Tsun Yip Holdings Limited

Transcription

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2 IMPORTANT If you are in any doubt about any contents of this prospectus, you should obtain independent professional advice. Tsun Yip Holdings Limited (Incorporated in the Cayman Islands with limited liability) App1A(1) LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED BY WAY OF PLACING OF SHARES Number of Placing Shares : 24,800,000 Shares Placing Price : HK$1.28 per Placing Share (payable in full on application plus brokerage of 1%, Stock Exchange trading fee of 0.005% and SFC transaction levy of 0.004%) Nominal value : HK$0.01 per Share Stock code : 8356 App1A(15)(3)(c) Third Schedule 9 App1A(15)(3)(c) Sponsor Sole Bookrunner and Lead Manager Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus. A copy of this prospectus, having attached thereto the documents specified in the section headed Documents delivered to the Registrar of Companies and available for inspection in Appendix VI to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance. The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above. R14.04 S342C Prior to making an investment decision, prospective investors should carefully consider all the information set out in this prospectus, including the risk factors set out in the section headed Risk factors in this prospectus. Prospective investors of the Placing Shares should note that the Sponsor and the Lead Manager (for itself and on behalf of the Underwriters), acting jointly, are entitled to terminate the obligations of the Underwriters under the Underwriting Agreement, by notice in writing to the Company given by the Sponsor and the Lead Manager (for itself and on behalf of the Underwriters), upon the occurrence of any of the events set forth under the sub-paragraph headed Grounds for termination under the paragraph headed Underwriting arrangements in the section headed Underwriting in this prospectus at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date. 20 August 2010

3 CHARACTERISTICS OF GEM GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors. R14.05 Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM. i

4 EXPECTED TIMETABLE The Company will make an announcement on the Exchange Website if there is any change to the following expected timetable (Note 1) Commencement of Placing...Friday, 20 August Announcement of the level of indication of interest in the Placing to be published on the Exchange Website on or about...friday, 27 August App1A(15)(3)(k) Allotment of Placing Shares to placees on or about...friday, 27 August Third Schedule 8 Deposit of certificates for the Placing Shares into CCASS (Note 2)...Friday, 27 August Dealings in the Shares on GEM to commence on (Note 3)...Monday, 30 August App1A(22) Notes: 1. In this prospectus, all times and dates refer to Hong Kong local times and dates. 2. The Share certificates are expected to be issued in the name of HKSCC Nominees Limited or in the name of the placee(s) or their agent(s) as designated by the Underwriters. Share certificates for the Placing Shares to be distributed via CCASS will be deposited into CCASS on or about 27 August 2010 for credit to the respective CCASS participant s stock accounts designated by the Underwriters, the placees or their agents, as the case may be. The Company will not issue any temporary documents of title. App1A(15)(3)(g) 3. All Share certificates will only become valid certificates of title when the Placing has become unconditional in all respects and the Underwriting Agreement has not been terminated in accordance with its term prior to 8:00 a.m. on the Listing Date. Details of the structure of the Placing, including the conditions thereto, are set out in the section headed Structure and conditions of the Placing in this prospectus. ii

5 CONTENTS You should rely only on the information contained in this prospectus to make your investment decision. The Company, the Sponsor, the Lead Manager and the Underwriters have not authorised anyone to provide you with information that is different from what is contained in this prospectus. Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, the Sponsor, the Lead Manager, the Underwriters, any of their respective directors or affiliates of any of them or any other person or parties involved in the Placing. The contents on the website at which is the website of the Company, do not form part of this prospectus. Page CHARACTERISTICS OF GEM... i EXPECTED TIMETABLE... ii SUMMARY... 1 DEFINITIONS RISK FACTORS INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING DIRECTORS PARTIES INVOLVED IN THE PLACING CORPORATE INFORMATION INDUSTRY OVERVIEW LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS HISTORY AND DEVELOPMENT iii

6 CONTENTS Page BUSINESS Business overview Competitive strengths Licences/registration held by the Group Awards and accreditation Contracts completed and contracts in progress Operations Inventory control Quality assurance Safety policy Competition Property interests Insurance Relationship with MHCC/MHWE Litigation and claim Environmental matters Intellectual property rights CONNECTED TRANSACTIONS FUTURE PLANS AND USE OF PROCEEDS DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS SHARE CAPITAL FINANCIAL INFORMATION UNDERWRITING STRUCTURE AND CONDITIONS OF THE PLACING iv

7 CONTENTS Page APPENDICES I Accountants Report... I-1 II Unaudited pro forma financial information... II-1 III Property valuation...iii-1 IV Summary of the constitution of the Company and Cayman Islands company law...iv-1 V Statutory and general information... V-1 VI Documents delivered to the Registrar of Companies and available for inspection...vi-1 v

8 SUMMARY This summary aims to give you an overview of the information contained in this prospectus. As it is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in the Placing Shares. There are risks associated with any investment. Some of the particular risks in investing in the Placing Shares are set out in the section headed Risk factors of this prospectus. You should read that section carefully before you decide to invest in the Placing Shares. BUSINESS OVERVIEW The Group is principally engaged in the provision of waterworks engineering services, road works and drainage services and site formation works for the public sector in Hong Kong. Waterworks, roads and drainage works and site formation works fall within a broader engineering discipline known as civil engineering. Third Schedule 3 During the Track Record Period, the Group generated a substantial part of its revenue from carrying out waterworks engineering services and road works and drainage services in the capacity of a subcontractor. For each of the two years ended 31 March 2009 and 2010, revenue generated from contracts in which the Group acted as a subcontractor represented approximately 73.9% and approximately 88.5% of the Group s total revenue respectively. Revenue generated from the Group providing services in the capacity of a main contractor accounted for a lesser part of the Group s total revenue, representing approximately 26.1% and approximately 11.5% of the Group s total revenue during the Track Record Period. The Group as a subcontractor The Group, as a subcontractor, has provided waterworks engineering services and road works and drainage services to certain main contractors during the Track Record Period. In the capacity of a subcontractor, the Group had completed six contracts during the Track Record Period and had three contracts in progress as at the Latest Practicable Date. The main contractors to which the Group provided services during the Track Record Period included MHCC/MHWE (who has been the Group s largest customer since the year ended 31 March 2008), Kwan On Construction Company Limited, Penta-Ocean-Peako Joint Venture, Victory Trenchless Engineering Company Limited and Chit Cheung Construction Company Limited (formerly known as Ching Chit Cheung Construction Company Limited). MHCC/MHWE was the largest customer of the Group during the Track Record Period. For the year ended 31 March 2009, revenue derived from MHWE amounted to HK$2.5 million, representing approximately 2.9% of the Group s total revenue. No revenue was derived from MHWE for the year ended 31 March For each of the years ended 31 March 2009 and 2010, revenue derived from MHCC amounted to approximately HK$57.8 million and approximately HK$131.4 million respectively, representing approximately 65.9% and approximately 88.3% of the Group s total revenue in the respective year. Details of the Group s completed contracts and contracts in progress are set out in the paragraph headed Contracts completed and contracts in progress under the section headed Business in this prospectus. 1

9 SUMMARY The Group as a main contractor The Group, as a main contractor, has provided waterworks engineering services to WSD during the Track Record Period. In the capacity of a main contractor, the Group had completed two waterworks contracts during the Track Record Period and had two waterworks contracts in progress as at the Latest Practicable Date. Services provided by the Group Waterworks engineering services. These services include construction and maintenance of water mains, service reservoirs, impounding reservoirs, pumping stations, water tanks, treatment works, watercourses for distribution systems and other related construction works. These services may also involve related civil construction works which include excavation, stabilisation, foundations strengthening, reinstatement of carriageways, footways and expressways. For projects that are carried out on existing traffic roads, the contractor may also be required to make arrangements on traffic diversion and control. Road works and drainage services. These services include construction of interchange, carriageway, walkway, footpath, access road, covered footbridge, link bridge, drainage channel and the associated lighting, drainage, landscaping, utilities diversion and electrical and mechanical works. Site formation works. These services generally involve demolition of existing buildings and structures, excavation to the design formation level and reduction and stabilisation of existing slopes. LICENCES AND REGISTRATION REQUIREMENTS The Group as a subcontractor Members of the Group are required to be registered under the Primary Register of the Registration Scheme introduced by the Provisional Construction Industry Co-ordination Board ( ), whose work was taken over by the Construction Industry Council ( ) in February 2007, in order to act as a subcontractor for capital works contracts and maintenance contracts of the Government with tenders to be invited on or after 15 August TYW and TY Civil were admitted to the List of Registered Subcontractors for participating in civil engineering works, road works and drainage services and waterworks under the Registration Scheme in October 2006 and November 2008 respectively. Save for the aforesaid registration requirement, TYW and TY Civil, undertaking Government contracts as a subcontractor, are not required to comply with the licencing requirements set forth in the ETWB Handbook and not subject to the restrictions on contract value and number of contracts applicable to main contractors as described below. 2

10 SUMMARY The Group as a main contractor Members of the Group are required to comply with the licencing requirements set forth in the ETWB Handbook in order to tender for Government projects in the capacity of a main contractor. The following table summarises the details of the licences held by TYW as an approved contractor as at the Latest Practicable Date: Government departments/ organisation Month and year of first relevant registration with the Government departments/ organisation Member of the Group which held the licence/ approval Level/category of registration held as at the Latest Practicable Date Status as at the Latest Practicable Date Current value of project which the Group is eligible to undertake under the relevant licence WBDB May 2009 TYW Approved Contractors for Public Works Waterworks Category (Group B) WBDB March 2009 TYW Approved Contractors for Public Works Roads and Drainage Category (Group B) WBDB March 2009 TYW Approved Contractors for Public Works Site Formation Category (Group B) Confirmed Confirmed Probationary Contract value up to HK$75 million Contract value up to HK$75 million Contract value up to HK$75 million Waterworks. Being a licenced contractor with confirmed status under Group B of the Waterworks category since May 2009, TYW is eligible for the award of any number of Government contracts, save for maintenance contracts which are grouped by the Government as subject to restrictions, under this category provided that the contract value of each individual contract does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital requirements. According to the technical circular of WBDB, any approved contractor, acting as a main contractor, may not be awarded with more than two such waterworks maintenance contracts at any time. Save as disclosed above, there is no other limitation or restriction on the number of contracts which TYW is eligible for award under this category. Roads and drainage. Being a licenced contractor with confirmed status under Group B of the Roads and Drainage category since March 2009, TYW is eligible for the award of any number of Government contracts, save for maintenance contracts which are grouped by the Government as subject to restrictions, under this category provided that the contract value of each individual contract does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital requirements. According to the technical circular of WBDB, any approved contractor under this category, acting as a main contractor, may be subject to similar restriction or limitation on the number of maintenance contracts as those applicable to an approved contractor under the Waterworks category. 3

11 SUMMARY Site formation. Being a licenced contractor with probationary status under Group B of the Site Formation category since March 2009, TYW is eligible to tender for such number of Government contracts under this category provided that the total value of Group B works does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital requirements. According to the technical circular of WBDB, any approved contractor under this category, acting as a main contractor, may be subject to similar restriction or limitation on the number of maintenance contracts as those applicable to an approved contractor under the Waterworks category. During the Track Record Period, the Group primarily focused on provision of waterworks engineering services. The Group intends to continue its focus on waterworks engineering services in the future. Nevertheless, the Directors do not consider that the aforesaid limitation on the number of waterworks maintenance contracts which may be awarded to a contractor has any significant adverse impact on the Group. On one hand, the Group, if undertakes waterworks maintenance contracts in the capacity of a subcontractor, is not subject to the aforesaid limitation. On the other hand, the Group may choose to undertake other waterworks contracts instead of waterworks maintenance contracts in the event that the limitation on the number of waterworks maintenance contract has been reached by the Group. In order to be eligible to tender for Government contracts in the capacity of a main contractor under these three categories with individual contract value over HK$75 million, TYW will be required to satisfy the financial criteria, technical and management personnel criteria for application for promotion to Group C in the above categories. Details of the requirements are set out in the section headed Licencing and other requirements for Government projects in this prospectus. AWARDS AND ACCREDITATION In recognition of the Group s outstanding performance and quality of works, the Group has received the following awards or certificate from different departments of the Government and a professional accreditation organisation: Year of grant Description Organisation 2010* Certificate for compliance with the requirements of ISO9001:2008 quality management system standard for construction of civil engineering works (site formation, waterworks, roads and drainage) 2009 Bronze prize in the renovation and maintenance works Subcontractors in WSD Contract No. 21/WSD/06 under the Construction Industry Safety Award Scheme 2007 Merit award in recognition of the performance of TYW s construction site in WSD Contract No. 2/WSD/05 during the period from 1 January 2007 to 31 December 2007 under the Considerate Contractors Site Award Scheme Accredited Certification International Limited Labour Department of the Government Development Bureau of the Government * TYW was first accredited with ISO compliance certification in Further ISO accreditations were obtained by the Group in 2003, 2006 and

12 SUMMARY In addition, the Group has been receiving letters from WBDB in respect of its performance ratings which are derived from the performance scores given in all the reports written on its performance in Government works contracts in the preceding 12 reporting periods. Based on the aforesaid letters from WBDB, the Directors and the Sponsor are of the view that the Group has achieved outstanding performance ratings during the Track Record Period. COMPETITIVE STRENGTHS With an operating history of over 20 years, the Directors believe that the Group, with its experienced management team and extensive experience in implementation of waterworks projects, has established a reputation in the waterworks engineering industry in Hong Kong. In particular, the Directors believe that the Group possesses the following competitive strengths: Established operating history and track record Well-positioning to capture the emerging business opportunities Consistently high quality of services Well-established relationships with main contractors Good relationships with subcontractors Experienced management team RISK FACTORS Risks relating to the business of the Group The Group s revenue during the Track Record Period was generated substantially from carrying out waterworks engineering contracts and roads and drainage services contracts in the capacity of a subcontractor The Group relies heavily on MHCC/MHWE, the Group s largest customer during the Track Record Period The Group determines the tender price based on the estimated time and costs involved in a project which may deviate from the actual time and costs incurred The Group acted as a subcontractor in most of the contracts undertaken during the Track Record Period. Revenue generated from contracts in which the Group acted as subcontractor represented approximately 73.9% and approximately 88.5% of the Group s total revenue respectively. The Group may continue to act in such capacity in the future. If the Group is unable to recover subcontracting fees from the relevant main contractor, the operating results of the Group could be adversely affected 5

13 SUMMARY Failure to meet schedule requirements of contracts may result in liquidated damages imposed on the Group The Group is relying on certain principal subcontractors to implement the contracts The Group s success significantly depends on the key management and its ability to attract and retain additional technical and management staff The Group s business is labour-intensive The Group s cash flows may fluctuate The Group s business is project-based. Fee collection and profit margin depend on the terms of individual work contract and may not be regular The Group s operations are subject to construction risk Risks relating to the industry in which the Group operates The Group s business is subject to obtaining a number of licences and approvals The Group s operations are restricted to Hong Kong The Group s operations are subject to due compliance with a number of environmental protection laws, regulations and requirements The Group s business could be materially and adversely affected by the Government s level of spending on infrastructure and civil engineering projects The Group s business could be adversely affected by the Government s allocation of its budget on waterworks The Group s business could be affected by adverse weather conditions Work contracts with WSD are subject to termination for convenience by WSD Risks relating to the Placing The Sponsor and the Underwriters are entitled to terminate the Underwriting Agreement There has been no prior public market for the Shares and the liquidity, market price and trading volume of the Shares may be volatile Investors in the Placing may experience dilution if the Company issues additional Shares in the future 6

14 SUMMARY No guarantee that dividends will be declared in the future Granting options under the Share Option Scheme may affect the Group s results of operations and dilute Shareholders percentage of ownership Risks relating to this prospectus Certain statistics and facts in this prospectus are extracted from various official Government sources which have not been independently verified Forward-looking statements contained in this prospectus may not be accurate BUSINESS OBJECTIVE AND STRATEGIES Being a licenced contractor on the Contractor List under the categories of Waterworks, Roads and Drainage and Site Formation, the Group is eligible, in the capacity of a main contractor, to tender for projects of these three categories in the public sector in Hong Kong. Over years of participation in waterworks engineering services, the Group has built up its reputation in the waterworks engineering industry and maintained good relationship with other main contractors. The Group aims at leveraging its competitive edge in the waterworks engineering industry to become one of the leading waterworks engineering services providers to the public sector in Hong Kong which commits to strive for excellence in service quality and timeliness. With established operating history and track record in the waterworks engineering industry and an enhanced reputation through the Listing, the Group intends to focus on the provision of waterworks engineering services and undertake more waterworks contracts in the capacity of a main contractor in the near future. At present, the Group has not yet fulfilled the requirements for applying for promotion to Group C under the category of Waterworks on probationary status. The Company does not intend to apply for promotion to Group C under the respective categories of Waterworks, Roads and Drainage and Site Formation within 12 months from the Listing Date. The Group will continue to foster its reputation and increase its market share in the waterworks engineering industry by pursuing the following strategies: Expansion of business scale The Group s business requires significant capital. At the early stage of a project, the Group will be required to purchase construction materials, acquire equipment and machinery and recruit project management and technical personnel required for undertaking the project. In addition, the Group is required to comply with the minimum employed capital and working capital requirements for retention on the Contractor List (details of which are set out in the section headed Licencing and other requirements for Government projects in this prospectus) to carry out Government contracts. The then levels of employed capital and working capital of the Group pose limitations on the number and size of Government contracts undertaken by the Group as a main contractor. As such, the Group s expansion has been historically constrained by the availability of financial resources and manpower of the Group. With the proceeds from the Placing, the Group will have additional funds to inject into 7

15 SUMMARY TYW for enhancing TYW s employed capital and working capital and fulfill the hardware and staffing requirements for undertaking additional contract works. Going forward, the Directors intend to participate more actively in the tendering process for Government s contracts with a view to obtaining more waterworks contracts in the capacity of a main contractor from the Government, in which the Group has already established a proven track record, to scale up the Group s business. Further enhancement in work quality The Directors believe that the Group s success depends considerably on its ability to deliver works of high quality in a timely manner. The Group has received outstanding performance ratings for the quality of its works from WBDB during the Track Record Period. The Directors consider that maintaining work quality is of utmost importance to the Group s ongoing development in the waterworks engineering sector and the Group s tendering of Government contracts in the future. In order to uphold the work quality of the Group, the Directors plan to recruit additional personnel for quality assurance of the Group. Strengthening of safety team The Directors consider that enhancing the Group s project safety and upholding the Group s work quality are equally important. A sound safety system lowers the risk of accidents and improves work efficiency. It is the Group s responsibility to provide a safe and healthy working environment for the benefit of its staff, its subcontractors and the general public. In order to enhance the Group s safety system, the Directors plan to recruit additional personnel to strengthen the safety team of the Group. FUTURE PROSPECTS The Directors believe the Group s proven track record in delivering works of high quality in a timely manner has placed the Group in an advantageous position to seize the growth opportunities in the civil engineering sector, particularly in waterworks, roads and drainage and site formation areas, in Hong Kong. Not only will the replacement and rehabilitation program launched by WSD (details of which are set out in the section headed Industry overview in this prospectus) continue to open up numerous waterworks opportunities to the Group, the infrastructure and development projects being currently implemented or to be implemented by the Government, which the Directors believe would inevitably involve waterworks, roads and drainage works or site formation works at some stage, will also create tremendous business opportunities to the Group in the coming years. REASONS FOR THE LISTING The Directors believe that the listing of the Shares on GEM will enhance the Group s profile. The Placing will also strengthen the Group s capital base and provide the Group with additional working capital to implement the future plans set out in the paragraphs headed Business objective and strategies and Implementation plan in the section headed Future plans and use of proceeds in this prospectus respectively. 8

16 SUMMARY IMPLEMENTATION PLAN The Directors have drawn up an implementation plan for the period up to 31 March 2013 with a view to achieve the business objective along with the strategies as described above. Details of the implementation plan are set out in the paragraph headed Implementation plan in the section headed Future plans and use of proceeds in this prospectus. USE OF PROCEEDS The net proceeds from the Placing, after deducting the underwriting fees and estimated expenses payable by the Company in connection thereto, are estimated to be approximately HK$21.0 million based on the Placing Price of HK$1.28. The Directors intend to apply the aforesaid net proceeds in the following manner: For the six months ending 30 September 2010 approximately HK$ million For the six months ending 31 March 2011 approximately HK$ million For the six months ending 30 September 2011 approximately HK$ million For the six months ending 31 March 2012 approximately HK$ million For the six months ending 30 September 2012 approximately HK$ million For the six months ending 31 March 2013 Total approximately HK$ million approximately HK$ million Expansion of business scale Acquisition of equipment and machinery * Recruitment of additional staff # Further enhancement in work quality Recruitment of additional quality assurance staff Strengthening of safety team Recruitment of safety staff Repayment of Shareholder s loan Repayment of finance leases

17 SUMMARY * Out of HK$6.5 million, HK$4.0 million will be applied to the prospective projects, details of which are disclosed in the sub-paragraph headed For the six months ending 31 March 2011 under the paragraph headed Implementation plan under the section headed Future plans and use of proceeds in this prospectus. # Out of HK$3.0 million, HK$2.0 million will be applied to the prospective projects, details of which are disclosed in the sub-paragraph headed For the six months ending 31 March 2011 under the paragraph headed Implementation plan under the section headed Future plans and use of proceeds in this prospectus. The balance of approximately HK$2.0 million will be used for general working capital of the Group. Based on current estimations by the Directors, the net proceeds from the Placing will be sufficient to finance the Group s business plan as scheduled up to 31 March In particular, approximately HK$6.5 million and approximately HK$3.0 million of the net proceeds will be used to acquire equipment and machinery and recruit additional staff respectively to undertake waterwork contracts (including the New Project and the prospective projects) by the Group as a main contractor to enable the Group to scale up its business. In the event that the Group fails to obtain the prospective projects but is successfully awarded with other waterworks contract(s) from WSD, the Directors will apply the net proceeds originally allocated to the prospective projects to such waterworks contract(s). To the extent that the net proceeds from the Placing are not immediately required for the above purposes, the Directors currently intend that such proceeds will be placed on short-term deposits with licenced banks and/or financial institutions in Hong Kong. RELATIONSHIP WITH MHCC/MHWE Background MHCC and MHWE are both wholly-owned subsidiaries of Ming Hing Waterworks, a company with its issued shares listed on the Main Board of the Stock Exchange. Ming Hing Waterworks, through its subsidiaries, is principally engaged in the provision of maintenance and construction works on civil engineering contracts including waterworks engineering, road works and drainage and slope upgrading services in Hong Kong. Business relationship The business relationship between the Group and MHWE started in 2001 with a waterworks project in the North District in the New Territories, whereby TYW acted as a subcontractor to MHWE. TYW s engagement in respect of the aforesaid waterworks project was initiated by Mr. Kan who approached MHWE after Mr. Kan becoming aware of the relevant Government contract being awarded to MHWE. Since the inception of business relationship with MHWE as described above, MHCC/MHWE, as a main contractor, had subcontracted a few contracts from WSD to the Group for implementation. In respect of the eight contracts completed by the Group during the Track Record Period, two contracts were obtained from MHCC/MHWE, and in respect of the five contracts in progress as at the Latest Practicable Date, three contracts were obtained from MHCC/MHWE. For the year ended 31 March 2009, revenue derived from MHWE amounted to approximately HK$2.5 million, representing approximately 2.9% of the Group s total revenue. No revenue was derived from MHWE for the year ended 31 March For each of the two years ended 31 March 2009 and 2010, revenue 10

18 SUMMARY derived from MHCC amounted to approximately HK$57.8 million and approximately HK$131.4 million respectively, representing approximately 65.9% and 88.3% of the Group s total revenue in the respective year. MHCC/MHWE has been the Group s largest customer since the year ended 31 March The Group had commenced obtaining interest-bearing advances from MHCC in 2007 in respect of a water mains replacement and rehabilitation project (contract numbered 21/WSD/06) subcontracted by MHCC. Apart from the above contract, the Group has also received advance from MHCC in respect of another water mains replacement and rehabilitation project (contract numbered 18/WSD/08) subcontracted by MHCC. Based on the disclosure in the annual report of Ming Hing Waterworks for the year ended 31 March 2010, the Directors believe that Ming Hing Waterworks has also made advances to its other principal subcontractors apart from the Group. As at 31 March 2009 and 2010, advances from MHCC/MHWE amounted to approximately HK$8.2 million and approximately HK$9.0 million respectively, and the maximum balances of advances during the aforesaid two years were approximately HK$14.0 million and approximately HK$11.2 million respectively. Among the balances outstanding as at 31 March 2009 and 2010, approximately HK$8.2 million and approximately HK$3.5 million respectively carried interest at HIBOR (being 0.11%) plus 4%. The aforesaid advances will normally be fully set off against certified payments payable by the main contractors to the Group upon completion of the relevant contracts. The terms of the aforesaid contracts, including the advances, were arrived at between the Group and MHCC/MHWE after arm s length negotiation. The Directors consider that if advances were not made by MHCC/MHWE to the Group for implementation of the aforesaid contracts, the Group could have sought alternative financing methods such as obtaining loans from Mr. Kan, the Controlling Shareholder, bringing in new shareholder(s) to the Group or obtaining external borrowings. Given that the interest rate charged by MHCC/MHWE is comparable to the interest rates charged by a licenced bank in Hong Kong on the loans previously granted to the Group (being 1% per annum over the best lending rate of such bank of 5% for the HK$4.0 million non-revolving loan and a flat rate of 3.75% per annum (subject to the right of such bank to renegotiate in the event that its best lending rate, being 5%, changes between the date of the relevant facility letter and the date of drawdown) for the HK$2.0 million non-revolving loan respectively), the advances from MHCC/MHWE do not require any asset pledge or security from the Group or guarantee from the Controlling Shareholders and the obtaining of the advances would enhance the liquidity of the Group, the Directors consider it beneficial to the Group to obtain such advances for the purpose of recruiting additional workers and acquiring the equipment and machinery and/or materials necessary to carry out the contract works for which MHCC/MHWE was the main contractor. Furthermore, as it is indicated in the annual report of Ming Hing Waterworks for the year ended 31 March 2010 that Ming Hing Waterworks has made advances to its other principal subcontractors, and the Group also has past experience in receiving advances from another independent main contractor and making advances to subcontractors of the Group, the Directors believe it is not uncommon for a main contractor to make advances to subcontractors. MHCC/MHWE had purchased construction materials for the Group s use in carrying out waterworks engineering services as its subcontractor pursuant to the terms of the contracts entered 11

19 SUMMARY into between MHCC/MHWE and the Group during the Track Record Period. For each of the two years ended 31 March 2009 and 2010, purchase of construction materials by MHCC/MHWE for the Group amounted to approximately HK$16.1 million and approximately HK$29.8 million respectively. Details of the projects for which the above construction materials were purchased are disclosed in the sub-paragraph headed Procurement of materials and equipment in the paragraph headed Operations in the section headed Business in this prospectus. As there was another independent main contractor which had purchased construction materials for the Group and the Group also has past experience in purchasing construction materials for its subcontractors, the Directors believe that it is not uncommon for a main contractor to purchase materials for its subcontractor. The terms of the contracts entered into between the Group and MHCC/MHWE in respect of provision of waterworks engineering services by the Group as a subcontractor to MHCC/MHWE were arrived at after arm s length negotiation, having taken into consideration the nature, size, capital requirement and complexity of the relevant projects, between the Group and MHCC/MHWE. The Directors are of the view that the terms of the relevant contracts (including the purchase of construction materials by and advances from MHCC/MHWE) were on normal commercial terms and the relevant contracts were entered into in the ordinary and usual course of business of the Group. Reliance on MHCC/MHWE For each of the two financial years ended 31 March 2009 and 2010, MHCC/MHWE was the largest customer of the Group, contributing approximately 68.8% and approximately 88.3% to the Group s total turnover. The Directors consider the Group s reliance on MHCC/MHWE during the Track Record Period is attributable to a combination of factors including (i) the length of the subject contracts; and (ii) the then financial resources and capacity of the Group. Due to the volume and complexity of works involved, civil engineering contracts (including waterworks contracts) generally cover a term of two years or more. As shown in the paragraph headed Contracts completed and contracts in progress under the section headed Business in this prospectus, most of the works contracts undertaken by the Group have a term of over two years. For this reason, certain subcontracts obtained by the Group from MHCC/MHWE prior to the Track Record Period remain to be in progress within the Track Record Period. Furthermore, the Group had, during the Track Record Period, devoted a considerable amount of financial resources and manpower on the implementation of contracts numbered 21/WSD/06 and 18/WSD/08, and the Group therefore had not taken on other large-scale projects. The Directors believe that the reliance on MHCC/MHWE will be gradually reduced after the Listing. On one hand, it is the Group s business objective to undertake more work contracts in the capacity of a main contractor in the future and the Directors intend to more actively participate in the tendering process for Government contracts. As set out in the section headed Future plans and use of proceeds in this prospectus, the Directors expect to obtain two more waterworks contracts directly from WSD next year and have allocated an aggregate of HK$6.0 million out of the net proceeds from the Placing to acquire the necessary equipment and machinery and recruit the required staff for the aforesaid two projects. The Group s effort in obtaining contracts directly from WSD is evidenced by the Group s successful bid for a replacement and rehabilitation works contracts of approximately HK$74.7 million in contract value in May In anticipation of the completion of contract numbered 21/WSD/06 by early next year, the Group has been closely monitoring the tender notices 12

20 SUMMARY and will participate in the tendering process if suitable opportunities arise. The Group has been pursuing business opportunities with main contractors other than MHCC/MHWE. In July 2010, the Group received a letter confirming acceptance of its quotation submitted in June 2010 from a main contractor in respect of a waterworks contract with estimated contract value of approximately HK$4.4 million. As at the Latest Practicable Date, the Group and such main contractor were still in the process of finalising the terms of the relevant waterworks contract. The Group also submitted a quotation to another main contractor in respect of waterworks with estimated contract value of approximately HK$52.4 million in July The latter quotation relates to waterworks which form part of a Highways Department ( ) project. As at the Latest Practicable Date, the Directors were not able to estimate whether the Group would be awarded the subcontract works for such project. Both of the aforesaid main contractors are not associated with Ming Hing Waterworks or its subsidiaries. It is the intention of the Group to continue to actively seek business opportunities with main contractors other than MHCC/MHWE. In view of the above, the Directors believe the Group s reliance on MHCC/MHWE after Listing will be significantly reduced from the current level. Recent development of Ming Hing Waterworks As disclosed in a circular of Ming Hing Waterworks dated 12 May 2010 (the MH Circular ), its indirect wholly-owned subsidiary entered into an agreement relating to an acquisition of interest in a mining business. The directors of Ming Hing Waterworks consider that it is beneficial for its group to diversify its existing business portfolio in view of the deteriorating financial performance of its waterworks engineering business. In particular, the directors of Ming Hing Waterworks explained that the decline in its profit was primarily attributable to the drop in gross profit margin as a result of increasing construction material and labour costs. It is also disclosed in the MH Circular that, apart from expanding the business scope to engage in mining business, Ming Hing Waterworks intends to continue with the waterworks engineering business depending on the then business environment and prospects. Although MHCC/MHWE was the largest customer of the Group during the Track Record Period, the Directors and the Sponsor do not consider the diversification of Ming Hing Waterworks into mining business will pose significant adverse impact on the business and prospects of the Group. The Group has worked with a number of main contractors, some of which have business relationships with the Group for more than five years. During the Track Record Period, the Group worked with four main contractors apart from MHCC/MHWE. In the event that Ming Hing Waterworks scales down or discontinues its waterworks engineering business, the Directors are optimistic that the Group will be able to obtain contracts from other main contractors or directly obtain contracts from WSD based on the Group s established operating history and track record. From an industry perspective, the Directors believe that the waterworks industry will continue to present numerous waterworks opportunities to the Group in view of the replacement and rehabilitation programme and other public sector projects. Furthermore, TYW has consistently achieved outstanding performance ratings for the quality of its works from WBDB, which will increase the Group s competitiveness in tendering for Government contracts as a main contractor. The Directors note from the latest published financial reports of Ming Hing Waterworks that gross profit margin and net profit margin of Ming Hing Waterworks have been generally showing a declining trend. The Directors also note that the directors of Ming Hing Waterworks attributed the 13

21 SUMMARY decline of the gross profit of Ming Hing Waterworks to rising raw material and labour costs. The Directors are not in a position to comment on the deteriorating financial performance of Ming Hing Waterworks due to the insufficiency of public information. However, based on the Group s past business dealings with Ming Hing Waterworks, the Directors believe that the relatively low gross profit margin and net profit margin of Ming Hing Waterworks may be explained by the fact that Ming Hing Waterworks has subcontracted some of its contracts to subcontractors. In respect of the contracts the Group obtained from MHCC/MHWE, MHCC/MHWE entered into a main contract with WSD and then entered into a subcontract with the Group pursuant to which it subcontracted the overall management and implementation of the entire contract works to the Group. In return, MHCC/MHWE would charge the Group a contract fee representing a fixed percentage of the total contract value and a nominal handling fee for purchase of construction materials on behalf of the Group. As the certified payment for the interim works would be made to MHCC/MHWE by WSD, MHCC/MHWE would then make payment to the Group after deduction of the aforesaid contract fee, handling fee and if applicable, costs of purchase of construction materials and other reimbursements. Given that the fee receivable by MHCC/MHWE on the contracts granted to the Group largely comprise the contract fee which represents a fixed percentage of the total contract value, the gross profit margin of such contracts to MHCC/MHWE would be close to the aforesaid fixed percentage. The Group, as the party implementing the contracts, has more control over the costs of service through actively managing and implementing the project. The better the Group controlled its costs of service and minimized its execution risks, the higher the gross profit margin would be for the Group. Based on the Directors understanding, the Group s gross profit margins for the contracts obtained from MHCC/MHWE are significantly higher than MHCC/MHWE s gross profit margins for the same contracts. Therefore, despite the Directors generally share the view that the cost of construction materials and labour have been rising in the past few years, the management of the Group has been successfully maintaining its gross profit margin by carefully evaluating the cost requirement before submitting a tender, actively managing the projects and closely monitoring the costs involved in provision of service. Going forward, the management of the Group will continue to put considerable efforts in maintaining its gross profit margin. The Sponsor has reviewed the terms of the subcontracts entered into between the Group and MHCC/MHWE and the financial information in respect of such subcontracts provided by the Group. The Sponsor notes that the Group s gross profit margins during the Track Record Period were significantly higher than the percentage of the contract fee charged by MHCC/MHWE to the Group for the same subcontracts. Based on the information available to the Sponsor, the Sponsor considers that the Directors belief in relation to the Group s higher profit margin than Ming Hing Waterworks is reasonable. Director s interest in Ming Hing Waterworks As at the Latest Practicable Date, Mr. Chia, an executive Director, was interested in less than 1.0% in the issued share capital of Ming Hing Waterworks. Mr. Chia has not held and does not presently hold any position in or otherwise was not involved and is not presently involved in the daily operations of Ming Hing Waterworks or any of its subsidiaries or associated companies. Mr. Chia 14

22 SUMMARY holds his interests in Ming Hing Waterworks for investment purpose. Save as disclosed above, none of the Directors or their associates had any shareholding interest in Ming Hing Waterworks as at the Latest Practicable Date. Based on the above, Ming Hing Waterworks, including its subsidiaries and associated companies, are not connected persons of the Company under the GEM Listing Rules. SUMMARY OF FINANCIAL INFORMATION The following tables set forth a summary of the combined financial information of the Group for the two years ended 31 March 2009 and 2010, which is extracted from the Accountants Report set out in Appendix I to this prospectus. The following summary should be read in conjunction with the financial statements set out in the Accountants Report, including the notes thereto, set out in Appendix I to this prospectus. Combined statement of comprehensive income Year ended 31 March HK$ 000 HK$ 000 Revenue 87, ,844 Cost of service (70,617) (121,872) Gross profit 17,079 26,972 Other income 2, Administrative expenses (5,431) (6,753) Profit from operations 14,187 21,030 Finance costs (455) (634) Profit before income tax 13,732 20,396 Income tax (2,327) (3,558) Profit and total comprehensive income for the year 11,405 16,838 15

23 SUMMARY Selected combined statement of financial position data As at 31 March HK$ 000 HK$ 000 Assets Non-current assets 8,697 13,308 Current assets 45,196 48,389 Total assets 53,893 61,697 Liabilities Current liabilities 27,497 36,873 Non-current liabilities 2,324 2,484 Total liabilities 29,821 39,357 Total equity 24,072 22,340 Selected combined statement of cash flows data Year ended 31 March HK$ 000 HK$ 000 Net cash generated from operating activities 4,124 27,169 Net cash used in investing activities (390) (5,242) Net cash used in financing activities (3,834) (10,018) Net (decrease)/increase in cash and cash equivalents (100) 11,909 Cash and cash equivalents at the beginning of year (1,479) (1,579) Cash and cash equivalents at the end of year (1,579) 10,330 16

24 SUMMARY Dividend distribution The Group did not declare any dividends for the year ended 31 March For the year ended 31 March 2010, TYW and TY Civil declared and paid dividends of HK$245,000 and HK$9,700,000 respectively to Mr. Kan and TYC declared dividends of approximately HK$8,625,000 to Mr. Kan which was set off against the amount due from Mr. Kan. TY Civil also declared and paid a final dividend of HK$4,000,000 to Mr. Kan in April Despite the aforesaid dividends, if otherwise not declared and paid, would provide additional capital for the Group to undertake more contract works, the Directors consider that it is commercially justified to declare and pay the aforesaid dividends to Mr. Kan for the following reasons: (i) the aforesaid dividends were declared to Mr. Kan, the then sole shareholder of TYW and TY Civil, to reward his past investments in and support and contribution to the Group; (ii) the level of distribution is appropriate as a sufficient portion of the net profits attributable to the Shareholders has been retained to support the Group s ongoing operations and compliance with the employed capital and working capital requirements as required by WBDB for retention on the Contractor List; (iii) the Group could utilise a combination of retained profits and borrowings to finance the Group s working capital needs rather than solely relying on retained profits; (iv) the Group s gearing ratios, calculated as a percentage of the aggregate of the amount of total bank borrowings and obligations under finance lease and advance received from customers to total assets (31 March 2009: 29.6%; 31 March 2010: 29.1%) and the Group s finance costs (for the year ended 31 March 2009: approximately HK$455,000; for the year ended 31 March 2010: approximately HK$634,000) during the Track Record Period were at reasonable levels respectively; and (v) the Shareholders will be entitled to the future profits of the Group after the Listing. The Directors also consider that it was in the interest of the Company and the Shareholders as a whole to declare and pay the aforesaid dividends to Mr. Kan as rewards for his past contribution and encouragement for his continued support to the Group s business. STATISTICS OF THE PLACING R11.23(6) Placing Price...HK$1.28 Market capitalisation (Note 1)...approximately HK$127.0 million Unaudited pro forma net tangible asset value per Share (Note 2)... HKcents 39.7 Notes: 1. The market capitalisation is calculated on the basis of 99,200,000 Shares in issue immediately after completion of the Placing and the Capitalisation Issue. 2. The unaudited pro forma adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the paragraph headed Unaudited pro forma adjusted net tangible assets under the section headed Unaudited pro forma financial information in Appendix II to this prospectus and on the basis of 99,200,000 Shares in issue at the Placing Price of HK$1.28 per Share immediately following completion of the Placing and the Capitalisation Issue but without taking into account any Shares which may be issued upon the exercise of any options which may be granted under the Share Option Scheme. 17

25 DEFINITIONS In this prospectus, unless the context otherwise requires, the following expressions shall have the following meanings: Accountants Report Announcement Posting Agreement Articles or Articles of Association associate(s) Board Business Day BVI Capitalisation Issue CAR/TPL Insurance CCASS Chuwei Companies Law Companies Ordinance the accountants report as set out in Appendix I to this prospectus the agreement dated 1 June 2010 entered into between the Company and HKLC in relation to the provision of announcement posting service by HKLC to the Company as more particularly described in the section headed Connected transactions in this prospectus the articles of association of the Company adopted on 11 August 2010 and as amended from time to time, a summary of which is set out in Appendix IV to this prospectus has the meaning ascribed to it under the GEM Listing Rules the board of Directors a day (other than a Saturday or Sunday or public holiday) on which licenced banks in Hong Kong are generally open for normal banking business the British Virgin Islands the issue of 74,399,000 Shares upon capitalisation of a certain sum standing to the credit of the share premium account of the Company referred to in the sub-paragraph headed Written resolutions of all Shareholders passed on 11 August 2010 under the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus the contractor all risk or third party liability insurances the Central Clearing and Settlement System established and operated by HKSCC Chuwei (BVI) Limited, a Substantial Shareholder and a company incorporated in the BVI which is wholly and beneficially owned by Mr. Cheng the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time 18

26 DEFINITIONS Company connected person(s) Contractor List Controlling Shareholder(s) Director(s) ETWB Tsun Yip Holdings Limited ( ), a company incorporated in the Cayman Islands with limited liability on 15 March 2010 has the meaning ascribed to it under the GEM Listing Rules the list of approved contractors for public works ( ) maintained by WBDB has the meaning ascribed to it under the GEM Listing Rules and, in the context of this prospectus, means the controlling shareholders of the Company, namely Shunleetat and Mr. Kan director(s) of the Company Environment, Transport and Works Bureau of the Government ( ), formerly a policy bureau of the Government, the duties of which are now taken over by Environment Bureau, Transport and Housing Bureau and WBDB following the reorganisation of the Policy Bureau and Government Secretariat ETWB Handbook Contractor Management Handbook (Revision B) July 2005 ( B) issued by ETWB Exchange Website GEM GEM Listing Rules Government Government Gazette Group HK or Hong Kong HKFRSs being an Internet website operated by the Stock Exchange the Growth Enterprise Market of the Stock Exchange the Rules Governing the Listing of Securities on GEM the Government of Hong Kong the official publication of the Government for, among other things, statutory notices for public tenders the Company and its subsidiaries or, where the context otherwise requires, in respect of the period before the Company became the holding company of its present subsidiaries, such subsidiaries or the businesses which have since been acquired or carried on by them the Hong Kong Special Administrative Region of the PRC Hong Kong Financial Reporting Standards (including Hong Kong Accounting Standards and Interpretations) issued by HKICPA 19

27 DEFINITIONS HKICPA HKLC HKSCC HKSCC Nominees HSBC Independent Third Party(ies) ISO Latest Practicable Date Lead Manager Lease Agreement Listing Listing Date Listing Division Lotawater Macau Hong Kong Institute of Certified Public Accountants Hong Kong Listco Limited, a company incorporated in Hong Kong which is wholly and beneficially owned by Mr. Chia Hong Kong Securities Clearing Company Limited HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC The Hongkong and Shanghai Banking Corporation Limited a person(s) or company(ies) which is/are independent of and not connected with any member of the Group, the directors, the chief executives, the substantial shareholders (as defined in the GEM Listing Rules) of the Company and its subsidiaries and their respective associates International Organization for Standardization 13 August 2010, being the latest practicable date prior to the printing of this prospectus for ascertaining certain information contained in this prospectus CIMB Securities (HK) Limited, a licenced corporation under the SFO permitted to engage in type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities, being the sole bookrunner and the lead manager of the Placing under the SFO the agreement dated 1 May 2009 entered into between TYW (as tenant) and HKLC (as landlord) (as amended by a supplemental agreement dated 7 May 2010 made by the same parties) in relation to the office premises situated at Rooms 1 & 3, 7/F, Anton Building, 1 Anton Street, Wanchai, Hong Kong the listing of the Shares on GEM the date on which the trading of the Shares first commences on GEM the listing division of the Stock Exchange Lotawater (BVI) Limited, a company incorporated in the BVI which is wholly and beneficially owned by Mr. Chia the Macau Special Administrative Region of the PRC 20

28 DEFINITIONS MHCC Ming Hing Civil Contractors Limited, a wholly-owned subsidiary of Ming Hing Waterworks, which is an Independent Third Party MHWE Ming Hing Waterworks Mr. Cheng Mr. Chia Mr. Fung Mr. Kan New Project Optima Capital or Sponsor Ming Hing Waterworks Engineering Company Limited, a wholly-owned subsidiary of Ming Hing Waterworks, which is an Independent Third Party Ming Hing Waterworks Holdings Limited (stock code: 402), a company incorporated in the Cayman Islands with limited liability and whose issued shares are listed on the Main Board of the Stock Exchange, which is an Independent Third Party Mr. Cheng Ka Ming, Martin ( ), an executive Director and a Substantial Shareholder Mr. Chia Thien Loong, Eric John ( ), an executive Director Mr. Fung Chung Kin ( ), an executive Director and a Substantial Shareholder Mr. Kan Kwok Cheung ( ), the founder of the Group, the chairman of the Board, an executive Director and a Controlling Shareholder the waterworks contract numbered 9/WSD/09 relating to replacement and rehabilitation of water mains in Sai Kung awarded by WSD to the Group in May 2010 with a term of 911 days commencing from 28 May 2010 and ending on 23 November 2012 Optima Capital Limited, a licenced corporation under the SFO permitted to engage in type 1 (dealings in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO Placing the conditional placing of the Placing Shares by the Underwriters on behalf of the Company at the Placing Price as described in the section headed Structure and conditions of the Placing in this prospectus Placing Price Placing Shares the price per Placing Share (exclusive of brokerage, Stock Exchange trading fee and SFC transaction levy) of HK$1.28 the 24,800,000 new Shares being offered at the Placing Price for subscription under the Placing subject to the terms and conditions as described in the section headed Structure and conditions of the Placing in this prospectus 21

29 DEFINITIONS PRC or China Purplelight Registration Scheme the People s Republic of China which, for the purpose of this prospectus, shall exclude Hong Kong, Macau and Taiwan Purplelight (BVI) Limited, a Substantial Shareholder and a company incorporated in the BVI which is wholly and beneficially owned by Mr. Fung Voluntary Subcontractor Registration Scheme ( ) Reorganisation the corporate reorganisation of the Group effected in preparation for the Listing as described under the sub-paragraph headed Reorganisation in the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus SFC SFO Share(s) Shareholder(s) the Securities and Futures Commission in Hong Kong the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended or otherwise modified from time to time share(s) of HK$0.01 each in the share capital of the Company holder(s) of the Share(s) Share Option Scheme the share option scheme of the Company adopted on 11 August 2010, a summary of the principal terms of which is set out in the sub-paragraph headed Share Option Scheme under the paragraph headed Further information about Directors, management, staff and experts in Appendix V to this prospectus Shunleetat Specialist List Stock Exchange subsidiary(ies) Shunleetat (BVI) Limited, a Controlling Shareholder and a company incorporated in the BVI which is wholly and beneficially owned by Mr. Kan the list of approved suppliers of materials and specialist contractors for public works ( ) maintained by WBDB The Stock Exchange of Hong Kong Limited has the meaning ascribed to it in section 2 of the Companies Ordinance 22

30 DEFINITIONS Substantial Shareholder(s) Takeovers Code Track Record Period TYC TY Civil has the meaning ascribed to it under the GEM Listing Rules and, in the context of this prospectus, means the substantial shareholders of the Company, namely Chuwei and Mr. Cheng, and Purplelight and Mr. Fung the Hong Kong Code on Takeovers and Mergers the period comprising the two financial years ended 31 March 2009 and 2010 Tsun Yip Construction Co., a sole proprietorship through which Mr. Kan started to carry on the Group s business in 1989 Tsun Yip Civil Construction Company Limited, a company incorporated in Hong Kong with limited liability on 16 June 2000 and an indirect wholly-owned subsidiary of the Company TYW Tsun Yip Waterworks Construction Company Limited, a company incorporated in Hong Kong with limited liability on 6 February 1996 and an indirect wholly-owned subsidiary of the Company TYW (BVI) Underwriters Underwriting Agreement WBDB WSD HK$ or HK dollar(s) and HK cents TYW (BVI) Limited, a company incorporated in the BVI with limited liability on 2 July 2009 and a wholly-owned subsidiary of the Company the underwriters of the Placing listed in the paragraph headed Underwriters in the section headed Underwriting in this prospectus the conditional underwriting agreement relating to the Placing dated 20 August 2010 and entered into between the Company, the executive Directors, Shunleetat, Chuwei, Purplelight, Lotawater, the Sponsor, the Lead Manager and the Underwriters, particulars of which are set forth in the section headed Underwriting in this prospectus Works Branch Development Bureau ( ) of the Government Water Supplies Department of the Government ( ) Hong Kong dollar(s) and cent(s), respectively, the lawful currency of Hong Kong 23

31 DEFINITIONS km m kilometre metre m 2 or sq.m. square metre m 3 cubic metre mcm sq.ft. million cubic metre square feet % per cent. 24

32 RISK FACTORS Prospective investors should carefully consider and evaluate the following risk factors and all other information contained in this prospectus before deciding to invest in the Shares. If any of the following risk factors and uncertainties develops into actual events, the business, financial conditions or results of operations could be materially and adversely affected. In such case, the trading price of the Shares could decline due to any of these risk factors and uncertainties. RISKS RELATING TO THE BUSINESS OF THE GROUP R14.22(1) The Group s revenue during the Track Record Period was generated substantially from carrying out waterworks engineering contracts and roads and drainage services contracts in the capacity of a subcontractor During the Track Record Period, the Group generated a substantial part of its revenue from carrying out waterworks engineering contracts and roads and drainage services contracts in the capacity as a subcontractor. For each of the years ended 31 March 2009 and 2010, revenue generated from contracts in which the Group acted as subcontractor represented approximately 73.9% and approximately 88.5% of the Group s total revenue respectively. The aforesaid revenue was attributable to five and two main contractors respectively. In the event that the Group fails to secure such work contracts from the main contractors in future, the Group s business, results of operations and profitability may be adversely affected. In addition, the Group had obtained advances from MHCC/MHWE and another independent main contractor during the Track Record Period for implementation of projects, as a subcontractor, obtained from them respectively. The advance from such independent main contractor was unsecured and non-interest bearing. In the event that the Group fails to obtain advances from such independent main contractor or other main contractors so that the Group is required to obtain bank financing for project implementation, or the terms of the advances (if made to the Group) are less favourable than the existing terms, or the advances (if made to the Group) are not sufficient to cover the cash flows required for project implementation so that the Group is required to obtain bank financing to fund the shortfall, the Group may incur additional finance costs which in turn may adversely affect the Group s profitability, financial position and liquidity. The Group relies heavily on MHCC/MHWE, the Group s largest customer during the Track Record Period During the Track Record Period, the customer base of the Group was highly concentrated. Revenue generated from subcontract works granted by a main contractor, MHCC/MHWE, which has established business relationship with the Group since 2001, represented approximately 68.8% and approximately 88.3% of the Group s total revenue respectively. All of these subcontract works the Group obtained from MHCC/MHWE was granted by WSD to MHCC/MHWE. As the revenue generated from subcontract works granted by MHCC/MHWE accounted for a significant share of the Group s revenue during the Track Record Period, the Group s relatively high profit margin during the Track Record Period was due to the contracts with MHCC/MHWE. There is no assurance that the Group will be able to maintain its relationship with MHCC/MHWE and to continue to secure work contracts from them in the future. Furthermore, the holding company of MHCC/MHWE, Ming Hing Waterworks, recently announced its diversification into mining business. There is no assurance that 25

33 RISK FACTORS Ming Hing Waterworks or its subsidiaries will not scale down or discontinue its waterworks engineering business in the future. In the event that the Group fails to secure work contracts from MHCC/MHWE due to their scaling down or discontinuation of waterworks engineering business or other reasons and the Group fails to secure work contracts from other customers to replace such loss of business, the Group s business, results of operations and profitability may be adversely affected. In addition, the Group had obtained advances from MHCC/MHWE which were unsecured and interest-bearing for implementation of the projects the Group obtained from MHCC/MHWE during the Track Record Period. In the event that the Group fails to obtain advances from MHCC/MHWE so that the Group is required to obtain bank financing for project implementation, or the terms of the advances are less favourable than the existing terms, or the advances offered by MHCC/MHWE are not sufficient to cover the cash flows required for project implementation so that the Group is required to obtain certain bank financing to fund the shortfall, the Group may incur additional finance costs which in turn may adversely affect the Group s profitability, financial condition and liquidity. The Group determines the tender price based on the estimated time and costs involved in a project which may deviate from the actual time and costs involved Contracts are normally awarded through competitive tendering process. The Group needs to estimate the time and costs in order to determine the tender price. There is no assurance that the actual execution time and costs would not exceed the Group s estimation during the actual implementation of the project. The actual time taken and cost involved in completing contracts undertaken by the Group may be adversely affected by many factors, including shortage or cost escalation of materials and labour, adverse weather conditions, additional variations to the construction plans requested by the customers, disputes with subcontractors, accidents, changes in the Government s priorities and unforeseen problems and circumstances. Any of these adverse factors can give rise to delays in completion of works or cost overruns or even unilateral termination of projects by the clients, which in turn may adversely affect the Group s financial condition, profitability or liquidity. The Group acted as a subcontractor in most of the contracts undertaken during the Track Record Period. Revenue generated from contracts in which the Group acted as subcontractor represented approximately 73.9% and approximately 88.5% of the Group s total revenue respectively. The Group may continue to act in such capacity in the future. If the Group is unable to recover subcontracting fees from the relevant main contractor, the operating results of the Group could be adversely affected During the Track Record Period, all of the Group s revenue was generated from providing civil engineering services to the public sector. In particular, approximately 73.9% and approximately 88.5% of the Group s total revenue was derived from projects under which the Group was engaged as a subcontractor during the Track Record Period. The Group is therefore exposed to credit risk of main contractors in projects under which the Group acts as subcontractor. In the event that the main contract is terminated due to the fault or negligence of the main contractor, the main contractor may not be able to receive payment from the Government and may thus default payment to the Group. Payment from the main contractors to the Group may also be affected by the progress of the project, the financial 26

34 RISK FACTORS position of the main contractors and the creditworthiness of the main contractors. Furthermore, there is no assurance that the main contractors would honour payment to the Group after having received contract payments from the Government. In the event of any delay and/or default in payment by the main contractors, the business, the results of operations, profitability and liquidity of the Group may be adversely affected. Failure to meet schedule requirements of contracts may result in liquidated damages imposed on the Group Substantially all of the Group s work contracts are subject to specific completion schedule requirements with liquidated damages charged to the Group if the Group does not meet the schedules. Liquidated damages are typically levied at a rate provided in the relevant contract for each day of delay. Any failure to meet the schedule requirements of the work contracts could cause the Group to pay significant liquidated damages, which could adversely affect our liquidity and cash flows and have a material adverse effect on our business, financial condition, results of operations, reputation and prospects. The Group is relying on certain principal subcontractors to implement the contracts For the two financial years ended 31 March 2009 and 2010, the Group s subcontracting costs amounted to approximately HK$24.6 million and approximately HK$40.1 million respectively, representing approximately 34.9% and approximately 32.9% of the total costs of service respectively. During the same period, the Group s largest subcontractor accounted for approximately 35.8% and approximately 22.1% of the Group s total subcontracting costs and the Group s five largest subcontractors accounted for approximately 71.3% and approximately 48.1% of the Group s total subcontracting costs respectively. There is no assurance that those major subcontractors will be able to continue to provide services to the Group at fees acceptable to the Group or the Group can maintain its relationship with them in the future. In the event that any of the major subcontractors is unable to provide the required services to the Group or the costs for them to provide those required services increase substantially, the Group s business, result of operations, profitability and liquidity may be adversely affected. The Group s success significantly depends on the key management and its ability to attract and retain additional technical and management staff The Directors believe that the success of the Group is, to a significant extent, attributable to the managerial skills and experience of certain key members of the management, in particular, the executive Directors, namely Mr. Kan, who is the founder of the Group and the chairman of the Board, has over 20 years of experience in the field of civil engineering services in Hong Kong; Mr. Fung, who is an executive Director, has more than 25 years of experience in civil engineering or construction; Mr. Cheng, who is an executive Director, has more than 29 years of experience in the construction industry; Mr. Chia, who is an executive Director, has more than 14 years of experience in corporate finance, management and investment; Mr. Leung Hon Chung, who is a contracts manager of the Group, has more than 30 years of experience in project management for civil engineering projects; and Mr. Lau Wai Chun, Jacky, who is a project manager of the Group, has more than 28 years of experience in supervision of construction work. Further information about their experiences is set out in the 27

35 RISK FACTORS section headed Directors, senior management, board committees and staff in this prospectus. Should any of these executive Directors or key personnel of the Group cease to be involved in the management of the Group in the future and the Group fails to recruit suitable replacements, there could be an adverse impact on the business, results of operation and profitability of the Group. The Group s business is labour-intensive Provision of waterworks engineering services, road works and drainage services and site formation works are basically labour intensive works. As at 31 March 2009, 31 March 2010 and the Latest Practicable Date, the total number of full-time direct workers employed by the Group was 54, 92 and 96 respectively. Successful implementation of contract works significantly depend on the availability of workers and their experiences and skills. During the Track Record Period, the Group and its subcontractors have not encountered any difficulties in recruiting labour to work on the Group s projects. However, there is no assurance that the supply of skilled labour and average labour costs will remain stable. In the event that the Group or its subcontractors fail to retain the existing labour and/or recruit sufficient skilled labour in a timely manner to cope with the demand of the Group s existing or future projects and/or there is a significant increase in the costs of labour, the Group may not be able to complete the projects on schedule and within budget and the Group s operations and profitability may be adversely affected. The Group s cash flows may fluctuate As far as a single contract is concerned in which the Group acts as main contractor, net cash outflows are normally incurred at the early stage of carrying out the contract works when the Group is required to acquire equipment and machinery and recruit additional workers required without any advances from the customer. Progress payments will only be received after commencement of works and after the works and payments are certified by the Group s customers. Accordingly, the cash flows for a particular contract may turn from net outflow at the early stage gradually into accumulative net inflow as the works progress. The Group s business is project-based. Fee collection and profit margin depend on the terms of the work contract and may not be regular The Group s business is project-based. Fee collection and profit margin significantly depend on various factors, such as the proposed expenditure of the customers, the terms of the work contracts, the length of the contract period, the efficiency of implementation of the contract works and the general market conditions. As a result, the income flow of the business of the Group may not be entirely regular and may be subject to various factors beyond the control of the Directors. In light of the foregoing, there can be no assurance that the profitability of a project can be maintained or estimated at any level. Furthermore, the fee collection by the Group, and the profit margin and time for profit recognition depend on the terms of the work contracts and may also not be regular. If the fee collection pattern significantly deviates from the estimation of the Directors, the financial position and liquidity of the Group could be adversely affected. 28

36 RISK FACTORS The Group s operations are subject to construction risk The Group s business has been primarily focused on provision of waterworks engineering services. In the course of providing the aforesaid services, the Group is often required to excavate the underground water mains to carry out replacement and rehabilitation works. If any underground cables or active water mains are damaged in the course of excavation, it may cause electric shocks or water leakages. The aforesaid unforeseen circumstances may pose risks on the workers or affect the Group s work progress. The Group may also be liable for damages claimed by the worker or customer, which may have adverse impact on the Group s cash flow, reputation and profitability. RISKS RELATING TO THE INDUSTRY IN WHICH THE GROUP OPERATES R14.22(2) The Group s business is subject to obtaining a number of licences and approvals A contractor has to be included in the List of Approved Contractors for Public Works or the List of Approved Suppliers of Materials and Specialist Contractors for Public Works under one or more of the work categories maintained by WBDB so as to be eligible to tender for projects in the public sector in Hong Kong. To become listed as an approved contractor, the contractor has to apply for inclusion in the list of the particular work categories and/or group. Despite the admission of a contractor to the list, the Government reserves the right to remove any contractor from the list or take other regulatory actions against a contractor such as suspension, downgrading in status or demotion to a lower level group, in respect of all or any of the work categories, if the contractor s performance or tendering record is found to be unsatisfactory or the contractor is unable to meet the relevant financial, technical and management criteria for retention on the list. In the event of a withdrawal, revocation or downgrading of any of the Group s licences in any work category, the business, the prospects and operation of the Group could be adversely affected. The Group s operations are restricted to Hong Kong The licences currently held by the Group only permit the Group to carry on its business in Hong Kong under the relevant work categories stipulated by WBDB. In the event that the Group intends to engage in provision of waterworks engineering services, road works and drainage services and site formation works in jurisdictions other than Hong Kong, the Group may be required to apply for specific licences in such jurisdictions. There is no assurance that the Group will be able to obtain business in other jurisdictions even if it desires to do so. The Group s operations are subject to due compliance with a number of environmental protection laws, regulations and requirements The Group is required to comply with a number of environmental protection laws, regulations and requirements in Hong Kong including but not limited to the Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong), the Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong), the Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong), the Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) and the Environmental Impact Assessment Ordinance (Chapter 499 of the Laws of Hong Kong). In the event that the Group s 29

37 RISK FACTORS operations fail to meet the applicable environmental protection laws, regulations and requirements, the Group may be subject to fines or required to make remedial measures which may in turn have an adverse effect on the operations and financial conditions of the Group. In addition, there is no assurance that the environmental protection laws, regulations and requirements will not be changed in the future. Should there be any change to the environmental protection laws, regulations and regulations applicable to the Group, the Group may incur additional cost in complying with the new law(s), regulation(s) and requirement(s), which in turn may adversely affect the profitability of the Group. The Group s business could be materially and adversely affected by the Government s level of spending on infrastructure and civil engineering projects R14.22(3) During the Track Record Period, all of the Group s revenue was generated from providing civil engineering services. Some infrastructure projects are non-recurring in nature, and the level of the Government s spending budget may change from year to year. Accordingly, any change or significant delay in the level of spending on public works by the Government may affect the business and operating results of the Group. In the event that the Government reduces its level of spending on public works and the Group fails to secure business from the private sector or to diversify its business into the private sector, the business and profitability of the Group could be adversely affected. The Group s business could be affected by the Government s allocation of its budget on waterworks Based on the budget of the Government, the estimated total amount of capital to be spent on waterworks by WSD is approximately HK$5,944 million for the fiscal year of 2010/2011. There is no publicly available information as to how such budgeted amount will be allocated to waterworks projects, with contract values fall under the respective groups of waterworks, namely Groups A, Group B and Group C. In the event that all or substantially all of the aforesaid budget is allocated to contracts which are only available for tender by Group C contractors, the Group will not be eligible to tender for such contracts as a main contractor, and the Group s business and results of operations may be adversely affected. The Group s business could be affected by adverse weather conditions Most of the Group s projects are undertaken outdoor. Therefore, the business of the Group may be interrupted or otherwise affected by adverse weather conditions. Rain storms, tropical cyclones and continuous rain may cause difficulties to the Group in completing its projects. Any delay in completion of projects could adversely affect the operating results of the Group. Work contracts with WSD are subject to termination for convenience by WSD It is a standard special condition contained in the work contracts between WSD and a contractor that WSD is, in addition to any other power enabling it to terminate the relevant contract, entitled to terminate a work contract at any time by notice in writing to the contractor ( right to terminate for convenience ) and the termination shall take effect on a date specified in the notice but without 30

38 RISK FACTORS prejudice to the claims of either party in respect of any antecedent breach thereof. According to the guidance of a technical circular issued by ETWB dated 21 July 2004, it is a policy of the Government that the right to terminate for convenience shall only be exercised in very exceptional and justified circumstances. During the Track Record Period, no work contract of the Group with WSD has been terminated pursuant to the exercise of the right to terminate for convenience and no subcontract to which the Group is a party has been terminated in the foregoing circumstances. However, there is no assurance that WSD will not exercise such right to terminate for convenience. In the event that WSD exercises such right to terminate a work contract which affects the Group (whether as main contractor or subcontractor), the Group s work plan and financial position may be adversely affected. RISKS RELATING TO THE PLACING The Sponsor and the Underwriters are entitled to terminate the Underwriting Agreement Prospective investors of the Placing Shares should note that the Sponsor and the Underwriters are entitled to terminate their obligations under the Underwriting Agreement by the Lead Manager (acting on its behalf and the other Underwriters) giving notice in writing to the Company upon the occurrence of any of the events stated in the sub-paragraph headed Grounds for termination under the paragraph headed Underwriting arrangements under the section headed Underwriting in this prospectus at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date. Such events include, without limitation, any acts of God, war, military action, riot, public disorder, civil commotion, economic sanctions, fire, flood, explosion, terrorism, strike or lock-out. There has been no prior public market for the Shares and the liquidity, market price and trading volume of the Shares may be volatile The Shares have not been traded in any open market before completion of the Placing. The actual market price of the Shares may deviate from the Placing Price, and the Placing Price shall therefore not be treated as an indicator of the price of the Shares to be traded on GEM in the future. As the trading volume of the Shares will not be guaranteed by the Group upon Listing, the trading market of the Shares may not be active enough for the investors to cash in its investments in the Shares in the market. Upon Listing, the trading volume and market price of the Shares may be affected by numerous factors, including but not limited to the income, profitability and cash flow of the Group, implementation or proposal of investment plans, change of senior management, merges and acquisitions and economic conditions. All of the aforesaid may result in fluctuations in the market price and/or trading volume of the Shares. There is no assurance as regards the market price and trading volume of the Shares after Listing. Investors in the Placing may experience dilution if the Company issues additional Shares in the future Additional funds may be required in the future to finance the expansion of the business and operations of the Group. If additional funds are raised through the issuance of new equity or equity-linked securities of the Company other than on a pro rata basis to existing Shareholders, the percentage ownership of the Shareholders in the Company may be diluted. 31

39 RISK FACTORS No guarantee that dividends will be declared in the future The Group did not declare any dividends for the year ended 31 March For the year ended 31 March 2010, TYW and TY Civil declared and paid dividends of HK$245,000 and HK$9,700,000 respectively to Mr. Kan and TYC declared dividends of approximately HK$8,625,000 to Mr. Kan which was set off by the amount due from Mr. Kan. Save for the final dividend of HK$4,000,000 declared by TY Civil to Mr. Kan in April 2010, no further dividend will be declared or paid prior to Listing. The dividend distribution record during the Track Record Period and the final dividend declared and paid subsequent to the Track Record Period but prior to Listing may not be used as a reference or basis to determine the level of dividends that may be declared and paid by the Company to the Shareholders in the future after Listing. There is no assurance that the Group will declare dividends in amount similar to or exceeding historical dividends declared or at all. The declaration, payment and amount of any future dividends are subject to the discretion of the Board depending on, among other things, the Group s earnings, financial condition and cash requirements and the provisions governing the declaration and distribution as contained in the Articles of Association, applicable laws and other relevant factors. Granting options under the Share Option Scheme may affect the Group s results of operations and dilute Shareholders percentage of ownership The Company may grant share options under the Share Option Scheme in the future. The fair value of the options at the date on which they are granted with reference to the valuer s valuation will be charged as share-based compensation, which may materially and adversely affect the Group s results of operations. Issuance of Shares for the purpose of satisfying any award made under the Share Option Scheme will also increase the number of Shares in issue after such issuance and thus may result in the dilution to the percentage of ownership of the Shareholders and the net asset value per Share. No options had been granted pursuant to the Share Option Scheme as at the Latest Practicable Date. A summary of the terms of the Share Option Scheme is set out in the paragraph headed Share Option Scheme in Appendix V to this prospectus. RISKS RELATING TO THIS PROSPECTUS Certain statistics and facts in this prospectus are extracted from various official Government sources which have not been independently verified Certain statistics and facts set out in the section headed Industry overview in this prospectus have been extracted from various official Government sources. The Directors have taken reasonable care in extracting and reproducing such information and have no reason to believe that such information is false or misleading in any material respects or that any fact has been omitted that would render such information false or misleading in any material respects, but the Company has not carried out any independent verification on these statistics and facts. Accordingly, no representation is given as to the completeness or accuracy of these statistics and facts. Due to different methods or other factors, the statistics, information, analysis and facts extracted from various official Government sources contained in this prospectus may be inaccurate and should not be unduly relied upon. 32

40 RISK FACTORS Forward-looking statements contained in this prospectus may not be accurate This prospectus contains certain forward-looking statements relating to the plans, objectives, expectations and intentions of the Directors. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group to be materially different from the anticipated results, performance or achievements of the Group expressed or implied by these forward-looking statements in this prospectus. Such forward-looking statements are based on assumptions as to the present and future business strategies of the Group and the environment in which the Group will operate in the future. The actual results, performance or achievements of the Group may differ materially from those discussed in this prospectus. 33

41 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING DIRECTORS RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS App1A(2) R14.23 This prospectus, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this prospectus is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this prospectus misleading. Printed copies of this prospectus are available, for information purposes only, at the offices of the following parties involved in the Placing during normal office hours from 9:00 a.m. to 5:00 p.m. from 20 August 2010 up to and including 25 August 2010: Optima Capital Limited Suite 1501, 15th Floor Jardine House 1 Connaught Place Central Hong Kong CIMB Securities (HK) Limited 25th Floor, Central Tower 28 Queen s Road Central Hong Kong K.K.M. Securities Limited 8th Floor, Fung House Connaught Road Central Hong Kong I-Access Investors Limited Unit 2001, 20th Floor 100 Queen s Road Central Hong Kong Sinomax Securities Limited Room 1601, Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong Gransing Securities Co., Limited Room , Far East Consortium Building 121 Des Voeux Road Central Hong Kong 34

42 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING PLACING SHARES ARE FULLY UNDERWRITTEN This prospectus is published solely in connection with the Placing, which is sponsored by Optima Capital and managed by the Lead Manager and is fully underwritten by the Underwriters (subject to the terms and conditions of the Underwriting Agreement). For further information about the Underwriters and the underwriting arrangement, please refer to the section headed Underwriting in this prospectus. RESTRICTIONS ON SALE OF PLACING SHARES Each person acquiring the Placing Shares will be required to confirm and is deemed by his acquisition of the Placing Shares to have confirmed that he is aware of the restrictions on offers of the Placing Shares described in this prospectus and that he is not acquiring, and has not been offered, any Placing Shares in circumstances that contravene any such restrictions. No action has been taken in any jurisdiction other than Hong Kong to permit any of the offering of the Placing Shares or the distribution of this prospectus. Accordingly, this prospectus may not be used for the purposes of, and does not constitute, an offer or invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not authorised or to any person to whom it is unlawful to make such an offer or invitation. The Placing is made solely on the basis of the information contained and the representations made in this prospectus. No person is authorised in connection with the Placing to give any information or to make any representation not contained in this prospectus, and any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Sponsor, the Lead Manager, the Underwriters, any of their respective directors or affiliates of any of them or any other person and party involved in the Placing. The contents as shown in the website of the Company of do not form part of this prospectus. APPLICATION FOR LISTING ON GEM The Company has applied to the Listing Division for the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus on GEM. No part of the Company s share capital or loan capital is listed or dealt in on any other stock exchange. As at the Latest Practicable Date, the Company was not seeking or proposing to seek a listing of, or permission to deal in, any part of its share or loan capital on any other stock exchange. App1A(11) Pursuant to Rule 11.23(7) of the GEM Listing Rules, at least 25% of the total issued share capital of the Company must at all times be held by the public. A total of 24,800,000 Placing Shares, representing 25% of the Company s issued share capital as enlarged by the allotment and issue of the Placing Shares will be in the hands of the public immediately following the completion of the Placing and the Capitalisation Issue and upon Listing. Only securities registered on the branch register of members of the Company kept in Hong Kong may be traded on GEM unless the Stock Exchange otherwise agrees. 35

43 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING PROFESSIONAL TAX ADVICE RECOMMENDED Potential investors for the Placing Shares are recommended to consult their advisers if they are in doubt as to the taxation implications of the subscription for, holding, purchase, disposal of or dealing in the Shares or exercising their rights thereunder. The Company, the Directors, the Sponsor, the Lead Manager, the Underwriters, any of their respective directors, agents or advisers or any other person involved in the Placing do not accept responsibility for any tax effects on or liabilities resulting from the subscription for, purchase, holding, disposing of, dealing in, or the exercise of any rights in relation to the Placing Shares. STAMP DUTY All the Placing Shares will be registered on the branch register of members of the Company in Hong Kong. Dealings in the Shares registered on the Company s branch register of members maintained in Hong Kong will be subject to Hong Kong stamp duty. STRUCTURE AND CONDITIONS OF THE PLACING Details of the structure of the Placing, including its conditions, are set out in the section headed Structure and conditions of the Placing in this prospectus. SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS App1A(14)(2) R14.08(7)(b) Subject to the granting of the approval for the listing of, and permission to deal in, the Shares on GEM and the compliance with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the Listing Date or any other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second Business Day after any trading day. Investors should seek the advice of their stockbrokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests. App1A(14)(3) All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements have been made for the Shares to be admitted into CCASS. COMMENCEMENT OF DEALINGS IN THE SHARES Dealings in the Shares on GEM are expected to commence at 9:30 a.m. on Monday, 30 August Shares will be traded in board lots of 2,000 Shares each. The GEM stock code for the Shares is

44 DIRECTORS Name Address Nationality Executive Directors Mr. Kan Kwok Cheung ( ) Flat B, 21/F., Tower 8 The Palazzo No. 28 Lok King Street Shatin New Territories Hong Kong Chinese App1A.(41) R24.05(2b) Third Schedule 6 Mr. Cheng Ka Ming, Martin ( ) Flat A, 2/F., Block 9 Beverly Villas, 16 La Salle Road Kowloon Tong Kowloon Hong Kong Chinese Mr. Fung Chung Kin ( ) Flat A, 1/F., Block 7 Pristine Villa, 18 Pak Lok Path Shatin New Territories Hong Kong Chinese Mr. Chia Thien Loong, Eric John ( ) Flat H, 37/F., Nerine Cove 23 Hang Fu Street, Tuen Mun New Territories Hong Kong Chinese Independent non-executive Directors Mr. Lim Hung Chun ( ) Flat 3, 5/F, Shing Wing House Yue Shing Court, Shatin New Territories Hong Kong Chinese Mr. Lo Ho Chor ( ) Flat H, 10/F Tower 1 Island Resort 28 Siu Sai Wan Road Hong Kong Chinese Mr. Sung Lee Kwok ( ) Flat H, 16/F Kwun Fung Mansion Lei King Wan 51 Tai Hong Street Hong Kong Chinese 37

45 PARTIES INVOLVED IN THE PLACING Sponsor Lead Manager Underwriters Optima Capital Limited Suite 1501, 15th Floor Jardine House 1 Connaught Place Central Hong Kong CIMB Securities (HK) Limited 25th Floor, Central Tower 28 Queen s Road Central Hong Kong K.K.M. Securities Limited 8th Floor, Fung House Connaught Road Central Hong Kong App1A(3) R11.09 App1A(15)(3)(h) I-Access Investors Limited Unit 2001, 20th Floor 100 Queen s Road Central Hong Kong Sinomax Securities Limited Room 1601, Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong Gransing Securities Co., Limited Room , Far East Consortium Building 121 Des Voeux Road Central Hong Kong Legal advisers to the Company As to Hong Kong laws: Michael Li & Co. 14th Floor, Printing House 6 Duddell Street Central Hong Kong As to Cayman Islands laws: Conyers Dill & Pearman Cricket Square Hutchins Drive Grand Cayman KY Cayman Islands 38

46 PARTIES INVOLVED IN THE PLACING Legal advisers to the Sponsor and the Underwriters Auditor and reporting accountants Property valuer Registered office Head office and principal place of business in Hong Kong Company website Company Secretary Authorised representatives (for the purpose of the GEM Listing Rules and for the purpose of Part XI of the Companies Ordinance) As to Hong Kong laws: Leung & Lau 13th Floor, Public Bank Centre 120 Des Voeus Road Central Central Hong Kong BDO Limited Certified Public Accountants 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong Vigers Appraisal and Consulting Limited 10/F The Grande Building 398 Kwun Tong Road Kowloon Hong Kong Cricket Square Hutchins Drive PO Box 2681 Grand Cayman, KY Cayman Islands Flat 314, 3/F. Fuk Shing Commercial Building 28 On Lok Mun Street, Fanling New Territories * The contents of this website do not form part of this prospectus Mr. Tam Tsang Ngai, FCCA, CPA Mr. Fung Chung Kin Flat A, 1/F., Block 7 Pristine Villa, 18 Pak Lok Path, Shatin New Territories Hong Kong App1A(4) Third Schedule 18 App1A(43) App1A(6) R11.07(4) R24.05(2)(a) Mr. Chia Thien Loong, Eric John Flat H, 37/F., Nerine Cove 23 Hang Fu Street, Tuen Mun New Territories Hong Kong 39

47 CORPORATE INFORMATION Compliance adviser Compliance officer Audit committee Remuneration committee Nomination committee Principal share registrar and transfer office in the Cayman Islands Branch share registrar and transfer office in Hong Kong Principal bankers Optima Capital Limited Suite 1501, 15th Floor Jardine House 1 Connaught Place Central Hong Kong Mr. Chia Thien Loong, Eric John Mr. Lim Hung Chun (Chairman) Mr. Lo Ho Chor Mr. Sung Lee Kwok Mr. Kan Kwok Cheung (Chairman) Mr. Lo Ho Chor Mr. Sung Lee Kwok Mr. Kan Kwok Cheung (Chairman) Mr. Lo Ho Chor Mr. Lim Hung Chun Codan Trust Company (Cayman) Limited Cricket Square Hutchins Drive PO Box 2681 Grand Cayman, KY Cayman Islands Tricor Investor Services Limited 26/F, Tesbury Centre 28 Queen s Road East, Wanchai Hong Kong The Hongkong and Shanghai Banking Corporation Limited 1 Queen s Road Central, Central Hong Kong Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong Bank of China (Hong Kong) Limited 52/F, Bank of China Tower 1 Garden Road, Hong Kong R11.09 R11.08 R24.05(3) 40

48 INDUSTRY OVERVIEW The information presented in this section has been derived from various official Government sources. The Directors believe that the sources of this information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. The Directors have no reason to believe that such information is false or misleading in any material respects or that any fact has been omitted that would render such information false or misleading in any material respects. The information has not been independently verified by the Company, the Sponsor, the Lead Manager, the Underwriters, their respective advisers or affiliates or any other party involved in the Placing and no representation is given as to its accuracy, and accordingly, the information contained herein should not be unduly relied upon. OVERVIEW OF WATER SUPPLY IN HONG KONG Water shortage used to be a serious problem in Hong Kong before 1980s because of geographical constraints, unreliable rainfall pattern and continuous increase in demand for safe drinking fresh water due to rapid growth of population. Local demand for fresh water could not be satisfied by collection of runoff from rain and the limited supply of fresh water from Shenzhen Reservoir in the PRC. People s livelihood and development of the Hong Kong economy were severely affected by the water rationing imposed from time to time. In 1989, the Government reached an agreement with the government of Guangdong Province of the PRC on a regular supply of fresh water from Dongjiang (or the East River) to Hong Kong. Over the years, the system for supplying fresh water from Guangdong Province to Hong Kong has undergone continuous expansion with the annual import volume increasing substantially after a series of agreements. The new Dongjiang Water Supply Agreement was signed on 11 December 2008 (the 2008 Dongjiang Agreement ). The ultimate annual supply rate is fixed at 1,100 mcm, and such rate is guaranteed through to It provides a flexible long term supply of water to Hong Kong that will precisely meet the city s needs. By giving a one-month notice, Hong Kong can stipulate the amount of water to be imported from Dongjiang for the subsequent month after taking into account its existing storage held in reservoirs and short term weather patterns and forecasts. It enables WSD to better control storage levels in reservoirs, minimising waste and ensuring optimal pumping costs. Under the 2008 Dongjiang Agreement, the annual costs to be paid by Hong Kong for the Dongjiang water has been fixed at HK$2,959 million for 2009, HK$3,146 million for 2010 and HK$3,344 million for These costs have taken into account the substantial appreciation in China s RMB against the Hong Kong dollar and escalating rates of inflation that have been recorded since

49 INDUSTRY OVERVIEW At present, approximately 70% to 80% of Hong Kong s water supply is piped into Hong Kong from Dongjiang, the PRC. The remaining 20% to 30% of Hong Kong s water supply comes from a network of domestic rainwater catchments that are located across the city s extensive country parks and rural areas of Hong Kong. The charts below illustrate the annual quantity of water supply from 2004 to 2008 and the fresh water consumption in 2008 by sectors. Annual Quantity of Water Supply mcm 1, Imported waterfrom Dongjiang Local supply of water Source: Annual report of WSD 2008/09 Fresh Water Consumption by sector in 2008 Use for construction & shipping industries 1.2% Free supply 4.7% Flushing use 8.5% Use for services and trading industries 25.2% Domestic use 54.2% Industrial use 6.2% Source: Annual report of WSD 2008/09 Except for annual shutdown period, the daily water supply rate from Dongjiang roughly equals to Hong Kong s daily water consumption rate. The daily surplus of imported water, if any, will be stored in fresh water impounding reservoirs. 42

50 INDUSTRY OVERVIEW WATER SUPPLY SYSTEMS IN HONG KONG The provision of an adequate water supply is supported by a reliable water supply network in Hong Kong. WSD is responsible for designing, constructing, operating and maintaining reliable and efficient fresh water and sea water supply and distribution systems to meet the round-the-clock demand of water in Hong Kong. According to WSD, as at 31 March 2009, Hong Kong s water supply system included 17 impounding reservoirs, 21 water treatment works, 149 fresh water pumping stations, 29 salt water pumping stations, seven combined fresh and salt water pumping stations, 166 fresh water and 46 salt water service reservoirs, approximately 6,267km and 1,613km of fresh water mains and sea water mains respectively, approximately 120km of catchwater, and approximately 199km of water tunnel. Fresh water supply system The water is pumped and, in some cases it flows by gravity, after leaving the treatment works to the service reservoirs which are located at various places and elevations throughout the territory, each serving a particular area. Water from the service reservoirs is distributed to customers by gravity via extensive networks of water mains. The pressure in the system is generally sufficient to provide a direct supply to six or seven storeys above street level. Upper floors of tall buildings are supplied from their own roof tanks, filled by their own pumping systems. For higher level areas, such as mid-level developments on Hong Kong Island, it is necessary for the water to be pumped in stages to service reservoirs situated at different suitable levels. For remote village areas, the pressure in distribution network system is normally sufficient to provide a direct supply to three storeys above ground level. The distribution system serves to transfer water from one location to another by means of mechanical pumping or by gravity. Most of the pumping equipment is electrically powered. 43

51 INDUSTRY OVERVIEW The following diagram illustrates a typical fresh water supply system in Hong Kong: Source: The website of WSD - February 2009 Seawater supply system Since the late 1950 s, WSD has supplied seawater, primarily for flushing, in Government and Government-aided high density development schemes. At present, seawater is already available for toilet flushing in metropolitan areas and most of the new towns, covering about 80% of the population in Hong Kong. The extensive use of seawater has helped to reduce the demand on fresh water for flushing. During 2009, an average of 742,000 cubic metres per day of seawater was supplied for flushing purposes, conserving an equivalent amount of potable water. 44

52 INDUSTRY OVERVIEW The following diagram illustrates a typical sea water supply system in Hong Kong: Source: The website of WSD January 2010 WATERWORKS ENGINEERING SERVICES The Government is solely responsible for maintaining a reliable water supply and distribution system in Hong Kong. WSD carries out design and supervision of construction of waterworks projects which include catchwater, tunnels, reservoirs, water treatment works, access roads, pumping stations and pipeworks. Specialist works such as laying of submarine pipeline, dam construction and major water supply projects are usually undertaken by consulting engineers. WSD also monitors water storage, operation and maintenance of catchwater, intakes, impounding reservoirs, pumping stations, water treatment works, service reservoirs, trunk and distribution mains to ensure a reliable water supply to the customers. In this regard, WSD from time to time grants term contracts in respect of maintenance of water supply systems to approved contractors. For the provision of water supply services and maintenance of the relevant facilities, WSD divides Hong Kong into several districts and in each district, the maintenance of waterworks installations is covered by the relevant term contract. The maintenance contracts offered by WSD are usually for a term of three years. Works orders given by WSD during the term of the contract will usually cover the maintenance of waterworks installations, such as catchwaters, water mains, pumping stations, service reservoirs, treatment works, watercourses and all the associated construction works in the district. The awarded contractor is also required to manage the maintenance works of waterworks installations on behalf of WSD in emergency situations. 45

53 INDUSTRY OVERVIEW Contractors tendering for Government projects in the capacity of a main contractor are required to comply with the licencing requirements stipulated by WBDB. Upon fulfillment of the licencing requirements, the contractor will be admitted to different category and different group on the Contractor List based on its financial, technical and management personnel capabilities. There are specific limits for contractors in each group on the value of contracts for which they are normally eligible to tender. As at the Latest Practicable Date, the tender limits were HK$30 million for Group A contractors, HK$75 million for Group B contractors and any value exceeding HK$75 million for Group C contractors. In general, contractors undertaking Government projects in the capacity of a subcontractor are not required to satisfy the relevant licencing requirements that are applicable to main contractors. Please refer to the section headed Licencing and other requirements for Government projects in this prospectus for details of the licencing requirements. According to WBDB, the number of approved contractors listed on the Contractor List under the category Waterworks as at 31 July 2010 was as follows: Group Waterworks Confirmed Probationary A 2 22 B 4 7 C For number of approved contractors listed on the Contractor List under the categories, Roads and Drainage and Site Formation, please refer to the paragraph headed Contractor List under the section headed Licencing and other requirements for Government contracts in this prospectus. Based on the information contained in the above table, there were only four contractors with confirmed status and seven contractors with probationary status in Group B under the category of Waterworks as at 31 July TYW is one of the confirmed contractors in Group B under the category of Waterworks. Based on the active WSD capital works contract list of July 2010 as extracted from WSD s website on 21 July 2010, there were 34 contractors (including joint ventures formed by approved contractors) undertaking a total of 67 contracts of various contract values requiring different licences, with 13 of which are due to complete in 2010 and the remaining 54 contracts are due to complete during 2011 to

54 INDUSTRY OVERVIEW Set out below is the status of the aforesaid 34 contractors: Contractor List Confirmed Probationary Number of contractors Group A (Note 2) Group B (Note 3) Group C (Note 4) Subtotal 22 Specialist List 7 Joint ventures (Note 1) 3 Building/construction related licence 2 Total number of contractors on the active WSD capital works contract list 34 Notes: 1. The joint venture partners are registered contractors on the Contractor List. 2. One of the Group A contractors is also on the Specialist List. 3. One of the Group B contractors is also on the Specialist List. 4. Eight of the Group C contractors are also on the Specialist List. Out of the aforesaid 67 contracts, 16 of which with contract value below HK$30 million and 10 of which with contract value between HK$30 million and HK$75 million. Group C contractors are normally not allowed to tender for contracts in Groups A and B unless the relevant department considers that there may be an inadequate number of tenderers as a result of the restriction. Group B contractors, however, are allowed to tender for contracts in Group A. In addition, Group A and Group B probationary contractors are subject to the restriction that the aggregate value of works undertaken by them in their respective categories shall not exceed HK$30 million and HK$75 million respectively whilst Group A and Group B confirmed contractors are not subject to the aforesaid restriction. Taking into account that there are 10 contracts with contract value between HK$30 million and HK$75 million and considering that there are only four contractors out of 11 contractors with Group B licence on the Contractor List currently undertaking waterworks contracts as main contractors, the Directors consider that the competition among Group B contractors is not particularly keen. Among the aforesaid 34 contractors, seven of them have been awarded four or more contracts by WSD. Among the aforesaid seven active players, three of them are subsidiaries of companies listed in Hong Kong. 47

55 INDUSTRY OVERVIEW Based on the budget of the Government, the estimated total amount of capital to be spent on waterworks by WSD is approximately HK$5,944 million for the fiscal year of 2010/2011. In addition, there are 19 waterworks related projects under planning and 22 projects under design with a total contractual value of approximately HK$6,081 million and approximately HK$6,550 million respectively. REPLACEMENT AND REHABILITATION OF WATER MAINS The supply of fresh and salt water in Hong Kong is provided through a network of approximately 7,800km of water mains. Most of these water mains are underground. A substantial portion of the water mains was laid more than 30 years ago as part of the development of urban areas and new towns. These water mains are approaching the end of their service life and have become increasingly difficult and costly to maintain. Having taken into account the future savings in maintenance costs, the loss of water and social implications of leakages and main bursts, WSD commissioned an underground asset management plan to develop a comprehensive and cost-effective asset management plan for the water supply network. As a result, the Government implemented a programme to replace and rehabilitate approximately 3,000km of water mains (which comprises fresh water mains, salt water mains and raw water mains) in Hong Kong at different stages within a period of 15 years for the purpose of preventing further deterioration in the water supply infrastructure in Hong Kong. In this connection, the Government estimated that the total cost for replacement and rehabilitation of the aged water mains would be approximately HK$22.8 billion and the entire programme would be completed by The implementation plan of the replacement and rehabilitation program as disclosed on the website of WSD is summarised as follows: Stage 1 Phase 1: Works comprise replacement and rehabilitation of about 350km of water mains throughout the territory. Advance works comprising replacement of about 33km of water mains commenced in December 2000 and were completed in February Main works (remaining works) commenced in June 2003 for completion in December Phase 2: Works comprise replacement and rehabilitation of about 250km of water mains throughout the territory. Advance works in Sha Tin and Tai Wai comprising replacement and rehabilitation of about 9km of water mains commenced in September 2005 and were completed by end of

56 INDUSTRY OVERVIEW Main works (remaining works) commenced in August 2006 for completion in March Stage 2 Works comprise replacement and rehabilitation of about 750km of water mains throughout the territory. Works commenced in January 2007 for completion in Stage 3 Works comprise replacement and rehabilitation of about 800km of water mains throughout the territory. Investigation and detailed design for the project has commenced in October Works commenced in September 2008 for completion in Stage 4 Works comprise replacement and rehabilitation of about 850km of water mains throughout the territory. Investigation and detailed design for the project commenced in September Works have been scheduled to commence in early 2011 for completion in

57 INDUSTRY OVERVIEW The chart below illustrates the progress of works in respect of different stages: Percentage of completion of replacement and rehabilitation works at different stages as at June % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% All Stages Stage 1 phase 1 Stage 1 phase 2 Stage 2 Stage 3 Stage 4 Completed Uncompleted Source: Reproduced from the Replacement and Rehabilitation Programme of Water Mains published by WSD Benefit from the works of the replacement and rehabilitation programme of water mains Ageing water mains are approaching the end of their service life and have become increasingly difficult and costly to maintain. Upon completion of the replacement and rehabilitation programme which has been scheduled to be in 2015, the maintenance cost of these water mains is expected to be reduced. To replace and rehabilitate these water mains is, therefore, cost effective. As the condition of the water supply network will be strengthened upon completion of these replacement and rehabilitation works, the anticipated number of pipe failures per year will be decreased from the level of 24,970 in 2000 to 15,000 in The disturbances due to disruption of traffic, loss of trade, inconvenience to general public and the disruption of water supply to consumers arising from water main leaks and bursts is expected to be minimized. Moreover, the loss of water through leakage and bursting of water mains is also expected to be reduced. 50

58 INDUSTRY OVERVIEW The chart below illustrates the historical annual figures of number of pipe burst and pipe leak in Hong Kong from 2000 to Numbers of pipe bursts and leaks No. of pipe burst 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Year No. of pipe burst 21,693 23,651 19,199 20,936 17,393 No. of pipe leak 2,479 14,657 13,360 13,820 2,064 12,472 2,211 1,885 1,812 1,816 1,585 1,639 1,321 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 24,000 19,000 14,000 9,000 4,000 No. of pipe leak Source: Reproduced from the Replacement and Rehabilitation Programme of Water Mains published by WSD The Government will commission a review to appraise the condition of the remaining water mains which are not subject to the current replacement and rehabilitation programme. Subject to the review findings, the Government may extend the programme beyond 2015 to cover the remaining distribution network of water mains. ALTERNATIVE WATER SUPPLY AND WATER RESOURCES PROTECTION Hong Kong is constantly looking for alternative sources of water to supplement its domestic supplies. Sea water is a key alternative and is an importance source of flushing water. Currently, about 80% of Hong Kong s population uses salt water for flushing purposes. WSD will undertake a programme of capital works for system improvements and extensions to the salt water supply system for flushing. Major projects include new salt water supply systems to service Pok Fu Lam, Yuen Long and Tin Shui Wai. The aforesaid projects involve construction of service reservoir, pumping stations and associated main laying in Pok Fu Lam and construction of salt water service reservoir, main laying and associated work in Yuen Long and Tin Shui Wai. Contracts in respect of the above projects have been awarded by WSD. A ring main system will be implemented for Cheung Sha Wan and the salt water supply system in Wan Chai will be upgraded. No details of the ring main system for Cheung Sha Wan is currently available on the website of WSD. The upgrading of the salt water supply system in Wan Chai was scheduled for tendering in late WSD also plans to strengthen the current practice of protecting local water resources. Apart from conducting study to assess the water pollution risks and impacts, WSD will start a capital works project by 2011 to improve the existing catchwater system for safe and effective collection of surface water. 51

59 INDUSTRY OVERVIEW TENDERING FOR PUBLIC SECTOR PROJECTS Contracts in the public sector in Hong Kong are normally awarded through open and competitive tendering procedures with a view to obtaining the best value for money. Tenders may be invited in the following ways: (i) Open tendering Tender invitations are published in the Government Gazette and, if necessary, in the local press, on the internet and in selected overseas journals. All interested contractors/suppliers are free to submit tenders. (ii) Selective tendering Tender invitations are published in the Government Gazette or are sent by letter to all contractors/suppliers on the relevant approved lists of qualified contractors/suppliers established by WBDB for the purpose of selective tendering. (iii) Prequalified tendering Tender invitations are sent to those prequalified contractors approved by the Permanent Secretary for Financial Services and the Treasury. Invitations to apply for prequalification may take the form of open tendering or selective tendering and the respective procedures will apply. (iv) Single and restricted tendering Tender invitations are sent to only one or a limited number of contractors/suppliers approved by the Permanent Secretary for Financial Services and the Treasury or the Director of Government Logistics. This tendering method is only used when circumstances do not permit open tendering, for example, on grounds of extreme urgency or security, for proprietary products or for reasons of compatibility. Services are procured by the individual works departments concerned under the general supervision of WBDB. WSD is the principal Government authority that is responsible for procuring waterworks services for the public sector. In general, procuring departments are required to provide in the tender documents all the necessary information to assist the bidders to prepare their tenders, including standard contract forms covering the general aspects of tender and contract requirements, special conditions of contract, detailed price schedules, additional information and instructions applicable to a particular contract. The procuring department is responsible for evaluating the tenders to determine whether they meet the conditions and specifications laid down in the tender document. Tenders are generally evaluated by the formula approach or the marking scheme approach. These two methods basically involve a systematic evaluation of the tenderers experience, past performance record and particular technical ability. The formula approach is applied for general work projects, 52

60 INDUSTRY OVERVIEW while the marking scheme approach is generally used for non-recurring and relatively complicated projects which require evaluation on particular ability and past experience on the contractor candidate. Both approaches take into consideration the quality of work of the tenderers in addition to their financial bids. Therefore, the winning bid is not necessarily awarded to the lowest bid. Public sector projects are sometimes contracted out by the main contractors to subcontractors and such subcontracts may also be awarded by way of tenders or upon private invitation. The selection criteria and process for subcontracting are determined by the main contractors. TENDERING FOR PRIVATE SECTOR PROJECTS In the private sector, tenders are usually by invitation and the contracts are awarded at the discretion of the clients. Contractors for the private sector are in general not required to satisfy the licencing requirements that are applicable to the undertaking of contract works as a main contractor for the public sector. However, based on the Directors best knowledge, information and belief, for substantial projects implemented by established organisations, invitations are usually given to selected contractors or specialist contractors which are licenced by the Government under the respective categories. In addition to the competitiveness of the price quoted by the contractors, the job experience and track record of the contractors are also the determining factors in winning a contract. In selecting subcontractors, the main contractors, either for private or public projects, may adopt similar selection processes. It is therefore important to establish good relationships with customers and main contractors as well as a good reputation in the market. 53

61 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS INTRODUCTION WBDB is responsible for ensuring the effective planning, management and implementation of public sector infrastructure development and works programmes in a safe, timely and cost-effective manner and to maintain high quality and standards. It has maintained the Contractor List and the Specialist List to monitor the eligibility of a contractor to tender for Government contracts. In order to be eligible, a contractor must be included in at least one of the aforesaid lists. Members of the Group, to be eligible for providing civil engineering services to the Government in the capacity of a main contractor, are required to comply with the licencing requirements set forth in the ETWB Handbook. Subcontractors undertaking contracts in the public sector for main contractors are not required to satisfy the relevant licencing requirements under the ETWB Handbook that are applicable to the main contractors. However, pursuant to a technical circular issued by WBDB on 14 June 2004, all capital works contracts and maintenance contracts of the Government with tenders to be invited on or after 15 August 2004 require the contractors to employ subcontractors (whether nominated, specialised or domestic) that are registered for the respective trades under the Primary Register of the Registration Scheme introduced by the Provisional Construction Industry Co-ordination Board ( ) whose work was taken over by the Construction Industry Council ( ) in February CONTRACTOR LIST The Contractor List comprises contractors who are approved for carrying out public works in one or more of the five work categories of building and civil engineering works classified by WBDB. The following table sets forth the five work categories and the respective managing departments of the Government: Category Buildings Port Works Roads and Drainage Site Formation Waterworks Managing department Architectural Services Department ( ) Civil Engineering and Development Department ( ) Highways Department ( ) Civil Engineering and Development Department ( ) WSD The managing department for a work category is the department most closely connected with that particular type of work and is responsible for servicing and monitoring the performance of all contractors within that category. 54

62 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS According to the ETWB Handbook, contractors within each of the above five categories are further divided into Groups A, B and C respectively according to the value of contracts for which they are normally eligible to tender. The tender limits for contractors in each group are periodically adjusted and are currently set as to HK$30 million for Group A contractors, HK$75 million for Group B contractors and any value exceeding HK$75 million for Group C contractors. In addition, Group C contractors are generally not allowed to tender for contracts in Groups A and B unless the responsible Government department considers that there may be an inadequate number of tenderers as a result of the restriction. A contractor s status in a particular group will either be probationary or confirmed. Contractors are limited in the number and value of contracts for which they are eligible to tender according to their status in their respective group and category. Admission into a certain group and category will be subject to certain financial criteria and the appropriate technical and management capabilities. A probationary contractor may, subject to a minimum probationary period of 24 months, apply for a confirmed status when it has satisfactorily completed works appropriate to its probationary status in accordance with the criteria for confirmation. Except in the most exceptional circumstances, a contractor will be admitted initially on probation to the appropriate group and category. Confirmation will also be subject to the contractor being able to meet the financial criteria applicable to confirmed status, having the appropriate technical and management capabilities and in all other ways being considered suitable for confirmation. A confirmed contractor may apply for promotion to a higher group in a particular category if it is able to meet the financial criteria applicable to the higher group and it has the appropriate technical and management capabilities, with a satisfactory record of performance. Other than in the most exceptional circumstances, a contractor applying for promotion will first be admitted on probation to the next higher group and the rules applicable to probationary contractors in that particular group will apply. According to WBDB, a contractor is required to maintain certain minimum levels of employed and working capital applicable to the appropriate group and status by submitting (i) the original or certified true copy of their latest audited accounts and latest yearly management accounts in case the contractor is a Group C contractor on the Contractor List; (ii) certified statements of outstanding workload; (iii) supplementary information including but not limited to a statement giving details of significant events which occurred after the year end date of the latest audited financial statements which would affect the contractor s financial position; a statement giving details of any off-balance sheet liabilities, including contingent liabilities, if not covered in the audited financial statements; a statement listing current or outstanding contracts in hand with total and outstanding contract sums, contract period and time required to complete the outstanding portion of the contract; bank letters or agreements on existing banking facilities such asterm loans and overdraft; and (iv) answer all reasonable enquiries from WBDB. The financial criteria for admission to and retention on the Contractor List as at the Latest Practicable Date are set forth below: 55

63 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS Group/Status Minimum employed capital # Minimum working capital* Group A - probationary HK$1,800,000 HK$1,800,000 or 15% on annualised outstanding works, whichever is higher Group A - confirmed HK$3,400,000 HK$3,400,000 or 15% on annualised outstanding works, whichever is higher Group B - probationary HK$4,200,000 HK$4,200,000 or 10% on annualised outstanding works, whichever is higher Group B - confirmed HK$8,600,000 HK$8,600,000 or 10% on annualised outstanding works, whichever is higher Group C - probationary HK$12,600,000 plus HK$2,000,000 for every HK$100 million of annualised outstanding works or part thereof above $800 million HK$12,600,000 or 8% on the first HK$800 million of annualised outstanding works and 10% on remainder, whichever is higher Group C - confirmed HK$16,000,000 plus HK$2,000,000 for every HK$100 million of annualised outstanding works or part thereof above HK$800 million HK$16,000,000 or 8% on the first HK$800 million of annualised outstanding works and 10% on remainder, whichever is higher # Employed capital represents shareholders equity with adjustments made by WBDB * Working capital represents net current assets with adjustments made by WBDB 56

64 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS According to WBDB, the minimum technical and management criteria for admission, confirmation and promotion of contractors for the Contractor List as at the Latest Practicable Date are set forth below: Group/Status Roads and Drainage Site Formation Waterworks Entry on probation to Group A 1) Satisfactory completion of Government roads and drainage works, within the past five years, to a total value of not less than 50% of the Group A limit. Experience as a subcontractor may count. Private sector experience may also be accredited. There are no Group A contractors for the Site Formation category. 1) Possession of adequate waterworks construction experience either acquired as contractor or subcontractor for Government contracts. 2) Mainlaying experience is a pre-requisite. 3) Normally expected to have undertaken works of a waterworks nature with a total value of over HK$10 million in the past ten years. Confirmation to Group A 1) Satisfactory completion of at least one Government roads and drainage contract of value over 50% of the Group A limit after inclusion in Group A on probation. Experience as a subcontractor may count. There are no Group A contractors for the Site Formation category. 1) Satisfactory completion of at least one mainlaying contract in the waterworks category of value over 75% of the Group A limit or two or more mainlaying contracts in the waterworks category with a total value of not less than HK$20 million, after inclusion in Group A on probation. 57

65 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS Group/Status Roads and Drainage Site Formation Waterworks Entry on probation to Group B A. Direct entry 1) Satisfactory completion of Government roads and drainage works, within the past five years, to a total value of not less than the Group B limit. Experience as a subcontractor may count. Private sector experience may also be accredited. 1) Satisfactory completion, within the past 5 years, one contract or contracts involving total earthworks quantity not less than 100,000 m 3, of which one contract would involve earthworks quantity not less than 50,000 m 3 in one or more of the following: i) bulk excavation and filling (excluding quarrying and maintenance of spoil dumps); ii) sanitary landfill; iii) slope stabilization. 2) Experience as a subcontractor may be accredited. A. Direct entry 1) Possession of waterworks construction experience either acquired as contractor or subcontractor for private sector contracts, or as subcontractor for Government contracts. 2) Mainlaying experience is a pre-requisite. 3) Satisfactory completion of three or more contracts of a waterworks nature of totally not less than HK$75 million in value in the past ten years. If in the capacity of a subcontractor, the applicant must prove to have a major involvement in the works. B. By promotion B. By promotion 1) Satisfactory completion of at least one Government roads and drainage contract of value not less than 75% of the Group A limit after confirmation in Group A. Experience as a subcontractor may count. 1) Satisfactory completion of three or more contracts in the waterworks category of totally not less than HK$25 million in value after confirmation in Group A. 2) Private sector experience may be accepted to supplement public sector experience. 58

66 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS Group/Status Roads and Drainage Site Formation Waterworks Confirmation to Group B 1) Satisfactory completion of at least one Government roads and drainage contract of value not less than 75% of the Group B limit after inclusion in Group B on probation. Experience as a subcontractor may count. 1) Satisfactory completion of at least one Government Site Formation contract within the past 5 years of value not less than 50% of the Group B limit, or one Government contract with earthworks quantity not less than 200,000 m 3 since inclusion. Experience as a subcontractor is not accredited. 1) Satisfactory completion of at least one contract in the waterworks category of value over 75% of the Group B limit or an aggregate value of work of at least HK$50 million with at least one contract in Group B value, after admission to Group B on probation. Entry on probation to Group C A. Direct entry 1) Satisfactory completion in the past 10 years of a sufficient number of roads and drainage contracts of a total value not less than two times the probationary Group C limit. The value of each contract shall be over 75% of the Group B limit. Experience as a subcontractor is not accredited. A. Direct Entry 1) Satisfactory completion in the past 5 years of at least two contracts in the works category, each of value over 75% of the Group B limit. Experience as a subcontractor is not accredited. A. Direct entry 1) Possession of waterworks construction experience either acquired as contractor or subcontractor for private sector contracts, or as subcontractor for Government contracts. 2) Mainlaying experience is a pre-requisite. 3) Satisfactory completion of four or more contracts of at least two different types of work totally valued at not less than HK$180 million with at least one contract of Group C value in the past 10 years. If in the capacity of a subcontractor, the applicant must prove to have a major involvement in the works. 59

67 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS Group/Status Roads and Drainage Site Formation Waterworks B. By promotion B. By Promotion B. By Promotion 1) Satisfactory completion of at least one Government roads and drainage contract of value not less than 75% of the Group B limit after confirmation to Group B. Experience as a principal subcontractor is not accredited. 1) Satisfactory completion of at least one Government Group B site formation contract within the past 5 years, after confirmation to Group B, of value not less than 75% of the Group B limit, or one Government contract involving earthworks quantity not less than 300,000 m 3. Experience as a subcontractor is not accredited. 1) Satisfactory completion of three or more contracts in the waterworks category of at least two different types of work totally valued at not less than HK$60 million with at least one contract of Group B value, after confirmation to Group B. 2) Private sector experience may be accepted to supplement public sector experience. 2) Private sector experience may be accepted to supplement public sector experience. Confirmation to Group C 1) Satisfactory completion of at least one Government roads and drainage contract of value over HK$90 million. Experience as a subcontractor is not accredited. 1) Satisfactory completion of at least one Government Group C site formation contract within the past 5 years of value over $90 million. Experience as a subcontractor is not accredited. 1) Satisfactory completion of two Group C contracts in the waterworks category of two different types of work totally valued of not less than HK$120 million after admission to Group C on probation. According to WBDB, the minimum number and qualifications of full time management and technical personnel to be employed by a contractor for the Contractor List before admission, retention, confirmation or promotion as at the Latest Practicable Date are set forth below: Group/Status Roads and Drainage, Waterworks (Note 1) Group A (probationary or confirmed) Top management (Notes 2, 3 and 4) At least one member of the resident top management shall have a minimum of one year local experience in managing a construction firm obtained in the past three years. 60

68 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS Technical staff (Notes 3 and 4) At least one person with one or more of the following qualifications: (i) (ii) Higher Certificate in Civil Engineering from a Hong Kong polytechnic, a Hong Kong recognised training institution or equivalent and one year local working experience in the relevant category of works; or Ordinary Certificate in Civil Engineering from a Hong Kong polytechnic, a Hong Kong recognised training institution or equivalent and two years local working experience in the relevant category of works; or (iii) at least ten years local working experience in the relevant category of works. Group/Status Group B (probationary or confirmed) Roads and Drainage, Site Formation, Waterworks Top management (Notes 2, 3 and 4) At least one member of the resident top management shall have a minimum of three years local experience in managing a construction firm obtained in the past five years. Technical staff (Notes 3 and 4) At least one person with the following qualifications: (i) (ii) Higher Certificate in Civil Engineering from a Hong Kong polytechnic, a Hong Kong recognised training institution or equivalent and two years local working experience in the relevant category of works; or Ordinary Certificate in Civil Engineering from a Hong Kong polytechnic, a Hong Kong recognised training institution or equivalent and three years local working experience in the relevant category of works. 61

69 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS Group C (probationary or confirmed) Top management (Notes 2, 3 and 4) At least one member of the resident top management shall have a minimum of five years local experience in managing a construction firm obtained in the past eight years. Technical staff (Notes 3 and 4) At least two persons with a relevant degree from a Hong Kong university or equivalent with at least five years post-graduate local working experience in the relevant category of works. Notes: 1. There are no Group A contractors for the Site Formation category. 2. Top management shall be the president, chairman, director, managing director, executive director, or general manager etc. 3. The top management and the technical staff must be two individual persons. 4. For admission, retention, confirmation or promotion in more than one category, the contractor is required to employ one top management with qualifications and experience appropriate to the highest group only instead of one for each category. However, he is required to employ a minimum of one experienced technical staff for each category regardless of the number specified in the above table. The experience and qualifications of the technical staff shall be as specified for the appropriate group and category in the above table. According to WBDB, the number of approved contractors listed on the Contractor List for each work category as at 31 July 2010 was as follows: Group Waterworks Roads and Drainage Site Formation Confirmed Probationary Confirmed Probationary Confirmed Probationary A B C SPECIALIST LIST The Specialist List comprises suppliers of materials/specialist contractors who are approved for carrying out public works in one or more of the 49 categories of specialist works classified by WBDB. Some contractors within a category are further divided into classes according to the types of works within that particular category and groups according to the value of contracts for which they are normally eligible to tender. Group tender limits are applicable to eight categories of works and are periodically adjusted. The admission, retention, confirmation and probation criteria for the Specialist List are also subject to financial, technical and management criteria similar to those under the Contractor List, except that the length of probationary period for each category (if any) varies. As at the Latest Practicable Date, no member of the Group has been admitted to the Specialist List. 62

70 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS CONTRACTORS PERFORMANCE INDEX SYSTEM A contractors performance index system (the Contractors Performance Index System ) was established by the ETWB in 2000 to provide a ready indication of contractors performance standard for reference by the project office and relevant tender board in tender evaluation. The evaluation of contractors performance is based on the reports written on the contractors performance in Government works contracts in accordance with the ETWB Handbook. The contractors performance reports are normally due on the last day of February, May, August and November. The 3-month periods in between the aforesaid due dates are referred to as the reporting periods. Under the Contractors Performance Index System, the performance of a contractor is represented by a performance rating which is derived from the performance scores given in all the reports written on the performance of the contractors in Government works contracts in the preceding 12 reporting periods. The performance score of a contractor s performance report is determined by the percentage of the scores attained by the contractor over the maximum scores in 11 different attributes, including but not limited to workmanship, progress, site safety, environmental pollution control, organisation, general obligations, industry awareness, resources and attitude to claims. A weighting shall be assigned to each contract according to the original contract sum based on the scale set out in the Contractor s Performance Index System. The performance rating of a contractor is the weighted average of the aforesaid performance scores of all the reports on the performance of the contractor in the preceding 12 reporting periods. WBDB will then generate the performance rating of each contractor on the Contractor List on the first working day of February, May, August and November. The performance ratings are not publicly viewable. Instead, each contractor on the Contractor List will be advised of its performance rating in the form of a letter by post. The aforesaid letter from WBDB sets out the highest, lowest, median and average ratings of contractors rated under each specific group of the relevant categories during the reporting period. Pursuant to the Technical Circular (Works) No. 3/2007 issued by the ETWB on 12 March 2007, the performance rating of a contractor is based on a scale of 0 to 100 and there is no passing mark defined in the Contractors Performance Index System. However, if a contractor s current performance rating falls below 40, or if there is an obvious and consistent downward trend, a closer examination of the contractor s past performance should be carried out and full justification must be provided before its tender is recommended for acceptance. PRIMARY REGISTER OF THE REGISTRATION SCHEME The purpose of the Registration Scheme is to build up a pool of capable and responsible subcontractors with specialised skills and strong professional ethics and provide a platform for the launching of new improvement initiatives through collaboration with training institutions, professional bodies and tertiary institutions. The Registration Scheme will be overseen by a management committee made up of representatives nominated by major client organisations and contractors trade associations formed under auspices of the Construction Industry Council ( ). This committee assumes the responsibility for enforcing the registration rules and 63

71 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS procedures, screening and approving applications for registration, as well as instigating regulatory actions under justifiable circumstances. As at the Latest Practicable Date, there were a total 792 subcontractors registered for general civil works including but not limited to road drainage and sewer and others (water mains) under the Registration Scheme. During the Track Record Period, the Group was in full compliance with the requirement of engaging subcontractors that are registered for the respective trades under the Primary Register of the Registration Scheme for implementation of Government contracts. GENERAL The Contractor List, the Specialist List and the associated regulatory regime are put in place to ensure that certain standards of financial capability, technical expertise, management and safety are maintained by the contractors carrying out Government works. If doubts arise about the ability of a contractor to meet the minimum standards generally or for a particular class of contracts, it may not be allowed to tender for any new work until it can demonstrate that it can meet the required standard. The Secretary of WBDB reserves the right to remove any contractor from the Contractor List and/or the Specialist List or take other regulating action against a contractor such as suspension, or where applicable, downgrading to probationary status or demotion to a lower group, in respect of all or any of the works categories the contractor is in. Before deciding on such action, a contractor will be given adequate warning of the action proposed and advised of the reasons for it and given the opportunity to present their views of the matter. Circumstances which may lead to the taking of regulating actions include, but not limited to: (i) unsatisfactory performance; (ii) failure to submit a valid competitive tender for a period of three years; (iii) failure to submit accounts or meet the financial criteria within the prescribed time; (iv) failure to answer queries or provide information relevant to the listing status of a contractor on the Contractor List and/or the Specialist List within the prescribed time; (v) misconduct or suspected misconduct; (vi) winding-up, bankruptcy or other financial problems; (vii) poor site safety record; (viii)failure or refusal to implement an accepted tender; (ix) poor environmental performance; 64

72 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS (x) court convictions, such as contravention of site safety legislation and Employment Ordinance and employment of illegal workers; (xi) failure to employ the minimum number of full time management and technical personnel; (xii) violation of laws; (xiii)poor integrity of its employees, agents and subcontractors in relation to any public works contract unless the misconduct is not within the control of the contractor; (xiv) public interest; (xv) public safety and public health; (xvi) serious or suspected serious poor performance or other serious causes in any public or private sector works contract; and (xvii) failure to comply with any of the rules for administration of the Contractor List or the Specialist List giving rise to reasonable suspicions as to the capacity or integrity of the contractor. As advised by the Directors, none of the members of the Group (including TYC) has been subject to any regulatory action from WBDB. A project may occasionally involve several types of works which are inter-related to one another but are classified under different work categories. In that case a contractor may be required to be listed on the Contractor List and/or the Specialist List with approved status in all the relevant work categories. TYW has been admitted to the Contractor List. Waterworks projects sometimes involve civil works which are associated with roads and drainage and site formation. Work categories which are generally relevant in respect of the undertaking of waterworks projects from the Government are as follows: Waterworks As a requirement for undertaking waterworks projects in the public sector as a main contractor, a contractor is required to be listed in the Contractor List under the category of Waterworks maintained by WBDB. In general, WSD is responsible for servicing and monitoring the performance of all contractors within such category. Waterworks contracts usually come from WSD. Being a licenced contractor with confirmed status under Group B of the Waterworks category since May 2009, TYW is eligible for the award of any number of Government contracts, save for maintenance contracts which are grouped by the Government as subject to restrictions, under this category provided that the contract value of each individual contract does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital requirements. According to the technical circular 65

73 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS of WBDB, any approved contractor, acting as a main contractor, may not be awarded with more than two such waterworks maintenance contracts at any time. Save as disclosed above, there is no other limitation or restriction on the number of contracts which TYW is eligible for award under this category. Roads and drainage As a requirement for undertaking public works projects in relation to roads and drainage as a main contractor, a contractor is required to be listed in the Contractor List under the category of Roads and Drainage maintained by WBDB, and the Highways Department ( ) of the Government is generally responsible for servicing and monitoring the performance of all contractors within such category. Being a licenced contractor with confirmed status under Group B of the Roads and Drainage category since March 2009, TYW is eligible for the award of any number of Government contracts, save for maintenance contracts which are grouped by the Government as subject to restrictions, under this category provided that the contract value of each individual contract does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital requirements. According to the technical circular of WBDB, any approved contractor under this category, acting as a main contractor, may be subject to similar restriction or limitation on the number of maintenance contracts as those applicable to an approved contractor under the Waterworks category. Site formation As a reqirement for undertaking works projects in relation to site formation as a main contractor, a contractor must be listed in the Contractor List under the category of Site Formation maintained by WBDB and the Civil Engineering and Development Department ( ) is mainly responsible for servicing and monitoring the performance of all contractors within that category. Being a licenced contractor with probationary status under Group B of the Site Formation category since March 2009, TYW is eligible to tender for such number of Government contracts under this category provided that the total value of Group B works does not exceed HK$75 million and TYW fulfills the minimum employed capital and working capital requirements. According to the technical circular of WBDB, any approved contractor under this category, acting as a main contractor, may be subject to similar restriction or limitation on the number of maintenance contracts as those applicable to an approved contractor under the Waterworks category. COMPLIANCE WITH THE RELEVANT REQUIREMENTS The Directors confirmed, and the Company s legal advisers as to Hong Kong laws concurred, that each of TYW and TY Civil has obtained all relevant permits/licences/registrations for their operations. In addition, TYW has complied with the minimum number and qualifications of full time management and technical personnel for retention on the Contractor List; and TYW is able to meet the financial criteria for its retention on the Contractor List and for acceptance of a tender during the Track Record Period and up to the Latest Practicable Date, and has secured sufficient amount of minimum working capital and employed capital in accordance with the requirements under the ETWB Handbook during the Track Record Period and up to the Latest Practicable Date. 66

74 LICENCING AND OTHER REQUIREMENTS FOR GOVERNMENT PROJECTS In order to ensure the ongoing compliance with the applicable requirements by the relevant members of the Group, the Directors will check the latest requirements from time to time stipulated by WBDB, the Construction Industry Council and the Government respectively for the Group s business operations and take appropriate steps, if required, to comply with the latest requirements. Apart from preparation of financial statements on a yearly basis for submission to WBDB to demonstrate that TYW has sufficient employed capital and working capital for retention on the Contractor List, the chief financial officer of the Group will also assess its level of employed capital and working capital every time prior to the submission of a tender for new project. 67

75 ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS 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 industry, commercial operations and construction work. Subsidiary regulations of the Air Pollution Control Ordinance impose control on air pollutant emissions from certain operations through the issue of licences and permits. A contractor shall observe and comply with the Air Pollution Control Ordinance and its subsidiary regulations, including but not limited to the Air Pollution Control (Construction Dust) Regulation (Chapter 311R of the Laws of Hong Kong). The contractor responsible for a work site shall carry out the works in such a manner so as to minimise dust impacts on the surrounding environment. Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong) The Noise Control Ordinance controls, among other situations, any person in any domestic premises or public place making noise causing annoyance to any other person and the noise from construction sites. A contractor shall comply with the Noise Control Ordinance and its subsidiary regulations in carrying out its works. For engineering works that are to be carried out during the restricted hours and for percussive piling at all times, construction noise permits are required from the Noise Control Authority in advance. Under the Noise Control Ordinance, works that produce noises and the use of powered mechanical equipment in populated areas are not allowed between 7 p.m. and 7 a.m. or at any time on general holidays, unless prior approval has been granted by the Environmental Protection Department through the construction noise permit system. Usage 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 Environmental Protection Department. Percussive pile-driving is allowed on weekdays only with prior approval, in the form of a construction noise permit from the Environmental Protection Department. Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong) The Water Pollution Control Ordinance provides the main statutory framework for the declaration of water control zones to cover the whole of Hong Kong and the establishment of water quality objectives. The objectives describe the water quality that should be achieved and maintained in order to promote the conservation and best use of the waters of Hong Kong in the public interest. Within each water control zone, all discharges or deposits are controlled by a licencing system. The Director of Environmental Protection is the Authority responsible for licencing and controlling these discharges. Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) The Waste Disposal Ordinance controls the production, storage, collection, treatment, recycling, recycling and disposal of wastes. At present, livestock waste and chemical waste are subject to specific controls whilst deposition of waste in public places or on Government land or on private premises without the consent of the owner or occupier is prohibited. 68

76 ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS A contractor shall observe and comply with the Waste Disposal Ordinance and its subsidiary regulations, including but not limited to the Waste Disposal (Charges for Disposal of Construction Waste) Regulation (Chapter 354N of the Laws of Hong Kong). Under the Waste Disposal (Charges for Disposal of Construction Waste) Regulation, a main contractor who undertakes construction work with a value of HK$1 million or above will be required to establish a billing account in respect of that particular contract with the Environmental Protection Department to pay any disposal charges payable in respect of the construction waste generated from construction work undertaken under that contract. 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 Schedules 2 and 3 to the Environmental Impact Assessment Ordinance (for example, public utility facilities, certain large-scale industrial activities, community facilities, etc.) through the application of the environmental impact assessment process and the environmental permit system prior to their construction and operation (and decommissioning, if applicable), unless exempted. In order to ensure the ongoing compliance with the applicable environmental protection requirements by the relevant members of the Group, the Directors have appointed Mr. Lau Wai Chun, Jacky as the head of environmental compliance. Mr. Lau will check the latest requirements from time to time stipulated by the Government in this respect and take appropriate steps, if required, to comply with the latest requirements. During the Track Record Period and up to the Latest Practicable Date, based on the litigation search conducted at the instruction of the Company and the opinion of the legal advisers to the Company as to Hong Kong laws, none of the members of the Group was involved in any litigations and/or legal proceedings which were related to committing an offence by any member of the Group under any of the aforesaid environmental protection laws and regulations. The Directors confirmed that there were no events or circumstances which have led to or are likely to lead to the Group being sued by the Government for committing an offence under the aforesaid environmental protection laws and regulations applicable in Hong Kong during the Track Record Period and up to the Latest Practicable Date. 69

77 HISTORY AND DEVELOPMENT HISTORY AND DEVELOPMENT In 1989, Mr. Kan, the founder of the Group, started the Group s business in the provision of civil engineering services in Hong Kong through TYC, a sole proprietorship. Separate books and records were maintained by TYC since its date of incorporation and throughout the Track Record Period. No audited financial statements have been prepared for TYC since its date of incorporation as there is no statutory requirement for the preparation of audited financial statements for unlimited company. BDO Limited ( BDO ), the reporting accountants of the Group, however, have performed independent audit procedures in accordance with the Hong Kong Standards of Auditing issued by the HKICPA on the unaudited management accounts of TYC for the Track Record Period. BDO considers that TYC has maintained separate books and records throughout the Track Record Period and its assets and liabilities were properly segregated from Mr. Kan s personal assets and liabilities, in particular, bank account in the name of TYC has been maintained for business purposes only and sufficient management and control systems have been in place on TYC s daily operations. Besides, other than Mr. Kan, some directors of the Group have also been involved in TYC s daily operations during the Track Record Period to ensure that the assets and liabilities of TYC were solely used for its business purposes. After conducting businesses through TYC for a few years, Mr. Kan recognised the prospects of the civil engineering services industry in Hong Kong and decided to set up a limited company for the purpose of tendering for public projects. App1A(29)(1), (2) Third Schedule 21 In February 1996, TYW was formed by Mr. Kan and an Independent Third Party as a limited company to carry out civil engineering works and to apply for admission to the Contractor List in order to tender for public projects as a main contractor. At that time, Mr. Kan beneficially owned 90% of the issued share capital of TYW. TYW was admitted as a Group A contractor (on probation) under the categories of Waterworks and Roads and Drainage in the Contractor List in January 1997 and April 1997 respectively and as a Group B contractor (on probation) under the category of Site Formation in the Contractor List in July Soon after its admission to the Contractor List, TYW was awarded its first public waterworks contract as a main contractor by WSD in connection with the reprovisioning of Mainland West Laboratory in Tuen Mun, the New Territories. In March 1998, TYW was awarded, as a main contractor, by the then Territory Development Department of the Government, its first contract in connection with the site formation work for Yuen Long Combined Wholesale Food Market. In the same year, TYW, as a main contractor, was also awarded its first drainage works contract by the Drainage Services Department of the Government in connection with the improvement works to low-flow interceptor on Siu Hong Road, the New Territories. Since then, TYW, in the capacity as a main contractor or a subcontractor, has been involved in various civil engineering works in the public sector in Hong Kong and has undertaken more than 30 projects relating to waterworks, roads and drainage works and site formation works up to the Latest Practicable Date. The established reputation for timely delivery and work quality had brought TYW opportunities to work with a number of main contractors. Please refer to the paragraph headed Contracts completed and contracts in progress in the section headed Business in this prospectus for some of the main contractors which the Group has worked with. 70

78 HISTORY AND DEVELOPMENT In June 2000, TY Civil was formed for holding motor vehicles for the Group s use. In August 2000, TYW obtained its confirmed status in Group A under the category of Roads and Drainage and in Group B under the category of Site Formation. From 1996 to 2001, TYW had allotted and issued additional shares to Mr. Kan so that the shareholding of Mr. Kan in TYW increased to 98.89% in In December 2002, TYW also obtained its confirmed status in Group A under the category of Waterworks. Since its incorporation, TYW had primarily focused on undertaking waterworks projects and roads and drainage projects. With a view to concentrating its resources in the waterworks and roads and drainage projects, TYW requested for its removal from the category of Site Formation on the Contractor List in March 2003 and such removal took effect in April TYW was admitted to Group B on probation under the categories of Roads and Drainage and Waterworks in December 2003 and in June 2004 respectively. On 13 June 2005, Mr. Kan s wife, Ms. Lam Shun Kiu, Rosita, acquired the remaining 110,000 shares of TYW at a total consideration of HK$110,000 and on 28 September 2009, Mr. Kan acquired such 110,000 shares of TYW from his wife at a total consideration of HK$110,000 so that Mr. Kan became the sole legal and beneficial owner of TYW. In October 2006, TYW was admitted to the List of Registered Subcontractors for participating in civil engineering works, road works and drainage services and waterworks engineering services maintained by the Provisional Construction Industry Co-ordination Board, whose work was taken over by the Construction Industry Council ( ) in February 2007, under the Registration Scheme, the purpose of which is to build up a pool of capable and responsible subcontractors with specialized skills and strong professional ethics and provide a platform for launching of new improvement initiatives through collaboration with training institutions, professional bodies and tertiary institutions. In November 2008, TY Civil was admitted to the List of Registered Subcontractors for participating in civil engineering works, waterworks engineering services and road works and drainage services. In October 2001, TYW was accredited with ISO 9002:1994 by the Hong Kong Quality Assurance Agency which certified that the quality assurance system of TYW complied with the relevant requirements applicable to construction of civil engineering works (site formation). In June 2003, TYW was accredited with the ISO 9001:2000 by the Hong Kong Quality Assurance Agency which certified that the quality management system of TYW complied with the relevant requirements applicable to construction of civil engineering works (site formation, waterworks, roads and drainage). The ISO9001:2000 certificate was renewed by Accredited Certification International Limited in May 2006 and February 2009, certifying that TYW s quality management system complied 71

79 HISTORY AND DEVELOPMENT with the standards applicable to construction of civil engineering works (site formation, waterworks, roads and drainage). TYW was further accredited with ISO 9001:2008, certifying that its quality management system complied with the standards applicable to construction of civil engineering works (site formation, waterworks, roads and drainage) in February TYW obtained its confirmed status in Group B under the category of Roads and Drainage and Waterworks in March 2009 and May 2009 respectively. TYW was re-admitted as a Group B contractor (on probation) under the category of Site Formation on the Contractor List in March The following historical timeline diagram illustrates the progression of TYW s category status on the Contractor List: * TYW requested for its removal from this category in March 2003 and was re-admitted into this category on probationary status. Prior to 1 April 2009, TYW was responsible for bidding and signing civil engineering contracts with clients and subcontracting all the contract works to TYC for implementation. TYW has been responsible for bidding and signing as it is the holder of the relevant licences for various civil engineering services, while TYC was responsible for execution of the projects as it was the practice of the Group since its foundation by Mr. Kan in 1989 and it was considered that the continuance of such subcontracting arrangement and segregating the licence holder from the project executor was in the interest of the Group. 90% of contract income received by TYW would be distributed to TYC as subcontracting costs. For the financial year ended 31 March 2009, TYW had subcontracted all its contract works to TYC and provided 90% of income from contracts to TYC as subcontracting costs which amounted to HK$78,926,387. As a result of the aforesaid segregation, the Group enjoyed a tax saving of approximately HK$193,000 for the year ended 31 March Although TYC has been a significant member of the Group in terms of revenue and profits contribution in previous years, it is not a limited company and so the Directors consider that it may not be suitable for seeking a listing on the Stock Exchange. In order to prepare for the Listing, with 72

80 HISTORY AND DEVELOPMENT effect from 1 April 2009, as part of the Reorganisation, TYW acquired part of the business carried out under the name of TYC together with related assets (including, among others, chattels, accounts receivables, cash, goodwill and documents in connection with the business) and assumed certain liabilities of TYC from Mr. Kan at a consideration of HK$7,157,311.72, which was offset against an equivalent amount of the debts due from Mr. Kan to TYW, and TY Civil acquired the remaining part of business carried out under the name of TYC from Mr. Kan at a consideration of HK$1,467,756.22, which was offset against an equivalent amount of debt due from Mr. Kan to TY Civil. Since then, TYC has become inactive and ceased to be part of the Group. At present, the Group s businesses are carried out through TYW and TY Civil respectively with TYW responsible for signing and implementing civil engineering contracts as a main contractor while TY Civil responsible for signing and implementing civil engineering contracts as a subcontractor. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 15 March 2010 and became the holding company of the subsidiaries now comprising the Group pursuant to the Reorganisation. Details of the Reorganisation are set out in the sub-paragraph headed Reorganisation under the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus. App1A(5) On 26 April 2010, TYW (BVI) acquired the entire issued share capital of TY Civil and TYW (other than the 133,000 shares of TYW which were already owned by TYW (BVI) at the time of such acquisition) from Mr. Kan in consideration of the allotment and issue of a total of 9,999 ordinary shares of TYW (BVI) of US$1 each (each a TYW (BVI) Share ), all credited as fully paid up, to Shunleetat. In recognition of Mr. Cheng, Mr. Fung and Mr. Chia s extensive experience in the civil engineering industry and/or financial industry, past and future contributions to the business development of the Group, and their confidence in the future prospects of the Group, Mr. Kan, after arm s length negotiations with Mr. Cheng, Mr. Fung and Mr. Chia, entered into share sale and purchase agreements on 26 April 2010 whereby Shunleetat transferred (i) 1,750 TYW (BVI) Shares to Chuwei which is wholly and beneficially owned by Mr. Cheng, at a consideration of HK$3,656,682.83, which was offset against an equivalent amount of loan due from Mr. Kan to Mr. Cheng outstanding as at the date of transfer; (ii) 1,250 TYW (BVI) Shares to Lotawater which is wholly and beneficially owned by Mr. Chia at a consideration of HK$2,611,916.31, which was offset against an equivalent amount of loan due from Mr. Kan to Mr. Chia outstanding as at the date of transfer; and (iii) 1,500 TYW (BVI) Shares to Purplelight which is wholly and beneficially owned by Mr. Fung at a consideration of HK$3,134,299.57, which was offset against an equivalent amount of loan due from Mr. Kan to Mr. Fung outstanding as at the date of transfer. The average subscription price per TYW (BVI) Share paid by each of the three subscribers is approximately HK$2,089.53, and the effective subscription price per Share paid by each of them is approximately HK$ The Board considers that the equity investment in the Group by each of Mr. Cheng, Mr. Fung and Mr. Chia would be beneficial to the development and operations of the Group, and the terms and conditions (including consideration received by Mr. Kan) for their equity investment was arrived at after arms length commercial negotiations between Mr. Kan on the one hand and Mr. Cheng, Mr. Fung and Mr. Chia on the other. The TYW (BVI) Shares transferred to Chuwei, Lotawater and Purplelight are not subject to any lock-up arrangements while pursuant to the 73

81 HISTORY AND DEVELOPMENT terms of the Underwriting Agreement, the Shares beneficially held by Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia at the time of Listing will be subject to a lock-up period which will commence on the Latest Practicable Date and ending six months from the Listing Date. Mr. Kan and Shunleetat, being the Controlling Shareholders, will be subject to another six months lock-up period commencing immediately after the expiry of first six months lock-up period as required under Rule 13.16A(1) of the GEM Listing Rules. Details of their undertakings are disclosed in the paragraph headed Undertakings under the section headed Underwriting in this prospectus. Currently, the Group is the main contractor of one contract awarded by WSD involving construction of water tank, pump house and water main laying and one water mains replacement and rehabilitation works contract. The Group is also the principal subcontractor of two water mains replacement and rehabilitation works contracts awarded by WSD and one term contract for waterworks District W-New Territories. As at the Latest Practicable Date, the aggregate contract sum of the contracts in which the Group was involved as a main contractor or a subcontractor was over HK$672 million. During the past 20 years, the Group has established solid business relationships with a number of major civil engineering contractors in Hong Kong. In parallel, TYW has gained promotion in two categories, namely Waterworks and Roads and Drainage, on the Contractor List to its current status. Details of the contracts completed and the contracts in progress as at the Latest Practicable Date are set out in the paragraph headed Contracts completed and contracts in progress under the section headed Business in this prospectus. SHAREHOLDING STRUCTURE OF THE COMPANY R11.13(1) R11.13(2) The following diagram illustrates the shareholding structure of the Company immediately after the Reorganisation and before completion of the Placing and the Capitalisation Issue: Mr. Kan Mr. Cheng Mr. Fung Mr. Chia 100% 100% 100% 100% Shunleetat (BVI) Chuwei (BVI) Purplelight (BVI) Lotawater (BVI) 55% 17.5% 15% 12.5% The Company (Cayman Islands) Investment holding 100% TYW (BVI) (BVI) Investment holding 100% 100% TYW (Hong Kong) Provision of waterworks and laying of water pipes TY Civil (Hong Kong) Holding of motor vehicles, provision of waterworks and laying of water pipes 74

82 HISTORY AND DEVELOPMENT The following diagram illustrates the shareholding structure of the Company immediately following completion of the Placing and the Capitalisation Issue: Mr. Kan Mr. Cheng Mr. Fung Mr. Chia 100% 100% 100% 100% Public Shareholders Shunleetat (BVI) Chuwei (BVI) Purplelight (BVI) Lotawater (BVI) 25.0% 41.25% % 11.25% 9.375% The Company (Cayman Islands) Investment holding 100% TYW (BVI) (BVI) Investment holding 100% 100% TYW (Hong Kong) Provision of waterworks and laying of water pipes TY Civil (Hong Kong) Holding of motor vehicles, provision of waterworks and laying of water pipes 75

83 BUSINESS BUSINESS OVERVIEW R11.06 App1A(28)(1)(A) The Group is principally engaged in the provision of waterworks engineering services, road works and drainage services and site formation works for the public sector in Hong Kong. Waterworks, roads and drainage works and site formation works fall within a broader engineering discipline known as civil engineering. During the Track Record Period, the Group generated a substantial part of its revenue from carrying out waterworks engineering services and road works and drainage services in the capacity of a subcontractor. For each of the two years ended 31 March 2009 and 2010, revenue generated from contracts in which the Group acted as a subcontractor represented approximately 73.9% and approximately 88.5% of the Group s total revenue respectively. Revenue generated from the Group providing services in the capacity of a main contractor only accounted for a lesser part of the Group s total revenue, representing approximately 26.1% and approximately 11.5% of the Group s total revenue during the Track Record Period. Waterworks engineering services Waterworks engineering services include construction and maintenance of water mains, service reservoirs, impounding reservoirs, pumping stations, water tanks, treatment works, watercourses for distribution systems and other related construction works. These services may also involve related civil construction works which include excavation, stabilisation, foundations strengthening, reinstatement of carriageways, footways and expressways. For projects that are carried out on existing trafficked roads, the contractor may also be required to make arrangements on traffic diversion and control. Road works and drainage services Road works and drainage services include construction of interchange, carriageway, walkway, footpath, access road, covered footbridge, link bridge, drainage channel and the associated lighting, drainage, landscaping, utilities diversion and electrical and mechanical works. Site formation works Site formation works generally involve demolition of existing structures, excavation to the design formation level and reduction and stabilisation of existing slopes. 76

84 BUSINESS COMPETITIVE STRENGTHS With an operating history of over 20 years, the Directors believe that the Group, with its experienced management team and extensive experience in implementation of waterworks projects, has established a reputation in the waterworks engineering industry in Hong Kong. In particular, the Directors believe that the Group possesses the following competitive strengths: Established operating history and track record As disclosed in the section headed History and development in this prospectus, the Group has been involved in various construction and maintenance works, both as subcontractor and main contractor, on civil engineering contracts including waterworks engineering, roads and drainage works and site formation works in Hong Kong since TYW was admitted into the Contractor List in Prior to such admission, in July 1996, the Group participated in WSD s contract as a subcontractor in connection with the improvement of fresh water and salt water supply to Tuen Mun Western Areas Phase 1, which involved mainlaying from Tuen Mun fresh water pumping station to Siu Lang Shui (contract numbered 9/WSD/95). Subsequently, the Group was able to secure a nine-month contract from WSD as the main contractor in connection with the reprovisioning of Mainland West Laboratory in Tuen Mun, the New Territories in September 1997 (contract numbered 3/WSD/97). Over the years, the Group has been able to secure contracts as main contractor or subcontractor for the construction or maintenance of various waterworks infrastructure and undertaking various waterworks engineering services in different WSD s operational regions, including Fanling, Sheung Shui and Ping Che, Yuen Long and Kam Tin, Tuen Mun and Tai Po. The Directors believe that the Group has built up its reputation through its established operating history, which benefits the Group in tendering future contracts. Well-positioning to capture the emerging business opportunities Approximately 45% of the underground water mains in Hong Kong were laid 30 years ago. Those ageing water mains are approaching the end of their service life and have become increasingly difficult and costly to maintain. In view of these, the Government had launched the water mains replacement and rehabilitation programme in 2000 to replace and rehabilitate approximately 3,000 km of water mains. Under the water mains replacement and rehabilitation programme, the condition of the water supply network will be strengthened upon completion of the works in 2015 and the number of pipe failures is expected to decrease accordingly. The Group, as a subcontractor, has secured work contracts for replacement and rehabilitation of water mains in Fanling, Sheung Shui and Ping Che (contract numbered 5/WSD/06), in Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) and in Tai Po and Fanling (contract numbered 21/WSD/06). In September 2007 and May 2010, the Group, as a main contractor, has secured work contracts for replacement and rehabilitation of water mains in Ngan Tam Mei (contract numbered 13/WSD/06) and Sai Kung (contract numbered 9/WSD/09) respectively. During the Track Record Period and up to the Latest Practicable Date, the Group had participated in a total of five replacement and rehabilitation work(s) contracts and another five waterworks contracts involving, among other things, construction of service reservoirs, sewer, rising mains, water tanks and pumping stations. 77

85 BUSINESS The Government will commission a review to appraise the condition of the remaining water mains which are not subject to the current replacement and rehabilitation programme and, subject to the review findings, may extend the program beyond 2015 to cover the remaining distribution network of water mains. WSD also plans to implement new salt water supply systems and upgrade certain existing systems to enhance the use of salt water for flushing purpose. In addition, WSD plans to start a capital works project by 2010 to improve the existing catchwater system for safe and effective collection for surface water. Taking into account the Group s experience in the industry with the licencing requirements for the aforesaid Government s projects, the Directors consider that the Group is well-positioned to capture the emerging business opportunities and will benefit from the implementation of the replacement and rehabilitation programme and other capital works by WSD. Despite the fact that as at 31 July 2010 there were 11 Group B and 35 Group C contractors in the Waterworks Contractor List, the Directors believe that the Group can benefit from its proven track record of participation in the replacement and rehabilitation works contracts and various other waterworks contracts, its outstanding performance ratings for the quality of its works received from WBDB during the Track Record Period and its experienced management team as described below could provide an edge to capture the emerging business opportunities. Consistently high quality of services The Group has adopted a set of stringent quality assurance measures to ensure the quality of its civil engineering work. In recognition of the quality assurance procedures in place, the quality management system of TYW was accredited with the ISO9002: 1994 certificate and the ISO9001:2000 certificate in 2001 and 2003 respectively. The ISO9001: 2000 certificate was renewed in May 2006 and February TYW further obtained ISO9001:2008 accreditation in February In addition, TYW has consistently achieved outstanding performance ratings in respect of the projects undertaken by it issued by WBDB. Details of the contractors performance index system and the assessment criteria of the performance ratings are disclosed in the paragraph headed Contractors performance index system under the section headed Licencing and other requirements for Government projects in this prospectus. The Group can benefit from such performance ratings as such rating is a factor taken into account by the Government in the evaluation process of tenders. Well-established relationships with main contractors The Group has worked with a number of main contractors since the commencement of its civil engineering business. The Directors believe that the Group, through its delivery of timely services and quality works, has established solid business relationships with the main contractors. Some of the main contractors have business relationships with the Group for more than five years. The Directors consider the recurring businesses from those main contractors have contributed to the success of the Group. In particular, the Group may undertake projects with contract value over HK$75 million (which is the maximum contract value which the Group is eligible to undertake as a Group B main contractor on the Contractor List) in the capacity of a subcontractor. 78

86 BUSINESS Good relationships with subcontractors Some of the Group s projects are undertaken by the Group s subcontractors. The Directors believe that successful completion of projects, to a certain extent, depends on the work quality and efficiency of the subcontractors. The Group, throughout its established operating history and recognition in the industry, has maintained over 40 subcontractors on the Group s list of approved subcontractors, around nine of which have been working with the Group for at least four years. The Directors consider that such subcontractors can facilitate the timely completion of projects of the Group. Such business relationships are crucial to the day-to-day business operations and the future business development of the Group. Experienced management team Mr. Kan, the chairman of the Board, founder of the Group and an executive Director, has over 20 years experience in handling civil engineering projects of various types. His experience in handling civil engineering projects was gained from his employment in other construction companies and the management of the Group s business. He is responsible for the overall business planning and corporate strategy of the Group. Mr. Cheng, the vice-chairman of the Board and an executive Director, has over 29 years experience in the construction industry and is responsible for the business management and corporate development of the Group. Mr. Fung, the chief executive officer of the Group and an executive Director, has over 25 years experience in civil engineering construction and is responsible for overseeing the overall project management and the daily operation of the Group. Mr. Chia, an executive Director, has more than 14 years experience in corporate finance, management and investment and is responsible for overseeing the financial aspects of the Group. In addition to these executive Directors who have been in charge of the business development of the Group over the years, the Group also has a professional management team with members having strong academic background and industry experience. 79

87 BUSINESS LICENCES/REGISTRATION HELD BY THE GROUP The following table summarises the details of the licences/registration held by members of the Group as an approved contractor as at the Latest Practicable Date: Government departments/ organisation Month and year of first relevant registration with the Government departments/ organisation Member of the Group which held the licence/ approval Level/category of registration held as at the Latest Practicable Date Status as at the Latest Practicable Date Value of project which the Group is eligible to undertake under the relevant licence/ registration As a subcontractor Construction Industry Council ( ) As a main contractor October 2006 November 2008 TYW TY Civil Registered under the Primary Register of the Registration Scheme for participating in, among others, general civil works Not applicable (Note 1) Not applicable (Note 1) WBDB May 2009 TYW Approved Contractors for Public Works Waterworks Category (Group B) WBDB March 2009 TYW Approved Contractors for Public Works Roads and Drainage Category (Group B) WBDB March 2009 TYW Approved Contractors for Public Works Site Formation Category (Group B) Confirmed (Notes 2 and 3) Confirmed (Notes 2 and 4) Probationary (Notes 2 and 5) Current contract value up to HK$75 million Current contract value up to HK$75 million Current contract value up to HK$75 million Notes: 1. The List of Registered Subcontractors is maintained by Construction Industry Council ( ) as part of the Registration Scheme. The purpose of the aforesaid scheme is to build up a pool of capable and responsible subcontractors with specialised skills and strong professional ethics and provide a platform for the launching of new improvement initiatives through collaboration with training institutions, professional bodies and tertiary institutions. 2. The financial criteria for retention on the Contractor List for respective categories (on confirmed and probationary status) are established by WBDB. Such financial criteria primarily concern the levels of employed capital and working capital of a contractor. To ascertain that the required financial criteria and requirements are met, the Group is required to: 80

88 BUSINESS (i) submit the original or a certified true copy of their latest audited accounts; (ii) submit certified statements of outstanding workload; (iii) provide supplementary information; and (iv) answer all reasonable enquiries from WBDB. Apart from the aforesaid financial criteria, the Group is also required to employ a minimum number of full time management and technical personnel with the required qualifications as stipulated in the Contractor Management Handbook (Revision B) July 2005 ( B) in order to be retained on the Contractor List (on confirmed and probationary status). 3. As at the Latest Practicable Date, the minimum management and technical personnel criteria for the Waterworks category were fulfilled by two executive Directors, namely Mr. Kan and Mr. Fung. 4. As at the Latest Practicable Date, the minimum management and technical personnel criteria for the Roads and Drainage category were fulfilled by Mr. Kan, an executive Director and Mr. Leung Hon Chung, a senior management of the Group. 5. As at the Latest Practicable Date, the minimum management and technical personnel criteria for the Site Formation category were fulfilled by Mr. Kan, an executive Director and Mr. Lau Wai Chun, Jacky, a senior management of the Group. As at the Latest Practicable Date, the Group has not undertaken a Government contract of such value or with such earth works quantity to satisfy the requirement for promotion to confirmed status and has therefore remained as an approved contractor in Group B on probation. According to the Government licencing criteria, there is no time limit as to how long an approved contractor must apply for promotion to confirmed status in any categories of the contractor list. TYW is still in probationary status as TYW has so far been focusing on the waterworks engineering sector and has not yet actively pursued business in the site formation sector. The Directors confirm that each member of the Group has been granted all the required licences and approval for carrying on its business activities and confirm that such required licences and approvals were valid and subsisting as at the Latest Practicable Date. AWARDS AND ACCREDITATION In recognition of the Group s outstanding performance and quality of works, the Group has received the following awards or certificate from different departments of the Government and a professional accreditation organisation: Year of grant Description Organisation 2010* Certificate for compliance with the requirements of ISO9001:2008 quality management system standard for construction of civil engineering works (site formation, waterworks, roads and drainage) Accredited Certification International Limited 81

89 BUSINESS Year of grant Description Organisation 2009 Bronze prize in the renovation and maintenance works Subcontractors in WSD Contract No. 21/WSD/06 under the Construction Industry Safety Award Scheme 2007 Merit award in recognition of the performance of TYW s construction site in WSD Contract No. 2/WSD/05 during the period from 1 January 2007 to 31 December 2007 under the Considerate Contractors Site Award Scheme Labour Department of the Government Works Bureau of the Government * TYW was first accredited with ISO compliance certification in Further ISO accreditations were obtained by the Group in 2003, 2006 and In addition, the Group has been receiving letters from WBDB in respect of its performance ratings which are derived from the performance scores given in all the reports written on the Group s performance in Government works contracts in the preceding 12 reporting periods. Based on the aforesaid letters from WBDB, the Directors and the Sponsor are of the view that the Group has achieved outstanding performance ratings during the Track Record Period. CONTRACTS COMPLETED AND CONTRACTS IN PROGRESS The waterworks contracts undertaken by the Group principally involve construction of water tank, pump house and main laying, works for replacement and rehabilitation of water mains, and maintenance works. Works contracts involving construction of water tank, pump house and main laying are work contracts with estimated quantities of work. The scope of work, together with the estimated contract value, are specifically stated in the contractual documents. Replacement and rehabilitation of water mains are contract works under the water mains replacement and rehabilitation programme (please refer to the paragraph headed Replacement and rehabilitation of water mains under the section headed Industry overview in this prospectus). The replacement and rehabilitation programme covers certain extent of urban areas and new development districts, it is therefore difficult for the Government to ascertain specifically the amount of pipes to be replaced and rehabilitated in its preliminary assessment. The contractual documents of works for replacement and rehabilitation normally include the scope of work and the estimated contract values, but all works shall not be carried out without a work order. The work orders will specifically set out the particulars of the works required and the expected completion time of such work orders. The aggregate sum of work orders during the contract term may sometimes be larger than the initial estimated contract values due to additional works requirements identified subsequent to commencement of work. On the other hand, the aggregate sum of work orders during the contract term may sometimes be smaller than the initial estimated contract values due to reduction in works after commencement of works. In this respect, the estimated contract values specified on the contractual 82

90 BUSINESS documents only act as an indication and the Group s actual amount of work, revenue and profit recognised during the contract term could be different from the estimated contract values depending on the work orders received. In addition, variation orders may sometimes be given to vary the works prescribed in prior work orders issued. Variation orders may reduce or increase the amount of works previously prescribed. As at the Latest Practicable Date, the Group, as a main contractor, had been awarded with two replacement and rehabilitation works contracts (contracts numbered 13/WSD/06 and 9/WSD/09) covering an aggregate sum of approximately 28.1km of water mains, representing approximately 0.9% of total length of water mains under the replacement and rehabilitation programme, and as a subcontractor, had been contracted to undertake three replacement and rehabilitation works contracts (contracts numbered 5/WSD/06, 21/WSD/06 and 18/WSD/08) covering an aggregate sum of 155.9km of water mains, representing approximately 5.2% of total length of water mains under the replacement and rehabilitation programme. Contracts involving maintenance works normally do not include a clear extent on the works required to be performed and also do not have estimated contract values stated on the contractual documents. Details of the work required to be performed will be set forth in each of the works order received during the term of the maintenance contracts. Maintenance contracts normally have a set of general charging rates for different types of works. During the Track Record Period, the Group had undertaken a number of work contracts with most of them being waterworks contracts. The three waterworks contracts which contributed most to the Group s revenue during the Track Record Period were the contracts in connection with replacement and rehabilitation of water mains in Tai Po and Fanling (contract numbered 21/WSD/06) in which the Group acts as subcontractor, replacement and rehabilitation of water mains in Ngau Tam Mei (contract numbered 13/WSD/06) in which the Group acts as main contractor and replacement and rehabilitation of water mains in Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) in which the Group acts as subcontractor. For each of the two financial years ended 31 March 2010, the aforesaid three contracts generated approximately 80.6% and approximately 84.5% respectively of the Group s total revenue. Despite the Group undertook most of the waterwork contracts in the capacity of a subcontractor during the Track Record Period, it is the Group s business objective to undertake more waterworks contracts in the capacity of a main contractor in the near future. Details of the Group s strategies and implementation plan in connection with the aforesaid objective are set out in the paragraphs headed Business objective and strategies and Implementation plan respectively under the section headed Future plans and use of proceeds in this prospectus. 83

91 BUSINESS Contracts completed Set out below are the details of the contracts completed by the Group during the Track Record Period and up to the Latest Practicable Date: Contract number Types of contract Client/Main contractor Particulars of the contract The Group as a subcontractor (Note 4) 1/WSD/05(K) 3/WSD/01 5/WSD/06 ST/2005/02 DC/2005/02 YL 56/03 The Group as a main contractor 2/WSD/05 13/WSD/06 Waterworks engineering services Waterworks engineering services Waterworks engineering services Roadworks and drainage services Roadworks and drainage services Roadworks and drainage services Waterworks engineering services Original contract value: HK$28,830, Waterworks engineering services Original contract value: HK$26,188, MHCC/MHWE MHCC/MHWE Kwan On Construction Co Ltd Penta-Ocean-Peako Joint Ventrue Victory Trenchless Engineering Company Limited Chit Cheung Construction Co Ltd WSD WSD Term contract for waterworks District K Kowloon Water supply to Wu Kau Tang, Kau Tam Tso and Lai Chi Wo, North District Replacement and rehabilitation of water mains, stage 1, phase 2 mains in Fanling, Sheung Shui and Ping Che Contract period under main contract 1/9/ /8/ /11/ /08/2004 (Note 3) 1/12/ /2010 Sha Tin New Town, Stage II 03/ road works at Area 34 and 52 02/2009 in Shui Chuen O and Area 56A in Kau To Construction of sewer, rising mains and pumping stations at Kam Tin, Nam Sang Wai and Au Tau in Yuen Long Main drainage channels for Yuen Long and Kam Tin-Shan Ha Tsuen to Lam Hau Tseun section Water supply to Sha Tin Development Area 56A construction of Kau To high level fresh water service reservoir and Kau To fresh water pumping station Replacement and rehabilitation of water mains stage 2 mains in Ngau Tam Mei 29/12/ /6/2010 2/9/ /3/2009 8/5/2006-1/1/ /9/ /11/2009 Time of completion (Note 1) 15/08/ /08/ /10/2008 3/11/ /02/ /3/2009 2/12/ /8/2009 Total contract value HK$204,968, Total amount of works certified (Note 2) HK$201,267,

92 BUSINESS Contracts in progress as at the Latest Practicable Date Set out below are the details of the Group s contracts in progress as at the Latest Practicable Date: Contract number Types of contract Client/Main contractor Particulars of the contract Contract period under main contract Percentage of work certified 3/WSD/09 Waterworks engineering services Original contract value: HK$9,503, WSD Water supply to Ta Tit Yan, Tai Po Construction of water tank, pump house and mainlaying 26/6/ /10/2010 (Note 5) The Group as a subcontractor (Note 4) 21/WSD/06 Waterworks engineering services MHCC/MHWE Replacement and rehabilitation of water mains stage 2 mains in Tai Po and Fanling 8/8/2007-5/1/2011 Total contract 66% 18/WSD/08 Waterworks engineering services MHCC/MHWE Replacement and rehabilitation of water mains stage 3 mains on Hong Kong Island South and outlying islands 18/3/ /9/2013 value HK$672,012, Total amount of 97% 21% 1/WSD/09(W) Waterworks engineering services MHCC/MHWE Term contract for Waterworks District W-New Territories 1/9/ /8/2012 works certified (Note 2) HK$260,328, N/A (Note 6) The Group as a main contractor 9/WSD/09 Waterworks engineering services WSD Replacement and rehabilitation of water mains stage 3 - mains in Sai Kung 28/5/ /11/ % Original contract value: HK$74,708, Remark: As mentioned in the sub-paragraph headed Contracts completed and contracts in progress in this section, due to the nature of certain works contracts (i.e. contract works for replacement and rehabilitation), the contract values specified on those contractual documents only act as an indication and the Group s actual amount of work, revenue and profit recognised during the contract term could be varied from the estimated contract values depending on the work orders received. Notes: 1. Time of completion is determined with reference to, in the case of main contract works, the certificate of completion received from the engineer appointed by WSD, and in the case of subcontract works, the statement of final accounts received from the main contractor or last completion certificate received from the main contractor. 85

93 BUSINESS In the case of contract numbered ST/2005/02, time of completion is determined with reference to a letter issued by the Group to the main contractor confirming completion and hand-over of works. 2. Amount of works certified is based on the certificates of payment received from WSD or the main contractor (as the case may be). 3. The statement of final accounts between the main contractor and WSD was not finalised until 11 August 2008 as there was disagreement of amount in variation orders between the main contractor and WSD. Details of the disagreement were not disclosed by such main contractor to the Company. 4. In respect of the contracts that the Group act as the subcontractor, the Directors confirm that the main contractors are Independent Third Parties. 5. The percentage of work certified is based on the certificates issued by the Group s client on the respective projects. It represents the amount of works certified as a percentage of the original contract value. For details of contract certification and payment, please refer to the sub-paragraph headed Application for payment and certification under the paragraph headed Operations in this section. 6. This is a term contract for maintenance works. As this type of contract neither has a clear specification on the works required to be performed nor contract value stated on its contractual document, therefore percentage of work certified is not applicable. The amount set out in application for payment is calculated based on the amount of work completed in the period pursuant to terms of the works order received and the agreed rates for the relevant works. Details of the maintenance works contract are disclosed in the paragraph headed Contracts completed and contracts in progress in this section. 86

94 BUSINESS The following maps illustrate the locations of (i) contracts completed by the Group during the Track Record Period and up to the Latest Practicable Date; and (ii) the Group s contracts in progress as at the Latest Practicable Date: (i) Locations of contracts completed during the Track Record Period and up to the Latest Practicable Date Note: Marks on the map are for indication of the approximate locations of contracts completed during the Track Record Period and up to the Latest Practicable Date. 87

95 BUSINESS (ii) Locations of contracts in progress as at the Latest Practicable Date Note: Marks on the map are for indication of the approximate locations of contracts in progress as at the Latest Practicable Date. 88

96 BUSINESS OPERATIONS The Group is primarily engaged in the provision of civil engineering works for the public sector, the main contracts of which are generally awarded through open tendering procedures. In general, the Group s operation initially involves preparation and submission of tender document (as regards tender from the Government) or quotation (as regards subcontracting work). After a contract is awarded to the Group, the Group commences procurement of materials, project implementation, selection of subcontractor (if required) and implementation of quality assurance and quality control procedures. When the contract work is completed to a certain stage, such work is inspected and, if satisfactory, certified by the engineer appointed for the project. Thereafter, the Group may apply for contract payments. The general operational procedures are largely identical for both the Group s role as a main contractor and subcontractor. The following diagram illustrates the general operational procedures undertaken by the Group for its business: Preparation stage Identification of projects Preparation of tender document or quotation Submission of tender document or quotation Award of contract by client Formation of project management team Project implementation by direct labour of the Group Manpower allocation If subcontractor is not engaged Procurement of required materials and equipment Implementation stage Quality assurance Preparation of master program Project implementation by subcontractors Assignment of work to appointed subcontractors Selection of subcontractors Procurement of required materials and equipment If subcontractor is engaged Maintenance stage Inspection Certification and application for contract payments Release of payment by client Release of payment to subcontractor (if any) 89

97 BUSINESS Identification of projects Projects are generally identified by the Group by reviewing Government Gazette, on which tender invitations from different Government departments are published. The tender notice includes a brief description of the works required, the expected commencement date and contract period, the contact details of the office from which forms of tender and further particulars of the project may be obtained and the closing time and date of the tender. The Group is also informed of projects subject to tender by receiving invitation letter(s) directly from the Government department concerned. The majority of the contracts undertaken by the Group during the Track Record Period were subcontracted by main contractors. The Group is normally approached by the main contractors and requested to provide an indication of its interest in the subject projects after obtaining the preliminary specifications from the main contractors. If the main contractors are satisfied with the Group s preliminary specifications and quotation, subcontracting agreement will be entered into between the main contractors and the Group. There would not be any contractual relationship between the Group and the relevant Government department in respect of the public sector projects in which the Group acts as a subcontractor. For each of the two financial years ended 31 March 2009 and 2010, revenue generated from contracts in which the Group acted as a subcontractor represented approximately 73.9% and approximately 88.5% of the Group s total revenue respectively. The remaining approximately 26.1% and approximately 11.5% of the Group s total revenue was generated from contracts obtained from WSD in which the Group acted as the main contractor. The aforesaid revenue from contracts in which the Group acted as subcontractor was attributable to five and two main contractors respectively. The Group has established business relationship with these main contractors for three to over ten years. In particular, the Group began undertaking projects as a subcontractor for MHCC/MHWE, the Group s largest main contractor, in For the year ended 31 March 2009, revenue derived from MHWE amounted to HK$2.5 million, representing approximately 2.9% of the Group s total revenue. No revenue was derived from MHWE for the year ended 31 March For each of the two years ended 31 March 2009 and 2010, revenue derived from MHCC amounted to approximately HK$57.8 million and approximately HK$131.4 million respectively, representing approximately 65.9% and approximately 88.3% of the Group s total revenue in the respective year. App1A(28)(1)(b) (iii),(iv) For the year ended 31 March 2009, over 99.9% of the Group s total revenue was attributable to five customers, whilst for the year ended 31 March 2010, the Group s total revenue was attributable to three customers. Mr. Chia, an executive Director, had shareholding interest in Ming Hing Waterworks as at the Latest Practicable Date. Details of Directors interests are set out in the paragraph headed Competing interests in the section headed Controlling Shareholders and Substantial Shareholders in this prospectus. Save for Mr. Chia s shareholding interest in Ming Hing Waterworks, none of the Directors, their associates or any Shareholder had any shareholding interest in Ming Hing Waterworks or the Group s five largest suppliers, customers and subcontractors as at the Latest Practicable Date. 90

98 BUSINESS As the Group mainly undertook waterworks projects in public sector during the Track Record Period in the capacity of either a main contractor or subcontractor, the following table summarises the rights, obligations and risks of a main contractor and a subcontractor in a typical public sector waterworks project: Main contractor Subcontractor Rights (i) To receive payment from WSD directly; and (i) To receive payment from the main contractor; (ii) no advances can be drawn from WSD. (ii) advance from main contractor may be obtained, subject to parties negotiation and agreement; and (iii) may rely on the insurance policies taken out by the main contractor. Obligations (i) To implement the work contract according to the terms set out in the contract entered with WSD; (i) To implement the work contract according to the terms set out in the contract entered into with the main contractor; (ii) shall effect and maintain employees compensation and employer s common law liability insurance in respect of any accident or injury to any workman or other person in the employment of the contractor in connection with the main contractor works or the subcontractor occurring as a result of or in connection with the execution of the subcontractor works; (ii) shall bear the initial loss under any excess clause (i.e. the deductible) under the CAR/TPL Insurances and any uninsured losses in the event of a claim under the CAR/TPL Insurances which relate to the subcontract works; and (iii) shall take out its own insurance for its own plant and equipment at its discretion. Risks (iii) shall effect and maintain CAR/TPL Insurances as required under the main contract; and (iv) shall take out its own insurance for its own plant and equipment at its discretion. Minimal credit risk in receiving payment from WSD. Higher credit risk in the event of delay and/or default in payment by the main contractor. 91

99 BUSINESS The gross profit margin of a typical public sector waterworks project, such as a replacement and rehabilitation of water mains project, may fluctuate throughout the term of a contract as the amount of work and associated costs usually vary from time to time depending on the work orders received. During the Track Record Period, the Group has undertaken replacement and rehabilitation of water mains projects in the capacity of a main contractor (contract numbered 13/WSD/06) and a subcontractor (contract numbered 21/WSD/06). The gross profit margins of contracts numbered 13/WSD/06 and 21/WSD/06 for the year ended 31 March 2009 were both significantly higher than those for the year ended 31 March When comparing the gross profit margins between the aforesaid two contracts in the two years ended 31 March 2009 and 2010, the gross profit margin of contract numbered 13/WSD/06 was slightly lower than that of contract numbered 21/WSD/06 in the year ended 31 March 2009 whilst the gross profit margin of contract numbered 13/WSD/06 was lower, to a greater extent, than that of contract numbered 21/WSD/06 in the year ended 31 March Preparation of tender document or quotation The Group will commence preliminary work for the preparation of tender documents (in the case of Government contracts) or quotations (in the case of subcontracted works) after obtaining the specifications from the Government department concerned or the main contractor. For preparing tender documents in the case of Government contracts, the preliminary work begins with understanding the specifications and requirements of the project and involves a visit to the site at which the project is to be undertaken. The Directors consider the site visit to be a crucial step in preparing the tender document as it enables the Group to better assess the complexity of works involved and determine which method to adopt for carrying out the work in an efficient and cost-effective manner. After the site visit, the quantity surveyors of the Group will conduct a detailed analysis on the technical and financial aspects of the project, taking into consideration the expected amount and complexity of works to be involved, the estimated amount and prices of the required materials, the technical skills required, the expected time of delivery, the involvement of subcontractor(s) and other factors that may affect the Group s obligations. Market information and data relevant to the Group s business and, in particular, preparation of tenders such as price trend of construction materials, wage trend and the Group s tender record are maintained and updated regularly by the Group to facilitate the preparation of competitive tenders. After conducting the aforesaid analysis, the Group s quantity surveyor will prepare a preliminary pricing list, insert the preliminary prices for each item in the bill of quantity and will then submit them to the Group s contract manager for review. The contract manager will scrutinize the preliminary pricing list and bill of quantity, make adjustments (if necessary) based on his experience and recent market information and then submit and discuss with Mr. Kan, the chairman of the Board and an executive Director, and Mr. Fung, an executive Director, for their final review and approval. For preparing quotations in the case of subcontracted works, the Group will carry out procedures similar to those set out above to arrive at the quotations for submission to or negotiation with the main contractors. 92

100 BUSINESS Submission of tender document or quotation In the case of Government contracts, apart from ascertaining the bill of quantity is in compliance with the specifications of the project subject to tender, Mr. Kan and Mr. Fung will, based on their experience and market knowledge, consider whether the tender is competitive in terms of pricing whilst certain level of profitability can be achieved during their review of the tender documents. Upon finalising the bill of quantity and other documents required for submission, the Group will submit the tender documents to the relevant Government department. In the case of subcontracted works, submission of formal quotation may or may not be required. In the event that a formal quotation is required, the Group will prepare the quotations in the similar way as those for preparing the tender documents as set out above and submit documentation to the main contractor. Formation of project management team Once a contract is awarded, a project management team will be formed which generally comprises the project manager, a foreman and a number of workers chosen by the project manager. In choosing the members of the project management team, the project manager usually takes into account of the nature, technical requirement and timing of delivery of the project, the available manpower of the Group, the need for recruitment of additional workers and the skills of the workers. The project management team will have monthly meeting with the engineer appointed for the project to review working progress and conduct daily inspection to enhance the quality assurance. In the case that the Group being a subcontractor, depending on the terms of the subcontracting agreement, the main contractor may designate some of its staff to provide the necessary on-site support to the Group on implementation of the contract work in order to ensure a smooth operation and have a better communication with the engineer appointed for the project. The Group will reimburse the relevant costs on a dollar-to-dollar basis to the main contractor after reviewing and assessing the validity and accuracy of the relevant costs as shown on the schedule prepared by the main contractor. The costs of on-site support from the main contractors paid by the Group for each of the two financial years ended 31 March 2010 were approximately HK$2.3 million and approximately HK$7.0 million respectively. Procurement of materials and equipment During the Track Record Period, the Group was principally focused on waterworks projects and roads and drainage projects. The principal construction materials used by the Group include various kinds of pipes (including mild steel pipes, ductile iron pipes and polyethylene pipes), fittings, steel bars, concrete and asphalt, which are sourced from a number of suppliers. 93

101 BUSINESS For each of the contracts undertaken by the Group, a master program setting out the particulars on the implementation of such project and a project quality plan setting out the specifications, the timing of delivery, the construction materials and manpower required will be prepared. The Group will place the purchase orders (as and when required under the relevant main contract where the Group is a subcontractor, through the relevant main contractor) with the suppliers on the Group s approved list for the required materials and equipment according to the project quality plan. Under normal circumstances, purchase orders will be placed whenever necessary. In addition to the required amount of inventory, the site agent will, based on his past experience in similar projects, order extra amount of inventory as buffer to cater for unforeseen circumstances, such as receipt of additional work orders by the Group. The Group will regularly review the inventory balance to ensure that a sufficient level of inventory is maintained for carrying out contract works and contingencies. During the Track Record Period, there were over 140 suppliers on the Group s approved list of suppliers. Factors considered by the Group before admitting a supplier on its approved list include product quality, timeliness of delivery, job references and reputation in the industry. The Group reviews its approved list of suppliers on an annual basis to ensure that the Group is maintaining a diversified base of reliable suppliers which offer competitive prices. During the Track Record Period, the Group s largest construction materials supplier (in respect of construction materials for which the Group directly placed purchase orders) accounted for approximately 3.8% and approximately 2.8% of the Group s total purchases and the Group s five largest construction materials suppliers (in respect of construction materials for which the Group directly placed purchase orders) accounted for approximately 9.8% and approximately 6.0% of the Group s total purchases respectively. All of the five largest suppliers are Independent Third Parties. None of the Directors or their associates or any Shareholder holding more than 5% of the Company s issued share capital had any interests in the five largest suppliers as at the Latest Practicable Date. During the Track Record Period, the Group had not experienced any significant disruption in the supply of materials by its suppliers. App1A(28)(1)(b) (i),(ii) App1A(28)(1)(b)(v) The Group has established business relationship with its top five suppliers during Track Record Period from one to nine years. No long term contract had been entered into between the Group and the suppliers. The normal credit period granted to the Group is 30 days. For contracts undertaken by the Group as a subcontractor, if the subcontracts entered into between the Group and the main contractor so provides, the main contractor may be responsible for purchasing the required materials for the Group s use to carry out the subcontracted works concerned. For the year ended 31 March 2009, total purchases of construction materials by the Group amounted to approximately HK$20.5 million, which comprised (i) purchases of construction materials made by the Group directly with suppliers of approximately HK$4.2 million; (ii) purchase of construction materials by an independent main contractor for the Group s use in carrying out waterworks engineering services as a subcontractor in respect of a water mains replacement and rehabilitation project (contract numbered 5/WSD/06) of approximately HK$0.2 million; and (iii) purchase of construction materials by MHCC/MHWE for the Group s use in carrying out waterworks engineering services as a subcontractor to MHCC/MHWE in respect of a water mains replacement and rehabilitation project (contract numbered 21/WSD/06) of approximately HK$16.1 million. 94

102 BUSINESS Pursuant to the terms of the subcontracts entered into between MHCC/MHWE and the Group, MHCC/MHWE, upon the written request of the subcontractor (i.e. the Group), would be responsible for purchasing the required materials for the Group s use and is entitled to deduct the corresponding costs of construction materials from the payments to the Group in respect of works completed. For the year ended 31 March 2010, total purchases of construction materials by the Group amounted to approximately HK$32.4 million, which comprised (i) purchases of construction materials made by the Group directly with suppliers of approximately HK$2.6 million; and (ii) purchase of construction materials by MHCC/MHWE for the Group s use in carrying out waterworks engineering services as a subcontractor to MHCC/MHWE in respect of the project as referred to the aforesaid water mains replacement and rehabilitation project (contract numbered 21/WSD/06) and another water mains replacement and rehabilitation project (contract numbered 18/WSD/08) of approximately HK$29.8 million. Similar to the subcontract entered into between MHCC/MHWE and the Group relating to contract numbered 21/WSD/06, the subcontracts in respect of contract numbered 18/WSD/08 and contract numbered 1/WSD/09(W) provide that MHCC/MHWE, upon the written request of the subcontractor (i.e. the Group), would be responsible for purchasing the required materials for the Group s use and is entitled to deduct the corresponding costs of construction materials from the payments to the Group in respect of works completed. As the buy-sell relationship for construction materials was established between MHCC/MHWE and the construction materials suppliers concerned and MHCC/MHWE was responsible for making payments to such suppliers, the Group has not included the suppliers from which MHCC/MHWE purchased the construction materials as suppliers of the Group in its books and records. Similarly, the Group had not included the suppliers from which the aforesaid independent main contractor purchased the construction materials as suppliers of the Group in its books and records. Construction materials purchased through the independent main contractor according to the subcontracting contract signed with such main contractor were accounted for as inventory of the Group. This accounting treatment is the same as that if the Group purchased these materials by itself. The Group settled the cost of construction materials purchased through the independent main contractor on a monthly basis by offsetting an equivalent sum against the progress billing to such main contractor. Project implementation The project management team, headed by a project manager, is responsible for all aspects of the project including preparation of the master program and project quality plan, manpower management, resources allocation, budget monitoring and overall project execution and administration. The project manager who is normally stationed at the site is responsible for site supervision and monitoring work progress. Meetings between the client and the project manager are held regularly to review work progress, to resolve issues identified during implementation of the project and to revise the work program if variation orders are received. 95

103 BUSINESS Subcontracting arrangements The contract period of the contracts awarded to the Group in the past varied from nine months to approximately 66 months and such contracts may involve works that require other expertise such as mechanical and electrical works and landscaping and plantation works. Depending on the Group s manpower availability, the expertise required, the level of complexity of work involved, cost effectiveness and licencing requirements, the Group may appoint subcontractors to carry out certain parts of a contract. To ensure the overall quality of work on a project, the Group has maintained a list of approved subcontractors, the selection of which are based on a set of criteria as set out in the Group s internal quality procedure including previous job references, reputation in the industry, price competitiveness, quality of work and skill sets of workers. During the Track Record Period, there were more than 40 subcontractors on the Group s list of approved subcontractors. The list of approved subcontractors is reviewed and updated on an annual basis based on the performance assessment of each subcontractor by the Group. In determining the appointment of a subcontractor, the Group will take into consideration the manpower allocated to the project by the subcontractor, the subcontractor s quality of work, the subcontractor s timeliness of delivery of work in the past, the management control of the subcontractor and the price competitiveness of quotation. The Group will enter into a subcontract agreement with the subcontractor appointed, which terms will require the subcontractor to observe all the requirements and provisions of the relevant main contract entered into between the Group and its client. Except for situations where subcontract rates and specifications of subcontracted works are particularly stated in the subcontract agreement, all other material terms including payment, supervision and terms of measure of contract works follow those contained in the relevant main contract. In situations where subcontractors do not have sufficient funds to recruit additional workers or acquire the materials necessary to carry out their works, the main contractor may make advances to the subcontractors for such purposes. It is not uncommon in the civil engineering industry or construction industry in general for the main contractor to make advances to subcontractors as initial start-up capital for undertaking contract works. During the Track Record Period, the Group as a main contractor has made advances, which were non-interest bearing, to its subcontractors. As at 31 March 2009 and 2010, the balance of the advances made by the Group to its subcontractors amounted to nil and approximately HK$2.3 million respectively. During the Track Record Period, the Group s subcontracting costs amounted to approximately HK$24.6 million and approximately HK$40.1 million respectively, representing approximately 34.9% and approximately 32.9% of the total costs of service respectively. During the same period, the Group s largest subcontractor accounted for approximately 35.8% and approximately 22.1% of the Group s total subcontracting costs and the Group s five largest subcontractors accounted for approximately 71.3% and approximately 48.1% of the Group s total subcontracting costs respectively. All of the five largest subcontractors are Independent Third Parties. None of the Directors or their associates or any Shareholder holding more than 5% of the Company s issued share capital had any interests in the five largest subcontractors as at the Latest Practicable Date. App1A(28)(1) (b)(v) 96

104 BUSINESS During the Track Record Period, there were over 40 subcontractors on the Group s list of approved subcontractors, nine of which had been working with the Group for at least four years. During the Track Record Period and up to the Latest Practicable Date, the Group had not experienced any incidents whereby the Group s subcontractors have caused delay in completing the required services which resulted in any material adverse impact on the Group s operations or financial position. Inspection During the course of work, the site agent or other team members assigned by him will conduct inspection on all works completed on a regular basis to ensure that the works performed by the Group comply with the requirements as set out in the relevant contract. Under normal circumstances, a further inspection will be conducted together with the engineer s representative before application for interim payment. Application for payment and certification In the case of the Group being a main contractor, the Group is entitled to apply for interim payment for the work in progress per month according to the terms of the work contract. Under normal circumstances, the Group will apply for monthly interim payment pursuant to the terms of the work contract by submitting to the engineer appointed for the project a statement of account, showing the value of the work completed in the period, the value of the materials used for the project and any other sums to which the Group considers to be due to it under the relevant contract, together with other supporting documents as may be required by the engineer appointed for the project for payment of interim works. The engineer appointed for the project will issue a certificate of payment by no later than 21 days of the date of receipt of such notice if, in his/her opinion, the works were satisfactorily completed upon the relevant time frame in accordance with the relevant contract. The payment of interim works will be received within 21 days after the receipt of the certificate of payment. As described above, such application for payment and certification will be conducted monthly until the entire project is completed. Similar to the monthly interim payment, the final payment shall be made to the Group within 21 days of the issue of the completion certificate by the engineer appointed for the project. The maintenance period, as specified on the form of tender, shall commence on the day following the date of completion stated in the completion certificate and last for about a year. During the maintenance period or within 14 days after its expiry, the engineer appointed for the project may by notice in writing require the Group to carry out any work of repair or rectification, or make good any defect, imperfection, shrinkage, settlement or other faults identified within the maintenance period. The Directors are of the view that costs of repair or rectification were immaterial during the Track Record Period. In the case of the Group being a subcontractor, the procedures for application for payment and certification are similar to those in the case of the Group being a main contractor, except that the Group will submit the relevant documents to the main contractor instead of the engineer appointed for the project. The main contractor, upon receipt of payment from the relevant Government departments, will first deduct, if any, the contract fee, handling fee, cost of purchase of construction materials (where applicable) and other reimbursements payable by the Group, before making payment to the Group. 97

105 BUSINESS INVENTORY CONTROL The primary objective of the inventory control is to maintain a sufficient level of inventory for carrying out the projects without delay and contingencies. The Group s inventory level is monitored on an ongoing basis. The project management committee regularly reviews the level of inventory to ensure that there is sufficient inventory for utilisation by the projects. Generally speaking, the amount of construction materials to be ordered is assessed by the site agent on a project-by-project basis depending on the work orders (if any) and specific requirements of each project. The time required for delivery of materials by the suppliers and the expected commencement date of site work will also be taken into consideration when determining the size of order. In addition, the Group may increase the inventory of certain materials required for a project in advance if the project management committee foresees that the prices of those materials will rise in the near future. QUALITY ASSURANCE The Group has adopted a series of quality assurance measures to ensure the quality of its work. In recognition of the quality assurance procedures in place, the quality management system of TYW has been certified that it complies with the requirements of ISO9001:2000 quality management system standard applicable to construction of civil engineering works (site formation, waterworks, roads and drainage). The ISO certificate would be renewed once every three years and ISO surveillance visit would be conducted once every six months. The current ISO 9001:2008 certificate will expire on 2 June Each project is implemented according to its project quality plan, which is designed to ensure that the specifications, timing of delivery, quality of construction materials and manpower required for a project are met. The project manager reviews the aforesaid aspects of a project against the requirements set out in the project quality plan from time to time and makes modifications and rectifications whenever necessary. Prior to making an application for certification of completion, daily inspection will be conducted by the site agent or foreman to ensure that the work completed conforms to the specifications and requirements set out in the contract. In particular, the site agent or foreman will inspect the workmanship of the work completed and prepare an as-constructed drawing. As at the Latest Practicable Date, there were 12 personnel responsible for quality assurance in the Group and Mr. Lau Wai Chun, Jacky is the head of quality assurance of the Group. Details of his qualifications and industry experiences are disclosed in the section headed Directors, senior management, board committees and staff in this prospectus. During the Track Record Period, TYW achieved outstanding performance ratings in respect of the projects undertaken by it and did not receive any poor performance ratings from ETWB. According to the letters received from WBDB dated 1 February 2010 and 3 May 2010 respectively, the respective performance ratings for the fourth quarter of 2009 and the first quarter of 2010 of TYW were the same as the respective highest rating given by WBDB to a total of ten Group B contractors under the category of Waterworks during the relevant period. As the letters from WBDB do not specify the number of contractors achieving the highest rating, the Directors could not rule out the possibility that there might be other contractors getting the same rating as TYW did during the relevant period. 98

106 BUSINESS Nevertheless, based on the letters from WBDB during the Track Record Period, the Directors and the Sponsor are of the view that the Group has achieved outstanding performance ratings during the Track Record Period. Given part of the evaluation process of tenders is based on a formula, a material component of which is a tenderer s performance rating, TYW s recent outstanding performance ratings are beneficial to its bidding of tenders. Details of the Contractors Performance Index System and the assessment criteria of the performance ratings are disclosed in the section headed Licencing and other requirements for Government projects in this prospectus. SAFETY POLICY The Group has implemented a stringent set of safety policies in order to provide a safe and healthy working environment to its employees. Each worker at site is provided with an induction training on the safety policies of the Group. Depending on the scope of work at each site, the safety officer will provide a safety briefing regularly to highlight major safety issues to the workers. The safety officer, site agent and the Group s client will carry out weekly on-site inspection to identify existing and potential safety issues, and thereafter the site agent will be responsible for implementing appropriate safety precautions or rectification measures in respect of the issues identified. In addition, safety reminders and warnings are posted at prominent areas at the sites. According to the Occupational Safety and Health Statistics issued by the Government, the number of industrial accidents in the construction industry in Hong Kong were 3,033 in 2008 and 2,755 in 2009 respectively. For each of the financial years ended 31 March 2009 and 2010, the Group recorded one and two accident(s) respectively, which is not significant as compared to the aforesaid number of industrial accidents. Such three industrial accidents involved personal injuries of labours and no casualties were recorded. The injured persons in two of the accidents were the employees of the Group s subcontractors and as the Group was neither the main contractor of the projects nor direct employer of the injured persons in such two accidents, injury claims were made by the relevant injured persons to their respective main contractors of the projects. In respect of the one accident occurred where the Group was the main contractor of the project, the injured person was a direct employee of the Group. The aforesaid accident happened on 21 January 2010 in which a plant and equipment operator slipped off from a truck while he was off-loading the raw materials on the truck. The injured employee sustained left ankle fracture in the accident. As the Group had taken out and maintained employees compensation insurance policy, the Group, subject to the terms and conditions of the relevant policy, should be insured against the claim made by the injured employee for his injury subtained within the insurance period commencing from 26 June 2009 and terminating upon, whichever is earlier, (i) 6 January 2011 or (ii) the practical completion of the project and during the maintenance period of 12 months immediately following the aforesaid period, with the maximum indemnity of HK$200 million per single event. As at the Latest Practicable Date, the Group has not resolved the case with the injured employee of the Group yet and no injury claim has been received by the Group from such injured employee. Although the injured employee has the right to lodge a claim against the Group for compensation or other remedies, the Board considers the risk exposure of the Group in this regard is minimal, given the Group has insurance with a maximum indemnity of HK$200 million covering such potential liabilities. In order to minimise the occurrence of industrial accidents and improve the Group s safety policies, the Group will keep on conducting safety trainings to uphold the safety awareness of the 99

107 BUSINESS labour. The Group, since August 2008, has engaged external safety firm or auditor to carry out review or audit on the Group s safety aspects on a half-yearly basis. Sequence Management Consultants Limited is an independent consultancy firm specialising in providing site safety inspection and safety audit services to engineering and construction company in Hong Kong. Mr. Choi Kwok Kin Paul is a registered safety auditor under the Factories and Industrial Undertakings (Safety Management) Regulation (Chapter 59AF, the Laws of Hong Kong). Mr. Choi Kwok Kin Paul held various safety supervisory or safety managerial positions in several corporate entities from 1993 to He has been a registered safety officer and a registered safety auditor under the Labour Department of Hong Kong since 1997 and 2000 respectively. He has been providing external safety audit and safety review services since During the Track Record Period, the aggregate fee paid to the safety auditor or the consultancy firm amounted to HK$55,000. The scope of safety audit generally included assessment of safety policy, safety organization, safety rules, personal protective programme, occupational health assurance programme and other safety aspects of the Group. During the Track Record Period, no material safety issues were identified by the safety auditor. In the latest safety report, the safety auditor, Mr. Choi Kwok Kin Paul, had made certain recommendations to the Group including, among other things, revisions of safety plan and emergency plan and arrangement of emergency drill. The follow-up actions in response of the above recommendations have been completed by the Group as at the Latest Practicable Date. The following tables set out the key recommendations made by the safety auditor, Mr. Choi Kwok Kin Paul, in the latest safety reports and the follow-up actions undertaken by the Group in response thereto: TYW Aspect Recommendations and findings Responsible person Follow-up actions undertaken/ implementation results Safety policy No commitment was stated in the safety policy that safety and health are the prime responsibilities of the management at all levels, from the most senior executives down to the front line supervisory staff. Project Manager/ Safety Officer Safety policy has been revised to include the required information. Organisational structure Qualified safety staff to assist the line organization on implementing the safety management system was insufficient. Project Manager Adequate qualified safety staff has been appointed to assist the line organization for implementation of the safety management system. 100

108 BUSINESS Aspect Recommendations and findings Responsible person Follow-up actions undertaken/ implementation results Safety training Safety training plan was not set up to cope with the training needs. Project Manager/ Safety Officer Training plan has been established to cope with the training needs. In-house safety rules and regulations In-house safety rules was not an item of site-specific induction training. Safety Officer Training material of the site-specific induction training has been revised to include in-house safety rules. Programme for inspection of hazardous conditions Project safety plan did not mention about any inspection programme by the senior management at regular intervals. Safety Officer The project safety plan has been revised to include inspection programme. Personal protective programme The safety plan did not mention about the identification of the residual risks after reasonably practicable engineering and administrative controls have been applied. Project Manager/ Safety Officer The safety plan has been revised accordingly. Accident/Incident investigation Safety plan did not specify the line supervisor/line management s involvement in the accident/incident investigation. Project Manager/ Safety Officer The safety plan has been revised to stipulate the line supervisor/line management s involvement in the accident/incident investigation. Emergency preparedness Damage of electrical cable, lifting appliance turn over, damage of town gas pipes, leakages of chemicals had not been identified as emergency situations. Project Manager/ Safety Officer Emergency situations including damage of electrical cable, lifting appliance turn over, damage of town gas pipes, leakages of chemicals have been stipulated in the safety plan. 101

109 BUSINESS Aspect Recommendations and findings Responsible person Follow-up actions undertaken/ implementation results Evaluation selection and control of sub-contractors There was not any pre-work meeting held with subcontractors to discuss the safety and health aspects. Project Manager/ Site Agents/ Safety Officer Pre-work meeting have been held with subcontractors to discuss the safety and health aspects. Safety committee Safety committee meeting minutes was not brought to all employees knowledge at regular intervals. Safety Officer Safety committee meeting minutes have been displayed on the safety bulletin boards. Job hazard analysis Chemical hazard, dangerous substance and road work was not included in the list of foreseeable hazard. Safety Officer Chemical hazard, dangerous substance and road work have been included in the safety plan as foreseeable hazards. Promotion of safety and health awareness The progress/status of Considerate Contractors Site Awards ( ) was not reported/ discussed in the site safety and environmental meeting. Project Manager/ Safety Officer The progress/status of safety promotional competition has been reported/discussed in the site safety and environmental meeting. Occupational health assurance programme The noise assessment/ requirement was not mentioned in the safety plans. Safety Officer The noise assessment/ requirement has been included in the safety plan. Process control programme Record was not documented for the appointment of banksman to control the moving of vehicles or equipment in areas where the safety of public may be endangered was not documented. Site Agent/Safety Officer Appointment of banksman has been properly documented. 102

110 BUSINESS TY Civil Aspect Recommendations and findings Responsible person Follow-up actions undertaken/ implementation results Safety policy Safety plan mentioned that the safety policy will be reviewed in safety committee meeting. However, the safety plan had not stated the details and specific period for reviewing the safety policy. Project Manager/ Safety Committee Safety plan has been revised to include the required details. Organisational structure The lines of communication and responsibility were not defined clearly. Safety Officer Safety organisation chart has been revised to include the required details. Safety training Training plan could not be provided during the audit. The training plan should specify the course titles, aims, time required for training, trainer and target trades. Project Manager/ Safety Officer Training plan has been prepared accordingly. In-house safety rules and regulations In-house safety rules was not an item of site-specific induction training. Project Manager/ Safety Officer Training materials of site-specific induction training have been revised to include in-house safety rules. Programme for inspection of hazardous conditions Analysis of the results and trends of safety inspection had not been analyzed to identify the repeated items; and had not been stated in the corporate safety plan. Project Manager/ Safety Officer Review and revise Safety Plan for the analysis of results and trends of repeated sub-standard items. 103

111 BUSINESS Aspect Recommendations and findings Responsible person Follow-up actions undertaken/ implementation results Accident/Incident investigation TY Civil was recommended to mention a time frame for reviewing the accident /incident investigation procedure such as one or two years and to review the investigation procedure under the condition of corporate safety and health committee meeting. Project Manager/ Safety Committees/ Safety Officer Safety plan for accident/ incident investigation procedure review has been revised accordingly and discussed and reviewed at safety committee meeting. Emergency preparedness Evaluation selection and control of subcontractors Safety plan defined the duties of the emergency team members. However, emergency plans for two of the contracts undertaken by TY Civil had not defined the duties of emergency team members clearly. No monitoring system was shown in the safety plan to ensure that the equipment, plants, tools and materials provided by subcontractors comply with statutory and contractual requirements. Project Manager/ Safety Officer Project Manager/ Safety Officer Safety Plan has been revised to clearly define the duties of emergency team members. Safety plan has been revised to include the required information. Safety committee Safety plan addressed the distribution of minutes of corporate safety committee meeting. However, this minute could not be observed on the safety bulletin board during the time of audit. Project Manager/ Safety Officer Safety committee meeting minutes have been displayed on bulletin boards at relevant work sites. 104

112 BUSINESS Aspect Recommendations and findings Responsible person Follow-up actions undertaken/ implementation results Job hazard analysis Promotion of safety and health awareness There was no arrangement to distribute the risk assessment report to the relevant subcontractors and parties. TY Civil was advised that the risk assessment report should be discussed in the site safety and environmental meeting. TY Civil was advised to participate in the quarterly award of Considerate Contractors Site Awards ( ). The progress of such awards should also be reported in the minutes of site safety and environmental meeting. Project Manager/ Safety Officer/ Site Agent/ Sub-Agents Project Manager/ Site Agents/ Safety Officer Risk assessment reports have been discussed in site safety and environmental meetings and corporate safety committee meeting. Participated in the Considerate Contractor Site Awards ( ); progress has been discussed in site safety and environmental meeting. Occupational health assurance programme Physical observation revealed that noise warning signs and noise labels could not be observed on all air compressors and excavators in two of the work sites. Project Manager/ Safety Officer Noise warning signs/ labels have been displayed on all air compressors and excavators in the relevant work sites. Process control programme Documentary audit on two of the projects revealed that project safety plan had not mentioned non-standard lifting operation. Also, such method statement and safe working procedure had not been produced for specific lifting operations during audit. Project Manager/ Safety Officer Safety procedures have been produced for specific lifting operations. 105

113 BUSINESS The above follow-up actions have been implemented by the Group and reviewed by the Group s safety officer, Mr. Lau Wai Chun, Jacky, who is satisfied with the implemented follow-up actions. The aforesaid follow-up actions will be reviewed by the safety auditor in the next safety audit which is expected to be conducted in September The Group intends to engage Mr. Choi Kwok Kin Paul to conduct the next safety review or audit for the Group. COMPETITION During the Track Record Period, the Group primarily focused on providing waterworks engineering services for the public sector in Hong Kong. The Directors consider the competition in the aforesaid sector is less intense as compared with that in other types of civil engineering works such as building construction. Based on the information available from WBDB s website as at 31 July 2010, there were a total of 11 approved contractors listed on the Contractors List under the category of Waterworks for Group B, as compared to a total of 46 approved contractors listed on the Contractor List under the category of Buildings for Group B. Some evaluations of tenders are based on a formula approach, in which a tenderer s performance rating is taken into account to a significant extent. As disclosed in the paragraph headed Quality assurance in this section, TYW achieved outstanding performance ratings for the quality of its works from WBDB during the Track Record Period. The Directors believe that TYW s recent outstanding performance ratings enhance its competitiveness in tendering a project. The Directors also consider that the requirements on the financial, technical and management aspects of a contractor for inclusion on the Contractor List provide effective barriers to entry for international and local contractors who are not currently on the approved list from entering the sector as a main contractor. Details of the licencing requirements for a contractor to be eligible to tender for work contracts of the Government are set out in the section headed Licencing and other requirements for Government projects in this prospectus. PROPERTY INTERESTS Property interests leased by the Group in Hong Kong (i) Offices The Group s head office and principal place of business in Hong Kong is located at Unit 14, 3/F., Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong with a saleable area of approximately sq.m.. Apart from the Group s head office and principal place of business in Hong Kong, the Group has leased one office unit with a saleable area of approximately sq.m. at Unit 3, 3/F., Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong for general office use, one unit with a saleable area of approximately sq.m. at G/F., 86 San Uk Ka, Tai Po, New Territories, Hong Kong for office use and two rooms in a unit with an aggregate total saleable area of approximately sq.m. at Rooms 1 and 3, 7/F., Anton Building, 1 Anton Street, Wanchai, Hong 106

114 BUSINESS Kong for office use. The aforesaid office premises located at Wanchai are sub-leased from HKLC, which is wholly owned by Mr. Chia, an executive Director. Particulars of the Lease Agreement entered into between the Group and HKLC are set out in the section headed Connected transactions in this prospectus. (ii) Director s quarter The Group has leased a residential unit as its Director s quarter at Flat B, 21/F., Tower 8, The Palazzo, No. 28 Lok King Street, Shatin, New Territories, Hong Kong with a gross floor area of approximately sq.m.. Details of the lease agreement in respect of aforesaid leased properties are set out in Appendix III to this prospectus. As at the Latest Practicable Date, the Group did not own any property interests. Property valuation Vigers Appraisal and Consulting Limited, an independent property valuer, has valued the property interests of the Group as at 31 May 2010, which have no commercial value. Details of the valuation and the text of the letter, summary of values and valuation certificate from Vigers Appraisal and Consulting Limited are set out in Appendix III to this prospectus. INSURANCE It is a practice in the Hong Kong construction industry, as well as a contractual term between the relevant main contractor and a client, that the main contractor of a project will take out and maintain employees compensation insurance and contractor s all risks insurance for the entire project. The coverage of such insurance policies includes all works performed by the main contractor and all its subcontractors. The Directors confirm that the Group has taken out and maintained all its necessary and required insurance policies in respect of employees compensation and contractors all risks for the projects in which members of the Group act as main contractors. When acting as a subcontractor, the relevant member of the Group will not take out separate insurance policies but will rely on the insurance policies taken out and maintained by the relevant main contractor. The reliance of the Group on the main contractors insurance policies is explicitly provided for in the relevant subcontracting agreements. During the Track Record Period, insurance cost for projects amounted to approximately HK$0.32 million and approximately HK$0.29 million respectively. The Directors confirm that the Group has obtained adequate insurance coverage for the operation of its business. RELATIONSHIP WITH MHCC/MHWE Background MHCC and MHWE are both wholly-owned subsidiaries of Ming Hing Waterworks, a company with its issued shares listed on the Main Board of the Stock Exchange. Ming Hing Waterworks, through its subsidiaries, is principally engaged in the provision of maintenance and construction works on civil engineering contracts including waterworks engineering, road works and drainage and slope upgrading services in Hong Kong. 107

115 BUSINESS Business relationship The business relationship between the Group and MHWE started in 2001 with a waterworks project in the North District in the New Territories, whereby TYW acted as a subcontractor to MHWE. TYW s engagement in respect of the aforesaid waterworks project was initiated by Mr. Kan who approached MHWE after Mr. Kan becoming aware of the relevant Government contract being awarded to MHWE. Since the inception of business relationship with MHWE as described above, MHCC/MHWE, as a main contractor, had subcontracted a few contracts from WSD to the Group for implementation. In respect of the eight contracts completed by the Group during the Track Record Period, two contracts were obtained from MHCC/MHWE, and in respect of the five contracts in progress as at the Latest Practicable Date, three contracts were obtained from MHCC/MHWE. For the year ended 31 March 2009, revenue derived from MHWE amounted to approximately HK$2.5 million, representing approximately 2.9% of the Group s total revenue. No revenue was derived from MHWE for the year ended 31 March For each of the two years ended 31 March 2009 and 2010, revenue derived from MHCC amounted to approximately HK$57.8 million and approximately HK$131.4 million respectively, representing approximately 65.9% and approximately 88.3% of the Group s total revenue in the respective year. MHCC/MHWE has been the Group s largest customer since the year ended 31 March The Group had commenced obtaining interest-bearing advances from MHCC in 2007 in respect of a water mains replacement and rehabilitation project (contract numbered 21/WSD/06) subcontracted by MHCC. Apart from the above contract, the Group has also received advance from MHCC in respect of another water mains replacement and rehabilitation project (contract numbered 18/WSD/08) subcontracted by MHCC. Based on the disclosure in the annual report of Ming Hing Waterworks for the year ended 31 March 2010, the Directors believe that Ming Hing Waterworks has also made advances to its other principal subcontractors apart from the Group. As at 31 March 2009 and 2010, advances from MHCC/MHWE amounted to approximately HK$8.2 million and approximately HK$9.0 million respectively, and the maximum balances of advances during the aforesaid two years were approximately HK$14.0 million and approximately HK$11.2 million respectively. Among the balances outstanding as at 31 March 2009 and 2010, approximately HK$8.2 million and approximately HK$3.5 million respectively carried interest at HIBOR (being 0.11%) plus 4%. The aforesaid advances will normally be fully set off against certified payments payable by the main contractors to the Group upon completion of the relevant contracts. The terms of the aforesaid contracts, including the advances, were arrived at between the Group and MHCC/MHWE after arm s length negotiation. The Directors consider that if advances were not made by MHCC/MHWE to the Group for implementation of the aforesaid contracts, the Group could have sought alternative financing methods such as obtaining loans from Mr. Kan, the Controlling Shareholder, bringing in new shareholder(s) to the Group or obtaining external borrowings. Given that the interest rate charged by MHCC/MHWE is comparable to the interest rates charged by a licenced bank in Hong Kong on the loans previsously granted to the Group (being 1% per annum over the best lending rate of such bank of 5% for the HK$4.0 million non-revolving loan and a flat rate of 3.75% per annum (subject to the right of such bank to renegotiate in the event that its best lending rate, being 5%, changes between the date of the relevant facility letter and the date of 108

116 BUSINESS drawdown) for the HK$2.0 million non-revolving loan respectively), the advances from MHCC/MHWE do not require any asset pledge or security from the Group or guarantee from the Controlling Shareholders and obtaining the advances would enhance the liquidity of the Group, the Directors consider it beneficial to the Group to obtain such advances for the purpose of recruiting additional workers and acquiring the equipment and machinery and/or materials necessary to carry out the contract works for which MHWE/MHCC was the main contractor. Furthermore, as it is indicated in the annual report of Ming Hing Waterworks for the year ended 31 March 2010 that Ming Hing Waterworks has made advances to its other principal subcontractors, and the Group also has past experience in receiving advances from another independent main contractor and making advances to subcontractors of the Group, the Directors believe it is not uncommon for a main contractor to make advances to subcontractors. MHCC/MHWE had purchased construction materials for the Group s use in carrying out waterworks engineering services as its subcontractor pursuant to the terms of the contracts entered into between MHCC/MHWE and the Group during the Track Record Period. For each the two years ended 31 March 2009 and 2010, purchase of construction materials by MHCC/MHWE for the Group amounted to approximately HK$16.1 million and approximately HK$29.8 million respectively. Details of the projects for which the above construction materials were purchased are disclosed in the sub-paragraph headed Procurement of materials and equipment in this section. As there was another independent main contractor which had purchased construction materials for the Group and the Group also has past experience in purchasing construction materials for its subcontractors, the Directors believe that it is not uncommon for a main contractor to purchase materials for its subcontractor. The terms of the contracts entered into between the Group and MHCC/MHWE in respect of provision of waterworks engineering services by the Group as a subcontractor to MHCC/MHWE were arrived at after arm s length negotiation, having taken into consideration the nature, size, capital requirement and complexity of the relevant projects, between the Group and MHCC/MHWE. The Directors are of the view that the terms of the relevant contracts (including the purchase of construction materials by and advances from MHCC/MHWE) were on normal commercial terms and the relevant contracts were entered into in the ordinary and usual course of business of the Group. Reliance on MHCC/MHWE For each of the two financial years ended 31 March 2009 and 2010, MHCC/MHWE was the largest customer of the Group, contributing approximately 68.8% and approximately 88.3% to the Group s total turnover. The Directors consider the Group s reliance on MHCC/MHWE during the Track Record Period is attributable to a combination of factors including (i) the length of the subject contracts; and (ii) the then financial resources and capacity of the Group. Due to the volume and complexity of works involved, civil engineering contracts (including waterworks contracts) generally cover a term of two years or more. As shown in the paragraph headed Contracts completed and contracts in progress under this section, most of the works contracts undertaken by the Group have a term of over two years. For this reason, certain subcontracts obtained by the Group from MHCC/MHWE prior to the Track Record Period remain to be in progress within the Track Record Period. Furthermore, the Group had, during the Track Record Period, devoted a considerable amount of financial resources and manpower on the implementation of contracts numbered 21/WSD/06 and 18/WSD/08, and the Group therefore had not taken on other large-scale projects. 109

117 BUSINESS The Directors believe that the reliance on MHCC/MHWE will be gradually reduced after the Listing. On one hand, it is the Group s business objective to undertake more work contracts in the capacity of a main contractor in the future and the Directors intend to more actively participate in the tendering process for Government contracts. As set out in the section headed Future plans and use of proceeds in this prospectus, the Directors expect to obtain two more waterworks contracts directly from WSD next year and have allocated an aggregate of HK$6.0 million out of the net proceeds from the Placing to acquire the necessary equipment and machinery and recruit the required staff for the aforesaid two projects. The Group s effort in obtaining contracts directly from WSD is evidenced by the Group s successful bid for a replacement and rehabilitation works contracts of approximately HK$74.7 million in contract value in May In anticipation of the completion of contract numbered 21/WSD/06 by early next year, the Group has been closely monitoring the tender notices and will participate in the tendering process if suitable opportunities arise. The Group has been pursuing business opportunities with main contractors other than MHCC/MHWE. In July 2010, the Group received a letter confirming acceptance of its quotation submitted in June 2010 from a main contractor in respect of a waterworks contract with estimated contract value of approximately HK$4.4 million. As at the Latest Practicable Date, the Group and such main contractor were still in the process of finalising the terms of the relevant waterworks contract. The Group also submitted a quotation to another main contractor in respect of waterworks with estimated contract value of approximately HK$52.4 million in July The latter quotation relates to waterworks which form part of a Highways Department ( ) project. As at the Latest Practicable Date, the Directors were not able to estimate whether the Group would be awarded the sub-contractor works for such project. Both of the aforesaid main contractors are not associated with Ming Hing Waterworks or its subsidiaries. It is the intention of the Group to continue to actively seek business opportunities with main contractors other than MHCC/MHWE. In view of the above, the Directors believe the Group s reliance on MHCC/MHWE after Listing will be significantly reduced from the current level. Recent development of Ming Hing Waterworks As disclosed in the MH Circular, an indirect wholly-owned subsidiary of Ming Hing Waterworks entered into an agreement relating to an acquisition of interest in a mining business. The directors of Ming Hing Waterworks consider that it is beneficial for its group to diversify its existing business portfolio in view of the deteriorating financial performance of its waterworks engineering business. In particular, the directors of Ming Hing Waterworks explained that the decline in its profit was primarily attributable to the drop in gross profit margin as a result of increasing construction material and labour costs. It is also disclosed in the MH Circular that, apart from expanding the business scope to engage in mining business, Ming Hing Waterworks intends to continue with the waterworks engineering business depending on the then business environment and prospects. 110

118 BUSINESS Although MHCC/MHWE was the largest customer of the Group during the Track Record Period, the Directors and the Sponsor do not consider the diversification of Ming Hing Waterworks into mining business will pose significant adverse impact on the business and prospects of the Group. The Group has worked with a number of main contractors, some of which have business relationships with the Group for more than five years. During the Track Record Period, the Group worked with four main contractors apart from MHCC/MHWE. In the event that Ming Hing Waterworks scales down or discontinues its waterworks engineering business, the Directors are optimistic that the Group could obtain contracts from other main contractors or directly obtain contracts from WSD based on the Group s established operating history and track record. From an industry perspective, the Directors believe that the waterworks industry will continue to present numerous waterworks opportunities to the Group in view of the replacement and rehabilitation programme and other public sector projects. Furthermore, TYW has consistently achieved outstanding performance ratings for the quality of its works from WBDB, which will increase the Group s competitiveness in tendering for Government contracts as a main contractor. The Directors note from the latest published financial reports of Ming Hing Waterworks that the gross profit margin and net profit margin of Ming Hing Waterworks have been generally showing a declining trend. The Directors also note that the directors of Ming Hing Waterworks attributed the decline of the gross profit of Ming Hing Waterworks to rising raw material and labour costs. The Directors are not in a position to comment on the deteriorating financial performance of Ming Hing Waterworks due to the insufficiency of public information. However, based on the Group s past business dealings with Ming Hing Waterworks, the Directors believe that the relatively low gross profit margin and net profit margin of Ming Hing Waterworks may be explained by the fact that Ming Hing Waterworks has subcontracted some of its contracts to subcontractors. In respect of the contracts the Group obtained from MHCC/MHWE, MHCC/MHWE entered into a main contract with WSD and then entered into a subcontract with the Group pursuant to which it subcontracted the overall management and implementation of the entire contract works to the Group. In return, MHCC/MHWE would charge the Group a contract fee representing a fixed percentage of the total contract value and a nominal handling fee for purchase of construction materials on behalf of the Group. As the certified payment for the interim works would be made to MHCC/MHWE by WSD, MHCC/MHWE would then make payment to the Group after deduction of the aforesaid contract fee, handling fee and if applicable, costs of purchase of construction materials and other reimbursements. Given that the fee receivable by MHCC/MHWE on the contracts granted to the Group largely comprise the contract fee which represents a fixed percentage of the total contract value, the gross profit margin of such contracts to MHCC/MHWE would be close to the aforesaid fixed percentage. The Group, as the party implementing the contracts, has more control over the costs of service through actively managing and implementing the project. The better the Group controlled its costs of service and minimized its execution risks, the higher the gross profit margin would be for the Group. Based on the Directors understanding, the Group s gross profit margins for the contracts obtained from MHCC/MHWE are significantly higher than MHCC/MHWE s gross profit margins for the same contracts. Therefore, despite the Directors generally share the view that the cost of construction materials and labour have been rising in the past few years, the management of the Group has been 111

119 BUSINESS successfully maintaining its gross profit margin by carefully evaluating the cost requirement before submitting a tender, actively managing the projects and closely monitoring the costs involved in provision of service. Going forward, the management of the Group will continue to put considerable effort in maintaining its gross profit margin. The Sponsor has reviewed the terms of the subcontracts entered into between the Group and MHCC/MHWE and the financial information in respect of such subcontracts provided by the Group. The Sponsor notes that the Group s gross profit margins during the Track Record Period were significantly higher than the percentage of the contract fee charged by MHCC/MHWE to the Group for the same subcontracts. Based on the information available to the Sponsor, the Sponsor considers that the Directors belief in relation to the Group s higher profit margin than Ming Hing Waterworks is reasonable. Director s interest in Ming Hing Waterworks As at the Latest Practicable Date, Mr. Chia, an executive Director, was interested in less than 1.0% in the issued share capital of Ming Hing Waterworks. Mr. Chia has not held and does not presently hold any position in or otherwise was not involved and is not presently involved in the daily operations of Ming Hing Waterworks or any of its subsidiaries or associated companies. Mr. Chia holds his interests in Ming Hing Waterworks for investment purpose. Save as disclosed above, none of the Directors or their associates had any shareholding interest in Ming Hing Waterworks as at the Latest Practicable Date. Based on the above, Ming Hing Waterworks, including its subsidiaries and associated companies, are not connected persons of the Company under the GEM Listing Rules. LITIGATION AND CLAIM As at the Latest Practicable Date, save as disclosed in the sub-paragraph headed Litigation in the paragraph headed Other information in Appendix V to this prospectus, the Group was not engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Group. ENVIRONMENTAL MATTERS The Group is committed to enhancing and improving technology and services to fulfill its responsibilities to both the community and environment. In delivering civil engineering services, the Group aims to ensure that all services are delivered to a high quality and conducted in an environmentally responsible manner. In particular, the Group has put in place an environmental management policy and prepared and implemented a waste management plan to encourage on-site sorting of construction and demolition materials and minimise generation of waste and disposal of waste during the course of work in compliance with the requirements of ETWB. For waterworks projects, the Group is required to submit an environmental management plan to the engineer appointed by WSD which sets out the steps or measures to be taken by the Group to monitor the Group s works that are carried out in the interests of environmental protection. The Group will designate certain staff to be responsible for monitoring the ongoing compliance with the environmental management plan and reporting to the site manager regarding non-compliance of 112

120 BUSINESS environmental management issues. Mr. Lau Wai Chun, Jacky is designated by the Group as the head of environmental compliance. Details of his qualification and industry experiences are disclosed in the section headed Directors, senior management, board committees and staff in this prospectus. Designated staff shall attend environmental protection courses given by recognised organisations. The assigned person or the environmental supervisor shall provide on-site training to the workers and ensure the Group s continued compliance with the environmental management plan. In addition, the Group has continuously observed the laws and regulations in relation to environmental protection in Hong Kong including Air Pollution Control Ordinance, Noise Control Ordinance, Water Pollution Control Ordinance, Waste Disposal Ordinance and Environmental Impact Assessment Ordinance, details of which are set out in the section headed Environmental protection laws and regulations in this prospectus. Prior to the commencement of work, the Group will assess the implications and requirements of the aforesaid ordinances and apply for the necessary permits (if any) to conduct its work. The breach of the aforesaid environmental protection ordinances may lead to penalty or fine by the relevant government authorities or even termination of works. During the Track Record Period, the Group was in full compliance with the applicable environmental laws and regulations. During the Track Record Period, the annual cost of compliance with applicable environmental laws and regulations were approximately HK$25,000 and approximately HK$47,000 respectively which was mainly attributable to the cost of waste disposal. The Group expects such cost going forward would be around the same range as in the Track Record Period. INTELLECTUAL PROPERTY RIGHTS As at the Latest Practicable Date, the Group was the registered proprietor and beneficial owner of three trademarks registered in Hong Kong. Particulars of such registered trademarks are set out in the sub-paragraph headed Intellectual property rights of the Group under the paragraph headed Further information about the business in Appendix V to this prospectus. 113

121 CONNECTED TRANSACTIONS EXEMPTED CONTINUING CONNECTED TRANSACTIONS The transactions set out below have been carried out by the Group with each of Mr. Kan and HKLC during the Track Record Period, and some of them are expected to continue following the Listing. Nature of transactions Lease Agreement Pursuant to the Lease Agreement, HKLC agreed to lease to TYW the office premises situated at Rooms no.1 and 3, 7/F., Anton Building, 1 Anton Street, Wanchai, Hong Kong at a monthly rent of HK$4,000. The Lease Agreement has a term of 30 months from 1 May 2009 to 31 October The aforesaid office premises were leased by HKLC from Super Pizza Holdings Limited. HKLC is a company incorporated in Hong Kong and is wholly and beneficially owned by Mr. Chia, an executive Director; and Super Pizza Holdings Limited is a company incorporated in Hong Kong and is owned as to 50% by Mr. Chia, who is also the sole director of both HKLC and Super Pizza Holdings Limited. For the two years ended 31 March 2009 and 2010, the actual rental expenses paid to HKLC by the Group in respect of the office premises amounted to nil and approximately HK$44,000 respectively. The Group made a prepayment of HK$76,000 for the remaining term of the Lease Agreement to HKLC during the year ended 31 March Vigers Appraisal and Consulting Limited, an independent valuer, is of the view that the lease arrangement under the Lease Agreement reflects a fair and reasonable market rental for such type of property in the area. Announcement Posting Agreement On 1 June 2010, the Company entered into an agreement with HKLC pursuant to which HKLC will provide the Company with the service of dissemination of announcements including hosting and posting of announcements, press releases or other documents as required by the GEM Listing Rules on the website(s) of the Group at a monthly service fee of HK$750 for a term of one year commencing from 1 July The Company considers it more cost effective to engage a professional firm to take up this announcement posting obligation after Listing. Personal guarantees provided by Mr. Kan Pursuant to the terms of the finance leases in respect of certain motor vehicles and rental arrangements in respect of certain photocopying machines of the Group, Mr. Kan has provided personal guarantees in respect of the payment obligations of the Group under the aforesaid finance leases and rental arrangements. 114

122 CONNECTED TRANSACTIONS Pursuant to the terms of the facility letters dated 13 May 2009 (as supplemented by a letter dated 2 June 2010) and 3 November 2009 (as supplemented by a letter dated 2 June 2010) in respect of a HK$4.0 million non-revolving loan and a HK$2.0 million non-revolving loan (together the Loans ), the facility letter dated 2 July 2009 in respect of HK$6.0 million banking facilities (the General Facilities ) and the facility letter dated 13 May 2009 (as supplemented by a letter dated 2 June 2010) in respect of a HK$0.2 million banking facility on corporate credit cards (the Credit Card Facility ) issued by HSBC, Mr. Kan has provided personal guarantees in respect of the payment obligations of the Group under the aforesaid facility letters. As at the Latest Practicable Date, the Group has repaid the sums due to HSBC under the Loan, the General Facilities and the Credit Card Facility in full. A substantial portion of the monies for repayment to HSBC was lent to the Group by Mr. Kan, pursuant to a loan agreement dated 9 July 2010 entered into between the Group and Mr. Kan (under which Mr. Kan lent a sum of HK$4,040,000 to the Group). Mr. Kan in turn obtained the sum of HK$4,040,000 from Mr. Chia by way of a loan arrangement with Mr. Chia. Hence, part of the proceeds from the Placing will be used for repayment of debts due to Mr. Kan, who will in turn repay to Mr. Chia. The loan advanced by Mr. Kan to the Group will be settled shortly after the Listing. However, the aforesaid personal guarantees provided by Mr. Kan are expected to be released after the expiry of the retention period as determined by HSBC, which is normally six months after full repayment of the relevant facilities in accordance with the internal policy of HSBC. The personal guarantees from Mr. Kan in respect of the finance leases of certain motor vehicles, rental arrangements of certain photocopying machines, the Loans, the General Facilities and the Credit Card Facility as disclosed are provided at nil consideration, and the Group has not provided any security over the assets of the Group in respect of Mr. Kan s personal guarantees. Given that the Group has committed a technical breach under certain finance lease documents for the motor vehicles, Mr. Kan (as guarantor of the Group) could be liable for immediate repayment of all outstanding sum due under the relevant finance lease documents (including payment of all arrears of rent and all outstanding rent which would be payable during or in respect of the unexpired term of the original period of the finance lease). However, the Group shall be under no obligations to indemnify Mr. Kan as a result of the aforesaid matters. For details of the technical breach, please refer to the sub-paragraph headed Litigation under the paragraph headed Other information in Appendix V to this prospectus. The personal guarantees provided by Mr. Kan in respect of the aforesaid finance leases and rental arrangements are intended to continue after the Listing while the personal guarantees provided by Mr. Kan in respect of the Loans, the General Facilities and the Credit Card Facility are expected to continue for not more than 6 months after Listing. Further details of the aforesaid personal guarantees are disclosed in the sub-paragraph headed Financial independence in the section headed Controlling Shareholders and Substantial Shareholders in this prospectus. Shareholder s loan from Mr. Kan and Mr. Chia In addition to the personal guarantees, the Group has owed a sum of HK$4,040,000 to Mr. Kan since 9 July The Group borrowed such sum from Mr. Kan for the purpose of repaying all the outstanding liabilities due to HSBC as disclosed above. Such shareholder s loan to the Group is non-interest bearing, and is due on the earlier of (i) the third Business Day after which the Company receives the net proceeds from the Placing and (ii) the date falling six months from 9 July Due 115

123 CONNECTED TRANSACTIONS to Mr. Kan s inability to provide sufficient funds to the Group for repayment of debts to HSBC within a relatively short period of time, Mr. Kan borrowed HK$4,040,000 from Mr. Chia on the same day in order to provide the necessary funding to the Group. Mr. Kan s loan with Mr. Chia bears interest at the rate of 5% per annum, and is due on the earlier of (i) the third Business Day after the Company receives the net proceeds from the Placing; and (ii) the date falling six months from 9 July The Group intends to apply part of the proceeds from the Placing to repay the loan due to Mr. Kan, who will in turn apply such funds to repay his debts owing to Mr. Chia. As such, the shareholder s loan owing to Mr. Kan will be settled shortly after Listing, and the Board considers that there will not be undue financial reliance of the Group on Mr. Kan after Listing. GEM Listing Rules Implication Lease Agreement and Announcement Posting Agreement HKLC, being an associate of Mr. Chia, is a connected person (within the meaning of Chapter 20 of the GEM Listing Rules) of the Company. Accordingly, transactions contemplated under the Lease Agreement and the Announcement Posting Agreement constitute continuing connected transactions for the Company. Given that the annual rental payable under the Lease Agreement and the annual service fee payable under the Announcement Posting Agreement referred to above are both less than HK$1,000,000 and none of the percentage ratios, on an annual basis, equals or exceeds 5%, and that the Lease Agreement and the Announcement Posting Agreement were entered into in the ordinary and usual course of business of the Group, the transactions under the aforesaid agreements are exempt continuing connected transactions of the Company pursuant to Rule 20.33(3)(c) of the GEM Listing Rules, which are exempt from reporting, annual review, announcement and independent shareholders approval requirements under Chapter 20 of the GEM Listing Rules. The Directors (including the independent non-executive Directors) and the Sponsor have confirmed that the Lease Agreement and the Announcement Posting Agreement were entered into in the ordinary and normal course of the Group s business and the terms thereof (including the respective annual caps) are on normal commercial terms which are fair and reasonable and in the interests of the Company and Shareholders as a whole. Personal guarantees by Mr. Kan Mr. Kan, being a Controlling Shareholder, is a connected person of the Company. Accordingly, the provision of the aforesaid personal guarantees by Mr. Kan constitutes financial assistance to the Company under Chapter 20 of the GEM Listing Rules. Given that such financial assistance was provided by Mr. Kan for the benefit of the Group on normal commercial terms (or better to the Group) and no security over the assets of the Group was granted in respect of such financial assistance, the provision of the aforesaid personal guarantees is an exempt connected transaction for the Company pursuant to Rule 20.65(4) of the GEM Listing Rules, which is exempt from reporting, announcement and independent shareholders approval requirements under Chapter 20 of the GEM Listing Rules. 116

124 CONNECTED TRANSACTIONS Shareholder s loan from Mr. Kan and Mr. Chia Mr. Kan, being the executive Director and Controlling Shareholder, and Mr. Chia, being an executive Director, are connected persons of the Company. Accordingly, the provision of aforesaid shareholder s loan by Mr. Kan which is in turn financed by Mr. Chia constitutes financial assistance to the Company under Chapter 20 of the GEM Listing Rules. Given that such financial assistance was provided by Mr. Kan and Mr. Chia for the benefit of the Group on normal commercial terms (or better to the Group) and no security over the assets of the Group was granted in respect of such financial assistance, the provision of the aforesaid shareholder s loan is an exempt connected transaction for the Company pursuant to Rule 20.65(4) of the GEM Listing Rules, which is exempt from reporting, announcement and independent shareholders approval requirements under Chapter 20 of the GEM Listing Rules. 117

125 FUTURE PLANS AND USE OF PROCEEDS BUSINESS OBJECTIVE AND STRATEGIES Being a licenced contractor on the Contractor List under the categories of Waterworks, Roads and Drainage and Site Formation, the Group is eligible, in the capacity of a main contractor, to tender for projects of these three categories in the public sector in Hong Kong. Over years of participation in waterworks engineering services, the Group has built up its reputation in the waterworks engineering industry and maintained good relationship with other main contractors. The Group aims at leveraging its competitive edge in the waterworks engineering industry to become one of the leading waterworks engineering services providers to the public sector in Hong Kong which commits to strive for excellence in service quality and timeliness. With established operating history and track record in the waterworks engineering industry and an enhanced reputation through the Listing, the Group intends to focus on the provision of waterworks engineering services and undertake more waterworks contracts in the capacity of a main contractor in the near future. App1A.(48) R11.15 App1A(28)(8) R14.19(1)(a), (b) R14.19(2)(3), (4) R14.21 At present, the Group has not yet fulfilled the requirements for applying for promotion to Group C under the category of Waterworks on probationary status. The Company does not intend to apply for promotion to Group C under the respective categories of Waterworks, Roads and Drainage and Site Formation within 12 months from the Listing Date. The Group will continue to foster its reputation and increase its market share in the waterworks engineering industry by pursuing the following strategies: Expansion of business scale The Group s business requires significant capital. At the early stage of a project, the Group will be required to purchase construction materials, acquire equipment and machinery and recruit project management and technical personnel required for undertaking the project. In addition, the Group is required to comply with the minimum employed capital and working capital requirements for retention on the Contractor List (details of which are set out in the section headed Licencing and other requirements for Government projects in this prospectus) to carry out Government contracts. The then levels of employed capital and working capital of the Group pose limitations on the number and size of Government contracts undertaken by the Group as a main contractor. As such, the Group s expansion has been historically constrained by the availability of financial resources and manpower of the Group. With the proceeds from the Placing, the Group will have additional funds to inject into TYW for enhancing TYW s employed capital and working capital and fulfill the hardware and staffing requirements for undertaking additional contract works. Going forward, the Directors intend to participate more actively in the tendering process for Government s projects with a view to obtaining more waterworks contracts in the capacity of a main contractor from the Government, in which the Group has already established a proven track record, to scale up the Group s business. Further enhancement in work quality The Directors believe that the Group s success depends considerably on its ability to deliver works of high quality in a timely manner. The Group has received outstanding performance ratings for the quality of its works from WBDB during the Track Record Period. The Directors consider that 118

126 FUTURE PLANS AND USE OF PROCEEDS maintaining work quality is of utmost importance to the Group s ongoing development in the waterworks engineering sector and the Group s tendering of Government contracts in the future. In order to uphold the work quality of the Group, the Directors plan to recruit additional personnel for quality assurance of the Group. Strengthening of safety team The Directors consider that enhancing the Group s project safety and upholding the Group s work quality are equally important. A sound safety system lowers the risk of accidents and improves work efficiency. It is the Group s responsibility to provide a safe and healthy working environment for the benefit of its staff, its subcontractors and the general public. In order to enhance the Group s safety system, the Directors plan to recruit additional personnel to strengthen the safety team of the Group. MARKET POTENTIAL AND FUTURE PROSPECTS The Directors believe the Group s proven track record in delivering works of high quality in a timely manner has placed the Group in an advantageous position to seize the growth opportunities in the civil engineering sector, particularly in waterworks, roads and drainage, and site formation areas, in Hong Kong. Not only will the replacement and rehabilitation program launched by WSD (details of which are set out in the section headed Industry overview in this prospectus) continue to open up numerous waterworks opportunities to the Group, the infrastructure and development projects being currently implemented or to be implemented by the Government, which the Directors believe would inevitably involve waterworks, roads and drainage works or site formation works at some stage, will also create tremendous business opportunities to the Group in the coming years. The Policy Address sets out ten major infrastructure projects that the Government would undertake to boost economic growth. The ten major infrastructure projects comprise three transport infrastructure projects, four cross-boundary infrastructure projects and three new urban development projects. Construction works or site formation works for some of the aforesaid projects, namely the Hong Kong-Zhuhai-Macao Main Bridge project, the Central-Wan Chai Bypass project and the Kai Tak Development project, have already commenced at the end of 2009, whilst the construction of the terminal building and ancillary facilities of the Kai Tai Cruise Terminal and the crossing facilities of the Hong Kong-Zhuhai-Macao Main Bridge are expected to commence in In addition, construction of the core arts and cultural facilities of the West Kowloon Cultural District is expected to commence in Apart from the aforesaid major infrastructure projects, the Civil Engineering and Development Department ( ) has been devoting continuous effort to new town development and urban development. Projects-in-progress of the Civil Engineering and Development Department ( ) include, among other things, the widening of certain roads in Tsuen Wan, the development of a science park in Pak Shek Kok in Tai Po, the development of lower intensity residential area at Town Centre South and Pak Shing Kok in Tseung Kwan O and the development of 119

127 FUTURE PLANS AND USE OF PROCEEDS public housing, schools and related community facilities in Sau Mau Ping. The Government estimated that the capital expenditure, which is not limited to waterworks, roads and drainage and site formation areas, of Hong Kong would increase to HK$49.6 billion in from HK$45.1 billion in The Directors believe the aforesaid infrastructure projects and new town or urban development projects would drive the demand for civil engineering services and, more specifically, would inevitably involve waterworks, roads and drainage works or site formation works at some stage. Coupled with the opportunities entailed in the continued implementation of the replacement and rehabilitation program by WSD, the Directors believe that the civil engineering services industry has significant market potential and promising prospects. REASONS FOR THE LISTING The Directors believe that the Listing will enhance the Group s profile. Furthermore, the Placing will strengthen the Group s capital base and provide the Group with additional working capital to implement the future plans set out in the paragraphs headed Business objective and strategies and Implementation plan respectively in this section. IMPLEMENTATION PLAN The Directors have drawn up an implementation plan for the period up to 31 March 2013 with a view to achieve the business objective along with the strategies as described above. Details of the implementation plan and expected timetable are set out below. The following implementation plan involves, among other things, undertaking additional waterworks contracts by the Group in the capacity of a main contractor to expand the Group s business scale. As disclosed in the sub-paragraph headed Expansion of business scale in this section, the Group s expansion has been historically constrained by the availability of financial resources and manpower of the Group. With the net proceeds from the Placing, the Group will have additional funds to enhance TYW s capital base, acquire the necessary equipment and machinery and recruit additional staff to undertake new contracts, which will bring the Group to a better position to tender for contracts from WSD. Having considered (i) the Group s past track record on successfully bidding for contracts from WSD, in particular, the successful bidding for a new waterworks contract (contract number 9/WSD/09, the New Project ) from WSD with contract value of approximately HK$75.0 million and a term of 911 days in May 2010; (ii) the Group s past experience in handling various replacement and rehabilitation works contracts; (iii) TYW s outstanding performance ratings received from WSD during the Track Record Period; and (iv) the Group s historical financial and human resources constraints are expected to be lessened by the availability of the net proceeds from the Placing, the Directors are optimistic that the Group can obtain waterworks contracts from WSD, subject to WSD s acceptance, in the six months ending 31 March Subject to the obtaining of such contracts, the Group intends to acquire additional equipment and machinery and recruit additional staff for undertaking of the aforesaid contracts. Investors should note that the implementation plan is drawn up based on the current economic status and the assumptions as set out in the paragraph headed Bases and assumptions below which are inherently subject to uncertainties and unpredictable factors. The Group s actual course of 120

128 FUTURE PLANS AND USE OF PROCEEDS business may vary from the business objective set out in this prospectus. There can be no assurance that the plans of the Group will materialise in accordance with the expected time frame or that the objective of the Group will be accomplished at all. The Directors will use their best endeavors to anticipate future changes in the market, take measures and be flexible so that the Group may stay ahead of or react timely and appropriately to such changes. For the six months ending 30 September 2010 Expansion of business scale Form the project management team for the New Project recently obtained from WSD in which the Group acts as the main contractor Draw up the master program for the New Project Source the required equipment and machinery for the implementation of the New Project Implementation of contract works under the New Project in progress Monitor the forecasts of work tenders published on the website of WBDB for upcoming tenders for the period from April 2010 to September 2010 Further enhancement in work quality Review the existing quality assurance policy of the Group and the staffing Strengthening of safety team Identify suitable candidate(s) for the quality assurance team For the six months ending 31 March 2011 Review the existing safety policy of the Group and the staffing Identify suitable candidate(s) for the safety team Expansion of business scale Closely monitor the tender notices published by the relevant Government department for contract works and identify prospective projects In the capacity as a main contractor, submit tender(s) for waterworks contracts 121

129 FUTURE PLANS AND USE OF PROCEEDS Assuming the Group successfully obtains waterworks contracts (the Prospective Projects ) relating to replacement and rehabilitation of water mains with terms of around 2.5 years and estimated aggregate contract value of HK$150.0 million from WSD, prepare the kick-off of project implementation (including analysing the requirements on equipment and machinery, project management and technical personnel) Form the project management team and draw up the master programs for the Prospective Projects Commence the sourcing of required equipment and machinery and the recruitment of required project management and technical personnel Implementation of contract works under the New Project in progress Further enhancement in work quality Recruit additional staff to be responsible for quality assurance Identify the areas of improvement based on the quality assurance policy and formulate steps or procedures to address the areas of improvement Maintain ongoing quality assurance review on the works performed by the Group Strengthening of safety team Recruit additional staff for the safety team For the six months ending 30 September 2011 Identify the areas of improvement based on the existing safety policy and formulate steps or procedures to address the areas of improvement Expansion of business scale Acquire the equipment and machinery and recruit the project management and technical personnel required for implementation of the Prospective Projects Implementation of the New Project and the Prospective Projects in progress Further enhancement in work quality Implementation of the steps or procedures formulated to address the areas of improvement Review the quality assurance policy after implementation of the aforesaid steps and procedures Maintain ongoing quality assurance review on the works performed by the Group 122

130 FUTURE PLANS AND USE OF PROCEEDS Strengthening of safety team Implementation of the steps or procedures formulated to address the areas of improvement For the six months ending 31 March 2012 Review the safety policy after implementation of the aforesaid steps and procedures Expansion of business scale Implementation of the New Project and the Prospective Projects contracts in progress Further enhancement in work quality Maintain ongoing quality assurance review on the works performed by the Group Strengthening of safety team Maintain ongoing inspection at the work site to ensure the safety policy is properly implemented For the six months ending 30 September 2012 Expansion of business scale Implementation of the New Project and the Prospective Projects contracts in progress Monitor the forecasts of work tenders published on the website of WBDB for upcoming tenders for the period from April 2012 to September 2012 Further enhancement in work quality Maintain ongoing quality assurance review on the works performed by the Group Strengthening of safety team Maintain ongoing inspection at the work site to ensure the safety policy is properly implemented For the six months ending 31 March 2013 Expansion of business scale Closely monitor the tender notices published by the relevant Government department for contract works, identify prospective projects and evaluate the viability of taking on additional contract works by the Group Implementation of the New Project and the Prospective Projects in progress Further enhancement in work quality Maintain ongoing quality assurance review on the works performed by the Group Strengthening of safety team Maintain ongoing inspection at the work site to ensure the safety policy is properly implemented 123

131 FUTURE PLANS AND USE OF PROCEEDS BASES AND ASSUMPTIONS Potential investors should note that the attainability of the Group s business objective depends on the following assumptions: there will be no material changes in the existing laws, policies, industry or regulatory requirements applicable to the Group and its business; and there will be no material adverse change in the political, economic or market conditions in Hong Kong; the Group will be able to continue its operation in substantially the same way as it has been operating and the Group will also be able to carry out its implementation plans without significant disruptions; there will be no change in the effectiveness of the licences, permits and registration held by the Group; the Group will be able to retain key personnel in the management and the technical staff; the Group will be able to recruit additional key project personnel and technical staff when required; there will be no material changes in the funding required for each of the scheduled achievements as outlined under the paragraph headed Implementation plan in this section; and the Group will not be materially and adversely affected by the risk factors as set out in the section headed Risk factors in this prospectus. 124

132 FUTURE PLANS AND USE OF PROCEEDS USE OF PROCEEDS The net proceeds from the Placing, after deducting the underwriting fees and estimated expenses payable by the Company in connection thereto, are estimated to be approximately HK$21.0 million based on the Placing Price of HK$1.28. The Directors intend to apply the aforesaid net proceeds in the following manner: For the six months ending 30 September 2010 approximately HK$ million For the six months ending 31 March 2011 approximately HK$ million For the six months ending 30 September 2011 approximately HK$ million For the six months ending 31 March 2012 approximately HK$ million For the six months ending 30 September 2012 approximately HK$ million For the six months ending 31 March 2013 Total approximately HK$ million approximately HK$ million Expansion of business scale Acquisition of equipment and machinery * Recruitment of additional staff # Further enhancement in work quality Recruitment of additional quality assurance staff Strengthening of safety team Recruitment of safety staff Repayment of Shareholder s loan Repayment of finance leases * Out of HK$6.5 million, HK$4.0 million will be applied to the Prospective Projects # Out of HK$3.0 million, HK$2.0 million will be applied to the Prospective Projects 125

133 FUTURE PLANS AND USE OF PROCEEDS It is expected that the equipment and machinery to be acquired by the Group will include heavy crane lorries, heavy grab lorries, light lorries, light vehicles, small excavators, small generators and small hydraulic breakers. The balance of approximately HK$2.0 million will be used for general working capital of the Group. Based on current estimations by the Directors, the net proceeds from the Placing will be sufficient to finance the Group s business plan as scheduled up to 31 March In particular, approximately HK$6.5 million and approximately HK$3.0 million of the net proceeds will be used to acquire equipment and machinery and recruit additional staff respectively to undertake the New Project and the Prospective Projects by the Group as a main contractor to enable the Group to scale up its business. In the event that the Group fails to obtain the Prospective Projects but is successfully awarded with other waterworks contract(s) from WSD, the Directors will apply the net proceeds originally allocated to the Prospective Projects to such waterworks contract(s). To the extent that the net proceeds from the Placing are not immediately required for the above purposes, the Directors currently intend that such proceeds will be placed on short-term deposits with licenced banks or financial institutions in Hong Kong. 126

134 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF DIRECTORS Executive Directors Mr. Kan Kwok Cheung ( ), aged 46, is the founder of the Group. Mr. Kan is the chairman of the Board and is responsible for the overall business planning and corporate strategy of the Group. In 1989, Mr. Kan formed TYC as a sole proprietorship to carry out civil engineering subcontracting works. Mr. Kan later formed TYW and TY Civil in 1996 and 2000 respectively and has been the director of both companies since their formation. Mr. Kan has over 20 years of experience in handling civil engineering projects of various types. His experience in handling civil engineering projects was gained from running the construction business through his employment, as a foreman in the construction industry before founding the Group. In the last three years, he held no directorships in any listed public companies. Mr. Kan has entered into a service contract with the Company for an initial term of three years commencing from 11 August 2010, and will continue thereafter until terminated by not less than three months notice in writing served by either party on the other or three months salary being payment in lieu of notice. In addition, Mr. Kan has entered into an employment contract with TYW to act as the director of TYW for a continuous term commencing from 6 February 1996 until terminated by not less than thirty days notice in writing served by either party on the other or thirty days salary being payment in lieu of notice. App1A.(41) R11.12A(3) R11.07(1) Third Schedule 6 Mr. Cheng Ka Ming, Martin ( ), aged 59, is the vice-chairman of the Board and an executive Director and is responsible for the business management and corporate development of the Group. Mr. Cheng obtained a bachelor s degree in civil engineering from the National Cheng Kung University, Taiwan in 1973 and a master s degree in analytical soil mechanics from the King s College, University of London in He has over 29 years of experience in the construction industry. Mr. Cheng was an engineer at Watermeye, Legge, Piesold & Uhlmann Consulting Engineers (UK) from 1974 to Mr. Cheng was a project director of Gammon-Nishimatsu Joint Venture from March 2001 to December 2002 and prior to that he held a managerial position at Gammon Construction Limited, at which he worked during 1976 to Mr. Cheng was an independent non-executive director and a member of the audit committee of a Hong Kong listed company, namely Ming Hing Waterworks, from 1 October 2008 to 20 February Subsequently, Mr. Cheng was appointed as a consultant of a subsidiary of Ming Hing Waterworks, namely MHCC, from February 2009 to April After he resigned as a consultant of MHCC, Mr. Cheng joined the Group as a director of TYW and a director of TY Civil in May Save as disclosed above, he held no directorships in other listed public companies in the last three years. He has entered into a service contract with the Company for an initial term of three years commencing from 11 August 2010, and will continue thereafter until terminated by not less than three months notice in writing served by either party on the other or three months salary being payment in lieu of notice. In addition, Mr. Cheng has entered into an employment contract with TYW to act as the director of TYW for a continuous term commencing from 1 May 2009 until terminated by not less than thirty days notice in writing served by either party on the other or thirty days salary being payment in lieu of notice. Mr. Fung Chung Kin ( ), aged 52, is the chief executive officer of the Group and an executive Director and is responsible for overseeing the overall project management and the daily operation of the Group. Mr. Fung joined the Group as director of TYW in April 2006 and has been appointed as a director of TY Civil since March Prior to joining the Group, Mr. Fung has been 127

135 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF a general manager of Flame Construction Company Limited from July 2000 to August Mr. Fung held various supervisory or managerial positions in several companies since December 1978 and has, up to now, accumulated over 25 years of experience in the fields of civil engineering or construction. He worked as a works supervisor at Maunsell Consultants Asia from December 1978 to July He worked as a resident assistant inspector of works at Harris & Sutherland (Far East) Ltd from July 1986 to January He worked as a resident inspector of works at Mott MacDonald Hong Kong Limited from January 1989 to August Mr. Fung was appointed as an executive director of Hoi Sing Holdings Limited (presently known as ITC Corporation Limited, a company incorporated in Bermuda, whose shares are listed on the Stock Exchange), from January 1992 to September 1993 and then he was appointed as a director and general manager at Hoi Sing Construction Company Limited from September 1991 to June Mr. Fung acted as a graduate engineer for Owen Williams Railways Limited for approximately one year until October He worked as a project manager at Chun Wo Construction & Engineering Company Limited from December 1999 to April Mr. Fung obtained the diploma in civil engineering from Hong Kong Polytechnic (now The Hong Kong Polytechnic University) in 1978 and the higher certificate in civil engineering from the same institution in Mr. Fung also obtained a bachelor s degree in civil engineering from the University of Greenwich in Mr. Fung was admitted as an associate member of the Hong Kong Institution of Engineers in January In the last three years, he held no directorships in any listed public companies. He has entered into a service contract with the Company for an initial term of three years commencing from 11 August 2010, and will continue thereafter until terminated by not less than three months notice in writing served by either party on the other or three months salary being payment in lieu of notice. In addition, Mr. Fung has entered into an employment contract with TYW to act as the director of TYW for a continuous term commencing from 1 April 2006 until terminated by not less than thirty days notice in writing served by either party on the other or thirty days salary being payment in lieu of notice. Mr. Chia Thien Loong, Eric John ( ), aged 40, is an executive Director and the compliance officer of the Group and is responsible for overseeing the financial and compliance aspects of the Group. Mr. Chia joined the Group as director of TYW and TY Civil in May Mr. Chia is also currently the director of Vietnam Infrastructure (BVI) Limited, Super Pizza Holdings Limited and HKLC. Prior to joining the Group, Mr. Chia held directorate positions in Gransing Securities Company Limited from 2003 to Mr. Chia has over 14 years of experience in corporate finance, management and investment. Mr. Chia graduated with a degree of Bachelor of Science in accounting and finance from Purdue University, Indiana, USA in He joined Apple Computer International Limited as a financial analyst from June 1995 to March Mr. Chia joined the Listing Division of the Stock Exchange as an executive from March 1997 to June 1998 and joined BNP Peregrine Paribas Capital Limited as an assistant manager in June He re-joined the Listing Division of the Stock Exchange as an assistant manager during the period between August 1999 and July 2001 and joined Worldwide Finance Capital Limited as a senior manager in August In the last three years, he held no directorships in any listed public companies. He has entered into a service contract with the Company for an initial term of three years commencing from 11 August 2010, and will continue thereafter until terminated by not less than three months notice in writing served by either party on the other or three months salary being payment in lieu of notice. In addition, Mr. Chia has entered into an employment contract with TYW to act as the director of TYW for a continuous term commencing from 1 May 2009 until terminated by not less than thirty days notice in writing served by either party on the other or thirty days salary being payment in lieu of notice. 128

136 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF Independent non-executive Directors Mr. Lim Hung Chun ( ), aged 46, has been appointed by the Company as the independent non-executive Director on 11 August Mr. Lim graduated from the Hong Kong Polytechnic (now The Hong Kong Polytechnic University) in Accountancy in He is a fellow of the Association of Chartered Certified Accountants and an associate of the Hong Kong Institute of Certified Public Accountants. Mr. Lim has extensive experience of over 20 years in corporate and strategic planning, finance and administration, internal control and auditing, information technology and human resources management in various industries. He worked in Deloitte Touche Tohmatsu (formerly called Deloitte Ross Tohmatsu) for two years from 1988 to He then acted as a chief accountant in Hong Kong Toy Centre International Limited, for approximately two years. He was appointed as a general manager in an electronic company from 1993 to He served as the Corporate Director of Finance in Lee Kum Kee Group, a fast moving consumer goods company engaged in manufacturing, sales and distribution of Chinese sauces and condiments, from 1997 to Since 2008, Mr. Lim has been engaging in business consulting industry providing business solutions, management consultancy, financial advisory and company secretary services to clients. On 21 September 2009, Mr. Lim was appointed as an independent non-executive director of Sanyuan Group Limited ( Sanyuan ) which was then under delisting procedures. Based on Mr. Lim s experience in corporate and strategic planning, he was invited by the then board of directors of Sanyuan to assist in the application for resumption of trading of shares in Sanyuan. Mr. Lim resigned from his position on 14 December 2009 as resumption of trading of Sanyuan failed and Sanyuan had been subsequently delisted on 24 December Save as disclosed above, Mr. Lim held no directorships in other listed public companies in the last three years. He has not, by himself or through his firm in which he practices, provided professional services to the Company during the Track Record Period. Mr. Lo Ho Chor ( ), aged 54, has been appointed by the Company as the independent non-executive Director on 11 August Mr. Lo graduated from the University of Hong Kong in 1978 holding the degree of Bachelor of Social Sciences. He has over 21 years of experience in the banking industry. Mr. Lo was an executive trainee at The Bank of East Asia Limited from August 1978 to March He worked as a credit officer for The Ka Wah Bank Limited from March 1981 to March 1982 and in the credit review department at Far East Bank Limited from June 1982 to March Mr. Lo was a manager in credit & marketing department at Banco Central Hispano Americano S.A. from January 1990 to July 1991 and prior to that he acted as an Assistant Vice President at Security Pacific Asian Bank Ltd. He has proven track records in managing two credit card centres as operations head with ORIX Asia Limited and Industrial and Commercial Bank of China Limited, Hong Kong Branch. In the last three years, Mr. Lo held no directorships in any listed public companies. He has not, by himself or through his firm in which he practices, provided professional services to the Company during the Track Record Period. Mr. Sung Lee Kwok ( ), aged 45, has been appointed by the Company as the independent non-executive Director on 11 August Mr. Sung graduated from the Peking University, China with a doctorate degree in laws in He has obtained the PRC attorney qualification in 1999 and is now a registered foreign lawyer in Hong Kong. He is currently a foreign legal consultant of PRC laws in Jones Day, registered arbitrators of (China International Economic and Trading Arbitration Commission) and (Shenzhen Arbitration Commission), an associate professor in laws of Anhui University and an independent director of 129

137 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF (Beijing Electric City Investment and Development Co., Ltd*), a company listed on the Shanghai Stock Exchange, PRC starting from Mr. Sung was an independent director of (Guodian Nanjing Automation Company Limited*), a company listed on the Shanghai Stock Exchange, PRC from 2003 to Save as disclosed above, in the last three years, Mr. Sung held no directorships in any listed public companies. He has not, by himself or through his firm in which he practices, provided professional services to the Company during the Track Record Period. Please refer to the paragraph headed Further information about Directors, management, staff and experts in Appendix V to this prospectus for information regarding particulars of the Directors service contracts and emoluments and information regarding their respective interests (if any) in shares of the Company within the meaning of Part XV of the SFO. Save as disclosed in this prospectus, each of the Directors has confirmed that there are no other matters relating to his appointment as a Director that need to be brought to the attention of the Shareholders and there is no other information in relation to his appointment which is required to be disclosed pursuant to Rule 17.50(2) of the GEM Listing Rules. SENIOR MANAGEMENT OF THE GROUP Contracts Manager Mr. Leung Hon Chung, aged 53, has been the contracts manager of TYW since August Mr. Leung is experienced in overseeing contractual matters in relation to construction projects and has over 30 years of experience in project management for civil engineering projects. Prior to joining the Group, Mr. Leung worked as a deputy project manager for Sum Kee Construction Limited from 2007 to He worked as an assistant site agent, site agent and project manager at Shun Hing Construction Company Limited from 1978 to 1995 and worked as a project manager at Sequence Construction Company Limited from 1997 to Mr. Leung worked as a senior inspector of works at J. Rogers Preston Limited during the period between June 1995 and September Mr. Leung obtained a diploma in civil engineering and a higher certificate in civil engineering from the Hong Kong Polytechnic (now The Hong Kong Polytechnic University) in 1978 and 1980 respectively. In the last three years, Mr. Leung held no directorships in any listed public companies. Project Manager Mr. Lau Wai Chun, Jacky, aged 50, first joined the Group as a project manager of TYW between May 2002 and March In July 2008, Mr. Lau returned to the Group as the project manager of TYW and was also appointed as the head of quality assurance and the head of environmental compliance of the Group. Mr. Lau has over 28 years of experience in supervision of construction work. He worked as works supervisor and assistant inspector of works at Maunsell Consultants Asia Limited from 1979 to 1989 and as senior inspector of works at Scott Wilson (Hong Kong) Limited from 2003 to Mr. Lau also worked as an inspector of works for Watson Hawksley Consulting Engineers and Pypun Engineering Consultants Ltd from 1991 to He worked as a * For identification purpose only 130

138 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF senior inspector of works for Freeman Fox Maunsell Consulting Engineers from 1993 to 1998 and a project manager for Man Wah New Concepts Engineering Ltd from 1998 to Mr. Lau was a senior inspector of works of the Mass Transit Rail Corporation from 2005 to Mr. Lau holds the diploma in civil engineering and the higher certificate in civil engineering from the Hong Kong Polytechnic in 1978 and 1980 respectively. Mr. Lau obtained the certificate of proficiency in industrial safety from the Hong Kong Polytechnic (now The Hong Kong Polytechnic University) in 1983 and was a registered safety officer in 1997 and such registration was re-validated in March In the last three years, Mr. Lau held no directorships in any listed public companies. Chief Financial Officer and Company Secretary Mr. Tam Tsang Ngai, aged 35, has been the chief financial officer and company secretary of TYW since April Mr. Tam worked in Deloitte Touche Tohmatsu from 1997 to Prior to joining the Group, Mr. Tam worked as the finance manager in both MHCC from 2008 to March 2010 and China Resources Petrochems (Group) Company Limited and China Resources Gas (Holdings) Limited from 2001 to Mr. Tam graduated with a bachelor s degree in business administration from The Chinese University of Hong Kong in Mr. Tam is a member of Hong Kong Institute of Certified Public Accountants and a fellow of the Association of Chartered Certified Accountants. In the last three years, Mr. Tam held no directorships in any listed public companies. Administration Officer Ms. Kan May Bo, Mabel, aged 42, has been working in TYW since October Ms. Kan has over 13 years of experience in clerical and administrative work for various companies from 1985 to 1996 prior joining to the Group. Ms. Kan is currently the administration officer of the Group and is responsible for the general administration of the Group. In the last three years, Ms. Kan held no directorships in any listed public companies. Ms. Kan has no family relationship with Mr. Kan Kwok Cheung. COMPLIANCE OFFICER App1A(42)(1)(b) R11.07(3) Mr. Chia Thien Loong, Eric John, who is also an executive Director also acts as the compliance officer of the Group. Please refer to his biography set out in the sub-paragraph headed Executive Directors in this section. BOARD COMMITTEES Audit committee R11.07(5) App1A(42)(2) The Company established the audit committee pursuant to a resolution of the Directors passed on 11 August 2010 in compliance with Rule 5.28 of the GEM Listing Rules. The written terms of reference are in compliance with paragraph C3.3 of the Code on Corporate Governance Practices as set out in Appendix 15 to the GEM Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of the Group. At present, the audit committee of the Company consists of three members, namely Mr. Lim Hung Chun, Mr. Lo Ho Chor and Mr. Sung Lee Kwok. Mr. Lim Hung Chun is the chairman of the audit committee. 131

139 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF Remuneration committee The Company established a remuneration committee on 11 August 2010 with written terms of reference in compliance with paragraph B1.1 of the Code on Corporate Governance Practices as set out in Appendix 15 to the GEM Listing Rules. The primary duties of the remuneration committee are to make recommendation to the Board on the overall remuneration policy and structure relating to all Directors and senior management of the Group and to review and determine the terms of remuneration packages, bonuses and other compensation payable to them. The remuneration committee consists of three members, namely Mr. Kan, Mr. Lo Ho Chor and Mr. Sung Lee Kwok. Mr. Kan is the chairman of the remuneration committee. Nomination committee The Company established a nomination committee on 11 August The written terms of reference are in compliance with paragraph A4.4 of the Code on Corporate Governance Practices as set out in Appendix 15 to the GEM Listing Rules. The primary function of the nomination committee is to make recommendations to the Board on the appointment of Directors and the management of the Board succession. The nomination committee consists of three members, namely Mr. Kan, Mr. Lo Ho Chor and Mr. Lim Hung Chun. The chairman of the nomination committee is Mr. Kan. COMPLIANCE ADVISER In accordance with Rule 6A.19 of the GEM Listing Rules, the Company has appointed Optima Capital to be the compliance adviser, who will have access to the Company s authorised representatives, Directors and other officers at all times. The compliance adviser will advise the Company on on-going compliance requirements and other issues under the GEM Listing Rules. The compliance adviser s appointment shall commence on the Listing Date and end on the date on which the Company complies with Rule of the GEM Listing Rules in respect of its financial results for the second full financial year commencing after the Listing Date, or until the agreement is terminated, whichever is earlier. Pursuant to Rule 6A.23 of the GEM Listing Rules, the compliance adviser will advise the Company in the following circumstances: (1) before the publication of any regulatory announcement, circular or financial report; (2) where a transaction, which might be a notifiable or connected transaction, is contemplated including share issues and share repurchases; (3) where the Company proposes to use the proceeds of the Placing in a manner different from that detailed in this prospectus or where the business activities, developments or results of the Company deviate from any forecast, estimate, or other information in this prospectus; and (4) where the Stock Exchange makes an inquiry of the Company concerning unusual movements in the price or trading volume of the Company. 132

140 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF DIRECTORS REMUNERATION The aggregate amount of fees, salaries, allowances and benefits in kind paid by the Group to the Directors for each of the two financial years ended 31 March 2009 and 2010 amounted to approximately HK$1,554,000 and HK$2,720,000 respectively. Each of the executive Directors has entered into a service contract with the Company for an initial term of three years commencing on 11 August 2010 while each of independent non-executive Directors is appointed for a term of three years commencing from 11 August Under the respective service contracts or appointment letters, the aggregate basic annual remuneration (excluding payment of discretionary bonus) payable by the Group to the Directors will be HK$336,000. The Directors remuneration policy of the Group after Listing will be substantially the same as the remuneration policy of the Group for the year ended 31 March Further details of the service contracts and appointment letters of the Directors and their respective remuneration after Listing are set out in the sub-paragraph headed Particulars of Directors service contracts in the paragraph headed Further information about Directors, management, staff and experts in Appendix V to this prospectus. STAFF App1A(28)(7) Number of staff members As at the Latest Practicable Date, the Group had a total of 171 full-time staff members in Hong Kong. The following table sets out the number of staff of the Group as at 31 March 2009, 31 March 2010 and the Latest Practicable Date by job functions: Job function As at 31 March 2009 As at 31 March 2010 As at Latest Practicable Date Project management Administration, accounting and finance Direct workers Total Remuneration The employees of the Group are remunerated by way of fixed salary. The Group has devised an assessment system for its employees and the Group uses the assessment result for salary reviews and promotion decisions. All the staff undergoes a performance appraisal once a year. The appraisal provides the Group with an opportunity to assess each individual staff s strengths and areas for improvement, thereby enabling the Group to effectively train and develop each individual staff. 133

141 DIRECTORS, SENIOR MANAGEMENT, BOARD COMMITTEES AND STAFF The five highest paid individuals whose emoluments were the highest in the Group included two and three Directors for the years ended 31 March 2009 and 2010 respectively. The aggregate salaries, bonuses and benefits in kind paid by our Group to its remaining three and two highest paid individuals and the contributions for mandatory provident fund made by the Group for such highest paid individuals for each of the two financial years ended 31 March 2010 were approximately HK$1,135,000 and approximately HK$1,324,000 respectively. During the Track Record Period, no emoluments were paid by the Group to any of the aforesaid five highest paid individuals as an inducement to join the Group or upon joining the Group as compensation for loss of office. Relationship with staff The Directors consider that the Group maintains good working relationship with its staff. The Group has not encountered any difficulty in recruitment and retention of staff for its operation or experienced any material disruption of its operation as a result of labour disputes since the establishment of its business. PROVIDENT FUND App1A(33)(4)(a), (b),(d) The Group participates in a mandatory provident fund scheme (the MPF Scheme ) under the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of Laws of Hong Kong) for its employees in accordance with the requirements of such ordinance. The MPF Scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF Scheme, both the Group and the employees have to contribute an amount equal to 5% of the relevant income of such employees to the MPF Scheme, subject to a minimum and maximum level of the monthly relevant income of HK$5,000 and HK$20,000 respectively. Relevant income includes wages, salaries, leave pay, fee, commission, bonus, gratuity perquisite and allowance (excluding housing allowance or housing benefits). Contributions to the plan vest immediately. 134

142 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS CONTROLLING SHAREHOLDERS App1A(27A) So far as the Directors are aware, immediately following completion of the Placing and the Capitalisation Issue, the following entity/person are entitled to exercise or control the exercise of 30% or more of the voting power at the general meetings of the Company: Name Capacity and nature of interest Number of Shares (Note 1) Percentage of shareholding Shunleetat (Note 2) Beneficial owner 40,920,000 (L) 41.25% Mr. Kan (Note 2) Interest of controlled corporation 40,920,000 (L) 41.25% Notes: 1. The letter L denotes a long position in the shareholder s interest in the share capital of the Company. 2. Shunleetat is wholly and beneficially owned by Mr. Kan. Accordingly, Mr. Kan is deemed to be interested in the 40,920,000 Shares held by Shunleetat under the SFO. Save for the entity/person disclosed above, there are no other persons who will, immediately following completion of the Placing and the Capitalisation Issue, be directly or indirectly entitled to exercise or control the exercise of 30% or more of the voting power at general meetings of the Company. SUBSTANTIAL SHAREHOLDERS So far as the Directors are aware, immediately following completion of the Placing and the Capitalisation Issue, the following entities/persons (other than the entity/person as disclosed in the paragraph headed Controlling Shareholders above) are entitled to exercise or control the exercise of 10% or more of the voting power at general meetings of the Company: Name Capacity and nature of interest Number of Shares (Note 1) Percentage of shareholding Chuwei (Note 2) Beneficial owner 13,020,000 (L) % Mr. Cheng (Note 2) Interest of controlled corporation 13,020,000 (L) % Purplelight (Note 3) Beneficial owner 11,160,000 (L) 11.25% Mr. Fung (Note 3) Interest of controlled corporation 11,160,000 (L) 11.25% Notes: 1. The letter L denotes a long position in the shareholder s interest in the share capital of the Company. 135

143 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS 2. Chuwei is wholly and beneficially owned by Mr. Cheng. Accordingly, Mr. Cheng is deemed to be interested in the 13,020,000 Shares held by Chuwei under the SFO. 3. Purplelight is wholly and beneficially owned by Mr. Fung. Accordingly, Mr. Fung is deemed to be interested in the 11,160,000 Shares held by Purplelight under the SFO. Save for the entities/persons disclosed above, there are no other entities/persons (other than the entity/person as disclosed in the paragraph headed Controlling Shareholders above) who will, immediately following completion of the Placing and the Capitalisation Issue, be directly or indirectly entitled to exercise or control the exercise of 10% or more of the voting power at general meetings of the Company. COMPETING INTERESTS R11.04 Mr. Chia is the director and the beneficial owner of Vietnam Infrastructure (BVI) Limited, a company engaged in provision of civil engineering services in Vietnam. The civil engineering services provided by Vietnam Infrastructure (BVI) Limited are similar to those provided by the Group but are limited to Vietnam. Mr. Chia confirms that Vietnam Infrastructure (BVI) Limited does not intend to extend its business to Hong Kong. As the Group and Vietnam Infrastructure (BVI) Limited are carrying on business in two distinct jurisdictions, the Directors consider that the business of Vietnam Infrastructure (BVI) Limited is not in direct competition with that of the Group. As at the Latest Practicable Date, Mr. Chia was interested in less than 1.0% in the issued share capital of Ming Hing Waterworks, a company whose issued shares are listed on the Main Board of the Stock Exchange, which is engaged in a business similar to that of the Group. During the Track Record Period, MHCC/MHWE, each a subsidiary of Ming Hing Waterworks, was the largest customer of the Group. Mr. Chia has not held and does not presently hold any position in or otherwise was not involved and is not presently involved in the daily operations of Ming Hing Waterworks or any of its subsidiaries or associated companies. Mr. Chia holds its interests in Ming Hing Waterworks for investment purpose. App1A(28) (1)(b)(v) Save as disclosed above, none of the Controlling Shareholders, the Substantial Shareholders, the Directors and their respective associates is interested in any business which competes or is likely to compete, directly or indirectly, with the business of the Group. Deed of non-competition undertaking Mr. Kan, Shunleetat, Mr. Cheng, Chuwei, Mr. Fung, Purplelight, Mr. Chia and Lotawater (the Covenantors ) have executed a deed of non-competition undertaking in favour of the Group, undertaking that he/it shall not, and procure his/its associates not to, whether on his/its own account or in conjunction with or on behalf of any person, firm or company and whether directly or indirectly, whether for profit or not, carry on, engage, invest or be interested or otherwise involved or engaged in any business that is in competition with or is likely to be in competition with any business carried on by any member of the Group from time to time in Hong Kong, Macau or the PRC or in which any member of the Group is engaged or has invested or is otherwise involved in in Hong Kong, Macau or the PRC (the Restricted Business ). It has also been provided in the deed of non-competition undertaking that if a Covenantor and/or any of his/its associates is offered of any project or new 136

144 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS business opportunity that relates to the Restricted Business, whether directly or indirectly, he/it shall: (i) promptly notify the Company in writing of such opportunity and provide such information as is reasonably required by the Company in order to enable the Company to come to an informed assessment of such opportunity; and (ii) use his/its best endeavours to procure that such opportunity is offered to the Company or one of its subsidiaries on terms no less favourable than the terms on which such opportunity is offered to such Covenantor and/or his/its associates. The Covenantors have further undertaken that if such Covenantor and/or any of his/its associates becomes aware of any project or new business opportunity that relates to the Restricted Business, whether directly or indirectly, he/it shall: (i) promptly notify the Company in writing of such opportunity and provide such information as is reasonably required by the Company in order to enable the Company to come to an informed assessment of such opportunity; and (ii) use his/its best endeavours to procure that such opportunity is offered to the Company or one of its subsidiaries on terms no less favourable than the terms on which such opportunity is offered to such Covenantor and/or his/its associates, provided that such restriction shall not apply to any project or new business opportunity in connection with any invitation for tender for the Restricted Business announced by the Government. The deed of non-competition undertaking does not apply to: (i) the holding of shares or other securities issued by the Company or any of its subsidiaries from time to time; (ii) the holding of shares or other securities in any company which has an involvement in the Restricted Business, provided that such shares or securities are listed on a recognised stock exchange and the aggregate interest of the relevant covenantor and his respective associates (as interest is construed in accordance with the provisions contained in Part XV of the SFO) do not amount to more than 5% of the relevant share capital of the company concerned; and (iii) the investment, participation or engagement by the relevant Covenantor in any project or business opportunity in the Restricted Business in relation to which the Company has rejected or declined to be involved or engaged, or to participate in provided that the following procedures having been complied with: (a) the information about the principal terms of the relevant project or business opportunity have been disclosed to the Company and the Directors; (b) the decision to reject or decline is made after review by the independent non-executive Directors based on the profitability of such project or business opportunity, the resources of the Company required for carrying out such project or business opportunity, the relevant expertise required in such project or business opportunity and the impact on the Company s business and competitiveness if such project or business opportunity is not taken up by the Company but by the relevant Covenantor; (c) the principal terms on which the relevant Covenantor or the relevant associate invests, participates or engages in the such project or business opportunity are substantially the same as or not more favourable than those disclosed to the Company; and (d) the investment, participation and engagement by the relevant Covenantor or the relevant associate in such project or business opportunity shall be subject to any conditions that may be imposed by the independent non-executive Directors. 137

145 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS The undertakings are effective in respect of each Covenantor from the Listing Date until the earlier of: (i) the day when the Shares cease to be listed on GEM or other stock exchange; or (ii) the day when the relevant Covenantor ceases to be a Director, or the day when the relevant Covenantor, taken as a whole with his/its associates, ceases to own or hold 5% or more of the entire issued share capital of the Company, whichever is later. As a matter of good corporate governance practices and to improve transparency, the Company will adopt the following measures for the purpose of monitoring the due compliance with the deed of non-competition undertaking: (i) (ii) the independent non-executive Directors will review, on an annual basis, the compliance with the undertakings by Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia and their respective associates under the deed of non-competition undertaking including the right of first refusal for any new project or business opportunity; each of Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia and their respective associates undertakes to provide all information requested by the Company which is necessary for the annual review by the independent non-executive Directors and the enforcement of the deed of non-competition undertaking; (iii) the Company will disclose decisions on matters reviewed by the independent non-executive Directors relating to compliance and enforcement of the undertaking of Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia including the decisions reached in respect of the right of first refusal for any new project or business opportunity either in the annual report or by issuing an announcement of the Company; (iv) (v) (vi) Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia will make an annual declaration on compliance with his undertaking, under the deed of non-competition undertaking in the annual report of the Company; Mr. Kan, Mr. Cheng, Mr. Fung and Mr. Chia shall abstain from voting at any general meeting of the Company if there is any actual or potential conflict of interests; and the independent non-executive Directors shall be entitled to engage or appoint appropriate professional advisors to provide necessary assistance for the interpretation, enforcement or implementation of the terms of the deed of non-competition undertaking, at the costs of the Company when they consider appropriate to do so. The declaration and disclosure regarding compliance with and enforcement of the deed of non-competition undertaking shall be consistent with the principles of making voluntary disclosures in the Corporate Governance Report of the Company to be issued in accordance with Appendix 16 to the GEM Listing Rules. In addition to the provisions under the deed of non-competition undertaking, the Articles of Association provide that a Director shall not be counted as quorum and shall not vote on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his 138

146 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS associates is materially interested. Based on the above, there should be sufficient safeguards for the Company to manage any potential or actual conflicts of interests between the Company on the one hand and the Controlling Shareholder(s), the Substantial Shareholders and/or the Directors on the other hand so as to protect the interests of the minority Shareholders. INDEPENDENCE FROM THE CONTROLLING SHAREHOLDER App1A(27A) Management independence and operational independence Although the Controlling Shareholders will retain a controlling interest in the Company after the Listing Date, the Company has full rights to make all decisions on and to carry out its business operations independently. The Company s management and operational decisions are made by the Board and senior management, who are experienced in managing business generally and in the civil engineering industry. The Board comprises three independent non-executive Directors who will bring independent judgment to the decision-making process of the Board. The Group has established a set of organisational structure made up of individual departments, each with specific areas of responsibilities. The Group also has independent access to sources of supplies or construction materials as well as customers. In addition, the Group has established a set of internal controls to facilitate the effective operation of its business. The Directors currently do not expect that following the Listing Date, there will be any material business transactions between the Company and the Controlling Shareholders. Based on the reasons above, the Directors are of the view that the Company is independent of the Controlling Shareholders in terms of management and business operations. Administrative independence The Group has its own capabilities and personnel to perform all essential administrative functions including financial and accounting management, and general business management. The company secretary and senior management staff are independent of the Controlling Shareholders. Financial independence The Group has certain bank loans/facilities, certain obligations under finance leases and rental arrangements which are secured by the personal guarantees given by Mr. Kan, the Controlling Shareholder. Bank loans and facilities Mr. Kan has provided personal guarantee to the HSBC in respect of the Loans, the General Facilities and the Credit Card Facility. During the Track Record Period, the Group had drawn down the Loans in full, which carried interest (i) at 1% per annum over the best lending rate of HSBC (currently 5%, subject to fluctuation) which was charged on a daily basis for the HK$4.0 million non-revolving loan; and (ii) at a flat rate of 3.75% per annum (subject to HSBC s right to renegotiate in the event that the best lending rate of HSBC (currently 5%) changes between the date of the relevant 139

147 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS facility letter and the date of drawdown) for the HK$2.0 million non-revolving loan. Out of HK$6.0 million of the Loans, approximately HK$1.6 million was used to repay a bank overdraft with a commercial bank, approximately HK$2.4 million was used to acquire machinery and the remaining approximately HK$2.0 million was used for general working capital purpose. The Loans were granted by HSBC under the Special Loan Guarantee Scheme (the Scheme ) launched by the Government in December 2008, aiming at assisting enterprises to secure loans from participating lending institutions for meeting general business needs to tide over the liquidity problem during the global financial crisis with the Government acting as the guarantor. To be eligible for the Scheme, an enterprise must, among other things, have substantive business operations and personal guarantee provided by shareholders together holding more than 50% of the equity interest of the enterprise. The Group has made use of the Scheme to obtain the Loans at favorable terms for its business operation use. Pursuant to a subordination agreement (the Subordination Agreement ) dated 19 May 2009 and entered into between TYW, Mr. Kan and HSBC, in consideration of HSBC advancing monies to TYW, each of Mr. Kan and TYW undertook to HSBC that, among other things, so long as there were any sums due from TYW to HSBC, the indebtedness owed by TYW to Mr. Kan shall not be repayable unless HSBC otherwise consented to such repayment. In January 2010, the Group set off an account payable to Mr. Kan against certain sums paid by the Group for Mr. Kan in advance. Hence, TYW has been in breach of the terms of the Subordination Agreement (the Breach ). As a result of the Breach, TYW may be legally liable for (i) immediate repayment of all the outstanding sums due to HSBC by TYW at the time of the Breach, (ii) all the costs, fees and expenses incurred by HSBC demanding repayment of the loans, and (iii) overdue interest charged by HSBC in accordance with the relevant facility letters entered into between HSBC and TYW in the event that TYW fails to repay the outstanding loans immediately upon demand of HSBC. Soon after becoming aware of the Breach, the Directors had informed HSBC of the Breach and commenced discussions with HSBC thereon in early July The Directors considered, after discussions with HSBC, the best way to resolve the issue was to fully repay all the outstanding liabilities due to HSBC. As at the Latest Practicable Date, all outstanding sums under the Loans, the General Facilities and the Credit Card Facility had been fully repaid by the Group. On 12 July 2010, HSBC issued letters confirming repayment of all outstanding liabilities by the Group, and did not indicate therein that they would take legal actions against the Group for the Breach. Also, up to the Latest Practicable Date, the Group had not been served with any legal notice regarding HSBC s right to take legal action against the Group as a result of the Breach. As such, the Directors consider that the risk and the liabilities of Group in respect of the matters related to the Breach are minimal. The personal guarantees provided by Mr. Kan in respect of the Loans, the General Facilities and the Credit Card Facility have not been released before the Listing due to the internal policy of HSBC, which would only permit release of Mr. Kan s personal guarantee after the expiry of the retention period as determined by HSBC, which is normally six months after full repayment of the aforesaid loans and facilities. 140

148 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS Finance leases and rental arrangements Mr. Kan has also been providing personal guarantee in respect of the finance leases of certain motor vehicles and machinery prior to the commencement of and during the Track Record Period, which are largely under terms from two to three years. The Group has already paid off the finance leases relating to some of the motor vehicles entered into before or during the Track Record Period. As at 30 June 2010, 30 motor vehicles of the Group under finance leases with an aggregate outstanding principal amount of approximately HK$3.01 million were secured by personal guarantees provided by Mr. Kan. The aforesaid finance leases are due to expire from September 2010 to August Certain agreements entered into by TY Civil and the financiers in relation to the finance leases of certain motor vehicles and machinery contain a cross-default clause stipulating that if TY Civil or the guarantor (i.e. Mr. Kan) has defaulted under other loan agreements which entitles the lender thereof to declare such loans due prematurely, the relevant financier is entitled to regard such default under other loan agreements as a breach under the finance lease concerned and to terminate such finance lease as a result. With regard to the Breach under the Subordination Agreement between TYW and HSBC (under which Mr. Kan is the guarantor for the Group s obligations), Mr. Kan (in the capacity of guarantor) could be required to repay the loans due to HSBC prematurely. Hence, the Group has committed, technically speaking, a breach under certain finance leases because of Mr. Kan s potential liability for premature repayment of loans to HSBC. Given that the Group has committed a technical breach under certain finance lease documents for the motor vehicles and Mr. Kan has provided personal guarantee in respect of the finance lease documents, Mr. Kan (as guarantor of the Group) could be liable for immediate repayment of all outstanding sum due under the relevant finance lease documents (including payment of all arrears of rent and all outstanding rent which would be payable during or in respect of the unexpired term of the original period of the finance lease). However, the Group shall be under no obligations to indemnify Mr. Kan as a result of the aforesaid matters. For details of the technical breach, please refer to the sub-paragraph headed Litigation under the paragraph headed Other information in Appendix V to this prospectus. During the Track Record Period, the Group has also entered into rental arrangements in respect of photocopying machines for office use, the payment obligations of which are secured by the personal guarantees given by Mr. Kan. As at 30 June 2010, there were eight photocopying machines with an aggregate outstanding rental payment amount of approximately HK$453,000 secured by the personal guarantees provided by Mr. Kan. The aforesaid rental arrangements are subject to a fixed rental period of 60 months, due to expire from December 2012 to October Pursuant to the terms of the rental agreements, the rental arrangements may not be terminated by the Group during the aforesaid fixed rental period. The aforesaid personal guarantees from Mr. Kan have not been released before the Listing for the following reasons: (i) the Directors consider that acquiring motor vehicles by way of finance leases and leasing the photocopying machines for office use allow the Group to better utilise its financial resources; (ii) the finance companies providing finance leases to the Group in respect of the aforesaid motor vehicles and the lessor providing rental arrangements to the Group in respect of the photocopying machines did not accept a replacement of Mr. Kan s personal guarantees by the 141

149 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS Company s corporate guarantees with the principal finance company and the lessor of photocopying machines expressed that they could not accept corporate guarantee due to their company policies; and (iii) the early termination of the finance leases and rental arrangements may involve penalties to be imposed on the Group. In consideration of the above, the Directors are of the view that the early termination of such personal guarantees may expose the Group to additional and unnecessary costs and business disruption, which are not in the interest of the Company, and thus the personal guarantees from Mr. Kan in respect of the aforesaid finance leases and rental arrangements shall continue after the Listing. In this connection, Mr. Kan will provide an undertaking to the Company that, after Listing, he will not demand for release of the personal guarantees prior to the maturity of the respective finance leases and rental arrangements, and therefore it is unlikely that the Group s business and operations will be materially affected by Mr. Kan unilaterally demand for release of such guarantee. Shareholder s loan On 9 July 2010, the Group borrowed a sum of HK$4.04 million from Mr. Kan for the purpose of repaying all the outstanding liabilities due to HSBC under the Loans, the General Facilities and the Credit Card Facility as aforesaid. Due to Mr. Kan s inability to provide sufficient funds to the Group for repayment of debts to HSBC within a relatively short period of time, Mr. Kan borrowed HK$4.04 million from Mr. Chia on the same day in order to provide the necessary funding to the Group. Such shareholder s loan from Mr. Kan to the Group is non-interest bearing, and is due on the earlier of (i) the third Business Day after which the Company receives the net proceeds from the Placing and (ii) the date falling six months from 9 July Mr. Kan s loan with Mr. Chia bears interest at the rate of 5% per annum, and is due on the earlier of (i) the third Business Day after which the Company receives the net proceeds from the Placing and (ii) the date falling six months from 9 July The Group intends to apply part of the proceeds from the Placing to repay the loan due to Mr. Kan, who will in turn apply such funds to repay his debts owing to Mr. Chia. As the shareholder s loan owing to Mr. Kan will be settled shortly after Listing, the Board considers that there will not be undue financial reliance of the Group on Mr. Kan after Listing. Conclusion Notwithstanding that Mr. Kan has provided certain personal guarantees in respect of the Group s financial leases and rental arrangements and has provided a loan of HK$4.04 million to the Group, the Directors consider that the Group is not financially dependent on Mr. Kan. The Group has established its own financial management system, its own finance department for discharging the treasury function for cash receipt and payment, and an internal control functions independent from Mr. Kan. Upon Listing, the Company will obtain net proceeds of approximately HK$21.0 million from the Placing. The Company intends to apply HK$7.1 million out of the net proceeds to fully repay all the finance leases and the loan due to Mr. Kan. Among which, approximately HK$3.06 million will be used to fully repay the finance leases according to their respective repayment schedules, whereby the personal guarantees from Mr. Kan in connection thereto will be gradually released from September 2010 to August 2013; and approximately HK$4.04 million will be used to fully repay the loan due to Mr. Kan upon Listing. In addition, the Company has obtained an offer letter from Hang Seng Bank Limited in respect of a revolving loan facility of HK$10.0 million. Such revolving loan facility is conditional on the Listing and will be secured by a corporate guarantee from the Company and a charge over Hong Kong dollars time deposit by TYW. In view of the above, the Directors consider the 142

150 CONTROLLING SHAREHOLDERS AND SUBSTANTIAL SHAREHOLDERS Group will be able to operate financially independent of Mr. Kan at the time of Listing or shortly thereafter at the latest. However, the Directors are of the view that it is in the interests of the Company and the Shareholders as a whole that the personal guarantees in respect of the existing finance leases and rental arrangements from Mr. Kan should remain after Listing as described above as the premature release of such guarantees is not commercially sound or practical. After Listing, it is the intention of the Directors that the Group will not seek personal guarantees from Mr. Kan in relation to acquisitions of motor vehicles or machinery, rental of office equipment, or application for bank loans or facilities in the future. Also, the Group has no intention to obtain loans from Mr. Kan again after repayment of HK$4.04 million to him. 143

151 SHARE CAPITAL Share capital Authorised share capital: HK$ App1A(23)(1) Third Schedule 2 50,000,000,000 Shares 500,000,000 Issued and to be issued, fully paid or credited as fully paid: App1A(15)(1) 1,000 Shares in issue 10 74,399,000 Shares to be issued under the Capitalisation Issue 743,990 24,800,000 Shares to be issued under the Placing 248,000 99,200,000 Shares 992,000 Assumptions The table above assumes that the Placing and the Capitalisation Issue become unconditional and the issue of Shares pursuant thereto are made, but takes no account of any Shares falling to be allotted and issued upon exercise of any options which may be granted under the Share Option Scheme, or any Shares which may be allotted and issued or repurchased under the general mandates for the allotment and issue or repurchase of the Shares granted to the Directors as described below. Minimum public float App1A(14)(4) Pursuant to Rule 11.23(7) of the GEM Listing Rules, at the time of the Listing and at all times thereafter, the Company must maintain the minimum prescribed percentage of 25% of the total issued share capital of the Company in the hands of the public (as defined in the GEM Listing Rules). Ranking App1A(15)(1) The Placing Shares will rank pari passu in all respects with all other Shares in issue or to be issued as mentioned in this prospectus and, in particular, will qualify in full for all dividends and other distributions declared, made or paid after the date of this prospectus save for any entitlement under the Capitalisation Issue. 144

152 SHARE CAPITAL CAPITALISATION ISSUE Pursuant to the resolutions of the Shareholders passed on 11 August 2010, subject to the share premium account of the Company being credited as a result of the issue of the Placing Shares, the Directors are authorised to allot and issue a total of 74,399,000 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 11 August 2010 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$743,990 standing to the credit of the share premium account of the Company, and the Shares to be allotted and issued pursuant to this resolution shall rank pari passu in all respects with the existing issued Shares. General mandate to issue new Shares Subject to the Placing becoming unconditional, the Directors have been conditionally granted a general unconditional mandate to allot, issue and deal with Shares with a total nominal value not exceeding the sum of: 1. 20% of the aggregate nominal amount of the Shares in issue immediately following completion of the Placing and the Capitalisation Issue; and 2. the aggregate amount of Shares purchased by the Company (if any, pursuant to the repurchase mandate as described below). This mandate will remain in effect until: the conclusion of the next annual general meeting of the Company; the expiration of the period within which the next annual general meeting of the Company is required by the Articles or any other applicable laws of the Cayman Islands to be held; or the passing of an ordinary resolution of the Shareholders in general meeting revoking, varying or renewing such mandate, whichever is the earliest. Further details of this general mandate is set forth under the sub-paragraph headed Written resolutions of all Shareholders passed on 11 August 2010 as set out in the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus. 145

153 SHARE CAPITAL General mandate to repurchase shares Subject to the Placing becoming unconditional, the Directors have been conditionally granted a general unconditional mandate authorising them to exercise all the powers of the Company to repurchase Shares with an aggregate nominal value of not exceeding 10% of the aggregate nominal amount of the Shares in issue immediately following completion of the Placing and the Capitalisation Issue. This mandate only relates to purchases made on GEM, or on any other stock exchange on which the Shares are listed (and which is recognised by the SFC and the Stock Exchange for this purpose). A summary of the relevant GEM Listing Rules is set out in the sub-paragraph headed Repurchase of the Company s own securities as set out in the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus. This mandate will remain in effect until: the conclusion of the next annual general meeting of the Company; the expiration of the period within which the next annual general meeting of the Company is required by the Articles or any other applicable laws of the Cayman Islands to be held; or the passing of an ordinary resolution of the Shareholders in general meeting revoking, varying or renewing such mandate, whichever is the earliest. Further details of this general mandate is set forth under the sub-paragraph headed Written resolutions of all Shareholders passed on 11 August 2010 as set out in the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus. SHARE OPTION SCHEME The Company has conditionally adopted the Share Option Scheme. A summary of the principal terms of the Share Option Scheme is set out in the sub-paragraph headed Share Option Scheme as set out in the paragraph headed Further information about Directors, management, staff and experts in Appendix V to this prospectus. The Group did not have any outstanding share options, warrants, convertible instruments, pre-listing share options or similar rights convertible into the Shares as at the Latest Practicable Date. 146

154 FINANCIAL INFORMATION You should read the following discussion and analysis of the Group s financial condition and results of operations together with the combined financial statements for the financial years ended 31 March 2009 and 2010 and the accompanying notes included in the Accountants Report. The Accountants Report has been prepared in accordance with HKFRSs. Potential investors should read the whole of the Accountants Report and not rely merely on the information contained in this section. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. For additional information regarding these risks and uncertainties, please refer to the section headed Risk factors in this prospectus. BASIS OF PRESENTATION On 11 August 2010, the Company became the holding company of the subsidiaries now comprising the Group pursuant to the Reorganisation, details of which are set out in the sub-paragraph headed Reorganisation in the paragraph headed Further information about the Company and its subsidiaries in Appendix V to this prospectus. The Reorganisation involved business combinations of entities under common control before and immediately after the Reorganisation. The Group resulting from the Reorganisation is regarded and accounted for as a continuing group. Accordingly, the combined statement of comprehensive income, combined statement of changes in equity and combined statement of cash flows of the Group for the Track Record Period have been prepared and included the financial information of the companies now comprising the Group as if the current group structure had been in existence throughout the Track Record Period. The combined statement of financial positions of the Group as at 31 March 2009 and 31 March 2010 have been prepared to present the assets and liabilities of the Group as at the end of the reporting periods as if the current structure of the Group had been in existence at those dates. OVERVIEW The Group is principally engaged in the provision of waterworks engineering services, road works and drainage services and site formation works for the public sector in Hong Kong. Over the years, the Group, in the capacity as a main contractor or a subcontractor, has been providing civil engineering services in Hong Kong including construction and maintenance of water mains drainage channel and sewer, service reservoirs, pumping stations, water tank, irrigation works and other related construction works and provision of site formation and road improvement works. Third Schedule 1 FACTORS AFFECTING THE GROUP S RESULTS OF OPERATIONS AND FINANCIAL CONDITION R14.08(7)(a) Relationship with major customers During the Track Record Period, the major customers of the Group were WSD and MHCC/ MHWE. For the two financial years ended 31 March 2009 and 2010, revenue generated from undertaking waterworks projects of WSD in the capacity as a main contractor or a subcontractor represented approximately 96.4% and 99.8% of the Group s total revenue. Of all the revenue generated from these WSD projects, a substantial portion was derived from projects subcontracted by 147

155 FINANCIAL INFORMATION MHCC/MHWE to the Group, a small portion was derived from another main contractor while the rest was related to projects secured from WSD directly by the Group. Revenue generated from subcontracting works granted by MHCC/MHWE represented approximately 68.8% and 88.3% of the Group s total revenue respectively. There is no assurance that the Group will be able to maintain its relationship with its major customers and to continue to secure work contracts from them. In the event that there is a significant reduction of work contracts or a reduction in the value of the work contracts from the major customers and the Group fails to secure work contracts from other customers to compensate for such loss of business, the Group s business, results of operations and profitability may be adversely affected. Unexpected fluctuations in cost of service The contracts of the Group were mainly secured by way of public tendering. In determining the tender price, the Group needs to estimate the cost of service including but not limited to subcontracting charges, direct labour and cost of construction materials. The actual costs of service may be different from the Group s estimation due to shortage of labour and materials, adverse weather conditions, and other unforeseen reasons. There may be fluctuations in the costs of service during the contract period which generally lasts for a few years. In the event that the cost of construction materials and labour cost increase unexpectedly to the extent that the Group has to incur substantial extra costs without sufficient compensations, the financial performance and profitability of the Group will be adversely affected. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the combined financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The estimates and judgement are based on historical records, experience and other factors that are considered by the management to be relevant. Actual results may differ from these estimates. The significant accounting policies adopted by the Group are detailed in note 2 to the Accountants Report. Certain critical accounting policies and estimates are set out as follows: Construction contracts Contract revenue comprises the agreed contract amount and appropriate amounts for variation orders, claims and incentive payments, if any. Contract costs comprise direct materials, costs of subcontracting, direct labour, borrowing costs attributable directly to the construction and an appropriate portion of variable and fixed construction overheads. When the outcome of a construction contract can be estimated reliably, revenue and contract costs associated with the construction contract are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting periods. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that will probably be recoverable, and contract costs are recognised as expenses in the period in which they are incurred. 148

156 FINANCIAL INFORMATION When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers. Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers. Revenue recognition Revenue from construction contracts is recognised on the percentage of completion method, measured by reference to the certification by architects. rate. Interest income is accrued on a time basis on the principal outstanding at the applicable interest Upon applying the percentage of completion method, the Group needs to estimate the gross profit margin of each construction contract, which was determined based on the estimated total construction costs and total construction contract sums, including confirmed variation orders and claims, and liquidated damages. If the actual gross profit margin of construction contract differs from the management s estimates, the construction contract revenue to be recognised within the next year will need to be adjusted accordingly. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through provision of goods and services to customers and also incorporate other types of contractual monetary assets. Loans and receivables are initially recognised at fair value plus directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method, less any identified impairment losses. At the end of each reporting period, the Group assesses whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. An impairment loss is recognised in profit or loss and directly reduces the carrying amount of the financial asset, and is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. 149

157 FINANCIAL INFORMATION Financial liabilities Financial liabilities include trade and other payables and borrowings. They are initially recognised at fair value, net of directly attributable transaction costs incurred and are subsequently measured at amortised cost using the effective interest method. The related interest expense is recognised in profit or loss. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and applicable selling expenses. MANAGEMENT DISCUSSION AND ANALYSIS I. Combined Statement of Comprehensive Income The following table sets forth the audited combined statement of comprehensive income of the Group for the two years ended 31 March 2009 and 2010 which are extracted from the Accountants Report. Third Schedule 1 Third Schedule 27 Year ended 31 March HK$ 000 HK$ 000 Revenue 87, ,844 Cost of service (70,617) (121,872) Gross profit 17,079 26,972 Other income 2, Administrative expenses (5,431) (6,753) Profit from operations 14,187 21,030 Finance costs (455) (634) Profit before income tax 13,732 20,396 Income tax (2,327) (3,558) Profit and total comprehensive income for the year 11,405 16,

158 FINANCIAL INFORMATION Revenue The Group s revenue for the financial years ended 31 March 2009 and 31 March 2010 was approximately HK$87.7 million and approximately HK$148.8 million respectively. For the financial year ended 31 March 2009, the Group s revenue was mainly attributable to the revenue generated from the contract for replacement and rehabilitation of water mains (Stage 2) Tai Po and Fanling (contract numbered 21/WSD/06) of approximately HK$55.1 million and the contract for replacement and rehabilitation of water mains stage 2 mains in Ngau Tam Mei (contract numbered 13/WSD/06) of approximately HK$15.6 million, representing approximately 62.8% and approximately 17.8% of the Group s revenue for the year, respectively. The revenue for the financial year ended 31 March 2010 of approximately HK$148.8 million represented an increase of approximately 69.7% over the revenue for the year ended 31 March For the year ended 31 March 2010, the Group recorded revenue from the two aforesaid contracts in a total of approximately HK$72.8 million from the two contracts carried forward from the preceding financial year. The increase in revenue for the financial year ended 31 March 2010 was largely attributable to the new contract for the replacement and rehabilitation of water mains stage 3 mains on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08), which generated revenue of approximately HK$53.0 million, representing approximately 35.6% of the Group s revenue for the year. The contract for Waterworks District W New Territories (contract numbered 1/WSD/09(W)), which commenced in September 2009, also contributed approximately HK$14.1 million to the Group s revenue for the financial year ended 31 March During the Track Record Period, the Group s revenue was mainly generated from the undertaking of waterworks projects of WSD in the capacity as a main contractor or subcontractor. For the years ended 31 March 2009 and 31 March 2010, the Group recorded revenue from undertaking of waterworks projects of WSD as a main contractor or a subcontractor of approximately HK$84.5 million and approximately HK$148.5 million respectively, representing approximately 96.4% and 99.8% of the total revenue for the respective year. During the Track Record Period, the Group carried out the work projects in the capacity as a main contractor or a subcontractor. The breakdown of total revenue by nature of capacity of the Group is set forth below: Financial year ended 31 March 2009 % of total 2010 % of total HK$ 000 HK$ 000 Main contractor 22, , Subcontractor 64, , Total 87, ,

159 FINANCIAL INFORMATION For the year ended 31 March 2009, the revenue of the Group was primarily generated from the undertaking of waterworks contracts in the capacity of a subcontractor. The subcontracting revenue amounted to approximately HK$64.8 million, representing approximately 73.9% of the total revenue for the year. For the year ended 31 March 2010, the Group continued to generate the majority of the revenue from undertaking waterworks contracts as a subcontractor. The subcontracting revenue for the year was approximately HK$131.7 million, representing approximately 88.5% of the total revenue for the year and an increase of approximately 103.3% from the preceding financial year of approximately HK$64.8 million. The higher subcontracting revenue in the financial year ended 31 March 2010 was mainly attributable to the additional revenue generated from the contracts for the replacement and rehabilitation of water mains stage 3 mains on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) and the maintenance contract for Waterworks District W-New Territories (contract numbered 1/WSD/09(W)). These two contracts generated a total revenue of approximately HK$67.1 million to the Group for the financial year ended 31 March As disclosed in the section headed Business in this prospectus, the maximum contract value which the Group is eligible to undertake as a Group B contractor on the Contractor List in the capacity as a main contractor is HK$75 million. By acting as a subcontractor, the Group is able to undertake projects with contract value over HK$75 million. During the Track Record Period, the two contracts with the highest original contract value, which were the contract for replacement and rehabilitation of water mains (Stage 2) Tai Po and Fanling (contract numbered 21/WSD/06) and the contract for the replacement and rehabilitation of water mains stage 3 mains on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) were contracts undertaken by the Group in the capacity of a subcontractor. The two contracts carried the original contract value of approximately HK$228.0 million and approximately HK$359.8 million respectively. This explained why the revenue generated from undertaking of waterworks contract as a subcontractor contributed a significant share of the total revenue of the Group during the Track Record Period. Cost of service The following table sets out a breakdown of the Group s cost of service during the Track Record Period: Financial year ended 31 March 2009 % of total 2010 % of total HK$ 000 HK$ 000 Costs of materials 14, , Costs of subcontracting 24, , Direct labour 15, , Other direct costs 15, , Total 70, ,

160 FINANCIAL INFORMATION The cost of service has increased by approximately 72.6% from approximately HK$70.6 million for the financial year ended 31 March 2009 to approximately HK$121.9 million for the financial year ended 31 March The increase in cost of service was generally in line with the growth of the Group s business. The Group s cost of service mainly includes costs of subcontracting, costs of materials, direct labour and other direct costs. The costs of subcontracting represent charges and fees paid to the subcontractors and services providers of the Group which provide labour, materials and services necessary for the completion of the projects undertaken by the Group. In the event that the materials are purchased by the Group on behalf of the subcontractors, material costs will be deducted from the costs of subcontracting accordingly. The other direct costs refer to a great variety of items including but not limited to the consumables for the projects, interest for advance payment from customers and contract administration fee paid to main contractor(s), depreciation expenses of machinery and motor vehicles, fuel and other expenses such as repair and maintenance costs relating to motor vehicles. Generally speaking, the composition of cost of service of projects varies, and is affected by factors such as the nature of the projects, complexity of the projects, the accessibility and location of the site areas, and the intensity of the labour and technology employed. As shown in the table above, there had not been significant fluctuation in the composition of the cost of service during the Track Record Period. The costs of subcontracting remained the largest item of cost of service throughout the Track Record Period, implying that certain part of the works performed by the Group were subcontracted to the subcontractors and the engagement of subcontractors was an important part of the project management of the Group during the Track Record Period. For the financial year ended 31 March 2009, the other direct costs mainly comprised project consumables of approximately HK$1.9 million, contract administration fee of approximately HK$2.5 million and interest for advance payment from customers of approximately HK$429,000, depreciation expenses of site office, motor vehicles and machinery of approximately HK$3.5 million, and fuel and expenses relating to motor vehicles of approximately HK$2.7 million. For the financial year ended 31 March 2010, the other direct costs mainly comprised project consumables of approximately HK$9.3 million, contract administration fee of approximately HK$6.0 million and interest for advance payment from customers of approximately HK$242,000, depreciation expenses of site office, motor vehicles and machinery of approximately HK$3.6 million, and fuel and expenses relating to motor vehicles of approximately HK$4.1 million. The major reason for the fluctuation in the other direct costs for the financial year ended 31 March 2010 was the substantial increase in the project consumables from approximately HK$1.9 million for the year 2009 to approximately HK$9.3 million for the year The higher usage of consumables, including but not limited to road signs, gates, lights, pavement sealant and metal boards, was a result of increasing amount of construction work conducted on the roads for a project (contract numbered 21/WSD/06) and also in extensive areas in outlying islands for another project (contract numbered 18/WSD/08) during the financial year ended 31 March

161 FINANCIAL INFORMATION Gross profit The Group s gross profit during the Track Record Period is as follows: Financial year ended 31 March (HK$ 000) (HK$ 000) Gross Profit 17,079 26,972 Gross Profit margin (%) Gross profit increased by approximately 57.9% from approximately HK$17.1 million for the year ended 31 March 2009 to approximately HK$27.0 million for the year ended 31 March The increase in gross profit was mainly attributable to the higher revenue for the financial year ended 31 March 2010 as compared with that for the financial year ended 31 March 2009, and was in line with the growth in revenue. The gross profit margin on the other hand has decreased slightly from approximately 19.5% for the financial year ended 31 March 2009 to approximately 18.1% for the financial year ended 31 March There were no significant factors to the knowledge of the Directors that had caused such slight decrease in the gross profit margin. Other income For each of the two financial years ended 31 March 2009 and 2010, the Group recorded other income of approximately HK$2.5 million and approximately HK$811,000 respectively. The other income of the Group for the financial year ended 31 March 2009 represented the write-off of long outstanding trade payables of approximately HK$2.5 million. For the financial year ended 31 March 2010, the other income represented write-off of long outstanding trade payables of approximately HK$802,000 and sundry income of approximately HK$9,

162 FINANCIAL INFORMATION Administrative expenses The table below sets out the administrative expenses for the Track Record Period. Financial year ended 31 March HK$ 000 HK$ 000 Auditor s remuneration Legal and professional fees Staff costs 653 1,277 Directors remuneration 1,554 2,720 Depreciation Entertainment Motor vehicles related expenses Office rental Loss on disposal of property, plant and equipment Others Total 5,431 6,753 Administrative expenses of the Group amounted to approximately HK$5.4 million and approximately HK$6.8 million for the financial years ended 31 March 2009 and 31 March 2010 respectively, representing approximately 6.2% and approximately 4.5% of the revenue for the respective year. Administrative expenses refer to expenses incurred on a regular basis to support the Group s normal course of business, including principally audit fees, legal and professional fees, staff costs, directors remuneration and depreciation expenses. Staff costs and directors remuneration were the two major items under the administrative expenses during the Track Record Period. Staff costs, which mainly relate to the salaries of accounting and administrative staff (other than Directors) in the head office of the Group, amounted to approximately HK$653,000 and approximately HK$1.3 million for the years ended 31 March 2009 and 31 March 2010 respectively. To meet the operation needs and accommodate the increase in administrative work for the development of Group s business, during the financial year ended 31 March 2010, the Group had increased the manpower and recruited additional staff at the head office, which explained the increase in staff cost during the year. Directors remuneration amounted to approximately HK$1.6 million for the year ended 31 March 2009 and approximately HK$2.7 million for the year ended 31 March The increase in directors remuneration was mainly due to the appointment of two Directors during the financial year ended 31 March A loss on disposal of property, plant and equipment of approximately HK$598,000 was resulted from the disposal of machinery in the year ended 31 March 2009 while the Group recorded a loss on disposal of property, plant and equipment of approximately HK$40,000 in the year ended 31 March The Company disposes of the machinery according to its working conditions. Save for the above, there were no significant fluctuations in other major items under the administrative expenses. 155

163 FINANCIAL INFORMATION Finance costs Finance costs represented the interest on finance leases and interest on bank loans and overdrafts of the Group. For the financial years ended 31 March 2009 and 31 March 2010, finance costs amounted to approximately HK$455,000 and approximately HK$634,000 respectively. The interest costs on finance lease were approximately HK$390,000 and approximately HK$396,000 for each of the two financial years ended 31 March 2009 and 2010 respectively. For the year ended 31 March 2009, the interests on bank overdrafts were approximately HK$65,000 and the Group did not record any interest on bank loans, as the Group only used bank overdraft facilities to support its working capital uses. During the financial year ended 31 March 2010, the Group obtained three loan facilities in the total amount of HK$12.0 million which were granted by a bank in Hong Kong pursuant to a scheme launched by the Government with an aim to assist small to medium-sized enterprises to secure loans from participating lending institution to meet general business needs to tide over the liquidity problem during the global financial crisis in late As a result, the Group recorded bank loan interests of approximately HK$218,000 attributable to the drawdown of such loans of HK$6 million on top of the interest on bank overdrafts of approximately HK$20,000 during the financial year ended 31 March Income tax The income tax paid by the Group is subject to the applicable tax rate in Hong Kong and the tax expenses were calculated at 16.5% of the estimated assessable profits of TYW and TY Civil and 15% of that of TYC for the Track Record Period. The Group had no other tax payable in other jurisdictions during the Track Record Period. The increase in the income tax of the Group from approximately HK$2.3 million for the financial year ended 31 March 2009 to approximately HK$3.6 million for the financial year ended 31 March 2010 was primarily due to the increase in profit before income tax from approximately HK$13.7 million for the year ended 31 March 2009 to approximately HK$20.4 million for the year ended 31 March 2010, which resulted in an increase in the current tax by approximately HK$0.5 million. In addition, as the Group acquired approximately HK$8.7 million of property, plant and equipment during the year ended 31 March 2010, the resulting tax benefit from accelerated tax depreciation deductible for these property, plant and equipment led to additional recognition of deferred tax expense of approximately HK$0.7 million during the year ended 31 March As a result, the effective tax rate of the Group for the year ended 31 March 2010 was approximately 17.4%, which is slightly higher than that of 16.9% for the year ended 31 March Net profit The net profit of the Group for the financial years ended 31 March 2009 and 31 March 2010 was approximately HK$11.4 million and approximately HK$16.8 million respectively. The net profit margin has decreased from approximately 13.0% for the financial year ended 31 March 2009 to approximately 11.3% for the financial year ended 31 March The increase in net profit was resulted from the increase in revenue for the financial year ended 31 March 2010, while the decrease in net profit margin for the financial year ended 31 March 2010 was mainly because the net profit for the financial year ended 31 March 2009 was attributable to a higher amount of other income from write-off of long outstanding payables. 156

164 FINANCIAL INFORMATION II. Combined Statement of Financial Position As at 31 March HK$ 000 HK$ 000 Non-current assets Property, plant and equipment 8, , Current assets Inventories 7,763 9,788 Trade and other receivables 37,015 28,271 Tax recoverable 222 Cash and cash equivalents ,330 45, , Total assets 53, , Current liabilities Trade and other payables 19,738 24,451 Finance lease creditors 3,087 3,052 Borrowings 4,532 Employee benefits Current tax liabilities 2,384 4,365 Bank overdraft 1,775 27, , Net current assets 17,699 11, Total assets less current liabilities 26, , Non-current liabilities Finance lease creditors 1, Deferred tax liabilities 793 1,658 2, , Total liabilities 29, , TOTAL NET ASSETS 24,072 22,340 Capital and reserves Share capital 9,868 9,868 Reserves 14,204 12,472 TOTAL EQUITY 24,072 22,

165 FINANCIAL INFORMATION Property, plant and equipment The net carrying value of the property, plant and equipment amounted to approximately HK$8.7 million and HK$13.3 million as at 31 March 2009 and 31 March 2010 respectively. The property, plant and equipment mainly comprised motor vehicles, machinery, site offices and office equipment. Given the nature of the Group s business, motor vehicles are necessary for the transport of materials to various project sites which are located all over the territory. During the financial year ended 31 March 2010, the Group acquired additional property, plant and equipment of approximately HK$8.7 million, of which the acquisition cost of motor vehicles and machinery amounted to approximately HK$4.7 million and HK$2.9 million respectively. Inventory The inventory of the Group comprises construction materials for the contract work including mainly pipes, fittings and valves which accounted for approximately 93.6% and approximately 97.4% of the total inventory of the Group as at 31 March 2009 and 31 March 2010 respectively. They are durable in nature and have long useful lives. Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition and is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and applicable selling expenses. The inventory of the Group amounted to approximately HK$7.8 million and approximately HK$9.8 million as 31 March 2009 and 31 March 2010 respectively. The comparatively higher level of inventory as at 31 March 2010 as compared to that as at 31 March 2009 was principally due to the stock-up of more construction materials for the use of projects which were of larger size than those of the previous year. As at 30 June 2010, approximately 41.6% of the inventory balance of the Group as at 31 March 2010 has been used. Trade and other receivables Trade and other receivables of the Group comprised: As at 31 March HK$ 000 HK$ 000 Trade receivables 3,614 2,612 Retention receivables 10,449 6,495 Other receivables and prepayments 458 7,935 Amounts due from customers for contract works 4,446 10,635 Amount due from a director 17,671 Deposits ,015 28,

166 FINANCIAL INFORMATION Trade receivables are mainly derived from provision of construction work on civil engineering contracts. The related customers are mainly Government departments/organisations and well-established corporations. These customers have established business relationship with the Group and have no history of defaulting payment to the Group. Based on the historical payment record of the two major customers, the Company considers that the exposure to credit risk is minimal. Despite this, the Company will still monitor the creditworthiness of the two customers on an on-going basis by reference to the settlement status of the related receivables. The Directors believe that no impairment allowance is necessary in respect of the trade receivables as at 31 March 2009 and 31 March The Group does not hold any collateral over these balances. The following table sets out the aging analysis of the trade receivables as at 31 March 2009 and 31 March As at 31 March HK$ 000 HK$ 000 Current 2,757 2,612 Less than 1 month past due to 3 months past due More than 3 months but less than 12 months past due 3,614 2,612 In general, the Group grants credit period ranging from 14 to 30 days to its trade customers of contract works. Application for progress payments of contract works is made regularly, usually on a monthly basis. The trade receivables as at 31 March 2009 and 31 March 2010 were aged less than 1 month as shown in the table above. As at 30 June 2010, all the trade receivables as at 31 March 2010 were settled. Retention receivables refer to the sum retained by the customers for retention purpose and can generally be used for recovery of the damages, costs, charges, expenses, debts or sums for which the contractor/subcontractor is liable to the customers in connection with the undertaking of the relevant project. Retention money, usually represents a specified percentage on the certified payment, is retained by the customers for a period of time according to the terms of respective contract to ensure satisfactory completion of the projects. For projects which are divided into two or more sections or comprising several work orders, the retention money will be released after the maintenance period of respective sections or completion of respective work orders. In such cases, the retention money may be released before the completion of the whole project. Accordingly, the balance of retention receivables is somewhat floating in nature and may be subject to both upward and downward movements throughout the contract term. In general, the duration of maintenance period is one year. As at 31 March 2009 and 31 March 2010 respectively, the retentions held by customers for contract works included in other receivables amounted to approximately HK$10.4 million and approximately HK$6.5 million. The reduction in the retention receivables as at 31 March 2010 was mainly attributable to the release of retention money from the customer of approximately HK$3.7 million in 159

167 FINANCIAL INFORMATION respect of the contract for replacement and rehabilitation of water mains (stage 2) Tai Po and Fanling (contract numbered 21/WSD/06). During the Track Record Period, the Group has not encountered material claims from its customers which have resulted in a significant deduction from the retention receivables. As at 30 June 2010, the retention receivables of approximately HK$0.7 million as at 31 March 2010 has been received by the Group. As detailed in the section headed Business in this prospectus, under normal circumstances, the Group will submit the monthly application for interim payment to the engineer appointed for the project or the main contractor (as appropriate) showing the estimated value of the work in progress and other relevant information as in accordance with the terms of the contracts. After certification, the engineer will issue a certificate of payment no later than 21 days of the date of receipt of such notice if, in his/her opinion, the works were satisfactorily completed within the relevant time frame in accordance with the relevant contract. The amounts due from customers for contract works relate to the estimated revenue before the application for interim payment is made by the Group or the certificate of payment is issued by the engineer or the main contractor. They will become trade receivables upon certification of the relevant work by the customers. As at 31 March 2009 and 31 March 2010 respectively, the amounts due from customers for contract work amounted to approximately HK$4.4 million and approximately HK$ 10.6 million. As the time periods for interim payment application and certification vary in accordance with the specific terms of each project, it is common that the work done by the Group is still subject to certification at the end of each reporting period. As at 31 March 2009, the amount due from customers was mainly related to work pending payment application and certification in relation to the contract for replacement and rehabilitation of water mains (Stage 2) Tai Po and Fanling (contract numbered 21/WSD/06) of approximately HK$3.6 million. The increase in amount due from customers of approximately HK$7.2 million as at 31 March 2010 was principally due to the work done by the Group in respect of the contract for the replacement and rehabilitation of water mains stage 3 mains on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08) and the contract for Waterworks District W- New Territories (contract numbered 1/WSD/09(W)), for which relevant interim payment has not been applied. Amounts due from customers will become trade receivables upon certification, hence it is not relevant to present subsequent settlement thereof. Other receivables and prepayments amounted to approximately HK$458,000 and approximately HK$7.9 million as at 31 March 2009 and 31 March 2010 respectively. The substantial increase in other receivables and prepayments as at 31 March 2010 was mainly due to the increase in prepaid project insurance which amounted to approximately HK$3.5 million as at 31 March 2010, of which approximately HK$2.7 million was the insurance cost relating to the new contract for the replacement and rehabilitation of water mains stage 3 - mains on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08). The advance to subcontractors of the Group of approximately HK$2.3 million and the deferred expenses in relation to the professional fees for listing of the Shares of approximately HK$1.8 million as at 31 March 2010 also accounted partly for the increase in other receivables and prepayments. As other receivables and prepayments comprised mainly insurance cost and deferred professional fees for the listing of the Shares on GEM, which will be expensed towards the completion of the projects and upon successful Listing respectively, subsequent settlements thereof are not presented. 160

168 FINANCIAL INFORMATION The amount due from a director of approximately HK$17.7 million as at 31 March 2009, which was unsecured, interest-free and repayable on demand, related to current account with a director and had been fully settled as at 31 March Trade and other payables Trade and other payables of the Group comprised: As at 31 March HK$ 000 HK$ 000 Trade payables 5,328 8,046 Retention money payables 1,852 2,854 Advances received from customers 9,572 9,550 Other payables and accruals 2,986 4,001 19,738 24,451 Trade payables represented the amounts due to subcontractors of the Group, suppliers of materials and consumables. The following table sets out the ageing analysis of the trade payables as at 31 March 2009 and 31 March As at 31 March HK$ 000 HK$ 000 Current or less than 1 month 3,258 5,418 1 to 3 months 557 1,104 More than 3 months but less than 12 months 1, More than 12 months (Note) 21 1,139 5,328 8,046 Note: The upper ceiling for the trade payables under aging catagory more than 12 months was six years. The Group normally settles trade payables within a credit period ranging from 14 to 42 days. The trade payables are short term and hence their carrying values are considered by the Directors to be a reasonable approximation of their fair value. As at 31 March 2009 and 31 March 2010 respectively, the trade payables amounted to approximately HK$5.3 million and HK$8.0 million. The majority of trade payables as at 31 March 2009 and 31 March 2010 were current or aged less than 1 month. The increase in trade payables as at 31 March 2010 was resulted from the increase in waterworks work done by the Group for the year as indicated by the increase in revenue for the financial year ended 161

169 FINANCIAL INFORMATION 31 March As a result of an increased amount of contract work, the charges by the subcontractors and the cost of materials were both higher in the financial year ended 31 March The trade payables represented the outstanding amounts payable to the subcontractors and suppliers as at 31 March The trade payables aged more than 12 months as at 31 March 2010 were mainly related to the charges payable to a subcontractor of the Company. As there was certain outstanding work to be completed by such subcontractor, the related payables of approximately HK$900,000 were still unsettled as at the 30 June As at 30 June 2010, the subsequent settlement of the trade payables as at 31 March 2010 amounted to approximately HK$6.8 million. Retention money payables represented the money withheld by the Group when making interim payment to the subcontractors. Retention money will usually be retained by the Group for a period of time according to the terms of respective contract to ensure satisfactory completion of the projects by the Group s subcontractors. For projects which are divided into two or more sections or comprising several work orders, the retention money will be released after the maintenance period of respective sections or completion of respective work orders. In such cases, the retention money may be released before the completion of the whole project. Accordingly, the balance of retention money payable of a particular project may be subject to both upward and downward movements during the term of the project. The retention money payables amounted to approximately HK$1.9 million at 31 March 2009 and approximately HK$2.9 million as at 31 March The increase in such balance as at 31 March 2010 was mainly due to the retention money withheld by the Group from the major subcontractors which were involved in the contract for replacement and rehabilitation of water mains (Stage 2) Tai Po and Fanling (contract numbered 21/WSD/06) and contract for replacement and rehabilitation of water mains stage 2 - mains in Ngau Tam Mei (contract numbered 13/WSD/06). The advances received from customers refer to the funds advanced by the main contractors to the Group for the general working capital of the relevant projects undertaken by the Group as a subcontractor of such customers. Such advances are unsecured and repayable on demand except for an amount of approximately HK$8.2 million and approximately HK$3.5 million as at 31 March 2009 and 31 March 2010 respectively which are interest-bearing. As such advances from customers are directly related to a specific project, the interest cost on such advances is included as part of the Group s cost of services during the Track Record Period. As at 31 March 2009, the advances received from customers in a total amount of approximately HK$9.6 million comprised mainly funds advanced by the main contractor in respect of the contract for replacement and rehabilitation of water mains (Stage 2) Tai Po and Fanling (contract numbered 21/WSD/06). The advances received from customers as at 31 March 2010 amounted to approximately HK$9.6 million and represented mainly the advances from the main contractor in respect of the aforesaid contract in 2009 and the contract for the replacement and rehabilitation of water mains stage 3 mains on Hong Kong Island South and outlying islands (contract numbered 18/WSD/08). The advances from customers are reviewed periodically by the Group and the main contractors. The balance of advances from customer on a particular project may also be subject to change as the main contractor may raise or reduce the advances with reference to the anticipated funds required and the internally generated resources of that particular project. The advance from customers is usually set off against certified payments payable by the main contractors to the Group. 162

170 FINANCIAL INFORMATION Due to the floating nature of the retention money payables and advance from customers as described above, the subsequent settlement thereof are not presented. Other payables and accruals of the Group amounted to approximately HK$3.0 million and approximately HK$4.0 million as at 31 March 2009 and 31 March 2010 respectively. The major item of other payables and accruals was the provision for salaries of the employees of the Group for the month of March which are paid in the first week of the following month according to the Group s policy, and amounted to approximately HK$1.8 million and approximately HK$2.6 million as at 31 March 2009 and 31 March 2010 respectively. The increase in provision for salaries as a result of increase in manpower of the Group together with the corresponding increase in mandatory provident fund payable accounted for the increase in other payables and accruals as at 31 March The other payables were related to the outstanding payment for the sundry creditors including but not limited to machinery suppliers and petroleum companies. As at 30 June 2010, approximately HK$3.8 million of the other payables and accruals as at 31 March 2010 was subsequently settled. Finance lease creditors The Company leases a number of motor vehicles and machinery for use in its projects. Such assets are classified under as assets held under finance lease as the rental period approximates the estimated useful economic life of the assets concerned and often the Group has the right to purchase the assets outright at the end of the minimum lease term by paying nominal amount. As at 31 March 2009 and 2010, the outstanding amounts of the finance lease creditors amounted to approximately HK$4.6 million and approximately HK$3.9 million respectively. The outstanding balance as at 31 March 2010 was mainly related to new finance lease of approximately HK$3.2 million from the hire purchase of the motor vehicles. Borrowings During the financial year ended 31 March 2010, the Group borrowed loans of HK$6.0 million from a bank, of which approximately HK$1.5 million was repaid. The bank loans were interest-bearing and were drawn down from the loan facilities granted by a bank under the Scheme as mentioned above. The interest rate in respect of a non-revolving loan of HK$4.0 million was 1% per annum over the best lending rate offered by the bank. One of the bank loans in the amount of HK$2.0 million, also a non-revolving loan, was borrowed at a flat rate of 3.75% per annum. As at 31 March 2010, the bank loans due within one year amounted to approximately HK$4.5 million. The weighted average interest rate of the borrowings for the year was approximately 5.1%. 163

171 FINANCIAL INFORMATION III. Selected key financial ratios The following tables set out certain key financial ratios of the Group for the Track Record Period: Year ended 31 March Trade receivables turnover days Trade payables turnover days Inventory turnover days Notes: 1. Trade receivables turnover days equal to the balance of trade receivables, retention receivables and amounts due from customers for contract works as at the financial year end dates divided by total revenue for the respective financial year and multiplied by 365 days. 2. Trade payables turnover days equal to the balance of trade payables and retention payables as at the financial year end dates divided by cost of service for the respective financial year and multiplied by 365 days. 3. Inventory turnover days equal to the inventories as at the financial year end dates divided by total cost of materials for the respective financial year and multiplied by 365 days. Trade receivables turnover days The trade receivables and amounts due from customers for contract works were mainly derived from provision of contract works service. In general, the Group grants an average credit period ranging from 14 to 30 days to its trade customers of contract works. The average credit period granted by the Group refers to the period starting from the certification of contract work until the settlement of the trade receivables. Application for progress payments of contract works is made regularly, usually on a monthly basis. In general, the Group s customers are able to make payments for settlement of the trade receivables to the Group within the credit period. For the financial years ended 31 March 2009 and 31 March 2010, the Group s trade receivable turnover days were approximately 77.0 days and 48.4 days respectively. The turnover days shown above were longer than the average credit period of the Group, as the balances of retention receivables were included in the calculation of the trade receivables turnover days. If the retention receivable balances as at 31 March 2009 and 31 March 2010 were not taken into account in the calculation of trade receivable turnover days, the trade receivable turnover for the financial years ended 31 March 2009 and 31 March 2010 would have been approximately 38.1 days and 34.0 days respectively. 164

172 FINANCIAL INFORMATION In the calculation of the trade receivables turnover days above, the amounts due from customers for contract work are included in addition to trade receivables. As discussed in the above section, the amounts due from customers for contract works relate to the estimated revenue before the application for interim payment is made or the certificate of payment is issued. The amounts due from customers will become trade receivables upon certification of the relevant work by the customers. As such, the inclusion of the amounts due from customers would also result in the turnover days as calculated slightly longer than the average credit period granted to the customers. Trade payables turnover days Trade payables comprised mainly the subcontracting charge payable to the Group s subcontractors and the amount due to suppliers of materials and consumables. The Group normally settles trade payables within a credit period ranging from 14 days to 42 days. For the financial years ended 31 March 2009 and 31 March 2010, the Group s trade payables turnover days were approximately 37.1 days and 32.6 days respectively. The trade payables turnover days were consistent with the settlement period of the Group during the Track Record Period. Inventory turnover days For the financial year ended 31 March 2009 and 31 March 2010, the Group s inventory turnover days were approximately days and days respectively. During the financial year ended 31 March 2009, the Group has purchased more materials in anticipation of the commencement of works for a project of significant size (contract numbered 21/WSD/06). However, due to the unexpected time taken to obtain the necessary excavation permits from the relevant government authorities necessary for the commencement of work, the materials purchased have not been utilised as expected. As a result, the inventory turnover days for the year ended 31 March 2009 was comparatively higher than that for the year ended 31 March Year ended 31 March Return on equity (Note 1) 47.4% 75.4% Return on assets (Note 2) 21.2% 27.3% Notes: 1. Return on equity equals to net profit for the financial year divided by shareholders equity as at the financial year end date and multiplied by 100%. 2. Return on assets equals to net profit for the financial years divided by total assets as at the financial year end date and multiplied by 100%. 165

173 FINANCIAL INFORMATION Return on equity increased from approximately 47.4% for the year ended 31 March 2009 to approximately 75.4% for the year ended 31 March This was mainly caused by an increase in net profit for the year ended 31 March Given that there was no significant change in the Group s shareholders equity, an increase in net profit would cause the return on equity to increase for the financial year ended 31 March 2010, implying a better rate of return for the equity holders. Return on assets also improved, increasing from approximately 21.2% for the year ended 31 March 2009 to approximately 27.3% for the year ended 31 March This was mainly due to the combined effect of a higher growth of net profit of approximately 47.6% and a smaller increase in total assets of approximately 14.5%. Both the return on equity and return on assets were increasing during the Track Record Period. The larger increase in return on equity as compared with the return on assets for the year ended 31 March 2010 was because the total assets had increased while there was no significant change in equity. The increase in total assets was mainly attributable to the increase in cash and cash equivalents generated from the payment by the customers. LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE App1A(32)(5)(a) The Group generally finances its operations through internally generated cash flows and bank borrowings. Depending on the terms of the relevant contracts, the Group can receive advances from customers for general working capital of the project(s) in respect of the contract(s) undertaken by the Group as a subcontractor. In addition to the internally generated cash flows from the projects and the advances from customers which are main contractors, one of the main source of funds is bank borrowing. Save for the bank overdrafts and the bank borrowings, there was no other material external financing for the Group during the Track Record Period. As at the Latest Practicable Date, all the bank overdrafts and the bank borrowings have been fully repaid by the Group. The Directors consider that the regulatory licencing requirement on the working capital of the Company, which is detailed under the section headed Licencing and other requirement for Government projects in this prospectus, and funds required for execution of or generated from the projects are major factors affecting the liquidity and working capital of the Company. For the projects undertaken by the Company as a main contractor, there are no advances from WSD for daily operations of the projects. As disclosed above, in some cases where the Company undertakes a project as a subcontractor, the Company may request for advances from the main contractor for project use. Thus, whether or not the Company is able to obtain advances from the customers also affects the liquidity of the Group. As at the Latest Practicable Date, the Company has planned capital expenditures of up to HK$6.5 million, mainly for acquisition of equipment and machinery to meet the use of new project(s). The Company intends to finance the acquisition by the net proceeds from the Placing. Saved for the Placing, there are no other external financing plans for the Group. 166

174 FINANCIAL INFORMATION Net current asset As at 31 March 2009, the net current assets of the Group were approximately HK$17.7 million. As at 31 March 2010, the net current assets of the Group were approximately HK$11.5 million. Due to the settlement of the trade and other receivables and an increase in cash and cash equivalents, the amount of total current assets increased as at 31 March 2010 and was a bit higher than the total current assets as at 31 March The decrease in net current assets was primarily due to higher current liabilities as at 31 March 2010, mainly attributable to higher trade and other payables and current tax liabilities as a result of more business activities as compared with that for the year ended 31 March As at 30 June 2010, being the latest practicable date for the purpose of the statement of indebtedness, the Group s net current assets was approximately HK$12.4 million, consisting of current assets of approximately HK$48.6 million and current liabilities of approximately HK$36.2 million. As at 30 June 2010 HK$ 000 Current assets Inventories 9,279 Trade and other receivables 37,494 Cash and cash equivalents 1,832 48,605 Current liabilities Trade and other payables 26,147 Finance lease creditors 2,411 Borrowings 3,985 Employee benefits 473 Current tax liabilities 3,203 36,219 Current ratio The current ratio, which was defined as the total current assets divided by total current liabilities, has decreased from approximately 1.6 as at 31 March 2009 to approximately 1.3 as at 31 March The Directors believe that the Group s current ratio is healthy. 167

175 FINANCIAL INFORMATION Quick ratio The quick ratio, which was defined as total current assets less inventories divided by total current liabilities, was approximately 1.4 as at 31 March 2009 and approximately 1.0 as at 31 March 2010 respectively. The lower quick ratio as at 31 March 2010 was due to the higher inventory balance at the financial year end date. Although a lower quick ratio usually suggests a lower liquidity of an entity and lower ability to convert the current assets into cash, the liquidity of the Group was not worse-off as at 31 March 2010 in view of the higher level of cash and cash equivalents as compared with that of the preceding financial year. Gearing ratio The gearing ratio, which is based on the amount of total bank borrowings and obligations under finance lease and advance received from customers divided by total assets, was approximately 29.6% and approximately 29.1% as at 31 March 2009 and 31 March 2010 respectively. For the financial year ended 31 March 2009, there are no bank borrowing other than the bank overdraft of approximately HK$1.8 million as at 31 March The advance received from customers was approximately HK$9.6 million and the obligation under finance lease was approximately HK$4.6 million as at 31 March The total assets of the Group was approximately HK$53.9 million and HK$61.7 million as at 31 March 2009 and 31 March 2010 respectively. As at 31 March 2010, the Group had total bank borrowings of approximately HK$4.5 million, advance received from customers of approximately HK$9.6 million and obligation under finance lease of approximately HK$3.9 million. The slight decrease in gearing ratio of the Group as at 31 March 2010 was mainly due to the drawdown of the bank loans and an increase in total assets. Cashflow The following table summaries the Group s cash flows during the Track Record Period: Financial year ended 31 March HK$ 000 HK$ 000 Net cash generated from operating activities 4,124 27,169 Net cash used in investing activities (390) (5,242) Net cash used in financing activities (3,834) (10,018) Net (decrease)/increase in cash and cash equivalents (100) 11,909 Cash and cash equivalents at the beginning of year (1,479) (1,579) Cash and Cash equivalents at the end of year (1,579) 10,

176 FINANCIAL INFORMATION Operating activities For the financial year ended 31 March 2009, the cash inflow from operating activities was mainly generated from the payment by the customers for the Group s undertaking of the projects for the year. The Group recorded profit before income tax of approximately HK$13.7 million and operating profit before changes in working capital of approximately HK$16.2 million. During the year, an increase in inventories, trade and other receivables and the increase in trade and other payables mainly accounted for a cash outflow of approximately HK$12.1 million, resulting in net cash inflow from operating activities of approximately HK$4.1 million for the year. For the financial year ended 31 March 2010, the Group recorded net cash inflow from operating activities of approximately HK$27.2 million. The higher cash inflow as compared with the preceding year was mainly due to cash generated from larger amount of work done by the Group for the year. The Group recorded profit before income tax of approximately HK$20.4 million and operating profit before changes in working capital of approximately HK$24.3 million. During the year, the growth of the Group s business had led to the increase in trade payables to subcontractors and the salaries payable to the employees of the Group, resulting in a higher trade and other payables. The increase in trade and other payables caused a net working capital inflow of approximately HK$2.8 million, which was partly offset by cash used in the purchase of inventories. Investing activities Net cash used in investing activities was approximately HK$390,000 for the year ended 31 March 2009, which was related to the purchases of property, plant and equipment of approximately HK$1.0 million offset partially by the proceeds from the sale of property, plant and equipment of approximately HK$654,000. Net cash used in investing activities was approximately HK$5.2 million for the year ended 31 March 2010 which was related to the purchases of property, plant and equipment of approximately HK$5.5 million offset partially by the proceeds from sale of property, plant and equipment of approximately HK$0.2 million. During the financial year ended 31 March 2010, the Group acquired new machinery, equipment and motor vehicles for replacement of the old ones and for use in the new projects. Financing activities Net cash used in financing activities was approximately HK$3.8 million for the year ended 31 March This was mainly attributable to the repayment of finance lease of approximately HK$3.3 million. Net cash used in financing activities was approximately HK$10.0 million for the year ended 31 March The cash outflow mainly represented the dividend paid to an owner of the Company of approximately HK$9.9 million and repayment of finance lease of approximately HK$4.0 million. 169

177 FINANCIAL INFORMATION Instead of relying on the bank overdrafts to meet its financial needs, the Group borrowed bank loans during the financial year ended 31 March The cash inflow represented the drawdown of bank loans of HK$6.0 million, of which approximately HK$1.5 million has been repaid before 31 March Foreign exchange exposure App1A(31)(2) The Group is principally engaged in the undertaking of engineering projects in Hong Kong. As the revenue and cost of services are principally denominated in Hong Kong dollars, the exposure to the risk of foreign exchange rate fluctuations for the Group is minimal. INDEBTEDNESS Borrowings As at the close of business on 30 June 2010, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of this prospectus, the Group had outstanding bank loans of approximately HK$4.0 million which were secured, interest-bearing and repayable on demand. The obligations under finance leases amounted to approximately 3.1 million. App1A(32)(1),(2) Third Schedule 23 Security and guarantees As at the close of business on 30 June 2010, the bank loans together with the banking facilities were secured by personal guarantees given by the chairman, Mr. Kan, and cross guarantee within the Group. As at 30 June 2010, 30 motor vehicles of the Group under hire purchase with an aggregate outstanding principal amount of approximately HK$3.0 million were secured by personal guarantees from Mr. Kan. App1A(32)(3) Third Schedule 24 As at the close of business on 30 June 2010, the Group had total outstanding non-revolving loan of approximately HK$4.0 million and banking facilities of HK$6.2 million. The unutilised banking facilities of HK$6.2 million comprise of business credit card of HK$0.2 million, overdraft and revolving credit of HK$2.0 million and import facilities of HK$4.0 million. Contingent liabilities As at 30 June 2010, the Group did not have any material contingent liabilities. App1A(32)(4) Commitments The Group leased its office properties, and director s quarter and certain office equipment under operating lease arrangements which was negotiated for terms from two to three years. As at the close of business on 30 June 2010, the Group had operating lease commitments of approximately HK$0.9 million. 170

178 FINANCIAL INFORMATION Disclaimers Save as disclosed aforesaid and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, loan capital, bank overdrafts, loans, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptance or acceptance credits or any guarantees or other material contingent liabilities outstanding as at the close of business on 30 June The Directors confirm that there have been no material changes in the Group s indebtedness and contingent liabilities since 30 June WORKING CAPITAL App1A(36) Taking into account the internally generated funds of approximately HK$12.4 million available to the Group and the net proceeds from the issue of Shares under the Placing of approximately HK$21.0 million, the Directors are of the opinion that the Group will have sufficient funds to meet the working capital and financial requirements for at least next 12 months commencing from the date of this prospectus. OFF-BALANCE SHEET TRANSACTIONS Except for the commitments and contingent liabilities set forth above, the Group has not entered into any material off-balance sheet transactions or arrangements as at 31 March DIVIDEND POLICY AND DISTRIBUTABLE RESERVES The Group did not declare any dividends for the year ended 31 March For the year ended 31 March 2010, TYW and TY Civil declared and paid dividends of HK$245,000 and HK$9,700,000 respectively to Mr. Kan and TYC declared dividends of approximately HK$8,625,000 to Mr. Kan which was set off against the amount due from Mr. Kan. TY Civil also declared and paid a final dividend of HK$4,000,000 to Mr. Kan in April Despite the aforesaid dividends, if otherwise not declared and paid, would provide additional capital for the Group to undertake more contract works, the Directors consider that it is commercially justified to declare and pay the aforesaid dividends to Mr. Kan for the following reasons: (i) the aforesaid dividends were declared to Mr. Kan, the then sole shareholder of TYW and TY Civil, to reward his past investments in and support and contribution to the Group; (ii) the level of distribution is appropriate as a sufficient portion of the net profits attributable to the Shareholders has been retained to support the Group s ongoing operations and compliance with the employed capital and working capital requirements as required by WBDB for retention on the Contractor List; (iii) the Group could utilise a combination of retained profits and borrowings to finance the Group s working capital needs rather than solely rely on retained profits; (iv) the Group s gearing ratios, calculated as a percentage of the aggregate of the amount of total bank borrowings and obligations under finance lease and advance received from customers to total assets (31 March 2009: 29.6%; 31 March 2010: 29.1%) and the Group s finance costs (for the year ended 31 March 2009: approximately HK$455,000; for the year ended 31 March 2010: approximately HK$634,000) during the Track Record Period were 171

179 FINANCIAL INFORMATION at reasonable level respectively; and (v) the Shareholders will be entitled to the future profits of the Group after the Listing. The Directors also consider it was in the interest of the Company and the Shareholders as a whole to declare and pay the aforesaid dividends to Mr. Kan as rewards for his past contribution and encouragement for his continued support to the Group s business. The Company does not have any pre-determined dividend distribution ratio. The declaration of future dividends will be subject to the decision by the Board and will depend on, among other things, the earnings, financial condition, cash requirements and availability, and any other factors that the Directors may consider relevant. Any final dividend for a financial year will be subject to our Shareholders approval. The Company had no reserve available for distribution to the Shareholders as at 31 March 2010, being the date of which the Group s latest audited financial statements were made up. App1A(35) UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS The unaudited pro forma adjusted net tangible assets of the Group has been prepared, on the basis of the notes set forth below, for the purpose of illustrating the effect of the Placing as if it had taken place on 31 March It has been prepared for illustrative purpose only and, because of its hypothetical nature, may not give a true and fair picture of the financial position of the Group. App1A(21) R.7.31(3)(2) The unaudited pro forma adjusted net tangible assets of the Group as at 31 March 2010 is based on the audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 as shown in the Accountants Report set out in Appendix I to this prospectus and the adjustments described below. Audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 Add: Estimated net proceeds from the Placing Less: Dividends declared after 31 March 2010 Unaudited pro forma adjusted combined net tangible assets attributable to the owners of the Company Unaudited pro forma adjusted combined net tangible assets per Share HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK cents (Note 1) (Note 2) (Note 3) (Note 4) Based on the Placing Price of HK$1.28 per Share 22,340 21,000 (4,000) 39, Notes: 1. The audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 is based on the audited combined net assets of the Company as at 31 March 2010 of HK$22,340,000. R.7.31(3)(b) R.7.31(4) 172

180 FINANCIAL INFORMATION 2. The estimated net proceeds from the Placing are based on 24,800,000 Shares to be issued under the Placing at the Placing Price of HK$1.28 each, after deduction of the underwriting fees and related expenses payable of approximately HK$10,744,000 as estimated by the Directors. R.7.31(5) R.7.31(6) 3. Dividend declared after 31 March 2010 represents a final dividend of HK$4,000,000 declared and paid by TY Civil on 9 April 2010 in respect of the year ended 31 March 2010 to its then shareholders prior to the Reorganisation. 4. The unaudited pro forma adjusted combined net tangible assets per Share is calculated based on 99,200,000 Shares to be in issue immediately following the completion of the Placing and the Capitalisation Issue and the payment of final dividend by TY Civil. It does not take into account any Shares which may fall to be allotted and issued pursuant to the exercise of any options which may be granted under the Share Option Scheme, or any Shares which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares as referred to in Appendix V to this prospectus or otherwise. PROPERTY VALUATION The Group has leased a number of properties in Hong Kong for office use and as director s quarter. Vigers Appraisal and Consulting Limited, an independent property valuer, has valued the property interests of the Group as at 31 May 2010 and is of the opinion that the property interest is of no commercial value. The full text of the letter, summary of values and valuation certificate with regard to such property interests are set out in Appendix III to this prospectus. NO MATERIAL ADVERSE CHANGE App1A(38) The Directors confirm that there has been no material adverse change in the financial or trading positions or prospects of the Company since 31 March 2010, the date to which the latest audited financial statements of the Group was made up. The Directors confirm that they have performed sufficient due diligence on the Company to ensure that, up to the Latest Practicable Date, there has been no material adverse change in the Group s financial or trading positions or prospects since 31 March 2010, the date to which the latest audited financial statements of the Group were made up, and there is no event since 31 March 2010 which would materially affect the information shown in the Accountants Report. DISCLOSURE REQUIRED UNDER RULES TO OF THE GEM LISTING RULES App1A(34)(2) The Directors have confirmed that as at the Latest Practicable Date, they were not aware of any circumstances that would give rise to a disclosure requirement under Rules to of the GEM Listing Rules. 173

181 UNDERWRITING UNDERWRITERS A1A(15)(3)(h) Lead Manager CIMB Securities (HK) Limited Underwriters CIMB Securities (HK) Limited K.K.M. Securities Limited I-Access Investors Limited Sinomax Securities Limited Gransing Securities Co., Limited UNDERWRITING ARRANGEMENTS Underwriting Agreement Pursuant to the Underwriting Agreement, the Company is offering the Placing Shares under the Placing at the Placing Price for subscription by professional, institutional and/or other investors on and subject to the terms and conditions set forth in this prospectus. Subject to, inter alia, the Listing Division granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus on or before the date falling 30 days from the date of this prospectus, or such later date as the Sponsor (on behalf of the Lead Manager and the Underwriters) may agree in writing with the Company, the Underwriters have severally agreed to subscribe for or procure placees to subscribe for, subject to the terms and conditions of the Underwriting Agreement, the Placing Shares under the Placing. Grounds for termination App1A(15)(3)(i) The obligations of the Underwriters to subscribe for, or procure subscribers to subscribe for, the Placing Shares are subject to termination. The Sponsor and the Lead Manager (for itself and on behalf of the other Underwriters), on a jointly basis, are entitled to terminate the Underwriting Agreement at their sole and absolute discretion forthwith upon the occurrence of any of the following events by notice in writing to the Company (for itself and on behalf of the executive Directors and the Substantial Shareholders) given at any time prior to 8:00 a.m. on the Listing Date (the Termination Time ) if, any time before the Termination Time: (a) there comes to the knowledge of the Sponsor, the Lead Manager or any of the Underwriters of any matter or event showing any of the representations, warranties or undertakings contained in the Underwriting Agreement to be untrue, inaccurate or misleading in any respect when given or repeated or there has been a breach of any of the warranties or any other obligations imposed on any party to the Underwriting Agreement (other than those undertaken by the Underwriters, the Sponsor and/or the Lead Manager) which, in any such cases, is considered, in the sole and absolute opinion of the Lead Manager (for itself and on behalf of the other Underwriters), to be material in the context of the Placing; or 174

182 UNDERWRITING (b) (c) (d) (e) (f) (g) any statement contained in this prospectus has become or been discovered to be untrue, incorrect or misleading in any material respect; or any event, series of events, matters or circumstances occurs or arises on or after the date of the Underwriting Agreement and before the Termination Time, being events, matters or circumstances which, if it had occurred before the date of the Underwriting Agreement would have rendered any of the warranties contained in the Underwriting Agreement untrue, incorrect or misleading in any respect, and comes to the knowledge of any of the Sponsor, the Lead Manager or any of the Underwriters and which is considered, in the sole and absolute opinion of the Lead Manager (for itself and on behalf of the other Underwriters), to be material in the context of the Placing; or any matter which, had it arisen or been discovered immediately before the date of this prospectus and not having been disclosed in this prospectus, would have constituted, in the sole and reasonable opinion of the Lead Manager (for itself and on behalf of the other Underwriters), an material omission in the context of the Placing; or any event, act or omission which gives or is likely to give rise to any material liability of the Company or any of Shunleetat, Chuwei, Purplelight, Lotawater and the executive Directors arising out of or in connection with any representations, warranties or undertakings contained in the Underwriting Agreement; or there comes to the notice of any of the Sponsor, the Lead Manager or any of the Underwriters any breach by any party to the Underwriting Agreement (other than the Sponsor, the Lead Manager or the Underwriters) of any provision thereof which, in the sole and reasonable opinion of the Lead Manager (for itself and on behalf of the other Underwriters), is material; or there shall have developed, occurred, existed or come into effect any event or series of events, matters or circumstances whether occurring or continuing before, on and/or after the date of the Underwriting Agreement and including an event or change in relation to or a development of an existing state of affairs concerning or relating to any of the following: (i) (ii) any new law or regulation or any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, the Cayman Islands, the BVI, or any of the jurisdictions in which the Group operates or has or is deemed by any applicable law to have a presence (by whatever name called) or any other jurisdiction relevant to the Group; or any adverse change in, or any event or series of events or development resulting or likely to result in any adverse change in Hong Kong, the Cayman Islands, the BVI or any of the jurisdictions in which the Group operates or has or is deemed by any applicable law to have a presence (by whatever name called) or other jurisdiction relevant to the Group, the local, national, regional or international financial, currency, political, military, industrial, economic, stock market or other market conditions or prospects; or 175

183 UNDERWRITING (iii) any adverse change in the conditions of Hong Kong, the US, the PRC or international equity securities or other financial markets; or (iv) the imposition of any moratorium, suspension or material restriction on trading in securities generally on any of the markets operated by the Stock Exchange due to exceptional financial circumstances or otherwise; or (v) any adverse change or development involving a prospective adverse change in taxation or exchange control (or the implementation of any exchange control) in Hong Kong, the Cayman Islands, the BVI, or any of the jurisdictions in which the Group operates or has or is deemed by any applicable law to have a presence (by whatever name called) or other jurisdiction relevant to the Group; or (vi) any adverse change or prospective adverse change, in any material respect, in the business or in the financial or trading position or prospects of the Group taken as a whole; or (vii) the imposition of economic sanction or withdrawal of trading privileges, in whatever form, by the United States or by the European Union (or any member thereof) on Hong Kong or the PRC; or (viii)a general moratorium on commercial banking activities in the PRC or Hong Kong declared by the relevant authorities; or (ix) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, economic sanctions, fire, flood, explosion, epidemic, outbreak of an infectious disease, calamity, crisis, terrorism, strike or lock-out (whether or not covered by insurance); or (x) any other change, which, in the reasonable opinion of the Lead Manager (for itself and on behalf of the other Underwriters): (aa) is or will be or is likely to be adverse, in any material respect, to the business, financial or trading condition or prospects of the Group taken as a whole or, in the case of sub-paragraph (v) above, on any present or prospective shareholder in his/its capacity as such shareholder of the Company; or (bb) has or will have or is likely to have a material adverse effect on the success of the Placing as a whole or the level of the Placing Shares being demanded, applied for or accepted or the distribution of the Placing Shares; or (cc) for any reason makes it impracticable, inadvisable or inexpedient for the Underwriters to proceed with the Placing as a whole. 176

184 UNDERWRITING For the purposes of the above grounds of termination, (i) a change in the system under which the value of the Hong Kong currency is linked to that of the currency of the United States or any change of the value of Hong Kong currency under such system shall be taken as an event resulting in a change in currency conditions; and (ii) any market fluctuations, whether or not within the normal range therefor, may be considered as a change of market conditions referred to above. UNDERTAKINGS App1A(55) Each of Shunleetat and Mr. Kan, Chuwei and Mr. Cheng, Purplelight and Mr. Fung and Lotawater and Mr. Chia, has jointly and severally, irrevocably and unconditionally undertaken to the Company, the Stock Exchange, the Sponsor, the Lead Manager and the Underwriters that he/it shall not and shall procure that the relevant registered holder(s) (if any) shall not save as provided in Rule of the GEM Listing Rules, in the period commencing on the Latest Practicable Date and ending on the date which is six months from the Listing Date ( First Six Months Period ) dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares in respect of which he/it is shown by this prospectus to be the beneficial owner. Mr. Kan and Shunleetat, each being a Controlling Shareholder, has irrevocably and unconditionally undertaken to the Company, the Stock Exchange, the Sponsor, the Lead Manager and the Underwriters to comply with the following requirements: (a) in the period of six months commencing on the date on which the First Six Months Period expires, he/it will not dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any of the Shares in respect of which he/it is shown by this prospectus to be the beneficial owner if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, the Controlling Shareholders would, either individually or taken together with the others of them, cease to be a Controlling Shareholder; (b) in the event that the Controlling Shareholder pledges or charges any of his/its direct or indirect interest in the Shares pursuant to a pledge or charge in favour of an authorised institution (as defined in the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)), as security for a bona fide commercial loan or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, at any time during the First Six Months Periods, he/it must inform the Company immediately thereafter, disclosing the details specified in Rules 17.43(1) to (4) of the GEM Listing Rules; and (c) having pledged or charged any interest in the Shares referred to in (b) above, he/it must inform the Company immediately in the event that he/it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of Shares affected. 177

185 UNDERWRITING The Company will inform the Stock Exchange, the Sponsor, the Lead Manager and the Underwriters as soon as it has been informed of such matters and must forthwith publish an announcement giving details of the same in accordance with the requirements of Rule of the GEM Listing Rules. The Company has undertaken to and covenanted with the Sponsor, the Lead Manager and the Underwriters that, and each of the Substantial Shareholders and the executive Directors has jointly and severally undertaken and covenanted with the Sponsor, the Lead Manager and the Underwriters to procure that, without the prior written consent of the Sponsor (for itself and on behalf of the Lead Manager and the Underwriters), and subject always to the requirements of the Stock Exchange, save for the Placing Shares, the Shares to be issued pursuant to the Capitalisation Issue, the grant of any options under the Share Option Scheme, and any Shares which may fall to be issued pursuant to the exercise of any options which may be granted under the Share Option Scheme, or by way of scrip dividend schemes or similar arrangements in accordance with the articles of association of the Company, neither the Company nor any of its subsidiaries from time to time shall: (a) allot and issue or agree to allot and issue any shares in the Company or any subsidiary of the Company from time to time or agree to grant any options, warrants or other rights carrying any rights to subscribe for or otherwise acquire any securities of the Company or any subsidiary of the Company from time to time during the First Six Months Period; or (b) allot and issue or agree to allot and issue any of the shares or other interests referred to in (a) above during the six months after the First Six Months Period if, immediately following such allotment and issue, the Substantial Shareholders, taken together with the others of them, would cease to be the single largest shareholder of the Company; or (c) during the First Six Months Period purchase any Shares or securities of the Company. COMMISSIONS AND EXPENSES App1A(20)(2) The Underwriters will receive an underwriting commission of an amount equivalent to 2.5% of the aggregate Placing Price of the Placing Shares, out of which they will pay any sub-underwriting commissions. The Sponsor will also receive a financial advisory and documentation fee. On the basis of the Placing Price of HK$1.28 per Placing Share and the total subscription money, the estimated commissions and expenses relating to the Placing including the underwriting commission, the Stock Exchange listing fee, the Stock Exchange trading fee, the SFC transaction levy, legal and other professional fees (including the fee of the Sponsor), printing, and other expenses relating to the Placing, amount to approximately HK$10.7 million in aggregate, of which approximately HK$5.3 million has been paid by the Company as at 30 June 2010 and the remaining HK$5.4 million is payable by the Company, out of the proceeds of the Placing, the estimated net proceeds of the Placing is approximately HK$21.0 million. Third Schedule

186 UNDERWRITING UNDERWRITERS INTEREST IN THE COMPANY Save for the underwriting commitment under the Underwriting Agreement, none of the Underwriters has any shareholding in any member of the Group or any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for or purchase securities in any member of the Group. SPONSOR S INTEREST IN THE COMPANY App1A(54) The Sponsor, being the Company s compliance adviser pursuant to Rule 6A.19 of the GEM Listing Rules, will also receive a financial advisory fee from the Company during the term of its appointment as the compliance adviser of the Company. Save for (i) the advisory and documentation fees to be paid to Optima Capital as the sponsor to the Placing; and (ii) the financial advisory fee to be paid to Optima Capital as the Company s compliance adviser pursuant to the requirements under Rule 6A.19 of the GEM Listing Rules, neither Optima Capital nor any of its associates has or may have, as a result of the Placing, any interest in any class of securities in the Company or any of its subsidiaries (including options or rights to subscribe for such securities). No director or employee of Optima Capital who is involved in providing advice to the Company has or may have, as a result of the Placing, any interest in any class of securities of the Company or any of its subsidiaries (including options or rights to subscribe for such securities that may be subscribed for or purchased by any such director or employee pursuant to the Placing). No director or employee of Optima Capital has a directorship in the Company or any of its subsidiaries. Optima Capital is independent from the Group under Rule 6A.07 of the GEM Listing Rules. 179

187 STRUCTURE AND CONDITIONS OF THE PLACING PLACING PRICE ON SUBSCRIPTION App1A(15)(3)(d) Based on the Placing Price of HK$1.28, plus 1% brokerage, 0.004% SFC transaction levy and 0.005% Stock Exchange trading fee, one board lot of 2,000 Shares amounting to a total of approximately HK$2, will be payable upon subscription. Third Schedule 9 CONDITIONS OF THE PLACING Acceptance of all applications for the Placing Shares will be conditional upon: (i) the Listing Division granting the listing of, and permission to deal in, the Shares in issue and to be issued pursuant to the Capitalisation Issue, the Placing and the exercise of the options granted under the Share Option Scheme as described in this prospectus, and such listing and permission not subsequently having been revoked prior to the commencement of dealings in the Shares on GEM; and (ii) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, the waiver of any condition(s) by the Sponsor and the Lead Manager (for itself and on behalf of the Underwriters), and not being terminated in accordance with the terms of the Underwriting Agreement or otherwise, in each case, on or before the dates and times specified in the Underwriting Agreement (unless and to the extent such conditions are validly waived on or before such dates and times) and in any event not later than 19 September 2010, being the date which is 30 days after the date of this prospectus. If such conditions have not been fulfilled or waived (as the case may be) prior to the times and dates specified, the Placing will lapse and the Listing Division will be notified immediately. Notice of the lapse of the Placing will be published by the Company on the Exchange Website on the next Business Day following such lapse. THE PLACING The Company is offering 24,800,000 Placing Shares, representing 25% of the enlarged issued share capital of the Company, for subscription by way of the Placing. The Placing is fully underwritten by the Underwriters on and subject to the terms and conditions of the Underwriting Agreement. I.E. Note(11) App1A(15)(2),(3)(a) R11.23(7) R11.23(10) Pursuant to the Placing, it is expected that the Underwriters, on behalf of the Company, will conditionally place the Placing Shares at the Placing Price (plus 1% brokerage, 0.005% Stock Exchange trading fee and 0.004% SFC transaction levy) with selected professional and institutional investors in Hong Kong. Professional and institutional investors generally include brokers, dealers, high net worth individuals and companies (including fund managers) whose ordinary business involves dealing and investing in securities. Third Schedule

188 STRUCTURE AND CONDITIONS OF THE PLACING BASIS OF ALLOCATION R11.33 App1A(15)(3)(a) Allocation of the Placing Shares is based on a number of factors, including the level and timing of demand and whether or not it is expected that the relevant investor is likely to buy further and/or hold or sell its Shares after the Listing. Such allocation is generally intended to result in a distribution of the Placing Shares on a basis which would lead to the establishment of a solid and broad shareholder base to the benefit of the Company and the Shareholders as a whole. In particular, the Placing will be allocated pursuant to Rule 11.23(8) of the GEM Listing Rules, that not more than 50% of the Shares in public hands at the time of Listing will be owned by the three largest public Shareholders. No allocations will be permitted to nominee companies unless the name of the ultimate beneficiary is disclosed, without the prior written consent of the Stock Exchange. Details of the Placing will be announced in accordance with Rules 10.12(4), and of the GEM Listing Rules. R10.12(1) R10.12(2) SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS R11.29(1) R11.29(2) R11.29(3) Subject to the granting of the approval for the listing of, and permission to deal in, the Shares on GEM and the compliance with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the Listing Date or any other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second Business Day after any trading day. Investors should seek the advice of their stockbrokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements have been made for the Shares to be admitted into CCASS. Dealings in the Shares on GEM are expected to commence on 30 August The Shares will be traded in board lots of 2,000 each. LISTING ON ANY OTHER STOCK EXCHANGE The Directors are not considering any listing of the Company s securities on any other overseas stock exchange. The Company has not submitted any application or obtained any approval for the listing of the Shares on any other overseas stock exchange. 181

189 APPENDIX I ACCOUNTANTS REPORT The following is the text of a report, prepared for the purpose of incorporation in this prospectus, received from the Company s reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong. App1A(37) R7.01 R7.08(4) R11.10 R11.11 App1A(9)(3) R7.08(5) Third Schedule August 2010 The Directors Tsun Yip Holdings Limited Optima Capital Limited Dear Sirs We set out below our report on the financial information of Tsun Yip Holdings Limited (the Company ), its subsidiaries and controlled entity (hereinafter collectively referred to as the Group ) for each of the years ended 31 March 2009 and 2010 (the Relevant Periods ), prepared on the basis set out in Section II below, for inclusion in the prospectus of the Company dated 20 August 2010 (the Prospectus ) in connection with the initial listing of the shares of the Company on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the GEM of the Stock Exchange ). The Company was incorporated in the Cayman Islands on 15 March 2010 as an exempted company with limited liability under the Companies Law, Cap.22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. On 11 August 2010, the Company became the holding company of the subsidiaries now comprising the Group pursuant to a group reorganisation (the Reorganisation ) as set out in the subsection headed Reorganisation in Appendix V to the Prospectus. The Group is principally engaged in the provision of waterworks engineering services, road works and drainage services and site formation works for the public sector in Hong Kong. The Company and its subsidiaries have adopted 31 March as their financial year-end date. Third Schedule 29 As at the date of this report, the Company had direct or indirect interests in the following subsidiaries and controlled entity, all of which are private companies. The particulars of the subsidiaries and controlled entity are set out below: Name of company Place and date of incorporation and form of business structure Percentage of equity attributable to the Company Direct Indirect Nominal value of issued capital Principal activities App1A (28)(1)(a) Subsidiaries TYW (BVI) Limited ( TYW (BVI) ) British Virgin Islands (the BVI ), 2 July 2009, limited liability company 100% United States Dollars ( US$ ) 10,000, divided into 10,000 shares of US$1.00 each Investment holding App1A(28)(2) App1A(29)(1) App1A(29)(2) I-1

190 APPENDIX I ACCOUNTANTS REPORT Name of company Place and date of incorporation and form of business structure Percentage of equity attributable to the Company Direct Indirect Nominal value of issued capital Principal activities App1A (28)(1)(a) Tsun Yip Civil Construction Company Limited ( TY Civil ) Hong Kong, 16 June 2000, limited liability company 100% Hong Kong Dollars ( HK$ ) 1,000, divided into 1,000 shares of HK$1.00 each Rental of motor vehicles, provision of waterworks and laying of water pipes Tsun Yip Waterworks Construction Company Limited ( TYW ) Hong Kong, 6 February 1996, limited liability company 100% Hong Kong Dollars ( HK$ ) 10,000,000, divided into 10,000,000 shares of HK$1.00 each Provision of waterworks and laying of water pipes Controlled entity Tsun Yip Construction Co. ( TYC ) Hong Kong, 1 August, 1989 Sole proprietorship 100% Provision of waterworks and laying of water pipes, inactive since 1 April 2009 and ceased to be part of the Group No audited financial statements have been prepared for the Company since its date of incorporation as it has not carried out any business, other than the Reorganisation as referred to above. We have, however, reviewed all the relevant transactions of the Company since its date of incorporation. R7.08(1)(a) R7.08(1)(b) No audited financial statements have been prepared for TYW (BVI) and TYC since their respective dates of incorporation as there is no statutory requirement for these companies to prepare audited financial statements. We have, however, reviewed all the relevant transactions of TYW (BVI) since its date of incorporation. In respect of TYC, we have performed independent audit procedures in accordance with Hong Kong Standards of Auditing ( HKSAs ) issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ) on the unaudited management accounts for the Relevant Periods for the purpose of this report. The statutory financial statements of TY Civil and TYW for the Relevant Periods have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ( HKFRSs ), Hong Kong Accounting Standards ( HKASs ) and Interpretations (hereinafter collectively referred to as the HKFRSs ) issued by the HKICPA, and were audited by ourselves. I-2

191 APPENDIX I ACCOUNTANTS REPORT For the purpose of this report, the directors of the Company have prepared the combined financial statements of the Group for the Relevant Periods (the Underlying Financial Statements ), based on the audited financial statements or, where appropriate, unaudited management accounts of the companies now comprising the Group. R7.09 The combined statement of comprehensive income, combined statement of changes in equity and combined statement of cash flows of the Group for the Relevant Periods, and the combined statement of financial position of the Group as at 31 March 2009 and 2010 together with the notes thereon (collectively the Combined Financial Information ) have been prepared based on the Underlying Financial Statements on the basis set out in note 1 of Section II below, for the purpose of preparing this report for inclusion in the Prospectus. No adjustments on the Underlying Financial Statements for the Relevant Periods are considered necessary for the purpose of preparing the Combined Financial Information. The Combined Financial Information also includes the applicable disclosure requirements of the Hong Kong Companies Ordinance (the Companies Ordinance ) and the Rules Governing the Listing of Securities on the GEM of the Stock Exchange (the GEM Listing Rules ). R7.18 R7.11 The directors of the Company are responsible for the preparation of the Combined Financial Information which gives a true and fair view and the contents of the Prospectus in which this report is included. The responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Combined Financial Information that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. It is our responsibility to form an independent opinion on the Combined Financial Information, based on our audit, and to report our opinion to you. For the purpose of this report, we have carried out an independent audit on the Combined Financial Information for the Relevant Periods in accordance with HKSAs issued by the HKICPA, and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline Prospectuses and the Reporting Accountant issued by the HKICPA. R7.08 (3) In our opinion, the Combined Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the Group as at 31 March 2009 and 2010 and of the combined results and combined cash flows of the Group for the Relevant Periods. App1A (35) R7.08(2) I-3

192 APPENDIX I ACCOUNTANTS REPORT I. COMBINED FINANCIAL INFORMATION 1. Combined Statement of Comprehensive Income Year ended 31 March Notes HK$ 000 HK$ 000 R7.03 (1) Revenue 4 87, ,844 Cost of service (70,617) (121,872) R7.04(1)(a) R7.04(1)(d) Gross profit 17,079 26,972 Other income 4 2, Administrative expenses (5,431) (6,753) R7.04(1)(b) Profit from operations 5 14,187 21,030 Finance costs 7 (455) (634) R7.04(1)(e) Profit before income tax 13,732 20,396 Income tax 9 (2,327) (3,558) R7.04(1)(g) R7.04(1)(h) Profit and total comprehensive income for the year 11,405 16,838 R7.04(1)(j) I-4

193 APPENDIX I ACCOUNTANTS REPORT 2. Combined Statement of Financial Position R7.03(3)(a) R7.03(4)(a) As at 31 March Notes HK$ 000 HK$ 000 Non-current assets Property, plant and equipment 12 8, , Current assets Inventories 13 7,763 9,788 Trade and other receivables 14 37,015 28,271 Tax recoverable 222 Cash and cash equivalents ,330 R7.04(2)(a) R7.04(2)(b) R7.04(2)(b)(i) R7.04(2)(b)(ii) R7.04(2)(iii) 45,196 48, Total assets 53,893 61, Current liabilities Trade and other payables 16 19,738 24,451 Finance lease creditors 17 3,087 3,052 Borrowings 18 4,532 Employee benefits Current tax liabilities 2,384 4,365 Bank overdraft 1,775 R7.04(2)(c) R7.04(2)(c)(ii) R7.04(2)(c)(i) 27,497 36, Net current assets 17,699 11, R7.04(2)(d) Total assets less current liabilities 26,396 24, R7.04(2)(e) I-5

194 APPENDIX I ACCOUNTANTS REPORT As at 31 March Notes HK$ 000 HK$ 000 R7.03(3)(a) Non-current liabilities Finance lease creditors 17 1, Deferred tax liabilities ,658 R7.04(2)(f) 2,324 2, Total liabilities 29,821 39, TOTAL NET ASSETS 24,072 22,340 Capital and reserves Share capital 21 9,868 9,868 Reserves 22 14,204 12,472 R7.04(2)(g) TOTAL EQUITY 24,072 22,340 I-6

195 APPENDIX I ACCOUNTANTS REPORT 3. Combined Statement of Cash Flows Year ended 31 March Note HK$ 000 HK$ 000 R7.03(4A) Cash flows from operating activities Profit before income tax 13,732 20,396 Adjustments for: Depreciation of property, plant and equipment 3,789 3,831 Waiver of loan to staff 68 Write-off of long outstanding trade payables (2,539) (802) Impairment loss on trade receivables Loss on disposal of property, plant and equipment Finance costs Interest income (9) 16,208 24,333 Increase in inventories (5,786) (2,025) Increase in trade and other receivables (9,423) (124) Increase in trade and other payables 3,354 5,515 Increase/(decrease) in employee benefits 103 (40) R11.12A(1) Cash generated from operations 4,456 27,659 Income tax paid (332) (536) Income tax refunded 46 Net cash from operating activities 4,124 27, Cash flows from investing activities Purchases of property, plant and equipment (1,044) (5,464) Proceeds from sale of property, plant and equipment Interest received 9 Net cash used in investing activities (390) (5,242) I-7

196 APPENDIX I ACCOUNTANTS REPORT Year ended 31 March Note HK$ 000 HK$ 000 R7.03(4A) Cash flows from financing activities Proceeds from borrowings 6,000 Repayment of borrowings (1,468) Repayment of loan from staff (50) Interest element of finance lease creditors (390) (396) Repayment of finance lease creditors (3,329) (3,971) Interest paid (65) (238) Dividend paid to an owner of the Company (9,945) Net cash used in financing activities (3,834) (10,018) Net (decrease)/increase in cash and cash equivalents (100) 11,909 Cash and cash equivalents at beginning of year 23 (1,479) (1,579) Cash and cash equivalents at end of year 23 (1,579) 10,330 I-8

197 APPENDIX I ACCOUNTANTS REPORT 4. Combined Statement of Changes in Equity Share capital Retained earnings Proposed dividend Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 App1A(33)(5) R7.03(4B) Balance as at 1 April ,868 2,799 12,667 Total comprehensive income for the year 11,405 11,405 Balance as at 31 March 2009 and 1 April ,868 14,204 24,072 Total comprehensive income for the year 16,838 16,838 Interim dividends paid during the year (note 10) (18,570) (18,570) Proposed final dividend (note IV(c)) (4,000) 4,000 Balance as at 31 March ,868 8,472 4,000 22,340 I-9

198 APPENDIX I ACCOUNTANTS REPORT II. NOTES TO THE COMBINED FINANCIAL INFORMATION 1. CORPORATE INFORMATION AND BASIS OF PRESENTATION The Company was incorporated in the Cayman Islands on 15 March 2010 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The registered office and principal place of business of the Company are located at the offices of Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands and Flat 314, 3/F., Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong, respectively. The Group is principally engaged in the provision of waterworks engineering services, road works and drainage services and site formation works for the public sector in Hong Kong. App1A(5) App1A(6) Pursuant to the Reorganisation as detailed in the subsection headed Reorganisation in Appendix V to the Prospectus, in preparation for the listing of shares of the Company on the GEM of the Stock Exchange and for the purpose of rationalising the Group s structure, the Company became the holding company of the subsidiaries now comprising the Group on 11 August The Reorganisation involved business combinations of entities under common control before and immediately after the Reorganisation. Consequently, immediately after the Reorganisation, there was a continuation of the risks and benefits to the controlling parties that existed prior to the Reorganisation. The Group is regarded and accounted for as a continuing group resulting from the Reorganisation since all of the entities which took part in the Reorganisation were under common control in a manner similar to pooling of interests. Accordingly, for the purpose of this report, the Combined Financial Information has been prepared on a combined basis by applying the principles of merger accounting in accordance with the Accounting Guideline No. 5 ( AG5 ), Merger Accounting for Common Control Combination issued by the HKICPA. The Combined Financial Information is presented in Hong Kong Dollars ( HK$ ), which is also the functional currency of the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance R7.03(8) The Combined Financial Information set out in this report has been prepared in accordance with all applicable HKFRSs issued by the HKICPA. The Combined Financial Information also includes the applicable disclosure required by the GEM Listing Rules and by the Companies Ordinance. R7.11 R7.12 The preparation of the Combined Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Combined Financial Information, are disclosed in note 3. I-10

199 APPENDIX I ACCOUNTANTS REPORT Application of new and revised HKFRSs For the purpose of preparing the Combined Financial Information, the Group has adopted all the new and revised HKFRSs that are effective for annual periods beginning on or after 1 January 2009 consistently throughout the Relevant Periods except for the following new or revised HKFRSs that have been issued, potentially relevant to the Group s operations, but are not yet effective for any of the Relevant Periods: R7.17 HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to HKFRSs 2 HKFRSs (Amendments) Improvements to HKFRSs HKFRSs (Amendments) Improvements to HKFRSs Amendments to HKFRS 2 Share-based Payment Group Cash-settled Share-based Payment Transactions 1 HKAS 24 (Revised) Related Party Disclosures 5 HKAS 27 (Revised) Consolidated and Separate Financial Statements 2 HKFRS 3 (Revised) Business Combinations 2 HKFRS 9 Financial Instruments 6 HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments 4 1 Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate 4 Effective for annual periods beginning on or after 1 July Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate The adoption of HKFRS 3 (Revised) may affect the Group s accounting for business combination for which the acquisition dates are on or after 1 April HKAS 27 (Revised) will affect the accounting treatment for changes in a Group s ownership interest in a subsidiary. Changes in the Group s ownership that do not result in a loss of control of the subsidiary will be accounted for as equity transactions. The Group is in the process of making an assessment of the potential impact of other new/revised HKFRSs and the directors so far concluded that the application of the other new/revised HKFRSs will have no material impact on the results and the financial position of the Group. 2.1 Merger accounting for common control combination The Combined Financial Information incorporate the financial statements 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 businesses first came under the control of the controlling party. I-11

200 APPENDIX I ACCOUNTANTS REPORT The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties 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, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party s interest. The combined statement of comprehensive income includes the results of each of the combining entities from the earliest date presented or since the date when the combining entities first came under the common control, where this is a shorter period, regardless of the date of the common control combination. All inter-company transactions, cash flows and balances between the companies now comprising the Group are eliminated. 2.2 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised in profit or loss during the financial period in which they are incurred. Property, plant and equipment are depreciated at rates sufficient to write off their cost or valuation net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The principal annual rates are as follows: Site offices Leasehold improvements Over the respective project terms 30% or over the respective life of the leases, whichever is shorter Machinery 30% Furniture and fixtures 20% Office equipment 20% Motor vehicles 20% I-12

201 APPENDIX I ACCOUNTANTS REPORT An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset s estimated recoverable amount. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal. 2.3 Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and applicable selling expenses. 2.4 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases. The Group as lessee Assets held under finance leases are initially recognised as assets at their fair value or, if lower, the present value of the minimum lease payments. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to profit or loss over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. The total rentals payable under the operating leases are charged to profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease. 2.5 Financial instruments (i) Financial assets loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), and also incorporate other types of contractual monetary asset. Loans and receivables are initially recognised at fair value plus directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method, less any identified impairment losses. I-13

202 APPENDIX I ACCOUNTANTS REPORT (ii) Impairment loss on financial assets The Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include: significant financial difficulty of debtor; a breach of contract, such as a default or delinquency in interest or principal payments; granting concession to a debtor because of debtors financial difficulty; or it becoming probable that the debtor will enter bankruptcy or other financial reorganisation. An impairment loss is recognised in profit or loss and directly reduces the carrying amount of financial asset when there is objective evidence that the asset is impaired, and is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. (iii) Financial liabilities Financial liabilities include trade and other payables and borrowings, they are initially recognised at fair value, net of directly attributable transaction costs incurred and are subsequently measured at amortised cost using the effective interest method. The related interest expense is recognised in profit or loss. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. (iv) Derecognition The Group derecognises a financial asset only when the contractual rights to the future cash flows in relation to the financial 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 I-14

203 APPENDIX I ACCOUNTANTS REPORT 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. Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. 2.6 Employee benefits (i) Defined contribution retirement plan App1A(33)(4)(b) Contributions to defined contribution retirement plans are recognised as an expense in profit or loss when the services are rendered by the employees. (ii) Short-term employee benefits Short-term employee benefits are recognised when they accrue to employees. In particular, a provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of reporting period. Non-accumulating compensated absences such as sick leave and maternity leave are not recognised until the time of leave. (iii) Termination benefits Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal. (iv) Long service payments The Group s net obligation in respect of long service payments payable on cessation of employment in certain circumstances under the Hong Kong Employment Ordinance is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method, discounted to its present value and reduced by entitlements accrued under the Group s retirement plans that are attributable to contributions made by the Group. 2.7 Construction contracts Contract revenue comprises the agreed contract amount and appropriate amounts for variation orders, claims and incentive payments. Contract costs comprise direct materials, costs of subcontracting, direct labour, borrowing costs attributable directly to the construction and an appropriate portion of variable and fixed construction overheads. I-15

204 APPENDIX I ACCOUNTANTS REPORT When the outcome of a construction contract can be estimated reliably, revenue and contract costs associated with the construction contract are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that will probably be recoverable, and contract costs are recognised as an 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 progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers. Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers. 2.8 Revenue recognition App1A(33)(1) Revenue from construction contracts is recognised on the percentage of completion method, measured by reference to the certification by architects (note 2.7). rate. Interest income is accrued on a time basis on the principal outstanding at the applicable interest 2.9 Income taxes Income taxes for the year comprise current tax and deferred tax. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred tax liabilities are recognised for taxable temporary differences arising on 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. I-16

205 APPENDIX I ACCOUNTANTS REPORT Income taxes are recognised in profit or loss except when they relate to items directly recognised in other comprehensive income in which case the taxes are also directly recognised in other comprehensive income Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote Impairment of non-financial assets At each end of the reporting period, the Group reviews the carrying amounts of property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased. If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset 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 in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. 3. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. I-17

206 APPENDIX I ACCOUNTANTS REPORT (i) Construction contract revenue recognition According to the accounting policies of construction contracts as stated in note 2.7, the Group uses the percentage of completion method to determine the appropriate revenues to be recognised in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as percentage of total estimated costs for each contract. Upon applying the percentage of completion method, the Group needs to estimate the gross profit margin of each construction contract, which was determined based on the estimated total construction contract costs and total construction contract sum, including confirmed variation orders and claims, and liquidated damages. If the actual gross profit margin of construction contract differs from the management s estimates, the construction contract revenue to be recognised within the next year will need to be adjusted accordingly. (ii) Impairment of assets The Group assesses annually whether the financial assets and other assets have suffered any impairment in accordance with accounting policies stated in note 2.5(ii) and 2.11 respectively. The assets are reviewed for the impairment whenever events or changes in circumstances indicate that the carrying amount of the assets exceeds its recoverable amount. The determination of recoverable amount requires an estimation of future cash flows and the selection of appropriate discount rates. 4. REVENUE AND OTHER INCOME Revenue and other income recognised during the Relevant Periods are as follows: Year ended 31 March HK$ 000 HK$ 000 Revenue Turnover revenue from construction works 87, ,844 Other income Write-off of long outstanding trade payables which were overdue for more than 6 years 2, Sundry income 9 2, (i) As there was dispute with the supplier/subcontractor, no payments were made for such outstanding trade payables. The Group did not recognise such trade payables due to the aforesaid dispute. According to the Limitation Ordinance, issuance of legal action for recovery of debts that remained outstanding for over 6 years was precluded and the management considered that the Group no longer had the legal or constructive obligation to repay. As a result, trade payables aged more than six years were written off during the Relevant Periods. I-18

207 APPENDIX I ACCOUNTANTS REPORT Operating segments During the Relevant Periods, the Group is principally engaged in the waterworks engineering services, road works and damage services and site formation works for the public sector in Hong Kong. R7.04(4) Information about major customers Revenues from major customers are as follows: Year ended 31 March HK$ 000 HK$ 000 Water Supplies Department 22,929 17,154 Ming Hing Civil Contractors Limited/Ming Hing Waterworks Engineering Company Limited 60, ,376 Others 4, , , PROFIT FROM OPERATIONS Profit from operations is arrived at after charging: Year ended 31 March HK$ 000 HK$ 000 Contract costs recognised as expense, including borrowing costs of HK$242,000 (2009: HK$429,000) 70, ,872 Auditor s remuneration Depreciation 3,789 3,831 Impairment loss on trade receivables Loss on disposal of property, plant and equipment Staff costs (note 6) 18,098 26,896 Waiver of loan to staff 68 R7.04(1)(f) I-19

208 APPENDIX I ACCOUNTANTS REPORT 6. STAFF COSTS Year ended 31 March HK$ 000 HK$ 000 Staff costs (including directors) comprise: Wages, salaries and other benefits 17,732 26,086 Contribution on defined contribution retirement plan App1A (33)(4)(c) 18,098 26, FINANCE COSTS Year ended 31 March HK$ 000 HK$ 000 Interest on finance leases Interest on bank overdraft Interest on bank loans wholly repayable within five years I-20

209 APPENDIX I ACCOUNTANTS REPORT 8. DIRECTORS REMUNERATION AND SENIOR MANAGEMENT S EMOLUMENTS (i) Directors emoluments The aggregate amounts of the emoluments paid and payable to the directors of the Company by the companies now comprising the Group for each of the Relevant Periods are as follows: Defined contribution retirement Fees Salaries and allowances Bonus benefit scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 App1A(33)(2)(c) App1A(33)(3) (a), (b) Year ended 31 March 2009 Executive directors Mr. Cheng Ka Ming, Martin Mr. Chia Thien Loong, Eric John Mr. Fung Chung Kin Mr. Kan Kwok Cheung , ,554 Defined contribution retirement Fees Salaries and allowances Bonus benefit scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 March 2010 Executive directors Mr. Cheng Ka Ming, Martin Mr. Chia Thien Loong, Eric John Mr. Fung Chung Kin Mr. Kan Kwok Cheung 1, ,155 2, ,720 I-21

210 APPENDIX I ACCOUNTANTS REPORT During the Relevant Periods, none of the directors waived or agreed to waive any remuneration and there were no emoluments paid by the Group to the directors as an inducement to join, or upon joining the Group, or as compensation for loss of office. (ii) Five highest paid individuals The five highest paid individuals whose emoluments were the highest in the Group included two and three directors for the years ended 31 March 2009 and 2010 respectively whose emoluments are reflected in the analysis as shown in note 8(i). The emoluments of the remaining three and two highest paid individuals for the years ended 31 March 2009 and 2010 respectively are as follows: Year ended 31 March HK$ 000 HK$ 000 Basic salaries, bonuses and other allowances 1,109 1,300 Defined contribution retirement benefit scheme contributions App1A(33)(3)(c) App1A(33)(2)(d) 1,135 1,324 Their emoluments were within the following band: Year ended 31 March No. of employees No. of employees Nil to HK$1,000, During the Relevant Periods, none of the senior management waived or agreed to waive any remuneration and there were no emoluments paid by the Group to any of the five highest paid individuals as an inducement to join, or upon joining the Group or as compensation for loss of office. I-22

211 APPENDIX I ACCOUNTANTS REPORT 9. INCOME TAX The amount of income tax in the combined statement of comprehensive income represents: Year ended 31 March HK$ 000 HK$ 000 Current tax - Hong Kong Profits tax - tax for the year 2,167 2,603 - under-provision in respect of prior years 90 2,167 2, Deferred tax (note 20) - current year attributable to decrease in tax rate (22) Income tax 2,327 3,558 Hong Kong profits tax is calculated at 16.5% of the estimated assessable profits of TYW & TY Civil and 15% that of TYC for the Relevant Periods. I-23

212 APPENDIX I ACCOUNTANTS REPORT The income tax for the Relevant Periods can be reconciled to the profit per the combined statement of comprehensive income as follows: Year ended 31 March HK$ 000 HK$ 000 Profit before income tax 13,732 20,396 Tax calculated at the domestic tax rate of 16.5% 2,266 3,365 Effect of difference tax rate of sole proprietorship (186) Tax effect of expenses not deductible for tax purpose Utilisation of deductible temporary difference previously not recognised Tax loss not recognised (39) Effect on opening deferred tax balances resulting from a decrease in applicable tax rate (22) Under-provision for prior years 90 Others (23) Income tax 2,327 3, DIVIDENDS R7.03(5) R7.04(1)(k) No dividend has been paid or declared by the Company since its date of incorporation on 15 March The dividends during the Relevant Periods represented those declared by TYW, TY Civil and TYC to its then shareholders prior to the Reorganisation. The rates of dividend and the number of shares ranking for dividends are not presented as such information is not meaningful for this report. Year ended 31 March HK$ 000 HK$ 000 Interim dividends 18, EARNINGS PER SHARE No earnings per share information is presented as its inclusion, for the purpose of this report, is not meaningful due to the Reorganisation and the preparation of the results for the Relevant Periods on a combined basis as described in note 1 above. R7.03(5) I-24

213 APPENDIX I ACCOUNTANTS REPORT 12. PROPERTY, PLANT AND EQUIPMENT Leasehold Furniture Office Motor Site improvements Machinery and fixtures equipment vehicles offices Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Cost At 1 April , ,582 6,011 1,141 12,461 Additions at cost 80 1, ,619 3,190 Disposals (1,992) (622) (2,614) At 31 March 2009 and at 1 April , ,631 7,008 1,141 13,037 Additions at cost 2, , ,695 Disposals (3) (1) (341) (345) At 31 March , ,997 11,408 1,702 21, Accumulated depreciation At 1 April , ,913 Depreciation 12 1, , ,789 Eliminated on disposals (1,322) (40) (1,362) At 31 March 2009 and at 1 April , , ,340 Depreciation 24 1, , ,831 Eliminated on disposals (1) (91) (92) At 31 March , , , Net book value At 31 March , ,218 7, ,308 At 31 March , ,213 5, ,697 I-25

214 APPENDIX I ACCOUNTANTS REPORT The net carrying amount of property, plant and equipment includes the following assets held under finance leases (note 17). As at 31 March HK$ 000 HK$ 000 Machinery Office equipment 1,091 Furniture and fixtures 189 Motor vehicles 4,417 5,544 6,284 5, INVENTORIES As at 31 March HK$ 000 HK$ 000 Construction materials 7,763 9, TRADE AND OTHER RECEIVABLES As at 31 March HK$ 000 HK$ 000 Trade receivables (note (i)&(iii)) 3,614 2,612 Retention receivables (note (ii)&(iii)), (note 15) 10,449 6,495 Other receivables and prepayments 458 7,935 Amounts due from customers for contract works (note 15) 4,446 10,635 Amount due from a director (note (iv)) 17,671 Deposits ,015 28,271 (i) Trade receivables as at the end of the reporting period mainly derived from provision of construction works on civil engineering contracts. The related customers are mainly government department/organisation and reputable corporations. These customers have established good track records with the Group and have no history of default payments. On this basis, management believes that no impairment allowance is necessary in respect of the trade receivables as at the end of each reporting period. The Group does not hold any collateral over these balances. I-26

215 APPENDIX I ACCOUNTANTS REPORT The Group grants an average credit period of 30 days to its trade customers of contract works. Application for progress payments of contract works is made on a regular basis. The balance included in trade receivables of HK$2,757,000 and HK$2,612,000 as at 31 March 2009 and 2010, respectively, was neither past due nor impaired which relate to customers as government department/organisation and reputable corporations for whom there is no recent history of default. Included in trade and other receivables are trade debtors (net of impairment losses) with the following ageing analysis as of the end of the reporting period: R7.04 (2)(b) As at 31 March HK$ 000 HK$ 000 Current 2,757 2,612 Less than 1 month past due to 3 months past due More than 3 months but less than 12 months past due 3,614 2,612 The ageing of trade receivables, which are past due but not impaired are as follows: As at 31 March HK$ 000 HK$ 000 Less than 1 month past due to 3 months past due More than 3 months past due but less than 12 months past due Amount past due at end of the reporting period but not impaired 857 (ii) Retention monies withheld by customers of contract works are released after the completion of maintenance period of the relevant contract or in accordance with the terms specified in the relevant contract. (iii) Trade and other receivables including the retention receivables are short term and hence the directors consider the carrying amount of trade and other receivables approximate their fair values at the end of each reporting periods. I-27

216 APPENDIX I ACCOUNTANTS REPORT (iv) Particulars of the amount due from a director, who is also a shareholder of the Company, is as follows: Name of borrower Balance at 31 March 2010 Maximum amount outstanding during the year ended 31 March 2010 Balance at 31 March 2009 and 1 April 2009 Maximum amount outstanding during the year ended 31 March 2009 Balance at 1 April 2008 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Mr. Kan Kwok Cheung 17,671 17,671 17,671 12,491 The amount due from a director is unsecured, interest-free and repayable on demand. The Group has not made any provision for doubtful debts in respect of the amount due from the director. 15. AMOUNTS DUE FROM CUSTOMERS FOR CONTRACT WORKS As at 31 March HK$ 000 HK$ 000 Contracts in progress at the end of the reporting period: Contract costs incurred to date plus recognised profits 200, ,075 Less: recognised losses 200, ,075 Progress billings (195,744) (199,440) 4,446 10,635 Contract costs incurred to date plus recongised profits comprise direct materials, costs of subcontracting, direct labour, an appropriate portion of variable and fixed construction overheads incurred and gross profit earned to date of the contracts, which is measured by reference to the certification by architects. Progress billings represent the amounts billed to the customers for work performed up to the end of each of the Reporting Periods. At 31 March 2009 and 2010, retentions held by customers for contract works included in other receivables (note 14) amounted to HK$10,449,000 and HK$6,495,000 respectively. At 31 March 2009 and 2010, advances received from customers included in other payables (note 16) under current liabilities amounted to HK$9,572,000 and HK$9,550,000 respectively. I-28

217 APPENDIX I ACCOUNTANTS REPORT 16. TRADE AND OTHER PAYABLES As at 31 March HK$ 000 HK$ 000 Trade payables 5,328 8,046 Retention money payables 1,852 2,854 Advances received from customers (note (i)) (note 15) 9,572 9,550 Other payables and accruals 2,986 4,001 19,738 24,451 (i) Advances received from customers are unsecured and repayable on demand except for an amount of HK$8,170,000 and HK$3,450,000 at 31 March 2009 and 2010 respectively which bears interest at a rate of HIBOR + 4% per annum. The Group normally settles trade payables within 30 days credit term. Based on the invoice date, ageing analysis of trade payables at the end of the reporting period is as follows: R7.04(2)(b) As at 31 March HK$ 000 HK$ 000 Current or less than 1 month 3,258 5,418 1 to 3 months 557 1,104 More than 3 months but less than 12 months 1, More than 12 months 21 1,139 5,328 8,046 All amounts are short term and hence the carrying values of trade payables are considered to be a reasonable approximation of fair value. 17. LEASES Finance leases The Group leases a number of its motor vehicles and machinery. Such assets are classified as finance leases as the rental period approximates the estimated useful economic life of the assets concerned and often the Group has the right to purchase the assets outright at the end of the minimum lease term by paying a nominal amount. The lease terms ranged from one to three years. For the years ended 31 March 2009 and 2010, the weighted average interest rates were 7.3% and 7.9% respectively. I-29

218 APPENDIX I ACCOUNTANTS REPORT Future lease payments are due as follows: As at 31 March 2009 Minimum lease payments Interest Present value HK$ 000 HK$ 000 HK$ 000 Not later than one year 3, ,087 Later than one year and not later than five years 1, ,531 4, ,618 As at 31 March 2010 Minimum lease payments Interest Present value HK$ 000 HK$000 HK$ 000 Not later than one year 3, ,052 Later than one year and not later than five years , ,878 Operating leases lessee The Group leased its office property, director s quarter and certain office equipment under operating lease arrangement which was negotiated for terms from two to three years with an option to renew the leases upon expiry when all terms are renegotiated. None of the leases includes contingent rentals. The lease payments recognised as an expenses are as follows: As at 31 March HK$ 000 HK$ 000 Minimum lease payments I-30

219 APPENDIX I ACCOUNTANTS REPORT The total future minimum lease payments are due as follows: As at 31 March HK$ 000 HK$ 000 Not later than one year Later than one year and not later than five years Later than five years 681 1, BORROWINGS As at 31 March HK$ 000 HK$ 000 R7.03(7) Interest bearing: Bank loans on demand 4,532 For the year ended 31 March 2010, the weighted average interest rate of borrowings was 5.1%. The bank loans together with the banking facilities are secured by personal guarantees executed by Mr. Kan Kwok Cheung, a director of the Company, and a cross guarantee from TY Civil. The unutilised banking facilities as at 31 March 2010 amounted to HK$6,200,000. Pursuant to a subordination agreement (the Subordination Agreement ) dated 19 May 2009 entered into between the Group, Mr. Kan and a bank ( the bank ), in consideration of granting facilities and advancing monies to the Group, each of Mr. Kan and the Group undertook to the bank that, among other things, so long as there were any sums due from the Group to the bank, the indebtedness owed by the Group to Mr. Kan shall not be repayable unless the bank otherwise consented to such repayment. In January 2010, the Group has set off certain sums of indebtedness owed to Mr. Kan against certain sums paid by the Group for Mr. Kan in advance without obtaining prior consent of the bank in accordance with the Subordination Agreement. This constituted a breach of the terms of the Subordination Agreement and caused the bank loans became immediately repayable. Therefore, the aforesaid bank loans were classified as current. The bank loans were originally repayable in full in June Subsequent to the year ended 31 March 2010, the Group has repaid all the outstanding bank loans (note IV(d)). I-31

220 APPENDIX I ACCOUNTANTS REPORT 19. EMPLOYEE BENEFITS As at 31 March HK$ 000 HK$ 000 Liabilities for employee benefits comprise provision for: Annual leave entitlement Long service payments entitlement DEFERRED TAX Details of the deferred tax liabilities recognised and movements during the Relevant Periods are as follows: Accelerated depreciation allowances HK$ 000 At 1 April Charge to profit or loss for the year (note 9) 182 Effect of change in tax rate (note 9) (22) At 31 March 2009 and 1 April Charge to profit or loss for the year (note 9) 865 At 31 March , SHARE CAPITAL The Company was incorporated in Cayman Islands on 15 March 2010 with an authorised share capital of HK$380,000 divided into 38,000,000 ordinary shares of HK$0.01 each. On the same date, one ordinary share was allotted and issued nil paid to initial subscriber. Further details on the Company s share capital are set out in the sub-paragraph headed Changes in the share capital of the Company in Appendix V to the Prospectus. For the purpose of this report, the share capital of the Group as at 31 March 2009 and 2010 represented the aggregate amount of the nominal value of the issued share capital of the entities now comprising the Group at the end of reporting periods. I-32

221 APPENDIX I ACCOUNTANTS REPORT 22. RESERVES Retained earnings Proposed dividend Total HK$ 000 HK$ 000 HK$ 000 R7.03(6) Balance as at 1 April ,799 2,799 Total comprehensive income for the year 11,405 11,405 Balance as at 31 March 2009 and 1 April ,204 14,204 Total comprehensive income for the year 16,838 16,838 Interim dividends paid during the year (note 10) (18,570) (18,570) Proposed final dividend (note IV(c)) (4,000) 4,000 Balance as at 31 March ,472 4,000 12,472 (i) Distributable reserves App1A(33)(5) The Company was incorporated on 15 March As at 31 March 2010, there was no reserve available for distribution to the shareholders. 23. NOTES SUPPORTING COMBINED STATEMENT OF CASH FLOWS Cash and cash equivalents comprise: As at 31 March HK$ 000 HK$ 000 Cash and bank balances ,330 Overdrafts (1,775) (1,579) 10,330 Major non-cash transactions during the Relevant Periods are as follows: (i) During the year ended 31 March 2010, dividend of approximately HK$8,625,000 payable to a shareholder of one of the Company s subsidiaries was settled by offsetting the current account with the director who was also the then shareholder of that subsidiary under the instruction of the then shareholder. I-33

222 APPENDIX I ACCOUNTANTS REPORT (ii) During the years ended 31 March 2009 and 2010, the Group entered into finance lease arrangements in respect of purchase of property, plant and equipment with a capital value at the inception of the leases of approximately HK$1,636,000 and HK$3,231,000 respectively and other payables of HK$510,000 during the year ended 31 March RELATED PARTY TRANSACTIONS (i) In addition to the transactions and balances disclosed elsewhere in these Combined Financial Information, the Group entered into the following related party transactions. Related party relationship Type of transaction Transaction amount HK$ 000 HK$ 000 A company that Mr. Chia Thien Loong, Eric John had material interest Spouse of Mr. Fung Chung Kin Rental expense for an office premise paid (note (a)) Sale of a motor vehicle to the Group (note (b)) (a) Rental expense was charged at a term mutually agreed between the Group and the related company. This related party transaction is expected to be continued after floatation. (b) The purchase of motor vehicle from the spouse of a director of the Company was made according to the published price. This related party transaction is one-off nature and expected not to be continued after floatation. One of the Group s directors, who is also a shareholder of the Group, has provided personal guarantee to the lessor in respect of the Group s obligations under finance lease and bank loans as at each of the reporting period as disclosed in note 17 and 18 respectively. The directors considered that the above related party transactions were conducted on normal commercial terms and in the ordinary and usual course of the Group s business. (ii) Key management personnel compensation The key management personnel of the Group are the directors of the Company. Details of the remuneration paid to them during the Relevant Periods are set out in note 8 to the Combined Financial Information. 25. FINANCIAL INSTRUMENTS RISK MANAGEMENT The Group s principal financial assets are trade and other receivables and cash and cash equivalents. Financial liabilities of the Group include trade and other payables. I-34

223 APPENDIX I ACCOUNTANTS REPORT The Group has not issued and does not hold any financial instruments for trading purposes at the end of the reporting period. The main risks arising from the Group s financial instruments are credit risk and liquidity risk. The Group s financial risk management policy seeks to ensure that adequate resources are available to manage the above risks and to create value for its shareholders. (i) Credit risk The Group s trade on credit terms only with recognised and creditworthy third parties. The credit risk of Group s trade and retention receivables (note 14) is concentrated as 93% (2009: 86%) of the carrying amount was derived from two major customers. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. In respect of trade and other receivables, individual credit evaluations performed on all customers requiring credit over a certain amount. These evaluation focus on the customer s past history of making payment when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within one year after the completion of project. Normally, the Group does not obtain collateral from customers. The credit risks of the Group s other financial assets, which comprise bank balances, prepayments and other receivables, arise from default of the counterparty, with a maximum exposure equal to the carrying amounts of these financial instruments. (ii) Liquidity risk The Group s objective is to ensure adequate funds to meet commitments associated with its financial liabilities. Cash flows are closely monitored on an ongoing basis. The Group will raise funds either through the advances from shareholders or from the realisation of its assets if required. The table below summarises the maturity profile of the Group s financial liabilities at 31 March based on contractual undiscounted payments. Year ended 31 March 2009 On demand Less than 3 months 3to12 months Over 1 year Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Other payables and accruals 2,986 2,986 Finance lease creditors ,557 1,635 4,975 3, ,557 1,635 7,961 I-35

224 APPENDIX I ACCOUNTANTS REPORT Year ended 31 March 2010 On demand Less than 3 months 3to12 months Over 1 year Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Other payables and accruals 4,001 4,001 Bank loans 4,855 4,855 Finance lease creditors 1, , ,210 10, , ,066 (iii) Capital management The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholder and to maintain an optimal capital structure to reduce the cost of capital. 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 dividend payment to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes in the objectives, policies or processes were made during the Relevant Periods. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. Net debt is calculated as the total of trade and other payables, finance lease creditors, borrowings, employee benefits, bank overdraft and less cash and cash equivalents. Capital includes equity attributable to owners of the Group HK$ 000 HK$ 000 Total debt 26,644 33,334 Less: Cash and cash equivalents (196) (10,330) Net debt 26,448 23,004 Equity 24,072 22,340 Net debt and equity 50,520 45,344 Gearing ratio 52% 51% I-36

225 APPENDIX I ACCOUNTANTS REPORT III. DIRECTORS REMUNERATION Saved as disclosed in note 8(i) of Section II above, no other remuneration has been paid or is payable in respect of the Relevant Periods to the directors of the Company. IV. SUBSEQUENT EVENTS Subsequent to 31 March 2010 and up to the date of this report, the following significant events have taken place: R7.03(9) (a) On 11 August 2010, the entities now comprising the Group underwent a group reorganisation to rationalise the Group s structure in preparation of the listing of shares of the Company on the GEM of the Stock Exchange. (b) On 11 August 2010, written resolutions were passed to effect the transactions as set out in the sub-paragraph headed Written resolutions of all Shareholders passed on 11 August 2010 in Appendix V to the Prospectus, certain of which is disclosed as follows: (i) (ii) The authorised share capital of the Company was increased from HK$380,000 to HK$500,000,000 by the creation of additional 49,962,000,000 shares. 999 shares of HK$0.01 each of the Company were issued as consideration for the acquisition of the entire issued share capital of TYW (BVI). (c) (d) On 9 April 2010, TY Civil declared and paid a final dividend of HK$4,000,000 in respect of the year ended 31 March 2010 to its then shareholders prior to the Reorganisation. Subsequent to the year ended 31 March, 2010, Mr. Kan Kwok Cheung, a director and shareholder of the Company, has repaid all the outstanding bank loans of the Group. The personal guarantees of Mr. Kan Kwok Cheung provided for the loans and other banking facilities will be released in six months period from the date of aforesaid repayment. Save as disclosed above, there are no other significant events which have taken place subsequent to 31 March V. SUBSEQUENT FINANCIAL STATEMENTS No audited financial statements have been prepared by the Company in respect of any period subsequent to 31 March Yours faithfully, BDO Limited Certified Public Accountants Li Yin Fan Practising Certificate Number P03113 Hong Kong R7.02 R7.08(4) I-37

226 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information prepared in accordance with Rule 7.31(1) and paragraph 21 of Appendix 1A of the GEM Listing Rules is for illustrative purpose only, and is set out herein to provide the prospective investors with further financial information about how the proposed listing might have affected the net tangible assets of the Group after the completion of the Placing as if the Placing had taken place on 31 March R7.31(1) R7.31(2)(a) The accompanying unaudited pro forma financial information of the Group is based on currently available information along with a number of assumptions, estimates and uncertainties. As a result of these assumptions, estimates and uncertainties, the accompanying unaudited pro forma financial information of the Group does not purport to predict the Group s future financial position. Although reasonable care has been exercised in preparing the said information, prospective investors who read the information should bear in mind that these figures are inherently subject to adjustments and may not give a true picture of the Group s financial position. R7.31(2)(c) The information set forth in this appendix does not form part of the Accountants Report prepared by BDO Limited, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, as set forth in Appendix I to this prospectus, and is included herein for illustrative purposes only. R7.31(2)(b) The unaudited pro forma financial information should be read in conjunction with the section headed Financial Information in this prospectus and the Accountants Report set forth in Appendix I to this prospectus. II-1

227 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION (A) UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS App1A(21) The unaudited pro forma adjusted net tangible assets of the Group has been prepared, on the basis of the notes set forth below, for the purpose of illustrating the effect of the Placing as if it had taken place on 31 March It has been prepared for illustrative purpose only and, because of its hypothetical nature, may not give a true and fair picture of the financial position of the Group. R7.31(3)(a) The unaudited pro forma adjusted net tangible assets of the Group as at 31 March 2010 is based on the audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 as shown in the Accountants Report set out in Appendix I to this prospectus and the adjustments described below. Audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 Add: Estimated net proceeds from the Placing Less: Dividends declared after 31 March 2010 Unaudited pro forma adjusted combined net tangible assets attributable to the owners of the Company Unaudited pro forma adjusted combined net tangible assets per Share HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK cents (Note 1) (Note 2) (Note 3) (Note 4) R7.31(3)(a) R7.31(5)(b) Based on the Placing Price of HK$1.28 per share 22,340 21,000 (4,000) 39, Notes: (1) The audited combined net tangible assets attributable to owners of the Company as at 31 March 2010 is based on the audited combined net assets of the Company as at 31 March 2010 of HK$22,340,000. R7.31(3)(b) (2) The estimated net proceeds from the Placing are based on 24,800,000 Placing Shares at the Placing Price of HK$1.28 each, after deduction of the underwriting fees and related expenses payable of approximately HK$10,744,000 as estimated by the Directors. R7.31(6)(a) R7.31(6)(b) (3) Dividend declared after 31 March 2010 representing TY Civil declared and paid a final dividend of HK$4,000,000 on 9 April 2010 in respect of the year ended 31 March 2010 to its then shareholders prior to the Reorganisation. (4) The unaudited pro forma adjusted combined net tangible assets per Share is calculated based on 99,200,000 Shares in issue immediately following the completion of the Placing and the Capitalisation Issue and declared and paid a final dividend of TY Civil. It does not take into account any Shares which may fall to be allotted and issued pursuant to the exercise of any options which may be granted under the Share Option Scheme, or any Shares which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares referred to in Appendix V to this Prospectus or otherwise. II-2

228 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION (B) LETTER FROM THE INDEPENDENT REPORTING ACCOUNTANTS ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION The following is the text of a report, received from the independent reporting accountants of the Company, BDO Limited, Certified Public Accountants, Hong Kong, prepared for inclusion in this prospectus, in respect of the Group s unaudited pro forma financial information. R7.31(7)(a) R7.31(7)(b) R7.31(7)(c) App1A(9)(3) 20 August 2010 The Directors Tsun Yip Holdings Limited Optima Capital Limited Dear Sirs, Report on the unaudited pro forma financial information to the directors of Tsun Yip Holdings Limited (the Company ) We report on the unaudited pro forma financial information relating to the adjusted net tangible assets (the Unaudited Pro Forma Financial Information ) of the Company and its subsidiaries (collectively referred to as the Group ), which has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the proposed listing of the Company s shares might have affected the financial information presented, for inclusion in section A of Appendix II the prospectus dated 20 August 2010 (the Prospectus ) issued by the Company. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on section A of Appendix II to the Prospectus. Respective Responsibilities of Directors of the Company and the Reporting Accountants It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the GEM Listing Rules ) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ). It is our responsibility to form an opinion, as required by paragraph 31(7) of Chapter 7 of the GEM Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion solely to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom whose reports were addressed by us at the dates of their issue. II-3

229 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION Basis of opinion We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 Accountants Reports on Pro Forma Financial Information in Investment Circulars issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information. R7.31(7)(a) R7.31(7)(b) R7.31(7)(c) We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules. Our work did not constitute an audit or a review made in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA, and accordingly, we did not express any such assurance on the Unaudited Pro Forma Financial Information. The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not give any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 March 2010 or at any future date. Opinion In our opinion: (a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated; (b) such basis is consistent with the accounting policies of the Group; and (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 31(1) of Chapter 7 of the GEM Listing Rules. Yours faithfully, BDO Limited Certified Public Accountants Li Yin Fan Practising Certificate Member P03113 Hong Kong II-4

230 APPENDIX III PROPERTY VALUATION The following is the text of a letter, summary of values and valuation certificate prepared for the purpose of incorporation in this prospectus received from Vigers Appraisal and Consulting Limited, an independent valuer, in connection with the valuations of the property interests of the properties rented by the Group as at 31 May Vigers Appraisal and Consulting Limited International Property Consultants 10th Floor, The Grande Building 398 Kwun Tong Road Kowloon Hong Kong App1A (7) 20 August 2010 App1A(9)(3) The Board of Directors Tsun Yip Holdings Limited Flat 314, 3/F, Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong Dear Sirs, In accordance with your instruction for us to value the property interests held by Tsun Yip Holdings Limited (referred to as the Company ) and its subsidiaries (hereinafter together referred to as the Group ) as listed in the attached Summary of Values, we confirm that we have inspected the properties, made relevant enquiries and investigations as well as obtained such further information as we consider necessary for the purpose of providing our opinion of values of the property interests of the properties as at 31 May 2010 (the Valuation Date ). 8.05(8) 8.30 Basis of Valuation Our valuations are our opinion of market values of the property interests of the properties in concern which is defined as intended to mean the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller on an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Our valuations have been prepared in accordance with The HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors, the relevant provisions in the Companies Ordinance and the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (9) III-1

231 APPENDIX III PROPERTY VALUATION Property Categorisation In respect of the property interests of the properties rented by the Group in the Hong Kong Special Administrative Region ( Hong Kong ), we are of the opinion that such property interests carry no commercial value due to the prohibition against assignment or sub-letting or otherwise due to lack of substantial profit rent and/or the short term nature of the property interests. Title Investigation The properties are located in Hong Kong and we have conducted land searches for the properties but we have not searched the original documents to ascertain ownership nor to verify any lease amendments which may not appear on the copies handed to us. Valuation Assumptions Our valuations have been made on the assumption that the property interests of the properties can be sold in the prevailing market in existing state without the effect of any deferred term contract, leaseback, joint venture, management agreement or any other similar arrangement which may serve to affect the values of the property interests of the properties, unless otherwise noted or stated. In addition, no account has been taken into of any option or right of pre-emption concerning or affecting the sale of the property interests of the properties, and no allowance has been made for the property interests of the properties to be sold to a single party and/or as a portfolio or portfolios. In valuing the property interests of the properties, we have assumed that the owners of the property interests of the properties in concern have free and uninterrupted rights to use and assign the properties during the whole of the unexpired terms granted subject to the payment of usual land-use fees. No investigation has been carried out to determine the suitability of the ground conditions or the services for any property development(s) erected on the properties. Our valuations have been carried out on the assumption that these aspects are satisfactory. We have also assumed that all necessary consents, approvals and licences from relevant government authorities have been or will be granted without onerous conditions or delay. Other special assumptions for the property interests of the properties have been stated in the footnotes of the respective valuation certificate. Valuation Consideration We have inspected the properties included in the attached valuation certificate. During the course of our inspections, we did not note any serious defect. However, neither structural survey nor test on any of the services has been made and we are therefore unable to report as to whether the properties are free from rot, infestation or other structural or non-structural defect. III-2

232 APPENDIX III PROPERTY VALUATION Having examined all relevant documentation, we have relied to a considerable extent on the information given by the Group, particularly in respect of planning approvals, statutory notices, easements, tenure, site and floor areas, occupancy status, building age and specifications, and in the identification of the properties in concern. Unless otherwise stated, all dimensions, measurements and areas included in the valuation certificate are based on the information contained in the documents provided to us by the Group and are therefore approximations. We have had no reason to doubt the truth and accuracy of the information made available to us and we have been advised by the Group that no material facts have been omitted from the information so given. Unless otherwise noted, we have not carried out detailed on-site measurement to verify the correctness of the site and floor areas in respect of the properties in concern but we have assumed that the site and floor areas shown on the documents handed to us are correct. No allowance has been made in our valuations for any charges, mortgages or amounts owing on the property interests of the properties being valued for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, we have assumed that the property interests of the properties are free from any encumbrances, restrictions and outgoings of an onerous nature which may serve to affect the values of the property interests of the properties. Remarks We declare hereby that we are independent to the Group and we are not interested directly or indirectly in any shares in any member of the Group. We do not have any right or option whether legally enforceable or not to subscribe for or to nominate persons to subscribe for any shares in any member of the Group. 8.31(1) 8.31(2) We enclose herewith our Summary of Values and Valuation Certificate. Yours faithfully, For and on behalf of VIGERS APPRAISAL AND CONSULTING LIMITED David W. I. CHEUNG MRICS MHKIS RPS(GP) CREA MCIArb Executive Director 8.05(7) 8.32(1) Note: Mr. David W. I. Cheung is a Registered Professional Surveyor in General Practice Division with over 27 years valuation experience on properties in Asia Pacific including the People s Republic of China and Hong Kong, who has been vetted on the list of property valuers for undertaking valuations for incorporation or reference in listing particulars and circulars and valuations in connection with takeovers and mergers published by The Hong Kong Institute of Surveyors, and is suitably qualified for undertaking valuations relating to listing exercises. III-3

233 APPENDIX III PROPERTY VALUATION SUMMARY OF VALUES No. Property Address Capital Value in Existing State as at 31 May 2010 Interest attributable to the Group Capital Value attributable to the Group as at 31 May 2010 Property Interests Rented by the Group in Hong Kong 1. Unit 14 on 3rd Floor, Fuk Shing Commercial Building, No. 28 On Lok Mun Street, North, New Territories, Hong Kong 2. Unit 3 on 3rd Floor, Fuk Shing Commercial Building, No. 28 On Lok Mun Street, North, New Territories, Hong Kong 3. Ground Floor, No. 86 San Uk Ka, Tai Po, New Territories, Hong Kong 4. Flat B (with A/C (Rooms) pertaining thereto which is/are accessible from the Flat itself) on 21st Floor of Tower 8, The Palazzo, No. 28 Lok King Street, Shatin, New Territories, Hong Kong 5. Rooms 1&3on7thFloor, Anton Building, No. 1 Anton Street, Wan Chai Hong Kong No commercial value No commercial value No commercial value No commercial value No commercial value 8.05(1)(a) GRAND TOTAL NO COMMERCIAL VALUE III-4

234 APPENDIX III PROPERTY VALUATION VALUATION CERTIFICATE Property Interests Rented by the Group in Hong Kong No. Property Description and Tenure Particulars of Occupancy Capital Value in Existing State as at 31 May Unit 14 on 3rd Floor, Fuk Shing Commercial Building, No. 28 On Lok Mun Street, North, New Territories, Hong Kong All those 21/1380th shares of parts or parcels of ground known and registered at the Land Registry as Fanling Sheung Shui Town Lot No. 162 The property comprises an office unit on the 3rd floor in a 7-storey industrial/office building completed in As measured from the assignment plan, the property has a saleable area of approximately 1,398 square feet ( square metres). Fanling Sheung Shui Town Lot No. 162 is held under New Grant No commencing on 19 November 1996 and expiring on 30 June 2047 at an annual Government Rent equivalent to 3% of the Rateable Value. Pursuant to a tenancy agreement entered into between Golden Opportunity Development Limited as lessor and Tsun Yip Waterworks Construction Company Limited as lessee dated 27 August 2008, the property is leased for a term of two years commencing on 1 September 2008 and expiring on 31 August 2010 at a monthly rent of HK$20,000, inclusive of Government Rent, Rates and management fees, but exclusive of other out-goings. The property is occupied by the Group for office use. No commercial value 8.05 (1)(a) (1)(b) (1)(c) (1)(d) (1)(e)(ii) (1)(f) (1)(g) (1)(i) (1)(j) Note (Property 1): 1. The current registered owner of the property is Golden Opportunity Development Limited. 2. Pursuant to our land search record, the property is subject to the following salient encumbrances: i. Certificate of Compliance vide Memorial No. N dated 25 January 2000; ii. Occupation Permit (Permit No. NT 60/99) vide Memorial No. N dated 6 November 1999; iii. Deed of Mutual Covenant and Management Agreement vide Memorial No. N dated 29 May 2000; iv. Tripartite Legal Charge/Mortgage for All Monies in favour of Standard Chartered Bank (Hong Kong) Limited vide Memorial No. N dated 28 August 2004; and v. Rental Assignment vide Memorial No. N dated 28 August The property lies on an area zoned Industrial under Fanling/Sheung Shui District Outline Zoning Plan (No. S/FSS/14). III-5

235 APPENDIX III PROPERTY VALUATION No. Property Description and Tenure Particulars of Occupancy Capital Value in Existing State as at 31 May Unit 3 on 3rd Floor, Fuk Shing Commercial Building, No. 28 On Lok Mun Street, North, New Territories, Hong Kong All those 13/1380 shares of parts or parcels of ground known and registered at the Land Registry as Fanling Sheung Shui Town Lot No. 162 The property comprises an office unit on the 3rd floor in a 7-storey industrial/office building completed in As measured from the assignment plan, the property has a saleable area of approximately 854 square feet (79.35 square metres). Fanling Sheung Shui Town Lot No. 162 is held under New Grant No commencing on 19 November 1996 and expiring on 30 June 2047 at an annual Government Rent equivalent to 3% of the Rateable Value. Pursuant to a tenancy agreement entered into between Golden Opportunity Development Limited as lessor and Tsun Yip Waterworks Construction Company Limited as lessee dated 8 September 2009, the property is leased for a term of two years commencing on 7 October 2009 and expiring on 6 October 2011 at a monthly rent of HK$8,800, inclusive of Government Rent, Rates and management fees, but exclusive of other out-goings. The property is occupied by the Group for office use. No commercial value 8.05 (1)(a) (1)(b) (1)(c) (1)(d) (1)(e)(ii) (1)(f) (1)(g) (1)(i) (1)(j) Note (Property 2): 1. The current registered owner of the property is Golden Opportunity Development Limited. 2. Pursuant to our land search record, the property is subject to the following salient encumbrances: i. Certificate of Compliance vide Memorial No. N dated 25 January 2000; ii. Occupation Permit (Permit No. NT 60/99) vide Memorial No. N dated 6 November 1999; iii. Deed of Mutual Covenant and Management Agreement vide Memorial No. N dated 29 May 2000; iv. Tripartite Legal Charge/Mortgage for All Monies in favour of Standard Chartered Bank (Hong Kong) Limited vide Memorial No. N dated 28 August 2004; and v. Rental Assignment vide Memorial No. N dated 28 August The property lies on an area zoned Industrial under Fanling/Sheung Shui District Outline Zoning Plan (No. S/FSS/14). III-6

236 APPENDIX III PROPERTY VALUATION No. Property Description and Tenure Particulars of Occupancy Capital Value in Existing State as at 31 May Ground Floor, No. 86 San Uk Ka, Tai Po, New Territories, Hong Kong All those certain parts or parcels of ground known and registered at the Land Registry as Sub-Section 13 of Section A of Lot No. 20 in D.D. 21 The property comprises a residential unit on ground floor in a 3-storey village type house completed in or about According to our on-site measurement, the property has a saleable area of approximately 673 square feet (62.56 square metres). The property is held under Government Lease for a term of 75 years commencing on 1st July 1898 renewed for a further lease term of 24 years less the last three days and has been renewed for a further lease term of 50 years expiring on 30th June 2047 without paying additional premium but an annual Government Rent equivalent to 3% of the then Rateable Value by virtue of the relevant provisions contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People s Republic of China on the question of Hong Kong as well as the New Territories Leases (Extension) Ordinance The property is occupied by the Group for office use. No commercial value 8.05 (1)(a) (1)(b) (1)(c) (1)(d) (1)(e)(ii) (1)(f) (1)(g) (1)(i) Pursuant to a tenancy agreement entered into between Wong Yuet Sang as lessor and Tsun Yip Waterworks Construction Company Limited as lessee dated 16 July 2009, the property is leased for a term of two years commencing on 1 August 2009 and expiring on 31 July 2011 at a monthly rent of HK$7,500, inclusive of Government Rent and Rates, but exclusive of other out-goings. Note (Property 3): 1. No sub-division registration for the property is made available at the Land Registry. Pursuant to our land search record, the property is registered at the Land Registry as No. 86 San Uk Ka, Tai Po, New Territories, Hong Kong and the current registered owner of the property is Wong Yuet Sang. 2. Pursuant to our land search record, the property is subject to the following salient encumbrances: i. Deed of Grant of Right of Way vide Memorial No. TP dated 6 October 1997; ii. Deed of Grant of Right of Way vide Memorial No. TP dated 17 September 2003; III-7

237 APPENDIX III PROPERTY VALUATION iii. Deed of Consent regarding R.P. & SS.13 of S.A of Lot No. 20 in DD21 vide Memorial No. TP dated 10 October 2003; iv. Re-registration of Deed of Agreement and Undertaking (previously registered by Memorial No. TP709888) vide Memorial No. TP dated 17 September 2003; v. Building Licence No. 177/2002 from District Lands Officer Tai Po for and on behalf of The Chief Executive of the HKSAR vide Memorial No. TP dated 27 January 2004; vi. Deed of Dedication vide Memorial No. TP dated 29 December 2003; and vii. Permission Letter from District Lands Officer/Tai Po vide Memorial No dated 6 October The property lies on an area zoned Village Type Development under Tai Po District Outline Zoning Plan (No. S/TP/21). (1)(j) III-8

238 APPENDIX III PROPERTY VALUATION No. Property Description and Tenure Particulars of Occupancy Capital Value in Existing State as at 31 May Flat B (with A/C (Rooms) pertaining thereto which is/are accessible from the Flat itself) on 21st Floor of Tower 8, The Palazzo, No. 28 Lok King Street, Sha Tin, New Territories, Hong Kong All those 14/ 25263rd shares of parts or parcels of ground known and registered at the Land Registry as Sha Tin Town Lot No. 470 The property comprises a residential unit on the 21st Floor in a 37-storey (designation of 7th, 13th Floor, 14th Floor, 17th Floor, 24th Floor, 27th Floor, 34th Floor, 37th Floor, 40th Floor to 49th Floor, 53rd Floor, 54th Floor, 57th Floor to 59th Floor and 64th Floor omitted, 29th Floor designated as Refuge Floor, 16th Floor and 18th Floor designated as Sky Garden Floors) residential building erected over a 3-storey club house/carpark podium completed in According to the developer s sales brochure, the property has a gross floor area of approximately 1,835 square feet ( square metres). As measured from the assignment plan, the property has a saleable area of approximately 1,415 square feet ( square metres) including balcony of appropriately 41 square feet (3.81 square metres) and utility platform of appropriately 16 square feet (1.49 square metres) but excluding bay window of appropriately 46 square feet (4.27 square metres) and air-conditioning plant room of approximately 46 square feet (4.27 square metres). The property is occupied by the Group for domestic use. No commercial value 8.05 (1)(a) (1)(b) (1)(c) (1)(d) (1)(e)(ii) (1)(f) (1)(g) (1)(i) The property is held under New Grant No. ST13170 for a term of 50 years commencing on 3 March 2003 at an annual Government Rent equivalent to 3% of the Rateable Value. Pursuant to a tenancy agreement entered into between Kim Nam Woon and Yu Su Yeon as lessors and Tsun Yip Waterworks Construction Company Limited as lessee dated 1 April 2010, the property is leased for a term of two years commencing on 16 April 2010 and expiring on 15 April 2012 at a monthly rent of HK$37,000, inclusive of Government Rent, Rates and management fees, but exclusive of other out-goings. III-9

239 APPENDIX III PROPERTY VALUATION Note (Property 4): 1. The current registered owners of the property are Kim Nam Woon (1/2) and Yu Su Yeon (1/2) (Tenants in Common). 2. Pursuant to our land search record, the property is subject to the following salient encumbrances: i. Occupation Permit Nos. PR7/2008 (OP) and PR1/2009(OP) from Building Authority of Hong Kong vide Memorial Nos and dated 12 December 2008 and 23 January 2009 respectively; ii. Certificate of Compliance vide Memorial No dated 24 April 2009; iii. Deed of Mutual Covenant and Management Agreement in favour of MTR Corporation Limited (Manager) vide Memorial No dated 4 May 2009; iv. Mortgage to Secure All the Banking Facilities made or to be made Available to the Mortgagor in favour of Standard Chartered Bank (Hong Kong) Limited vide Memorial No dated 21 May 2009; and v. Second Mortgage to Secure All Moneys in respect of General Credit Facilities in favour of Rich Treasure Investments Limited vide Memorial No dated 21 May The property lies on an area zoned Other Specified Uses(Railway Depot Comprehensive Development Area) under Sha Tin Outline Zoning Plan (No.S/ST/23). (1)(j) III-10

240 APPENDIX III PROPERTY VALUATION No. Property Description and Tenure Particulars of Occupancy Capital Value in Existing State as at 31 May Rooms 1&3on 7th Floor, Anton Building, No. 1 Anton Street, Wan Chai, Hong Kong All those certain portion of 2/34th shares of parts or parcels of ground known and registered at the Land Registry as Sub-Section 2 of Section A of Marine Lot No. 65 The property comprises two office units on the 7th floor in a 15-storey office commercial building completed in or about According to our on-site measurement, the property has a total saleable area of approximately 156 square feet (14.49 square metres) with breakdown shown as follows: Portion Saleable Area Room 1 78 sq.ft sq.m. Room 3 78 sq.ft sq.m. Total 156 sq.ft sq.m. Marine Lot No. 65 is held under Government Lease for a term of 999 years commencing on 25 June 1863 with total Government Rent payable of HK$26.00 per annum. The property is occupied by the Group for office use. No commercial value 8.05 (1)(a) (1)(b) (1)(c) (1)(d) (1)(e)(ii) (1)(f) (1)(g) (1)(h) (1)(i) (1)(j) Pursuant to a sub-lease agreement and a supplementary tenancy agreement entered into between Hong Kong Listco Limited as lessor and Tsun Yip Waterworks Construction Company Limited as lessee dated 1 May 2009 and 7 May 2010 respectively, the property is sub-leased for a term of two years and six months commencing on 1 May 2009 and expiring on 31 October 2011 at a monthly rent of HK$4,000, inclusive of Government Rent, Rates and management fees, but exclusive of other out-goings. Note (Property 5): 1. The current registered owner of the property is Super Pizza Holdings Limited. 2. Pursuant to our land search record, the property is subject to Deed of Mutual Covenant (previously registered by Memorial No. UB ) vide Memorial No. UB dated 10 April The property lies on an area zoned Residential (Group A) under Wan Chai District Outline Zoning Plan (No. S/H5/25). III-11

241 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW R24.09 (2),(3) 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 15 March, 2010 under the Companies Law. The memorandum of association of the Company (the Memorandum ) and the Articles comprise its constitution. 3rd Sch. (23) R11.31 S MEMORANDUM OF ASSOCIATION (a) 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. (b) 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 adopted on 11 August The following is a summary of certain provisions of the Articles: A1A7 S342(1)(a)(i) (a) Directors (i) 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 with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed. A3 6(1) 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 from time to time determine. IV-1

242 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount. Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever. (ii) Power to dispose of the assets of the Company or any subsidiary 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) 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. A11B 5(4) (iv) Loans and provision of security for loans to Directors (v) There are provisions in the Articles prohibiting the making of loans to Directors. Disclosure of interests in contracts with the Company or any of its subsidiaries. A11B 5(2) A1A 7(1) 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, subject to the Articles, upon such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the IV-2

243 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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. Subject as otherwise provided by the Articles, 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. Subject to the Companies Law and the Articles, 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 shall 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. A11B 5(3) 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 associates is materially interested, but this prohibition shall not apply to any of the following matters, namely: App1A(7)(1) A3 4(1) (aa) any contract or arrangement for giving to such Director or his associate(s) any security or indemnity in respect of money lent by him or any of his associates or obligations incurred or undertaken by him or any of his 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 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; IV-3

244 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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 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 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; (ee) any contract or arrangement concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or a shareholder or in which the Director and any of his associates are not in aggregate beneficially interested in 5 percent. or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest or that of any of his associates is derived); or (ff) 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 associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his associate(s) as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates. (vi) Remuneration A1A 7(2) The ordinary remuneration of the Directors shall from time to time 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 shall also be 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. 3rd Sch. (5) IV-4

245 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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 (whether by way of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration 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. 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. (vii) Retirement, appointment and removal App1A(7)(4) A1A 7(4) 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) will 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 in every year will 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. There are no provisions relating to retirement of Directors upon reaching any age limit. IV-5

246 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW The Directors shall have the power from time to time and at any time 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. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification. A3 4(2) App1A(7)(5) A3 4(3) 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 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. A11B 5(1) The office or director shall be vacated: (aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board; (bb) becomes of unsound mind or dies; (cc) if, without special leave, he is absent from meetings of the board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board resolves that his office is vacated; (dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; (ee) if he is prohibited from being a director by law; (ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles. The board may from time to time 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 IV-6

247 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board. (viii)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 (present and future) 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. App1A(7)(3) A1A 7(3) Third Schedule 22 Note: These provisions, in common with the Articles in general, can be varied with the sanction of a special resolution of the Company. (ix) Proceedings of the Board The board may meet for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote. (x) Register of Directors and Officers The Companies Law and the Articles provide that 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 thirty (30) days of any change in such directors or officers. (b) Alterations to constitutional documents 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. A11B 1 (c) Alteration of capital A1A 7(6) The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law: App1A(7)(6) (i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe; IV-7

248 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares; (iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine; (iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares; or (v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled. The Company may subject to the provisions of the Companies Law reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution. (d) Variation of rights of existing shares or classes of shares App1A25(3) Subject to the Companies Law, 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 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 on a poll to one vote for every such share held by him. A3 6(2) A11B 2(1) The 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. IV-8

249 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (e) Special resolution-majority required Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, 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 of not less than twenty-one (21) clear days and not less than ten (10) clear business days specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that if permitted by the Designated Stock Exchange (as defined in the Articles), except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than ninety-five per cent. (95%) in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which notice of less than twenty-one (21) clear days and less than ten (10) clear business days has been given. A11B1 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 held in accordance with the Articles. (f) Voting rights App1A(25)(1) Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, 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. 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)). A1A 13A A11B 6 IV-9

250 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW Where the Company has any knowledge that any shareholder is, under the rules of the Designated Stock Exchange (as defined in the Articles), 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. App (g) Requirements for annual general meetings An annual general meeting of the Company must be held in each year, other than the year of 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 eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board. A11B 4(2) (h) 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. A11B 4(1) The accounting records shall 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. 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 the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Articles), 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. A3 5 A11B 3(3) 4(2) IV-10

251 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. 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. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction. (i) Notices of meetings and business to be conducted thereat An annual general meeting shall be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above) be called by notice of at least twenty-one (21) clear days and not less than ten (10) clear business days. All other extraordinary general meeting shall be called by at least fourteen (14) clear days and not less than ten (10) clear business days. The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than such 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 the auditors for the time being of the Company. A11B 3(1) Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above if permitted by the rules of the Designated Stock Exchange, it shall be deemed to have been duly called if it is so agreed: (i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and (ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent (95%) in nominal value of the issued shares giving that right. All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business: (aa) the declaration and sanctioning of dividends; IV-11

252 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (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%) in nominal value of its existing issued share capital; and (gg) the granting of any mandate or authority to the directors to repurchase securities of the Company. (j) Transfer of shares A1A 7(8) 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 Designated Stock Exchange (as defined in the Articles) 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 in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers. App1A(7)(8) A3 1(4) The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to 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. Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law. A3 1(1) IV-12

253 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien. A3 1(2) 1(3) The board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, 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). A3 1(1) The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year. A11B 3(2) (k) Power for the Company to purchase its own shares A1A 7(9) 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 any Designated Stock Exchange (as defined in the Articles). (l) Power for any subsidiary of the Company to own shares in the Company and financial assistance to purchase shares of the Company There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary. Subject to compliance with the rules and regulations of the Designated Stock Exchange (as defined in the Articles) and any other relevant regulatory authority, the Company may give financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the Company. IV-13

254 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (m) Dividends and other methods of distribution A1A 16 Subject to the Companies Law, 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. A1A 7(7) App1A(7)(7) 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. A3 3(1) 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. IV-14

255 APPENDIX IV 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 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. App1A(7)(7) A3 3(2) No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company. (n) Proxies Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy. A11B 2(2) (o) Call on shares and forfeiture of shares Subject to the Articles and to the terms of allotment, 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. IV-15

256 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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. (p) Inspection of register of members Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours on every business day 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 Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles. A11B 3(2) (q) 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. App1A(7)(2) Save as otherwise provided by the Articles 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. A3 6(2) IV-16

257 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company. (r) Rights of the 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 law, as summarised in paragraph 3(f) of this Appendix. (s) 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) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, 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 (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, 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 shall be 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. IV-17

258 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (t) Untraceable members Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants in respect of dividends of the shares in question (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three (3) months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since the date of such advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds. A3 13(2)(a) 13(2)(b) (u) 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 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) 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 IV-18

259 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW 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; (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and (f) providing for the premium payable on redemption or purchase of any shares or debentures of the company. No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course 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. The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required. (c) Financial assistance to purchase shares of a company or its holding company Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors). 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. IV-19

260 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (d) Purchase of shares and warrants by a company and its subsidiaries Subject to the provisions of the Companies Law, 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. 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 or purchase, a company cannot purchase any of its own shares unless the manner of purchase has 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 member of the company holding 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. 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 With the exception of section 34 of the Companies Law, there is no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as be persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 2(m) above for further details). (f) Protection of minorities The Cayman Islands 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. IV-20

261 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct. Any shareholder of a company may petition the Court which may make a winding up order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) an order regulating the conduct of the company s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company s capital accordingly. Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company s memorandum and articles of association. (g) Management 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 shall 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. IV-21

262 APPENDIX IV 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 section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet: (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 23 March The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are 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 will 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. IV-22

263 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. 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. (n) Winding up A company may be wound up compulsorily by order of the Court; voluntarily; or, under supervision of the Court. The Court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Court, just and equitable to do so. A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum or articles expires, or the event occurs on the occurrence of which the memorandum or articles provides that the company is to be dissolved, or, the company does not commence business for a year from its incorporation (or suspends its business for a year), or, the company is unable to pay its debts. In the case of a voluntary winding up, such company is obliged to cease to carry on its business 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, there may be appointed one or more than one person to be called an official liquidator or official liquidator; and the Court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall declare whether any act hereby 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. A person shall be qualified to accept an appointment as an official liquidator if he is duly qualified in terms of the Insolvency Practitioners Regulations. A foreign practitioner may be appointed to act jointly with a qualified insolvency practitioner. In the case of a members voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets. A declaration of solvency must be signed by all the directors of a company being voluntarily wound up within twenty-eight (28) days of the commencement of the liquidation, failing which, its liquidator must apply to Court for an order that the liquidation continue under the supervision of the Court. IV-23

264 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW Upon the appointment of a liquidator, the responsibility for the company s affairs rests entirely in his hands and no future executive action may be carried out without his approval. A liquidator s duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and, subject to the rights of preferred and secured creditors and to any subordination agreements or rights of set-off or netting of claims, discharge the company s liability to them (pari passu if insufficient assets exist to discharge the liabilities in full) and to settle the list of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares. As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. At least twenty-one (21) days before the final meeting, the liquidator shall send a notice specifying the time, place and object of the meeting to each contributory in any manner authorised by the company s articles of association and published in the Gazette in the Cayman Islands. (o) 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. (p) Compulsory acquisition 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. IV-24

265 APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW (q) 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 VI. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice. IV-25

266 APPENDIX V STATUTORY AND GENERAL INFORMATION A. FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES 1. Incorporation of the Company The Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 15 March R11.05 R24.05(2) App1A(6) S342 The Company has established its principal place of business in Hong Kong at Unit 14, 3/F, Fuk Shing Commercial Building, 28 On Lok Mun Street, Fanling, New Territories, Hong Kong and was registered with the Registrar of Companies in Hong Kong as a non-hong Kong company under Part XI of the Companies Ordinance on 12 May Each of Mr. Fung and Mr. Chia has been appointed as the authorised representative of the Company for acceptance of service of process and notice in Hong Kong under Part XI of the Companies Ordinance. As the Company was incorporated in the Cayman Islands, its operation is subject to the Cayman Islands laws and its constitutional documents comprising a memorandum of association and the Articles of Association. A summary of certain parts of its constitution and relevant aspects of the Cayman Islands company law is set out in Appendix IV to this prospectus. 2. Changes in share capital of the Company The authorised share capital of the Company as at the date of its incorporation was HK$380,000 divided into 38,000,000 Shares. The following alterations in the share capital of the Company have taken place since its incorporation: App1A(23)(1) App1A(26)(1) App1A(26)(2) Third Schedule 11 (a) (b) on 15 March 2010, one Share was allotted and issued nil paid to Codan Trust Company (Cayman) Limited as the initial subscriber, which was then transferred by Codan Trust Company (Cayman) Limited to Shunleetat at nil consideration on the same date; in consideration of the acquisition by the Company of the entire issued share capital of TYW (BVI), a total of 999 Shares were allotted and issued by the Company on 11 August 2010, all credited as fully paid, to Shunleetat, Chuwei, Purplelight and Lotawater in the following numbers: Name Number of Shares allotted Shunleetat 549 Chuwei 175 Purplelight 150 Lotawater 125 TOTAL 999 In addition, the one nil-paid Share acquired by Shunleetat was credited as fully paid at par; (c) on 11 August 2010, pursuant to the resolutions in writing of all Shareholders passed on 11 August 2010, the Company increased its authorised share capital from HK$380,000 to HK$500,000,000 by the creation of an additional 49,962,000,000 Shares; and V-1

267 APPENDIX V STATUTORY AND GENERAL INFORMATION (d) immediately following the completion of the Placing and the Capitalisation Issue, the authorised share capital of the Company will be HK$500,000,000 divided into 50,000,000,000 Shares and the issued share capital will be HK$992,000 divided into 99,200,000 Shares, all fully paid or credited as fully paid and 49,900,800,000 Shares will remain unissued. Other than pursuant to the exercise of any options which may be granted under the Share Option Scheme, there is no present intention to issue any of the authorised but unissued share capital of the Company and, without the prior approval of the members in general meeting, no issue of Shares will be made which would effectively alter the control of the Company. Save as disclosed above, there has been no alteration in the share capital of the Company since its incorporation. 3. Written resolutions of all Shareholders passed on 11 August 2010 Pursuant to the written resolutions of all the then Shareholders passed on 11 August 2010: (a) the Company approved and adopted the Articles of Association; (b) the authorised share capital of the Company was increased from HK$380,000 to HK$500,000,000 by the creation of an additional 49,962,000,000 Shares; (c) conditional on the same conditions as stated in the paragraph headed Conditions of the Placing in the section headed Structure and conditions of the Placing in this prospectus: (i) the Placing was approved and the Directors were authorised to allot and issue the Placing Shares; (ii) the rules of the Share Option Scheme, the principal terms of which are set out in sub-paragraph headed Share Option Scheme in the paragraph headed Further information about Directors, management, staff and experts of this appendix, were approved and adopted and the Directors were authorised to implement the same, grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant thereto and to take all such steps as they consider necessary or desirable to implement the Share Option Scheme including without limitation: (1) administering the Share Option Scheme; (2) modifying and/or amending the Share Option Scheme from time to time provided that such modification and/or amendment is effected in accordance with the rules of the Share Option Scheme and the requirement of the GEM Listing Rules; (3) granting options under the Share Option Scheme and issuing and allotting from time to time any Shares pursuant to the exercise of the options that may be granted under the Share Option Scheme with an aggregate nominal value not exceeding 10% of the total nominal value of the share capital of the Company in issue V-2

268 APPENDIX V STATUTORY AND GENERAL INFORMATION on the Listing Date; and (4) making application at the appropriate time or times to the Stock Exchange for the listing of, and permission to deal in, any Shares or any part thereof that may hereafter from time to time be issued and allotted pursuant to the exercise of the options granted under the Share Option Scheme; (iii) subject to the share premium account of the Company being credited as a result of the issue of the Placing Shares, an amount of HK$743,990 which will then be standing to the credit of the share premium account of the Company be capitalised and applied to pay up in full at par a total of 74,399,000 Shares for allotment and issue to holders of Shares whose names shall appear on the register of members of the Company at the close of business on 11 August 2010 (or as they may direct) in proportion (as nearly as possible without involving fractions) to their respective then existing shareholdings in the Company, and the Directors were authorised to give effect to the Capitalisation Issue and the Shares to be allotted and issued shall, save for the entitlements to the Capitalisation Issue, rank pari passu in all respects with all the then existing Shares; (iv) a general unconditional mandate was given to the Directors to allot, issue and deal with (otherwise than by way of rights, scrip dividend schemes or similar arrangements in accordance with the Articles of Association, or pursuant to the exercise of any option which may be granted under the Share Option Scheme or under the Placing or the Capitalisation Issue) Shares with an aggregate nominal amount of not exceeding 20% of the aggregate nominal amount of the share capital of the Company in issue and as enlarged immediately following completion of the Capitalisation Issue and the Placing (excluding Shares which may fall to be issued pursuant to the exercise of any option which may be granted under the Share Option Scheme) until the conclusion of the next annual general meeting of the Company, or the date by which the next annual general meeting of the Company is required by the Articles of Association or any applicable law to be held, or the passing of an ordinary resolution by the Shareholders revoking or varying the authority given to the Directors, whichever is the earliest; (v) a general unconditional mandate was given to the Directors authorising them to exercise all powers of the Company to purchase Shares on the Stock Exchange with an aggregate nominal amount of not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue immediately following the completion of the Capitalisation Issue and the Placing (excluding Shares which may fall to be issued pursuant to the exercise of any option which may be granted under the Share Option Scheme), until the conclusion of the next annual general meeting of the Company, or the date by which the next annual general meeting of the Company is required by the Articles of Association or any applicable law to be held, or the passing of an ordinary resolution by the Shareholders revoking or varying the authority given to the Directors, whichever is the earliest; and (vi) the general unconditional mandate mentioned in sub-paragraph (iv) above was extended by the addition of an amount representing the aggregate nominal value of the share capital of the Company repurchased by the Company pursuant to the mandate to repurchase Shares referred to in sub-paragraph (v) above to the aggregate nominal V-3

269 APPENDIX V STATUTORY AND GENERAL INFORMATION amount of the share capital of the Company which may be allotted or agreed to be allotted by the Directors pursuant to such general mandate provided that such extended amount shall not exceed 10% of the aggregate of the total nominal amount of the share capital of the Company in issue immediately following completion of the Capitalisation Issue and the Placing (excluding Shares which may fall to be issued pursuant to the exercise of any option which may be granted under the Share Option Scheme). 4. Reorganisation The companies comprising the Group underwent a reorganisation in preparation for the Listing which involved the following steps: (a) with effect from 1 April 2009, TYW acquired part of the business (including the assets and liabilities thereof) carried out under the name of TYC from Mr. Kan at a consideration of HK$7,157,311.72, which was offset against an equivalent amount of the debts due from Mr. Kan to TYW, and TY Civil acquired the remaining part of business carried out under the name of TYC from Mr. Kan at a consideration of HK$1,467,756.22, which was offset against an equivalent amount of debts due from Mr. Kan to TY Civil. In such transfer, all the customers contracts, suppliers contracts, and other assets and liabilities originally belonged to the business of TYC were transferred to TYW and TY Civil; (b) on 2 July 2009, TYW (BVI) was incorporated in the BVI. One share of TYW (BVI) was allotted and issued and fully paid or credited as fully paid to Mr. Kan on the same date; (c) on 28 September 2009, Mr. Kan acquired all the 110,000 shares of TYW which were held by Ms. Lam Shun Kiu, Rosita ( Ms. Lam ), at a total consideration of HK$110,000, and became the sole legal and beneficial owner of TYW; (d) on 28 September 2009, Mr. Kan acquired 100 shares of TY Civil, representing its entire issued share capital, which were held by Ms. Lam at a total consideration of HK$100 and became the sole legal and beneficial owner of TY Civil; (e) on 29 September 2009, TYW allotted and issued 133,000 new shares of TYW, credited as fully paid up, to TYW (BVI) (which was wholly and beneficially owned by Mr. Kan at that time); (f) on 15 March 2010, the Company was duly incorporated in the Cayman Islands. One nil paid Share was allotted and issued to Codan Trust Company (Cayman) Limited on the same date; (g) on 15 March 2010, Shunleetat, a company wholly and beneficially owed by Mr. Kan, acquired the one nil paid Share from Codan Trust Company (Cayman) Limited at nil consideration; V-4

270 APPENDIX V STATUTORY AND GENERAL INFORMATION (h) (i) (j) (k) on 26 April 2010, TYW (BVI) acquired the entire issued share capital of TY Civil from Mr. Kan in consideration of the allotment and issue of a total of 5,080 ordinary shares of TYW (BVI) of US$1 each, all credited as fully paid up, to Shunleetat; on 26 April 2010, TYW (BVI) acquired the entire issued share capital of TYW (other than the 133,000 shares of TYW which were already owned by TYW (BVI) at the time of such acquisition) from Mr. Kan in consideration of the allotment and issue of a total of 4,919 ordinary shares of TYW (BVI) of US$1 each, all credited as fully paid up, to Shunleetat; on 26 April 2010, Shunleetat acquired the one share in TYW (BVI) from Mr. Kan at a consideration of HK$1.00 and Shunleetat become the sole member of TYW (BVI); on 26 April 2010, Shunleetat transferred: (i) (ii) 1,750 TYW (BVI) shares to Chuwei at a consideration of HK$3,656,682.83, which was offset against an equivalent amount of loan due from Mr. Kan to Mr. Cheng outstanding as at the date of transfer; 1,250 TYW (BVI) shares to Lotawater at a consideration of HK$2,611,916.31, which was offset against an equivalent amount of loan due from Mr. Kan to Mr. Chia outstanding as at the date of transfer; (iii) 1,500 TYW (BVI) shares to Purplelight at a consideration of HK$3,134,299.57, which was offset against an equivalent amount of loan due from Mr. Kan to Mr. Fung outstanding as at the date of transfer; and (l) on 11 August 2010, the Company acquired the entire issued share capital of (TYW) BVI from Shunleetat, Chuwei, Purplelight and Lotawater in consideration of (i) the allotment and issue of 549, 175, 150 and 125 Shares, all credited as fully paid up, to Shunleetat, Chuwei, Purplelight and Lotawater respectively; and (ii) crediting the one nil paid Share transferred to Shunleetat on 15 March 2010 as fully paid up. 5. Changes in the share capital of subsidiaries of the Company The subsidiaries of the Company are listed in the Accountants Report. In addition to the alterations described in the sub-paragraph headed Reorganisation above, the following alterations in the share capital of each of the Company s subsidiaries took place during the two years immediately preceding the date of this prospectus: Third Schedule 11 (a) TYW On 28 September 2009, Ms. Lam transferred all her 110,000 shares of TYW of HK$1.00 each to Mr. Kan at an aggregate consideration of HK$110,000, and as a result, Mr. Kan became the sole legal and beneficial owner of TYW. On 29 September 2009, TYW allotted and issued 133,000 new shares of TYW of HK$1.00 each to TYW (BVI) at an aggregate issue price of HK$133,000. Since then, the issued share capital of TYW has become HK$10,000,000 divided into 10,000,000 shares of HK$1.00 each. V-5

271 APPENDIX V STATUTORY AND GENERAL INFORMATION (b) TYW (BVI) TYW (BVI) was incorporated in the BVI on 2 July One share of TYW (BVI) was allotted and issued and fully paid to Mr. Kan on the 2 July 2009 at US$1. Mr. Kan transferred the one share in TYW (BVI) he held to Shunleetat on 26 April 2010 and Shunleetat became the sole member of TYW (BVI). The existing authorised share capital of TYW (BVI) is US$50,000 divided into 50,000 shares of US$1 each. (c) TY Civil On 28 September 2009, Ms. Lam transferred all her 100 shares of TY Civil to Mr. Kan at an aggregate consideration of HK$100 and Mr. Kan became the sole beneficial owner of TY Civil. Save as disclosed above, there has been no alteration in the share capital of any of the subsidiaries of the Company within the two years immediately preceding the date of this prospectus. 6. Repurchase of the Company s own securities A general unconditional mandate (the Repurchase Mandate ) was granted to the Directors pursuant to a resolution of the Shareholders passed on 11 August 2010 authorising them to exercise all powers of the Company to purchase Shares on the Stock Exchange with an aggregate nominal amount of not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue immediately following the completion of the Capitalisation Issue and the Placing (excluding Shares which may fall to be issued pursuant to the exercise of any option which may be granted under the Share Option Scheme) until the conclusion of the next annual general meeting of the Company, or the date by which the next annual general meeting of the Company is required by the Articles of Association or any applicable law to be held, or the passing of an ordinary resolution by the Shareholders revoking or varying the authority given to the Directors, whichever is the earliest. The following part includes information required by the Stock Exchange to be included in this prospectus concerning the repurchase by the Company of its own securities. (a) Source of funds Repurchases must be funded out of funds legally available for the purpose in accordance with the memorandum and articles of association of the Company, the GEM Listing Rules and the applicable laws of the Cayman Islands. Under the Cayman Islands laws, any repurchase by the Company may be made out of profits of the Company or out of the proceeds of a fresh issue of Shares made for the purpose of the repurchase or, if so authorised by its Articles of Association and subject to the provisions of the Companies Law, out of capital. Any premium payable on a redemption or purchase over the par value of the Shares to be purchased must be provided for out of the profits of the Company or from sums standing to the credit of the share premium account of the Company or, if authorised by its Articles of Association and subject to the provisions of the Companies Law, out of capital. V-6

272 APPENDIX V STATUTORY AND GENERAL INFORMATION (b) Reasons for repurchases The Directors believe that it is in the best interest of the Company and the Shareholders for the Directors to have a general authority from the Shareholders to enable the 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 the net asset value of the Company and/or earnings per Share and will only be made when the Directors believe that such repurchases will benefit the Company and the Shareholders. (c) Funding of repurchases In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with its Articles of Association, the GEM Listing Rules and the applicable laws of the Cayman Islands. On the basis of the current financial position of the Group as disclosed in this prospectus and taking into account the current working capital position of the Group, the Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the working capital and/or the gearing position of the Group as compared with the position disclosed in this prospectus. However, the Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Group or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Group. The exercise in full of the Repurchase Mandate, on the basis of 99,200,000 Shares in issue immediately after the Listing, would result in up to 9,920,000 Shares being repurchased by the Company during the period in which the Repurchase Mandate remains in force. (d) General None of the Directors nor, to the best of their knowledge having made all reasonable inquiries, any of their associates currently intends to sell any Shares to the Company or its subsidiaries. The 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 and the applicable laws of the Cayman Islands. If, as a result of a securities repurchase, a Shareholder s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. V-7

273 APPENDIX V STATUTORY AND GENERAL INFORMATION Accordingly, a shareholder or a group of shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with rule 26 of the Takeovers Code. Save as disclosed above, the Directors are not presently aware of any consequences which would arise under the Takeovers Code as a consequence of any repurchases pursuant to the Repurchase Mandate immediately after the Listing. No connected person (as defined in the GEM Listing Rules) has notified the Company that he has a present intention to sell Shares to the Company, or has undertaken not to do so if the Repurchase Mandate is exercised. B. FURTHER INFORMATION ABOUT THE BUSINESS 1. Summary of material contracts App1A(51) The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the date of this prospectus and are or may be material: Third Schedule 17 (a) the Underwriting Agreement; (b) the deed of indemnity dated 20 August 2010 and entered into by Mr. Kan, Shunleetat, Mr. Fung, Purplelight, Mr. Cheng, Chuwei, Mr. Chia and Lotawater (collectively, the Indemnifiers ) with and in favour of the Company, pursuant to which the Indemnifiers have agreed to provide indemnity for (i) all taxation liabilities of the Group incurred before the Placing becoming unconditional in favour of the Company and its subsidiaries; (ii) all loss, damages, liability, increment in rental charges, relocation cost and disruption in operation suffered by any members of the Group in connection with the forfeiture or early termination of two lease agreements entered into by the Group; and (iii) all losses, damages, liability, cost suffered by the Group in obtaining or preserving the right to use the same or substantially the same kind of vehicle for the Group s operations, in the enforcement of any provisions of the finance leases by the financier(s) and in disrupting the Group s business in connection with the breach under certain finance lease of the motor vehicles and machinery of the Group; (c) the sale and purchase agreement dated 11 August 2010 and entered into between the Company as purchaser and Shunleetat, Chuwei, Purplelight and Lotawater as vendors relating to the acquisition of the entire issued share capital in TYW (BVI) by the Company in consideration of the Company (i) allotting and issuing an aggregate of 999 Shares, all credited as fully paid, to Shunleetat, Chuwei, Purplelight and Lotawater; and (ii) crediting the one nil-paid Share transferred to Shunleetat on 15 March 2010 as fully-paid at par; (d) the sale and purchase agreement dated 26 April 2010 and entered into between TYW (BVI) as purchaser and Mr. Kan as vendor relating to the acquisition of the entire issued share capital in TYW by TYW (BVI) in consideration of TYW (BVI) allotting and issuing 4,919 ordinary shares of TYW (BVI), all credited as fully paid, to Shunleetat; V-8

274 APPENDIX V STATUTORY AND GENERAL INFORMATION (e) the sale and purchase agreement dated 26 April 2010 and entered into between TYW (BVI) as purchaser and Mr. Kan as vendor relating to the acquisition of the entire issued share capital in TY Civil by TYW (BVI) in consideration of TYW (BVI) allotting and issuing 5,080 ordinary shares of TYW (BVI), all credited as fully paid, to Shunleetat; (f) the sale and purchase agreement dated 9 March 2010 and entered into between Mr. Kan and TYW in relation to acquisition of part of the business (including the assets and liabilities thereof) carried on by Tsun Yip Construction Company with effect from 1 April 2009 at a consideration of HK$7,157,311.72; (g) the sale and purchase agreement dated 9 March 2010 and entered into between Mr. Kan and TY Civil in relation to the acquisition of part of the business (including the assets and libailites thereof) carried on by Tsun Yip Construction Company with effect from 1 April 2009 at a consideration of HK$1,467,756.22; (h) the deed of assignment dated 9 March 2010 and entered into between Mr. Kan and TYW in relation to the assignment of part of the goodwill and certain assets held by Tsun Yip Construction Company with effect from 1 April 2009; and (i) the deed of assignment dated 9 March 2010 and entered into between Mr. Kan and TY Civil in relation to the assignment of part of the goodwill and certain assets held by Tsun Yip Construction Company with effect from 1 April V-9

275 APPENDIX V STATUTORY AND GENERAL INFORMATION 2. Intellectual property rights of the Group As at the Latest Practicable Date, the Group was the registered proprietor and beneficial owner of the following trademarks: Trademark Place of registration Class Date of registration Expiration Date Owner Trade Mark No. Hong Kong 37 (Note) 31 December December 2019 TYW (BVI) App1A(28)(4) Hong Kong 37 (Note) 31 December December 2019 TYW (BVI) Hong Kong 37 (Note) 31 December December 2019 TYW (BVI) Note: The services covered under Class 37 include civil engineering services; construction, maintenance, installation and repair services; construction, renovation, maintenance and repair of waterworks; waterworks engineering; construction, maintenance and repair of service reservoir, pumping station and water main laying; construction, maintenance, restoration and demolition of roads, pavings and drainage and water installations; site formation, excavation, dredging, ground investigation and improvement; conducting construction of foundation works; advisory, consultancy and information services relating to the foregoing. As at the Latest Practicable Date, TYW owned the domain name, The ownership has been registered with Hong Kong Domain Name Registration Company Limited. Such registration will expire on 12 September C. FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT, STAFF AND EXPERTS 1. Disclosure of interests (a) Disclosure of interests of Directors and experts (i) During the two years immediately preceding the date of this prospectus, the Group had engaged in dealings with certain Directors and their associates as described in note 24 to section II of the Accountants Report; and (ii) Each of the executive Directors is interested in the Group reorganisation referred to under the sub-paragraph headed Reorganisation in the paragraph headed Further information about the Company and its subsidiaries of this appendix. V-10