FOCUSING ON CORE STRENGTHS Interim Report 2016

Transcription

1 FOCUSING ON CORE STRENGTHS Interim Report 2016

2 Interim Report For the six months ended 30th June, 2016

3 2016 INTERIM REPORT CORPORATE INFORMATION Chairman Warren Lee Wa Lun* Directors Mark Wong Tai Chun* Arthur George Dew # Albert Ho Peter Lee Yip Wah Louie Chun Kit * Executive Directors and members of the Executive Committee # Non-Executive Director Independent Non-Executive Directors Investment Manager Yu Ming Investment Management Limited Auditor BDO Limited Bankers Dah Sing Bank, Limited OCBC Wing Hang Bank Limited BNP Paribas Wealth Management Hong Kong Branch Secretary Lo Tai On * * # * # 1

4 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 CORPORATE INFORMATION (continued) Registered Office Room 1801, 18th Floor, Allied Kajima Building 138 Gloucester Road, Wanchai, Hong Kong Share Registrar and Transfer Office Tricor Secretaries Limited Level 22, Hopewell Centre 183 Queen s Road East, Hong Kong Stock Code The Stock Exchange of Hong Kong Limited: 666 Website

5 2016 INTERIM REPORT RESULTS The Board of Directors of SHK Hong Kong Industries Limited (the Company ) presents the Interim Report which includes the unaudited interim condensed consolidated financial statements of the Company and its subsidiaries (the Group ) for the six months ended 30th June, The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of cash flows and condensed consolidated statement of changes in equity of the Group for the six months ended 30th June, 2016, and the condensed consolidated statement of financial position as at 30th June, 2016 of the Group, all of which are unaudited and condensed along with selected explanatory notes, are set out on pages 4 to 22 of this report. The Audit Committee has reviewed financial reporting matters including a general review of the unaudited interim condensed consolidated financial statements for the six months ended 30th June, In carrying out this review, the Audit Committee has relied on a review conducted by the Group s external auditor in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants and representations from management. The Audit Committee has not undertaken detailed independent audit checks

6 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 CONDENSED CONSOLIDATED INCOME STATEMENT For the six months ended 30th June, 2016 Six months ended 30th June, Notes Revenue 3 7,049 23,210 Other net (loss)/income 4 (60,863) 167,538 Administrative and other operating expenses (14,475) (43,332) Loss on disposal of joint ventures 6 (14,067) Finance costs 7 (13) Share of (loss)/profit of associates (178) 135 Share of loss of joint ventures (540) (Loss)/profit before income tax 8 (82,534) 146,998 Income tax expense 9 (Loss)/profit for the period (82,534) 146,998 (Loss)/profit for the period attributable to: Owners of the Company (82,492) 147,053 Non-controlling interests (42) (55) (82,534) 146,998 (Loss)/earnings per share attributable to the owners of the Company (HK cents): 10 Basic (2.01) 3.58 Diluted (2.01)

7 2016 INTERIM REPORT CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30th June, 2016 Six months ended 30th June, (Loss)/profit for the period (82,534) 146,998 Other comprehensive (expenses)/income Items that may be reclassified subsequently to profit or loss: Reclassification adjustment for realisation upon redemption of available-for-sale financial assets Change in fair value of available-for-sale financial assets Share of other comprehensive (expenses)/income of an associate Share of other comprehensive income of joint ventures Other comprehensive (expenses)/ income for the period, net of tax Total comprehensive (expenses)/ income for the period (907) (201) (852) 12,883 (82) 3 21 (1,841) 12,706 (84,375) 159,704 Total comprehensive (expenses)/ income for the period attributable to: Owners of the Company (84,297) 159,758 Non-controlling interests (78) (54) (84,375) 159,704 5

8 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30th June, 2016 Audited 30th June, st December, 2015 Notes ASSETS AND LIABILITIES Non-current assets Interests in associates 4,050 4,311 Amount due from an associate 8,820 8,569 Available-for-sale financial assets , , , ,000 Current assets Available-for-sale financial assets 12 48,159 49,158 Other receivables and prepayment 13 29,879 25,809 Amounts due from joint ventures 5,143 Financial assets at fair value through profit or loss , ,382 Security deposits 15 6,290 Cash and cash equivalents , , ,565 1,072,691 Current liabilities Trade and other payables and accrued expenses 17 1,140 1,337 Amount due to a holding company Amount due to a fellow subsidiary 4,682 5,091 Financial liabilities at fair value through profit or loss ,962 6,141 15,718 Net current assets 943,424 1,056,973 Total assets less current liabilities 1,145,598 1,229,973 Net assets 1,145,598 1,229,973 EQUITY Equity attributable to the owners of the Company Share capital , ,978 Reserves 225, ,947 1,144,628 1,228,925 Non-controlling interests 970 1,048 Total equity 1,145,598 1,229,973 6

9 2016 INTERIM REPORT CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30th June, 2016 Share capital Capital contribution reserve Equity attributable to the owners of the Company Investment revaluation reserve Translation reserve Retained earnings Dividend reserve Total Noncontrolling interests Total equity At 1st January, , , ,992 1,228,925 1,048 1,229,973 Loss for the period (82,492) (82,492) (42) (82,534) Other comprehensive expenses: Reclassification adjustment for realisation upon redemption of available-for-sale financial assets (907) (907) (907) Change in fair value of available-for-sale financial assets (852) (852) (852) Share of other comprehensive expenses of an associate (46) (46) (36) (82) Total comprehensive expenses for the period (1,759) (46) (82,492) (84,297) (78) (84,375) At 30th June, , ,797 (14) 202,500 1,144, ,145,598 At 1st January, , , ,981 41,117 1,375, ,376,597 Profit/(loss) for the period 147, ,053 (55) 146,998 Other comprehensive income/(expenses): Change in fair value of available-for-sale financial assets 12,883 12,883 12,883 Reclassification adjustment for realisation upon redemption of available-for-sale financial assets (201) (201) (201) Share of other comprehensive income of joint ventures Share of other comprehensive income of an associate Total comprehensive income/(expenses) for the period 12, , ,758 (54) 159,704 Dividend paid (41,117) (41,117) (41,117) Transactions with owners (41,117) (41,117) (41,117) At 30th June, , , ,034 1,494, ,495,184 7

10 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30th June, 2016 Net cash generated from/(used in) operating activities Net cash (used in)/generated from investing activities Six months ended 30th June, ,395 (157,089) (39,596) 99,151 Net cash used in financing activities (41,117) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents as at 1st January Cash and cash equivalents as at 30th June 339,799 (99,055) 313, , , ,553 8

11 2016 INTERIM REPORT NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND BASIS OF PREPARATION SHK Hong Kong Industries Limited (the Company ) is a limited liability company incorporated and domiciled in Hong Kong. The address of the Company s registered office and principal place of business of the Company is Room 1801, 18th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong. The Company s shares are listed on The Stock Exchange of Hong Kong Limited (the Stock Exchange of Hong Kong ). As at 30th June, 2016, the parent of the Company is Bright Clear Limited which is incorporated in the British Virgin Islands and the ultimate holding company of the Company is Allied Group Limited ( AGL ), a listed public limited company, which is incorporated in Hong Kong. The ultimate controlling party of the Company is the trustees of Lee and Lee Trust. The address of the principal place of business of the trustees of Lee and Lee Trust is 24th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong. The principal activities of the Company and its subsidiaries (together referred to as the Group ) during the period include the investments in listed and unlisted financial instruments. The unaudited interim condensed consolidated financial statements for the six months ended 30th June, 2016 on pages 4 to 22 have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong (the Listing Rules ) and with the Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements for the year ended 31st December, The financial information relating to the year ended 31st December, 2015 that is included in the 2016 Interim Report as comparative information does not constitute the Company s statutory annual consolidated financial statements for that year 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: The Company had delivered the financial statements for the year ended 31st December, 2015 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Hong Kong Companies Ordinance Lee and Lee Trust Lee and Lee Trust ( (3)6 3 9

12 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 1. GENERAL INFORMATION AND BASIS OF PREPARATION (continued) The Company s auditor has reported on those financial statements. The auditor s report was unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report; and did not contain a statement under sections 406(2), 407(2) or 407(3) of the Hong Kong Companies Ordinance. The unaudited interim condensed consolidated financial statements have been approved and authorised for issue by the Board of Directors of the Company (the Board ) on 18th August, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited interim condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are stated at fair value, as appropriate. The accounting policies adopted in the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual financial statements for the year ended 31st December, 2015, except for the adoption of the revised Hong Kong Financial Reporting Standards ( HKFRSs ) (which include individual Hong Kong Financial Reporting Standards, HKASs and Interpretations) as disclosed below. Adoption of Revised HKFRSs effective 1st January, 2016 In the current period, the Group has applied for the first time the following revised HKFRSs issued by the HKICPA, which are relevant to and effective for the Group s financial statements for the annual financial period beginning on 1st January, (2) 407(2) 407(3) 2. Amendments to HKFRS 10, HKFRS 12 and HKAS 28 (2011) Amendments to HKFRS 11 Amendments to HKAS 1 Amendments to HKAS 27 (2011) HKFRSs (Amendments) Investment Entities: Applying the Consolidation Exception Accounting for Acquisitions of Interests in Joint Operations Disclosure Initiative Equity Method in Separate Financial Statements Annual Improvements to HKFRSs Cycle The adoption of these revised HKFRSs has no significant impact on the Group s unaudited interim condensed consolidated financial statements. 10

13 2016 INTERIM REPORT 3. REVENUE Revenue from the Group s principal activities, the investments in listed and unlisted financial instruments, recognised during the period is as follows: 3. Six months ended 30th June, Interest income from available-for-sale financial assets 4,730 6,522 Dividend income Listed investments 1,303 16,159 Interest income from bank deposits 1, ,049 23, OTHER NET (LOSS)/INCOME 4. Six months ended 30th June, Fair value (loss)/gain on financial assets and liabilities at fair value through profit or loss Realised gain on redemption of available-for-sale financial assets (62,145) 167, Sundry income (60,863) 167,538 11

14 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 5. SEGMENT INFORMATION Under HKFRS 8, reported segment information is based on internal management reporting information that is regularly reviewed by the Executive Directors. The Executive Directors assess segment profit or loss using a measure of operating profit. The measurement policies the Group used for segment reporting under HKFRS 8 are the same as those used in its HKFRS financial statements. Based on the regular internal financial information reported to the Group s Executive Directors for their decisions about resources allocation to the Group s business components and review of these components performance, the Group has identified only one operating segment, financial instrument investments. Accordingly, segment disclosures are not presented. 6. LOSS ON DISPOSAL OF JOINT VENTURES During the six months ended 30th June, 2016, the Group disposed of its entire 50% interests in joint ventures together with the amounts due from joint ventures, recording a loss on disposal of joint ventures of approximately HK$14,067, % 14,067, FINANCE COSTS 7. Six months ended 30th June, Interest on bank borrowings (LOSS)/PROFIT BEFORE INCOME TAX 8. Six months ended 30th June, (Loss)/profit before income tax is arrived at after charging: Management fee (Note 20(a)) 20(a) 8,653 11,127 Employee benefit expenses (including Directors emoluments) 1,375 1,398 Impairment on amounts due from joint ventures ,015 12

15 2016 INTERIM REPORT 9. INCOME TAX EXPENSE No Hong Kong profits tax has been provided for the six months ended 30th June, 2016 as the Group has no assessable profits. No Hong Kong profits tax had been provided for the six months ended 30th June, 2015 as the estimated assessable profits of the Group were offset by tax losses brought forward. 10. (LOSS)/EARNINGS PER SHARE ATTRIBUTABLE TO THE OWNERS OF THE COMPANY The calculation of basic (loss)/earnings per share for the six months ended 30th June, 2016 is based on the loss attributable to the owners of the Company of approximately HK$82,492,000 (2015: profit of approximately HK$147,053,000) and on the weighted average number of 4,111,704,320 (2015: 4,111,704,320) ordinary shares in issue during the period. Diluted (loss)/earnings per share for the six months ended 30th June, 2016 and 2015 is same as the basic (loss)/earnings per share as the Group had no dilutive potential ordinary shares during the period. 11. DIVIDEND At a Board meeting held on 18th August, 2016, the Board resolved not to declare an interim dividend for the period (2015: Nil) ,492,000147,053,000 4,111,704,320 4,111,704, Six months ended 30th June, Dividend recognised as distribution during the period 2015 final dividend of Nil (2014 final dividend: HK1 cent per share) 1 41,117 13

16 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 12. AVAILABLE-FOR-SALE FINANCIAL ASSETS th June, 2016 Audited 31st December, 2015 Non-current Unlisted equity securities, at fair value 87,960 80,687 Unlisted equity securities, at cost 61,274 62,008 Hong Kong listed debt securities, at fair value 40,070 17, , ,120 Current Unlisted debt securities, at fair value 48,159 49, , , OTHER RECEIVABLES AND PREPAYMENT th June, 2016 Audited 31st December, 2015 Other receivables 29,879 25,360 Prepayment ,879 25,809 14

17 2016 INTERIM REPORT 14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS th June, 2016 Audited 31st December, 2015 Equity securities held for trading Listed in Hong Kong 180, ,164 Listed outside Hong Kong 36,262 52,526 Market value of listed securities 217, ,690 Derivative financial instruments Warrants listed outside Hong Kong , , SECURITY DEPOSITS As at 30th June, 2016, no security deposits were placed at a financial institution to secure settlement of the equity forward contracts (Note 18) (at 31st December, 2015: approximately HK$6,290,000) ,290, CASH AND CASH EQUIVALENTS th June, 2016 Audited 31st December, 2015 Cash on hand and at banks and other financial institutions 24,155 96,607 Short-term time deposits 629, , , ,909 15

18 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 17. TRADE AND OTHER PAYABLES AND ACCRUED EXPENSES 17. Audited 30th June, 31st December, Trade payables 164 Other payables and accrued expenses 976 1,337 1,140 1,337 The following is an ageing analysis of the trade payables, based on the date of contract note, at the reporting date: 30th June, 2016 Audited 31st December, 2015 Within one year FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS th June, 2016 Audited 31st December, 2015 Derivative financial instruments Call options embedded in bonds and notes, at fair value Equity forward contracts, at fair value 159 2,139 6, ,962 16

19 2016 INTERIM REPORT 19. SHARE CAPITAL 19. Number of shares Ordinary shares, issued and fully paid: At 1st January, 2016 and 30th June, ,111,704, , RELATED PARTY TRANSACTIONS Save as those disclosed elsewhere in these unaudited interim condensed consolidated financial statements, significant related party transactions entered into by the Group for the six months ended 30th June, 2016, of which (a) below also constitutes the discloseable continuing connected transaction, (b) and (c) both constitute the exempt connected transactions while (d) constitutes the connected transaction, under the Listing Rules, were: (a) 20. (a) (b) (c)(d) (a) Six months ended 30th June, Yu Ming Investment Management Limited ( YMIM ) Management fee 8,653 11,127 17

20 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 20. RELATED PARTY TRANSACTIONS (continued) (a) (continued) On 20th November, 2015, an investment management agreement (the Investment Management Agreement ) was entered into by the Company and YMIM, which was approved by the independent shareholders of the Company on 29th December, Under the Investment Management Agreement, YMIM agreed to assist the Board with the day-today management of the Group from 1st January, 2016 to 31st December, YMIM is entitled to a management fee equal to 1.5% per annum of the consolidated net asset value of the Group attributable to the owners of the Company, calculated and payable in arrears on a quarterly basis by reference to the arithmetical average of the published consolidated net asset value of the Group attributable to the owners of the Company on the last day of each calendar month during each quarter; and a performance fee equal to 20% of the amount by which the audited consolidated net asset value of the Group attributable to the owners of the Company of each year ending 31st December, exceeds the audited consolidated net asset value of the Group attributable to the owners of the Company as at the end of the latest financial year in which YMIM was entitled to a performance fee. As at 30th June, 2016, (i) YMIM was an indirect wholly-owned subsidiary of AGL which was a substantial shareholder of the Company holding 74.97% (at 31st December, 2015: 74.97%) interests in the share of the Company; (ii) Mr. Arthur George Dew was common director of the Company and AGL; and (iii) Mr. Warren Lee Wa Lun was common director of the Company and YMIM. 20. (a) 1.5% 20% (i) % 74.97% (ii) (iii) (b) The Group occupied office space of YMIM and reimbursed to YMIM 40% of its office and equipment expenses in accordance with the investment management agreement dated 5th March, The reimbursement for the period paid and payable to YMIM was approximately HK$374,000 (2015: approximately HK$386,000). (b) 40% 374, ,000 (c) During the six months ended 30th June, 2016, commission expenses of approximately HK$52,000 (2015: approximately HK$86,000, including commission expenses for period from 1st January, 2015 to 2nd June, 2015 of approximately HK$79,000) were charged by Sun Hung Kai Investment Services Limited ( SHKIS ) for securities transactions entered into. SHKIS was a subsidiary of AGL for period from 1st January, 2015 to 2nd June, 2015 and became an associate of AGL afterward. (c) 52,00086,000 79,000 (d) During the six months ended 30th June, 2016, the Group acquired notes issued by a fellow subsidiary at cost of approximately HK$31,078,000 (2015: Nil). The net carrying value of the notes as at 30th June, 2016 was approximately HK$31,240,000 (at 31st December, 2015: Nil). Interest income of approximately HK$122,000 (2015: Nil) was recognised during the period. (d) 31,078,000 31,240, ,000 18

21 2016 INTERIM REPORT 20. RELATED PARTY TRANSACTIONS (continued) (e) Key management personnel of the Group are members of the Board. Key management personnel emoluments are set out below: 20. (e) Six months ended 30th June, Directors fees Salaries and other benefits 992 1,008 Retirement benefits scheme contributions ,375 1, FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (a) Financial Assets and Financial Liabilities carried at Fair Value The following table presents financial assets and liabilities measured at fair value at the reporting date in accordance with fair value hierarchy. The hierarchy groups financial assets and liabilities into three levels based on the relative reliability of significant inputs used in measuring the fair value of these financial assets and liabilities. The fair value hierarchy has the following levels: 21. (a) Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level in the fair value hierarchy within which the financial asset or liability is categorised in its entirety is based on the lowest level of input that is significant to the fair value measurement. 19

22 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 21. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (continued) 21. (a) Financial Assets and Financial Liabilities carried at Fair Value (continued) The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows: (a) 30th June, 2016 Level 1 Level 2 Level 3 Total Assets Available-for-sale financial assets Unlisted (Notes 21(b)(i) and 21(b)(ii)(I)) 21(b)(i) 21(b)(ii)(I) 136, ,119 Listed (Note 21(b)(ii)(I)) 21(b)(ii)(I) 40,070 40,070 Financial assets at fair value through profit or loss Listed securities held for trading 217, ,091 Listed warrants Total fair value 217, , ,008 Liabilities Financial liabilities at fair value through profit or loss Call options embedded in bonds and notes (Note 21(b)(ii)(II)) 21(b)(ii)(II) Total fair value Net fair value 217, , ,849 20

23 2016 INTERIM REPORT 21. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (continued) (a) Financial Assets and Financial Liabilities carried at Fair Value (continued) 21. (a) Audited 31st December, 2015 Level 1 Level 2 Level 3 Total Assets Available-for-sale financial assets Unlisted (Notes 21(b)(i) and 21(b)(ii)(I)) 21(b)(i) 21(b)(ii)(I) 129, ,845 Listed (Note 21(b)(ii)(I)) 21(b)(ii)(I) 17,425 17,425 Financial assets at fair value through profit or loss Listed securities held for trading 671, ,690 Listed warrants Total fair value 672, , ,652 Liabilities Financial liabilities at fair value through profit or loss Call options embedded in bonds and notes (Note 21(b)(ii)(II)) Equity forward contracts (Note 21(b)(iii)) 21(b)(ii)(II) 2,139 2,139 21(b)(iii) 6,823 6,823 Total fair value 8,962 8,962 Net fair value 672, , ,690 During the six months ended 30th June, 2016, no financial assets or financial liabilities were classified under level 3 and there were no significant transfers between levels 1 and 2 (2015: Nil). 21

24 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 21. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (continued) (b) Valuation Techniques and Inputs used in Level 2 Fair Value Measurements (i) Unlisted Equity Securities Certain unlisted equity securities are measured at fair value at the end of the reporting period. Based on the relevant agreements, the Group can require the relevant investment manager to redeem the units at net asset value by giving a written redemption notice. The fair value of the unlisted equity securities are provided by the relevant investment managers. 21. (b) (i) (ii) Listed and Unlisted Debt Securities (I) Valuation of Debt Element The debt element is recognised at fair value at date of initial recognition and subsequent measurement with fair value change at each reporting date recognised directly in equity until the instrument is sold. As at 30th June, 2016 and 31st December, 2015, the fair value of the debt element was calculated based on the present value of contractually determined stream of future cash flows discounted at the required yield, which was determined with reference to instruments of similar terms. (ii) (I) (II) Valuation of Derivative Element The derivative element is recognised at fair value at initial recognition and subsequent measurement with fair value change at each reporting date recognised in profit or loss. Hull-White Term Structure Model is used for valuation of derivative element of certain perpetual bonds and guaranteed notes. Significant inputs into the model were mean reverting rate, default intensity and short rate volatility. (II) Hull-White (iii) Equity Forward Contracts At 31st December 2015, Black Scholes Model is used for valuation of the equity forward contract. Significant inputs into the model were underlying stock share price, forward price, time to maturity, risk-free rate and dividend yield. Fair value of listed and unlisted debt securities and equity forward contracts have been determined by a firm of independent professional valuer, Greater China Appraisal Limited, using valuation techniques. (iii) (c) Fair Values of Financial Assets and Financial Liabilities not Reported at Fair Value The carrying amounts of the Group s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 30th June, 2016 and 31st December, (c) 22

25 2016 INTERIM REPORT MANAGEMENT DISCUSSION AND ANALYSIS Overview The Group recorded a net loss attributable to the owners of the Company of approximately HK$82.5 million for the six months ended 30th June, 2016 (the 2016 Interim Period ) (2015: net profit of approximately HK$147.1 million). Hang Seng Index and Hang Seng China Enterprises Index dropped by 5.1% and by 9.8% respectively over the 2016 Interim Period, the Group s net asset value attributable to the owners of the Company decreased by 6.9% to HK$1.14 billion at the end of the 2016 Interim Period. The Group s results for the 2016 Interim Period comprised mainly loss from disposal of and fair value loss on equities and loss on disposal of joint ventures. Investment Review As at 30th June, 2016, the Group s major investments were as follows: 82,500, ,100, % 9.8% 6.9% 1,140,000,000 Investments Description Listed Equities and Warrants HK$217.8 million of a portfolio of listed shares and warrants in 22 companies ,800,000 Investment Funds HK$118.2 million in seven investment funds 118,200,000 Fixed Income HK$88.1 million of fixed income instruments issued by three companies listed in Hong Kong 88,100,000 Sub-participation in Unlisted Investment Sub-participation of HK$31.0 million in an unlisted investment 31,000,000 Direct Investments in Unlisted Equities HK$11.9 million in three direct investments in unlisted equities 11,900,000 The Group s portfolio of investments comprised securities in Hong Kong, Malaysia, United States, Japan, Taiwan, Singapore and the People s Republic of China. The value of our portfolio decreased in the first half of The Group suffered a loss in equities following the financial market downturn. In view of the continued gloomy outlook of the global dry bulk shipping and China s department store market conditions, we have decided to dispose of our participation in the sectors, held through our interests in a company listed in Taiwan, recording a loss on disposal of joint ventures of approximately HK$14.0 million in the 2016 Interim Period. 14,000,000 23

26 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 MANAGEMENT DISCUSSION AND ANALYSIS (continued) Prospects, Investment Basis and Strategy During the first half of 2016, the Hong Kong stock market experienced a sharp correction in January and recouped some of the losses during the rest of the period, with Hang Seng Index down by 5.1% (up from a 16.4% drop in February) and Hang Seng China Enterprises Index down by 9.8% (up from a 22.3% drop in February). Initially, the market continued to be plagued by the Renminbi depreciation, weak China economy and the relatively hawkish stance of the Federal Reserve of United States. The subsequent market rally was driven by the credit binge initiated by the Chinese banks, supporting the Chinese economy and the Federal Reserve turning dovish. The extensive capital control, coupled with the stabilizing economy, has slowed the capital outflow of China. We remain cautious for the rest of the year. The structural issues of China have become even more serious so far this year. Growth was bolstered by debt-fueled property and infrastructure investments, further exacerbating the concerns of oversupply, over-leverage and the imbalance of economic development that the Chinese authority aims to address for long. If and when the effects of the counter-cyclical measures in the recent months fade in the next six months, the China economy is likely to fall to an even lower level, judging by the economic mini-cycles pattern of China in the past few years. Subsequently, investors will focus on the long-term structural issues of China again, which will unsettle the China-related assets, including property, equity and currency. We continue to hold a relatively high level of cash, and look for undervalued securities to invest in when the risk-reward profile is attractive. 5.1% 16.4% 9.8% 22.3% 24

27 2016 INTERIM REPORT MANAGEMENT DISCUSSION AND ANALYSIS (continued) Financial Resources, Liquidity and Gearing Ratio As at 30th June, 2016, the Group had cash and cash equivalents of approximately HK$653.7 million (at 31st December, 2015: approximately HK$313.9 million) and no security deposits (at 31st December, 2015: approximately HK$6.3 million), totalling approximately HK$653.7 million (at 31st December, 2015: approximately HK$320.2 million), investments of approximately HK$467.0 million (at 31st December, 2015: approximately HK$889.7 million) and no bank borrowings as at 30th June, 2016 and 31st December, The liquidity position of the Group enables us to respond to further investment opportunities that are expected to generate better returns for the shareholders of the Company. The Group s gearing ratio, calculated by reference to the ratio of total borrowings to total equity attributable to the owners of the Company as at 30th June, 2016, was 0% (at 31st December, 2015: 0%). Foreign Exchange Exposure As at 30th June, 2016, the majority of the Group s investments was either denominated in Hong Kong dollars or United States dollars. Exposures to foreign currency exchange rates still arise as the Group has certain overseas investments which are primarily denominated in Renminbi, Malaysian ringgit, Thai baht, New Taiwan dollars, Japanese yen and Singapore dollars. The Group at present does not have any contracts to hedge against its foreign exchange risks. Should the Group consider that its exposure to foreign currency risk justifies hedging, the Group may use forward or hedging contracts to reduce the risks. 653,700, ,900,000 6,300,000653,700, ,200, ,000, ,700,000 0% 0% 25

28 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 MANAGEMENT DISCUSSION AND ANALYSIS (continued) Interim Dividend The Board resolved not to declare an interim dividend for the 2016 Interim Period (2015: Nil). Guarantee The Company has given guarantees to financial institutions to secure banking facilities available to its wholly-owned subsidiaries in the amount not exceeding HK$40.0 million as at 30th June, 2016 (at 31st December, 2015: HK$140.0 million). Pledge of Assets Details regarding the pledge of assets are set out in note 15 to the unaudited interim condensed consolidated financial statements on page 15. Material Acquisition and Disposal Save as disclosed in this Interim Report, the Group did not have any material acquisition or disposal of subsidiaries, associates and joint ventures during the 2016 Interim Period. Staff Costs The Group s total staff costs (including Directors emoluments) for the 2016 Interim Period amounted to approximately HK$1.4 million (2015: approximately HK$1.4 million). Employees The total number of staff of the Group, including Directors of the Company, at 30th June, 2016 was 6 (at 31st December, 2015: 6). The remuneration policy of the Group is to ensure that all employees, including Directors, are sufficiently compensated for their efforts and time dedicated to the Group and remuneration offered is appropriate for their duties and in line with market practice. No Director, or any of his associates, or executive is involved in deciding his own remuneration. 40,000, ,000, ,400,000 1,400,

29 2016 INTERIM REPORT DIRECTORS INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS As at 30th June, 2016, the interests and short positions of the Directors and the Chief Executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Hong Kong Securities and Futures Ordinance (the SFO )) which were notified to the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange of Hong Kong ) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and the Chief Executives of the Company were deemed or taken to have under such provisions of the SFO) or which were required to be and were recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange of Hong Kong pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong (the Listing Rules ) were as follows: Long position in shares of the Company XV XV Name of Directors Capacity Nature of interests Number of shares held % of the total relevant issued shares as at 30th June, 2016 Peter Lee Yip Wah Beneficial owner Personal 3,410, % Albert Ho Beneficial owner Personal 2,296, % Save as disclosed above, at no time during the six months ended 30th June, 2016 was the Company, any of its holding companies, its fellow subsidiaries, its subsidiaries or its associated corporations, a party to any arrangement to enable the Directors or Chief Executives of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or its associated corporations. 27

30 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 DIRECTORS INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS (continued) Save as disclosed above, none of the Directors or the Chief Executives of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange of Hong Kong pursuant to the Model Code as set out in the Listing Rules. SUBSTANTIAL SHAREHOLDERS The following persons or corporations, having interest in 5% or more in the shares and underlying shares of the Company as at 30th June, 2016, have been notified to the Company and recorded in the register of substantial shareholders interests in shares and short positions required to be kept under Section 336 of Part XV of the SFO: Long position in shares of the Company XV 352 XV336 Name of Substantial Shareholders Notes Capacity Nature of interests Number of shares held % of total relevant issued shares as at 30th June, 2016 Allied Group Limited ( AGL ) 1 Interest of controlled corporation Corporate interest 3,082,889, % Lee and Lee Trust 2 Interest of controlled corporation Corporate interest 3,082,889, % Argyle Street Management Holdings Limited 3 Interest of controlled corporation Corporate interest 246,280, % ( ASMH ) Argyle Street Management Limited ( ASM ) 3 Interest of controlled corporation Corporate interest 246,280, % Chan Kin 3 Interest of controlled corporation Corporate interest 246,280, % Citigroup Inc. ( Citi ) 4 Person having security interest in shares Other interest 246,640, % 28

31 2016 INTERIM REPORT SUBSTANTIAL SHAREHOLDERS (continued) Notes: 1. AGL holds 3,082,889,606 shares of the Company through its wholly-owned subsidiaries. 2. Mr. Lee Seng Hui, Ms. Lee Su Hwei and Mr. Lee Seng Huang are the trustees of Lee and Lee Trust, being a discretionary trust. They together own 73.91% interest in AGL (inclusive of Mr. Lee Seng Hui s personal interests) and are therefore deemed to have an interest in the said shares in which AGL is interested. 3. ASM Hudson River Fund ( River Fund ), ASM Asia Recovery (Master) Fund ( Master Fund ), ASM Co-Investment Opportunity Trust II LP ( ASM Opportunity ) and ASM Connaught House Fund LP ( ASM Connaught Fund ) which hold 38,805,000 shares, 201,135,000 shares, 1,860,000 shares and 4,480,000 shares of the Company respectively, are managed by ASM. River Fund, ASM Opportunity and ASM Connaught Fund are wholly-owned by ASM. Master Fund is 90.55% controlled by ASM Asia Recovery Fund ( Recovery Fund ) which is wholly-owned by ASM. ASM is wholly-owned by ASMH and Mr. Chan Kin owns 50.94% interests in ASMH. Therefore, Mr. Chan Kin, ASMH, ASM and Recovery Fund are deemed to have an interest in the shares in which River Fund, Master Fund, ASM Opportunity and ASM Connaught Fund are interested. 4. The interest of Citi was attributable on account through a number of direct and indirect wholly-owned subsidiaries. Save as disclosed above, as at 30th June, 2016, the Directors are not aware of any other persons, who have interests or short positions in the shares or underlying shares of equity derivatives of the Company which would be required to be disclosed to the Company pursuant to Part XV of the SFO. AUDIT COMMITTEE The Company had an Audit Committee established in accordance with Rule 3.21 of the Listing Rules. The Audit Committee has reviewed financial reporting matters and the Interim Report 2016 including a general review of the unaudited interim condensed consolidated financial statements for the six months ended 30th June, In carrying out this review, the Audit Committee has relied on a review conducted by the Group s external auditor in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants and representations from management. The Audit Committee has not undertaken detailed independent audit checks. 1. 3,082,889, Lee and Lee Trust 73.91% 3. ASM Hudson River FundRiver Fund ASM Asia Recovery (Master) FundMaster Fund ASM Co- Investment Opportunity Trust II LP ASM Opportunity ASM Connaught House Fund LPASM Connaught Fund 38,805, ,135,0001,860,0004,480,000 ASM River Fund, ASM Opportunity ASM Connaught FundASMASM Asia Recovery FundRecovery Fund90.55% Master FundRecovery Fund ASMASM ASMH ASMH 50.94% ASMH ASM Recovery Fund River Fund Master Fund ASM Opportunity ASM Connaught Fund 4. Citi XV

32 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 COMPLIANCE WITH THE CODE PROVISIONS OF THE CORPORATE GOVERNANCE CODE The Company has applied the principles and complied with all the applicable code provisions of the Corporate Governance Code (the CG Code ) as set out in Appendix 14 to the Listing Rules during the 2016 Interim Period except for the following deviation: Mr. Warren Lee Wa Lun, the Chairman of the Board, was unable to attend the annual general meeting of the Company held in May 2016 as provided for in code provision E.1.2 of the CG Code as he was on an overseas engagement. CHANGE IN DIRECTORS INFORMATION UNDER RULE 13.51B(1) OF THE LISTING RULES Change in Directors information since the date of the 2015 annual report of the Company, which is required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules, is set out below: The minimum annual remuneration of the Chairman and Executive Director, Mr. Warren Lee Wa Lun was increased by 10% to HK$2,750,000. Save as disclosed above, there is no other change in the Directors information required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules since the date of the 2015 annual report of the Company. MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules as the code of conduct regarding securities transactions by the Directors. Having made specific enquiry of all Directors, the Company confirmed that all Directors have complied with the required standard set out in the Model Code during the 2016 Interim Period. PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company s listed securities during the 2016 Interim Period. 14 E B(1) B(1) 10% 2,750, B(1) 10 By Order of the Board SHK Hong Kong Industries Limited Warren Lee Wa Lun Chairman Hong Kong, 18th August,

33 2016 INTERIM REPORT AUDITOR S INDEPENDENT REVIEW REPORT To the Board of Directors of SHK Hong Kong Industries Limited (incorporated in Hong Kong with limited liability) Introduction We have reviewed the unaudited interim condensed consolidated financial statements set out on pages 4 to 22 which comprise the condensed consolidated statement of financial position of SHK Hong Kong Industries Limited (the Company ) and its subsidiaries as of 30th June, 2016 and the related condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the six-month period then ended, and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on the unaudited interim condensed consolidated financial statements to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of these unaudited interim condensed consolidated financial statements in accordance with Hong Kong Accounting Standard 34. Our responsibility is to express a conclusion on these unaudited interim condensed consolidated financial statements based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report BDO Limited BDO Limited, a Hong Kong limited company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. 31

34 SHK HONG KONG INDUSTRIES LIMITED 新工投資有限公司 Scope of Review We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. A review of unaudited interim condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the unaudited interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with Hong Kong Accounting Standard BDO Limited Certified Public Accountants Cheung Or Ping Practising Certificate Number: P05412 Hong Kong, 18th August, 2016 P

35 SHK Hong Kong Industries Limited 1801, 18/F, Allied Kajima Building 138 Gloucester Road Wanchai, Hong Kong Tel : Fax : Website :