( ) (Incorporated in the Cayman Islands with limited liability) ( ) Interim Report 2018

Transcription

1 () (Incorporated in the Cayman Islands with limited liability) ( ) Interim Report 2018

2 Contents Corporate Information 2 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income 5 Condensed Consolidated Statement of Financial Position 7 Condensed Consolidated Statement of Changes in Equity 9 Condensed Consolidated Statement of Cash Flows Report on Review of Condensed Consolidated Financial Statements 64 Management Discussion and Analysis 66 Corporate Governance and Other Information 77 TONGFANG KONTAFARMA HOLDINGS LIMITED 1

3 Corporate Information BOARD OF DIRECTORS Executive Directors Huang Yu, Chairman Jiang Chaowen, Chief Executive Officer Independent Non-Executive Directors Chan Sze Chung Zhang Ruibin Zhang Junxi Jack EXECUTIVE COMMITTEE Huang Yu, Chairman Jiang Chaowen AUDIT COMMITTEE Chan Sze Chung, Chairman Zhang Ruibin Zhang Junxi Jack REMUNERATION COMMITTEE Zhang Ruibin, Chairman Chan Sze Chung Zhang Junxi Jack NOMINATION COMMITTEE Huang Yu, Chairman Chan Sze Chung Zhang Ruibin Zhang Junxi Jack RISKS MANAGEMENT COMMITTEE Zhang Junxi Jack, Chairman Huang Yu Chan Sze Chung Zhang Ruibin SHARE DEALING COMMITTEE Huang Yu, Chairman Jiang Chaowen INVESTMENT COMMITTEE Huang Yu, Chairman Chan Sze Chung Zhang Ruibin 2 TONGFANG KONTAFARMA HOLDINGS LIMITED

4 Corporate Information P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY Cayman Islands Estera Trust (Cayman) Limited P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY Cayman Islands PRINCIPAL BANKERS Hong Kong China CITIC Bank International Limited Fubon Bank (Hong Kong) Limited Standard Chartered Bank (Hong Kong) Limited The Hongkong and Shanghai Banking Corporation Limited UBS AG Mainland China The Bank of East Asia (China) Limited China Construction Bank Corporation Fubon Bank (China) Co., Ltd. Industrial and Commercial Bank of China Limited Ping An Bank Co., Ltd. REGISTERED OFFICE P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY Cayman Islands HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS 15th Floor, Allied Kajima Building 138 Gloucester Road, Wanchai, Hong Kong Tel.: Fax: PRINCIPAL SHARE REGISTRAR Estera Trust (Cayman) Limited P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY Cayman Islands BRANCH SHARE REGISTRAR Tricor Secretaries Limited Level 22, Hopewell Centre 183 Queen s Road East Hong Kong CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY Si Tou Man Wai TONGFANG KONTAFARMA HOLDINGS LIMITED 3

5 Corporate Information INDEPENDENT AUDITOR Deloitte Touche Tohmatsu SOLICITORS CFN Lawyers in association with Broad & Bright Paul Hastings P. C. Woo & Co. Appleby STOCK CODE 1312 WEBSITES TONGFANG KONTAFARMA HOLDINGS LIMITED

6 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income The board of directors (the Board ) of Tongfang Kontafarma Holdings Limited (the Company ) announces that the unaudited condensed consolidated interim results of the Company and its subsidiaries (the Group ) for the six months ended 30 June 2018 with the comparative figures for the corresponding period in 2017 are as follows: Six months ended 30 June Unaudited Unaudited Notes HK$ 000 HK$ 000 Revenue 4 1,142, ,376 Cost of sales (869,278) (476,619) Gross profit 273, ,757 Other income 5 24,665 18,452 Other gains and losses (2,575) (3,265) Written off/ impairment losses of financial assets (46,307) (3,095) Distribution and selling expenses (104,706) (45,824) Administrative expenses (73,307) (65,244) Other expenses (7,600) (6,034) Finance costs 6 (13,133) (9,181) Share of results of associates (6,247) (1,201) Share of results of a joint venture (8,346) (5,471) Profit before taxation 35,997 13,894 Taxation 7 (14,953) (6,373) Profit for the period 8 21,044 7,521 Other comprehensive (expense) income: Item that will not be reclassified subsequently to profit or loss: Exchange difference arising on translation to presentation currency (8,693) 39,543 Item that may be reclassified subsequently to profit of loss: Exchange difference arising on translation of foreign operations (2,983) (1,148) Other comprehensive (expense) income for the period (11,676) 38,395 Total comprehensive income for the period 9,368 45,916 TONGFANG KONTAFARMA HOLDINGS LIMITED 5

7 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income Six months ended 30 June Unaudited Unaudited Note HK$ 000 HK$ 000 (Loss) profit for the period attributable to: Owners of the Company (14,731) (8,361) Non-controlling interests 35,775 15,882 21,044 7,521 Total comprehensive income for the period attributable to: Owners of the Company (23,568) 15,087 Non-controlling interests 32,936 30,829 9,368 45,916 HK cent HK cent Loss per share 9 Basic (0.28) (0.17) Diluted (0.28) (0.17) 6 TONGFANG KONTAFARMA HOLDINGS LIMITED

8 Condensed Consolidated Statement of Financial Position At 30 June 2018 At 30 June 2018 At 31 December 2017 Unaudited Audited Notes HK$ 000 HK$ 000 Non-current assets Property, plant and equipment , ,533 Deposits for equipment and machineries 81,245 81,927 Prepaid lease payments on land use rights 118, ,140 Investment properties 5,150 5,276 Goodwill , ,160 Intangible assets , ,302 Interests in associates 6,760 13,007 Interests in a joint venture 50,088 21,093 Deferred tax assets 4,324 4,360 Rental deposits 6,399 5,127 Contract costs 2,402 Debt instruments at fair value through other comprehensive income 16 15,711 Pledged bank deposits 2,220 2,247 1,737,666 1,694,172 Current assets Properties held for sale 2,301 2,321 Biological assets 12,672 4,761 Inventories 93,044 97,401 Trade receivables , ,671 Contract costs 11,242 Other receivables, deposits and prepayments 124, ,432 Loans receivables 15 86, ,878 Financial assets at fair value through profit or loss 16 41, ,720 Debt instruments at fair value through other comprehensive income 16 15,638 Prepaid lease payments on land use rights 3,308 3,289 Amount due from a joint venture 7,896 7,972 Amount due from an associate 63,032 34,667 Amounts due from other related parties 26(c) 178, ,961 Pledged bank deposits 103,939 33,515 Cash and cash equivalents 199, ,450 1,834,310 1,750,038 TONGFANG KONTAFARMA HOLDINGS LIMITED 7

9 Condensed Consolidated Statement of Financial Position At 30 June 2018 At 30 June 2018 At 31 December 2017 Unaudited Audited Notes HK$ 000 HK$ 000 Current liabilities Trade and bills payables , ,512 Other payables and deposits received 100, ,782 Amount due to an intermediate holding company 16,855 17,011 Amounts due to other related parties 26(c) 49,870 57,974 Tax liabilities 98,519 87,292 Bank and other borrowings due within one year , ,518 Obligations under finance leases 1,011 1,504 Deferred income ,721 Contract liabilities ,209 1,475,986 1,239,314 Net current assets 358, ,724 Total assets less current liabilities 2,095,990 2,204,896 Capital and reserves Share capital 20 11,188 9,900 Share premium and reserves 1,380,713 1,214,123 Equity attributable to owners of the Company 1,391,901 1,224,023 Non-controlling interests 540, ,689 Total equity 1,931,947 1,848,712 Non-current liabilities Bank and other borrowings due after one year ,484 Deferred taxation 109, ,537 Obligations under finance leases 929 1,910 Provision of reinstatement cost 17,418 18,943 Deferred income 6,189 46,310 Contract liabilities 19 29, , ,184 2,095,990 2,204,896 8 TONGFANG KONTAFARMA HOLDINGS LIMITED

10 Condensed Consolidated Statement of Changes in Equity Share capital Share premium Shares Employee held sharebased for share award compensation scheme reserve Attributable to owners of the Company Translation reserve Special reserve Capital reserve Other reserves Retained profits Noncontrolling interests Total equity Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January 2017 (audited) 9,900 1,215,024 (860) 13,739 (53,574) (392,735) , ,702 1,125, ,229 1,643,063 (Loss) profit for the period (8,361) (8,361) 15,882 7,521 Exchange difference arising on translation to presentation currency 24,034 24,034 15,509 39,543 Exchange difference arising on translation of foreign operations (586) (586) (562) (1,148) Total comprehensive income (expense) for the period 23,448 (8,361) 15,087 30,829 45, Acquisition of subsidiaries (Note 24) 41,817 41,817 Obligation arising from a put option to non-controlling shareholder (81,900) (81,900) Recognition of equity-settled share-based payments 7,767 7,767 7,767 Purchase of shares for share award scheme (3,484) (3,484) (3,484) Partial disposal of interest in a subsidiary to non-controlling shareholder ,709 3,300 Share options lapsed (309) 309 At 30 June 2017 (unaudited) 9,900 1,215,024 (4,344) 21,197 (30,126) (392,735) , ,241 1,145, ,684 1,656,479 At 31 December 2017 (audited) 9,900 1,215,024 (4,344) 21,710 9,576 (392,735) 28,061 34, ,913 1,224, ,689 1,848,712 3 Adjustments (Note 3) (7,941) (7,941) (4,711) (12,652) At 1 January 2018 (restated) 9,900 1,215,024 (4,344) 21,710 9,576 (392,735) 28,061 34, ,972 1,216, ,978 1,836,060 Profit (loss) for the period (14,731) (14,731) 35,775 21,044 Exchange difference arising on translation to presentation currency (5,056) (5,056) (3,637) (8,693) Exchange difference arising on translation of foreign operations (3,781) (3,781) 798 (2,983) Total comprehensive (expense) income for the period (8,837) (14,731) (23,568) 32,936 9,368 ) Partial disposal of interest in a subsidiary without losing control 2,347 2,347 2 Acquisition of additional interest in a subsidiary (Note 2) ,689 (2,165) (113,799) (3,787) (115,215) (119,002) 26(d) Issuance of ordinary shares under the Subscription Agreement (Note 26 (d)) , , ,000 Recognition of equity-settled share-based payments 3,174 3,174 3,174 Share options lapsed (4,184) 4,184 At 30 June 2018 (unaudited) 11,188 1,525,913 (4,344) 20,700 (1,426) (392,735) 28,061 (78,881) 283,425 1,391, ,046 1,931,947 TONGFANG KONTAFARMA HOLDINGS LIMITED 9

11 Condensed Consolidated Statement of Cash Flows Six months ended 30 June Unaudited Unaudited Notes HK$ 000 HK$ 000 Net cash used in operating activities (60,361) (54,942) Net cash (used in) from investing activities Proceeds from redemption of loans receivables 1,759,610 1,100,966 Proceeds from redemption of financial assets at fair value through profit or loss 86,169 Withdrawal of pledged short-term bank deposits 19, ,687 Other interest received 6,167 5,534 Net cash inflow on disposal of a subsidiary 25 3,714 Interest received from loans receivables 2, Proceeds from disposal of property, plant and equipment 1, Interest received from debt instruments at fair value through other comprehensive income 619 Advance to related parties (874) Addition of intangible assets (7,078) Addition of prepaid lease payments (14,453) Purchase of property, plant and equipment (30,179) (38,774) Further injection in a joint venture (37,341) Purchase of financial assets at fair value through profit or loss (53,556) Placement of pledged short-term bank deposits (90,663) (277,860) Advance of loans receivables (1,716,292) (977,116) Interest received from financial assets at fair value through profit or loss 619 Repayment from an intermediate holding company 91,199 Withdrawal of time deposits 22,999 Purchase of financial assets designated at fair value through profit or loss (57,498) Acquisition of subsidiaries, net of cash and cash equivalents acquired 24 (246,715) (69,161) 40, TONGFANG KONTAFARMA HOLDINGS LIMITED

12 Condensed Consolidated Statement of Cash Flows Six months ended 30 June Unaudited Unaudited Note HK$ 000 HK$ 000 Net cash used in financing activities Proceeds from issuance of shares 200,000 New bank and other borrowings raised 183, ,784 Advance from related parties 23,801 6,236 Proceeds from disposal of interest in a subsidiary without losing control 2,347 Repayment to an intermediate holding company (15) (10,961) Repayment of finance lease (769) (1,021) Dividends paid to non-controlling shareholders of the Group s subsidiary (6,789) Interest paid (11,660) (8,976) Acquisition of additional interest in a subsidiary 2 (119,002) Repayment of bank and other borrowings (331,757) (491,850) Proceeds from partial disposal of interest in a subsidiary to non-controlling shareholder 3,300 Purchase of shares for share award scheme (3,484) (59,933) (156,972) Net decrease in cash and cash equivalents (189,455) (171,586) Cash and cash equivalents at the beginning of the period 381, ,137 Effect of foreign exchange rate changes 7,233 1,338 Cash and cash equivalents at the end of the period 199, ,889 Represented by Bank balances and cash 188, ,241 Time deposits with original maturity within 3 months 10,300 86, , ,889 TONGFANG KONTAFARMA HOLDINGS LIMITED 11

13 (A) Sea Best Group Limited 40% 40% 200,000, ,934,000(i) 100,000,000 (ii) 100,000, ,863, BASIS OF PREPARATION The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ) as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) (the Listing Rules ). 2. SIGNIFICANT EVENTS AND TRANSACTIONS IN THE CURRENT INTERIM PERIOD (A) On 23 January 2018, the Company and Kingwood Limited, an indirect wholly-owned subsidiary of the Company ( Kingwood ) entered into the sale and purchase agreement with Shenzhen Shiao Wan Yun Investment Co. Ltd.* and Sea Best Group Limited (both independent third parties collectively, the Vendors ) for the acquisition of remaining 40% equity interest in Tongfang Pharmaceutical Group Co., Ltd* ( Tongfang Pharmaceutical ) (the Acquisition ). Pursuant to the sale and purchase agreement, Kingwood conditionally agreed to acquire, and the Vendors conditionally agreed to sell, the aggregated 40% equity interest in Tongfang Pharmaceutical, at a total consideration of RMB200,000,000 (equivalent to approximately HK$240,934,000), of which (i) RMB100,000,000 would be satisfied in cash and (ii) RMB100,000,000 would be satisfied by the issue of 243,863,777 consideration shares by the Company to the Vendors at the issue price of HK$0.5 per consideration share. The Acquisition completed on 3 May 2018 whereupon Tongfang Pharmaceutical became an indirect wholly-owned subsidiary of the Company. Details of the transaction were set out in the announcements of the Company dated 23 January 2018, 13 February 2018, 16 March 2018 and 3 May 2018, and the circular of the Company dated 27 February TONGFANG KONTAFARMA HOLDINGS LIMITED

14 2. (B) (i) 380,000,000 (ii) 1 (iii) 98,507,278 (i) (ii) (iii) (iv) 2. SIGNIFICANT EVENTS AND TRANSACTIONS IN THE CURRENT INTERIM PERIOD (CONTINUED) (B) On 27 June 2018, the Company, Splendid Link Limited ( Splendid ), a direct wholly-owned subsidiary of the Company, and Zenith Element Limited ( Zenith ), an independent third party, entered into a disposal agreement to dispose of the entire equity interest of Splendid to Zenith (the Cement Disposal ). Pursuant to the disposal agreement (i) Zenith conditionally agreed to advance a loan in the sum of HK$380,000,000 to Splendid at completion; (ii) the Company and Zenith agreed that, subject to the completion of such advancement of the loan by Zenith to Splendid, the Company would simultaneously transfer all Splendid s shares held by the Company at a price of HK$1 to Zenith; and (iii) at completion, as part of the consideration relating to the disposal, the Company, Splendid and Zenith will enter into a deed of novation pursuant to which Zenith will assume the liabilities of HK$98,507,278 which the Company owes to Splendid and the Company will be discharged from such liabilities which will then be owed by Zenith to Splendid. Details of the proposed transaction were set out in the announcements of the Company dated 27 June 2018, 18 July 2018, 23 July 2018, 31 July 2018, 24 August 2018 and 31 August The completion of the Cement Disposal is conditional upon (i) the due diligence review at the satisfaction of Zenith; (ii) the warranties respectively given by the Company and Zenith remaining true and accurate in all material respects and not misleading in any material respect as at completion; (iii) the disposal agreement and the transactions contemplated thereunder be approved by the shareholder(s) in accordance with the Listing Rules and the applicable laws and regulations by way of written shareholder s approval or otherwise by passing the requisite resolution(s) at a general meeting of the Company; and (iv) where applicable, the obtaining of all necessary approvals, confirmations, waiver or consents from the relevant government or regulatory authorities or any third parties which are required for the execution and performance of the disposal agreement and the transactions contemplated thereunder, and such approvals, confirmations, waiver or consents not having been revoked or withdrawn. TONGFANG KONTAFARMA HOLDINGS LIMITED 13

15 2. (B) (i) (ii) (iii) (iv) 5 2. SIGNIFICANT EVENTS AND TRANSACTIONS IN THE CURRENT INTERIM PERIOD (CONTINUED) (B) (continued) Up to date of issuance of these condensed consolidated financial statements, in relation to the condition precedent of the Cement Disposal, (i) the due diligence review by Zenith is still in progress; (ii) both the Company and Zenith have given each other the warranty that all material respects remain true and accurate and not misleading in any material respect; (iii) the Company has obtained a written shareholder s approval from China Health Management Investment Limited, the immediate parent of the Company, in accordance with the Listing Rules for the Cement Disposal; and (iv) the Company is addressing the comments and enquiries raised by regulatory authorities. The directors of the Company are of the opinion that the completion of the Cement Disposal is not highly probable as at 30 June 2018 under Hong Kong Financial Reporting Standard ( HKFRS ) 5 Non-current Assets Held for Sale and Discontinued Operations, after considering the development of the completion of the Cement Disposal up to date of issuance of these condensed consolidated financial statements. Accordingly, the Group carried out a review of the recoverable amount of the related assets used in the Group s cement business segment. The recoverable amount is determined based on the value in use calculation which uses the discounted future pretax cash flows expected to be derived from the cashgenerating unit. The key assumptions used in estimating the projected cash flows are estimated selling price, estimated future costs of production, estimated future operating costs and discount rate. After the review, the management of the Group is of the view that as the recoverable amount is higher than the carrying amount, there is no impairment required to be recognised for the six months ended 30 June TONGFANG KONTAFARMA HOLDINGS LIMITED

16 3. 3. PRINCIPAL ACCOUNTING POLICIES The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments and biological assets that are measured at fair value and fair value less cost to sell at the end of each reporting period, and in accordance with HKFRSs issued by the HKICPA. Other than changes in accounting policies resulting from application of new and amendments to HKFRSs, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2018 are the same as those followed in the preparation of the Group s annual financial statements for the year ended 31 December Application of new and amendments to HKFRSs In the current interim period, the Group has applied, for the first time, the following new and amendments to HKFRSs issued by the HKICPA which are mandatory effective for the annual period beginning on or after 1 January 2018 for the preparation of the Group s condensed consolidated financial statements: HKFRS 9 HKFRS 15 HK(IFRIC) Int 22 Amendments to HKFRS 2 Amendments to HKFRS 4 Amendments to HKAS 28 Amendments to HKAS 40 Financial Instruments Revenue from Contracts with Customers and the related Amendments Foreign Currency Transactions and Advance Consideration Classification and Measurement of Share-based Payment Transactions Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts As part of the Annual Improvements to HKFRSs Cycle Transfers of Investment Property Except as described below, the application of these new and amendments to HKFRSs did not have any material impact on the Group s condensed consolidated financial statements. TONGFANG KONTAFARMA HOLDINGS LIMITED 15

17 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers The Group has applied HKFRS 15 for the first time in the current interim period. HKFRS 15 superseded HKAS 18 Revenue, HKAS 11 Construction Contracts and the related interpretations. The Group recognises revenue from the following major sources: Revenue from manufacturing and sales of prescription drugs and laboratory related products are recognised at a point in time when the control of the goods have been transferred upon delivery; Revenue from operating of fitness centres and provision of consultation services for fitness and health activities (such as monthly membership fees, trial classes and personal training classes) are recognised as revenue over time when the control of the services have been transferred to the customers; and Revenue from manufacturing and sales of cement and clinker, and trading of cement are recognised at a point in time when the control of the goods have been transferred upon delivery. The Group has applied HKFRS 15 retrospectively with the cumulative effect of initially applying this standard recognised at the date of initial application, 1 January Any difference at the date of initial application is recognised in the opening retained profits and comparative information has not been restated. Furthermore, in accordance with the transition provisions in HKFRS 15, the Group has elected to apply the standard retrospectively only to contracts that are not completed at 1 January Accordingly, certain comparative information may not be comparable as comparative information was prepared under HKAS 18 Revenue and related interpretations. 16 TONGFANG KONTAFARMA HOLDINGS LIMITED

18 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Key changes in accounting policies resulting from application of HKFRS 15 HKFRS 15 introduces a 5-step approach when recognising revenue: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation Under HKFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. TONGFANG KONTAFARMA HOLDINGS LIMITED 17

19 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Key changes in accounting policies resulting from application of HKFRS 15 (continued) Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: the customer simultaneously receives and consumes the benefits provided by the Group s performance as the Group performs; the Group s performance creates and enhances an asset that the customer controls as the Group performs; or the Group s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service. A contract liability represents the Group s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Output method The progress towards complete satisfaction of a performance obligation is measured based on output method, which is to recognise revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract, that best depict the Group s performance in transferring control of goods or services. 18 TONGFANG KONTAFARMA HOLDINGS LIMITED

20 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Key changes in accounting policies resulting from application of HKFRS 15 (continued) Existence of a significant financing component In determining the transaction price, the Group adjusts the promised amount of consideration for the effects of the time value of money if the timing of payments agreed (either explicitly or implicitly) provides the customer or the Group with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract. For contracts where the period between payment and transfer of the associated goods or services is less than one year, the Group applies the practical expedient of not adjusting the transaction price for any significant financing component. TONGFANG KONTAFARMA HOLDINGS LIMITED 19

21 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Key changes in accounting policies resulting from application of HKFRS 15 (continued) Incremental costs of obtaining a contract Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contact had not been obtained. The Group recongises such costs (i.e. sales commissions) as an asset if it expects to recover these costs. The asset so recognised is subsequently amortised to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The asset is subject to impairment review. The Group applies the practical expedient of expensing all incremental costs to obtain a contract if these costs would otherwise have been fully amortised to profit or loss within one year Summary of effects arising from application of HKFRS 15 The following table summarises the impact of transition to HKFRS 15 on retained profits and non-controlling interests at 1 January Retained profits Noncontrolling interests Notes HK$ 000 HK$ 000 Recognition of contract costs a 8,693 7,405 Registration fees for service package contract recognised over time b (8,899) (7,580) Tax effects Impact at 1 January 2018 (133) (113) 20 TONGFANG KONTAFARMA HOLDINGS LIMITED

22 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Summary of effects arising from application of HKFRS 15 (continued) The following adjustments were made to the amounts recognised in the condensed consolidated statement of financial position at 1 January Line items that were not affected by the changes have not been included. Carrying amounts previously reported at 31 December * Carrying amounts under HKFRS 15 at 1 January 2018 * Reclassification Remeasurement Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 Non-current Assets Contract costs a 3,878 3,878 Current Assets Contract costs a 12,220 12,220 Capital and Reserves Share premium and reserves a, b 1,214,123 (133) 1,213,990 Non-controlling interests a, b 624,689 (113) 624,576 Current Liabilities Other payables and deposits received d 123,782 (18,711) 105,071 Contract liabilities b, c, d 133,432 (1,524) 131,908 Deferred income c 114,721 (114,721) Tax liabilities a, b 87,292 (135) 87,157 Non-current Liabilities Contract liabilities b, c 39,618 18,003 57,621 Deferred income c 46,310 (39,618) 6,692 * 9 * The amounts in this column are before the adjustments from the application of HKFRS 9. TONGFANG KONTAFARMA HOLDINGS LIMITED 21

23 (a) ,098,000 (b) PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Summary of effects arising from application of HKFRS 15 (continued) (a) The Group incurred incremental sales commission to employees in connection with obtaining contracts with customers for use of fitness centres, in the form of monthly membership. These amounts were previously expensed as incurred prior to the application of HKFRS 15. At the date of initial application of HKFRS 15, incremental costs of obtaining contracts of HK$16,098,000 were recognised as contract costs with corresponding adjustments to retained profits and non-controlling interests. (b) Prior to the application of HKFRS 15, the Group recognised revenue from registration fees when service package contract was entered with customer. In accordance with HKFRS 15, registration fees derived may not result in the transfer of a promised service to the customer when service package contract is entered with customer. Management has assessed that registration fees received should be recognised as revenue over the contract period when those future services are provided in accordance with the service package contract. In addition, the management has also considered the significant financing component arising from the registration fees which the respective service contract period is over one year. 22 TONGFANG KONTAFARMA HOLDINGS LIMITED

24 (b) 16,479,000 8,899,000 7,580,000 (c) ,339,000 (d) 15 18,711, PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Summary of effects arising from application of HKFRS 15 (continued) (b) (continued) Accordingly, contract liabilities of the Group as at 1 January 2018 has been increased by HK$16,479,000, the opening retained profits has been decreased approximately by HK$8,899,000 and the non-controlling interests has been decreased approximately by HK$7,580,000. (c) At the date of initial application of HKFRS 15, as included in the total deferred income, HK$154,339,000 related to the instalments received in advance for prepaid membership packages or personal training classes were reclassified to contract liabilities. (d) At the date of initial application of HKFRS 15, advances from customers of HK$18,711,000 in respect of sales contracts previously included in other payables and deposits received were reclassified to contract liabilities. TONGFANG KONTAFARMA HOLDINGS LIMITED 23

25 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Summary of effects arising from application of HKFRS 15 (continued) The following table summarise the impacts of applying HKFRS 15 on the Group s condensed consolidated statement of financial position as at 30 June 2018 and its condensed consolidated statement of profit or loss and other comprehensive income for the current interim period for each of the line items affected. Line items that were not affected by the changes have not been included. Impact on the condensed consolidated statement of financial position: As reported Reclassification Remeasurement 15 Amounts without application of HKFRS 15 Notes HK$ 000 HK$ 000 HK$ 000 HK$ 000 Non-current Assets Contract costs a 2,402 (2,402) Current Assets Contract costs a 11,242 (11,242) Capital and Reserves Share premium and reserves a, b 1,380,713 (2,103) 1,378,610 Non-controlling interests a, b 540,046 (1,915) 538,131 Current Liabilities Other payables and deposits received d 100,196 11, ,638 Contract liabilities b, c, d 108,209 (108,555) 346 Deferred income c ,113 97,613 Tax liabilities a, b 98,519 (726) 97,793 Non-current liabilities Contract liabilities b, c 29,594 (20,348) (9,246) Deferred income c 6,189 20,348 26, TONGFANG KONTAFARMA HOLDINGS LIMITED

26 (a) 18 13,644,000 (b) 18 8,900,000 (c) ,461,000 (d) 18 11,442, PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Summary of effects arising from application of HKFRS 15 (continued) (a) Under HKAS 18, incremental sales commission incurred to employees in connection with obtaining contracts with customers for use of fitness centres, in the form of monthly membership, were expensed when incurred. For illustrative purpose of the table above, incremental costs of obtaining contracts of HK$13,644,000 were expensed with corresponding adjustments to retained profits and non-controlling interests. (b) Under HKAS 18, the Group recognised revenue from registration fees when service package contract was entered with customer. For illustrative purpose of the table above, contract liabilities of the Group as at 30 June 2018 has been decreased by HK$8,900,000. (c) Under HKAS 18, instalments received in advance for prepaid membership packages or personal training classes was classified as deferred income. For illustrative purpose of the table above, HK$117,461,000 instalments received in advance was reclassified from contract liabilities to deferred income. (d) Under HKAS 18, advances from customers in respect of sales contracts was included in other payables and deposits received. For illustrative purpose of the table above, HK$11,442,000 advances from customers was reclassified from contract liabilities to other payables and deposits received. TONGFANG KONTAFARMA HOLDINGS LIMITED 25

27 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.1 Impacts and changes in accounting policies of application on HKFRS 15 Revenue from Contracts with Customers (continued) Summary of effects arising from application of HKFRS 15 (continued) Impact on the condensed consolidated statement of profit and loss and other comprehensive income: As reported Remearsurement 15 Amounts without application of HKFRS 15 Notes HK$ 000 HK$ 000 HK$ 000 Revenue a 1,142,831 (9,028) 1,133,803 Cost of sales b (869,278) 2,298 (866,980) Gross profit 273,553 (6,730) 266,823 Finance costs c (13,133) 1,473 (11,660) Profit before taxation 35,997 (5,257) 30,740 Taxation (14,953) 882 (14,071) Profit after taxation 21,044 (4,375) 16,669 Other comprehensive (expense) income for the period (11,676) 111 (11,565) Total comprehensive income for the period 9,368 (4,264) 5,104 (a) ,028,000 (b) ,298,000 (c) 15 1,473,000 (a) Under HKAS 18, the Group recognised revenue from registration fees when service package contract was entered with customer. Upon application of HKFRS 15, registration fees received should be recognised as revenue over the contract period when those future services are provided in accordance with the service package contract. This change in accounting policies resulted in an addition of revenue of HK$9,028,000 for the period ended 30 June (b) Under HKAS 18, incremental sales commission incurred to employees in connection with obtaining contracts with customers for use of fitness centres, in the form of monthly membership, were expensed when incurred. Upon application of HKFRS 15, incremental costs of obtaining contracts were recognised as contract costs. This change in accounting policies resulted in an addition of cost of sales of HK$2,298,000 for the period ended 30 June (c) Upon application of HKFRS 15, HK$1,473,000 imputed interest arising from transfer of services with significant financing component is recognised as finance cost of the Group. 26 TONGFANG KONTAFARMA HOLDINGS LIMITED

28 ) 2) 3) PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments In the current period, the Group has applied HKFRS 9 Financial Instruments, and the related consequential amendments to other HKFRSs. HKFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities; 2) expected credit losses ( ECL ) for financial assets, and 3) general hedge accounting. The Group has applied HKFRS 9 in accordance with the transition provisions set out in HKFRS 9, i.e., applied the classification and measurement requirements (including impairment) retrospectively to instruments that have not been derecognised as at 1 January 2018 (date of initial application) and has not applied the requirements to instruments that have already been derecognised as at 1 January The difference between carrying amounts as at 31 December 2017 and the carrying amounts as at 1 January 2018 are recognised in the opening retained profits and other components of equity, without restating comparative information. Accordingly, certain comparative information may not be comparable as comparative information was prepared under HKAS 39 Financial Instruments: Recognition and Measurement Key changes in accounting policies resulting from application of HKFRS 9 Classification and measurement of financial assets Trade receivables arising from contracts with customers are initially measured in accordance with HKFRS 15. All recognised financial assets that are within the scope of HKFRS 9 are subsequently measured at amortised cost or fair value, including unquoted equity investments measured at cost less impairment under HKAS 39. TONGFANG KONTAFARMA HOLDINGS LIMITED 27

29 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Key changes in accounting policies resulting from application of HKFRS 9 (continued) Classification and measurement of financial assets (continued) Debt instruments that meet the following conditions are subsequently measured at amortised cost: the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and the 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. Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income ( FVTOCI ): the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and the 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. All other financial assets are subsequently measured at fair value through profit or loss ( FVTPL ), except that at the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income ( OCI ) if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 Business Combinations applies. 28 TONGFANG KONTAFARMA HOLDINGS LIMITED

30 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Key changes in accounting policies resulting from application of HKFRS 9 (continued) Classification and measurement of financial assets (continued) In addition, the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. Financial assets at FVTPL Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial asset and is included in the other gains and losses line item. The directors of the Company reviewed and assessed the Group s financial assets as at 1 January 2018 based on the facts and circumstances that existed at that date. Changes in classification and measurement on the Group s financial assets and the impacts thereof are detailed in Note TONGFANG KONTAFARMA HOLDINGS LIMITED 29

31 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Key changes in accounting policies resulting from application of HKFRS 9 (continued) Impairment under ECL model The Group recognises a loss allowance for ECL on financial assets which are subject to impairment under HKFRS 9 (including trade receivables, loans receivables, other receivables, amounts due from a joint venture, an associate or other related parties, pledged bank deposits and cash and cash equivalents). The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition. Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL ( 12m ECL ) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment are done based on the Group s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions. The Group always recognises lifetime ECL for trade receivables without significant financing component. The ECL on these assets are assessed collectively using a provision matrix with appropriate groupings. For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition. 30 TONGFANG KONTAFARMA HOLDINGS LIMITED

32 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Key changes in accounting policies resulting from application of HKFRS 9 (continued) Impairment under ECL model (continued) Significant increase in credit risk In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. In particular, the following information is taken into account when assessing whether credit risk has increased significantly: an actual or expected significant deterioration in the financial instrument s external (if available) or internal credit rating; significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor; existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor s ability to meet its debt obligations; an actual or expected significant deterioration in the operating results of the debtor; an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor s ability to meet its debt obligations. TONGFANG KONTAFARMA HOLDINGS LIMITED 31

33 i) ii) iii) PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Key changes in accounting policies resulting from application of HKFRS 9 (continued) Impairment under ECL model (continued) Significant increase in credit risk (continued) Irrespective of the outcome of the above assessment, the Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise. Despite the aforegoing, the Group assumes that the credit risk on a debt instrument has not increased significantly since initial recognition if the debt instrument is determined to have low credit risk at the reporting date. A debt instrument is determined to have low credit risk if i) it has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Group considers a debt instrument to have low credit risk when it has an internal or external credit rating of investment grade as per globally understood definitions. The Group considers that default has occurred when the instrument is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. 32 TONGFANG KONTAFARMA HOLDINGS LIMITED

34 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Key changes in accounting policies resulting from application of HKFRS 9 (continued) Impairment under ECL model (continued) Measurement and recognition of ECL The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Generally, the ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition. Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit impaired, in which case interest income is calculated based on amortised cost of the financial asset. Except for investments in debt instruments that are measured at FVTOCI, the Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade receivables and other receivables where the corresponding adjustment is recognised through a loss allowance account. For investments in debt instruments that are measured at FVTOCI, the loss allowance is recognised in OCI and accumulated in the FVTOCI reserve without reducing the carrying amounts of these debt instruments. As at 1 January 2018, the directors of the Company reviewed and assessed the Group s existing financial assets, for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of HKFRS 9. The results of the assessment and the impact thereof are detailed in Note TONGFANG KONTAFARMA HOLDINGS LIMITED 33

35 (a) PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Summary of effects arising from initial application of HKFRS 9 The classification and measurement (including impairment) of financial assets subject to ECL under HKFRS 9 and HKAS 39 at the date of initial application, 1 January 2018 are summarised as follows: (a) Impairment under ECL model The Group applies the HKFRS 9 simplified approach to measure ECL which uses a lifetime ECL for all trade receivables. To measure the ECL, trade receivables have been grouped based on share credit risk characteristics. Loss allowances for other financial assets at amortised cost mainly comprise of loans receivables, other receivables and amounts due from a joint venture, an associate or other related parties, are measured on 12m ECL basis and there had been no significant increase in credit risk since initial recognition. 34 TONGFANG KONTAFARMA HOLDINGS LIMITED

36 (a) 12,406,000 7,808,000 4,598, PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Summary of effects arising from initial application of HKFRS 9 (continued) (a) Impairment under ECL model (continued) As at 1 January 2018, the additional credit loss allowance of HK$12,406,000 have been recongised against retained profits of HK$7,808,000 and non-controlling interests of HK$4,598,000. The additional loss allowance is charged against the respective asset. All loss allowances for financial assets including trade receivables, other receivables, loans receivables and amounts due from a joint venture, an associate or other related parties as at 31 December 2017 reconcile to the opening loss allowance as at 1 January 2018 is as follows: Trade receivables Other receivables Loans receivables Amounts due from other related parties Amount due from a joint venture Amount due from an associate Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ At 31 December 2017 HKAS 39 20,368 15,154 35,522 Amounts remeasured through opening retained profits 1,950 1,621 3,110 4, ,014 12,406 At 1 January ,318 16,775 3,110 4, ,014 47,928 TONGFANG KONTAFARMA HOLDINGS LIMITED 35

37 (b) 9 61,331, (c) 31,635, PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.2 Impacts and changes in accounting policies of application on HKFRS 9 Financial Instruments and the related amendments (continued) Summary of effects arising from initial application of HKFRS 9 (continued) (b) Financial assets at FVTPL and/or designated at FVTPL At the date of initial application, the Group no longer applied designation as measured at FVTPL for the investments in convertible bonds and exchange rate linked structured deposits, as these financial assets are required to be measured at FVTPL under HKFRS 9. As a result, the fair value of these investments of HK$61,331,000 were reclassified from financial assets designated at FVTPL to financial assets at FVTPL. Please refer to Note 16 for details. (c) Debt instruments at FVTOCI On 1 January 2018, the Group s bonds amounting to HK$31,635,000 previously classified as held for trading were reclassified to debt instruments at FVTOCI as the Group has assessed its business model for managing its bonds on 1 January 2018 which meets the definition of FVTOCI under HKFRS 9 at the date of initial application of HKFRS TONGFANG KONTAFARMA HOLDINGS LIMITED

38 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Application of new and amendments to HKFRSs (continued) 3.3 Impacts on opening condensed consolidated statement of financial position arising from the application of all new standards As a result of the changes in the entity s accounting policies above, the opening condensed consolidated statement of financial position had to be restated. The following table shows the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. 31 December 2017 Audited 15 HKFRS 15 9 HKFRS 9 1 January 2018 Restated HK$ 000 HK$ 000 HK$ 000 HK$ 000 Non-current Assets Contract costs 3,878 3,878 Debt instruments at fair value through other comprehensive income 31,635 31,635 Current Assets Trade receivables 532,671 (1,950) 530,721 Other receivables, deposits and prepayments 149,432 (1,621) 147,811 Loans receivables 178,878 (3,110) 175,768 Amount due from a joint venture 7,972 (233) 7,739 Amount due from an associate 34,667 (1,014) 33,653 Amounts due from other related parties 208,691 (4,478) 204,213 Contract costs 12,220 12,220 Financial assets at fair value through profit or loss 114,720 (31,635) 83,085 Current Liabilities Other payables and deposits received 123,782 (18,711) 105,071 Contract liabilities 131, ,908 Deferred income 114,721 (114,721) Tax liabilities 87,292 (135) 87,157 Capital and reserves Share premium and reserves 1,214,123 (133) (7,808) 1,206,182 Non-controlling interests 624,689 (113) (4,598) 619,978 Non-current Liabilities Contract liabilities 57,621 57,621 Deferred income 46,310 (39,618) 6,692 TONGFANG KONTAFARMA HOLDINGS LIMITED 37

39 4. 4. REVENUE AND SEGMENT INFORMATION Disaggregation of revenue Six months ended 30 June 2018 Unaudited HK$ 000 Geographical markets People s Republic of China ( PRC ) 938,862 Singapore 203,969 Total 1,142,831 Timing of revenue recognition A point in time 924,815 Overtime 218,016 Total 1,142, TONGFANG KONTAFARMA HOLDINGS LIMITED

40 4. (1) (2) (3) 4. REVENUE AND SEGMENT INFORMATION (CONTINUED) Revenue represents the sales amount from (1) manufacturing and sales of prescription drugs and laboratory related products; (2) operating of fitness centres and provision of consultation services for fitness and health activities (such as monthly membership fees, trial classes and personal training classes); and (3) manufacturing and sales of cement and clinker and trading of cement, net of discount and sales related tax. Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Manufacture and sales of prescription drugs and laboratory related products 240, ,292 Operating of fitness centres and provision of consultation services for fitness and health activities 188,266 28,076 Royalty fee income in relation to fitness and health activities in Taiwan 28,274 4,404 Service fee income in relation to fitness and health activities in Taiwan 1, Manufacture and sales of cement and clinker 158, ,759 Trading of cement 526, ,546 1,142, ,376 (1) (2) (3) During the six months ended 30 June 2018, the directors, being the chief operating decision maker, had assessed the Group s operations and measurement of financial performance assessment and identified (1) medical, pharmaceutical and health business; (2) fitness business; and (3) cement business as three separate operating and reportable segments of the Group. TONGFANG KONTAFARMA HOLDINGS LIMITED 39

41 4. (i) 4. REVENUE AND SEGMENT INFORMATION (CONTINUED) The operating business organised and managed in each segment represents a strategic business unit that offers different products and services for the purpose of resource allocation and assessment of segment performance. The Group has following operating and reportable segments: Medical, pharmaceutical and health business manufacture and sales of prescription drugs and laboratory related products. Fitness business operate fitness centres and provide consultation services for fitness and health activities and operate the franchise business for royalty and service fee income. Cement business manufacture and sales of cement and clinker and trading of cement. No operating segments identified have been aggregated in arriving at the reportable segments of the Group. (i) Segment revenue and results Analysis of the Group s segment revenue and results for the six months ended 30 June 2018 and 2017 is as follows: Medical, pharmaceutical and health business Fitness business Cement business Total Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment revenue from external customers 240, , ,016 32, , ,305 1,142, ,376 Segment results 28,947 7,824 36,235 3,467 4,948 29,614 70,130 40,905 Unallocated corporate income 2, Unallocated corporate expenses (23,078) (18,314) Finance costs (13,133) (9,181) Profit before taxation 35,997 13, TONGFANG KONTAFARMA HOLDINGS LIMITED

42 4. (i) (ii) 4. REVENUE AND SEGMENT INFORMATION (CONTINUED) (i) Segment revenue and results (continued) There was no inter-segment sales during the six months ended 30 June 2018 and 30 June The accounting policies of the reportable segments are the same as the Group s accounting policies. Segment results represent the profit from each segment without allocation of unallocated corporate income and expenses, and finance costs. This is the measure reported to the chief operating decision makers of the Company for the purposes of resource allocation and performance assessment. (ii) Segment assets and liabilities Medical, pharmaceutical and health business Fitness business Cement business Total Unaudited Audited Unaudited Audited Unaudited Audited Unaudited Audited HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment assets 1,072,175 1,301, , ,103 1,594,074 1,352,080 3,408,924 3,366,789 Deferred tax assets 4,324 4,360 Unallocated corporate assets 158,728 73,061 Consolidated assets 3,571,976 3,444,210 Medical, pharmaceutical and health business Fitness business Cement business Total Unaudited Audited Unaudited Audited Unaudited Audited Unaudited Audited HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment liabilities 94, , , , , , , ,317 Tax liabilities 98,519 87,292 Bank and other borrowings 659, ,002 Deferred taxation 109, ,537 Unallocated corporate liabilities 6,180 5,350 Consolidated liabilities 1,640,029 1,595,498 TONGFANG KONTAFARMA HOLDINGS LIMITED 41

43 4. (ii) REVENUE AND SEGMENT INFORMATION (CONTINUED) (ii) Segment assets and liabilities (continued) For the purposes of monitoring segment performance and allocating resources between segments: all assets are allocated to operating segments other than deferred tax assets and unallocated corporate assets; and all liabilities are allocated to operating segments other than tax liabilities, bank and other borrowings, deferred taxation and unallocated corporate liabilities. 5. OTHER INCOME Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Interest income from banks 2,959 2,996 Interest income from loans receivables 2,577 2,851 Interest income from a non-controlling shareholder of the Group s subsidiary 3,002 3,140 Interest income from financial assets at fair value through profit or loss 619 Interest income from debt instruments at fair value through other comprehensive income 619 Interest income from a joint venture 157 Rental income 1,848 2,069 Subsidy and government grant 6,830 1,342 Sales of scrap 2,086 Sundry income 4,587 5,435 24,665 18, TONGFANG KONTAFARMA HOLDINGS LIMITED

44 6. 6. FINANCE COSTS Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Interests on following borrowings: Bank loans 4,601 2,762 Other borrowings 6,995 6,202 Obligations under finance lease Imputed interest arising from a put option granted to non-controlling shareholders 205 Imputed interest arising from transfer of services with significant financing component 1,473 13,133 9, TAXATION Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 The (charge) credit comprises: Current tax PRC Enterprise Income Tax (9,916) (3,043) Singapore Corporate Income tax (8,984) (18,900) (3,043) Overprovision in prior years PRC Enterprise Income Tax 615 Deferred tax 3,332 (3,330) (14,953) (6,373) TONGFANG KONTAFARMA HOLDINGS LIMITED 43

45 8. 8. PROFIT FOR THE PERIOD Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Profit for the period has been arrived at after charging (crediting): Amortisation of intangible assets 3,740 1,448 Depreciation of investment properties Depreciation of property, plant and equipment 31,514 20,800 Total amortisation and depreciation 35,339 22,326 Allowance for doubtful debts 860 3,095 Cost of inventories recognised as expenses 710, ,212 Release of prepaid lease payments on land use rights 1,710 1,562 Net loss on disposal and write-off of property, plant and equipment 3, Net foreign exchange loss 2,342 1,577 Property rental income net of negligible outgoing expenses (1,848) (2,069) Operating lease rentals in respect of premises 51,662 11,195 15b Written off of loans receivables (Note 15b) 45, TONGFANG KONTAFARMA HOLDINGS LIMITED

46 9. 9. LOSS PER SHARE The calculation of the basic and diluted loss per share attributable to owners of the Company is based on the following data: Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Loss for the purposes of basic and diluted loss per share attributable to owners of the Company (14,731) (8,361) Six months ended 30 June Unaudited Unaudited Number of shares Weighted average number of ordinary shares for the purposes of loss per share 5,326,273,883 4,945,757, The weighted average number of ordinary shares shown above has been arrived at after deducting the shares held by the share award scheme (the Share Award Scheme ). For the period ended 30 June 2018 and 2017, the computation of the diluted loss per share does not assume the exercise of the Company s share options as such would result in a decrease in loss per share. 10. DIVIDEND No dividend was paid, declared or proposed during the current period (2017: Nil). The board of directors of the Company does not recommend the payment of an interim dividend for the six months ended 30 June 2018 (2017: Nil). TONGFANG KONTAFARMA HOLDINGS LIMITED 45

47 11. 30,179,000 38,774, PROPERTY, PLANT AND EQUIPMENT During the six months ended 30 June 2018, the Group acquired property, plant and equipment at a consideration of HK$30,179,000 (for the six months ended 30 June 2017: HK$38,774,000). 12. GOODWILL HK$ 000 COST At 1 January 2017 (audited) 217, Arising on acquisition of subsidiaries (Note 24) 219,417 Effect on exchange adjustments 2,188 At 31 December 2017 (audited) 439,160 Effect on exchange adjustments (265) At 30 June 2018 (unaudited) 438, INTANGIBLE ASSETS 307,585,000 TFKT True Holdings True Cayman 51% True Yoga Holdings Limited 29% True 305 True 24 TrueTrue Yoga Holdings Limited 30 True Yoga Holdings Limited (i) (ii) True 196,576,000 True 93,475,000 During the six months ended 30 June 2017, the Group acquired intangible assets of HK$307,585,000 comprising franchise agreement, customer relationship and trademark arising on the acquisition of 51% equity interest in TFKT True Holdings and its subsidiaries ( True Cayman Group ) and 29% equity interest in True Yoga Holdings Limited (the True Acquisition ). Other than the trademark, which has an indefinite useful life, the franchise agreement and customer relationship are amortised on a straight-line basis over 30 years and 5 years, respectively. Details of the True Acquisition were set out in Note 24. Upon completion of the True Acquisition, the Group grants and provides True Yoga Holdings Limited with non-exclusive rights to operate the franchise business in Taiwan for a term of 30 years commencing from 29 May 2017 and True Yoga Holdings Limited shall pay a monthly franchise fee. The monthly franchise fee will be sub-divided as (i) royalty fee and (ii) service fee. As at the date of the True Acquisition, the fair value of the franchise agreement acquired was estimated at HK$196,576,000. As at the date of the True Acquisition, the fair value of trademark acquired was estimated at HK$93,475,000 based on royalty savings, i.e., cost of licensing the intangible asset from an independent third party, to be realised in the future by owning the intangible asset. 46 TONGFANG KONTAFARMA HOLDINGS LIMITED

48 TRADE RECEIVABLES The Group has a policy of allowing its trade customers credit periods normally within 1 year. The aged analysis of trade receivables, net of allowance for bad and doubtful debts, is presented based on the invoice date at the end of the reporting period as follows: At 30 June 2018 Unaudited HK$ 000 At 31 December 2017 Audited HK$ to 90 days 452, , to 180 days 335, , to 365 days 89,217 74,446 1 Over 1 year 12,353 7, , , ,101, ,913, Included in trade receivables are bills amounting to HK$120,101,000 (31 December 2017: HK$131,913,000) that the Group has received bills held for future settlement of trade receivables. 15. LOANS RECEIVABLES At 30 June 2018 At 31 December 2017 Unaudited Audited Notes HK$ 000 HK$ 000 Loans receivables Reverse repurchase agreements (a) 30,313 74,437 Other loans receivables (b) 56, ,441 86, ,878 TONGFANG KONTAFARMA HOLDINGS LIMITED 47

49 LOANS RECEIVABLES (CONTINUED) Notes: (a) (a) Reverse repurchase agreements 1,442,200,000 1,716,292, ,700, ,116, % 7.25% % 13.54% During the six months ended 30 June 2018, the Group, as the reverse repo party, entered into pledge-style bond repo transactions that were denominated in RMB with the aggregate principal amount of RMB1,442,200,000 (equivalent to HK$1,716,292,000) (for the six months ended 30 June 2017: RMB849,700,000 (equivalent to HK$977,116,000)) through the Shanghai Stock Exchange with maturity periods from 1 day to 29 days and carried interest ranged from 2.09% to 7.25% (for the six months ended 30 June 2017: maturity periods from 1 day to 28 days and carried interest ranged from 2.30% to 13.54%) per annum. Such reverse repurchase agreements are classified as loans and receivables and are stated at amortised cost. 1,478,600,000 1,759,610, ,400,000 1,100,966,000 During the six months ended 30 June 2018, reverse repurchase agreements with an aggregate principal amount of RMB1,478,600,000 (equivalent to HK$1,759,610,000) (for the six months ended 30 June 2017: RMB957,400,000 (equivalent to HK$1,100,966,000)) had matured and been redeemed. (b) (b) Other loans receivables 50,000,000 59,503,000 6% As at 30 June 2018, other loans receivable with an aggregate principal amount of RMB50,000,000 (equivalent to HK$59,503,000) carrying interest 6% per annum are stated at amortised cost. It represented the loans receivable with maturity within one year from the end of the reporting period. 35,000,000 41,652,000 In June 2018, other loans receivable with an aggregate principal amount of RMB35,000,000 (equivalent to HK$41,652,000) had been fully written off in view of the fact that the counter party s representative and the shareholder have indicated that the debtor does not have resources to repay due to severe financial difficulties noted in June Based on the Group s knowledge on the counter party s situation, the directors of the Company considered the loans receivable cannot be recovered. 48 TONGFANG KONTAFARMA HOLDINGS LIMITED

50 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS/DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME At 30 June 2018 At 31 December 2017 Unaudited Audited Notes HK$ 000 HK$ 000 Held for trading investments Bonds (a) 31,635 Equity securities listed in Hong Kong (b) 12,391 21,324 Equity securities listed outside Hong Kong (b) Exchange-traded funds (b) 2 Other financial assets as at fair value through profit or loss Convertible bonds (c) Exchange rate linked structured deposits (d) 28,989 Financial assets designated as at fair value through profit or loss Convertible bonds (c) 36,504 Exchange rate linked structured deposits (d) 24,827 Debt instruments at fair value through other comprehensive income 41, ,720 Bonds non-current (a) 15,711 current 15,638 31,349 Notes: (a) (a) Bonds 3.99% 4.00% The bonds were denominated in United States dollars ( US$ ) and carried interest at 3.99% to 4.00% per annum. (b) (b) Equity securities and exchange-traded funds Equity securities and exchange-traded funds are stated at fair value which is determined based on the quoted market bid price available on the relevant stock exchanges. TONGFANG KONTAFARMA HOLDINGS LIMITED 49

51 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS/DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (CONTINUED) Notes: (continued) (c) (c) Convertible bonds 30,475,000 36,266,000 During the six months ended 30 June 2018, the Group disposed of the convertible bonds at RMB30,475,000 (equivalent to HK$36,266,000). 30,000,000 34,499,000 2% 2.5% 3% During the six months ended 30 June 2017, the Group purchased convertible bonds of RMB30,000,000 (equivalent to HK$34,499,000). The convertible bonds were denominated in RMB and carried interest at 2%, 2.5% and 3% per annum during the three years duration. (d) (d) Exchange rate linked structured deposits 24,000,000 28,561,000 20,000,000 22,999,000 During the six months ended 30 June 2018, the Group entered into new principal protected exchange rate linked structured deposits that were denominated in RMB with the aggregate principal amount of RMB24,000,000 (equivalent to HK$28,561,000) (for the six months ended 30 June 2017: RMB20,000,000 (equivalent to HK$22,999,000)) with a bank with maturity periods of one year (for the six months ended 30 June 2017: one year). 20,000,000 23,801,000 20,819,000 24,776, , , , ,000 During the six months ended 30 June 2018, structured deposits with aggregate principal amount of RMB20,000,000 (equivalent to HK$23,801,000) had matured and been redeemed at RMB20,819,000 (equivalent to HK$24,776,000). During the six months ended 30 June 2017, no structured deposit had matured nor redeemed. For the six months ended 30 June 2018, fair value gains on financial assets at fair value through profit or loss of RMB489,300 (equivalent to HK$602,000) (for the six months ended 30 June 2017: RMB739,000 (equivalent to HK$842,000)) were recognised. Interest rates of these structured deposits vary depending on the movement of exchange rate between the US$ and the Australian Dollars. Such structured deposits are classified as financial assets of fair value through profit or loss on initial recognition. 50 TONGFANG KONTAFARMA HOLDINGS LIMITED

52 TRADE AND BILLS PAYABLES An aged analysis of the Group s trade and bills payables, presented based on the invoice date, at the end of the reporting period is as follows: At 30 June 2018 Unaudited HK$ 000 At 31 December 2017 Audited HK$ to 90 days 320,184 81, to 180 days 77,855 16, to 365 days 36, ,539 1 Over 1 year 6,904 7, , , ,911, ,590, ,757, ,663, % 10.00% 1.20% 10.00% 19. (i) (ii) 18. BANK AND OTHER BORROWINGS During the six months ended 30 June 2018, the Group obtained new bank loans and other borrowings of HK$183,911,000 (31 December 2017: HK$567,590,000) and repaid bank loans and other borrowings of HK$331,757,000 (31 December 2017: HK$876,663,000). Proceeds from new borrowings were used to finance the general operating activities of the Group. The bank and other borrowings of the Group are repayable in instalments over a period of 5 years and bear interest at floating market rates which on average ranged at 3.36% to 10.00% (31 December 2017: 1.20% to 10.00%) per annum. 19. CONTRACT LIABILITIES Contract liabilities represent (i) instalments received in advance for prepaid membership packages or personal training classes for one to three years and advanced from customers in respect of sales contracts which to be recognised as revenue over the contract period when those future services are provided in accordance with the service package contract; (ii) the receipts in advance from customers which to be recognised as revenue at a point in time when the control of the prescriptions drugs, laboratory related products, cement and clinker are transferred to the customer. TONGFANG KONTAFARMA HOLDINGS LIMITED 51

53 SHARE CAPITAL Number of shares Value HK$ Ordinary shares of HK$0.002 each Authorised: At 1 January 2017, 31 December 2017 and 30 June ,000,000, ,000 26(d) 2(A) Issued and fully paid: At 1 January 2017 and 31 December ,950,000,000 9,900 Issuance of ordinary shares under the Subscription Agreement (Note 26 (d)) 400,000, New shares issued as consideration for the Acquisition (Note 2(A)) 243,863, At 30 June ,593,863,777 11,188 3,484,000 6,756,000 8,190,000 8,190,000 During the six months ended 30 June 2017, 6,756,000 shares of the Company were acquired at a total cost of HK$3,484,000 and held for the Share Award Scheme which recognised and accumulated in equity under the heading of Shares held for share award scheme. There was no such transaction during the six months ended 30 June As at 30 June 2018, the aggregate number of shares held for the Share Award Scheme was 8,190,000 (31 December 2017: 8,190,000). 52 TONGFANG KONTAFARMA HOLDINGS LIMITED

54 CAPITAL COMMITMENTS The Group had the following capital commitments: At 30 June 2018 Unaudited HK$ 000 At 31 December 2017 Audited HK$ 000 Capital commitments contracted for but not provided in the condensed consolidated financial statements: Capital contribution to a joint venture (note) 476, ,019 Acquisition of property, plant and equipment 37,136 47,952 Tongfang Konta Capital L.P. Capital contribution to Tongfang Konta Capital L.P., a joint venture 36, , ,783 50% 400,000, ,020, ,019,000 Note: As announced by the Company on 15 February 2012, Shanghai Allied Cement Co., Ltd. ( Shanghai SAC ), a non-wholly owned subsidiary of the Group, entered into the (the Bailonggang Project Construction Cooperation Agreement) (the Cooperation Agreement ) and the (the Principle Agreement for the Establishment of the Joint Venture Company) (the JV Principle Agreement ) with (Shanghai Building Material (Group) Company Limited) ( Shanghai Building Material ), a state-owned enterprise, for the purpose of setting up a joint venture company (the JV Company ) pursuant to the terms and conditions therein on 13 February Pursuant to the Cooperation Agreement, Shanghai Building Material and Shanghai SAC agreed to establish the JV Company to operate and manage the development of new cement production facilities at Bailonggang, Pudong, Shanghai ( Bailonggang Project ) under the terms of the JV Principle Agreement after the relevant government approvals for the Bailonggang Project being obtained. The commitment on capital contribution to a joint venture represents the 50% share of registered capital of the JV Company by the Group amounting to RMB400,000,000 (equivalent to approximately HK$476,020,000 (31 December 2017: HK$480,019,000)). Details of the transaction were set out in the announcement of the Company dated 15 February 2012 and 30 January 2014 and the circulars of the Company dated 16 March 2012, respectively. TONGFANG KONTAFARMA HOLDINGS LIMITED 53

55 ,000,000452,219, ,018,000 68,270,000 68,270,000 81,245,000 81,927, ,000,000476,020, ,000,000480,019, CAPITAL COMMITMENTS (CONTINUED) Note: (continued) On 28 September 2012, Shanghai SAC entered into three purchase agreements for the purchases of certain equipment and machineries at the aggregate consideration of RMB380,000,000 (equivalent to approximately HK$452,219,000 (31 December 2017: HK$456,018,000)). As at 30 June 2018, Shanghai SAC has settled the respective first payments of the total consideration in an aggregate amount of RMB68,270,000 (31 December 2017: RMB68,270,000) (equivalent to approximately HK$81,245,000 (31 December 2017: HK$81,927,000)) under the three purchase agreements. The equipment and machineries under the three purchase agreements were purchased for future use in the Bailonggang Project and the Group does not intend to retain such equipment and machineries for their own use. After the JV Company is established, Shanghai SAC may transfer, by way of disposal or otherwise, the equipment and machineries purchased at cost or novate the rights and obligations of the purchase agreements at cost to the JV Company in accordance with the relevant PRC rules and regulations, or subject to the relevant PRC rules and regulations, may transfer such equipment and machineries at cost by way of contribution in kind to satisfy its proportion of the registered capital of the JV Company. Details of the transaction were set out in the announcement and circular of the Company dated 3 October 2012 and 15 November 2012, respectively. Since the equipment and machineries under the three purchase agreements were purchased for future use in the Bailonggang Project, the total commitment of the Group to the Bailonggang Project, including the commitment under the three purchase agreements, would be limited to RMB400,000,000 (equivalent to approximately HK$476,020,000 (31 December 2017: RMB400,000,000 (equivalent to approximately HK$480,019,000)) being the commitment on capital contribution to a joint venture. 54 TONGFANG KONTAFARMA HOLDINGS LIMITED

56 ,140, ,795, ,982, ,003,000 1,940,000 3,414, PLEDGE OF ASSETS As at 30 June 2018, the Group s bank and other borrowings of HK$279,140,000 (31 December 2017: HK$249,795,000), short-term bank facilities of the issuance of bills payable to suppliers amounting to HK$162,982,000 (31 December 2017: HK$100,003,000) and finance lease of HK$1,940,000 (31 December 2017: HK$3,414,000) were secured by the following: At 30 June 2018 Unaudited HK$ 000 At 31 December 2017 Audited HK$ 000 Building and structures 158, ,271 Plant and machinery 4,276 54,339 Prepaid lease payments on land use rights 111,904 99,524 Exchange rate linked structured deposits 28,561 24,001 Pledged bank deposits 106,159 35, , , FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS Some of the Group s financial assets are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation techniques and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities; Level 2 fair value measurements are those derived from 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 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). TONGFANG KONTAFARMA HOLDINGS LIMITED 55

57 FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (CONTINUED) Financial assets Fair value At At 30 June 31 December Unaudited Audited HK$ 000 HK$ 000 Fair value hierarchy Valuation technique and key inputs Held for trading investments Bonds Equity securities listed in Hong Kong Equity securities listed outside Hong Kong Exchange-traded funds 31,635 Level 2 12,391 21,324 Level Level 1 2 Level 1 Quoted prices from pricing services Quoted bid prices in market Quoted bid prices in market Quoted bid prices in market 56 TONGFANG KONTAFARMA HOLDINGS LIMITED

58 FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (CONTINUED) Financial assets Fair value At At 30 June 31 December Unaudited Audited HK$ 000 HK$ 000 Fair value hierarchy Valuation technique and key inputs Financial assets at fair value through profit or loss/financial assets designated as at fair value through profit or loss Convertible bonds listed in the PRC Exchange rate linked structured deposits Debt instruments at fair value through other comprehensive income Bonds 36,504 Level 2 28,989 24,827 Level 2 31,349 Level 2 73, ,720 Quoted prices from financial institutions Discounted cash flow. Future cash flows are estimated based on the probabilities of future exchange rate movements (which are modelled using the implied volatility prices at the end of the reporting period from the foreign exchange options market) and contracted interest rates, discounted at a rate that reflects the credit risk of the Group or the counterparties, as appropriate. Quoted prices from pricing services TONGFANG KONTAFARMA HOLDINGS LIMITED 57

59 True 36,720, ,580, ,417,000 True Cayman True Yoga Holdings Limited True Cayman 4,023, FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (CONTINUED) There were no transfers among Levels 1, 2 and 3 during the six months ended 30 June 2018 and the year ended 31 December The directors of the Company consider that the carrying amount of the Group s financial assets and financial liabilities recorded at amortised cost in the condensed consolidated financial statements approximate their fair values. Such fair values have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis. 24. BUSINESS COMBINATION On 29 May 2017, the Group completed the True Acquisition from an independent third party for a cash consideration of US$36,720,000 (equivalent to HK$284,580,000). The transaction had been accounted for using the purchase method. The amount of goodwill arising from the acquisition was HK$219,417,000. True Cayman Group and True Yoga Holdings Limited and its subsidiary are engaged in the operation of fitness centres and provision of consultation services of fitness and health activities. True Cayman Group was acquired so as to achieve better returns and development. Acquisition-related costs amounting to HK$4,023,000 has been excluded from the consideration transferred and have been recognised as an expense in the six months period ended 30 June 2017, within the other expenses line item in the condensed consolidated statement of profit or loss and other comprehensive income. The fair values of intangible assets (mainly related to the recognition of franchise agreement, trademark and customer relationship) acquired and deferred income assumed in business combination are based on valuations performed by an independent qualified professional valuer. 58 TONGFANG KONTAFARMA HOLDINGS LIMITED

60 BUSINESS COMBINATION (CONTINUED) HK$ 000 Goodwill arising on acquisition Consideration 284,580 Plus: non-controlling interests 41,817 Less: net assets acquired (85,340) True Yoga Holdings Limited 29% Less: interest in an associate, representing 29% equity interest in True Yoga Holdings Limited (note) (21,640) 219,417 True Yoga Holdings Limited 29% True Yoga Holdings Limited Note: The amount represents the allocated consideration for acquiring the 29% shareholding of True Yoga Holdings Limited, which is determined based on a valuation carried out by the management with the assistance from Greater China Appraisal Limited, an independent valuer, by reference of the discounted cash flow of True Yoga Holdings Limited. An analysis of the net outflow of cash and cash equivalents in the six months period ended 30 June 2017 in respect of the acquisition is as follows: HK$ 000 Cash and cash equivalents acquired 10,740 Less: Consideration satisfied by cash (257,455) Net cash outflow on acquisition (246,715) True Cayman True Cayman True Goodwill arose from the acquisition included amounts in relation to the benefit of expected revenue growth, future market development and the assembled workforce of True Cayman Group. The Group has been looking for investment opportunities in the universal health sector from time to time. The Group could leverage its resources to facilitate the True Cayman Group to expand the business in China and capture the opportunities of the fitness and health industry. The management has reviewed the business of the Group and has been actively exploring the medical, pharmaceutical and health industry businesses and other investment opportunities. The True Acquisition is in line with the business strategy of the Group as fitness centres belong to the universal health industry. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising from this acquisition is expected to be deductible for tax purposes. TONGFANG KONTAFARMA HOLDINGS LIMITED 59

61 25. 4,000,000 4,920, DISPOSAL OF A SUBSIDIARY On 23 May 2018, the Group disposed of its entire equity interest in Shaanxi Chen Ji Pharmacy Co., Ltd* ( Shaanxi Pharmacy ) to an independent third party for an aggregate consideration of RMB4,000,000 (equivalent to HK$4,920,000). The aggregate amounts of assets and liabilities attributable to Shaanxi Pharmacy on the date of disposal were as follows: HK$ 000 Consideration received: Cash consideration 4,920 Analysis of assets and liabilities over which control was lost: Property, plant and equipment 275 Deferred tax assets 28 Inventories 7,298 Trade receivables 2,284 Other receivables, deposits and prepayments 136 Bank balances and cash 1,206 Trade payables (8,216) Other payables (5,256) Net liabilities disposed of (2,245) Gain on disposal of a subsidiary: Consideration received 4,920 Less: net liabilities disposed of (2,245) Gain on disposal 7,165 Cash inflow arising from disposal: Bank balances and cash disposed of (1,206) Less: Consideration received by cash 4,920 3, TONGFANG KONTAFARMA HOLDINGS LIMITED

62 26. (a) 26. RELATED PARTY TRANSACTIONS AND BALANCES During the six months ended 30 June 2018, the Group had transactions and balances with related parties as follows: (a) Summary of transactions Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Non-controlling shareholders of the Group s subsidiary i Interest income (note i) (3,002) (3,140) Management fee expense 89 An associate Management fee (1,029) (204) Royalty fee income (28,274) (4,404) Service fee income (1,476) (299) (b) (b) Key management personnel compensation Six months ended 30 June Unaudited Unaudited HK$ 000 HK$ 000 Salaries and other short-term benefits 6,176 7,217 Post-employment costs Equity-settled share-based payments 3,174 3,473 9,644 11,016 TONGFANG KONTAFARMA HOLDINGS LIMITED 61

63 26. (c) 26. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) (c) Summary of balances At 30 June 2018 At 31 December 2017 Unaudited Audited Notes HK$ 000 HK$ 000 Current assets Loan to a non-controlling shareholder of the Group s subsidiary (i) 128, ,406 Interest receivable from a non-controlling shareholder of the Group s subsidiary (i) 201 Amount due from a fellow subsidiary of the ultimate holding company (ii) 22,574 22,763 Amount due from a non-controlling shareholder of the Group s subsidiary (ii) 27,125 27,125 Amount due from a shareholder (ii) Amounts due from other related parties 178, ,961 Current liabilities Dividend payable to a non-controlling shareholder of the Group s subsidiary (ii) 6,846 Amounts due to non-controlling shareholders of the Group s subsidiaries (ii) 27,750 28,083 Amount due to a fellow subsidiary of the ultimate holding company (ii) 11,944 12,044 Amount due to an entity controlled by a non-controlling shareholder of the Group s subsidiary (ii) 2,304 2,336 Amount due to a director of the Group s subsidiary (ii) 7,872 7,822 Amount due to a fellow subsidiary of the intermediate holding company (ii) 843 Amounts due to other related parties 49,870 57, TONGFANG KONTAFARMA HOLDINGS LIMITED

64 26. (c) 26. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) (c) Summary of balances (continued) Notes: (i) 4.15% (i) The transactions and balances represented loans to a non-controlling shareholder of the Group s subsidiary. As at 31 December 2017, the principals of the loans bear interest at 4.15% per annum, were entrusted through a bank, unsecured and repayable in May 2018 and June The transactions also constituted connected transactions within the meaning of the Listing Rules. Details of the transactions were set out in the announcement of the Company dated 26 May Following the announcements of the Company dated 24 April 2018, the Group has agreed with the non-controlling shareholder of the Group s subsidiary that the Group will not entrust a bank to provide these loans but will directly provide the loans to the non-controlling shareholder of the Group s subsidiary and will also extend the repayment for 1 more year, accordingly, the loans will be repayable in May 2019 and June (ii) (ii) The balances were unsecured, non-interest bearing and were repayable on demand. (d) * (THTF Energy-Saving Holdings Limited) 400,000, % (d) Others On 23 January 2018, the Company and THTF Energy- Saving Holdings Limited (the Subscriber ) entered into a subscription agreement pursuant to which the Subscriber conditionally agreed to subscribe and the Company conditionally agreed to allot and issue 400,000,000 shares of the Company at a price of HK$0.5 per share (the Subscription Agreement ). Tongfang Financial Holdings Co., Ltd.* ( Tongfang Financial ) is the non-controlling shareholder of Shenzhen Waranty Asset Management Co., Ltd.*, which indirectly owned 100% equity interest in China Health Management Investment Limited, the immediate parent of the Company. Both the Subscriber and Tongfang Financial are wholly-owned subsidiaries of Tsinghua Tongfang Co., Ltd.*The subscription has been completed during the six months ended 30 June * * For identification purpose only TONGFANG KONTAFARMA HOLDINGS LIMITED 63

65 Report on Review of Condensed Consolidated Financial Statements TO THE BOARD OF DIRECTORS OF TONGFANG KONTAFARMA HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) INTRODUCTION We have reviewed the condensed consolidated financial statements of Tongfang Kontafarma Holdings Limited (the Company ) and its subsidiaries (collectively referred to as the Group ) set out on pages 5 to 63, which comprise the condensed consolidated statement of financial position as of 30 June 2018 and the related condensed consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six months then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 Interim Financial Reporting ( HKAS 34 ) issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with HKAS 34. Our responsibility is to express a conclusion on these 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. 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 these 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. 64 TONGFANG KONTAFARMA HOLDINGS LIMITED

66 Report on Review of Condensed Consolidated Financial Statements 34 CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS 34. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, 31 August 2018 TONGFANG KONTAFARMA HOLDINGS LIMITED 65

67 Management Discussion and Analysis 1, % FINANCIAL RESULTS The revenue of the Tongfang Kontafarma Holdings Limited (the Company ) and its subsidiaries (the Group ) for the six months ended 30 June 2018 was approximately HK$1,142.8 million (2017: HK$611.4 million), representing an increase of 86.9% as compared to the previous year. The profit for the six months ended 30 June 2018 of the Group was HK$21.0 million (2017: HK$7.5 million). The basic loss per share amounted to HK0.28 cent (2017: HK0.17 cent) (i) (ii) TFKT True Holdings True Cayman 51% (iii) The Group recorded a significant increase of HK$531.4 million in revenue for the six months ended 30 June 2018 as compared to the six months ended 30 June Such increase was primarily attributable to (i) the medical, pharmaceutical and health business of the Group has been expanding during the first half of 2018; (ii) the revenue generated by the fitness business of the Group following the Group s acquisition of 51% of the issued share capital in TFKT True Holdings (together with its subsidiaries, True Cayman Group ) in May 2017; and (iii) the increase in revenue generated by the cement business of the Group. BUSINESS REVIEW Medical, Pharmaceutical and Health Business Year 2018 marks the high point of PRC s healthcare reforms. In March 2018, the State Medical Insurance Administration was established under the State Council to consolidate the existing medical insurance system. Key pharmaceutical, medical and health areas such as the hierarchical medical system and the medical insurance reimbursement system will face continuous changes. The pharmaceutical and medical industry is also significantly reshaped by a series of new policies including the implementation of the Two- Invoice System, the abolishment of medicine markups by hospitals, the consistency evaluation of generic medicine, the restrictions on outpatient prescription, the restrictions on adjuvants drugs and the restrictions on outpatient intravenous therapy. 66 TONGFANG KONTAFARMA HOLDINGS LIMITED

68 Management Discussion and Analysis 1. 36, % % % % BUSINESS REVIEW (CONTINUED) Medical, Pharmaceutical and Health Business (continued) 1. Tongfang Pharmaceutical Group Co., Ltd* ( Tongfang Pharmaceutical ) Based in Beijing, Tongfang Pharmaceutical is principally engaged in the research and development, production and sales of chemical drugs with 36,000 square meters of drug production workshops in Yanqing District, Beijing. For the six months ended 30 June 2018, Tongfang Pharmaceutical recorded an operating revenue of RMB103.5 million, representing a year-on-year growth of 68.0% as compared to RMB61.6 million for the same period of Gross profit was RMB91.5 million, representing a year-on-year growth of 76.0% as compared to RMB52.0 million for the same period of Following its established strategy, Tongfang Pharmaceutical continued to seize opportunities and stepped up its reform in the first half of 2018 in the face of the drastic changes in the PRC pharmaceutical market, such as the implementation of the Two-Invoice System and drug consistency evaluation. Capitalising on its existing products and customers, Tongfang Pharmaceutical actively explored new markets and has been awarded tenders in more provinces, which have laid a foundation for sustainable growth in the future. Food/ supplement products are being developed in its existing area of interest, thereby expanding its product portfolio. 2. Chongqing Kangle Pharmaceutical Co., Ltd.* Chongqing Kangle Chongqing Kangle is principally engaged in the research and development, production and sales of Active Pharmaceutical Ingredients ( API ) and intermediate for API in Chongqing Changshou Chemical Industrial Park. For the six months ended 30 June 2018, Chongqing Kangle recorded an operating revenue of RMB41.2 million, representing a yearon-year growth of 102.0% as compared to RMB20.4 million for the same period of Gross profit was RMB8.3 million, representing a year-on-year growth of 130.6% as compared to RMB3.6 million for the same period of In 2018, the newly built plant of Chongqing Kangle entered the testing stage and is expected to commence operation in the second half of the year after the inspection and approval procedures are completed. New products will also be launched to the market. By then, the performance of Chongqing Kangle will be boosted by such new products and new capacity. TONGFANG KONTAFARMA HOLDINGS LIMITED 67

69 Management Discussion and Analysis % % % % BUSINESS REVIEW (CONTINUED) Medical, Pharmaceutical and Health Business (continued) 3. Shaanxi Unisplendour Life Care Pharmaceutical Co., Ltd.* ( Shaanxi Life Care ) Shaanxi Life Care is principally engaged in the research and development, production and sales of Chinese patent drugs and operates a production facility in Chencang District, Baoji, Shaanxi. It has obtained written approvals for over 150 drugs., Shaanxi Life Care recorded an operating revenue of RMB31.4 million, representing a year-on-year growth of 5.0% as compared to RMB29.9 million for the same period of Gross profit was RMB14.6 million, representing a year-on-year growth of 40.4% as compared to RMB10.4 million for the same period of With focus on changes in market, Shaanxi Life Care took proactive measures in the first half of 2018 to streamline its existing market layout, sale functions and sale structure. To strengthen coordination between production and sale and enhance operating efficiency, new sale models and departments were established and internal control was reinforced. 4. SPF (Beijing) Biotechnology Co., Ltd.* ( SPF ) SPF is principally engaged in the research and development, production and sales of quality laboratory animals and the supply of animal indigenous raw materials with its production facilities in Badaling Economic and Technological Development Zone, Yanqing District, Beijing. For the six months ended 30 June 2018, SPF recorded an operating revenue of RMB19.0 million, representing a year-on-year growth of 29.3% as compared to RMB14.7 million for the same period of Gross profit was RMB11.2 million, representing a year-on-year growth of 67.2% as compared to RMB6.7 million for the same period of In view of the market changes, SPF adjusted its existing business by expanding investment in and sales of high-margin products, thus improved its profitability in TONGFANG KONTAFARMA HOLDINGS LIMITED

70 Management Discussion and Analysis , % 14 25, True Cayman True Yoga Holdings Limited BUSINESS REVIEW (CONTINUED) Fitness Business The global health club industry continued to grow in the first six months of According to The International Health, Racquet and Sportsclub Association Global Report 2018, the total industry revenue reached an estimated US$73.2 billion, with in excess of 200,000 clubs serving 174 million members worldwide. This is an all-time high, and the industry serves 65 markets around the world. Leading markets in North America, Europe and Asia continued to grow, with emerging markets, particularly in the Asia-Pacific region showing the strongest growth. The Singapore market has among the highest penetration rates among the population in Asia with over 5.76% of the population being members of a fitness centre. The Asia-Pacific, home to nearly half of the world s population, is the world s largest potential market for the health club and fitness industry. At present, it serves 22 million members with more than 25,000 clubs across 14 markets (excluding the Middle East), where the industry revenue totals US$16.8 billion in the region. Fueled by economic growth and growing affluence, the fitness market in the Asia-Pacific region has shown steady growth with a positive outlook going forward. Overall market penetration is on an upward trajectory reflecting growing awareness of health and fitness, and club memberships. In view of the promising prospect of the fitness market, the Group commenced to operate fitness business through acquisition of majority stake of True Cayman Group and minority interest of True Yoga Holdings Limited in May TONGFANG KONTAFARMA HOLDINGS LIMITED 69

71 Management Discussion and Analysis True Cayman % True Cayman 3,449,90727,125,000 3,500,000 26(c) 26(c) 27.8 True Cayman True Cayman True Fitness BUSINESS REVIEW (CONTINUED) Fitness Business (continued) The Group s revenue in its fitness business for the six months period ended 30 June 2018 was HK$218.0 million which includes a royalty fee income of HK$28.3 million and service fee income of HK$1.5 million. As disclosed in the circular of the Company dated 28 July 2017 relating to acquisition of entities engaging in fitness business, the seller undertook to the Group that if the audited consolidated net profit after tax attributable to the True Cayman Group (the Guaranteed Profit ) for the year ending 31 December 2018 is less than US$10.9 million (equivalent to approximately HK$86.7 million) (subject to a 10% buffer of downward adjustment), the seller shall pay to the Group an amount equal to such shortfall on a dollar-to-dollar basis. For the purpose of the Guaranteed Profit, only the financial performance of certain clubs mentioned in the acquisition agreement as detailed in the said circular will be taken into account. The Company will closely monitor the performance of the fitness business throughout the remainder of As to the Guaranteed Profit of US$8.2 million (equivalent to approximately HK$64.4 million) for the year ended 31 December 2017, based on the consolidated management accounts of the True Cayman Group for 2017, there is a shortfall of US$3,449,907 (or HK$27,125,000) against the guaranteed amount. Such shortfall is currently expected to set off against the final portion of the consideration of US$3,500,000 payable by the Group to the seller. The relevant payable sum has been recognised as amounts due to non-controlling shareholders of the Group s subsidiary and disclosed in note 26(c) to the condensed consolidated financial statements of the Group contained in this interim report. The total due amounts of HK$27.8 million stated in note 26(c) comprised the final portion of the consideration payable by the Group to the seller. Pending the availability of the consolidated audited accounts of the True Cayman Group, the setoff is expected to be made in the audited consolidated financial statements of the Company for the year ending 31 December It is believed the non-achievement of profit guarantee should be mainly due to closure of all the fitness clubs under the brand name of True Fitness in Thailand and Malaysia after the acquisition of True Cayman Group by the Group which operates clubs in Singapore and China. Although the clubs in Thailand and Malaysia did not fall within the scope of acquisition by the Group, the closure of clubs in those countries which are closely adjacent to Singapore had a short-term impact on the admission of new members to the clubs in Singapore. The effect had mostly diminished after the initial couple of months as a result of stable operations in Singapore. 70 TONGFANG KONTAFARMA HOLDINGS LIMITED

72 Management Discussion and Analysis True Fitness True Yoga True Yoga 13 BUSINESS REVIEW (CONTINUED) Fitness Business (continued) The fitness business had a total of eight fitness and yoga centres operating under the brand name of True Fitness and one yoga centre under the brand of True Yoga in Singapore and two fitness and yoga centres operating under the brand name of True Yoga in the PRC. It received multiple industry awards on a recurring basis from various renowned health and lifestyle magazines, recognising the Group s first-class fitness and yoga studios as well as classes. The fitness business in Taiwan currently has 13 fitness and yoga centres. The management is exploring new locations in Taiwan and possibly taking over smaller chain of fitness gyms in the foreseeable future as part of its commitment for expansion and to serve its members better. This would also help increase the Group s royalty fee income. The Group s business strategy of opening conveniently-located and large sites to offer ample facilities to serve its members, caters to broad member interests with dedicated facilities for yoga, spinning, group exercise, personal training sessions and strength and fitness training. To add, the Group also achieves its brand differentiation through a distinctive, modern and upscale brand image with a focus on health and wellness lifestyle, with a particular appeal to the underserved female market segment. Its primary business segment and strategic focus is combining fitness and yoga studios: a format popular with members, and gives the Group s fitness business a unique combination of yoga and fitness under one roof with the added revenue stream from personal training services. The fitness business has been operated and managed by the Group since acquisition in May In May 2018, Mr. Patrick John Wee Ewe Seng ceased to be the chief executive officer of the fitness business of the Group while he remains as director of the members of the Group which are engaged in fitness business. The Group is in the course of shortlisting and recruiting suitable chief executive officer replacement equipped with extensive and solid experience in managing and developing fitness business comprising overseas chain of fitness and yoga centres. The normal operation of the fitness business of the Group has not been adversely affected by the cessation of office of Mr. Wee. Going onward, the Group will continue to focus on delivering good fitness offerings at affordable rates, and will refresh the image of and renew the equipment in various clubs, as well as looking to bring on new fitness and yoga options and products for some of the clubs for sustainable growth of the fitness business so as to enhance the return to the shareholders. TONGFANG KONTAFARMA HOLDINGS LIMITED 71

73 Management Discussion and Analysis % 1,537,0001,538, ,000, BUSINESS REVIEW (CONTINUED) Cement Business, the Group s revenue from the cement business amounted to HK$684.5 million (2017: HK$434.3 million), representing an increase of 57.6% as compared to the corresponding period of the previous year. Such increase was mainly attributable to the increase in the average selling prices of cement as the supply-demand correlation improved due to various factors such as the supply-side structural reform and industry self-regulation., the sales volume of the Group s cement and clinker was 1,537,000 tons (2017: 1,538,000 tons). As to cement production, Shandong Allied Wangchao Cement Limited experienced different degrees of year-on-year reduction in the production volumes of clinker and cement in the first half of the year as a result of the seasonal halt of production. In addition to the decrease in production volume, the rising price of bulk raw materials have led to the increase in production costs, resulting in a lower gross margin of the Group s cement business for the six months ended 30 June 2018 as compared to the corresponding period of the previous year. In respect of cement trading, Shanghai Allied Cement Co., Ltd. reported an increase in the sales volume of cement as compared to the corresponding period of the previous year, thereby compensating for the sales volume of the Group s cement products for the period. The Group s subsidiaries engaging in the cement business always strive to promote a recycling economy, and follow the philosophy of innovation in management and operation. In the future, the Group will carry on its research and development projects as a high-tech enterprise, and implement the governance philosophy of safety, environmental protection, high efficiency, low consumption and harmony. FINANCIAL REVIEW Liquidity and Financing On 13 February 2018, 400,000,000 shares of the Company were allotted and issued to raise gross proceeds of approximately HK$201.3 million. Details of the issuance of shares and update on the use of proceeds are set out in the paragraph headed Use of Proceeds under the section headed Corporate Governance and Other Information in this report. Except for the proceeds raised from the above issuance of shares, the Group s capital expenditure, daily operations and investments during the six months ended 30 June 2018 were mainly funded by cash generated from its operations and loans from principal bankers and third parties. 72 TONGFANG KONTAFARMA HOLDINGS LIMITED

74 Management Discussion and Analysis % 36.4% 5.9% 0.1% 99.9% FINANCIAL REVIEW (CONTINUED) Liquidity and Financing (continued) As at 30 June 2018, the Group maintained bank balances and cash reserves of approximately HK$303.2 million (31 December 2017: HK$415.0 million), including cash and cash equivalents of approximately HK$199.2 million and pledged bank deposits of approximately HK$103.9 million (31 December 2017: cash and cash equivalents of approximately HK$381.5 million and pledged bank deposits of approximately HK$33.5 million.) As at 30 June 2018, the Group had outstanding borrowings of approximately HK$659.3 million repayable within one year (31 December 2017: HK$629.5 million) and outstanding borrowings of approximately HK$0.2 million repayable after one year (31 December 2017: HK$175.5 million). The Group s outstanding borrowings were denominated in Hong Kong dollars ( HK$ ), Renminbi ( RMB ), United States dollars ( US$ ) and Singapore dollars ( SGD ) as to 57.6%, 36.4%, 5.9% and 0.1%, respectively. Around 99.9% of the Group s outstanding borrowings were charged with interest at floating rates while the remainder were at fixed rates. The gearing ratio (total borrowings over total assets) of the Group as at 30 June 2018 was as follows: At 30 June 2018 Unaudited HK$ 000 At 31 December 2017 Audited HK$ 000 Total borrowings 659, ,002 Total assets 3,571,976 3,444,210 Gearing ratio 18.5% 23.4% As at 30 June 2018, a balance amounting to HK$133.3 million (31 December 2017: HK$158.6 million) was included in the amounts due from other related parties, which represent the provision of entrusted loans through a bank to (Shanghai Building Material (Group) Company Limited*) ( Shanghai Building Material ) and the related interest receivable. Details of the transactions were set out in the announcement of the Company dated 24 April TONGFANG KONTAFARMA HOLDINGS LIMITED 73

75 Management Discussion and Analysis (A) 26(d) 50% FINANCIAL REVIEW (CONTINUED) Financial Management and Policy The Group s financial policy aims at minimising the Group s financial risk exposure. Our policy is not to engage in speculative derivative financial transactions and not to invest the current capital in financial products with significant risk. Risk of Foreign Exchange Fluctuation The Group s operations are mainly located in the PRC and Singapore and most of its transactions, related working capital and borrowings are denominated in RMB, SGD, US$ and HK$. The Group closely monitors such foreign exchange exposure and will consider hedging significant currency exposure if necessary. However, since the Group s consolidated financial statements are presented in HK$ which is different from its functional currency, it is inevitable that the Group would face foreign exchange exposure, whether positive or negative, from translating the accounts to its presentation currency. Pledge of Assets Details regarding the pledge of assets are set out in note 22 to the condensed consolidated financial statements on page 55. Material Acquisition Details regarding the material acquisition are set out in note 2(A) and note 26(d) to the condensed consolidated financial statements on pages 12 and 63, respectively. Material Capital Commitments and Investments As announced by the Company on 15 February 2012, Shanghai Allied Cement Co., Ltd ( Shanghai SAC ) entered into the (Bailonggang Project Construction Cooperation Agreement*) and the (Principle Agreement for the Establishment of the Joint Venture Company*) on 13 February 2012 with Shanghai Building Material, a state-owned enterprise, for the purpose of setting up a joint venture company (the JV Company ) to operate and manage the development of new cement production facilities at Bailonggang, Pudong, Shanghai (the Bailonggang Project ) after the relevant government approvals for the Bailonggang Project being obtained. The setting up of the JV Company constituted a very substantial acquisition of the Company under Chapter 14 of the Listing Rules. The 50% share of registered capital of the JV Company amounting to RMB400.0 million (equivalent to approximately HK$476.0 million (31 December 2017: HK$480.0 million)) would be contributed and funded by internal resources of the Group. Details of the transaction were set out in the announcements of the Company dated 15 February 2012 and 30 January 2014, respectively and the circular of the Company dated 16 March TONGFANG KONTAFARMA HOLDINGS LIMITED

76 Management Discussion and Analysis (B) 1,572 2,118 FINANCIAL REVIEW (CONTINUED) Material Capital Commitments and Investments (continued) As announced by the Company on 3 October 2012, Shanghai SAC entered into three purchase agreements on 28 September 2012 for the purchases of certain equipment and machineries at the aggregate consideration of RMB380.0 million (equivalent to approximately HK$452.2 million (31 December 2017: HK$456.0 million)), for future use in the Bailonggang Project. The Company does not intend to retain such equipment and machineries for its own use. Up to 30 June 2018, Shanghai SAC has settled the first installment of the total consideration under the three respective agreements in an aggregate amount of RMB68.3 million (31 December 2017: RMB68.3 million) (equivalent to approximately HK$81.2 million (31 December 2017: HK$82.0 million)). Details of the transaction were set out in the announcement and circular of the Company dated 3 October 2012 and 15 November 2012, respectively. Material Disposal and Event after the End of the Reporting Period Details regarding the material disposal and event after the end of the reporting period are set out in note 2(B) headed Significant events and transactions in the current interim period to the condensed consolidated financial statements on page 13. EMPLOYEES As at 30 June 2018, the Group had 1,572 (31 December 2017: 2,118) employees. The Group maintains a policy of paying competitive remuneration packages and employees are also rewarded salary and bonus on a performance related basis. In addition, share options and awarded shares may be granted to eligible employees pursuant to the terms of the share option scheme and the share award scheme, respectively. The purpose of the schemes is to provide incentives to the selected employees to contribute to the Group and to enable the Group to recruit and retain high-calibre employees, and attract and retain human resources that are valuable to the Group. OUTLOOK Medical, Pharmaceutical and Health Business Under the current circumstances where PRC is undergoing drastic healthcare reforms, Tongfang Pharmaceutical faces both opportunities and risks. Leveraging its existing resources, it will continue to strengthen its product development, product portfolio, channel innovation and internal control in order to strike a balance between rapid development and risk control, maximise shareholders value, and add value to the society. TONGFANG KONTAFARMA HOLDINGS LIMITED 75

77 Management Discussion and Analysis OUTLOOK (CONTINUED) Fitness Business The Group s fitness business in Singapore occupies a mid-market position, and is known to be a value-for-money fitness and yoga club, offering a wide variety of group exercise and dance classes, and yoga classes. The middle market segment is the area that the Group will focus on. Management believes that it has a different market niche and the other players in this middle tier do not offer group exercise and dance classes, or yoga classes. This is what makes the Group s fitness business outstanding. The Group s fitness business in Taiwan is considered to be a premier brand in Taiwan. Management intends to refresh the existing fitness clubs by upgrading the design and equipment of the clubs, to foster a market-dominant position before the competition gets more intense. Management believes that the key to success in China lies with the proper strategy. International fitness and yoga chains adopt Western-styled concept or strategies to enter into the China market. China, however, is unique in itself, and management believes that with its synergy with the Group, it has a better and deeper understanding of the China fitness and yoga market. Management is looking forward to developing its expansion and rollout plan in the China market. Management remains very positive about the outlook for the fitness business across the 3 locations in which the fitness business operates. Management is acutely aware of the different operating environments in each location, and will continue to make localised adaptations. Cement Business In early April 2018, Kong Xiangzhong, vice president of the China Cement Association, put forward three major plans for the year: first, a plan to pursue structural adjustment, cut excess capacity and bolster areas of weakness; second, a plan to promote technological innovation, save energy and reduce emission and work towards a green development; and third, a plan to enhance self-regulation and co-ordination, ensure a stable growth and boost efficiency. In view of the calls for reducing excess capacity and environmental protection, the Chinese cement industry has faced greater restriction and longer period of suspension in terms of production. In July, the State Council of the PRC issued the (Three-Year Plan on Defending the Blue Sky*), which sets higher standard for pollution and emission during production and transportation of goods. Going forward, low emission and high standards of environmental protection will become common practices, and non-compliant enterprises and regions with heavy pollution are exposed to greater risks of production restriction and suspension. As such, the cement sector may incur higher costs for compliance with laws and regulations regarding environmental protection. 76 TONGFANG KONTAFARMA HOLDINGS LIMITED

78 Corporate Governance and Other Information * (THTF Energy-Saving Holdings Limited) 400,000, % INTERIM DIVIDEND The board of directors (the Board ) of Tongfang Kontafarma Holdings Limited (the Company, together with its subsidiaries, the Group ) considers that it is prudent to retain an appropriate level of funds to take advantage of business opportunities as and when they arise, and therefore does not recommend to declare an interim dividend for the six months ended 30 June 2018 (the Period ) (2017: Nil). USE OF PROCEEDS On 23 January 2018, the Company and THTF Energy-Saving Holdings Limited (the Subscriber or THTF Energy-Saving ) entered into a subscription agreement pursuant to which the Subscriber conditionally agreed to subscribe and the Company conditionally agreed to allot and issue 400,000,000 shares of the Company (the Subscription ) at the subscription price of HK$0.5 per subscription share. The Subscription was completed on 13 February 2018 and the gross proceeds raised from it amounted to approximately HK$201.3 million. After deducting the relevant expenses, the net proceeds raised from the Subscription amounted to approximately HK$200.5 million. The Company had applied HK$119.0 million for settlement of part of the consideration payable for the acquisition of 40% equity interest in Tongfang Pharmaceutical Group Co., Ltd* by the Group. It was disclosed in the announcement of the Company dated 23 January 2018 that the remaining net proceeds will be used for general corporate and business development and general working capital, and in that connection HK$39.3 million out of the remaining net proceeds was used in the repayment of bank borrowings on 27 August It is currently expected that the remaining net proceeds as to approximately HK$42.2 million will be applied in short-term investments which allow the Group to have risk-adjusted return during the second half of Details of the transactions were disclosed in the announcements of the Company respectively dated 23 January 2018, 13 February 2018, 16 March 2018 and 3 May 2018 and the circular dated 27 February TONGFANG KONTAFARMA HOLDINGS LIMITED 77

79 Corporate Governance and Other Information 148,500, ,500, SHARE OPTION SCHEME The share option scheme of the Company (the Share Option Scheme ) was adopted on 28 April It shall be valid and effective for a period of ten years commencing on 18 January 2012 and will expire on 17 January On 22 July 2016, the Board has resolved to grant to certain eligible participants (the Grantees ), subject to acceptance by such Grantees, a total of 148,500,000 share options to subscribe for a total number of 148,500,000 ordinary shares of HK$0.002 each of the Company (the Shares ) in the share capital of the Company under the Share Option Scheme. The details of the movements of the Company s share options under the Share Option Scheme during the Period are as follows: Number of share options Grantees Date of grant (the Grant Date ) Exercise price per Share Closing price immediately before the Grant Date Exercise period Vesting period As at 1 January 2018 Granted during the Period Exercised during the Period Cancelled during the Period Lapsed during the Period As at 30 June 2018 Directors (the Director(s) ) and chief executive of the Company 22 July July 2016 to 21 July 2020 (Note 1) 1 (Note 1) 40,000,000 (20,000,000) 20,000,000 Other employees 22 July July 2016 to 21 July 2020 (Note 1) 1 (Note 1) 78,100,000 (500,000) 77,600, July July 2017 to 21 July 2021 (Note 2) 2 (Note 2) 15,200,000 (500,000) 14,700,000 Total 133,300,000 (21,000,000) 112,300, TONGFANG KONTAFARMA HOLDINGS LIMITED

80 Corporate Governance and Other Information (1) SHARE OPTION SCHEME (CONTINUED) Notes: (1) Share options are valid from 22 July 2016 to 21 July 2020 and shall be vested in four tranches in accordance with the following vesting dates: (i) 25% (i) 25% of the share options so granted to the Grantees shall become vested on the Grant Date and shall be exercisable from 22 July 2016 to 21 July 2020; (ii) 25%1 (ii) 25% of the share options so granted to the Grantees shall become vested on the 1st anniversary of the Grant Date and shall be exercisable from 22 July 2017 to 21 July 2020; (iii) 25%2 (iii) 25% of the share options so granted to the Grantees shall become vested on the 2nd anniversary of the Grant Date and shall be exercisable from 22 July 2018 to 21 July 2020; and (iv) 25%3 (iv) 25% of the share options so granted to the Grantees become vested on the 3rd anniversary of the Grant Date and shall be exercisable from 22 July 2019 to 21 July (2) (2) Share options are valid from 22 July 2016 to 21 July 2021 and shall be vested in four tranches in accordance with the following vesting dates: (i) 25%1 (i) 25% of the share options so granted to the Grantees become vested on the 1st anniversary of the Grant Date and shall be exercisable from 22 July 2017 to 21 July 2021; (ii) 25%2 (ii) 25% of the share options so granted to the Grantees become vested on the 2nd anniversary of the Grant Date and shall be exercisable from 22 July 2018 to 21 July 2021; (iii) 25%3 (iii) 25% of the share options so granted to the Grantees become vested on the 3rd anniversary of the Grant Date and shall be exercisable from 22 July 2019 to 21 July 2021; and (iv) 25%4 (iv) 25% of the share options so granted to the Grantees become vested on the 4th anniversary of the Grant Date and shall be exercisable from 22 July 2020 to 21 July TONGFANG KONTAFARMA HOLDINGS LIMITED 79

81 Corporate Governance and Other Information 571 XV 352 (a) DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION As at 30 June 2018, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong (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 Limited (the Stock Exchange ) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) as set out in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ) were as follows: (a) Interests in the Company The table below sets out the aggregate long positions in the Shares and underlying shares of the Directors as at 30 June Name of Directors Number of Shares Personal Corporate Interests Interests 2 Number of share options (Note 2) Total Approximate percentage of shareholdings Huang Yu 3,165,974,000 1 (Note 1) 3,165,974, % Jiang Chaowen Ng Qing Hai Chan Sze Chung Zhang Ruibin Zhang Junxi Jack 12,000,000 12,000, % 5,000,000 5,000, % 1,000,000 1,000, % 1,000,000 1,000, % 1,000,000 1,000, % 80 TONGFANG KONTAFARMA HOLDINGS LIMITED

82 Corporate Governance and Other Information (a) (1) 99% 52% 100% 3,165,974,000 (2) (b) DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION (CONTINUED) (a) Interests in the Company (continued) Notes: (1) As at 30 June 2018, Mr. Huang Yu owned 99% interests in the registered capital of Shenzhen Aorongxin Investment Development Co., Ltd* ( Shenzhen Aorongxin ) and Shenzhen Aorongxin owned 52% interests in the registered capital of Shenzhen Waranty Asset Management Co., Ltd.*( Shenzhen Waranty ). Shenzhen Waranty, through its subsidiary, namely Waranty Assets Management (HK) Limited ( Waranty Hong Kong ), owned 100% interests in the issued share capital of China Health Management Investment Limited ( China Health ). Since China Health is the beneficial owner of 3,165,974,000 Shares, Mr. Huang Yu was deemed interested in the Shares held by China Health. (2) Please refer to the Company s announcement dated 22 July 2016 and the section of Share Option Scheme of this report for further details. (b) Interest in associated corporation Name of Director Name of associated corporation Capacity Approximate percentage of interest in the associated corporation Huang Yu Shenzhen Aorongxin Beneficial owner 99% Note: 99% 52% 100%3,165,974,000 XV 352 As at 30 June 2018, Mr. Huang Yu owned 99% interests in the registered capital of Shenzhen Aorongxin and Shenzhen Aorongxin owned 52% interests in the registered capital of Shenzhen Waranty. Shenzhen Waranty, through its subsidiary, Waranty Hong Kong, owned 100% interests in the issued share capital of China Health. China Health directly held 3,165,974,000 Shares. Save as disclosed above, as at 30 June 2018, none of the Directors nor the chief executive of the Company and their respective associates had any interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which were recorded in the register maintained by the Company pursuant to section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code. TONGFANG KONTAFARMA HOLDINGS LIMITED 81

83 Corporate Governance and Other Information 336 5% SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS INTERESTS AND SHORT POSITIONS IN SHARES At 30 June 2018, so far as it was known by or otherwise notified to any Directors or the chief executive of the Company, the following shareholders of Company (the Shareholders ) (other than a Director or the chief executive of the Company) had 5% or more interests in the Shares or underlying shares as recorded in the register required to be kept under section 336 of the SFO: Name of Shareholders Capacity Long Positions Number of Shares Approximate percentage of interest in shareholding China Health Beneficial owner 3,165,974,000 1 (Note 1) 56.60% Waranty Hong Kong Interest of a controlled corporation 3,165,974,000 2 (Note 2) 56.60% Shenzhen Waranty Interest of a controlled corporation 3,165,974,000 3 (Note 3) 56.60% Tongfang Financial Holdings Co., Ltd* ( Tongfang Financial ) Interest of a controlled corporation 3,165,974,000 4 (Note 4) 56.60% THTF Energy-Saving Beneficial owner 513,994,000 5 (Note 5) 9.19% Resuccess Investments Limited ( Resuccess ) Interest of a controlled corporation 513,994,000 6 (Note 6) 9.19% Tsinghua Tongfang Co., Ltd.* ( Tsinghua Tongfang ) Interest of controlled corporations 3,679,968,000 7 (Note 7) 65.79% Shenzhen Aorongxin Interest of a controlled corporation 3,165,974,000 8 (Note 8) 56.60% 82 TONGFANG KONTAFARMA HOLDINGS LIMITED

84 Corporate Governance and Other Information 1. 3,165,974,000 3,165,974, % % 4. 48% ,994, Resuccess 100% 7. Resuccess 100% Resuccess 8. 52% 336 SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS INTERESTS AND SHORT POSITIONS IN SHARES (CONTINUED) Notes: 1. The figure refers to the legal and beneficial interest of China Health in 3,165,974,000 Shares, all of which are pledged to Sun Hung Kai Structured Finance Limited ( SHK Finance ). Under the SFO, the holding companies of SHK Finance are also deemed to be interested in these 3,165,974,000 Shares. 2. Waranty Hong Kong owned 100% interests in the issued share capital of China Health and was therefore deemed to have an interest in the Shares in which China Health was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 3. Shenzhen Waranty, through its subsidiary, namely Waranty Hong Kong, owned 100% interests in the issued share capital of China Health and was therefore deemed to have an interest in the Shares in which China Health was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 4. Tongfang Financial owned 48% interests in the registered capital of Shenzhen Waranty and was therefore deemed to have an interest in the Shares in which Shenzhen Waranty was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 5. The figure refers to the legal and beneficial interest of THTF Energy-Saving in 513,994,000 Shares. 6. Resuccess owned 100% interests in the issued share capital of THTF Energy- Saving and was therefore deemed to have an interest in the Shares in which THTF Energy-Saving was interested. The figure refers to the same interests of THTF Energy-Saving in the Shares under the SFO. 7. Tsinghua Tongfang owned 100% interests in the registered capital of Tongfang Financial and Resuccess and was therefore deemed to have an interest in the Shares in which Tongfang Financial and Resuccess were interested. 8. Shenzhen Aorongxin owned 52% interests in the registered capital of Shenzhen Waranty and was therefore deemed to have an interest in the Shares in which Shenzhen Waranty was interested. The figure refers to the same interests of China Health in the Shares under the SFO. Save as disclosed above, as at 30 June 2018, the Company had not been notified by any person (other than a Director or chief executive of the Company or their respective associate(s)) of any interest and short position in the Shares and underlying shares which were required to be recorded in the register required to be kept under section 336 of the SFO. CORPORATE GOVERNANCE CODE During the six months ended 30 June 2018, the Company has applied the principles of, and complied with, all the applicable code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. TONGFANG KONTAFARMA HOLDINGS LIMITED 83