Goldfield Group 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 Goldfield Group 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 )/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 Goldfield Group Limited (the Company ), its sponsor, advisers and/or 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 supplemental, revised or replacement pages on the Stock Exchange s website does not give rise to any obligation of the Company, any of its affiliates, sponsors, advisers and/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 GEM of The Stock Exchange of Hong Kong Limited; this document does not constitute a prospectus, offering circular, notice, circular, brochure, advertisement or other document offering to sell any securities to the public in any jurisdiction, nor is it an offer or invitation to the public to make offers to acquire, subscribe for or purchase any securities, nor is it calculated to invite or solicit 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, advisers and/or members of the 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 Important: If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. Goldfield Group Limited (Incorporated in the Cayman Islands with limited liability) [REDACTED] Number of [REDACTED] : [REDACTED] Shares (subject to the [REDACTED]) Number of [REDACTED] : [REDACTED] Shares (subject to reallocation) Number of [REDACTED] : [REDACTED] Shares (subject to reallocation and the [REDACTED]) [REDACTED] : Not more than HK$[REDACTED] per HK$[REDACTED] and expected to be not less than HK$[REDACTED] per [REDACTED], plus brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005% (payable in full upon application in Hong Kong dollars and subject to refund) Nominal value : HK$0.01 per Share Stock code : [REDACTED] Sole Sponsor Kingsway Capital Limited [REDACTED] and [REDACTED] [REDACTED] Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and [REDACTED] take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. A copy of this document, having attached thereto the documents specified in the section headed Documents Delivered to the Registrar of Companies and Available for Inspection in Appendix V to this document, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). Neither the Securities and Futures Commission nor the Registrar of Companies in Hong Kong takes any responsibility for the contents of this document or any of the other documents referred to above. Prospective investors should consider carefully all the information set out in this document and, in particular, should consider and evaluate the matters discussed in the section headed Risk Factors in this document before making any investment decision in relation to our Company. The [REDACTED] will not be more than HK$[REDACTED] per [REDACTED] and is expected to be not less than HK$[REDACTED] per [REDACTED]. The [REDACTED] (for itself and on behalf of the [REDACTED]) may, with the consent of our Company, reduce the indicative [REDACTED] range and/or the number of [REDACTED] stated in this document at any time prior to the morning of the last day for lodging applications under [REDACTED]. If such case, our Company will, as soon as practicable following the decision to make such reduction, publish the notice of such change on the website of the Stock Exchange at and the website of our Company at The final [REDACTED] is expected to be determined by the Price Determination Agreement to be entered into between our Company and the [REDACTED] (for itself and on behalf of the [REDACTED]) on the Price Determination Date. If, for any reason, our Company and the [REDACTED] (for itself and on behalf of the [REDACTED]) are unable to reach any agreement on the [REDACTED] by the Price Determination Date, the [REDACTED] will not become unconditional and will lapse immediately. In case of such event, a notice will be published on the website of the Stock Exchange at and the website of our Company at The [REDACTED] have not been and will not be registered under the [REDACTED] 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 transaction not subject to, the registration requirements of the [REDACTED] and in accordance with any applicable U.S. Securities laws. Prospective investors of the [REDACTED] should note that the [REDACTED] (for itself and on behalf of the [REDACTED]) has the right, in its sole and absolute discretion, 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 headed [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]. Should the [REDACTED] (for itself and on behalf of the [REDACTED]) terminate the [REDACTED], the [REDACTED] will not proceed and will lapse. Further details of those termination provisions are set out in the section headed [REDACTED] in this document. It is important that prospective investors refer to that section for further details. [REDACTED]

3 CHARACTERISTICS OF GEM GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM. The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspaper. Accordingly, prospective investors should note that they need to have access to the website of the Stock Exchange at in order to obtain up-to-date information on GEM-listed issuers. i

4 EXPECTED TIMETABLE [REDACTED] ii

5 EXPECTED TIMETABLE [REDACTED] iii

6 EXPECTED TIMETABLE [REDACTED] iv

7 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 to sell or a solicitation of an offer in any other jurisdiction or in any other circumstances. You should rely only on the information contained in this document to make your investment decision. Our Company, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], any of our/their respective directors, officers, employees, agents or representatives, or any other persons or parties involved in the [REDACTED], have not authorised anyone to provide you with information that is different from what is contained in this document. Any information or representation not made or contained in this document must not be relied on by you as having been authorised by our Company, the Sole Sponsor, the [REDACTED], the [REDACTED] and the [REDACTED], any of our/their respective directors, officers, employees, agents or representatives, or any other persons or parties involved in the [REDACTED]. The contents of our website at do not form part of this document. Characteristics of GEM... i Expected Timetable... ii Contents... v Summary... 1 Definitions Glossary 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, Reorganisation and Group Structure Business Relationship with our Controlling Shareholders Substantial Shareholders Page v

8 CONTENTS Page Directors and Senior Management Share Capital Financial Information Future Plans and Use of [REDACTED] [REDACTED] Structure and Conditions of the [REDACTED] How to Apply for the [REDACTED] Appendix I Accountants Report... I-1 Appendix II Unaudited Pro Forma Financial Information... II-1 Appendix III Summary of the Constitution of the Company and Cayman Islands Company 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 vi

9 SUMMARY OVERVIEW We are a subcontractor in Hong Kong mainly engaged in the provision of construction services. Our business was established in May 2001 and our projects are mainly undertaken by our operating subsidiary, Noble Engineering. Our scope of work comprises (i) foundation works; (ii) steelworks; and (iii) other services, which includes A&A works. Depending on our customers requirements, our services may be provided individually or as a package including a combination of them. Our Group participates in both private sector and public sector projects. During the Track Record Period and up to the Latest Practicable Date, we completed 29 private sector projects and four public sector projects with aggregate contract sums of approximately HK$164.0 million and HK$70.8 million, respectively. As at the Latest Practicable Date, we had nine private sector projects and two public sector projects on hand. The aggregate contract sums for these projects was approximately HK$129.2 million, of which approximately HK$43.9 million was recognised as revenue during the Track Record Period. Our revenue for the year ended 31 December 2016, the year ended 31 December 2017 and the four months ended 30 April 2018 amounted to approximately HK$54.0 million, HK$92.9 million and HK$48.7 million, respectively. OUR PRINCIPAL BUSINESS ACTIVITIES For our construction projects, our foundation works, steelworks and other services involve different building types, including residential, commercial and community facilities. Our operating process involves four stages, which are illustrated in the following diagram: Project tendering Project preparation Project execution Project completion For further details, please refer to the section headed Business Our operation process in this document. OUR COMPETITIVE STRENGTHS Our Directors believe that our Group possesses some major competitive strengths, including: (i) (ii) We keep good and stable relationship with our customers, suppliers and subcontractors; We have our own direct labour; (iii) We possess a wide range of machinery and equipment for our operations; (iv) (v) Our sound track record has earned our Group a reputation in the construction industry; and We have an experienced management team. For further details, please refer to the section headed Business Competitive strengths in this document. 1

10 SUMMARY COMPETITIVE LANDSCAPE According to the Frost & Sullivan Report, the foundation works market in Hong Kong is relatively concentrated. There are approximately 184 contractors on the List of Approved Contractors for Public Works of the Development Bureau as at May Among those registered, 150 are registered for road and drainage works and 82 are registered for site formation works. The entry barriers to Hong Kong s foundation works market include (i) capital requirements; (ii) licensing and registration criteria; and (iii) market know-how. Alternatively, with reference to the aforesaid competitive strengths, our Directors believe that our Group will be able to continue to grow and strive in this competitive industry. Market drivers in the foundation works market in Hong Kong include rising land supply, development of public infrastructure projects and favourable policy for residential area development, while the market opportunities include rising investment in infrastructure, urban renewal projects and continuous improvement of the drainage system. OUR BUSINESS STRATEGIES Our main business objective is to expand our scale of operation. To achieve this, we aim to (i) secure more projects and strengthen our project portfolio; (ii) expand and upgrade our manpower; and (iii) acquire more machinery. For further details, please refer to the section headed Business Business strategies in this document. OUR PRICING STRATEGY Our tender pricing is basically determined on a cost-plus basis and depends on the size of the project based on the estimated project costs plus a mark-up margin. CUSTOMERS Our direct customers are primarily renowned construction companies as well as main contractors engaged by property developers, property management companies and government or statutory bodies. For the two years ended 31 December 2017 and the four months ended 30 April 2018, revenue from our five largest customers accounted for approximately 99.8%, 90.9% and 92.6% of our revenue, respectively. For the corresponding periods, revenue from our largest customer, namely, Build King, Hsin Chong and Customer C, accounted for approximately 89.9%, 61.1% and 54.5% of our revenue, respectively. For details of our customers, please refer to the section headed Business Customers in this document. SUPPLIERS AND SUBCONTRACTORS Our suppliers mainly include suppliers of construction materials such as structural steel, pre-cast concrete and drainage pipes. Moreover, we may subcontract certain portions of our works, including the provision of steelworks, such as hoarding and unhoarding works, laying of pipelines and transportation, to our subcontractors depending on our manpower and available resources. For the two years ended 31 December 2017 and the four months ended 30 April 2018, we incurred subcontracting charges of approximately HK$4.2 million, HK$6.2 million and HK$3.0 million, representing approximately 11.3%, 9.3% and 7.5% of our total supplies. During the Track Record Period, our five largest suppliers/subcontractors accounted for approximately 36.1%, 45.1% and 51.9% of our total 2

11 SUMMARY supplies, respectively, while our largest supplier, excluding subcontracting charges incurred, accounted for approximately 25.5%, 36.3% and 46.9% of our total supplies, respectively. Most of the construction works for our projects are performed by our own employees. For further details, please refer to the section headed Business Suppliers and subcontractors in this document. SHAREHOLDER INFORMATION Immediately upon completion of the [REDACTED] and the Capitalisation issue, without taking into account any Shares which may be issued pursuant to the exercise of the [REDACTED] or any options which may be granted under the Share Option Scheme, Dragon Sight will be directly interested in [REDACTED]% of our Company s entire issued share capital. Dragon Sight is owned by Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Leung Siu Lan and Ms. Leung Pui Kam as to 55%, 15%, 15% and 15%, respectively. In this respect, each of Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Leung Siu Lan and Ms. Leung Pui Kam are our Controlling Shareholders for the purpose of the GEM Listing Rules. For details, please refer to the section headed Relationship with our Controlling Shareholders in this document. [REDACTED] INVESTMENT On 29 May 2018, Joint Shine International Group Limited entered into a subscription agreement with Eight Immortals to subscribe for 306 shares in Eight Immortals at the considerations of HK$5,000,000. The share capital of Joint Shine International Group Limited is owned as to 51% and 49% by Mr. Fung Ho Ming Ivan and Ms. Wong Ting Tiffany respectively. Immediately following the completion of the subscription, Joint Shine International Group Limited held a total of 306 shares in Eight Immortals, representing 3.06% of the enlarged issued share capital of Eight Immortals by the subscription. Upon [REDACTED], Joint Shine International Group Limited will be interested in approximately [REDACTED]% of the issued share capital of our Company. The proceeds from the [REDACTED] Investment have been applied by us as working capital. For further details, please refer to the section headed History, Reorganisation and Group Structure in this document. SUMMARY OF HISTORICAL FINANCIAL PERFORMANCE Below is a table setting out a summary of the audited combined financial information of our Group for the two years ended 31 December 2017 and the four months ended 30 April 2018, which originate from the Accountants Report set out in Appendix I to this document. You should read this summary together with our audited combined financial information included in the Accountants Report set out in Appendix I to this document and the section headed Financial Information in this document. 3

12 SUMMARY Highlights of combined statements of profit or loss and other comprehensive income For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 Revenue 53,979 92,946 48,687 Direct costs (37,389) (66,584) (40,182) Gross profit 16,590 26,362 8,505 Profit before tax 10,534 19,105 2,373 Profit and total comprehensive income for the year/period 8,651 16,411 1,444 Profit and total comprehensive income for the year/period attributable to: Owners of the Company 8,651 16,411 1,444 Revenue. For the two years ended 31 December 2017 and the four months ended 30 April 2018, we recorded revenue of approximately HK$54.0 million, HK$92.9 million and HK$48.7 million, respectively. Our revenue is mainly generated from the provision of construction works. The table below sets out the breakdown of our revenue during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Foundation works 39, , , , Steelworks 13, , , , Other services (Note) , , , , Note: Other services include A&A works. Gross profit and gross profit margin. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our overall gross profit was approximately HK$16.6 million, HK$26.4 million and HK$8.5 million, respectively. Our overall gross profit margin was approximately 30.7%, 28.4% and 17.5% for the same periods, respectively. 4

13 SUMMARY Direct costs. Our Direct costs mainly consist of direct labour, costs of construction materials and consumables and subcontracting charges. Below is the breakdown of our direct costs during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Costs of construction materials and consumables 7, , , , Direct labour 21, , , , Subcontracting charges 4, , , , Testing fee Fuel , Machinery rental Transportation , , Depreciation , Other direct costs , , , , , , Highlights of combined statements of financial position As at 31 December As at 30 April HK$ 000 HK$ 000 HK$ 000 Total non-current assets 4,622 7,242 7,375 Total current assets 35,058 58,081 61,405 Total current liabilities 12,389 22,090 24,402 Total liabilities 14,197 23,429 25,442 Total assets less current liabilities 27,291 43,233 44,378 Net current assets 22,669 35,991 37,003 Net assets 25,483 41,894 43,338 5

14 SUMMARY Highlights of combined statements of cash flows For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 Operating cash flows before movements in working capital 12,206 21,868 3,326 Net cash generated from operating activities 3,822 18,627 1,393 Net cash used in investing activities (1,809) (3,825) (1,066) Net cash used in financing activities (1,240) (7,911) (4,268) Net increase/(decrease) in cash and cash equivalents 773 6,891 (3,941) Cash and cash equivalents at the end of year/period 3,520 10,411 6,470 SUMMARY OF KEY FINANCIAL RATIOS The table below sets out certain key financial ratios of our Group during the Track Record Period: For the year ended 31 December For the four months ended 30 April Profitability ratios Gross profit margin 30.7% 28.4% 17.5% Net profit margin 16.0% 17.7% 3.0% Return on equity 33.9% 39.2% 3.3% Return on total assets 21.8% 25.1% 2.1% As at As at 31 December 30 April Liquidity ratios Current ratio Capital sufficiency ratios Gearing ratio 19.8% 20.8% 17.1% Interest coverage

15 SUMMARY For details of these ratios, please refer to the section headed Financial Information Summary of key financial ratios in this document. DIVIDENDS Our Group declared and paid dividends of approximately HK$15.9 million in aggregate to our then Shareholders in May 2018 which were off-set against partial amount due from Directors. We currently do not have a dividend policy. There is no expected or predetermined dividend payout ratio after [REDACTED]. The payment and amount of any future dividends will be at the discretion of our Directors and will depend on a number of factors including but not limited to, our Group s results of operations and earnings, financial condition, capital requirements and other factors which our Board may consider relevant. Any historical dividend distributions should not be used as reference or basis to determine the level of dividends that may be declared or paid by our Board in the future. There is no assurance that dividends of such amount or any amount will be declared or distributed each year or in any year. Any final dividend for a financial year will be subject to our Shareholders approval. [REDACTED] Our [REDACTED] consist of fees paid or payable to professional parties and [REDACTED]. Assuming the [REDACTED] is not exercised and the [REDACTED] of [REDACTED] per Share, being the mid-point of our indicative price ranger for the [REDACTED] as stated in this document, our total [REDACTED] are estimated to be approximately [REDACTED], of which approximately [REDACTED] is directly attributable to the [REDACTED] and is expected to be capitalised after the [REDACTED]. The remaining estimated amount of approximately [REDACTED] is expected to be charged to our Company s combined statements of comprehensive income, of which approximately [REDACTED] has been charged for the four months ended 30 April 2018 and approximately [REDACTED] is expected to be incurred for the eight months ending 31 December In consideration of the above, prospective investors should note that our financial results for the year ending 31 December 2018 will be materially and adversely impacted by such non-recurring [REDACTED]. Our Directors wish to emphasise that the aforesaid amount of [REDACTED] is a current estimate for reference only and the final amount to be recognised in our combined statements of comprehensive income for the year ending 31 December 2018 will be subject to adjustments based on audit and changes in variables and assumptions. THE [REDACTED] STATISTICS Based on the minimum indicative [REDACTED] of [REDACTED] per [REDACTED] Based on the maximum indicative [REDACTED] of [REDACTED] per [REDACTED] Market capitalisation of our Shares (Note 1) HK$[REDACTED] million HK$[REDACTED] million Unaudited pro forma adjusted combined net tangible assets of our Group per Share (Note 2) [REDACTED] HK cents [REDACTED] HK cents 7

16 SUMMARY Notes: 1. The calculation of the market capitalisation of our Shares is based on [REDACTED] Shares in issue immediately after completion of the [REDACTED] but does not take 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 or any Shares which may be allotted and issued pursuant to [REDACTED]. 2. The unaudited pro forma adjusted combined net tangible assets of our Group per Share has been prepared with reference to certain estimation and adjustment. Please refer to Appendix II to this document for further details. FUTURE PLANS AND USE OF [REDACTED] Our Directors estimate that the net proceeds from the [REDACTED] (after deducting the [REDACTED] and estimated expenses payable by our Company in connection with the [REDACTED], but assuming the [REDACTED] is not exercised) will be approximately [REDACTED] based on the [REDACTED] of [REDACTED] per [REDACTED], being the mid-point of the [REDACTED] range between [REDACTED] and [REDACTED] per [REDACTED]. We intend to apply the net proceeds as follows: From the [REDACTED] to 31 December 2018 From 1 January 2019 to 30 June 2019 From 1 July 2019 to 31 December 2019 From 1 January 2020 to 30 June 2020 From 1 July 2020 to 31 December 2020 From 1 January 2021 to 30 June 2021 From 1 July 2021 to 31 December 2021 Total (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (approximate) (approximate) (approximate) (approximate) (approximate) (approximate) (approximate) (approximate) Approximate % of Net Proceeds Acquisition of machinery Expansion of manpower Financing upfront costs for potential projects Leasing of new office Total (Note) [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] Note: The figures shown here are subject to rounding adjustments. The remaining [REDACTED], approximately [REDACTED] of the net proceeds, will be used as our Group s general working capital. For details, please refer to the section headed Future Plans and Use of [REDACTED] in this document. Please also refer to the section headed Future Plans and Use of [REDACTED] Reasons for the [REDACTED] in this document. 8

17 SUMMARY RISK FACTORS We believe that there are certain risks that are involved in our business and operations as well as in connection with the [REDACTED], which may be beyond our reasonable control. Our Group has categorised these risks and uncertainties into: (i) risks relating to our business; (ii) risks relating to our industry; and (iii) risks relating to the [REDACTED]. Some of the major risks generally associated with our business include the following: Our revenue relies on projects which are non-recurring in nature and there is no guarantee that our customers will engage us for future projects or that we will secure new customers. We derive most of our revenue from our major customers and any decrease in the number of projects with them may materially and adversely affect our financial condition and operating results. Failure to accurately estimate our costs in our tenders or quotations may result in losses incurred by us. Delay in completion of any of our projects may adversely affect our financial performance. Our revenue and profitability during the Track Record Period may not be indicative of our future results of operations. The unsatisfactory performance or non-performance of our subcontractors may adversely affect our operations, reputation and profitability. Failure to upgrade or damage or loss of our machinery and equipment may hinder the progress of our projects and may adversely impact our financial performance. LITIGATION AND POTENTIAL CLAIMS As at the Latest Practicable Date, there were three employees compensation claims which were substantially settled and nil ongoing personal injury claims against us under common law, as well as nil ongoing criminal charges. NON-COMPLIANCE During the Track Record Period and up to the Latest Practicable Date, we had the following non-compliance incidents: (i) failure to appoint a registered safety auditor to conduct a safety audit; (ii) using part of the Premises for purposes outside the scope set out in the conditions of the grant and occupation permit of the Premises and (iii) some structure were built on the open storage which is not permitted under the government lease. For further details of our non-compliance, please refer to the section headed Business Regulatory non-compliance in this document. 9

18 SUMMARY RECENT DEVELOPMENT OF OUR GROUP SUBSEQUENT TO THE TRACK RECORD PERIOD In May 2018, our Group was granted a letter of award in relation to a project at Wo Shang Wai, Yuen Long and a project at Marble Road, North Point. The contract sums of the project at Wo Shang Wai, Yuen Long B and the project at Marble Road, North Point were HK$33.0 million and HK$4.8 million, respectively. These projects commenced work in June 2018 and are expected to be completed in May In light of our projects on hand as at the Latest Practicable Date, our Directors estimate that our revenue will increase for the year ending 31 December 2018 when compared with our revenue for the year ended 31 December NO MATERIAL ADVERSE CHANGE Our Directors have confirmed that, up to the date of this document, (i) there has been no material adverse change in the market conditions or the industry and environment in which our Group operates that materially and adversely affect our financial position and operations; (ii) there was no material adverse change in the financial position or prospect of our Group; and (iii) no event has occurred that would materially and adversely affect the information shown in the Accountants Report set out in Appendix I to this document. 10

19 DEFINITIONS In this document, unless the context otherwise requires, the following terms shall have the meanings set out below. Accountants Report Air Pollution Control Ordinance the accountants report set out in Appendix I to this document the Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time [REDACTED] Articles of Association or Articles associate(s) BiB Board or Board of Directors Build King Build King-Hsin Chong JV Building Authority Buildings Department Buildings Ordinance Business Day or business day BVI the articles of association of our Company, conditionally adopted on [ ] to become effective upon [REDACTED] and as supplemented, amended or otherwise modified from time to time, a summary of which is set out in the section headed Summary of the Constitution of the Company and Cayman Islands Company Law in Appendix III to this document has the meaning ascribed to it under the GEM Listing Rules BiB Limited ( ( ) ), a company incorporated in Hong Kong with limited liability on 24 May 2012 the board of Directors Build King Construction Limited, a subsidiary of Build King Holdings Limited, a publicly listed company whose shares are listed in Hong Kong (stock code: 0240) a joint venture of Build King and Hsin Chong the director of buildings under the Building Ordinance the Buildings Department of the Hong Kong 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) on which banks in Hong Kong are generally open for normal banking business to the public the British Virgin Islands 11

20 DEFINITIONS Capitalisation Issue the issue of [REDACTED] Shares to be made upon capitalisation of certain sums standing to the credit of the share premium account of our Company as referred to in the section headed Statutory and General Information A. Further Information about the Company 3. Written resolutions of our Shareholders passed on [ ] 2018 in Appendix IV to this document [REDACTED] [REDACTED] person(s) admitted to participate in [REDACTED] as direct clearing participant(s) or general clearing participant(s) [REDACTED] person(s) admitted to participate in [REDACTED] as custodian participant(s) [REDACTED] [REDACTED] Operation Procedures person(s) admitted to participate in [REDACTED] as investor participant who may be an individual(s) or joint individuals or corporation(s) the operational procedures of the [REDACTED] in relation to [REDACTED], containing the practices, procedures and administrative requirements relating to the operations and functions of [REDACTED], as from time to time in force [REDACTED] Census and Statistics Department Chairman the Census and Statistics Department of the Hong Kong Government the chairman of our Board Cheung Yip Cheung Yip Drilling Engineering Co., Ltd., a company engaging in the provision of drilling works China or PRC close associate(s) Companies Law or Cayman Companies Law the People s Republic of China and, except where the context otherwise requires and only for the purpose of this document, references in this document to China or the PRC exclude Hong Kong, Macau and Taiwan has the meaning ascribed to it under the GEM Listing Rules the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands 12

21 DEFINITIONS Companies Ordinance Companies (WUMP) Ordinance Company or our Company connected person(s) Construction Industry Council Construction Workers Registration Ordinance Controlling Shareholder(s) or our Controlling Shareholder(s) core connected person(s) the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time Goldfield Group Limited ( ), an exempted company incorporated in the Cayman Islands with limited liability on 29 May 2018 has the meaning ascribed to it under the GEM Listing Rules the Construction Industry Council in Hong Kong, a statutory body established on 1 February 2007 pursuant to the Construction Industry Council Ordinance (Chapter 587 of the Laws of Hong Kong) the Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time has the meaning ascribed to it under the GEM Listing Rules and, unless the context otherwise requires, refers to Dragon Sight, Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Law Pui Kam and Ms. Leung Siu Lan in the context of this document has the meaning ascribed to it under the GEM Listing Rules Corporate Governance Code Appendix 15 to the GEM Listing Rules as amended, supplemented or otherwise modified from time to time Deed of Indemnity Deed of Non-competition the deed of indemnity dated [ ] 2018 and executed by each of our Controlling Shareholders in favour of our Company (for itself and as trustee for each of our subsidiaries), details of which are set out in the section headed [ ] in Appendix IV to this document the deed of non-competition dated [ ] 2018 and executed by each of our Controlling Shareholders in favour of our Company (for itself and as trustee for each of our subsidiaries), details of which are set out in the section headed Relationship with our Controlling Shareholders in this document 13

22 DEFINITIONS Development Bureau Director(s) Dragon Sight Eight Immortals Employees Compensation Ordinance the Development Bureau of the Government the director(s) of our Company Dragon Sight Company Limited, a limited liability company incorporated in the BVI on 14 May 2018 Eight Immortals Company Limited, a company incorporated in the BVI with limited liability on 15 May 2018 the Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) as amended and supplemented from time to time Everrich Iron Everrich Iron Works Limited ( ), a company incorporated in Hong Kong with limited liability on 14 October 2014 Frost & Sullivan Frost & Sullivan Report GDP GEM GEM Listing Rules General Rules of [REDACTED] Frost & Sullivan Limited, an independent market research agent a market research report commissioned by us and prepared by Frost & Sullivan on the overview of the construction industry in which our Group operates gross domestic product, the total market value of all the goods and services produced within the borders of a nation during a specified period of time GEM of the Stock Exchange the Rules Governing the Listing of Securities on GEM, as amended, supplemented or otherwise modified from time to time the terms and conditions regulating the use of [REDACTED], as may be amended or modified from time to time and where the context so permits, shall include [REDACTED] Operational Procedures Gold Win Gold Win Engineering Limited ( ), a company incorporated in Hong Kong with limited liability on 12 August 2005 [REDACTED] 14

23 DEFINITIONS Group, our Group, we, our or us our Company and its subsidiaries or, where the context so requires in respect of the period before our Company became the holding company of our existing subsidiaries, our existing subsidiaries of our Company Hei Yin Hei Yin Transportation Company, a company providing transportation services HK$, Hong Kong dollars HK dollars or HK cents Hong Kong dollars and/or cents, respectively, the lawful currency of Hong Kong [REDACTED] HKAS or HKASs HKFRS or HKFRSs Hong Kong Accounting Standards Hong Kong Financial Reporting Standards, which include the HKAS and interpretations issued by the Hong Kong Institute of Certified Public Accountants [REDACTED] Hong Kong Branch Share Registrar Hong Kong or HK Hong Kong Government or Government Hsin Chong [REDACTED] the Hong Kong Special Administrative Region of the PRC the Government of Hong Kong Hsin Chong Construction Company Limited, Hsin Chong Construction (Asia) Limited, Hsin Chong Interiors (Hong Kong) Ltd and Hsin Chong Construction (Engineering) Ltd, subsidiaries of Hsin Chong Group Holdings Limited, a publicly listed company whose shares are listed in Hong Kong (stock code: 0404) 15

24 DEFINITIONS Immigration Ordinance the Immigration Ordinance (Chapter 115 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time Independent Third Party(ies) individual(s) or company(ies) who or which is/are independent of and not connected with (within the meaning of the GEM Listing Rules) any directors, chief executive or substantial shareholders of our Company, our subsidiaries or any of their respective associates Inland Revenue Ordinance the Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong), as amended, supplemented or modified from time to time [REDACTED] Joint Shine International Group Limited, a company incorporated in the BVI with limited liability on 11 May 2018 ISP Construction (Engineering) Limited Latest Practicable Date Legal Counsel a building construction company and a subsidiary of Synergis Holdings Limited, a publicly listed company whose shares are listed in Hong Kong (stock code: 2340) 26 June 2018, being the latest practicable date for the purpose of ascertaining certain information in this document prior to its publication Mr. Chan Chung, barrister-at-law of Hong Kong [REDACTED] Listing Division List of Approved Contractors for Public Works the listing division of the Stock Exchange List of Approved Contractors for Public Works as kept by the Development Bureau Luen Hop Luen Hop Metal Co., a company selling construction materials Macau Main Board the Macau Special Administrative Region of the PRC the stock exchange (excluding the option market) operated by the Stock Exchange which is parallel with GEM of the Stock Exchange 16

25 DEFINITIONS Man Cheong Man Cheong Metals and Building Materials Company Limited, a company selling construction materials Mandatory Provident Fund Schemes Ordinance or MPFSO Memorandum or Memorandum of Association MPF the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the memorandum of association of our Company, conditionally adopted on [ ] 2018 to become effective upon [REDACTED] and as supplemented, amended or otherwise modified from time to time, a summary of which is set out in the section headed Summary of the Constitution of the Company and Cayman Islands Company Law in Appendix III to this document mandatory provident fund scheme NRMM Regulation the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time Noble Engineering Noise Control Ordinance Noble Engineering Limited ( ), a company incorporated in Hong Kong with limited liability on 25 May 2001 the Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time [REDACTED] 17

26 DEFINITIONS [REDACTED] Occupational Safety and Health Ordinance the Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time [REDACTED] Predecessor Companies Ordinance the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as in force from time to time before 3 March 2014 [REDACTED] Investment the investment made by the Investor pursuant to the Subscription Agreement 18

27 DEFINITIONS Price Determination Agreement Price Determination Date the agreement to be entered into between the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company on or around the Price Determination Date to determine and record the [REDACTED] the date, expected to be on or around [REDACTED] 2018 or such later date as the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company may agree, on which the [REDACTED] is to be determined by entering into the Price Determination Agreement, but in any event not later than [REDACTED] [REDACTED] Relevant Securities any of the Shares in respect of which our Controlling Shareholder(s) is shown by this document to be the beneficial owner Reorganisation the corporate reorganisation of our Group in preparation for the [REDACTED], details of which are set out in the section headed History, Reorganisation and Group Structure Reorganisation in this document 19

28 DEFINITIONS RMB or Renminbi Safety Management Regulation SFC SFO Share(s) Shareholder(s) [REDACTED] Share Option Scheme Renminbi, the lawful currency of the PRC Factories and Industrial Undertakings (Safety Management) Regulation (Chapter 59AF of the Laws of Hong Kong) 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 holder(s) of the Shares from time to time collectively, the [REDACTED] and the [REDACTED] the share option scheme our Company conditionally approved and adopted on [ ] 2018, the principal terms of which are summarised in the section headed Statutory and General Information D. Share Option Scheme in Appendix IV to this document [REDACTED] Sole Sponsor Stock Exchange Subcontractor Registration Scheme subsidiary(ies) Substantial Shareholder(s) Kingsway Capital Limited, being the sole sponsor to the [REDACTED] and a corporation licensed under the SFO to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities as defined in the SFO The Stock Exchange of Hong Kong Limited a registration scheme introduced by the Construction Industry Council for trade subcontractors involved in building and engineering works has the meaning ascribed to it under the GEM Listing Rules has the meaning ascribed to it under the GEM Listing Rules and, for the purpose of this document, refers to our Shareholders disclosed in the section headed Substantial Shareholders in this document or, where the context so requires, any one of them 20

29 DEFINITIONS Subscription Agreement Takeovers Code the subscription agreement dated 29 May 2018 entered into between Eight Immortals and the Investor The Codes on Takeovers and Mergers and Share Buy-backs issued by the SFC, as amended, supplemented or otherwise modified from time to time Track Record Period the period comprising the two financial years ended 31 December 2016 and 31 December 2017 and the four months ended 30 April 2018 [REDACTED] U.S or United States the United States of America [REDACTED] Waste Disposal Ordinance Water Pollution Control Ordinance the Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time [REDACTED] % per cent Unless otherwise specified, all references to any shareholding in our Company in this document assume no Shares are allotted and issued upon the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme. Certain amounts and percentage figures included in this document have been subject to rounding adjustments. Accordingly, figures shown in total in certain tables may not be the arithmetic aggregation of the figures preceding them. If there is any inconsistency between this document and the Chinese translation of this document, this document shall prevail. 21

30 GLOSSARY This glossary contains explanations of certain terms used in this document in connection with our Group and our business. The terms and their meanings may not correspond to standard industry definitions or usage of these terms. A&A works alteration and addition works to an existing building, including structural alteration, building maintenance, refurbishment, modification and other works that improve the general condition of buildings and their facilities bill(s) of quantities CAGR ELS ISO ISO 9001 ISO OHSAS kg km list(s) of items included in a works contract containing description, quantity and the unit price of the work to be performed to provide a means of valuing the works performed by a contractor compound annual growth rate, a measurement to assess the growth rate of value over time excavation and lateral support, the system of construction works for the purpose of shoring support in the excavated area and, if applicable, drainage measures and avoidance of adverse effect on the adjacent structures An acronym for a series of standards concerning, among others, quality management, environmental management and occupational health and safety, published by the International Organization for Standardization A internationally recognised standard for quality management system, based on a number of quality management principles including a strong customer focus, the motivation and implication of top management, the process approach and continual improvement. It aims at the effectiveness of the quality management system in meeting customer s requirements and consistent improvement of the quality An internationally recognised standard for the environmental management system, aiming to provide assurance to company management and employees as well as external stakeholders that environmental impact is being measured and improved A internationally recognised framework for an occupational health and safety management system, aiming to achieve the best possible working conditions and workplace health and safety kilogramme(s) kilometre(s) 22

31 GLOSSARY m main contractor practical completion certificate private sector projects metre(s) in respect of a construction project, a contractor appointed by the employer s construction consultant, who generally oversees the progress of the entire construction project and delegate different work tasks of the construction to other contractors a document that signifies that the works have been completed for all practical purposes work contracts that are not public sector projects public sector projects work contracts that originate from the Hong Kong Government or statutory bodies quotation(s) site formation works sq.ft. sq.m. subcontractor substructure Technical Circular variation order(s) the type of contracts with our suppliers and/or subcontractors secured by request for quotations from the relevant suppliers and/or subcontractors in respect of our business, generally refers to excavation and/or filling works for forming a new site or achieving designed formation level for later development square feet square metres in respect of a construction project, a subcontractor appointed by a main contractor or another subcontractor involved in the construction who generally carries out specific work tasks of the construction refers to the lower portion of the structure, usually located below the ground level and includes foundation and basement the technical circular issued by the work branch of the Development Bureau on 8 February 2015 order(s) placed by customer during the course of project execution concerning variation to part of the works that is necessary for the completion of the project, which may include (i) additions, omissions, substitutions, alterations, and/or changes in the quality, form, character, kind, position, dimension or other aspect of the works; and (ii) changes to any sequence, method or timing of construction specified in the main contract 23

32 FORWARD-LOOKING STATEMENTS This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to: (a) our business operations and prospects, operating strategies and plans of operation; (b) future developments, trends or conditions in the industry in which our Group operates; (c) our strategies, plans, objectives and goals, and the various measures to implement such strategies or plans or to achieve such objectives and goals; (d) our capital expenditure plans; (e) our future debt levels and capital needs; (f) the amount and nature of, and potential for, future development of our business; (g) our dividend policy; (h) various business opportunities which our Group may pursue; (i) the regulatory environment and the general industry outlook for the industry in which our Group operates; (j) future developments in the industry in which our Group operates; (k) general political and economic conditions in Hong Kong; (l) the global economy and the effect of the global financial crisis; and; (m) other factors beyond our control. The words aim, anticipate, believe, consider, could, estimate, expect, going forward, intend, may, might, ought to, plan, potential, predict, propose, project, seek, should, will, would and similar expressions, as they relate to our Group, are intended to identify a number of these forward-looking statements. These forward-looking statements, which reflect our current views with respect to future events, are not a guarantee of future performance and are subject to certain risks, uncertainties and assumptions, including but not limited to the risk factors described in this document. One or more of these risks or uncertainties may materialise, or underlying assumptions may prove incorrect. 24

33 FORWARD-LOOKING STATEMENTS Subject to the requirements of the GEM Listing Rules, we do not intend to publicly 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 in this document are qualified by reference to this cautionary statement. In this document, statements of or references to our intentions or those of any of our Directors are made as at the date of this document. Any such intentions may change in light of future developments. 25

34 RISK FACTORS You should carefully consider all the information in this document including the risks and uncertainties described below before making an investment in the [REDACTED]. The business, financial condition or results of operations of our Group could be materially and adversely affected by any of these risks. The trading price of our Shares could decline due to any of these risks, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to our Company or which our Company currently deems immaterial may arise and become material in the future and may have a material adverse effect on our Company. These risk factors are contingencies that may or may not occur, and we are not in a position to express a view on the likelihood of any such contingency occurring. The information given is as at the Latest Practicable Date, will not be updated after the date hereof and is subject to the reservations in the section headed Forward-looking Statements in this document. Our Group believes that certain risks are involved in its business and operations as well as in connection with the [REDACTED]. Such risks can be categorised into: (i) risks relating to our business; (ii) risks relating to our industry; and (iii) risks relating to the [REDACTED]. RISKS RELATING TO OUR BUSINESS Our revenue relies on projects which are non-recurring in nature and there is no guarantee that our customers will engage us for future projects or that we will secure new customers Our revenue is mainly derived from project-based contracts which are non-recurring in nature. Such project-based contracts are awarded to us through competitive tendering processes. The aggregate contract sum of our projects on hand as at the Latest Practicable Date is approximately HK$129.2 million. We do not enter into any long-term contracts with our customers and we generally submit tenders or quotations in response to our customers invitations. There is no guarantee that our existing customers will continue to invite us to tender or submit quotations for new projects in the future and we cannot assure you that we will be able to secure new customers. Further, even if we can secure contracts from our new customers in the future, there is no assurance that the terms and conditions and contract sums for these new contracts will be comparable to our existing contracts, or that tenders or quotations we submitted will be selected by our customers. Our tender success rates were approximately 18.3%, 21.2% and 7.0% for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. Our tender success rate was approximately 6.7% for the period from 1 May 2018 up to the Latest Practicable Date. There is no assurance that we will be able to maintain the same or achieve a higher tender success rate in the future as our tenders may not be selected by our customers. Should we fail to secure new contracts with our existing customers or secure new customers, or secure new contracts with terms and conditions and contract sums of a comparable scale, our business, financial condition and results of operations may be adversely affected. 26

35 RISK FACTORS We derive most of our revenue from our major customers and any decrease in the number of projects with them may materially and adversely affect our financial condition and operating results A significant portion of our revenue is generated from a few of our major customers. During the Track Record Period, the revenue attributable to our five largest customers accounted for approximately 99.8%, 90.9% and 92.6% of our total revenue for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. Revenue attributable to our largest customer accounted for approximately 42.1%, 30.4% and 48.6% of our total revenue for the same periods, respectively. In addition, our projects are non-recurring in nature and we do not enter into any long-term contracts with our customers. There is no guarantee that we will be able to maintain our current business relationship with our major customers or that these major customers will continue to engage us for their projects in the future. Should our business relationship with our major customers deteriorate or we fail to secure a similar number of projects of a comparable scale from our major customers as we currently do, our financial position may suffer if we are unable to secure and/or diversify our customer base. Failure to accurately estimate our costs in our tenders or quotations may result in losses incurred by us Our quantity surveyors are responsible for determining the tender price or quotation of a potential project by estimating the construction costs for the proposed project by considering various factors, including, but not limited to, the scope and complexity of the project, project duration, site conditions, costs of construction materials and labour. Our pricing is basically determined on a cost-plus basis. In this respect, there is no guarantee that the estimations made in and/or the judgments exercised in our submitted tenders are entirely accurate and free from error and mistakes. Mistakes that arise may be in the form of inaccurate estimations, oversight of major tender terms, inadvertent typographical errors or calculation errors. As a result of these inaccuracies and mistakes, we may be bound to a contract containing such inaccuracies and mistakes, which may cause us to sustain a substantial loss or result in a lower profit margin. Likewise, if we fail to accurately estimate our project costs or any unforeseen factors such as technical difficulties, geological conditions, inclement weather conditions, variations of construction plans by customers, threatened claims or material disputes with customers, our costs may increase, which may cause our profit margin to decrease or cause a loss to be incurred for a project. Delay in completion of any of our projects may adversely affect our financial performance If delay in work completion is not allowed in our projects pursuant to the contractual terms or any request for extension of our projects is not granted by our customers, we may be at risk of being liable for liquidated damages for delay in completing the project. These damages are typically calculated on a fixed sum per day basis or any other basis stipulated in the relevant contracts. We cannot assure you that our Group will be able to successfully complete all our projects on time. Further, there is no guarantee that upon our request for a delay in work completion, our customers will agree to extend the completion date. As such, we may be exposed to liability for liquidated damages and experience cost overruns and delays, which may reduce the potential profit generated from the relevant contracts, adversely impacting our financial performance. 27

36 RISK FACTORS Our revenue and profitability during the Track Record Period may not be indicative of our future results of operations Our projects are generally contract-based and non-recurring in nature and the revenue generated from our ongoing projects may be recognised over financial years in accordance with the progress made for each project in that particular financial year. Furthermore, our revenue and profit margin for our projects also depend on the tender prices and any unexpected obstacles encountered, such as increase in duration and costs of works for our projects and the changes in conditions of the construction sites. It is possible that the progress payment of a project will be significantly higher for a certain financial year, which only demonstrates the better financial results for that particular year. Hence, we cannot assure you that the revenue and profitability that we generated during the Track Record Period can be maintained in the future. The unsatisfactory performance or non-performance of our subcontractors may adversely affect our operations, reputation and profitability Our Group engages subcontractors from time to time to perform certain parts of our construction works for our construction projects including steelworks. During the Track Record Period, our subcontracting charges amounted to approximately HK$4.2 million, HK$6.2 million and HK$3.0 million, representing approximately 11.3%, 9.3% and 7.5% of our total direct costs for the two years ended 31 December 2017 and the four months ended 31 April 2018, respectively. We cannot guarantee that our subcontractors will be able to complete the works on schedule or that we will be able to monitor the performance of the workers from our subcontractors as effectively as we do with our own employees. Any substandard performance from our subcontractors may result in further delays in their work or incur extra costs on our part. Since we are a contractual party to the contracts with our customers, we are liable for any legal consequences of non-performance, delayed or unsatisfactory performance from our subcontractors as they have no direct contractual relationships with our customers. If our subcontractors fail to perform the contracted works or if their performance does not meet the standard or contractual requirements, we may be exposed to risk of litigation or claims for damages, incur additional costs and experience deterioration in the quality of our services. As such, our subcontractors unsatisfactory performance may negatively affect our profitability, financial performance as well as reputation, and may also subject our Group to litigation or claims for damages. Furthermore, should any claim arise as a result of defective works performed by our subcontractors, we may be required to provide compensation to our customers if our subcontractors works did not satisfy our customers standards. While we may attempt to claim the compensation from our subcontractors, the compensation may not be recovered in full or at all from our subcontractors. As such, we may be required to bear a portion of or all of the claims regardless of the fact that the defective work was caused by our subcontractors. Such events may also seriously affect our reputation, operations, financial position and future prospects. 28

37 RISK FACTORS Failure to upgrade or damage or loss of our machinery and equipment may hinder the progress of our projects and may adversely impact our financial performance Our construction works depend heavily on various machinery and equipment and demand for new construction techniques and machinery and equipment may constantly change. Should we fail to maintain our machinery and equipment or upgrade our machinery by investing in newer or more powerful machinery or equipment and adapt to market trends and demands, our competitiveness in the industry may be negatively affected, which in turn could adversely impact our financial performance. Additionally, there is no guarantee that our machinery and equipment will not be damaged or lost owing to factors such as improper operation, accidents, fire, adverse weather conditions, theft or robbery. In addition, our machinery and equipment may break down or fail to function normally owing to wear and tear or other mechanical issues. If we fail to replace our lost or damaged machinery in time, the progress of our projects may be hindered, which would materially affect our results of operations 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 accordance with our project contracts, we generally submit monthly progress claims to our customers in relation to the value of the works that we have performed during the previous month or period. Following our customers certification and approval of the works performed, our customers will settle the payment to us, netting any retention monies agreed to be withheld pursuant to the contract, within 17 days to 45 days following our customers issue of the certified progress certificate. As at 31 December 2016, 31 December 2017 and 30 April 2018, our trade receivables were approximately HK$12.1 million, HK$12.7 million and HK$4.6 million, respectively. As at the periods, our trade payables turnover days were approximately [75.9] days, 52.0 days and 39.5 days, respectively, and our trade receivables turnover days were approximately 71.4 days, 48.8 days and 21.3 days, respectively. As at 31 December 2016, 31 December 2017 and 30 April 2018, our retention receivables were approximately HK$6.4 million, HK$7.0 million and HK$[7.9] million, respectively, accounting for approximately 34.4%, 35.4% and 63.4% of our trade and retention receivables for the corresponding periods. We rely on our customers abilities to make timely payments so as to conversely meet our payment obligations to suppliers, subcontractors and employees. If our customers delay their payment of or fail to release our retention monies in accordance with the contract, our cash flow and liquidity position may be materially and adversely impacted regardless of whether we are able to receive the amounts accrued at a later date. Further, should any dispute occur in relation to retention monies, additional costs may be incurred, thereby affecting our financial position. If we manage to secure a number of contracts that are scheduled to occur simultaneously, the substantial upfront costs may significantly increase our cash outflow, which may negatively affect our cash flow position. If we are unable to collect our trade receivables from our customers in a timely manner, or if any dispute with our customers arises which result in a delay in their payments, our overall performance, operations and financial position will be materially and adversely affected. 29

38 RISK FACTORS Failure to maintain our registrations for our business operations and any change in the applicable laws, rules and regulations, licensing regimes and standards of compliance may adversely affect our operations and financial condition The Construction Industry Council has introduced a Subcontractor Registration Scheme for trade subcontractors taking part in building and engineering works in Hong Kong. Certain industry organisations have either introduced contractual provisions requiring their main contractors to include appropriate terms in their subcontracts to require subcontractors to apply for registration under this Subcontractor Registration Scheme. For further details, please refer to the section headed Regulatory Overview C. Licensing Registration Regime Subcontractor Registration Scheme in this document. We are currently registered under this Subcontractor Registration Scheme. However, any applicable rules and regulations, licensing schemes and standards of compliance may from time to time be subject to changes without reasonable prior notice. We are unable to guarantee that all required registrations will be continually maintained or renewed on time or at all. In the event that we fail to comply with any applicable laws, rules or regulations and any new requirements imposed on us from time to time, our registrations may be subject to suspension or revocation, and any application to renew our registrations may be delayed or refused. In such situations, our ability to proceed with our business operations may be detrimentally impacted and our operations, financial condition and profitability may suffer as a result. Any increase in the costs of construction materials may adversely impact our financial results Our major construction materials consist of structural steel, concrete and reinforcement steel. During the Track Record Period, our costs of construction materials amounted to approximately HK$8.0 million, HK$19.8 million and HK$13.2 million, respectively, representing approximately 21.4%, 29.7% and 32.8% of our total direct costs, respectively. We are unable to guarantee that the costs of construction materials which our Group incurs will be stable and that the quality of construction materials from our suppliers will meet our customers standards. As such, we may resort to delaying the construction works or replacing these construction materials with materials from other suppliers at a higher price. If we fail to pass on some of these costs to our customers or curtail other costs in our business, our financial performance and position may be materially and adversely affected. Shortage in labour may affect our performance and increase our direct costs We are dependent on our construction workers to perform construction works for our projects. Our labour costs amounted to approximately HK$21.4 million, HK$32.8 million and HK$16.7 million, respectively during the Track Record Period, accounting for approximately 57.2%, 49.3% and 41.6% of our total direct costs, respectively. 30

39 RISK FACTORS According to the Frost & Sullivan Report, the construction industry in Hong Kong is experiencing labour shortage, which is further worsened by the ageing population and lack of younger workers entering the industry. In addition, the Frost & Sullivan Report states that the average daily wages of general workers and labourers in Hong Kong are expected to rise at a CAGR of approximately 6.2% from 2018 to We cannot guarantee that the supply of labour will remain stable in the forthcoming years. The increase in labour costs may increase our direct costs as we may be required to offer higher wages to recruit adequate labour and/or retain our existing or potential labour. Further, if we fail to recruit adequate labour and/or retain our existing or potential labour, we may resort to increasing our dependence on subcontractors who may correspondingly increase their prices in response to the increase in labour costs, which may also increase our direct costs. If we are unable to recruit adequate labour and/or retain our existing or potential labour, the progress of our projects may be hindered, which may expose us liability for liquidated damages. We may be unable to retain our management team and any loss of key personnel could adversely affect our business, results of operation and prospects Our management team comprises Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms Leung Pui Kam, Mr. Wong Chun Wing, Mr. Leung, William and Mr. Hui Sun Fui, who are all well equipped with managerial experience, operation expertise and extensive knowledge of the construction industry in Hong Kong. For further details of our Directors and senior management, please refer to the section headed Directors and Senior Management in this document. Our future performance shall heavily depend on our ability to retain and motivate our management team members. We cannot assure you that we are capable of retaining the members of our management team and other key personnel or recruiting any competent personnel to sustain our business and implement our expansion plans. As such, should we lose any member of our management team or key personnel without immediately finding an appropriate replacement, our overall competitiveness may be reduced, which may impact on our business, results of operations as well as our prospects. We are exposed to some inherent risks relating to foundation works We may experience dangerous and challenging conditions in the course of our foundation works which may be conducted at the underground level. Such risks include artificial underground obstruction, relic, bomb, contaminated soil, presence of unknown obstacles due to the historical use of the site, existing methane gas generated during construction, fire hazard, flooding risk (including storm surge effect), collapse of temporary structure and land subsidence. Such risks, which may not have been initially foreseen, may cause our construction works to become more dangerous and challenging. Any materialisation of the aforementioned risks may delay our work progress, increase our project expenses and/or result in the injury or fatality of our site workers. 31

40 RISK FACTORS Further, service utilities such as fresh and flush water mains, low or high voltage electric cables, optical fibre telephone lines, cable television fibre and high-pressure gas mains are often laid underground in Hong Kong. We cannot guarantee that during our construction works at the underground level, we will not cause damage to such service utilities. Should such damage be caused by us, we may be liable for costs to repay for the damaged service utilities. If we are engaged under a fixed sum or rate contract and no adjustment to the contract sum is agreed on with our customers, we would have to bear the additional expenses ourselves, which would negatively affect our financial performance and hence our profitability. Our performance and business operations may be adversely impacted by construction disputes and litigation We may engage in disputes or litigation with our customers, subcontractors, suppliers, workers and other parties in relation to our projects for a multitude of reasons. The disputes or litigation may arise in relation to late completion of works, delivery of substandard works, personal injuries or labour compensation regarding the construction works performed. The time and cost afforded to disputes and litigation may be expensive and time-consuming and could significantly alter the resources and attention of our administrative staff. Should disputes or litigation arise from our construction works, our reputation in the construction industry may be seriously affected regardless of the outcomes. Further, if any claims made against us do not fall within the scope of our insurance coverage, our financial position may be adversely affected. Property damages, personal injuries, fatal accidents or loss of lives may occur In the course of performing our construction works, we are responsible for monitoring our site workers and the workers from our subcontractors and ensuring their adherence to and implementation of the safety measures and procedures that apply to the relevant construction site. We cannot guarantee that our site workers or subcontractors will thoroughly implement and comply with the relevant safety measures and procedures or any relevant rules, laws or regulations regarding safety. In circumstances where incidences of property damages, personal injuries, fatal accidents or loss of lives occur, our reputation, performance and financial position may be negatively impacted. Further, any loss arising from the abovementioned incidences may not be completely covered by or entirely recoverable from our insurance policies. As a result of such incidents, our licences, permits and/or certificates may be suspended or refused renewal, which may impede and inhibit our ability to successfully tender for construction contracts. Our operations may be adversely affected by inclement weather conditions and other risks Our main operations, which are typically carried out outdoors, are highly affected by the weather conditions in Hong Kong. As such, the progress of our works may depend on whether inclement weather conditions persist or if any natural disasters occur, which may prevent us from performing works at the construction sites. Any such conditions may delay our construction works and render us unable to complete the contracted works on schedule, which may result in us having to continue incurring operating expenses without compensation from our customers, which would in turn lower our profitability. 32

41 RISK FACTORS Likewise, our business is also subject to any outbreak of severe communicable and/or infectious diseases such as swine flu, avian flu, severe respiratory syndrome, Ebola virus disease and Zika virus disease, natural disasters or other acts of God which are beyond our reasonable control. The occurrence of such incidents may negatively impact Hong Kong s economy, infrastructure, livelihood and society. Acts of terrorism may cause injury to our employees, loss of lives, damage our facilities, disrupt our operations and destroy our works performed. The potential effect and material impact of such incidents on our customers, suppliers and subcontractors are also difficult to predict. Thus, any such incidents may adversely affect our overall revenue, costs, financial condition and future prospects. Our additional capital expenditure for purchasing machinery may increase our depreciation expenses and affect our financial performance We place heavy reliance on the use of machinery, including excavators, skid-steer loaders, scissor lifts, vibration hammers and vibration rollers, for our site operations. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our Group had incurred approximately HK$3.0 million, HK$4.6 million and HK$0.1 million, respectively in acquiring machinery. In order to enhance and optimise our overall efficiency and technical capacity, we plan to acquire additional machinery with higher technical capability and capacity. We currently intend to apply approximately HK$[REDACTED] million, representing approximately [REDACTED]% of the net [REDACTED] from the [REDACTED] to enhance our machinery fleet. Our Directors estimate that assuming all other things remain unchanged, our depreciation expenses, machine operating costs and repairs and maintenance costs will altogether increase. Accordingly, our operating results and financial position may be adversely affected. Certain risks involved in our business operations may not be insured Our insurance may not cover certain types of losses on terms that we deem commercially acceptable. Such risks include risks regarding customer concentration, our ability to secure new contractors, potential claims arising from latent defects liability, estimation and management of costs, subcontractors performance, liquidity risk, collectability of our trade and retention receivables and liabilities arising from events such as epidemics, natural disasters, adverse weather conditions, political unrest and terrorist attacks. Should we suffer any loss, damages or liabilities in the course of our operations as a result of the aforesaid risks for which we do not have any or sufficient insurance cover, we may incur losses, damages or liabilities that adversely affect our business operations, financial condition and results of operations. Our business strategies may not be implemented effectively or may not be achieved within the expected time frame or within the proposed budget We may not be able to effectively and successfully implement the business strategies set out in the section headed Business Business strategies in this document or implement such strategies in a timely manner. Our ability to implement such strategies effectively and without delay are dependent on the conditions of the construction industry and economy in Hong Kong, our ability to maintain relationships with our customers and be awarded contracts, the Hong Kong Government s budget and public housing policy and the future trend for private development projects. Thus, the 33

42 RISK FACTORS implementation of our business strategies will be negatively affected or impeded owing to the above-mentioned factors that are beyond our reasonable control. As such, we cannot guarantee the effective and successful implementation of our business strategies, nor can we provide any assurance that the business strategies will be implemented on schedule. RISKS RELATING TO OUR INDUSTRY Potential negative impact of the Technical Circular or other similar administrative tools issued by the Government Pursuant to the Technical Circular, certain Regulated Machinery including generators, air compressors, excavators and loaders that fall within the scope of exempted Regulated Machines under the NRMM Regulation will be progressively phased out from 1 June For further details of the NRMM Regulation and the Technical Circular, please refer to the section Regulatory Overview B. Environmental Protection Air Pollution Control (Non-road Mobile Machinery (Emission) Regulation in this document. During the Track Record Period, our public sector projects accounted for approximately 8.4%. 6.8% and 26.5% of our total revenue for the two years ended 31 December 2017 and the four months ended 30 April We cannot guarantee that the Government will not expand the scope or interpretation of the Technical Circular or issue other administrative tools which could adversely impact our business operations. In such event, we may be required to acquire and replace our machinery to comply with the NRMM Regulation, which may increase our depreciation charges for the two years ending 31 December 2020 and negatively affect our operations, financial position and prospects. Our performance depends on trends and developments in the construction industry in Hong Kong and any fluctuations in the prevailing market conditions may adversely affect our performance and financial position During the Track Record Period, our business operations were principally located in Hong Kong and our Directors are of the view that our businesses will continue to be located in Hong Kong in the future. Our growth largely depends on the market conditions and general conditions and prospects of the Hong Kong economy. Should there be any recurrence of a recession, deflation or any changes in the currency policy in Hong Kong, our financial position, profitability and operations could be detrimentally affected. Further, any change in the current political environment in Hong Kong may cause instability of its economy, thereby adversely affecting the construction industry in which we operate. The future trend of the general construction industry in Hong Kong depends heavily on the continued stream of construction projects, which depends on a myriad of factors. Such factors include the Hong Kong Government s budget and its allocation of funds to the construction industry in Hong Kong, its land supply and public housing policy, the approval of such budgets and plans on construction projects by the Hong Kong Legislative Council and the investment of property developers. Any change in Hong Kong s land supply and public housing policy and the demand for site formation works may adversely affect our operations and profitability. 34

43 RISK FACTORS We operate in a competitive market Our Group is engaged in the foundation works as well as the steelworks markets in Hong Kong, which are both considered to be competitive according to the Frost & Sullivan Report. Our Group s competitors may have access to vastly more resources and be in a better market position than us. These competitors each may have a longer operating history, better financing capabilities and well developed technical expertise. There is a relatively low barrier of entry for new participants who may enter the industry if they have appropriate skills, experience, machinery, capital and licences or approvals. To compete with these new competitors, we may resort to reducing our tender prices and changing our pricing policy, which may lower our profit margin. The increased competition for site formation works may decrease our operating margins and cause us to lose market share, which may negatively affect our profitability and operating results. Any industrial actions or strikes may affect our business Our Group engages in construction works included site formation works, road and drainage works and steelworks, which require highly specialised and skilled labour. Industrial action of any of the highly specialised and skilled labour may disrupt the advancement of our construction works. During the Track Record Period, we did not experience any industrial actions or strikes. However, we cannot guarantee that industrial actions or strikes will not occur in the future. Any industrial actions or strikes may negatively impact our business performance and cause delays in the completion of our projects, which would correspondingly affect our financial condition, profitability and operations. We are subject to environmental rules and regulations which may restrict and/or adversely affect our operations and expose us to environmental liability Our operations are subject to environmental rules and regulations which may impose restrictions on the hours that we are permitted to operate in certain commercial or residential areas. Such environmental rules and regulations may be amended by the Hong Kong Government from time to time to adapt to the latest environmental trends and developments. Any amendments to such rules and regulations may impose additional costs and restrictions on us. For details of the environmental restrictions applicable to our operations, please refer to the section headed Regulatory Overview A. Environmental Protection in this document. RISKS RELATING TO THE [REDACTED] AND OUR SHARES No prior public market for our Shares has ever existed and an active trading market for our Shares may not be developed or be sustained Prior to the [REDACTED], no public market for our Shares existed. After completion of the [REDACTED], the Stock Exchange will be the sole market on which our Shares are traded publicly. We cannot guarantee that an active trading market for our Shares will develop or be sustained following the [REDACTED]. Moreover, we cannot provide any assurance that our Shares will trade in the public market at or above the [REDACTED] after the [REDACTED]. It is expected that the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company will fix the 35

44 RISK FACTORS [REDACTED] by agreement, which may not provide a good indication of the market price of our Shares subsequent to the completion of the [REDACTED]. In the event that an active trading market for our Shares does not develop or is not sustained following the [REDACTED], the market price and liquidity of our Shares could be materially and negatively affected. The trading prices and volume of our Shares may be volatile, which could result in substantial losses to investors Factors which are beyond our control may cause the trading prices of our Shares to be volatile and fluctuate. Such factors include, but are not limited to, variations in the level of liquidity of our Shares, changes in the estimates of financial performance of securities analysts (if any), investors perceptions of our Group and our reputation, changes in laws, regulations and taxation systems which affect our operations, the general market conditions of the securities market in Hong Kong and the general investment environment. The performance of the trading prices of our competitors whose securities are listed on the Stock Exchange may influence the trading prices of our Shares. These market and industry factors may significantly impact the market price and volatility of our Shares, notwithstanding our actual operating performance. Besides market and industry factors, the trading prices and volume of our Shares may be exceptionally volatile for certain business reasons. Factors such as variations in our revenue, net income and cash flow, success or failure of our efforts in carrying out our business and growth strategies, involvement in material litigation and recruitment and/or departure of key personnel, could cause any unexpected changes in the market price of our Shares. Any of the aforementioned factors could result in material and sudden changes in the trading prices and volume of our Shares. The [REDACTED] is entitled to terminate the [REDACTED] Prospective investors should be aware that the [REDACTED] (for itself and on behalf of the [REDACTED]) is entitled to terminate its obligations under the [REDACTED] by providing notice in writing to us upon the occurrence of any of the events set out in the section headed [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]. These events may include, but are not limited to, any acts of God, wars, riots, public disorder, civil commotion, economic sanctions, epidemics, pandemics, fire, floods, tsunamis, explosions, acts of terrorism, earthquakes, strikes or lock-outs. If the [REDACTED] (for itself and on behalf of the [REDACTED]) exercises its rights and terminates the [REDACTED], the [REDACTED] will not proceed and will lapse. Future sale of substantial amounts of our Shares in the public market may adversely affect the prevailing market price of our Shares The selling of substantial amounts of our Shares in the public market following completion of the [REDACTED], or the perception of such sales occurring, may adversely affect the prevailing market price of our Shares and materially damage our future prospects and ability to raise capital through [REDACTED] of our Shares. We cannot guarantee that our major Shareholders will not reduce their shareholding through the disposal of our Shares. If our major Shareholders make any 36

45 RISK FACTORS significant disposal of our Shares, the prevailing market of our Shares may be materially affected. Further, such disposals may cause us greater difficulty to issue new Shares in the future at a time and price that our Group deems appropriate, limiting out ability raise further capital. As such, we cannot predict what effect, if any, significant future sale will have on the market price of our Shares. Historical dividends are not indicative of our Group s future dividends Our Group declared and paid dividends of approximately HK$15.9 million in aggregate in May The value of the dividends declared and paid in the previous years should not be relied on by potential investors as a guide to the future dividend policy of our Group or as a reference for the basis of the future dividends payable to our Shareholders in the future. We cannot assure you that dividends will be declared or paid in the future at a similar level or at all. The amount of dividends payable in the future will be dependent on, among other factors, our Directors discretion, having taken into account the substantial capital requirements of our Group in the foreseeable future, the availability of distributable profits, our Group s earnings, working capital, financial position, capital and funding requirements, the applicable laws and other relevant factors. Further, we cannot guarantee that our Company will receive sufficient distributions from our subsidiaries in order to support any future distribution of profit to our Shareholders, or that the amounts of any dividends declared by our Company in the future, if any, will be comparable to dividends declared and paid by us in previous years, or by other listed companies in the same industry as us. The interests of our Controlling Shareholders may differ from those of other Shareholders Our Controlling Shareholders interests may differ or diverge from the interests of other Shareholders. If the interests of our Controlling Shareholders differ from that of other Shareholders, or if our Controlling Shareholders cause our business to proceed with strategic objectives that conflict with the interests of other Shareholders, you could be disadvantaged by the actions that our Controlling Shareholders choose to pursue. Our Controlling Shareholders may have considerable influence in determining the result of any corporate transaction or other matters presented to our Shareholders for approval, such as mergers and acquisitions, disposal of all our assets, election of directors and other significant actions. There is no obligation on our Controlling Shareholders to consider our Company s interests and/or the interest of other Shareholders. The [REDACTED] of our Shares is higher than our net tangible book value per Share and your Shares may be diluted If you choose to [REDACTED] at the [REDACTED], you will pay more for the [REDACTED] than our net book value on a per Share basis. As a result, you will experience an immediate dilution in the net tangible asset value and our existing Shareholders will receive an increment in the pro forma adjusted combined net tangible asset value per Share of their Shares. 37

46 RISK FACTORS We may issue additional Shares in the future which may cause the dilution of your Shares Should the [REDACTED] exercise the [REDACTED], we may be required to issue up to an additional [REDACTED] Shares at the [REDACTED] representing [REDACTED] of the number of [REDACTED] under the [REDACTED] should the [REDACTED] exercise the [REDACTED]. To raise additional funds, finance acquisitions or for other purposes, we may also consider issuing and [REDACTED] additional Shares in the future. If we issue additional Shares in the future, the percentage ownership of our existing Shareholders and the earnings per Share may be diluted. Further, such new Shares may have preferred rights, options or pre-emptive rights that make them more valuable than the Shares. You may face difficulties in protecting your interests under the laws of the Cayman Islands Our Company is incorporated as an exempted company with limited liability under the Cayman Companies Law and Cayman Islands law may provide different remedies to shareholders when compared with the laws of Hong Kong and other jurisdictions. Our Memorandum of Association, Articles of Association, the Companies Law and the common law of the Cayman Islands govern our corporate affairs. The rights of Shareholders to take action against our Directors, actions by minority shareholders and the fiduciary responsibilities of our Directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedents on the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court on the Cayman Islands. The laws of the Cayman Islands in relation to the protection of the interests of minority shareholders differ in some respects from those established under the laws of Hong Kong and other jurisdictions. As a result, the remedies available to our Shareholders may be different from those they would otherwise have under the laws of Hong Kong or other jurisdictions. For further details of the Memorandum of Association and the related Cayman Islands laws, please refer to Appendix III to this document. There are risks associated with the granting of options under the Share Option Scheme We have conditionally adopted the Share Option Scheme and may grant share options thereunder in the future. Issuance of Shares to satisfy any award made under the Share Option Scheme will also increase the number of Shares in issue after such issuance and may result in a dilution in the percentage of ownership of the Shareholders and the net asset value per Share. As at the Latest Practicable Date, no option had been granted under the Share Option Scheme. According to the HKFRS, costs of the options to be granted to staff pursuant to the Share Option Scheme will be charged to statements of comprehensive income over the vesting period with reference to the fair value at the date on which the options are granted under the Share Option Scheme. Hence, our profitability and financial results may be negatively affected. 38

47 RISK FACTORS The industry statistics and forward-looking information contained in this document may not be accurate, reliable and fair Statistics and other information regarding our industry, in particular, the statistics and other information contained in the section headed Industry Overview in this document, have been compiled partly from different publicly available publications as well as the industry report we commissioned from an independent industry consultant. It is our belief that the sources of such information are appropriate sources and reasonable care in extracting and reproducing such information has been taken. We do not have any reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. Nevertheless, we cannot guarantee the quality of such source materials. Our Company, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED] or any other persons or their respective directors, advisers or affiliates involved in the [REDACTED] each have not independently verified such information and makes no representation as to the accuracy of such facts and statistics, which may not be consistent with other information compiled within or outside Hong Kong. Such information may not be the latest or complete as the methods used to collect the information may contain faults or may not be effective, or there may exist discrepancies and other problems between the information published and market practices. As such, the industry information and statistics contained in this document may not be accurate and should not be unduly relied upon when making decisions on your [REDACTED] or otherwise. Forward-looking statements contained in this document are subject to risks and uncertainties This document contains certain statements and information which are forward-looking and uses forward-looking language such as aim, anticipate, believe, consider, estimate, expect, going-forward, intend, may, might, ought to, plan, potential, predict, propose, project, seek, should, will, would or similar words or statements, particularly in the sections headed Business, Financial Information and Industry Overview in this document. Such statements and information, which relate to us and the subsidiaries comprising our Group, are founded on the beliefs of our management as well as the assumptions made by and the information currently available to our management. They reflect the present views of our Company s management as regards future events, operations, liquidity and capital resources, some of which may not arise or may change. Nonetheless, these statements are subject to certain risks, uncertainties and assumptions, including the other risk factors as mentioned in this document. Investors of the Shares are cautioned that reliance placed on any forward-looking statements involves risks and uncertainties and any or all of those assumptions could prove to be inaccurate, which may result in the forward-looking statements based on those assumptions being incorrect. In this regard, the uncertainties include, but are not limited to, those identified in this section, many of which are not within our Group s control. In light of these and other uncertainties, the inclusion of forward-looking statements in this document should not be considered representations by our Company that our plans or objectives will be achieved. Investors are cautioned not to place undue reliance on such forward-looking statements. Our Company has not taken any obligation to update publicly or release any revision of any forward-looking statements, whether owing to new information, future events or otherwise. For further details, please refer to the section headed Forward-looking Statements in this document. 39

48 RISK FACTORS You are advised to read the entire document carefully and we strongly caution you against placing any reliance on any information contained in press articles or media in relation to our Group or the [REDACTED] Before the publication of this document, there may be press and media coverage in relation to our Group or the [REDACTED], which may include certain financial information, financial projections and other information about our Group which do not appear in this document. We have not authorised the disclosure of any such information in the press or the media. We do not and will not accept any responsibility for any such press or media coverage or the accuracy or completeness or reliability of any such information. We expressly disclaim any such information appearing in publications other than this document to the extent that such information is inconsistent or conflicts with the information contained in this document. Therefore, prospective investors should not rely on any such information. In deciding whether to [REDACTED], you should only rely on the financial, operational and other information included in this document but note that undue reliance should not be placed on any forward-looking statements in this document, which may not materialise or may change. 40

49 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 41

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54 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] DIRECTORS Name Residential address Nationality Executive Directors Mr. Ng Wai Lung Thomas ( ) Mr. Ng Cheong Hee ( ) Ms. Leung Pui Kam ( ) G/F, Hilltop Garden Wai King Terrace No. 181, Pun Shan Chau Village Tai Po, New Territories Room 3, 9/F., Block 38 Heng Fa Chuen Hong Kong G/F, Hilltop Garden Wai King Terrace No. 181, Pun Shan Chau Village Tai Po, New Territories Chinese Chinese Chinese Independent non-executive Directors Ms. Lee Wing Sze Helen ( ) Ms. Chan, Carman Wing Yan ( ) Dr. Chow Ho Wan, Owen ( ) C801, Yu Chui Court Shatin, Hong Kong Flat B, 7/F Tower 3 Providence Peak 8 Fo Chun Road Tai Po, New Territories Flat A, 5/F Block 6, Grand Pacific Views Castle Peak Road, Palatial Coast Siu Lam, Tuen Mun New Territories Chinese Chinese Chinese For further details on the backgrounds of our Directors, please refer to the section headed Directors and Senior Management in this document. 46

55 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] PARTIES INVOLVED IN THE [REDACTED] Sole Sponsor [REDACTED], [REDACTED] and the [REDACTED] Kingsway Capital Limited 7/F, Tower 1, Lippo Centre 89 Queensway Hong Kong (A licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities as defined in the SFO) [REDACTED] Other [REDACTED] Other [REDACTED] Legal advisers to our Company [ ] [ ] As to Hong Kong law Cheung & Choy Solicitors Room , 4/F Hutchison House 10 Harcourt Road Central Hong Kong As to Hong Kong law Mr. Chan Chung Barrister-at-law 10/F, Grand Building Connaught Road Central Central, Hong Kong As to Cayman Islands law Conyers Dill & Pearman Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands 47

56 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] Legal advisers to the Sole Sponsor [REDACTED] Reporting accountants and auditors Compliance adviser Industry consultant Internal control consultant Safety consultant As to Hong Kong law Wan Yeung Hau & Co. Room 2210 China Insurance Group Building 141 Des Voeux Road Central Central Hong Kong HLB Hodgson Impey Cheng Limited Certified Public Accountants 31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong Kingsway Capital Limited (A licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities as defined in the SFO) 7/F, Tower 1, Lippo Centre 89 Queensway Hong Kong Frost & Sullivan Limited Suite 1706 One Exchange Square 8 Connaught Place Central Hong Kong HLB Hodgson Impey Cheng Risk Advisory Services Limited 31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong Garron Holdings Limited Room 1206, 12/F, Tai Sang Bank Building Des Voeux Road Central Hong Kong 48

57 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] Tax Adviser [REDACTED] HLB Hodgson Impey Cheng Taxation Services Limited 31/F Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong [REDACTED] 49

58 CORPORATE INFORMATION Registered office in the Cayman Islands Principal place of business in Hong Kong Company s website Company Secretary Compliance officer Authorised representatives (for the purpose of the GEM Listing Rules) Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman, KY Cayman Islands Room C, 35/F, YHC Tower 1 Sheung Yuet Road Kowloon Bay, Kowloon Hong Kong (the contents of the website do not form a part of this document) Mr. Wong Chun Wing Flat F, 31/F, Block 6 East Point City 8 Chung Wa Road Tseung Kwan O New Territories Mr. Ng Wai Lung, Thomas G/F, Hilltop Garden, Wai King Terrace No. 181, Pun Shan Chau Village Tai Po New Territories Mr. Ng Wai Lung, Thomas G/F, Hilltop Garden, Wai King Terrace No. 181, Pun Shan Chau Village Tai Po New Territories Mr. Wong Chun Wing Flat F, 31/F, Block 6 East Point City 8 Chung Wa Road Tseung Kwan O New Territories Members of the audit committee Members of the remuneration committee Ms. Lee Wing Sze Helen (Chairlady) Ms. Chan, Carman Wing Yan Dr. Chow Ho Wan, Owen Dr. Chow Ho Wan, Owen (Chairman) Ms. Lee Wing Sze Helen Ms. Chan, Carman Wing Yan 50

59 CORPORATE INFORMATION Members of the nomination committee Mr. Ng Wai Lung, Thomas (Chairman) Ms. Chan, Carman Wing Yan Dr. Chow Ho Wan, Owen [REDACTED] Principal banker Nanyang Commercial Bank Limited 6/F., 151 Des Voeux Road Central Hong Kong OCBC Wing Hang Bank Limited 2/F., Wing Hang Insurance Building 11 Wing Kut Street Central Hong Kong 51

60 INDUSTRY OVERVIEW The information and statistics in this section, unless otherwise indicated, are derived from various private and official governmental publications, publicly available sources and the Frost & Sullivan Report, a market research report prepared by Frost & Sullivan and commissioned by our Group. We believe that the sources of the information in this section are appropriate sources for such information, and we have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information prepared by Frost & Sullivan and set out in this section has not been independently verified by us, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED] or any other party involved in the [REDACTED] and they do not give any representations as to its accuracy or correctness and accordingly it should not be relied upon in making, or refraining from making, any investment decision. SOURCE AND RELIABILITY OF INFORMATION Our Group commissioned Frost & Sullivan, an independent market research company, to conduct an analysis of, and to produce a report on, the foundation works market in Hong Kong for use in this document. Frost & Sullivan is an independent global consulting firm founded in 1961, and offers industry research, market strategies and provides growth consulting and corporate training on a variety of industries. The information from Frost & Sullivan disclosed in this document is extracted from the Frost & Sullivan Report, a report commissioned by us for a fee of HK$470,000, and is disclosed with the consent of Frost & Sullivan. The Frost & Sullivan Report was undertaken through both primary and secondary research obtained from various sources. Primary research included interviews with industry experts and participants in Hong Kong s foundation works market. Secondary research involved reviewing the statistics published by the government official statistics, industry publications, annual reports and data based on Frost & Sullivan s own database. Frost & Sullivan also adopted the following primary assumptions: Hong Kong s social, economic and political environment is likely to remain stable in the forecast period; and Key industrial drivers, including government policies and increased demand, are likely to continue driving the growth of the construction industry in Hong Kong in the forecast period from 2018 to Except as otherwise noted, all of the data and forecasts contained in this section are derived from the Frost & Sullivan Report. Our Directors confirm that after taking reasonable care, the sources of information used in this section, which are extracted from the Frost & Sullivan Report, are reliable and not misleading as Frost & Sullivan is an independent professional market research agency with extensive experience, and there is no material adverse change in the overall market information since the date of the Frost & Sullivan Report that would materially qualify, contradict or have an impact on such information. OVERVIEW OF MACRO ECONOMY IN HONG KONG Nominal GDP and GDP per Capita The nominal GDP in Hong Kong has increased steadily from HK$2,037.1 billion in 2012 to HK$2,605.2 billion in 2017, representing a CAGR of 5.0%. This is due to the continued growth of the domestic demand and the recovery of economy in Europe and North America stimulated the external trade performance in Hong Kong. According to the International Monetary Fund ( IMF ), the nominal GDP in Hong Kong is expected to reach HK$3,263.2 billion in 2022, representing a CAGR of 4.8% from 2018 to The GDP per capita has experienced a positive growth alongside with the continuous expansion of GDP. The GDP per capita of Hong Kong has increased from HK$284.1 thousand in 2012 to 52

61 INDUSTRY OVERVIEW HK$350.9 thousand in 2017 with a CAGR of 4.3%. The increase of GDP per capita of Hong Kong reflects the positive improvement of Hong Kong economy. As a result, the business sector in Hong Kong, including construction sector, will record a positive growth in the future. The GDP per capita are expected to reach HK$422.7 thousand in 2022, representing a CAGR of 4.0% from 2018 to Nominal GDP and Nominal GDP Per Capita (Hong Kong), E HK$ Billion HK$ Thousand Source: International Monetary Fund, Frost & Sullivan Source: IMF, Frost & Sullivan Gross Domestic Fixed Capital Formation Value From 2012 to 2017, the total gross value of fixed capital formation in Hong Kong has increased with a CAGR of 2.5%, among which the building and construction experienced a positive growth of CAGR 8.6%. The growth is mainly due to the expansion of construction sector in Hong Kong during the same period. With the planned infrastructure projects in the near future such as Shatin to Central Link, Kai Tak Development Plan, the total domestic fixed capital formation value is expected to reach HK$707.0 billion by 2022 with a CAGR of 4.2%. Specifically, the domestic fixed capital formation value for building and construction would increase from HK$328.3 billion in 2018 to HK$414.9 billion in 2022 with a CAGR of 6.0%. Gross Domestic Fixed Capital Formation Value (Hong Kong), E HK$ Billion Note: Gross domestic fixed capital formation covers the gross value of investment expenditure on building and construction as well as machinery, equipment and intellectual property products (including computer software, databases and research and development); and costs of ownership transfer. Source: Census and Statistics Department of Hong Kong, Frost & Sullivan Gross Value of Construction Work Performed According to Census and Statistics Department of Hong Kong, the gross value of construction works performed by main contractors in Hong Kong by broad trade group increased from approximately HK$161.5 billion in 2012 to approximately HK$246.8 billion in 2017 with CAGR of 8.9%. 53

62 INDUSTRY OVERVIEW The growth was mainly driven by the increasing number of construction projects in infrastructure projects. As set out in the policy address 2017, more than HK$80 billion expenditure budget will be incurred to support the infrastructure development. The commencement of the infrastructure projects sustains the economy of Hong Kong recently. The gross value of construction works performed by main contractors in Hong Kong by broad trade group is expected to increase steadily at a CAGR of 6.3% during 2018 to Gross value of construction works performed by main contractors by broad trade group (Hong Kong), E HK$ Billion Source: Census and Statistics Department of Hong Kong, Frost & Sullivan OVERVIEW OF FOUNDATION WORKS MARKET IN HONG KONG Definition and Segmentation Foundation is defined as the structure below ground level to support the superstructure. Site formation is the preparation of land in order to accommodate buildings or other facilities which will be placed within the area, including but not limited to forming the land to the required orientation, levels or shape, and providing other temporary or permanent supporting services. Excavation and Lateral support works ( ELS ) Excavation involves loosening and taking materials out of the ground and then shoring up support in the excavated area with piles. During the process, the sides of the sites require proper support and ground water control, so as to prepare a larger and safer space for construction. Pile caps construction is the process of constructing a pile cap, which creates a stable and larger foundation for the transmission and distribution of the structure load onto the pile or group of piles. Piling Construction refers to the construction and installation of piles, which refers to the structural beams typically made of steel, concrete or timber, and are used to transfer the structure load to the foundation at a greater depth where the capacity of soil is sufficient to withhold the load, thus increasing the safety of construction and occupancy of the structure. Road and drainage could be grouped into two types, namely (i) construction of new roads, such as expressways, trunk roads, primary distributor roads, district distributor roads and local distributor roads, and (ii) maintenance of existing roads. Drainage works refer to construction, improvement and maintenance of sewage treatment facilities, and storm water drainage facilities. Others include the construction work of basement, underground carpark, etc. 54

63 INDUSTRY OVERVIEW Source: Frost & Sullivan Value Chain The value chain of the foundation works market usually involves four key stakeholders, namely real estate developers, main contractors, subcontractors, and end users. Source: Frost & Sullivan Market Size of Foundation Works The market demand for foundation works in Hong Kong is growing steadily. The gross value of foundation works recorded an overall growth from HK$41.9 billion in 2012 to HK$55.4 billion in 2017, representing a CAGR of 5.7%. The positive growth was mainly due to the housing development projects and the healthy growth of the construction industry in Hong Kong. The land supply and planned infrastructure projects are expected to drive the growth of the overall construction industry. As a result, the gross value of foundation works is estimated to increase at a CAGR of 4.5% from 2018 to 2022, reaching HK$69.3 billion in

64 INDUSTRY OVERVIEW Market Size of Foundation Works in Hong Kong by Gross Value, E HK$ Billion Source: Census and Statistics Department of Hong Kong, Frost & Sullivan Market Size of Road and Drainage Works The gross value of road and drainage works in Hong Kong recorded a positive growth from HK$17.6 billion in 2012 to HK$27.2 billion in 2017, representing a CAGR of 9.1%, and it is mainly attributable to the development projects of transportation system, and improvement works for the highways and roads. Meanwhile, the water supply drainage renovation, replacement and maintenance work also helped to drive the growth of the road and drainage works. Driven by the continued investment in infrastructures with major projects such as the construction of Wanchai Bypass and Island Eastern Corridor Link and Central Kowloon Route, widening of Tolo Highway and Castle Peak Bay, drainage improvement works at Yuen Long, and upgrading of Kwun Tong preliminary treatment works, the gross value of road and drainage works in Hong Kong is expected to reach HK$36.6 billion in 2022 with a CAGR of 5.9% from 2018 to Gross Value of Roads and Drainage Works (Hong Kong), E HK$ Billion OVERVIEW OF STEELWORKS MARKET IN HONG KONG The steelworks market can be further divided into structural steelwork and temporary steelwork. Structural steelwork is a construction framework which uses steel, wrought iron and cast iron to form a basic frame of a building or other built asset. The use of steel, wrought iron and cast iron are because of its high tensile strength and durability therefore the construction itself can be reliable. In typical, structural steelwork consists of columns and beams which are riveted, bolted or welded together. There are different forms of structural steelwork, such as standard hot-rolled sections, compound sections, open web beams, lattice beams, etc. 56

65 INDUSTRY OVERVIEW Temporary works refer to the construction installation that provides access, protection, support, or services for workers, equipment and materials on site, which includes: Hoarding is an essential temporary structure at a construction site. It is a construction work that erects steel hoarding on the surrounding of a construction site to prevent any authorised person entering the perimeter, prevent environmental contamination to the surroundings and shield the view of the site from the outside. Cement is used to seal the footing and double deck hoarding is applied in some conditions. Scaffolding is a temporary structure and an elevated working platform for supporting workers to work during the construction, maintenance and repair of buildings and other man-made structures. Different scaffolding techniques are applied in different situation such as cantilever scaffolding, double scaffolding. Formwork is a temporary work that creates a mould for the concrete to pour in and form. Steel is one of the common materials to use in formwork. The common types of formwork using steel are beam formwork, and column formwork. Shoring is a temporary work process to support a building, vessel, structure, or trench with props when there are risks of collapsing during construction or repair. One of the common methods of shoring is using steel beam and plate to drive into the ground and steel plates being installed in amongst them. Market Size Analysis The sustained investment in infrastructure and construction projects over the previous years have contributed for the increase in the gross value of steelworks in Hong Kong. The gross value has increased from HK$6.9 billion in 2012 to HK$8.3 billion in 2017, representing a CAGR of 4.0%. With the Government s policy to increase land supply and housing units, the gross value of steelworks is expected to continue growing at a CAGR of 6.2%, reaching HK$11.0 billion in Gross Value of Steel Works in Hong Kong, E HK$ Billion Source: Frost & Sullivan Market drivers Development of public infrastructure projects In order to tackle the increasing population and traffic demand issues, Hong Kong Government has implemented different infrastructural projects for the coming years. Meanwhile, parts of the construction project from the Ten Major Infrastructure Projects are still in progress such as Shatin to Central Link, Tuen Mun-Chek Lap Kok Link, East Kowloon Cultural Centre, Kai Tak Development Plan and West Kowloon Cultural District Development. All of these large-scale development projects are expected to be under construction in the coming 5 years. As a result, the civil engineering industry is expected to be hugely boosted by the continuous development of the infrastructures in Hong Kong. 57

66 INDUSTRY OVERVIEW Favourable policy for residential area development The shortage of residential buildings has been a long-term issue for the Government in Hong Kong. In order to meet the housing demand, the Government has devoted to increasing the housing units by implementing several development plans across Hong Kong. According to the Hong Kong Budget, the estimated production of public housing for the next five year will be 100,000 units and the supply of private residential units in the next 3 year will be more than 90,000 units. Moreover, the urban redevelopment policies are also undergoing, with more than 40 redevelopment projects in the pipeline, according to the Urban Renewal Authority of Hong Kong. These policies and construction projects for residential area are therefore expected to drive the demand for the foundation and steelwork industry in Hong Kong. Market trends Environmental protection initiatives Environmental protection is being emphasized across all industries, and the foundation work market is no exception. Initiated by the Environmental Protection Department, it is seen that many contractors are utilizing environmentally-friendlier equipment and tactics to lower various kinds of pollutants. With the continued awareness of environmental protection, it is believed that such trend will continue in the near futures. Some measures include using Quality Powered Mechanical Equipment in foundation work sites; Silent piling by press-in method to minimize noises and vibration impacts; Replacing handheld percussive breakers with bursting system and etc. Increase in land supply The Policy Address in 2017 has highlighted the land policy of the new Government, including the provision of 8.6 million square meters of industrial and commercial floor area in new town extensions and new development area. Another four month public consultation on ways to boost Hong Kong s land supply is also expected to carry out in April Examples of proposals include developing of brownfield sites, relocation and consolidation of land-extensive recreational activities, near shore reclamation outside Victoria Harbour, and etc. The development plan is recognized as a key driver for the construction of new buildings in Hong Kong, thus translating into opportunities to the foundation and steelwork industry. Market Opportunities Increasing investment in infrastructure According to the Budget, capital work expenditure is expected to be HK$107.2 billion, of which HK$86.8 billion is regarded as capital works expenditure. The Government has numerous massive infrastructure construction project such as the railway system, new development areas of Tung Chung new town extension, Hung Shui Kiu and etc. in the pipeline, ready to kick-off in the next few years, if not already done so. Foundation work is inevitable in virtually all kinds of buildings, and therefore the rising investment in infrastructure creates opportunities for the foundation and steelwork industry. Urban renewal projects The Urban Renewal Authority, a statutory body responsible for accelerating the redevelopment of buildings in Hong Kong, has been initiating multiple urban renewal projects since its establishment in According to the Authority, there will be more than 326,000 residential apartments that are at least aged 70 years above by the year There are currently various kinds of redevelopment and rehabilitation projects within the pipeline, and some of them involve the demolition of aging buildings and reinforcement of structures foundation. It is therefore anticipated that there will be an increasing presence of foundation work contractors in the urban renewal projects. Continuous improvement of the drainage system Hong Kong has always been facing the flooding problem during summertime as the annual rainfall in Hong Kong is one of the highest in the Pacific Rim. In order to mitigate the flooding risks, 58

67 INDUSTRY OVERVIEW especially in the high-risk area such as villages in New Territories, the government has established different policies for drainage system s maintenance, improvement, and preventive measures improvement. The Drainage Service Department has recently conducted reviews on the drainage master plan in Northern Hong Kong Island, Tai Po, Sha Tin, Sai Kung, Lantau, and Outlying Islands, and has laid out numerous improvement projects in the pipeline, translating into potential revenue source for the road and drainage work providers. Market Challenges Shortage of labour The lack of skillful labour has always been a key challenge for the foundation works market in Hong Kong. According to the Hong Kong Construction Association, as of 2017, approximately 40% of the workers are over the age of 50. It is further estimated that there will be a shortage of 10,000 to 15,000 construction workers in the next ten years. The lack of young workers therefore hinders the development of the foundation and steelwork industry, as well as the construction industry as a whole. Surge in cost In order to attract fresh workers to enter the foundation work industry, companies have seen to increase the wages for their front line workers. According to the Census and Statistics Department, the average daily wages of drainlayer increased from HK$1,124.7 in 2012 to HK$1,621.1 in 2017, and the daily wages for structural steel erector has risen from HK$1,061.9 in 2012 to HK$1,251.4 in On the other hand, the raw material of foundation works, such as steel flats and welding electrode, has seen a growth over the same period. A continuously rising operating cost potentially translates into a lower profit margin of the company. Cost Factor Analysis Major raw materials in foundation works include steel flats, welding electrode, and pipes. According to the Census and Statistics Department, the price index of the aforementioned materials have increased at a CAGR of 2.6%, 3.7% and 1.6% respectively. The price fluctuation was predominately due to the oscillation of raw material costs, and the relevant regulation of various countries, thus influencing the import cost. Raw materials (HK$/kg) CAGR ( ) CAGR (2018E- 2022E) Steel flats % 1.1% Welding electrode % 1.2% Pipes % 0.4% According to the Census and Statistics Department of Hong Kong, the average daily wages of workers engaged in foundation works, including plant & equipment operator, rigger, general welder and general workers & labourers have all recorded a rise from 2012 to Among which, the wages of rigger has the highest rising rate at a CAGR of 9.6%. Increase in average daily wages translates into a higher operating cost for foundation work and road and drainage work contractors in Hong Kong. Occupation CAGR ( ) CAGR (2018E- 2022E) Plant & equipment operator % 6.4% Rigger % 7.9% General welder % 6.0% General workers and labourers % 6.2% 59

68 INDUSTRY OVERVIEW Competitive Landscape Overview The foundation works market in Hong Kong is relatively concentrated, with approximately 184 contractors on the List of Approved Contractors for Public Works of Development Bureau as of May Among which, 150 companies are registered for roads and drainage works and 82 companies are registered for site formation works. On the other hand, the steelwork market in Hong Kong is considered to be competitive and relatively fragmented. According to the Construction Industry Council, there are more than 450 and 210 registered contractors respectively, providing structural steelwork and hoarding installation services. Large scaled players within the industry are usually main contractors who score the holistic construction tender, and further subcontracted parts of the project to various specialists like road and drainage specialist or site formation specialist. Small-medium scaled players within the industry often specialise in their respective aspect of the construction projects, and are often not able to act as main contractors due to various constraints. They would in turn search for smaller scaled construction projects, and at the same time maintain close relationships with main contractors so as to get invited for new projects to ensure stable income stream. The Group has a revenue of HK$47.4 million and HK$44.9 million in 2017, representing a market share of 0.1% and 0.5% for the Hong Kong foundation works market and Hong Kong steelworks market respectively. Number of Approved Contractors for Roads and Drainage Works and Site Formation Works in Hong Kong (May 2018) Group Contract value of public works tendering Number of contractors in roads and drainage works Number of contractors in site formation works A Contracts of value up to HK$100 million 38 0 B Contracts of value up to HK$300 million C Contracts of any values exceeding HK$300 million Ranking and Market Share of Leading Civil Engineering Works Contractor in Hong Kong by Revenue, 2017 Rank Market participant Estimated Estimated market share revenue in 2017 in 2017 (HK$ billion) (%) 1 Company A % 2 Company B % 3 Company C % Source: Development Bureau, Frost & Sullivan Note: (i) (ii) Contractors may register in more than one works contractors and thus number of contractors are not added up to total. Number of contractors including contractors on probation in their respective works categories. Entry Barriers Capital requirement The foundation and steelwork industry requires a high level of initial capital investment for specific machinery acquirement such as motor grader, road roller, excavator for road construction and 60

69 INDUSTRY OVERVIEW trencher, and gravel cart for drainage works. Hence, a wide variety of specialised machinery is required to purchase which incurs a substantial amount of capital investment. Other than that, the cost of procurement and labour are considered to be the other key cost items for daily operation. In general, the payment for the construction projects is depending on the progress of the works. Hence, the contractors need to have sufficient initial capital reserve during the early stage of the construction projects. Licensing and registration criteria Contractors are required to have a proven track record of relevant projects which could show their capabilities. Moreover, the track record and cumulative contract value are also used for registration and categorization of the contractors in five different categories which are port works, roads and drainage works, site formation works, and waterworks. The registered contractors with a more extensive track record and higher cumulative contract value are eligible for tendering for larger scale of civil engineering projects. Hence, potential entrants that lack industry knowledge and experience would encounter difficulties from securing sizeable projects. Market know-how Knowledge of the design, geology, construction of road and drainage, steelwork, and site formation are essential to becoming a competitive industry player, who are always required to demonstrate first-class management techniques on site. Moreover, civil engineering as a whole, especially for road and drainage works, has shown a trend of increasing technical difficulties. Hence, contractors who possess more advanced technical knowledge and experience would become a competitive edge in the foundation industry. New entrants are therefore expected to be difficult in gaining such depth market know-how within a short period of time, as compared to the incumbents. COMPETITIVE STRENGTH OF THE GROUP Well-established business relationship The Group has maintained decent business relationships with main contractors, property developers and governmental bodies for many years. With the excellent quality of work the Group has delivered, the Group has managed to establish long-term and stable partnerships with customers through a number of sizeable construction projects. In addition, the Group has maintained a good relationship with suppliers and sub-contractors, which ensures the availability and on time delivery of raw materials and working resources. Proven track record of project experiences Established for more than 15 years, the Group has been involved in a wide variety of construction works including site formation works, road and drainage works and steelworks. The sizeable projects are from both the private and public sector, consisting of infrastructural works of various kinds. With the all-rounded project portfolio, the Group has established a highly rated reputation in the construction industry. The wide range of experience proved the Group is flexible to perform different kinds of works with great flexibility. Highly experienced management team The management team of the Group has been involved in the construction industry for over 20 years. The extensive experiences and technical expertise allow the Group to deliver construction work on-time with outstanding quality. Moreover, the Group has a team of chartered engineers, and experienced workers who are essential for the daily operation and support of the construction work. As a result, the experience of the Group becomes an important competitive advantage to ensure the highest quality of work. 61

70 REGULATORY OVERVIEW OVERVIEW This section sets forth a summary of the major laws and regulations applicable to our business in Hong Kong. A. LABOUR, HEALTH AND SAFETY Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) Under the Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) (the Factories and Industrial Undertakings Ordinance ), it is the duty of a proprietor of an industrial undertaking (namely the person or body corporate having the management or control of the business carried on in an industrial undertaking including construction work) to ensure, so far as is reasonably practicable, the health and safety at work of all persons employed by it at the industrial undertaking. The duties of an industrial undertaking proprietor include: (i) providing and maintaining plant and work systems that do not endanger safety or health; (ii) making arrangements for ensuring safety and health in connection with the use, handling, storage and transport of articles and substances; (iii) providing all necessary information, instruction, training and supervision for ensuring safety and health; (iv) providing and maintaining safe access to and egress from the workplaces; and (v) providing and maintaining a safe and healthy working environment. A proprietor who contravenes any of these duties commits an offence and is liable to a fine of HK$500,000. A proprietor who contravenes any of these requirements will fully and without reasonable excuse commits an offence and could be held liable to a fine of HK$500,000 and to imprisonment for 6 months. Noble Engineering, BiB, Everrich and Gold Win may be considered to fall within the meaning of proprietor under the Factories and Industrial Undertakings Ordinance due to our operations encompassing the management or control of industrial undertakings for the time being of our projects. Section 6BA of the Factories and Industrial Undertakings Ordinance also provides that, every proprietor shall not employ at the undertaking a relevant person who has not been issued a relevant safety training certificate (e.g. the Green Card) or whose relevant certificate has expired. Members of our project team, which will usually be formed to administer and supervise the project once a contract is awarded, are also required to carry with them the relevant valid safety training certificate. A proprietor who contravenes the foregoing commits an offence and is liable to a fine of HK$50,000. In addition, the Construction Sites (Safety) Regulations (Chapter 59I of the Laws of Hong Kong) provides for (i) the prohibition of employment of persons under 18 years of age on construction sites (save for certain exceptions); (ii) maintenance and operation of construction plant (including any plant, equipment, gear, machinery, apparatus, or appliance, or any part thereof) used or intended to be used for the purpose of construction work; (iii) the duty of a contractor responsible for a construction site to ensure the safety of the place of construction work; (iv) the duty of a contractor responsible for a construction site to take adequate steps to prevent falls; (v) provision of first aid facilities; and (vi) other miscellaneous safety requirements. Contravening any of these rules shall be an offence and a contractor committing the relevant offence without reasonable excuse could be liable to a fine of up to HK$200,000 and imprisonment of up to 12 months. 62

71 REGULATORY OVERVIEW Pursuant to the Factories and Industrial Undertakings (Safety Management) Regulation (Chapter 59AF of the Laws of Hong Kong) (the Safety Management Regulation ), a proprietor or a contractor have various duties, including: (i) attending to the development, implementation and maintenance of a safety management system; (ii) attending to the preparation and revision of safety policy; (iii) attending to the establishment of safety committee; and (iv) attending to the appointment of registered safety auditor to conduct safety audit. A contravention of any of these prescribed duties shall constitute an offence punishable by a fine of up to HK$200,000 and imprisonment of up to 6 months. Under the Factories and Industrial Undertakings (Lifting Appliances and Lifting Gear) Regulations (Chapter 59J of the Laws of Hong Kong), the owner of lifting appliances and lifting gear is required to ensure that lifting appliance is not used unless: (i) it is of good mechanical construction and free from patent defect; (ii) it is properly maintained; (ii) the arrangements for fixing and anchoring the appliance are adequate to secure its safety; and (iv) it is adequately and securely supported and (v) every structure supporting it is of good construction and adequate strength, of sound materials and free from patent defect. Failure to comply with such requirements constitutes an offence and such person shall be liable to a fine of HK$200,000. The owner of a power-driven lifting appliance shall ensure that the lifting appliance used for raising, lowering or carrying persons shall be, amongst other things, (i) so constructed that the brake is applied when the control lever, handle or switch is not held in the operating position, (ii) where the person is carried in a chair, cage, skip or other receptacle at least 900 mm deep, the receptacle is of good construction, sound material and adequate strength, and is provided with suitable means to prevent any occupant from falling out and does not contain material or tools liable to interfere with his hand hold or otherwise endanger him, or where the person is carried in a boatswain s chair or other similar plant or equipment less than 900 mm deep, a suitable safety belt attached to an independent lifeline is provided to and worn by the occupant and the lifeline is securely suspended. Any owner who contravenes such regulations without reasonable excuse commits and offence and is liable to a fine of $200,000 and to imprisonment for 12 months. Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong) We are subject to the Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong) (the Occupational Safety and Health Ordinance ). Our management team is responsible for providing safety and health protection to employees in workplaces, both industrial and non-industrial in accordance with the Occupational Safety and Health Ordinance. Employers must as far as reasonably practicable ensure the safety and health in their workplaces by: (i) providing and maintaining plant and work systems that do not endanger safety or health; (ii) making arrangement for ensuring safety and health in connection with the use, handling, storage or transport of plant or substances; (iii) providing all necessary information, instruction, training, and supervision for ensuring safety and health; (iv) providing and maintaining safe access to and egress from the workplaces; and (v) providing and maintaining a safe and healthy work environment. Failure to comply with the above provisions constitutes an offence in which the employer is liable on conviction to a fine of HK$200,000. An employer who fails to do so intentionally, knowingly or recklessly commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for 6 months. 63

72 REGULATORY OVERVIEW The Commissioner for Labour may also issue improvement notices against non- compliance of this Ordinance or the Factories and Industrial Undertakings Ordinance or suspension notice against activity of workplace which may create imminent hazard to the employees. An employer or occupier who, without reasonable excuse, (i) fails to comply with a requirement of an improvement notice, commits an offence and is liable on conviction to a fine of HK$200,000 and imprisonment for 12 months, or (ii) contravenes a suspension notice, commits an offence and is liable on conviction (a) to a fine of HK$500,000 and imprisonment for 12 months and (b) to a further fine of HK$50,000 for each day during which the offender knowingly and intentionally continues the contravention. Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) Under the Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) (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 employment, the employer is generally liable to pay compensation even if the employee might have committed acts of faults or negligence when the accident occurred. If an employee suffers incapacity or dies as a result of an occupational disease arising out of and in the course of employment, the employee is entitled to receive the same compensation as that payable to an employee injured in an occupation accident. According to section 15 of the Employees Compensation Ordinance, an employer must notify the Commissioner for Labour of a work accident by submitting a designated form within 14 days and 7 days (from the date of accident or the date which the employer has knowledge thereof, whichever earlier) for general work accidents and fatal accidents respectively. The employer must submit such form irrespective of whether the accident gives rise to any liability for the employer to pay compensation. Additionally, pursuant to section 24 of the Employees Compensation Ordinance, a principal contractor shall be liable to pay compensation to the employees of its subcontractors who are injured in accidents arising out of and in the course of employment with the subcontractor. However, a principal contractor is entitled to be indemnified for such compensation by any person who would have been liable to pay compensation to the injured employee. Under section 40 of the Employees Compensation Ordinance, all employers, including contractors and subcontractors, are required to take out insurance policies for an amount not less than the applicable amount specified in the Employees Compensation Ordinance to cover their liabilities in respect of injuries of all employees, including full- time and part-time, from accidents arising out of and in the course of employment. Where a principal contractor has undertaken to perform any construction work, it shall take out an insurance policy for an amount no less than HK$200 million per event to cover its liability and that of its subcontractor(s) under the Employees Compensation Ordinance and at common law. An employer who contravenes this section shall be liable on conviction to a fine of up to HK$100,000 and to imprisonment of up to 2 years. 64

73 REGULATORY OVERVIEW As we employ workers and staff members who may be exposed to injuries whilst in the course of their employment, we are subject to the Employees Compensation Ordinance in taking out insurance policy to cover our Group s liabilities in the event of injury occurred to employees in the course of their employment, and is obliged to report the injuries of employees to the Labour Department. See Business Insurance in this document for details of our insurance coverage and policies. Employment Ordinance (Chapter 57 of the Laws of Hong Kong) Section 43C of the Employment Ordinance (Chapter 57 of the Laws of Hong Kong) (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. However, a principal contractor s liability shall be limited to (i) 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 such work; and (ii) the wages due to such employee for 2 months without any deductions (being the first 2 months of the period in respect of which the wages are due). Any employee who has outstanding wage payments from a subcontractor must serve a notice in writing on the principal contractor within 60 days after the wage due date. Within 14 days of receipt of such notice, the principal contractor shall serve a copy of the notice on every superior subcontractor to that subcontractor of whom it is aware, failing which the principal contractor shall be liable on conviction to a fine of HK$50,000. A principal contractor and superior subcontractor (if any) shall not be liable to pay any wages to the employee of its subcontractor if that employee fails to serve such notice on the principal contractor within the prescribed time. Additionally, under section 43F of the Employment Ordinance, if a principal contractor or superior contractor pays to an employee any wages under section 43C of the Employment Ordinance, such wages shall be a debt due by the employer of that employee to the principal contractor or superior contractor, as the case may be. The principal contractor or superior contractor may either (i) claim contribution from every superior subcontractor to the indebted employer or from the principal contractor and every superior subcontractor to the indebted employer, as the case may be; or (ii) deduct by way of set-off the amount paid by it from any sum due or may become due to the indebted employer in respect of the work to whom it has been subcontracted. Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong) We have leased several properties and is considered to be the occupier of such properties under the Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong) (the Occupiers Liability Ordinance ). For further details of our properties as at the Latest Practicable Date, please refer to the section headed Business Properties in this document. As such, we are required to comply with the Occupiers Liability Ordinance, which regulates the obligations of a person or business occupying or having control of the premises on which injury resulting to persons or damage has been caused to goods or other property lawfully on the premises. 65

74 REGULATORY OVERVIEW The Occupiers Liability Ordinance imposes a common duty of care on an occupier of a premises to take such care so as to ensure that any person will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there. Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) The Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) (the Construction Workers Registration Ordinance ) implements a registration system which requires construction workers to be registered before carrying out construction work on a construction site. There are certain prohibition provisions which specify that designated trades may only be carried out by registered skilled workers for that particular trade. According to section 3 of the Construction Workers Registration Ordinance, a person shall not personally carry out on a construction site construction work 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. According to section 5 of the Construction Workers Registration Ordinance, any person who employs another person who is not a registered construction worker to personally carry out on a construction site construction work commits an offence and is liable on conviction to a fine of HK$50,000. The Construction Workers Registration Ordinance also contains designated workers for designated skills provisions, which provide that only registered skilled or semi-skilled workers of designated trade divisions are permitted to carry out relevant skill work independently at construction works. Unregistered skilled or semi-skilled workers are only allowed to carry out construction works of designated trade divisions (i) under the instruction and supervision of registered skilled or semi-skilled workers of relevant designated trade division(s); or (ii) as provided in the Construction Workers Registration (Exemption) Regulation (Chapter 583C of the Laws of Hong Kong) (the Regulations ) such as emergency work (i.e. any construction work reasonably required to be carried out immediately on a construction site due to an emergency such as preventing personal injury) and small-scale construction work (i.e. construction work that involves required skills of designated trade divisions as specified in the Regulations and with a value not exceeding HK$100,000). Stage 1 of the designated workers for designated skills provision was implemented on 1 April 2017 and designated works include construction, re-construction, addition and alternation of specified structure (such as site formation, bridge and tunnel). Pursuant to stage 1 of the designated workers for designated skills provisions of the Construction Workers Registration Ordinance, registered skilled and semi-skilled workers for designated trade divisions shall be included as registered construction workers of the Register of Construction Workers, and accordingly, subcontractors of construction sites are required to employ only registered skilled and semi-skilled workers for designated trade divisions to carry out construction works on construction sites relating to those trade divisions independently. 66

75 REGULATORY OVERVIEW Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong) The Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong) (the Minimum Wage Ordinance ) provides for a prescribed minimum hourly wage rate (currently set at HK$34.5 per hour) during the wage period for every employee engaged under a contract of employment (as defined under the Employment Ordinance). Under the Minimum Wage Ordinance, any provision of an employment contract which purports to extinguish or reduce any right, benefit or protection conferred on the employee by the Minimum Wage Ordinance is void. Immigration Ordinance (Chapter 115 of the Laws of Hong Kong) ( Immigration Ordinance ) Pursuant to section 38A of the Immigration Ordinance, a construction site controller (i.e. the principal or main contractor, and include a subcontractor, owner, occupier or other person who has control over or is in charge of a construction site) should take all practicable steps to (i) prevent having illegal immigrants from being on site or (ii) prevent illegal workers who are not lawfully employable from taking employment on site. Where it is proved that (i) an illegal immigrant was on a construction site; or (ii) such illegal worker who is not lawfully employable took employment on a construction site, the construction site controller commits an offence and is liable to a fine of HK$350,000. Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) The Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) (the Mandatory Provident Fund Schemes Ordinance ) provides for, inter alia, the establishment of a system of privately managed, employment-related mandatory provident fund schemes (the MPF Scheme ) for members of the workforce to accrue financial benefits for retirement. Under the Mandatory Provident Fund Schemes Ordinance, employers are required to enroll their regular employees (except for certain exempt persons) who are at least 18 but under 65 years of age and have been employed for a continuous period of 60 days or more in a MPF Scheme. It is mandatory for both employers and employees to make regular contributions into a MPF Scheme. For an employee, subject to the minimum and maximum levels of income (currently HK$7,100 and HK$30,000 per month), an employer will deduct 5% of the relevant income on behalf of an employee as mandatory contributions to a registered MPF Scheme with a ceiling of HK$1,500. Employer will also be required to contribute an amount equivalent to 5% of an employee s relevant income to the MPF Scheme, subject to a ceiling of HK$1,500. Relevant income means any wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites or allowances expressed in monetary terms, paid or payable by an employer to the relevant employee in consideration of his employment under his employment contract but does not include severance payments or long service payments under the Employment Ordinance. Industry schemes ( Industry Schemes ) were established under the system under Mandatory Provident Fund Schemes Ordinance for employers in the construction and catering industries in view of the high labour mobility in these two industries, and the fact that most employees in these industries are casual employees whose employment is on a day-to-day basis or for a fixed period of less than 60 days. In the case of a casual employee who is a member of an industry scheme, the 67

76 REGULATORY OVERVIEW amount to be contributed by an employer or to be deducted from a relevant employee for a contribution period shall be determined by reference to a scale specified in an order of the Mandatory Provident Fund Schemes Authority. For the purpose of the Industry Schemes, the construction industry covers the following 8 major categories: (i) foundation and associated works; (ii) civil engineering and associated works; (iii) demolition and structural alteration works; (iv) refurbishment and maintenance works; (v) general building construction works; (vi) fire services, mechanical, electrical and associated works; (vii) gas, plumbing, drainage and associated works; and (viii) interior fitting-out works. The Mandatory Provident Fund Schemes Ordinance does not stipulate that employers in these industries must join the Industry Schemes. The Industry Schemes provide convenience to the employers and employees in the construction and catering industries. Casual employees do not have to switch schemes when they change jobs within the same industry, so long as their previous and new employers are registered with the same Industry Scheme. This is convenient for scheme members and saves administrative costs. Buildings Ordinance (Chapter 123 of the Laws of Hong Kong) The Buildings Department provides services to owners and occupants in both existing and new buildings in the private sector through enforcement of the Buildings Ordinance (Chapter 123 of the Laws of Hong Kong) (the Buildings Ordinance ). The Buildings Ordinance (i) provides for the planning, design and construction of buildings and associated works, (ii) makes provision for the rendering safe of dangerous buildings and land, (iii) makes provision for regular inspections of buildings and the associated repairs, (iv) to prevent the buildings from becoming unsafe and (v) makes provision for matters connected therewith. It provides that, amongst other things, before the commencement of any building works: (i) prior approval and consent from the Building Authority must be obtained; (ii) authorised persons, such as architects, engineers and surveyors registered under the Buildings Ordinance, must be appointed to coordinate the works, prepare and submit plans for the approval from the Building Authority; (iii) registered professionals must be appointed to design and supervise the works; and (iv) registered contractors must be appointed to carry out the works. Registered contractors have statutory responsibilities for providing continuous supervision to the carrying out of the works. Section 14(1) of the Buildings Ordinance provides that no person shall commence or carry out any building works or street works, without having obtained such prior approval and consent from the Building Authority. Building works includes any kind of building construction, site formation works and foundation works. Our works involve site formation and foundation works and fall within the scope of building works. Under section 8B(2) of the Buildings Ordinance, an applicant for registration as a general building contractor or specialist contractor must satisfy the Buildings Authority on the following aspects: (i) if it is a corporation, the adequacy of its management structure; (ii) the appropriate experience and qualifications of its personnel; (iii) its ability to have access to plant and resources; and (iv) 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. 68

77 REGULATORY OVERVIEW During the Track Record Period, we mainly acted as subcontractor in certain private sector works projects in Hong Kong. Our Directors believe that if work is subcontracted to us by a main contractor who is a registered general building contractor or a registered specialist contractor under the Buildings Ordinance, and the main contractor supervises the works conducted by our Group and liaises with the Building Authority, our Group is not required to be registered under the Buildings Ordinance or to obtain any licences, permits or approval for its operations. B. ENVIRONMENTAL PROTECTION Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong) The 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 licenses and permits. A contractor shall observe and comply with the Air Pollution Control Ordinance and its subsidiary regulations, particularly the Air Pollution Control (Open Burning) Regulation, the Air Pollution Control (Construction Dust) Regulation and the Air Pollution Control (Smoke) Regulations. The contractor responsible for a construction site shall devise, arrange methods of working and carrying out the works in such a manner so as to minimise dust impacts on the surrounding environment, and shall provide experienced personnel with suitable training to ensure that these methods are implemented. Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) The Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (the NRMM Regulation ) came into effect on 1 June 2015 to introduce regulatory control on the emissions of non-road mobile machinery (the NRMMs ), including non-road vehicles and regulated machines such as crawler cranes, excavators and air compressor. Our Directors confirmed that such regulated machines also include site equipment such as generators, hydraulic truck crane, vibrating rollers and aerial working platforms which are subject to the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. As at the Latest Practicable Date, our Group has obtained approval or exemption for all of our machines that are subject to the NRMM Regulation. Unless exempted, NRMMs which are regulated under this provision are required to comply with the emission standards prescribed under this regulation. From 1 September 2015, all regulated machines sold or leased for use in Hong Kong must be approved or exempted with a proper label in a prescribed format issued by the Environmental Protection Department pursuant to section 4 of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. Under section 5 of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation, starting from 1 December 2015, only approved or exempted NRMMs with a proper label are allowed to be used in specified activities and locations including construction sites. However, existing NRMMs which are already in 69

78 REGULATORY OVERVIEW Hong Kong on or before 30 November 2015 will be exempted from complying with the emission requirements pursuant to section 11 of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. A period of six months (from 1 June 2015 to 30 November 2015, both dates inclusive) is allowed for existing NRMMs to apply for exemption. Any person who sells or leases a regulated machine for use in Hong Kong, or uses a regulated machine in specified activities or locations without (i) exemption or the Environmental Protection Department s approval is liable to a fine of up to HK$200,000 and imprisonment for up to six months, and (ii) a proper label is liable to a fine of up to HK$50,000 and imprisonment for up to three months. For details of the approved and exempted NRMMs owned by our Group as at 30 April 2018, please refer to the section headed Business Machinery of this document. On 8 February 2015, the Works Branch of Development Bureau issued Technical Circular (Works) No. 1/2015 (the Technical Circular ), pursuant to which the Government of Hong Kong has promulgated an implemental plan to phase out progressively the use of exempted NRMM for four types of exempted NRMM, namely generators, air compressors, excavators and crawler cranes in new capital works contracts of public, including design and build contracts, with an estimated contract value exceeding $200 million. For details of the number of regulated machines which were exempted from complying with the emission requirements pursuant to the NRMM Regulation and the number of exempted machines which are expected to be phased out under the phase out plan set out in the Technical Circular, please refer to the section headed Business Machinery Possible impact of the NRMM and the Technical Circular in this document. Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong) The Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong) (the Noise Control Ordinance ) regulates, amongst others, the noise from construction activities. A contractor shall comply with the Noise Control Ordinance and its subsidiary regulations in carrying out construction works. For construction activities that are to be carried out during the restricted hours and for percussive piling during the daytime, not being a general holiday, construction noise permits are required from the Noise Control Authority in advance. The carrying out of percussive piling is prohibited between 7:00 p.m. and 7:00 a.m. or at any time on general holidays. Construction works that use powered mechanical equipment (other than percussive piling) are not allowed between 7:00 p.m. and 7:00 a.m. or at any time on general holidays, unless prior approval has been granted by the Noise Control Authority through the construction noise permit system. The use of certain equipment is also subject to restrictions. Hand-held percussive breakers and air compressors must comply with noise emissions standards and be issued with a noise emission label from the Noise Control Authority. Any person who carries out any construction work except as permitted is liable on first conviction to a fine of HK$100,000 and 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. As a subcontractor, we are required to comply with the Noise Control Ordinance and its subsidiary regulations in carrying out construction works, including not to carry out construction activities during restricted hours unless construction noise permits are obtained. 70

79 REGULATORY OVERVIEW Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong) The 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, manufacturing, commercial, institutional and construction activities into public sewers, rainwater drains, river courses or water bodies. For any industry/trade generating wastewater discharge (except domestic sewage that is discharged into communal foul sewers or unpolluted water to storm drains), they are subject to licensing control by the Director of Environmental Protection Department and must be covered by an effluent discharge licence. The licence specifies the permitted physical, chemical and microbial quality of the effluent and the general guidelines are that the effluent does not damage sewers or pollute inland or inshore marine waters. According to the Water Pollution Control Ordinance, unless being licensed under the Water Pollution Control Ordinance, a person who discharges any waste or polluting matter into the waters or discharges any matter other than domestic sewage and unpolluted water, into a communal sewer or communal drain in a water control zone commits an offence and is liable to imprisonment for up to 6 months and (i) for a first offence, a fine of HK$200,000; (ii) for a second or subsequent offence, a fine of HK$400,000, and in addition, if the offence is a continuing offence, to a fine of HK$10,000 for each day during which it is proved to the satisfaction of the court that the offence has continued. As our operations may generate wastewater, we are required to observe and comply with the Water Pollution Control Ordinance in the discharge of the wastewater generated from the construction activities. Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) The Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) (the Waste Disposal Ordinance ) controls the production, storage, collection, treatment, recycling and disposal of wastes. At present, livestock waste, clinical waste and chemical waste are subject to specific controls whilst unlawful deposition of waste is prohibited. A contractor shall observe and comply with the Waste Disposal Ordinance and its subsidiary regulations, particularly the Waste Disposal (Charges for Disposal of Construction Waste) Regulation (Chapter 354N of the Laws of Hong Kong). A person shall not use, or permit to be used, any land or premises for the disposal of waste unless he has obtained the or a licence from the Director of Environmental Protection to use the land or premises. A person who disposes waste on any land or premises without a licence commits an offence and is liable to a fine of HK$200,000 and imprisonment for 6 months for the first offence, and to a fine of HK$500,000 and imprisonment for 6 months for a second or subsequent offence, and if the offence is a continuing offence to a fine of $10,000 for each day during which the offence has continued. As we may create significant solid wastes during and after construction works, we are required to observe and comply with the Waste Disposal Ordinance and its subsidiary regulations when we dispose of the waste. 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 (Chapter 132 of the Laws of Hong Kong) (the Public Health and Municipal Services Ordinance ). Maximum penalty 71

80 REGULATORY OVERVIEW is HK$10,000 upon conviction with a daily fine of HK$200. Discharge of muddy water, etc., from a construction site is actionable under the Public Health and Municipal Services Ordinance. Maximum fine is HK$5,000 upon conviction. Any accumulation of water on any premises found to contain mosquito larvae or pupae is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$25,000 upon conviction and a daily fine of HK$450. Any accumulation of refuse which is a nuisance or injurious to health is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$10,000 upon conviction and a daily fine of HK$200. Further, any premises in such a state as to be a nuisance or injurious to health is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$10,000 upon conviction and a daily fine of HK$200. As we may create dust and may accumulate refuse in the course of and after the demolition of formwork, we are required to observe and comply with the Public Health and Municipal Services Ordinance. Environmental Impact Assessment Ordinance (Chapter 499 of the Laws of Hong Kong) The Environmental Impact Assessment Ordinance (Chapter 499 of the Laws of Hong Kong) (the Environmental Impact Assessment Ordinance ) is to avoid, minimise and control the adverse environmental impacts from designated projects as specified in schedule 2 of the Environmental Impact Assessment Ordinance (examples of designated projects include public utility facilities, certain largescale industrial activities and community facilities) 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 or decommission a designated project listed in Part II of Schedule 2 of the Environmental Impact Assessment Ordinance (such as roads, railways and depots, residential and other developments) without an environmental permit for the project, or contrary to the conditions set out in the permit. The offender is liable (a) on a first conviction on indictment to a fine of HK$2,000,000 and to imprisonment for 6 months; (b) on a second or subsequent conviction on indictment to a fine of HK$5,000,000 and to imprisonment for 2 years; (c) on a first summary conviction to a fine of HK$100,000 and to imprisonment for 6 months; (d) on a second or subsequent summary conviction to a fine of HK$1,000,000 and to imprisonment for 1 year, and in any case where the offence is of a continuing nature, the court or magistrate may impose a fine of HK$10,000 for each day on which he is satisfied the offence continued. C. LICENSING/REGISTRATION REGIME Subcontractor Registration Scheme The Construction Industry Council has introduced a Subcontractors Registration Scheme for trade subcontractors taking part in building and engineering works so as to build up a pool of capable and responsible subcontractors with specialised skills and professional ethics. The registration scheme has been implemented in phases, at first of which comprises a primary register (being a list of companies registered in accordance with Rules and Procedures for the Primary Register of the 72

81 REGULATORY OVERVIEW Subcontractor Registration Scheme) (the Primary Register ) with relatively simple and accommodating entry requirements. The registration scheme is overseen by a management committee made up of representatives from major industry stakeholders formed under the auspices of the Construction Industry Council. Pursuant to the Subcontractor Registration Scheme, certain industry organisations have either introduced contractual provisions requiring their main contractors to include appropriate terms in their subcontracts to require subcontractors to apply for registration under the Subcontractor Registration Scheme on a mandatory basis or mandated the employment of registered subcontractors in all new buildings, maintenance and improvement contracts. As such, where a contractor is to subcontract part of the public works involving 52 trades covering common structural, civil, finishing, electrical and mechanical works and supporting services and 95 specialties including sheet piles available under the Primary Register, the contractor shall engage all subcontractors (whether nominated, specialist or domestic) who are registered under the relevant trades in the Primary Register. Should the subcontractors further subcontract (irrespective of the tier) any part of the public works subcontracted to them involving trades available under the Primary Register, the contractor shall ensure that all subcontractors (irrespective of the tier) are registered under the relevant trades in the Primary Register. Applications for registration under the Primary Register are subject to the following entry requirements, namely, (a) completion of at least one job within the last five years as a main contractor or subcontractor in the trades and specialties for which registration is applied or to have acquired comparable experience by itself or its proprietors, partners or directors within the last five years; or (b) listings on one or more Government registration schemes operated by policy bureaus or departments of the Government relevant to the trades and specialties for which registration is sought; or (c) the applicant s proprietor, partner or director having been employed by a registered subcontractor for at least five years with experience in the trade/specialty applying for and having completed all the modules of the Project Management Trainings Series for Sub-contractors (or equivalent) conducted by the Constriction Industry Council; or (d) the applicant s proprietor, partner or director having registered as Registered Skilled Worker under the Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) for the relevant trade/ specialty with at least five years experience in the trade/specialty applying for and having completed the Senior Construction Workers Trade Management Course (or equivalent) conducted by the Construction Industry Council. Subcontractors may apply for registration in one or more of 52 trades covering common structural, civil, finishing, electrical and mechanical works and supporting services. Compliance with the relevant requirements Our Directors confirmed that our Group has obtained all relevant permits/ registrations/licenses for our existing operations during the Track Record Period and up to the Latest Practicable Date. 73

82 HISTORY, REORGANISATION AND GROUP STRUCTURE CORPORATE HISTORY AND DEVELOPMENT Our Group s history can be traced back to 2001 when Mr. Ng Wai Lung Thomas, our Chairman and executive Director and Mr. Ng Cheong Hee, the father of Mr. Ng Wai Lung Thomas, acquired Noble Engineering and commenced our operation. At the early stage of our business, we provided foundation works services in Hong Kong. In the following years, to further expand our scope of construction services, our Group established Gold Win, BiB and Everrich Iron in 2005, 2012 and 2014 respectively. BUSINESS MILESTONES We believe the milestones in the development of our Group are as follows: Date Major Development and Achievement 2001 Mr. Ng and Mr. Ng Cheong Hee established Noble Engineering which was incorporated in Hong Kong on 25 May Noble Engineering was positioned as a subcontractor in the civil engineering construction industry Noble Engineering was awarded the first site formation project with a contract value of approximately HK$0.96 million of Tong Ren Tang Chinese Medicine Manufacturing Factory at Tai King Street, Tai Po Industrial Estate Noble Engineering was awarded the best safety performance subcontractor award for the month of November 2009 by Hsin Chong Construction (Engineering) Limited Noble Engineering was awarded a contract with an aggregate contract value of approximately HK$43.7 million for site formation works relating to the construction of the public rental housing at Hung Shui Kiu Area 13 Phase 1& Noble Engineering was awarded a contract with an aggregate contract value of approximately HK$21.8 million for site formation works relating to the construction of the two 30-classroom primary school at site 1A-3 & 1A-4 Kai Tak Development Noble Engineering was awarded a contract with an aggregate contract value of approximately HK$25.2 million for site formation works relating to the construction of the Maritime Square Extension at Tsing Yi Noble Engineering was awarded a contract with an aggregate contract value of approximately HK$22.5 million for site formation works relating to the construction of the Ocean Park Marriott Hotel at Ocean Park, Hong Kong We were accredited ISO 9001, ISO and OHSAS by Furgo Certification Services Limited. 74

83 HISTORY, REORGANISATION AND GROUP STRUCTURE OUR COMPANY AND SUBSIDIARIES The table below sets out the details of our operating subsidiaries as at the Latest Practicable Date: No. Name Place of incorporation Date of incorporation and commencement of business Paid up capital Effective equity interest attributable to our Company Principal business activities 1. Noble Engineering Hong Kong 25 May 2001 HK$10, % engineering works 2. Gold Win Hong Kong 12 August 2005 HK$10, % engineering, investment and consultancy 3. BiB Hong Kong 24 May 2012 HK$ % machinery rental 4. Everrich Iron Hong Kong 14 October 2014 HK$10, % machinery rental and trading of scraped metal materials Please see the paragraph headed Corporate Structure in this section for the chart showing the shareholding and corporate structure of our Group immediately after the Reorganisation. Our Company Our Company was incorporated in the Cayman Islands as an exempted company with limited liability on 29 May 2018 with an authorised share capital of HK$380,000 divided into 38,000,000 ordinary shares of par value HK$0.01 each. Our Company was incorporated as an investment holding company to hold our subsidiaries for the purpose of implementing the Reorganisation. As at the Latest Practicable Date, our Company was directly and wholly-owned by Dragon Sight. Please see the paragraph headed Reorganisation in this section for further details about the Reorganisation. Our subsidiaries Noble Engineering Corporate history and major changes in our shareholding structure Noble Engineering was incorporated on 25 May 2001 in Hong Kong with an authorised share capital of HK$10,000 comprising 10,000 ordinary shares of HK$1.00 each. 75

84 HISTORY, REORGANISATION AND GROUP STRUCTURE On 11 June 2001, each of Mr. Ng and Mr. Ng Cheong Hee acquired one nil-paid initial subscriber share in Noble Engineering from the service providers, Independent Third Parties, at a consideration of HK$1.00. On 8 June 2001, each of Mr. Ng and Mr. Ng Cheong Hee subscribed for and was allotted and issued 2,999 and 6,999 shares in Noble Engineering at the subscription price of HK$2,999 and HK$6,999 respectively. Due to internal family arrangement, on 4 October 2002, Mr. Ng Cheong Hee transfer his 7,000 shares in Noble Engineering, representing 70% of its then entire issued capital, at a consideration of HK$7,000 to Ms. Leung Siu Lan. The Consideration was based on the then paid up share capital of Noble Engineering as at 10 April 2002 and was fully settled on the same day. After the said transfer and immediately before the Reorganisation, Noble Engineering was owned as to 70% by Ms. Leung Siu Lan and 30% by Mr. Ng. As part of the Reorganisation, on 17 May 2018, Mr. Leung Siu Lan and Mr. Ng transferred their respective 7,000 ordinary shares and 3,000 ordinary shares of Noble Engineering at a consideration of HK$7,000 and HK$3,000 respectively to Eight Immortals. The consideration was satisfied by allotment and issue of 15 and 6 new shares in Dragon Sight, credited as fully paid at par to Ms. Leung Siu Lan and Mr. Ng. Subsequent to the above share transfers, Noble Engineering has been 100% legally and beneficially owned by Eight Immortals. Gold Win Corporate history and major changes in our shareholding structure Gold Win was incorporated on 12 August 2005 in Hong Kong with an authorised share capital of HK$10,000 comprising 10,000 ordinary shares of HK$1.00 each. At the date of its incorporation, Ms. Leung Pui Kam subscribed for and was allotted and issued 10,000 shares in Gold Win at the subscription price of HK$10,000. Immediately before the Reorganisation, Gold Win was wholly-owned by Ms. Leung Pui Kam. As part of the Reorganisation, on 17 May 2018, Ms. Leung Pui Kam transferred her 10,000 ordinary shares of Gold Win at a consideration of HK$10,000 to Eight Immortals. The consideration was satisfied by allotment and issue of 15 new shares in Dragon Sight, credited as fully paid at par to Ms. Leung Pui Kam. Subsequent to the above share transfers, Gold Win has been 100% legally and beneficially owned by Eight Immortals. 76

85 HISTORY, REORGANISATION AND GROUP STRUCTURE BiB Corporate history and major changes in our shareholding structure BiB was incorporated on 24 May 2012 in Hong Kong with an authorised share capital of HK$10,000 comprising 10,000 ordinary shares of HK$1.00 each. At the date of its incorporation, Mr. Ng subscribed for and was allotted and issued one share in BiB at the subscription price of HK$1.00. Immediately before the Reorganisation, BiB was wholly-owned by Mr. Ng Wai Lung Thomas. As part of the Reorganisation, on 17 May 2018, Mr. Ng Wai Lung Thomas transferred his one ordinary share of BiB at a consideration of HK$10 to Eight Immortals. The consideration was satisfied by allotment and issue of 33 new shares in Dragon Sight, credited as fully paid at par to Mr. Ng Wai Lung Thomas. Subsequent to the above share transfers, BiB has been 100% legally and beneficially owned by Eight Immortals. Everrich Iron Corporate history and major changes in our shareholding structure Everrich Iron was incorporated on 14 October 2014 in Hong Kong with an authorised share capital of HK$10,000 comprising 10,000 ordinary shares of HK$1.00 each. At the date of its incorporation, each of Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee subscribed for 5,000 shares in Everrich Iron at the subscription price of HK$5,000. As part of the Reorganisation, on 17 May 2018, Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee transferred their respective 5,000 ordinary shares and 5,000 ordinary shares of Everrich Iron at a consideration of HK$5,000 and HK$5,000 respectively to Eight Immortals. The consideration was satisfied by allotment and issue of 15 and 15 new shares in Dragon Sight, credited as fully paid at par to Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee. Subsequent to the above share transfers, Everrich Iron has been 100% legally and beneficially owned by Eight Immortals. 77

86 HISTORY, REORGANISATION AND GROUP STRUCTURE REORGANISATION Shareholding structure of our Group immediately before the Reorganisation The following diagram sets out the corporate structure of our Group immediately before the Reorganisation. Ms. Leung Siu Lan Mr. Ng Wai Lung Thomas Mr. Ng Cheong Hee Ms. Leung Pui Kam 70% 30% 50% 50% 100% 100% Noble Engineering (Hong Kong) BiB (Hong Kong) Everrich Iron (Hong Kong) Gold Win (Hong Kong) Reorganisation steps In preparation for the [REDACTED], our Group underwent a Reorganisation involving the following steps: I. Incorporation of Dragon Sight and Eight Immortals Dragon Sight was incorporated on 14 May 2018 in the BVI with limited liability and is authorised to issue a maximum of 50,000 shares of par value US$0.01. On 14 May 2018, one ordinary share of par value US$0.01 was allotted and issued to Mr. Ng Wai Lung Thomas at par value, representing the entire issued share of Dragon Sight. Eight Immortals was incorporated on 15 May 2018 in the BVI and is authorised to issue a maximum of 50,000 shares of par value US$0.01. On 15 May 2018, one hundred ordinary shares of par value US$0.01 each were allotted and issued to Dragon Sight at par value, representing then entire issued share of Eight Immortals. 78

87 HISTORY, REORGANISATION AND GROUP STRUCTURE II. Acquisition of 100% shareholding of each of Noble Engineering, BiB, Everrich Iron and Gold Win from Mr. Ng Wai Lung Thomas, Ms. Leung Siu Lan, Mr. Ng Cheong Hee and Ms. Leung Pui Kam by Eight Immortals On 17 May 2018, Eight Immortals acquired from Ms. Leung Siu Lan and Mr. Ng Wai Lung Thomas 7,000 ordinary shares and 3,000 ordinary shares in Noble Engineering, representing 70% and 30% of its issued share capital, at a consideration of HK$7,000 and HK$3,000. The consideration was satisfied by allotment and issue of 15 and 6 new shares in Dragon Sight, credited as fully paid at par to Ms. Leung Siu Lan and Mr. Ng Wai Lung Thomas. On 17 May 2018, Eight Immortals acquired from Mr. Ng Wai Lung Thomas one ordinary share in BiB, representing 100% of its issued share capital, at a consideration of HK$10. The consideration was satisfied by the allotment and issue of 33 new shares in Dragon Sight, credited as fully paid at par to Mr. Ng Wai Lung Thomas. On 17 May 2018, Eight Immortals acquired from Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee 5,000 ordinary shares and 5,000 ordinary shares in Everrich Iron, representing 50% and 50% of its issued share capital, at a consideration of HK$5,000 and HK$5,000 respectively. The consideration was satisfied by the allotment and issue of 15 and 15 new shares in Dragon Sight, credited as fully paid at par to Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee. On 17 May 2018, Eight Immortals acquired from Ms. Leung Pui Kam 10,000 ordinary shares in Gold Win, representing 100% of its issued share capital, at a consideration of HK$10,000. The consideration was satisfied by the allotment and issue of 15 new shares in Dragon Sight, credited as fully paid at par to Ms. Leung Pui Kam. After the said acquisitions, the entire issued share capital of each of Noble Engineering, BiB, Everrich Iron and Gold Win was wholly-owned by Eight Immortals. III. Introduction of [REDACTED] On 21 May 2018, Dragon Sight subscribed for and was allotted 9,594 shares in Eight Immortals at the subscription price of US$0.01 per share. After the said allotment, the total issued shares of Eight Immortals were increased to 9,694 shares. On 29 May 2018, the [REDACTED] entered into a subscription agreement with Eight Immortals to subscribe for 306 shares in Eight Immortals at the considerations of HK$5,000,000 (the Subscription Agreement ). The said considerations were arrived at after arm s length negotiations between the parties and the consideration was determined with reference to the profit earning ratio of approximately ten times of the total audited profits after tax of the Group for the year ended 31 December Upon completion of the subscription, the [REDACTED] held a total of 306 shares in Eight Immortals, representing 3.06% of the enlarged issued shares of Eight Immortals by the subscription. Upon [REDACTED], the [REDACTED] will be interested in approximately [REDACTED]% of the issued share capital of our Company. The proceeds from the [REDACTED] have been applied by us as working capital. 79

88 HISTORY, REORGANISATION AND GROUP STRUCTURE Details of the [REDACTED] are summarized below: Name of the [REDACTED] : Joint Shine International Group Limited Date of the Subscription Agreement : 29 May 2018 Amount of consideration paid : HK$5,000,000 Payment date of consideration : 29 May 2018 Special rights : no special rights are granted Effective cost per Share paid (Note) : [REDACTED] Discount to the [REDACTED] : approximately [REDACTED]% to the mid-point of the indicative [REDACTED] range of HK$[REDACTED] to HK$[REDACTED], on the basis of our enlarged share capital immediately upon completion of the Capitalisation Issue and the [REDACTED] Shareholding upon [REDACTED] : [REDACTED] Shares representing approximately [REDACTED]% of the issued share capital of our Company upon [REDACTED] Special rights : No special rights are granted Lock-up restrictions : Nil Benefits to our Company : Our Directors are of the view that (i) the [REDACTED] serves as a source of additional working capital to our Group and provides immediate funding available for our Group s business operation and expansion and (ii) the investment can demonstrate the [REDACTED] confidence in our operation and serve as an endorsement of our performance, strength and prospects Note: For illustration purposes only, assuming completion of the Capitalization Issue and the [REDACTED] Joint Shine International Group Limited is a limited company incorporated in the BVI on 11 May 2018 and its entire share capital is owned as to 51% by Mr. Fung Ho Ming and as to 49% by Ms. Wong Ting. The principal business activity of Joint Shine Investment Group Limited is investment holding. Ms. Wong Ting Tiffany is the spouse of Mr. Fung Ho Ming Ivan Mr. Fung Ho Ming Ivan has been engaged in the private equity investment industry in Hong Kong for over 10 years and Ms. Wong Ting Tiffany has 10 years of experience in trade finance and futures trading in precious metals. As advised by Mr. Fung Ho Ming Ivan and Ms. Wong Ting Tiffany, they invested in the Group due to their confidence in the business prospects of construction business in Hong Kong. Save for the 80

89 HISTORY, REORGANISATION AND GROUP STRUCTURE [REDACTED], the [REDACTED] has confirmed that (a) it has never been involved in any dealing or transaction with our Directors, the Controlling Shareholders, any member of our Group and any of their respective associates; (b) it did not acquire interests in our Company with finance provided directly or indirectly by our connected person(s); and (c) it does not take instructions from our connected person(s) in relation to the acquisition, disposal, voting or other disposal of his interest in our Company. Pursuant to the Subscription Agreement, the Investor does not enjoy any special rights in connection with the [REDACTED]. The [REDACTED] has undertaken that it will hold all Shares for such period as required by the applicable laws, rules or regulatory requirements (including the GEM Listing Rules) or as requested by the Stock Exchange or the Sole Sponsor and/or the [REDACTED] in connection with the [REDACTED]. The Sole Sponsor has confirmed that the [REDACTED] is in compliance with the Interim Guidance on [REDACTED] (i.e. Guidance Letter HKEx-GL29-12), Guidance Letter HKEx-GL43-12 and HKEx-GL44-12 issued by the Listing Committee of the Stock Exchange based on the above and the considerations under the [REDACTED] were settled on 29 May 2018, which was more than 28 clear days before the first submission of the [REDACTED] in respect of the [REDACTED]. IV. Incorporation of our Company Our Company was incorporated on 29 May 2018 in the Cayman Islands with an authorised share capital of HK$380, divided into 38,000,000 ordinary shares of HK$0.01 each. Upon incorporation, one nil-paid Share was allotted and issued to the initial subscriber, which was transferred to Dragon Sight on the same date. V. Acquisition of Eight Immortals by our Company by way of share swap On [ ] 2018, our Company as purchaser and Dragon Sight and the Investor as vendors entered into a share swap agreement whereby the Company acquired [9,694] and [306] shares of Eight Immortals, representing [96.94]% and [3.06]% of the entire issued shares of Eight Immortals from Dragon Sight and the [REDACTED] for a consideration to be satisfied by (i) the allotment and issuance of an aggregate of [9,693] and [306] new Shares in our Company, credited as fully paid at par, to Dragon Sight and the [REDACTED]; and (ii) crediting as fully paid at par the one nil paid initial subscriber Share transferred to Dragon Sight. After the said transfer of shares and allotment, our Company and the [REDACTED] own as to [96.94]% and [3.06]% of the entire issued share capital of the Company which in turn indirectly wholly owns the entire issued share capital of each of Noble Engineering, BiB, Everrich Iron and Gold Win and thus has become the ultimate holding company of our Group. The steps of the Reorganisation would not require any regulatory approvals or permit from any relevant government authorities in Hong Kong. 81

90 HISTORY, REORGANISATION AND GROUP STRUCTURE Shareholding structure of our Group immediately after completion of the Reorganisation The shareholding and corporate structure of our Group immediately after completion of the Reorganisation is illustrated in the diagram below. Ms. Leung Siu Lan Mr. Ng Wai Lung Thomas Mr. Ng Cheong Hee Ms. Leung Pui Kam 15% 55% 15% 15% Dragon Sight (BVI) [96.94]% Our Company (Cayman Islands) [3.06]% Investor (BVI) 100% Eight Immortals (BVI) 100% Noble Engineering (Hong Kong) BiB (Hong Kong) Everrich Iron (Hong Kong) Gold Win (Hong Kong) 82

91 HISTORY, REORGANISATION AND GROUP STRUCTURE Shareholding structure of the Group immediately after completion of the [REDACTED] and the Capitalisation Issue (without taking into account any Shares which may be granted under the Share Option Scheme) The shareholding and corporate structure of our Group immediately after completion of the Reorganisation is illustrated in the diagram below. Ms. Leung Siu Lan Mr. Ng Wai Lung Thomas Mr. Ng Cheong Hee Ms. Leung Pui Kam 15% 55% 15% 15% Investor (BVI) [REDACTED]% Dragon Sight (BVI) Public Shareholders [REDACTED]% [REDACTED]% Our Company (Cayman Islands) 100% Eight Immortals (BVI) 100% Noble Engineering (Hong Kong) BiB (Hong Kong) Everrich Iron (Hong Kong) Gold Win (Hong Kong) 83

92 BUSINESS OVERVIEW We principally provide construction services in Hong Kong as a subcontractor. Our business was established in May 2001 and we have 17 years of experience in undertaking construction services in Hong Kong. Our projects are principally undertaken by Noble Engineering, an operating subsidiary. We are a construction service provider and our scope of work comprises (i) foundation works; (ii) steelworks; and (iii) other services, which include A&A works. We may provide such works either individually or as a package containing a combination of them, depending on the requirements of our customers. The table below sets out the breakdown of our revenue by type of works during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Foundation works 39, , , , Steelworks 13, , , , Other services (Note) , , , , Note: Other services include A&A works. We participate in both the private sector and the public sector. Our public sector projects refer to projects which the main contractors are engaged by the Government or statutory bodies while our private sector projects refer to those that are not public sector projects. Our private sector projects are mainly commissioned by property developers, construction companies and property management companies. The table below sets out the breakdown of our revenue by sector during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Private sector 49, , , , Public sector 4, , , , , , ,

93 BUSINESS During the Track Record Period, an overall revenue of approximately HK$195.6 million was recognised from 42 projects, comprising (i) approximately HK$13.9 million from 20 private sector projects and approximately HK$4.5 million from three public sector projects completed during the Track Record Period; and (ii) approximately HK$158.0 million from 16 private sector projects and approximately HK$19.2 million from three public sector projects which were on hand. Subsequent to the Track Record Period and up to the Latest Practicable Date, our Group had completed nine and one more private sector projects and public sector projects, respectively. As at the Latest Practicable Date, we had nine private sector projects and two public sector projects on hand. These projects had an aggregate contract sum of approximately HK$129.2 million, of which approximately HK$43.9 million was recognised as revenue during the Track Record Period. The amount of revenue to be recognised in the forthcoming years is subject to factors including the actual progress and changes in commencement as well as completion dates of these projects. For further details of our projects on hand, please refer to the paragraph headed Our Business Model and Our Projects - Projects on hand in this section. During the Track Record Period, our Group was involved in construction projects of various building types and we had residential, commercial and community facilities projects. The table below sets out the breakdown of our revenue by building type during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Residential 21, , , , Commercial 22, , , , Community facilities (Note) 10, , , , , , , , Note: Community facilities projects include projects on police stations, schools, universities and airport. Our direct customers are primarily renowned construction companies and main contractors engaged by property developers, property management companies and government or statutory bodies. We usually obtain our projects as a subcontractor through tenders or quotations. Our customers invite us to submit tenders or quotations by means of invitation letters, phone calls and verbal invitations. During the Track Record Period, all of our tender and quotation submissions were made in response to invitations from our customers. Please refer to the paragraph headed Our Operation Process Phase one: Project tendering in this section for details of our tendering process. 85

94 BUSINESS For the year ended 31 December 2016, 31 December 2017 and the four months ended 30 April 2018, revenue derived from our five largest customers amounted to approximately 99.8%, 90.9% and 92.6%, respectively, of our total revenue. Revenue derived from our largest customer amounted to approximately 42.1%, 30.4% and 48.6%, respectively, of our total revenue for the corresponding periods. For further details of our customers, please refer to the paragraph headed Customers in this section. Over the years of our course of business, we have received numerous awards from our customers in recognition of our Group s prominent performance in the construction industry. The awards we have received include The Best Safety Performance Subcontractor (1st quarter) Gold Award, Site Safety Model Worker Award and The Best Occupational Health and Safety Performance Subcontractor. For further details, please refer to the paragraph headed Awards and Accreditation in this section. According to the Frost & Sullivan Report, the construction industry in Hong Kong is expected to continue to grow owing to the increase in land supply, the Government s favourable policy for residential area development, numerous infrastructure projects, demand for improvement on road network and drainage system. The implementation of multiple urban renewal projects is expected to further escalate the demand for construction works in Hong Kong. In addition, according to the Frost & Sullivan Report, foundation works are inevitable in virtually all kinds of buildings and the market demand for foundation works in Hong Kong is expected to grow. The gross value of foundation works is expected to increase at a CAGR of 2.4% from 2018 to In addition, the market demand for steelworks in Hong Kong is expected to grow due to the Government s policy to increase land supply as well as housing units. The gross value of steelworks is expected to grow at a CAGR of 6.2% from 2018 to For further details of the foundation works market, please refer to the section headed Industry Overview Overview of foundation works market in Hong Kong in this document. For further details of the steelworks market, please refer to the section headed Industry Overview Overview of Steelworks Market in Hong Kong. Leveraging on the growth in the overall demand for the construction works in Hong Kong, our Directors are of the view that the demand for our provision of foundation works and steelworks will be on an increasing trend in the future. COMPETITIVE STRENGTHS Our Directors believe that the competitive strengths as set out below contribute to our Group s success: We keep good and stable relationship with our customers, suppliers and subcontractors Our Group has renowned construction companies and main contractors engaged by property developers, property management companies and government or statutory bodies as our customers. As at the Latest Practicable Date, we had maintained stable business relationship with three of our five largest customers in terms of revenue during the Track Record Period for over nine years. We understand the importance of maintaining good relationship with our customers as our Directors believe that such good relationship has brought us multiple benefits. Firstly, the close contact with our customers enables us to figure out their demands and expectations more easily and facilitates more effective communication when problems come up. In addition, upon satisfaction of our work performance, we would have a greater chance of being invited by our customers to tender or submit 86

95 BUSINESS quotations for the subsequent projects, which may in turn provide a steady income source for us. This can be evidenced by the comparatively more tenders we receive from repeated customers. Also, our stable relationships with our major customers, who are prominent establishments in Hong Kong, have strengthened our market recognition and attracted more business opportunities to us. Moreover, our stable relationships with our suppliers and our subcontractors are conducive to our business operations. As at the Latest Practicable Date, we had maintained stable business relationships with four of our five largest suppliers/subcontractors in terms of total supplies during the Track Record Period for over 10 years. Given our close relationship with our major suppliers and subcontractors, we can secure a steady supply of materials for our construction projects and negotiate for more competitive prices. Besides, our healthy relationship with our major subcontractors can ensure their satisfactory work performance for us, which enables us to maintain our quality of works as well as to meet our customers expectations. We have our own direct labour Our Group does not heavily rely on our subcontractors for the provision of labour. We employ our own site workers to perform the constructions works we engage in. According to the Frost & Sullivan Report, the construction industry in Hong Kong generally encounters a labour shortage problem and the lack of skilful labour has been a key challenge for the foundation works market. For further details, please refer to the section headed Industry Overview Overview of Foundation Works Market in Hong Kong Market Challenges in this document. As such, our employment policy of hiring our own direct labour benefits our operations. Firstly, it facilitates more efficient project management. Once we successfully tender for a construction project, a project team is formed and our project manager can immediately work on the allocation of workers by checking the availability of our own site workers during the relevant period. In case our project manager realises that we have insufficient manpower for the relevant project, we will be able to make arrangements for the provision of labour from our subcontractors as soon as practicable. Where necessary, we may hire more site workers. Through having our own direct labour, we aim to minimise the impact that may be caused by labour shortage on our operations. As at the Latest Practicable Date, our Group had a total of 74 site workers. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material shortage of labour that had adversely affected our operations. Further, having our own direct labour allows us to exercise better quality control on the performance of our construction works. We provide comprehensive training for our own workers, including training on machinery operations, safety compliance and site supervision. With appropriate and sufficient training, we are confident that our workers are competent enough to carry out the construction works up to our customers standards. Our site foremen have close communication with our site workers. Through effective communication, our site foremen can explain to our site workers our customers requirements, understand from them the difficulty involved in the tasks and work out practical solutions quickly. Also, any construction works that fail to meet our or our customers quality standards can be remedied as soon as practicable. In this case, we can lower the number of complaints or negative feedbacks received from our customers and at the same time, reduce the time spent on the remedial work required for rectification purposes at later stages. Hence, having our own direct labour ensures not only a smooth operation flow but also effective quality control on our works. 87

96 BUSINESS We possess a wide range of machinery and equipment for our operations Our Group possesses a range of machinery and equipment for performing various types of our works. Hence, we are not heavily reliant on our suppliers for the lease of machinery and equipment. Over the years of our operations, we have made substantial investment in our machinery and equipment. For the two years ended 31 December 2017 and 30 April 2018, our acquisition of machinery and equipment amounted to approximately HK$3.0 million, HK$4.6 million and HK$0.7 million, respectively. As at 30 April 2018, our machinery and equipment had a total net book value of approximately HK$6.1 million. The machinery and equipment which we have include, among others, excavators, crane lorries, dump trucks, a generator and vibration rollers. We believe that possession of our machinery and equipment allows more cost-efficient operations and greater flexibility in devising our construction plans as well as deploying our manpower. Please refer to the paragraph headed Machinery and Equipment in this section for further details. Our sound track record has earned our Group a reputation in the construction industry We have been offering an array of construction works, including site formation works, road and drainage works and steelworks. Our involvement in both private sector projects and public sector projects, which consist of airport, police station, residential housing, institutional development, commercial and urban renewal projects, has accumulated ample industry experience for us. In the past 17 years, we have been involved in numerous projects, including (i) a project at the Hong Kong International Airport; (ii) a project at East Kowloon Regional Headquarters of Police Station; (iii) a project at Hong Kong Sports Institute; (iv) a project at Sha Tin Racecourse bus terminus; and (v) an urban renewal project at Yue Man Square, Kwun Tong. Through our participation in these projects of various scales and complexity, we have established a reputation in the construction industry and gained trust from our customers. Our Group s capability in performing a variety of works has afforded us the flexibility to serve a wide range of customers, which demand different types and scopes of work from us. Over the years of operation, we have established ourselves as a dedicated and trustworthy subcontractor specialising in foundation works and steelworks. Leveraging on our professional knowledge, profound experience and expertise, we are able to secure a continuous stream of projects from our existing customers as well as from new customers through referrals. We have an experienced management team Our management team comprises members who possess extensive technical and business knowledge as well as industry experience. Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee, our executive Directors, each have 20 and 35 years of experience in the construction industry in Hong Kong. Mr. Ng Wai Lung Thomas has been in charge of our various construction projects since he joined our Group and his experience affords him the capability to professionally consider the project feasibility before tendering and to formulate competitive tenders or quotations together with his colleagues. Mr. Ng Wai Lung Thomas is primarily responsible for developing and executing our Group s business strategies. Mr. Ng Cheong Hee is primarily responsible for supervising the overall operation and managing the construction projects of our Group. In addition, our senior personnel are 88

97 BUSINESS well-equipped with the requisite work experience as well as managerial skills. Mr. Wong Chun Wing, our finance manager, has more than 10 years of experience in the accounting management industry. Mr. Leung, William, head of our quantity surveying department, has more than 15 years of experience in the quantity surveying industry. Mr. Hui Sun Fui, one of our project managers, has more than 20 years of experience in the construction industry. In addition, the majority of our project managers each have an average of over 15 years of experience in project management. They competently supervise our site workers and our subcontractors and ensure proper execution of our projects as well as timely delivery of quality works. Our Directors believe that our Group s professional management, extensive industry knowledge and expertise have contributed to our success and will continue to be our Group s valuable assets that sustain our future growth and expansion. For details of the qualifications and experience of our Directors and senior management, please refer to the section headed Directors and Senior Management in this document. BUSINESS STRATEGIES Expand our scale of operation by securing more projects and strengthening our project portfolio According to the Frost & Sullivan Report, the foundation works market in Hong Kong is relatively concentrated while the steelworks market in Hong Kong is considered to be competitive and relatively fragmented. Further, according to the Frost & Sullivan Report, our Group accounted for 0.1% and 0.5% of the market share of the foundation works market and the steelworks market, respectively, in Hong Kong in terms of revenue generated in Our Group aims to increase our market share in the construction industry in Hong Kong. According to the Frost & Sullivan Report, both the private sector and the public sector are expected to demonstrate steady growth in the future years, which is mainly due to the increasing number of infrastructure projects. While the gross value of construction works performed by main contractors by broad trade group in the private sector is expected to grow at a CAGR of 5.5% from 2018 to 2022, the corresponding gross value in the public sector is expected to grow at a CAGR of 6.1% for the same period. As a result, we endeavour to secure more projects from both sectors in order to enhance our market share in the construction industry in Hong Kong. During the Track Record Period and up to the Latest Practicable Date, our Group had completed 31 private sector projects and four public sector projects, respectively. One of our strategic moves is to strengthen our project portfolio by undertaking more steelworks projects and/or steelworks projects of a larger scale. According to the Frost & Sullivan Report, the market demand for steelworks in Hong Kong is expected to grow due to the Government s policy to increase land supply as well as housing units. The gross value of steelworks is expected to grow at a CAGR of 6.2% from 2018 to In order to enhance our position in the construction industry in Hong Kong, we aim to acquire machinery which can cater to our projects of larger scale. Please refer to the paragraph headed Business Strategies Acquire additional machinery in this section for further details. To complement our larger scale projects, we also plan to strengthen our manpower. Please refer to the paragraph headed Business Strategies Expand and upgrade our manpower in this section for further details. 89

98 BUSINESS Expand and upgrade our manpower Our achievements throughout the years of our operations can be attributed to the extensive experience of our management, the prominent supervision of project execution and the professional skills and vigorous efforts of our direct labour. We are of the view that these factors continue to be crucial to our future success. As such, our Group aims to have a certain degree of expansion of our manpower to cater for an increase in our projects. To enhance our project execution capabilities, we plan to recruit one project manager, one civil engineer, one quantity surveyor, one safety officer, one safety supervisor, two site foremen, four excavator operators and four truck drivers. Further, we plan to strengthen our office and administrative operations by recruiting one human resources manager. As for direct labour, to cope with our expansion plan and to complement our projects of larger scale we aim to undertake, we will consider employing more site workers if the aggregate capacity of our direct labour nearly reaches a maximum. We plan to utilise approximately HK$[REDACTED] million, or approximately [REDACTED]%, of the net [REDACTED] from the [REDACTED] for expanding our manpower. For further details, please refer to the section headed Future Plans and Use of [REDACTED] Use of [REDACTED] Expansion of manpower in this document. Apart from expansion, we will also seek to upgrade our manpower. We encourage our managerial and administrative staff to join external training courses by providing subsidies. Our training will focus on construction management, project management, company secretarial duties and matters as well as information technology. The provision of quality services by our site workers is vital to our operations. Given our works of good quality, we can minimise the need to provide any rectification or remedial work for our customers. Such customer satisfaction will possibly increase our chance of securing new projects from our existing customers. Hence, in order to raise the quality offered by our site workers, we encourage our newly employed workers to join the Construction Tradesman Collaborative Training Scheme and become qualified as semi-skilled workers. For our existing workers, we encourage them to take courses in relation to site safety or to apply for licences for operation of certain machinery and equipment. In addition, we intend to train up some of our semi-skilled workers as skilled workers under the Advanced Construction Manpower Training Scheme - Pilot Scheme so as to increase our overall work productivity and hence, the competitiveness of our Group. For further details of our training for employees, please refer to the paragraph headed Employees Recruitment and training in this section. Acquire additional machinery Apart from human resources, machinery resources are equally essential to our site operations. Hence, to enhance and optimise our overall efficiency and technical capability in our project operations, we aim to acquire additional machinery with higher technical capability and capacity. In the course of our operations at site, we rely on a broad range of machinery items to perform our foundation works, comprising site formation works and road and drainage works, as well as steelworks. Please refer to the paragraph headed Machinery in this section for details of our machinery. To cope with our projects on hand, the projects that have been newly awarded to us and the projects we will undertake in the future, we plan to purchase additional machinery to assist with our construction work, including excavators, dump trucks and a generator for the purpose of strengthening our machinery fleet as well as replacing our NRMM Exempted Machinery. We expect 90

99 BUSINESS that total capital expenditure for such acquisition to be approximately HK$[REDACTED], which will be financed by the proceeds from the [REDACTED]. For further details, please refer to the section headed Future Plans and Use of [REDACTED] Use of [REDACTED] Acquisition of machinery in this document. Our Directors believe that such acquisition of machinery will benefit our business operations and place us in a more competitive position: (i) our tender success rates may increase given our immediate availability of the relevant machinery; (ii) we would be able to undertake projects of a larger scale or complexity; (iii) we may have greater flexibility in working out our construction plans and schedules and more efficient deployment of our resources; (iv) we would be able to complete our projects on schedule and would not be subject to liquidated damages arising from late delivery of our works caused by machinery shortage; and (v) our costs on lease of machinery could be further reduced. OUR WORKS We offer our customers construction works as a subcontractor, which comprise (i) foundation works; (ii) steelworks; and (iii) other services, which include A&A works. The details of our works are set out below: Foundation works The function of foundation works is to provide a steady support for structures, transferring their load to layers of soil or rock. During the Track Record Period, our Group performed the following types of foundation works: General earthworks General earthworks generally refer to any activity that exposes, disturbs, places or deposits land and soil. During the Track Record Period, the types of general earthworks we performed included the following: soil excavation the removal of the layer of soil by means of excavators rock excavation the removal of rocks or materials that require the use of excavation methods such as drilling by hand or with machinery or blasting with explosives clearance of construction sites, removal of unwanted structures and demolition of existing structures backfilling and compacting an excavated area after the excavation process is completed 91

100 BUSINESS Sheet piling Sheet piling is the process whereby sheet piles are driven into the ground to provide earth retention and excavation support. Sheet piles are sections of sheet materials, which are commonly made of steel, with interlocking edges. Sheet piling is often used for retaining walls, land reclamation and underground structures such as car parks and basements. The selection of sheet piles for the sheet piling process depends on a number of factors including the type of work, the required depth of piles, the nature of the structure, the type of protection expected and the site conditions. 92

101 BUSINESS ELS works ELS works refer to engineering solutions designed to stabilise excavations and to prevent sideways movement. To commence our ELS works, we insert the steel pile wall into the soil prior to the excavation works. Such insertion aims to reduce groundwater inflow and prevent the soil from falling from the side. As excavation starts to go below ground level, lateral support is applied in order to keep the steel pile wall stable so that deeper excavation can be performed. Pile cap construction To facilitate pile cap construction, ELS works are usually carried out beforehand. Pile cap construction works commence when excavation reaches the required depth. A pile cap is a thick concrete mat that rests on top of a pile or a group of piles for the purpose of transferring the load. The pile cap is often regarded as part of the foundation construction. 93

102 BUSINESS Road and drainage works Road and drainage works involve construction and improvement of roads, associated footpaths, planting areas, drains, sewers, water mains and utilities diversion. During the Track Record Period, our Group carried out the following road and drainage works: construction work of access roads and drainage systems at or adjacent to construction sites road re-surfacing works trench opening on carriageways construction of underground drainage, manholes, cable trenches and water mains pipe laying works and diversion of sewerage pipes Steelworks Our Group carries out both temporary steelworks and structural steelworks. The temporary steelworks we primarily provide is hoarding. Hoarding is an activity of erecting a temporary structure of solid construction around the perimeter of a construction site with a view to preventing unauthorised access and limiting theft, vandalism and liability. The major construction materials for our hoarding activity are concrete blocks. 94

103 BUSINESS Structural steelworks include steel materials used for constructing structures and are commonly used in in cladding, balustrades, staircases, bridges, high-rise buildings as well as structural frames of public utilities. Such steel materials are connected together through welding and bolting joints. During the Track Record Period, we undertook structural steelworks projects for cladding, balustrades, railings as well as installations of structure steel onsite. OUR BUSINESS MODEL AND OUR PROJECTS Our Group has been undertaking construction works in Hong Kong for 17 years since 2001, the scope of which comprises (i) foundation works; (ii) steelworks; and (iii) other services, which include A&A works. The table below sets out the breakdown of our revenue by type of works during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Foundation works 39, , , , Steelworks 13, , , , Other services (Note) , , , , Note: Other services include A&A works. 95

104 BUSINESS We participate in both the private sector and the public sector. Our public sector projects refer to projects which the main contractors are engaged by the Government or statutory bodies while our private sector projects refer to those that are not public sector projects. Our private sector projects are mainly commissioned by property developers, construction companies and property management companies. The table below sets out the breakdown of our revenue by sector during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Private sector 49, , , , Public sector 4, , , , , , , Projects awarded to our Group The table below sets out the number of projects that had been awarded to our Group during the Track Record Period and up to the Latest Practicable Date: For the year ended 31 December For the four months ended 30 April 2018 From 1 May 2018 to the Latest Practicable Date Number of projects awarded (1) with a contract sum of HK$1 million or less 2 3 with a contract sum of more than HK$1 million and less than HK$10 million with a contract sum more than HK$10 million Total number of projects awarded HK$ 000 HK$ 000 HK$ 000 HK$ 000 Aggregate amount of initial contract sum (2) for the corresponding projects 44, ,268 9,106 37,750 96

105 BUSINESS Notes: 1. Number of projects awarded for each period indicated was determined with reference to the period during which the engagement of the project was confirmed with us by the relevant customer, regardless of the date on which the relevant tender or quotation was submitted. 2. The calculation of the initial contract sum is based on the contract entered into between our customer and us, which may include the amounts from supplemental contracts, contingency and/or provisional contracts but exclude any amounts from any subsequent variation orders. Our project backlog As at 31 December 2016, 31 December 2017, 30 April 2018 and the Latest Practicable Date, our Group had a total of 17, 21, 19 and 11 projects, respectively, in our backlog (projects that had commenced but had not been completed at the respective dates). The table below sets out the movement of the number of our projects and the corresponding aggregate initial contract sum during the Track Record Period and up to the Latest Practicable Date: Set out below is the table showing the movement of the number of our projects during the Track Record Period and up to the Latest Practicable Date: For the year ended 31 December For the four months ended 30 April 2018 From 1 May 2018 to the Latest Practicable Date Opening number of projects (Note 1) Number of new projects (Note 2) Number of completed projects (Note 3) (10) (10) (3) (10) Ending number of projects (Note 4) Notes: 1. Opening number of projects means the number of awarded projects which were not completed as of the beginning of the relevant year or period indicated. 2. Number of new projects means the number of new projects awarded to us during the relevant year or period indicated, including those projects tendered in the preceding year which are awarded in the relevant year or period. 3. Number of completed projects means the number of projects which are practically considered completed as evidenced by the practical completion certificates issued by architects. 4. Ending number of projects is equal to the opening number of projects plus number of new projects minus number of completed projects during the relevant year or period indicated. 97

106 BUSINESS Set out below is the table showing the movement of backlog of our projects during the Track Record Period: For the year ended 31 December For the four months ended 30 April 2018 From 1 May 2018 to the Latest Practicable Date HK$ 000 HK$ 000 HK$ 000 HK$ 000 Opening value of backlog 59,163 50,043 73,365 33,784 Awarded contract sum of new projects (Note 1) 44, ,268 9,106 37,750 Revenue recognised (Note 2) (53,979) (92,946) (48,687) (9,753) Ending value of backlog (Note 3) 50,043 73,365 33,784 61,781 Notes: 1. The awarded contract sum is based on the initial agreement between our customer and us and may not include additions, modifications due to subsequent variation orders. As such, final revenue recognised from a contract may differ from the awarded contract sum. 2. The revenue recognised for each year/period of the Track Record Period represents the audited revenue recognised for each of the two years ended 31 December 2017 and the four months ended 30 April 2018, taking account of any additions and modifications due to variation orders (if any). 3. Ending value of backlog refers to the portion of the total estimated revenue that has not been recognised with respect to our projects which had not been fully completed or subject to agreement on final account with our customers as at the end of the relevant year or period indicated. 98

107 BUSINESS Projects completed During the Track Record Period and up to the Latest Practicable Date, our Group had completed 33 projects, from which an aggregate revenue of approximately HK$151.7 million was recognised during the Track Record Period. The table below sets out the details of the projects with an initial contract sum of over HK$1.0 million that were completed by us during the Track Record Period and up to the Latest Practicable Date: Projects completed during the Track Record Period Project code Particulars and location of project (1) (private/public) Type of works involved Sector Commencement Completion Contract date (2) date (3) sum (4) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 HK$ 000 HK$ 000 HK$ 000 HK$ 000 P01 Residential project at Siu Nam, Tuen Mun Private Site formation and road and drainage works January 2011 April , P02 Residential project at Hung Shui Kiu Public Site formation and road and drainage works January 2013 January ,733 2,152 P04 Residential project at South Lane, Western District Private Site formation and road and drainage works February 2014 March , P06 Residential project at Lok Wo Sha Private Site formation June 2014 September ,574 3, P07 Commercial project at Plaza Hollywood Private Others August 2014 September , P08 Community facilities project at Kai Tak Development Public Site formation and road and drainage works September 2014 April ,605 2,306 P09 Residential project at King Wah Road, Fortress Hill Private Steelworks December 2014 February , P10 Commercial project at Mira Place, Tsim Sha Tsui Private Steelworks January 2014 September ,655 1,997 P12 Residential project at Western Street, Western District Private Steelworks March 2015 June , P13 Residential project at Borrett Road A Private Site formation and steelworks March 2015 March ,

108 BUSINESS Project code Particulars and location of project (1) (private/public) Type of works involved Sector Commencement Completion Contract date (2) date (3) sum (4) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 HK$ 000 HK$ 000 HK$ 000 HK$ 000 P14 Residential project at Belcher s Street Private Others May 2015 November P15 Residential project at Butterfly Estate Private Site formation and road and drainage works July 2015 December , P16 Residential project at Pak Shek Kok Private Steelworks August 2015 April ,989 1, P19 Residential project in Tuen Mun Private Steelworks January 2016 September ,226 1, Nine projects completed with an initial contract sum of less than HK$1.0 million each 3, ,337 8 Sub-total 116,283 15,064 3,

109 BUSINESS Projects completed after the Track Record Period and up to the Latest Practicable Date Project code Particulars and location of project (1) (private/public) Type of works involved Sector Commencement Completion Contract date (2) date (3) sum (4) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 P17 Residential project at MTR Nam Cheong Station Private Steelworks and others August 2015 June ,035 6,078 6, P18 Commercial project at Maritime Square, Tsing Yi Private Site formation and road and drainage works P20 Residential project at Discovery Bay Private Site formation, road and drainage works and steelworks P22 Commercial project at Ocean Park Private Site formation, road and drainage works and steelworks P23 Community facilities project at Oi Kwan Road Private Site formation and road and drainage works P24 Residential project at Borrett Road B Private Site formation and steelworks September 2015 May ,364 19,060 9, February 2016 May ,873 4,605 3, July 2016 May ,551 5,868 24,877 1,430 July 2016 June ,354 1, October 2016 May ,692 1,584 10,739 2,739 P30 Residential project at Grand del Sol, Yuen Long Private Road and drainage works April 2017 May ,475 3,807 4,233 P32 Community facilities project at Chinese University P33 Commercial project at Shek Mun Private Site formation and steelworks Public Steelworks June 2017 June ,447 4,585 3,249 October 2017 June ,080 6,596 9,586 One project completed with an initial contract sum of less than HK$1.0 each Total 118,542 38,575 71,423 23,

110 BUSINESS Notes: 1. There may be more than one contract granted by our customer in the same location that cover different scopes or timing of works. 2. The commencement date of a project refers to the date on which the first payment application is made. 3. The completion date of a project refers to the date on which the final payment application is made or work is completed according to the actual works schedule. 4. The calculation of the initial contract sum is based on the contract entered into between our customer and us, which may include the amounts from supplemental contracts, contingency and/or provisional contracts but exclude any amounts from any subsequent variation orders. Projects on hand As at the Latest Practicable Date, our Group had 11 projects on hand, which included (i) projects in progress; and (ii) projects which had been awarded to us but had not commenced as at the Latest Practicable Date. The aggregate initial contract sum of these projects on hand was approximately HK$129.2 million, of which an aggregate revenue of approximately HK$43.9 million was recognised during the Track Record Period. The table below sets out the details of our projects on hand as at the Latest Practicable Date: Projects awarded during the Track Record Period Project code Particulars and location of project Sector (private/public) Type of works involved Commencement date (2) Expected completion Contract date (3) sum (4) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 Revenue to be recognised after the Track Record Period as estimated by management HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 P27 Residential project at Kwu Tung, Fanling Private Steelworks December 2016 August , , P29 Commercial project at Hennessy Road Private Steelworks February 2017 July ,600 6,

111 BUSINESS Project code Particulars and location of project Sector (private/public) Type of works involved Commencement date (2) Expected completion Contract date (3) sum (4) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 Revenue to be recognised after the Track Record Period as estimated by management HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 P31 Community facilities project at East Kowloon Regional Headquarters of Police Station at Concorde Road, Kai Tak Public Site formation, road and drainage works, steelworks and others May 2017 February , ,569 16,303 P34 Community facilities project for a primary school in Yau Ma Tei Public Site formation and road and drainage works October 2017 December , ,731 P36 Residential project at Yue Man Square, Kwun Tong Private Steelworks October 2017 February ,010 4,640 5,197 20,092 P37 Commercial project in Pak Shek, Shatin Private Site formation December 2017 August , ,127 P38 Community facilities project at the Hong Kong International Airport Public Site formation and road and drainage works December 2017 December , ,078 11,751 P39 Residential project at Tong Yan San Tsuen Private Road and drainage works December 2017 July , P40 Commercial project in Kwai Chung Private Steelworks January 2018 July , ,555 2,055 Sub-total 91, ,204 25,330 57,

112 BUSINESS Projects awarded after the Track Record Period and up to the Latest Practicable Date Project code Particulars and location of project Sector (private/public) Type of works involved Commencement date (2) Expected completion Contract date (3) sum (4) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 Revenue to be recognised after the Track Record Period as estimated by management HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 P41 Residential project at Wo Shang Wai, Yuen Long B Private Site formation June 2018 May ,000 33,000 P42 Residential project at Marble Road, North Point Private Site formation, road and drainage works and steelworks June 2018 May ,750 4,750 Total 37,750 37,750 Notes: 1. There may be more than one contract granted by our customer in the same location that cover different scopes or timing of works. 2. The commencement date of a project refers to the date on which the first payment application is made. 3. The expected completion date of a project is given based on the best estimation of our management, taking into account factors such as the expected completion date and duration stated in the relevant contract, the extension period granted by the relevant customer and the actual work schedule. 4. The calculation of the initial contract sum is based on the contract entered into between our customer and us, which may include the amounts from supplemental contracts, contingency and/or provisional contracts but exclude any amounts from any subsequent variation orders. 104

113 BUSINESS OUR OPERATION PROCESS The categories of works our Group offers cover (i) foundation works; (ii) steelworks; and (iii) other services, including A&A works. Our projects largely undergo the same operation process, involving four major phases, despite variance in terms of the nature and scope of works we are engaged to perform and the duration of works. The diagram below sets out the principal steps of our operation flow: Tender invitation from customers Project tendering Approximately 45 days Pre-tender assessment Preparation and submission of tender documents Tender interview Award of contract Project preparation Approximately 14 days Procurement of construction materials, deployment of machinery and equipment and/or engagement of subcontractors Commencement of work on site In-house quality inspection and supervision Keeping track of the work progress Project execution Approximately 1 to 3 years Construction works Monitoring project cost control Inspection and approval by customer Making and processing interim payment applications Substantial completion Project completion Approximately 12 months Defects liability period Making final claim and release of retention monies applications Practical completion Note: The time frame is for illustrative purposes only. The actual time involved in a project may vary with factors such as nature and scope of works, terms of the contract, change of designs, presence of variation orders as well as other unforeseeable circumstances. The average duration of our projects during the Track Record Period was approximately 18 months from the project tendering phase to the project completion phase. 105

114 BUSINESS Phase one: Project tendering Tender invitation and pre-tender assessment From time to time, we receive from our existing customers or potential customers letters inviting us to tender for their projects or requesting quotations. These letters generally include a brief description of works required, the tendering procedures, the tender submission date and contact details. Upon receiving invitations or quotation requests, our tendering team, led by our quantity surveyor, is responsible for the pre-tender assessment as well as the preparation of the tender submission. To begin with, our tendering team examines the tender documents accompanying the invitation letter, which usually contain construction drawings, work programmes, contract requirements and specifications, site environment and constraints. We may attend site visits and/or briefing sessions arranged by our customers to gain a deeper understanding of the site environment and site condition. Where necessary, we may conduct our own on-site inspections to ascertain further information about the relevant project. After the review of tender documents and the site visit, our tendering team evaluates the commercial feasibility of the potential project, taking into account factors including, among others, scope and complexity of works, availability of manpower and raw materials, technicality involved, achievability of the time schedule, the customer s reputation and credit standing, the estimated costs of the project and the approximate project value. When we decide that a potential project is commercially viable, our tendering team will proceed to prepare for the tender submission. Tender preparation and submission To prepare for our tender submission, we have initial negotiations with the potential customer, during which we obtain supplementary information in relation to the potential project and also clarify certain details with the potential customer by raising queries. Prior to our tender submission, due consideration has to be given to the commercial and technical specifications of the potential project. To do this, a thorough analysis of the works to be undertaken will be carried out. The analysis covers assessment of the site conditions and environment, obtaining cost quotes from our suppliers and subcontractors in relation to the raw materials and services required, calculation of man-hours and allocation of workers at various work stages, scheduling of machinery and equipment. In addition, our project manager may conduct another site visit with a view to further assessing the complexity of the works to be undertaken and the risks possibly involved in the potential project. Factors such as the conditions of the structures adjacent to the site, the landscape in the proximity of the site, the accessibility of heavy machinery to the site and potential difficulties involved in performing the works will be considered. Based on the data obtained, our tendering team reviews the contract schedule with reference to the design specifications outlined in the tender documents, prepares the bill of quantities detailing the type and scope of works required, the resources that will be drawn upon and the respective quantities required, and the unit price or rate of each work item for the potential project. 106

115 BUSINESS Our tender pricing is basically determined on a cost-plus basis. It is usually determined by the project size based on the estimated project costs plus a mark-up margin. Factors including size and complexity of the potential project, project time frame, costs of raw materials, availability of our manpower and resources, our capacity to undertake new tasks, our relationship with the potential customer, the prevailing market conditions as well as possible prices offered in our competitive bids will be taken into consideration. When the tender submission documents are ready, we will hold a tender review meeting with Mr. Ng Wai Lung Thomas, our executive Director. Mr. Ng Wai Lung Thomas is responsible for reviewing the tender submission documents and making the final decision on the tender submission, having regard to our Group s ability to fulfil the project requirements and meet the scheduled deadlines, the risks of the tender as well as project financing requirements. Based on his experience, Mr. Ng Wai Lung Thomas will also give advice on the bidding strategies. Where necessary, he will recommend that the tender prices be adjusted so that our bids would become more competitive. Upon finalisation of the tender submission documents, we will submit them to the potential customer. After our tender submission, we may be invited to attend an interview with the potential customer, during which we are required to demonstrate our understanding of the project, present or explain our tender proposal, clarify any points concerning our tender and respond to queries raised by the potential customer. It generally takes approximately 10 to 20 days from our receipt of invitation to tender or give quotations to our submission of our tender proposal for a project. Our tender success rates The table below summarises our tender success rates for our projects for the periods indicated: For the year ended 31 December For the four months ended 30 April 2018 For the period from 1 May 2018 to the Latest Practicable Date Number of tender invitations Number of tender submissions Number of tenders awarded Tender success rate (%) (1) Note: 1. Our tender success rates are calculated by dividing the number of tenders awarded during the relevant year/period by the number of tender submissions during the corresponding year/period. 107

116 BUSINESS Our tender submissions are generally made in response to invitation. Our tender success rate increased from approximately 18.3% for the year ended 31 December 2016 to approximately 21.2% for the year ended 31 December Our tender success rate for the four months ended 30 April 2018 was approximately 7.0%. For the period from 1 May 2018 up to the Latest Practicable Date, we submitted 15 tenders, of which the results of some of these submissions had not yet been released as at the Latest Practicable Date. Phase two: Project preparation When the customer notifies us of the acceptance of our tender proposal, a letter of award or a letter of acceptance will be issued to us. Our tendering team will conduct a check of the contract award documents against the original tendering submission documents. Should we identify any variations and discrepancies, we will cope with them through discussions with the customer before the formal contract is finalised. Upon receiving the formal contract, we will review the contract award package against the original tendering submission documents. In case any variations or discrepancies are spotted, we will notify the customer in writing and attempt to resolve the issues as soon as practicable. Further, taking into account factors including the scope and complexity of the works involved, duration of the contract, quotations from suppliers and subcontractors and possible future price adjustments, our quantity surveying department is responsible for preparing a budget plan for the project, which will be reviewed and approved by our executive Directors. Setting up of a project team A project team will be formed upon commencement of this preparation phase. Our project team usually consists of a project manager, a site manager, a site engineer, a site foreman, a safety supervisor, each of which takes up the following responsibilities in a project: Our project manager prepares, supervises and approves the project execution plan. He is responsible for overseeing the overall work progress and the performance of the entire workforce on site and reviewing safe work procedures and preparing progress reports. In addition, he liaises with various parties in a project, including the main contractor, the customer, the suppliers, the subcontractors regarding the project status, work schedules, resource allocation and technical compliance. Our project manager assists in making payment applications by reporting the work progress and providing relevant information to our quantity surveyor. Our site manager is responsible for monitoring the work progress and supervising the performance of the site workers on a daily basis. He reports the daily work progress to our project manager. He also assists in liaising with the on-site representatives of the main contractor as well as other parties involved in the project. If a particular project involves steelworks, our site manager, who possesses sufficient experience in the relevant field, will be assigned the responsibility of steelworks management. 108

117 BUSINESS Our site engineer is responsible for overseeing the engineering and technical aspects of the project. His work involves planning and designing the overall site operation, working out suitable methodologies and procedures for execution of the project. Upon the customer s approval, our site engineer will give our site workers instructions as to how to execute the work. Our site engineer is also responsible for the overall supervision of site measures in relation to environmental protection. He ensures that our site operations comply with the relevant environmental laws and regulations and meet our customer s requirements in this aspect. Our site foreman assists our project manager in supervising the day-to-day site operations. He also ensures that the works carried out by our site workers are performed in accordance with our customer s instructions. Our safety supervisor is responsible for ensuring the implementation of site safety measures and safe operations on the site, monitoring the occupational health and safety compliance on a daily basis and preparing weekly safety reports. Prior to commencement of work, our safety supervisor thoroughly examines the site and identifies all potential work hazards and disseminates all the safety-related information to our site workers. He also prepares the safety gear and equipment for the entire on-site workforce. In addition, when safety issues come up, our safety supervisor is responsible for the reporting and any necessary follow-ups. Procurement of construction materials and deployment of machinery and equipment For most of our projects, we are responsible for the procurement of major construction materials, including structural steel, pre-cast concrete and drainage pipes. Our purchasing department is responsible for the purchasing of our construction materials. Upon receipt of the requisition plan from our project manager, our purchasing department will get updated fee quotes and then pass them to our quantity surveying department for the selection of suppliers. When the suppliers are selected, our purchasing department will issue purchase orders for the construction materials required and arrange the delivery of these materials to the relevant site before commencement of the relevant work. For those projects which involve our subcontractors, we may purchase the construction materials required for the part of work subcontracted on behalf of our subcontractors. We are also responsible for the deployment of machinery and equipment. Logistics arrangements will be made to accord with the work schedules. In case we need additional machinery and equipment, we may lease them from external service providers. Our purchasing department will do the liaising at this stage. We may need to provide our subcontractors with heavy machinery. Yet our subcontractors have to equip themselves with the light equipment required for their part of work and also make sure that all the items to be used on the site comply with the relevant safety requirements. 109

118 BUSINESS Engagement of subcontractors When we need to outsource part of our work for a particular project, our quantity surveying department is responsible for making the subcontracting arrangements. Similar to the procurement of construction materials, our purchasing department will get updated fee quotes and then pass them to our quantity surveying department for the selection of subcontractors. When the subcontractors are selected, we will enter into agreements with the relevant subcontractors. Please refer to the paragraph headed Suppliers and Subcontractors in this section for further details. It may generally take approximately 14 days to complete this project preparation phase. Phase three: Project execution Commencement of the work for the project marks the beginning of this project execution phase. Our project manager bears the overall responsibility in managing the project. To ensure that the project runs smoothly, he usually hosts a meeting with members of the project team, briefing them on the scheduled timeframe, allocation of manpower, deployment of machinery and all other pertinent matters. Also, he makes sure all members of the project team understand their role clearly and play their part accordingly. Keeping track of the work progress Throughout the project execution phase, our project team is responsible for keeping track of the work progress. The team has to make sure that the works are performed according to the work schedule and design specifications, and the manpower, materials and machinery are kept to optimum requirements and are deployed in accordance with the work schedule. The team also reviews the work performed by our subcontractors. Regular progress reports are prepared. Whilst the construction works are in progress, our project team performs our in-house quality inspections on the site from time to time. In case any quality issues arise, our project team will try to resolve them as soon as practicable. Also, we may engage third party service providers to conduct various tests on our work so that we can assure the relevant customer that our works meet the standards or requirements specified in the contract. For details of our quality control, please refer to the paragraph headed Quality Control in this section. Our project team keeps our customer well informed of the progress of the project. From time to time, we send our customer site photos via electronic communication channels. In case our customer spots any issue and communicates with us immediately, we can deal with it efficiently. Regular meetings are held, during which we report the work progress, share the test results, obtain updated information about the entire project and handle any issues raised by our customer. In addition, our project manager reviews the progress of the project regularly. Should he notice that the project falls behind the schedule, he will discuss with members of the project team and seek solutions to remedy the situation such as allocating more manpower to the relevant site. 110

119 BUSINESS Monitoring project cost control Our project costs will be subject to a number of factors including, but not limited to, the scope and complexity of our projects, site conditions, project time frame, costs of construction materials and labour costs, some of which are beyond our control. We may also be subject to liquidated damages on account of delay in completion of works which is not contractually allowed. For details of the various factors affecting our project costs, please refer to the section headed Risk Factors Risks relating to our business Failure to accurately estimate our costs in our tenders or quotations may result in losses incurred by us in this document. Effective project cost control is, thus, crucial to our results of operations. As the construction work progresses, our project team reviews the actual costs incurred against the estimated costs stated in the budget plan devised by our quantity surveyor prior to commencement of work. Any material deviation will be highlighted in the reports submitted to our customer and reported to our executive Directors for further review. If necessary, follow-up actions for cost control purposes will be taken. During the Track Record Period and up to the Latest Practicable Date, our Group did not incur any liquidated damages for our projects and we had no loss-making projects during the same period. Making and processing interim payment applications Our quantity surveyor is responsible for making interim payment applications to our customers. Our interim payments are generally claimed on a monthly basis. Our quantity surveyor, with the assistance from other site team members, keeps track of all the claim records and variation orders for our projects. After consultation with our project manager and inspection of the work progress, our quantity surveyor prepares and submits to our customer the monthly progress claims, which include the actual costs incurred for the originally contracted work and the claim in relation to variation orders for the corresponding periods. Upon approval of a monthly progress claim, a payment certificate will be issued by our customer to us within 15 to 30 days from the date of issue of the claim. Upon our application for payment or our customer s issue of the payment certificate, our customer will normally settle the payment by cheque within 17 to 45 days. In case disagreements arise in relation to the claim amounts, our quantity surveyor is responsible for liaising with our customer and disputes of such nature are often resolved through negotiations. We make our interim payment claims until our project work reaches its substantial completion. Our quantity surveyor is also responsible for processing interim payment applications made by our subcontractors. The progress claims by our subcontractors are basically done on a monthly basis. Our quantity surveyor evaluates the contents of the claims and issues payment certificates to them. Our finance department is responsible for making payments when invoices are received from our subcontractors. The duration of this project execution phase varies by project, depending on various factors including its size, scope of work and scheduled time frame. It generally takes us approximately one to three years to complete this phase. 111

120 BUSINESS Phase four: Project completion Upon completion of the work, our project team prepares for the handing over of the completed work to our customer. We will arrange a final inspection of our completed work in the presence of our customer. If our customer is satisfied with the inspection results, our project team will hand over the site. Our project manager will arrange for the redeployment of our resources, including manpower, machinery and equipment. All temporary structures and facilities at the site on our part will be removed or demolished. Making final claim and release of retention monies applications Our quantity surveyor is responsible for preparing the final accounts and making the final claim application. To prepare the final accounts, we take into consideration the remaining value of the works performed, the outstanding amount in relation to the variation orders, contra charge as well as any penalty amounts. Our quantity surveyor submits the claim application and seeks the release of half or a certain portion of the retention monies pursuant to the contract terms. Upon our customer s agreement on the final accounts, a final payment certificate will be issued to us. Settlement of the final accounts and release of the retention monies will also be made within 15 to 30 days upon the issue of the final payment certificate. Please refer to the paragraph headed Customers Key contract terms with our customers in this section for details of retention monies. As at 30 April 2018, the retention monies held by our customers in aggregate amounted to approximately HK$7.9 million. We expect that the entire such amount will be released pursuant to the terms of the respective contracts. Rectification and defects liability period For most of our projects, the contracts with our customers provide for a defects liability period, during which we have to bear the responsibility of rectifying any construction defects incidental to the works performed by us. The defects liability period usually lasts for approximately 12 months from the date of completion in respect of the main contract. Upon expiry of the defects liability period, our quantity surveyor will request the release of the remaining portion of the retention monies and the discharge of the performance bonds, if applicable. Please refer to the paragraph headed Customers Key contract terms with our customers in this section for details of the defects liability period. During the Track Record Period and up to the Latest Practicable Date, our Group did not experience any material deduction of the retention monies we were entitled to receive. During the Track Record Period and up to the Latest Practicable Date, we were not required to take out performance bonds for our projects except for the project at Grand del Sol, Yuen Long. 112

121 BUSINESS CUSTOMERS Our direct customers are primarily renowned construction companies and main contractors engaged by property developers, property management companies and government or statutory bodies. During the Track Record Period, five of our customers awarded more than one project to us. Please refer to the paragraph headed Our Projects in this section for details of our customers in respect of each of our projects undertaken during the Track Record Period. Major customers For the two years ended 31 December 2017 and the four months ended 30 April 2018, the percentage of our Group s total revenue attributable to our largest customer was approximately 42.1%, 30.4% and 48.6%, respectively, while the percentage of our total revenue attributable to our five largest customers was approximately 99.8%, 90.9% and 92.6% for the corresponding periods, respectively. As at the Latest Practicable Date, we had maintained stable business relationships with three of our five largest customers for over nine years. Set out below is a breakdown of our revenue attributable to our five largest customers during the Track Record Period, together with their background information: 113

122 BUSINESS For the year ended 31 December 2016 Rank Customer Background Type of works undertaken by us Year in which business relationship with our Group commenced Typical credit terms Revenue derived from the customer for the year Approximate percentage of our total revenue for the year HK$ 000 % 1 Build King A subsidiary of a publicly listed company whose shares are listed in Hong Kong (stock code: 0240) 2 Hsin Chong Several subsidiaries of Hsin Chong Group Holdings Limited, a publicly listed company whose shares are listed in Hong Kong (stock code: 0404) 3 Customer C A subsidiary of a property developer listed in Hong Kong. The revenue of the listed parent company for the year ended 30 June 2017 amounted to approximately HK$78.2 billion 4 Customer D Several subsidiaries of a property developer listed in Hong Kong. The revenue of the listed parent company for the year ended 31 December 2017 amounted to approximately HK$24.5 billion 5 Customer E A company principally engaged in construction business in Hong Kong and a subsidiary of a state-owned construction enterprise in Zhejiang province Site formation and road and drainage works Site formation, road and drainage works and steelworks Steelworks and others 2014 Within 35 days after the issue of payment certificate 2004 Within 30 days after the issue of payment certificate 2002 Within 17 days after the issue of payment certificate Site formation 2008 Within 30 days after the issue of payment certificate Site formation and steelworks 2016 Within 24 days after the issue of payment certificate 22, , , , , Five largest customers in aggregate 53, All other customers Total revenue 53,

123 BUSINESS For the year ended 31 December 2017 Rank Customer Background Type of works undertaken by us Year in which business relationship with our Group commenced Typical credit terms Revenue derived from customer for the year Approximate percentage of our total revenue for the year HK$ 000 % 1 Hsin Chong Several subsidiaries of Hsin Chong Group Holdings Limited, a publicly listed company whose shares are listed in Hong Kong (stock code: 0404) 2 Customer E A company principally engaged in construction business in Hong Kong and a subsidiary of a state-owned construction enterprise in Zhejiang province 3 Customer C A subsidiary of a property developer listed in Hong Kong. The revenue of the listed parent company for the year ended 30 June 2017 amounted to approximately HK$78.2 billion 4 Build King A subsidiary of a publicly listed company whose shares are listed in Hong Kong (stock code: 0240) 5 Customer F A subsidiary of a publicly listed company whose shares are listed in Hong Kong and the subsidiary is principally engaged in providing building construction services in Hong Kong Site formation, road and drainage works and steelworks 2004 Within 30 days after the issue of payment certificate Steelworks 2016 Within 24 days after the issue of payment certificate Steelworks 2002 Within 17 days after the issue of payment certificate Site formation and road and drainage works 2014 Within 35 days after the issue of payment certificate Steelworks 2016 Within 30 days after the issue of payment certificate 28, , , , , Five largest customers in aggregate 84, All other customers 8, Total revenue 92,

124 BUSINESS For the four months ended 30 April 2018 Rank Customer Background Type of works undertaken by us Year in which business relationship with our Group commenced Typical credit terms Revenue derived from customer for the year Approximate percentage of our total revenue for the year HK$ 000 % 1 Customer C A subsidiary of a property developer listed in Hong Kong. The revenue of the listed parent company for the year ended 30 June 2017 amounted to approximately HK$78.2 billion 2 Customer E A company principally engaged in construction business in Hong Kong and a subsidiary of a state-owned construction enterprise in Zhejiang province 3 Build King-Hsin Chong JV 4 ISP Construction (Engineering) Limited A joint venture of Hsin Chong and Build King A subsidiary of a Hong Kong publicly listed company, and the subsidiary is principally engaged in providing various building construction services in Hong Kong 5 Customer F A subsidiary of a publicly listed company whose shares are listed in Hong Kong and the subsidiary is principally engaged in providing building construction services in Hong Kong Site formation, road and drainage works and steelworks Site formation and steelworks Site formation, road and drainage works, steelworks and others Site formation and road and drainage works Site formation, steelworks and others 2002 Within 17 days after the issue of payment certificate 2016 Within 24 days after the issue of payment certificate 2017 Within one month after the payment application 2017 Within one month after the issue of payment certificate 2016 Within 30 days after the issue of payment certificate 23, , , , , Five largest customers in aggregate 45, All other customers 3, Total revenue 48, None of our Directors, their close associates, or any Shareholders who or which, to the knowledge of our Directors, owned more than 5% of the issued shares of our Company during the Track Record Period and up to the Latest Practicable Date had any interest in any of the five largest customers of our Group during the Track Record Period and up to the Latest Practicable Date. All of our customers are independent third parties. 116

125 BUSINESS Relationship with our largest customer during the Track Record Period The aggregate revenue derived from our largest customer for the two years ended 31 December 2017 and the four months ended 30 April 2018, namely Build King, Hsin Chong and Customer C was approximately HK$131.9 million, which was attributable to 24 projects we undertook during the Track Record Period. Build King is a subsidiary of Build King Holdings Limited (stock code: 0240). Build King is principally engaged in providing construction services. Our Group has maintained business relationship with Build King for approximately four years, commencing from a project when our Group was first engaged to provide road and drainage works in Our revenue attributable to Build King, being our largest customer in terms of our total revenue generated for the year ended 31 December 2016, was approximately HK$22.7 million, representing approximately 42.1% of our Group s total revenue for the same year. Hsin Chong comprises several subsidiaries of Hsin Chong Group Holdings Limited (stock code: 0404). The revenue of the listed parent company for the year ended 31 December 2017 amounted to approximately HK$6.3 billion. The business relationship between Hsin Chong and our Group commenced in 2004 when our Group was engaged to provide supply, installation and removal of temporary hoarding services. Our revenue attributable to Hsin Chong, being our largest customer in terms of our total revenue generated for the year ended 31 December 2017, was approximately HK$28.3 million, representing approximately 30.4% of our Group s total revenue for the same year. Our Directors have confirmed that the trade receivables outstanding from Hsin Chong as at 30 April 2018 had been fully settled. The retention receivables from Hsin Chong, amounting to approximately HK$2.4 million as at 30 April 2018, arose from (i) projects completed but the relevant retention receivables had not yet been due pursuant to the relevant contracts; and (ii) projects on hand. Our Directors expect that such retention receivables balance will be fully settled by June Our Directors have further confirmed that the trade receivables outstanding from the Build King-Hsin Chong Joint Venture as at 30 April 2018 had been fully settled. The retention receivables balance due from Build King-Hsin Chong Joint Venture, amounting to approximately HK$0.4 million arose from the ongoing project at East Kowloon Regional Headquarters of Police Station. Our Directors expect that such retention receivables balance will be fully settled by December Our Directors are of the view that despite Hsin Chong s current status, no significant impact has been caused on our collection of the relevant receivables balance as well as our financial performance. Customer C is a subsidiary of a property developer which is listed in Hong Kong. The revenue of the listed parent company for the year ended 30 June 2017 is approximately HK$78.2 billion. Our Group has maintained business relationship with Customer C for 10 years since our Group was first engaged to provide services for a temporary steelworks project in Our revenue attributable to Customer C, being our largest customer in terms of our total revenue generated for the four months ended 30 April 2018, was approximately HK$23.6 million, representing approximately 48.6% of our Group s total revenue for the corresponding period. 117

126 BUSINESS Customer concentration For the two years ended 31 December 2017 and the four months ended 30 April 2018, revenue derived from our five largest customers accounted for approximately 99.8%, 90.9% and 92.6%, respectively, of our Group s total revenue for the corresponding periods while revenue derived from our largest customer accounted for approximately 42.1%, 30.4% and 48.6%, respectively, of our total revenue for the same periods. In accordance with the Frost & Sullivan Report, the reliance of construction companies on a few customers is a common market practice and such customer concentration is common in the construction industry in Hong Kong. Our Directors consider that notwithstanding our customer concentration, our business model is sustainable for the reasons we set out below: Given the nature and complexity of the works in which we are engaged and the relevant market landscape in Hong Kong, our potential customer base is relatively concentrated to renowned property developers, construction companies and property management companies in Hong Kong. It is not uncommon for a single construction contract to generate a considerable contract sum and to last for over one year. As such, a small number of contracts may contribute to a substantial portion of revenue. In addition, given the usual duration of such contracts, revenue attributable to the relevant customer may easily account for a significant portion of our total revenue generated in more than one financial year. According to the Frost & Sullivan Report, the total gross value of the building and construction among the fixed capital formation in Hong Kong will be experiencing a positive growth in the future until 2022, which is mainly due to the expansion of construction sector. On account of our good and long-term business relationships with our major customers, we may expect to continue to receive invitations from our major customers to tender for their projects. Leveraging on the growth in demand for our scope of works, which corresponds to the growth in demand for construction works, and evidenced by the large number of tender invitations we had from other customers during the Track Record Period, we have the ability of diversifying our customer base where necessary. Our participation in both the private sector and the public sector and our expertise in performing our scope of works will allow us a great flexibility in undertaking projects of various scales, nature and complexity. During the Track Record Period, we had been involved in projects with contract values ranging from approximately HK$0.1 million to HK$43.7 million. Such flexibility would enable us to cater to customers of various kinds. 118

127 BUSINESS Our Directors are of the opinion that maintaining a stable and close relationship with a few main contractors is a strategic move for subcontractors, which may increase the likelihood of securing contracts from these main contractors, and accordingly such customer concentration does not affect the sustainability of our Group s business. Key contract terms with our customers We do not enter into long-term contracts with our customers. Our customers engage us on a project basis. Set out below are the key contract terms generally contained in the contracts with our customers: Contract sum : This term states the initial contract sum for the carrying out of the work. For a fixed price contract, the contract sum is expressed as a lump sum. For a measurement contract, the contract sum is an estimate of the quantity of work to be done based on the bill of quantities submitted for tendering, which contains the unit price or rate of each item of work to be performed according to the contract. The contracts with our customers generally do not contain any price adjustment clause. Contract duration : This term states when we are expected to commence the works and when the works are required to be completed. In some cases, this term also includes an extension period which allows us to extend the contract duration under those circumstances set out in the relevant contract. The contract duration for our projects during the Track Record Period generally ranged from approximately 12 months to approximately 18 months. For further details, please refer to the paragraph headed Our Projects in this section. Scope of works : This term specifies the type and scope of works we are engaged to provide under the contract. For details of the type and scope of our works, please refer to the paragraph headed Our Works in this section. Bill of quantities : The bill of quantities or schedule of rates provides a detailed description of the type of works, the specifications, the items and quantities of work to be performed as well as the unit price or rate of each item of work for the project. 119

128 BUSINESS Payment terms : This term states how we claim the value of the work done from our customers. We generally make progress claims on a monthly basis by submitting a payment application to our customers detailing the quantity of work done during the period and the corresponding value. Upon approval of our claim amount, our customers will issue a payment certificate to us. Settlement will be made according to the credit terms set out in the contract. Variation orders : Our customers may from time to time issue variation orders to us when require variations to the contracted works. Such variation orders may include adding or omitting work, increasing or decreasing the quantity of the contracted works and changing the scope of work or the work sequence. The variation clause in our contracts usually sets out, among others, what constitutes a variation under the relevant contracts, quotations involved in a variation order and the method of valuation. In the case that the new instructions from our customers concern work that does not involve a similar character or is not to be executed under similar conditions to the contracted works, we may submit further quotations to our customers. Retention monies : This term provides the amount to be retained by our customers at each interim payment. Generally, the amount to be held up by our customers pursuant to the contracts is 10% of each of the certified amounts and up to a maximum limit of 5% of the initial contract sum. The dates when the retention monies are released vary by contract. Yet typically, half of the retention monies is to be released upon the issue of the final payment certificate and the remaining half is to be released upon expiration of the defects liability period as stipulated in the main contracts. The defects liability period for the main contracts as regards our projects often lasts for up to 12 months from the date of completion in respect of the main contracts. 120

129 BUSINESS Performance bonds : This term states the customers requirements about the taking out of performance bonds. The purpose of taking out performance bonds is to secure our due performance under the contracts. Our customers may utilise the performance bonds to make good any loss or damages sustained as a result of any breach of the contracts by us. Playing the role as a subcontractor, we are generally not required to take out performance bonds for our projects. During the Track Record Period and up to the Latest Practicable Date, we did not take out performance bonds for our projects except for the project at Grand del Sol, Yuen Long. Insurance : For a construction project, it is generally the main contractor s obligation to procure proper insurance against all construction risks, damages, claims and compensation in respect of the persons who are employed to work at the construction sites. We are not generally required to carry the project-based insurance policies for our projects. During the Track Record Period and up to the Latest Practicable Date, we were required to take out project-based insurance policies for one project, namely the project at Grand del Sol, Yuen Long. Please refer to the paragraph headed Insurance in this section for details of our insurance. Contra charge arrangement : This term states how the amounts charged by our customers are dealt with. There are circumstances where our customers purchase materials on our behalf or provide some on-site services for us. Our customers often claim us back by deducting the contra charge amount from their payments made to us. Please refer to the paragraph headed Contra charge arrangement with our customers in this section. Liquidated damages : This clause obliges us to pay liquidated damages to our customers if we fail to substantially complete the work within the stipulated time and/or our performance has caused or contributed to a material delay to the entire construction project. During the Track Record Period and up to the Latest Practicable Date, no material liquidated damages had been claimed against us with respect to our projects. 121

130 BUSINESS Default and termination : This clause provides our customers with a right to terminate our contracts upon events of default, including: failure to commence the works as scheduled; failure to execute the works as contracted; or suspending the performance of works without reasonable cause. During the Track Record Period and up to the Latest Practicable Date, our Group did not experience any early termination of our contracts by reason of our default. Defects liability period : A defects liability period is often included in our contracts, which generally lasts for approximately 12 months from the date of completion in respect of the main contract. During this defects liability period, we are responsible for rectifying any defects which have arisen due to our fault at no extra cost. If the part of work where defects were spotted was performed by our subcontractors, we will request the subcontractor to remedy them. During the Track Record Period and up to the Latest Practicable Date, no material claims had been brought by our customers against us. Credit policy Before deciding whether to tender for a construction project, our Group takes into account a number of factors, in particular the creditworthiness of the customer. Since commencement of our business, we have maintained stable relationships with customers with good credit standing and proven settlement record. The credit terms are generally set out in our contracts. Payments to us made by our customers are generally due within a period of 17 days to 45 days after the issue of the payment certificate by our customers. Settlement is usually made by cheque and via bank transfer. Please refer to the paragraph headed Our Operation Process in this section for details of the factors to be considered before tendering. For details of our trade receivables turnover days, please refer to the section headed Financial Information Working capital Trade and retention receivables Trade receivables in this document. Our staff from the finance department are responsible for collecting receivables from our customers. To ensure that our customers make timely payments to us, a register of interim payment applications is maintained for each of our projects. At regular intervals, our finance staff check whether the payment certificates have been duly issued to us and whether the accounts have been settled by the relevant customer. In case of any long overdue payment from any of our customers, our finance staff will report to our executive Directors, who will then contact the relevant customer directly and urge for an immediate settlement. 122

131 BUSINESS Our Directors determine specific provision for impairment of trade receivables on a case-by-case basis. Factors to consider for such purposes include reputation, financial strength and repayment history of the relevant customers and length of our business relationship with them. During the Track Record Period, our Group did not make any provision for impairment of trade receivables. Contra charge arrangement with our customers Our Group has contra charge arrangement with our customers from time to time. Pursuant to the contra charge arrangement set out in the contracts with our customers, upon our written request, our customers may purchase materials such as concrete, cement, rebar, parts and consumables and make payments on our behalf. In addition, our customers may perform some on-site services for us and charge us a service fee. The amounts claimed will be settled by way of contra charge to the account with the relevant customers. Effectively, the payments due to us from our customers will be settled after netting off such contra charge amounts. During the Track Record Period, our Group had contra charge arrangement with some of our customers. The contra charge involved consisted of costs of construction materials, rental cost of site equipment, utilities costs and other miscellaneous expenses. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our contra charge incurred amounted to approximately HK$0.7 million, HK$1.7 million and HK$2.2 million, respectively. The contra charge incurred attributable to our five largest customers amounted to approximately HK$0.7 million, HK$1.7 million and HK$0.1 million, respectively during the Track Record Period, representing approximately 96.0%, 100.0% and 5.7% of our total contra charge incurred for the corresponding periods, respectively. As the settlement of such costs was made by way of contra charge by netting off with the payments due from our customers, both cash inflows from the project work done and cash outflows from the purchases were reduced by the same amount. Hence, the contra charge arrangement had no material effect on our cashflow positions during the Track Record Period. In accordance with the Frost & Sullivan Report, contra charge arrangement is a common practice in the construction industry, whereby a main contractor of a construction project may pay on behalf of its subcontractors for certain expenses or charge its subcontractors certain on-site service fees for a project and such expenses are typically deducted from the payments made by the main contractor to its subcontractors in settling their accounts for the project. Marketing Our Group does not rely heavily on promotional events and marketing activities. We usually secure new construction projects by responding to invitations by main contractors and property developers. Our Directors believe that over the course of our operations, we have created a solid customer base, built a sound reputation in the industry as well as accumulated sufficient industry experience, which are conducive to the development or expansion of our business. Please refer to the paragraph headed Competitive Strengths in this section for further details. In addition, owing to our prominent performance and competence, we secure new construction projects through referrals from our customers from time to time. 123

132 BUSINESS Seasonality Our Directors believe that the industry in which our Group operates does not exhibit any significant seasonality. SUPPLIERS AND SUBCONTRACTORS Our suppliers mainly supply construction materials such as structural steel, pre-cast concrete, steel and metal sheets and drainage pipes for our operations. We generally do not enter into long-term contracts with our suppliers. Our placing of purchase orders for construction materials are conducted on a project basis. We keep a list of approved suppliers, which is reviewed and updated by our purchasing department regularly. Our selection of suppliers is based on a number of criteria including pricing, product or service quality, timeliness of delivery, reputation, financial conditions, after-sale services and credit terms. As at the Latest Practicable Date, we had 90 suppliers on our list of approved suppliers. Our Group did not experience any material difficulties or delays in the supply of construction materials we required. We were generally able to pass on such price increase on to our customers. In case of price fluctuations in or construction materials, we are able to pass on such price increased on to our customers. For details of the impact of increase in prices of our construction materials, please refer to the relevant sensitivity analysis set out in the section headed Financial Information Sensitivity analysis in this document. While the majority of our works is performed by our own employees, we subcontract certain portions of our works, including provision of steelworks, laying of pipelines and transportation, to our subcontractors depending on our manpower and resource availability. In accordance with the Frost & Sullivan Report, subcontracting is a prevalent practice in the construction industry in Hong Kong, allowing the project constructing to be more efficient and flexible. It is common that a main contractor subcontracts different parts of the construction work to subcontractors, who then further subcontract their work in order to achieve maximum cost and time efficiency. Despite such subcontracting arrangement, the workers of our subcontractors perform their work under our close supervision and we are still held accountable to our customers for the entire contracted works, including the portion of works performed by our subcontractors. Unless otherwise specified, our customers generally consent to our engagement of subcontractors to participate in the projects. Given our stable relationship with our subcontractors and our close monitoring of their performance, our Directors believe that our subcontractors will produce work that satisfies our and our customers requirements. Please refer to the paragraph headed Control over our subcontractors in this section for further details. 124

133 BUSINESS We do not enter into long-term contracts with our subcontractors. Our engagement of subcontractors for their provision of services are conducted on a project basis. As at the Latest Practicable Date, we had 15 subcontractors on our approved list. As such, our Directors believe that if additional stringent requirements in relation to the subcontractor registration are imposed in the future, our Group would not have difficulty in identifying and sourcing from suitable and qualified subcontractors to perform certain portions of our work as there are sufficient subcontractors in the market who are able to produce work of comparable service quality. For further details, please refer to the section headed Regulatory Overview in this document. For the two years ended 31 December 2017 and the four months ended 30 April 2018, we incurred subcontracting charges of approximately HK$4.2 million, HK$6.2 million and HK$3.0 million, respectively. For a discussion on the fluctuation in our direct costs during the Track Record Period as shown in the table above as well as the relevant sensitivity analyses in this regard, please refer to the section headed Financial Information Key factors affecting our results of operations and financial conditions Fluctuation in direct costs in this document. Key contract terms with our subcontractors We do not enter into long-term contracts with our subcontractors. We engage our subcontractors on a project basis. Set out below are the key contract terms generally contained in the contracts with our subcontractors: Subcontract value : The contracts with our subcontractors usually state the subcontract value of the scope of work for the performance of the work, determined on a unit rate basis. Some of the contracts with our subcontractors contain a fixed contract sum. Scope of works : This term specifies the type and scope of works our subcontractors are engaged to carry out under the contract. Payment terms : This term states how our subcontracts make payment applications to us for the value of the work done. We generally require our subcontractors to submit monthly progress claims to us. Upon our approval of these claims, our subcontractors will issue us invoices with the credit term stated. Insurance : For a construction project, it is generally the main contractor s obligation to procure proper insurance against all construction risks, damages, claims and compensation in respect of the persons who are employed to work at the construction sites. 125

134 BUSINESS Contra charge arrangement Default and termination : There are circumstances where we need to lease certain machinery or equipment or provide some on-site services to our subcontractors in the course of their construction works. The amounts we charge our subcontractors i.e. the contra charge amounts are often deducted from the payments to be made to them. : This clause provides us with a right to terminate our contracts with our subcontractors if they leave the work uncompleted, fail to complete the work pursuant to the contracts or the work is so unsatisfactory as to likely cause delay to the overall progress of the main contracts. Control over our subcontractors In order to make sure that our subcontractors works fulfil the contractual requirements and comply with the applicable laws and regulations, we maintain frequent contact with our subcontractors and closely monitor their performance. Prior to commencement of work, our project managers clearly explain the relevant requirements from the main contractors as well as from us to the representatives of our subcontractors, including the requirement to follow our internal control measures in relation to quality control and safety and environmental compliance. During the implementation phase, our project manager, site manager and safety supervisor have regular meetings with the representatives of our subcontractors to ensure their compliance with the applicable laws and regulations, as well as strict adherence to the workplace rules and measures in relation to, among others, occupational health and safety and environment. In addition, we conduct regular inspections of the relevant construction sites so as to have direct access to the information about the progress of the works subcontracted and to spot any project-related issues caused by our subcontractors. For details of our measures in relation to quality control, occupational health and safety and environmental compliance, please refer to the paragraphs headed Quality Control, Occupational Health and Safety and Environmental Protection in this section. We usually require our subcontractors to equip themselves with the machinery and equipment that is necessary for the performance of the work subcontracted to them. In such case, it is the responsibility of the relevant subcontractors to provide the machinery and equipment as well as the workers required for their operation and to make sure that the relevant statutory and regulatory requirements in respect of the operation, safety and environment are all complied with. In addition, pursuant to the designated workers for designated skills provision of the Construction Workers Registration Ordinance, we require our subcontractors to employ only registered skilled or 126

135 BUSINESS semi-skilled workers for the designated trade divisions. The workers employed by our subcontractors have to produce their registration cards at the sites for our inspection. Those who fail to do so will be refused entry. For details of the designated workers for designated skills provision of the Construction Workers Registration Ordinance, please refer to the section headed Regulatory Overview in this document. The table below sets out a breakdown of our Group s total direct costs by type during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Costs on construction materials 7, , , , Direct labour 21, , , , Subcontracting charges 4, , , , Others 3, , , , , , , , For a discussion on the fluctuation in our direct costs during the Track Record Period as shown in the table above as well as the relevant sensitivity analyses in this regard, please refer to the section headed Financial Information Key factors affecting our results of operations and financial conditions Fluctuation in direct costs in this document. Major suppliers/subcontractors For the two years ended 31 December 2017 and the four months ended 30 April 2018, the percentage of our Group s supplies from our largest supplier/subcontractor was approximately 10.6%, 22.7% and 27.2%, respectively, while the percentage of our supplies from our five largest suppliers/subcontractors was approximately 36.1%, 45.1% and 51.9% for the corresponding periods, respectively. As at the Latest Practicable Date, we had maintained stable business relationships with four of our five largest suppliers/subcontractors for over 10 years. 127

136 BUSINESS Set out below is a breakdown of our supplies attributable to our five largest suppliers/subcontractors during the Track Record Period, together with their background information: For the year ended 31 December 2016 Rank Supplier/ Subcontractor Background and principal business Type of purchases / services from the supplier Year in which business relationship with our Group commenced Typical credit terms and payment method Total supplies for the year Approximate percentage of our total supplies for the year HK$ 000 % 1 Subcontractor D An individual subcontractor that supplies hoarding works, unhoarding works and steelworks 2 Cheung Yip A limited liability company established in Hong Kong in 2001 engaging in the provision of drilling works 3 Supplier A A limited company established in 1983 in Hong Kong engaging in the sale of steel 4 Luen Hop An unlimited liability company established in 1985 in Hong Kong engaging in the sale of second hand steel, iron and alloys 5 Man Cheong A limited company established in 1995 in Hong Kong engaging in the sale of alloys and construction materials and supplies Hoarding and unhoarding works 2011 Within 30 days from date of invoice by cheque Drilling works 2011 Within 30 days from date of invoice by cheque Steel 2002 Within 45 days before delivery by cheque Steel 2008 Within one month from date of invoice by cheque Metals, construction and safety tools 2001 Within 30 days from date of invoice by cheque 1, , , Five largest suppliers/subcontractors in aggregate 6, All other suppliers/subcontractors 10, Total supplies 16,

137 BUSINESS For the year ended 31 December 2017 Rank Supplier/ Subcontractor Background and principal business Type of purchases / services from the supplier Year in which business relationship with our Group commenced Typical credit terms and payment method Total supplies for the year Approximate percentage of our total supplies for the year HK$ 000 % 1 Supplier A A limited company established in 1983 in Hong Kong engaging in the sale of steel 2 Subcontractor D An individual subcontractor that supplies hoarding works, unhoarding works and steelworks 3 Man Cheong A limited company established in 1995 in Hong Kong engaging in the sale of alloys and construction materials and supplies 4 Supplier F A limited company headquartered in Hong Kong and established in 1989 in Hong Kong 5 Luen Hop An unlimited liability company established in 1985 in Hong Kong engaging in the sale of second hand steel, iron and alloys Steel 2002 Within 45 days before delivery by cheque Hoarding and unhoarding Metals, construction and safety tools 2011 Within 30 days from date of invoice by cheque 2001 Within 30 days from date of invoice by cheque Steel 2004 Within 30 days from date of invoice by cheque Steel 2008 Within one month from date of invoice by cheque 7, , , , , Five largest suppliers/subcontractors in aggregate 15, All other suppliers/subcontractors 18, Total supplies 33,

138 BUSINESS For the four months ended 30 April 2018 Rank Supplier/ Subcontractor Background Type of purchases / services from the supplier Year in which business relationship with our Group commenced Typical credit terms and payment method Total supplies for the year Approximate percentage of our total supplies for the period HK$ 000 % 1 Supplier A A limited company established in 1983 in Hong Kong engaging in the sale of steel 2 Luen Hop An unlimited liability company established in 1985 in Hong Kong engaging in the sale of second hand steel, iron and alloys 3 Subcontractor D An individual subcontractor that supplies hoarding works, unhoarding works and steelworks 4 Hei Yin An individual supplier that providing transportation services 5 Supplier F A limited company headquartered in Hong Kong and established in 1989 in Hong Kong Steel 2002 Within 45 days before delivery by cheque Steel 2008 Within one month from date of invoice by cheque Hoarding and unhoarding works 2011 Within 30 days from date of invoice by cheque Transportation 2018 Within 60 days from date of invoice by cheque Steel 2004 Within 30 days from date of invoice by cheque 6, , , , Five largest suppliers/subcontractors in aggregate 11, All other suppliers/subcontractors 11, Total supplies 23, None of our Directors, their close associates, or any Shareholders who or which, to the knowledge of our Directors, owned more than 5% of the issued shares of our Company during the Track Record Period and up to the Latest Practicable Date had any interest in any of the five largest suppliers and subcontractors of our Group during the Track Record Period and up to the Latest Practicable Date. All our five largest suppliers/subcontractors are independent third parties. INVENTORIES Our Group is involved in the procurement of construction materials for our projects. We generally purchase construction materials on a project basis. The procurement amount is determined based on the amount required for the particular project. Upon being awarded a contract, our purchasing department is responsible for checking our available raw materials before placing orders. We prefer to procure raw materials in bulk, which may allow us to negotiate with our suppliers for better prices. Owing to the nature of our works, we have drainage pipes and structural steel as some of our major construction materials. As a result, our inventories mainly consist of drainage pipes and 130

139 BUSINESS structural steel, which are stored at our storage area. For these unutilised or leftover raw materials, we can utilise them after a long period of storage or sell them at agreeable prices. Our inventories are stored at our storage area. For further details, please refer to the section headed Financial Information Discussion of selected combined statements of financial position Inventories in this document. MACHINERY Due to the nature and complexity of the construction works we perform, we rely on machinery (including motor vehicles used in our construction sites) in our site operations. Our Group possesses a broad range of machinery. The major machinery items we use during our site operations include excavators, skid-steer loaders, scissor lifts, generators, vibration hammers, vibration rollers, high tonnage cylinders and electric pumps, chassis cabs, dump trucks and crane lorries. Our Directors believe that having such a broad range of machinery would facilitate more effective operation at site and cater to projects of larger scale. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our Group had acquired new machinery items with an aggregate amount of approximately HK$3.0 million, HK$4.6 million and HK$0.7 million, respectively. As at 31 December 2017 and 30 April 2018, our possession of machinery carried a net book value of approximately HK$3.7 million, HK$6.1 million and HK$6.1 million, respectively. As at 30 April 2018, our Group had 43 machine items in use for our operations, the breakdown of which is set out below: NRMM Approved NRMM Exempted Not subject to NRMM Carrying amount as at 30 April 2018 (1) HK$ 000 (approximate) Excavator (20 tons or below) ,320 Dump truck Generator Crane lorry Vibration roller Others (2) , ,076 Notes: 1. As at the Latest Practicable Date, our Group had 21 Regulated Machines, which consisted of 14 excavators, one generator, three vibration rollers and three other machinery items. 2. Others include skid-steer loaders, a vibration hammer, an aerial work platform, scissor lifts, a forklift truck, tie machines, chassis cab, a diesel van, high tonnage cylinders and electric pumps. 131

140 BUSINESS We purchase our machinery items from authorised dealers in Hong Kong. By having a broad range of machinery, our Group does not rely materially on rental services. During the Track Record Period, the machinery items we primarily leased from our suppliers, which were all independent third parties, consisted of excavators, trucks and lorry cranes. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our leasing of machinery amounted to approximately HK$0.8 million, HK$0.9 million and HK$0.9 million, respectively. Our Directors are of the view that as at the Latest Practicable Date, our existing machinery items were in sound operating condition. Our Group generally sells or trades our machines which have been used for three to four years as we believe we would keep up or even enhance our productivity and site performance by maintaining newer machines, which operate more efficiently, offer higher functionality and have a lesser chance of failure. Repairs and maintenance To ensure that our machinery items are in good operating condition, we have mechanical staff who are responsible for the regular maintenance. For certain machines such as hydraulic excavators and crane lorries, regular inspections are conducted by registered professional engineers. Upon satisfactory results, certificates which are valid for 12 months will be issued for the relevant machinery item. Before the deployment, our mechanical staff conduct a thorough inspection of the machinery items to be utilised for the projects. During the project execution phase, our mechanical staff are responsible for the regular on-site inspection of the machinery. Should they locate any minor defects, they may carry out the repairs. Generally, when the machinery and equipment are found to be malfunctioning, we will arrange our machinery suppliers or external repair companies for repairs. Possible impact of the NRMM and the Technical Circular The NRMM Regulation, which came into effect on 1 June 2015, has introduced regulatory control on the NRMMs. Including non-road vehicles and Regulated Machines. For details of the NRMM Regulation, please refer to the section headed Regulatory Overview B. Environmental Protection Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) in this document. As at the Latest Practicable Date, our Group had 21 Regulated Machines, out of which seven were exempted from complying with the emission requirements pursuant to the NRMM Regulation and 14 were approved by the Environmental Protection Department under the NRMM Regulation. All the seven exempted machines are expected to be phased out under the phase out plan set out in the Technical Circular by 31 May To cope with the implementation of the NRMM Regulation and to minimise the impact which our machinery would cause to the environment, our Group plans to acquire more environmentally friendly machines that are capable of obtaining the approval under the NRMM Regulation if applicable. 132

141 BUSINESS Age and replacement cycle of our machinery Our Directors are of the view that the machine items our Group had as at the Latest Practicable Date were generally in good operating condition. The table below sets out the actual capacity of our major types of machinery in terms of average age and average estimated remaining useful life as at the Latest Practicable Date: Average age (1) Year(s) Average estimated remaining useful life (2) Year(s) Excavator (below 20 tons) Dump truck Generator Crane lorry Vibration roller Others (3) Overall Notes: 1. Average age is calculated by dividing the aggregate age of each machine item by the total number of the respective type of machinery. 2. Average estimated remaining useful life is calculated as the difference between the aggregate estimated useful life and the aggregate age of each machine item (excluding those machine items that are fully depreciated), divided by the total number of the respective type of machinery (excluding those machines that are fully depreciated). 3. Others include skid-steer loader, vibration hammer, scissor lifts, forklift truck, tie machine, chassis cab, diesel van, high tonnage cylinders and electric pump and accessories, general cylinders and accessories and hydraulic aerial platform. Our Group does not have a fixed acquisition schedule or regular replacement cycle for our machinery. We periodically monitor the operating conditions of our machine items and make replacement and/or repair decisions on an ongoing basis. Factors to consider before making such decisions include the viability, the cost of repairing only the worn-out or malfunctioning parts and the replacement cost. Despite our Directors view that our existing machines are generally in good operating condition, the frequency of their malfunctioning will increase and their productivity will diminish as such machines age. Hence, our Directors consider it necessary to invest in the acquisition of new machinery with a view to supporting our Group s business operations and expansion plans in the future. Please refer to the paragraph headed Business Strategies Acquire additional machinery in this section and the section headed Future Plans and Use of [REDACTED] in this document for details. 133

142 BUSINESS Financing arrangements for the purchase of machinery During the Track Record Period, the purchase of six machine items was financed by finance lease arrangements between our Group and banks or financial institutions in Hong Kong, whereby the ownership of machines purchased under such lease arrangements remain with those financial institutions until the total rental set out in the individual lease agreements has been paid up in full and whereupon we have exercised or deemed to have exercised the option to purchase the relevant machine items. As at 30 April 2018, five machine items were held under finance lease. For further details of our finance lease arrangements, please refer to the section headed Financial Information Indebtedness in this document. QUALITY CONTROL Our Group has in place a quality control policy to ensure that we provide quality construction services that meet legal and regulatory requirements, safety standards as well as our customers expectations. To maintain good quality control, we pay heed to different aspects of our operations, including, but not limited to, the tendering process, work procedures, project management, project supervision and delegation, cost control, quality standards and inspection, subcontracting requirements and accident reporting procedures. Mr. Ng Wai Lung Thomas, our executive Director, is responsible for the overall quality control of our Group. For the background and industry experience of Mr. Ng Wai Lung Thomas, please refer to the section headed Directors and Senior Management in this document. Quality control on our construction materials and machinery To maintain effective control on our construction materials, we ensure that they are sourced from the approved suppliers on our list, which is subject to an annual review on the basis of factors including the prices and quality of items supplied, the timeliness of delivery and the responsiveness of the individual suppliers. As for the construction materials we purchase like soil, steel, pipe materials and sheet piles, our project managers and site foremen are responsible for checking the quality of the construction materials upon their delivery to the construction sites. Visual inspections and sampling tests are conducted to ensure the items delivered are of the right quantity and meet the required specifications. In the event that any defects are spotted, we will inform our material suppliers as soon as practicable, who will arrange a replacement for us. As for the machinery items provided and used by our subcontractors, our project managers and site foremen will also perform checks on them and make sure they function properly. Please refer to the paragraph headed Machinery Maintenance in this section for details of repairs and maintenance of our machinery and equipment. 134

143 BUSINESS In addition, from time to time, we may conduct laboratory testing on the construction materials we purchase including soil test, welding test and tensile test. Samples of the relevant construction materials are taken out and sent to external approved laboratories and test reports based on the samples will be produced for our reference. In the case that the test reports reflect any quality issues, we will have a follow-up with the relevant material supplier or send our site workers to take remedial actions if the issues concern our workmanship. For certain construction materials such as steel, pipe works and mira drains, we may ask our suppliers to provide us with the relevant test certificates and make sure the construction materials they supply to us meet our and our customers standards and requirements. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, there were no material disputes between our Group and our suppliers and subcontractors in respect of the quality of construction materials and machinery supplied by our suppliers and subcontractors respectively. Quality control on our services To ensure that our Group provides quality services for our customers, we adopt strict quality control procedures. Generally, our project managers and site managers are responsible for the supervision of work quality for our construction projects. For each of our construction projects, we attend the meetings held by our customers prior to commencement of work in order to understand thoroughly the contractual requirements and also their expectations. In the case that we outsource part of the construction work to our subcontractors, we will make sure that they have a clear idea of their scope of work and other relevant details. During the implementation phase, our site foremen are assigned to conduct daily inspections on the works carried out by our workers as well as our subcontractors. In addition, our project managers pay visits to our construction sites to monitor the work quality and to ensure that the progress meets the schedule and the works comply with the relevant laws and regulations. We encourage our workers and our subcontractors to report any quality issues that arise. In case a quality issue comes up, our site foremen should report it to our project managers as soon as practicable. Both our project managers and site foremen are responsible for following up and taking prompt actions to remedy the situation. Further, our project managers communicate closely with Mr. Ng Wai Lung Thomas, our executive Director, to update the work progress and to report quality issues and the remedial actions taken or to be taken. For certain types of the works we perform, including ELS works and steelworks, pursuant to our contracts with our customers, we are obliged to engage external consultants to perform testing for our works at various stages and submit the relevant test reports to our customers. When we hand over to our customers, we are required to produce the test reports certifying the satisfactory performance of our works. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, our Group had not received from our customers any complaints or claims for compensation of material nature that arise from quality issues in relation to the services performed by us or by our subcontractors. 135

144 BUSINESS OCCUPATIONAL HEALTH AND SAFETY Our Group s operations are primarily carried out in construction sites, which are an accident-prone working environment. Hence, we emphasise occupational health and safety while delivering our services. Our major concern is to keep our construction sites hazards-free and not to put our employees, our subcontractors and the general public at risk. During the Track Record Period, our Group had one non-compliance incident in relation to occupational health and safety and we had taken remedial action in response to it. Please refer to the paragraph headed Regulatory Non-compliance in this section for details. Save as this non-compliance incident, under the supervision of Mr. Ng Wai Lung Thomas, we have adopted stringent occupational health and safety policies and endeavoured to make sure that these policies are in compliance with the relevant occupational health and safety laws, rules and regulations. Occupational health and work safety measures Our safety department is supervised by Mr. Ng Wai Lung Thomas, our executive Director, whose qualifications and experience are set out in the section headed Directors and Senior Management in this document. Our safety department is responsible for preparing safety plans and managing our occupational health and safety management system to ensure smooth implementation of our safety procedures and risk control measures. We have established a safety committee at corporate level. Safety committee meetings are held on a monthly basis with our executive Directors for the purpose of setting strategic guidelines for implementation of our occupational health and safety measures relating to our operation and monitoring the effectiveness of our safety management measures. In addition, a site safety committee, which consists of our project team, representatives of our customers and the project owners and representatives of subcontractors (if any), is also established on a project basis to implement on-site safety measures including regular safety inspections to maintain a safe working environment, review of safety plans and update of risk assessment for the works, review of safety incidents and follow-up of any unsafe practices. As such, we keep our customers informed of the safety issues identified through safety meetings. Set out below is a summary of our work safety measures: As required by our main contractors, a mandatory safety training course must be taken by every construction site worker who is required to obtain a valid certificate (also known as green card ) before he is allowed to enter a construction site. We also arrange site safety induction briefing sessions for our site workers on the first day of work and provide toolbox trainings once a month for our site workers, including our subcontractors employees. Topics of our safety training typically cover safety procedures for performing different types of work (e.g. working at height), safety procedures for emergency and duties and procedures for reporting hazards, incidents, accidents and diseases, and good housekeeping of workplaces. 136

145 BUSINESS Effective promotion and communication of safety procedures are maintained through, among others, issuing safety bulletins and keeping detailed records of accident statistics, holding regular internal and external safety meetings, documenting safety measures and issues identified for each project by preparing safety reports and training records. We require our site workers, including our subcontractors employees to follow the general safety rules adopted by our Group and our main contractors, which are communicated to our site workers before they commence work and posted on prominent notice boards on site. Workers who breach any such rules will be subject to internal disciplinary actions. Risk assessments are generally conducted by our safety officer to identify the potential hazards and accidents as well as provide suggestions on proper preventive measures prior to commencement of work. Site inspections are carried out at least once a week by our safety supervisors to ensure strict compliance with the statutory occupational health and safety laws, rules and regulations. Furthermore, we engaged an independent safety consultant (the Safety Consultant ) to conduct an independent review for our Group in order to assist our Group to improve our overall safety performance. The Safety Consultant includes a chartered member of the Institution of Occupational Safety and Health of the United Kingdom ( IOSH ), who is a safety officer registered under the Labour Department in Hong Kong. The Safety Consultant conducted a review on our occupational health and safety policy with a view to assisting our Group to (i) comply with the statutory obligations; (ii) improve employees occupational health and safety; (iii) enhance hazard identification and risk control capabilities; and (iv) encourage the identification, sharing and implementation of best practices. After its review on our Group s existing safety management system, the Safety Consultant is of the view that there is no material deficiency in our safety management system and concluded that our Group has adequate and effective safety control system in compliance with relevant laws and regulations. In addition, the Safety Consultant assisted our Group to complete the certification audit of OHSAS18001:2007 in June 2018 which helped our Group to (i) identify and control health and safety risks; (ii) reduce the potential risks of accidents; (iii) enusure legal compliance; and (iv) improve the overall safety performance. 137

146 BUSINESS System of recording and handling accidents and our safety compliance record If an accident occurs, the injured worker (including our employees and our subcontractors employees) or the person who witnessed the accident is required to report to our site staff or safety officer. Our safety officer will then investigate the accident by taking photos in respect of the accident scene, examine the equipment or material involved (if any) and take statements from the injured worker, witness(es) of the accident (if any) and other personnel in relation to the particular project. If the accident is a reportable accident as assessed by our safety officer, he will prepare an accident report and submit it to our customer and the Labour Department (if required) within the period as specified under the relevant laws and regulations. Reportable accidents means workplace accidents that are required to be reported to the Labour Department. For any accident that results in total or partial incapacity of an employee, the accident should be reported in writing within 14 days after the date of accident. For accidents that involve death or fatal injury to an employee, the accident has to be notified to the Labour Department within seven days after the accident. In the event of dangerous occurrence (as defined in the Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong)) or fatal accidents in Hong Kong, we will notify the Labour Department and submit the Labour Department s standard Dangerous Occurrence Report Form within 24 hours. Our safety officer and supervisors will also complete the investigation on the accident/incident within the same timeframe. The accident investigation report should be submitted to the Safety Department and displayed on the site notice board. The investigation findings and recommendations will form part of the information for our toolbox trainings to prevent recurrence of similar accidents in the future. The tables below set out the breakdown of the number of personal injury accidents by year and the nature of the six personal injury accidents occurred during the Track Record Period and up to the Latest Practicable Date: Number of accidents For the year ended 31 December For the year ended 31 December For the period from 1 January 2018 up to the Latest Practicable Date 1 Total: 6 138

147 BUSINESS Nature of accident Number of accidents Injured whilst lifting or carrying 2 Slipping, tripping or falling on the same level 2 Struck by moving or falling objects 2 Total: 6 Save as disclosed above and to the best of our Directors knowledge and belief, during the Track Record Period and up to the Latest Practicable Date, our Group did not experience any significant incidents or accidents in relation to workers safety, nor had we suffered from any removal, suspension, downgrading or demotion of our licences or permits due to accidents or breaches of workplace safety regulations. The table below sets out the industrial accident rate per 1,000 workers and the industrial fatality rate per 1,000 workers for the construction industry in Hong Kong and our Group: Construction industry in Hong Kong (1) Our Group (2) From 1 January 2016 to 31 December 2016 Industrial accident rate per 1,000 workers in construction industry Industrial fatality rate per 1,000 workers in construction industry From 1 January 2017 to 31 December 2017 Industrial accident rate per 1,000 workers in construction industry N/A 28.2 Industrial fatality rate per 1,000 workers in construction industry N/A 0 From 1 January 2018 to 30 April 2018 Industrial accident rate per 1,000 workers in construction industry N/A 5.0 Industrial fatality rate per 1,000 workers in construction industry N/A 0 Notes: 1. The statistics are extracted from the Occupational Safety and Health Statistics Bulletin Issue No. 17 (August 2017) published by Occupational Safety and Health Branch of the Labour Department of the Hong Kong Government. 2. The accident rate and fatality rate of our Group are calculated by dividing the number of reportable accidents and accidents involving fatal injuries (as the case may be) during the calendar year or the relevant period by the number of our site workers as at the end of the calendar year (i.e. 296 in 2016, 296 in 2017 and 120 for the period from 1 January 2018 to 30 April 2018) and then multiplying the result by 1,000. The number of our site workers includes both the site workers employed by our Group and the employees of our subcontractors. 139

148 BUSINESS The table below sets out our Group s lost time injuries frequency rates ( LTIFR(s) ) (Notes) during the years of 2016 and 2017: From 1 January 2016 to 31 December From 1 January 2017 to 31 December Notes: 1. LTIFR is a frequency rate that shows how many lost time injuries occurred over a specified time (e.g. per 1,000,000 hours) worked in a period. The LTIFRs shown above are calculated by multiplying the number of lost time injuries in terms of lost days of our Group that occurred during the relevant calendar year or period by 1,000,000 divided by the number of hours worked by site workers over the same calendar year or period. 2. It is assumed that the number of working hours of each worker is 10 per day. During the years of 2016 and 2017, there were approximately 296 and 296 working days, respectively. 3. Employees of our Group and our subcontractors are taken into account in our calculation of the LTIFRs. 4. There is no public information in relation to the average LTIFRs of the construction industry in Hong Kong. ENVIRONMENTAL PROTECTION Our operations on sites are subject to certain environmental requirements pursuant to the laws and regulations in Hong Kong, including Air Pollution Control Ordinance, Noise Control Ordinance, Water Pollution Control Ordinance and Waste Disposal Ordinance. In addition, we attempt to meet the requirements set out in certain codes of practice in the construction industry such as the BEAM Plus New Buildings, issued by the Hong Kong Green Building Council and the BEAM Society. For further details of our statutory and regulatory requirements in relation to environment, please refer to the section headed Regulatory Overview in this document. Our Group uses its best endeavours to minimise the adverse impact that our business activities may have on the environment. As such, apart from conforming to the environmental protection policies launched by our customers, we implement our own environmental management system so as to ensure our and our subcontractors compliance with environmental laws and regulations and proper environmental management of, among others, air pollution, noise control and waste disposal. We adopt the following environmental protection measures in each construction project we participate: Upon our formation of the project team, we assign our site engineer to be in charge of environmental matters. Discussion on the environmental matters relevant to the type of work involved in the project is held among the team members and then an environmental management plan is set out containing the guidelines or procedures to, among others, control transportation vehicles, handle materials, install equipment that reduces the impact of emission of air pollutants and segregate and classify waste for proper disposal. 140

149 BUSINESS While the construction work is in progress, our site foreman or assistant foreman is responsible for the ongoing compliance with the environmental management plan. His tasks involve providing our on-site workers with relevant environmental training, conducting daily inspections on the sites and addressing environmental issues once spotted. Our project manager is responsible for dealing with the environmental issues that come up during the meetings with our customers. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our Group had incurred approximately HK$2.5 million, HK$3.6 million and HK$1.2 million, respectively in the aspect of environmental protection, which mainly consisted of the levy imposed by the Government on waste disposal required under applicable laws and regulations and costs of purchasing machinery for compliance with the NRMM Regulation. To our estimation, our annual cost of going forward will be at a level similar to that during the Track Record Period and consistent with its scale of operation. During the Track Record Period and up to the Latest Practicable Date, our Group had not been in breach of any environmental-related laws and regulations in Hong Kong. AWARDS AND ACCREDITATION Throughout the years of our business operations, we have received a number of awards and accreditations from our customers in recognition of our performance as well as our commitment to safety management. The table below sets out the major awards we had been granted up to the Latest Practicable Date: Year of grant Award Granted by 2018 The Best Safety Performance Subcontractor (1st quarter) - Gold Award 2018 Site Safety Model Worker Award (March 2018) 2018 The Best Occupational Health and Safety Performance Subcontractor 2016 Monthly Safety Hero Award (April 2016) 2013 Best Safety Performance Award (Earthworks) 2011 The Best Occupational Health and Safety Performance Subcontractor (2nd quarter) Champion 2010 The Best Occupational Health and Safety Performance Subcontractor (3rd quarter) - 1st Runner-up Build King-Hsin Chong JV Build King-Hsin Chong JV Hsin Chong Build King Hsin Chong Hsin Chong Hsin Chong 141

150 BUSINESS INSURANCE During the Track Record Period and up to the Latest Practicable Date, our Directors believe that we were well covered under the following insurance policies against the risks and liabilities to which we may be exposed in the course of our business operations: (i) Employees compensation insurance As required under section 40 of the Employees Compensation Ordinance, we maintain insurance coverage for our liabilities under employees compensation and personal injury claims in respect of all our employees working in our offices, which meets the statutory minimum insurance coverage of HK$100 million on a per incident basis for our employees. As for our site workers, the main contractor of a construction project is liable to any accident of the workers of its subcontractors working on the construction site under the Employees Compensation Ordinance. Hence, our liabilities and the liabilities of our subcontractors for injuries at construction sites are covered by the insurance policy taken out by the main contractors of our projects. Our Directors consider such insurance coverage to be generally sufficient for the liabilities under employees compensation and personal injuries actions that we may be exposed to. (ii) Contractors all risks insurance For all the projects we undertake as a subcontractor, the main contractors have taken out contractors all risks insurance, which typically cover (a) liability arising from potential bodily injury to third parties or death; and (b) liability arising from damage to third parties properties, both as a result of the performance of the construction works undertaken by us or our subcontractors at the construction sites. Such insurance policies are generally valid until expiry of the defects liability period in respect of the main contracts. During the Track Record Period and up to the Latest Practicable Date, pursuant to the contract with our customer, our Group had taken out contractors all risks insurance for one project, namely the project at Grand del Sol, Yuen Long. We are exposed to certain inherent risks relating to our works, including foundation works and steelworks. It is not unusual to encounter certain difficult or dangerous conditions below or above the ground level or at the work sites which may result in personal injuries or even fatality of site workers. For further details, please refer to the section headed Risk Factors Risks 142

151 BUSINESS relating to our business Property damages, personal injuries, fatal accidents or loss of lives may occur in this document. Our Directors are of the view that such risks and liabilities will be well covered under the contractors all risks insurance on and subject to the terms and conditions of the insurance policy. (iii) Other insurance coverage We have maintained insurance coverage against third party liability in relation to the use of our vehicles for an amount of up to HK$100 million per event. Uninsured risks Certain risks disclosed in the section headed Risk Factors in this document, such as risks in relation to our ability to secure new customers, customer concentration, potential claims arising from estimation and management of costs, the performance of our subcontractors and liquidity risks are generally not covered by our insurance because they are either uninsurable or it is not cost justifiable to insure against such risks. In particular, although our insurance policy does not cover any losses and claims arising from the substandard performance of our subcontractors, we can either deduct the retention monies payable to the relevant subcontractor or claim against the relevant subcontractor for losses attributable to its substandard performance. Our Directors consider that the risk of losses or claims caused by the substandard performance of works of or the delay caused by our subcontractors is low. During the Track Record Period, we did not experience such claims materially from our customers. Our Directors believe that the above arrangements are consistent with industry norm in Hong Kong, and further consider the current insurance coverage to be sufficient for us, having regard to our current business operations and the prevailing industry practice. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our total insurance expenses amounted to approximately HK$208,000, HK$349,000 and HK$47,000, respectively. During the Track Record Period and up to the Latest Practicable Date, we had not made and did not make or had not been the subject of any material insurance claim. 143

152 BUSINESS EMPLOYEES As at 31 December 2016, 31 December 2017, 30 April 2018 and as at the Latest Practicable Date, a total of 92, 117, 120 and 118 full-time employees were directly employed by our Group in Hong Kong, respectively. The table below sets out a breakdown of our employees by function as at the Latest Practicable Date: As at the Latest Practicable Date Executive directors and senior management 6 Human resources, accounts and administration and purchasing 6 Quantity surveying 5 Project management and supervision 23 Safety and environmental compliance 4 Site workers Relationship with our employees Our Directors believe that we have maintained good relationship with our employees, including our site workers, and expect such good relationship to continue. During the Track Record Period and up to the Latest Practicable Date, our Group had not experienced any material labour disputes or incidents of strike that would cause disruption or other adverse impact to our operations. Remuneration We value our employees and endeavour to maintain a good, stable and cooperative relationship with them. The remuneration package our Group offers to our office staff includes basic salaries and discretionary bonuses. The salaries of our site workers are paid either on a monthly basis or on a unit rate basis. We are also required to make monthly contributions for our employees (both office staff and site workers). Upon recruitment, our Group determines the new employee s salary, taking into account his qualifications, position, seniority and the market rate. For appraisal purposes, we review the performance of our employees annually and the appraisal results form the basis of our decisions regarding salary raises, bonus payments as well as promotions. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our Group s MPF contributions amounted to approximately HK$0.8 million, HK$1.2 million and HK$0.7 million, respectively. During the Track Record Period, we had nil non-compliance incident in relation to MPF contributions. 144

153 BUSINESS Recruitment and training Our Group assesses our human resources from time to time and where necessary, we use our best efforts to recruit new staff members. We generally recruit our employees through recruitment websites and newspapers and our criteria for employment cover academic and professional qualifications, work experience and expertise required for our operations. As for the recruitment of our site workers, we mainly rely on referrals from our existing workers since they are familiar with our work environment and task requirements and hence capable of helping us identify suitable candidates. We understand the importance of upgrading industry knowledge and skills enhancement. From time to time, we send our employees to attend various training courses to achieve such purposes. As for our site workers, we make sure they are well equipped with the requisite knowledge and skills so that their performance will meet our standards and requirements. To achieve this, we are committed to having training for our site workers. We provide comprehensive training for our workers before their commencement of work on the construction sites. To further enhance the impact of training, we have joined the Construction Tradesman Collaborative Training Scheme launched by the Construction Industry Council, through which we can send out new workers for training under this scheme. Upon completion of such training, these new workers will be qualified as semi-skilled workers. We also send our site supervisors to various workshops and training sessions relating to environmental management and occupational health and safety. In addition, we intend to enrol some of our semi-skilled workers for the Advanced Construction Manpower Training Scheme - Pilot Scheme launched by the Construction Industry Council so that they can be trained up as skilled workers. Participants of this scheme will be successfully upgraded upon completion of on-the-job training for a specified period depending on the work trade chosen, participation in value-added activities held by the Construction Industry Council and passing the written assessment and the trade test. When these participants become skilled workers, they can in turn assist us in providing on-the-job training for our semi-skilled workers. We expect to enhance our overall work productivity and also our competitiveness through participation in the scheme. During the Track Record Period and up to the Latest Practicable Date, our Group had not experienced any difficulty in our recruitment and retention of experienced staff or skilled personnel. Requirements under the Immigration Ordinance Pursuant to section 38A of the Immigration Ordinance, a construction site controller (i.e. the principal or main contractor and includes a subcontractor, owner, occupier or other person who has control over or is in charge of a construction site) should take all practicable steps to (i) prevent having illegal immigrants from being on site; and (ii) prevent illegal workers who are not lawfully employable from taking employment on site. For further details, please refer to the section headed Regulatory Overview Immigration Ordinance (Chapter 115 of the Laws of Hong Kong) in this document. Our Directors confirm that we have not been involved in any employment of illegal workers (whether directly or indirectly via subcontracting to the best of our Directors knowledge, information and belief) in the past in respect of work sites over which we had or have control or of which we are or were in charge. As regards the aforementioned statutory requirements, our Group has not been subject to any prosecution of any offences under the Immigration Ordinance in the past. 145

154 BUSINESS To prevent our Group from being involved in employment of illegal workers and/or prosecuted for such offences, we implement the following measures: Upon recruitment of a new site worker, our human resources and administrative staff will check the originals of their Hong Kong identity card and/or other identification documents evidencing that he/she is lawfully employable in Hong Kong. Copies of such documents will be taken and kept for record. In case our Group needs to engage a subcontractor in a project, we ask the subcontractor to hire only persons who are lawfully employable to work and to supply their workers identification documents to us for review. On our construction sites, our site foremen are responsible for inspecting the personal identification document of each worker and they should refuse entry of any persons who fail to present proper personal identification documents. Designated workers for designated skills provision The designated workers for designated skills provision of the Construction Workers Registration Ordinance came into effect on 1 April Pursuant to this, construction workers will generally be forbidden from undertaking the construction works of the designated trade divisions unless they are registered skilled or semi-skilled workers for the relevant trade division or under instruction and supervision of the relevant skilled/semi-skilled workers. For further details, please refer to the section headed Regulatory Overview Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) in this document. Our site foremen are responsible for inspecting the registration card of each worker (including the site workers employed by the subcontractor) and shall refuse any person who is not registered as registered construction workers under the Construction Workers Registration Ordinance from entering the site. RESEARCH AND DEVELOPMENT During the Track Record Period and up to the Latest Practicable Date, our Group had not engaged in any research and development activity. MARKET AND COMPETITION According to the Frost & Sullivan Report, the foundation works market in Hong Kong, the foundation works market in Hong Kong is relatively concentrated, with approximately 184 contractors on the List of Approved Contractors for Public Works of Development Bureau as at May While the large-scale players are usually main contractors who score holistic construction tenders, they subcontract various parts of their foundation works projects to subcontractors (including us). 146

155 BUSINESS As for the steelworks market in Hong Kong, it is considered to be competitive and relatively fragmented in accordance with the Frost & Sullivan Report. According to statistics from the Construction Industry Council, there are more than 450 and 210 registered contractors, providing structural steelworks and hoarding services. The Frost & Sullivan Report further states that a high level of initial capital investment, proven track record of project experience and possession of technical know-how are elements that determine the competitiveness of a participant in the foundation works as well as the steelworks industry. Such factors will be the key barriers for new entrants to the industry. For further details, please refer to the section headed Industry Overview Competitive Landscape of Hong Kong Foundation Works Market Entry Barriers in this document. As such, our Directors are of the view that our sound track record, possession of an experienced management team, direct labour and a broad range of machinery, as well as well-established business relationships with our customers will consolidate our position in the market and help facilitate our expansion plans. PROPERTIES As at the Latest Practicable Date, our Group did not own any property and the properties we leased for our operations are set out below: Address Landlord Gross floor area Use of the property Terms of the tenancy Monthly rental Phase 1, Room , 9/F, Metro Centre, No.32, Lam Hing Street, Kowloon Bay, Kowloon, Hong Kong An independent third party sq.m. Office 2 May 2017 to 1 May 2019 (both days inclusive) HK$29,800 (inclusive of rates, Government rent and management fee) Room C, 35/F, YHC Tower, 1 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong An independent third party 1,305.0 sq.ft Office 11 December 2017 to 10 December 2020 (both days inclusive) HK$33,930 (inclusive/ exclusive of rates, Government rent, management fee and other outgoings) Lot DD79L 1251(RP) Ng Chow Road, Shui Lau Hang, Ping Che, Fanling, New Territories, Hong Kong An independent third party 1, sq.m. Open storage 1 January 2018 to 31 December 2019 (both days inclusive) HK$75,000 (inclusive of rates and Government rent) 147

156 BUSINESS Save as disclosed above, our Group did not have any other property interests as at the Latest Practicable Date. INTELLECTUAL PROPERTY As at the Latest Practicable Date, we had applied for registration of a trademark in Hong Kong, which is intended to be used by our Group to foster our corporate image. In addition, we have registered as our Group s registered domain name. Details of our intellectual property rights are 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. As at the Latest Practicable Date, we were not aware of any infringements (i) by us of any intellectual property rights owned by third parties; or (ii) by any third parties of any intellectual property rights owned by us. During the Track Record Period and up to the Latest Practicable Date, there had not been any pending or threatened material claims against us in relation to the infringement of intellectual property rights owned by third parties, nor had there been any material claims made by us against third parties in relation to the infringement of intellectual property rights owned by us. 148

157 BUSINESS LICENCES AND PERMITS Subcontractor Registration Scheme Based on our Directors experience, some of our customers, particularly main contractors of major public sector projects, have a preference to engage subcontractors who are registered under the Subcontractor Registration Scheme of the Construction Industry Council. In view of this, we first completed such registration in January The table below sets out the details of our Group s registration as at the Latest Practicable Date: Type of registration Granted by Granted to Trade code Specialties Date of expiry Registered subcontractor Construction Industry Council Noble Engineering Foundation and Piling Concrete Formwork Reinforcement Bar Fixing Sheet piles 3 January 2019 Micro piles Concreting formwork Reinforcement bar fixing Concreting Concreting Structural Structural Steelwork steelwork General Earthworks Civil Works Roadworks Road drainage and sewer Geotechnical works Other Structural and Civil Trades Metal Work Surveying and setting out Metal work Hoarding Hoarding Registered subcontractor Construction Industry Council Gold Win 1.08 Structural Steelwork 1.09 General Civil Works Structural steelwork General civil works 29 September 2018 Registered electrical contractor Director of Electrical and Mechanical Services BiB N/A N/A 26 February

158 BUSINESS The Subcontractor Registration Scheme was introduced by the Construction Industry Council in order to build up a pool of capable and responsible subcontractors with specialised skills and strong professional ethics. The registration and the renewal of registration under the Subcontractor Registration Scheme are subject to the satisfaction of certain entry requirements, which primarily relate to the applicant s experience and/or qualifications in the relevant works. For further details, please refer to the section headed Regulatory Overview C. Licensing/Registration Regime Subcontractor Registration Scheme in this document. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, our Group had satisfied all requirements in relation to the registration and renewal of registration for the Subcontractor Registration Scheme. Our Directors further confirm that we had not experienced any material difficulties in obtaining and/or renewing the aforesaid registration and they are not aware of any circumstances that would significantly hinder or delay the renewal or make the renewal impossible. Our Directors do not foresee any material impediment in the renewal of the aforesaid registration by us. LITIGATION AND POTENTIAL CLAIMS During the Track Record Period and as at the Latest Practicable Date, our Group had been or is involved in a number of claims, litigations and potential claims against our Group. Our Directors are of the view that occurrence of personal injuries is not uncommon in the construction industry. Set out below are the details of: (i) ongoing litigation against our Group as at the Latest Practicable Date; (ii) potential claims in relation to employees compensation claims and common law personal injury claims against our Group as at the Latest Practicable Date; and (iii) the litigations against our Group settled during the Track Record Period and up to the Latest Practicable Date. (i) Ongoing litigation against the Group as at the Latest Practicable Date As at the Latest Practicable Date, no member of our Group was engaged in any litigation claim or arbitration of material importance. (ii) Potential claims in relation to employees compensation claims and common law personal injury claims against our Group as at the Latest Practicable Date For some of the potential claims, even if the relevant employees compensation had been settled under our Group s employees compensation insurance, the injured employees may still pursue litigation claims through personal injury claims against our Group under common law. Up to the Latest Practicable Date, our Group recorded six accidents which time limits for filing an employee s compensation claims and/or personal injury claims under common law in legal proceedings have not yet passed. 150

159 BUSINESS Generally, injured persons may commence their claims under the Employees Compensation Ordinance and/or their personal injury claims under common law within the limitation period of two years (for employees compensation claims) or three years (for personal injury claims) from the date of the relevant accidents. Since no civil action has commenced, the claims, when filed, will be handled by solicitors appointed by the main contractors insurers or our insurers. We are not in a position to assess the likely quantum of the aforesaid potential claims due to lack of information and document as the common law personal injury claims have not yet been instituted. As it is generally the obligations of the relevant main contractors in the project to effect proper insurance policies against damages, claims and compensation in respect of the persons who are employed to work at the construction sites and we have our own insurance policies, our Directors believe that the potential employees compensation claims and personal injury claims will be covered by the insurance maintained by the relevant main contractor or our insurance. (iii) Litigations against the Group settled or withdrawn or convicted during the Track Record Period and up to the Latest Practicable Date During the Track Record Period and up to the Latest Practicable Date, we had settled the following claims in legal proceedings, which were covered by the insurance maintained by the relevant main contractors or our insurance. Natures of the claim(s) Particulars of the claims Total amount settled (approximate HK$) Covered by insurance 1 Employee s Compensation case, claim by employee Personal injuries action claim by employee The applicant/plaintiff was in the course of employment and was assigned to perform soil digging work. The applicant was required to stand on the bucket of the dredger to remove the soil stuck in wooden board. The dredger was moving and as a result the applicant/plaintiff fell from the bucket to the ground and sustained personal injuries. HK$505,521 HK$425,000 YES YES 2 Employee s Compensation case, claim by employee Personal injuries action claim by employee The applicant/plaintiff was, in the course of employment, required to conduct excavation work and was struck by a pick of a shovel which was being used by applicant/plaintiff s co-worker. As a result, the applicant/plaintiff sustained personal injuries. HK$158,753 HK$580,000 YES YES 3 Employee s Compensation case, claim by employee Personal injuries action claim by employee The applicant/plaintiff, was in the course of employment working at a construction site and was instructed to move a metal plate from one place to another. The metal plates suddenly fell down and hit the applicant/plaintiff s right knee. As a result, the applicant/plaintiff sustained injuries. HK$168,000 HK$120,000 YES YES 151

160 BUSINESS During the Track Record Period and up to the Latest Practicable Date, we had two criminal charges brought against Noble Engineering which were subsequently dismissed. Details of such charges are set out as follows: Particulars of the charges Date of dismissal 1. Failed to mark the safe working load on chains/ropes/lifting gear contrary to regulations 18(1)(g) and 19 of Factories and Industrial Undertakings (Lifting Appliances and Lifting Gear) Regulations made under Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) 2. Failed to deliver certificate or report upon request by occupational safety officer contrary to regulations 18C(5) and 19 of Factories and Industrial Undertakings (Lifting Appliances and Lifting Gear) Regulations made under Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) 3 October October 2016 During the Track Record Period and up to the Latest Practicable Date, Noble Engineering had 5 criminal convictions in the following cases: Particulars of the charges Penalties paid 1 failed to ensure that the chain shall be used only if it is of good construction, sound material, and adequate strength, and is free from patent defect contrary to regulations 18(1A) and 19 of the Lifting Appliances and Lifting Gear Regulations (Chapter 59J of the Laws of Hong Kong) 2 failed to ensure that each chain in use shall be thoroughly examined by a competent examiner in the preceding 6 months before it is used and a certificate in the approved form in which the competent examiner has made a statement to the effect that it is in safe working order 18(1E) and 19 of the Lifting Appliances and Lifting Gear Regulations (Chapter 59J of the Laws of Hong Kong) HK$2,000 HK$3,

161 BUSINESS Particulars of the charges Penalties paid 3 failed to ensure, so far as is reasonably practicable, the health and safety at work of all persons employed by him including the provision and maintenance of plant and systems of work that are, so far as is reasonably practicable, safe and without risks to health contrary to sections 6A(1), 6A(2)(a) and 6A(3) of the Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) 4 Failed to take adequate steps to prevent a person on a place where the construction work was being carried out from falling from a height of 2 metres or more contrary to regulations 38B(1A), 68(1)(A) and 68 (2)(g) of the Construction Sites (Safety) Regulations (Chapter 59I of the Laws of Hong Kong) 5 Failed to ensure that, so far as was reasonably practicable, suitable and adequate safe access to and egress from a place of work contrary to regulations 38AA(2), 68(1)(a) and 68(2)(g) of the Construction Sites (Safety) Regulations (Chapter 59I of the Laws of Hong Kong) HK$12,000 HK$10,000 HK$ 8,000 The above criminal convictions were all monetary penalty and such convictions were made against our Group but not against our Directors or the senior management of our Group. As at the Latest Practicable Date, save as disclosed above, we are not aware of any current, pending or threatened litigation, claim of arbitration against our Group which could have a material adverse effect on our financial condition as result of operations. REGULATORY NON-COMPLIANCE LEGAL COMPLIANCE Except as disclosed below, our operations were in material compliance with the applicable laws and regulations during the Track Record Period and up to the Latest Practicable Date. The following sets forth a summary of certain incidents of historical non-compliance with applicable laws and regulations during the Track Record Period. Our Directors believe that these incidents of non-compliance, whether individually or collectively, will not have a material operational or financial impact on us. 153

162 BUSINESS Non-compliance in relation to the Factories and Industrial Undertakings (Safety Management) Regulation (the Safety Management Regulation ) Details of noncompliance incident Date of incident Applicable laws and regulations Maximum penalty/likely penalty of the non-compliance Reasons for the non-compliance Remedial/rectification actions taken The Group failed to appoint a registered safety auditor to conduct safety audit to collect, assess and verify information on the efficiency, effectiveness and reliability of the Group s safety management system at least once in every six months. 1 April 2012 to May 2018 Sections 13 and Schedule 3 of the Factories and Industrial Undertakings (Safety Management) Regulation (Chapter 59AF of the Laws of Hong Kong) (the Safety Management Regulation ) Pursuant to section 34 of the Safety Management Regulation, the maximum penalty which may be imposed on and/or payable by the Group in relation to the failure to appoint safety auditor is HK$200,000 and imprisonment for up to six months. According to section 26 of the Magistrates Ordinance (Cap. 227 of the laws of Hong Kong), the time limit for prosecution of a breach is six months from its occurrence. As advised by our Legal Counsel, the non-compliances of failure to appoint a registered safety auditor to conduct safety audit was unintentional but due to the wrongful understanding on the part of the Predecessor Safety Supervisor of the legal requirements at the material time. Accordingly, our Legal Counsel advised that the chance of our Group and/or its director being prosecuted is low. Our Legal Counsel also advised that given the nature of the breach, if there is a prosecution, an estimated penalty of HK$4,000 to HK$10,000 is likely to be imposed on the Group and on each construction site which was required to conduct safety audit at the material time In the early stage of development of our Group, no experienced safety supervisor was employed by our Group, our Group had employed a safety supervisor (the Predecessor Safety Supervisor ) to conduct safety management in the relevant construction site(s). Such Predecessor Safety Supervisor was not experienced enough and misinterpreted the legal requirements under the Safety Management Regulation by (i) incorrectly excluding the workers of its sub-contractors in counting the number of workers in the relevant constructions site(s) and (ii) falsely believing that as long as the main contractor has performed its duty under the Safety Management Regulation, our Group was only required to follow the safety system of such main contractor and did not need to perform its own safety audit under the Safety Management Regulation. We had appointed the registered safety auditor to conduct a safety audit in compliance with the Safety Management Regulation in May 2018, and the audit report was filed with the Labour Department on 27 June Furthermore, to prevent recurrence of similar non-compliance in the future, a qualified safety officer will be hired by our Group to strengthen the controls and oversight over safety compliance. Further, the Safety Consultant is also engaged for providing timely and professional advice regarding safety compliance issues. 154

163 BUSINESS Breach of land use conditions set out in the conditions of grant and occupation permit of a premise located at Phase 1, Room , 9/F Metro Centre, No.32, Lam Hing St, Kowloon Bay, Kowloon, Hong Kong (the Premises ) Details of noncompliance incident Date of incident Applicable laws and regulations Maximum penalty/likely penalty of the non-compliance Reasons for the non-compliance Remedial/rectification actions taken Noble Engineering, as the tenant of the Premises, had been using part of the Premises as its office where the permitted use as specified in each of the relevant (i) conditions of sale and government grant; (ii) occupation permit; (iii) deeds of mutual covenant is (a) for industrial and godown purpose; (b) as workshops and ancillary accommodation for non-domestic use; (c) for use as prescribed by the government lease and the occupation permit respectively. 3 May June 2018 section 40(2) and section 40(6) of the Buildings Ordinance; section 25(1) of the Buildings Ordinance According to the relevant conditions of sale, the Government is entitled to re-enter the Premises and claim damages against Noble Engineering Limited. If Noble Engineering Limited does not quit the Premises upon receiving notice of re-entry from the Government, it may also be liable to civil claim by the Government. Under section 40(2) and 40(6) of the Buildings Ordinance, Noble Engineering is liable to a maximum fine of HK$100,000 and its directors are liable to a maximum fine of HK$100,000 and imprisonment of two years maximum for a breach of section 25(1) of the Buildings Ordinance. As for the breach of the relevant deed of mutual covenant (the DMC ), the incorporated owners or manager of the building could claim against Noble Engineering for an injunction restraining the use of the Premises as an office by Noble Engineering, which is in breach of the land use condition. Legal Counsel is of the view that the likelihood of imprisonment is low as there is no basis to say that such material change of use had endangered the structure of the building and had an adverse effect of the safety of the building. Given the nature of the breach, if there is a prosecution, an estimated penalty of HK$25,000 is likely to be imposed. The breach was not willful, as it was stated in the tenancy agreement that the Premises can be used as office and was a honest belief relying on the tenancy agreement and due to the absence of timely and professional advice at the material time. Upon discovery of such breach, Noble Engineering had, with the assistance of a surveyor engaged by the Group, redecorated the Premises and the usage of office is sized down to below 30% of the Premises. Such usage of office is primarily for the testing and scheduling of the equipment and small machines incidental to the primary use of warehouse purpose. Hence, after the size-down of the office usage, the current usage of the Premises by the Group would fall within the scope of permitted usage in the occupation permit. As advised by our Legal Counsel, after the size-down of office usage, the non-compliances with the conditions of sale and government grant as well as the occupation permit will be fully rectified. Also, in order to prevent any future breaches, the Group has established policies and procedures to govern the acquisition or leasing of landed properties. Besides, the Group will also seek assistance from external professionals such as registered architects or other authorised persons and legal advisers, if necessary, in order to ensure full compliance with the relevant laws and regulations in the usage of properties in the future. 155

164 BUSINESS Breach of government lease of an open storage located at Lot DD79L 1251(RP), Ng Chow Road, Shui Lau Hang, Ping Che, Fanling, New Territories, Hong Kong (the Open Storage ) Details of noncompliance incident Date of incident Applicable laws and regulations Maximum penalty/likely penalty of the non-compliance Reasons for the non-compliance Remedial/rectification actions taken Gold Win, as the tenant of the Open Storage, had been using the Open Storage as its storage for its construction machines and equipment and some structure were built on it which is not permitted under the government lease. 1 January June 2018 Breach of government lease According to the government lease, the Government is entitled to re-enter the Open Storage and/or to commence a civil action to re-enter the government lease. The breach was not willful, as it was stated in the tenancy agreement that the Open Storage can be used as open storage and was a honest belief relying on the tenancy agreement and falsely believing that any structure built on the Open Storage in support of the storage function is allowed. Upon discovery of such breach, Gold Win had, with the assistance of a surveyor engaged by the Group, removed all structures built on the Open Storage. Hence, after the removal of the structures built on the Open Storage, the current usage of the Open Storage by the Group would fall within the scope of permitted usage in the government lease. As advised by our Legal Counsel, after removal of the structure, the non-compliances with the government lease had been fully rectified. 156

165 BUSINESS INTERNAL CONTROL AND RISK MANAGEMENT Our Group endeavours to uphold the integrity of our business by adopting a comprehensive internal control system. In preparation for [REDACTED] and with a view to enhancing our internal control system, we engaged in independent internal control consultancy firm (the Internal Control Consultant ) in April The Internal Control Consultant conducted a thorough review and evaluation of our internal control system and made recommendations with respect to our internal control policies and procedures for our management s consideration. To ensure ongoing compliance with the applicable GEM Listing Rules upon [REDACTED] and to enhance our internal control system, our Group has adopted or intends to adopt the following policies and measures: Our Directors have attended the training conducted by our legal advisers as to Hong Kong law on the ongoing obligations and duties of a director of a company [REDACTED] on the Stock Exchange. Upon [REDACTED], we will set up a system and prepare and/or update manuals in relation to, among others, publication and distribution of announcements, reports and circulars, handling of inside information, financial reporting and other statutory and regulatory requirements. We have implemented comprehensive control policies and guidelines covering various aspects of our business operations including risk management policies and procedures, conflict of interest guidelines and disclosure guidelines. We have engaged an independent integrated management system certification body, which is responsible for conducting assessments on our existing quality, environment and safety management system, reviewing our current safety reporting procedures and making recommendations on our environmental and safety measures. We have agreed to engage Kingsway Capital Limited as our compliance adviser upon [REDACTED], which will advise our Board on compliance matters in relation to the GEM Listing Rules and/or other laws and regulations applicable to our operations. We will form an audit committee, comprising all of our independent non-executive Directors, namely, Ms. Lee Wing Sze Helen, Ms. Chan, Carman Wing Yan and Dr. Chow Ho Wan, Owen. The duties and obligations of the audit committee, which are set out in the terms of reference, include overseeing of the Company s financial reporting system, risk management and internal control systems. For the biographical details of members of our audit committee, please refer to the section headed Directors and Senior Management Independent non-executive Directors in this document. 157

166 BUSINESS We have appointed Mr. Wong Chun Wing as our company secretary, who is responsible for maintaining and updating our statutory records, dealing with secretarial matters and ensuring ongoing compliance with the relevant requirements under the Companies Ordinance. Upon occurrence of any non-occurrence issue, Mr. Wong Chun Wing will report it to our audit committee. We have engaged the Safety Consultant and registered auditors for providing timely and professional advice regarding safety compliance issues. View of our Directors and the Sole Sponsor The Sole Sponsor, after considering the above and having reviewed the internal control measures adopted by our Group, concurs with the view of our Directors that (i) the abovementioned non-compliance incident would not affect the suitability of listing of our Company under Rule of the GEM Listing Rules; and (ii) the non-compliance incident would not give rise to the concerns on the ability of our executive Directors to oversee our Company s operation and the suitability of our Directors under Rules 5.01 and 5.02 of the GEM Listing Rules. 158

167 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS CONTROLLING SHAREHOLDERS Immediately upon completion of the [REDACTED] and the Capitalisation Issue, without taking into account any Shares which may be issued pursuant to the exercise of the [REDACTED] or any options which may be granted under the Share Option Scheme, Dragon Sight will be directly interested in [REDACTED]% of our Company s entire issued share capital. Dragon Sight is owned as to 55%, 15%, 15% and 15% respectively by Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Leung Siu Lan and Ms. Leung Pui Kam. Pursuant to the confirmatory deed executed by Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Leung Siu Lan and Ms. Leung Pui Kam, each of them confirming that they are parties acting in concert, accordingly, each of Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Leung Siu Lan, Ms. Leung Pui Kam and Dragon Sight are our Controlling Shareholders for the purpose of the GEM Listing Rules. Please see section headed Substantial Shareholder for details of the shareholding interest of our Controlling Shareholders. RULE OF THE GEM LISTING RULES Each of our Controlling Shareholders and Directors has confirmed that, he/she/it does not have and their respective close associates do not have interest in any business apart from our Group s business which competes or is likely to compete, directly or indirectly, with our Group s business, and would require disclosure pursuant to Rule of the GEM Listing Rules. Information of our Controlling Shareholders Dragon Sight is an investment vehicle solely for the purpose of holding the Shares and do not have any business operations. Please refer to the section headed Directors, Senior Management and Staff Directors Executive Directors in this document for more details on Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee and Ms. Leung Pui Kam. INDEPENDENCE FROM CONTROLLING SHAREHOLDERS Having considered the following factors, our Directors believe that our Group is capable of carrying on its business independently of, and does not place reliance on, our Controlling Shareholders nor their respective close associates after [REDACTED]. Management independence Our Group s management and operational decisions are made by the Board and our team of senior management. Our Board consists of three executive Directors, and three independent non-executive Directors. The overlapping directors between our Group and the Controlling Shareholders are Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee and Ms. Leung Pui Kam. Mr. Ng Wai Lung Thomas is also the director of Dragon Sight. 159

168 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS We consider that our Board and senior management will function independently from our Controlling Shareholders because: (a) each Director is aware of his/her fiduciary duties as a Director which require, among other things, that he or she acts for the benefit and in the best interest of our Company and does not allow any conflict between his or her duties as a Director and his or her personal interests to exist; (b) pursuant to and unless otherwise permitted under the Articles and the GEM Listing Rules, our Directors must abstain from voting on any resolutions of our Board in respect of any contracts or arrangements or proposal in which they or any of their respective close associates (or in the case of connected transactions, their respective associates) have a material interest, and shall not be counted towards the quorum of such relevant meeting(s) of the Board. The independence of our Board s decision in respect of any matters in which any of our Directors has a material interest and/or potential conflict of interest is and can be ensured; (c) all our senior management members are independent from our Controlling Shareholders. Our Group has established its own finance, administration, quantity surveying, construction, purchase and human resources which are responsible for daily operations of our Group; (d) with the appointment of the independent non-executive Directors to our Board, we maintain and will continue to maintain a balanced composition of executive and non-executive Directors with diversified expertise and experience, a strong independent element is thus present to effectively exercise independent judgment on the corporate actions of our Company and make decisions after due consideration of independent and impartial opinions and views of our independent non-executive Directors; (e) the management, operation and affairs of our Group are headed, managed and supervised jointly by our Board instead of by any individual Director. Our Board acts collectively by a majority decision according to the Articles, and no individual Director is allowed to transact or can alone make any decision on behalf of our Company unless authorised by our Board or in accordance with the provisions of the Articles and the Companies Law. Any view of a Director will be checked and balanced by the view of other members of our Board, including the independent non-executive Directors; and (f) our Company has established corporate governance procedures in safeguarding the interests of our Shareholders and enhancing Shareholders value. Each of our Directors is fully aware of his/her fiduciary duty to our Group, and will abstain from voting on any matter where there is or may be a conflict of interest as required under and in accordance with the Articles and/or the GEM Listing Rules. 160

169 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Operational independence Our Group has established our own organizational structure comprising individual departments, each with specific areas of responsibilities, to handle our day-to-day operations independent from our Controlling Shareholders and their respective close associates. Our Company also has its own management team which is independent of our Controlling Shareholders and their respective close associates. Please refer to Independence from Controlling Shareholders Management Independence in this section for further details and analysis. All relevant equipment and assets necessary to our business operations are either owned by our Group or leased/hired to our Group by independent third parties instead of our Controlling Shareholders and their respective close associates. We have independent access to our suppliers and customers and none of our Controlling Shareholders and their respective close associates are a major supplier nor an intermediary of a major supplier of our Group. All our operating subsidiaries have obtained and hold in their respective names all necessary licences and permits to operate our business, and have registered in their respective names all the trademarks and domain names used by our Group in our business. We do not rely on any licence, permits and intellectual property rights held by our Controlling Shareholders and their respective close associates. We are also in possession of all relevant licenses necessary to carry on and operate our business and we have sufficient workforce to operate independently from our Controlling Shareholders and their close associates. On the basis of the matters disclosed in this section, our Directors are of the view that there is no operational dependence by us on, and we are operating our businesses independently of, our Controlling Shareholders and their respective close associates. Financial independence We have our own accounting and finance team and make financial decisions according to our own business needs. We have our own financial management system, internal control and accounting systems, finance, accounting and administration department, independent treasury function for cash receipts and payments, and the ability to operate independently from our Controlling Shareholders from a financial perspective. During the Track Record Period, our Group had certain amounts due from/to our ultimate Controlling Shareholders, details of which are set out in note 20 to the Accountants Report. Our Directors confirm that all amounts due from/to our Controlling Shareholders and/or related parties, which are non-trade in nature, will be fully settled in cash before the [REDACTED]. As at the Latest Practicable Date, our Group had certain banking facilities that were secured by guarantees and/or securities given by Mr. Ng Wai Lung Thomas, Ms. Leung Pui Kam and Mr. Ng Cheong Hee. The relevant banks which granted such banking facilities to our Group will release the guarantees and/or securities given by Mr. Ng Wai Lung Thomas, Ms. Leung Pui Kam and Mr. Ng Cheong Hee respectively and replace each of them with other securities and/or guarantees from our Company upon the [REDACTED] and/or its subsidiaries in favour of the relevant banks. 161

170 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Save as disclosed herein, our Directors confirm that there was no other financial assistance, security or guarantee provided by our Controlling Shareholders or their respective close associates in favour of our Group or vice versa during the Track Record Period and as at the Latest Practicable Date. Our Directors believe that, upon [REDACTED], our Group is capable of obtaining financing from third parties without the support of our Controlling Shareholders. Therefore, our Group will be financially independent from our Controlling Shareholders and/or any of their respective close associates. DEED OF NON-COMPETITION For the purpose of the [REDACTED], each of our Controlling Shareholders has entered into the Deed of Non-Competition in favor of our Company (for its own and on behalf of all members of our Group) on [ ], pursuant to which each of our Controlling Shareholders, irrevocably and unconditionally, undertakes and covenants with our Company that during the period that the Deed of Non-Competition remains effective, each of our Controlling Shareholders shall not, and shall procure that none of his/its close associates (excluding any member of the Group) shall, among others,: (a) directly or indirectly (other than through our Group), whether on his/her/its own account or jointly with or on behalf of any person, firm or company, engage, participate or hold any right or interest in or render any services to or otherwise be involved, whether as a shareholder, director, employee, partner, agent or otherwise (as the case may be), in any business in competition with or likely to be in competition with our Group s existing business activity and any business activities which may be undertaken by our Group from time to time (the Restricted Business ) and/or which any member of our Group may undertake in Hong Kong or outside Hong Kong from time to time ( Restricted Territory ) except for the holding in aggregate by the covenantors (individually or together or with their close associates collectively), whether directly or indirectly, of not more than 5% shareholding interests in any listed company in Hong Kong that engages or is involved in any activity or business which directly or indirectly competes with the Restricted Business, only if and provided always that (i) at all times there is a third party shareholder holding (together, where appropriate, with his/its close associates) a larger percentage of the shares in such listed company than the aggregate shareholding of him/her/it and/or his/her/its close associates in such listed company; (ii) he/she/it and/or his/her/its close associates are not entitled to appoint a majority of the directors of that listed company; and (iii) he/she/it and/or his/her/its close associates will not participate in or be involved in any way in the business, management and/or operation of that listed company; (b) take any direct or indirect action which constitutes an interference with or a disruption to the Restricted Business, including but not limited to, solicitation and/or enticing away from any member of the Group, of the Group s customers, suppliers or staff; and (c) exploit his/her/its knowledge or information or technique or skill or know-how obtained from our Group to compete, directly or indirectly, with the Restricted Business and/or any other business carried on by our Group from time to time. 162

171 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS In addition, each of our Controlling Shareholders irrevocably and unconditionally undertakes and covenants with our Company and each of the members of our Group that during the Restricted Period if he/she/it, or his/her/its close associates, receives enquiries of or is made aware of or comes across any actual or potential business opportunity relating to any of the Restricted Business in the Restricted Territory (the Business Opportunity ) or any such Business Opportunity is made available to him/her/ it or his/her/its close associates, he/she/it shall direct or procure the relevant associate to direct such Business Opportunity to us (and not to any other person) on a timely basis but in any event no later than 14 days from the date of receipt of such enquiry or knowledge of such Business Opportunity together with such requisite information to enable our Group to evaluate the merits of the Business Opportunity. The relevant Controlling Shareholder shall provide, or procure the relevant associate to provide us with all such assistance to secure such Business Opportunity as our Company or the relevant member of our Group may reasonably request or require. Any decision of our Group as to whether to pursue such Business Opportunity shall have to be approved by our independent non-executive Directors. Our Controlling Shareholder(s) and other conflicting Directors (if any) shall abstain from participating in and voting at and shall not be counted as quorum at all meetings of the Board where there is a conflict of interest or potential conflict of interest including but not limited to the relevant meeting of the independent non-executive Directors for considering whether or not to exercise the right of first refusal on such Business Opportunity. The Deed of Non-Competition shall take effect from the [REDACTED] and shall cease to have effect on a Controlling Shareholder on the earlier of (i) the date on which such Controlling Shareholder and his/her/its associates, individually or collectively ceases to be interested, directly or indirectly, in 30% or more of the Shares in issue, or otherwise ceases to be regarded as a Controlling Shareholder (as that term is defined from time to time under the GEM Listing Rules) of our Company or (ii) the Shares cease to be [REDACTED] on the Stock Exchange (the Restricted Period ) (save for temporary trading halt or suspension of trading of the Shares on the Stock Exchange due to any reason). CORPORATE GOVERNANCE MEASURES Our Controlling Shareholders and their respective close associates may not compete with us as provided in the Deed of Non-Competition. Our Directors believe that there are adequate corporate governance measures in place to manage existing and potential conflicts of interest. In order to further avoid potential conflicts of interest, we have implemented upon the [REDACTED] the following measures: (a) our Board will ensure reporting any event relating to potential conflict of interests to our independent non-executive Directors as soon as practicable when it realises or suspects any event relating to potential conflict of interests may occur during the daily operations; (b) in the event that there is any potential conflict of interests relating to the business of our Group between our Group and our Controlling Shareholders, the interested Directors, or as the case may be, our Controlling Shareholders would, according to the Articles of 163

172 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Association and/or the GEM Listing Rules, be required to make full disclosure in respect of matters that conflict or potentially conflict with our Group s interests and, where required, abstain from in the relevant board meeting and/or general meeting voting on the transaction and not count as quorum where required; (c) our Controlling Shareholders undertake to provide all information necessary, including all relevant financial, operational and market information or any other requisite information as required by the independent non-executive Directors of our Company for their annual review as to the compliance of the Controlling Shareholders and/or their respective close associates with the terms of the Deed of Non-Competition and the enforcement of the Deed of Non-Competition; (d) our Controlling Shareholders undertake to provide our Company with an annual confirmation in respect of the compliance by the Controlling Shareholders and their close associates with the terms of the Deed of Non-Competition and acknowledge and agree that such annual confirmation will be disclosed in the annual report of our Company; (e) our independent non-executive Directors will review, at least on an annual basis, the compliance with the Deed of Non-Competition by our Controlling Shareholders and disclose decisions on matters reviewed by our independent non-executive Directors relating to the compliance and enforcement of the undertakings in our Company s annual report or by way of announcement to the public; (f) we are committed that our Board should include a balanced composition of executive and non-executive Directors (including independent non-executive Directors). We have appointed three independent non-executive Directors whom we believe possess sufficient experience and free of any business or other relationship which could interfere in any material manner with the exercise of their independent judgment. The independent non-executive Directors will also be able to provide an impartial and external opinion to protect the interests of our public Shareholders. Details of our independent non-executive Directors are set out in the section headed Directors and Senior Management Directors Independent Non-executive Directors in this document; and (g) we have appointed the Sole Sponsor as our compliance adviser, which will provide advice and guidance to us in respect of compliance with the applicable laws and the GEM Listing Rules including various requirements relating to directors duties and corporate governance. 164

173 SUBSTANTIAL SHAREHOLDERS SUBSTANTIAL SHAREHOLDERS So far as our Directors are aware, immediately following the completion of the [REDACTED] and the Capitalisation Issue (without taking into account any Shares which may be allotted and issued pursuant to the exercise of the [REDACTED] or any options which may be granted under the Share Option Scheme), the following persons/entities will have interests or short positions in our Shares or underlying Shares which would be required to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who are, directly or indirectly, interested in 10% or more of the total number of shares of any class of share capital carrying rights to vote in all circumstances at general meetings of any of our subsidiaries: Name Capacity/ nature of interest As at the date of AP submission Number of shares held/ interested in Approximate percentage of shareholding Immediately after completion of the [REDACTED] and the Capitalisation Issue Number of shares held/ interested in Approximate percentage of shareholding Dragon Sight (Note 1) Beneficial owner 1 100% [REDACTED] [REDACTED]% Mr. Ng Wai Lung, Thomas (Notes 1, 2) Interest of a controlled corporation; Interest held jointly with another person; Family interest 1 100% [REDACTED] [REDACTED]% Ms. Leung Siu Lan (Notes 1, 3) Interest of a controlled corporation; Interest held jointly with another person; Family interest 1 100% [REDACTED] [REDACTED]% Mr. Ng Cheong Hee (Notes 1, 3) Interest of a controlled corporation; Interest held jointly with another person; Family interest 1 100% [REDACTED] [REDACTED]% Ms. Leung Pui Kam (Notes 1, 2) Interest of a controlled corporation; Interest held jointly with another person; Family interest 1 100% [REDACTED] [REDACTED]% Notes: 1. Dragon Sight is 55%, 15%, 15% and 15% owned by Mr. Ng Wai Lung Thomas, Ms. Leung Siu Lan, Mr. Ng Cheong Hee, and Ms. Leung Pui Kam. Pursuant to the confirmatory deed executed by Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee, Ms. Leung Siu Lan and Ms. Leung Pui Kam, each of them confirming that they are parties acting in concert, each of them is deemed to be interested in [REDACTED] Shares held by them in aggregate under SFO. Mr. Ng Wai Lung Thomas is the son of Mr. Ng Cheong Hee and Ms. Leung Siu Lan. 2. Ms. Leung Pui Kam is the spouse of Mr. Ng Wai Lung Thomas and is deemed to be interested in all the Shares beneficially owned by each other for the purpose of the SFO. 3. Ms. Leung Siu Lan is the spouse of Mr. Ng Cheong Hee and is deemed to be interested in all the shares beneficially owned by each other for the purpose of the SFO. 165

174 SUBSTANTIAL SHAREHOLDERS Save as disclosed above, our Directors are not aware of any person who will or any entity which will, immediately following the completion of the [REDACTED] and the Capitalisation Issue (without taking into account any Shares which may be allotted and issued pursuant to the exercise of the [REDACTED] or any options which may be granted under the Share Option Scheme), have an interests or short position in our Shares or the underlying Shares which would be required to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or would be directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of our Company. Our Directors are not aware of any arrangement which may at a subsequent date result in a change of control of our Company. 166

175 DIRECTORS AND SENIOR MANAGEMENT BOARD OF DIRECTORS AND SENIOR MANAGEMENT DIRECTORS Our Board consists of 6 Directors, of whom 3 are executive Directors and 3 are independent non-executive Directors. Our Board is responsible and has general powers for the management and conduct of our business. The following table sets out certain information in respect of our Directors: Name Age Date of joining our Group Present position(s) Principal responsibilities Date of appointment as Director Relationship with other Directors or senior management (Other than through or relating to our Group) Mr. Ng Wai Lung Thomas ( ) Mr. Ng Cheong Hee ( ) 41 May 2001 chairman of the Board, chief executive officer and executive Director Overall planning, financial management and business development strategy and project management and supervision of our Group chairman of the nomination committee 67 May 2001 Executive Director Supervision of the overall operation and the construction projects for our Group 29 May 2018 Son of Mr. Ng Cheong Hee and spouse of Ms. Leung Pui Kam 26 June 2018 Father of Mr. Ng Wai Lung Thomas Ms. Leung Pui Kam ( ) 41 August 2005 Executive Director Overseeing the day-to-day business and operations of our offices, warehouses and open storage 26 June 2018 Spouse of Mr. Ng Wai Lung Thomas Ms. Lee Wing Sze Helen ( ) 41 [ ] Independent nonexecutive Director [Providing independent advice to the Board; serving as chairlady of the audit committee, the member of nomination committee and remuneration committee] [ ] N/A 167

176 DIRECTORS AND SENIOR MANAGEMENT Name Age Date of joining our Group Present position(s) Principal responsibilities Date of appointment as Director Relationship with other Directors or senior management (Other than through or relating to our Group) Ms. Chan, Carman Wing Yan ( ) 39 [ ] Independent nonexecutive Director [Providing independent advice to the Board; serving as members of the audit committee, the nomination committee and remuneration committee] [ ] N/A Dr. Chow Ho Wan, Owen ( ) 42 [ ] Independent nonexecutive Director [Providing independent advice to the Board; serving as chairman of the remuneration committee, the nomination committee and audit committee] [ ] N/A Disclosure required under Rule 17.50(2) of the GEM Listing Rules Save as disclosed in this section, each of our Directors confirms with respect to himself or herself that: (i) he/she did not hold any other directorships in the three years prior to the Latest Practicable Date in any public companies of which the securities are listed on any securities market in Hong Kong or overseas and he/she did not hold any other position in our Company or any of its subsidiaries; (ii) save as disclosed in the section headed Appendix IV Statutory and General Information C. Further Information about Substantial Shareholders and Directors 1. Disclosure of Interests in this document, he/she did not have any interests in the Shares within the meaning of Part XV of the SFO; (iii) there is no other information that should be disclosed for himself/herself pursuant to Rule 17.50(2) of the GEM Listing Rules; and (iv) to the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, there are no other matters with respect to the appointment of our Directors that need to be brought to the attention of our Shareholders. 168

177 DIRECTORS AND SENIOR MANAGEMENT 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 our senior management members:- Name Age Date of joining our Group Present position(s) Principal responsibilities Date of appointment Relationship with other Directors or senior management Mr. Wong Chun Wing ( ) 50 November 2017 Finance Manager Carrying out financial reporting procedures, performing treasury function by monitoring the operating cash flow of the Group, including cash and cheque reimbursement, payroll procedures, tax issues; and controlling the approval procedures for various expenses 6 November 2017 N/A Mr. Leung, William ( ) 42 January 2016 Quantity Surveying Manager Responsible for supervising and overseeing the quantity surveying department 1 January 2018 N/A Mr. Hui Sun Fui ( ) 55 April 2004 Project Manager Responsible for overall management of site works, quality control and work safety supervision 1 January 2018 N/A Executive Directors Mr. Ng Wai Lung Thomas ( ), aged 41, is our chairman of the Board, chief executive officer and executive Director and serve as the chairman of the nomination committee. Mr. Ng Wai Lung Thomas is primarily responsible for developing and executing the Group s business strategies to attain the goals of the Group and other shareholders. He is also responsible for overall planning, financial management and business development strategy and engineering project management and supervision of our Group. Mr. Ng Wai Lung Thomas attained secondary school education in Hong Kong. Before setting up Noble Engineering with Mr. Ng Cheong Hee, he worked as a project assistant at New Universal Furniture & Design Company, a company which engages in furniture and design business from 1997 to 2000, and was responsible for providing administrative support to project team and assisting to resolve project issues. 169

178 DIRECTORS AND SENIOR MANAGEMENT Mr. Ng Wai Lung Thomas has more than 20 years of experience in the construction industry. Mr. Ng Wai Lung Thomas co-founded Noble Engineering with Mr. Ng Cheong Hee in 2001 as a director, and has been the managing director of Noble Engineering since In 2012, Mr. Ng Wai Lung Thomas established BiB and in 2014 established Everrich Iron with Mr. Ng Cheong Hee and has been the directors of both BiB and Everrich Iron, which are subsidiaries of our Group. Mr. Ng Wai Lung Thomas has accumulated extensive knowledge in the field of construction industry especially on civil engineering projects, including site formation work, excavation and earthwork, road and drainage work, steelwork and external work. Mr. Ng Wai Lung Thomas is the son of Mr. Ng Cheong Hee and is the spouse of Ms. Leung Pui Kam. Mr. Ng Wai Lung, Thomas was also a director of the following company which was incorporated in Hong Kong prior to its dissolution: Name of the company Principal business activity prior to dissolution Date of dissolution Means of dissolution Reasons for dissolution Fortune Harvest Engineering Limited Trading 3 January 2003 Deregistration under section 291 of the Predecessor Companies Ordinance cessation of business Mr. Ng Wai Lung Thomas confirmed that the above company was solvent at the time when it was being dissolved by deregistration. Mr. Ng Cheong Hee ( ), aged 67, is our executive Director. Mr. Ng Cheong Hee is primarily responsible for supervision of the overall operation and the construction projects for our Group. Mr. Ng Cheong Hee has more than 35 years of experience in the construction industry. Prior to co-founding Noble Engineering with Mr. Ng Wai Lung Thomas in 2001, he worked as a general labourer at various construction sites in Hong Kong from 1974 to From 1975 to 1986, Mr. Ng Cheong Hee worked as a plant and equipment operator and subsequently a foreman, and was responsible for supervising other workers in operation in construction sites. From 1987 to 1988, Mr. Ng Cheong Hee was appointed as a director at Teamford Engineering (HK) Limited, a company which engages in construction works in Hong Kong, and was responsible for overall supervision and management of construction projects. From 1989 to 2000, Mr. Ng Cheong Hee was appointed as a director at Luen Fook Engineering Co., Limited, a company which engages in construction works in Hong Kong, and was responsible for overseeing its day-to-day business and operations. 170

179 DIRECTORS AND SENIOR MANAGEMENT Mr. Ng Cheong Hee co-founded Noble Engineering with Mr. Ng Wai Lung Thomas in 2001 and has been the director of Noble Engineering since then. In 2014, Mr. Ng Cheong Hee also established Everrich Iron with Mr. Ng Wai Lung Thomas and has been its director since then. Mr. Ng Cheong Hee is the father of Mr. Ng Wai Lung Thomas, and is the father-in-law of Ms. Leung Pui Kam. Mr. Ng Cheong Hee was previously a director of the following 3 companies which were incorporated in Hong Kong prior to their respective dissolution: Name of the company Principal business activity prior to dissolution Date of dissolution Means of dissolution Reasons for dissolution Luen Fook Engineering Co., Limited Construction 5 December 2003 Deregistration under section 291 of the Predecessor Companies Ordinance cessation of business Teamford Engineering (HK) Limited Construction 8 April 2004 Deregistration under section 291 of the Predecessor Companies Ordinance cessation of business Truebest International Limited Catering 10 February 2017 Deregistration under section 751 of the Companies Ordinance cessation of business Mr. Ng Cheong Hee confirmed that the above 3 companies were solvent at the time when they were being dissolved by deregistration. Ms. Leung Pui Kam ( ), aged 41, is our executive Director. Ms. Leung Pui Kam is primarily responsible for overseeing the day-to-day business and operation of our office, warehouses and open storage. Ms. Leung Pui Kam founded Gold Win in 2005 and has been the director of Gold Win, a company incorporated in Hong Kong which engages in engineering, investment and consultant businesses, and has been responsible for its supervision and overall business management since then. Ms. Leung Pui Kam attained secondary school education in Hong Kong. 171

180 DIRECTORS AND SENIOR MANAGEMENT Independent Non-Executive Directors Ms. Lee Wing Sze Helen ( ), aged 41, is our independent non-executive Director. She joined our Group in [ ]. Ms. Lee has more than 17 years of experience in the accounting and finance industry. From 20 June 2000 to 5 May 2004, she worked as audit clerk at M.B. Lee & Co., a certified public accountants limited in Hong Kong. From 6 May 2004 to 31 March 2014, she worked as the chief accountant at Euroasia Industrial Co. Ltd, a company in exporting industry, and was responsible for the providing accounting services. Since 1 June 2015, she has acted as the financial consultant at Zhi Cheng Holdings Limited (stock code: 8130), the shares of which are listed on the Stock Exchange, and is responsible for provision of financial consultancy services. Ms. Lee obtained an honours diploma in accounting from Hong Kong Shue Yan College in July 2000 and has been as associate member and a fellow member of Association of International Accountants since November 2005 and July 2016, and has been a member of the Hong Kong Institute of Certified Public Accountants since April Ms. Lee is also registered as a certified tax adviser of the Taxation Institute of Hong Kong since January Ms. Chan, Carman Wing Yan ( ), aged 39, is our independent non-executive Director. She joined our Group in [ ]. Ms. Chan has more than 10 years of experience working in the banking and finance industry. Prior to joining our Group, from April 2004 to March 2007, Ms. Chan worked as a private banker at Canadian Imperial Bank of Commerce, and was responsible for advising clients on all aspects of wealth arrangement strategies and matters. From March 2007 to June 2011, Ms. Chan held various high ranking positions in several financial institutions in Hong Kong and Germany. From July 2011 to January 2015, she worked as an executive director at CU Investment Management Limited, a company which engages in the business of fund and asset management in Hong Kong, and was responsible for facilitating the review, control and rolling out different asset classes of fund products to ensure their compliance with corporate and internal control policies. From January 2015 to December 2015, she worked as a responsible officer at Iridium Capital Limited, a company which engages in the business of securities advisory and asset management in Hong Kong, and was responsible for the implementation in compliance with the SFC rules, developing and administering internal controls and administrative policies, standards and practices. From November 2016 to present, she worked as a responsible officer at Bradbury Asset Management (Hong Kong) Limited, a company which engages in the business of fund and asset management in Hong Kong, and was responsible for acting as a responsible officer of SFO Type 9 regulated activities and the implementation in compliance with SFC rules, developing and administering internal controls and administrative policies, standards and practices. From July 2015 to November 2017, Ms. Chan was appointed as an independent non-executive director of Zhi Cheng Holdings Limited (stock code: 8130), the shares of which are listed on the Stock Exchange. 172

181 DIRECTORS AND SENIOR MANAGEMENT Ms. Chan obtained an associate of arts degree from Kwantlen University College in Vancouver in Canada in September 2004, followed by a master of business administration degree obtained from the University of Wales, Newport in United Kingdom in July Ms. Chan also completed a course on taxation law in China organized by the South China University of Technology Continuing Education College in September Ms. Chan has been a certified financial planner (China) registered in the China Securities Regulatory Commission since November 2007 and has been registered as a licensed person by the SFC in June Dr. Chow Ho Wan, Owen ( ), aged 42, is our independent non-executive Director. He joined our Group in [ ]. Dr. Chow worked as a staff accountant at Deloitte Touche Tohmatsu from January 2000 to July 2000, mainly responsible for audit testing of profit and loss account and balance sheet items. From June 2002 to July 2003, Dr. Chow worked as a vice president of SHK Wealth Management Department in Sun Hong Kai Securities Limited. Dr. Chow also worked as a personal banker in the preferred banking department at ABN Amro Bank from September 2003 to November 2003 and a personal banker at Citibank (Hong Kong) Limited from August 2004 to June Dr Chow then joined Hang Seng Bank Limited in September 2007 and worked as a vice president in the private banking department until he left with his last position as a relationship manager in the private banking department in April From 2009 to 2011, Dr. Chow worked as a vice president in the private banking department in Deutsche Bank. Dr. Chow was the managing director at Sunwah Kingsway from August 2011 to August 2013, mainly responsible for underwriting debt and equities securities in primary and secondary markets. From 2013 to 2014, Dr. Chow was the head of corporate finance in Blue Sky Power Holdings Limited (stock code: 6828), the shares of which are listed on the Stock Exchange. From 2015 to present, Dr. Chow has been a director of Nebpay Limited since From 2016 to present, Dr. Chow has been the founder and chief executive officer of Sino Fame International Group, an educational group operating in Hong Kong and in the Greater China which engages in educational and career consulting services. From 2012 to present, Dr. Chow has been the founder and chairman of Association of International Certified Financial Consultants. Since 2014, Dr. Chow has been the director of Emerald Capital Limited. Dr. Chow has been an independent non-executive Director of Hong Wei (Asia) Holdings Company Limited (stock code: 8191) since 1 August From 13 January 2017 to 30 September 2017, Dr. Chow was appointed as an independent non-executive Director of CCT Land Holdings Limited (stock code: 261). Save as disclosed above, Dr. Chow was not a director in any other listed companies during the three years immediately preceding the Latest Practicable Date. Dr. Chow obtained the degree of Bachelor of Commerce from the University of Toronto, Canada in June 1999 and subsequently obtained the Master of Science in Finance from the Chinese University of Hong Kong in December 2003, the Bachelor of Laws from Tsinghua University in January 2006 and the doctoral degree of Business Administration from European University in August In 2014, Dr. Chow took Postdoctoral Global Leadership Research Program in University of Oxford. Dr. Chow also holds various professional qualifications, including certified financial consultant (registered in the U.S. since October 2011), certified financial management planner (registered since February 2011), fellow member of Chartered Banking Risk Management (registered since June 2010), 173

182 DIRECTORS AND SENIOR MANAGEMENT member of The Institute of Financial Accountants (IFA), fellow member of Hong Kong Institute of Directors, CPA Australia (registered in Australia since February 2016), fellow of The Chartered Management Institute (FCMI), member of Hong Kong Securities and Investment Institute (since July 2001) and Canadian Securities Institute (since 1999). Senior Management Mr. Wong Chun Wing ( ), aged 50, is our Finance Manager. He is primarily responsible for budget, forecast and cash flow management of our Group. He joined our Group in November Mr. Wong has more than 10 years of experience in the accounting management industry. Prior to joining our Group, he worked as an accounting manager at Pacific Potential Trading Co. Ltd from August 2004 to April 2006, and was responsible for finance and management reporting and accounting operation in Hong Kong and Huizhou offices in the PRC. From July 2006 to March 2007, he worked as a budget and measurement manager at Thomson HK Holdings Ltd, a regional trading and international procurement office of audio and video products and various multimedia products, and was responsible for managing the budget and cost analysis and reporting to the Asia Pacific sales and procurement office. From November 2007 to October 2012, he worked as an operations accountant at the Hong Kong office of UGL Rail Services Pty Limited, a subsidiary of UGL Limited, with a principal business of, among other things, provision of manufacturing railroad equipment, and was responsible for the management and control of finance for the Hong Kong operations including cash flow, major project reviews, budgeting, monthly management reports, variance analysis, customer billings, payroll functions, and being a cheque signatory. From April 2013 to October 2016, he worked as a finance and administration controller at CAH Professional Sound Co Ltd, a company based in Hong Kong, with a principal business of distribution, pro audio and visual solutions, audio engineering and maintenance support, and was responsible for managing all aspects of finance and accounting, administration, taxation, system changeover and company operations. Mr. Wong obtained a master of business administration degree from City University of Hong Kong in Hong Kong in November 2006 and has been a member of the Association of Chartered Certified Accountants since November 2000, an associate of Hong Kong Society of Accountants since January 2001, and a fellow of the Association of Chartered Certified Accountants since November Mr. Leung, William ( ), aged 42, is the head of quantity surveying department of our Group. He is primarily responsible for managing and supervising the quantity surveying team of our Group. He joined our Group in January 2016 and was subsequently appointed as the quantity surveying manager in January Mr. Leung has more than 15 years of experience in the quantity surveying industry. Prior to joining our Group, from June 2000 to August 2001, he worked as an assistant quantity surveyor at The Express Builders Co., Ltd, a company which engages in building and civil engineering businesses in Hong Kong, and was responsible for preparing the documentation works such as preparing the interim payment, sub-contractor payment, cost report, extension of time claims and prolongation claim and the site measurement works. From October 2001 to October 2005, he worked as a construction supervisor at Drainage Services Department of the Government of the Hong Kong Special Administrative Region, and was responsible for supervision of trench works, pipe installation, 174

183 DIRECTORS AND SENIOR MANAGEMENT environmental and safety, and board piling works. From October 2005 to April 2010, he worked as a quantity surveyor at Siu Wing Construction Co., Ltd, a company which engages in construction businesses in Hong Kong, and was responsible for performing tendering, payment and claims issues. From May 2010 to November 2013, he worked as a quantity surveyor at China State Construction Engineering (HK) Ltd, a company which engages in building and construction works in Hong Kong, and was responsible for a variety of quantity surveying works including handling of variations and claims, preparing of interim submission, cost estimation, tender preparation, cost control, management of sub-contract, reporting, settlement of final accounts etc. From November 2013 to January 2016, he worked as a quantity surveyor at Ngai Shun Construction & Drilling Co. Ltd, a company which engages in construction and drilling businesses in Hong Kong, and was responsible for managing a quantity surveying team in liaising with clients, payment and claims issues. Mr. Leung obtained a higher diploma in building and construction from City University of Hong Kong in Hong Kong in November 2000, and a bachelor of science degree in construction management from University of Wolverhampton in the United Kingdom in October Mr. Hui Sun Fui ( ), aged 55, joined our Group in April 2004 as a senior project coordinator and became our project manager in January He is primarily responsible for the overall management of site works, quality control and work safety supervision. Mr. Hui has more than 20 years of experience in the construction industry. Prior to joining our Group, he worked as an on-site safety supervisor at Stanger Asia Limited, a Hong Kong company which is a leading Hong Kong Laboratory Accredited Scheme accredited testing laboratory providing a wide range of testing, inspection, calibration, monitoring, chemical and consultancy services for construction, building materials and architectural products from 1 June 1997 to 31 March 2001 and was responsible for monitoring and supervising the site safety compliance by the workers. From 1 June 2001 to 31 March 2003, Mr. Hui worked as a safety supervisor at World Diamond Engineering Limited, a Hong Kong construction company which engages in drainage works in Hong Kong until he left and joined our Group in 2004, and was responsible for safety management and supervision of site works. Mr. Hui obtained a higher certificate in civil engineering from Hong Kong Institute of Vocational Education in July 2003, and has satisfactorily completed a 133-day full-time short course in site surveying and been awarded the leveller intermediate trade test certificate by Construction Industry Training Authority in April In December 2009 and January 2010, Mr. Hui has satisfactorily completed a 3-day metal scaffold erecting and dismantling supervision training course and a 14-hour part-time course in detection of underground electricity cables/gas pipes respectively organized by the Construction Industry Council Training Academy. COMPANY SECRETARY Mr. Wong Chun Wing ( ), aged 50, is the company secretary of our Company since 28 June 2018, and is mainly responsible for the company secretarial and related matters of our Group. For details on Mr. Wong Chun Wing s background, please refer to the description about him as our Company s financial manager in Senior Management under this section above. 175

184 DIRECTORS AND SENIOR MANAGEMENT COMPLIANCE OFFICER Mr. Ng Wai Lung Thomas, aged 41, who is our executive Director, [is the compliance officer of our Company]. For details of his qualifications and experience, please see Executive Directors in this section above. BOARD COMMITTEES We have established the following committees in our Board of Directors, of which the operation is in accordance with terms of reference established by our Board: Audit committee We established an audit committee on [ ] 2018 with written terms of reference in compliance with Rule 5.29 of the GEM Listing Rules and paragraph C3.3 of the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules respectively. The primary duties of the audit committee are to, among other things, review and approve our Group s financial reporting process and internal control and risk management system, oversee our audit process and perform other duties and responsibilities as assigned by our Board. The audit committee consists of three independent non-executive Directors, being Ms. [Lee Wing Sze Helen], Mr. [Chan, Carman Wing Yan] and Dr. [Chow Ho Wan, Owen]. Ms. [Lee Wing Sze Helen] is the chairman of the audit committee. Remuneration committee We established a remuneration committee on [ ] 2018 with written terms of reference in compliance with Rule 5.35 of the GEM Listing Rules and paragraph B1.2 of the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules. The primary duties of the remuneration committee are to, among other things, formulate our remuneration policy, review and determine the terms of remuneration packages of our Directors and senior management and review and approve performance-based remuneration with reference to our corporate goals and objectives resolved by our Board from time to time. The remuneration committee consists of three independent non-executive Directors, being Dr. [Chow Ho Wan, Owen], Ms. [Lee Wing Sze Helen] and Ms. [Chan, Carman Wing Yan]. Dr. [Chow Ho Wan, Owen] is the chairman of the remuneration committee. Nomination committee We established a nomination committee on [ ] with written terms of reference in compliance with paragraph A5.2 of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 15 of the GEM Listing Rules respectively. The primary duties of the Nomination Committee are to review the structure, size and composition of the Board on a regular basis; identify individuals suitably qualified to become Board members; assess the independence of independent non-executive Directors; and make recommendations to the Board on relevant matters relating to the appointment or re-appointment of Directors. 176

185 DIRECTORS AND SENIOR MANAGEMENT The nomination committee consists of three independent non-executive Directors, being Mr. [Ng Wai Lung Thomas], Ms. [Chan, Carman Wing Yan] and Dr. [Chow Ho Wan, Owen]. Mr. [Ng Wai Lung Thomas] is the chairman of the nomination committee. REMUNERATION POLICY We base our remuneration policy on the position, duties and performance of our employees. The remuneration of our employees may include salary, bonus and various subsidies. We conduct performance appraisal under the supervision of Mr Ng Wai Lung Thomas, our executive Director, on an annual basis. The overall remuneration structure and policy of our Group is expected to remain the same upon [REDACTED], except that the remuneration committee will perform such duties as stated in the paragraph headed Board Committees Remuneration Committee in this section. For details of our employees, remuneration policies, bonus and training, please refer to the section headed Business Employees in this document. SHARE OPTION SCHEME [Our Company has conditionally adopted a Share Option Scheme pursuant to which selected participants may be granted options to subscribe for shares as incentives or rewards for their service rendered to our Group and any entity in which any member of our Group holds any equity interest. Our Directors believe that the implementation of the Share Option Scheme enables our Group to recruit and retain high calibre executives and employees. The principal terms of the [REDACTED] Share Option Scheme are summarised in the section headed Appendix V Statutory and General Information D. Other information 1. [REDACTED] Share Option Scheme in this document.] CORPORATE GOVERNANCE The Directors recognise the importance of good corporate governance in management and internal procedures so as to achieve effective accountability. The Group will comply with the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules, except for the deviation from the code provision A.2.1 of the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules. Mr. Ng Wai Lung Thomas is the chairman of the Board and the chief executive officer of the Company and he has been managing the Group s business and supervising the overall operations of the Group since The Directors consider that vesting the roles of the chairman of the Board and the chief executive officer of the Company in Mr. Ng Wai Lung Thomas is beneficial to the management and business development of the Group and will provide a strong and consistent leadership to the Group. The Board will continue to review and consider splitting the roles of the chairman of the Board and the chief executive officer at a time when it is appropriate and suitable by taking into account the circumstances of the Group as a whole. Save for disclosed in this section, the Group is in compliance with all the code provisions of the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules. 177

186 DIRECTORS AND SENIOR MANAGEMENT COMPLIANCE ADVISER In accordance with Rule 6A.19 of the GEM Listing Rules, we have appointed Kingsway Capital Limited as our compliance adviser, who will have access to all relevant records and information relating to us as it may reasonably require to properly perform its duties. Pursuant to Rule 6A.23 of the GEM Listing Rules, the compliance adviser will advise us on the following circumstances: (1) before the publication of any announcements, circulars or financial reports; (2) where a transaction, which might be a notifiable transaction or connected transaction, is contemplated including share issues and share repurchases; (3) where our company proposes to use the proceeds of the [REDACTED] in a manner different from that detailed in this document or where our Company s business activities, developments or results deviate from any forecast, estimate or other information in this document; and (4) where the Stock Exchange makes an inquiry of our Company regarding unusual movements in the price or trading volume of the Shares the possible development of a false market in its securities, or any other matters under Rule of the GEM Listing Rules. The term of the appointment shall commence on the [REDACTED] and is expected to end on the date on which our Company complies with Rule of the GEM Listing Rules on the distribution of the annual report in respect of the financial results of the second full financial year commencing after the [REDACTED]. REMUNERATION OF DIRECTORS AND MANAGEMENT Our Directors and senior management receive compensation in the form of salaries, allowances, bonuses and other benefits-in-kind, including our contribution to the pension scheme. The aggregate amount of remuneration (including salaries, allowances, discretionary bonuses, other benefits and contributions to pension schemes) paid to our Directors for the two years ended 31 December 2016 and 2017 and the four months ended 30 April 2018 are HK$779,000, HK$1,114,000 and HK$332,000 respectively. The aggregate amount of remuneration (including salaries, allowances, discretionary bonuses, other benefits and contributions to pension schemes) paid to our five highest paid individuals for the years ended 31 December 2016 and 2017 and the four months ended 30 April 2018 are HK$1,744,000, HK$2,151,000 and HK$752,000. It is estimated that an aggregate amount of remuneration equivalent to approximately HK$1,135,000 million will be paid and granted to our Directors by us for the year ending 31 December 2018 under arrangements in force on the date of this document. 178

187 DIRECTORS AND SENIOR MANAGEMENT No remuneration was paid to our Directors or the five highest paid individuals as an inducement to join, or upon joining us, or to qualify him/her as a Director, or otherwise for service rendered by him/her in connection with the promotion or formation of us. No compensation was paid to, or receivable by, our Directors or past Directors during the Track Record Period for the loss of office as director of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group. None of our Directors waived any emoluments during the same period. Our Remuneration Committee determines the salaries of our Directors based on each Director s qualification, experience, responsibility, performance and the time devoted to our business. For additional information on Directors remuneration during the Track Record Period as well as information on the highest paid individual, please refer to Note 11 to the Accountants Report as set out in Appendix I to this document. BENEFITS In compliance with all the Mandatory Provident Fund scheme related legal obligations under the Mandatory Provident Fund Schemes Ordinance, we have participated in a Mandatory Provident Fund scheme operated by an approved Mandatory Provident Fund service provider, enrolled all our executive Directors and qualifying employees in the Mandatory Provident Fund scheme and made Mandatory Provident Fund contributions for them. 179

188 SHARE CAPITAL SHARE CAPITAL Assuming the [REDACTED] becomes unconditional, the [REDACTED] is not exercised, and without taking into account any Shares which may be issued upon exercise of any options that may be granted under the Share Option Scheme, our share capital immediately following the [REDACTED] and the Capitalisation Issue will be as follows: Authorised share capital HK$ [10,000,000,000] Shares of HK$0.01 each [100,000,000] Issued and to be issued, fully paid or credited as fully paid upon completion of the [REDACTED] and the Capitalisation Issue: HK$ [10,000] Share in issue at the date of this document [100] [REDACTED] Shares to be issued pursuant to Capitalisation Issue [REDACTED] [REDACTED] Shares to be issued pursuant to the [REDACTED] (before any exercise of the [REDACTED]) [REDACTED] [REDACTED] Shares in total (before any exercise of the [REDACTED]) (Note) [REDACTED] Note: If the [REDACTED] is exercised in full, [REDACTED] Shares will be issued resulting a total issued share capital of [REDACTED] Shares with an aggregate nominal value of HK$[REDACTED] ASSUMPTIONS The table as shown above assumes the [REDACTED] becoming unconditional and the allotment and issue of Shares pursuant thereto and under the [REDACTED] and the Capitalisation Issue are made as described herein. It does not take into account any Shares which may be allotted and issued or repurchased by our Company pursuant to the general mandates given to our Directors to allot and issue or repurchase Shares as referred to the paragraphs headed General Mandate to Issue Shares or General Mandate to Repurchase Shares in this section, as the case may be. MINIMUM PUBLIC FLOAT According to Rule 11.23(7) of the GEM Listing Rules, at the time of the [REDACTED] and at all times thereafter, our Company must maintain the minimum prescribed percentage of [REDACTED]% of our Company s issued share capital in the hands of the public. RANKING The [REDACTED] will rank pari passu in all respects with all our Shares now in issue or to be issued as mentioned in this document, and, in particular, will qualify in full for all dividends or other distributions declared, made or paid on our Shares in respect of a record date which falls after the date of [REDACTED] other than participation in the Capitalisation Issue. 180

189 SHARE CAPITAL CAPITALISATION ISSUE Pursuant to the resolutions of our Shareholders passed on [ ], subject to the share premium account of our Company being credited as a result of the issue of [REDACTED] pursuant to the [REDACTED] or otherwise having sufficient balance, our Directors are authorised 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 [ ] (or as they may direct) in proportion to their respective shareholdings (save that no Shareholder shall be entitled to be allotted or issued any fraction of a Share) by way of capitalisation of the sum of HK$[REDACTED] standing to the credit of the share premium account of our Company, and our Shares to be allotted and issued pursuant to this resolution shall rank pari passu in all respects with the existing issued Shares. GENERAL MANDATE TO ISSUE SHARES Subject to the conditions as stated in the section headed Structure and Conditions of the [REDACTED] Conditions of the [REDACTED] in this document, 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 our Shares so allotted and issued or agreed conditionally or unconditionally to be allotted and issued (otherwise than by way of rights issue or the exercise of any options which may be granted under the Share Option Scheme or any other share option scheme of our Company or any Shares allotted and issued in lieu of the whole or part of a dividend on Shares or similar arrangement in accordance with the Memorandum and the Articles or pursuant to a specific authority granted by our Shareholders in general meeting or pursuant to the [REDACTED]) shall not exceed: (a) 20% of the aggregate number of the Shares in issue immediately following the completion of the Capitalisation Issue and the [REDACTED]; and (b) the aggregate number of Shares repurchased pursuant to the authority granted to our Directors referred to in General Mandate to Repurchase Shares below. This general mandate to issue Shares will remain in effect until the earliest of: (a) the conclusion of our Company s next annual general meeting; (b) the expiration of the period within which our Company s next annual general meeting is required to be held by any applicable laws of the Cayman Islands or the Articles; or (c) it is varied or revoked by an ordinary resolution of our Shareholders at a general meeting. For further details of this general mandate, please refer to the section headed Appendix IV Statutory and General Information A. Further information about our Company Written resolutions of our Shareholders passed on [ ] in this document. 181

190 SHARE CAPITAL GENERAL MANDATE TO REPURCHASE SHARES Subject to the conditions as stated in the section headed Structure and Conditions of the [REDACTED] Conditions of the [REDACTED] in this document, our Directors have been granted a general unconditional mandate to exercise all our powers to repurchase Shares (Shares which may be listed on the Stock Exchange or on any other stock exchange which is recognised by the SFC and the Stock Exchange for this purpose) with an aggregate nominal value of not more than 10% of the aggregate number of Shares in issue immediately following the completion of the Capitalisation Issue and the [REDACTED], without taking into account any Shares which may be allotted and issued pursuant to the exercise of the [REDACTED] or the 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 may be listed (and which is recognised by the SFC and the Stock Exchange for this purpose), and made in connection with all applicable laws and regulations and the requirements of the GEM Listing Rules. A summary of the relevant GEM Listing Rules is set out in the section headed Appendix IV Statutory and General Information A. Further Information about our Company Repurchase of our Shares by our Company in this document. The general mandate to repurchase Shares will remain in effect until the earliest of: (a) the conclusion of our Company s next annual general meeting; or (b) the expiration of the period within which our Company s next annual general meeting is required to be held by any applicable laws of the Cayman Islands or the Articles; or (c) it is varied or revoked by an ordinary resolution of our Shareholders at a general meeting. For further details of this general mandate, please refer to the section headed Appendix IV Statutory and General Information A. Further information about our Company Repurchase of our Shares by our Company in this document. CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING ARE REQUIRED Under the Companies Law, an exempted company is not required by law to hold any general meetings or class meetings. The holding of general meeting or class meeting is prescribed for under the articles of association of a company. Accordingly, we will hold general meetings as prescribed for under our Articles, a summary of which is set out in section headed Appendix III Summary of the Constitution of the Company and Cayman Islands Company Law in this document. 182

191 SHARE CAPITAL SHARE OPTION SCHEME [We have conditionally adopted the Share Option Scheme]. Details of the principal terms of the Share Option Scheme are summarised in the section headed Appendix IV Statutory and General Information D. Share Option Scheme in this document. Our Group did not have any outstanding share options, warrants, convertible instruments, or similar rights convertible into our Shares as at the Latest Practicable Date. 183

192 FINANCIAL INFORMATION You should read this section in conjunction with our Group s audited combined financial statements, including the notes thereto, as set out in the Accountants Report set out in Appendix I to this document. Our Group s combined financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards ( HKFRS ). You should read the entire Accountants Report and not merely rely on the information contained in this section. The following discussion and analysis contains certain forward-looking statements that reflect the current views with respect to future events and financial performance. These statements are based on assumptions and analyses made by our Group in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors our Group believes are appropriate under the circumstances. However, whether actual outcomes and developments will meet our Group s expectations and projections will depend on a number of risks and uncertainties over which our Group does not have control. For further details, you should refer to the section headed Risk Factors in this document. OVERVIEW We principally provide construction services in Hong Kong as a subcontractor. Our business was established in May 2001 and we have 17 years of experience in undertaking construction services in Hong Kong. We are a construction service provider and our scope of work comprises (i) foundation works; (ii) steelworks; and (iii) other services, which include A&A works. We may provide such works either individually or as a package containing a combination of them, depending on the requirements of our customers. For further details of our business and operations, please refer to the section headed Business in this document. During the Track Record Period, an overall revenue of approximately HK$195.6 million was recognised from 42 projects, comprising (i) approximately HK$13.9 million from 20 private sector projects and approximately HK$4.5 million from three public sector projects completed during the Track Record Period; and (ii) approximately HK$158.0 million from 16 private sector projects and approximately HK$19.2 million from three public sector projects which were on hand. Subsequent to the Track Record Period and up to the Latest Practicable Date, our Group had completed nine and one more private sector projects and public sector projects, respectively. As at the Latest Practicable Date, we had nine private sector projects and two public sector projects on hand. These projects had an aggregate contract sum of approximately HK$129.2 million, of which approximately HK$43.9 million was recognised as revenue during the Track Record Period. 184

193 FINANCIAL INFORMATION For the two years ended 31 December 2017 and the four months ended 30 April 2018, our Group recognised revenue of approximately HK$54.0 million, HK$92.9 million and HK$48.7 million, respectively, from our construction projects. The table below sets out the breakdown of our revenue by type of works during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Foundation works 39, , , , Steelworks 13, , , , Other services (Note) , , , , Note: Other services include A&A works. BASIS OF PRESENTATION Our Company was incorporated in the Cayman Islands on 29 May 2018 as an exempted company with limited liability under the Cayman Companies Law. In preparation for the [REDACTED], our Group underwent the Reorganisation. For further details of the Reorganisation, please refer to the section headed History, Reorganisation and Group Structure in this document. As a result of the Reorganisation, our Company became the holding company of the subsidiaries now comprising our Group. As the Reorganisation involved inserting new holding entities at the top of an existing company and has not resulted in any change of economic substance, the financial information for the Track Record Period has been prepared on the basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Track Record Period. Accordingly, the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows of our Group since their respective date of incorporation, where there is a shorter period, are prepared as if the current group structure had been in existence throughout the Track Record Period. The combined statements of financial position as at 31 December 2016, 31 December 2017 and 30 April 2018 present the assets and liabilities of the companies now comprising our Group as if the current group structure had been in existence at those dates, taking into account their respective dates of incorporation. All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of our Group are eliminated in full on combination. For further details, please refer to note 4 to the Accountants Report in Appendix I to this document. 185

194 FINANCIAL INFORMATION CRITICAL ACCOUNTING POLICIES AND ESTIMATES The significant accounting policies adopted and the estimates and judgments made by our Group are set out in detail in notes 4 and 6 to the Accountants Report in Appendix I to this document. Some of the 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 and are subject to inherent uncertainties. The estimates and the associated assumptions are based on historical data and our experience and factors that we believe to be relevant and reasonable under the circumstances. When reviewing our financial information, you should consider: (i) our selection of accounting policies; (ii) the judgments and other uncertainties affecting the application of such policies; and (iii) the sensitivity of reported results to changes in conditions and assumptions. Set out below is a summary of the critical accounting policies and estimates applied in the preparation of the combined financial statements of our Group: Revenue recognition Please refer to note 9 to the Accountants Report set out in Appendix I to this Document. Other significant accounting policies and estimates For other significant accounting policies and estimates, which were applied in preparation of our Group s combined financial information, in relation to the property, plant and equipment, financial assets and impairment of tangible assets, please refer to note 4 to the Accountants Report set out in Appendix I to this document. MAJOR SOURCES OF ESTIMATION UNCERTAINTY The key assumptions concerning the future and major sources of estimated uncertainty at the end of each reporting period that have a significant risk of causing a material adjustment to the carrying amounts of our assets and liabilities within the next financial year, are set out in note 6 to the Accountants Report contained in Appendix I to this document. KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS Our results of operations and financial conditions have been and will continue to be affected by a number of factors, including those set out below and in the section headed Risk Factors in this document: Market demand for construction activities in Hong Kong All the revenue generated from our Group s business operations is derived in Hong Kong. Hence, market demand for our works and services is subject to a number of factors, including the state of the economy in Hong Kong, the Government s investment in housing and infrastructure projects, the investment in residential and commercial projects from the private sector, the market conditions as well as the trend in the construction industry in Hong Kong. In the case that the construction industry 186

195 FINANCIAL INFORMATION in Hong Kong shows a downturn and the number of construction projects in Hong Kong decreases or there are cancellations or significant postponements of construction projects, the market demand for our works and services may drop, which in turn will adversely affect our operations, financial performance and profitability. Our construction projects are non-recurring in nature Our Group generally does not enter into long-term contracts with our customers and our customers engage us on a project basis. Given the non-recurring nature of construction projects, the number of our customers as well the number of projects awarded to us may vary from year to year. During the Track Record Period, we derived our revenue from 13 of our customers. As at the Latest Practicable Date, our Group had 11 projects on hand from five of our customers. These projects on hand were worth an aggregate contract sum of approximately HK$129.2 million, of which revenue of approximately HK$43.5 million was recognised during the Track Record Period. However, we cannot ensure that our existing customers will continue to engage us and award us new construction projects, nor can we guarantee that we would be able to secure projects from new customers. If we are unable to secure new projects from our existing customers or projects from new customers, our future revenue and results of operations would be materially and adversely affected. Fluctuation in direct costs Our key direct costs in providing our scope of works are (i) costs of construction materials and consumables; (ii) direct labour; and (iii) subcontracting charges. For the two years ended 31 December 2017 and each of the four months ended 30 April 2017 and 2018, costs of construction materials and consumables, direct labour and subcontracting charges accounted for approximately 89.9%, 88.3%, 87.5% and 81.9% of our total direct costs, respectively. Please refer to the paragraph headed Principal components of results of operations Direct costs in this section for details of our components of direct costs. To carry out our construction works, our Group primarily purchased construction materials and consumables such as structural steel, pre-cast concrete drainage pipes, which are directly used in our construction works. We also subcontract certain portions of our works, which are mainly steelworks to our subcontractors. As costs of construction materials and consumables, direct labour and subcontracting charges are the principal components of our direct costs, fluctuation in the prices or rates of any of them will affect our direct costs incurred during the implementation of the relevant projects. In the event that the direct costs increase unexpectedly to the extent that substantial extra costs have to be incurred without sufficient compensation, our Group s financial performance and profitability will be adversely affected. For details of our direct costs sensitivity analysis, please refer to the paragraph headed Sensitivity Analysis in this section. 187

196 FINANCIAL INFORMATION SUMMARY OF RESULTS OF OPERATIONS The following combined statements of profit or loss and other comprehensive income of our Group for the Track Record Period are extracted from the audited combined statements of profit or loss and other comprehensive income set out in the Accountants Report in Appendix I to this document and should be read in conjunction with the accompanying notes therein. Year ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Revenue 53,979 92,946 25,791 48,687 Direct costs (37,389) (66,584) (19,005) (40,182) Gross profit 16,590 26,362 6,786 8,505 Other income 716 1, Administrative expenses (6,508) (8,362) (2,589) (6,852) Finance costs (264) (336) (89) (150) Profit before taxation 10,534 19,105 4,660 2,373 Income tax expense (1,883) (2,694) (870) (929) Profit and total comprehensive income for the year/period 8,651 16,411 3,790 1,444 Profit and total comprehensive income for the year/period attributable to: Owners of the Company 8,651 16,411 3,790 1,444 PRINCIPAL COMPONENTS OF RESULTS OF OPERATIONS Our Group recorded revenue of approximately HK$54.0 million, HK$92.9 million, HK$25.8 million and HK$48.7 million for the two years ended 31 December 2017 and each of the four months ended 30 April 2017 and 2018, respectively, and we recorded profit and total comprehensive income for the year/period of approximately HK$8.7 million, HK$16.4 million, HK$3.8 million and HK$1.4 million, respectively, for the corresponding periods. 188

197 FINANCIAL INFORMATION Revenue Our revenue was derived from our provision of construction services in Hong Kong, comprising (i) foundation works; (ii) steelworks; and (iii) other services, which include A&A works. During the Track Record Period, we had recognised revenue from 42 projects, of which 33 projects had been completed and 9 projects were ongoing as at the Latest Practicable Date. As the recognition of revenue derived from our construction projects is based on the percentage of completion method in accordance with applicable accounting standards, the revenue recognised from the contract is matched with the costs incurred in reaching the stage of completion whereas stage of completion is determined by the contract costs incurred for work performed to the estimated total contract costs. Our Group does not have analysis on our results and assets and liabilities by type of works for two reasons. Firstly, our construction projects often involve a combination of various types of works where separate measurements of relevant costs by type of works cannot be ascertained. Labour costs measured with reference to man-hours spent but incurred for the performance of various work tasks are one example. Secondly, certain parts of the construction works, for example, the setup of a work platform at the site and a site office, cannot be attributed to different types of works. Hence, we present the breakdown of our revenue by project type, by sector and by nature of project. The table below sets out the breakdown of our revenue by project type during the Track Record Period: For the year ended 31 December For the four months ended 30 April No. of projects handled (1) HK$ 000 % No. of projects handled (1) HK$ 000 % No. of projects handled (1) HK$ 000 % (unaudited) No. of projects handled (1) HK$ 000 % Foundation works 14 39, , , , Steelworks 14 13, , , , Other services (2) , , , , Notes: 1. The number of projects handled is counted with reference to the revenue recognised in a particular financial year or period during the Track Record Period. 2. Other services include A&A works. 189

198 FINANCIAL INFORMATION Revenue derived from our foundation works accounted for approximately 73.4%, 55.8%, 60.4% and 47.2% of our total revenue for the two years ended 31 December 2017 and each of the four months ended 30 April 2017 and 2018, respectively. For the two years ended 31 December 2017 and each of the four months ended 30 April 2017 and 2018, revenue derived from our steelworks accounted for approximately 25.0%, 43.6%, 39.6% and 52.8% of our total revenue for the corresponding periods. In addition, our revenue generated from other services accounted for approximately 1.6%, 0.6%, nil and nil of our total revenue for the corresponding periods, respectively. During the Track Record Period, our Group participated in both the private sector and the public sector. Our public sector projects refer to projects which the main contractors are engaged by the Government or statutory bodies while our private sector projects refer to those that are not public sector projects. Our private sector projects are mainly commissioned by property developers, construction companies and property management companies. The table below sets out the breakdown of our revenue by sector during the Track Record Period: For the year ended 31 December For the four months ended 30 April No. of projects handled (1) HK$ 000 % No. of projects handled (1) HK$ 000 % No. of projects handled (1) HK$ 000 % (unaudited) No. of projects handled (1) HK$ 000 % Private sector projects 24 49, , , , Public sector projects 3 4, , , , , , , Note: 1. The number of projects handled is counted with reference to the revenue recognised in a particular financial year or period during the Track Record Period. The revenue generated from our private sector projects increased from approximately HK$49.5 million for the year ended 31 December 2016 to approximately HK$86.7 million for the year ended 31 December Such increase was mainly due to an increase in the number of private sector projects handled during the year as well as the substantial completion of three projects, namely, the projects at Hennessy Road, Ocean Park and Borrett Road B, which contributed an aggregate revenue of approximately HK$42.2 million as compared to approximately HK$7.5 million in the corresponding period. The revenue generated from our public sector projects increased from approximately HK$4.5 million for the year ended 31 December 2016 to approximately HK$6.3 million for the year ended 31 December Such increase was mainly due to the commencement of a new sizeable project awarded during the year, namely, the project at Chinese University. 190

199 FINANCIAL INFORMATION The revenue contributed by private sector projects increased from approximately HK$25.8 million for the four months ended 30 April 2017 to approximately HK$35.8 million for the period ended 30 April 2018, which was mainly due to the commencement of three new projects with relatively higher contract sums during the period, namely, project at Shek Mun, Kwai Chung, and Kwun Tong, with an aggregate contract sum of approximately HK$58.2 million and contributed an aggregate revenue of approximately HK$23.3 million during the period. The revenue generated from our public sector projects increased from approximately HK$18,000 for the period ended 30 April 2017 to HK$12.9 million for the period ended 30 April Such increase was mainly due to the increase in number of public projects undertaken by us during the period. The table below sets out the breakdown of our revenue derived from our projects by nature of project during the Track Record Period: For the year ended 31 December For the four months ended 30 April No. of No. of projects projects handled (1) HK$ 000 % handled (1) HK$ 000 % No. of projects handled (1) HK$ 000 % (unaudited) No. of projects handled (1) HK$ 000 % Residential 15 21, , , , Commercial 7 22, , , , Community facilities (Note) 5 10, , , , , , , , Note: Community facilities include police stations, schools, universities and airport. The table below sets out the breakdown of our revenue derived from our projects by stage of completion during the Track Record Period: For the year ended 31 December For the four months ended 30 April No. of No. of projects projects handled (1) HK$ 000 % handled (1) HK$ 000 % No. of projects handled (1) HK$ 000 % (unaudited) No. of projects handled (1) HK$ 000 % Revenue derived from projects brought forward 18 39, , , , Revenue derived from projects commenced during the year/period 11 14, , , , , , , , Note: 1. The number of projects handled is counted with reference to the revenue recognised in a particular financial year or period during the Track Record Period. 191

200 FINANCIAL INFORMATION The table below sets out the list of projects with an initial contract sum of over HK$1.0 million that were completed by our Group during the Track Record Period and up to the Latest Practicable Date: Project code Particulars and location of project Sector (private/public) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 HK$ 000 HK$ 000 HK$ 000 Projects completed during the Track Record Period P01 Residential project at Siu Nam, Tuen Mun Private 838 P02 Residential project at Hung Shui Kiu Public 2,152 P04 Residential project at South Lane, Western District Private 146 P06 Residential project at Lok Wo Sha Private 3, P07 Commercial project at Plaza Hollywood Private 431 P08 Community facilities project at Kai Tak Development Public 2,306 P09 Residential project at King Wah Road, Fortress Hill Private P10 Commercial project at Mira Place, Tsim Sha Tsui Private 1,997 P12 Residential project at Western Street, Western District Private P13 Residential project at Borrett Road A Private 6 P14 Residential project at Belcher s Street Private 423 P15 Residential project at Butterfly Estate Private 515 P16 Residential project at Pak Shek Kok Private 1, P19 Residential project in Tuen Mun Private 1, Nine projects completed with an initial contract sum of less than HK$1.0 million each 812 2,337 8 Sub-total 15,066 3,319 8 Projects completed after the Track Record Period and up to the Latest Practicable Date P17 Residential project at MTR Nam Cheong Station Private 6,078 6, P18 Commercial project at Maritime Square, Tsing Yi Private 19,060 9, P20 Residential project at Discovery Bay Private 4,605 3, P22 Commercial project at Ocean Park Private 5,868 24,877 1,430 P23 Community facilities project at Oi Kwan Road Private 1, P24 Residential project at Borrett Road B Private 1,584 10,739 2,739 P30 Residential project at Grand del Sol, Yuen Long Private 3,807 4,233 P32 Community facilities project at Chinese University Public 4,585 3,249 P33 Commercial project at Shek Mun Private 6,596 9,586 One project completed with an initial contract sum of less than HK$1.0 each Total 38,579 71,423 23,

201 FINANCIAL INFORMATION The table below sets out the list of projects on hand with an initial contract sum of over HK$1.0 million as at the Latest Practicable Date: Project code Particulars and location of project Sector (private/public) Revenue recognised for the year ended 31 December Revenue recognised for the four months ended 30 April 2018 HK$ 000 HK$ 000 HK$ 000 P27 Residential project at Kwu Tung, Fanling Private 340 4,503 P29 Commercial project at Hennessy Road Private 6,584 P31 Community facilities project at East Kowloon Public 791 6,569 Regional Headquarters of Police Station at Concorde Road, Kai Tak P34 Community facilities project for a primary school in Yau Public Ma Tei P36 Residential project at Yue Man Square, Kwun Tong Private 4,640 5,197 P37 Commercial project in Pak Shek, Shatin Private P38 Community facilities project at the Hong Kong Public 910 3,078 International Airport P39 Residential project at Tong Yan San Tsuen Private P40 Commercial project in Kwai Chung Private 47 8,555 P41 Residential project at Wo Shang Wai, Yuen Long B Private P42 Residential project at Marble Road, North Point Private Total ,204 25,

202 FINANCIAL INFORMATION Direct costs Our direct costs primarily consist of costs of construction materials and consumables, direct labour and subcontracting charges. The table below sets out a breakdown of our direct costs during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % (unaudited) Costs of construction materials and consumables 7, , , , Direct labour 21, , , , Subcontracting charges 4, , , , Testing fee Fuel , Machinery rental Transportation , , Depreciation , Other direct costs , , , , , , Costs of construction materials and consumables Our costs of construction materials and consumables mainly represent direct costs for the purchase of construction materials such as structural steel, pre-cast concrete and drainage pipes, which are directly attributed to our construction works. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our costs of construction materials and consumables amounted to approximately HK$8.0 million, HK$19.8 million and HK$13.2 million, respectively, representing approximately 21.4%, 29.7% and 32.8% of our total direct costs for the corresponding periods. Direct labour Our direct labour costs represent salaries and benefits attributed to our site workers who are directly involved in our construction works. For the two years ended 31 December 2017 and the four months ended 30 April 2018, we recorded direct labour costs of approximately HK$21.4 million, HK$32.8 million and HK$16.7 million, respectively, representing approximately 57.2%, 49.3% and 41.6% of our total direct costs for the corresponding periods. 194

203 FINANCIAL INFORMATION Subcontracting charges Our subcontracting charges mainly represent the amounts paid to our subcontractors for the provision of certain construction works such as hoarding and drilling. As hoarding required less skilled labour and drilling required special machine and technical labour to perform the works, so we subcontracted such works to our subcontractors. For the two years ended 31 December 2017 and the four months ended 30 April 2018, we recorded subcontracting charges of approximately HK$4.2 million, HK$6.2 million and HK$3.0 million, respectively, representing approximately 11.3%, 9.3% and 7.5% of our total direct costs for the corresponding periods. Machinery rental Our machinery rental represents our costs incurred in leasing machinery for our site operations. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our machinery rental amounted to approximately HK$0.8 million, HK$0.9 million and HK$0.9 million, respectively, representing approximately 2.1%, 1.3% and 2.3% of our total direct costs for the corresponding periods. Transportation Our transportation costs represent our costs incurred in the transportation of construction materials and machinery required for our construction works. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our transportation costs amounted to approximately HK$0.8 million, HK$1.1 million and HK$1.2 million, respectively, representing approximately 2.2%, 1.7% and 3.0% of our total direct costs for the corresponding periods. Depreciation Our depreciation expenses represent depreciation of our machinery directly used in our construction work. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our depreciation expenses amounted to approximately HK$0.9 million, HK$1.8 million and HK$0.8 million, respectively, representing approximately 2.4%. 2.7% and 1.9% of our total direct costs for the corresponding periods. 195

204 FINANCIAL INFORMATION Other direct costs Other direct costs represent less significant direct costs incurred for the performance of our construction works, which mainly include leasing of site offices, waste disposal expenses and other miscellaneous expenses. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our other direct costs amounted to approximately HK$0.3 million, HK$1.7 million and HK$3.3 million, respectively, representing approximately 0.6%, 2.7% and 8.2% of our total direct costs for the corresponding periods. Gross profit and gross profit margin Our gross profit for the Track Record Period is calculated by deducting our direct costs from our revenue. The table below sets out our gross profit and gross profit margin for the periods indicated: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Gross profit 16,590 26,362 6,786 8,505 Gross profit margin 30.7% 28.4% 26.3% 17.5% For the two years ended 31 December 2017 and the four months ended 30 April 2018, our overall gross profit was approximately HK$16.6 million, HK$26.4 million and HK$8.5 million, respectively and our overall gross profit margin was approximately 30.7%, 28.4% and 17.5%, respectively. Our gross profit margins vary from project to project. The gross profit and the gross profit margin of our projects depend on a number of factors including (i) the complexity of works involved in the project; (ii) the work progress of the project in the relevant financial year or period; and (iii) the effectiveness of our cost control and management. Hence, our gross profit margin may not be an indication of our gross profit margin for the subsequent financial years. The overall decrease in gross profit margin from approximately 30.7% for the year ended 31 December 2016 to 17.5% for the four months ended 30 April 2018 was mainly attributable to the general increase in direct costs of production such as material costs and staff costs throughout the period. Our gross profit margin in 30 April 2018 further decreased as a result of the commencement of two sizeable projects at Shek Mun and Kwai Chung in October 2017 and January 2018, respectively, with relatively lower gross profit margin. For detailed analysis of the fluctuation in our gross profit and gross profit margin, please refer to the section headed Financial information comparison of results of operations of our group in this document. 196

205 FINANCIAL INFORMATION Other income, net Our net other income consists of bank interest income, consultancy fee income, sales of scrap materials, gain on disposal of a motor vehicle and sundry income. The table below sets out the breakdown of our net other income during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Bank interest income 3 3 Consultancy fee income Sales of scrap materials 423 1, Gain on disposal of a motor vehicle 130 Sundry income , Administrative expenses Our administrative expenses mainly comprise staff costs, directors remuneration, motor vehicle expenses and rent and rates. Others mainly include other miscellaneous expenses such as office expenses and printing and stationery. Our administrative expenses amounted to approximately HK$6.5 million, HK$8.4 million and HK$6.9 million for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. The table below sets out the breakdown of our administrative expenses during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Depreciation of property, plant and equipment Directors remuneration 779 1, Staff costs 2,397 3, ,687 Auditor s remuneration Motor vehicle expenses Rent and rates ,022 Insurance Travelling [REDACTED] [REDACTED] Others 1,187 1, ,508 8,362 2,589 6,

206 FINANCIAL INFORMATION Our staff costs, which consisted of staff salaries, MPF contributions, bonus and other benefits, amounted to approximately HK$2.4 million, HK$3.0 million and HK$1.7 million for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. Our directors remuneration amounted to approximately HK$0.8 million, HK$1.1 million and HK$0.3 million, respectively for the corresponding periods. Our motor vehicle expenses mainly represented leasing of vehicles for the purpose of carrying out our construction work such as dump trucks. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our motor vehicle expenses amounted to approximately HK$0.7 million, HK$0.8 million, and HK$0.3 million, respectively. Our rent and rates primarily represented expenses incurred in leasing of our offices and open storage. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our rent and rates amounted to approximately HK$0.7 million, HK$0.7 million and HK$1.0 million, respectively. Finance costs Our finance costs mainly represent interests on bank overdrafts, interests on bank borrowings and finance charges on obligation under finance leases. The table below sets out the breakdown of our finance costs during the Track Record Period: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Interests on bank overdrafts Interests on bank borrowings Finance charges on obligation under finance leases Our finance costs amounted to approximately HK$0.3 million, HK$0.3 million and HK$0.2 million for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. As at 30 April 2018, (i) our bank overdrafts amounted to nil; (ii) our bank borrowings amounted to approximately HK$5.3 million; and (iii) our obligation under finance leases, representing leases for our motor vehicles and machinery, amounted to approximately HK$2.1 million. 198

207 FINANCIAL INFORMATION Income tax expense Our Group has all the operations in Hong Kong, which are subject to Hong Kong profits tax of 16.5%. We had no tax obligation arising from other jurisdiction during the Track Record Period. For the two years ended 31 December 2017 and the four months ended 30 April 2018, our Group incurred income tax expense of approximately HK$1.9 million, HK$2.7 million and HK$0.9 million, respectively. Our effective tax rates, calculated as our income tax expense for the corresponding periods divided by our profit before taxation for the periods, were approximately 17.9%, 14.1% and 39.1% for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. For further details of our income tax expense, please refer to note 12 to the Accountants Report in Appendix I to this document. Our Directors confirm that, during the Track Record Period and up to the Latest Practicable Date, all our income tax obligations had been fulfilled by our Group and we had no material disputes or unresolved tax issues with the relevant tax authorities. Profits tax re-filing (a) Reasons for re-filing of tax returns The financial statements of Noble Engineering and Gold Win for the year ended 31 December 2016 were audited by the statutory auditors in accordance with Small and Medium-sized Entity Financial Reporting Standard ( SME-FRS ) issued by the Hong Kong Institute of Certified Public Accountants. Upon the subsequent appointment of HLB Hodgson Impey Cheng Limited, the reporting accountants for our Group, including Noble Engineering, Gold Win and other group companies, adjustments were made to the audited financial statements for Noble Engineering and Gold Win for the year ended 31 December 2016 in respect of adoption and prepared under Hong Kong Financial Reporting Standard ( HKFRS ). The adjustments collectively resulted in a reduction of profits before tax for Noble Engineering for the year ended 31 December 2016 by approximately HK$2.1 million. Per the revised 2016/17 revised tax computation, Noble Engineering had an adjusted loss for the year of assessment 2016/17 (compared to having assessable profits in the original profits tax computation). Regarding Gold Win, for the year ended 31 December 2016, the adjustments collectively resulted in a reduction of profits before and assessable profits by approximately HK$2.5 million. As confirmed by our Directors, such incorrect filings were due to the different accounting treatments of certain financial statement items advised by the then auditor of the statutory accounts of Noble Engineering and Gold Win. 199

208 FINANCIAL INFORMATION (b) Consequence including potential penalties under the Inland Revenue Ordinance ( IRO ) The tax advisor is of the view that the subsequent revision of the audited financial statements and profits tax computations would indicate that the taxpayers had previously submitted incorrect profits tax returns and related supporting documents (i.e. tax computations) and hence may be subject to the penalty provisions under the IRO. This is the case in relation to Noble Engineering and Gold Win as there were subsequent revisions in the audited financial statements for the year ended 31 December 2016 and related tax computations. The applicable penalty provisions under the IRO are as follows:- (i) (ii) Section 80(2) any person who without reasonable excuse files an incorrect return commits an offence and is liable on conviction to a fine at level 3 (i.e. HK$10,000) and treble of the amount of tax which has been undercharged as a result of the incorrect return, statement or information, or would have been so undercharged if the return, statement or information had been accepted as correct. Section 82 any person who willfully with intent to evade or to assist any other person to evade tax omits from a return any sum which should be included commits an offence under Section 82(1) of the IRO is liable- (a) (b) on summary conviction to a fine at level 3 (i.e. HK$10,000) and treble of the amount of tax which has been undercharged in consequence of the offence or which would have been undercharged if the offence has not been detected and imprisonment for 6 months; or on indictment to a fine at level 5 (i.e. HK$50,000) and treble of the amount of tax which has been undercharged in consequence of the offence or which would have been undercharged if the offence has not been detected and imprisonment for 3 years. (iii) Under sections 80(5) and 82(2) of the Inland Revenue Ordinance, the Commissioner of Inland Revenue may compound any offence in lieu of prosecution. (iv) Section 82A any person who without reasonable excuse makes an incorrect return by omitting or understating anything in respect of which he is required to make a return, shall, if no prosecution under Section 80(2) or 82 has been instituted in respect of the same facts, be liable to be assessed to additional tax of an amount not exceeding treble the amount of tax undercharged as a result of the filing of the incorrect tax return. (c) Opinion of tax adviser Having considered the facts and circumstances, the tax adviser concluded that the maximum penalty charged by the IRD against Noble Engineering and Gold Win (if any) would be HK$10,000 per entity for the year of assessment 2016/17 as:- The adjustments to the audited financial statements for Noble Engineering and Gold Win for the year ended 31 December 2016 arose from different professional judgments between the former statutory auditor and the reporting accountant. Hence, Noble Engineering and Gold Win did not have any intention of evading any additional tax. 200

209 FINANCIAL INFORMATION Noble Engineering and Gold Win will voluntarily submit the revised audited financial statements and revised profits tax computations to the IRD by August Noble Engineering had adjusted loss per the revised 2016/17 tax computation (it had assessable profits in the original profits tax computation) and Gold Win had lesser assessable profits per the revised 2016/17 tax computation, and therefore no tax was undercharged for both companies as a result of revisions in the audited financial statements and profits tax computations for the year of assessment 2016/17 in the above-mentioned year. (d) Opinion of legal counsel As advised by our Legal Counsel, having considered the penalty policy of the IRD, offences which do not involve willful evasion of tax will be dealt with administratively. Since our Group will make a voluntary filing of the revised profits tax computation, our Legal Counsel is of the view that the IRD will deal with it by compound in lieu of prosecution and re-assessment of profits tax. (e) Remedial actions Noble Engineering and Gold Win will voluntarily submit the revised 2016/17 profits tax computation together with the revised audited financial statements for the year ended 31 December 2016 to the IRD by August COMPARISON OF RESULTS OF OPERATIONS OF OUR GROUP Four months ended 30 April 2018 compared to four months ended 30 April 2017 Revenue Our Group s revenue increased by approximately by HK$22.9 million, or approximately 88.8%, from approximately HK$25.8 million for the four months ended 30 April 2017 to approximately HK$48.7 million for the four months ended 30 April The increase in our revenue for the four months ended 30 April 2018 as compared with the same period in 2017 was mainly attributable to the commencement of three new large-scale projects, namely, projects at Shek Mun, Kwun Tong, and East Kowloon Regional Headquarters of Police Station, together with an aggregate initial contract sum of approximately HK$74.5 million, which contributed an aggregate revenue of approximately HK$21.4 million during the period. Direct costs Our direct costs increased by approximately HK$21.2 million, or approximately 111.6%, from approximately HK$19.0 million for the four months ended 30 April 2017 to approximately HK$40.2 million for the four months ended 30 April Such increase was mainly due to the increase in costs of construction materials and consumables, direct labour, subcontracting charges and transportation as a result of the increase in the number of large-scale projects we had undertaken during the period. The increase in direct costs was in line with the increase in revenue during the period. 201

210 FINANCIAL INFORMATION Gross profit and gross profit margin Our gross profit increased by approximately HK$1.7 million, or approximately 25.0%, from approximately HK$6.8 million for the four months ended 30 April 2017 to approximately HK$8.5 million for the four months ended 30 April Such increase in our gross profit was in similar trend with the increase in our revenue. Our gross profit margin decreased from approximately 26.3% for the four months ended 30 April 2017 to approximately 17.5% for the four months ended 30 April Such decrease was mainly attributable by the commencement of one sizeable projects at Shek Mun in October 2017, which have relatively lower gross profit margin as compare to other projects due to increase in direct costs of construction materials and machinery rental for the provision of steelworks. Our gross profit margin remained relatively stable during the year. Other income Our net other income increased by approximately HK$0.3 million from approximately HK$0.6 million for the four months ended 30 April 2017 to HK$0.9 million for the four months ended 30 April Such increase was mainly due to the increase in other income generated from sales of scrap materials and disposal gain of approximately HK$0.1 million for the sale of a motor vehicle during the four months ended 30 April Administrative expenses Our administrative expenses increased by approximately HK$4.3 million, or approximately 165.4%, from approximately HK$2.6 million for the four months ended 30 April 2017 to approximately HK$6.9 million for the four months ended 30 April 2018, The increase in our administrative expenses was mainly due to (i) the recruitment of 15 employees as a result of business expansion; (ii) an increase in rent and rates, arising from the leasing of the new open storage; and (iii) the incurrence of [REDACTED] of approximately [REDACTED] during the period. If the [REDACTED] were excluded, our administrative expenses would be approximately [REDACTED], which was similar to the amount incurred in the previous period. Finance costs Our finance costs increased by approximately HK$61,000, or approximately 68.5%, from approximately HK$89,000 for the four months ended 30 April 2017 to approximately HK$150,000 million for the four months ended 30 April The increase in our finance costs was mainly due to the increase in interests on bank borrowings as a result of the increase in bank borrowings from approximately HK$1.9 million as at 30 April 2017 to HK$5.3 million as at 30 April Income tax expense Our income tax expense was approximately HK$0.9 million and HK$0.9 million for each of the four months ended 30 April 2017 and 2018, respectively. The effective tax rate was approximately 18.7% and 39.1% for the corresponding periods, respectively. Such increase was primarily due to the non-deductible [REDACTED] of approximately [REDACTED], incurred during the four months ended 30 April

211 FINANCIAL INFORMATION Profit and total comprehensive income for the period and net profit margin As a result of the foregoing, our profit and total comprehensive income for the period decreased by approximately HK$2.4 million, or approximately 63.2%, from approximately HK$3.8 million for the four months ended 30 April 2017 to approximately HK$1.4 million for the four months ended 30 April Our Group s net profit margin decreased from approximately 14.7% for the four months ended 30 April 2017 to approximately 3.0% for the four months ended 30 April Such decrease in our net profit margin was primarily due to the incurrence of the one-off [REDACTED] during the period. Year ended 31 December 2017 compared to year ended 31 December 2016 Revenue Our Group s revenue increased by approximately HK$38.9 million, or approximately 72.0%, from approximately HK$54.0 million for the year ended 31 December 2016 to approximately HK$92.9 million for the year ended 31 December The increase in our revenue for the year ended 31 December 2017 was primarily attributable to our efforts in pursuing projects of relatively larger scale in terms of contract sum during the year ended 31 December The number of large-scale projects commenced with an initial contract sum over HK$3.0 million increased from four for the year ended 31 December 2016 to eight for the year ended 31 December 2017; (ii) an increase in revenue contributed by three sizeable projects awarded during the year such as projects at (1) Shek Mun; (2) Yue Man Square, Kwun Tong; and (3) Hennessy Road with an aggregate initial contract sum of approximately HK$54.7 million, which contributed revenue of approximately HK$17.8 million for the year ended 31 December 2017; and (iii) an increase in revenue contributed by projects which were substantially completed during the year ended 31 December 2017 such as projects at Ocean Park and Borrett Road - B, which contributed revenue of approximately HK$33.4 million as compared to approximately HK$6.6 million for the corresponding period. Direct costs Our direct costs increased by approximately HK$29.2 million, or approximately 78.1%, from approximately HK$37.4 million for the year ended 31 December 2016 to approximately HK$66.6 million for the year ended 31 December Such increase was in similar trend with the increase in revenue by approximately 72.0% for the corresponding period, which was mainly attributable to the increase in the number of sizeable projects our Group had handled during the year, resulting in an increase in costs of construction materials, direct labour costs as well as subcontracting charges, all being key components of our direct costs. Gross profit and gross profit margin Our gross profit increased by approximately HK$9.8 million, or approximately 59.0%, from approximately HK$16.6 million for the year ended 31 December 2016 to approximately HK$26.4 million for the year ended 31 December 2017, which was mainly due to the increase in the number of projects we had handled for the year ended 31 December Such increase in our gross profit was in similar trend with the increase in our revenue. 203

212 FINANCIAL INFORMATION Our gross profit margin decreased from approximately 30.7% for the year ended 31 December 2016 to approximately 28.4% for the year ended 31 December Such decrease was mainly attributable by the commencement of a sizeable project at Shek Mun in October 2017, which has a relatively lower gross profit margin as compared to other projects due to increase in direct costs of construction materials and machinery rental for the provision of steelworks. Our gross profit margin remained relatively stable during the year. Other income Our net other income increased from approximately HK$0.7 million for the year ended 31 December 2016 to approximately HK$1.4 million for the year ended 31 December 2017, representing an increase of approximately 100.0%. Such increase was mainly due to an increase in sales of scrap metal during the year. Administrative expenses Our administrative expenses increased by approximately HK$1.9 million, or approximately 29.2%, from approximately HK$6.5 million for the year ended 31 December 2016 to approximately HK$8.4 million for the year ended 31 December The increase in our administrative expenses was mainly due to an increase in directors remuneration and staff costs during the year, arising from the recruitment of 15 employees. Finance costs Our finance costs increased by approximately HK$72,000, or approximately 27.3%, from approximately HK$264,000 for the year ended 31 December 2016 to approximately HK$336,000 for the year ended 31 December The increase in our finance costs was mainly due to an increase in interest on bank borrowings as a result of an increase in bank borrowings during the year. Income tax expense Our income tax expense increased by approximately HK$0.8 million, or approximately 42.1%, from approximately HK$1.9 million for the year ended 31 December 2016 to approximately HK$2.7 million for the year ended 31 December The effective tax rate was approximately 17.9% and 14.1%, respectively, for the corresponding periods. Profit and total comprehensive income for the year and net profit margin As a result of the foregoing, our profit and total comprehensive income for the year increased by approximately HK$7.7 million, or approximately 88.5%, from approximately HK$8.7 million for the year ended 31 December 2016 to approximately HK$16.4 million for the year ended 31 December Our Group s net profit margin increased slightly from approximately 16.0% for the year ended 31 December 2016 to approximately 17.7% for the year ended 31 December

213 FINANCIAL INFORMATION DISCUSSION OF SELECTED COMBINED STATEMENTS OF FINANCIAL POSITION The table below sets out the breakdown of our current assets, current liabilities and net current assets as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 ASSETS Non-current assets Property, plant and equipment 4,622 6,920 7,053 Rental deposits ,622 7,242 7,375 Current assets Inventories 3,273 5,317 5,768 Trade and other receivables 19,492 21,054 14,688 Contract assets 1,820 7,198 18,087 Prepaid tax Amounts due from directors 6,786 13,237 15,526 Pledged bank deposits Cash and cash equivalents 3,677 10,411 6,470 35,058 58,081 61,405 Current liabilities Trade and other payables 5,274 12,324 15,367 Amounts due to a director Bank borrowings 2,138 6,116 5,281 Obligation under finance leases 1,098 1,267 1,103 Bank overdrafts 157 Tax payables 3,622 2,299 2,651 12,389 22,090 24,402 Net current assets 22,669 35,991 37,

214 FINANCIAL INFORMATION Property, plant and equipment During the Track Record Period, our Group s property, plant and equipment mainly comprised leasehold improvement, motor vehicles and plant and machinery. Plants and machinery mainly represented the machinery items required for our foundation works and steelworks. Such machinery items consisted of excavators, hydraulic excavators, skid-steer loaders, vibration hammers and vibration rollers. The following table shows the breakdown of the carrying amounts of our property, plant and equipment as at 31 December 2016, 31 December 2017 and 30 April 2018: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Plant and machinery 3,672 6,139 6,076 Motor vehicles Office equipment Leasehold improvement 245 Furniture and fixture Toolings ,622 6,920 7,053 The balance increase from approximately HK$4.6 million as at 31 December 2016 to HK$6.9 million as at 31 December 2017 and further increase to HK$7.1 million as at 30 April The overall increase was mainly attributable to the additions of plant and machinery as a result of our business expansion. Inventories Our inventories primarily include raw materials. The table below sets out our inventory amounts as at 31 December 2016, 31 December 2017 and 30 April 2018: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Raw materials 3,273 5,317 5,768 As at 31 December 2016, 31 December 2017 and 30 April 2018, the net carrying amount of our inventories increased from approximately HK$3.3 million as at 31 December 2016 to approximately HK$5.3 million as at 31 December Such increase was mainly due to a bulk purchase of structural steel in preparation for our steelworks projects at Kwai Chung and Shek Mun. 206

215 FINANCIAL INFORMATION The table below sets out our inventories turnover days for the periods indicated: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 Inventories 3,273 5,317 5,768 Total direct costs 37,389 66,584 40,182 Inventories turnover days (Note) 51.5 days 46.1 days 28.7 days Note: Our inventories turnover days were calculated based on the average of the opening and closing inventory divided by total direct costs for the relevant year/period (i.e. 365 days for a full year and 120 days for the four months ended) and then multiplied by 365/120. Our inventories turnover days for the two years ended 31 December 2017 and the four months ended 30 April 2018 were 51.5 days, 46.1 days and 28.7 days, respectively. The decrease in our inventories turnover days across the years was mainly due to faster consumption of our inventories, in particular structural steel as a result of commencement of our two steelworks projects at Kwai Chung and Shek Mun in late Trade and other receivables Our trade and other receivables were approximately HK$19.5 million, HK$21.4 million and HK$15.0 million as at 31 December 2016, 31 December 2017 and 30 April 2018, respectively. The table below sets out a breakdown of our trade and other receivables as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Trade receivables 12,128 12,719 4,553 Retention receivables 6,363 6,967 7,873 Deposits, prepayments and other receivables 1,001 1,690 2,584 19,492 21,376 15,010 Less: non-current portion ,492 21,054 14,

216 FINANCIAL INFORMATION Trade receivables Trade receivables primarily represent the amount receivable from our customers for our provision of services. Upon our submission of the payment applications to our customers on a monthly basis and their issue of payment certificate, we receive progress payments from our customers. Our trade receivables are subject to the number of projects and their progress as at the report date. We generally grant a credit term of 17 to 45 days to our customers. Our trade receivables remained stable at approximately HK$12.1 million for the year ended 31 December 2016 and HK$12.7 million for the year ended 31 December Our trade receivables decreased by approximately HK$8.1 million, or approximately 63.8%, from approximately HK$12.7 million as at 31 December 2017 to approximately HK$4.6 million as at 30 April 2018, which was primarily attributable to the settlement from a major customer Customer C close to the end of the reporting period. The table below sets out the ageing analysis of our trade receivables based on the invoice date as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ to 30 days 10,043 12,218 4, to 60 days 1, to 90 days to 180 days ,128 12,719 4,553 As at 31 December 2016, 31 December 2017 and 30 April 2018, our trade receivables amounting to approximately HK$12.1 million, HK$12.7 million and HK$4.6 million, respectively, were past due but not impaired. These receivables outstanding concerned a number of our customers with whom we have maintained business relationships for over 4 years. 208

217 FINANCIAL INFORMATION Our Group s policy for impairment loss on trade receivables is based on an evaluation of the collectability and ageing analysis of the receivables, which calls for the use of judgment and estimates. Further, in determining the recoverability of trade receivables, we assess whether there is any change in the credit quality of our receivables from the date the credit is initially granted up to the end of the reporting period. We seek to exercise stringent control over our outstanding receivables. In addition, all receivables balances are monitored on an ongoing basis and overdue balances are followed up by our finance department. As at the Latest Practicable Date, our trade receivables as at 30 April 2018 had been fully settled. Taking into account the good track record of these customers, our Directors are of the view that no impairment allowance is necessary given that there has not been a significant change in the credit quality of these customers, and hence still consider the outstanding amounts to be fully recoverable. The table below sets out the turnover days of our trade receivables for the periods indicated: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 Trade receivables 12,128 12,719 4,553 Revenue 53,979 92,946 48,687 Trade receivables turnover days (Note) 71.4 days 48.8 days 21.3 days Note: Trade receivables turnover days is calculated based on the average of the beginning and ending balance of trade receivables divided by revenue for the relevant year/period and then multiplied by the number of days of the relevant year/period (i.e. 365 days for a full year and 120 days for the four months ended 30 April). Our trade receivables turnover days for the two years ended 31 December 2017 and the four months ended 30 April 2018 were approximately 71.4 days, 48.8 days and 21.3 days, respectively. The decrease in turnover days of trade receivables is mainly due to the difference in settlement practices of different customers as well as different credit periods granted by the Group. Also, as our business operates on a non-recurring and project-by-project basis, our revenue during the Track Record Period may fluctuate subject to the project size, scale of operation and work progress at a given time, thereby affecting our trade receivables balances as at the respective year ends as well as our trade receivables turnover days during the Track Record Period. Retention receivables As our business operates on a non-recurring and project-by-project basis, our revenue during the Track Record Period may fluctuate subject to the project size, scale of operation and work progress at a given time, thereby affecting our trade receivables balances as at the respective year ends as well as our trade receivables turnover days during the Track Record Period. 209

218 FINANCIAL INFORMATION Retention receivables mainly represent the retention monies which are required to be retained by our customers at each interim payment so as to secure our due performance of the contracts. Typically, the amount to held up is 10.0% of the value of works certified for each interim payment and the whole amount is subject to a maximum retention of approximately 5% of the initial contract sum. The terms and conditions in relation to the release of retention monies also vary by contract, which may be subject to the completion of the contract works or a period after the completion of the contract works pursuant to the contract. For our projects generally, half or a certain portion of the retention monies is to be released upon the issue of the final completion certificate and the remaining portion is to be released upon expiration of the defects liability period, which is usually around 12 months from the date of completion in respect of the works we performed pursuant to the contracts with our customers or according to the main contracts. The retention receivables are non-interest-bearing in nature. During the Track Record Period, no material amounts in relation to our retention receivables were past due at each reporting period. In general, there was no significant fluctuation. As at the Latest Practicable Date, approximately HK$66,000 of retention receivable as at 30 April 2018 have been settled. Deposits, prepayments and other receivables Deposits, prepayments and other receivables mainly comprise rental deposits and trade deposits. Our deposits, prepayments and other receivables increased by approximately HK$0.7 million, or approximately 70.0%, from approximately HK$1.0 million as at 31 December 2016 to approximately HK$1.7 million as at 31 December 2017, which was primarily attributable to the increase in the rental deposits arising from leasing of a new office. Our deposits, prepayments and other receivables further increased by approximately HK$0.8 million, or approximately 47.1%, from approximately HK$1.7 million as at 31 December 2017 to approximately HK$2.5 million as at 30 April Such increase was mainly due to the prepaid [REDACTED] during the period. Contract assets The revenue from our projects is recognised based on the actual stage of completion of those projects. The stage of completion is calculated by reference to the contract works certified by our customers. We submit monthly progress claims to our customers, which include the actual costs incurred for the original contracted works and the claim in relation to variation orders for the corresponding periods. Upon our customers approval of our monthly progress claim, a payment certificate will be issued by our customer after they inspect the works that we claim have been completed. 210

219 FINANCIAL INFORMATION Where project costs incurred to date plus recognised profits less recognised losses exceed the amount in our progress claims, the surplus is shown as contract assets. Likewise, for projects where the amount in our progress claims exceed the project costs incurred to date plus recognised profits less recognised losses, the surplus is shown as contract liabilities. Below is a table setting out our contract assets as at the periods indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Contracts in progress at the end of each reporting period: Contract costs incurred plus recognised profits less recognised losses 66, , ,785 Less: progress claims (64,301) (121,900) (159,698) Contract work-in-progress 1,820 7,198 18,087 As at 31 December 2016, 31 December 2017 and 30 April 2018, our contract assets amounted to approximately HK$1.8 million, HK$7.2 million and HK$18.1 million, respectively. As at 30 April 2018, our trade receivables and contract assets amounted to approximately HK$22.7 million. Of the total amount of approximately HK$4.6 million, approximately HK$8.5 million, representing approximately 58.0% of the total amount of our trade receivables and contract assets, had been subsequently settled up to the Latest Practicable Date. Amounts due from directors The table below sets out an analysis of the amounts due from directors as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Amounts due from directors (non-trade nature) 6,786 13,237 15,526 Our amounts due from directors primarily represented amounts due from Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam, which amounted to approximately HK$6.8 million, HK$13.2 million and HK$15.5 million as at 31 December 2016, 31 December 2017 and 30 April 2018, respectively. Such amounts due from directors are unsecured, interest-free and repayable on demand. All of these amounts due from directors were fully settled. For details, please refer to note 20 to the Accountants Report in Appendix I to this document. 211

220 FINANCIAL INFORMATION Trade and other payables Trade and other payables represent the amounts incurred for the purchase of materials from our suppliers and the subcontracting charges. These trade and other payables are non-interest bearing. The credit terms granted by our suppliers and subcontractors for our trade payables are within 90 days after their issue of invoices. Our trade and other payables were approximately HK$5.3 million, HK$12.3 million and HK$15.4 million as at 31 December 2016, 31 December 2017 and 30 April 2018, respectively. The tables below set out a breakdown of our trade and other payables as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Trade payables 2,305 7,390 7,835 Accruals and other payables 2,969 4,934 7,532 5,274 12,324 15,367 The table below sets out the ageing analysis of our trade payables based on the invoice date as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ to 30 days 803 4,899 5, to 60 days 748 1,869 2, to 90 days over 90 days ,305 7,390 7,835 Our trade payables increased by approximately HK$5.1 million, or approximately 221.7%, from approximately HK$2.3 million as at 31 December 2016 to approximately HK$7.4 million as at 31 December 2017, which was mainly due to the increase in our purchases near the year end of Our trade payables further increased by approximately HK$0.4 million, or approximately 5.4%, from approximately HK$7.4 million as at 31 December 2017 to approximately HK$7.8 million as at 30 April 2018, which was primarily attributable to the increase in our purchases close to the end of reporting period. As at the Latest Practicable Date, approximately HK$6.3 million, or approximately 80.8% of our trade and other payables as at 30 April 2018, had been subsequently settled. 212

221 FINANCIAL INFORMATION The table below sets out the trade payables turnover days of our Group for the periods indicated: For the year ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 Trade payables 2,305 7,390 7,835 Direct costs (adjusted for excluding certain direct costs) (Note) 16,889 33,996 23,134 Trade payables turnover days (Note) 75.9 days 52.0 days 39.5 days Note: Trade payables turnover days is calculated based on the average of the beginning and ending balance of trade payables divided by the direct costs (excluding staff costs directly involved in our projects and depreciation expenses) for the relevant year/period and then multiplied by the number of days of the relevant year/period (i.e. 365 days for a full year and 120 days for the four months ended 30 April). For the two years ended 31 December 2017 and the four months ended 30 April 2018, our trade other payables turnover days were approximately 75.9 days, 52.0 days and 39.5 days, respectively, which were in line with the credit terms granted by our suppliers and subcontractors. As our business operates on a non-recurring and project-by-project basis, our direct costs incurred during the Track Record Period may fluctuate subject to the project size, scale of operation and work progress at a given time, thereby affecting our trade payables balances as at the respective year ends as well as our trade payables turnover days during the Track Record Period. Accruals and other payables Accruals and other payables mainly comprise provision of staff costs, [REDACTED] fee and other costs. Our accruals and other payables increased by approximately HK$1.9 million, or approximately 63.3%, from approximately HK$3.0 million as at 31 December 2016 to approximately HK$4.9 million as at 31 December 2017, which was mainly a result of an increase in provision of staff costs, arising from recruitment of more employees. Our accruals and other payables increased by approximately HK$2.6 million, or approximately 53.1%, from approximately HK$4.9 million as at 31 December 2017 to approximately HK$7.5 million as at 30 April 2018, which was primarily due to the increase in provision and other payables incurred for [REDACTED] during the period. Amount due to a director Our amount due to a director amounted to approximately HK$0.1 million, HK$84,000 and nil as at 31 December 2016, 31 December 2017 and 30 April 2018, respectively. Our amount due to a director was non-trade in nature, unsecured, interest-free and has not fixed terms of repayment. All the amount due to a director had been fully settled as at the Latest Practicable Date. 213

222 FINANCIAL INFORMATION Bank borrowings As at 31 December 2016, 31 December 2017 and 30 April 2018, our bank borrowings amounted to approximately HK$2.1 million, approximately HK$6.1 million and approximately HK$5.3 million, respectively. The following table shows the maturity profile of our bank borrowings as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Carrying amount (shown under current liabilities) that contain a repayment on demand clause based on scheduled repayment terms Within one year 1,294 4,922 4,384 More than one year but less than five years 844 1, Over five years Payments due within one year shown under current liabilities 2,138 6,116 5,281 Bank borrowings with amounts of approximately HK$2.0 million and HK$3.2 million are drawn under banking facilities. The banking facilities are secured by director s personal property and personal guarantees provided by Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam. As represented by our Directors, the personal guarantees and the property provided by Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam will be released upon [REDACTED]. Obligations under finance leases Our Group leased certain of its motor vehicles and plant and machinery under finance leases with lease terms ranging from three to five years. Interest rates underlying the obligations under these finance leases are fixed ranging from 1.65% to 7.48%, 1.65% to 7.48% and 2.00% to 7.48% per annum as at 31 December 2016, 31 December 2017 and 30 April 2018, respectively. These leases have terms of purchase option for the purchase of those leased assets at nominal amount. The table below sets out our obligations under our finance leases as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Within one year 1,098 1,267 1,103 More than one year but within two years More than two years but within five years ,906 2,606 2,

223 FINANCIAL INFORMATION The obligations under finance leases are denominated in Hong Kong dollars and its carrying amount approximate its fair value. The Group s obligations under finance leases are secured by the lessors title to the leased assets and personal guarantees provided by Mr. Ng Cheong Hee, Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam, our executive Directors. As at 31 December 2016, 31 December 2017 and 30 April 2018, the finance leases payables of our Group with carrying amounts of approximately HK$2.9 million, HK$2.6 million and 2.1 million were secured by the lessor s charge over the leased assets with carrying amount of approximately HK$2.8 million, HK$2.5 million and HK$2.0 million respectively. LIQUIDITY AND CAPITAL RESOURCES During the Track Record Period, our Group had fulfilled its liquidity requirements principally through a combination of cash and cash equivalents and cash generated from our operations during the Track Record Period. Following the completion of the [REDACTED], our Group expects its capital expenditure and working capital requirements to be funded principally through internal resources, bank borrowings, finance leases and the net proceeds from the [REDACTED]. Our Directors believe that, in the long term, our Group s operations will be funded by internal resources and, if necessary, additional equity financing or bank borrowings. The table below sets out our cash flows for the years indicated: Years ended 31 December For the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Net cash generated from operating activities 3,822 18,627 3,439 1,393 Net cash used in investing activities (1,809) (3,825) (1,205) (1,066) Net cash used in financing activities (1,240) (7,911) (1,744) (4,268) Net increase/(decrease) in cash and cash equivalents 773 6, (3,941) Cash and cash equivalents at the beginning of the year/period 2,747 3,520 3,520 10,411 Cash and cash equivalents at end of the year/period 3,520 10,411 4,010 6,

224 FINANCIAL INFORMATION Net cash generated from operating activities Our Group derives our cash flow from operating activities primarily through the receipt of trade receivables and retention receivables for the provision of our construction works. Our cash flow used in operating activities primarily comprises costs of construction materials, staff costs, subcontracting charges and administrative expenses. Our net cash from operating activities reflects our profit before tax, as adjusted for non-cash including depreciation and provision for impairment of trade receivables and retention receivables, and the effects of changes in working capital items. For the year ended 31 December 2016, we had net cash generated from operating activities of approximately HK$3.8 million. Such amount represented an increase in inventories of approximately HK$1.8 million, an increase in trade and other receivables of approximately HK$4.5 million and a decrease in trade and other payables of HK$2.4 million. For the year ended 31 December 2017, we had net cash generated from operating activities of approximately HK$18.6 million. Such amount represented an increase in inventories of approximately HK$2.0 million, an increase in trade and other receivables of approximately HK$1.9 million, an increase in contract assets of approximately HK$5.4 million and an increase in trade and other payables of HK$7.0 million. Net cash used in investing activities Our cash flow from investing activities mainly represents purchases of machinery and equipment. Our cash flow used in investing activities primarily represents the proceeds from disposal of machinery and equipment. Our net cash used in investing activities amounted to approximately HK$1.8 million for the year ended 31 December Such amount represented payment for purchases of property, plant and equipment of approximately HK$1.8 million. Our net cash used in investing activities amounted to approximately HK$3.8 million for the year ended 31 December Such amount represented payment for purchases of property, plant and equipment of approximately HK$3.8 million. Net cash used in financing activities Our cash flow from financing activities mainly consists of proceeds from bank borrowings. Our cash flow used in financing activities primarily represents repayment of bank borrowings. Our net cash used in financing activities amounted to approximately HK$1.2 million for the year ended 31 December Such amount represented proceeds from bank borrowings amounted to approximately HK$2.0 million and repayment to directors of approximately HK$1.6 million. 216

225 FINANCIAL INFORMATION Our net cash used in financing activities amounted to approximately HK$7.9 million for the year ended 31 December Such amount represented proceeds from bank borrowings amounted to approximately HK$2.0 million, repayment of bank borrowings of approximately HK$1.9 million and repayment to directors of approximately HK$6.5 million. NET CURRENT ASSETS As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Current assets Inventories 3,273 5,317 5,768 Trade and other receivables 19,492 21,054 14,688 Contract assets 1,820 7,198 18,087 Prepaid tax Amounts due from directors 6,786 13,237 15,526 Pledged bank deposits Cash and cash equivalents 3,677 10,411 6,470 35,058 58,081 61,405 Current liabilities Trade and other payables 5,274 12,324 15,367 Amounts due to a director Bank borrowings 2,138 6,116 5,281 Obligations under finance leases 1,098 1,267 1,103 Bank overdrafts 157 Tax payables 3,622 2,299 2,651 12,389 22,090 24,402 Net current assets 22,669 35,991 37,003 As at 31 December 2016, 31 December 2017 and 30 April 2018, our Group recorded net current assets of approximately HK$22.7 million, HK$36.0 million and HK$37.0 million, respectively. Our net current assets increased from approximately HK$22.7 million as at 31 December 2016 to approximately HK$36.0 million as at 31 December Such increase was primarily due to the increase in contract assets, amounts due from directors and cash and cash equivalents, partially offset by the increase in trade and other payables and bank borrowings. 217

226 FINANCIAL INFORMATION Our net current assets increased from approximately HK$36.0 million as at 31 December 2017 to approximately HK$37.0 million as at 30 April Such increase was mainly attributable to the increase in contract assets, partially offset by the decrease in our trade and other receivables and the increase in our trade and other payables. CAPITAL EXPENDITURE Our capital expenditure was funded by our internal resources during the Track Record Period. During the Track Record Period, our capital expenditure amounted to approximately HK$3.0 million, HK$4.6 million and HK$0.7 million, respectively, which was primarily incurred for the purchase of machinery and equipment for our business operations. CONTRACTUAL AND CAPITAL COMMITMENTS Operating lease commitments During the Track Record Period, our Group leased office premises and open storage area. The leases of these office premises and storage area have an initial lease period of two years and three years, respectively, and the lease for the open storage has an option to renew when all terms are re-negotiated. The table below sets out our future minimum lease payments under non-cancellable operating leases as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Within one year 406 1,998 1,865 In the second to fifth years, inclusive 1,774 1, ,772 3,088 Capital commitments During the Track Record Period and up to the Latest Practicable Date, our Group did not have any material capital commitments. 218

227 FINANCIAL INFORMATION INDEBTEDNESS Bank borrowings The table below sets out our bank borrowings as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Secured bank borrowings 2,138 6,116 5,281 2,138 6,116 5,281 The bank borrowing of our Group with financial institutions amounted to approximately HK$2.1 million, HK$6.1 million and HK$5.3 million, carried at floating interest rate ranging from 2.43% to 4.80% per annum, 2.43% to 4.80% per annum and 3.50% to 4.80% per annum for the two years ended 31 December 2017 and the four months ended 30 April 2018, respectively. Our Group s borrowings were denominated in Hong Kong dollars during the Track Record Period. The bank borrowings of our Group as at 31 December 2016, 31 December 2017 and 30 April 2018 were secured by personal guarantees provided by Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam and a property owned by Ms. Leung Pui Kam. The shareholders of the Company represented that such personal guarantees and property will be released upon [REDACTED]. Obligation under finance leases The table below sets out our obligations under finance leases as at the dates indicated: As at As at 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Current portion 1,098 1,267 1,103 Non-current portion 1,808 1,339 1,040 2,906 2,606 2,

228 FINANCIAL INFORMATION Our Group leased certain of its motor vehicles and plant and machinery under finance leases with lease terms ranging from two to six years. Interest rates underlying the obligations under these finance leases are fixed ranging from 1.7% to 7.5%, 1.7% to 7.5% and 2.0% to 7.5% per annum a at 31 December 2016, 31 December 2017 and 30 April 2018, respectively. These leases have terms of purchase option for the purchase of those leased assets at nominal amount. The obligations under finance leases are denominated in Hong Kong dollars and its carrying amount approximate its fair value. The Group s obligations under finance leases are secured by the lessors title to the leased assets and personal guarantees provided by Mr. Ng Cheong Hee, Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam, our executive Directors. As at 31 December 2016, 31 December 2017 and 30 April 2018, the finance leases payables of our Group with carrying amounts of approximately HK$2.9 million, HK$2.6 million and 2.1 million were secured by the lessor s charge over the leased assets with carrying amount of approximately HK$2.7 million, HK$2.4 million and HK$2.0 million respectively. As at 30 April 2018, being the latest practicable date for determining our indebtedness, the total indebtedness of our Group amounted to HK$7.4 million, which consisted of bank borrowings and obligation under finance leases. The effective interest rates of bank borrowings and obligations under finance leases were approximately ranging from 3.5% to 4.8%, and ranging from 2.0% to 7.5% per annum, respectively. Our Group also had an unutilised banking facility of HK$3.0 million, which was an unutilised term loan granted by a bank for the purpose of general working capital of our Group. There are no material covenants relating to such outstanding indebtedness. Our Directors confirmed that there had been no material change to our indebtedness since 30 April 2018 and up to the Latest Practicable Date. Save as disclosed above, as at the Latest Practicable Date, we did not have any other borrowings, mortgages, charges, debentures or debt securities, issued or outstanding, or authorised or otherwise created but unissued, or other similar indebtedness, finance lease commitments, liabilities under acceptances, acceptance credits, hire purchase commitments, material contingent liabilities or guarantees. In addition, our Group currently does not have any external debt financing plans. CONTINGENT LIABILITIES As at the Latest Practicable Date, other than disclosed in the section headed Business Litigation and potential claims in this document, our Group was not involved in any legal proceedings pending or, to our knowledge, threatened against our Group which could have a material adverse effect on our business or operations. Our Directors confirm that as at the Latest Practicable Date, our Group did not have any material contingent liabilities. WORKING CAPITAL As at 31 December 2016, 31 December 2017 and 30 April 2018, our cash and cash equivalents were approximately HK$3.5 million, HK$10.4 million and HK$6.5 million, respectively. Our unutilised banking facilities were approximately HK$2.8 million, HK$3.0 million and HK$3.0 million, respectively. 220

229 FINANCIAL INFORMATION Taking into account the financial resources that are available to our Group, including cash and cash equivalents, cash flows generated from operating activities and the expected net proceeds from the [REDACTED], and in the absence of unforeseen circumstances, our Directors are of the view, and the Sole Sponsor concurs, that our Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this document. SENSITIVITY ANALYSIS To determine our tender prices submitted in response to invitations by our potential customers, we take into account a number of factors including the type, scope and complexity of works involved, the expected time frame of the projects, the required machinery capacity, the estimated costs on construction materials and labour, the involvement of subcontractors, our relationship with the relevant customers and the prevailing market conditions. However, as the projects progress, the actual time and costs involved may be affected by some unforeseen factors or circumstances, which may include variation orders received from customers, customers significant changes in major work schedules, difficulty in arranging adequate manpower and unexpected price fluctuations in construction materials. Any material inaccurate estimation with reference to time and costs involved in our construction projects may adversely affect our profit margin and hence, our results of operations. The following sensitivity analysis illustrates the impact of hypothetical fluctuations in costs of construction materials and consumables, direct labour and subcontracting charges on our profit during the Track Record Period, assuming that all other variables remained constant. According to the Frost & Sullivan Report, the average daily wage of general workers and labourers in Hong Kong, price of steel flats and price of welding electrode recorded a CAGR during the period between 2012 and 2017 of approximately 8.3%, 2.6% and 3.7%. As such, we consider it reasonable to adopt a hypothetical fluctuation rate of 5.0% and 10.0% for the purpose of performing the sensitivity analysis as set out below: Hypothetical fluctuations in construction materials and consumables (Decrease)/increase in cost of construction materials and consumables -10.0% -5.0% +5.0% +10.0% HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2016 (798) (399) Year ended 31 December 2017 (1,978) (989) 989 1,978 Four months ended 30 April 2017 (494) (247) Four months ended 30 April 2018 (1,317) (658) 658 1,

230 FINANCIAL INFORMATION (Decrease)/increase in profit for the year/period -10.0% -5.0% +5.0% +10.0% HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2016 (666) (333) Year ended 31 December 2017 (1,652) (826) 826 1,652 Four months ended 30 April 2017 (412) (206) Four months ended 30 April 2018 (1,100) (549) 549 1,100 Hypothetical fluctuations in direct labour (Decrease)/increase in direct labour -10.0% -5.0% +5.0% +10.0% HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2016 (2,138) (1,069) 1,069 2,138 Year ended 31 December 2017 (3,281) (1,640) 1,640 3,281 Four months ended 30 April 2017 (1,050) (525) 525 1,050 Four months ended 30 April 2018 (1,674) (837) 837 1,674 (Decrease)/increase in profit for the year/period -10.0% -5.0% +5.0% +10.0% HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2016 (1,785) (893) 893 1,785 Year ended 31 December 2017 (2,740) (1,369) 1,369 2,740 Four months ended 30 April 2017 (877) (438) Four months ended 30 April 2018 (1,398) (699) 699 1,398 Hypothetical fluctuations in subcontracting charges (Decrease)/increase in subcontracting charges -10.0% -5.0% +5.0% +10.0% HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2016 (421) (210) Year ended 31 December 2017 (621) (311) Four months ended 30 April 2017 (117) (59) Four months ended 30 April 2018 (301) (150) (Decrease)/increase in profit for the year/period -10.0% -5.0% +5.0% +10.0% HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2016 (352) (175) Year ended 31 December 2017 (519) (260) Four months ended 30 April 2017 (98) (49) Four months ended 30 April 2018 (251) (125)

231 FINANCIAL INFORMATION KEY FINANCIAL RATIOS Set out below are our key financial ratios during the Track Record Period: For the year ended 31 December For the four months ended 30 April Profitability ratios Gross profit margin (1) 30.7% 28.4% 17.5% Net profit margin (2) 16.0% 17.7% 3.0% Return on equity (3) 33.9% 39.2% 3.3% Return on total assets (4) 21.8% 25.1% 2.1% As at As at 31 December 30 April Liquidity ratios Current ratio (5) Capital sufficiency ratios Gearing ratio (6) 19.8% 20.8% 17.1% Interest coverage (7) Notes: 1. Our gross profit margin is calculated by dividing our gross profit by our revenue for the respective year/period and then multiplying the resulting value by 100%. 2. Our net profit margin is calculated by dividing our net profit by our revenue for the respective year/period and then multiplying the resulting value by 100%. 3. Our return on equity is calculated by dividing our profit for the respective year/period by our total equity at the end of the respective year/period and then multiplying the resulting value by 100%. 4. Our return on total assets is calculated by dividing our profit for the respective year/period by our total assets at the end of the respective year/period and then multiplying the resulting value by 100%. 5. Our current ratio is calculated by dividing our total current assets as at the end of the relevant year/period by our total current liabilities as at the end of the relevant year/period. 6. Our gearing ratio is calculated by dividing our total debt as at the end of the relevant year/period by our total equity as at the end of the relevant year/period and then multiplying the resulting value by 100%. 7. Our interest coverage is calculated by dividing our profit for the respective year/period before the [REDACTED], our finance costs and income tax expense by our finance costs. 223

232 FINANCIAL INFORMATION Please refer to the paragraph ended Comparison of Results of Operations of our Group in this section for a discussion of the factors affecting our gross profit margin and net profit margin during the Track Record Period. Return on equity Our return on equity increased from approximately 33.9% for the year ended 31 December 2016 to approximately 39.2% for the year ended 31 December The increase was mainly due to the increase in our net profit for the year by 89.7% during the period as a result of increase in gross profit. Our return on equity decreased to approximately 3.3% for the four months ended 30 April 2018, which was mainly due to the decrease in our net profit for the period as a result of the one-off [REDACTED] of approximately [REDACTED] incurred during the period. Return on total assets Our return on total assets increased from approximately 21.8% for the year ended 31 December 2016 to approximately 25.1% for the year ended 31 December The increase was mainly a result of the increase of our net profit by approximately 89.7% (ii) and our total assets increased by approximately 64.6% as a result of increase in amounts due from directors and cash and bank balances. Our return on total assets decreased to approximately 2.1% for the four months ended 30 April 2018, which was primarily due to (i) the decrease of our net profit for the period by approximately 91.2% and (ii) increase in our total assets by approximately 5.3% as a result of the increase in contract assets and amounts due from directors, partially offset by the decrease in trade and other receivables and cash and bank balances.. Current ratio Our current ratio decreased from approximately 2.8 times as at 31 December 2016 to approximately 2.6 times as at 31 December The decrease was mainly due to (i) increase in bank borrowing and (ii) increase in our trade and other payables during the period. Our current ratio further increased to approximately 2.5 times as at 30 April 2018, which was mainly due to the Group s cash position has weakened result from the payment of [REDACTED] during the period. Gearing ratio Our gearing ratio slightly increased from approximately 19.8% for the year ended 31 December 2016 to approximately 20.8% for the year ended 31 December The increase was mainly due to increase in bank borrowing of HK$4.0 million during the year. 224

233 FINANCIAL INFORMATION Our gearing ratio further decreased to approximately 17.1% for the four months ended 30 April 2018, which was mainly due to (i) decrease in bank borrowing of HK$0.8 million and (ii) decrease in obligation under finance leases of HK$0.5 million. Interest coverage Our interest coverage increased from approximately 40.9 times for the year ended 31 December 2016 to approximately 57.9 times for the year ended 31 December The increase was primarily due to increase in net profit before income tax in 2017 as discussed in this section above, partially offset by increase in interest expenses on bank borrowing during the period. Our interest coverage further decreased to approximately 16.8 times for the four months ended 30 April 2018, which was mainly due to decrease in net profit before income tax resulting from the [REDACTED] of [REDACTED] million incurred during the period. OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS During the Track Record Period and up to the Latest Practicable Date, our Group did not have any material off-balance sheet commitments and arrangements. FINANCIAL INSTRUMENT Our Group had not entered into any financial instruments for hedging purposes during the Track Record Period and up to the Latest Practicable Date. UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS Our unaudited pro forma adjusted consolidated net tangible assets was prepared for illustrative purposes only and may not give a true picture of our financial position owing to its hypothetical nature. For further details, please refer to the section headed Unaudited Pro Forma Financial Information set out in Appendix II to this document. DIVIDENDS No dividends have been paid or proposed by any of the companies comprising the Group during the Track Record Period. On 23 May 2018, a special dividend of HK$15.9 million was declared and paid to our then Shareholders. These dividend were off-set against partial amount due from Directors. For further details, please refer to the section headed Accountant s Report set out in Appendix I to this document. 225

234 FINANCIAL INFORMATION Our Group currently does not have a dividend policy. There is no expected or predetermined dividend payout ratio after [REDACTED]. The payment and the amount of any future dividends will be at the discretion of our Directors and will depend on a number of factors including but not limited to our Group s results of operations and earnings, financial condition, capital requirements and other factors which our Board may deem relevant. The dividend distribution records 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 our Board in the future. There is no assurance that dividends of such amount or any amount will be declared or distributed each year or in any year. Any final dividend for a financial year will be subject to Shareholders approval. DISTRIBUTABLE RESERVES Our Company was incorporated on 29 May 2018 and has not carried out any business since the date of incorporation. Accordingly, our Company did not have any distributable reserves for distribution to our Shareholders as at 30 April Our Group is exposed to interest rate risk, credit risk and liquidity risk in the normal course of business. For further details, please refer to note 5 to the Accountants Report set out in Appendix I to this document. [REDACTED] Assuming the [REDACTED] is not exercised and assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of our indicative price range for the [REDACTED] stated in this document, our total [REDACTED], consisting of fees paid or payable to professional parties and [REDACTED], are estimated to be approximately [REDACTED], of which approximately [REDACTED] is directly attributable to the [REDACTED] and is expected to be capitalised after the [REDACTED]. The remaining amount of approximately [REDACTED] is expected to be charged to our Company s combined statements of comprehensive income, of which (i) approximately [REDACTED] has been charged for the four months ended 30 April 2018; and (ii) approximately [REDACTED] is expected to be incurred for the eight months ended 31 December In view of the above, our Directors are of the view that the one-off [REDACTED], which are non-recurring in nature, will have a material adverse effect on our Group s financial results for the year ending 31 December We wish to emphasise that the aforesaid amount of [REDACTED] is a current estimate for reference only and the final amount to be recognised in our combined statements of comprehensive income for the year ending 31 December 2018 will be subject to adjustments based on audit and changes in variables and assumptions. 226

235 FINANCIAL INFORMATION RECENT DEVELOPMENT Subsequent to the Track Record Period and up to the Latest Practicable Date, our Group had continued to operate our business by undertaking foundation works and steelworks projects in Hong Kong. As at the Latest Practicable Date, we had 11 projects on hand (including projects in progress and projects which had been awarded to us but had not commenced as at the Latest Practicable Date). The aggregate contract sum of all these projects on hand amounts to approximately HK$129.2 million, of which approximately HK$43.9 million was recognised as revenue during the Track Record Period. The amount of revenue expected to be recognised is subject to factors including, but not limited to, the commencement and completion dates, the actual work progress and our customers work schedules. We had secured two new projects subsequent to the Track Record Period and up to the Latest Practicable Date, namely, project at Wo Shang Wai, Yuen Long B and project at Marble Road, North Point. The contract sums of project at Wo Shang Wai, Yuen Long B and project at Marble Road, North Point are approximately HK$33.0 million and HK$4.8 million, respectively. Both projects commenced work in May 2018 and are expected to complete by May For further details of our projects, please refer to the section headed Business Our business model and our projects in this document. MATERIAL ADVERSE CHANGE Save as disclosed in the paragraph headed [REDACTED] in this section, our Directors confirmed that since 1 May 2018 and up to the date of this document, (i) there had been no material adverse change in the market conditions or the industry and environment in which our Group operates that materially and adversely affects our financial and operating condition; (ii) there was no material adverse change in our Group s trading and financial position or prospects; and (iii) no event had occurred that would materially and adversely affect the information as shown in the Accountants Report. DISCLOSURE REQUIRED UNDER THE GEM LISTING RULES As at the Latest Practicable Date, our Directors confirmed that there were no circumstances that would give rise to a disclosure requirement under Rule to under the GEM Listing Rules. 227

236 FUTURE PLANS AND USE OF [REDACTED] BUSINESS OBJECTIVES AND STRATEGIES For our Group s business objectives and strategies, please refer to the section headed Business Business Strategies in this document. USE OF [REDACTED] Based on the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of the indicative [REDACTED] ranging from HK$[REDACTED] per [REDACTED] to HK$[REDACTED] per [REDACTED], the net proceeds from the [REDACTED] (the Net [REDACTED] ) after deducting the [REDACTED] as well as estimated expenses in connection with the [REDACTED] are estimated to be approximately HK$[REDACTED] (assuming the [REDACTED] is not exercised). Our Directors intend to apply the Net [REDACTED] as follows: (a) approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], will be used for expanding our manpower; (b) approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], will be used for the acquisition of machinery to assist with our construction work; (c) approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], will be used for financing the upfront costs of our potential projects; (d) approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], will be used for leasing a new office; and (e) approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], will be used for working capital and other general corporate purposes of our Group. 228

237 FUTURE PLANS AND USE OF [REDACTED] Expansion of manpower To cope with our Group s expansion plan, we need additional staff to support our site operations as well as office management. We therefore intend to utilise approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], to expand our manpower by recruiting 15 additional employees to support our project management, site operations and office management. The table sets out the expected qualifications, experience and salaries of the 15 additional staff we plan to recruit using the Net [REDACTED]: Experience and qualifications Salary per annum for each position (Approximate HK$ 000) One project manager Diploma holder in civil engineering or equivalent Holder of T3 Certificate At least five years relevant work experience in site formation works 540 One civil engineer Degree holder in civil engineering At least five years relevant experience in relation to site formation works, road and drainage works and steelworks Certificate holder of mandatory basic safety training course for construction industry 420 One safety officer Diploma holder in engineering, management or other related disciplines Registered Safety Officer At least five years relevant experience

238 FUTURE PLANS AND USE OF [REDACTED] Experience and qualifications Salary per annum for each position (Approximate HK$ 000) One safety supervisor Certificate holder of Safety Supervisor Certificate holder of first aid Certificate holder of mandatory basic safety training course for construction industry At least three years relevant experience 240 Two site foremen Holder of T1 Certificate 320 Certificate holder of mandatory basic safety training course for construction industry Minimum of five years working experience in relation site formation works Four excavator operators Holder of relevant certificates for operating the machines Certificate holder of mandatory basic safety training course for construction industry Minimum of five years relevant experience 420 Four truck drivers Holder of relevant driving licence in Hong Kong At least five years relevant experience

239 FUTURE PLANS AND USE OF [REDACTED] Experience and qualifications Salary per annum for each position (Approximate HK$ 000) One human resources manager Degree holder in business administration or human resources management or related disciplines A human resources generalist with a minimum of five years experience in human resources management and administration Possessing solid knowledge in labour law in Hong Kong 420 We expect the hiring of additional staff will commence in January 2019 and the annual costs for the relevant additional staff will be approximately HK$5.2 million, HK$5.3 million and HK$5.5 million, for the three years ending 31 December 2019, 2020 and 2021, respectively. Acquisition of machinery To achieve our business objective of expanding our scale of operation and cope with our sizable projects, we need to strengthen our machinery fleet by acquiring additional machinery. In addition, in order to comply with the phase out plan set out in the Technical Circular (the Phase Out Plan ), we plan to replace certain NRMM exempted machinery items. For further details of the NRMM Regulation and the Technical Circular, please refer to the section headed Regulatory Overview Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong). We plan to utilise approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED], to finance the purchase of machinery. Our Directors consider that it is in the interest of our Group to purchase rather than lease the particular machinery for our site operations. 231

240 FUTURE PLANS AND USE OF [REDACTED] The table below sets out the particulars of the machine items we intend to acquire: Estimated costs (HK$ 000) One excavator (7 tons) 475 One excavator (13 tons) 675 Two excavators (22 tons) 1,920 Two excavators (35 tons) 2,760 One power generator 400 Four dump trucks 3,800 Replacement of NRMM Exempted Machinery 2,152 12,182 Note: The machinery items intended to be replaced include four hydraulic excavators, one forklift truck and two vibration rollers. During the Track Record Period, we had incurred approximately HK$0.8 million, HK$0.9 million and HK$0.9 million, respectively for the two years ended 31 December 2017 and the four months ended 30 April 2018 for leasing of the machinery to support our site operations. Our Directors are of the view that it would be cost-efficient for us to acquire additional machinery to support our site operations. Below sets out a comparison of the rental cost estimated to be incurred per annum for leasing the relevant machinery and the cost estimated to be incurred per annum for purchasing the same (including depreciation charges and salaries of machine operators), illustrating the amount of cost savings per annum: Six excavators One power generator Four dump trucks Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Rental cost for the machinery per annum (1) 2, ,498 3,652 Less: Cost incurred per annum for purchasing the machinery Depreciation charges per annum (2) 1, ,006 Cost savings per annum (3) ,646 Notes: 1. The rental cost is estimated based on the quotations obtained from independent third party machine suppliers. Such rental cost includes the cost of hiring a machine operator for the relevant machine item. 232

241 FUTURE PLANS AND USE OF [REDACTED] 2. The depreciation charges are calculated based on straight-line method with an estimated useful life of five years]. The purchase costs of the relevant machinery are estimated based on the quotations obtained from independent third party machine suppliers. 3. The calculation is based on the assumption that (i) the fuel costs and maintenance costs are the same for leasing and purchasing the relevant machinery; and (ii) the incremental storage costs for our purchased machine items would be minimal. Our demand for machinery is expected to increase to capture the market opportunities driven by the continuous growth in the construction works industry in Hong Kong. According to the Frost & Sullivan Report, the gross value of foundation works is estimated to increase at a CAGR of 2.4% from 2018 to 2022, reaching approximately HK$22.2 billion. Please refer to the section headed Industry Overview in this document for further details of our growth drivers. We consider that it is not entirely feasible to rely on leasing machinery to cater for our business expansion in the long run on the following grounds: (i) Our Directors believe that acquiring additional machinery and replacing the aged machinery could enhance our ability to undertake more projects or projects of a larger scale. Our Group has gained increasing recognition from our customers, which can be reflected in the increase in our tender success rates. Our tender success rate increased from approximately 18.3% for the year ended 31 December 2016 to approximately 21.1% for the year ended 31 December Our tender success rate remained stable for the four months ended 30 April 2018 and for the period from 1 May 2018 to the Latest Practicable Date. To cater for our site operations, we need a large machinery fleet. Yet there is no guarantee that we can invariably lease machinery of good working condition from our machine suppliers on commercially agreeable terms. We may also be limited by the machine availability of our suppliers throughout the duration of our projects, which may be extended from time to time. By having a solid machinery fleet, we would be able to expand our scale of operation and hence promote our business growth. (ii) Machine availability is one of the crucial factors which our potential customers will take into account during the tendering process. Should we place heavy reliance on machinery leasing, we will not have direct control over the use of the leased machinery. Having a solid machinery fleet enables us to tailor our work schedules according to the different needs and requirements of our customers, increases our flexibility in scheduling our projects as well as deploying our manpower in a more efficient manner. In addition, given more efficient site operations, we would be able to minimise the risk of causing delay in our work progress, which, our Directors believe, is important for large-scale projects and projects involving work of high complexity. Strengthening our machinery fleet could increase our competitiveness in the market. 233

242 FUTURE PLANS AND USE OF [REDACTED] (iii) The machinery available for leasing from our machine suppliers may be aged machinery, which may fail to fulfil our customers requirements from the perspective of environmental impact control. Our Directors are of the view that ensuring compliance of our machinery with environmental requirements enhances our customers confidence in our operations. Among our machinery items in use for our construction work, four excavators were categorised as NRMM exempted i.e. exempted from complying with the emission requirements pursuant to the NRMM regulation. Accordingly, these four excavators are expected to be phased out according to the Phase Out Plan. For further details, please refer to the section headed Business Machinery Possible Impact of the NRMM and the Technical Circular in this document. Our Directors are of the view that as our machines age, their productivity will diminish and frequency of malfunctioning will increase. The new machines to be acquired include those which comply with the emission standard prescribed under the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation as well as machinery with proper QPME (Quality Powered Mechanical Equipment) label issued by the Environmental Protection Department, which are expected to have better performance in terms of environmental-friendliness and operating efficiency. Our Directors believe that our customers would have a preference to engage a contractor which operates with an upgraded machinery fleet of better operating efficiency and environmental-friendliness, when compared with aged machinery. Besides, according to the Frost & Sullivan Report, given increasing environmental awareness in Hong Kong, environmental requirements in relation to machine operations in construction sites may become more stringent. Our Directors are of the view that should we fail to replace those machine items that are expected to be phased out with new ones or strengthen our machine portfolio by acquiring new machines, our ability to undertake projects will be severely impaired. As such, our Directors believe that it is imperative to increase our competitiveness through the strengthening of our machinery fleet. In case there is any shortfall of machinery in the future, our Group may obtain such by way of our internal resources, leasing from other machinery providers and/or bank borrowing. Financing upfront costs for potential projects To undertake our projects, we are generally required to incur substantial upfront costs in the initial stage before we receive any progress payments from our customers. Such upfront costs include costs on site workers, construction materials, machinery and equipment rental and subcontracting charges. During the Track Record Period, we generally incurred approximately 4% to 5% of the initial contract sum of a project for its upfront costs. The first progress payment for our projects is usually made two months after commencement of work. Given the time gap between the incurrence of upfront costs and the receipt of progress payment from our customers, we are in need of a strong cash position to finance the upfront costs for our projects. 234

243 FUTURE PLANS AND USE OF [REDACTED] Based on our sound track record, good relationship with our customers and experienced management team, our Directors are of the view that among the tenders that our Group has submitted, we have a fair chance of success in securing the following projects: Project Tender status Estimated date of award of the project Estimated date for the incurrence of the upfront costs Estimated initial contract sum HK$ 000 Project A Tender queries and March 2019 June ,612 meeting Project B First round tender queries October 2018 January Project C First round tender queries October 2018 January ,269 Project D First round tender queries October 2018 January ,805 Project E First round tender queries October 2018 January ,868 Project F First round tender queries October 2018 January ,004 Project G First round tender queries October 2018 January ,085 Project H Sixth round tender October 2018 January ,926 queries Project I Tender queries and October 2018 January meeting Project J Sixth round tender October 2018 January ,480 queries Project K Tender queries and meeting October 2018 January ,982 To our management s best estimation based on (i) the upfront cost status of our previous projects of a similar scale and having similar work type and complexity; and (ii) our recent quotations from our suppliers and subcontractors, the upfront cost to be incurred for the above potential projects is estimated to range from approximately 4.0% to 5.0% of each of the initial contract sum of the relevant project and the aggregate upfront costs would amount to approximately HK$10.0 million. Hence, we intend to utilise approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED] to finance the upfront costs to be incurred for our potential projects. Our Directors believe that such financing would strengthen our Group s cash position, which would in turn foster our business growth. Leasing of new office In order to adapt to the expansion of our Group s manpower, we plan to lease a new office space to accommodate our new employees. We intend to utilise approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED] to lease a new office which has a gross floor area of approximately 1,800 square feet. Any shortfall is planned to be financed by the internal resources of our Group. We aim to lease this new office in East of Kowloon. 235

244 FUTURE PLANS AND USE OF [REDACTED] For the period from the [REDACTED] to 31 December 2021, our Net [REDACTED] will be distributed as follows: From the [REDACTED] to 31 December 2018 From 1 January 2019 to 30 June 2019 From 1 July 2019 to 31 December 2019 From 1 January 2020 to 30 June 2020 From 1 July 2020 to 31 December 2020 From 1 January 2021 to 30 June 2021 From 1 July 2021 to 31 December 2021 Approximate % of Net Total[REDACTED] (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) (approximate) (approximate) (approximate) (approximate) (approximate) (approximate) (approximate) (approximate) Acquisition of machinery Expansion of manpower Financing upfront costs for potential projects Leasing of new office Total (Note) [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] Note: The figures shown here are subject to rounding adjustments. The remaining balance of approximately HK$[REDACTED], representing approximately [REDACTED]% of the Net [REDACTED] will be utilised to supplement our general working capital. The above allocation of the Net [REDACTED] will be adjusted on a pro rata basis if the [REDACTED] is fixed at a higher or lower level than the mid-point of the indicative [REDACTED] range. If the final [REDACTED] is set at the highest or lowest point of the indicative [REDACTED] range, the net proceeds that are to be received by us from the [REDACTED] will increase or decrease by approximately HK$[REDACTED] respectively. Nonetheless, the net [REDACTED] will be used in the same proportions as stated above irrespective of whether the [REDACTED] is determined at the highest or lowest point of the indicative [REDACTED] range. If the [REDACTED] is exercised in full, the additional net [REDACTED] resulted from the allotment and issuing of the additional Shares will be approximately HK$[REDACTED], which will be allocated in the same way as stated above on a pro rata basis. For details of the [REDACTED], please refer to the section headed [REDACTED] in this document. If the Net [REDACTED] are not immediately required for the purposes listed above or if we are unable to implement any part of our intended future development plans, we may hold such funds by way of short-term deposits with licensed banks or authorised financial institutions for so long as it is in our best interests. If our Directors decide to reallocate the use of [REDACTED] from the [REDACTED] to other business plans and/or new projects of our group materially, and/or that the use of [REDACTED] explained above are significantly modified, our Group will issue an announcement as per the requirements under the GEM Listing Rules. 236

245 FUTURE PLANS AND USE OF [REDACTED] IMPLEMENTATION PLAN Below set out our implementation plans for the period from the [REDACTED] to 31 December 2021 for the purpose of execution of our business plans: From the [REDACTED] to 31 December 2018 Business strategies Implementation plan Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery Obtaining and comparing [REDACTED] quotations from potential suppliers Financing upfront costs for potential projects Budgeting and deciding on the allocation of the resources among the projects we are awarded Leasing of new office Paying rent and other related expenses [REDACTED] [REDACTED] Six months ending 30 June 2019 Business strategies Implementation plan Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery Purchasing the machinery items [REDACTED] Financing upfront costs for potential projects Procurement of construction materials, engagement of subcontractors and leasing machinery and equipment for the projects Leasing of new office Paying rent and other related expenses [REDACTED] [REDACTED] 237

246 FUTURE PLANS AND USE OF [REDACTED] Six months ending 31 December 2019 Business strategies Implementation plan Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery [REDACTED] Financing upfront costs for [REDACTED] potential projects Leasing of new office Paying rent and other related [REDACTED] expenses Six months ending 30 June 2020 Business strategies Implementation plan Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery [REDACTED] Financing upfront costs for [REDACTED] potential projects Leasing of new office Paying rent and other related [REDACTED] expenses Six months ending 31 December 2020 Business strategies Implementation plan Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery [REDACTED] Financing upfront costs for [REDACTED] potential projects Leasing of new office Paying rent and other related [REDACTED] expenses 238

247 FUTURE PLANS AND USE OF [REDACTED] Six months ending 30 June 2021 Business strategies Implementation plan Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery [REDACTED] Financing upfront costs for [REDACTED] potential projects Leasing of new office Paying rent and other related [REDACTED] expenses Six months ending 31 December 2021 Business strategies Implementation plans Use of [REDACTED] HK$ 000 (Approximate) Expansion of manpower Paying salaries to staff [REDACTED] Acquisition of machinery [REDACTED] Financing upfront costs for [REDACTED] potential projects Leasing of new office Paying rent and other related [REDACTED] expenses REASONS FOR THE [REDACTED] Our Directors believe that the [REDACTED] will benefit our Group greatly for the reasons set out below: Our Directors are of the view that the [REDACTED] will benefit our Group for the following reasons: [REDACTED] status will enable us to strengthen our competitiveness Our Directors believe that a [REDACTED] status will enable our Group to strengthen our competitive edge and compete with other major competitors in Hong Kong s construction industry. Since January 2007, our operating subsidiary Noble Engineering has been a registered subcontractor with the Construction Industry Council for, among others, foundation and piling and structural steelwork. Our Directors consider that in choosing their subcontractors, our customers would place great weight on whether subcontractors have achieved a [REDACTED] status as listed companies offers greater transparency as to financial disclosures and are more 239

248 FUTURE PLANS AND USE OF [REDACTED] stringently regulated, which may provide an additional element of quality assurance for our customers. Hence, our Directors firmly believe that the [REDACTED] would enable our Group to better compete in the current competitive landscape, thereby justifying the costs, risks and uncertainties required in an application for [REDACTED]. We have a genuine need for funding our business expansion Our Group has a genuine and imminent need for funding our business expansion, thus it is essential for our Company to seek a [REDACTED] and raise funds through the [REDACTED] owing to the following reasons: (i) Potential business opportunities and market growth drivers in the construction industry We expect our business to steadily expand in the future. Our potential to expand is evidenced by our increase in total number of projects awarded from 13 for the year ended 31 December 2016 to 17 for the year ended 31 December 2017 as well as our increased tender success rate by 2.9% to 21.2% during the year ended 31 December 2017 from approximately 18.3% for the same period in Further, according to the Frost & Sullivan Report, there are several market opportunities for the foundation works market, including rising investment in infrastructure by the Hong Kong Government, urban renewal products and the continuous improvement of the drainage system in Hong Kong. Combined with market drivers such as the rising land supply, development of public infrastructure projects and favourable policy for residential area development, our Directors believe that our business opportunities for foundation works projects will also correspondingly increase. For further information as to the market drivers and market opportunities in the foundation works market, please refer to the section headed Industry Overview in this document. (ii) We may need to finance our contracts on hand and require additional capital to take advantage of business opportunities and consolidate our Group s position in the market Given the aforesaid potential business opportunities available in the coming years, it is crucial that we begin to build momentum for business growth and expansion. Following the Track Record Period and up to the Latest Practicable Date, we received 42 tender invitations and submitted 15 tender applications in response. Further, after the Track Record Period and up to the Latest Practicable Date, we were awarded two new projects. As at the Latest Practicable Date, we had a total of 11 projects on hand with a total aggregate contract sum of approximately HK$129.2 million, of which revenue amounting to approximately HK$121.0 million will be recognised for the year ending 31 December Our ability to grasp these business opportunities will largely depend on our operational resources such as machinery and manpower as well as financial resources to cover our upfront costs. 240

249 FUTURE PLANS AND USE OF [REDACTED] (iii) We incur upfront costs and thus net cash outflow at the early stage of the project In the initial stage of our projects and before we receive any progress payments, we may incur significant upfront costs including costs for site workers major construction materials, subcontracting charges, machinery and equipment rental and transportation costs. First payment is usually received from our customers one to two months after the commencement of the projects. As a result, in the early stage of the project implementation phase, we may incur amounts representing approximately 5% of our total contract sum for the project, causing us to experience a mismatch of our cash flow given the timing difference between making payments to our site workers suppliers and subcontractors and receiving payment from our customers. Furthermore, subject to the terms in our contracts, we may not be paid in full for each progress payment as a portion of the amounts may be withheld as retention monies pursuant to our contract. (iv) We have utilised banking facilities Throughout the Track Record Period, we obtained banking facilities from various banks in order to acquire motor vehicles and machinery items, and finance our operations and profits, tax settlement. During the same period, our gearing ratio was approximately 19.8%, 20.8 and 17.1% and had utilised banking facilities of approximately HK$0.2 million, nil and nil, respectively. Our Directors believe that in order to achieve sustainable growth and financial independence, it is not in the interest of our Group to depend heavily on debt financing, which requires provision of personal guarantees or any collaterals provided by our Controlling Shareholders, Directors and their respective associates. As such, our Directors consider that equity financing through the [REDACTED] to expand our business instead of increasing the costs of borrowing through debt financing. Our operations highly depend on our own staff as well as machinery and equipment As part of our business strategy, we plan to expand our scope of operations by securing more projects and strengthening our project portfolio, expanding and upgrading our manpower and acquiring additional machinery and equipment. Our ability to tender for and secure more projects will depend on the availability of our operational resources as well as the availability of our machinery and manpower as these are also factors that our customers heavily consider. If we have insufficient manpower and machinery available, we may resort to taking less projects. To facilitate our business strategy to expand our scale of operations, we may need to increase our competitiveness by expanding our manpower and purchasing new machinery. Therefore, our Directors are of the view that we have a genuine need to raise funds to hire additional staff to support our site operations and our office management. Further, our Directors believe that the hiring of additional staff and purchase of machinery will position our Group to better compete with our competitors. 241

250 FUTURE PLANS AND USE OF [REDACTED] Other commercial rationales for [REDACTED] (i) Enhance our Group s corporate profile, credibility and brand awareness as well as market status Our Directors consider that a [REDACTED] status will grant our Group with credibility and assurance with our customers, suppliers, subcontractors and employees, thereby improving our competitive edge in the industry when competing and tendering for foundation works projects. As a result of the stringent requirements required to be adopted for the [REDACTED], our internal control and corporate governance policies and practices have been enhanced, which may in turn increase our customers, suppliers and subcontractors confidence in us and further attract potential customers. Additionally, we believe that our employees may feel more stable and secure being employed with us as opposed to being employed by a private company owing to the heightened transparency and reputation. Our status as a listed company may position us to better negotiate with potential business partners, as well as our existing and future customers, suppliers and subcontractors. (ii) Ease of raising funds in capital market for future business development The [REDACTED] will allow us access to the capital market for fund raising activities, which will aid our future growth. After the [REDACTED], we will be able to use any secondary fund-raising activities to assist us in implementing and progressing with our business development and expansion plans. Access to a greater capital market for equity financing would also allow us to lower our gearing ratio. Through the [REDACTED], we would be provided with direct access to the capital market for equity and/or debt financing, which would allow us to fund our existing operations and future expansion to achieve our business strategies and maximise the return to our Shareholders. Although we will continue to have certain bank facilities available to us after the [REDACTED], our Directors consider that we will be in a stronger position to negotiate and bargain with banks and financial institutions with our status as a [REDACTED] company and an enlarged capital structure. (iii) Diversification of shareholder base and have more liquidity in trading of Shares Our Directors believe that through the [REDACTED], the liquidity of our Shares to be freely traded on the Stock Exchange will be enhanced in comparison to the liquidity of the Shares held privately prior to the [REDACTED]. As such, our Directors are of the view that the [REDACTED] will expand and diversify our Shareholder base, allowing for a more liquid market in the trading of our Shares. 242

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289 APPENDIX I ACCOUNTANTS REPORT The following is the text of a report, prepared for inclusion in this document, received from Company s reporting accountants, HLB Hodgson Impey Cheng Limited, Certified Public Accountants, Hong Kong. ACCOUNTANTS REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF GOLDFIELD GROUP LIMITED AND KINGSWAY CAPITAL LIMITED Introduction We report on the historical financial information of Goldfield Group Limited (the Company ) and its subsidiaries (together, the Group ) set out on pages I-4 to I-53, which comprises the combined statements of financial position at 31 December 2016, 2017 and 30 April 2018, the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows for each of the years ended 31 December 2016 and 2017 and the four months ended 30 April 2018 (the Relevant Periods ) 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-53 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 [REDACTED] of shares of the Company on GEM 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 preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of 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 (the 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

290 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 Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information 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 of the Company, 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 Group s financial position at 31 December 2016, 2017 and 30 April 2018 and of the Group s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Review of stub period comparative financial information We have reviewed the stub period comparative financial information of the Group which comprises the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows for the four months ended 30 April 2017 and other explanatory information (the Stub Period Comparative Financial Information ). The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purposes of the accountants report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. I-2

291 APPENDIX I ACCOUNTANTS REPORT Report on Matters under the Rules Governing the Listing of Securities on GEM 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. Dividend We refer to Note 14 to the Historical Financial Information which contains information about the dividend paid by any entities now comprising the Group in respect of the Relevant Periods. 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 HLB Hodgson Impey Cheng Limited Certified Public Accountants [ ] Practising Certificate number: [ ] Hong Kong, [ ] I-3

292 APPENDIX I ACCOUNTANTS REPORT I. HISTORICAL FINANCIAL INFORMATION OF THE GROUP Preparation of Historical Financial Information Set out below is the Historical Financial Information which forms an integral part of this accountants report. The Historical Financial Information in this report was prepared based on the combined financial statements of the Group for the Relevant Periods, which have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ), were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA (collectively known as Underlying Financial Statements ). The Historical Financial Information is presented in Hong Kong dollar ( HK$ ), which is also the functional currency of the Company and all values are rounded to the nearest thousand ( HK$ 000 ) except when otherwise indicated. I-4

293 APPENDIX I ACCOUNTANTS REPORT Combined statements of profit or loss and other comprehensive income Years ended 31 December Four months ended 30 April Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Revenue 7 53,979 92,946 25,791 48,687 Direct costs (37,389) (66,584) (19,005) (40,182) Gross profit 16,590 26,362 6,786 8,505 Other income , Administrative expenses (6,508) (8,362) (2,589) (6,852) Finance costs 9 (264) (336) (89) (150) Profit before tax 10 10,534 19,105 4,660 2,373 Income tax expenses 13 (1,883) (2,694) (870) (929) Profit and total comprehensive income for the year/period 8,651 16,411 3,790 1,444 Profit and total comprehensive income for the year/period attributable to: Owners of the Company 8,651 16,411 3,790 1,444 Details of dividend paid to owners of the Company are set out in Note [14 to the Historical Financial Information. I-5

294 APPENDIX I ACCOUNTANTS REPORT Combined statements of financial position At At 31 December 30 April Notes HK$ 000 HK$ 000 HK$ 000 ASSETS Non-current assets Property, plant and equipment 16 4,622 6,920 7,053 Rental deposits ,622 7,242 7,375 Current assets Inventories 17 3,273 5,317 5,768 Trade and other receivables 18 19,492 21,054 14,688 Contract assets 19 1,820 7,198 18,087 Prepaid tax Amounts due from directors 20 6,786 13,237 15,526 Pledged bank deposits Cash and bank balances 22 3,677 10,411 6,470 35,058 58,081 61,405 LIABILITIES Current liabilities Trade and other payables 23 5,274 12,324 15,367 Amount due to a director Bank borrowings 24 2,138 6,116 5,281 Obligation under finance leases 25 1,098 1,267 1,103 Bank overdrafts Tax payables 3,622 2,299 2,651 12,389 22,090 24,402 Net current assets 22,669 35,991 37,003 Total assets less current liabilities 27,291 43,233 44,378 Non-current liability Obligation under finance leases 25 1,808 1,339 1,040 Net assets 25,483 41,894 43,338 EQUITY Share capital Reserves 25,453 41,864 43,308 Total equity 25,483 41,894 43,338 I-6

295 APPENDIX I ACCOUNTANTS REPORT Combined statements of changes in equity Share capital Retained earnings Total equity HK$ 000 HK$ 000 HK$ 000 At 1 January ,802 16,832 Profit and total comprehensive income for the year 8,651 8,651 At 31 December 2016 and at 1 January ,453 25,483 Profit and total comprehensive income for the year 16,411 16,411 At 31 December 2017 and at 1 January ,864 41,894 Profit and total comprehensive income for the period 1,444 1,444 At 30 April ,308 43,338 At 1 January 2017 (Audited) 30 25,453 25,483 Profit and total comprehensive income for the period 3,790 3,790 At 30 April 2017 (Unaudited) 30 29,243 29,273 I-7

296 APPENDIX I ACCOUNTANTS REPORT Combined statements of cash flows Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Cash flows from operating activities Profit before tax 10,534 19,105 4,660 2,373 Adjustments for: Bank interest income (3) (3) Finance costs Loss/(gain) on disposal of property, plant and equipment (130) Depreciation of property, plant and equipment 1,320 2, Operating cash flows before movements in working capital 12,206 21,868 5,364 3,326 Increase in inventories (1,783) (2,044) (508) (451) (Increase)/decrease in trade receivables and other receivables (4,478) (1,884) (796) 6,366 Net movement in contract assets 431 (5,378) (520) (10,889) Increase in pledged bank deposits (862) (860) (2) (Decrease)/increase in trade and other payables (2,424) 7, ,043 Cash generated from operations 3,952 18,750 3,439 1,393 Income tax paid (130) (123) Net cash generated from operating activities 3,822 18,627 3,439 1,393 Cash flows from investing activities Interest received 3 3 Purchases of property, plant and equipment (1,809) (3,828) (1,205) (1,069) Net cash used in investing activities (1,809) (3,825) (1,205) (1,066) I-8

297 APPENDIX I ACCOUNTANTS REPORT Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Cash flows from financing activities Proceeds from bank borrowings 2,000 2, Repayment of bank borrowings (599) (1,908) (230) (2,012) Repayments of obligations under finance leases (880) (1,200) (361) (463) Interests paid (264) (336) (89) (150) Advance from directors 68 Repayment to directors (1,565) (6,467) (1,064) (2,234) Net cash used in financing activities (1,240) (7,911) (1,744) (4,268) Net increase/(decrease) in cash and cash equivalents 773 6, (3,941) Cash and cash equivalents at the beginning of the year/period 2,747 3,520 3,520 10,411 Cash and cash equivalents at the end of the year/period 3,520 10,411 4,010 6,470 Analysis of balances of cash and cash equivalents Cash and bank balances 3,677 10,411 4,010 6,470 Bank overdrafts (157) 3,520 10,411 4,010 6,470 I-9

298 APPENDIX I ACCOUNTANTS REPORT II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION 1. GENERAL CORPORATE INFORMATION The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 29 May 2018 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The addresses of the registered office and the principal place of business of the Company are set out in the section headed Corporate Information to the Document. It s ultimate holding company is Dragon Sight Limited, a company incorporated in the British Virgin Island ( BVI ) and controlled by Mr. Ng Wai Lung, Thomas (collectively referred to as the Controlling Shareholders ). The Company is an investment holding company and its subsidiaries are principally engaged in provision of construction service in Hong Kong. 2. REORGANISATION AND BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION The Historical Financial Information has been prepared based on the accounting policies set out in Note 4 which conform with HKFRSs issued by the HKICPA and the principles of merger accounting under Accounting Guideline 5 Merger Accounting for Common Control Combinations issued by the HKICPA. Pursuant to the reorganisation (the Reorganisation ) as fully explained in the paragraph headed Reorganisation in the section headed History, Reorganisation and Group structure of the Document, the Company become the holding company of the companies now comprising the Group subsequent to the end of the Relevant Periods on [ ]. Immediately prior to and after the Reorganisation, the companies now comprising the Group ( the [REDACTED] Business ) was controlled by the Controlling Shareholders. The Reorganisation is merely a reorganisation of the [REDACTED] Business with no change in management of such business and the ultimate owner of the business. Accordingly, the Historical Financial Information has been prepared by applying the principles of merger accounting, as prescribed in Hong Kong Accounting Guideline 5 Merger Accounting for Common Control Combinations issued by the HKICPA, as if the Reorganisation had been completed at the beginning of the Relevant Periods. The combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined 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 first came under the common control of the Controlling Shareholders, where this is a shorter period. The combined statements of financial position of the Group at 31 December 2016 and 2017 and 30 April 2018 have been prepared to present the assets and liabilities of the subsidiaries using the existing carrying amounts of the principal business of the Group for all Relevant Periods. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation. I-10

299 APPENDIX I ACCOUNTANTS REPORT Upon completion of the Reorganisation and at the date of this report, the Company had direct and indirect interests in the following wholly-owned subsidiaries: Equity interest held by the Company at the Name of subsidiary Place/country and date of incorporation Class of shares held Issued and fully paid share capital at 31 December at April date of this report Principal activities % % % % Directly held: Eight Immortals Company Limited ( Eight Immortals ) BVI Ordinary US$1 Investment holdings Indirectly held: Noble Engineering Limited Hong Kong Ordinary HK$10,000 Provision of engineering works Gold Win Engineering Limited Hong Kong Ordinary HK$10,000 Provision of engineering investment and consultancy BiB Limited Hong Kong Ordinary HK$1 Provision of machinery rental Everrich Iron Works Limited Hong Kong Ordinary HK$10,000 Provision of machinery rental and trading of scraped metal materials Note: At the date of this report, [ ] is directly held by the Company. All other subsidiaries are indirectly held by the Company. No statutory financial statements have been prepared for Eight Immortals since its date of incorporation as there is no statutory requirement in BVI. The statutory financial statements of all above companies incorporated in Hong Kong for the year ended 31 December 2016 prepared under Small and Medium-sized Entity Financial Reporting Standard ( SME-FRS ) were audited by W.H. Shum & Co., certified public accountants registered in Hong Kong. All intra-group transactions and balances have been eliminated on combination. I-11

300 APPENDIX I ACCOUNTANTS REPORT 3. APPLICATION OF HKFRSs For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods, the Group has consistently applied all HKFRSs, Hong Kong Accounting Standards ( HKASs ), amendments and interpretations which are effective for the Group s financial period beginning on 1 January 2018 (the new and revised HKFRSs ) consistently throughout the Relevant Periods. New and amended standards adopted by the Group HKFRS 9, Financial instruments and HKFRS 15, Revenue from Contract with Customers are effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group has applied HKFRS 9 consistently throughout the Relevant Periods. As at the date of this report, the Group has not early applied the following new and revised HKFRSs that have been issued but not yet effective: HKAS 19 (Amendments) Employee Benefits 1 HKAS 28 (Amendments) Long-term interests in Associates and Joint Ventures 1 HKFRSs (Amendments) Annual Improvements to HKFRSs Cycle 1 HKFRS 10 and HKAS 28 (Amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 3 HKFRS 16 Leases 1 HKFRS 17 Insurance Contracts 2 HK (IFRIC) Int 23 Uncertainty over Income Tax Treatments 3 1 Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted. 2 Effective for annual periods beginning on or after 1 January 2021, with earlier application permitted. 3 Effective for annual periods beginning on or after a date to be determined. HKFRS 16 Leases HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 Leases and the related interpretations when it becomes effective. HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets. I-12

301 APPENDIX I ACCOUNTANTS REPORT The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as operating lease payments are presented as operating cash flows. Upon the application of HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows. Furthermore, extensive disclosures are required by HKFRS 16. As at 30 April 2018, the Group has non-cancellable operating lease commitments of HK$3,088,000 as disclosed in Note 27 to the Historical Financial Information. A preliminary assessment indicates that these arrangements will meet the definition of a lease under HKFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of HKFRS 16. The combination of straight-line depreciation of the right-of-use asset and the effective interest rate method applied to the lease liability will result in a higher total charge to the profit or loss in the initial years of the lease, and decreasing expenses during the latter part of the lease term, but there is no impact on the total expenses recognised over the lease term. The directors of the Company anticipate that the application of HKFRS 16 would not have significant impact on the net financial position and performance of the Group comparing with HKAS 17 currently adopted by the Group. In addition, the application of new requirements may result changes in measurement, presentation and disclosure as indicated above. Except as described above, the directors of the Company do not anticipate that the application of other new and amendments to HKFRSs issued but not yet effective will have a material impact on the Group s financial performance and financial positions. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Historical Financial Information has been prepared in accordance with HKFRSs, which is a collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards ( HKASs ) and related interpretations issued by the HKICPA. This Historical Financial Information also complies with the applicable disclosure required by the Rules Governing the Listing of Securities on GEM of the Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance. The Historical Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for services. 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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability I-13

302 APPENDIX I ACCOUNTANTS REPORT if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based payment, leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of assets. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies applied in the preparation of the Historical Financial Information are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. Basis of combination The Historical Financial Information incorporates the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Combination of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expense of a subsidiary acquired or disposed of during the year are included in the combined statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. I-14

303 APPENDIX I ACCOUNTANTS REPORT Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on combination. Merger accounting for business combination involving entities under common control The Historical Financial Information incorporates the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or business first came under common control of the controlling entity. The net assets of the combining entities or businesses are combined using the existing book values from the controlling party s perspective. No amount is recognised in respect of goodwill or excess of acquirer s interest in the net fair value of acquiree s identifiable assets and liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party s interest. The combined statements of profit or loss and other comprehensive income include the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination. Investments in subsidiaries Investments in subsidiaries included in the Company s statement of financial position at cost less any identified impairment losses. Segment reporting Operating segments and the amounts of each segment item are reported in the combined financial statements, are identified from the financial information provided regularly to the Group s most senior executive management for the purposes of resource allocation to, and performance assessment of, the Group s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. I-15

304 APPENDIX I ACCOUNTANTS REPORT Property, plant and equipment Property, plant and equipment are stated in the combined statements of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the property, plant and equipment have been put into operation, such as repair and maintenance, is normally charged to the combined statements of profit or loss and other comprehensive income in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the property, plant and equipment, the expenditure is capitalised as an additional cost of that asset. Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each Relevant Periods, with the effect of any changes in estimate accounted for on a prospective basis. The principal annual rates are as follows: Leasehold improvements Over shorter of the lease terms or 25% Plant and machinery 25% Tooling 25% Furniture and fixtures 25% Office equipment 25% Motor vehicles 20-25% Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the combined statements of profit or loss. Impairment of tangible assets At the end of each Relevant Periods, the Group reviews the carrying amounts of its tangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit ( CGU ) to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU, or otherwise they are allocated to the smallest group of CGU for which a reasonable and consistent allocation basis can be identified. I-16

305 APPENDIX I ACCOUNTANTS REPORT Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or the CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in the combined statements of profit or loss. When an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised immediately in the combined statements of profit or loss. Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Financial assets Financial assets are classified into the following specified categories: loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis for debt instruments. I-17

306 APPENDIX I ACCOUNTANTS REPORT Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, rental deposits, amounts due from directors, pledged bank deposits and cash and bank balances) are measured at amortised cost using the effective interest method, less any identified impairment losses. Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial. Impairment of financial assets Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. For all financial assets, objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as a default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or the disappearance of an active market for that financial asset because of financial difficulties. For certain categories of financial assets, such as trade receivables, assets that are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets that are carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset s original effective interest rate. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. I-18

307 APPENDIX I ACCOUNTANTS REPORT Impairment of financial assets The Group recognises loss allowances for expected credit losses ( ECL ) on financial assets measured at amortised cost. An impairment gain or loss, the amount of ECLs (or reversal) that is required to adjust the loss allowance at the end of each reporting period is recognized in profit or loss. The Group measures loss allowances at an amount equal to lifetime ECLs. For trade receivables, the Group Applies the simplified approach to providing for ECLs prescribed by HKFRS 9, which requires the use of the lifetime expected loss provision for all trade receivables. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group s historical experience and informed credit assessment and including forward-looking information. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events on a financial instrument that are possible within the 12 months after the end of each reporting period (or a shorter period if the expected life of the instrument is less than 12 months). In all cases, the maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses over the expected life of the financial asssets. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). Credit-impaired financial assets At the end of each reporting period, the Group assesses on a forward-looking basis whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data of the following events: Significant financial difficulty of the borrower or issuer; A breach of contract such as a default or past due event; I-19

308 APPENDIX I ACCOUNTANTS REPORT the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; it is becoming probable that the borrower will enter bankruptcy or other financial re-organisation, or the disappearance of an active market for a security because of financial difficulties. Financial liabilities and equity instruments Classification as financial liabilities or equity Financial liabilities and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Other financial liabilities Other financial liabilities (including trade and other payables, amount due to a director, bank borrowings, obligation under finance leases and bank overdrafts are subsequently measured at amortised cost, using the effective interest method. Derecognition The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. I-20

309 APPENDIX I ACCOUNTANTS REPORT On derecognition of a financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the combined statements of profit or loss and other comprehensive income. Offsetting financial instrument Financial assets and financial liabilities are offset and the net amount reported in the combined statements of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated on the weighted average basis. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Contracts with customers Contracts with customers are contracts specifically negotiated with a customer. Its performance obligation is to construct an asset or a group of assets where its control is transferred over time. The accounting policy for contract revenue is set out in Note 3. When the outcome of a construction I-21

310 APPENDIX I ACCOUNTANTS REPORT contract can be estimated reliably, contract revenue are recognised by reference to the stage of completion of the contract at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense during the period in which they are incurred. Contracts with customers in progress at the end of the reporting period are recorded at the net amount of costs incurred plus recognised profits less recognised losses and progress billings, and are presented in the combined statement of financial position as the Contract assets (as an asset) or the Contract liabilities (as a liability), as applicable. Progress billings not yet paid by the customer are included under Trade and other receivables. Borrowing costs Borrowing costs are expensed in the period in which they are incurred. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the combined statements of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Historical Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. I-22

311 APPENDIX I ACCOUNTANTS REPORT The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax for the Relevant Periods Current and deferred tax are recognised in profit or loss. Employee benefits Retirement benefit scheme The Group operates a Mandatory Provident Fund retirement benefits scheme (the MPF Scheme ) under the Mandatory Provident Fund Scheme Ordinance for all of its Hong Kong employees. Contributions are required to make at 5% of the employees relevant income, with the employers contributions subject to a cap of monthly relevant income of HK$30,000 and are charged to 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. Revenue recognition Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a product or service to a customer. Control refers to the customer s ability to direct the use of and obtain substantially all of the remaining benefits from an asset. (a) Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of each reporting period, measured based on the proportion that contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. I-23

312 APPENDIX I ACCOUNTANTS REPORT Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expense in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as contract assets. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognized losses, the surplus is shown as contract liabilities. Amounts billed for work performed but not yet paid by the customer are included in the combined statements of financial position under trade and other receivables; and (b) interest income, on an accrual basis using the effective interest rate method by applying the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Contingent liabilities and contingent assets A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision. A contingent asset is a possible asset that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. When inflow is virtually certain, an asset is recognised. I-24

313 APPENDIX I ACCOUNTANTS REPORT Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lease. All other leases are classified as operating leases. The Group as lessee Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the combined statement of financial position as a finance lease obligation. Lease payments are appointed between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Dividend distribution Dividend distribution to the shareholder is recognised as a liability in the Group s combined financial statements in the period in which the dividend is approved by shareholders of the Company. Related parties A party is considered to be related to the Group if: (a) A person, or a close member of that person s family, is related to the Group if that person: (i) (ii) has control or joint control over the Group; has significant influence over the Group; or (iii) is a member of the key management personnel of the Group or the Group s parent. (b) An entity is related to the Group if any of the following conditions applies: (i) (ii) the entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group which the other entity is a member); (iii) both entities are joint ventures of the same third party; I-25

314 APPENDIX I ACCOUNTANTS REPORT (iv) (v) (vi) 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. If the Group is itself such a plan, the sponsoring employers are also related to the Group; the entity is controlled or jointly controlled by a person identified in (a); (vii) 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); or (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 Group s parent. A related party transaction is a transfer of resources, services or obligations between the Group and a related party, regardless of whether a price is charged. Close family members of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. 5. FINANCIAL INSTRUMENTS (a) Financial risk management The Group s activities expose it to a variety of financial risks: market risk (including interest rate risk), credit risk and liquidity risk. The Group s overall risk management programme focuses on the unpredictability of financial market and seeks to minimise potential adverse effects on the Group s financial performance. Market risk Interest rate risk The Group is exposed to interest rate risk relates primarily to variable rate borrowings (Note 24 to the Historical Financial Information for the details of bank borrowings). The Group s income and operating cash flows are substantially independent of changes in market interest rates. The Group currently does not have an interest rate hedging policy. However, the directors of the Company monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise. Sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates for non-derivative instruments at the end of each reporting period. The analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year. A 25 basis points increase or decrease is used when reporting interest rate risk internally to key I-26

315 APPENDIX I ACCOUNTANTS REPORT management personnel and represents management s assessment of the reasonably possible change in interest rates. If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Group s pre-tax profit for the years ended 31 December 2016 and 2017 and for the four months ended 30 April 2018 would decrease/increase by approximately HK$5,000, HK$15,000 and HK$13,000 respectively. This is mainly attributable to the Company s interest rates on its variable rate on bank borrowings. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. At the end of each reporting period, the Group s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arises from the carrying amount of the respective recognised financial assets as stated in the combined statement of financial position. The Group has concentration of credit risks on trade receivables and retention receivables from the largest debtor amounting to HK$7,445,000 and HK$2,847,000, respectively at 31 December 2016 (representing approximately 61.4% and 44.7% of the Group s trade receivables and retention receivables), HK$6,191,000 and HK$2,106,000, respectively at 31 December 2017 (representing approximately 48.7% and 30.2% of the Group s trade receivables and retention receivables) and HK$1,724,000 and HK$359,000, respectively at 30 April 2018 (representing approximately 37.9% and 4.6% of the Group s trade receivables and retention receivables). The management of the Group closely monitors the subsequent settlement of the customers. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the management of the Group considers that the Group s credit risk is significantly reduced. In order to minimize credit risk, the Group has tasked its credit management team to develop and maintain the Group s trade receivables credit risk grouping to categorise exposures according to their degree of risk of default. The management use the Group s trading records to rate its major customers and exposure its counterparties continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. For trade receivables, the Group has applied the simplified approach in HKFRS 9 to measure the loss allowances at lifetime ECL. The Group determines the ECL on these items by using a provision matrix, estimated based on historical credit loss experience based on the past default experience of the trade debtors, general economic conditions of the industry in which the trade debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. For the four months ended 30 April 2018, the directors of the Company assessed the balance of trade receivables based on the abovementioned method and considers that the result of the expected credit loss projection exposure to the Group were minimal. Liquidity risk The following tables detail the Group s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. Specifically, bank borrowings with a repayment on demand clause are included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. I-27

316 APPENDIX I ACCOUNTANTS REPORT The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate at the end of each Relevant Periods. On demand or within one year One to five years Total undiscounted cash flow Total carrying amounts HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 31 December 2016 Non-derivative financial liabilities Trade and other payables 5,274 5,274 5,274 Amount due to a director Obligation under finance leases 1,203 1,903 3,106 2,906 Bank borrowings 2,302 2,302 2,138 Bank overdrafts ,036 1,903 10,939 10,575 On demand or within one year One to five years Total undiscounted cash flow Total carrying amounts HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 31 December 2017 Non-derivative financial liabilities Trade and other payables 12,324 12,324 12,324 Amount due to a director Obligation under finance leases 1,352 1,393 2,745 2,606 Bank borrowings 6,420 6,420 6,116 20,180 1,393 21,573 21,130 I-28

317 APPENDIX I ACCOUNTANTS REPORT On demand or within one year One to five years Total undiscounted cash flow Total carrying amounts HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 30 April 2018 Non-derivative financial liabilities Trade and other payables 15,367 15,367 15,367 Obligation under finance leases 1,171 1,076 2,247 2,143 Bank borrowings 5,492 5,492 5,281 22,030 1,076 23,106 22,791 Liquidity risk The following table summarises the maturity analysis of bank borrowings with repayable on demand clause based on agreed scheduled repayments set out in the loan agreements. The amount includes interest payments computed using contractual rates. Taking into account the Group s net assets, the directors of the Company do not consider that it is probable that the bank will exercise its discretion to immediate repayment. The directors of the Company believe that such bank borrowings will be repaid in accordance with the scheduled repayment dates set out in the loan agreements. Maturity analysis bank borrowings subject to a repayment on demand clause based on scheduled repayments: Less than one year More than one year but less than five years Over five years Total undiscounted amounts Carrying amounts HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Bank borrowing with a repayment on demand clause At 31 December , ,302 2,138 At 31 December ,089 1,331 6,420 6,116 At 30 April , ,492 5,281 I-29

318 APPENDIX I ACCOUNTANTS REPORT (b) 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 the shareholders value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the amounts of dividend paid to the shareholders, return on capital to the shareholders or issue of new shares as well as issue of new debts or redemption of existing debts. 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. The Group monitors capital using a gearing ratio, which is expressed as a percentage of total borrowings over total equity. The gearing ratio at the end of each Relevant Periods were as follows: At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Total borrowings (Note (i)) 5,201 8,722 7,424 Less: cash and bank balances (3,677) (10,411) (6,470) Net debt/(cash) 1,524 (1,689) 954 Total equity 25,483 41,894 43,338 Net debts to equity ratio 6.0% NA 2.2% Total debts to equity ratio 20.4% 20.8% 17.1% Note: (i) Total borrowings include bank overdrafts, interest-bearing borrowings and obligation under finance leases in Note 22, 24 and 25 to the Historical Financial Information. I-30

319 APPENDIX I ACCOUNTANTS REPORT (c) Categories of financial instruments At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Financial assets Loans and receivables - Trade and other receivables 19,076 20,863 13,690 - Amounts due from directors 6,786 13,237 15,526 - Pledged bank deposits Cash and bank balances 3,677 10,411 6,470 Financial liabilities Amortised cost - Trade and other payables 5,274 12,324 15,367 - Amount due to a director Bank borrowings 2,138 6,116 5,281 - Obligation under finance leases 2,906 2,606 2,143 - Bank overdrafts 157 (d) Fair value of financial instruments The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. The directors of the Company consider that the carrying amounts of financial assets and financial liabilities recognised in the Historical Financial Information approximate to their fair values. 6. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group s accounting policies, which are described in Note 3 to the Historical Financial Information, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. I-31

320 APPENDIX I ACCOUNTANTS REPORT The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying accounting policies The following are the critical judgements, apart from those involving estimations (see below), that the directors of the Company have made in the process of applying the Group s accounting policies and that have the most significant effect on the amounts recognised in the combined financial statements. (a) Revenue recognition Construction contracts are contracts specifically negotiated with a customer for the construction of an asset or a group of assets, where the customer is able to specify the major structural elements of the design. The accounting policy for contract revenue is set out in Note 1(r)(i). When the outcome of a construction contract can be estimated reliably, contract costs are recognised as an expense by reference to the stage of completion of the contract at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred. Construction contracts in progress at the end of the reporting period are recorded at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented in the statements of financial position as the Gross amounts due from customers for contract work (as an asset) or the Gross amounts due to customers for contract work (as a liability), as applicable. Progress billings not yet paid by the customer are included under Trade and other receivables. Amounts received before the related work is performed are included under Trade and other payables. Key sources of estimation uncertainty The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. (a) Impairment of trade receivables The management estimates the amount of loss allowance for ECL on trade receivables based on the credit risk of the respective trade receivables. The loss allowance amount is measured as the asset s carrying amount and the present value of estimated future cash flows with the consideration of expected future credit loss. The assessment of the credit risk of the trade receivables involves high degree of estimation and uncertainty. When the actual future cash flows are less than expected or more than expected, a material impairment loss or a material reversal of impairment loss may arise accordingly. I-32

321 APPENDIX I ACCOUNTANTS REPORT (b) Income taxes The Group is subject to income taxes in Hong Kong. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provision in the year in which such determination is made. (c) Useful lives and residual values of property, plant and equipment The Group s management determines the useful lives, residual values and related depreciation charges for its property, plant and equipment and reviews the useful lives and residual values periodically to ensure that the method and rates of depreciation are consistent with expected pattern of realisation of economic benefits from property, plant and equipment. This estimate is based on the historical experience of the actual residual values and useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to server industry cycles. If there are significant changes from previous estimated useful lives and residual values, the amount of depreciation expenses may change. 7. REVENUE AND SEGMENT INFORMATION The Group is principally engaged in the provision of civil engineering construction service in Hong Kong. Information reported to the Group s management for the purpose of resources allocation and performance assessment, focuses on the operating results of the Group as a whole as the Group s resources are integrated and no discrete operating segment financial information is available. Accordingly, no additional reportable segment have been presented. Disaggregation of revenue By type of services: Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Site formation works and road and drainage works 39,619 51,831 15,578 22,974 Steelworks 13,496 40,482 10,213 25,713 Other services ,979 92,946 25,791 48,687 I-33

322 APPENDIX I ACCOUNTANTS REPORT Transaction price allocated to the remaining performance obligations The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at 30 April HK$ 000 Remaining performance obligations expected to be satisfied during the year ending: 31 December , December ,806 78,558 The Group applies the practical expedient in paragraph C5(d) of HKFRS 15 and does not disclose information about remaining performance obligations at 31 December 2016 and 2017 expected to be satisfied in the future. Geographical information During the years ended 31 December 2016 and 2017 and for the four months 30 April 2017 and 2018, the Group s operations are solely located in Hong Kong and all of the Group s revenue are derived from Hong Kong and all of non-current assets of the Group are located in Hong Kong as at 31 December 2016 and 2017 and 30 April No analysis of the Group s result and assets by geographical area is disclosed. Information about major customer Revenue attributed from customers that accounted for 10% or more of the Group s total revenue during the Relevant Periods are as follows: Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Customer A 22,747 10,124 6,069 * Customer B * 21,964 7,855 7,936 Customer C # * * 6,569 Customer D 16,467 28,289 8,665 * Customer E 9,341 18,440 * 23,638 # No revenue attributed from the relevant customer * Revenue from relevant customer was less than 10% of the Group s total revenue for the respective year/period. I-34

323 APPENDIX I ACCOUNTANTS REPORT 8. OTHER INCOME Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Bank interest income 3 3 Sales of scrap materials 423 1, Gain on disposal of property, plant and equipment 130 Sundry income , FINANCE COSTS Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Interests on bank overdrafts Interests on bank borrowings Finance charges on obligation under finance leases I-35

324 APPENDIX I ACCOUNTANTS REPORT 10. PROFIT BEFORE TAX The Group s profit before tax is arrived at after charging/(crediting): Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Auditors remuneration Depreciation of property, plant and equipment * 1,320 2, Loss/(gain) on disposal of property, plant and equipment (130) Minimum lease payments under operating leases in respect of office premises and storage area [REDACTED] [REDACTED] Employee benefit expenses (excluding directors remuneration (Note 11)): * - Salaries and other allowances 22,762 34,266 10,878 17,578 - Staff benefits Retirement benefit scheme contributions 839 1, ,773 35,839 11,340 18,435 * This item are included in Direct costs and Administrative expenses in the statement of profit or loss and other comprehensive income. Depreciation of property, plant and equipment of HK$908,000, HK$1,826,000, HK$480,000 and HK$762,000, salaries and other allowances of HK$20,592,000, HK$31,489,000, HK$10,145,000 and HK$16,037,000, staff benefits of HK$37,000, HK$183,000, HK$26,000 and HK$122,000 and retirement benefit schemes contributions of HK$747,000, HK$1,134,000, HK$331,000 and HK$589,000 were included in Direct costs for the year ended 31 December 2016 and 2017 and for the four months ended 30 April 2017 and 2018 respectively. I-36

325 APPENDIX I ACCOUNTANTS REPORT 11. DIRECTORS REMUNERATION The remuneration of directors were set out below: Year ended 31 December 2016 Directors fees Salaries allowances, and benefits in kind Retirement benefit scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors: Ms. Leung Pui Kam Mr. Ng Cheong Hee Mr. Ng Wai Lung, Thomas Year ended 31 December 2017 Directors fees Salaries allowances, and benefits in kind Retirement benefit scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors: Ms. Leung Pui Kam Mr. Ng Cheong Hee Mr. Ng Wai Lung, Thomas , ,114 Four months ended 30 April 2017 (Unaudited) Directors fees Salaries allowances, and benefits in kind Retirement benefit scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors: Ms. Leung Pui Kam Mr. Ng Cheong Hee Mr. Ng Wai Lung, Thomas I-37

326 APPENDIX I ACCOUNTANTS REPORT Directors fees Four months ended 30 April 2018 Salaries allowances, and benefits in kind Retirement benefit scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors: Ms. Leung Pui Kam Mr. Ng Cheong Hee Mr. Ng Wai Lung, Thomas During the Relevant Periods, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived or agreed to waive any emoluments during the Relevant Periods. No remuneration was paid to the independent non-executive directors during the Relevant Periods as the independent non-executive directors have not been appointed during the Relevant Periods. 12. FIVE HIGHEST PAID EMPLOYEES The five highest paid individuals included 0,1,0,1 executive directors of the Company for the years ended 31 December 2016 and 2017 and for the four months ended 30 April 2017 and 2018 respectively, details of whose emoluments are set out above in note 11. The emoluments of the remaining individuals for the years ended 31 December 2016 and 2017 and for the four months ended 30 April 2017 and 2018 are 5,4,5,4 respectively and disclosed are as follows: Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Salaries and other allowance 2,826 2, ,084 Retirement benefit scheme contributions ,897 2, ,127 I-38

327 APPENDIX I ACCOUNTANTS REPORT The above number of the individuals with the highest period employees whose emoluments are within the following bands: 2016 Number of employees Years ended 31 December 2017 Number of employees 2017 Number of employees (Unaudited) Four months ended 30 April 2018 Number of employees Nil to HK$1,000, During the Relevant Periods, no emoluments were paid by the Group to the directors or any of the five highest paid employees as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors waived or agreed to waive any emoluments during the Relevant Periods. 13. INCOME TAX EXPENSES Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Current tax Hong Kong Profits Tax Charge for the year 1,883 2, Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the Relevant Periods. I-39

328 APPENDIX I ACCOUNTANTS REPORT The income tax expenses for the Relevant Periods can be reconciled to the profit before tax per the combined statements of profit or loss and other comprehensive income as follows: Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Profit before tax 10,534 19,105 4,660 2,373 Tax at Hong Kong Profits Tax rate of 16.5% 1,738 3, Tax effect of: Expenses not deductible for tax purpose Accelerated accounting depreciation over tax depreciation under provided (239) (338) Estimated tax losses not recognised 366 (74) Tax reduction (20) (90) Income tax expenses for Relevant Periods 1,883 2, DIVIDEND No dividends have been paid or proposed by any of the companies comprising the Group during the Relevant Periods or by the Company since its date of incorporation. Subsequent to the period ended 30 April 2018, special dividend of HK$15,900,000 was declared on 23 May 2018 and dividend paid will be settled against amounts due from a director. 15. EARNINGS PER SHARE Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the presentation of the results for the Relevant Periods on a combined basis as set out in Note 2 of this section. I-40

329 APPENDIX I ACCOUNTANTS REPORT 16. PROPERTY, PLANT AND EQUIPMENT Leasehold improvement Plant and machinery Toolings Furniture and fixture Office equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost At 1 January , ,586 8,107 Additions 3, ,696 Disposals (95) (2,758) (210) (36) (50) (3,149) At 31 December 2016 and at 1 January , ,239 8,654 Additions 4, ,836 Disposals (430) (430) At 31 December 2017 and at 1 January , ,239 13,060 Additions ,069 Disposals (1,432) (1,432) At 30 April , ,807 12,697 Accumulated depreciation At 1 January , ,955 5,713 Charge for the year ,320 Disposals (95) (2,609) (210) (36) (51) (3,001) At 31 December 2016 and at 1 January , ,329 4,032 Charge for the year 1, ,242 Disposals (134) (134) At 31 December 2017 and at 1 January , ,702 6,140 Charge for the year Disposals (1,432) (1,432) At 30 April , ,395 5,644 Net carrying amounts At 31 December , ,622 At 31 December , ,920 At 30 April , ,053 I-41

330 APPENDIX I ACCOUNTANTS REPORT Assets held under finance leases At 31 December 2016, 2017 and 30 April 2018, the plant and machinery with carrying amounts of approximately HK$1,825,000, HK$1,912,000 and HK$1,634,000 is held under finance leases respectively. At 31 December 2016, 2017 and 30 April 2018, the motor vehicle with carrying amounts of approximately HK$910,000, HK$537,000 and HK$412,000 is held under finance leases respectively. 17. INVENTORIES At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Raw materials 3,273 5,317 5, TRADE AND OTHER RECEIVABLES At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Trade receivables 12,128 12,719 4,553 Retention receivables (note) 6,363 6,967 7,873 Deposits, prepayments and other receivables 1,001 1,690 2,584 19,492 21,376 15,010 Less: non-current portion Current portion 19,492 21,054 14,688 Note: The amount represents retention held by customers for contract works, of which approximately HK$5,402,000, HK$5,967,000 and HK$5,104,000, is expected to be recovered or settled in more than twelve months from the end of the reporting period. I-42

331 APPENDIX I ACCOUNTANTS REPORT The Group does not have a standardised and universal credit period granted to its customers, and the credit period of individual customer is considered on a case-by-case basis and stipulated in the project contract, as appropriate. The following is an aging analysis of the Group s trade receivables at the end of each reporting period, presented based on the customer s payment certificate date: At At 31 December 30 April HK$ 000 HK$ 000 HK$ days 10,043 12,218 4, days 1, days days ,128 12,719 4,553 The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by senior management. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest bearing. The following is an aging analysis of trade receivables, which are not individually nor collectively considered to be impaired: At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Overdue by: 0 to 30 days 1, , to 60 days to 90 days 431 2, ,151 Receivables that were neither past due nor impaired relate to a number of independent customers for whom there was no recent history of default. I-43

332 APPENDIX I ACCOUNTANTS REPORT Receivable that were past due but not impaired relate to a number of independent customers that have a good track record 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. Retention receivables represented retention monies withheld by customers of contract works, which are unsecured, interest-free and recoverable after the completion of maintenance period of the relevant contracts or in accordance with the terms specified in the relevant contracts. 19. CONTRACT ASSETS At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Contract assets 1,820 7,198 18,087 At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Contract costs incurred plus recognised profits less recognised losses 66, , ,785 Less: Progress billings to date (64,301) (121,900) (159,698) 1,820 7,198 18,087 The contract assets primarily relate to the Group s rights to consideration for work completed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers, for which revenue is recognised on completion. I-44

333 APPENDIX I ACCOUNTANTS REPORT Contract assets At 31 December At 30 April Contract liabilities Contract assets Contract liabilities Contract assets Contract liabilities Revenue recognised that was included in the contract liability balance at the beginning of the period Increases due to cash received, excluding amounts recognised as revenue during the period (1,920) ( ) ( ) Transfers from contract assets recognised at the beginning of the period to receivables (4,066) (1,820) (7,198) Increase as a result of of changes in the measure of progress 1,715 7,198 18, BALANCES WITH DIRECTORS Particulars of the amounts due from directors are as follows: At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Due from directors Mr. Ng Cheong Hee 38 Mr. Ng Wai Lung, Thomas 2,301 7,933 10,182 Ms. Leung Pui Kam 4,485 5,304 5,306 6,786 13,237 15,526 I-45

334 APPENDIX I ACCOUNTANTS REPORT The maximum amounts due from directors during the Relevant Periods are as follows: During the years ended 31 December During the four months ended 30 April HK$ 000 HK$ 000 HK$ 000 Due from directors Mr. Ng Cheong Hee 38 Mr. Ng Wai Lung, Thomas 2,301 7,933 10,182 Ms. Leung Pui Kam 4,485 5,304 5,306 At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Due to a director Mr. Ng Cheong Hee Balances with directors are non-trade nature, unsecured, interest-free and repayable/recoverable on demand. None of the amounts due from directors are neither past due nor impaired. The financial assets included in the above balance related to receivable for which there was no recent history of default. 21. PLEDGED BANK DEPOSITS At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Fixed deposits The effective interest rates on fixed deposits is 0.65% and 0.8% at 31 December 2017 and 30 April 2018 respectively, and mature within one month. The fixed bank deposit was pledged for performance bonds granted to the Group. I-46

335 APPENDIX I ACCOUNTANTS REPORT 22. CASH AND BANK BALANCES At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Cash and bank balances 3,677 10,411 6,470 Bank overdrafts (157) Cash and cash equivalents 3,520 10,411 6,470 Bank balances carry interest at floating rates and placed with creditworthy banks with no recent history of default. Bank overdrafts of the Group carries interest at market rate of Hong Kong best lending rate per annum during the reporting periods. 23. TRADE AND OTHER PAYABLES At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Trade payables 2,305 7,390 7,835 Accruals and other payables 2,969 4,934 7,532 5,274 12,324 15,367 The credit period generally granted by suppliers ranging within 90 days. I-47

336 APPENDIX I ACCOUNTANTS REPORT The following is an aging analysis of trade payables presented based on the invoice dates at the end of each reporting period: At At 31 December 30 April HK$ 000 HK$ 000 HK$ days 803 4,899 5, days 748 1,869 2, days Over 90 days ,305 7,390 7, BANK BORROWINGS At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Secured bank borrowings 2,138 6,116 5,281 Unsecured bank borrowings 2,138 6,116 5,281 Carrying amount That contain a repayment on demand clause based on scheduled repayment terms: - Within 1 year 1,294 4,922 4,384 - More than 1 year but less than 5 years 844 1, Over 5 years Amounts due within one year shown under current liabilities 2,138 6,116 5,281 The bank borrowings of the Group at 31 December 2016 and 2017 and 30 April 2018 were secured by personal guarantee and a property owned by a shareholder of the Company. The shareholders of the Company represented that such personal guarantee and a property owned by a shareholder will release upon [REDACTED]. I-48

337 APPENDIX I ACCOUNTANTS REPORT The bank borrowings of the Group with financial institutions amounted to approximately HK$2,138,000, HK$6,116,000 and HK$5,281,000, carried at floating interest rate ranging from 2.43% to 4.80% per annum, 2.43% to 4.80% per annum and 3.50% to 4.80% per annum for the years ended 31 December 2016 and 2017 and for the four months ended 30 April 2018 respectively. The Group s borrowings were denominated in Hong Kong dollars for the Relevant Periods. 25. OBLIGATION UNDER FINANCE LEASES The Group leased certain of its motor vehicles and plant and machinery under finance leases with lease terms ranging from 3 to 5 years. Interest rates underlying the obligations under these finance leases are fixed ranging from 1.65% to 7.48%, 1.65% to 7.48% and 2.00% to 7.48% per annum at 31 December 2016, 2017 and 30 April 2018, respectively. These leases have terms of purchase option for the purchase of those leased assets at nominal amount. Minimum lease payment Present value of lease payments At December At 30 April At 31 December At 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Amounts payable under finance leases: Within one year 1,203 1,352 1,171 1,098 1,267 1,103 More than one year but within two years 1, More than two years but within five years ,106 2,745 2,247 2,906 2,606 2,143 Less: Future finance charges (200) (139) (104) N/A N/A N/A Present value of lease obligation 2,906 2,606 2,143 2,906 2,606 2,143 Less: Amounts due for settlement within one year (shown under current liabilities) (1,098) (1,267) (1,103) Amounts due for settlement after one year (shown under non- current liabilities) 1,808 1,339 1,040 The obligations under finance leases are denominated in Hong Kong dollars and its carrying amount approximate its fair value. The Group s obligations under finance leases are secured by the lessors title to the leased assets and personal guarantee given by Mr. Ng Cheong Hee, Mr. Ng Wai Lung Thomas and Ms. Leung Pui Kam, the shareholders of the Company. I-49

338 APPENDIX I ACCOUNTANTS REPORT At 31 December 2016, 2017 and 30 April 2018, the finance leases payables of the Group with carrying amounts of approximately HK$2,906,000, HK$2,606,000 and 2,143,000 were secured by the lessor charge over the leased assets with carrying amount of approximately HK$2,756,000, HK$2,469,000 and HK$2,046,000 respectively (Note 16). 26. SHARE CAPITAL The Reorganisation has not been completed at 30 April For the purpose of the Historical Financial Information, the share capital in the combined statements of financial position at 31 December 2016, 2017 and 30 April 2018 represents the combined share capital of the Company and the subsidiaries now comprising the Group. 27. COMMITMENTS The Group as lessee The Group leases certain office premises and storage area under operating lease arrangements. Leases for these properties are negotiated for terms ranging from one to three years. At the end of each reporting period, the Group has commitments for future minimum lease payments under non-cancellable operating leases falling due as follows: At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Within one year 406 1,998 1,865 In the second to fifth years, inclusive 1,774 1,223 Over five years 406 3,772 3,088 The Group does not have an option to purchase the leased premises at the expiry of the lease period. I-50

339 APPENDIX I ACCOUNTANTS REPORT 28. MATERIAL RELATED PARTY TRANSACTIONS Save as disclosed elsewhere in the combined financial statements, the Group entered into the following transactions with related parties: (a) Compensation of key management personnel of the Group, including directors remuneration as disclosed in Note 11 to the Historical Financial Information, is as follows: Years ended 31 December Four months ended 30 April HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Salaries and other allowances 1,690 2, Retirement benefit scheme contributions ,744 2, (b) Details of the balances with related parties at the end of the Relevant Periods are set out in note 20 to the Historical Financial Information. 29. RETIREMENT BENEFITS SCHEME The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Scheme Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the MPF Scheme, the employer and its employees are each required to make contributions to the MPF Scheme at rates specified in the rules. The only obligation of the Group with respect to the MPF Scheme is to make the required contributions. Except for voluntary contribution, no forfeited contribution under the MPF Scheme is available to reduce the contribution payable in future years. Effective from 1 June 2014, the cap of contribution amount has been changed from HK$1,250 to HK$1,500 per employee per month. The retirement benefits scheme contributions arising from the MPF Scheme charged to the combined statement of profit or loss and other comprehensive income represent contributions paid or payable to the funds by the Group at rates specified in the rules of the schemes. The contributions paid and payable to the schemes by the Group are disclosed in Notes 10 and 11 to the Historical Financial Information respectively. I-51

340 APPENDIX I ACCOUNTANTS REPORT 30. MAJOR NON-CASH TRANSACTIONS (a) During the year ended 31 December 2016 and 2017, the Group entered into certain finance lease arrangements in respect of purchase of property, plant and equipment with a capital value at the inception of leases of approximately 1,827,000 and 900,000, respectively. (b) During the year ended 31 December 2017 and 30 April 2018, the Group obtained a bank borrowing with a principal amount of approximately HK$3,886,000 and HK$577,000 to settle income tax payables. (c) During the years ended 31 December 2016 and 2017, part of the consideration for acquisition of property, plant and equipment of approximately HK$60,000 and HK$108,000 were settled by trading off Company s existing property, plant and equipment. 31. PERFORMANCE BONDS AND CONTINGENT LIABILITY Certain customers of construction contracts undertaken by the Group require the company entities to issue guarantees for the performance of contract works in the form of performance bonds and secured by pledged bank deposit (Note 21). The performance bonds are released when the construction contracts are completed or substantially completed. At the end of each reporting periods, the Group had outstanding performance bonds as follows: At At 31 December 30 April HK$ 000 HK$ 000 HK$ 000 Issued by Group s bank MOVEMENT ON GROUP S LIABILITIES ARISING FROM FINANCING ACTIVITIES The table below details changes in the Group s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were or future cash flows will be, classified in the Group s combined statement of cash flows as cash flows from financing activities. I-52

341 APPENDIX I ACCOUNTANTS REPORT Bank borrowings Obligation under finance lease Total HK$ 000 HK$ 000 HK$ 000 At 1 January ,959 2,696 Financing cash flows 1,401 (880) 521 New finance leases 1,827 1,827 At 31 December 2016 and at 1 January ,138 2,906 5,044 Financing cash flows 92 (1,200) (1,108) New bank borrowings 3,886 3,886 New finance leases At 31 December 2017 and at 1 January ,116 2,606 8,722 Financing cash flows (1,412) (463) (1,875) New bank borrowings At 30 April ,281 2,143 7,424 III. EVENTS AFTER THE REPORTING PERIOD Pursuant to the Reorganisation as fully explained in the paragraph headed Reorganisation in the section headed History, Reorganisation and Group structure of the Document, the Company become the holding company of the companies now comprising the Group subsequent to the end of the Relevant Periods on [ ]. IV. SUBSEQUENT FINANCIAL STATEMENTS No audited financial statements of the Company or any of its subsidiaries have been prepared in respect of any period subsequent to 30 April 2018 and up to the date of this report. I-53

342 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION [REDACTED] II-1

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

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

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

346 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION [REDACTED] II-5

347 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman company law. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 29 May 2018 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 [Amended and Restated] Memorandum of Association (the Memorandum ) and its [Amended and Restated] 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 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 III-1

348 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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. 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. III-2

349 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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

350 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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 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. III-4

351 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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. 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. III-5

352 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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 or that based on legal opinions provided by legal advisers, the board considers it necessary or expedient not to offer the shares to such members on account either of legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place. 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) 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. III-6

353 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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 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. III-7

354 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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

355 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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

356 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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

357 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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 authorized 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 The Company must hold an annual general meeting of the Company every year other than the year of the Company s adoption of the Articles 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

358 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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; (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%) of the total number of its existing issued shares and any securities repurchased by the Company pursuant to paragraph (gg); and (gg) the granting of any mandate or authority to the directors to repurchase securities of the Company. III-12

359 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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. 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. III-13

360 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW A copy of every balance sheet and profit and 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. 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. 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. III-14

361 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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. No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company. III-15

362 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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 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. III-16

363 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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 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. III-17

364 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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

365 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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. 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. III-19

366 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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

367 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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 6 June 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

368 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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

369 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY 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. (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. III-23

370 APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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 Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice. III-24

371 APPENDIX IV STATUTORY AND GENERAL INFORMATION A. FURTHER INFORMATION ABOUT OUR COMPANY 1. Incorporation Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 29 May Our Company was registered as a non-hong Kong company in Hong Kong under Part 16 of the Companies Ordinance on [ ], and establishes a principal place of business in Hong Kong at Room C, 35/F, YHC Tower, 1 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong. Mr. Ng Wai Lung Thomas of G/F, Haltop Garden, Wai King Terrace, No. 178, Pun Shan Chau Village, Tai Po, New Territories has been appointed as the authorised representative of our Company for the acceptance of service of process and notices on behalf of our Company in Hong Kong. As our Company is incorporated in the Cayman Islands, it is subject to the Cayman Islands law and to its constitution, which comprises the Memorandum and the Articles. A summary of various provisions of its constitution and relevant aspects of the Companies Law is set out in Appendix III Summary of the Constitution of the Company and Cayman Islands Company Law to this document. 2. Changes in share capital of our Company (a) (b) (c) (d) (e) As at the date of incorporation, our Company had an authorised share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. One Share was allotted and issued nil-paid to the initial subscriber on 29 May 2017, and was subsequently transferred to Dragon Sight on the same day. On [ ], our Shareholders resolved to increase the authorised share capital of our Company from [HK$380,000] to HK$[100,000,000] by the creation of an additional of [9,962,000,000] Shares, each ranking pari passu with the Shares then in issue in all respects. Pursuant to the Reorganisation and as consideration for the acquisition by our Company of the entire issued shares of Eight Immortals from Dragon Sight and the Investor on [ ], (i) the one nil paid Share held by Dragon Sight was credited as fully paid at par, and (ii) [9,693] and [306] new Shares, all credited as fully paid at par, were allotted and issued to Dragon Sight and the Investor respectively. Immediately following completion of the [REDACTED] and the Capitalisation Issue, and taking no account of any Share to be issued upon exercise of any options which may be granted under the Share Option Scheme, [REDACTED] Shares will be issued fully paid or credited as fully paid, and [REDACTED] Shares will remain unissued. Other than pursuant to the general mandate to issue Shares referred to in the paragraph headed Written resolutions of the sole Shareholder passed on [ ] in this appendix and pursuant to the Share Option Scheme, our Company does not have any present intention to issue any of the authorised but unissued share capital of our Company and, without prior approval of our Shareholders in general meeting, no issue of Shares will be made which would effectively alter the control of our Company. IV-1

372 APPENDIX IV STATUTORY AND GENERAL INFORMATION (f) Save as disclosed in this document, there has been no alteration in the Company s share capital since its incorporation. 3. Written resolutions of our Shareholders passed on [ ] On [ ], resolutions in writing were passed by our Shareholders pursuant to which, among other things: (a) our Company approved and adopted the Memorandum and the Articles to become effective on the [REDACTED]; (b) our authorised share capital increased from HK$380,000 divided into 38,000,000 Shares of HK$0.01 each to HK$[100,000,000] divided into [10,000,000,000] Shares of HK$0.01 each by the creation of an additional of [9,962,000,000] Shares; (c) conditional on the [REDACTED] granting the [REDACTED] of, and permission to deal in, the Shares in issue and to be issued as mentioned in this document (including any Shares to be issued pursuant to the exercise of the [REDACTED] or any options which may be granted under the Share Option Scheme) and on the obligations of the [REDACTED] under the [REDACTED] becoming unconditional and the [REDACTED] not being terminated in accordance with its terms or otherwise, in each case on or before the date falling 30 days after the date of the issue of this document: (i) (ii) the [REDACTED] and the grant of the [REDACTED] by our Company were approved and our Directors were authorised to allot and issue the [REDACTED] pursuant to the [REDACTED] and such number of Shares as may be required to be allotted and issued upon the exercise of the [REDACTED] to rank pari passu with the then existing Shares in all respects; the rules of the Share Option Scheme, the principal terms of which are set out in D. Share Option Scheme below in this appendix, were approved and adopted and our Directors were authorised, at their absolute discretion but subject to the terms and conditions of the Share Option Scheme, to grant options to subscribe for Shares thereunder and to allot, issue and deal with the Shares pursuant to the exercise of subscription rights attaching to any options which may be granted under the Share Option Scheme and to take all such actions as they consider necessary or desirable to implement the Share Option Scheme; (iii) conditional further on the share premium account of our Company being credited as a result of the [REDACTED] or otherwise having sufficient balance, the Capitalisation Issue was approved, and our Directors were authorised to capitalise an amount of HK$[REDACTED] standing to the credit of the share premium account of our Company and to appropriate such amount as to capital to pay up in full at par [REDACTED] Shares for allotment and issue to the person(s) whose names appear on the register of members of our Company at the close of business on [ ] 2018 (or as they may direct) in proportion (as nearly as possible without involving fractions) to its/their then existing shareholdings in our Company, each ranking pari passu in all respects with the then existing issued Shares, and our Directors were authorised to give effect to such capitalisation and distributions; IV-2

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

374 APPENDIX IV STATUTORY AND GENERAL INFORMATION (e) the general unconditional mandate mentioned in sub-paragraph (c) above was extended by the addition to the aggregate number of Shares which may be allotted or agreed to be allotted by our Directors pursuant to such general mandate of an amount representing the aggregate number of Shares repurchased by our Company pursuant to the mandate to repurchase Shares referred to in sub-paragraph (d) above, provided that such extended amount shall not exceed 10% of the aggregate number of Shares in issue immediately following completion of the Capitalisation Issue and the [REDACTED] but excluding any Shares to be issued pursuant to the exercise of the [REDACTED] or any options which may be granted under the Share Option Scheme. 4. Corporate reorganisation Our Group underwent the Reorganisation to rationalise our Group s structure in preparation for the [REDACTED] and our Company became the holding company of our Group. For information relating to the Reorganisation, please refer to the section headed History, Reorganisation and Development Reorganisation in this document. 5. Changes in share capital of subsidiaries The subsidiaries of our Company are listed in the Accountant s Report of our Company, the text of which is set out in the section headed Appendix I Accountant s Report in this document. Save as disclosed in the paragraph headed A. Further Information about our Company 4. Corporate reorganisation in this appendix and the section headed History, Reorganisation and Development Reorganisation in this document, there has been no alteration in the share capital of any of the subsidiaries of our Company within the two years immediately preceding the date of this document. 6. Repurchase of Shares by our Company This section contains information required by the Stock Exchange to be included in this document concerning the repurchase of Shares by our Company. (a) Provisions of the GEM Listing Rules The GEM Listing Rules permit companies whose primary listing is on GEM to repurchase their securities on GEM subject to certain restrictions, a summary of which is set out below: (i) Shareholders approval The GEM Listing Rules provide that all proposed repurchases of shares, which must be fully paid up in the case of shares, by a company with a primary listing on GEM must be approved in advance by an ordinary resolution of the shareholders, either by way of general mandate or by specific approval of a particular transaction. IV-4

375 APPENDIX IV STATUTORY AND GENERAL INFORMATION Note: Pursuant to the written resolutions passed by our Shareholders on [ ], a general unconditional mandate (the Repurchase Mandate ) was given to our Directors authorising them to exercise all powers of our Company to repurchase Shares on GEM or on any other stock exchange on which the securities of our Company may be [REDACTED] and which is recognised by the SFC and the Stock Exchange for this purpose, such number of Shares will represent up to 10% of the aggregate number of Shares in issue immediately following completion of the Capitalisation Issue and the [REDACTED] but excluding any Shares to be issued pursuant to the exercise of [the [REDACTED] or] any options which may be granted under the Share Option Scheme, and the Repurchase Mandate shall remain in effect until the earliest of the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next annual general meeting of our Company is required by the Memorandum and the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held or the time when the Repurchase Mandate is revoked or varied by an ordinary resolution of our Shareholders in a general meeting. (ii) Source of funds Any repurchase by our Company must be funded out of funds legally available for the purpose in accordance with the Articles, the applicable laws of the Cayman Islands and the GEM Listing Rules. Our Company may not repurchase its own Shares on GEM for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time. Any repurchases by our Company may be made out of profits or the share premium account of the Company or out of the proceeds of a fresh issue of Shares made for the purpose of the repurchase or, if authorised by the Articles and subject to the Companies Law, out of capital and, in the case of any premium payable on the repurchase, out of profits of our Company or out of our Company s share premium account or, if authorised by the Articles and subject to the Companies Law, out of capital. (iii) Connected parties The GEM Listing Rules prohibit our Company from knowingly repurchasing our Shares on GEM from a core connected person (as defined in the GEM Listing Rules), which includes a Director, chief executive or substantial shareholder of our Company or any of its subsidiaries or a close associate of any of them, and a core connected person shall not knowingly sell Shares to our Company on GEM. (b) Exercise of the Repurchase Mandate On the basis of [REDACTED] Shares in issue immediately after completion of the Capitalisation Issue and the [REDACTED], our Directors would be authorised under the Repurchase Mandate to repurchase up to [REDACTED] Shares during the period in which the Repurchase Mandate remains in force. Any Shares repurchased pursuant to the Repurchase Mandate must be fully paid-up. IV-5

376 APPENDIX IV STATUTORY AND GENERAL INFORMATION (c) Reasons for repurchases Our Directors believe that it is in the best interests of our Company and our Shareholders for our Directors to have a general authority from Shareholders to enable our Company to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of our Company s net asset value and/or earnings per Share and will only be made when our Directors believe that such repurchases will benefit our Company and our Shareholders. (d) Funding of repurchases In repurchasing the Shares, our Company may only apply funds legally available for such purpose in accordance with the Articles, the GEM Listing Rules and the applicable laws and regulations of the Cayman Islands. Our Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of our Company or the gearing levels which in the opinion of our Directors are from time to time appropriate for our Company. (e) General None of our Directors or, to the best of their knowledge, having made all reasonable enquiries, any of their close associates, has any present intention to sell any Shares to our Company if the Repurchase Mandate is exercised. Our Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules, the Articles and the applicable law and regulations from time to in force in the Cayman Islands. If as a result of a repurchase of Shares pursuant to the Repurchase Mandate, a Shareholder s proportionate interest in the voting rights of our Company increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. In certain circumstances, a Shareholder or a group of Shareholders acting in concert (as defined in the Takeovers Code) depending on the level of increase of our Shareholders interest, could obtain or consolidate control of our Company and may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code as a result of any such increase. Save as disclosed above, our Directors are not aware of any consequences which may arise under the Takeovers Code as a consequence of any repurchase of Shares if made immediately after the [REDACTED] of our Shares pursuant to the Repurchase Mandate. At present, so far as is known to the Directors, no Shareholder may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code in the event that our Directors exercise the power in full to repurchase the Shares pursuant to the Repurchase Mandate. IV-6

377 APPENDIX IV STATUTORY AND GENERAL INFORMATION Our Directors will not exercise the Repurchase Mandate if the repurchase would result in the number of Shares which are in the hands of the public falling below 25% of the total number of Shares in issue (or such other percentage as may be prescribed as the minimum public shareholding under the GEM Listing Rules). No core connected person has notified our Company that he has a present intention to sell Shares to our Company, or 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) have been entered into by our Group within the two years preceding the date of this document and are or may be material in relation to the business of our Company taken as a whole: (a) (b) (c) (d) (e) (f) a sale and purchase agreement dated 17 May 2018 entered into, among others, by Ms. Leung Siu Lan, Mr. Ng Wai Lung Thomas and Eight Immortals, pursuant to which Eight Immortals agreed to acquire 7,000 ordinary shares and 3,000 ordinary shares in Noble Engineering from Ms. Leung Siu Lan and Mr. Ng Wai Lung Thomas, at a consideration of HK$7,000 and HK$3,000 respectively and was satisfied by Dragon Sight allotted and issued 15 and 6 new shares in Dragon Sight, credited as fully paid at par, to Ms. Leung Siu Lan and Mr. Ng Wai Lung Thomas; an instrument of transfer dated 17 May 2018 entered into between Eight Immortals and Ms. Leung Siu Lan for the transfer of 7,000 ordinary shares in Noble Engineering as referred to item (a) above; bought and sold notes dated 17 May 2018 executed by Eight Immortals and Ms. Leung Siu Lan for the transfer of 7,000 ordinary shares in Noble Engineering as referred to item (a) above; an instrument of transfer dated 17 May 2018 entered into between Eight Immortals and Mr. Ng Wai Lung Thomas for the transfer of 3,000 ordinary shares in Noble Engineering as referred to item (a) above; bought and sold notes dated 17 May 2018 executed by Eight Immortals and Mr. Ng Wai Lung Thomas for the transfer of 3,000 ordinary shares in Noble Engineering as referred to item (a) above; a sale and purchase agreement dated 17 May 2018 entered into, among others, by Mr. Ng Wai Lung Thomas and Eight Immortals, pursuant to which Eight Immortals agreed to acquire one ordinary share in BiB from Mr. Ng Wai Lung Thomas, at a consideration of HK$10 and was satisfied by Dragon Sight allotted and issued 33 new shares in Dragon Sight, credited as fully paid at par, to Mr. Ng Wai Lung Thomas; IV-7

378 APPENDIX IV STATUTORY AND GENERAL INFORMATION (g) an instrument of transfer dated 17 May 2018 entered into between Eight Immortals and Mr. Ng Wai Lung Thomas for the transfer of one ordinary share in BiB as referred to item (f) above; (h) bought and sold notes dated 17 May 2018 executed by Eight Immortals and Mr. Ng Wai Lung Thomas for the transfer of one ordinary share in BiB as referred to item (f) above; (i) a sale and purchase agreement dated 17 May 2018 entered into, among others, by Mr. Ng Wai Lung Thomas, Mr. Ng Cheong Hee and Eight Immortals, pursuant to which Eight Immortals agreed to acquire 5,000 ordinary shares and 5,000 ordinary shares in Everrich Iron from Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee, at a consideration of HK$5,000 and HK$5,000 respectively and was satisfied by Dragon Sight allotted and issued 15 and 15 new shares in Dragon Sight, credited as fully paid at par, to Mr. Ng Wai Lung Thomas and Mr. Ng Cheong Hee; (j) an instrument of transfer dated 17 May 2018 entered into between Eight Immortals and Mr. Ng Wai Lung Thomas for the transfer of 5,000 ordinary shares in Everrich Iron as referred to item (i) above; (k) bought and sold notes dated 17 May 2018 executed by Eight Immortals and Mr. Ng Wai Lung Thomas for the transfer of 5,000 ordinary shares in Everrich Iron as referred to item (i) above; (l) an instrument of transfer dated 17 May 2018 entered into between Eight Immortals and Mr. Ng Cheong Hee for the transfer of 5,000 ordinary shares in Everrich Iron as referred to item (i) above; (m) bought and sold notes dated 17 May 2018 executed by Eight Immortals and Mr. Ng Cheong Hee for the transfer of 5,000 ordinary shares in Everrich Iron as referred to item (i) above; (n) a sale and purchase agreement dated 17 May 2018 entered into, among others, by Ms. Leung Pui Kam and Eight Immortals, pursuant to which Eight Immortals agreed to acquire 10,000 ordinary shares in Gold Win from Ms. Leung Pui Kam, at a consideration of HK$10,000 and was satisfied by Dragon Sight allotted and issued 15 new shares in Dragon Sight, credited as fully paid at par, to Ms. Leung Pui Kam; (o) an instrument of transfer dated 17 May 2018 entered into between Eight Immortals and Ms. Leung Pui Kam for the transfer of 10,000 ordinary shares in Gold Win as referred to item (n) above; (p) bought and sold notes dated 17 May 2018 executed by Eight Immortals and Ms. Leung Pui Kam for the transfer of 10,000 ordinary shares in Gold Win as referred to item (n) above; IV-8

379 APPENDIX IV STATUTORY AND GENERAL INFORMATION (q) a subscription agreement dated 29 May 2018 entered into between Eight Immortals and the [REDACTED] pursuant to which Eight Immortals issued 306 ordinary shares of Eight Immortals at a subscription Price of HK$5,000,000; (r) a sale and purchase agreement dated [ ] entered into by our Company, Dragon Sight, and the [REDACTED] pursuant to which our Company agreed to acquire 9,694 and 306 shares of Eight Immortals from Dragon Sight and the [REDACTED], and in consideration, (i) the one nil paid initial subscriber Share held by Dragon Sight was credited as fully paid at par; and (ii) [9,693] and [306] new Shares, all credited as fully paid at par, were allotted and issued to Dragon Sight and the Investor respectively; (s) an instrument of transfer dated [ ] entered into between the Company and Dragon Sight for the transfer of [9,694] shares of Eight Immortals as referred to item (r) above; (t) an instrument of transfer dated [ ] entered into between the Company and [the Investor] for the transfer of [306] shares of Eight Immortals as referred to item (r) above; (u) the Subscription Agreement; (v) the Deed of Non-competition; (w) the Deed of Indemnity; and (x) the [REDACTED]. 2. Intellectual property rights of our Group (a) Trademark As at the Latest Practicable Date, our Group has applied for registration of the following trademark (in both (i) colour and (ii) black and white versions), the registration of which has yet been granted: Trademark Class Application number Application date Place of Application Applicant 37] June 2018 Hong Kong Eight Immortals IV-9