[Date]
The Directors
LTB Holdings Limited
CLC International Limited
Dear Sirs,
We set out below our report on the financial information (the
‘‘
Financial Information
’’
) relating
to LTB Holdings Limited (the
‘‘
Company
’’
) and its subsidiaries (hereinafter collectively referred to as
the
‘‘
Group
’’
) for each of the two years ended 31 March 2015 and 2016 (the
‘‘
Track Record Period
’’
)
for inclusion in the document of the Company dated [Date] (the
‘‘
Document
’’
) in connection with the
initial [REDACTED] the shares of the Company on the Growth Enterprise Market (
‘‘
GEM
’’
) of The
Stock Exchange of Hong Kong Limited (the
‘‘
Stock Exchange
’’
) (the
‘‘
[REDACTED]
’’
).
The Company was incorporated as an exempted company with limited liability in the Cayman
Islands under the Cayman Islands Companies Law on 17 May 2016, for the purpose of acting as a
holding company of the companies now comprising the Group. Through a group reorganisation as more
fully explained in the section headed
‘‘
History, Development and Reorganisation
’’
in the Document (the
‘‘
Group Reorganisation
’’
), the Company has since [
.
] 2016 become the holding company of the Group.
During the Track Record Period and at the date of this report, the Company has the following
subsidiaries:
Equity interest attributable to the Group
Name of subsidiary
Place and date of incorporation
Place of operation
Ordinary share capital at the date of this report
At 31 March
At the date of
this report Principal activities 2015 2016
Link The Best Company Limited (‘‘Link The Best’’)*
Hong Kong 28 December 1995
Hong Kong HK$400,000 100% 100% 100% Production and sales of thermal insulated pipes, on-site insulation and reconstruction services of pipe system, provision of value-add services and sales of complementary products Speedy Racer Limited
(‘‘Speedy Racer’’)
British Virgin Islands (‘‘BVI’’) 12 January 2016
* Link The Best is indirectly held by the Company.
#
Speedy Racer was incorporated in the BVI with liability limited by a company secretarial services provider on 12 January 2016. One ordinary share with a par value of US$1 was allotted and issued as fully paid to Mr. Ma Kang Ching on 19 April 2016. Speedy Racer is directly held by the Company.
All of the above subsidiaries and the Company adopt 31 March as the financial year end date.
The Company and Speedy Racer were incorporated in the Cayman Islands and BVI, respectively.
As at the date of this report, no statutory financial statements have been prepared as there are no
statutory audit requirements in those jurisdictions.
The statutory financial statements of Link The Best for each of the years ended 31 March 2015
and 2016 were prepared in accordance with Hong Kong Financial Reporting Standards (
‘‘
HKFRSs
’’
)
issued by the Hong Kong Institute of Certified Public Accountants (the
‘‘
HKICPA
’’
), and were audited
by Louis Lai & Luk CPA Limited and [Deloitte Touche Tohmatsu], respectively, which are certified
public accountants registered in Hong Kong in accordance with Hong Kong Standards on Auditing
issued by the HKICPA (the
‘‘
Underlying Financial Statements
’’
). We have examined the Underlying
Financial Statements in accordance with Auditing Guideline 3.340
‘‘
Prospectuses and the reporting
accountant
’’
as recommended by the HKICPA and carried out such procedures as we considered
necessary for inclusion of the financial information relating to these entities in this report.
The Financial Information for the Track Record Period set out in this report has been prepared
from the Underlying Financial Statements on the basis of presentation set out in note 2 of Section E
below and after making such adjustments which were considered necessary in the preparation of our
report for inclusion in the Document.
The Underlying Financial Statements are the responsibility of the directors of Link The Best who
approved their issue. The directors of the Company are responsible for the contents of the Document in
which this report is included. It is our responsibility to compile the Financial Information set out in this
report from the Underlying Financial Statements, to form an independent opinion on the Financial
Information and to report our opinion to you.
In our opinion, on the basis of presentation set out in note 2 of Section E below, the Financial
Information, for the purpose of this report, gives a true and fair view of the combined financial position
of the Group as at 31 March 2015 and 2016 and of the combined financial performance and combined
cash flows of the Group for the Track Record Period.
(A)
COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
Year ended 31 March
2015
2016
NOTES
HK$
’
000
HK$
’
000
Revenue
8
23,489
47,673
Cost of sales and services
(9,428)
(17,073)
Gross profit
14,061
30,600
Other income
9
288
583
Other gains
10
5
1
Selling and distribution costs
(619)
(880)
General and administrative expenses
(4,198)
(7,553)
[REDACTED] expenses
—
[REDACTED]
Finance costs
11
(4)
(4)
Profit before taxation
12
9,533
19,056
Taxation
14
(1,607)
(3,929)
Profit and total comprehensive income attributable
(B)
COMBINED STATEMENTS OF FINANCIAL POSITION
At 31 March
2015
2016
NOTES
HK$
’
000
HK$
’
000
Non-current Assets
Property, plant and equipment
17
360
313
Rental deposits
19
149
149
509
462
Current Assets
Inventories
18
2,243
1,591
Trade and other receivables
19
6,392
6,403
Amount due from a related party
20
260
—
Pledged bank deposits
21
251
—
Bank balances and cash
21
8,946
6,050
18,092
14,044
Current Liabilities
Trade and other payables
22
6,990
4,232
Provision
23
274
1,484
Taxation payable
1,117
2,622
8,381
8,338
Net Current Assets
9,711
5,706
Total Assets less Current liabilities
10,220
6,168
Non-current Liabilities
Provision for long service payments
24
132
133
Deferred tax liabilities
25
18
38
150
171
Net assets
10,070
5,997
Capital and Reserve
Share capital
26
400
400
Retained profits
9,670
5,597
(C)
COMBINED STATEMENTS OF CHANGES IN EQUITY
Attributable to the owners of the Company
Share
capital
Retained
profits
Total
HK$
’
000
HK$
’
000
HK$
’
000
At 1 April 2014
400
6,744
7,144
Profit and total comprehensive income
for the year
—
7,926
7,926
Dividend paid
(note 16)
—
(5,000)
(5,000)
At 31 March 2015 and 1 April 2015
400
9,670
10,070
Profit and total comprehensive income
for the year
—
15,127
15,127
Dividend paid
(note 16)
—
(19,200)
(19,200)
(D)
COMBINED STATEMENTS OF CASH FLOWS
Year ended 31 March
2015
2016
HK$
’
000
HK$
’
000
Operating activities
Profit before taxation
9,533
19,056
Adjustments for:
Depreciation on property, plant and equipment
216
231
Interest income
(10)
(1)
Operating cash flows before movements in working capital
9,739
19,286
(Increase) decrease in inventories
(1,117)
652
Increase in rental deposits and trade and other receivables
(2,907)
(11)
(Increase) decrease in amount due from a related party
(240)
260
Increase (decrease) in trade and other payables
5,781
(2,758)
Increase in provisions
272
1,211
Cash generated from operations
11,528
18,640
Hong Kong Profits Tax paid
(472)
(2,404)
Net cash generated from operating activities
11,056
16,236
Investing activities
Repayment from a related party
(note 20)
1,004
—
Interest received
10
1
Purchase of property, plant and equipment
(345)
(184)
Withdrawal of pledged bank deposits
—
251
Net cash generated from investing activities
669
68
Financing activity
Dividend paid
(5,000)
(19,200)
Cash used in financing activities
(5,000)
(19,200)
Net increase (decrease) in cash and cash equivalents
6,725
(2,896)
Cash and cash equivalents at the beginning of the year
2,221
8,946
Cash and cash equivalents at the end of the year,
(E)
NOTES TO THE FINANCIAL INFORMATION
1. GENERAL
The Company was incorporated as an exempted company with limited liability in the Cayman Islands under the Cayman Islands Companies Law on 17 May 2016. The address of the registered office and principal place of business of the Company are disclosed in the section headed‘‘Corporate Information’’in the Document.
The Company is an investment holding company. The principal activities of the Group are production and sales of thermal insulated pipes, on-site insulation and reconstruction services of pipe system, provision of value-added services and sales of complementary products.
The Financial Information is presented in Hong Kong dollars (‘‘HK$’’), which is also the functional currency of the Company.
2. BASIS OF PRESENTATION OF FINANCIAL INFORMATION AND GROUP REORGANISATION
Historically, Link The Best was the only operating entity in the Group which carries out the Group’s principal activities, and the Group Reorganisation only involves interspersing shell companies (including the Company and Speedy Racer) as the holding companies of Link The Best, together with certain shareholders’ transactions among the below mentioned individuals outside the Group, therefore, the Group resulting from the Group Reorganisation continued to be regarded as a continuing entity. Accordingly, the combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows for the Track Record Period include the results, changes in equity and cash flows of the companies comprising the Group as if the Company had always been the holding company of the Group and the current group structure had been in existence throughout the Track Record Period, or since the respective dates of incorporation, where this is a shorter period. The combined statements of financial position of the Group as at 31 March 2015 and 2016 have been prepared to present the assets and liabilities of the companies comprising the Group as if the Company had always been the holding company of the Group and the current group structure had been in existence at those dates taking into account the respective dates of incorporation, where applicable. The details of the Group Reorganisation are as follows:
Link The Best was incorporated on 28 December 1995. Each of Mr. Chu Ming Leung (‘‘Mr. Chu’’) and Southa Investment Company Limited (‘‘Southa Investment’’), in the capacity of the trustee of Key On Holdings Limited (‘‘Key On Holdings’’) pursuant to a trust deed dated 27 December 2006 entered into between Southa Investment as the trustee and Key On Holdings as the beneficiary in respect of 200,000 shares issued by Link The Best holds 50% of the issued shares of Link The Best. Mr. Ma Kang Ching (‘‘Mr. Ma’’), Mr. Kwong Shiu Chung (‘‘Mr. Kwong’’) and Mr. Shiu Man On (‘‘Mr. Shiu’’) hold 50.736%, 24.632% and 24.632% of the issued shares of Key On Holdings, respectively.
In preparation of the [REDACTED], the companies comprising the Group underwent the Group Reorganisation as described below.
(a) On 12 January 2016, Jolly Fine was incorporated in the BVI with limited liability. On 30 March 2016, one ordinary share with a par value of US$1.00 each in Jolly Fine was allotted and issued as fully paid to Mr. Ma. (b) On 10 May 2016, Southa Investment, in the capacity of the trustee of Key On Holdings and acting on the instructions given by Key On Holdings, as vendor and Jolly Fine as purchaser entered into a sale and purchase agreement pursuant to which Southa Investment transferred its entire interest in Link The Best to Jolly Fine. The consideration was satisfied by Jolly Fine allotting and issuing 6,341 new ordinary shares, 3,079 new ordinary shares and 3,079 new ordinary shares, all credited as fully paid, to Mr. Ma, Mr. Kwong and Mr. Shiu respectively. After the allotment, Jolly Fine was held as to 50.736%, 24.632% and 24.632% by Mr. Ma, Mr. Kwong and Mr. Shiu, respectively.
(c) On 30 May 2016, Mr. Ma as purchaser entered into a sale and purchase agreement with each of Mr. Kwong and Mr. Shiu and pursuant to which Mr. Ma acquired 1,954 ordinary shares and 1,704 ordinary shares of Jolly Fine from Mr. Kwong and Mr, Shiu, respectively. On 30 May 2016, Mr. Shiu as vendor and Mr. Ma Pok Man Josiah (‘‘Mr. PM Ma’’) as purchaser entered into a sale and purchase agreement pursuant to which Mr. PM Ma acquired 250 ordinary shares of Jolly Fine from Mr. Shiu.
(d) On 17 May 2016, the Company was incorporated in the Cayman Islands as an exempted company with an authorised share capital of HK$380,000 divided into 38,000,000 ordinary shares with par value of HK$0.01 each. On 17 May 2016, one nil-paid subscriber share with par value of HK$0.01 each was allotted and issued to the initial subscriber, which was subsequently transferred to Jolly Fine on the same date.
(e) On 12 January 2016, Speedy Racer was incorporated in the BVI with liability limited by a company secretarial services provider. One ordinary share with a par value of US$1.00 each was allotted and issued as fully paid to Mr. Ma on 19 April 2016. On 17 June 2016, Mr. Ma as vendor and the Company as the purchaser entered into a sale and purchase agreement pursuant to which the Company acquired 1 ordinary share of Speedy Racer from Mr. Ma at par value. The consideration was satisfied by the Company allotting and issuing 1 new ordinary share of par value of HK$0.01 each credited as fully paid to Jolly Fine, and crediting as fully paid the existing nil-paid Share held by Jolly Fine.
(f) On [.], Mr. Chu as vendor and Speedy Racer as purchaser entered into a sale and purchase agreement pursuant to which Speedy Racer acquired the 50% of the issued shares of Link The Best from Mr. Chu. The consideration was satisfied by Jolly Fine allotting and issuing 12,500 new ordinary shares with par value of US$1.00 each credited as fully paid to Mr. Chu. On [.], Jolly Fine as vendor and Speedy Racer as purchaser entered into a sale and purchase agreement pursuant to which Speedy Racer acquired the remaining 50% of the equity interest in Link The Best from Jolly Fine. The consideration was satisfied by Speedy Racer allotting and issuing [.] new ordinary shares of par value US$1.00 each credited as fully paid to the Company. The financial information contained in this document does not constitute the statutory annual financial statements of Link The Best for the financial years ended 31 March 2015 and 2016, but is derived from those financial statements. Further information relating to these statutory financial statements required to be disclosed in accordance with section 436 of the Hong Kong Companies Ordinance is as follows:
As Link The Best is a private company, Link The Best is not required to deliver its financial statements to the Registrar of Companies and has not done so.
The auditors of Link The Best have reported on the financial statements for the years ended 31 March 2015 and 31 March 2016. The auditor’s reports were unqualified; did not include a reference to any matters to which the auditors drew attention by way of emphasis; and did not contain a statement under either sections 406(2), 407(2) or (3) of the Hong Kong Companies Ordinance.
3. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS
For the purpose of preparing and presenting the Financial Information for the Track Record Period, the Group has applied HKFRSs issued by HKICPA that are effective for the Group’s annual accounting periods beginning on 1 April 2015 consistently throughout the Track Record Period.
New and revised HKFRSs in issue but not yet effective
The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:
HKFRS 9 Financial instruments1
HKFRS 15 Revenue from contracts with customers1
HKFRS 16 Leases2
Amendments to HKFRS 11 Accounting for acquisitions of interests in joint operations3
Amendments to HKFRS 15 Clarifications to HKFRS 15‘‘Revenue from contracts with customers’’1 Amendments to HKAS 1 Disclosure initiative3
Amendments to HKAS 16 and HKAS 38
Clarification of acceptable methods of depreciation and amortisation3 Amendments to HKAS 16
and HKAS 41
Agriculture: Bearer plants3
Amendments to HKAS 27 Equity method in separate financial statements3 Amendments to HKFRS 10
and HKAS 28
Sale or contribution of assets between an investor and its associate or joint venture4
Amendments to HKFRS 10, HKFRS 12 and HKAS 28
Investment entities: Applying the consolidation and exception3 Amendments to HKFRSs Annual improvements to HKFRSs 2012–2014 cycle3
Amendments to HKAS 7 Disclosure initiative5
Amendments to HKAS 12 Recognition of deferred tax assets for unrealised losses5
1
Effective for annual periods beginning on or after 1 January 2018.
2 Effective for annual periods beginning on or after 1 January 2019. 3 Effective for annual periods beginning on or after 1 January 2016. 4
Effective for annual periods beginning on or after a date to be determined.
5 Effective for annual periods beginning on or after 1 January 2017.
HKFRS 9‘‘Financial instruments’’
HKFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. HKFRS 9 amended in 2010 includes the requirements for the classification and measurement of financial liabilities for derecognition, and further amended in 2013 to include the new requirements for hedge accounting. Another revised version of HKFRS 9 was issued in 2015 mainly to include (a) impairment requirements for financial assets and (b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’(‘‘FVTOCI’’) measurement category for certain simple debt instruments.
Key requirements of HKFRS 9 are described as follows:
. All recognised financial assets that are within the scope of HKAS 39 ‘‘Financial instruments: Recognition and measurement’’are subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair values at the end of subsequent reporting periods. In
addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
. With regard to the measurement of financial liabilities designated as at fair value through profit or loss, HKFRS 9 requires the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities’credit risk are not subsequently reclassified to profit or loss. Under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.
. In relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at the end of each reporting period to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
. The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in HKAS 39. Under HKFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the retrospective quantitative effectiveness test has been removed. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.
One of the key requirements of HKFRS 9 that are applicable to the Group includes the impairment of financial assets. The management of the Group is of the view that the expected credit loss model may result in early provision of credit losses which are not yet incurred. However, it is not practicable to provide a reasonable estimate of the effect from using an expected credit loss model in respect of its financial assets until a detailed review has been completed.
HKFRS 15‘‘Revenue from contracts with customers’’
HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18‘‘Revenue’’, HKAS 11‘‘Construction contracts’’and the related Interpretations when it becomes effective.
The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:
. Step 1: Identify the contract(s) with a customer
. Step 2: Identify the performance obligations in the contract
. Step 3: Determine the transaction price
. Step 4: Allocate the transaction price to the performance obligations in the contract
Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when
‘control’of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15.
The management of the Group anticipates that the application of HKFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the Group’s combined financial statements. However, it is not practicable to provide a reasonable estimate of the effect of HKFRS 15 until the Group performs a detailed review.
HKFRS 16‘‘Leases’’
HKFRS 16, which upon the effective date will supersede HKAS 17 ‘‘Leases’’, introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Specifically, under HKFRS 16, a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise depreciation of the right-of-use asset and interest on the lease liability, and also classify cash repayments of the lease liability into a principal portion and an interest portion and present them in the statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under the predecessor standard, HKAS 17.
As set out in note 29, total operating lease commitment of the Group in respect of the factory and office premises as at 31 March 2016 was amounting to approximately HK$1,863,000. The management of the Group do not expect the adoption of HKFRS 16 as compared with the current accounting policy would result in significant impact on the Group’s results but it is expected that certain portion of these lease commitments will be required to be recognised in the combined statements of financial position as right-of-use assets and lease liabilities. Other than that, it is not practicable to provide a reasonable estimate of the effect until the Group performs a detailed review.
Except for the above disclosed, the management of the Group does not anticipate that the application of the new and revised HKFRSs will have a material impact on the Financial Information.
4. SIGNIFICANT ACCOUNTING POLICIES
The Financial Information has been prepared in accordance with the following accounting policies which conform to HKFRSs issued by the HKICPA. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange (the ‘‘Listing Rules’’) and by the Hong Kong Companies Ordinance (‘‘CO’’).
The Financial Information has been prepared on the historical cost basis at the end of each reporting period, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Financial Information is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 ‘‘Share-based payment’’, leasing transactions that are within the scope of HKAS 17 ‘‘Leases’’, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2‘‘Inventories’’or value in use in HKAS 36‘‘Impairment of assets’’.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
. Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies adopted are set out below.
Basis of combination
The Financial Information incorporates the financial statements of the group entities controlled by the Company and its subsidiaries. Control is achieved when the Company:
. has power over the investee;
. is exposed, or has rights, to variable returns from its involvement with the investee; and
. has the ability to use its power to affect its returns.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group.
All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on combination.
Revenue recognition
Revenue is measured at fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business and net of returns and discounts.
Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:
. the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
. the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
. the amount of revenue can be measured reliably;
. it is probable that the economic benefits associated with the transaction will flow to the Group; and
. the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue from the provision of services recognised when the services have been provided to the customers taken into consideration of stage of completion of agreed scope of services.
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
The Group’s accounting policy for recognition of revenue from operating leases is described in the accounting policy for leasing below.
Property, plant and equipment
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes are stated in the combined statements of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of property, plant and equipment less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of the reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using weighted average method. Net realisable value is the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
Provisions for the expected cost of warranty obligations under the relevant sale of goods are recognised at the date of sale of the relevant products, at the directors’best estimate of the expenditure required to settle the Group’s obligation.
Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Financial assets
The Group’s financial assets are mainly loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial assets, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, amount due from a related party, pledged bank deposits, and bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment (see accounting policy on impairment of financial assets below).
Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimate future cash flows of the financial assets have been affected.
Objective evidence of impairment could include:
. significant financial difficulty of the issuer or counterparty; or
. breach of contract, such as default or delinquency in interest and principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date of the impairment loss is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
Financial liabilities and equity instruments
Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the group entities are recognised at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities including trade and other payables are subsequently measured at amortised cost, using the effective interest method.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimate future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Interest expense is recognised on an effective interest basis.
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the consideration received and receivable is recognised in profit or loss.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Impairment loss on tangible assets
At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An
Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit or loss.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from‘‘profit before taxation’’as reported in the combined statements of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax are recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of the entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.
The Group as Lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
Retirement benefits costs
Payments to defined contribution retirement benefit schemes, including Mandatory Provident Fund Schemes, are recognised as an expense when employees have rendered service entitling them to the contributions.
Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Group in respect of services provided by employees up to the end of the reporting period.
5. KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 4, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The key assumption concerning the future, and other key source of estimation uncertainty at the end of the reporting period, that has a significant risk of causing a material adjustment to the carrying amount of assets, is described below.
Estimated impairment of trade receivables
Where there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash inflows from the outstanding trade receivables. The amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 March 2015 and 2016, the carrying amount of trade receivables of the Group are HK$5,179,000 and HK$4,647,000, respectively.
Estimated warranty provision
The warranty provision represents management’s best estimate of the Group’s liability under warranty period of 12 months on thermal insulated pipes from the date of delivery or 12 to 18 months after the completion of the relevant insulation or reconstruction project at the project site, based on prior experience and industry averages for defective products. Management’s estimates and assumptions are reviewed periodically and are adjusted if necessary. Should any of the estimates and assumption change, it may lead to an adjustment to the warranty provision in the period of such change. As at 31 March 2015 and 2016, the carrying amount of warranty provision are HK$274,000 and HK$1,484,000 respectively.
6. CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged over the Track Record Period.
The capital structure of the Group consists of equity attributable to owners of the Group, comprising share capital and retained profits as disclosed in the combined statements of changes in equity.
The management of the Group reviews the capital structure regularly. The Group considers the cost of capital and the risks associated with each class of capital, and will balance its overall capital structure through the payment of dividends as well as new share issues.
7. FINANCIAL INSTRUMENTS
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial assets and financial liabilities are disclosed in note 4.
Categories of financial instruments
At 31 March 2015 2016
HK$’000 HK$’000
Financial assets
Loans and receivables (including cash and cash equivalents) 14,641 10,701
Financial liabilities
Amortised costs 967 1,817
Financial risk management objectives and policies
The Group’s major financial instruments include trade and other receivables, amount due from a related party, pledged bank deposits, bank balances and cash, and trade and other payables. Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include market risk (currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.
Market risk
Currency risk
The carrying amounts of the Group’s foreign currency denominated monetary assets (liabilities) at the end of the reporting date are as follows:
Assets Liabilities 2015 2016 2015 2016
HK$’000 HK$’000 HK$’000 HK$’000
United States dollars (‘‘US$’’) 4 4 (26) (32)
Renminbi (‘‘RMB’’) 52 50 — —
Sensitivity analysis
Assets and liabilities denominated in US$ mainly represented bank balances and trade payables held by a group entity with HK$ as functional currency. As HK$ is pegged to US$, the exposure to fluctuations in exchange rate of US$ against HK$ is considered insignificant, and thus the management of the Group is of the opinion that the Group’s exposure to such foreign exchange risk is minimal.
No sensitivity analysis on the HK$ against RMB is prepared as the management of the Group consider the impact of such foreign currency risk is insignificant.
Interest rate risk
The Group is exposed to cash flow interest rate risk through the impact of rate changes on interest bearing financial assets, mainly interest-bearing bank balances. The management’s assessment of reasonably possible change in HK$ saving accounts deposit rates is expected to be insignificant. The Group currently does not have an interest rate hedging policy. However, the management will consider hedging significant interest rate risk should the need arise. The management of the Group considers the exposure of bank balances to interest rate risk is not significant as interest bearing bank balances are within short maturity period. Accordingly, no sensitivity analysis is presented.
Credit risk
The Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the combined statements of financial position.
In order to minimise the credit risk, the management of the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the management of the Group considers that the credit risk is significantly reduced.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings. The Group has significant concentration of credit risk. At 31 March 2015 and 2016, 69.5% and 72.5% of the total trade receivables, respectively was due from the Group’s largest customer, while 98.3% and 99.7% of the total trade receivables was due from the Group’s five largest customers at 31 March 2015 and 2016, respectively. The top five customers are mainly construction companies located in Hong Kong.
Liquidity risk
In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows.
The following table details the Group’s remaining contractual maturity for its financial liabilities. The table has been drawn up to reflect the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
On demand or less than 1 year
Total undiscounted cash flows
Carrying amount
HK$’000 HK$’000 HK$’000
Financial liabilities
At 31 March 2015
Trade and other payables 967 967 967
At 31 March 2016
Trade and other payables 1,817 1,817 1,817
Fair value measurements of financial instruments
The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
The management of the Group considers that the carrying amounts of financial assets and liabilities recorded at amortised cost in the Financial Information approximate their fair values at the end of each reporting period.
8. REVENUE AND SEGMENT INFORMATION
Revenue represents amounts received and receivable from goods sold and provision of services to outside customers, less returns and discount, if any, during the Track Record Period.
The directors of Link The Best, represented the chief operating decision maker (the ‘‘CODM’’), regularly reviews revenue analysis by nature of sales, including production and sales of thermal insulated pipes, on-site insulation and reconstruction service of pipe system, provision of value-added services and sales of complementary products. The management of the Group considered the operating activities of production and sales of thermal insulated pipes, on-site insulation and reconstruction service of pipe system, provision of value-added services and sales of complementary products as a single operating segment. Other than revenue analysis, the CODM reviews the profit for the year of the Group as a whole to make decisions about performance assessment and resource allocation. The operation of the Group constitutes one single operating segment under HKFRS 8 ‘‘Operating segments’’ and accordingly, no separate segment information is prepared.
No analysis of segment assets and segment liabilities is presented as the Group’s CODM does not regularly review such information.
All of the Group’s revenue are derived from operation of the group entities in Hong Kong. In addition, all of the Group’s non-current assets are located in Hong Kong, which is based on the physical location of assets. Therefore, no geographical information is presented.
Entity-wide information
An analysis of the Group’s revenue is as follows:
Year ended 31 March 2015 2016
HK$’000 HK$’000
By nature:
—Production and sales of thermal insulated pipes 12,653 32,420
—On-site insulation and reconstruction services of pipe system 7,236 9,023
—Provision of value-added services 2,162 4,905
—Sales of complementary products 1,438 1,325 23,489 47,673 Revenue from the customer individually contributing over 10% of the total sales of the Group of the corresponding years are as follows:
Year ended 31 March 2015 2016
HK$’000 HK$’000
Customer A 9,225 12,727
Customer B N/A* 10,668
Customer C 2,983 7,080
Customer D N/A* 5,109
* The corresponding revenue did not contribute over 10% of the total revenue of the Group for the relevant year.
9. OTHER INCOME
Year ended 31 March 2015 2016
HK$’000 HK$’000
Minimum operating lease rental income from a related party 240 220
Interest income from a related party 9 —
Bank interest income 1 1
Sundry income 38 362
10. OTHER GAINS
Year ended 31 March 2015 2016
HK$’000 HK$’000
Net foreign exchange gain 5 1
11. FINANCE COSTS
2015 2016
HK$’000 HK$’000
Bank charges on bills payables 4 4
12. PROFIT BEFORE TAXATION
Year ended 31 March 2015 2016
HK$’000 HK$’000
Profit before taxation has been arrived at after charging: Depreciation
—cost of sales 111 149
—general and administrative expenses 105 82
Total depreciation 216 231
Directors’remuneration(note 13)
—salaries and other benefits 863 1,116
—discretionary bonus 135 2,270
—retirement benefit scheme contributions 24 25 1,022 3,411 Other staff’s salaries and other benefits 4,409 5,776 Other staff’s retirement benefits scheme contributions 289 346
Total staff costs 5,720 9,533
Auditor’s remuneration 41 60
Cost of inventories recognised as expenses (included in cost of sales) 4,140 10,400 Minimum operating lease rentals in respect of rented premises 894 894
13. DIRECTORS’, CHIEF EXECUTIVES AND EMPLOYEES’EMOLUMENTS
Details of the emoluments paid or payable to the directors and the Chief Executive of the Company incorporated on 17 May 2016 (including emoluments for services as director or employee of the group entities prior becoming the directors of the Company) by entities comprising the Group during the Track Record Period are as follows:
Year ended 31 March 2015 2016
HK$’000 HK$’000
Chief executive and executive director:
Mr. Chu Ming Leung(note 1)
—fee — —
—salaries and other benefits 863 1,092
—discretionary bonus 135 2,270
—retirement benefits scheme contributions 24 24 1,022 3,386
Chairman and executive director:
Mr. Ma Kang Ching
—fee — —
—salaries and other benefits — —
—discretionary bonus — —
—retirement benefits scheme contributions — —
— —
The executive directors’emoluments shown above were mainly for their services in connection with the management of the affairs of the Group. Mr. Ma has waived his director’s emoluments during the Track Record Period which is not significant.
Non-executive director:
Mr. Ma Pok Man(note 2)
—fee — —
—salaries and other benefits — 24
—discretionary bonus — —
—retirement benefits scheme contributions — 1
— 25
The non-executive director’s emoluments shown above were mainly for his services as an employee of the Group.
Notes:
(1) Mr. Chu Ming Leung is also the chief executive of the Company and his emoluments disclosed above includes those for services rendered by him as chief executive. He is entitled to bonus payments which are determined based on the overall performance of the Group and his contribution to the business of the Group.
(2) Mr. Ma Pok Man was an employee of the group entities during the Track Record Period and was appointed as a non-executive director of the Company on 23 June 2016.
Five highest paid employees
The five highest paid individuals included one director of the Company for each of the years ended 31 March 2015 and 2016, details of whose emoluments are included above. The emoluments of the remaining four highest paid individuals during the Track Record Period were as follows:
Year ended 31 March 2015 2016
HK$’000 HK$’000
Employees
—salaries and other benefits 1,239 1,344
—discretionary bonus 178 396
—retirement benefits scheme contributions 81 92 1,498 1,832 Their emoluments were within the following bands:
Year ended 31 March 2015 2016
Number of employees
Number of employees
Nil to HK$1,000,000 4 4
During the Track Record Period, no emoluments were paid by the Group to the directors of the Company or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Group or as compensation for loss of office. Other than Mr. Ma, none of the directors have waived any emoluments during the Track Record Period.
14. TAXATION
Year ended 31 March 2015 2016
HK$’000 HK$’000
The taxation charge (credit) comprises: Hong Kong Profits Tax
—Current year 1,572 3,944
—Under(over)provision in prior years 15 (35)
1,587 3,909
Deferred taxation(note 25) 20 20
1,607 3,929 Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the Track Record Period.
Taxation for the year can be reconciled to the profit before taxation per the combined statements of profit or loss and other comprehensive income as follows:
Year ended 31 March 2015 2016
HK$’000 HK$’000
Profit before taxation 9,533 19,056
Tax at the Hong Kong Profits Tax rate at 16.5% 1,573 3,144 Tax effect of expenses not deductible for tax purposes 44 815
Under(over)provision in prior years 15 (35)
Others (25) 5
Taxation charge for the year 1,607 3,929
15. EARNINGS PER SHARE
No earnings per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful with regard to the Group Reorganisation and the results for the Track Record Period are presented on a combined basis as disclosed in note 2.
16. DIVIDENDS
During each of the years ended 31 March 2015 and 2016, a subsidiary of the Company distributed interim dividends of HK$5,000,000 and HK$19,200,000 for the years ended 31 March 2015 and 2016, respectively, to its then shareholders prior to the Group Reorganisation. Other than the above, no dividend has been paid or declared by other companies comprising the Group during the Track Record Period or the Company since its incorporation.
The rates of dividend declared and the number of shares ranking for distribution are not presented as such information is not meaningful having regard to the purpose of this report.
17. PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements
Furniture, fixtures and equipment
Motor
vehicles Total
HK$’000 HK$’000 HK$’000 HK$’000
COST
At 1 April 2014 221 2,543 107 2,871
Additions — 345 — 345
At 31 March 2015 221 2,888 107 3,216
Additions — 184 — 184
At 31 March 2016 221 3,072 107 3,400
ACCUMULATED DEPRECIATION
At 1 April 2014 121 2,423 96 2,640
Provided for the year 44 161 11 216
At 31 March 2015 165 2,584 107 2,856
Provided for the year 30 201 — 231
At 31 March 2016 195 2,785 107 3,087
NET BOOK VALUES
At 31 March 2015 56 304 — 360
At 31 March 2016 26 287 — 313
Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows:
Leasehold improvements Over the lease terms or 20% per annum, whichever is the shorter Furniture, fixtures and equipment 20% to 30% per annum
Motor vehicles 30% per annum
18. INVENTORIES
At 31 March 2015 2016
HK$’000 HK$’000
Raw materials 2,207 1,531
Finished goods 36 60
19. TRADE AND OTHER RECEIVABLES
At 31 March 2015 2016
HK$’000 HK$’000
Trade receivables 5,179 4,647
Prepayments and deposits 1,362 1,905
6,541 6,552 Less: Non-current rental deposits shown under non-current assets (149) (149)
6,392 6,403 The Group’s trade receivables are arisen from revenue generated from production and sales of thermal insulated pipes, on-site insulation and reconstruction services on pipe system, provision of value-added services and sales of complementary products. As at 31 March 2015, included in the trade receivables are receivables from related parties, namely Newland Engineering Limited and Southa Technical Limited, amounting HK$17,000 and HK$47,000, respectively. Newland Engineering Limited is an indirect non-wholly owned subsidiary of Key On Holdings. Southa Technical Limited is a non-wholly owned subsidiary of Southa Investment.
Payment terms with customers are mainly on credit together with deposits received in advance for new customers. The Group allows credit period with a range from 30 to 45 days to its trade customers. The following is an analysis of trade receivable by age, presented based on the invoice date, which approximates the respective revenue recognition dates.
At 31 March 2015 2016
HK$’000 HK$’000
1–30 days 5,171 4,079
31–60 days 8 558
Over 60 days — 10
5,179 4,647 Before accepting any new customer, the Group assesses the credit quality of each potential customer and defines credit rating and limit for each customer.
In determining the recoverability of the trade receivables, the Group monitors change in the credit quality of the trade receivables since any credit is granted and up to the reporting date. Approximately 100% and 99.8% of the trade receivables as at 31 March 2015 and 2016 respectively are neither past due nor impaired and they were assessed to be of good credit rating.
As at 31 March 2016, trade receivables of HK$10,000 were past due but not impaired. Such receivables relate to one customer of which subsequent settlements were received. The Group did not hold any collateral as security over these balances. The ageing analysis of these trade receivables is as follows:
At 31 March 2015 2016
HK$’000 HK$’000
Overdue by:
20. AMOUNT DUE FROM A RELATED PARTY
On 28 February 2014, Link The Best, a wholly-owned subsidiary of the Company, had entered into a rental agreement for the rental period from 1 March 2014 to 28 February 2015 with Southa Technical Limited, a wholly-owned subsidiary of Southa Investment, for the use of certain storage space of Link The Best with a monthly rent of HK$20,000. The rental agreement has been renewed on 27 February 2015 for the rental period from 1 March 2015 to 29 February 2016. The total amount receivable from Southa Technical Limited as at 31 March 2015 and 2016 were HK$260,000 and nil, respectively. The rental agreement was expired on 29 February 2016. No rental agreement was renewed or newly entered into between the Group and Southa Technical Limited afterwards.
The relevant operating lease commitment was disclosed in note 29.
As at 1 April 2014, the amount due from a related party amounting HK$1,004,000 represented the loan to Key On Engineering Company Limited, a non-wholly owned subsidiary of Key On Holdings which is controlled by Mr. Ma. The amount has been fully settled during the year ended 31 March 2015, and the maximum exposure of the outstanding balance was HK$1,004,000.
21. PLEDGED BANK DEPOSITS/BANK BALANCES AND CASH
Pledged bank deposits
As at 31 March 2015, pledged bank deposits represented deposits pledged to banks to secure certain banking facilities granted to the Group. Deposits amounting to HK$251,000 had been pledged to secure short term banking facilities and were therefore classified as current assets. The pledged bank deposits were released upon termination of the short term banking facilities during the year ended 31 March 2016.
Bank balances and cash
Included in bank balances and cash are the following amounts denominated in currency other than functional currency of the relevant group entities:
At 31 March 2015 2016
HK$’000 HK$’000
RMB 52 50
US$ 4 4
Pledged bank deposits and bank balances carry interest at prevailing market rates of 0.01% per annum as at 31 March 2015 and 2016.
22. TRADE AND OTHER PAYABLES
At 31 March 2015 2016
HK$’000 HK$’000
Trade payables 309 128
Bills payables 614 —
Receipts in advance from customers 5,651 2,215
Accruals and other payables 416 1,889
