or their agents as at Latest Practicable Date. 3. Excluding the initial contract sum of Contract 611 which is started in June 2018, the total amount would become HK$233.1 million. For further details, please refer to Note 19 to the Accountant s Report in Appendix I to this Document. The following table sets out details of the expiry profile of our contract backlog as at the Latest Practicable Date which shall be undertaken for the periods indicated: Revenue to be recognized subsequent FY2019 FY2020 to FY2020 Total (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) Contract backlog arising from: Completed and ongoing contracts 208, ,739 New contracts as at the Latest Practicable Date 23,340 2,440 1,220 27,000 Total 232,079 2,440 1, ,739 Expiry profile 98.5% 1.0% 0.5% 100.0% 125

133 BUSINESS In addition to the total contract backlog of approximately HK$235.7 million in the table above, we had (i) received certified variation orders of approximately HK$12.9 million for the two months ended 31 July 2018; and (ii) applied approximately HK$32.7 million variation orders which were pending certification from our customers or their agents as at 31 July The amount of revenue to be recognized is subject to variations including but not limited to the actual progress and the commencement and completion dates of the respective contracts. Major terms of our E&M engineering services contracts During the Track Record Period, we entered into contracts with our customers in respect of our E&M engineering services on a contract-by-contract basis. The following table summarizes the major terms of engagement with our customers for our contracts for E&M engineering services: Key terms Description Type and scope of work The scope of works provide with detailed specifications and drawings of our E&M engineering services. Commencement date The period of a contract typically commences on the date when we are allowed to commence work at the site until completion in accordance with the contract. 126

134 BUSINESS Key terms Initial contract sum Payment terms Variation order Defect liability period Retention money Insurance Performance bonds and liquidated damages Description The contracts usually state an agreed initial contract sum subject to variations. There is usually an itemized breakdown of each of the works and quantities and their respective price rate. We will generally receive progress payments and a final payment. Progress payments are payable with reference to works completed and for final payments, such amount will only be paid upon the issue of the final accounts. Our customers may issue instructions ordering variations to the design, quality or quantity of the works which are outside the scope of the original contract. The contract may set out a defect liability period, which is generally 12 to 24 months from the date of the practical completion certificate during which we are responsible and required to rectify any defects in our works. Our customers are generally entitled to withhold 5% to 10% of the certified amount specified in the progress payment with a maximum cap of 5% of the contract sum as retention money to be released at the end of the defect liability period. Usually the main contractor are generally responsible for purchasing the employees compensation insurance and contractor s all risks insurance in respect of the persons who work at the sites of the contracts. We may also be obligated to purchase insurance policies ourselves depending on the terms of the contracts. Our customers normally request that we take out performance bonds issued by a bank or an insurance company in favour of our customers, pursuant to which the bank or insurance company agrees to pay a sum of money to our customers if we fail to perform our obligations under the contract. Generally, the amount of performance bond required for a contract undertaken by us does not exceed 10% of the total contact sum and normally expires after completion of the contract. 127

135 BUSINESS Key terms Description It is also common to include a liquidated damages clause in the contract, pursuant to which we may be liable to pay liquidated damages to our customers if we fail to complete the works in accordance with the contract. Indemnity We are generally required to indemnify our customers against any loss, damage, costs or expenses suffered from our failure to perform our obligations under the relevant contract. Termination of contracts Our contracts can typically be terminated by our customers for reasons including, if our performance is found to be unsatisfactory or if we become insolvent. During the Track Record Period, no contract had been terminated for such reasons. Major terms of our maintenance services contracts During the Track Record Period, we entered into contracts with our customers in respect of our maintenance services. The following table summarises the major terms of engagement with our customers for our maintenance services. Key terms Type and scope of work Commencement date Initial contract sum Payment terms Termination of contracts Description The scope of works specifies the types of maintenance services required and the type of E&M engineering systems covered by such services. The period of a contract typically commences on the date when we are allowed to commence maintenance services at the site. The contracts usually state an agreed initial contract sum. The total contract sum is generally a fixed amount and our Group are usually paid by the customers on a monthly basis by way of cheque or bank transfer. Our contracts can typically be terminated where we are in breach of the relevant provisions of the contract. During the Track Record Period, no contract had been terminated for such reasons. 128

136 BUSINESS OUR BUSINESS OPERATIONS services: The following diagram illustrates the general operation and timeline for provision of our Private sector (and public sector) contracts Private sector Invitation for tender/quotation Public sector Invitation for tender Preparation and submission of tender documents/quotation Bidding phase Review of tender or quotation and engagement by customers Work planning and preparation Purchasing of the relevant materials Engaging subcontractors E&M engineering services Implementation phase (approximately 6 months to 24 months) Site installation Implementation of variation orders until end of completion phase Testing & commissioning Progress payment until end of defect liability period Practical completion & handover Completion phase Defect liability period Final account and payment Maintenance phase Maintenance services (optional) Maintenance services 129

137 BUSINESS 1. Bidding phase Invitation for tender/quotation Our contracts are generally initiated by invitations for tender or quotations from our potential customers, after considering these factors including financial condition, job references and size of organization. These invitation letters generally set out brief description of the works required, required completion date and the tender submission deadline. We may also undertake some contracts for which our potential customers do not require tendering. Tendering strategies We take into account various factors when considering whether to submit tenders and provide quotations including but not limited to the scale or contract sum of the contracts, profitability, the availability of our resources, clients profile and credibility and the availability of competitors, etc. In some circumstances, we may through tendering keep our presence in the market and keep us abreast of the market requirements and pricing, maintain customer relationship and increase our opportunity to work with new customers. Preparation and submission of tender documents/quotations Upon receipt of the invitation for tender or quotation, our management team will initially review the invitation and may assign employees to prepare the tender documents or quotations as well as a cost sheet. The cost sheet will be prepared with the reference to the scope of works and specifications in the tender and is used for estimate of contract costs. After the preparation of the above documents, our management team will then assess these documents and make a final decision as to whether to proceed with the tender or quotation. Our tender price will be made with reference to the factors as mentioned in the paragraph Tendering Strategies above. During the Track Record Period, the duration of our contracts generally lasted from six months to 24 months, which was attributable to various factors including, the nature of the contracts, technical complexity and amount of variation works. Set out below are details of our tender success rate during the Track Record Period: By number of tenders By initial contract sum FY2016 FY2017 FY2018 FY2016 FY2017 FY2018 (approx.) (approx.) (approx.) (HK$ million) (approx.) (approx.) (approx.) Tenders Tenders submitted , , ,882.3 Tenders awarded (Note) Success rate 27.3% 17.1% 23.2% 21.1% 6.6% 15.2% Note: The number of contracts awarded in a given year is the number of awarded contracts that had been tendered in that year, even though the letter of award, letter of acceptance and/or written agreement might have been issued in the subsequent year. The information in the table above is based on information available up to the Latest Practicable Date. Our quotation success rate during the Track Record Period was approximately 100.0%. 130

138 BUSINESS Review of tender or quotation and engagement After the submission of the tender or quotation documents, our potential customers may review and pose queries or have interviews with us regarding submitted documents. They may also negotiate with us as to the price, should our customers agree to engage us, we may enter into formal contracts. For details of the key contract terms with our customers, please refer to the paragraph headed Business Our Contracts Major terms of our E&M engineering contracts in this section. During the Track Record Period, revenue from our tendered contracts accounted for approximately 96.0%, 93.7% and 95.8% of our total revenue, respectively while revenue from the quotations accounted for approximately 4.0%, 6.3% and 4.2%, respectively, of our total revenue for he same periods. 2. Implementation phase Once a contract is awarded, our employees will carry out the works in accordance with the work schedule as agreed with our customers. This may include the preparation and submission of a project plan to the customer. The project plan generally contains information including but not limited to a preliminary installation program, equipment and material submission schedule, sample submission schedule and drawing submission schedule which indicate all the works to be completed in accordance with the work plan. We are generally responsible for the (i) carrying out the works in accordance with the terms of the contracts (though we may subcontract the work); (ii) the procurement of the relevant materials and equipment; (iii) monitoring of the works of our subcontractors and (iv) conducting final testing and commissioning to ensure the works meet the specified requirements (regulatory or otherwise). To ensure the above, we will monitor the progress and quality of the works to ensure that they are capable of meeting the time and quality requirements of our customers and that they are within the allocated budget. Where there are material issues, we will discuss with the relevant parties to resolve such issue, nevertheless where there are material deviations in the actual time and resources spent from our initial estimations, there may be cost overruns which may affect our profitability. During the Track Record Period and up to the Latest Practicable Date, we did not receive any material complaints about the quality of our services from our customers. Procurement of supplies and engagement of subcontractors During the Track Record Period, the materials we used for carrying out our works under our contracts were generally sourced from our suppliers on our approved internal list. For details please refer to the paragraph headed Our Suppliers in this section. We may delegate works to our subcontractors after considering our capacity, internal resources, technical skills and cost effectiveness. For further details, please refer to the paragraph headed Our Subcontractors in this section. 131

139 BUSINESS Progress payments and variation orders In general, we are entitled to receive progress payments from our customers, which are payable with reference to works completed. Our payment applications are normally made on a monthly basis based on completed works and will generally set out details of works completed, variation orders (if any) and the costs of the materials delivered. Once a payment application is approved, a payment certificate may be issued to us, where upon, we will issue an invoice to customers. Our customers may issue instructions ordering variations to the design, quality or quantity of the works during the term of the contract. Works done under variation order are subject to verification by our customers. The rates and prices of the variations shall be the same as those specified in the contracts for the like or analogous work. If there are no like or analogous works under the contract which we could make reference to, our customers will negotiate a new rate with us. Testing and commissioning Before completion of a contract, we will ensure that all specified inspections, testing and commissioning have been carried out and that the relevant results meet the specifications under the contract. We will also conduct relevant quality tests during the testing and commissioning stage and will rectify any issue or defects identified. 3. Completion phase Practical completion and handover We will arrange with our customers or their agents to handover our work if we are satisfied with the testing and commissioning results. Our customers or their agents may then issue a practical completion certificate to us which confirms the completion of the relevant contract. Defect liability period Upon certifying that the works have been completed, our customers would normally require a defect liability period during which we are responsible for rectifying defects of our works. We usually require our sub-contractor to provide back-to-back defect liability period. The defect liability period is usually 12 to 24 months from the date of practical completion certificate. Upon the expiry of the defect liability period, our customers will generally release the remaining retention money to us and the performance bonds (if any) would also be released. 132

140 BUSINESS Final accounts and payment After the defect liability period subject to the final accounts being agreed (if applicable), we will issue an invoice for payment. Our Directors confirm in general, it will take approximately six to twelve months after the defect liability phase for the final account to be issued. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, our Group did not experience any material delay in the completion of our contracts primarily due to the failure of our work or which resulted in the payment of liquidated damages nor had we had any material disputes with our customers as to our payments or the final accounts. 4. Maintenance phase We may be engaged to provide subsequent maintenance services upon our completion of our E&M engineering services for our customers. Please refer to the paragraph Our Business and Services Maintenance services in this section for further details. OUR CUSTOMERS, SALES AND MARKETING During the Track Record Period, our customers in respect of our E&M engineering services were generally main contractors, who contract all or part of the E&M engineering works to subcontractors, like our Group and property owners/developers. Main contractors generally are engaged by the property owners or developers in the private sector, and are normally responsible for (i) overseeing the progress of the entire construction or building renovation contract; (ii) subcontracting different work tasks of the contract; and (iii) supervising subcontractors in performing the subcontracted works. Our customers in respect of our maintenance services are mainly tenants or occupants of the buildings or facilities. We have maintained business relationship with some of our five largest customers during the Track Record Period for up to approximately 17 years. Five largest customers During the Track Record Period, revenue attributable to our five largest customers amounted to approximately HK$230.0 million, HK$244.9 million and HK$312.3 million, representing approximately 71.2%, 61.7% and 81.2% of our revenue, respectively, whereas revenue attributable to our largest customer amounted to approximately HK$72.8 million, HK$112.1 million and HK$118.6 million, representing approximately 22.6%, 28.2% and 30.8% of our revenue, respectively. 133

141 BUSINESS Set out below is a breakdown of our revenue attributable to our five largest customers during the Track Record Period and their respective background information: FY2018 Rank Customer Background of customer Principal services provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ payment method %ofour Transaction total revenue amounts for the year (HK$ 000) (%) (approx.) (approx.) 1. Customer A A Hong Kong property developer whose parent company is listed on Main Board with revenue of approximately HK$1,704.1 million for the financial year As at 31 July 2017, it had net assets of approximately HK$27,104.5 million. E&M engineering services days/ cheque 118, Customer B A Hong Kong private main contractor. E&M engineering services days/ cheque 94, Customer C One of the largest Hong Kong property developers whose parent company is listed on Main Board with revenue of approximately HK$78,207 million for the financial year As at 30 June 2017, it had net assets of approximately HK$507,363 million. E&M engineering services days/ bank transfer 67, Customer D A Hong Kong main contractor whose parent company is listed on GEM with revenue of approximately HK$651.4 million for the financial year As at 30 June 2017, it had net assets of approximately HK$153.9 million. E&M engineering services days/ cheque 16, Customer E A Hong Kong main contractor principally provides RMAA and fitting-out works services whose parent company is listed on GEM with revenue of approximately HK$445.5 million for the financial year As at 31 March 2018, it had net assets of approximately HK$87.5 million. E&M engineering services days/ cheque 15, Total 312,

142 BUSINESS FY2017 Rank Customer Background of customer Principal services provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ payment method %ofour Revenue total revenue contribution for the year (HK$ 000) % (approx.) (approx.) 1. Customer F A Hong Kong private main contractor. E&M engineering services days/ cheque 112, Customer C One of the largest Hong Kong property developers whose parent company is listed on Main Board with revenue of approximately HK$78,207 million for the financial year As at 30 June 2017, it had net assets of approximately HK$507,363 million. E&M engineering services days/ bank transfer 34, Customer D A Hong Kong main contractor whose parent company is listed on GEM with revenue of approximately HK$651.4 million for the financial year As at 30 June 2017, it had net assets of approximately HK$153.9 million. E&M engineering services days/ cheque 34, Customer A A Hong Kong property develope whose parent company is listed on Main Board with revenue of approximately HK$1,704.1 million for the financial year As at 31 July 2017, it had net assets of approximately HK$27,104.5 million. E&M engineering services days/ cheque 33, Customer G A Hong Kong main contractor whose parent company is listed on Main Board with revenue of approximately HK$581.0 million for the financial year As at 31 March 2018, it had net assets of approximately HK$140.7 million. E&M engineering services days/ cheque 30, Total 244,

143 BUSINESS FY2016 Rank Customer Background of customer Principal services provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ payment method %ofour Revenue total revenue contribution for the year (HK$ 000) % (approx.) (approx.) 1. Customer G A Hong Kong main contractor whose parent company is listed on Main Board with revenue of approximately HK$581.0 million for the financial year As at 31 March 2018, it had net assets of approximately HK$140.7 million. E&M engineering services days/ cheque 72, Customer H A Hong Kong main contractor whose parent company is listed on Main Board with revenue of approximately HK$5,986.4 million for the financial year As at 31 December 2017, it had net assets of approximately HK$712.6 million. E&M engineering services days/ cheque 50, Customer F A Hong Kong main contractor. E&M engineering services days/ cheque 41, Customer E A Hong Kong main contractor principally provides RMAA and fitting-out works services whose parent company is listed on GEM with revenue of approximately HK$445.5 million for the financial year As at 31 March 2018, it had net assets of approximately HK$87.5 million. E&M engineering services days/ cheque 40, Customer C One of the largest Hong Kong property developers whose parent company is listed on Main Board with revenue of approximately HK$78,207 million for the financial year As at 30 June 2017, it had net assets of approximately HK$507,363 million. E&M engineering services days/ bank transfer 24, Total 230,

144 BUSINESS Our Directors confirm that none of our Directors, their close associates or any Shareholder (who or which, to the knowledge of our Directors owns more than 5% of the issued share capital of our Company) had any interest in any of our five largest customers during the Track Record Period. Pricing and payment We typically fix our initial contract sum at an agreed lump sum on a fixed amount basis when we submit our tender or quotation. Our pricing for services is determined based on a cost-plus basis taking into account a number of the factors, including but not limited to, (i) nature, scope and complexity of the contract; (ii) the estimated cost of E&M equipment and materials required; (iii) the estimated subcontracting fees and direct labour costs; (iv) the duration and materials of the contract; (v) tender and/or quotation records and experience for contracts of similar nature, scope and complexity; (vi) the current fee level in the market and market demand; (vii) our Group s capacity and resources at the relevant time; and (viii) the customers reputation and portfolio in arriving at our final tender price or quotation fee. Upon commencement of our contracts we generally receive progress payments, which are based upon works completed pursuant to the contracts. In the course of a contract, we may be given variation orders where our customers may request for additional services, amend the specifications and scope of works from the originally contract. A variation order may expand, reduce or vary the original scope of work and alter the contract sum. The final fee for the variation orders may therefore be determined upon negotiations and agreement with the customers. Variation orders may in some cases vary the contract sums, resulting in the final contract sums being materially different from the initial contract sums. The final payment, including provision for contract sum, would generally be paid together with the release of retention money, upon the issue of final accounts of the relevant contract, which is generally six to 12 months after the defect liability period. Our sales from the contracts are denominated in Hong Kong dollars. Payments for service fees are generally settled by our customers by way of cheque and bank transfer. During the Track Record Period, we had contra-charge arrangements with approximately 11 of our customers, who are also the main contractors of our projects and had purchased certain materials on behalf of us acting as the subcontractor for the projects and the payments for the purchase costs of such materials. Such payments were settled through netting off against our progress payments and/or our final payments. Such payment arrangement is referred to as contra-charge arrangement and the amounts involved are referred to as contra-charge. For each of the Track Record Period, our contra-charges amounted to approximately HK$2.0 million, HK$1.9 million and HK$0.6 million. According to the Ipsos Report, it is common in the construction industry that a main contractor who is also a customer may pay on behalf of its subcontractor for certain expenses incurred in a construction project. Such expenses are typically deducted from its payments to that subcontractor in settling its service fees for the project. 137

145 BUSINESS Credit policy Our Group adopts prudent credit control procedures and our accounting and finance department is responsible for monitoring payments from our customers pursuant to the terms of the contracts. For our E&M engineering contracts, we submit progress payment application to the customer generally on a monthly basis in respect of completed works. Once we have provided our progress payment application, our customer would issue a payment certificate stating our historical work progress to us. Once we have received the payment certificate, we will then issue an invoice to our customers. In general, we generally allow credit period of days upon the date of invoice to our customers. Our accounting and finance department will closely monitor the settlement status of our trade receivables and regularly review the credit terms and will work with the different departments to keep track of variation orders, contract status and payment settlement where issues arise appropriate follow up action will be taken. Marketing We do not have a dedicated sales and marketing team. We generally obtain new contracts by way of tender invitations. We have been in the industry more than 23 years. Our Directors believe that our expertise and reputation in the E&M service industry, relationship with customers and track record enable us to be awarded with future contracts. Seasonality Our Directors are of the view that the industry of E&M engineering services and maintenance services in Hong Kong does not exhibit any significant seasonality issues. OUR SUPPLIERS During the Track Record Period, materials purchased from suppliers generally consisted of cables, cable accessories, assorted electrical accessories, lighting products and chillers in Hong Kong. We have not entered into any long-term supply contracts with our suppliers and we generally order relevant materials and consumables on a contract-by-contract basis. 138

146 BUSINESS We normally source materials from suppliers on our internal approved list of suppliers to ensure the quality of materials. Our supplier selection process is based on the major selection criteria including its (i) track record; (ii) quality of materials; (iii) prices; and (iv) our business relationship with suppliers. We had established business relationship with more than 230 suppliers during the Track Record Period. Up to the Latest Practicable Date, we have built up business relationships with some of our five largest suppliers during the Track Record Period suppliers for up to approximately 13 years. Our Directors believe that the supply of materials is stable and we do not anticipate any difficulty in sourcing the required materials and equipment in the future. When negotiating the prices for the materials we use when implementing a contract, the prices are generally determined between us and the suppliers on a contract-by-contract basis. The amount and timing of materials to be ordered are assessed by us on a contract-by-contract basis depending on the progress of the site work and specifications in each contract. Where there is a material increase in the price of the materials after the contract has been awarded but prior to us placing an order we will generally need to assume such risks. Notwithstanding the above, our Directors will generally consider the price trends of those products we use when making our tenders and will, where necessary, implement certain measures to manage possible fluctuations in the prices of the products we purchase for our contracts. During the Track Record Period and up to the Latest Practicable Date, our Directors confirm that we did not experience any fluctuations in the costs of the products we purchased for our contracts which had a material impact upon our business operations and financial conditions. Five largest suppliers The costs incurred attributable to our five largest suppliers amounted to approximately HK$45.5 million, HK$39.9 million and HK$36.3 million respectively, representing approximately 60.1%, 52.9% and 56.8% of our total direct material costs, respectively, while the largest supplier accounted for approximately HK$20.6 million, HK$15.5 million, HK$15.6 million, representing approximately 27.1%, 20.5% and 24.4% of our total direct material costs. 139

147 BUSINESS The following table sets out the breakdown of our Group s cost incurred attributable our five largest suppliers during the Track Record Period and their respective background information: FY2018 Rank Supplier Background of supplier 1. Supplier A A Hong Kong trading company of medium and low voltage cables and telecommunication cables 2. Supplier B A Hong Kong trading company of power cables and provision of power solutions 3. Supplier C A Hong Kong trading company of metal cable containment and cabling system 4. Supplier D A Hong Kong trading company of engineering materials 5. Supplier E A Hong Kong trading company of engineering materials Principal products provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ settlement method Cable days/ cheque Cable days/ cheque Cable accessories Assorted electrical accessories Assorted electrical accessories days/ cheque days/ cheque days/ cheque % of our direct Transaction material cost amounts for the year (HK$ 000) % (approx.) (approx.) 15, , , , , Total 36,

148 BUSINESS FY2017 Rank Supplier Background of supplier 1. Supplier A A Hong Kong trading company of medium and low voltage cables and telecommunication cables 2. Supplier B A Hong Kong trading company of power cables and provision of power solutions 3. Supplier C A Hong Kong trading company of metal cable containment and cabling system 4. Supplier E A Hong Kong trading company of engineering materials 5. Supplier F A Hong Kong trading company of lighting products Principal products provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ settlement method Cable days/ cheque Cable days/ cheque Cable accessories days/ cheque Assorted electrical accessories days/ cheque Lighting products days/ cheque % of the direct Transaction material cost amounts for the year (HK$ 000) % (approx.) (approx.) 15, , , , , Total 39, FY2016 Rank Supplier Background of supplier 1. Supplier A A Hong Kong trading company of medium and low voltage cables and telecommunication cables 2. Supplier B A Hong Kong trading company of power cables and provision of power solutions 3. Supplier E A Hong Kong trading company of engineering materials 4. Supplier G A Hong Kong trading company of engineering materials 5. Supplier C A Hong Kong trading company of metal cable containment and cabling system Principal products provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ settlement method Cable days/ cheque Cable days/ cheque Assorted electrical accessories days/ cheque Chiller days/ Letter of credit Cable accessories days/ cheque % of our direct Transaction material cost amounts for the year (HK$ 000) % (approx.) (approx.) 20, , , , , Total 45,

149 BUSINESS Our Directors confirmed that none of our Directors or their close associates or any Shareholder holding more than 5% of our Company s issued share capital had any interests in any of our five largest suppliers during the Track Record Period. General terms of our purchase orders with our suppliers The purchase orders we enter with our suppliers usually contain the following key terms: Key terms Description Types of products Types and specifications of the materials or equipment to be provided by our suppliers. Quantity Price Payment terms Delivery time and location The amount of the specified materials or equipment purchased by our Group. The unit price and total price of the specified materials or equipment ordered. In general, credit period ranging from 30 to 60 days upon the date of invoice. We generally settle our payment by cheque or letter of credit in Hong Kong dollars. Since we place purchase orders on a contract-bycontract basis and do not keep any inventories, we generally require our suppliers to deliver the materials ordered directly to the site in accordance to the time specified in our delivery order. The materials were usually delivered by our suppliers directly to our work sites for immediate use so that during the Track Record Period we did not keep any inventories. Our Directors confirm that, we did not experience any material shortage or delay of supply due to defaults of our suppliers. Our Directors have confirmed that none of our suppliers was our major customer during the Track Record Period. OUR SUBCONTRACTORS We had established business relationship with more than 140 subcontractors during the Track Record Period. We may from time to time engage subcontractors, who are located in Hong Kong to perform or assist us in performing certain works for our E&M engineering services or maintenance services after considering our capacity, internal resources, technical skills and cost effectiveness, in particular, those relating to certain specialist works that involve the supply, engineering, and installation of specialized E&M equipment and products or require advanced technologies for engineering installation services or where the works are labour intensive. All of our subcontracting fees were denominated in HK dollars and our 142

150 BUSINESS subcontractors normally grant a credit term of approximately 30 to 60 days from the invoice date for settlement of their invoice. According to the Ipsos Report, it is a common industry practice for subcontractors to further subcontract part of their works to other subcontractors. Our Directors consider that this is in line with the normal market practice in the E&M engineering services industry in Hong Kong and it is more cost-effective for us because maintaining a large workforce of full-time licensed or skilled labour is costly. We believe that by having such arrangement, we can focus on the business activities including project review, system design, co-ordination with our customers and project management. During the Track Record Period, our subcontracting fees amounted to approximately HK$181.5 million, HK$227.2 million and HK$222.4 million, representing approximately 63.5%, 68.6% and 69.7% of our cost of sales, respectively. Selection of subcontractors Selection of the subcontractors is normally based on, among other things (i) quality of subcontracting works; (ii) track record in delivering the subcontracting works according to the pre-agreed schedule; (iii) its experience, performance, safety and conviction record; and (iv) pricing. Our subcontractors are neither our employees nor agents and we are not a party to the employment arrangements between our subcontractors and their employees. The performance of our subcontractors are monitored by us and we have adopted policies whereby we will review the work of our subcontractors from time to time to ensure their adherence to the required specifications. Where the subcontractor fails to adhere to the requisite specifications, it will be reported to our project managers and we will take appropriate actions to ensure that the progress of works is in accordance with the terms of the contract such as to prevent issues from arising which may lead to us having to incur additional costs. Also, it is our policy that any slow work progress and any abnormal site arrangements from our subcontractors will be reported periodically to our project managers or to our management. Where our subcontractors fail to adhere to the requisite specifications, we may be held liable to our customers. We may also be held liable to for any employee compensation claims and personal injuries claims from the employees of our subcontracts for work injuries that happen from time to time. Five largest subcontractors For the Track Record Period, subcontracting fees incurred attributable to our five largest subcontractors were approximately HK$66.6 million, HK$87.0 million and HK$119.9 million, representing approximately 36.7%, 38.3% and 53.9% of our total subcontracting fees, respectively, whereas costs of materials incurred attributable to our largest subcontractor were approximately HK$17.5 million, HK$25.5 million and HK$41.5 million, representing approximately 9.7%, 11.2% and 18.6% of our total subcontracting fees, respectively, for the same periods. 143

151 BUSINESS The following table sets out the breakdown of our subcontracting fees paid to our five largest subcontractors during the Track Record Period and their respective background information: FY2018 Rank Subcontractor Background of subcontractor Principal services provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ payment method %ofour subcontracting Transaction fees for amounts the year (HK$ 000) (%) (approx.) (approx.) 1. Subcontractor A A Hong Kong engineering service company 2. Subcontractor B A Hong Kong engineering service company MVAC works days/ cheque Electrical works days/ cheque 41, , Subcontractor C Members of a world well-known manufacturing group principally engaged in providing building products and technology solutions. Its parent company is listed on the New York Stock Exchange which recorded revenue of approximately US$30,172 million for the financial year As at 30 September 2017, it had net assets of approximately US$21,367 million. Supply and installation of ELV system days/ cheque 24, Subcontractor D A Hong Kong engineering service company Electrical works days/ cheque 15, Subcontractor E A Hong Kong engineering service company Supply and installation of ELV system days/ cheque 8, Total 119,

152 BUSINESS FY2017 Rank Subcontractor Background of subcontractor Principal services provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ payment method %ofour subcontracting Transaction fees for amounts the year (HK$ 000) % (approx.) (approx.) 1. Subcontractor B A Hong Kong engineering service company Electrical works days/ cheque 25, Subcontractor F Members of a world renowned group principally engaged in providing energy management and automation products. Its parent company is listed on the Euronext Paris Stock Exchange which recorded revenue of approximately EUR 24,743 million for the financial year As at 31 December 2017, it had net assets of approximately EUR 19,942 million. Supply and installation of low voltage switchboard to 60 days/ cheque 17, Subcontractor G A Hong Kong E&M system and security devices company Fire services works days/ cheque 16, Subcontractor H A Hong Kong interior design and contracting services company 5. Subcontractor A A Hong Kong engineering service company Builder s work days/ cheque MVAC works days/ cheque 15, , Total 86,

153 BUSINESS FY2016 Rank Subcontractor Background of subcontractor Principal services provided Commencement year of our business relationship Typical credit terms (upon date of invoice)/ payment method %ofour subcontracting Transaction fees for amounts the year (HK$ 000) % (approx.) (approx.) 1. Subcontractor F Members of a world renowned group principally engaged in providing energy management and automation products. Its parent company is listed on the Euronext Paris Stock Exchange which recorded revenue of approximately EUR 24,743 million for the financial year As at 31 December 2017, it had net assets of approximately EUR 19,942 million. Supply and installation of low voltage switchboard to 60 days/ cheque 17, Subcontractor I A Hong Kong engineering service company Plumbing and drainage system days/ cheque 15, Subcontractor J A Hong Kong engineering service company 4. Subcontractor K A Hong Kong engineering service company Electrical works days/ cheque Electrical works days/ cheque 13, , Shiryu Engineering Limited A Hong Kong engineering service company Electrical works days/ cheque 9, Total 66,

154 BUSINESS Shiryu Engineering Limited is a private company in Hong Kong with limited liability incorporated on 1 April 2010 and was held by Mr. So Man Kit, an executive Director, as to 70% and an independent third party as to 30%. On 21 July 2017, Mr. So Man Kit transferred his 70% interest in Shiryu Engineering Limited to the independent third party. Subsequent to the completion of the said transfer and as at the Latest Practicable Date, Mr. So Man Kit does not have any interests in Shiryu Engineering Limited. Our Directors confirmed that to their best knowledge and upon their reasonable due diligence enquiries, fees in respect of the services provided by Shiryu Engineering Limited were determined after arm s length negotiations between Shiryu Engineering Limited and our Group. Save for the above, neither Shiryu Engineering Limited nor its beneficial owner were closely connected with any member of our Group, our Controlling Shareholders, our Directors or any of their respective close associates during the Track Record Period and up to the Latest Practicable Date. Save as disclosed above, our Directors confirmed that none of our Directors, or their close associates or any Shareholder holding more than 5% of our Company s issued share capital had any interests in any of our five largest subcontractors during the Track Record Period. Major terms of our engagement with our subcontractors We do not enter into any long-term agreements with our subcontractors. However, we would generally enter into written agreements with our subcontractors to engage their services and the typical key terms are as follows: Key terms Type and scope of work Commencement date Contract sum Payment terms Variation order Description The scope of services and type of E&M engineering works to be carried out by our subcontractors are described with detailed specifications. The subcontractor will be required to commence work and complete their works in accordance with the work schedule as per the engagement. The contracts usually state an agreed contract sum subject to variations. The total contract sum awarded is clearly stated which is generally a fix amount. Our subcontractors usually submit progress payment applications to us, usually on a monthly basis by reference to the works completed. The application is subject to our approval and we generally arrange settlement by cheque. We may issue instructions to our subcontractors ordering variation to the design, quality or quantity of the works during the term of the contract. The rates and prices of the variations shall be the same as those specified in the contracts for the like or analogous work. If there is no like or analogous works under the contract which we could make reference to, we will negotiate a new rate with our subcontractor. 147

155 BUSINESS Key terms Defect liability period Retention money Description We usually require a defect liability period from our subcontractors whereby they are required to rectify defects in their work. In general, we would retain 5-10% of the monthly payment with a maximum cap of 5% of the total contract value as retention money after practical completion. MAJOR QUALIFICATIONS AND LICENCES We are required to obtain certain qualifications and registrations for our business operations. Contractors qualified or licensed by the relevant authorities are subject to a regulatory regime which is put in place to ensure that quality standards, financial capability, expertise, management, environmental and safety are complied with contract or statutory requirements by the contractors in carrying out their works in Hong Kong. For details of the relevant laws, rules and regulations, please see the section headed Regulatory Overview in this document for further details. As confirmed by our Directors, our Group has obtained all materials and necessary licenses, permits, qualifications and registrations required for carrying out our business activities during the Track Record Period and up to the Latest Practicable Date. As at the Latest Practicable Date, we hold the following major licences, permits, qualifications and/or registrations: Licence/permit/ qualification/ registration Holder(s) Granting authority/ organisation Date of grant/ Technical registration Expiry date Qualified Person(s) (6) Director(s) (6) Authorized Signatory(ies) (6) Electrical system works 1) List of Approved Suppliers of Materials and Specialist Contractors for Public Works Electrical installation (Group III) (probationary) (1) Keio Development Bureau 16 July 2018 N/A Mr. Chan Yu Sum, Felix N/A Mr. So Man Ho 2) Registered Electrical Contractor Keio EMSD 1 June June 2019 Mr. Wong Siu Cheong, Matthew KEM EMSD 15 September 2016 N/A Mr. So Chung Fat Mr. So Man Kit Mr.SoManHo 8 October 2019 Mr. Ng Hok Wai N/A Mr. So Man Kit Mr.SoManHo 148

156 BUSINESS Licence/permit/ qualification/ registration Holder(s) Granting authority/ organisation Date of grant/ Technical registration Expiry date Qualified Person(s) (6) Director(s) (6) Authorized Signatory(ies) (6) MVAC system works 3) Registered Specialist Contractor (Ventilation Works) (2) Keio Buildings Department 6 August July 2021 N/A Ms. So Yuen Yee Mr. Chan Yu Sum Felix Plumbing and drainage system works 4) List of Approved Suppliers of Materials and Specialist Contractors for Public Works Plumbing installation (probationary) (3) Keio Development Bureau 16 July 2018 N/A Mr. Chan Chi Ho, Alex N/A Ms. So Man Ho Fire services system works 5) Registered Fire Service Installation Contractor (Class 1) (4) Keio Fire Services Department 27 March 2017 N/A Mr. Chen Tak Yi Mr. Lee Hang Kit Mr. Lee Ka Ho Mr. Tai Kim Fung N/A Mr. So Man Ho Mr. Chan Chi Ho, Alex Registered Fire Service Installation Contractor (Class 2) (4) Keio Fire Services Department 27 March 2017 N/A Mr. Lee Hang Kit Mr. Lee Ka Ho Mr. Tai Kim Fung N/A Mr. So Man Ho Mr. Chan Chi Ho, Alex Others 6) Registered Minor Works Contractor Type A (Alteration and Additional Works) Type B (Repair Works) Type C (Works relating to Signboards) Type D (Drainage Works) Type E (Works relating to Structures for Amenities) Type F (Finishes Works) Type G (Demolition Works) (Class II and Class III) (5) Keio Buildings Department 26 August August 2018 (7) Mr. Choi Ming Leung Mr. So Man Kit Mr. So Man Ho Mr. Choi Ming Leung 149

157 BUSINESS Notes: 1. Contractors included in the list may tender for public works contracts in electrical installation works and for unlimited value. As at the Latest Practicable Date, our Group s inclusion on to the list is under probationary status. 2. Registered specialist contractors may carry out specialized works in their corresponding categories in the subregisters in which they have been entered. There are five categories of works designated as specialized works: demolition works, foundation works, ground investigation field works, site formation works and ventilation works. 3. Contractors included in the list may trade for public works in plumbing installation works and for unlimited value. As at the Latest Practicable Date, our Group s inclusion onto the list is under probationary status. 4. Class 1 (Fit to install, maintain, repair and inspect and fire service installation or equipment (other than portable equipment) which contains an electrical circuit or other apparatus for the detection and warning, by alarm or otherwise, of smoke or fire; and Class 2 (Fit to install, maintain, repair and inspect any fire service installation or equipment (other than portable equipment) which contains pipes and fittings designed or adapted to carry water or some other fire extinguishing medium or any type of electrical apparatus other than those specified in Class 1). 5. Class II (Medium degree of complexity and risk with 40 minor works items); and Class III (Low degree of complexity and risk with 42 minor works items). 6. As at the Latest Practicable Date, the qualified person(s), technical director(s) and authorized signatory(ies) in respect of the relevant qualification held by Keio or KEM (as the case may be) include our executive director(s), project manager(s) and key employees of our engineering and technical operation team. 7. As at the Latest Practicable Date, we have applied for the renewal of the registration of registered minor works contractor and the application was still under review by the Buildings Department. We had not experienced any refusal of renewal of the qualifications necessary for our operations during the Track Record Period and up to the Latest Practicable Date. Our Directors do not expect any difficulty or legal impediment in obtaining the renewal license or qualification or registration. 150

158 BUSINESS EMPLOYEES During the Track Record Period, we had 68, 81, 87 full-time employees and as at the Latest Practicable Date, we had 91 full-time employees who were directly employed by our Group in Hong Kong. A breakdown of our full-time employees by function as at the Latest Practicable Date is set forth below: Number of employees by function Number of employees with licence/ registration (Note) at the Latest Practicable Date Number of employees without licence/ registration as at the Latest Practicable Date Total Management Engineering and technical Quantity surveyor and safety Finance 6 6 Human resources, administration and others Total Note: These licence(s) and registration(s) include (1) REW; (2) registration as licence plumber; (3) registration as fire service installation contractor and (4) registration as safety officer. Our Directors confirm that no individual licence or registration is required of our employee(s) to perform MVAC works. We generally recruit our employees from the open market through job advertisements placed in various recruiting platforms and enter into employment contracts with our employees. Our newly recruited employees may be subject to probation. In general, our Group determines employee salaries based on the employees qualifications, positions and seniority. Our Group will also conduct salary reviews to assess employee performance and determine salary adjustment and promotions. We incurred staff costs and directors emoluments of approximately HK$35.4 million, HK$41.6 million and HK$43.0 million for the Track Record Period, respectively. We maintain good working relationship with our employees and aim to foster a strong sense of loyalty and dedication in our employees. We strike to motivate our employees with a clear career path with provides them with opportunities to improve their skills. We provide training through third party organisers to our employees on an ongoing basis as appropriate to enrich their skills sets. Our Directors believe that these trainings can increase the efficiency, safety awareness and enable us to retain and attract quality employees. During the Track Record Period and up to the Latest Practicable Date, we have complied with the applicable employment and labour laws and regulations in all material respects, and we have not experienced any material labour dispute with our employees. 151

159 BUSINESS WORK SAFETY AND INSURANCE Health and work safety As at the Latest Practicable Date, we had a safety team including one safety officer and two safety supervisors with relevant safety supervisor qualification and/or certificates. Our safety officers are responsible for (i) preparing and submitting investigation report of any occupation accident happened at work site of each contract to the project manager and the Main Contractor; (ii) carrying out safety checks and improvement measures to prevent future accidents; and (iii) updating our project manager as to the accident rate. Our site supervisors are responsible for (i) collecting the details of the accident from the injured staff and perform site visit to understand and gather relevant information of the accident; and (ii) conducting inspection to ensure that our employees and subcontractors comply with our safety policy. If substantial non-compliance is found, we will issue warning letter or suspension notice to the relevant personnel. Further, incident reports in respect of accidents will be prepared and reported to relevant authorities including to the Commissioner for Labour under the Employees Compensation Ordinance (Chapter 282 of the laws of Hong Kong) and to the insurance company (as applicable). Our safety team will also provide training from time to time to refresh and improve safety measures with the workers. Due to the nature of works in the E&M engineering services industry, there is an inherent risk of accidents or injuries to workers. The following table sets out the details of (i) the material (i.e. where the claimed amount was HK$100,000) claims relating to work injuries of our employees or employees of our subcontractors that occurred and were settled during the Track Record Period and up to the Latest Practicable Date and; (ii) those that are on-going as at the Latest Practicable Date: No. Accident date Particulars of accidents The injured suffered from left achilles tendon laceration when he struck against a concrete panel The injured suffered from bilateral wrists fracture The injured suffered from fracture of hand when he struck against the wall while carrying a air-conditioning cabinet Relationship between the injured and our Group Employee of our subcontractor Our employee Employee of our subcontractor Status and assessed compensation sum Fully settled HK$176,000 Fully settled HK$387,000 Fully settled HK$188,

160 BUSINESS No. Accident date Particulars of accidents The injured suffered from chest and left wrist injury when he walked down the stairs The injured suffered from contusion of knees when he was tripped over by a cable on the ground The injured suffered from injury to his right eye by a hammer The injured suffered from fracture of foot when she stepped on the metal supporting frame of a generator The injured suffered from lower back pain and right 5th finger pain when he fell down from a ladder The injured suffered from back and knees pain when he fell on the ground The injured suffered from left eye abrasion when his eye contacted with dust The injured suffered from left elbow dislocation when he fell from a ladder The injured suffered from little finger injury when he used the electric drill in workplace Relationship between the injured and our Group Employee of our subcontractor Employee of our subcontractor Employee of our subcontractor Our employee Our employee Our employee Our employee Employee of our subcontractor Employee of our subcontractor Status and assessed compensation sum Fully settled HK$103,000 On-going On-going On-going On-going On-going On-going On-going On-going 153

161 BUSINESS No. Accident date Particulars of accidents The injured suffered from traumatic haemothorax when he fell from a ladder The injured suffered from right thumb injury when he adjusted the location of a plumber Relationship between the injured and our Group Employee of our subcontractor Employee of our subcontractor Status and assessed compensation sum On-going On-going All the work injuries during the Track Record Period and up to the Latest Practicable Date had been reported to the Commissioner for Labour under the Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong). Our Directors confirm that no court action has been taken against any member of our Group in relation to these work injuries and all of the above employees compensation claims were not/are not conducted through court action during the Track Record Period and up to the Latest Practicable Date. The following table sets out the comparison of the accident rate per 1,000 workers and fatality rate per 1,000 workers of our Group during FY2016, FY2017 and FY2018 against the construction industry average rate in Hong Kong during 2016, 2017 and 2018: In the construction industry (Note 1) Our Group (Note 2) 2016 Accident rate per 1,000 workers Fatality rate per 1,000 workers nil 2017 Accident rate per 1,000 workers N/A (Note 3) 12.0 Fatality rate per 1,000 workers N/A (Note 3) nil 2018 Accident rate per 1,000 workers N/A (Note 3) 22.5 Fatality rate per 1,000 workers N/A (Note 3) nil Notes: 1. The figures extracted from the Occupation Safety and Health Statistics Bulletins Issue No. 17 (August 2017) by the Occupational Safety and Health of the Labor Department. 2. Our Group s rate are calculated with reference to the number of injuries during the year divided by the estimated number of site workers during the relevant financial year and multiply by 1,000. The estimated number of site workers is based on the estimation of monthly site workers deployed by the Group which consisted of employees of our Group and that of our subcontractors. 3. Relevant data had not been published as at the Latest Practicable Date. As illustrated above, we achieved an accident rate lower than that of the industry average in 2016 and a zero fatality rate for FY2016, FY2017 and FY

162 BUSINESS Insurance Our Directors consider that the existing insurance coverage as set out in the following paragraphs is adequate and consistent with the industry norm having regard to our current operations and the prevailing industry practice. For the Track Record Period, the total insurance premiums were approximately HK$1.9 million, HK$2.2 million and HK$2.3 million, respectively. (i) Employees compensation insurance We have taken up insurance to cover our liabilities under the Employees Compensation Ordinance for injuries at work in respect of employees who worked at our office as required by the relevant laws and regulations of Hong Kong for an amount of up to HK$100.0 million per incident. For any liabilities arising from injuries at construction site, pursuant to section 24 of the Employees Compensation Ordinance, a main contractor shall be liable to pay compensation to subcontractors employees who are injured in the course of their employment to the subcontractor and is required to take out an insurance policy for an amount of up to HK$200.0 million per incident to cover its liability and that of its subcontractors under the Employees Compensation Ordinance. During the Track Record Period, some of our contracts entered into with our customers, who are usually the main contractor of a project, provide that our customers would take out and maintain insurance policy pursuant to section 24 of the Employees Compensation Ordinance covering liabilities of itself and its subcontractors. In such circumstances, we generally will not take out separate insurance policies but will rely on the insurance policies taken out and maintained by the relevant main contractor. In some cases we may also be required under the contracts to take out separate insurance policies to cover the subcontractors employees. (ii) Contractors all risks insurance Some of our customers had taken out contractors all risk insurance policies covering our liabilities arising from potential damage to the buildings or structures under our works as well as potential bodily injury to third parties or damage to third parties properties as a result of the performance of our works. We had also taken out contractors all risk insurance policies where we are required under the contracts to take out separate insurance policies. (iii) Other insurance coverage In addition, we have also taken out and maintain insurance coverage against physical damage to office contents and personal injury incurring in our premise. 155

163 BUSINESS QUALITY CONTROL Our Directors consider that reliability and timeliness are important attributes in our operations. As a recognition of our efforts we have been awarded ISO 9001:2015, details of our certification is set out below: Nature Certification Awarding organisation or authority Date of first grant Recipient Period of validity Quality Management System ISO 9001:2015 Hong Kong Quality Assurance 24 March 2000 Keio 24 March 2000 to 23 March 2021 INTELLECTUAL PROPERTY RIGHTS As at the Latest Practicable Date, our Group has registered three trademarks in Hong Kong and has registered one domain name in Hong Kong. Information relating to the intellectual property rights of our Company is set out in the section headed Statutory and General Information B. Further information about our business 2. Intellectual property rights in Appendix IV to this document. During the Track Record Period, there had not been any pending or threatened claims against our Group, nor has any claim been made by our Group against third parties, with respect to the infringement of intellectual property rights owned by our Group or third parties. As at the Latest Practicable Date, our Group was not aware of any infringement (i) by it of any intellectual property rights owned by any third party; or (ii) by any third party of any intellectual property rights owned by our Group. COMPETITIVE LANDSCAPE The Hong Kong E&M engineering industry is characterised by a small number of large local contractors, a large number of overseas contractors, and a high level of sub-contracting, with a substantial proportion of companies being both developers and contractors. According to the Ipsos Report, there are currently over approximately 12,000 number of registered E&M contractors in Hong Kong. The top five contractors accounted for a market share of approximately 25.1% to the industry revenue in Most of the industry players are small in size. Companies who carry out construction work worth less than HK$10.0 million in terms of annual gross value account for as much as 96% of the industry. Majority of the small ones act as subcontractors for the large companies, which tend to be main contractors. There are also a number of sizeable construction companies capable of handling contracts requiring sophisticated technology and strong financial backing, which are expanding their business across the Asia Pacific region. There are no formal restrictions on entry to the contracting business in Hong Kong. Foreign and local contractors are treated alike, and all are allowed to tender local public sector contracts. Because of the growing size and complexity of building 156

164 BUSINESS projects, it is now common to award large and complex building contracts as a single package to multi-disciplinary contractors. Our Directors believe that our Group s competitive strengths, details of which are set out in section headed Business Competitive Strengths, distinguish us from our competitors. For further details on the competitive landscape of the industry in which we operate in, please refer to the section headed Industry Overview in this document. RESEARCH AND DEVELOPMENT During the Track Record Period and up to the Latest Practicable Date, we did not engage in any research and development activities, and our Directors had no plans to engage in any research and development activities in the foreseeable future. PROPERTIES Owned properties As at the Latest Practicable Date, we owned the following properties in Hong Kong and details of which are set out below: Address Approximate gross floor area (sq.f.) Usage Workshop 16, 17/F., Block A, Veristrong Industrial Center, Au Pui Wan Street, Shatin, New Territories, Hong Kong (the Shatin Property ) Lot No. 644 IN DD111 Yuen Long 1,188 Workshop and ancillary storage 15,682 Storage For details on the other properties owned by us during the Track Record Period and which were disposed of as at the Latest Practicable Date, please refer to the section headed History, Reorganization and Corporate Structure Reorganization (vi) Transfer of the Disposed Properties and Prepayments from Keio to the Property Holdcos in this document. 157

165 BUSINESS Leased properties During the Track Record Period and as at the Latest Practicable Date, we leased the following properties in Hong Kong and details of which are set out below: Address Landlord Approximate gross floor area Usage Rental Term (sq.f.) Suite Nos. 1, 2, 3, 5 and 6, 21st Floor, Pacific Plaza, No. 410 Des Voeux Road West, Hong Kong Independent Third Party 4,896 Office Monthly rental of HK$80, August August 2018 Suite No. 7A, 21st Floor, Pacific Plaza, No. 410 Des Voeux Road West, Hong Kong Independent Third Party 957 Office Monthly rental of HK$18, October August 2018 Suite No. 7B, 21st Floor, Pacific Plaza, No. 410 Des Voeux Road West, Hong Kong Independent Third Party 816 Office Monthly rental of HK$15, October August 2018 Suite Nos. 1 and 2A, 25th Floor, Pacific Plaza, No. 410 Des Voeux Road West, Hong Kong Independent Third Party 2,190 Office Monthly rental of HK$37,300 6 May August 2018 Suite Nos. 1, 2, 3, 5, 6, 7A and 7B, 21st Floor, and Suite Nos. 1 and 2A, 25th Floor, Pacific Plaza, No. 410 Des Voeux Road West, Hong Kong Independent Third Party 8,859 Office Monthly rental of HK$181, August August 2020 ENVIRONMENTAL MATTERS We are subject to the applicable laws and regulations in relation to environmental protection. Please refer to the section headed Regulatory Overview in this document for further information about such laws and regulations. 158

166 BUSINESS During the Track Record Period, we were not subject to any major environmental claims, lawsuits, penalties or disciplinary actions. LEGAL PROCEEDINGS AND NON-COMPLIANCE Outstanding employees compensation claims as at the Latest Practicable Date As at the Latest Practicable Date, there were ten outstanding employee s compensation claims involved a total of ten workers, six of whom were not our Group s employees. The following table sets out the details of these outstanding claims: Nature of claim Particular of claim Total amount involved for the outstanding claim Insurance coverage Status 1. Employees compensation claim It was alleged that on 5 June 2017, the applicant, who was employed by our Group s subcontractor in one of our Group s work suffered from contusion of knees when he was tripped over by a cable on the ground To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going 2. Employees compensation claim It was alleged that on 16 July 2017, the applicant, who was employed by our Group s subcontractor in one of our Group s work injured his right eye by a hammer To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going 3. Employees compensation claim It was alleged that on 21 July 2017, the applicant, who was employed by our Group in one of our Group s work suffered from fracture of foot when she stepped on the metal supporting frame of a generator Approximately HK$48,000 as assessed by the Commissioner for Labour and being opposed by the applicant Yes On-going 4. Employees compensation claim It was alleged that on 14 September 2017, the applicant, who was employed by our Group in one of our Group s work suffered from lower back pain and right 5th finger pain when he fell from a ladder To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going 5. Employees compensation claim It was alleged that on 14 September 2017, the applicant, who was employed by our Group in one of our Group s work suffered from back and knees pain when he fell on the ground To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going 159

167 BUSINESS Nature of claim Particular of claim Total amount involved for the outstanding claim Insurance coverage Status 6. Employees compensation claim It was alleged that on 26 September 2017, the applicant, who was employed by our Group in one of our Group s work suffered from left eye abrasion when his eye contacted with dust To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going 7. Employees compensation claim It was alleged that on 20 November 2017, the applicant, who was employed by our Group s subcontractor in one of our Group s work suffered from left elbow dislocation when he fell from a ladder Approximately HK$225,000 as assessed by the Commissioner for Labour Yes On-going 8. Employees compensation claim It was alleged that on 29 November 2017, the applicant, who was employed by our Group s subcontractor in one of our Group s work suffered from little finger injury when he used the electric drill in workplace Approximately HK$144,000 as assessed by the Commissioner for Labour Yes On-going 9. Employees compensation claim It was alleged that on 25 June 2018, the applicant, who was employed by our Group s subcontractor in one of our Group s work suffered from traumatic haemothorax when he fell from a ladder To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going 10. Employees compensation claim It was alleged that on 22 July 2018, the applicant, who was employed by our Group s subcontractor in one of our Group s work suffered from right thumb injury when he adjusted the location of a plumber To be assessed by the Commissioner for Labour or the Employees Compensation Assessment Board Yes On-going Potential employees compensation claims and/or personal injury claims as at the Latest Practicable Date As at the Latest Practicable Date, there were no incidents in respect of which the injured workers have not yet filed any claims or commenced legal proceedings against our Group. The time limit for an injured person to commence legal proceedings for an employee s compensation claim is two years from the date of the relevant incident, while the time limit for a personal injury claim against us under common law is three years from the date of the relevant incident. The damages awarded under the personal injury claims are normally reduced by the value of the compensation paid or payable under the employees compensation claims. The amount of any such potential claims shall be covered by the insurance policies maintained by our Group. Save as disclosed in this document, no other claim or litigation of material importance was known to our Directors to be pending or threatened against any member of our Group during the Track Record Period and as at the Latest Practicable Date. 160

168 BUSINESS Details of litigation involving non-compliance by our Group with regulatory requirements under the Laws of Hong Kong during the Track Record Period and up to the Latest Practicable Date are set out in the paragraph below headed Construction sites safety in this section. Construction sites safety During the Track Record Period and up to the Latest Practicable Date, our Group was convicted of 3 charges and had 1 outstanding charge in relation to the non-compliance with the CSSR, details of which are disclosed in the table below: Details regarding the incident of non-compliance and potential noncompliance Date of the incident Relevant applicable section(s) of the ordinance Maximum penalty for the non-compliance/actual fine paid by our Group for such conviction Remedial/ rectification actions taken Status Failure to take adequate steps to prevent a person from falling from a height of 2 metres or more 23 October 2017 Regulations 38B(1A), 68(1)(a) and 68(2)(g) of the CSSR A fine of HK$8,000 was paid by our Group for such conviction. Our Group has subsequently provided adequate safety measures and relevant training for purposes of preventing any person in the construction site from falling from a high altitude. Fully settled Failure to ensure that, so far as was reasonably practicable, suitable and adequate safe access to and egress from a place of work at a metal scaffold in the lift lobby on G/F where the construction work was being carried out was provided and property maintained 23 October 2017 Regulations 38AA(2), 68(1)(a) and 68(2)(g) of the CSSR A fine of HK$6,000 was paid by our Group for such conviction. Our Group has subsequently employed additional safety personnel to closely monitor the compliance of safety rules. Fully settled Failure to take all reasonable steps to ensure that no workman employed to carry out the construction work remained on the site unless the workmen were wearing suitable safety helmets 23 October 2017 Regulations 48(1A)(b), 68(1)(a) and 68(2)(g) of the CSSR A fine of HK$2,000 was paid by our Group for such conviction. Our Group has subsequently employed additional safety personnel to closely monitor the compliance of safety rules relating to wearing of safety helmets. Fully settled Failure to provide suitable safety helmet to a workman 16 July 2017 Regulations 48(1A)(a), 68(1)(a) and 68(2)(b) of the CSSR A maximum fine of HK$50,000. The likely penalty as advised by the HK Legal Counsel, if convicted, will be a fine less than HK$10,000. N/A Outstanding 161

169 BUSINESS The HK Legal Counsel is of the view that such non-compliances are not uncommon in the E&M engineering industry. The HK Legal Counsel advised that the above non-compliances of the CSSR (i) will not have any legal impediment to the qualification and licence of Keio and will not have any material impact to the business and operation of our Group; (ii) does not affect the suitability of directors to act as directors of a listed company in Hong Kong; and (iii) will not reflect negatively on the ability of our Group or our Directors to operate in a compliant manner. Our Directors are of the view that the total amount of fines which our Group was subject to as a result of the 3 convictions was not material to our Group. Our Directors confirm that the convictions against our Group (i) generally arose because the relevant workers of our Group s subcontractors did not strictly follow the safety policies or guidelines as stipulated in our Group s project safety management plan; and (ii) did not involve intentional misconduct, fraud or dishonesty on the part of our Directors. Save as disclosed in this document, our Directors confirm that there was no other pending litigation involving non-compliance by our Group as at the Latest Practicable Date. Internal control measures to prevent recurrence of non-compliance incidents In view of the non-compliance incidents, we engaged two safety supervisors in 2018 to monitor safety at sites and ensure that our workers and that of our subcontractors comply with the relevant safety measures. They have also and assisted us in implementing new safety policies and measures, including but not limited safety training, in-house safety rules, safety inspection programme, and staff members are required to have a thorough understanding on the safety manual, and various training sessions have been provided to them from time to time. The role and responsibilities of the safety supervisor include, but not limited to, the following: visiting the sites on a regular basis, and preparing report to the management team in this regard (with suggested follow-up or remedial measures), and (upon approval from the said team) implementing the said measures, together with reporting of relevant progress in the subsequent weekly report; at each regular safety meeting, reminding the site workers to observe the construction site rules; organising annual training for staff members and sub-contractors on rules and regulations relating to safety and construction works in Hong Kong; and if any accident occurs, preparing an accident report and submitting it to our Directors for approval. Our Directors consider that the engagement of the safety supervisor has further enhanced our safety monitoring. For further details as to our health and safety measures, please refer to paragraph headed Work safety and insurance Health and work safety in this section. 162

170 BUSINESS INTERNAL CONTROL AND RISK MANAGEMENT We believe that effective internal control and risk management are critical to our success. In accordance with the applicable laws and regulations, we have established an internal control system, covering areas such as corporate governance, risk management, operations, management, legal matters and finance. We have also established an internal control system, covering areas such as operations including cash management, payroll management, insurance and finance. We believe that our internal control system is sufficient in terms of comprehensiveness, practicability and effectiveness. In preparation for the [REDACTED], on 21 August 2017, we appointed an internal control consultant to perform a detailed review of our Group s financial procedures, systems and internal controls with an aim to improve our Group s corporate governance. The scope of the internal control review included the areas of corporate governance, risk management, financial, operations and compliance. We have implemented certain suggestions and recommendations proposed by the internal control consultant to improve and enhance our internal control system. The internal control consultant also performed a follow-up review in June 2018 on the status of our actions to address the findings in the abovementioned assessment. Our Directors are not aware of any significant impediment for our employees to comply with the enhanced risk management and internal control policies and procedures. To strengthen our internal control, prevent the occurrence of the abovementioned non-compliances and ensure future compliance with the applicable laws and regulations (including the Listing Rules) after the [REDACTED], we have adopted the following additional internal control measures: our Board will continuously monitor, evaluate and review our internal control system to ensure compliance with the applicable legal and regulatory requirements and will adjust, refine and enhance our internal control system as appropriate; induction trainings were arranged for our Directors, our company secretary or head of finance department so as to discuss and study the relevant regulatory requirements in relation to directors responsibilities and duties under the relevant laws and regulation, and if necessary, additional trainings on the legal and regulatory requirements applicable to our business operations would be arranged from time to time; 163

171 BUSINESS all management and staff of our Group are required to report to and/or notify our Directors or our external legal advisers promptly of any non-compliance or potential non-compliance events; we will appoint South China Capital Limited as our compliance adviser upon the [REDACTED] to advise our Group on matters relating to compliance with the Listing Rules; and if necessary, we may consider appointing external Hong Kong legal advisers to advise us on matters relating to compliance with the Listing Rules and the applicable Hong Kong laws and regulations. 164

172 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS CONTROLLING SHAREHOLDERS Immediately after completion of the [REDACTED] and the Capitalization Issue, Green Yield will directly hold [REDACTED]% of the issued share capital of our Company (assuming the [REDACTED] is not exercised and without taking into account any Shares which may be allotted and issued upon the exercise of options under the Share Option Scheme) and Green Yield, Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So will together form a group of Controlling Shareholders within the meaning of the Listing Rules and together control [REDACTED]% of the issued share capital of our Company. Green Yield is held as to 50% by Mrs. So, approximately 16.67% by Ms. YY So, approximately 16.67% by Mr. MK So and approximately 16.67% by Mr. MH So respectively. The So Family, which includes Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So who are close family members and have influence on each other, have been acting in concert and are regarded as group of controlling shareholders to, directly or indirectly, exert control over all material management affairs and/or execution of all commercial decision of our Group. The So Family has confirmed this arrangement in the Concert Party Deed. For details, please refer to the paragraph headed Concert Party Deed in this section. Save as disclosed above, there is no other person/entities who will, immediately following the completion of the [REDACTED] and the Capitalization Issue, be directly or indirectly interested in 30% or more of the Shares then in issue or have a direct or indirect equity interest in any member of our Group representing 30% or more of the equity in such entity. CONCERT PARTY DEED Over the course of business history, Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So who are close family members, were either directors and/or shareholders of each of Keio and KEM (the Relevant Companies ). Each of Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So has, in exercising and implementing the management and operation of these Relevant Companies, been acting in concert with each other. As the Relevant Companies were a group of private entities in the past, these arrangements were not formalized in writing and each of Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So was content with these arrangements based on their close and long-term business and family relationship, as well as the trust and confidence they have in each other. Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So have acknowledged and confirmed that they are parties acting in concert in respect of the Relevant Companies since they have been actively involved in the management of the Relevant Companies. On 10 August 2018, in preparation for the [REDACTED], Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So executed the Concert Party Deed, whereby they confirmed the existence of their acting in concert arrangements in the past, as well as their intention to continue to act in the above manner upon the [REDACTED] to consolidate their control of our Group until the Concert Party Deed is terminated by them in writing. 165

173 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS According to the Concert Party Deed, Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So acknowledged and confirmed, among other things, that during the Track Record Period for so long as they remain the key management members of any of the Relevant Companies and/or remain interested (either directly or indirectly) in the issued shares of any of the Relevant Companies and/or until the termination of the Concert Party Deed: (i) they have acted, and will continue to act in concert and collectively for all material management affairs and the arrival and/or execution of all material commercial decisions, including but not limited to financial and operational matters, of our Group; (ii) they have agreed to, and will continue to consult the other members of the So Family and reach an unanimous consensus among themselves on such matters being the subject matters of any shareholders resolution, prior to putting forward such resolution to be passed at any shareholders meeting of our Group, and have historically voted on such resolutions in the same way; and will continue to give unanimous consent, approval or rejection on any other material issues and decisions in relation to the business of our Group; (iii) they have agreed not to, and shall continue until the termination of the Concert Party Deed not to, make any decision that is contrary to the decision of the others among each other, including but not limited to, the financing and operating activities of our Group, unless the consent, approval or rejection so made would be in breach of any applicable laws or regulations; and will continue to cast unanimous vote collectively for or against all resolutions in all meetings and discussions of our Group; (iv) they have been enjoying, and shall continue to enjoy, the economic benefits generated from the businesses and operations of our Group, including but not limited to dividends declared or to be declared from our Group, until the termination of the Concert Party Deed; (v) they have cooperated, and will continue to cooperate with each another to obtain and maintain the consolidated and collective control and the management of our Group, unless such actions so performed would be in breach of any applicable laws and regulations; (vi) they have centralized, and shall continue until the termination of the Concert Party Deed to centralize, the ultimate control and right to make final decisions with respect to their interests in the businesses and operations of our Group; and (vii) they have operated, and shall continue to operate, our Group as a single business venture. 166

174 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS Hence, pursuant to the Concert Party Deed, Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So will together be entitled to exercise and control [REDACTED]% of our entire issued share capital upon the completion of the Capitalization Issue and the [REDACTED] (assuming the [REDACTED] is not exercised and without taking into account any Shares which may be issued upon the exercise of any options which may be granted under the Share Option Scheme). INDEPENDENCE FROM CONTROLLING SHAREHOLDERS Our Directors do not expect there to be any significant transactions between our Group and our Controlling Shareholders and their respective associates upon the [REDACTED]. Our Directors believe that we are capable of carrying on our business independently from our Controlling Shareholders and their respective associates after the [REDACTED], having taken into consideration of the following factors: (i) Management independence As at the Latest Practicable Date, no executive Director has overlapping roles or responsibilities in any business other than our business nor has any business which competes or is likely to compete, either directly or indirectly, with our business. 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 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 associates, the interested Director(s) shall abstain from voting at the relevant meeting of the Board in respect of such transaction and shall not be counted in the quorum. (ii) Operational independence Our operations are independent of and not connected with our Controlling Shareholders. Having considered that (i) we have established our own organisational structure comprising individual departments, each with specific areas of responsibilities; (ii) our Group has not shared our operational resources, such as customers, marketing, sale and general administration resources with our Controlling Shareholders and/or their associates; (iii) our Group has also established a set of internal controls to facilitate the effective operation of its business; (iv) as at the Latest Practicable Date, our Controlling Shareholders had no interest in any of our customer, supplier or other business partners, our Directors consider that our Group can operate independently from our Controlling Shareholders from the operational perspective; (v) as at the Latest Practicable Date, our Group had independent access to suppliers or customers of our Group; and (vi) all of our operating subsidiaries hold the licenses necessary for the operation of our Group s business in their own names. (iii) Administrative independence Our Group has its own capabilities and personnel to perform all essential administrative functions, including internal control and audit monitoring, financial and accounting management, invoicing and billing, human resources and information technology. 167

175 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS (iv) Financial independence We are financially independent of our Controlling Shareholders and their respective close associates. We have sufficient capital and banking facilities to operate our business independently, and have adequate resources to support our daily operations. In addition, our Group makes financial decisions according to our own business needs. During the Track Record Period, (i) Mr. CF So and Mr. CC So have provided joint and several personal guarantees in favour of Bank A and certain property owned by Keio was charged as securities to such bank for the repayment obligations of Keio under a banking facility granted by Bank A; and (ii) Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So have provided personal guarantees in favour of Bank B and certain properties owned by Keio, Mr. CF So, Mrs. So and Ms. YY So respectively were charged as securities to such bank for the repayment obligations of Keio under the banking facilities granted by Bank B. As at the Latest Practicable Date, the banking facility granted by Bank A has been cancelled, the joint and several personal guarantee given by Mr. CF So and Mr. CC So and the legal charge over the property owned by Keio had been fully released. The personal guarantee given by Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So in favour of Bank B and the legal charges over certain properties owned by Keio, Mr. CF So, Mrs. So and Ms. YY So respectively except the Shatin Property (which is and will be owned by our Group after the [REDACTED]) to Bank B will be fully released and replaced by corporate guarantee(s) to be provided by our Company and/or other member(s) of our Group upon [REDACTED]. According to the facility letter dated 27 December 2017 entered into between Keio and Bank B, the banking facility granted by Bank B to Keio is subject to, among other things, the conditions that (i) Mr. MH So shall remain as an executive Director; and (ii) Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So shall hold in aggregate no less than 50% ultimate shareholding of our Company (the Bank B Conditions ). Regarding the Bank B Conditions, such conditions are required by Bank B and our Directors consider such conditions to be commercially agreeable having taking into account the fact that (i) pursuant to the Rule of the Listing Rules, our Controlling Shareholders, including Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So, would be subject to a lock-up undertaking which requires them not to dispose of any of their shares in our Company within the first 6 months after [REDACTED] and, within the following 6 months, not to dispose of their shares such that they would cease to be a controlling shareholder; and (ii) Mr. MH So has already been appointed as an executive Director even without Bank B s request. As such, our Directors consider that the Bank B Conditions would not compromise the financial independence of our Group and could be dealt with by way of disclosure, and we shall comply with the disclosure requirements pursuant to Rules and of the Listing Rules as and when appropriate. During the Track Record Period, our Group had certain amounts due to Mrs. So and New Fusion Holdings Limited, details of which are set out in the section headed Financial Information Description of Selected Items of Consolidated Statements of Financial Position Amounts due from/to related parties. Such amounts due to Mrs. So and New Fusion Holdings Limited will be fully repaid, released and/or otherwise settled in full upon [REDACTED]. 168

176 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS Our Directors are therefore of the view that our Group is not financially dependent on our Controlling Shareholders or their respective close associates in our business operations and our Group is able to obtain external financing on market terms and conditions for our business operations as and when required. RULE 8.10 OF THE LISTING RULES None of our Controlling Shareholders and our Directors has 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 8.10 of the Listing Rules. DEED OF NON-COMPETITION Our Controlling Shareholders have entered into the Deed of Non-competition in favour of our Company (for ourselves and as trustee of our subsidiaries), pursuant to which each of our Controlling Shareholders have jointly and severally, irrevocably and unconditionally undertaken to and covenanted with our Company (for ourselves and as trustee of our subsidiaries) that during the continuation of the Deed of Non-competition it or he/she shall not, and shall procure that each of its or his/her close associates (other than any member of our Group) not to during the restricted period set out below, whether on its or his/her own account or in conjunction with or on behalf of any person, firm or company, and whether directly or indirectly, carry on a business which is, or be interested or involved or engaged in or acquire or hold any rights or interest or otherwise involved in (in each case whether as a shareholder, partner, agent or otherwise and whether for profit, reward or otherwise) any business which competes or is likely to compete directly or indirectly with the business currently and from time to time engaged by our Group (including but not limited to the provision of electrical and mechanical engineering services and maintenance services and business ancillary to any of the foregoing, in each case, to be more particularly described or contemplated in this document), in Hong Kong and any other country or jurisdiction to which our Group markets, supplies or otherwise provides such services and/or in which any member of our Group carries on such business mentioned above from time to time (the Restricted Business ). Such noncompetition undertaking does not apply to: (i) any interests in the shares of any member of our Group; or (ii) interests in the shares of a company other than our Company whose shares are listed on a recognized stock exchange provided that: (a) any Restricted Business conducted or engaged in by such company (and assets relating thereto) accounts for less than 10% of that company s consolidated turnover or consolidated assets, as shown in that company s latest audited accounts; 169

177 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS (b) (c) the total number of the shares held by our Controlling Shareholders and/or their respective close associates in aggregate does not exceed 10% of the issued shares of that class of the company in question and such Controlling Shareholders and/or their respective close associates are not entitled to appoint a majority of the directors of that company and at any time there should exist at least another shareholder of that company whose shareholdings in that company should be more than the total number of shares held by our Controlling Shareholders and their respective close associates in aggregate; our Controlling Shareholders and/or their respective close associates do not have the control over the board of such company. The Deed of Non-competition shall take effect upon [REDACTED] and shall expire on the earlier of: (a) the day on which the Shares cease to be [REDACTED] and [REDACTED] onthe Main Board of the Stock Exchange or other recognized stock exchange; or (b) the day on which our Controlling Shareholders and their close associates, individually or taken as a whole, cease to own, in aggregate, 30% or more of the then issued share capital of our Company directly or indirectly or cease to be deemed as our Controlling Shareholders and do not have power to control the Board or there is at least one other independent shareholder other than our Controlling Shareholders and their respective close associates holding more shares than our Controlling Shareholders and their respective close associates taken together. CORPORATE GOVERNANCE MEASURES Our Company will adopt the following measures to manage the conflict of interests arising from competing business and to safeguard the interests of our Shareholders: our independent non-executive Directors will review, on an annual basis, the compliance with the non-competition undertaking by our Controlling Shareholders under the Deed of Non-competition; our Controlling Shareholders undertake to provide all information requested by our Company which is necessary for the annual review by our independent nonexecutive Directors and the enforcement of the Deed of Non-competition; our Company will disclose decisions on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the Deed of Non-competition in the annual report of our Company; our Controlling Shareholders will make confirmation on compliance with their undertaking under the Deed of Non-competition in the annual report of our Company; and 170

178 RELATIONSHIP WITH CONTROLLING SHAREHOLDERS our independent non-executive Directors may appoint independent financial adviser and other professional advisers as they consider appropriate to advise them on any matter relating to the Deed of Non-competition or connected transaction(s) at the cost of our Company. None of the members of our Group has experienced any dispute with its shareholders or among its shareholders themselves and our Directors believe that each member of our Group has maintained positive relationship with its shareholders. With the corporate governance measures including the measures set out in this paragraph headed Corporate governance measures and the paragraph headed Compliance with Corporate Governance Code and Board Committees in the section headed Directors, senior management and employees in this document, our Directors believe that the interest of the Shareholders will be protected. 171

179 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES BOARD OF DIRECTORS Our Board consists of four executive Directors and three independent non-executive Directors. The following table sets forth the information in respect of the members of our Board: Name Age Date of joining the Group Position Role and responsibilities Date of appointment as a Director Relationship with other Director(s) and/or senior management Ms. Sin Wai Chun ( ) 58 3 May 1999 Executive Director and chairlady of the board The overall strategies and management of our Group s business 25 August 2017 Spouse of Mr. CF So, mother of Mr. MK So and Mr.MHSo Mr. So Man Ho ( ) June 2008 Executive Director and chief executive officer The overall strategic planning, business development and management of our Group s business operations 25 August 2017 Son of Mr. CF So and Mrs. So, brother of Mr.MKSo and Ms. YY So Ms. So Yuen Yee ( ) 43 3 May 1999 Executive Director and chief financial officer The overall strategic planning and development of our Group s business, financial reporting, treasury and financial control 25 August 2017 Daughter of Mr. CF So, sister of Mr. MK So and Mr. MH So Mr. So Man Kit ( ) September 2001 Executive Director The overall management and administration of our Group s business and operation 25 August 2017 Son of Mr. CF So and Mrs. So, brother of Ms. YY So and Mr. MH So Mr. Cheng Lui ( ) 44 [ ] Independent non-executive Director Providing independent advice to our Board on our Group s strategy, performance, resources and standard of conduct [ ] Nil 172

180 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Name Age Date of joining the Group Position Role and responsibilities Date of appointment as a Director Relationship with other Director(s) and/or senior management Mr. Law Chi Yung ( ) 46 [ ] Independent non-executive Director Providing independent advice to our Board on our Group s strategy, performance, resources and standard of conduct [ ] Nil Mr. Wong Siu Cheung ( ) 63 [ ] Independent non-executive Director Providing independent advice to our Board on our Group s strategy, performance, resources and standard of conduct [ ] Nil MEMBERS OF OUR SENIOR MANAGEMENT Our senior management is responsible for the day-to-day management of our business. The following table sets out certain information in respect of the senior management of our Group: Name Age Date of joining our Group Position Principal roles and responsibilities Mr. So Chung Fat ( ) Mr. Chan Chi Ho Alex ( ) December 1983 Business development director 46 7 May 2008 Senior project manager Overseeing the business growth and development of our Group Overseeing the quality and efficiency of the contracts of our Group Mr. Chan Yu Sum Felix ( ) 46 3 June 2009 Contracts manager Planning and supervision of the contracts of our Group Executive Directors Ms. Sin Wai Chun ( ), aged 58, was appointed as a Director on 25 August 2017 and the chairlady of the Board on 10 August 2018 and was designated as an executive Director on 10 August Mrs. So is the spouse of Mr. CF So. She is responsible for overall strategic planning and management of our Group s business. She has been a director of Keio since 3 May During her position as a director of Keio, she has been responsible to oversee the financial position of our Group and manage the general working capital of Keio, as well as reviewing and approving the material electrical and mechanical contracts of Keio together with other members of the So Family. She is also a director of Zhuoyi Ventures. She completed her primary education in the 1970s at (Sun Yan Primary School*). 173

181 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Mr. So Man Ho ( ), aged 35, was appointed as a Director on 25 August 2017 and the chief executive officer of our Company on 10 August He was designated as an executive Director on 10 August Mr. MH So is the son of Mr. CF So and Mrs. So, the brother of Ms. YY So and Mr. MK So. He is responsible for the overall strategic planning and corporate policy making, as well as business development and day-to-day management of our Group s business operation. Mr. MH So has more than 10 years of experience in the E&M engineering services industry. He joined our Group as an assistant engineer of Keio from June 2008 to July He was a director of Keio from July 2012 to July 2016 and was designated as a managing director of Keio in July Mr. MH So is also a director of Zhuoyi Ventures and the founder and a director of KEM since 11 July 2013, being the date of its incorporation. Mr. MH So obtained a Bachelor of Arts in economics from Simon Fraser University in Canada in May 2008 and a Bachelor of Engineering in Fire Engineering from University of Central Lancashire in the United Kingdom through part-time studies in March He also obtained a Master of Business Administration at City University of Hong Kong in July Mr. MH So was a shareholder of Update Keio Limited and a director of the following companies which were incorporated in Hong Kong and were subsequently dissolved by striking off pursuant to section 746 of the Companies Ordinance, which provides that the Registrar of Companies in Hong Kong can strike off a defunct company from the register of companies. Mr. MH So confirmed that each of the companies was solvent and inactive at the time of striking off and that its dissolution had not resulted in any liability or obligation against him. The following table details the aforementioned companies that were struck off: Name of company Nature of business Date of striking off Update Keio Limited Inactive 1 December 2017 Goods (HK) Limited Inactive 24 April 2015 Mr. MH So was a director of the following companies which were incorporated in Hong Kong and were subsequently dissolved by deregistration due to cessation of business pursuant to section 750 of the Companies Ordinance (Note). Mr. MH So confirmed that there was no wrongful act on his part leading to the dissolution of each of the companies and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of such companies. The following table details the aforementioned companies that were deregistered: Name of company Principal business activity prior to its dissolution Date of dissolution Baier and Partners D&BLimited Project management 27 April 2018 Jper Limited No business operation since 2 March 2018 date of incorporation 174

182 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Note: Sections 750 of the Companies Ordinance provides that an application for deregistration can only be made by the company, a director of the company or a member of the company if (a) all the members of such company agreed to such deregistration; (b) such company has not commenced business or operation, or has ceased to carry on business or ceased operation during the three months immediately before the application; and (c) such company has no outstanding liabilities. Ms. So Yuen Yee ( ), aged 43, was appointed as a Director on 25 August 2017 and the chief financial officer on 1 August 2018 and was designated as an executive Director on 10 August Ms. YY So is the daughter of Mr. CF So and sister of Mr. MK So and Mr. MH So. She is responsible for the overall strategic planning and development of our Group s business, financial reporting, treasury, and financial control of our Group. Ms. YY So has more than 20 years of accounting and financing experience. She has been a director of Keio since 3 May She is also a director of Zhuoyi Ventures. Ms. YY So was employed at Ernst & Young from September 1996 to December 2000 with her last position as a senior accountant. She then worked at Eli Lilly Asia Inc., Hong Kong office from June 2002 to December 2005 with her last position as a finance manager. She was an associate director, finance at Eli Lilly Asia Inc., Shanghai office from January 2006 to June She then worked at Mead Johnson Nutrition (Hong Kong) Limited as a financial planning and reporting manager from June 2007 to June 2011, a senior financial planning and reporting manager from July 2011 to June 2013, a finance director from June 2013 to February 2018 and a finance director, E-commerce, Greater China from March 2018 to July Ms. YY So obtained a Bachelor of Business Administration in accounting from The Hong Kong University of Science and Technology in June She also obtained a Master of Business Administration from The Hong Kong University of Science and Technology in November She has been a member of the American Institute of Certified Public Accountants since October 1997 and a Chartered Global Management Accountant since May Mr. So Man Kit ( ), aged 36, was appointed as a Director on 25 August 2017 and was designated as an executive Director on 10 August Mr. MK So is the son of Mr. CF So and Mrs. So, and the brother of Ms. YY So and Mr. MH So. He is responsible for the overall management and administration of our Group s business, project management and overseeing the daily operation of our Group. Mr. MK So has more than 17 years of experience in the E&M engineering services industry. He joined our Group as an assistant engineer of Keio from September 2001 to June He has been a director of Keio since June Mr. MK So is also a director of Zhuoyi Ventures and the founder and a director of KEM since 11 July 2013, being the date of its incorporation. Mr. MK So completed his secondary education at Richmond International High School and College in Canada in He obtained a craft certificate in electrical engineering from the Vocational Training Council in Hong Kong in July He is a Registered Electrical Worker (Permitted work: A0) under the Electricity Ordinance. 175

183 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Mr. MK So was a director of the following company which was incorporated in Hong Kong and was subsequently dissolved by deregistration due to cessation of business pursuant to section 750 of the Companies Ordinance or section 291AA of the Predecessor Companies Ordinance (Note). Mr. MK So confirmed that there was no wrongful act on his part leading to the dissolution of the company and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of such company. The following table details the aforementioned company that was deregistered: Name of company Principal business activity prior to its dissolution Date of dissolution Agile (China) Transportation Company Limited ( ( ) ) Freight services 10 July 2015 Note: Section 750 of the Companies Ordinance or section 291AA of the Predecessor Companies Ordinance provides that an application for deregistration can only be made by the company, a director of the company or a member of the company if (a) all the members of such company agreed to such deregistration; (b) such company has not commenced business or operation, or has ceased to carry on business or ceased operation during the three months immediately before the application; and (c) such company has no outstanding liabilities. Independent Non-executive Directors Mr. Cheng Lui ( ), aged 44, was appointed as an independent non-executive Director on [ ] Mr. Cheng has over 12 years of experience in sales and business development. Mr. Cheng worked in New World Cyberbase as a system administrator from March 2001 to June He then worked in Quesco System Limited as an analyst programmer from October 2001 to December 2003 and as a system analyst from January 2004 to March Mr. Cheng was then employed by Novell HK from September 2006 to December 2012 with his last position as a sales director covering South China business sector. Mr. Cheng worked in Attachmate Group HK as a sales director covering Hong Kong and Macau business sector from December 2012 to April He has been the country sales director covering Hong Kong and Macau business sector under Microfocus Group from May 2015 to January Mr. Cheng obtained a Bachelor of Engineering from Hong Kong Polytechnic University in November 1998 and a Master in Business Administration from City University of Hong Kong in July Mr. Law Chi Yung ( ), aged 46, was appointed as an independent non-executive Director on [ ] Mr. Law has over 24 years of accounting and financing experience. Mr. Law worked in Ernst & Young from August 1994 to April 2010 with his last position as senior manager. From March 2010 to February 2011, he was employed by China Gold International Resources Corp. Ltd. (Stock Code: 2099) as the chief financial officer. He then worked in Speedy Global Holdings Limited (Stock Code: 540) as the company secretary and chief financial officer from December 2011 to April Mr. Law has been the vice president of Canvest Environmental Protection Group Company Limited (Stock Code: 1381) since April

184 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Mr. Law obtained a Bachelor of Arts in Accountancy from City University of Hong Kong in December He is a member of the Hong Kong Institute of Certified Public Accountants. Mr. Wong Siu Cheung ( ), aged 63, was appointed as an independent nonexecutive Director on [ ] Mr. Wong has over 36 years of experience in building services. Mr. Wong worked as a building services project coordinator in Welform Construction Co., Ltd. from 1982 to He worked in Kyle Stewart Design Services Limited as a building services engineer from 1984 to Mr. Wong then worked in Meinhardt (M&E) Limited from 1994 to 2000 with his last position as senior resident building services engineer. After that, he served as the deputy construction manager (building services) in Sun Hung Kai Properties Limited from 2000 to Mr. Wong served as a chief building services engineer from March 2005 to June 2005 in Hsin Chong Construction (Macau) Limited. From July 2005 to October 2005, he served as a design manager in Shinryo (Macau) Limited. Mr. Wong worked at J. Roger Preston (Macau), Limited as a building services resident engineer from November 2005 to November He then worked in Parsons Brinckerhoff (Asia), Limited as a chief resident building service engineer from December 2007 to September Mr. Wong was an associate director of WSP Parsons Brinckerhoff (Shanghai office) form September 2011 to June He has been a chief resident engineer at Aurecon Macau Limited since March Mr. Wong obtained a technician diploma in electrical engineering from Hong Kong Polytechnic University in Mr. Wong also obtained a certificate in environmental engineering through part-time studies from South Bank Polytechnic, United Kingdom in He obtained a bachelor degree of engineering in environmental engineering from South Bank Polytechnic, United Kingdom in July He is a chartered engineer of Engineering Council, United Kingdom and a fellow member of Society of Operations Engineers. Disclosure required under Rule 13.51(2) of the Listing Rules Save as disclosed above, none of our Directors (i) held any other positions in our Company or other members of our Group as at the Latest Practicable Date; (ii) had any other relationship with any Directors, senior management or Substantial Shareholders or Controlling Shareholders of our Company as at the Latest Practicable Date; and (iii) held any other directorships in listed public companies in the three years prior to the Latest Practicable Date. As at the Latest Practicable Date, save as disclosed in the sections headed Substantial Shareholders and Statutory and general information C. Further information about our Directors and Substantial Shareholders 1. Disclosure of interests in Appendix IV to this document, none of our Directors have any interests in the Shares within the meaning of Part XV of the SFO or are directors or employees of a company which has an interest or short position in the Shares and underlying Shares of our Company. Save as disclosed above, to the best of the knowledge, information and belief of our Directors, having made all reasonable enquiries, there was no other matter with respect to the appointment of our Directors that needs to be brought to the attention of our Shareholders and there was no information relating to our Directors that is required to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Listing Rules as at the Latest Practicable Date. 177

185 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES SENIOR MANAGEMENT Mr. So Chung Fat ( ), aged 62, is the founder and the business development director of our Group. Mr. CF So is the spouse of Mrs. So, and the father of Ms. YY So, Mr. MK So, and Mr. MH So. He is responsible for overseeing the business growth and development of our Group and overall strategic planning and corporate policy making. Mr. CF So has more than 41 years of experience in the E&M engineering services industry. Mr. CF So was the founder of Keio and a director of Keio from December 1983 to June 2016 and was designated as a consultant of Keio from June 2016 to March He then served as the business development director of Keio since April Prior to the establishment of our Group, he worked at Tai Hing Electrical Engineering Company Limited April 1981 to November He was employed as a mechanical and electrical draftsman in Messrs Wong. Tung & Partners from May 1979 to March Before that, he served as an electrical draftsman in Thomas Anderson & Partners from November 1977 to April He was a draftsman in Sun Hung Kai Real Estate Agency Ltd. from March 1976 to November Mr. CF So completed his secondary education at Lai Chack Middle School in Mr. CF So has not held any directorship in any public listed company during the three years immediately preceding the date of this document. Mr. CF So was a director of the following company which was incorporated in Hong Kong and was subsequently dissolved by striking off pursuant to section 291 of the Predecessor Companies Ordinance, which provides that the Registrar of Companies in Hong Kong can strike off a defunct company from the register of companies. Mr. CF So confirmed that the company was solvent and inactive at the time of striking off and that its dissolution had not resulted in any liability or obligation against him. The following table details the aforementioned company that were struck off: Name of company Nature of business Date of striking off Treasure Link Development Limited ( ) Inactive 15 March

186 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Mr. CF So was a director of the following companies which were incorporated in Hong Kong and were subsequently dissolved by deregistration due to cessation of business pursuant to section 291AA of the Predecessor Companies Ordinance (Note). Mr. CF So confirmed that there was no wrongful act on his part leading to the dissolution of each of the companies and he is not aware of any actual or potential claim which has been or will be made against him as a result of the dissolution of such companies. The following table details the aforementioned companies that were deregistered: Name of company Principal business activity prior to its dissolution Date of dissolution Chung Koon Electrical Company Limited ( ) Fusion Concepts Limited ( ) Richmond (Hong Kong) International Company Limited ( ( ) ) supply and purchase of 7 December 2001 materials food and beverage 4 February 2005 engineering design and project management 28 July 2006 Note: Section 291AA of the Predecessor Companies Ordinance provides that an application for deregistration can only be made by the company, a director of the company or a member of the company if (a) all the members of such company agreed to such deregistration; (b) such company has not commenced business or operation, or has ceased to carry on business or ceased operation during the three months immediately before the application; and (c) such company has no outstanding liabilities. Mr. Chan Chi Ho Alex ( ), aged 46, is the senior project manager of our Group. He is primarily responsible for project management and overseeing the quality and efficiency of the contracts of our Group. Mr. Alex Chan has more than 22 years of experience in the electrical and mechanical engineering services industry. He joined our Group as a project manager in Keio in May 2008 and was subsequently promoted to the position of senior project manager in May Prior to joining our Group, Mr. Chan worked in Majestic Engineering Company Limited from 1993 to 2006 with his last position as a senior engineer. Mr. Alex Chan obtained a Bachelor of Engineering in mechanical engineering from The Hong Kong Polytechnic University in November 2002 and a Master of Science in fire and safety engineering from The Hong Kong Polytechnic University in September He is a member of each of the Chartered Institution of Building Services Engineers, the Hong Kong Institution of Engineers and The Chartered Institute of Plumbing & Heating Engineering. He is also a Registered Energy Assessor under the Buildings Energy Efficiency Ordinance (Chapter 610 of the Laws of Hong Kong) and a Registered Professional Engineer under the Engineers Registration Ordinance (Chapter 409 of the Laws of Hong Kong). Mr. Alex Chan has not held any directorship in any public listed company during the three years immediately preceding the date of this document. 179

187 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Mr. Chan Yu Sum Felix ( ), aged 46, is the contracts manager of our Group. He is primarily responsible for the planning and supervision of the contracts of our Group, and overseeing the preparation and submission of the tender for new projects of our Group. Mr. Felix Chan has more than 23 years of experience in the engineering and building services industry. He joined our Group as a project manager in June 2009 and was then promoted to the position of contracts manager in March Prior to joining our Group, he was employed by Mott MacDonald Hong Kong Limited as an engineer (stationed in Macau) from April 2009 to June Before that, Mr. Felix Chan served as a senior engineer (stationed in Macau) in Leading Consulting Engineers Ltd from May 2008 to March He was employed by CDG Design Consultants Limited as E&M manager and seconded to Hui Yuan (Xiamen) Real Estate Department Co. Ltd from November 2007 to April He also served as a building services engineer in China Overseas (HK) Ltd from August 2007 to October In addition, he was employed by Cheung Kong (Holdings) Limited from July 2005 to December 2006 as an assistant construction manager and as a deputy construction manager from January 2007 to July Prior to that, he served as a building services coordinator from October 1997 to July 2005 and as an assistant building services coordinator from July 1995 to October 1997 in Wing Hong Contractors Ltd. Mr. Felix Chan has obtained a Bachelor of Engineering in building services engineering from The Hong Kong Polytechnic University in October 1995 and a Master of Science in fire safety engineering from the University of Central Lancashire, the United Kingdom through part-time studies in August He is a Registered Electric Worker (Permitted work: C0) under the Electricity Ordinance and a Grade I licensed plumber. He is a member of each of the Chartered Institution of Building Services Engineers, a committee member of Hong Kong Registered Ventilation Contractors Association, and American Society of Heating, Refrigerating and Air-conditioning Engineers. Mr. Felix Chan has not held any directorship in any public listed company during the three years immediately preceding the date of this document. COMPANY SECRETARY Mr. Choi Ho Yin ( ), aged 32, has been appointed as the company secretary of our Company on 10 August He is the accounting manager of Keio and is responsible for the financial reporting and company secretarial matters of our Group. Mr. Choi has more than 11 years of experience in accounting. Prior to joining our Group, he was a senior associate in BDO Limited from January 2016 to June 2017 and a senior accountant in C.W. Leung & Co. from April 2013 to January Before that, he was employed by Y K Cho & Co. as an audit semi-senior clerk from April 2010 to February In addition, he served as an audit assistant in Fung Lau & Co. from August 2007 to April He is a member of the Hong Kong Institute of Certified Public Accountants. Mr. Choi obtained a Bachelor of Arts in accounting from Edinburgh Napier University in April 2011 through part-time studies at City University of Hong Kong. AUTHORIZED REPRESENTATIVE Ms. YY So and Mr. MH So are the authorized representatives of the Company under the Listing Rules and Mr. MH So is the authorized representative of the Company under the Companies Ordinance. 180

188 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES BOARD COMMITTEES We have established the following committees in our Board, of which the operations are in accordance with the terms of reference established by our Board: Audit Committee We established an audit committee on [ ] with written terms of reference in compliance with Rule 3.21 of the Listing Rules and paragraph C.3 of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 of the Listing Rules. The primary duties of the audit committee include reviewing and approving of our Group s financial reporting process and internal control and risk management system, overseeing our audit process and performing other duties and responsibilities as assigned by our Board. The audit committee consists of all of the independent non-executive Directors, namely, Mr. Law Chi Yung, Mr. Cheng Lui and Mr. Wong Siu Cheung. Mr. Law Chi Yung is the chairman of the audit committee. Remuneration Committee We established a remuneration committee on [ ] with written terms of reference in compliance with Rule 3.25 of the Listing Rules and paragraph B.1 of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 of the Listing Rules. The primary duties of the remuneration committee include formulating our remuneration policy, reviewing and determining the terms of the remuneration packages of our Directors and senior management, and reviewing and approving performance-based remuneration with reference to our corporate goals and objective resolved by our Board from time to time. The remuneration committee consists of five members, namely Mr. MH So, Ms. YY So, Mr. Cheng Lui, Mr. Law Chi Yung and Mr. Wong Siu Cheung. Mr. Law Chi Yung is the chairman of the remuneration committee. Nomination Committee We established a nomination committee on [ ] with written terms of reference in compliance with paragraph A.5 of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 of the Listing Rules. The primary duties of the nomination committee include formulating our nomination policy and making recommendations to any proposed changes to our Board. The nomination committee consists of five members, namely, Mrs. So, Mr. MH So, Mr. Cheng Lui, Mr. Law Chi Yung and Mr. Wong Siu Cheung. Mrs. So is the chairlady of the nomination committee. REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT For the Track Record Period, the aggregate remuneration, including fees, salaries, contributions to pension schemes, other allowances and other benefits in kind and/or discretionary bonuses paid to our Directors by any member of our Group were approximately HK$3.0 million, HK$3.8 million and HK$3.8 million, respectively. 181

189 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The five highest paid employees during the Track Record Period included one, two and two Directors respectively. The aggregate remuneration, including fees, salaries, contributions to pension schemes, other allowances and other benefits in kind and/or discretionary bonuses paid to the remaining non-directors, highest paid employees of our Company during the Track Record Period were approximately HK$3.8 million, HK$3.1 million and HK$3.5 million respectively. No remuneration has been paid by our Group to our Directors or the five highest paid individuals as an inducement to join or upon joining us or as a compensation for loss of office in during the Track Record Period. Furthermore, none of our Directors had waived any remuneration during the Track Record Period. Under the arrangements currently proposed, conditional upon the [REDACTED], the aggregate annual remuneration (excluding payment of any discretionary benefits or bonuses or other fringe benefits) payable by our Group to our Directors for the year ending 31 May 2019 is estimated to be approximately HK$6.0 million. REMUNERATION POLICY Our Directors and senior management receive compensation in the form of directors fees, salaries, benefits in kind and/or discretionary bonuses. Our Group also reimburses our Directors and senior management for expenses which are necessarily and reasonably incurred for provision of services to our Group or executing their functions in relation to our Group s operations. 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, respective responsibilities of our Directors and performance of our Group. After the [REDACTED], the remuneration committee will review and determine the remuneration and compensation packages of our Directors with reference to their experience, responsibilities, workload, time devoted to our Group and performance of our Group. Our Directors may also be offered options under the Share Option Scheme. COMPLIANCE WITH CORPORATE GOVERNANCE CODE Our Directors recognize the importance of incorporating elements of corporate governance in the management structures and internal control of our Group in order to achieve accountability to our Shareholders. Our Company has adopted the provisions stated in the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. Our Board has a balanced composition of executive Directors and independent non-executive Directors, allowing our Board to effectively exercise independent judgment. Our Directors will review our Group s corporate governance policies and compliance with the Corporate Governance Code each financial year and comply with the comply or 182

190 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES explain principle in our Group s corporate governance report, which will be included in our Group s annual reports after [REDACTED]. COMPLIANCE ADVISER We have appointed South China Capital Limited as our compliance adviser pursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, the compliance adviser will advise us on, among other matters, the following: (a) before the publication of any regulatory announcement, circular or financial report; (b) where a transaction being contemplated, which might be a notifiable or connected transaction or will involve Shares issues and Share repurchases; (c) where our Company proposes to use the [REDACTED] ofthe[redacted] ina manner different from that set out in this document or where our business activities, development or results of our Company deviate from any forecast, estimate (if any) or other information in this document; and (d) where the Stock Exchange makes any inquiry of our Company under Rule of the Listing Rules. The term of appointment of our compliance adviser shall commence on the [REDACTED] and end on the date of despatch of our annual report in respect of our financial results for the first full financial year commencing after the [REDACTED]. Such appointment may be subject to extension by mutual agreement. 183

191 SHARE CAPITAL SHARE CAPITAL The authorized and issued share capital of our Company immediately following completion of the Capitalization Issue and the [REDACTED] (assuming the [REDACTED] is not exercised and without taking into account any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Scheme) will be as follows: Authorized share capital: HK$ [10,000,000,000] Shares of par value of HK$0.01 each [100,000,000] Shares issued and to be issued, fully paid or credited as fully paid: HK$ [1,000,000] Shares in issue as at the Latest Practicable Date [10,000] [REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED] [REDACTED] new Shares to be issued pursuant to the [REDACTED] [REDACTED] [REDACTED] Total Shares issued and to be issued upon completion of the Capitalization Issue and the [REDACTED] [REDACTED] Assumptions The above table assumes the [REDACTED] become unconditional and the issue of Shares pursuant thereto are made as described herein. It assumes the [REDACTED] isnot exercised and does not take into account of any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Scheme, or any Shares which may be allotted and repurchased by our Company under the general mandates granted to our Directors as issue or repurchase Shares referred to below or otherwise. Minimum public float Pursuant to Rule 8.08(1) of the Listing Rules, at the time of [REDACTED] and at all times thereafter, our Company must maintain the minimum prescribed percentage of 25% of the total number of issued Shares of our Company in the hands of the public (as defined in the Listing Rules). The [REDACTED] represent [REDACTED]% of the issued share capital of our Company upon [REDACTED] (assuming the [REDACTED] is not exercised and without taking into account any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Scheme). 184

192 SHARE CAPITAL Ranking The [REDACTED], including the Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme, will rank pari passu in respect with all Shares now in issue or to be issued as mentioned in this document, and in particular, and will qualify for all dividends or other distributions declared, made or paid on the Shares in respect of a record rate which falls after the date of [REDACTED] save for the entitlements under the Capitalization Issue. Share Option Scheme Our Company has conditionally adopted the Share Option Scheme on [ ]. A summary of the principal terms of the Share Option Scheme is set out in the section headed Statutory and general information D. Share Option Scheme in Appendix IV to this document. As at the Latest Practicable Date, no option had been granted under the Share Option Scheme. Capitalization Issue Pursuant to the written resolutions of our Shareholders passed on [ ] 2018, subject to the share premium account of our Company being credited as a result of the [REDACTED], our Directors were authorized to allot and issue a total of [REDACTED] Shares credited as fully paid at par to the holders of shares on the register of members of our Company at the close of business on [ ] 2018 (or as they may direct) in proportion to their respective shareholdings (save that no Shareholder shall be entitled to be allotted and issued any fraction of a Share) by way of Capitalization of the sum of HK$[REDACTED] standing to the credit of the share premium account our Company, and the Shares to be allotted and issued pursuant to this resolution shall rank pari passu in all respects with the existing issued Shares (other than the right to participate in the Capitalization Issue). General mandate to issue Shares Conditional on the conditions as stated in the section headed Structure and Conditions of the [REDACTED] Conditions of the [REDACTED], our Directors have been granted a general unconditional mandate to allot, issue and deal with 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 number of the Shares so allotted and issue 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 our Shareholders) shall not exceed: (a) (b) 20% of the number of Shares in issue immediately following completion of the Capitalization Issue and the [REDACTED] but excluding any Shares which may be allotted and issued pursuant to the [REDACTED] and the exercise of any options which may be granted under the Share Option Scheme; and the aggregate number of Shares repurchased by our Company (if any) pursuant to the authority granted to our Directors referred to in the paragraph General Mandate to repurchase Shares in this section. 185

193 SHARE CAPITAL This mandate does not cover Shares to be allotted, issued, or dealt with under the [REDACTED], a rights issue or pursuant to the exercise of any option which may be granted under the Share Option Scheme. This general mandate to issue Shares will remain in effect until the earliest of: (i) the conclusion of the next annual general meeting of the Company; (ii) the expiration of the period within which the next annual general meeting of the Company is required to be held by the Articles of Association or any other applicable laws of the Cayman Islands; or (iii) the passing of an ordinary resolution of the Shareholders in general meeting revoking, varying or renewing such mandate. For further details of this general mandate for the allotment and issue of Shares, please refer to the paragraph headed Statutory and general information A. Further information about our Company Written resolutions of our Shareholders in Appendix IV to this document. General mandate to repurchase Shares Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general unconditional mandate to exercise all the powers of our Company to repurchase Shares with a total nominal value of not more than 10% of the number of Shares in issue immediately following the completion of the Capitalization Issue and the [REDACTED] but excluding any Shares which may be allotted and issued pursuant to the [REDACTED] and the exercise of any options which may be granted under the Share Option Scheme. This mandate only relates to repurchases made on the Stock Exchange, or on any other stock exchange on which the Shares are [REDACTED] (and which is recognized by the SFC and the Stock Exchange for this purpose), and which are in accordance with all applicable laws and the requirements of the Listing Rules. A summary of the relevant Listing Rules is set out in the paragraph headed Repurchase by our Company of our own securities in the section headed Statutory and general information A. Further information about our Company in Appendix IV to this document. The general mandate to repurchase Shares will remain in effect until the earliest of: at the conclusion of the next annual general meeting of our Company; at the expiration of the period within which the next annual general meeting of our Company is required by any applicable laws of the Cayman Islands or the Articles or the Companies Law to be held; or when varied, revoked or renewed by an ordinary resolution of the Shareholders in general meeting. 186

194 SHARE CAPITAL For further details of this general mandate, please refer to the paragraphs headed Written resolutions of our Shareholders and Repurchase by our Company of our own securities in the section headed Statutory and general information A. Further information about our Company in Appendix IV to this document. Circumstances under which general meeting and class meeting are required Pursuant to the Companies Law and the terms of the Memorandum and Articles of Association, our Company may from time to time by ordinary resolution of shareholders (i) increase its capital; (ii) consolidate and divide its capital into Shares of larger amount; (iii) divide its Shares into several classes; (iv) subdivide its Shares into Shares of smaller amount; and (v) cancel any Shares which have not been taken. In addition, our Company may subject to the provisions of the Companies Law reduce its share capital or capital redemption reserve by its Shareholders passing a special resolution. For details, see 2. Articles of Association (a) Shares (iii) Alteration of capital in Appendix III to this document. Pursuant to the Companies Law and the terms of the Memorandum and Articles of Association, all or any of the special rights attached to the Shares or any class of Shares may 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. For details, see 2. Articles of Association (a) Shares (ii) Variation of rights of existing shares or classes of shares in Appendix III to this document. 187

195 SUBSTANTIAL SHAREHOLDERS SUBSTANTIAL SHAREHOLDERS So far as our Directors are aware, immediately following completion of the [REDACTED] and the Capitalization Issue (assuming the [REDACTED] is not exercised and without taking into account any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Scheme), the following persons will have interests and/or short positions in our Shares or underlying shares of our Company which would fall to be disclosed to us and the Stock Exchange pursuant to 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 issued voting shares of any other member of our Group: Name of interested party Capacity/ Nature of interest Number of Shares held (Note 1) Percentage of Shareholding immediately after the [REDACTED] and the Capitalization Issue Green Yield Beneficial owner (Note 2) [REDACTED] (L) [REDACTED] Mrs. So Interest of controlled [REDACTED] (L) [REDACTED] corporation (Note 3) Mr. CF So Interest of controlled [REDACTED] (L) [REDACTED] corporation (Note 3) Ms. YY So Interest of controlled [REDACTED] (L) [REDACTED] corporation (Note 3) Mr. Chan Wing Interest of spouse (Note 4) [REDACTED] (L) [REDACTED] Yip Mr. MK So Interest of controlled [REDACTED] (L) [REDACTED] corporation (Note 3) Ms. Ko Wai Yan Interest of spouse (Note 5) [REDACTED] (L) [REDACTED] Mr. MH So Interest of controlled corporation (Note 3) [REDACTED] (L) [REDACTED] Notes: 1. The letter L denotes long position of the Shares. 2. Green Yield is beneficially owned as to 50% by Mrs. So, approximately 16.67% by Ms. YY So, approximately 16.67% by Mr. MK So and approximately 16.67% by Mr. MH So. 3. Each of Ms. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So is deemed to be interested in all the Shares held by Green Yield as Green Yield is controlled jointly by Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So. 4. Mr. Chan Wing Yip is the spouse of Ms. YY So. Mr. Chan Wing Yip is deemed to be interested in all our Shares in which Ms. YY So is interested in for the purpose of the SFO. 5. Ms. Ko Wai Yan is the spouse of Mr. MK So. Ms. Ko Wai Yan is deemed to be interested in all our Shares in which Mr. MK So is interested in for the purpose of the SFO. Save as disclosed above, our Directors are not aware of any other persons who will, immediately following completion of the [REDACTED] and the Capitalization Issue, have interests or short positions in our Shares or underlying Shares which would be required to be disclosed to us and the Stock Exchange pursuant to 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 issued voting shares of any other member of our Group. 188

196 FINANCIAL INFORMATION You should read this section in conjunction with our audited consolidated financial information as at and for the years ended 31 May 2016, 2017 and 2018, including the notes thereto, as set out in Appendix I Accountants Report to this document, which has been prepared in accordance with the Hong Kong Financial Reporting Standards ( HKFRSs ). You should read the whole of Accountants Report included as Appendix I to this document and not rely merely on the information contained in this section. The following discussion and analysis and other parts of this document contain certain forward-looking statements that reflect our current views with respect to future events and our financial performance that involve risks, uncertainties and changes in circumstances. 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 predictions depends on a number of risks and uncertainties over which we do not have control. For further details of these risks and uncertainties, please see Forward-looking Statements and Risk Factors. OVERVIEW We are an established provider of E&M engineering services for multiple segments in the private sector in Hong Kong with over 23 years of operating history. We specialize in providing integrated E&M engineering and solutions services in respect of E&M systems including contracted installation and maintenance building service systems, namely (a) electrical systems; (b) MVAC systems; (c) plumbing and drainage systems; and (d) fire service systems. Our E&M engineering services and solutions can be broadly categorized into two major segments, namely (i) E&M engineering services, and (ii) maintenance services, delivering design, supply, installation, testing and commissioning and maintenance services for a wide range of buildings and facilities. We generally secure contracts on a project basis. Our major customers are generally main contractors and property owners and/or developers. During the Track Record Period, we have participated in over 200 contracts for a wide range of buildings and facilities in various scale and complexity with an aggregate contract sum of more than HK$1,704.0 million, with contract sum for an individual contract generally ranging from approximately HK$0.5 million to HK$175.9 million. Our revenue increased by approximately HK$74.0 million or approximately 22.9% from approximately HK$322.9 million for FY2016 to HK$396.9 million for FY2017 and slightly decreased by approximately HK$12.1 million or 3.1% to approximately HK$384.8 million for FY2018. Our profit for the year increased by approximately HK$30.5 million or 307.9% from approximately HK$9.9 million for FY2016 to HK$40.4 million for FY2017 and remained relatively stable at approximately HK$40.0 million for FY2018. Excluding the non-recurring [REDACTED] expenses, our adjusted net profit for the year further increased by approximately HK$5.0 million or 12.3% from approximately HK$40.4 million for FY2017 to HK$45.3 million for FY

197 FINANCIAL INFORMATION BASIS OF PRESENTATION Pursuant to the Reorganization, as more fully explained in the section headed History and Corporate Structure to this document, our Company became the holding company of our Group on 30 November All members of our Group were under the common control of the So Family before and after the Reorganization and that control was not transitory. Accordingly, the consolidated financial statements of our Group for FY2016, FY2017 and FY2018 have been prepared on a consolidated basis by applying the principles of merger accounting as if the Reorganization had been completed at the beginning of the Track Record Period. The consolidated statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows of our Group for the Track Record Period include the results and cash flows of all members of our Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the So Family, where this is a shorter period. The consolidated statements of financial position of our Group as at 31 May 2016, 2017 and 2018 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the So Family s perspective. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganization. Equity interests in subsidiaries and/or businesses held by parties other than the So Family, and changes therein, prior to the Reorganization are presented as non-controlling interests in equity in applying the principles of merger accounting. All intra-group transactions and balances have been eliminated on consolidation. KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS Our Group s results of operations and financial condition have been and will continue to be, affected by a number of factors, which primarily include the following: Market demand The demand for E&M engineering services is driven by the level of construction activities in Hong Kong. As a substantive portion of our revenue is derived from our E&M engineering services in Hong Kong, our profitability depends on the level of construction activities, as well as the general economic conditions in Hong Kong. The availability of construction contracts from the public sector, private sector or institutional bodies will be determined by the interplay of a variety of factors. These factors include the governments spending patterns on the construction and E&M engineering industry and its land supply and public housing policy, the approval of the relevant budgets and plans on construction contracts by the legislative council of Hong Kong, the investment of property developers and general conditions and prospects of the economy in Hong Kong. If there is any recurrence of recession in Hong Kong, any changes in Hong Kong s land supply and public housing policy, or if the local authorities adopt regulations that place additional restrictions or burdens on the construction industry, the 190

198 FINANCIAL INFORMATION demand for construction and E&M engineering works in Hong Kong may deteriorate. For further information relating to the construction industry in Hong Kong, please refer to the section headed Industry Overview of this document. Furthermore, we have accumulated wide spectrum of experiences in E&M engineering services and solutions on buildings and facilities. Our Directors believe that the diversified exposure positions our Group to benefit from the differing growth profiles of construction activities, infrastructure and urban renewal projects in Hong Kong and therefore affects our revenue and our results of operations. Accuracy in the estimation of contract revenue, costs and variation orders Contract revenue is estimated in accordance with the terms and conditions in the relevant contracts based on the terms in the contracts and other documents in written forms. In the case of variation orders, we estimate the amount of the variable consideration that should be included in the transaction price based on the expected value to which we expect to be entitled. The expected value and the related probability of realization is estimated based on the past experiences with the same customer on similar projects, historical settlement patterns, experiences with other customers in the similar industry, recent negotiations and current market conditions. Budgeted costs, which mainly comprise direct materials and equipment, subcontracting fees and direct labour costs, are estimated by us taking into account the rate of direct labour, quotations from time to time from the major subcontractors and suppliers involved and the industry experience possessed by us. When it is probable that total contract costs will exceed total contract revenue, the expected loss will be recognized immediately to the extent the unavoidable costs of meeting the obligations exceed the expected economic benefits. We regularly review and revise the estimates of contract revenue, variation orders, contract costs and budgeted costs prepared for each services contract at their best endeavor to reflect their accuracy and close to the actual outcome. Nevertheless, actual outcomes in terms of total contract costs and/or revenue may be higher or lower than those estimated at the end of each of the Track Record Period, which would affect the revenue and profit to be recognized in future years. In addition, our customers may give us variation orders to expand, reduce or vary the original scope of work and adjust the contract sum. The rates and prices of the variation orders are usually the same as those specified in the contracts for the like or analogous work. We estimate the costs of each variation order and may negotiate with the customers for the charge of additional costs incurred. Variation orders may affect our profit margin as additional purchases or subcontracting services have to be negotiated with our suppliers and subcontractors and we may not be able to maintain the same gross profit margin for a variation order as that for the original contract as a result of higher material costs or subcontracting fees. Our financial performance is affected by the amount of variation orders certified by our customers and the timing of their certification, which depends on, including but not limited to, the practice and procedure of our customers, the scale and completion of the variation orders and the number of variation orders involved. 191

199 FINANCIAL INFORMATION Performance and availability of and fees charged by our subcontractors We may from time to time engage subcontractors, who are located in Hong Kong to perform or assist us in performing certain works for our E&M engineering services or maintenance services after considering our capacity, internal resources, technical skills and cost effectiveness. In some cases, subcontractors may source and supply equipment and materials for such works. If a subcontractor does not perform, delays in performing or fails to perform the contracted works to the standard required by our customers, we may experience delay in the project completion, be required to replace such subcontractor at additional costs, and/or be subject to liability under the relevant contracts between our Group and our customers, which may substantially increase our cost of sales and decrease our profitability. Furthermore, there is no assurance that our Group will always be able to secure suitable subcontractors when required, or be able to negotiate favourable fees and terms with the subcontractors and our profitability, financial performance and reputation may be adversely affected. Subcontracting fees represent a significant portion of our cost of sales. Our subcontracting fees accounted for approximately 63.5%, 68.6% and 69.7% of our cost of sales for the Track Record Period respectively. Our subcontracting fees may vary depending on the scope, nature, complexity and specification of works as well as E&M equipment and materials involved in the contract. Fluctuations in subcontracting fees directly affect our results of operations and financial condition. The following sensitivity analysis illustrates the impact of hypothetical fluctuations of our subcontracting fees on our profit before tax during the Track Record Period, assuming all other variables, including our revenue, remained constant. Fluctuations in our subcontracting fees included in our total actual costs are assumed to be 5%, 10%, and 15%. Hypothetical fluctuations of our subcontracting fees FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 Decrease/increase in profit before tax +/-5% -/+9,075 -/+11,360 -/+11,121 +/-10% -/+18,149 -/+22,721 -/+22,241 +/-15% -/+27,224 -/+34,081 -/+33,362 Fluctuation of direct material costs Our direct material costs accounted for approximately 26.5%, 22.8% and 20.0% of our cost of sales during the Track Record Period, respectively. Our direct material costs were principally related to the key materials including cables, cable accessories, assorted electrical accessories, lighting products and chillers used in the work sites procured by us for our contracts, which were delivered to the work sites directly by our suppliers. Major materials were ordered based on the specifications set out in the relevant contract. 192

200 FINANCIAL INFORMATION The following sensitivity analysis illustrates the impact of hypothetical fluctuations of our direct material costs on our profit before tax during the Track Record Period, assuming all other variables, including our revenue, remained constant. Fluctuations in our direct material costs included in our total actual costs are assumed to be 5%, 10% and 15%. Hypothetical fluctuations of our direct material costs FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 Decrease/increase in profit before tax +/-5% -/+3,789 -/+3,773 -/+3,195 +/-10% -/+7,578 -/+7,546 -/+6,389 +/-15% -/+11,366 -/+11,318 -/+9,584 Furthermore, our subcontracting fees and direct material costs may fluctuate after contracts are secured and may deviate from our estimation during the tendering stage. In the event there is an unexpected substantial increase in the subcontracting fees and direct material costs, we may not be able to pass on such additional costs to our customer and we will incur substantial extra costs, as a result of which our financial performance and profitability will be adversely affected. Fluctuation of direct labour cost and supply of qualified employees We depend on qualified and experienced operational professionals and personnel to provide quality services. Any shortage of qualified and experienced operational professionals and personnel may lead to delay of our existing work or affect our ability to take up new contracts, and hence affect our results of operations. Consequently, our direct labour costs may vary, period from period, due to the construction activities and supply of labour. Even though we take into consideration the expected increase in direct labour cost when we submit tenders and/or quotations, the unexpected increase in direct labour cost due to market conditions may adversely affect our results of operations. During the Track Record Period, direct labour cost accounted for 9.7%, 9.6% and 9.5% of our total cost of sales respectively. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. Some of our accounting policies involve subjective assumptions and estimates, as well as complex judgments relating to accounting items. In each case, the determination of these items requires management judgments based on information and financial data that may change in future periods. When reviewing our consolidated financial statements, you should consider (i) our selection of significant accounting policies; (ii) the judgement and other uncertainties affecting the application of such policies; and (iii) the sensitivity on reported results to changes in conditions and assumptions. Our significant accounting policies, judgements and estimates, which are important for an understanding of our results of operations and financial position, are set out in more detail in notes 2.5 and 3 to the Accountants Report in Appendix I to this document. 193

201 FINANCIAL INFORMATION Our Directors believe that certain significant accounting policies and estimates are important to the presentation of its financial results and positions, which are set out below: Revenue recognition Under HKFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. We recognize revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligations is transferred to the customers. If control of the asset transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point of time when the customer obtains control of the asset. Revenue derived from our E&M engineering service contracts is recognized based on the stage of completion of the contracts. Our Directors have assessed the stage of completion based on the proportion of the costs incurred for the works (i.e. subcontracting fees, materials costs, direct labour costs incurred and other miscellaneous costs directly attributable to the contracts) performed to date relative to the estimated total costs to complete the satisfaction of these services. Due to the nature of the promises and the industry practice, there is high uncertainty on the estimated total costs for a contract throughout the contract term until we could reasonably estimate or nearly fix the quantum and unit prices of materials and other direct costs, and subcontracting fees. Therefore, we cannot reasonably measure the outcome of a performance obligation prior to that stage and revenue is recognized only to the extent of the costs incurred when they are expected to be recovered. Revenue derived from our maintenance services contracts is recognized over the scheduled period on a straight line basis or upon the delivery of the services. Rental income under operating leases is recognized on the straight-line basis over the terms of the relevant leases. Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset. Investment income from unlisted bond investments is recognized when the dividend is declared. 194

202 FINANCIAL INFORMATION Contract assets/liabilities Upon entering into a contract with a customer, we obtain rights to receive considerations from the customer and assumes performance obligations to provide service to the customer. A contract asset is recognized when we have the right to consideration in exchange for services that we have transferred to a customer when that right is conditional on something other than the passage of time (for example, our future performance). Any amount previously recognized as a contract asset is reclassified to trade receivables when such right become unconditional other than the passage of time. Remaining rights and performance obligations in a particular contract is accounted for and presented on a net basis, as either a contract asset or a contract liability. If the progress payment exceeds the revenue recognized to date under the input method, then we recognize a contract liability for the difference. Estimated recoverability of trade receivables and contract assets We assess at the end of each of the Track Record Period whether there is any objective evidence that trade receivables and contract assets are impaired. In determining whether there is objective evidence of impairment, we take into consideration the ageing status and the likelihood of collection by reference to the background and repayment history of the debtors and the occurrence of any default or disputes. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on such factors as repayment plans committed by debtors and subsequent collections. An impairment loss is made for receivables of which the present values of future cash flows are less than their carrying amounts. ISSUED BUT NOT YET EFFECTIVE HKFRSs HKFRS 9 Financial Instruments Upon adoption of HKFRS 9, the classification and measurement of financial assets depends on two assessments: the financial asset s contractual cash flow characteristics and the entity s business model for managing the financial asset. We expect that the available-for-sale investments as at 31 May 2018, that are currently measured at fair value through other comprehensive income, will not pass the contractual cash flow characteristics test in HKFRS 9 and will be reclassified as financial assets at fair value through profit or loss. As at 31 May 2018, our available-for-sale investments amounted to approximately HK$4.1 million. There is no expectation of material impact on the financial statements arising therefrom for the subsequent measurement. HKFRS 9 requires an impairment on debt instruments recorded at amortised cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under HKFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. We will apply the simplified approach and record lifetime expected loss that are estimated based on the present value of all cash shortfalls over the remaining life of its trade receivables and contract assets. Furthermore, we will apply the general approach to other receivables. If there has not been a significant increase in credit risk since initial recognition, we will record a twelve-month expected credit losses that are estimated based on the possible default events on its other receivables within the next twelve months. When there has been a significant increase in credit risk since initial recognition, the impairment will be based on lifetime expected credit losses. 195

203 FINANCIAL INFORMATION Our Directors have reviewed our financial assets including trade receivables, contract assets and other receivables as at 31 May 2018 and anticipate that the application of HKFRS 9 in the future will not have a significant impact on the financial statements. We will adopt HKFRS 9 from 1 June We will not restate comparative information and will recognise any transition adjustments against the opening balance of equity at 1 June The adoption of HKFRS 9 will not have any significant effects on our accounting policies related to financial liabilities. HKFRS 16 Lease HKFRS 16, issued in May 2016, replaces HKAS 17 Lease, HK (IFRIC) Int 4 Determining whether an Arrangement contains a Lease, HK (SIC) Int 15 Operating Leases Incentives and HK (SIC) Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. HKFRS 16 requires lessees and lessors to make more extensive disclosures than under HKAS 17. Lessees can choose to apply the standard using either a full retrospective or a modified retrospective approach. We expect to adopt HKFRS 16 from 1 June We are currently assessing the impact of HKFRS 16 upon adoption and is considering whether it will choose to take advantage of the practical expedients available and which transition approach and reliefs will be adopted. As disclosed in Appendix I Accountant s Report in this document, at 31 May 2018, we had future minimum lease payments under non-cancellable operating leases in aggregate of approximately HK$2.7 million. Upon adoption of HKFRS 16, certain amounts included therein may need to be recognized as new right-of-use assets and lease liabilities. Further analysis, however, will be needed to determine the amount of new right-of-use assets and lease liabilities to be recognized, including, but not limited to, any amounts relating to leases of low-value assets and short term leases, other practical expedients and reliefs chosen, and new leases entered into before the date of adoption. 196

204 FINANCIAL INFORMATION RESULTS OF OPERATIONS The following table summarises the selected items in our consolidated statements of profit or loss for the Track Record Period, extracted from the Accountants Report in Appendix I to this document. FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 REVENUE 322, , ,758 Cost of sales (285,847) (331,073) (319,050) Gross profit 37,055 65,833 65,708 Other income and gains 2,750 9,409 18,836 Administrative expenses (20,978) (26,509) (30,776) [REDACTED] expenses (5,336) Other expenses (4,044) (1,843) (1,912) Finance costs (958) (614) (243) PROFIT BEFORE TAX 13,825 46,276 46,277 Income tax expense (3,931) (5,923) (6,307) PROFIT FOR THE YEAR 9,894 40,353 39,970 Attributable to: Owners of the Company 8,246 37,003 39,107 Non-controlling interests 1,648 3, ,894 40,353 39,970 Non-HKFRS measure for illustrative purpose: Adjusted net profit (Note) 9,894 40,353 45,306 Note: Adjusted net profit was calculated based on profit for the year excluding non-recurring [REDACTED] expenses during the Track Record Period. In addition to the HKFRS measures in our consolidated financial statements, we also use the non-hkfrs financial measures of adjusted net profit to evaluate our operating performance. Our Directors believe that this non-hkfrs measure provides useful information to investors in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies. 197

205 FINANCIAL INFORMATION DESCRIPTION OF SELECTED ITEMS IN CONSOLIDATED STATEMENTS OF PROFIT OR LOSS Revenue The table below sets forth the breakdown of our revenue by our business segments during the Track Record Period: FY2016 FY2017 FY2018 Number of contracts (Note) Revenue recognized Number of contracts (Note) Revenue recognized Number of contracts (Note) Revenue recognized HK$ 000 % HK$ 000 % HK$ 000 % (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) E&M engineering services , , , Maintenance services 58 10, , , , , , Note: The number of contracts refers to the number of contracts which generated revenue recognized by our Group during the relevant financial period. During the Track Record Period, all our revenue was derived in Hong Kong. Substantially all of our revenue was derived from our E&M engineering services which was mainly provided on an integrated basis during the Track Record Period. Cost of sales Our cost of sales primarily consists of subcontracting fees, direct material costs and direct labour costs. The following table sets out a breakdown of our cost of sales for the period indicated: FY2016 FY2017 FY2018 HK$ 000 % HK$ 000 % HK$ 000 % Subcontracting fees 181, , , Direct material 75, , , Direct labour 27, , , Net realisation of provision for expected loss (1,174) (0.4) (5,572) (1.7) Others (Note) 2, , , , , , Note: Others primarily consisted of depreciation and insurance. Subcontracting fees mainly consist of service fees paid and payable to our subcontractors who provide parts of works for some of our E&M engineering service contracts and purchase 198

206 FINANCIAL INFORMATION costs of equipments, products and other parts for E&M systems. Based on the specification and complexity of and technologies involved in the work as well as our capacity, internal resources, skills and cost effectiveness, we may subcontract certain parts of works of a contract to selected subcontractors. Please refer to section headed Business Our Subcontractors for further details. Direct material costs mainly consist of the cost of key materials used by our Group which include cables, cable accessories, assorted electrical accessories, lighting products and chillers. The materials are usually delivered by our suppliers directly to work sites for immediate use, and accordingly, we do not maintain any material amount of inventory. Our direct labour costs principally represented our staff costs of our full time operational staff who are directly involved in the provision of our services. Provision for expected loss represents that expected loss for a contract is provided and charged to our consolidated statements of profit or loss when there is such a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. The realization of provision for expected loss represents the reverse of provision for expected loss when provision for expected loss for the contract is subsequently expected to be utilised or reversed. Expected loss for Contract 007, Contract 503 and Contract 551 provided on or before FY2016 were utilised or reversed in an aggregate amount of approximately HK$3.8 million and HK$5.6 million for FY2016 and FY2017 respectively. During FY2016, we experienced an unexpected failure in the performance of a subcontractor for Contract 007 which resulted in the need to engage alternative subcontractors with additional costs, provision for expected loss of approximately HK$2.7 million was therefore made in FY2016. Contract 007 was completed in February In view of the above, net realisation of provision for expected loss of approximately HK$1.2 million and HK$5.6 million were made in FY2016 and FY2017 respectively. Gross profit and gross profit margin The table below sets forth the breakdown of our gross profit and gross profit margin by our business segments for the periods indicated: FY2016 FY2017 FY2018 Gross Profit Gross Profit Gross Profit Gross Profit Margin Gross Profit Margin Gross Profit Margin HK$ 000 % HK$ 000 % HK$ 000 % (approx.) (approx.) (approx.) (approx.) (approx.) (approx.) E&M engineering services 34, , , Maintenance services 2, , , , , , Our gross profit and gross profit margin are dependent on various factors, amongst others, the number, scale, types, complexity and specifications of the contracts to be undertaken as 199

207 FINANCIAL INFORMATION well as nature of services to be provided by us during the respective financial year. Please refer to the paragraph headed Period to period comparison of our results of operations below for further details. Other income and gains Other income and gains mainly included investment income, fair value gains on disposal of the Disposed Properties and fixed assets, fair value gains and rental income from the Disposed Properties during the Track Record Period. For the Track Record Period, other income and gains were approximately HK$2.8 million, HK$9.4 million and HK$18.8 million, respectively. Administrative expenses The following table sets forth a breakdown of our administrative expenses for the periods indicated: FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 Staff cost 7,731 9,947 12,697 Rent and rates 1 3,026 4,347 5,148 Transportation expenses 2,081 2,234 2,016 Entertainment 2,344 1,878 1,328 Repair and maintenance 1,571 1,626 1,877 Depreciation and amortisation 1,129 1,219 1,383 Legal and professional fee 329 1,850 2,184 Audit fee Others 2 2,007 2,608 3,343 20,978 26,509 30,776 Notes: 1. Rent and rates included rent and rates for office, machines and equipment. 2. Others mainly included office utilities costs, telephone charges, printing costs, and other miscellaneous expenses. Finance cost Our finance costs represent our interest expenses on our bank loans and overdrafts, bills payables and finance lease. Our finance costs were approximately HK$1.0 million, HK$0.6 million and HK$0.2 million for the Track Record Period, respectively. Income tax expense Pursuant to the rules and regulations of the Cayman Islands and the BVI, our Group is not subject to any income tax in the Cayman Islands and the BVI. Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profits arising in Hong Kong during the Track Record Period. 200

208 FINANCIAL INFORMATION For the Track Record Period, our income tax expenses were approximately HK$3.9 million, HK$5.9 million and HK$6.3 million, respectively, and our effective tax rate for the same period was approximately 28.4%, 12.8% and 13.6%, respectively. Our effective tax rate for FY2016 was higher than the statutory tax rate of 16.5% mainly due to a tax loss not recognized of approximately HK$1.1 million as a result of a loss in KEM for FY2016. Our effective tax rate was lower for FY2017 mainly due to the abovementioned tax losses from previous periods utilized. Our effective tax rate for FY2018 remained stable. Our Directors confirmed that, during the Track Record Period and up to the Latest Practicable Date, we had fulfilled all our income tax obligations and have not had any unresolved income tax issues or disputes with the relevant tax authorities. PERIOD TO PERIOD COMPARISON OF OUR RESULTS OF OPERATIONS FY2018 compared to FY2017 Revenue Our revenue decreased by approximately HK$12.1 million or approximately 3.1% from approximately HK$396.9 million for FY2017 to approximately HK$384.8 million for FY2018, mainly due to the decrease of revenue from our E&M engineering services of approximately HK$8.9 million as a result of the combined effects of: (i) decrease in the revenue of approximately HK$132.3 million generated from our completed contracts as at 31 May 2018, mainly attributable to the decrease in revenue from Contract 570 and Contract 572 of approximately HK$128.1 million which was close to completion in FY2018; and (ii) offset by increase in the revenue of approximately HK$123.4 million generated from our ongoing contracts as at 31 May 2018, mainly attributable to the increase in revenue from Contract 581 and Contract 011 of approximately HK$129.1 million. Cost of sales Our cost of sales decreased by approximately HK$12.0 million or approximately 3.6% from approximately HK$331.1 million for FY2017 to approximately HK$319.1 million for FY2018 mainly due to the decrease in direct material cost of approximately HK$11.6 million mainly attributable to the close to completion of Contract 570 and Contract 568. Gross profit and gross profit margin Our gross profit remained relatively stable at approximately HK$65.8 million for FY2017 and approximately HK$65.7 million for FY2018. Our gross profit margin also remained relatively stable at 16.6% for FY2017 and approximately 17.1% for FY

209 FINANCIAL INFORMATION Other income and gains Other income and gains increased by approximately HK$9.4 million from HK$9.4 million for FY2017 to HK$18.8 million for FY2018 mainly due to gain on disposal of the Disposed Properties and related fixed assets in an aggregate amount of approximately HK$17.0 million, which was partially offset by the absence of any fair value gains in the Disposed Properties for FY2018 (approximately HK$5.7 million for FY2017). All of the Disposed Properties have been disposed of by our Group on 6 February Please refer to the section History, Reorganization and Corporate Structure in this document for details. Administrative expenses Our administrative expenses increased by approximately HK$4.3 million or approximately 16.1% from approximately HK$26.5 million for FY2017 to approximately HK$30.8 million for FY2018 primarily due to (i) the increase in staff cost of approximately HK$2.8 million primarily as a result of increase in headcount and the annual salary increment for those staff in FY2018; and (ii) increase in rent and rates of approximately HK$0.8 million. Finance costs Our finance costs decreased by approximately HK$0.4 million or approximately 60.4% from approximately HK$0.6 million for FY2017 to approximately HK$0.2 million for FY2018 and mainly due to the repayment of bank borrowings. Income tax expense Our income tax expenses remained relatively stable at approximately HK$5.9 million for FY2017 and approximately HK$6.3 million for FY2018. Profit for the year and net profit margin As a result of the foregoing our profit after tax remained relatively stable at approximately HK$40.4 million for FY2017 and approximately HK$40.0 million for FY2018. As a result of the foregoing, our net profit margin increased from approximately 10.2% for FY2017 to approximately 10.4% for FY2018. Excluding the non-recurring [REDACTED] expenses, our adjusted net profit margin further increased to approximately 11.8% for FY

210 FINANCIAL INFORMATION Net profit attributable to owners of the Company Our net profit attributable to owners of our Company increased by approximately HK$2.1 million or approximately 5.7% from approximately HK$37.0 million for FY2017 to approximately HK$39.1 million for FY2018. Such increase was primarily due to the acquisition of the minority interest in Keio by our Group in November FY2017 compared to FY2016 Revenue Our revenue increased by approximately HK$74.0 million or approximately 22.9% from approximately HK$322.9 million for FY2016 to approximately HK$396.9 million for FY2017 mainly due to the increase in revenue from our E&M engineering services of approximately HK$67.5 million as a result of the combined effects of: (i) (ii) increase in the revenue generated from our ongoing contracts as at 31 May 2017 of approximately HK$178.8 million mainly attributable to the increase in revenue from Contract 568, Contract 570, Contract 581 and Contract 586 of approximately HK$167.0 million; and offset by decrease in revenue generated from our completed contracts as at 31 May 2017 of approximately HK$111.3 million mainly attributable to the decrease in revenue from Contract 535, Contract 566 and Contract 560 of approximately HK$98.6 million. Cost of sales Our cost of sales increased by approximately HK$45.2 million or approximately 15.8% from approximately HK$285.8 million for FY2016 to approximately HK$331.1 million for FY2017 mainly due to the increase in our subcontracting fees of approximately HK$45.7 million particularly for Contract 570. Gross profit and gross profit margin Our gross profit increased by approximately HK$28.8 million or approximately 77.7% from approximately HK$37.1 million for FY2016 to approximately HK$65.8 million for FY2017. Our gross profit margin increased from approximately 11.5% for FY2016 to approximately 16.6% for FY2017 primarily because of the loss from Contract 007 recorded in FY2016 but no such items was noted in FY2017. For further details, please refer to paragraph headed Description of selected items in consolidated statements of profit or loss Cost of sales above. Other income and gains Our other income and gains increased by approximately HK$6.7 million or approximately 242.1% from approximately HK$2.8 million for FY2016 to approximately HK$9.4 million for FY2017 and mainly due to the fair value gains on the Disposed Properties of approximately HK$5.7 million. 203

211 FINANCIAL INFORMATION Administrative expenses Our administrative expenses increased by approximately HK$5.5 million or approximately 26.4% from approximately HK$21.0 million for FY2016 to approximately HK$26.5 million for FY2017. Such increase was mainly due to (i) increase in staff cost of approximately HK$2.2 million due to the increase of headcount and salary increment; (ii) increase in legal and professional fee of approximately HK$1.5 million; and (iii) the increase in rent and rates by approximately HK$1.3 million. Finance costs Our finance costs remained stable at approximately HK$1.0 million for FY2016 and approximately HK$0.6 million for FY2017. Income tax expense Our income tax expenses increased by approximately HK$2.0 million or approximately 50.7% from approximately HK$3.9 million for FY2016 to approximately HK$5.9 million for FY2017 and was mainly due to the increase in profit before taxation from approximately HK$13.8 million for FY2016 to HK$46.3 million for FY2017. Profit for the year and net profit margin As a result of the foregoing, our profit for the year was increased by approximately HK$30.5 million or approximately 307.9% from approximately HK$9.9 million for FY2016 to approximately HK$40.4 million for FY2017. As a result of the foregoing, our net profit margin increased from approximately 3.1% for FY2016 to approximately 10.2% for FY2017. Net profit attributable to the owners of the Company Our net profit attributable to the owners of the Company increased by approximately HK$28.8 million or approximately 348.7% from approximately HK$8.2 million for FY2016 to approximately HK$37.0 million for FY2017 which was in line with the growth of profit for the year. LIQUIDITY AND CAPITAL RESOURCES Our primary uses of cash are for operating needs and working capital. During the Track Record Period, we have mainly been funded through cash generated from our operations and banking facilities. Upon completion of the [REDACTED], we currently expect that there will not be any material change in the sources and uses of cash of our Group in the future, except that we would have additional funds from [REDACTED] of the [REDACTED] for implementing our future plans as detailed under the section headed Reasons for the [REDACTED] and [REDACTED] in this document. 204

212 FINANCIAL INFORMATION Cash flow FY2016 FY2017 FY2018 HK$ 000 HK$ 000 HK$ 000 Net cash flows from operating activities 29,591 47,662 20,462 Net cash flows used in investing activities (21,846) (2,166) (7,148) Net cash flows used in financing activities (12,253) (6,918) (20,642) Net (decrease)/increase in cash and cash equivalents (4,508) 38,578 (7,328) Cash and cash equivalents at beginning of year (13,546) (18,054) 20,524 Cash and cash equivalents at end of year (18,054) 20,524 13,196 Net cash flows from operating activities For FY2018, our net cash generated from operating activities of approximately HK$20.5 million, primarily contributed by the combined effect of operating cash flow before changes in working capital of approximately HK$32.7 million, the income tax paid of approximately HK$14.6 million and the change in working capital of approximately HK$2.4 million. Change in working capital primarily reflected (i) the increase in trade receivables of approximately HK$7.3 million (ii) the decrease in trade payables of approximately HK$2.0 million, which was partially offset by (iii) the decrease in contract assets/liabilities of approximately HK$14.9 million. For FY2017, our Group had a net cash generated from operating activities of approximately HK$47.7 million, primarily contributed by the combined effects of operating cash flows before changes in working capital of approximately HK$37.6 million, the income tax refunded of approximately HK$2.3 million and the change in working capital of approximately HK$7.7 million. Change in working capital primarily reflected (i) the increase in trade payables of approximately HK$23.6 million, which was partially offset by (ii) the increase in trade receivables of approximately HK$15.8 million. For FY2016, our Group had a net cash generated from operating activities of approximately HK$29.6 million, primarily contributed by the combined effects of operating cash flows before changes in working capital of approximately HK$18.5 million, the income tax paid of approximately HK$3.5 million and the change in working capital of approximately HK$14.5 million. Change in working capital primarily reflected (i) the decrease in trade receivables of approximately HK$25.0 million, which was partially offset by (ii) the increase in contract assets/liabilities of approximately HK$7.1 million and (iii) the decrease in trade payable of approximately HK$4.9 million. 205

213 FINANCIAL INFORMATION Net cash flows used in investing activities For FY2018, our net cash used in investing activities of approximately HK$7.1 million, which primarily attributable to (i) advances to related parties of approximately HK$6.8 million; (ii) the purchase of property, plant and equipment of approximately HK$0.5 million; partially offset by (iii) the investment income received of approximately HK$0.2 million. For FY2017, our Group had a net cash used in investing activities of approximately HK$2.2 million, which primarily attributable to (i) the prepayments regarding property development interest being classified as other non-current assets of approximately HK$2.0 million; and (ii) advances to related parties of approximately HK$1.4 million, which were partially offset by (iii) proceeds from disposal of available-for-sale investments of approximately HK$1.1 million. For FY2016, our Group had a net cash used in investing activities of approximately HK$21.8 million, which was mainly due to (i) the prepayments regarding property development interest and a parcel of land being classified as other non-current assets of approximately HK$16.8 million; (ii) the advances to related parties of approximately HK$8.4 million; and partially offset by (iii) the repayment of advances to related parties of approximately HK$3.7 million. Net cash flows used in financing activities For FY2018, our net cash used in financing activities of approximately HK$20.6 million, which primarily attributable to (i) the repayment of bank loans of approximately HK$13.2 million; (ii) the repayment of advances from related parties of approximately HK$5.0 million; and (iii) [REDACTED] expenses paid of approximately HK$[REDACTED]. For FY2017, our Group had a net cash used in financing activities of approximately HK$6.9 million, which was mainly due to (i) repayment of bank loans of approximately HK$7.5 million; (ii) repayment of advances from related parties of approximately HK$3.4 million, partially offset by (iii) the new bank loans raised of approximately HK$5.0 million. For FY2016, our Group had a net cash used in financing activities of approximately HK$12.3 million, which was mainly due (i) to repayment of bank loans of approximately HK$11.0 million; (ii) repayments of advances from related parties of approximately HK$3.7 million, partially offset by (iii) the new bank loans raised of approximately HK$2.5 million. Net current assets/(liabilities) Our current assets consist primarily of (i) available-for-sale investments (i.e. unlisted bond issued by licensed banks in Hong Kong); (ii) contract assets; (iii) trade receivables; and (vi) cash and bank balances. Our current liabilities consist primarily of (i) contract liabilities; (ii) trade payables; (iii) interest-bearing bank borrowings and overdrafts and (iv) tax payable. Although we had net current liabilities of approximately HK$4.3 million as at 31 May 2016, we recorded net current assets of approximately HK$28.5 million and HK$51.3 million as at 31 May 2017 and 31 May 2018, respectively. 206

214 FINANCIAL INFORMATION The following table shows our current assets and current liabilities as at the dates indicated: FY2016 FY2017 FY2018 As at 30 June 2018 HK$ 000 HK$ 000 HK$ 000 HK$ 000 CURRENT ASSETS Available-for-sale investments 4,016 4,238 4,110 4,088 Contract assets 94,972 90,636 80,801 86,150 Trade receivables 11,411 26,309 31,892 38,170 Prepayments, deposits and other receivables 2,680 2,384 5,101 5,540 Amounts due from related parties 2,871 2,649 9,269 9,284 Tax recoverable 45 Cash and bank balances 1,047 20,524 13,196 9,363 Total current assets 116, , , ,595 CURRENT LIABILITIES Contract liabilities 8,200 3,705 8,773 8,243 Trade payables 49,054 72,683 70,644 76,162 Other payables and accruals 3,989 5,522 4,414 3,900 Interest-bearing bank borrowings and overdrafts 34,788 13,223 Finance lease payables Amounts due to related parties 11,936 7,780 1,842 1,797 Provision 5,572 Tax payable 6,968 15,017 6,983 7,536 Derivative financial instruments 636 Total current liabilities 121, ,331 93,115 98,089 NET CURRENT (LIABILITIES)/ ASSETS (4,310) 28,454 51,254 54,506 We had net current liabilities of approximately HK$4.3 million as at 31 May 2016 and net current assets of approximately HK$28.5 million as at 31 May This change in financial position was primarily due to the net cash flow generated from operating activities of approximately HK$47.7 million for FY2017 and the decrease in interest-bearing bank borrowings and overdrafts of approximately HK$21.6 million for FY2017. Our net current assets increased from approximately HK$28.5 million as at 31 May 2017 to approximately HK$51.3 million as at 31 May The increase was primarily due to the net cash flow generated from operating activities of approximately HK$20.5 million for FY

215 FINANCIAL INFORMATION Our net current assets further increased from approximately HK$51.3 million as at 31 May 2018 to approximately HK$54.5 million as at 30 June 2018, mainly due to the increase in trade receivables of approximately HK$6.3 million partially offset by the decrease in cash and bank balance of approximately HK$3.8 million. Working capital Our Directors confirm that, taking into consideration the financial resources presently available to us, including anticipated cash flow from our operating activities, existing cash and cash equivalents, available banking facilities and the estimated [REDACTED] from the [REDACTED], we have sufficient working capital for our present requirements and for at least the next 12 months from the date of this document. Save as disclosed in this document, our Directors are not aware of any other factors that would have a material impact on our Group s liquidity. Details of the funds necessary to meet our existing operations and to fund our future plans are set out in the section headed Reasons for the [REDACTED] to this document. DESCRIPTION OF SELECTED ITEMS OF CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Contract assets and contract liabilities The following table sets forth our Group s contract assets and contract liabilities as at the date indicated: As at 31 May HK$ 000 HK$ 000 HK$ 000 Contract assets 94,972 90,636 80,801 Contract liabilities (8,200) (3,705) (8,773) 86,772 86,931 72,028 The net contract assets remained relatively stable at approximately HK$86.8 million and HK$86.9 million as at 31 May 2016 and 31 May 2017, respectively. The net contract assets decreased by approximately HK$14.9 million from approximately HK$86.9 million as at 31 May 2017 to approximately HK$72.0 million as at 31 May 2018 and this was mainly attributable to relatively more construction works that have been carried out by our Group have reached the stage that warranted progress billing as at 31 May As at 6 August 2018, approximately HK$92.8 million, HK$76.5 million and HK$30.8 million, representing approximately 97.7%, 84.4% and 38.1% of the contract assets as of 31 May 2016, 2017 and 2018 respectively, have been subsequently certified by our customer. 208

216 FINANCIAL INFORMATION Trade receivables The following table sets forth our trade receivables as of the dates indicated: As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade receivables 11,220 25,949 33,336 Retention receivables 3,051 4,048 3,864 Impairment (2,860) (3,688) (5,308) Total 11,411 26,309 31,892 Our trade receivables represented receivables for our E&M engineering services and maintenance services and retention receivables. In general, we submit payment application to our customers on a monthly basis with details relating to the amount of work done. The defect liability period is generally 12 to 24 months from the date of the practical completion certificate. Our trade receivables increased from approximately HK$11.4 million as at 31 May 2016 to approximately HK$26.3 million as at 31 May 2017, which was principally attributable to two sizeable ongoing contracts namely Contract 581 and Contract 568 which had payment certification with relative larger amount issued near the end of FY2017. Our trade receivables further increased from approximately HK$26.3 million as at 31 May 2017 to approximately HK$31.9 million as at 31 May 2018, which was mainly attributable to payment certificate issued for the ongoing contracts, namely Contract 581, Contract 607 and Contract 597 near the end of FY2018. In general, we allow a credit period of days upon the date of invoice to our customers. Due dates are determined based on the payment date as stipulated in the invoice. We adopt prudent credit control procedures and our accounts department are responsible for monitoring payments from our customers pursuant to the terms of the contracts and report to our management and engineering and technical team to take appropriate follow up action where necessary. 209

217 FINANCIAL INFORMATION The following is an aged analysis of trade receivables (excluding retention receivables) as at the end of each year that are neither individually nor collectively considered to be impaired: As at 31 May HK$ 000 HK$ 000 HK$ 000 Neither past due nor impaired 4,776 15,190 18,511 Past due but not impaired: Less than 1 month past due 1,925 4,625 6,307 1 to 3 months past due 808 2, Over 3 months past due 868 1,192 3,656 8,377 23,117 28,851 The individually impaired trade receivables are related to customers that were in default in principal payment and only a portion of the receivables is expected to be recovered. Our Group does not hold any collateral or other credit enhancements over these balances. As at 31 May 2018, approximately HK$10.3 million was past due but not impaired. These related to a number of independent customers that have good track records with the Group. Based on past experience, our Directors were of the view that no impairment allowance was necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The table below sets forth our average trade receivable (excluding retention receivables) turnover days as at the dates indicated: As at 31 May Trade receivable turnover days (Note) Note: Turnover days of trade receivables is calculated using the average balance of trade receivables excluding retention receivables divided by the revenue for the relevant period and multiplied by 365 days. Average balance of trade receivable excluding retention receivables is calculated as the sum of the beginning and the ending balance for the relevant period, divided by two. Our average trade receivable turnover days (exclusive of the retention receivables) were approximately 23 days, 15 days and 25 days respectively for the Track Record Period, which were within our normal credit period. As at 6 August 2018, approximately 86.7% of our trade receivables exclusive of the retention receivables outstanding as at 31 May 2018 were settled. 210

218 FINANCIAL INFORMATION Prepayments, deposits and other receivables Our prepayments, deposits and other receivables mainly comprise of rental and rates deposits and management fee prepayments and trade and utilities deposits. Our prepayments, deposits and other receivables slightly decreased from approximately HK$2.7 million as at 31 May 2016 to approximately HK$2.4 million as at 31 May 2017 mainly due to the combined effect of (i) the receivables from the disposal of unlisted bond investment in FY2016 of approximately HK$1.1 million; which was partially offset by (ii) increase in suppliers, trade deposit of approximately HK$0.9 million. Our prepayments, deposits and other receivables increased from approximately HK$2.4 million as at 31 May 2017 to approximately HK$5.1 million as at 31 May 2018 mainly due to (i) the deferred [REDACTED] expenses of approximately HK$[REDACTED]; and (ii) the increase in suppliers trade deposit of approximately HK$1.0 million. Trade payables indicated: The following table sets forth the components of our trade payables as at the dates As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade payables 39,502 60,466 52,449 Retention payables 9,552 12,217 18,195 49,054 72,683 70,644 Our trade payables primarily consist of amounts payable to our suppliers and our subcontractors and the retention payables. Our trade payables increased from approximately HK$49.1 million as at 31 May 2016 to approximately HK$72.7 million as at 31 May It was mainly in line with growth in our revenue. Comparing to 31 May 2017, the balance of trade payables remained relatively stable at approximately HK$70.6 million as at 31 May

219 FINANCIAL INFORMATION Our creditors generally offer us credit periods from 30 to 60 days upon date of invoice. The table below sets forth an aging analysis of the trade payable (excluding retention payables), as of the end of each year: As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade payables Within 1 month 25,532 49,373 45,364 1 to 2 months 5,094 6,935 2,979 2 to 3 months 2,387 3,063 Over 3 months 6,489 1,095 4,106 Total 39,502 60,466 52,449 The table below sets forth our trade payables (excluding retention payables) turnover days as at the dates indicated: As at 31 May Trade payable turnover days (Note) Note: Turnover days of trade payables is calculated using the average balance of trade payables excluding retention payables divided by cost of sales for the relevant period and multiplied by 365 days. Average balance of trade payable excluding retention payables is calculated as the sum of the beginning and the ending balance for the relevant period, divided by two. Our trade payable turnover days (exclusive of the retention payables) remained relatively stable at approximately 57 days and 55 days for FY2016 and FY2017 respectively, which were generally in line with our normal credit period granted. Our trade payable turnover days for FY2018 was approximately 65 days, which was slightly higher than our normal credit period granted mainly due to the delay in the payments to subcontractors as the relevant project progress has been delayed. As at 6 August 2018, approximately 44.1% of our trade payable exclusive of the retention payables outstanding as at 31 May 2018 were settled. Other payables and accruals Other payables and accruals mainly comprised accrued charges for audit fees, annual leave provision expenses, salaries and bonus payables and administrative expenses payables. Our other payables and accruals was approximately HK$4.0 million in FY2016, approximately HK$5.5 million in FY2017 and approximately HK$4.4 million in FY2018 and remained relatively stable. 212

220 FINANCIAL INFORMATION Amounts due from/to related parties Our amounts due from related parties amounted to approximately HK$2.9 million, HK$2.6 million and HK$9.3 million as at 31 May 2016, 2017 and 2018, respectively. Our amounts due to related parties amounted to approximately HK$11.9 million, HK$7.8 million, and HK$1.8 million as at 31 May 2016, 2017 and 31 May 2018, respectively. The amounts due from/to the related parties is unsecured, interest-free and repayable on demand and the balance will be settled before [REDACTED]. For further details of the related parties transactions and balances, please refer to Note 36 of the Accountants Report in Appendix I to this document. CAPITAL EXPENDITURE AND COMMITMENT Capital commitments Our Group had the following capital commitments as at the date indicated: As at 31 May HK$ 000 HK$ 000 HK$ 000 Contracted for, but not provided for: Property development interest 1,900 Capital expenditure During the Track Record Period, our Group incurred capital expenditures of approximately HK$13.0 million, HK$4.1 million and HK$1.4 million, respectively, which is primarily relates to the purchase of equipment, motor vehicles, software and property development interest. We have financed our capital expenditures primarily through cash flow generated from operating activities, bank borrowing and finance lease. We plan to incur additional capital expenditure, in aggregate of approximately HK$60.4 million, mainly for enhancing our service capabilities and building technologies, upgrading the IT infrastructure and strategic investments and acquisitions. Our Group s projected capital expenditures are subject to revision based upon any future changes in our business plan, market conditions, and economic and regulatory environment. Please refer to the section headed Reasons for the [REDACTED] and [REDACTED] in this document for further information. Operating lease and finance lease We lease certain motor vehicles. These leases are classified as finance leases and have remaining lease terms ranging from 32 months to 36 months. 213

221 FINANCIAL INFORMATION Our Group leased two of its investment properties under operating lease arrangements. The leases were negotiated for terms ranging from eight months to two years. The terms of the leases also required the tenants to pay a security deposit. Our Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as of the dates indicated as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Within one year 1,920 1,422 In the second to fifth years, inclusive 1,273 3,193 1,422 We had leases certain of our premises and office equipment under operating lease arrangements. Leases for these premises and office equipment are negotiated for terms ranging from one year to five years. Our Group had total future minimum lease payments under non-cancellable operating leases falling due as at the date indicated as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Within one year 1,787 2,881 1,902 In the second to fifth years, inclusive 1,366 1, ,153 4,376 2,687 INDEBTEDNESS Amount due to related parties/shareholder(s) The amount due to related parties/shareholder(s) was unsecured, interest-free and repayable on demand. For details of the amount due to related parties/shareholder(s), please refer to paragraph headed Description of Selected Items of Consolidated Statements of Financial Position Amounts due from/to related parties in this section. 214

222 FINANCIAL INFORMATION Interest-bearing bank borrowings and overdrafts The following sets forth our bank borrowings as of the dates indicated: As at As at 31 May 30 June HK$ 000 HK$ 000 HK$ 000 HK$ 000 Current Finance lease payables Bank loans secured 15,687 13,223 Bank overdrafts secured 19,101 34,952 13, Non-current Finance lease payables ,065 13, We had bank loans of approximately HK$15.7 million, HK$13.2 million and nil as at 31 May 2016, 2017 and 2018 respectively. Our bank overdrafts were approximately HK$19.1 million, nil and nil as at 31 May 2016, 2017 and 2018 respectively. Our bank overdrafts were mainly used for daily operations. Our variable-rate bank borrowings carried interests at rates ranging from 2.01% to 2.50% per annum, from 2.02% to 2.73% per annum, and from 2.10% to 2.69% as at 31 May 2016, 31 May 2017 and 31 May 2018 respectively. The effective interest rates of finance lease payables were at 4.37% per annum, from 3.43% to 5.30% per annum, and from 3.43% to 5.30% per annum as at 31 May 2016, 31 May 2017 and 31 May 2018 respectively. As at 31 May 2018, the bank borrowings which were guaranteed by the Controlling Shareholders were fully repaid. Our bank loans and overdrafts were under a general banking facility offered by a bank with securities and guarantees as follows: (i) (ii) as at 31 May 2016 and 2017, mortgages over the Group s investment properties situated in Hong Kong, which had aggregate carrying amounts of approximately HK$66.4 million and HK$75.0 million, respectively. The mortgages over investment properties were released as at 31 May 2018; as at 31 May 2016, 2017 and 2018, mortgages over certain of the Group s buildings situated in Hong Kong, which had aggregate net carrying amounts of approximately HK$0.6 million, HK$0.6 million and HK$5.0 million, respectively; (iii) as at 31 May 2016, 2017 and 2018, pledge of our available-for-sale investments amounting to HK$4.0 million, HK$4.2 million and HK$4.1 million, respectively; 215

223 FINANCIAL INFORMATION (iv) mortgages over certain of our directors properties; (v) as at 31 May 2016, 2017 and 2018, a personal guarantee given by Mr. CF So of HK$784.8 million, HK$103.8 million and HK$103.8 million, respectively; (vi) as at 31 May 2016, 2017 and 2018, a personal guarantee given by Ms. YY So of HK$35.0 million, HK$35.0 million and HK$35.0 million, respectively; (vii) as at 31 May 2016, 2017 and 2018, a personal guarantee jointly given by Mr. CF So and Mrs. So of HK$35.0 million, HK$35.0 million and HK$35.0 million, respectively; and (viii) as at 31 May 2017 and 2018, personal guarantee jointly given by Mr. MK So and Mr. MH So of HK$130.0 million and HK$130.0 million, respectively. Another general banking facility offered by a bank with securities and guarantees as follows: (i) as at 31 May 2016 and 2017, a personal guarantee given by Mr. CF So and Mr. CC So with unlimited amount; (ii) as at 31 May 2016 and 2017, mortgage over certain of the Group s building, which had a net carrying amount of approximately HK$2,183,000 and HK$2,110,000, respectively; and (iii) a guarantee that the deposit in the designated bank account shall not be less than HK$1,040,000 at any time when the facility is utilised. As at 31 May 2016 and 2017, the facility was not utilised. As at 31 May 2018, the banking facility was fully cancelled. The personal guarantee given by Mr. CF So, Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So, our Controlling Shareholders, in favour of the above banking facility and the legal charges over certain properties owned by Keio, Mr. CF So and Mrs. So, our Executive Directors, respectively except the Shatin Property (which is and will be owned by our Group after the [REDACTED]) to the above banking facility will be fully released and replaced by corporate guarantee(s) to be provided by our Company and/or other member(s) of our Group upon [REDACTED]. During the Track Record Period, the bank borrowing agreements were entered into with the lenders under normal standard terms and conditions and do not contain any special restrictive covenants. During the Track Record Period and as at the Latest Practicable Date, none of our lenders have claimed default against us under any of the terms in the bank borrowing agreements. 216

224 FINANCIAL INFORMATION Our Directors confirm that our Group has not experienced any difficulty in obtaining bank borrowings, default in payment on bank borrowings or breach of finance covenants during the Track Record Period and up to the Latest Practicable Date and that they do not foresee any difficulty in obtaining bank borrowing after the Latest Practicable Date. As at 30 June 2018, being the latest practicable date for the purpose of this indebtedness statement, our Group had banking facilities in the aggregate sum of approximately HK$63.0 million, of which approximately HK$31.9 million have been utilised as guarantees in respect of performance bonds and approximately HK$31.1 million had not been utilised. Finance lease payables Our obligations under finance leases amounted to approximately HK$0.3 million, HK$0.7 million and HK$0.7 million as at 31 May 2016, 2017 and 2018, respectively, and comprised of finance leases for the purchase of vehicles used for our operation. Our finance leases were denominated in Hong Kong dollars and the effective annual interest rate during the Track Record Period ranging from 3.43% to 5.30%. Contingent liabilities As at 31 May 2016, 2017 and 2018 and 30 June 2018, the guarantees given by our Group to certain banks in respect of performance bonds in favour of certain contract customers amounted to approximately HK$35.6 million, HK$40.1 million, HK$31.9 million and HK$31.9 million, respectively. If our Group fails to provide satisfactory performance to our customers to whom performance guarantee have been given pursuant to the respective contracts entered into with our customers, such customers may demand the bank to pay to them the sum or sum stipulated under the respective contracts. Our Group will become liable to compensate such banks accordingly. The performance bonds will generally be released after the expiry of the defect liability period. Statement of indebtedness Save as aforesaid or as otherwise disclosed herein, and apart from the intra-group liabilities, as at 30 June 2018, being the Latest Practicable Date for the purpose of the indebtedness statement, our Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, finance leases or hire purchase commitments, guarantees, material covenants, or other material contingent liabilities. OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENT During the Track Record Period and as at the Latest Practicable Date, Save as disclosed above, our Group had not entered into any material off-balance sheet commitments and arrangements. 217

225 FINANCIAL INFORMATION RELATED PARTIES TRANSACTION With respect to the related parties transactions set forth in the Accountant s Report in Appendix I to this document, our Directors confirm that these transactions were conducted on arm s length basis and on normal commercial terms and would not distort our results of operations for the Track Record Period or make our historical results not reflective of our future performance. KEY FINANCIAL RATIOS The following table sets forth our key financial ratios as at each of the dates indicated: FY2016 FY2017 FY2018 Gross profit margin (%) Net profit margin (%) (1) Return on equity (%) (2) Return on total assets (%) (3) Interest coverage (times) (4) Current ratio (times) (5) Quick ratio (times) (6) Gearing ratio (%) (7) N/A Net debt to equity ratio (%) (8) 36.9 N/A N/A FY2016 FY2017 FY2018 Non-HKFRS measure for illustrative purpose: Adjusted net profit margin (%) (9) Adjusted return on equity (%) (9&10) Adjusted return on total assets (%) (9&11) Notes: (1) Net profit margin for each of the year is calculated based on net profit divided by revenue for the respective year and multiplied by 100%. Please refer to the paragraphs headed Results of Operations in this section for more details on our net profit margins. (2) Return on equity equals profit for the year divided by total equity of the relevant year and multiplied by 100%. (3) Return on total assets equals profit for the year divided by total assets of the relevant year and multiplied by 100%. (4) Interest coverage equals net profit before interest and tax excluding [REDACTED] expenses divided by net interest expenses in the relevant year. (5) Current ratio is calculated based on the total current assets divided by the total current liabilities as at the end of the respective year. (6) Quick ratio is calculated as total current assets less inventories divided by the total current liabilities as at the end of the respective year. (7) Gearing ratio is calculated based on the total interest-bearing bank borrowings divided by total equity as at the respective year and multiplied by 100%. (8) Net debt to equity ratio is calculated based on net debts as at the end of the respective year divided by total equity as at the end of the respective year and multiplied by 100%. Net debt includes all interest-bearing bank borrowings (if any), net of cash and bank balances. 218

226 FINANCIAL INFORMATION (9) Adjusted net profit margin for the year is calculated on adjusted net profit for the year divided by revenue for the respective year. Adjusted net profit was calculated on net profit for the year excluding the non-recurring [REDACTED] expenses. This is a non-hkfrs measure. See Review of Historical Results of Operations in this section for details. (10) Adjusted return on equity equals adjusted net profit for the year divided by total equity of the relevant year and multiplied by 100%. (11) Adjusted return on total assets equals adjusted net profit for the year divided by of total assets of the relevant year and multiplied by 100%. For gross profit margin and net profit margin, please refer to the paragraph headed Description of Selected Items in Consolidated Statements of Profit or Loss Gross profit and gross profit margin in this document. Return on equity Our return on equity increased from approximately 10.8% for FY2016 to approximately 30.5% for FY2017, primarily due to increase in our net profit in FY2017 for the same reasons above. Our return on equity further increased from approximately 30.5% for FY2017 to approximately 64.5% for FY2018. Excluding the non-recurring [REDACTED] expense, our adjusted return on equity further increased to approximately 73.1% for FY2018. Such increases were primarily due to the decrease in total equity primarily attributable to the dividend declared during the year. Return on total assets Our return on total assets increased from approximately 4.6% for FY2016 to approximately 16.0% for FY2017, mainly attributable to the increase in our net profit growth for the same reasons above. Our return on total assets further increased from approximately 16.0% for FY2017 to approximately 25.7% for FY2018. Excluding the non-recurring [REDACTED] expenses, our adjusted return on total assets further increased to approximately 29.1% for FY2018. Such increases were mainly attributable to the dividend declared during the year. Interest Coverage Our interest coverage ratio increased from approximately 15.4 for FY2016 to approximately 76.5 for FY2017 and was further increased to approximately for FY2018, which was mainly due to the decrease in level of bank borrowings as a result of the repayment of bank borrowings. Current ratio and quick ratio Our current ratio and quick ratio as at 31 May 2016, 2017 and 2018 has remained relatively stable at approximately 1.0, 1.2 and 1.6 respectively. Gearing ratio As at 31 May 2016 and 2017, the gearing ratio was 38.0% and 10.0% respectively. The decrease in our gearing ratio was mainly due to the repayment of bank borrowing in FY2017. As at 31 May 2018, the Group did not have any interest-bearing bank borrowings, thus the gearing ratio was not applicable to the Group. 219

227 FINANCIAL INFORMATION Net debt to equity ratio As at 31 May 2016, the net debt to equity ratio was 36.9%. As at 31 May 2017 and 2018, the Group recorded net cash position. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We are exposed to market risks including interest rate risk, credit risk and liquidity risk arises in the normal course of our business. Details of the risk to which we are exposed are set out in note (39) to Accountants Report, the text of which is set out in Appendix I to this document. DIVIDENDS During FY2016, Keio declared dividends of approximately HK$8.2 million to its then shareholders which was settled by offsetting the balance due from them. During FY2018, our Company declared a dividend of approximately HK$100.0 million to Green Yield, of which the balance was fully settled by offsetting the balance due from Green Yield mainly arising from the disposed of the Disposed Properties as a result of the Reorganization. For details, please refer to the section headed in the History, Corporate Development and Reorganization in this document. As at the Latest Practicable Date, we did not have any dividend policy. Our dividend distribution record in the past may not be used as a reference or basis to determine the level of dividends that may be declared or paid by us in the future. The recommendation of the payment of dividend is subject to the absolute discretion of our Board, and, after [REDACTED], any declaration of final dividend for the year will be subject to the approval of our Shareholders. Our Group does not have any dividend policy. Our Directors may recommend a payment of dividend in the future after taking into account our operations, earnings, financial condition, cash requirements and availability, capital expenditure and future development requirements and other factors as it may deem relevant at such time. Any declaration and payment as well as the amount of the dividend will be subject to our constitutional documents and the Companies Law, including the approval of our Shareholders. Any distributable profits that are not distributed in any given year will be retained and available for distribution in subsequent years. To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in our operations. DISTRIBUTABLE RESERVES Our Company was incorporated on 25 August 2017 and is an investment holding company. There were no reserves available for distribution to our Shareholders as at the Latest Practicable Date. 220

228 FINANCIAL INFORMATION [REDACTED] EXPENSES The [REDACTED] expenses in connection with the [REDACTED] primarily consist of [REDACTED] commission and professional fees and, assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the proposed [REDACTED] range, are estimated to be HK$[REDACTED]. During the Track Record Period, we incurred [REDACTED] expenses of HK$[REDACTED], of which HK$[REDACTED] was recognized in the consolidated statements of profit or loss and HK$[REDACTED] was recognized as prepayments in the consolidated statements of financial position which will be accounted for as a deduction from equity upon [REDACTED]. Subsequent to the Track Record Period, we expect further incur [REDACTED] expenses of HK$[REDACTED] prior to and upon completion of the [REDACTED], of which (i) HK$[REDACTED] is expected to be recognized as expenses in our consolidated statements of profit or loss during FY2019; and (ii) HK$[REDACTED] is expected to be accounted for as a deduction from equity upon [REDACTED] under the relevant accounting standard. The actual amounts to be recognized to the consolidated statements of profit or loss of our Group or to be capitalised are subject to adjustments based on audit and changes in variables and assumptions. Prospective investors should note that our financial results for the year ended 31 May 2019 will be adversely affected by the non-recurring [REDACTED] expenses described above, and may not be comparable to the financial performance of our Group in the past. UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS For our unaudited pro forma adjusted net tangible assets, please refer to the section headed Appendix II Unaudited Pro Forma Financial Information in this document. DISCLOSURE REQUIRED UNDER THE LISTING RULES Our Directors confirm that as at the Latest Practicable Date, there were no circumstances that would give rise to the disclosure requirements under Rules to of the Listing Rules. MATERIAL ADVERSE CHANGE The impact of the [REDACTED] expenses on our consolidated statements of profit or loss has posted a material adverse change in the financial or trading position or prospect of our Group since 31 May 2018 (being the date of the latest audited consolidated financial statements were made up). Our Directors consider that our financial performance for the year ending 31 May 2019 would be significantly adversely affected by the recognition of [REDACTED] expenses. The final amount of these amounts to be recognised to the profit or loss of our Group is subject to adjustment based on audit and the changes in variables and assumptions. As a result of these expenses, our net profit for the year ending 31 May 2019 may decline as compared with the prior financial year. Prospective investors should be aware of the impact of the [REDACTED] expenses on the financial performance of our Group for the year ending 31 May

229 FINANCIAL INFORMATION Our Directors have confirmed that as of the date of this document, there has been no material adverse change in our financial or trading position or prospects since 31 May 2018 and there is no event since 31 May 2018 that would materially affect the information shown in the Accountants Report set out in Appendix I to this document. 222

230 FUTURE PLANS AND [REDACTED] BUSINESS OBJECTIVES AND STRATEGIES Please refer to the paragraph headed Business Business Strategies in this document for detailed description of our business strategies. REASON FOR THE [REDACTED] The Hong Kong government has recently promulgated the Smart City Blueprint for Hong Kong are driving, inter alia, the growth of building constructions for private and public residential, cultural facilities and infrastructures, the acceleration of urban renewal, the demand for green buildings in coming years, thereby increasing the needs of E&M engineering and maintenance services. Together with the continual growth of building construction works for office, commercial and residential spaces under the steady economic growth in Hong Kong, according to the Ipsos Report, for the private sector in Hong Kong, the gross output value is forecast to increase from approximately HK$22.4 billion in 2018 to approximately HK$26.7 billion in 2022, while for the public sector it is projected to increase from approximately HK$18.5 billion in 2018 to approximately HK$22.0 million in Furthermore, the surging need for environmental protection is creating an increasing demand for green buildings which will largely focus on the maximum energy utilization with the help of smart systems. Smart and green building technology has become one of the important aspects of future building development in Hong Kong. To cater for the evolving industry dynamics and strive for market competitiveness, our Directors believe that it is an imminent and genuine need of our Group to develop multi disciplinary E&M engineering capabilities in diverse fields of diverse smart technologies and digital techniques which is a key driver for our sustainable business growth going forward. Prior to the [REDACTED], funding of our business primarily came from our internal resources and/or bank borrowings. Our cash and bank balances amounted to approximately HK$13.2 million while our unutilized banking facilities amounted to approximately HK$31.1 million as at 31 May 2018, which would not be sufficient to finance the implementation plan of our business strategies, particularly for enhancement of our service capabilities, investments in advanced building technologies and IT infrastructure, and strategic investments and acquisitions which involves significant capital outlay will require considerable additional financial resources. Having considered our Group s current bank borrowing level, our Directors believe that [REDACTED] is strategically significant to the long-term growth of our Group s business as it provides financial resources for our Group s organic and external growth. 223

231 FUTURE PLANS AND [REDACTED] In tendering potential contracts, financial strengths with sufficient and stable source of financial resources is, among other things, our clients key assessment criteria for facility services providers, especially when large-scale private and/or public sector contracts are involved. Our Directors also believe that after obtaining a [REDACTED] status, our brand recognition can be strengthened and our credibility can be enhanced, which would in turn provide us with more leverage and competitive advantages in the tendering process and in securing new clients. USE OF [REDACTED] The [REDACTED] from the issue of the [REDACTED] under the [REDACTED] based on the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of the indicative [REDACTED] range, are estimated to be approximately HK$[REDACTED], after deducting the estimated [REDACTED] commission and total expenses, paid and payable by our Company from the gross [REDACTED] of the [REDACTED] and assuming the [REDACTED] is not exercised. We intend to apply the [REDACTED] of the issue of the [REDACTED] under the [REDACTED] in the following manner: approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used to enhance our various service capabilities in respect of: (i) (ii) approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] for enhancing our supply and sourcing capabilities of E&M systems, equipment, products and materials, of which approximately HK$[REDACTED] will be used mainly for direct supply arrangement of ELV systems and approximately HK$[REDACTED] will be used mainly for the hiring of additional specialists in managing ELV supply and monitoring ELV systems works; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] for expanding our design and technical capabilities of which approximately HK$[REDACTED] mainly for acquiring BIM and BMS systems and approximately HK$[REDACTED] for the hiring of additional BMS engineers, E&M consultants and draftsmen and specialist in this aspect; (iii) approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] for expanding our engineering and maintenance capabilities in our plumbing and drainage and fire services system works of which approximately HK$[REDACTED] mainly for acquiring equipment for inspection, testing and maintenance and approximately HK$[REDACTED] for the hiring of additional specialists in this aspect; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used to upgrade and invest in our IT infrastructure to increase operational efficiency for acquiring advanced ERP, tender management and advanced human resources system with mobile application modules; 224

232 FUTURE PLANS AND [REDACTED] approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used to fund the payment obligations of performance bonds for diversifying into the public E&M engineering services sector; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be used for strategic investments, joint ventures and acquisitions, all of which will be set aside in this regards; approximately HK$[REDACTED] or approximately [REDACTED]% of the [REDACTED] will be set aside as general working capital. If the final [REDACTED] is set at the lowest of the indicative [REDACTED], the [REDACTED] to us from the [REDACTED] are estimated to be approximately HK$[REDACTED]. Whereas, if the final [REDACTED] is set at the highest of the indicative [REDACTED], the [REDACTED] to us from the [REDACTED] are estimated to be approximately HK$[REDACTED]. In such events, the estimated [REDACTED] will decrease or increase by HK$[REDACTED], respectively and the above allocation of the [REDACTED] from the [REDACTED] will increase or decrease (as the case may be) on a pro rata basis. The possible use of [REDACTED] outlined above may change in light of our evolving business needs and conditions. In the event of any material modification to the use of [REDACTED] as described above, we will issue announcements and make relevant disclosures as required by the Stock Exchange. In respect of [REDACTED] from the [REDACTED] which are not immediately required for the above purpose as set out in the paragraph headed Use of [REDACTED] in this section, it is the present intention of our Directors that such [REDACTED] will be placed on short-term interest bearing deposits with authorized financial institutions. 225

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242 [REDACTED] [REDACTED] INDEPENDENCE OF THE SOLE SPONSOR The Sole Sponsor satisfies the independence criteria applicable to sponsors set forth in Rule 3A.07 of the Listing Rules. SOLE SPONSOR S, [REDACTED] AND [REDACTED] INTERESTS IN OUR COMPANY Save for their interests and obligations under the [REDACTED] and the sponsorship fee payable to the Sole Sponsor in respect of the [REDACTED], none of the Sole Sponsor, the [REDACTED] and the [REDACTED] are 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 nominate persons to subscribe for any shares in any member of our Group. MINIMUM PUBLIC FLOAT Our Directors will ensure that there will be a minimum 25% of the total issued Shares held in public hands in accordance with Rule 8.08(1) of the Listing Rules after completion of the [REDACTED]. 235

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276 APPENDIX I ACCOUNTANTS REPORT The following is the text of a report, prepared for inclusion in this document, received from the independent reporting accountants of the Company, Ernst & Young, Certified Public Accountants, Hong Kong. As described in Appendix V headed Documents Delivered to the Registrar of Companies and Available for Inspection to this document, a copy of the accountants report is available for inspection. [ ] 22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong The Directors Keio Holdings Limited South China Capital Limited Dear Sirs, We report on the historical financial information of Keio Holdings Limited (the Company ) and its subsidiaries (together, the Group ) set out on pages I-4 to I-59, which comprises the consolidated statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group for each of the years ended 31 May 2016, 2017 and 2018 (the Relevant Periods ), and the consolidated statements of financial position of the Group as at 31 May 2016, 2017 and 2018 and the statement of financial position of the Company as at 31 May 2018, and a summary of significant accounting policies and other explanatory information (together, the Historical Financial Information ). The Historical Financial Information set out on pages I-4 to I-59 forms an integral part of this report, which has been prepared for inclusion in the document of the Company dated [ ] (the Document ) in connection with the initial [REDACTED] of the shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange ). Directors responsibility for the Historical Financial Information The directors of the Company are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of presentation and the basis of preparation set out in notes 2.1 and 2.2 to the Historical Financial Information, respectively, and for such internal control as the directors determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error. Reporting accountants responsibility Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement. I-1

277 APPENDIX I ACCOUNTANTS REPORT Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of presentation and the basis of preparation set out in notes 2.1 and 2.2 to the Historical Financial Information, respectively, in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical 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, the Historical Financial Information gives, for the purposes of the accountants report, a true and fair view of the financial position of the Group as at 31 May 2016, 2017 and 2018 and of the financial position of the Company as at 31 May 2018, and of the financial performance and cash flows of the Group for each of the Relevant Periods in accordance with the basis of presentation and the basis of preparation set out in notes 2.1 and 2.2 to the Historical Financial Information, respectively. Report on matters under the Rules Governing the Listing of Securities on the Main Board of the Stock Exchange and the Companies (Winding Up and Miscellaneous Provisions) Ordinance Adjustments In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page I-4 have been made. Dividends We refer to note 11 to the Historical Financial Information which contains information about the dividends declared by the Company in respect of the Relevant Periods. I-2

278 APPENDIX I ACCOUNTANTS REPORT No historical financial statements for the Company As at the date of this report, no statutory financial statements have been prepared for the Company since its date of incorporation. Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong [Date] I-3

279 APPENDIX I ACCOUNTANTS REPORT I. HISTORICAL FINANCIAL INFORMATION Preparation of Historical Financial Information Set out below is the Historical Financial Information which forms an integral part of this accountants report. The consolidated financial statements of the Group for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young, in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the Underlying Financial Statements ). The Historical Financial Information is presented in Hong Kong dollars ( HK$ ) and all values are rounded to the nearest thousand (HK$ 000) except when otherwise indicated. CONSOLIDATED STATEMENTS OF PROFIT OR LOSS Year ended 31 May Notes HK$ 000 HK$ 000 HK$ 000 REVENUE 5 322, , ,758 Cost of sales (285,847) (331,073) (319,050) Gross profit 37,055 65,833 65,708 Other income and gains 5 2,750 9,409 18,836 Administrative expenses (20,978) (26,509) (30,776) [REDACTED] expenses (5,336) Other expenses (4,044) (1,843) (1,912) Finance costs 7 (958) (614) (243) PROFIT BEFORE TAX 6 13,825 46,276 46,277 Income tax expense 10 (3,931) (5,923) (6,307) PROFIT FOR THE YEAR 9,894 40,353 39,970 Attributable to: Owners of the Company 8,246 37,003 39,107 Non-controlling interests 1,648 3, ,894 40,353 39,970 I-4

280 APPENDIX I ACCOUNTANTS REPORT CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended 31 May HK$ 000 HK$ 000 HK$ 000 PROFIT FOR THE YEAR 9,894 40,353 39,970 OTHER COMPREHENSIVE (EXPENSE)/INCOME Other comprehensive (expense)/income to be reclassified to profit or loss in subsequent periods: Available-for-sale investments: Changes in fair value (268) 222 (128) Reclassification adjustments for losses included in the consolidated statement of profit or loss loss on disposal 18 (250) 222 (128) Net other comprehensive (expense)/income to be reclassified to profit or loss in subsequent periods (250) 222 (128) OTHER COMPREHENSIVE (EXPENSE)/INCOME FOR THE YEAR, NET OF TAX (250) 222 (128) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 9,644 40,575 39,842 Attributable to: Owners of the Company 8,021 37,203 38,979 Non-controlling interests 1,623 3, ,644 40,575 39,842 I-5

281 APPENDIX I ACCOUNTANTS REPORT CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at 31 May Notes HK$ 000 HK$ 000 HK$ 000 NON-CURRENT ASSETS Property, plant and equipment 13 13,272 13,727 10,854 Intangible assets Investment properties 15 66,400 76,900 Other non-current assets 16 16,801 13,932 Total non-current assets 96, ,729 11,358 CURRENT ASSETS Available-for-sale investments 18 4,016 4,238 4,110 Contract assets 19 94,972 90,636 80,801 Trade receivables 20 11,411 26,309 31,892 Prepayments, deposits and other receivables 21 2,680 2,384 5,101 Amounts due from related parties 36(b) 2,871 2,649 9,269 Tax recoverable 45 Cash and bank balances 22 1,047 20,524 13,196 Total current assets 116, , ,369 CURRENT LIABILITIES Contract liabilities 19 8,200 3,705 8,773 Trade payables 23 49,054 72,683 70,644 Other payables and accruals 24 3,989 5,522 4,414 Interest-bearing bank borrowings and overdrafts 25 34,788 13,223 Finance lease payables Amounts due to related parties 36(b) 11,936 7,780 1,842 Provision 27 5,572 Tax payable 6,968 15,017 6,983 Derivative financial instruments Total current liabilities 121, ,331 93,115 NET CURRENT (LIABILITIES)/ASSETS (4,310) 28,454 51,254 TOTAL ASSETS LESS CURRENT LIABILITIES 92, ,183 62,612 NON-CURRENT LIABILITIES Finance lease payables Deferred tax liabilities Total non-current liabilities 642 1, Net assets 91, ,096 61,976 EQUITY Equity attributable to owners of the Company Share capital Reserves , , ,966 82, ,572 61,976 Non-controlling interests 9,152 12,524 Total equity 91, ,096 61,976 I-6

282 APPENDIX I ACCOUNTANTS REPORT CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Attributable to owners of the Company Capital reserve* Other reserve* Availablefor-sale investment revaluation reserve* Retained profits* Total Noncontrolling interests Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (note 30) (note 31) (note 31) At 1 June ,125 (173) 79,799 81,751 8,351 90,102 Profit for the year 8,246 8,246 1,648 9,894 Other comprehensive expense for the year: Changes in fair value of available-for-sale investments (241) (241) (27) (268) Reclassification adjustments for losses included in the consolidated statement of profit or loss Loss on disposal Total comprehensive income for the year (225) 8,246 8,021 1,623 9,644 Dividend declared (note 11) (7,403) (7,403) (822) (8,225) At 31 May ,125 (398) 80,642 82,369 9,152 91,521 At 1 June ,125 (398) 80,642 82,369 9,152 91,521 Profit for the year 37,003 37,003 3,350 40,353 Other comprehensive income for the year: Changes in fair value of available-for-sale investments Total comprehensive income for the year ,003 37,203 3,372 40,575 At 31 May ,125 (198) 117, ,572 12, ,096 I-7

283 APPENDIX I ACCOUNTANTS REPORT Share capital Attributable to owners of the Company Capital reserve* Other reserve* Availablefor-sale investment revaluation reserve* Retained profits* Total Noncontrolling interests Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (note 30) (note 31) (note 31) At 1 June ,125 (198) 117, ,572 12, ,096 Profit for the year 39,107 39, ,970 Other comprehensive expense for the year: Changes in fair value of available-for-sale investments (128) (128) (128) Total comprehensive income for the year (128) 39,107 38, ,842 Issue of shares 10 (10) Dividend declared (note 11) (99,962) (99,962) (99,962) Acquisition of non-controlling interests 3,387 3,387 (13,387) (10,000) Capitalization of retained profits 2,350 (2,350) At 31 May ,465 3,387 (326) 54,440 61,976 61,976 * These reserve accounts comprised the consolidated reserves of HK$82,369,000, HK$119,572,000 and HK$61,966,000 in the consolidated statements of financial position as at 31 May 2016, 2017 and I-8

284 APPENDIX I ACCOUNTANTS REPORT CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended 31 May Notes HK$ 000 HK$ 000 HK$ 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 13,825 46,276 46,277 Adjustments for: Interest income 5 (1) (1) (1) Investment (income)/loss 5 (460) 631 (213) Finance costs Depreciation 6 1,478 1,550 1,677 Amortisation Fair value losses/(gains), net: Investment properties 6 3,300 (5,661) Derivative financial instruments (636) Gain on disposal of investment properties 5 (9,300) Gain on disposal of items of property, plant and equipment 5 (8) (490) (7,838) Loss on disposal of items of property, plant and equipment 6 10 Loss on disposal of available-for-sale investments 6 25 Provision for expected loss 27 2,671 Realisation of provision for expected loss 27 (3,845) (5,572) Impairment of trade receivables ,742 18,547 37,603 32,678 Increase in prepayments, deposits and other receivables (196) (779) (1,087) (Increase)/decrease in contract assets/liabilities (7,084) (159) 14,903 Decrease/(increase) in trade receivables 24,982 (15,779) (7,325) Increase in amounts due from related parties (66) (Decrease)/increase in trade payables (4,874) 23,629 (2,039) Increase/(decrease) in other payables and accruals 759 1,533 (1,108) Increase/(decrease) in amounts due to related parties 997 (710) (919) Cash generated from operations 33,065 45,338 35,103 Interest received Hong Kong profits tax (paid)/refunded (3,475) 2,323 (14,642) Net cash flows from operating activities 29,591 47,662 20,462 CASH FLOWS FROM INVESTING ACTIVITIES Receipt and payment in respect of derivative Advances to related parties Repayment of advances to related parties (8,414) 3,692 (1,380) 1,602 (6,774) 154 financial instrument Dividend income received from available-for-sale 154 (866) investments Purchase of items of property, plant and equipment (983) (1,177) (474) Purchase of intangible assets (181) (415) Prepayments regarding property development interest and a parcel of land Proceeds from disposal of items of property, plant (16,801) (1,970) (30) and equipment Proceeds from disposal of available-for-sale investments 1,075 Net cash flows used in investing activities (21,846) (2,166) (7,148) I-9

285 APPENDIX I ACCOUNTANTS REPORT Year ended 31 May Notes HK$ 000 HK$ 000 HK$ 000 CASH FLOWS FROM FINANCING ACTIVITIES Advances from related parties 1, Repayment of advances from related parties (3,705) (3,446) (5,046) New bank loans 2,500 5,000 Repayment of bank loans (10,964) (7,464) (13,223) Capital element of finance lease rental payments (156) (394) (527) Interest element of finance lease rental payable (16) (33) (36) Interest paid (942) (581) (207) [REDACTED] expenses paid (1,630) Net cash flows used in financing activities (12,253) (6,918) (20,642) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (4,508) 38,578 (7,328) Cash and cash equivalents at beginning of year (13,546) (18,054) 20,524 CASH AND CASH EQUIVALENTS AT END OF YEAR (18,054) 20,524 13,196 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances as stated in the consolidated statements of financial position 22 1,047 20,524 13,196 Bank overdraft, secured 25 (19,101) Cash and cash equivalents as stated in the consolidated statements of cash flows (18,054) 20,524 13,196 I-10

286 APPENDIX I ACCOUNTANTS REPORT STATEMENT OF FINANCIAL POSITION OF THE COMPANY Notes 31 May 2018 HK$ 000 NON-CURRENT ASSET Investment in a subsidiary 17 2,125 CURRENT ASSET Cash and bank balances 50 CURRENT LIABILITIES Amount due to a subsidiary 95 Amount due to a director 50 Total current liabilities 145 NET CURRENT LIABILITIES (95) TOTAL ASSETS LESS CURRENT LIABILITIES 2,030 Net assets 2,030 EQUITY Share capital Reserves 31 2,020 Total equity 2,030 I-11

287 APPENDIX I ACCOUNTANTS REPORT II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION 1. CORPORATE INFORMATION The Company is a limited liability company incorporated in the Cayman Islands. The registered address of the Company is at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The principal place of business of the Company is located at Suite No.03, 21st Floor, Pacific Plaza, 418 Des Voeux Road West, Hong Kong. The Company is an investment holding company. The Company s subsidiaries undertake the provision of building related electrical and mechanical engineering services ( E&M engineering services ) and maintenance services. The Company and its subsidiaries now comprising the Group underwent the reorganization ( Reorganization ) as set out in the section headed History, Reorganization and Corporate Structure in the Document. Apart from the Reorganization, the Company has not commenced any business or operation since its incorporation. As at the date of this report, the Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies, the particulars of which are set out below: Company name Place and date of incorporation and place of operations Nominal value of issued ordinary shares Percentage of equity interests attributable to the Company Principal activities Direct Indirect Zhuoyi Ventures Limited ( Zhuoyi Ventures ) (i) British Virgin Islands ( BVI ) 26 July 2017 United States Dollar ( US$ ) Investment holding Keio Engineering Company Limited ( Keio ) (ii) Keio E&M Engineering Company Limited ( KEM ) (ii) Hong Kong 22 December 1983 Hong Kong 11 July 2013 HK$4,700, Provision of building related engineering services and maintenance services HK$10, Provision of building related engineering services and maintenance services Notes: (i) (ii) No audited financial statements have been prepared for this entity since its incorporation as this entity is not subject to any statutory audit requirements under the relevant rules and regulations in its jurisdiction of incorporation. The statutory financial statements of these entities for the years ended 31 May 2016 and 2017 prepared under Hong Kong Financial Reporting Standards ( HKFRSs ) were audited by Ernst & Young, Hong Kong. No audited financial statements have been prepared for these entities for the year ended 31 May I-12

288 APPENDIX I ACCOUNTANTS REPORT 2.1 BASIS OF PRESENTATION Pursuant to the Reorganization, as more fully explained in the paragraph headed History, Reorganization and Corporate Structure to the Document, the Company became the holding company of the companies now comprising the Group on 30 November The companies now comprising the Group were under the common control of Mr. So Chung Fat, Ms. Sin Wai Chun, Ms. So Yuen Yee, Mr. So Man Kit and Mr. So Man Ho (collectively, the So Family or the Controlling Party ) before and after the Reorganization and that control was not transitory. Accordingly, for the purpose of this report, the Historical Financial Information has been prepared on a consolidated basis by applying the principles of merger accounting as if the Reorganization had been completed at the beginning of the Relevant Periods. The consolidated statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group for the Relevant Periods include the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the Controlling Party, where this is a shorter period. The consolidated statements of financial position of the Group as at 31 May 2016, 2017 and 2018 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the Controlling Party s perspective. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganization. Equity interests in subsidiaries and/or businesses held by parties other than the Controlling Party, and changes therein, prior to the Reorganization are presented as non-controlling interests in equity in applying the principles of merger accounting. All intra-group transactions and balances have been eliminated on consolidation. 2.2 BASIS OF PREPARATION The Historical Financial Information has been prepared in accordance with HKFRSs, which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations issued by the HKICPA and accounting principles generally accepted in Hong Kong. The Historical Financial Information has been prepared under the historical cost convention, except for investment properties, available-for-sale investments and derivative financial instruments which have been measured at fair value. 2.3 NEW AND AMENDED STANDARDS EARLY ADOPTED BY THE GROUP All HKFRSs effective for the accounting period commencing from 1 June 2017, together with the relevant transitional provisions, have been early adopted by the Company in the preparation of the Historical Financial Information throughout the Relevant Periods. Besides, HKFRS 15 Revenue from Contracts with Customers and amendments to HKFRS 15 Clarification to HKFRS 15 Revenue from Contracts with Customers, which are effective for annual periods beginning on or after 1 January 2018, have been early adopted by the Company in the preparation of the Historical Financial Information throughout the Relevant Periods. HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 15, revenue recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. Early adoption of HKFRS 15 and amendments to it is permitted. I-13

289 APPENDIX I ACCOUNTANTS REPORT 2.4 ISSUED BUT NOT YET EFFECTIVE HKFRSs The Group has not applied the following new and revised HKFRSs that have been issued but are not yet effective, in the Historical Financial Information. Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions 1 Amendments to HKFRS 4 Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts 1 HKFRS 9 Financial Instruments 1 Amendments to HKFRS 9 Prepayment Features with Negative Compensation 2 Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures 4 HKFRS 16 Leases 2 HKFRS 17 Insurance Contracts 3 Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement 2 Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures 2 Amendments to HKAS 40 Transfers of Investment Property 1 HK (IFRIC) Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 HK (IFRIC) Interpretation 23 Uncertainty over Income Tax Treatments 2 Annual Improvements Amendments to HKFRS 1 and HKAS Cycle Annual Improvements Amendments to HKFRS 3, HKFRS 11, HKAS 12 and HKAS Cycle 1 Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January No mandatory effective date yet determined but available for adoption Further information about those HKFRSs that are expected to be applicable to the Group is as follows: HKFRS 9 Financial Instruments HKFRS 9 introduces new requirements for the classification and measurement of financial instruments, general hedge accounting and impairment. The expected impacts relate to the classification and measurement and the impairment requirements and are summarised as follows: (a) Classification and measurement Upon adoption of HKFRS 9, the classification and measurement of financial assets depends on two assessments: the financial asset s contractual cash flow characteristics and the entity s business model for managing the financial asset. The Group expects that the available-for-sale investments as at 31 May 2018, that are currently measured at fair value through other comprehensive income, will not pass the contractual cash flow characteristics test in HKFRS 9 and will be reclassified as financial assets at fair value through profit or loss. As at 31 May 2018, the Group s available-for-sale investments amounted to HK$4,110,000. There is no expectation of material impact on the financial statements arising therefrom for the subsequent measurement. (b) Impairment HKFRS 9 requires an impairment on debt instruments recorded at amortised cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under HKFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. The Group will apply the simplified approach and record lifetime expected loss that are estimated based on the present value of all cash shortfalls over the remaining life of its trade receivables and contract assets. Furthermore, the Group will apply the general approach to other receivables. If there has not been a significant increase in credit risk since initial recognition, the Group will record a twelve-month expected credit losses that are estimated based on the possible default events on its other receivables within the next twelve months. When there has been a significant increase in credit risk since initial recognition, the impairment will be based on lifetime expected credit losses. The directors of the Company have reviewed the Group s financial assets including trade receivables, contract assets, amounts due from related parties, and other receivables as at 31 May 2018 and anticipate that the application of HKFRS 9 in the future will not have a significant impact on the financial statements. I-14

290 APPENDIX I ACCOUNTANTS REPORT The Group will adopt HKFRS 9 from 1 June The Group will not restate comparative information and will recognise any transition adjustments against the opening balance of equity at 1 June The adoption of HKFRS 9 will not have any significant effects on the Group s accounting policies related to financial liabilities. HKFRS 16 Leases HKFRS 16, issued in May 2016, replaces HKAS 17 Leases, HK (IFRIC) Int 4 Determining whether an Arrangement contains a Lease, HK (SIC) Int 15 Operating Leases Incentives and HK (SIC) Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. The standard includes two elective recognition exemptions for lessees leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in HKAS 40, or relates to a class of property, plant and equipment to which the revaluation model is applied. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. HKFRS 16 requires lessees and lessors to make more extensive disclosures than under HKAS 17. Lessees can choose to apply the standard using either a full retrospective or a modified retrospective approach. The Group expects to adopt HKFRS 16 from 1 June The Group is currently assessing the impact of HKFRS 16 upon adoption and is considering whether it will choose to take advantage of the practical expedients available and which transition approach and reliefs will be adopted. As disclosed in note 34 to the Historical Financial Information, at 31 May 2018, the Group had future minimum lease payments under non-cancellable operating leases in aggregate of approximately HK$2,687,000. Upon adoption of HKFRS 16, certain amounts included therein may need to be recognised as new right-of-use assets and lease liabilities. Further analysis, however, will be needed to determine the amount of new right-of-use assets and lease liabilities to be recognised, including, but not limited to, any amounts relating to leases of low-value assets and short term leases, other practical expedients and reliefs chosen, and new leases entered into before the date of adoption. HK (IFRIC) Interpretation 23 Uncertainty over Income Tax Treatments HK (IFRIC) Int 23, issued in July 2017, addresses the accounting for income taxes (current and deferred) when tax treatments involve uncertainty that affects the application of HKAS 12 (often referred to as uncertain tax positions ). The interpretation does not apply to taxes or levies outside the scope of HKAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses (i) whether an entity considers uncertain tax treatments separately; (ii) the assumptions an entity makes about the examination of tax treatments by taxation authorities; (iii) how an entity determines taxable profits or tax losses, tax bases, unused tax losses, unused tax credits and tax rates; and (iv) how an entity considers changes in facts and circumstances. The interpretation is to be applied retrospectively, either fully retrospectively without the use of hindsight or retrospectively with the cumulative effect of application as an adjustment to the opening equity at the date of initial application, without the restatement of comparative information. The Group expects to adopt the interpretation from 1 June The interpretation is not expected to have any significant impact on the Group s financial statements. I-15

291 APPENDIX I ACCOUNTANTS REPORT 2.5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Subsidiaries A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee). When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: (a) (b) (c) the contractual arrangement with the other vote holders of the investee; rights arising from other contractual arrangements; and the Group s voting rights and potential voting rights. The results of subsidiaries are included in the Company s profit or loss to the extent of dividends received and receivable. Fair value measurement The Group measures its investment properties, available-for-sale investments and derivative financial instruments at fair value at the end of each of the Relevant Periods. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly Level 3 based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each of the Relevant Periods. I-16

292 APPENDIX I ACCOUNTANTS REPORT Impairment of non-financial assets Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than contract assets, trade receivables, financial assets included in prepayments, deposits and other receivables, amounts due from related parties, available-for-sale investments and investment properties), the asset s recoverable amount is estimated. An asset s recoverable amount is the higher of the asset s or cash-generating unit s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. 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 assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset. An assessment is made at the end of each of the Relevant Periods as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of depreciation /amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises. Related parties 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 that person (i) (ii) (iii) has control or joint control over 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; or (b) the party is an entity where 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 of a parent, subsidiary or fellow subsidiary of the other entity); 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); and (viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group. Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. I-17

293 APPENDIX I ACCOUNTANTS REPORT Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Land and buildings 2% to 3% Leasehold improvements Over the shorter of the lease terms and 20% Plant and machinery 20% Furniture, fixtures and equipment 20% Motor vehicles 20% An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. Investment properties Investment properties are interests in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of each of the Relevant Periods. Gains or losses arising from changes in the fair values of investment properties are included in the statement of profit or loss in the year in which they arise. Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of profit or loss in the year of the retirement or disposal. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Leases Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives. The finance costs of such leases are charged to the statement of profit or loss so as to provide a constant periodic rate of charge over the lease terms. Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss on the straight-line basis over the lease terms. Investments and other financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as loans and receivables and available-for-sale investments. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss. I-18

294 APPENDIX I ACCOUNTANTS REPORT All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the statement of profit or loss. The loss arising from impairment is recognised in the statement of profit or loss in other expenses. Available-for-sale financial investments Available-for-sale financial investments are non-derivative financial assets in unlisted bond investment. Bond investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss. After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the statement of profit or loss in other income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to the statement of profit or loss in other gains or losses. Interest earned whilst holding the available-for-sale financial investments is reported as investment income and are recognised in the statement of profit or loss as other income in accordance with the policy set out for Revenue recognition below. When the fair value of unlisted bond investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses. The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group s statement of financial position) when: the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. I-19

295 APPENDIX I ACCOUNTANTS REPORT When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment of financial assets The Group assesses at the end of each of the Relevant Periods whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. The amount of any impairment loss identified 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 yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in the statement of profit or loss. Available-for-sale financial investments For available-for-sale financial investments, the Group assesses at the end of each of the Relevant Periods whether there is objective evidence that an investment or a group of investments is impaired. If an available-for-sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognised in the statement of profit or loss, is removed from other comprehensive income and recognised in the statement of profit or loss. In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. Significant is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost I-20

296 APPENDIX I ACCOUNTANTS REPORT and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through the statement of profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income. The determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of other income. Impairment losses on debt instruments are reversed through the statement of profit or loss if the subsequent increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as loans and borrowings. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, net of directly attributable transaction costs. The Group s financial liabilities include trade payables, other payables and accruals, amounts due to related parties, derivative financial instruments, finance lease payables and interest-bearing bank borrowings and overdrafts. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification as follows: Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When 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 a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. I-21

297 APPENDIX I ACCOUNTANTS REPORT Derivative financial instruments Initial recognition and subsequent measurement The Group holds derivative financial instruments such as forward exchange rate contracts for investment. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The derivative financial instruments entered into by the Group do not qualify for hedge accounting, and changes in the fair value of these derivative financial instruments are recognised in the statement of profit or loss. Cash and cash equivalents For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group s cash management. For the purpose of the consolidated statements of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use. Income tax Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of each of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates. Deferred tax is provided, using the liability method, on all temporary differences at the end of each of the Relevant Periods between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. I-22

298 APPENDIX I ACCOUNTANTS REPORT The carrying amount of deferred tax assets is reviewed at the end of each of the Relevant Periods and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each of the Relevant Periods and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of each of the Relevant Periods. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Revenue recognition (a) Revenue from contract with customers Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The Group applies the five-step model to account for revenue arising from contracts with customers: Step 1: Identify the contract(s) with a customer; Step 2: Identify the performance obligations in the contract; Step 3: Determine the transaction price; Step 4: Allocate the transaction price to the performance obligations in the contract; Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation The Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligations is transferred to the customers. A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series of distinct goods and services that are substantially the same. In determining the performance obligations, the Group considers whether the customer benefits from the good and service on its own and whether it is distinct in the context of the contract. Factors considered by the Group indicate the goods and services are not separately identifiable would include: Whether a significant service of integrating the goods or services with other goods or services promised in the contract into a bundle of goods or services that represent the combined output or outputs for which the customer has contracted; Whether one or more of the goods or services significantly modifies or customises, or are significantly modified or customised by, one or more of the other goods or services promised in the contract; the goods or services are highly interdependent or highly interrelated. In other words, each of the goods or services is significantly affected by one or more of the other goods or services in the contract. Depending on the terms of the contract and the laws that apply to the contract, control of the asset may transferred over time if the Group s performance: (i) (ii) (iii) provides all of the benefits received and consumed simultaneously by the customer; or creates and enhances an asset that the customer controls as the Group performs; or does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. If control of the asset transfers over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point of time when the customer obtains control of the asset. I-23

299 APPENDIX I ACCOUNTANTS REPORT Revenue is measured based on the consideration specified in a contract with customer and excluded amounts collected on behalf of third parties. To the extent the transaction price includes variable consideration, i.e. as a result of contract modifications, the Group estimates the amount of variable consideration that should be included in the transaction price based on the expected value to which the Group expects to be entitled. Variable consideration is included in the transaction price if, in the Group s judgement, it is highly probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are largely based on an assessment of the Group s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Group recognises revenue from the provision of E&M engineering services and the maintenance services. Recognition provision of E&M engineering services The Group provides E&M engineering services under contracts with customers which are entered into before the services begin. Under the terms of the contracts, the Group s performance creates and enhances an asset that the customer controls which referred as the designated areas where the E&M engineering services performed. Revenue from provision of E&M engineering services is therefore recognised over time, using the input method. Revenue is recognised for these services based on the stage of completion of the contract. The Directors have assessed the stage of completion based on the proportion of the costs incurred for the works (i.e. subcontracting fees, materials costs, direct labour costs incurred and other miscellaneous costs directly attributable to the projects) performed to date relative to the estimated total costs to complete the satisfaction of these services. Due to the nature of the promises and the industry practice, there is high uncertainty on the estimated total costs for a project throughout the contract term until the quantum and unit prices of materials and other direct costs, such as subcontracting fees, are substantially committed. Therefore, the Group cannot reasonably measure the outcome of a performance obligation prior to that stage and revenue is recognised only to the extent of the costs incurred when they are expected to be recovered. Recognition provision of maintenance services The Group provides maintenance services including preventive and scheduled maintenance to ensure proper functioning of the existing E&M systems in the buildings and other miscellaneous maintenance service on an on-demand basis. Under the terms of the contracts, the customer simultaneously receives and consumes the benefits provided by the Group s performance as the Group performs, revenue is recognised over the scheduled period on a straight line basis or upon the delivery of the services. Contract assets/liabilities Upon entering into a contract with a customer, the Group obtains rights to receive considerations from the customer and assumes performance obligations to provide service to the customer. A contract asset is recognised when the Group has the right to consideration in exchange for services that the Group has transferred to a customer when that right is conditional on something other than the passage of time (for example, the Group s future performance). Any amount previously recognised as a contract asset is reclassified to trade receivables when such right become unconditional other than the passage of time. Remaining rights and performance obligations in a particular contract is accounted for and presented on a net basis, as either a contract asset or a contract liability. If the progress payment exceeds the revenue recognised to date under the input method, then the Group recognises a contract liability for the difference. Existence of significant financing component In determining the transaction price, the Group adjusts the promised amount of consideration for the effects of the time value of money if the timing of payments agreed (either explicitly or implicitly) provides the customer or the Group with a significant benefit of financing the transfer of good or services to customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties of the contract. Notwithstanding the above, a contract does not have a significant financing component in circumstances where payment in advance or in arrear are in accordance with the typical payment terms of the relevant industry, which have a primary purpose other than financing. I-24

300 APPENDIX I ACCOUNTANTS REPORT (b) Rental income Rental income under operating leases is recognised on the straight-line basis over the terms of the relevant leases. (c) Interest income Interest income is recognised on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset. (d) Investment income Investment income from unlisted bond investments is recognised upon receipt of the dividend. Other employee benefits Pension scheme The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the MPF Scheme ) under the Mandatory Provident Fund Schemes Ordinance for all of its employees. Contributions are made based on a percentage of the employees basic salaries and are charged to the statement of profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group s employer contributions vest fully with the employees when contributed into the MPF Scheme. Paid leave carried forward The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the end of each of the Relevant Periods is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the end of each of the Relevant Periods for the expected future cost of such paid leave earned during the year by the employees and carried forward. Borrowing costs Dividends All borrowing costs of the Group are expensed in the period in which they are incurred. Interim dividends are simultaneously proposed and declared, because the Company s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared. Foreign currencies The Historical Financial Information is presented in Hong Kong dollars, which is the Company s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the each of the Relevant Periods. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively). I-25

301 APPENDIX I ACCOUNTANTS REPORT 3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES The preparation of the Group s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future. Judgements In the process of applying the Group s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Operating lease commitments Group as lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases. Revenue recognition determination of performance obligation and the timing of satisfaction of performance obligation In making their judgements, the directors of the Company consider the detailed criteria for recognition of revenue set out in HKFRS 15. In determining performance obligations, the directors of the Company, based on the terms under the contracts, consider whether the customer benefits from each service on its own and whether it is distinct in the context of the contract. Specifically under the situation where a contract that has multiple promises, the directors of the Company consider if the individual promise is regularly sold separately and the service is separately identifiable from other promises within the contract. The directors of the Company have determined that performance obligations are satisfied over time as the Group s services are provided at the customer s site which either create or enhance an asset controlled by the customer or the customer simultaneously receives and consumes the benefits when the Group performs. Generally the input method best reflects the progress towards completion of E&M engineering services. The key assumption is that the costs incurred for works relative to the estimated total costs to complete the satisfaction of the services under the contract best depicts the Group s performance in transferring control of goods or services. Based on the past experience and the nature of the contract activities undertaken for each contract, the Group determines the stage until which it considers the work is sufficiently advanced such that the costs to complete can be reliably estimated and the outcome of the related performance obligation satisfied over time can be reasonably measured so as to recognise revenue based on progress. Generally it is when the quantum and unit prices of materials and other direct costs, such as subcontracting fees, are substantially committed. Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of each of the Relevant Periods, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. Estimate of contract revenue and costs On a regular basis, we review and revise the estimates of contract revenue, variation orders, contract costs and budgeted costs prepared for each services contract at their best endeavor to reflect their accuracy and close to the actual outcome. And we recognise the contract revenue according to the Directors reasonable estimation of the satisfaction of performance obligations of a services contract over time, measured by contract costs incurred to date as a percentage of total forecast costs for the contract. Contract revenue is estimated in accordance with the terms and conditions in the relevant contracts based on the terms in the contracts and other documents in written forms. In the case of variable orders, we estimate the amount of the variable consideration that should be included in the transaction price based on the expected value to which we expect to be entitled. The expected value and the related probability of realisation is estimated based on the past experiences with the same customer on similar projects, historical settlement patterns, experiences with other I-26

302 APPENDIX I ACCOUNTANTS REPORT customers in the similar industry, recent negotiations and current market conditions. Budgeted costs, which mainly comprise direct materials and equipment, subcontracting fees and direct labour costs, are estimated by us taking into account the rate of direct labour, quotations from time to time from the major subcontractors and vendors involved and the industry experience possessed by us. When it is probable that total contract costs will exceed total contract revenue, the expected loss will be recognised immediately to the extent the unavoidable costs of meeting the obligations exceed the expected economic benefits. Nevertheless, actual outcomes in terms of total contract costs and/or revenue may be higher or lower than those estimated at the end of each of the Relevant Periods, which would affect the revenue and profit to be recognised in future years. Estimated recoverability of trade receivables and contract assets The Group assesses at the end of each of the Relevant Periods whether there is any objective evidence that trade receivables and contract assets are impaired. In determining whether there is objective evidence of impairment, the Group takes into consideration the ageing status and the likelihood of collection by reference to the background and repayment history of the debtors and the occurrence of any default or disputes. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on such factors as repayment plans committed by debtors and subsequent collections. An impairment loss is made for trade receivables and contract assets of which the present values of future cash flows are less than their carrying amounts. Further details are included in notes 19 and 20 to the Historical Financial Information. Fair value of investment properties Investment properties are carried in the statement of financial position at their fair values. The fair values are based on the valuations on these properties conducted by an independent firm of professional valuers using property valuation techniques which involve making assumptions on certain market conditions. Favourable or unfavourable changes to these assumptions would result in changes in the fair values of the Group s investment properties. Further details are included in note 15 to the Historical Financial Information. 4. OPERATING SEGMENT INFORMATION For management purposes, the Group has only one reportable operating segment which is the contract work segment of which the Group engages in contract work as a subcontractor, primarily in respect of E&M engineering services and maintenance services. Accordingly, no segment information is presented. The Group s revenue from external customers was derived solely from its operations in Hong Kong during the Relevant Periods and the non-current assets of the Group were all located in Hong Kong as at 31 May 2016, 2017 and Information about major customers Revenue from each major customer which contributed 10% or more of the total revenue of the Group during the Relevant Periods is set out as follows: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Customer a 72,840 N/A* N/A* Customer b 50,961 N/A* N/A* Customer c 41, ,091 N/A* Customer d 40,195 N/A* N/A* Customer e N/A* N/A* 118,578 Customer f N/A* N/A* 94,749 Customer g N/A* N/A* 67,344 * Less than 10% of the Group s revenue Except for the aforesaid, no revenue from any of other single external customers accounted for 10% or more of the Group s revenue. I-27

303 APPENDIX I ACCOUNTANTS REPORT Information about products and services Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Revenue from external customers: E&M engineering services 312, , ,471 Maintenance services 10,033 16,577 13, , , ,758 All the E&M engineering services and maintenance services provided for during the Relevant Periods were transferred to customers over time. 5. REVENUE, OTHER INCOME AND GAINS Revenue, which is also the Group s turnover, represents the appropriate proportion of contract revenue from the provision of E&M engineering services and maintenance services to customers from the private sector in Hong Kong during the Relevant Periods. An analysis of the Group s revenue, other income and gains, is as follows: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Revenue E&M engineering services Short term 65,557 92, ,991 Long term 247, , , , , ,471 Maintenance services 10,033 16,577 13, , , ,758 Other income Interest income Investment income Gross rental income 1,796 1,888 1,402 Recharge income ,257 2,393 1,667 Gains Gain on disposal of items of property, plant and equipment ,838 Gain on disposal of investment properties 9,300 Fair value gains: Investment properties 5,661 Derivative financial instruments 636 Others ,016 17,169 2,750 9,409 18,836 I-28

304 APPENDIX I ACCOUNTANTS REPORT 6. PROFIT BEFORE TAX The Group s profit before tax is arrived at after charging/(crediting): Year ended 31 May Notes HK$ 000 HK$ 000 HK$ 000 Cost of services provided # 287, , ,050 Provision for expected loss 27 2,671 Realisation of provision for expected loss 27 (3,845) (5,572) Depreciation 13 1,478 1,550 1,677 Amortisation* Minimum lease payments under operating leases: Offices 2,388 2,646 2,731 Equipment ,809 2,974 3,124 Auditor s remuneration Employee benefit expense (excluding directors remuneration (note 8)): Wages and salaries 30,509 35,770 36,884 Pension scheme contributions 1,153 1,377 1,398 31,662 37,147 38,282 Direct operating expense arising from rental-earning investment properties Fair value losses/(gains), net: Investment properties 15 3,300 (5,661) Derivative financial instruments (636) Impairment of trade receivables ,742 [REDACTED] expenses 5,336 Gain on disposal of investment properties (9,300) Loss on disposal of available-for-sale investments 25 Loss on disposal of property, plant and equipment 10 Gain on disposal of property, plant and equipment (8) (490) (7,838) # Excluded the provision for expected loss and the realisation of provision for expected loss. * The amortisation for the years is included in Administrative expenses in the consolidated statements of profit or loss. 7. FINANCE COSTS Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Interest on interest-bearing bank borrowings and overdrafts Interest on bills payables Interest on finance leases I-29

305 APPENDIX I ACCOUNTANTS REPORT 8. DIRECTORS REMUNERATION During the Relevant Periods, Ms. Sin Wai Chun, Ms. So Yuen Yee, Mr. So Man Kit and Mr. So Man Ho were all appointed as executive directors of the Company on 10 August Mr. Cheng Lui, Mr. Law Chi Yung and Mr. Wong Siu Cheung were appointed as independent non-executive directors of the Company on [ ] Certain of the directors received remuneration from the subsidiaries of the Group for their appointment as directors or as employees of these subsidiaries. The remuneration of each of these directors as recorded in the financial statements of the subsidiaries is set out below: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Fees: Other emoluments: Salaries, allowances and benefits in kind 2,935 3,618 3,717 Pension scheme contributions ,032 3,750 3, Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration HK$ 000 HK$ 000 HK$ 000 HK$ 000 Ms. Sin Wai Chun Ms. So Yuen Yee 3 3 Mr. So Man Kit ,038 Mr. So Man Ho 1, ,761 2, , Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration HK$ 000 HK$ 000 HK$ 000 HK$ 000 Ms. Sin Wai Chun Ms. So Yuen Yee Mr. So Man Kit 1, ,410 Mr. So Man Ho 2, ,300 3, ,750 I-30

306 APPENDIX I ACCOUNTANTS REPORT 2018 Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration HK$ 000 HK$ 000 HK$ 000 HK$ 000 Ms. Sin Wai Chun Ms. So Yuen Yee Mr. So Man Kit 1, ,614 Mr. So Man Ho 2, ,208 3, ,849 The independent non-executive directors did not receive any director s remuneration in the capacity of independent non-executive directors during the Relevant Periods. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods. During the Relevant Periods, no remuneration was paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. 9. FIVE HIGHEST PAID EMPLOYEES The five highest paid employees during the years ended 31 May 2016, 2017 and 2018 included one, two, and two directors, respectively, details of whose remuneration are set out in note 8 above. Details of the remuneration of the Group s remaining non-director, highest paid employees during the Relevant Periods are as follows: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Salaries, allowances and benefits in kind 3,719 2,972 3,357 Pension scheme contributions ,818 3,053 3,458 The numbers of non-director, highest paid employees whose remuneration fell within the following bands are as follows: Year ended 31 May Nil to HK$1,000, HK$1,000,000 to HK$2,000, During the Relevant Periods, no highest paid employees waived or agreed to waive any remuneration and no remuneration was paid by the Group to these senior management personnel as an inducement to join or upon joining the Group or as compensation for loss of office. I-31

307 APPENDIX I ACCOUNTANTS REPORT 10. INCOME TAX Pursuant to the rules and regulations of the Cayman Islands and the BVI, the Group is not subject to any income tax in the Cayman Islands and the BVI. Hong Kong profits tax was provided at the rate of 16.5% on the estimated assessable profits arising in Hong Kong during the Relevant Periods. Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Current Hong Kong Charge for the year 3,835 5,593 6,683 Under/(over) provision in prior years 88 (30) Deferred (note 29) (346) Total tax charge for the year 3,931 5,923 6,307 A reconciliation of the tax expense applicable to profit before tax at the statutory rate to the tax expense at the effective tax rate for each of the Relevant Periods is as follows: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Profit before tax 13,825 46,276 46,277 Tax at the Hong Kong statutory tax rate of 16.5% 2,281 7,636 7,636 Adjustment in respect of current tax of previous periods 88 (30) Income not subject to tax (88) (1,078) (2,715) Expenses not deductible for tax ,416 Tax losses not recognised 1,092 Tax losses utilised from previous periods (1,092) Tax charge at the Group s effective rate 3,931 5,923 6, DIVIDENDS During the year ended 31 May 2016, Keio declared dividends of HK$8,225,000 to its then shareholders which was settled by offsetting the balances due from them. During the year ended 31 May 2018, the Company declared a dividend of HK$99,962,000 to Green Yield Enterprises Limited, the immediate holding company of the Company, of which the balance was fully settled by offsetting the balance due from Green Yield Enterprises Limited. 12. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful with the Reorganization and the preparation of the results of the Group for the Relevant Periods. I-32

308 APPENDIX I ACCOUNTANTS REPORT 13. PROPERTY, PLANT AND EQUIPMENT 31 May 2016 Land and buildings Leasehold improvements Plant and machinery Furniture, fixtures and equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 June 2015: Cost 12, , ,995 24,039 Accumulated depreciation (2,312) (470) (1,517) (196) (5,585) (10,080) Net carrying amount 10, ,410 13,959 At 1 June 2015, net of accumulated depreciation 10, ,410 13,959 Additions Disposals (192) (192) Depreciation provided during the year (note 6) (338) (351) (21) (768) (1,478) At 31 May 2016, net of accumulated depreciation 10, ,969 13,272 At 31 May 2016: Cost 12, , ,052 24,038 Accumulated depreciation (2,205) (470) (1,792) (216) (6,083) (10,766) Net carrying amount 10, ,969 13, May 2017 Land and buildings Leasehold improvements Plant and machinery Furniture, fixtures and equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 June 2016: Cost 12, , ,052 24,038 Accumulated depreciation (2,205) (470) (1,792) (216) (6,083) (10,766) Net carrying amount 10, ,969 13,272 At 1 June 2016, net of accumulated depreciation 10, ,969 13,272 Additions ,601 2,011 Disposals (6) (6) Depreciation provided during the year (note 6) (338) (348) (25) (839) (1,550) At 31 May 2017, net of accumulated depreciation 9, ,725 13,727 At 31 May 2017: Cost 12, , ,811 23,208 Accumulated depreciation (2,543) (470) (2,141) (241) (4,086) (9,481) Net carrying amount 9, ,725 13,727 I-33

309 APPENDIX I ACCOUNTANTS REPORT 31 May 2018 Land and buildings Leasehold improvements Plant and machinery Furniture, fixtures and equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 June 2017: Cost 12, , ,811 23,208 Accumulated depreciation (2,543) (470) (2,141) (241) (4,086) (9,481) Net carrying amount 9, ,725 13,727 At 1 June 2017, net of accumulated depreciation 9, ,725 13,727 Additions Disposals (2,062) (88) (2,150) Depreciation provided during the year (note 6) (314) (373) (26) (964) (1,677) At 31 May 2018, net of accumulated depreciation 7, ,339 10,854 At 31 May 2018: Cost 10, , ,348 21,972 Accumulated depreciation (2,858) (470) (2,513) (268) (5,009) (11,118) Net carrying amount 7, ,339 10,854 As at 31 May 2016, 2017 and 2018, the net carrying amounts of the Group s motor vehicles held under finance leases were HK$376,000, HK$1,226,000 and HK$1,374,000. As at 31 May 2016, 2017 and 2018, the Group s buildings with net carrying amounts of HK$2,766,000, HK$2,674,000 and HK$545,000 were pledged to secure general banking facilities granted to the Group (note 25). On 6 February 2018, the Group transferred a parcel of land and a property to Iron Shield Investments Limited, a related party of the Group, at a consideration of HK$9,800,000 (note 36(c)). 14. INTANGIBLE ASSETS Software HK$ May 2017 Cost at 1 June 2016, net of accumulated amortisation Additions 181 Amortisation provided during the year (11) At 31 May At 31 May 2017: Cost 181 Accumulated amortisation (11) Net carrying amount 170 I-34

310 APPENDIX I ACCOUNTANTS REPORT Software HK$ May 2018 Cost at 1 June 2017, net of accumulated amortisation 170 Additions 415 Amortisation provided during the year (81) At 31 May At 31 May 2018: Cost 596 Accumulated amortisation (92) Net carrying amount INVESTMENT PROPERTIES As at 31 May HK$ 000 HK$ 000 HK$ 000 Carrying amount at beginning of the year 69,700 66,400 76,900 Additions 4,839 Net (loss)/gain from a fair value adjustment (3,300) 5,661 Disposals (76,900) Carrying amount at end of the year 66,400 76,900 The Group s investment properties consist of commercial properties for operating leasing and other properties held for capital appreciation in Hong Kong. The investment properties were revalued on 31 May 2016 and 2017 based on a valuation performed by RHL Appraisal Limited, an independent professionally qualified valuer, at HK$66,400,000 and HK$76,900,000, respectively. Each year, the directors of the Group decide which external valuer to be responsible for the external valuations of the Group s properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. Management has discussions with the valuer on the valuation assumptions and valuation results when the valuation is performed at each annual reporting date. Certain investment properties are leased to third parties under operating leases, further summary details of which are included in note 34(a) to the Historical Financial Information. As at 31 May 2016 and 2017, the Group s investment properties with total carrying amounts of HK$66,400,000 and HK$75,000,000, respectively, were pledged to secure general banking facilities granted to the Group (note 25(a)(i)). On 6 February 2018, Keio transferred all the investment properties to New Fusion Holdings Limited, Pacific Riches Developments Limited and Silver Voyage Limited, being related parties of the Group, at considerations of HK$26,000,000, HK$53,000,000 and HK$7,200,000, respectively (note 36(c)). I-35

311 APPENDIX I ACCOUNTANTS REPORT Fair value hierarchy The following tables illustrate the fair value measurement hierarchy of the Group s investment properties: Fair value measurement as at 31 May 2016 using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable input (Level 3) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Recurring fair value measurement for: Commercial properties 66,400 66,400 Fair value measurement as at 31 May 2017 using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable input (Level 3) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Recurring fair value measurement for: Commercial properties 75,000 75,000 Land 1,900 1,900 76,900 76,900 During the Relevant Periods, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3. Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy: Investment properties HK$ 000 Carrying amount at 1 June ,700 Net loss from a fair value adjustment recognised in other expenses in profit or loss (note 6) (3,300) Carrying amount at 31 May and 1 June ,400 Additions 4,839 Net gain from a fair value adjustment recognised in other income and gains in profit or loss (note 6) 5,661 Carrying amount at 31 May ,900 The fair values of investment properties have been estimated using direct comparison approach. Under the direct comparison approach, fair value is estimated using assumptions that the investment properties are sold on an open market without benefit or burden of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which would serve to affect the value of the property interest. Adjustments are made to reflect the differences on various aspects including time, location, town zoning, building conditions, facilities, floor level, view, layout, size/efficiency, etc., which are considered factors that affect the values of the properties. The significant unobservable input was adjusted market price per square feet taking account the location, building age, frontage, floor, size and transaction time. The adjusted market price per square feet for commercial properties ranged from HK$12,311 to HK$36,025 and HK$14,812 to HK$37,267 as at 31 May 2016 and 2017, respectively. The adjusted market price per square feet for land was HK$93 as at 31 May A significant increase in the adjusted market price per square meter would result in a significant increase in the fair value of the investment properties. I-36

312 APPENDIX I ACCOUNTANTS REPORT 16. OTHER NON-CURRENT ASSETS Balance represented prepayments regarding property development interest and a parcel of land as at 31 May During the year ended 31 May 2017, the land was transferred to investment property as the Group was entitled to its ownership and had the intention to hold for capital appreciation. On 6 February 2018, the prepayments regarding property development interest was transferred to Enlightenment Rich Limited and Glory Cresent Limited, being related parties of the Group, at considerations of HK$7,182,000 and HK$6,780,000, respectively (note 36(c)). 17. INVESTMENT IN A SUBSIDIARY Company As at 31 May 2018 HK$ 000 Unlisted investments, at cost 2,125 Particulars of the subsidiary are disclosed in note 1 to the Historical Financial Information. 18. AVAILABLE-FOR-SALE INVESTMENTS As at 31 May HK$ 000 HK$ 000 HK$ 000 Unlisted bond investments 4,016 4,238 4,110 As at 31 May 2016, 2017 and 2018, the fair value changes in respect of the Group s available-for-sale investments recorded in other comprehensive income amounted to a loss of HK$268,000, a gain of HK$222,000 and a loss of HK$128,000, respectively. As at 31 May 2016, 2017 and 2018, the Group s available-for-sale investments purchased from Hong Kong and Shanghai Banking Corporation Limited with total carrying amounts of HK$4,016,000, HK$4,238,000 and HK$4,110,000 were pledged to secure general banking facilities granted to the Group (note 25(a)(iii)). 19. CONTRACT ASSETS AND CONTRACT LIABILITIES As at 31 May HK$ 000 HK$ 000 HK$ 000 Contract assets 94,972 90,636 80,801 Contract liabilities (8,200) (3,705) (8,773) 86,772 86,931 72,028 The contract assets primarily relate to the Group s rights to consideration for work completed but not yet billed at the reporting date. The contract assets are transferred to trade receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers, of which revenue is recognised based on the progress of the provision of related services. I-37

313 APPENDIX I ACCOUNTANTS REPORT (a) Significant movements in the contract asset and the contract liability balances during the Relevant Periods were as follows: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Revenue recognised that was included in the contract liability balance at the beginning of the year 5,826 8,200 3,705 Transfers from the contract assets recognised at the beginning of the year to trade receivables (80,491) (87,142) (76,511) (b) Information about unsatisfied performance obligations The following table includes revenue expected to be recognised in the future related to E&M engineering services that are unsatisfied (or partially unsatisfied) as at the end of each of the Relevant Periods. Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Remaining performance obligations for the E&M engineering services expected to be satisfied during the following periods: Expected to be recognised within one year 300, , ,479 Expected to be recognised over one year 146,644 15,584 3, , , ,139 For maintenance services, the Group has elected the practical expedient for not to disclose information about the remaining performance obligations as majority of the maintenance services have original expected duration of one year or less or the maintenance services are rendered in short period of time. (c) Included in the revenue recognised in each of the years ended 31 May 2016, 2017 and 2018, nil, HK$1,862,000 and HK$2,142,000, respectively, were related to performance obligations satisfied in previous periods. 20. TRADE RECEIVABLES Trade receivables represented receivables for E&M engineering and maintenance work. The payment terms of contract work receivables are stipulated in the relevant contracts. The credit period is generally one month to two months from the date of invoice on progress payment of contract works. The expected recovery period of retention receivables included in trade receivables is generally six to twelve months after the defect liability period, which depends on the finalisation of the final account of the customers projects that is outside the control of the Group. Subsequent to the year ended 31 May 2018, final accounts related to retention receivables of HK$54,000 have been finalised. As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade receivables 11,220 25,949 33,336 Retention receivables 3,051 4,048 3,864 Impairment (2,860) (3,688) (5,308) 11,411 26,309 31,892 I-38

314 APPENDIX I ACCOUNTANTS REPORT An ageing analysis of the trade receivables as at the end of each of the Relevant Periods, based on the invoice date and net of provisions, is as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade receivables Within 1 month 4,809 15,190 18,595 1 to 2 months 1,926 4,625 6,307 2 to 3 months 391 2, Over 3 months 1,291 1,279 3,853 8,417 23,121 28,888 Retention receivables 2,994 3,188 3,004 11,411 26,309 31,892 The ageing analysis of trade receivables as at the end of each of the Relevant Periods that are neither individually nor collectively considered to be impaired: As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade receivables Neither past due nor impaired 4,776 15,190 18,511 Past due but not impaired: Less than 1 month past due 1,925 4,625 6,307 1 to 3 months past due 808 2, Over 3 months past due 868 1,192 3,656 8,377 23,117 28,851 Retention receivables 2,994 2,897 3,004 11,371 26,014 31,855 Receivables that were past due but not impaired relate to a number of independent customers that have good track records with the Group. Based on past experience, the directors of the Company are of the opinion 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 fully recoverable. Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default. I-39

315 APPENDIX I ACCOUNTANTS REPORT As at 31 May 2016, 2017 and 2018, trade receivables individually determined to be impaired amounted to HK$2,900,000, HK$3,983,000 and HK$5,345,000, respectively. The individually impaired trade receivables relate to customers that were in default in principal payments and only a portion of the receivables is expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances. Movements in the provision for impairment losses are as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 At the beginning of the year 2,840 2,860 3,688 Impairment losses recognised (note 6) ,742 Amount written off as uncollectible (53) (122) At the end of the year 2,860 3,688 5, PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES As at 31 May HK$ 000 HK$ 000 HK$ 000 Prepayments 452 1,360 2,384 Deposits Other receivables 1, Deferred [REDACTED] expenses 1,630 2,680 2,384 5,101 None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default. 22. CASH AND BANK BALANCES As at 31 May HK$ 000 HK$ 000 HK$ 000 Cash and cash equivalents 1,047 20,524 13,196 Denominated in: HK$ 1,013 20,490 12,981 Renminbi ( RMB ) US$ 1 1 * Cash and cash equivalents 1,047 20,524 13,196 * Less than HK$1,000 As at the end of each of the Relevant Periods, the cash and bank balances of the Group denominated in RMB amounted to HK$33,000, HK$33,000 and HK$215,000, respectively. The RMB is not freely convertible into other currencies, however, under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business. I-40

316 APPENDIX I ACCOUNTANTS REPORT Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. 23. TRADE PAYABLES An ageing analysis of trade payables as at the end of each of the Relevant Periods, based on the invoice date, is as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Trade payables Within 1 month 25,532 49,373 45,364 1 to 2 months 5,094 6,935 2,979 2 to 3 months 2,387 3,063 Over 3 months 6,489 1,095 4,106 39,502 60,466 52,449 Retention payables 9,552 12,217 18,195 49,054 72,683 70,644 Trade payables are non-interest-bearing and have a credit term ranging from one to two months after invoice date. Retention payables that are expected to be settled more than twelve months after the end of the Relevant Periods amounted to HK$6,015,000, HK$9,008,000 and HK$12,739,000, respectively. 24. OTHER PAYABLES AND ACCRUALS As at 31 May HK$ 000 HK$ 000 HK$ 000 Other payables 1,965 3,273 1,821 Payroll and bonus payables 2,024 2,249 2,593 3,989 5,522 4,414 Other payables are non-interest-bearing and have an average term of one month. I-41

317 APPENDIX I ACCOUNTANTS REPORT 25. INTEREST-BEARING BANK BORROWINGS AND OVERDRAFTS 31 May 2016 Notes Effective interest rate Maturity (%) HK$ 000 Current Bank loans secured (a) On demand 15,687 Bank overdrafts secured (a) 5.00 On demand 19,101 Current portion of finance lease payables (note 26) ,952 Non-current Finance lease payables (note 26) , May 2017 Notes Effective interest rate Maturity (%) HK$ 000 Current Bank loans secured (a) On demand 13,223 Current portion of finance lease payables (note 26) ,624 Non-current Finance lease payables (note 26) , May 2018 Note Effective interest rate Maturity (%) HK$ 000 Current Current portion of finance lease payables (note 26) Non-current Finance lease payables (note 26) I-42

318 APPENDIX I ACCOUNTANTS REPORT As at 31 May HK$ 000 HK$ 000 HK$ 000 Analysed into: Bank loans repayable: Within one year or on demand 34,788 13,223 Other borrowings repayable: Within one year or on demand In the second year In the third to fifth years, inclusive ,065 13, Other borrowings of the Group represent long term finance lease payables for the lease of vehicles. Notes: (a) Bank loans and overdrafts were under a general banking facility offered by a bank with securities and guarantees as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) as at 31 May 2016 and 2017, mortgages over the Group s investment properties situated in Hong Kong, which had aggregate carrying amounts of approximately HK$66,400,000 and HK$75,000,000, respectively. The mortgages over the investment properties were released as at 31 May 2018; as at 31 May 2016, 2017 and 2018, mortgages over certain of the Group s buildings situated in Hong Kong, which had aggregate net carrying amounts of approximately HK$583,000, HK$564,000 and HK$545,000, respectively; as at 31 May 2016, 2017 and 2018, pledge of the Group s available-for-sale investments amounting to HK$4,016,000, HK$4,238,000 and HK$4,110,000, respectively; mortgages over certain of the directors properties; as at 31 May 2016, 2017 and 2018, a personal guarantee given by Mr. So Chung Fat of HK$784,840,000, HK$103,840,000 and HK$103,840,000, respectively; as at 31 May 2016, 2017 and 2018, a personal guarantee given by Ms. So Yuen Yee of HK$35,000,000, HK$35,000,000 and HK$35,000,000, respectively; as at 31 May 2016, 2017 and 2018, a personal guarantee jointly given by Mr. So Chung Fat and Ms. Sin Wai Chun of HK$35,000,000, HK$35,000,000 and HK$35,000,000, respectively; and (viii) as at 31 May 2017 and 2018, personal guarantee jointly given by Mr. So Man Kit and Mr. So Man Ho of HK$130,000,000 and HK$130,000,000, respectively. (b) Another general banking facility offered by a bank with securities and guarantees as follows: (i) (ii) as at 31 May 2016 and 2017, a personal guarantee given by Mr. So Chung Fat and Mr. So Chung Chau with unlimited amount; as at 31 May 2016 and 2017, mortgage over certain of the Group s building, which had a net carrying amount of approximately HK$2,183,000 and HK$2,110,000, respectively; and I-43

319 APPENDIX I ACCOUNTANTS REPORT (iii) a guarantee that the deposit in the designated bank account shall not be less than HK$1,040,000 at any time when the facility is utilised. As at 31 May 2016 and 2017, the facility was not utilised. As at 31 May 2018, this banking facility was fully cancelled. (c) All the interest-bearing loans and overdrafts were denominated in Hong Kong dollars. 26. FINANCE LEASE PAYABLES The Group leases motor vehicles for its business. These leases are classified as finance leases and have remaining lease terms ranging from two to three years. At the end of each of the Relevant Periods, the total future minimum lease payments under finance leases and their present value were as follows: Minimum lease payments Minimum lease payments As at 31 May Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments As at 31 May Present value of minimum lease payments HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Amounts payable: Within one year In the second year In the third year Total minimum finance lease payments Future finance charges (10) (28) (23) Total net finance lease payables Portion classified as current liabilities (164) (401) (459) Non-current portion I-44

320 APPENDIX I ACCOUNTANTS REPORT 27. PROVISION As at 31 May HK$ 000 HK$ 000 HK$ 000 At the beginning of the year 6,746 5,572 Provision for expected loss (note 6) 2,671 Realisation of provision for expected losses (note 6) (3,845) (5,572) At the end of the year 5,572 Amount represented the Group s best estimate on certain loss making projects of the Group as the Group considered the unavoidable costs of meeting the obligations under such non-cancellable E&M engineering service contracts exceeded the economic benefits expected to be received under these contracts. 28. DERIVATIVE FINANCIAL INSTRUMENTS As at 31 May HK$ 000 HK$ 000 HK$ 000 At the beginning of the year Fair value loss/(gain) (note 6) 584 (636) At the end of the year DEFERRED TAX LIABILITIES The components of deferred tax liabilities at the end of each of the Relevant Periods were as follows: Depreciation allowance in excess of related depreciation HK$ 000 At 1 June Deferred tax charged to the statement of profit or loss during the year (note 10) 96 Gross deferred tax liabilities as at 31 May I-45

321 APPENDIX I ACCOUNTANTS REPORT Depreciation allowance in excess of related depreciation HK$ 000 At 1 June Deferred tax charged to the statement of profit or loss during the year (note 10) 242 Gross deferred tax liabilities as at 31 May Depreciation allowance in excess of related depreciation HK$ 000 At 1 June Deferred tax credited to the statement of profit or loss during the year (note 10) (346) Gross deferred tax liabilities as at 31 May There are no income tax consequences attaching to the settlement of dividends by the Company to its shareholders. 30. SHARE CAPITAL The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 25 August 2017 with initial authorised share capital of HK$380,000 divided into 38,000,000 shares of a par value of HK$0.01 each, of which 1,000,000 shares were issued and allotted to Green Yield Enterprises Limited, credited as fully paid. Save for the aforesaid and the Reorganization, the Company has not conducted any business since the date of its incorporation. As at 31 May 2018 HK$ 000 Issued and fully paid: 1,000,000 ordinary shares of HK$0.01 each 10 I-46

322 APPENDIX I ACCOUNTANTS REPORT 31. RESERVES (a) Group The amounts of the Group s reserves and movements therein for each of the Relevant Periods are presented in the consolidated statements of changes in equity. Nature and purpose of the reserve: Capital reserve As at 31 May 2016, 2017 and 2018, the capital reserve of the Group represented the capital contribution from the then shareholders of certain group entities. During the year ended 31 May 2018, the sum of HK$2,350,000 out of the retained profits of Keio was capitalised and accordingly the capital reserve of the Group were increased to HK$4,475,000. Other reserve During the year ended 31 May 2018, the cumulative non-controlling interest attributable to the non-controlling shareholder was acquired by the Group at a consideration of HK$10,000,000. Details relating to the acquisition of non-controlling interest are set out in the section headed History, Reorganization and Corporate Structure in the Document. The difference between the consideration and the equity interest attributable to the then non-controlling shareholder was recorded in other reserve. (b) Company Period from 25 August 2017 (date of incorporation) to 31 May 2018 Share capital Capital reserve Retained profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 25 August 2017 (date of incorporation) Issue of shares 10 2,115 2,125 Profit for the period 99,867 99,867 Dividend declared (note 11) (99,962) (99,962) At 31 May ,115 (95) 2, CONTINGENT LIABILITIES As at 31 May 2016, 2017 and 2018, performance bonds of HK$35,592,000, HK$40,070,000 and HK$31,914,000, respectively, were given by a bank and insurance company in favour of the Group s customers as security for the due performance and observance of the Group s obligations under the contracts entered into between the Group and its customers. If the Group fails to provide satisfactory performance to its customers to whom performance guarantees have been given, such customers may demand the bank and insurance company to pay to them the sum or sum stipulated in such demand. The Group will become liable to compensate such bank and insurance company accordingly. The performance guarantees will be released upon completion of the contract works. I-47

323 APPENDIX I ACCOUNTANTS REPORT 33. COMMITMENTS Capital commitments The Group had the following capital commitments at the end of each of the Relevant Periods: As at 31 May HK$ 000 HK$ 000 HK$ 000 Contracted, but not provided for: Property development interest 1, OPERATING LEASE ARRANGEMENTS (a) As lessor The Group leases its investment properties under operating lease arrangements (note 15). The leases are negotiated for terms ranging from eight months to two years. The terms of the leases also require the tenants to pay a security deposit. At the end of each of the Relevant Periods, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Within one year 1,920 1,422 In the second year 1,273 3,193 1,422 (b) As lessee The Group leases certain of its premises and office equipment under operating lease arrangements. Leases for these premises and office equipment are negotiated for terms ranging from one to five years. At the end of each of the Relevant Periods, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Within one year 1,787 2,881 1,902 In the second to fifth years, inclusive 1,366 1, ,153 4,376 2,687 I-48

324 APPENDIX I ACCOUNTANTS REPORT 35. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS (a) Major non-cash transactions (i) (ii) (iii) During the year ended 31 May 2018, the Group has transferred a land and building, three investment properties and two prepayments for property development interests to its related parties at a total consideration of HK$109,962,000. Details related to the transactions are set out in the notes 13, 15 and 16, respectively, to the Historical Financial Information; During the year ended 31 May 2018, a dividend of HK$99,962,000 was declared by the Company to Green Yield Enterprises Limited, which was fully settled by offsetting with amounts due from related parties as illustrated in (i) above; During the year ended 31 May 2018, an amount due to director of HK$10,000,000, arising out of acquisition of non-controlling interests, was fully settled by offsetting with amounts due from related parties as illustrated in (i) above. (b) Reconciliation of liabilities arising from financing activities during the Relevant Periods were as follows: Bank loans included in interest-bearing bank borrowings and overdrafts Finance lease payables Amounts due to related parties Interest payable HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 31 May , ,614 Changes from financing cash flows (8,464) (172) (2,675) (942) Interest expenses Changes from operating cash flows 997 As at 31 May , ,936 Interest-bearing bank borrowings and overdrafts Finance lease payables Amounts due to related parties Interest payable HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 1 June , ,936 Changes from financing cash flows (2,464) (427) (3,446) (581) Interest expenses Addition in finance lease 834 Changes from operating cash flows (710) As at 31 May , ,780 I-49

325 APPENDIX I ACCOUNTANTS REPORT Interest-bearing bank borrowings and overdrafts Finance lease payables Amounts due to related parties Interest payable Deferred [REDACTED] expenses HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 1 June , ,780 Changes from financing cash flows (13,223) (563) (5,019) (207) (1,630) Interest expenses Addition in finance lease 480 Changes from operating cash flows (919) As at 31 May ,842 (1,630) 36. RELATED PARTY TRANSACTIONS AND BALANCES The directors of the Company are of the view that the following parties/companies are related parties that had material transactions or balances with the Group during the Relevant Periods. (a) Name and relationship of related parties Name Mr. So Chung Fat Ms. Sin Wai Chun Mr. So Man Kit Mr. So Man Ho Ms. So Yuen Yee Mr. So Chung Chau Saval Engineering Limited Keio (Macau) Engineering Co., Ltd. KCL Construction Limited Baier and Partners D&B Ltd. Theia Limited Shiryu Engineering Limited Iron Shield Investments Limited New Fusion Holdings Limited Pacific Riches Developments Limited Silver Voyage Limited Enlightenment Rich Limited Glory Cresent Limited Relationship Member of the So Family, husband of Ms. Sin Wai Chun Member of the So Family, director, wife of Mr. So Chung Fat Member of the So Family, director Member of the So Family, director Member of the So Family, director Brother of Mr. So Chung Fat A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family A company controlled by the So Family I-50

326 APPENDIX I ACCOUNTANTS REPORT (b) Outstanding balances with related parties As disclosed in the consolidated statements of financial position, the Group had outstanding balances with its related parties as at 31 May 2016, 2017 and 2018 as follows: Amounts due from related parties As at 31 May HK$ 000 HK$ 000 HK$ 000 Mr. So Chung Fat 751 1,442 Mr. So Chung Chau Mr. So Man Ho 700 1,244 6,901 Mr. So Man Kit Saval Engineering Limited 1,582 Baier and Partners D&B Ltd. 20 Pacific Riches Developments Limited 27 Iron Shield Investments Limited 9 2,871 2,649 9,269 The balances with the related parties are unsecured, interest-free and repayable on demand. Amounts due to related parties As at 31 May HK$ 000 HK$ 000 HK$ 000 Mr. So Chung Fat 30 Ms. Sin Wai Chun 9,319 6,861 1,815 Keio (Macau) Engineering Co., Ltd. 488 Shiryu Engineering Limited 1, Theia Limited 100 KCL Construction Limited 470 New Fusion Holdings Limited 27 11,936 7,780 1,842 Amounts due to related parties are unsecured, interest-free and repayable on demand. In the opinion of the directors of the Company, the outstanding amounts with the related parties would be settled by the relevant parties before the [REDACTED] of the Company s shares on the Stock Exchange. I-51

327 APPENDIX I ACCOUNTANTS REPORT (c) Transactions with related parties In addition to the transactions disclosed elsewhere in the Historical Financial Information, the Group had the following transactions with related parties during the Relevant Periods: Year ended 31 May Note HK$ 000 HK$ 000 HK$ 000 Contract revenue Theia Limited (i) Recharge income KCL Construction Limited (i) Theia Limited (i) Subcontracting expenses Saval Engineering Limited (i) 900 Baier and Partners D&B Ltd. (i) 1,083 Theia Limited (i) 1,335 1,992 Shiryu Engineering Limited (i) 9,413 11, ,731 13, Consultancy fee Saval Engineering Limited (i) 900 Purchase of materials Theia Limited (i) Sales of land and property and other non-current assets Iron Shield Investments Limited (i) 9,800 New Fusion Holdings Limited (i) 26,000 Pacific Riches Developments Limited (i) 53,000 Silver Voyage Limited (i) 7,200 Enlightenment Rich Limited (i) 7,182 Glory Cresent Limited (i) 6, ,962 Note: (i) These transactions were conducted at terms and conditions mutually agreed between the Group and the related parties. The directors of the Company are of the opinion that those related party transactions were conducted in the ordinary course of business of the Group. I-52

328 APPENDIX I ACCOUNTANTS REPORT (d) Compensation of key management personnel of the Group: Year ended 31 May HK$ 000 HK$ 000 HK$ 000 Short term employee benefits 9,534 10,193 10,506 Post-employment benefits Total compensation paid to key management personnel 9,802 10,505 10,818 Further details of directors emoluments are included in note 8 to the Historical Financial Information. (e) Securities and guarantees provided by related parties During the Relevant Periods, banking facilities granted to the Group were secured by certain directors properties and their personal guarantees, details of which are set out in note 25 to the Historical Financial Information. 37. FINANCIAL INSTRUMENTS BY CATEGORY The carrying amounts of each of the categories of financial instruments of the Group as at the end of each of the Relevant Periods were as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Available-for-sale investments Available-for-sale investments 4,016 4,238 4,110 As at 31 May HK$ 000 HK$ 000 HK$ 000 Financial assets loans and receivables Trade receivables 11,411 26,309 31,892 Financial assets included in prepayments, deposits and other receivables 2,228 1,024 1,087 Amounts due from related parties 2,871 2,649 9,269 Cash and bank balances 1,047 20,524 13,196 17,557 50,506 55,444 I-53

329 APPENDIX I ACCOUNTANTS REPORT As at 31 May HK$ 000 HK$ 000 HK$ 000 Financial liabilities at amortised cost Trade payables 49,054 72,683 70,644 Financial liabilities included in other payables and accruals 1,965 3,273 1,821 Interest-bearing bank borrowings and overdrafts 34,788 13,223 Amounts due to related parties 11,936 7,780 1,842 Finance lease payables ,020 97,676 74,977 Financial liabilities at fair value through profit or loss Derivative financial instruments FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Group s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, were as follows: As at 31 May Carrying amount Fair value HK$ 000 HK$ 000 Financial assets Available-for-sale investments 4,016 4,016 Financial liabilities Derivative financial instruments As at 31 May Carrying amount Fair value HK$ 000 HK$ 000 Financial assets Available-for-sale investments 4,238 4,238 As at 31 May Carrying amount Fair value HK$ 000 HK$ 000 Financial assets Available-for-sale investments 4,110 4,110 I-54

330 APPENDIX I ACCOUNTANTS REPORT Management has assessed that the fair values of cash and bank balances, trade receivables, amounts due from related parties, financial assets included in prepayments, deposits and other receivables, amounts due to related parties, short-term interest-bearing bank borrowings and overdrafts, trade payables, financial liabilities included in other payables and accruals and finance lease payables approximate to their carrying amounts largely due to the short term maturities of these instruments. The fair values of the non-current interest-bearing bank loans have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The Group s own non-performance risk for interest-bearing bank loans as at 31 May 2016, 2017 and 2018 was assessed to be insignificant. The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: The fair value of the Group s available-for-sale investments were categorised within Level 1 of the fair value hierarchy which is measured based on the quoted prices in active markets and disclosed in note 18 to the Historical Financial Information. The Group enters into forward exchange rate contracts with banks, which were measured using valuation techniques similar to forward pricing models, using present value calculations. The models incorporate various observable inputs including the foreign exchange spot and forward rates. The fair values of the Group s derivative financial instruments were categorised within Level 2 of the fair value hierarchy which is measured based on significant observable inputs and the carrying amounts of the forward exchange rate contracts are the same as its fair values as disclosed in note 28 to the Historical Financial Information. Fair value hierarchy The following tables illustrate the fair value measurement hierarchy of the Group s financial instruments: Assets measured at fair value: Quoted prices in active markets (Level 1) Fair value measurement as at 31 May 2016 using Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Available-for-sale investments 4,016 4,016 Quoted prices in active markets (Level 1) Fair value measurement as at 31 May 2017 using Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Available-for-sale investments 4,238 4,238 Quoted prices in active markets (Level 1) Fair value measurement as at 31 May 2018 using Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Available-for-sale investments 4,110 4,110 I-55

331 APPENDIX I ACCOUNTANTS REPORT Liabilities measured at fair value Quoted prices in active markets (Level 1) Fair value measurement as at 31 May 2016 using Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Derivative financial instruments The Group did not have any financial liabilities measured at fair value as at 31 May 2017 and During the Relevant Periods, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities. 39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s exposure to market risks including interest rate risk, credit risk and liquidity risk arises in the normal course of its business. These risks are managed by the Group s financial management policies and practices described below: Interest rate risk The Group s exposure to interest rate risk relates principally to the Group s short term bank loans which are based on the Hong Kong Interbank Offered Rate and Hong Kong Best Lending Rate. The Group mitigates the risk by monitoring closely the movements in interest rates and reviewing its banking facilities regularly. The Group has not used any interest rate swap to hedge its exposure to interest rate risk. The following table demonstrates the sensitivity to a reasonably possible change in interest rate, with all other variables held constant, of the Group s profit before tax (through the impact on floating rate borrowings) and the Group s equity. Year ended 31 May 2016 Increase/(decrease) in basis points (Decrease)/increase in profit before tax and equity HK$ 000 Hong Kong dollar 50 (174) Hong Kong dollar (50) 174 Year ended 31 May 2017 Increase/(decrease) in basis points (Decrease)/increase in profit before tax and equity HK$ 000 Hong Kong dollar 50 (66) Hong Kong dollar (50) 66 Credit risk The Group trades only with recognised and creditworthy third parties. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group s exposure to bad debts is not significant. The credit risk of the Group s other financial assets, which comprise cash and cash equivalents, amounts due from related parties, other receivables and deposits, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. I-56

332 APPENDIX I ACCOUNTANTS REPORT The following table demonstrates the concentrations of credit risk of the total trade receivables which were due from the Group s largest external customer and the Group s five largest external customers, respectively. As at 31 May Percentage of total trade receivables due from: Group s largest external customer 6% 2% 30% Group s five largest external customers 16% 39% 45% Liquidity risk The Group aims to maintain sufficient cash and credit lines to meet its liquidity requirements. The Group finances its working capital requirements through a combination of funds generated from operations and interest-bearing bank borrowings and overdrafts. The table below summarises the maturity profile of the Group s financial liabilities at the end of each of the Relevant Periods based on contractual undiscounted payments including interest payments computed using contractual rates or, if floating, based on rates current at the end of each of the Relevant Periods. 31 May 2016 On demand Less than 1 year 1to5 years Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Interest-bearing bank borrowings and overdrafts 34,788 34,788 Finance lease payables Trade payables 49,054 49,054 Amounts due to related parties 11,936 11,936 Financial liabilities included in other payables and accruals 76 1, ,965 Derivative financial instruments ,800 51, , May 2017 Less than 1to5 On demand 1 year years Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Interest-bearing bank borrowings 13,223 13,223 Finance lease payables Trade payables 72,683 72,683 Amounts due to related parties 7,780 7,780 Financial liabilities included in other payables and accruals 76 3, ,273 21,079 76, ,704 I-57

333 APPENDIX I ACCOUNTANTS REPORT 31 May 2018 On demand Less than 1 year 1to5 years Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Finance lease payables Trade payables 70,644 70,644 Amounts due to related parties 1,842 1,842 Financial liabilities included in other payables and accruals 610 1,211 1,821 2,452 72, ,000 Note: Included in the interest-bearing bank borrowings were loan balances amounting to HK$15,687,000 and HK$13,223,000 as at 31 May 2016 and 2017, respectively, of which the relevant banking facility arrangements included a repayment on-demand clause giving the banks the unconditional right to call in the loans at any time, and therefore, for the purpose of the above maturity profile, the amounts were classified as on demand. Notwithstanding the above clause, management did not believe that the loans would be called in their entirety within 12 months, and management considered that the loans would be repaid in accordance with the maturity dates as set out in the loan agreements. This evaluation was made considering: the financial position of the Group at the end of each of the Relevant Periods, the Group s compliance with the loan covenants, the lack of events of default, and the fact that the Group has made all previously scheduled repayments on time. In accordance with the terms of the loans, the contractual undiscounted payments as at 31 May 2016 and 2017 were as follows: As at 31 May 2016 On demand Less than 1 year 1 to 5 years More than 5 years Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank loans secured 2,785 10,548 3,430 16,763 As at 31 May 2017 On demand Less than 1 year 1 to 5 years More than 5 years Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank loans secured 2,739 9,823 1,493 14,055 Capital management The primary objectives of the Group s capital management are to safeguard the Group s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the Relevant Periods. I-58

334 APPENDIX I ACCOUNTANTS REPORT The Group monitors capital using debt-to-asset ratio, which is total liabilities divided by total assets. The debt-to-asset ratios at the end of each of the Relevant Periods were as follows: As at 31 May HK$ 000 HK$ 000 HK$ 000 Total liabilities 121, ,418 93,751 Total assets 213, , ,727 Debt-to-asset ratios 57.1% 47.5% 60.2% 40. EVENTS AFTER THE RELEVANT PERIODS There is no significant event took place subsequent to 31 May SUBSEQUENT FINANCIAL STATEMENTS No audited financial statements have been prepared by the Company, the Group or any of the companies now comprising the Group in respect of any period subsequent to 31 May I-59

335 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION The following information does not form part of the Accountants Report from Ernst & Young, Certified Public Accountants, Hong Kong, the Company s reporting accountants, as set out in Appendix I to this document, and is included for information purposes only. The pro forma financial information should be read in conjunction with the Financial Information section in this document and the Accountants Report set out in Appendix I to this document. A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS The following unaudited pro forma adjusted consolidated net tangible assets has been prepared in accordance with Rule 4.29 of the Hong Kong Listing Rules and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants for illustration purposes only, and is set out here to illustrate the effect of the [REDACTED] on our consolidated net tangible assets as of 31 May 2018 as if it had taken place on 31 May The unaudited pro forma adjusted consolidated net tangible assets has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group had the [REDACTED] been completed as of 31 May 2018 or any future dates. It is prepared based on our consolidated net tangible assets as of 31 May 2018 as set out in the Accountants Report as set out in Appendix I to this document, and adjusted as described below. The unaudited pro forma adjusted consolidated net tangible assets does not form part of the Accountants Report as set out in Appendix I to this document. Consolidated net tangible assets attributable to owners of the Company as of 31 May 2018 Estimated [REDACTED] from the [REDACTED] Unaudited pro forma adjusted consolidated net tangible assets as of 31 May 2018 Unaudited pro forma adjusted consolidated net tangible assets per Share HK$ 000 HK$ 000 HK$ 000 HK$ (Note 1) (Note 2) (Note 3) Based on an [REDACTED] of [REDACTED] per Share 61,472 [REDACTED] [REDACTED] [REDACTED] Based on an [REDACTED] of [REDACTED] per Share 61,472 [REDACTED] [REDACTED] [REDACTED] Notes: (1) The consolidated net tangible assets attributable to owners of the Company as of 31 May 2018 is extracted from Appendix I Accountants Report, which is based on the audited consolidated equity attributable to owners of the Company as of 31 May 2018 of approximately HK$61,976,000 less intangible assets as of 31 May 2018 of approximately HK$504,000. (2) The estimated [REDACTED] from the [REDACTED] are based on the [REDACTED] of HK$[REDACTED] per Share or HK$[REDACTED] per Share, after deduction of the [REDACTED] fees and other related expenses payable by the Company and does not take into account of any Shares which may be issued upon the exercise of the [REDACTED]. (3) The unaudited pro forma adjusted consolidated net tangible assets per Share is calculated based on [REDACTED] Shares in issue immediately following the completion of the [REDACTED] and does not take into account of any shares which may be issued upon the exercise of the [REDACTED]. II-1

336 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION [REDACTED] II-2

337 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION [REDACTED] II-3

338 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION [REDACTED] II-4

339 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES 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 company law. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 25 August, 2017 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the Companies Law ). The Company s constitutional documents consist of its Memorandum of Association (the Memorandum ) and its Articles of Association (the Articles ). 1. MEMORANDUM OF ASSOCIATION (a) (b) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that 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. The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein. 2. ARTICLES OF ASSOCIATION The Articles were conditionally adopted on [ ] with effect from the [REDACTED]. 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) 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 the shares or any class of shares may (unless otherwise provided for by the terms of issue 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 III-1

340 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy (whatever the number of shares held by them) shall be a quorum. Every holder of shares of the class shall be entitled to one vote for every such share held by him. 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. (iii) Alteration of capital The Company may by ordinary resolution of its members: (i) (ii) increase its share capital by the creation of new shares; consolidate all or any of its capital into shares of larger amount than its existing shares; (iii) divide its shares into several classes and attach to such shares any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine; (iv) (v) subdivide its shares or any of them into shares of smaller amount than is fixed by the Memorandum; or cancel any shares which, at the date of passing of the resolution, have not been taken and diminish the amount of its capital by the amount of the shares so cancelled. The Company may reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution. (iv) Transfer of shares All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by The Stock Exchange of Hong Kong Limited (the Stock Exchange ) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. III-2

341 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW The instrument of transfer shall be executed 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 transferee. 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 in respect of that share. The board may, in its absolute discretion, at any time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register. The board may decline to recognise any instrument of transfer unless a fee (not exceeding the maximum sum as the Stock Exchange may determine to be payable) determined by the Directors is paid to the Company, the instrument of transfer is properly stamped (if applicable), it is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept 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 registration of transfers may be suspended and the register closed on giving notice by advertisement in any newspaper or by any other means in accordance with the requirements of the Stock Exchange, at such times and for such periods as the board may determine. The register of members must not be closed for periods exceeding in the whole thirty (30) days in any year. Subject to the above, fully paid shares are free from any restriction on transfer and free of all liens in favour of the Company. (v) 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 requirements imposed from time to time by the Stock Exchange. Where the Company purchases for redemption a redeemable share, purchases not made through the market or by tender must be limited to a maximum price determined by the Company in general meeting. If purchases are by tender, tenders must be made available to all members alike. (vi) Power of any subsidiary of the Company to own shares in the Company There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary. III-3

342 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (vii) Calls on shares and forfeiture of shares The board may from time to time make such calls 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). A call may be made payable either in one lump sum or by installments. 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 twenty per cent. (20%) per annum as the board may agree to accept 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 of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide. If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating 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, notwithstanding, 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 the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the board determines. (b) Directors (i) Appointment, retirement and removal At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) shall retire from office by rotation provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. The Directors to III-4

343 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW retire by rotation shall include any Director who wishes to retire and not offer himself for re-election. Any further Directors so to retire shall be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification. Further, there are no provisions in the Articles relating to retirement of Directors upon reaching any age limit. The Directors have the power to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director appointed to fill a casual vacancy shall hold office until the first general meeting of members after his appointment and be subject to re-election at such meeting and any Director appointed as an 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. A Director may be removed by an ordinary resolution of the Company before the expiration of his period 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 members of the Company may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors. The office of director shall be vacated if: (aa) he resigns by notice in writing delivered to the Company; (bb) he becomes of unsound mind or dies; (cc) 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) he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; (ee) he is prohibited from being a director by law; or (ff) he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles. III-5

344 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW 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 delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time 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 must, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board. (ii) Power to allot and issue shares and warrants Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued (a) with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Directors may determine, or (b) on terms that, at the option of the Company or the holder thereof, it is liable to be redeemed. The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may determine. Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of the Stock Exchange 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 are 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. Neither the Company nor the board is 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 with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever. III-6

345 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (iii) Power to dispose of the assets of the Company or any of its subsidiaries There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, 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. (iv) Borrowing powers 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 assets and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. (v) Remuneration The ordinary remuneration of the Directors is to be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only 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 held office. The Directors are also entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors. Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration 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 and such other benefits and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director. The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or III-7

346 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependents or any class or classes of such persons. The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement. (vi) Compensation or payments for loss of office Pursuant to the Articles, payments to any 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 entitled) must be approved by the Company in general meeting. (vii) Loans and provision of security for loans to Directors The Company must not make any loan, directly or indirectly, to a Director or his close associate(s) if and to the extent it would be prohibited by the Companies Ordinance (Chapter 622 of the laws of Hong Kong) as if the Company were a company incorporated in Hong Kong. (viii) Disclosure of interests in contracts with the Company or any of its subsidiaries A Director may hold any other office or place of profit with the Company (except that of the auditor of 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 in addition to any remuneration provided for by or pursuant to the Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or 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, profits or other benefits received by him as a director, officer or member of, or from his interest in, 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, or voting or providing for the payment of remuneration to the directors or officers of such other company. III-8

347 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW No Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, 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 or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company must declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested. A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his close associates is materially interested, but this prohibition does not apply to any of the following matters, namely: (aa) any contract or arrangement for giving to such Director or his close associate(s) any security or indemnity in respect of money lent by him or any of his close associates or obligations incurred or undertaken by him or any of his close associates at the request of or for the benefit of the Company or any of its subsidiaries; (bb) any contract or arrangement for 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 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 contract or arrangement 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 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; or III-9

348 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (ee) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his close associates and employees of the Company or of 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 accorded generally to the class of persons to which such scheme or fund relates. (c) Proceedings of the Board The board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. 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 an additional or casting vote. (d) Alterations to constitutional documents and the Company s name The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company. (e) Meetings of members (i) Special and ordinary resolutions 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, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given in accordance with the Articles. Under the Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed. An ordinary resolution 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 corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given in accordance with the Articles. III-10

349 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (ii) Voting rights and right to demand a poll Subject to any special rights or restrictions as to voting for the time being attached to any 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 fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll save that the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands in which case every member present in person (or being a corporation, is present by a duly authorised representative), or by proxy(ies) shall have one vote provided that where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons 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 pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including, where a show of hands is allowed, the right to vote individually on a show of hands. Where the Company has any knowledge that any shareholder is, under the rules of the Stock Exchange, 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 shareholder in contravention of such requirement or restriction shall not be counted. (iii) Annual general meetings and general meetings requisitioned by shareholders The Company must hold an annual general meeting of the Company every year within a period of not more than fifteen (15) months after the holding of the last preceding annual general meeting or a period of not more than eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of the Stock Exchange. III-11

350 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW Extraordinary general meetings may be convened on the requisition of one or more shareholders holding, at the date of deposit of the requisition, not less than one-tenth of the paid up capital of the Company having the right of voting at general meetings. Such requisition shall be made in writing to the board or the secretary for the purpose of requiring an extraordinary general meeting to be called by the board for the transaction of any business specified in such requisition. Such meeting shall be held within 2 months after the deposit of such requisition. If within 21 days of such deposit, the board fails to proceed to convene such meeting, the requisitionist(s) himself/herself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the board shall be reimbursed to the requisitionist(s) by the Company. (iv) Notices of meetings and business to be conducted An annual general meeting must be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days. All other general meetings must be called by notice of at least fourteen (14) clear days and not less than ten (10) clear business days. The notice is 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 and place of the meeting and particulars of resolutions to be considered at the meeting and, in the case of special business, the general nature of that business. In addition, notice of every general meeting must be given to all members of the Company other than to such members as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to, among others, the auditors for the time being of the Company. Any notice to be given to or by any person pursuant to the Articles may be served on or delivered to any member of the Company personally, by post to such member s registered address or by advertisement in newspapers in accordance with the requirements of the Stock Exchange. Subject to compliance with Cayman Islands law and the rules of the Stock Exchange, notice may also be served or delivered by the Company to any member by electronic means. All business that is transacted at an extraordinary general meeting and at an annual general meeting is deemed special, save that in the case of an annual general meeting, each of the following business is deemed an 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; III-12

351 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (dd) the appointment of auditors and other officers; (ee) the fixing of the remuneration of the directors and of the auditors; (ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty per cent (20%) in nominal value of its existing issued share capital; and (gg) the granting of any mandate or authority to the directors to repurchase securities of the Company. (v) 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, but the absence of a quorum shall not preclude the appointment of a chairman. 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. (vi) 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 is 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 is 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. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy. (f) Accounts and audit The board shall cause true accounts 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 property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company s affairs and to explain its transactions. III-13

352 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW The accounting records must be kept at the registered office 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 accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting. However, an exempted company must make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof 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 of the Cayman Islands. A copy of every balance sheet and profit or loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors report and a copy of the auditors report, shall not less than twenty-one (21) days before the date of the meeting and at the same time as the notice of annual general meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles; however, subject to compliance with all applicable laws, including the rules of the Stock Exchange, the Company may send to such persons summarised financial statements derived from the Company s annual accounts and the directors report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company s annual financial statement and the directors report thereon. At the annual general meeting or at a subsequent extraordinary general meeting in each year, the members shall appoint an auditor to audit the accounts of the Company and such auditor shall hold office until the next annual general meeting. Moreover, the members may, at any general meeting, by special resolution remove the auditor at any time before the expiration of his terms of office and shall by ordinary resolution at that meeting appoint another auditor for the remainder of his term. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine. The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards which may be those of a country or jurisdiction other than the Cayman Islands. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor must be submitted to the members in general meeting. (g) 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. The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law. III-14

353 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise. Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) 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 shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders 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. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment. Any dividend, interest 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, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their 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 moneys 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. All dividends or bonuses 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 or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company. III-15

354 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company. (h) Inspection of corporate records Pursuant to the Articles, the register and branch register of members shall be open to inspection for at least two (2) hours during business hours by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board, at the registered office or such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the board, at the office where the branch register of members is kept, unless the register is closed in accordance with the Articles. (i) Rights of minorities in relation to fraud or oppression There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman Islands law, as summarised in paragraph 3(f) of this Appendix. (j) 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 is 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, 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 is 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, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. If the Company is wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority 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 and the liquidator may, for such purpose, set such value as he III-16

355 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW 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. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability. (k) Subscription rights reserve The Articles provide that to the extent that it is not prohibited by and is 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 a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants. 3. CAYMAN ISLANDS COMPANY LAW The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman Islands law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company 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 s operations must be conducted mainly outside the Cayman Islands. 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 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 of the 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 arrangement 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 (a) paying distributions or dividends to members; (b) paying up unissued shares of the company III-17

356 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; and (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company. 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. The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands (the Court ), 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, by special resolution reduce its share capital in any way. (c) Financial assistance to purchase shares of a company or its holding company There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. 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 shareholder and the Companies Law expressly provides that 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. However, if the articles of association do not authorise the manner and terms of purchase, a company cannot purchase any of its own shares unless the manner and terms of purchase have first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. 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. 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. III-18

357 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW Shares purchased by a company is to be treated as cancelled unless, subject to the memorandum and articles of association of the company, the directors of the company resolve to hold such shares in the name of the company as treasury shares prior to the purchase. Where shares of a company are held as treasury shares, the company shall be entered in the register of members as holding those shares, however, notwithstanding the foregoing, the company is not be treated as a member for any purpose and must not exercise any right in respect of the treasury shares, and any purported exercise of such a right shall be void, and a treasury share must not be voted, directly or indirectly, at any meeting of the company and must not be counted in determining the total number of issued shares at any given time, whether for the purposes of the company s articles of association or the Companies Law. A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association 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 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. With the exception of the foregoing, there are no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as persuasive in the Cayman Islands, dividends may be paid only out of profits. 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 The Courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority. III-19

358 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct. Any shareholder 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 or, as an alternative to a winding up order, (a) an order regulating the conduct of the company s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company s capital accordingly. Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company s memorandum and articles of association. (g) Disposal of assets The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. (h) Accounting and auditing requirements A company must cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of 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. 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. An exempted company must make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof 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 of the Cayman Islands. III-20

359 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (i) Exchange control There are no exchange control regulations or currency restrictions in the Cayman Islands. (j) Taxation Pursuant to the Tax Concessions Law of the Cayman Islands, the Company has obtained an undertaking: (1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Company or its operations; and (2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of the Company. The undertaking for the Company is for a period of twenty years from 19 September, 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 for certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are a party to a double tax treaty entered into with the United Kingdom in 2010 but otherwise is not party to any double tax treaties. (k) Stamp duty on transfers No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. (l) Loans to directors There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors. (m) 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. They will, however, have such rights as may be set out in the Company s Articles. III-21

360 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (n) Register of members An exempted company may maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. A branch register must be kept in the same manner in which a principal register is by the Companies Law required or permitted to be kept. The company shall cause to be kept at the place where the company s principal register is kept a duplicate of any branch register duly entered up from time to time. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of 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 members, 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 of the Cayman Islands. (o) Register of Directors and Officers The Company is required to maintain at its registered office a register of 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 sixty (60) days of any change in such directors or officers. (p) Beneficial Ownership Register An exempted company is required to maintain a beneficial ownership register at its registered office that records details of the persons who ultimately own or control, directly or indirectly, more than 25% of the equity interests or voting rights of the company or have rights to appoint or remove a majority of the directors of the company. The beneficial ownership register is not a public document and is only accessible by a designated competent authority of the Cayman Islands. Such requirement does not, however, apply to an exempted company with its shares listed on an approved stock exchange, which includes the Stock Exchange. Accordingly, for so long as the shares of the Company are listed on the Stock Exchange, the Company is not required to maintain a beneficial ownership register. (q) Winding up A company may be wound up (a) compulsorily by order of the Court, (b) voluntarily, or (c) under the supervision of the Court. III-22

361 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW The Court has authority to order winding up in a number of specified circumstances including where the members of the company have passed a special resolution requiring the company to be wound up by the Court, or where the company is unable to pay its debts, or where it is, in the opinion of the Court, just and equitable to do so. Where a petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the Court has the jurisdiction to make certain other orders as an alternative to a winding-up order, such as making an order regulating the conduct of the company s affairs in the future, making an order authorising civil proceedings to be brought in the name and on behalf of the company by the petitioner on such terms as the Court may direct, or making an order providing for the purchase of the shares of any of the members of the company by other members or by the company itself. A company (save with respect to a limited duration company) may be wound up voluntarily when the company so resolves by special resolution or when the company in general meeting resolves by ordinary resolution that it be wound up voluntarily because it is unable to pay its debts as they fall due. In the case of a voluntary winding up, such company is obliged to cease to carry on its business (except so far as it may be beneficial for its winding up) from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above. For the purpose of conducting the proceedings in winding up a company and assisting the Court therein, there may be appointed an official liquidator or official liquidators; and the court may appoint to such office such person, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court must 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. As soon as the affairs of the 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 how 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. This final general meeting must be called by at least 21 days notice to each contributory in any manner authorised by the company s articles of association and published in the Gazette. III-23

362 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANIES LAW (r) Reconstructions There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five per cent. (75%) in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management. (s) Take-overs Where an offer is made by a company for the shares of another company and, within four (4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which are the subject of the offer accept, the offeror may at any time within two (2) months after the expiration of the said four (4) months, by notice in the prescribed manner require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court within one (1) month of the notice objecting to the transfer. The burden is on the dissenting shareholder 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 shareholders. (t) 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, except to the extent any such provision may be held by the Court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime). 4. GENERAL Conyers Dill & Pearman, the Company s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of 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 V to this document. Any person wishing to have a detailed summary of the Cayman Companies 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. III-24

363 APPENDIX IV STATUTORY AND GENERAL INFORMATION A. FURTHER INFORMATION ABOUT OUR COMPANY 1. Information of our Company Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 25 August Our Company s registered office is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Our Company has established its principal place of business in Hong Kong at Suite 2103, 21/F., Pacific Plaza, 418 Des Veoux Road West, Hong Kong and has been registered with the Registrar of Companies in Hong Kong as a non-hong Kong company under Part 16 of the Companies Ordinance on 10 November In connection with such registration, our Company has appointed Mr. So Man Ho of House 12, San Francisco Avenue, Phase B, Royal Palms, Yuen Long, New Territories, Hong Kong, as the authorized representative of our Company for the acceptance of service of processes and notices on behalf of our Company in Hong Kong. As our Company was incorporated in the Cayman Islands, it operates subject to the Companies Law and its constitution comprising the Memorandum and the Articles. A summary of various provisions of our Company s constitution and certain relevant aspects of the Companies Law is set out in Appendix III to this document. 2. Changes in the share capital of our Company (a) (b) (c) The authorized share capital of our Company as of the date of its incorporation was HK$380,000 divided into 38,000,000 Shares of HK$0.01 each, of which one nil-paid Share was allotted and issued to the initial subscriber and was transferred to Green Yield on 25 August 2017 at nil consideration. On 30 November 2017, in consideration of the acquisition by our Company of the entire issued share capital of Zhuoyi Ventures, our Company (i) allotted and issued 999,999 new Shares, credited as fully paid, to Green Yield; and (ii) credited the one nil-paid Share as referred to in paragraph (a) above as fully-paid at par. Pursuant to the resolutions in writing of our Shareholders passed on [ ], the authorized share capital of our Company was increased from HK$380,000 to HK$100,000,000 by the creation of an additional 9,962,000,000 Shares. (d) Pursuant to the Capitalization Issue, our Company will allot and issue [REDACTED] Shares to Green Yield. Immediately following completion of the [REDACTED] and the Capitalization Issue, the authorized share capital of our Company will be HK$100,000,000 divided into 10,000,000,000 Shares and the issued share capital of our Company will be HK$[REDACTED] divided into [REDACTED] Shares, all fully paid or credited as fully paid and [REDACTED] Shares will remain unissued (assuming the [REDACTED] is not exercised and without taking into account of any Shares which may be allotted and issued upon the exercise of any options which may be granted under the Share Option Scheme). IV-1

364 APPENDIX IV STATUTORY AND GENERAL INFORMATION Save as aforesaid and as mentioned in the paragraph headed 3. Written resolutions of our Shareholders below, there has been no alteration in the share capital of our Company since the date of its incorporation. Save as disclosed in this document, our Directors do not have any present intention to issue any part of the authorized but unissued share capital of our Company and, without prior approval of our Shareholders at general meeting, no issue of Shares will be made which would effectively alter the control of our Company. 3. Written resolutions of our Shareholders On [ ], written resolutions of our Shareholders were passed pursuant to which: (a) the authorized share capital of our Company was increased from HK$380,000 to HK$100,000,000 by the creation of an additional 9,962,000,000 Shares; (b) our Company approved and adopted the Memorandum with immediate effect and the Articles to be effective conditional on the [REDACTED]; (c) conditional on (A) the Stock Exchange granting the [REDACTED] of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein (including any Shares which may be issued pursuant to the [REDACTED] and the Capitalization Issue) and (B) the obligations of the [REDACTED] under the [REDACTED] becoming unconditional and not being terminated in accordance with the terms of the [REDACTED] or otherwise, in each case on or before the date determined in accordance with the terms of the [REDACTED]: (i) the [REDACTED] was approved and our Directors were authorized to allot and issue the [REDACTED]; (ii) conditional upon the share premium amount of our Company being credited as a result of the [REDACTED], our Directors were authorized to capitalise the amount of HK$[REDACTED] from the amount standing to the credit of the share premium account of our Company and apply such sum to pay up in full at par [REDACTED] Shares for allotment and issue to the person(s) whose name(s) appear(s) on the register of members of our Company at the close of business on [ ], pro-rata (or as nearly as possible without involving fractions) to its/their then existing shareholdings in our Company; and (iii) the rules of the Share Option Scheme, the principal terms of which are set out in the section headed Share Option Scheme of this Appendix, were approved and adopted and our Directors were authorized to approve any amendments to the rules of the Share Option Scheme provided that such amendments are effected in accordance with the provisions of the Share Option Scheme relating IV-2

365 APPENDIX IV STATUTORY AND GENERAL INFORMATION to amendments and the relevant requirements of the Listing Rules, and at their absolute discretion to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares upon the exercise of options which may be granted under the Share Option Scheme and to take all such steps as may be necessary, desirable or expedient to carry into effect the Share Option Scheme; (d) (e) (f) a general and unconditional mandate was given to our Directors to allot, issue and deal with (otherwise than by way of a rights issue or any scrip dividend schemes or similar arrangements in accordance with the Articles of Association or an issue of Shares upon the exercise of any options which may be granted under the Share Option Scheme or pursuant to the [REDACTED] or the Capitalization Issue) Shares with an aggregate nominal amount not exceeding the sum of (i) 20% of the aggregate number of Shares in issue immediately following completion of the [REDACTED] and the Capitalization Issue but excluding any Shares which may be allotted and issued upon the exercise of the [REDACTED] and the exercise of any options under the Share Option Scheme; and (ii) the number of Shares repurchased by our Company pursuant to the authority granted to our Directors as referred to in paragraph (e) below, until the conclusion of the next annual general meeting of our Company, or the date by which the next annual general meeting of our Company is required by the Articles of Association or any laws applicable to our Company to be held, or the passing of an ordinary resolution by our Shareholders in general meeting revoking or varying the authority given to our Directors, whichever occurs first; a general and unconditional mandate (the Repurchase Mandate ) was given to our Directors to exercise all powers of our Company to repurchase Shares not exceeding 10% of the aggregate number of Shares in issue immediately following completion of the [REDACTED] and the Capitalization Issue but excluding any Shares which may be allotted and issued upon the exercise of the [REDACTED] and the exercise of any options under the Share Option Scheme, until the conclusion of the next annual general meeting of our Company, or the date by which the next annual general meeting of our Company is required by the Articles of Association or any laws applicable to our Company to be held, or the passing of an ordinary resolution by our Shareholders in general meeting revoking or varying the authority given to our Directors, whichever occurs first; and conditional on the passing of the resolutions referred to in sub-paragraphs (d) and (e) above, the general unconditional mandate mentioned in sub-paragraph (d) above was extended by the addition of the aggregate number of Shares which may be allotted, issued or dealt with by our Directors pursuant to such general unconditional mandate of the aggregate number of Shares repurchased by our Company pursuant to the Repurchase Mandate referred to in sub-paragraph (e) above. 4. Corporate reorganization Please refer to the section headed History, Reorganization and Corporate structure Reorganization in this document for further details. IV-3

366 APPENDIX IV STATUTORY AND GENERAL INFORMATION 5. Changes in the share capital of subsidiaries of our Company Our Company s subsidiaries are referred to in the Accountants Report for our Company, the text of which is set out in Appendix I to this document. Save for the alterations disclosed in the section headed History, Reorganization and Corporate structure Reorganization of this document, there is no other alteration in the authorized or issued share capital of our Company s subsidiaries which took place within the two years immediately preceding the date of this document. 6. Particulars of our subsidiaries As at the Latest Practicable Date, our Group has three subsidiaries, namely Zhuoyi Ventures, Keio and KEM. Set out below is a summary of the corporate information of Zhuoyi Ventures, Keio and KEM: (a) Zhuoyi Ventures Place of incorporation: BVI Date of incorporation: 26 July 2017 Registered office: Nature: Principal business activities: Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, BVI Limited liability company Investment holding No. of issued shares: 7 Shareholder: Our Company (b) Keio Place of incorporation: Hong Kong Date of incorporation: 22 December 1983 Registered office: Nature: Flat 3, 21/F., Pacific Plaza, 418 Des Voeux Road West, Hong Kong Limited liability company Principal business activities: Provision of electrical and mechanical engineering services and maintenance services in Hong Kong IV-4

367 APPENDIX IV STATUTORY AND GENERAL INFORMATION Issued and paid-up capital: Shareholder: HK$4,700,000 divided into 2,350,000 ordinary shares Zhuoyi Ventures (c) KEM Place of incorporation: Hong Kong Date of incorporation: 11 July 2013 Registered office: Nature: Suite 2103, 21/F., Pacific Plaza, 418 Des Voeux Road West, Hong Kong Limited liability company Principal business activities: Provision of electrical and mechanical engineering services and maintenance services in Hong Kong Issued and paid-up capital: Shareholder: HK$10,000 divided into 10,000 ordinary shares Zhuoyi Ventures 7. Repurchase by our Company of its own securities This paragraph includes information relating to the repurchase of the Shares, including information required by the Stock Exchange to be included in this document concerning such repurchase. (a) Relevant legal and regulatory requirements The Listing Rules permit our Shareholders to grant our Directors a general mandate to repurchase Shares that are [REDACTED] on the Stock Exchange subject to certain restrictions, details of which are summarised below: (i) Shareholders approval All proposed repurchase of Shares (which must be fully paid up) by our Company must be approved in advance by an ordinary resolution of our Shareholders in a general meeting, either by way of general mandate or by specific approval of a particular transaction. The Repurchase Mandate was granted to our Directors by our Shareholders pursuant to the written resolutions dated [ ] authorising them to exercise all powers of our Company to repurchase Shares not exceeding 10% of the aggregate number of Shares in issue immediately following the completion of the [REDACTED] and the Capitalization Issue (excluding Shares which may be allotted and issued pursuant to the exercise of the [REDACTED] and any options under the Share IV-5

368 APPENDIX IV STATUTORY AND GENERAL INFORMATION Option Scheme) until the conclusion of the next annual general meeting of our Company, or the date by which the next annual general meeting of our Company is required by the Articles of Association or any laws applicable to our Company to be held, or the passing of an ordinary resolution by our Shareholders in general meeting revoking or varying the authority given to our Directors, whichever is the earliest. (ii) Source of funds Repurchase of Shares must be funded out of funds legally available for the purpose in accordance with the Memorandum and Articles, the Listing Rules and the applicable laws of the Cayman Islands. A listed company may not repurchase its own securities on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the Listing Rules. Under the Companies Law, our Company may make repurchases out of our profit or share premium or out of the proceeds of a fresh issue of the Shares for the purpose of the repurchase. Any amount of premium payable on the purchase over the par value of the Shares to be repurchased must be paid out of profits of our Company or out of the share premium account of our Company. Subject to satisfaction of the solvency test prescribed by the Companies Law, a repurchase may also be made out of capital. (iii) Trading restrictions Our Company may repurchase up to 10% of the aggregate number of Shares in issue immediately following the completion of the [REDACTED] and the Capitalization Issue but excluding any Shares which may be allotted and issued upon the exercise of the [REDACTED] and any options under the Share Option Scheme. Our Company may not issue or announce a proposed issue of Shares for a period of 30 days immediately following a repurchase of Shares without the prior approval of the Stock Exchange. Our Company is also prohibited from repurchasing Shares on the Stock Exchange if the repurchase would result in the number of listed Shares which are in the hands of the public falling below the minimum percentage required by the Stock Exchange. The broker appointed by our Company to effect a repurchase of the Shares is required to disclose to the Stock Exchange any information with respect to a Share repurchase as the Stock Exchange may require. In addition, a listed company is prohibited from repurchasing its shares on the Stock Exchange if the purchase price is higher by 5% or more than the average closing market price for the five preceding trading days on which its shares were traded on the Stock Exchange. (iv) Status of Shares repurchased All Shares repurchased (whether on the Stock Exchange or otherwise) will be cancelled and the certificates for those Shares must be cancelled and destroyed. Under the Cayman Islands law, a company s shares repurchased may be treated as IV-6

369 APPENDIX IV STATUTORY AND GENERAL INFORMATION cancelled and the amount of the company s issued share capital shall be reduced by the aggregate par value of the shares repurchased accordingly although the authorized share capital of the company will not be reduced. (v) Suspension of repurchase Repurchase of Shares are prohibited after inside information has come to our Company s knowledge, or development which may constitute inside information has occurred or has been the subject of a decision until such time as the inside information has been made publicly available. In particular, during the period of one month immediately preceding the earlier of (aa) the date of our Board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of the results of our Company for any year, half-year or quarter-year period or any other interim period (whether or not required under the Listing Rules); and (bb) the deadline for our Company to announce its results for any year, half-year or quarter-year period (if applicable) under the Listing Rules or any other interim period (whether or not required under the Listing Rules) and ending on the date of the results announcement, our Company may not repurchase the Shares on the Stock Exchange unless the circumstances are exceptional. In addition, the Stock Exchange reserves the right to prohibit repurchase of Shares on the Stock Exchange if our Company has breached the Listing Rules. (vi) Reporting requirements Certain information relating to repurchase of securities on the Stock Exchange or otherwise must be reported to the Stock Exchange no later than 30 minutes before the earlier of the commencement of the morning trading session or any pre-opening session on the Business Day following any day on which our Company makes a purchase of Shares. In addition, our Company s annual report and accounts are required to disclose details regarding repurchases of Shares made during the financial year under review, including the number of Shares repurchased each month (whether on the Stock Exchange or otherwise) and the purchase price per Share or the highest and lowest prices paid for all such repurchase, where relevant, and the aggregate price paid. Our Directors report is also required to contain reference to the repurchase made during the year and our Directors reasons for making such repurchase. (vii) Core connected persons According to the Listing Rules, a company is prohibited from knowingly repurchasing securities on the Stock Exchange from a core connected person, that is, a director, chief executive or substantial shareholder of such company or any of its subsidiaries or any of their respective close associates and a core connected person shall not knowingly sell his/her/its securities to our Company on the Stock Exchange. IV-7

370 APPENDIX IV STATUTORY AND GENERAL INFORMATION (b) Reasons for repurchase 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 our Shareholders to enable our Company to repurchase Shares in the market. Such repurchase may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value of our Company and/or earnings per Share and will only be made when our Directors believe that such repurchases will benefit our Company and our Shareholders. (c) Funding of repurchase In repurchasing Shares, our Company may only apply funds legally available for such purpose in accordance with the Memorandum and Articles, the Listing Rules and the applicable laws of the Cayman Islands. On the basis of the current financial position of our Group as disclosed in this document and taking into account the current working capital position of our Group, our Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the working capital and/or the gearing position of our Group as compared with the position disclosed in this document. Our Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of our Group or the gearing levels which in the opinion of our Directors are from time to time appropriate for our Group. (d) General The exercise in full of the Repurchase Mandate, on the basis of [REDACTED] Shares in issue immediately after completion of the [REDACTED] and the Capitalization Issue but excluding any Shares which may be allotted and issued upon the exercise of the [REDACTED] and options under the Share Option Scheme, would result in up to [REDACTED] Shares being repurchased by our Company during the period in which the Repurchase Mandate remains in force. None of our Directors nor, to the best of their knowledge, information and belief having made all reasonable enquiries, any of their close associates currently intends to sell any Shares to our Company or our subsidiaries. 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 Listing Rules and the applicable laws of the Cayman Islands. If, as a result of a repurchase of Shares, 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. Accordingly, a Shareholder or a group of Shareholders IV-8

371 APPENDIX IV STATUTORY AND GENERAL INFORMATION acting in concert could obtain or consolidate control of our Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code. Save as aforesaid in this paragraph, our Directors are not presently aware of any consequences which would arise under the Takeovers Code as a consequence of any repurchase pursuant to the Repurchase Mandate immediately after the [REDACTED]. No core connected person has notified our Company that he/she/it has a present intention to sell Shares to our Company, or has undertaken not to do so if the Repurchase Mandate is exercised. B. FURTHER INFORMATION ABOUT OUR BUSINESS 1. Summary of material contracts The following contracts (not being contracts entered into in the ordinary course of business of our Group) have been entered into by members of our Group within the two years immediately preceding the date of this document and are or may be material: (a) the sale and purchase agreement of shares in Keio dated 30 November 2017 and entered into between Mr. CC So as vendor and Zhuoyi Ventures as purchaser, pursuant to which Mr. CC So agreed to sell and Zhuoyi Ventures agreed to purchase 235,000 shares in Keio ( Keio Shares ), representing 10% of the issued share capital of Keio, at the consideration of HK$10,000,000, which was determined with reference to the net assets value of Keio as at 31 May 2017 and at the arm s length basis between the vendor and the purchaser; (b) the sale and purchase agreement of shares in Keio dated 30 November 2017 and entered into among Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So as vendors and Zhuoyi Ventures as purchaser, pursuant to which Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So agreed to sell and Zhuoyi Ventures agreed to purchase 1,057,500, 352,500, 352,500 and 352,500 Keio Shares respectively, representing 45%, 15%, 15% and 15% of the issued share capital of Keio respectively, and in return, Zhuoyi Ventures allotted and issued four shares in Zhuoyi Ventures, credited as fully paid at par, to Green Yield under the instructions of each of Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So; (c) the sale and purchase agreement of shares in KEM dated 30 November 2017 and entered into among Mr. MK So and Mr. MH So as vendors and Zhuoyi Ventures as purchaser, pursuant to which Mr. MK So and Mr. MH So agreed to sell and Zhuoyi Ventures agreed to purchase 5,000 and 5,000 shares in KEM ( KEM Shares ) respectively, representing 50% and 50% of the issued share capital of KEM respectively, and in return, Zhuoyi Ventures allotted and issued two shares in Zhuoyi Ventures, credited as fully paid at par, to Green Yield under the instructions of each of Mr. MK So and Mr. MH So; IV-9

372 APPENDIX IV STATUTORY AND GENERAL INFORMATION (d) (e) (f) (g) the sale and purchase agreement of shares in Zhuoyi Ventures dated 30 November 2017 and entered into among Green Yield as vendor, our Company as purchaser, and Mrs. So, Ms. YY So, Mr. MK So and Mr. MH So as warrantors pursuant to which Green Yield agreed to sell and our Company agreed to purchase seven shares of US$1.00 each in the share capital of Zhuoyi Ventures, representing the entire issued share capital of Zhuoyi Ventures, in consideration that our Company (i) allotted and issued, credited as fully paid, 999,999 new Shares to Green Yield; and (ii) credited the one nil-paid Share, which was registered in the name of Green Yield, as fully paid; the [REDACTED]; the Deed of Indemnity; and the Deed of Non-competition. 2. Intellectual property rights (a) As at the Latest Practicable Date, our Group had registered the following trademark(s) which is material to the business of our Group: Trademark Owner Classes Place of registration Trademark number Date of Registration Expiry Date Keio Holdings Limited 35 and 37 Hong Kong November November 2027 Keio Holdings Limited 35 and 37 Hong Kong November November 2027 Keio Engineering Company Limited 37 Hong Kong June June 2026 (b) As at the Latest Practicable Date, we had registered the following domain names which are material to the business of our Group: Domain name Registered owner Commencement date Expiry date keio.com.hk Keio Engineering Company Limited 28 January August 2019 IV-10