Financial Highlights REVENUE million CAGR 27% 2, , , , , SALES BY PRODUCT CATEGORY

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1 (Incorporated in Bermuda with limited liability) Stock Code : ANNUAL REPORT sale

2 Financial Highlights REVENUE million CAGR 27% 2, , , , , SALES BY PRODUCT CATEGORY % 1% 1% 1% 93% 1% 1% 3% 1% 94% E-payment Terminals Consumer activated devices Contactless devices Services Others SALES BY GEOGRAPHICAL REGION 58% 42% 53% 47% China market Overseas market GROSS PROFIT MARGIN Year Gross Profit Margin (%) (%) OPERATING PROFIT MARGIN Year Operating Profit Margin (%) (%)

3 Financial Highlights TURNOVER DAYS NOTE Year Inventory Trade and bills receivables Trade payable Cash conversion days Notes Inventory turnover days = Average Gross inventory balance/(cost of sales for the year/365 days) Trade and bills receivables turnover days = Average Gross trade and bills receivables balance/ (Turnover for the year/365 days) Trade payable turnover days = Average Gross trade payable balance/(cost of sales for the year/365 days) Cash conversion days = Inventory turnover days + Trade and bills receivables turnover days Trade payable turnover days /(-) For the year ended 31 December (in HK$ 000) Revenue 2,870,794 2,373, % Gross profit 1,092, , % EBITDA EBITDA 662, , % Operating profit/profit before income tax Profit attributable to owners of the company (excluding the share option scheme expenses) Profit attributable to owners of the company Research and development costs (included in administrative expenses) 657, , % 635, , % 620, , % (157,734) (113,841) +39% At 31 December (in HK$ 000) Total assets 4,080,199 3,334, % Total liabilities 989, , % Total equity 3,090,599 2,548, % Net current assets 3,033,042 2,536, % Per share (in HK$) Earnings per share Basic % Diluted % Proposed final dividend per ordinary share 0.02 Financial ratios Gross profit margin 38.1% 36.4% Operating profit margin 22.9% 19.5% Net profit margin 21.6% 16.5% Current ratio Return on equity % 15.4% Return on assets % 11.8% Notes 1 Return on equity = Profit attributable to owners of the company/equity as at year end 2 Return on assets = Profit attributable to owners of the company/total assets as at year end 1 2

4 Bank Card Transaction Flow of Electronic Payment The following is a simplified diagram illustrating the transaction flow in a typical electronic payment transaction Cardholder 1 Merchant (e.g. hotels, restaurants and retailers...)... Distributor Merchant Service Provider Commercial Bank or Third Party Payment Service Provider 2 7 E-payment Terminal Products Card Issuer (e.g. Bank of China/HSBC) 5 Acquirer (e.g. payment processors, such as First Data of US, financial institutions, such as Agricultural Bank of China) First Data 3 E-payment Terminal Products E-payment Terminal Solutions Provider (e.g. PAX Global) 4 6 Card Association (e.g. Visa/MasterCard/China UnionPay) Visa/MasterCard/ Source: Analysys International, CSI E-payment Terminal solutions providers sell E-payment Terminal products and provide related services to merchant service providers and acquirers. Merchant service providers provide transaction processing solutions to merchants by assisting merchants in setting-up their operations to accept cards as a form of payment from their customers. 1: Cardholder purchases with card at a merchant through an E-payment Terminal. 2: The E-payment Terminal sends transaction data to the acquirer. 3&4: The acquirer sends authorisation request and verifies with the card issuer that the card number and transaction amount are both valid through the network of card association. 5&6: The card issuer verifies that the cardholder s credit is sufficient and grants authorisation. 7: The acquirer receives the response and relays it to the merchant. 1: 2: 3 4: 5 6: 7:

5 Some of Our Products (for reference only) E-PAYMENT TERMINALS The below are D-Series, S-Series, Multilane-Series and Smart-Series E-payment Terminal products. In general, most of the products are embedded with built-in NFC function and able to accept all forms of cards. S-Series divided to countertop and mobile payment terminal. The Multilane- Series features a reliable capacity of capturing signature with anti-static pen to enable easier transaction process. The Smart POS features a Android payment devices. DS NFC S General features: accept smart card, magnetic stripe and contactless transactions, large memory capacity, and built in contactless card reader supports NFC Models: D180, D200, D210 NFC D180 D200 D210 General features: Large and high-resolution capacitive touch screen, dual cameras, fast thermal printer Model: A920 A920 A920 CONSUMER ACTIVATED DEVICES General features: support a variety of connection options to work with E-payment Terminals Models: SP20, SP30, S200, S300 SP20 SP30 S200 S300 D180 D200 D210 General features: accept smart card, magnetic stripe card and support credit, debit and a full range of prepaid products, including gift cards and loyalty programs. Certain Models support QR code application. Models: S60, S80, S90, S58, S78, S500, S800, S900, S920 S60 S80 S90 S58 S78 S500 S800 S900 S920 S300 SP30 CONTACTLESS DEVICE General features: specifically designed for contactless payment, which comply with various industry standards including MasterCard s PayPass and Visa s paywave Models: R50, R60, T610, T620 MasterCard PayPass Visa paywave R50 R60 T610 T620 S900 S90 S920 General features: provide a fast and accurate touch response capabilities, and able to be integrated with a variety of POS systems. Models: PX5, PX7, D800 POS PX5 PX7 D800 R50 PX7 PX5

6 Content 2 Corporate Information 4 Simplified Corporate Chart 6 Directors and Senior Management 10 Chairman s Statement 15 Management Discussion and Analysis 72 Consolidated Statement of Changes in Equity 73 Consolidated Cash Flow Statement 74 Notes to the Consolidated 156 Five Years Financial Summary 36 Corporate Governance Report 50 Report of the Directors 66 Independent Auditor s Report 68 Consolidated Income Statement 69 Consolidated Statement of Comprehensive Income 70 Consolidated Balance Sheet

7 Corporate Information BOARD OF DIRECTORS Executive Directors NIE Guoming (Chairman) LU Jie (Chief Executive Officer) LI Wenjin Independent Non-Executive Directors YIP Wai Ming WU Min MAN Kwok Kuen, Charles JOINT COMPANY SECRETARY LEE Chris Curl CHAN Yiu Kwong AUTHORISED REPRESENTATIVES LI Wenjin CHAN Yiu Kwong BERMUDA RESIDENT REPRESENTATIVE Codan Services Limited AUDITOR PricewaterhouseCoopers LEGAL ADVISERS As to Hong Kong Law Reed Smith Richards Butler Woo Kwan Lee & Lo Codan Services Limited As to Bermuda Law Conyers Dill & Pearman Conyers Dill & Pearman 2 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

8 Corporate Information PRINCIPAL BANKERS Industrial and Commercial Bank of China (Asia) Limited Wing Lung Bank The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited REGISTERED OFFICE Clarendon House 2 Church Street Hamilton HM 11 Bermuda PRINCIPAL PLACE OF BUSINESS IN HONG KONG Room 2416, 24th Floor Sun Hung Kai Centre 30 Harbour Road Wanchai Hong Kong SHARE REGISTRAR IN BERMUDA Codan Services Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda BRANCH SHARE REGISTRAR AND TRANSFER OFFICE IN HONG KONG Tricor Investor Services Ltd Level 22, Hopewell Centre 183 Queen s Road East Hong Kong COMPANY S WEBSITE STOCK CODE 327 Clarendon House 2 Church Street Hamilton HM 11 Bermuda Codan Services Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda

9 Simplified Corporate Chart The following is a simplified corporate chart of the Group s principal operating subsidiaries up to the date of this report. PAX Global Technology Limited (Stock code: 327) (Bermuda) 100% Pax Technology Limited (HK) 100% 100% 100% 70% Pax Computer Technology (Shenzhen) Co., Ltd. (PRC) Wonder Pax Technology (Shenzhen) Co., Ltd. (PRC) Pax Technology, Inc. (USA) Pax Italia S.r.l. (Italy) 60% Suzhou Ieasy Information Technology Co., Ltd. (PRC) 4 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

10 Simplified Corporate Chart % 100% 100% 100% 70% Pax Technology, Inc. Pax Italia S.r.l. 60% 5

11 Directors and Senior Management As at 8 March 2016, the date of the Report of the Directors, the biographical details of the directors (the Directors ) and senior management of the Company are as follows: BOARD OF DIRECTORS Executive Directors NIE Guoming Chairman Mr. Nie, aged 53, is the Chairman and an Executive Director of the Company. He is responsible for the overall management and strategic development of the Group. Mr. Nie has over 20 years of experience in the card payment industry. He joined Pax Technology Limited ( Pax Technology ) since its founding on 20 March He was the vice president of Pax Technology from 20 March 2000 to 1 January 2001 and the president of Pax Technology from 2 January 2001 to 14 June He was appointed as the chairman of Pax Technology on 14 June Mr. Nie previously worked as an engineer in the Information Technology Department of the Headquarters of China Merchants Bank in the People s Republic of China (the PRC ) from 1996 to Mr. Nie graduated from Tsinghua University in 1984 with a bachelor s degree in Radio Electronics and obtained a master s degree in Radio Electronics Engineering from Southeast University in He was appointed as the Chairman and an Executive Director of the Company on 1 December LU Jie Chief Executive Officer Mr. Lu, aged 51, is the Chief Executive Officer and an Executive Director of the Company and the president of Pax Computer Technology (Shenzhen) Co., Ltd. ( Pax Technology (Shenzhen) ). He joined the Group in August 2001 and is responsible for managing all the business development, sales and marketing functions of the Group in the PRC. Mr. Lu has over 15 years of experience in sales and marketing in the electronic payment industry and served a number of management positions and executive role at Beijing Order Computer Company ( Beijing Order ), a system integration company, from 1998 to 2001, including general manager of insurance department, general manager of marketing department and vice president of the company. He had also worked as an engineer of the Ministry of Geology and Mineral Resources of the PRC and the Chinese Academy of Geological Sciences from 1986 to 1994 and from 1994 to 1995 respectively. Mr. Lu holds a bachelor s degree from Chengdu Geology Institute. He obtained an Executive Master of Business Administration degree from the Cheung Kong Graduate School of Business in He was appointed as the Chief Executive Officer and an Executive Director of the Company on 23 May PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

12 Directors and Senior Management LI Wenjin Mr. Li, aged 52, is an Executive Director of the Company. He is responsible for risk management and treasury management. He is also responsible for overseeing operations of Pax Technology of which he has been a director since 5 April Mr. Li has over 24 years of experience in investment and administrative affairs. Mr. Li was the director of Hi Sun Information Technology Services Limited ( HSITSL ) from 1 August 1997 to 3 May HSITSL was a Hong Kong company, which was a representative and purchasing office engaging in general trading and provision of consultancy services. HSITSL provided consultancy services to Pax Technology from 2002 to Mr. Li is also the managing director of Hi Sun Limited since 16 August 1999 and an executive director of Hi Sun Technology (China) Limited ( Hi Sun ), a substantial shareholder of the Company, since 7 June He has also been appointed as an executive director of both Hi Sun Limited and Hi Sun and certain of their subsidiaries. Prior to joining Hi Sun Limited in 1999, he worked for several companies in the PRC and Hong Kong, including Beijing Order from 1994 to 1995 where he was responsible for investment and administrative affairs. Mr. Li obtained a master s degree in law from the Peking University in He was appointed as an Executive Director of the Company on 24 February Independent Non-Executive Directors YIP Wai Ming Mr. Yip, aged 50, was appointed as an Independent Non-Executive Director of the Company on 1 December Mr. Yip is currently an independent non-executive director of Ju Teng International Holdings Limited (), Far East Horizon Limited ( ), Poly Culture Group Corporation Limited ( ) and Yida China Holdings Limited ( ), all of which are companies listed on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). Mr. Yip graduated from The University of Hong Kong with a bachelor s degree in social sciences in He also holds a bachelor s degree in laws from the University of London. Mr. Yip is a fellow of the Association of Chartered Certified Accountants, and a member of the Hong Kong Institute of Certified Public Accountants and the Chinese Institute of Certified Public Accountants. 50 7

13 Directors and Senior Management WU Min Dr. Wu, aged 44, was appointed as an Independent Non-Executive Director of the Company on 1 December Previously, Dr. Wu was an assistant professor at The Hong Kong University of Science & Technology Business School and The University of Hong Kong School of Business. Dr. Wu has been teaching International Accounting Standards, US Generally Accepted Accounting Principles and Chinese Accounting Standards. Her academic research achievements in identifying US accounting restatements and frauds were reported by various media, including the Wall Street Journal, New York Times, Business Week, Fortune, CNN, etc. Dr. Wu used to cooperate with major accounting firms and the Public Company Accounting Oversight Board (US) in research in the areas of accounting manipulation and frauds by US listed companies. She also provides professional interpretation and analysis services for investment funds on accounting standards and on listed companies financial statements. Dr. Wu graduated from Peking University with a bachelor s degree in Economics in Dr. Wu obtained a master s degree in Economics from Tufts University in 1996 and a Ph.D. in Accounting from Stern School of Business, New York University in CNN Stern School of Business MAN Kwok Kuen, Charles Mr. Man, aged 57, was appointed as an Independent Non-Executive Director of the Company on 1 December Mr. Man graduated from The University of Hong Kong with a bachelor s degree in laws in Mr. Man was admitted as a solicitor in Hong Kong in 1984 and has practised as a solicitor at Joseph S. C. Chan & Co. (formerly known as Chan and Lo) in Hong Kong since then. He is currently a partner of Joseph S.C. Chan & Co. 57 Chan and Lo 8 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

14 Directors and Senior Management SENIOR MANAGEMENT For the year ended 31 December 2015, Mr. Luo Shaowen and Mr. Lee Chris Curl were the Company s senior management. LUO Shaowen Mr. Luo, aged 47, is the executive vice president of Pax Technology (Shenzhen). He is responsible for the procurement and supplies activities, and oversees the finance of the operations in Shenzhen. Mr. Luo graduated from Wuhan University with a bachelor s degree in economic management. Mr. Luo has over 19 years of experience in the card payment industry and over 14 years of experience in financial administration and supply chain management. He joined Pax Technology (Shenzhen) in December 2004 as the chief financial officer. Prior to joining the Group, Mr. Luo served various management positions including general manager of the Zhuhai Branch of Beijing Order LEE Chris Curl Mr. Lee, aged 39, is the Chief Financial Officer and Joint Company Secretary of the Company. He is responsible for overseeing the business development, operation and finance, compliance, merger and acquisition, and investor relations of the Group. He joined PAX as the Group Financial Controller in August Prior to joining PAX, Mr. Lee was the Group Finance Manager of a family-owned investment firm where he oversaw the business development and finance operation. He also worked as an associate in Harvest Capital Partners, a Greater China real estate private equity fund, and account manager of Global Commodities finance in Fortis Bank. Mr. Lee started his career with Deloitte and later Ernst & Young specialising in assurance advisory of financial services sector. Mr. Lee graduated with a Masters of Commerce majoring in Funds Management from The University of New South Wales, Australia and a Bachelor of Commerce majoring in Accountancy from University of Wollongong, Australia. He is a member of Chartered Accountant in Australia, Certified Public Accountant in Hong Kong, and chartered holder of Financial Risk Manager in the United States. 39 9

15 Chairman s Statement Dear Shareholders, On behalf of the board of Directors (the Board ) of PAX Global Technology Limited ( PAX, and together with its subsidiaries, the Group ), I am pleased to present the annual report of the Group for the year ended 31 December FINANCIAL RESULTS The year 2015 was a fruitful year for the Group, as the Group s turnover amounted to HK$2,870.8 million, representing a growth of 21% compared to HK$2,373.3 million in The annual sales volume of electronic funds transfer point-of-sale terminal ( E-payment Terminal ) exceeded 4.2 million units, which is one of the meaningful milestones of PAX. Profit for the year attributable to owners of the Company was HK$620.7 million, representing a growth of 58% as compared to HK$391.8 million in Excluding share option scheme expenses, profit for the year attributable to owners of PAX was HK$635.4 million, representing a growth of 51% as compared with last year. Basic earnings per share for the year was 56.0 HK cents (2014: 36.3 HK cents). 2, , % % % In 2015, the PRC excluding Hong Kong, Macau and Taiwan ( China Market ) recorded a turnover of HK$1,529.9 million, representing an increase of 10% as compared to HK$1,386.0 million in The increase in the turnover of the China Market was attributable to the prevalence of cashless payment and the increase of shipment volume to China Unionpay Merchant Services Co., Ltd. ( UMS ) and the financial institutions. 1, , % The overseas markets turnover of the Group was HK$1,340.9 million in 2015, representing an increase of 36% as compared to HK$987.3 million in All overseas business units recorded growth, especially United States of America and Canada Region ( USCA ) and Latin America and Commonwealth Independent States ( LACIS ) region business units. Moreover, the share of the overseas markets in aggregate turnover was 47%, as compared to 42% in the corresponding period last year. 1, % USCA LACIS 47%42% * Overseas markets and China Market turnover classification is according to locality of customers. * 10 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

16 Chairman s Statement OUTLOOK According to the global ranking of shipments in 2014 as stated in The Nilson Report, an authoritative magazine on the payment industry, published in July 2015, the growth in shipment volume of PAX reached 47%, which was the fastest growth among the three international E-payment Terminal providers in the world. By each of the regional rankings, PAX also took the leading position in most of the regions, proving that PAX has been recognised as one of the global mainstream brands through years of effort. The Nilson Report 47% In the China Market, PAX maintains its leading position through various transformations. As one of the leaders providing middle-to-high-end products, PAX is well recognised by financial institutions and the thirdparty payment service operators (the Operators ) for its products. In 2015, not only did the Group continue to be the major payment terminal provider for most financial institutions, but it also constantly explored new customers. Targeting on the Operators and vertical applications, we speeded up to invest in developing new products. It is expected that these two segments will become a growing force in the coming years. In recent years, we actively and closely cooperated with raising licensed Operators, which brought abundant harvest to PAX. Meanwhile, in response to the expansion of the mobile payment sector, the cooperation between financial institutions and mobile handset manufacturers or telecommunication operators promoted the development of the sector as a whole, which will provide huge opportunities to E-payment Terminal solution providers in the future. We will endeavor to capture these opportunities to consolidate our domestic market share. 11

17 Chairman s Statement The successful experience in the China Market has established a foundation for the expansion of PAX into the global market. In 2015, PAX officially rolled out the high-end multimedia payment terminals (the Multilane ) designed specifically for the U.S. market, which only a few providers around the world are able to develop and produce. It is expected that such product will be rapidly promoted in other markets. Deeply rooted in the local market, mobile E-payment Terminal (the mpos ) has prompted PAX to be one of the largest providers of mpos in Brazil. Since its launch in 2014, mpos has been gradually enhanced in terms of functionality, physical design, compatibility and use of materials, so as to be compatible with various types of application settings. Multilane mpos mpos mpos In addition to providing stronger technical support to the existing partners and distributors worldwide, PAX has sought for local partners with good reputation and operating capacity in each major market. The goal of global presence has thus been achieved. In 2015, PAX successfully expanded to the mature markets, such as the U.S., Germany and Italy; in emerging markets, such as Middle East, Africa, LACIS and Asia Pacific except for Mainland China ( APAC ), PAX s leading position has already been strengthened. It is expected that overseas markets will become a growth factor for our sales income, and its proportion will gradually be increased, in LACISAPAC R&D capability is one of the key competitive advantages of the Group. The number of employees in the R&D team increased by 22% to 509 as at the end of 2015, accounted for 52% of all employees. Apart from the R&D centre in Shenzhen, the Group s R&D presence has expanded to Arizona State in the U.S., as well as Chongqing and Hangzhou in the PRC, etc. Pax Computer Technology (Shenzhen) Co., Ltd. ( Pax Computer Shenzhen ), a wholly owned subsidiary of the Company, is recognised as a new advanced technology enterprise, and Wonder Pax Technology (Shenzhen) Co. Ltd ( Wonder Pax ), a wholly owned subsidiary of the Company, obtained an approval from the relevant tax authorities in April 2015 for a preferential tax treatment, showing PAX s commitments and devotion to R&D. The Group will increase R&D investment and enlarge the R&D team to develop new products as well as optimise existing products to meet the needs from different users around the world. 22% % 12 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

18 Chairman s Statement In addition, PAX will actively seek merger and acquisition opportunities with tech companies which will benefit us in technical aspects or in relation to our upstream supply chain management to boost our R&D capability. At the same time, we will also look for merger and acquisition opportunities which can speed up our accreditation progress, enabling PAX to provide one-stop service and increase our opportunities in acquiring recurring income in the downstream. In December 2014, Pax Technology Limited ( Pax Technology ), a wholly owned subsidiary of the Company entered into an agreement with the shareholders of Nanchang Kashuo Information Technology Company Limited ( Nanchang Kashuo ) to acquire an attributable 51% equity interest in Nanchang Kashuo, so as to enable the Group to go in the direction of Big Data, as well as directly establish a relationship with merchants and maintain sustainable income. This acquisition is almost completed. In July 2015, Pax Technology completed the subscription for quota representing 70% of the distributor Pax Italia S.r.l. ( Pax Italia ) enlarged corporate capital. Pax Italia is a system integrator which integrates patent software of a number of European banks into the points-of-sales ( POS ) platform of the Group, and offers after-sales services for a wide range of product models under the Group. Through providing a stronger financial support and other corporate support to which, the business expansion in the European markets of the Group will be facilitated. In November 2015, Wonder Pax entered into an agreement with Suzhou Ieasy Information Technology Co., Ltd. ( Ieasy ) and its shareholders, to acquire and subscribe for an aggregate of 60% of the enlarged equity interests in Ieasy with RMB 30 million. Such acquisition and subscription completed in February Ieasy is a provider of intelligent hardware and enterprise resource planning management (the ERP ) software for the catering industry. To cope with the trend of Smart E-payment Terminal (the Smart POS ) in Mainland China, the Group will be able to integrate the applications and the solutions for the catering industry operating on Smart POS, so as to provide value-added services to the merchants. Furthermore, the Group plans to integrate the ERP system of Ieasy and the customer relationship management ( CRM ) system of Nanchang Kashuo to create a comprehensive marketing and integration solution. 51% Pax Italia S.r.I.Pax Italia 70%Pax Italia POS 30 60% ERP Smart POS Smart POS ERP CRM Note: None of the three acquisitions and subscriptions above constitutes a discloseable transaction of the Company under Rule 13.09, Chapter 14 and 14A of the Listing Rules, or in accordance with the Inside Information Provisions (as defined under the Listing Rules) under Part XIVA of the Securities and Futures Ordinance A XIVA 13

19 Chairman s Statement In the coming year, PAX will continue to expand the foothold along the payment value chain and enrich the revenue model. On the basis of a comprehensive product line of E-payment Terminal and high quality services, it will enlarge the revenue from the bank card promotion and big data analysis from Nanchang Kashuo, vertical applications of Ieasy for catering industry, as well as the maintenance, installation and software development services of Pax Italia. Management will also proactively seek for other projects that create synergy for the Group to strengthen sales channels, increase software support and service income, and elevate the leading position of PAX in the global market. ACKNOWLEDGEMENT On behalf of the Board, I would like to take this opportunity to express my utmost gratitude to our customers, bankers, suppliers, business associates and most valued Shareholders for their continuous trust and support to the Group, and to our dedicated Directors, management and staffs for their valuable contributions in I look forward to achieving further brilliant performance by all of you in the future. Pax Italia Nie Guoming Chairman Hong Kong, 8 March PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

20 Management Discussion and Analysis The Group is an innovative global E-payment Terminal solutions provider engaged in the development and sale of E-payment Terminal products and provision of related services (collectively the E-payment Terminal solutions business ). Owing to its outstanding services and leading position, PAX is one of the fastest growing suppliers in the payment industry which possesses the most advanced production facilities, excellent research and development ( R&D ) capabilities as well as sales networks and cooperation channels around the globe. Today, the Group has a huge customer base and works with nearly 90 distributors or partners from all over the world. The Company sells products to over 100 countries and regions and has established a strong global presence MARKET OVERVIEW Having at least 10% annual growth in global E-payment Terminal shipment since 2010, there were numerous mergers and acquisitions within the industry which brings along tremendous opportunities in mature and emerging markets to PAX. After years of hard work, PAX s global market share has continuously recorded notable growth, especially the rapid growth in overseas sales. The contribution from overseas markets to the total turnover increased with the approximate percentage from 22% in 2010 to 47% in It is expected that the contribution from overseas markets to the total turnover will continue to increase in the coming years. This trend has established our target to become one of the leading E-payment Terminal solutions providers in the world. OVERSEAS MARKETS Significant Room for Growth in Emerging Markets with low penetration rate According to The Nilson Report issued in July 2015, Asia Pacific region (including Mainland China), Middle East and Africa and Latin America accounted for 75% of global shipment volume in The penetration rate of E-payment Terminals in these emerging markets was far below than that in mature markets. With a booming middle class, the pace of domestic financial computerisation has accelerated. The number of E-payment Terminals installed per 1,000 inhabitants in major countries, such as India, Indonesia and Russia is less than 10 on average. It is expected that there will be a strong demand growth of E-payment Terminals in these regions in the coming years. At the same time, government promotion is another growth catalyst in Russia, Middle East and Africa. The advent of mpos captured many micro merchants in emerging markets such as Brazil, India and Indonesia and gave more room for growth to the industry. 10% 22% 47% The Nilson Report 75% 1, mpos 15

21 Management Discussion and Analysis In major emerging markets around the world, PAX has become one of the market leaders. In most of the areas in the APAC region, PAX has already secured a leading position. With its comprehensive product line and adaptation to the local infrastructure environment, PAX has become one of the major E-payment Terminal providers in Hong Kong, Macau, Taiwan, Vietnam and New Zealand. As at the end of 2015, PAX worked with one of the largest acquiring banks in Taiwan to install mpos into 14,000 taxis, which enhanced the efficiency of payments and improved the in-taxi payment system. In October 2015, PAX successfully became one of the major providers of Bank Rakyat Indonesia in Indonesia. In India, the direct sales team of PAX and its local partners have begun to make sales contribution. In the LACIS region, Brazil is the largest economy with approximately 8.5 million small and micro merchants according to statistics. PAX has become the first provider which obtained all required certifications in Brazil with its prescient strategies at the end of 2014 and commenced launching mpos with new features and enhanced functions customised for the market demand in These have made PAX the absolute leader in the Brazilian mpos market. In Middle East, PAX has already been in a leading position where the Group s mpos was awarded an Award of Excellence by a payment processing company in Middle East in November 2015 and selected by a renowned fast-food restaurant chain in launching its delivery service; Multilane is also planned to be initiated in the Middle East in order to enhance customers experience of the retail terminals. In November 2015, PAX became one of the major payment terminal providers of the Sberbank in Russia; hence it is optimistic towards the growth in overseas sales in the coming year. APAC 1.4mPOS BRI LACIS 8.5 mpos mpos mpos mpos Multilane According to The Nilson Report issued in July 2015, PAX s market share of E-payment Terminal shipments in the Middle East and Africa, the Asia Pacific and Latin America reached 15%, 13% and 9% in 2014, respectively, which are expected to rise next year. The Nilson Report 15% 13%9% 16 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

22 Management Discussion and Analysis Increasing Requirement in Security in the United States of America ( US ) after Europay, MasterCard and Visa ( EMV ) Migration Since October 2015, the US has officially established Fraud Liability Shift, in which merchants are required to upgrade or replace their E-payment Terminals by adopting the chip-and-pin or near field communications ( NFC ) in replacement of the magnetic swipeand-sign system. If a counterfeit transaction occurs on an E-payment Terminal which only accepts magnetic strip card payments, the merchant will be liable for the fraud as its E-payment Terminal has not been EMV certified. According to the estimation by industry experts, as of the end of 2015, approximately 7 million to 9 million card accepting facilities needed to be replaced. The annual demand of E-payment Terminals in the US in the coming three years is expected to raise significantly from the existing level. Europay MasterCard VisaEMV Fraud Liability Shift NFC EMV The US market has been very mature. Participation by various market players in the payment value chain has led to high industry barriers. Since from the Group established its subsidiary, Pax Technology Inc., in the US in 2008, we strived to develop the Integrated Payment Solutions and simplify the payment procedures of merchants and reduce the operating costs, such as labour costs. As an E-payment Terminal Solutions provider, PAX provides not only secure payment processing facilities, but also solutions for integrating E-payment Terminal, cashiers and commercial terminals. PAX s Terminal Management System ( TMS ) is popular and widely-used by merchants in the US. This innovation allows merchants to receive information of immediate sales and management system through computers, tablets or mobile phones, s or text messages in different retail settings. Pax Technology Inc. (Integrated Payment Solution) TMS EMV migration, merchants awareness of data security and the needs in controlling operating costs have provided unique opportunities for PAX to develop in the US market. Currently, several pilot projects have been smoothly undertaken through the cooperation with retailers. The development of PAX in the US market will most likely accelerate in the coming years. EMV Industry consolidation brings with expansion opportunities Over the past few years, there were numerous mergers and acquisitions in the payment industry including horizontal and vertical acquisitions. To date, PAX is the only Asian E-payment Terminal solutions provider which ranks alongside other international mainstream providers. PAX has a complete product portfolio. Meanwhile, our products are sold to all major global markets while our services are provided to the local partners. We have confidence and ability to continue capitalising our good international reputation to seize the expansion opportunities of industry consolidation and raise the market share of E-payment Terminal sales as well as increasing the transaction service income. 17

23 Management Discussion and Analysis CHINA MARKET Acceptance of bank cards has been improving According to China payment industry data released by the People s Bank of China ( PBoC ), the number of in-network bank card merchants reached million as of third quarter of 2015 (third quarter of 2014:10.91 million) and in-network E-payment Terminals continued to grow to million units (third quarter of 2014: million units), with an increase of 36% or 5.2 million units. Today, the penetration rate of E-payment Terminals in the China Market is still relatively low, representing large room for growth. More and more consumers are getting used to payment by bankcards. As of third quarter of 2015, there were billion cards issued in Mainland China, which increased 10.7% or billion as compared with third quarter of 2014, while the number of bankcards held per capita was 3.85 (third quarter of 2014: 3.5). The habit of settlement and acceptance of payment and purchases with bank cards have been successfully extended to medical, education, transportation, insurance and telecommunication services from traditional commercial retail, food and beverage and hotels etc. Mainland China has become one of the biggest bank card issuers and one of the fastest growing markets with the most potential in the global bankcard business industry. PBoC % % The emergence of diversified payment methods, such as NFC and QR code PBoC and China UnionPay are proactively building the electronic terminal network with NFC. More than 700 million chip cards with Quick Pass function have been issued by China UnionPay globally. Over 7 million E-payment Terminals support the Quick Pass function in the Mainland China while around 100,000 E-payment Terminals in overseas markets such as Australia, Korea, Hong Kong, Macau, Taiwan and Singapore, have started to accept Quick Pass. In December 2015, China UnionPay allied with 15 commercial banks to promote the Cloud Quick Pass, which applies HCE technology and enter into cooperation with Apple Pay launched by Apple Inc., and with Samsung Pay by Samsung Electronics respectively. It is expected that the demand for E-payment Terminals with built-in NFC and wireless communication functions will be stimulated in the China Market. NFC (QR code) PBoC NFC , HCE Apple Pay Samsung PayNFC 18 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

24 Management Discussion and Analysis Additionally, alongside with the development of QR Code as a payment method, PAX stays abreast of the latest trends of the industry development and pioneered upgrading its conventional E-payment Terminals with the QR code payment function. With the functions of displaying or scanning QR code, PAX E-payment Terminals not only carry functions for bankcard payment in compliance with the security standards in the industry but also support the latest QR code payments. Therefore, the innovation achieves perfect integration of online and offline payments. The Operators have become one of the main forces Since PBoC gradually issued the third party payment licenses to 270 companies from 2011, over 60 of those companies obtained bankcard acceptance licenses. Those Operators and their agents have become the major force for the growth of E-payment Terminal markets and actively expanded the second, third and fourth level merchants in second and third tier cities in Mainland China, which contributed to a large popularity of the E-payment Terminal products in China Market in recent years. To date, Operators have recorded the fastest growth in the acquiring business alongside UMS and financial institutions. Based on the continuous requirements for upgrading from consumers and merchants, PAX worked with an Operator to launch a brand new Smart POS, the first innovative design of PAX that is based on the Android system and combines smartphones and secure contactless payment terminals. The product supports QR code payment and backend management system of merchants. The trend of an intelligent, mobilising E-payment Terminal and its operations under big data is inevitable. PBoC Smart POSAndroid 19

25 Management Discussion and Analysis FINANCIAL REVIEW The key financial figures for the year ended 31 December 2015 are extracted as follows: For the year ended 31 December HK$ 000 HK$ 000 +/(-) Revenue 2,870,794 2,373, % Gross profit 1,092, , % Other income 109,235 70, % Selling expenses (235,715) (218,568) +8% Administrative expenses (308,037) (253,549) +21% Operating profit/profit before income tax 657, , % Income tax expense (37,687) (71,388) 47% Profit attributable to owners of the Company 620, , % EBITDA EBITDA 662, , % Research and development costs (included in administrative expenses) (157,734) (113,841) +39% As at 31 December HK$ 000 HK$ 000 +/(-) Total current assets 4,020,585 3,322, % Total non-current assets 59,614 11, % Total assets 4,080,199 3,334, % Total current liabilities 987, , % Total non-current liabilities 2,057 Total liabilities 989, , % Net current assets 3,033,042 2,536, % Total equity 3,090,599 2,548, % 20 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

26 Management Discussion and Analysis For the year ended 31 December /(-) PER SHARE DATA Earnings per share for the profit attributable to owners of the Company Basic (HK$) ) % Diluted (HK$) ) % For the year ended 31 December FINANCIAL RATIOS Gross profit margin 38.1% 36.4% EBITDA margin EBITDA 23.1% 19.7% Net profit margin 21.6% 16.5% Revenue Turnover increased by 21% or HK$497.5 million to HK$2,870.8 million for the year ended 31 December 2015 from HK$2,373.3 million for the year ended 31 December Turnover from the China Market grew by 10% year on year or HK$143.9 million to HK$1,529.9 million. Similarly, turnover from overseas markets grew by HK$353.6 million to HK$1,340.9 million, representing a growth of 36%. 2, % , % , , % Sales by Product Category 4% 1% 1% 1% 94% 1% 3% 1% 1% 94% E-payment Terminals Consumer activated devices Contactless devices Services Others 21

27 Management Discussion and Analysis For the year ended 31 December HK$ 000 HK$ 000 +/(-) E-payment Terminals 2,711,313 2,221, % Consumer activated devices 103,855 91, % Contactless devices 5,840 11,537 49% Services 29,401 26, % Others* * 20,385 21,962 7% 2,870,794 2,373, % * Amount mainly represented accessory items sold to customers. Examples of such accessory items were download cable, telephone line, thermal paper, sticker and barcode scanning gun etc. * E-payment Terminals Turnover from the sale of E-payment Terminals increased by 22% to HK$ 2,711.3 million for the year ended 31 December 2015 from HK$2,221.6 million for the year ended 31 December Turnover growth has been driven by the increase in both China and overseas sale during the year. 2, % 2,711.3 Meanwhile, bankcard payment has been gaining popularity in the Mainland China. Besides UMS, financial institutions and the Operators have been aggressively building their E-payment Terminal networks in order to capture the benefits from the rising usage of electronic payment and high levels of retail consumption in the Mainland China. Furthermore, due to the consideration of revenue tax control and speeding up economic flow, state policies in the recent years have supported building of electronic transaction networks and deducted commission charges to encourage merchants to accept electronic payment, which further fuels the fast growth of E-payment Terminals demand. Consumer Activated Devices Turnover from the sale of consumer activated devices increased by 13% to HK$103.9 million for the year ended 31 December 2015 from HK$91.7 million for the year ended 31 December Since 2014, there has been increasing demand in PIN pads as a result of the provision of PAX s integrated payment solution in APAC and USCA % APAC USCA 22 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

28 Management Discussion and Analysis Contactless Devices Turnover from the sale of contactless readers decreased to HK$5.8 million for the year ended 31 December 2015, and by 49% from HK$11.5 million for the year ended 31 December The fall in demand was mainly because that our upgraded E-payment Terminals generally have built-in contactless card reader % 5.8 Services Turnover from the provision of services increased by 11% to HK$29.4 million for the year ended 31 December 2015 as compared to HK$26.4 million for the year ended 31 December Maintenance services made up the bulk of service income and were mainly generated in Hong Kong, and contributed a main portion of the service income growth % 29.4 Sales by Geographical Region 58% 42% 53% 47% Overseas Markets China Market For the year ended 31 December /(-) HK$'000 HK$'000 Overseas markets 1,340, , % China Market 1,529,887 1,385, % 2,870,794 2,373, % * Overseas markets and China Market turnover classification is according to locality of customers. * 23

29 Management Discussion and Analysis Turnover generated from China Market increased by 10% to HK$1,529.9 million for the year ended 31 December 2015, from HK$1,386.0 million for the year ended 31 December Turnover generated from China Market accounted for 53% of total revenue compared with 58% for the fiscal year of The growth was mainly attributable to the increase of shipment volume to UMS and the financial institutions. 1, % 1, %58% Mainland China has experienced rapid economic growth in recent years. However, the overall E-payment Terminal penetration rate is still relatively low compared with that in mature markets. The bankcard issuance and transaction volume continue to grow. The demand for E-payment Terminals is still significant. As the China Unionpay s Cloud Quick Pass and ApplePay becomes one of the major tools for payment, the demand for E-payment Terminals with built-in NFC and wire-less communication functions will increase. Apple PayNFC Turnover generated from overseas markets increased by 36% to HK$1,340.9 million for the year ended 31 December 2015 from HK$987.3 million in last accounting year. Turnover generated from overseas markets accounted for 47% of total revenue, growing from 42% in fiscal year All overseas business units recorded growth, especially USCA and LACIS region business units. North America, Middle East, Africa and Latin America have become PAX s key overseas markets. As of the end of 2015, we had over 90 overseas distributors and partners worldwide % 1, %47% USCA LACIS 90 Gross Profit Margin Gross profit margin for the year ended 31 December 2015 was 38.1%, rise in 1.7 points as compared with 36.4% in last accounting year. The increase was mainly due to an increase of contribution from overseas sales and successful cost reduction. 38.1% 36.4%1.7 Other Income Other income comprised primarily of value added tax refund, interest income from time deposit and subsidy income. It increased by 55% to HK$109.2 million for the year ended 31 December 2015 from HK$70.4 million in last accounting year. The increase was mainly due to the increase of value added tax refund and government grant and subsidy % PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

30 Management Discussion and Analysis Selling Expenses Selling expenses increased by 8% to HK$235.7 million for the year ended 31 December 2015, from HK$218.6 million for the year ended 31 December The increase was mainly attributable to the significant increase of sales and after-sales service staff salaries and commissions but was partly offset by the decrease of service charges % Administrative Expenses Administrative expenses increased by 21% to HK$308.0 million for the year ended 31 December 2015 from HK$253.5 million in the preceding financial year, mainly reflecting the expansion of R&D centres and teams, staff salary raises and increase of tax % Profit attributable to owners of the Company and Net Profit Margin As a result of the foregoing, the profit attributable to owners of the Company increased by 58% to HK$620.7 million for the year ended 31 December 2015 from HK$391.8 million for the year ended 31 December % The net profit margin improved to 21.6% for year ended 31 December 2015 from 16.5% in the preceding financial year mainly as a result of improved the effective tax rate decreased in the financial year. OUTLOOK To date, PAX has deployed more than 10 million E-payment Terminals in over 100 countries and worked with nearly 90 distributors and partners worldwide since the establishment of the Group. According to a report issued by The Nilson Report in July 2015, PAX ranked third place globally in terms of the shipment volume of E-payment Terminals in % 21.6% The Nilson Report 3 25

31 Management Discussion and Analysis INDUSTRY TREND Offline Payment Remains Dominant; Cashless Payment Gradually Overtakes Use of Cash The global payment system is still dominated by offline payment. The offline transaction by bank card far surpasses online payment both in terms of the transaction amount and the total number of transactions. As at the end of 2015, the sales volume of Ecommerce accounts for only less than 10% of global retail sales, which means that offline payment still accounts for a substantial proportion. As observed, the recent development of emerging online payment tools like E-wallets, which includes Alipay and Wechat Pay in Mainland China, has not hindered the room for growth of offline payment, but enabled Operators to vigorously develop new types of payment methods which integrate online and offline payments. The future trend will possibly be online payment dominates in the fields of small amount shopping while offline payment still takes priority in terms of general consumptions, especially for the large amount consumptions or large scale merchants after taking into consideration of security concern, tax control and commission charge. For instance, this industry trend is evidenced by the circumstance that some North European countries have already taken the lead to enter into a cashless society. PAX as an E-payment Terminal solutions provider has its irreplaceable edge. 10% Innovative Technology Promotes the Requirements for E-payment Terminals Since the promotion of contactless payment such as PayPass and paywave by Visa and MasterCard to Apple Pay launched by Apple Inc. in October 2014, and Quick Pass and Cloud Quick Pass launched by China UnionPay, NFC function has been gaining popularity and it is expected to become an indispensible function in high-end E-payment Terminals. Other technologies, such as QR code has been widely used in Mainland China, photonic payment, signature capture, touch screen and palm print identification which realises biological identification will in turn provide the industry with growth opportunities. VisaMasterCard PayPass paywave Apple Pay NFC signature capture touch screen 26 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

32 Management Discussion and Analysis Cloud Platform and Mobile Payment will be two of the trends for payment innovation in the industry. In 2015, PAX unveiled the Smart POS, an Android E-payment Terminals series. This is the first innovative design based on the Android system and fusion between smart mobile phones and secure contactless E-payment Terminals with a small and trendy appearance and a 5-inch HD capacitive touch screen, a quick thermal printer on the back, and it supports various communication methods such as bluetooth, wireless network and 3G, etc. It is equipped with dual cameras to support QR code payment. At the same time, it offers the merchants with a wide variety of services such as cash management, inventory control, contactless payment support, collection and analysis of consumption data, loyalty and other valueadded services. Android Smart POSAndroid 5 3G Such new product line will optimise PAX s existing broad product portfolio of the secure E-payment Terminals and offer the merchants new business development opportunities in the new mobile generation. Overseas Markets Overseas markets accounted for more than 80% of the sales volume of E-payment Terminals globally and became the major growth driver for PAX. Overseas markets enable the Company s business to develop in a steady and balanced way and also diversify our business risks. Currently, PAX s mainstream products comply with or achieve better than major international standards, and are accredited with international certifications. For more than ten years, we have invested significant resources in building our sales network, worked tirelessly with our international partners and established specialised teams to focus on major markets, including Europe, Middle East and Africa ( EMEA ), LACIS, APAC and USCA. Meanwhile, we also set up after-sales support team for international sales. Besides China Market, several of PAX s major customers are domiciled in overseas markets In recent years, our significant sales growth in overseas markets has attested to our efforts. 80% EMEALACIS APACUSCA 27

33 Management Discussion and Analysis North America, Brazil, the Middle East and Africa together with Mainland China will be PAX s four home based markets. Each market is featured by huge potential, different characteristics and challenges. After years of hard work, PAX has had direct sales teams or appointed distributors with good track record and reputation to provide after-sale services and software development support locally. Those overseas markets with high entry barriers (e.g. certificates, TMS and application software, etc.) tend to be less competitive and thus bring about better gross profit. This represents a great opportunity for PAX as an international mainstream brand. In regard to those major markets, we successfully obtained stringent 3-level certificates. For instance, we obtained the Class A certification accredited by a few of the largest leading acquirers in the US. Further based on the success of mpos which has been well-accepted by the merchants, PAX will launch the traditional E-payment Terminals into Brazil market which has a very high threshold for certification. PAX s complete product lines, including E-payment Terminals, mpos and Multilane, can provide secure and efficient payment solutions for all types of merchants. For example, the mpos introduced in Brazil in late 2014 has gradually entered into other markets in 2015 and at present, some of the products have been well-equipped with built-in GPRS communication module. According to market estimation, the CAGR of global mpos shipment from 2015 to 2022 will reach 47% with a huge growth potential. The Multilane, launched in the beginning of 2015, has successfully entered into US and the sales efforts on promotion are expected to increase in Meanwhile, our customised products were also recognised well by the clients in Middle East and Africa. In the coming years, we will render more supports to overseas markets, such as TMS, application development and software development kit. We will also strengthen our promotion in overseas markets through participating in various major industry exhibitions, so as to introduce the products of PAX to all over the world and establish PAX as a globally renowned brand. TMS mpos mpos Multilane mpos GPRS mpos 47% Multilane TMS In addition, we succeeded to gain market share in Italy and Germany in Our products also began to be sold in over 10 countries in Eastern and Southern Europe including Bulgaria and Poland. The management is confident that PAX will be one of the leading brands in the European market and obtain a stable and prolonged market share in the coming few years PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

34 Management Discussion and Analysis China Market Mainland China is the second largest economy in the world with huge commercial potential yet to be tapped. In China Market, the payment industry still has huge room for growth. Over the past several years, the surge in consumer spending and the increasing demand for secure and reliable payment methods have formed the foundation upon which the E-payment Terminal solutions industry can flourish. Research has indicated that the number of E-payment Terminals installed in the Mainland China is about terminals per 1,000 inhabitants in 2015 as compared to an average of installed E-payment Terminals per 1,000 inhabitants in certain mature markets. Further, according to the review of China overall payment system published by PBoC, the penetration rate of bankcards in the consumer business was 48.01% as of third quarter of As compared to the mature markets, there is still great room for increase in terms of cardholders consumption per capita and per bankcard. On the other hand, the booming of mobile payment and vertical application bring the merchants with a replacement demand for Smart POS, while the demands for upgraded future products will create a vast market share. 1, , PBoC 48.01% Smart POS PAX is one of the leading E-payment Terminal providers in Mainland China. PAX s customers include UMS, financial institutions and the Operators. Some of them are the Group s major customers. UMS, financial institutions and the Operators together drove the market growth. According to market data, in 2015, over 50% of the supplies were provided by Operators, who spared no effort in identifying midsized and small-sized merchants. The low penetration rate in second and third tiers cities provided them with enormous room for business growth. The support from the state policies aimed at facilitating the economic development in less developed regions through the accelerated economic flow of electronic payment. In the meantime, taking into consideration of the deducted merchant acquiring rate, tax control and management, transaction cost and security concern, offline electronic payment became the first choice. It is expected that the demand for mid-low end models among mid-sized and small-sized merchants will experience significant growth. Alongside the prevalence of IC Card and China UnionPay s NFC standard Quick Pass carried forward by PBoC and China UnionPay respectively, the demand for the high-end built-in contactless function and mobile E-payment Terminals will also grow. The strategy of PAX is to focus on three particular customer groups (UMS, Financial Institutions and Operators) by offering various integrated services. PBoC NFC 29

35 Management Discussion and Analysis In the coming year, we will continue to look for other strategic business partners to enter other market segments with a mix of products. Capitalising Nanchang Kashuo s bank card promotion, CRM platform, big data analysis, and Ieasy s vertical application for catering industry, PAX s revenue model in the Mainland China will be diversified. CRM OVERALL MANAGEMENT STRATEGIES The corporate culture of PAX is adherence to compliance and prudence while incorporating perseverance and creativity. The foundation of the payment industry is security of transaction for consumers and merchants while PAX places a strong emphasis on the provision of secure and user-friendly payment solutions for them. Expanding along the payment value chain through mergers and acquisitions is the major development strategy for PAX over the past few years. Opportunities arise in four significant areas in the payment industry, namely, hardware infrastructure, software development, service of payment solution and payment value-added services. In the past few years, there were numerous mergers and acquisitions in the payment industry. The key to success, whether online or offline, is creating values for merchants. On the merchant side, combination of the integrated payment solution and professional management tools such as CRM or ERP system and the provision of integrated services to merchants will be one of the trajectories the Group will deploy. PAX has currently built a stronghold in the payment software and hardware arenas of the payment industry. Based on the established advantages in the E-payment Terminal market, PAX will continue to actively develop services, data, offer convenience to merchants and integrate internal and external systems through mergers and acquisitions in major markets. Eventually, the goal is to establish a payment ecosystem across major markets and completely cover the payment value chain. Among these, additional E-payment Terminal product line, transforming overseas distribution into a direct sales model, overseas payment gateway (Gateway) for transaction processing services and payment-related value-added services are the key layout. These business models will ultimately build a direct relationship between PAX and the merchants, transform to a recurring income model with stronger ties with customer and higher gross profit and extend PAX s presence along the payment value chain. CRM ERP Gateway 30 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

36 Management Discussion and Analysis In December 2014, Pax Technology entered into an agreement with the shareholders of Nanchang Kashuo to indirectly acquire 51% equity interests in Nanchang Kashuo. This acquisition is expected to be completed soon. The income generating from the bank card promotion of Nanchang Kashuo and its CRM platform may enable the Group to go towards the direction of Big Data, as well as directly establish a relationship with merchants and maintain sustainable income. In July 2015, Pax Technology completed the subscription for an amount of Pax Italia, a distributor, representing 70% of the enlarged corporate capital. Through providing a stronger financial support and other corporate supports to which, coupled with software and hardware services in order to strengthen the support to the regional distributors, sales of Pax Italia in the Italian market in 2015 grew remarkably, leading PAX to become one of the local leading brands. In addition, Pax Italia engages in development and customisation software system for banks in Italy and provides after-sales services for a wide range of models of the Group s products such as maintenance, installation, and software development service. The acquisition may enhance the position of PAX in the European market and facilitate the business expansion of the Group in Europe. In November 2015, Wonder PAX entered into an agreement with Ieasy and its shareholders, to acquire and subscribe for an aggregate of 60% of the enlarged equity interests in Ieasy for a consideration of RMB30 million. Such acquisition and subscription completed in February Ieasy is a cloud-based ERP provider for the F&B chains, providing software and hardware all-in-one solutions to enhance use of technology in the catering industry. The platform will enable the Group to foster the link between payment and the operation of merchants in the catering industry. As the consumption among local people in the Mainland China continues to grow, we are confident that these value-added services will consolidate PAX s leadership in the Mainland China. Through these projects, the Group is confident it can create the new generation Smart POS, with ERP, CRM functions, and generate further recurring service income in three to five years. 51% CRM Pax Italia70% Pax Italia PAX Pax Italia 3060% ERP ERP CRM Smart POS Notes: The aforesaid three acquisitions and subscriptions of the Group neither constitute the discloseable transactions of the Company under Rule 13.09, nor notifiable transactions under Chapter 14 of the Listing Rules

37 Management Discussion and Analysis PAX has been operating with an asset-light business model and maintain an excellent and stable partnership with every supplier in order to source its product assembly and procession to independent EMS manufacturer and devote the resources of the Group to R&D and sales. Looking forward, PAX will continue to focus on strengthening and enhancing our R&D capabilities as well as establishing global sales network. Not only is R&D the foundation of secure payment but it is also the core competitiveness of PAX. PAX keeps on expanding the R&D team to cope with the rising application needs. Among which, a R&D centre has been set up in Arizona in the US. The overseas software engineer team develops applications targeting on the US market. A number of R&D teams have been newly formed in Hangzhou and Chongqing in the PRC to support overseas markets. Many of PAX s products passed rigorous testing procedures of China s State Cryptography Administration and successfully obtained special cryptographic certification. In the international market, PAX s key injection facility (KIF) has been certified PCI PIN security requirements. We enhance R&D investment continuously, recruit the experienced and top hardware and software key designers in the industry and retain the talented employees through effective incentive mechanism. In 2015, the Group established a new business sector and was committed to the development of new Smart POS. In few years ahead, PAX will have the opportunities to build direct and close relationship with merchants and participate in the bank card promotion market in the Mainland China with a scope of tens billions every year. EMS (KIF) PCI PIN Smart POS In short, our long term goals are to enhance R&D (for example software application), develop new models of E-payment Terminal, raise the service income proportion to 20% in five years, consolidate sales network and to seize the growth opportunities in the global market through mergers and acquisitions. Leveraging our strong position in E-payment Terminal solutions in the China market and the comprehensive global market experience, we are certain to capture the business opportunities arising rapidly from the Mainland China and emerging markets as well as other important international markets. We believe we are moving forward to become one of the forerunners in the E-payment Terminal multi-solutions around the globe. 20% 32 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

38 Management Discussion and Analysis Liquidity and Capital Resources During the years of 2014 and 2015, the main source of funding to the Group was the proceeds generated from operating activities in the usual course of business of the Company. Certain financial data are summarised as follows: As at 31 December HK$ 000 HK$ 000 Cash at bank and on hand 2,144,312 1,918,729 Net current assets 3,033,042 2,536,531 Net cash generated from operating activities Net cash (used in)/generated from financing activities 317, ,341 (4,097) 74,109 As at 31 December Current ratio (times) Quick ratio (times) As at 31 December 2015, the Group had cash at bank and on hand and short-term bank deposits of HK$2,144.3 million (2014: HK$1,918.7 million) and no short-term borrowings (2014: Nil). As at 31 December 2015, the Group reported net current assets of HK$3,033.0 million, as compared with HK$2,536.5 million as at 31 December For the year ended 31 December 2015, net cash generated from operating activities was HK$317.1 million, as compared with net cash generated from operating activities of HK$154.3 million for the year ended 31 December For the year ended 31 December 2015, net cash used in financing activities of HK$4 million as compared with net cash (used in)/generated from financing activities of HK$74.1 million for the year ended 31 December Capital Structure and Details of Charges As at 31 December 2015, the Group did not have any borrowings or charge on Group assets, and the gearing ratio is not applicable (2014: Nil). As at 31 December 2015, approximately HK$1,029.0 million, HK$849.0 million, HK$246.4 million and HK$19.9 million (2014: HK$891.5 million, HK$726.7 million, HK$300.4 million and HK$0.1 million) of the Group s cash balances were denominated in Renminbi ( RMB ), Hong Kong dollar ( HK$ ), United States dollar ( US$ ) and European dollar ( EUR ) respectively. 2, , , , ,

39 Management Discussion and Analysis Significant Investment Save as disclosed in this annual report, the Group held no significant investment as at 31 December Material Acquisition and Disposal of Subsidiaries Save as disclosed in this annual report, the Group did not have any material acquisition or disposal of subsidiaries during the year ended 31 December 2015 (2014: Nil). Use of Proceeds The net proceeds raised from the global offering received by the Company were approximately HK$805.9 million As at 31 December 2015, the planned and utilised amounts of usage of total net proceeds are as follows: Planned amount HK$ million Utilised amount HK$ million Enhancing research and development effort Expanding distribution network Potential merger and acquisition General working capital Future Plans for Material Investments or Capital Assets Save as disclosed in this annual report, there was no specific plan for material investments or capital assets as at 31 December Exchange Rates Exposure The Group derives its turnover, makes purchases and incurs expenses denominated mainly in RMB, HK$ and US$. The majority of assets and liabilities are denominated in RMB, HK$ and US$, and there are no significant assets and liabilities denominated in other currencies. Currently, the Group has not entered into agreements or purchased instruments to hedge the Group s exchange rate risks. Any material fluctuation in the exchange rates of HK$ or RMB may have an impact on the operating results of the Group. 34 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

40 Management Discussion and Analysis The management considers that the foreign exchange risk with respect to US$ is not significant as HK$ is pegged to US$ and transactions denominated in US$ are mainly carried out by entities with the same functional currency. The exchange rate of RMB to HK$ is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. The Group manages foreign currency risk by closely monitoring the movement of the foreign currency rates. Contingent Liabilities The Group had no significant contingent liabilities as at 31 December Human Resources and Remuneration Policies The total number of employees of the Group as at 31 December 2015 was 974. The following table shows a breakdown of employees of the Group by functions as at 31 December 2015: 974 Management 14 Sales and after-sales services and marketing 329 Research and development 509 Quality assurance 39 Administration and human resources 30 Accounting 25 Production, procurement and inventory control The Group ensures that its remuneration packages are comprehensive and competitive. Employees are remunerated with a fixed monthly income plus annual performance related bonuses. Share options are granted to employees of the Group to reward their contributions under the share option scheme of the Company, details of which are set out in the Report of the Directors. The Group also sponsors selected employees to attend external training courses that suit the needs of the Group s businesses. Disclaimer: Non-GAAP measures Certain non-gaap (generally accepted accounting principles) measures, such as EBITDA, are used for assessing the Group s performance. These non-gaap measures are not expressly permitted measures under GAAP in Hong Kong and may not be comparable to similarly titled measures for other companies. Accordingly, such non-gaap measures should not be considered as an alternative to operating income as an indicator of the operating performance of the Group or as an alternative to cash flows from operating activities as a measure of liquidity. The use of non-gaap measures is provided solely to enhance the overall understanding of the Group current financial performance. Additionally because the Group has historically reported certain non-gaap results to investors, the Group considers the inclusion of non-gaap measures provides consistency in our financial reporting. EBITDA 35

41 Corporate Governance Report The Board is pleased to present this Corporate Governance Report in the Group s annual report for the year ended 31 December The Company wishes to highlight the importance of its Board in ensuring effective leadership and control of the Company and transparency and accountability of all operations. The Company recognises the importance of good corporate governance to the Company s healthy growth and has devoted considerable efforts to identifying and formulating corporate governance practices appropriate to the Company s needs. CORPORATE GOVERNANCE PRACTICES The Company s corporate governance practices are based on the principles (the Principles ) and code provisions (the Code Provisions ) as set out in the Corporate Governance Code and Corporate Governance Report (the CG Code ) contained in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) (the Listing Rules ). 14 The Company has applied in formulating its corporate governance practices the Principles and complied with all the Code Provisions for the year ended 31 December The Board periodically reviews and monitors the Company s policies and practices on corporate governance or compliance with legal and regulatory requirements. The Board also reviews the Group s employee handbook, training and continuous professional development of the Directors and the senior management, to ensure that operations are conducted in accordance with the standards of the CG Code. DIRECTORS SECURITIES TRANSACTIONS The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) as set out in Appendix 10 to the Listing Rules. 10 Specific enquiry had been made to all Directors and the Directors have confirmed that they have complied with the Model Code throughout the year ended 31 December PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

42 Corporate Governance Report The Company has also established written guidelines with exact terms as set out in Appendix 10 to the Listing Rules for securities transactions by employees who are likely to possess inside information of the Company. 10 The key corporate governance principles and practices of the Company are summarised as follows: THE BOARD Responsibilities The overall management of the Company s business is vested in the Board, which assumes the responsibility for leadership and control of the Company and is collectively responsible for promoting the success of the Company by directing and supervising its affairs. All Directors should make decisions objectively in the interests of the Company. The Board reserves for its decisions on all major matters of the Company which include the approval and monitoring of all policy matters, overall strategies and budgets, internal control and risk management systems, material transactions (in particular those which may involve conflict of interests), financial information, appointment of Directors and other significant financial and operational matters. All Directors are provided with full and timely access to Board papers and relevant information as well as the advice and services of the Company Secretary, with a view to ensuring that Board procedures and all applicable rules and regulations are followed. Each Director is normally able to seek independent professional advice in appropriate circumstances at the Company s expense, upon making request to the Board. The day-to-day management, administration and operation of the Company are delegated to the senior management. The delegated functions and work tasks are periodically reviewed. Approval has to be obtained from the Board prior to entering into any significant transactions by the senior management officers. The Board has the full support of the senior management to discharge its responsibilities. 37

43 Corporate Governance Report Composition The composition of the Board ensures a balance of skills and experience appropriate to the requirements of the business of the Company and to the exercise of independent judgment. The Board currently comprises six members, consisting of three executive Directors and three independent non-executive Directors. The Board currently comprises the following Directors: Executive Directors: NIE Guoming (Chairman) LU Jie (Chief Executive Officer) LI Wenjin Independent Non-Executive Directors: YIP Wai Ming WU Min MAN Kwok Kuen, Charles The list of Directors (by category) is also disclosed in all corporate communications issued by the Company pursuant to the Listing Rules from time to time. The biographical information of the Directors and their relationship between the members of the Board or in particular, between the Chairman and the Chief Executive, if any, are provided in the Directors and Senior Management section of this annual report. Appointment, Re-election and Removal of Directors The Company has established formal and transparent procedures for the appointment and succession planning of Directors. All Directors are appointed for specific tenures which shall be subject to retirement by rotation at least once every three years and subject to reelection at the annual general meeting. Each of the executive Directors has entered into a service contract with the Company for a term of three years, from 23 May 2013 for Mr. Lu Jie and 20 December 2013 for Mr. Nie Guoming and Mr. Li Wenjin, unless and until terminated by either the Company or the Directors giving to the other a notice of not less than three months. 38 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

44 Corporate Governance Report Training for Directors Each newly appointed Director receives induction on the first occasion of his/her appointment, so as to ensure that he/she has an appropriate understanding of the business and operations of the Company. Besides, the Company will arrange and provide finance for suitable training, placing an appropriate emphasis on the roles, functions and duties of its Directors. All Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. The Company has arranged in-house trainings for Directors in the form of seminar and provision of training materials. A summary of training received by the Directors during the year ended 31 December 2015 according to the records provided by the Directors is as follows: Name of Directors Training on corporate governance, inside information and other relevant topics Executive Directors Nie Guoming Lu Jie Li Wenjin Independent Non-Executive Directors Yip Wai Ming Wu Min Man Kwok Kuen, Charles Directors and Officers Liabilities The Company has arranged for appropriate insurance coverage in respect of legal action against the Directors in compliance with Code Provision A.1.8 of the CG Code. The insurance coverage is reviewed on an annual basis. A

45 Corporate Governance Report Board Meetings and Directors Attendance Regular Board meetings were held four times during the year for reviewing and approving the financial and operating performance, for approving the final results for the year ended 31 December 2014, interim results for the six months ended 30 June 2015, quarterly results for the three months ended 31 March 2015 and for the nine months ended 30 September 2015 and considering and approving the overall strategies and policies of the Company. The individual attendance record of each Director at the four regular quarterly meetings of the Board (not including other ad hoc meetings of the Board held from time to time), Audit Committee meetings, Nomination Committee meetings, Remuneration Committee meetings and general meetings during the year ended 31 December 2015 is set out below: Attendance/Number of Meetings Audit Nomination Remuneration Regular Committee Committee Committee Board Meetings Meetings Meetings Meetings* General Meetings Name of Directors * Nie Guoming N/A N/A N/A 4/4 1/1 Lu Jie N/A N/A N/A 4/4 1/1 Li Wenjin N/A 1/1 1/1 4/4 1/1 Yip Wai Ming 2/2 1/1 1/1 4/4 1/1 Wu Min 2/2 1/1 1/1 4/4 1/1 Man Kwok Kuen, Charles 2/2 N/A N/A 4/4 1/1 * Not all Directors are required to attend the rest of the meetings which mainly deal with implementation of executive policies and administrative routine. * 40 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

46 Corporate Governance Report Practices and Conduct of Meetings Annual meeting schedules and draft agenda of each meeting are normally made available to the Directors in advance. Notices of regular Board meetings are served to all Directors at least fourteen days before the meetings. For other Board and committee meetings, reasonable notice is generally given. Board papers together with all appropriate, complete and reliable information are sent to all Directors at least three days before each Board meeting or committee meeting to keep the Directors appraised of the latest developments and financial position of the Company and to enable them to make informed decisions. The Board and each Director also have separate and independent access to the senior management whenever necessary. The Company Secretary attends all regular Board meetings and, when necessary, other Board and committee meetings to advise on business developments, financial and accounting matters, statutory compliance, corporate governance and other major aspects of the Company. The Company Secretary is responsible to take and keep minutes of all Board meetings and committee meetings. Draft minutes are normally circulated to the Directors for comment within a reasonable time after each meeting and the final version, which is kept by the Company Secretary, is open for the Directors inspection. According to current Board practice, any material transaction, which involves a conflict of interests for a substantial shareholder of the Company or a Director, will be considered and dealt with by the Board at a duly convened physical Board meeting. The Company s Bye-laws also contain provisions requiring the Directors to abstain from voting and not to be counted in the quorum at meetings for approving transactions in which such Directors or any of their associates have a material interest. Chairman and Chief Executive In accordance with Code Provision A.2.1 of the CG Code, the roles of the Chairman and the Chief Executive Officer (the CEO ), performed by Mr. Nie Guoming and Mr. Lu Jie respectively, are separate in order to ensure a clear distinction between the responsibilities of the Chairman and the CEO. There are clear divisions of responsibilities of the management of the Board and the day-to-day management of the Company s business between the Chairman and the CEO to ensure a balance of power and authority of the Board for decision-making. A

47 Corporate Governance Report The Chairman provides leadership and is responsible for the effective functioning of the Board in accordance with good corporate governance practices. With the support of the Company Secretary and the senior management, the Chairman is also responsible for ensuring that the Directors receive, in a timely manner, adequate information, which must be accurate, clear, complete and reliable, and appropriate briefing on issues arising at Board meetings, and that all key and appropriate issues are discussed by the Board in a timely manner. The CEO focuses on implementing objectives, policies and strategies approved and delegated by the Board. He is in charge of the Company s day-to-day management and operations. The CEO is also responsible for developing strategic plans and formulating the organisational structure, control systems and internal procedures and processes for the Board s approval. Independent Non-Executive Directors The independent non-executive Directors bring a wide range of business and financial expertise, experiences and independent judgment to the Board. By taking the lead in managing issues involving potential conflict of interests and serving on Board committees, all independent non-executive Directors make various contributions to the effective direction of the Company. Each of the independent non-executive Directors, namely Mr. Yip Wai Ming, Dr. Wu Min and Mr. Man Kwok Kuen, Charles, is appointed for a contractual term of one year subject to renewal on a yearly basis and subject to re-election in accordance with the Company s Bye-laws. Such term shall be terminated in any event: (i) by either party given the other not less than two-month written notice; or (ii) forthwith without compensation, on the ground of disqualification, gross or willful misconduct or neglect, or any failure of passing a resolution by the shareholders of the Company to be re-elected as a Director, whichever is earlier. (i) (ii) During the year ended 31 December 2015, the Board at all times met the requirements of Rules 3.10(1) and 3.10(2) of the Listing Rules relating to the appointment of at least three independent non-executive Directors with at least one independent non-executive Director possessing appropriate professional qualifications, or accounting or related financial management expertise. To comply with Rule 3.10A of the Listing Rules, independent non-executive Directors represented at least one-third of the Board throughout the year ended 31 December (1) 3.10(2) 3.10A The Company has received written annual confirmation from each independent non-executive Director of his/her independence pursuant to the requirements of Rule 3.13 of the Listing Rules. The Board is of the view that all independent non-executive Directors are independent in accordance with the Listing Rules PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

48 Corporate Governance Report BOARD COMMITTEES The Board has established three committees, namely, the Audit Committee, the Nomination Committee and the Remuneration Committee, for overseeing particular aspects of the Company s affairs. All Board committees of the Company are established with defined written terms of reference. The terms of reference of the Board committees are posted on the Company s website and the Stock Exchange s website and are available to shareholders upon request. Each Board committee consists of a majority of and is chaired by independent non-executive Directors. The list of the chairman and members of each Board committee as at the date of this report is set out below: Audit Committee YIP Wai Ming (Chairman) WU Min MAN Kwok Kuen, Charles Nomination Committee WU Min (Chairman) YIP Wai Ming LI Wenjin Remuneration Committee YIP Wai Ming (Chairman) WU Min LI Wenjin The Board committees are provided with sufficient resources to perform their duties and, upon reasonable request, are able to seek independent professional advice in appropriate circumstances, at the Company s expenses. Audit Committee The Audit Committee was established by the Board on 1 December 2010 with written terms of reference which was amended and adopted by the Board on 28 December The Audit Committee comprises three independent non-executive Directors (including at least one independent non-executive Director who possesses the appropriate professional qualifications or accounting or related financial management expertise). None of the members of the Audit Committee is a former partner of the Company s existing external auditors. 43

49 Corporate Governance Report The main duties of the Audit Committee under the revised terms of reference include the following: (a) to review the financial statements and reports and consider any significant or unusual items raised by the Company s staff responsible for the accounting and financial reporting function, compliance officer or external auditors before submission to the Board; (a) (b) to review the relationship with the external auditors with reference to the work performed by the external auditors, their fees and terms of engagement, and make recommendation to the Board on the appointment, re-appointment and removal of external auditors; (b) (c) to review the adequacy and effectiveness of the Company s financial reporting system, the Group s financial control, internal control and risk management system and associated procedures and adequacy of resources of its internal audit functions; and (c) (d) to consider and identify risks of the Group and consider effectiveness of the Group s decision making processes in crisis and emergency situations and approve major decisions affecting the Group s risk profile or exposure. (d) The written terms of reference which describe the authority and duties of the Audit Committee were prepared and adopted with reference to the CG Code and A Guide for The Formation of An Audit Committee published by the Hong Kong Institute of Certified Public Accountants. The Audit Committee held two meetings during the year ended 31 December 2015 to review the financial results and reports, financial reporting and compliance procedures, internal control system and risk management review and processes and the re-appointment of the external auditors. There are no material uncertainties relating to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. There is no different view taken by the Audit Committee from the Board regarding the selection, appointment, resignation or dismissal of external auditors. The Company s annual results for the year ended 31 December 2015 have been reviewed by the Audit Committee. 44 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

50 Corporate Governance Report Nomination Committee The Nomination Committee was established by the Board on 1 December The principal duties of the Nomination Committee include reviewing the structure, size and composition of the Board, developing and formulating relevant procedures for nomination and appointment of Directors, making recommendations to the Board on the appointment and succession planning of Directors, and assessing the independence of the independent non-executive Directors. The Nomination Committee carries out the process of selecting and recommending candidates for directorships by making reference to the balance of expertise, skills, experience, professional knowledge, personal integrity and time commitments of such individuals, the requirements of the business of the Group and other relevant statutory requirements and regulations. An external recruitment agency may be engaged to carry out the recruitment and selection process when necessary. It has been an underpinning philosophy of the Company to maintain diversified selection criteria in its hiring process, taking into account a wide range of attributes including age, educational background, professional experience, industry skills and expertise and such policy was recorded in writing by the Nomination Committee for the selection process of Directors on 28 February Since its establishment, the Nomination Committee has taken up the mantle of reviewing such diverse selection philosophy at the Directors nomination level, and helped maintaining a solid slate of Directors with diverse perspectives and varied educational background and expertise made-up, from in-depth knowhow in the card payment industry, sales and marketing talents to professional qualifications in the legal and accounting fields. Each Director has accumulated experience in his respective field of expertise for at least 10 to 30 years. Regardless of the background or experience of each Director, they are all anchored by the common trait of having a natural aptitude and singular drive for the industry and this is also the ultimate attribute in the Company s selection process that the Nomination Committee helps to uphold and protect The Nomination Committee held one meeting during the year ended 31 December 2015 to review the re-appointment and re-election of Directors and the adoption of the procedures for proposing a person for election as a Director. Pursuant to the Company s Bye-laws 84 and 85, Mr. Lu Jie, the Chief Executive Officer and an executive Director and Mr. Yip Wai Ming, the independent non-executive Director, shall retire by rotation and being eligible, will offer themselves for re-election at the 2016 annual general meeting of the Company (the AGM )

51 Corporate Governance Report The Board recommended the re-appointment of the Directors standing for re-election at the AGM. The Company s circular dated 14 March 2016 contains detailed information of the Directors standing for re-election. Remuneration Committee The Remuneration Committee was established by the Board on 1 December The primary objectives of the Remuneration Committee include making recommendations to the Board on the remuneration policy and structure and remuneration packages of the Directors and the senior management. The Remuneration Committee is also responsible for establishing transparent procedures for developing such remuneration policy and structure to ensure that no Director or any of his/her associates will participate in deciding his/her own remuneration, which is determined with reference to the performance of the individual and the Company as well as market practice and conditions. The Remuneration Committee normally meets to review the remuneration policy and structure and determine the annual remuneration packages of the Directors and the senior management and other related matters. The human resources department is responsible for collection and administration of the human resources data and making recommendations to the Remuneration Committee for consideration. The Remuneration Committee shall consult the Chairman and/or the Board about these recommendations on remuneration policy and structure and remuneration packages. The Remuneration Committee held one meeting during the year ended 31 December 2015 to review the remuneration packages of the Directors and the senior management of the Company and to establish a formal and transparent procedure for developing remuneration policy. Pursuant to Code Provision B.1.5 of the CG Code, the remuneration of the members of the senior management by band for the year ended 31 December 2015 is set out below: B.1.5 Number of individuals Remuneration band HK$3,000,000 to HK$3,500,000 3,000,0003,500,000 1 HK$4,000,000 to HK$4,500,000 4,000,0004,500, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

52 Corporate Governance Report Further particulars relating to Directors emoluments and the five highest paid individuals as required to be disclosed pursuant to Appendix 16 to the Listing Rules are set out in notes 9 and 33 to the consolidated financial statements Corporate Governance Function The Board is responsible for performing the corporate governance duties of the Company. Terms of reference adopted by the Board include the duties of the Board on corporate governance functions to develop and review the Group s policies and practices on corporate governance, to review and monitor the training and continuous professional development of the Directors and the senior management and to review the Group s compliance with the CG Code and disclosures made in this Corporate Governance Report. RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS The Board is responsible for presenting a balanced, clear and understandable assessment of annual and interim reports, inside information announcements and other disclosures required under the Listing Rules and other regulatory requirements. The Directors acknowledge their responsibilities for preparing the financial statements of the Company for the year ended 31 December The statement of the external auditors of the Company about their reporting responsibilities on the financial statements is set out in the Independent Auditor s Report on pages 66 to 67. INTERNAL CONTROL For the internal control system of the Company, the Board has developed the Group s internal control systems and risk assessment and management. The Board has overall responsibility for reviewing and maintaining an adequate and effective internal control system to safeguard the interests of the Shareholders and the assets of the Group. During the year, the Board has conducted reviews of the internal control system in accordance with the Code Provision C.2 of the CG Code and considered that the internal control system of the Group has been implemented effectively C.2 47

53 Corporate Governance Report AUDITOR S REMUNERATION The remuneration paid to the external auditor of the Company in respect of audit services for the year ended 31 December 2015 amounted to approximately HK$1,800,000. There was no non-audit service provided by the external auditor of the Company for the year ended 31 December SHAREHOLDER RIGHTS AND INVESTOR RELATIONS (a) Procedures for Requisitioning a Special General Meeting Shareholder(s) holding as at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right to vote at general meetings of the Company may, by written requisition to the Board or the Company Secretary(ies) signed and deposited in accordance with the Byelaws of the Company, Bermuda Companies Act 1981, require the Directors to call a special general meeting for the transaction of business specified in the requisition. 1,800,000 (a) (b) Procedures for Putting forward Proposals at General Meetings Shareholder(s) holding not less than one-twentieth of the paidup capital of the Company carrying the right to vote at general meetings of the Company or not less than 100 Shareholders may, at their expense, provide a written request to the attention of the Company Secretary(ies) signed and deposited in accordance with the Bermuda Companies Act (b) 100 (c) Communication with Shareholders and Investors General meetings of the Company provide a direct forum of communication between Shareholders and the Board. Shareholders are welcome to put forward enquiries to the Board or the management thereat and the Chairman of the Board, or in his absence, an executive Director, as well as the chairmen of the Audit Committee, Nomination Committee and Remuneration Committee, or in their absence, other members of the respective committees, and where applicable, the Independent Board Committee, will be commonly be present and available to answer questions and Shareholders may also contact the Company Secretary(ies) to direct their written enquires. (c) 48 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

54 Corporate Governance Report The Company is committed to enhancing communications and relationships with its investors. Designated senior management maintains an open dialogue with institutional investors and analysts to keep them abreast of the Company s developments. The Company also maintains a website at where updates on the Company s business developments and operations, financial information and news can always be found. On behalf of the Board NIE Guoming Chairman Hong Kong, 8 March

55 Report of the Directors The Directors present their report together with the audited financial statements for the year ended 31 December PRINCIPAL ACTIVITIES AND GEOGRAPHICAL ANALYSIS OF OPERATIONS The principal activity of the Company is investment holding and the Group are principally engaged in the development and sales of E-payment Terminal products and the provision of related services. An analysis of the Group s performance for the year by geographical segments is set out in note 6 to the consolidated financial statements. BUSINESS REVIEW The Group is a leading Asian E-payment Terminal solutions provider and one of the most active global players. The Group was founded in 2000 and the Company went listed on the Hong Kong Stock Exchange in December The strategy of PAX is to focus on three key particular customer groups (UMS, Financial Institutions and Operators) by offering various integrated payment solutions services. 6 Headquartered in Hong Kong, the Group runs R&D and operational center mainly in Shenzhen, PRC. R&D engineers make up 52% and sales and marketing staff 34% of total 974 employees. PAX sources parts and manufacturing of its E-payment Terminals through a wide supplier network, most of which are located in Mainland China. To date, the installed base of PAX E-payment Terminal products reached over 10 million units. With strong global presence, PAX works with nearly 90 distributors or partners worldwide and has sold products to over 100 countries and regions. For the year ended 31 December 2015, 47% of revenue were generated from overseas markets % 34% % Competition in the E-payment Terminal market is moderate as compared to that associated with most other electronic products because of the high entry barrier. According to The Nilson Report issued in July 2015, top three suppliers made nearly 60% of global shipments. Even in Mainland China where competition is relatively keen, number of suppliers is still limited. With long proven track record and strong brand recognition, PAX is recognised as the market leader in China Market. In overseas markets, PAX has been emerging to the top of league especially in APAC, Middle East, Africa and Latin America. The Nilson Report 60% 50 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

56 Report of the Directors In 2015, PAX officially launched the Multilane. Furthermore, mpos was promoted to several emerging and developed markets in addition to Brazil. As online payment gradually becomes prevalent, PAX s R&D team has worked on new product series to embrace the trend. The new smart terminal series cites an example that payment technology allows both online and offline payment in one PAX E-payment Terminal. The Group expects a mature and comprehensive product line and further expansion in all regions. Multilane mpos For the year ended 31 December 2015, revenue of the Group rose 21% to HK$2,870.8 million, and profit attributable to owners of the Company surged 58% to HK$620.7 million with basic earnings per share at 56.0 HK cents (2014: 36.3 HK cents). Revenue from overseas markets increased by HK$353.6 million to HK$1,340.9 million, representing a gain of 36%. Revenue from China Market increased 10% year-on-year or by HK$143.9 million to HK$1,529.9 million. Gross profit margin for the period was 38.1%, a rise of 1.7 percentage points compared to 36.4% for the year ended 31 December This was mainly due to an increase of contribution from overseas sales and successful cost reduction. In addition, Pax Computer Shenzhen was recognised as a High and New Technology Enterprise under the CIT Law and is eligible to enjoy a preferential tax rate of 15% for 3 years from 2015 to Wonder Pax obtained the approval from the relevant applicable tax authorities in April 2015 for a preferential tax treatment and is fully exempted from China corporate tax for two years, beginning in 2014, followed by a 50% tax exemption for the ensuing three years. The over provision of income tax accrued by Wonder Pax in financial year 2014, which was calculated at the tax rate of 25%, of approximately HK$32,976,000 was credited to the profit and loss in % 2, % , % 10% , % 36.4% % 50% 32,976,000 25% Further details of the review of the business of the Group for the year ended 31 December 2015 and discussion on the Group s future business development are provided in the Management Discussion and Analysis section on pages 15 to 35. Description of possible risks and uncertainties that the Group may be facing can be found in the Management Discussion and Analysis section on pages 15 to 35 and the notes to the consolidated financial statements. In addition, discussions on the Group s relationships with its key stakeholders and compliance with relevant laws and regulations which have a significant impact on the Group are contained in the Management Discussion and Analysis section and this Directors Report on pages 50 to

57 Report of the Directors RESULTS AND APPROPRIATIONS The results of the Group for the year ended 31 December 2015 are set out in the consolidated income statement on page An interim dividend of HK$0.02 per ordinary share amounting to approximately HK$22.23 million was paid to the shareholders of the Company during the year The Board has resolved to recommend a final dividend of HK$0.02 per ordinary share for the year ended 31 December 2015 (year ended 31 December 2014: Nil) to shareholders of the Company whose names appear on the register of members of the Company at the close of business on 13 May 2016 (Friday), subject to the approval of shareholders of the Company at the forthcoming Annual General Meeting of the Company to be held on 22 April 2016 (Friday), and if passed, the final dividend will be paid to the shareholders of the Company on 27 May 2016 (Friday). For determining the entitlement to the proposed final dividend, the register of members of the Company will be closed from 11 May 2016 (Wednesday) to 13 May 2016 (Friday), both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the final dividend, all transfer documents accompanied by the relevant share certificates must be lodged with the Company s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen s Road East, Hong Kong not later than 4:30 p.m. on 10 May 2016 (Tuesday). Together with the interim dividend of HK$0.02 ordinary share (six months ended 30 June 2014: Nil), the total dividend per ordinary share for the year was HK$0.04 (2014: Nil). RESERVES Details of the movements in the reserves of the Group and of the Company during the year are set out in the consolidated statement of changes in equity and in note 23 to the consolidated financial statements. DONATIONS Charitable donations of HK$1,106,000 were made by the Group during the year (2014: HK$1,256,000) ,106,000 1,256, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

58 Report of the Directors PROPERTY, PLANT AND EQUIPMENT Details of the movements in property, plant and equipment of the Group are set out in note 13 to the consolidated financial statements. SHARE CAPITAL AND SHARE OPTIONS Details of the movements in the Company s share capital are set out in notes 21 and 22 to the consolidated financial statements Share Option Scheme The Company operates a share option scheme (the Scheme ) for the issuance of in aggregate no more than 10% in the nominal amount of the aggregate of shares in issue on 20 December 2010 (the Listing Date), representing 100,000,000 shares (subject to the terms of the Scheme and the relevant provisions under the Listing Rules) under the Scheme adopted by a resolution of the Board on 1 December %100,000,000 The total numbers of the share options under the Scheme had been granted to the Directors, certain employees and consultants of the Group. No share is available for issue under the Scheme as at the date of this report. Eligible participants of the Scheme would be any person or an entity belonging to any of Directors (including executive Directors, nonexecutive Directors and independent non-executive Directors) and employees of the Group and any advisers, consultants, distributors, contractors, suppliers, agents, customers, business partners, joint venture business partners, promoters or service providers of any member of the Group who the Board considers, in its sole discretion, have contributed or will contribute to the Group. The purpose of the Scheme is to reward participants who have contributed or will contribute to the Group and to encourage participants to work towards enhancing the value of the Company and its shares for the benefit of the Company and its Shareholders as a whole. Unless approved by the Shareholders, the total number of shares issued and to be issued upon the exercise of share options granted to each eligible participant (including both exercised and outstanding options) in any 12-month period must not exceed 1.0% of the number of the shares of the Company in issue % 53

59 Report of the Directors The Scheme was effective on 1 December 2010 and unless otherwise cancelled or amended, will remain valid and effective for the period of 10 years from that date. The exercise price for the Options shall be determined by the Board which must be at least the higher of: (1) the closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange on the date of grant which must be a business day; (1) (2) the average closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange for the five business days immediately preceding the date of grant; and (2) (3) the nominal value of the Shares. (3) During the year ended 31 December 2015, no share option was granted 10,000,000 share options which were part of the share options granted to the participants on 22 June 2012 and 1,200,000 share options which were part of the share options granted to the participants on 28 May 2014 were exercised by Mr. Li Wenjin, the executive Director, and certain employees and consultants of the Group under the Scheme and the weighted average closing price immediately before the dates on which the options were exercised was HK$8.95 per share. The particulars of the changes of the share options under the Scheme are as follows: 10,000,000 1,200, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

60 Report of the Directors MOVEMENTS IN THE SHARE OPTIONS OF THE COMPANY Name Date of grant Exercised price (HK$) Number of Share Options held as at 1 January 2015 Granted during the year Exercised during the year Lapsed during the year Cancelled during the year Number of Share Options held as at 31 December 2015 Directors Nie Guoming 22 June 2012* * Lu Jie 22 June 2012* * Li Wenjin 22 June 2012* ,000,000 (10,000,000) * Total for Directors 10,000,000 (10,000,000) Employees (In aggregate) 22 June 2012* ,000,000 6,000,000 * (In aggregate) 28 May 2014* ,274,000 (1,140,000) 18,134,000 * Total for Employees 25,274,000 (1,140,000) 24,134,000 Consultants (In aggregate) 28 May 2014* ,640,000 (60,000) 1,580,000 * Total for Consultants 1,640,000 (60,000) 1,580,000 Total 36,914,000 (11,200,000) 25,714,000 * The share options will be vested to the grantees, among which 30% of the share options would be vested on the date of grant, a further 30% of the share options be vested on the first anniversary of the date of grant and the remaining 40% of the share options will be vested on the second anniversary of the date of grant. The validity period of these share options shall be 5 years from the date of grant. * 30% 30% 40% 55

61 Report of the Directors DISTRIBUTABLE RESERVES As at 31 December 2015, the Company had reserves available for distribution as calculated under the Companies Act 1981 of Bermuda (as amended) amounting to HK$25,512,000 (2014: Nil). However, the Company s share premium account, in the amount of HK$1,323,439,000 (2014: HK$1,306,427,000) may be distributed in the form of fully paid bonus shares. PRE-EMPTIVE RIGHTS There is no provision for pre-emptive rights under the Company s Byelaws and there was no restriction against such rights under the laws of Bermuda. FIVE YEARS FINANCIAL SUMMARY A summary of the results and financial position of the Group for the last five financial years is set out on page 156. PURCHASE, SALE OR REDEMPTION OF SECURITIES The Company has not redeemed any of its shares during the year. Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company s shares during the year ended 31 December DIRECTORS The Directors during the year and up to the date of this report were: 25,512,000 1,323,439,000 1,306,427, Executive Directors: NIE Guoming LU Jie LI Wenjin Independent Non-Executive Directors: YIP Wai Ming WU Min MAN Kwok Kuen, Charles Pursuant to the Company s Bye-laws 84 and 85, one-third of the Directors are subject to retirement by rotation and re-election at least once every three years at the annual general meeting of the Company Mr. Lu Jie and Mr. Yip Wai Ming will retire and, being eligible, will offer themselves for re-election at the forthcoming annual general meeting. 56 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

62 Report of the Directors DIRECTORS SERVICE CONTRACTS As at the date of this report, each of the executive Directors has entered into a service contract with the Company for a term of three years, from 23 May 2013 for Mr. Lu Jie and 20 December 2013 for Mr. Nie Guoming and Mr. Li Wenjin, unless and until terminated by either the Company or the Directors giving to the other a notice of not less than three months. Save as disclosed herein, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group (excluding contracts expiring or determinable within one year without payment of compensation, other than statutory compensation). BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT Brief biographical details of the Directors and the senior management are set out on pages 6 to 9. PERMITTED INDEMNITY PROVISION A permitted indemnity provision for the benefit of the Directors is currently in force and was in force throughout the financial year. 6 9 The Company has taken out and maintained directors liability insurance throughout the year, which provides appropriate cover for the Directors of the Group. DIRECTORS INTERESTS IN CONTRACTS No transactions, arrangements or contracts of significance in relation to the Group s business to which the Company, its fellow subsidiaries or its holding company was a party and in which a Director and the Director s connected entity had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. DIRECTORS INTEREST IN COMPETING BUSINESS As at 31 December 2015, none of the Directors or the substantial shareholders of the Company or any of their respective associates has engaged in any business that competes or may compete with the business of the Group, or has any other conflict of interests with the Group. 57

63 Report of the Directors DIRECTORS AND CHIEF EXECUTIVE S INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES As at 31 December 2015, the interests and short positions of each Director and the chief executive of the Company (the Chief Executive ) in the Company s shares (the Shares ), underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ( SFO )), as recorded in the register maintained by the Company under section 352 of the SFO or as 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 the Listed Issuers (the Model Code ) were as follows: XV 352 Ordinary shares of HK$0.10 each in the Company 0.10 Name of Director Capacity Interest in Shares Total interests (i) Approximate percentage of shareholding* (i) * Nie Guoming (Chairman) Beneficial owner 3,700,000 3,700,000 (L) 0.33% Lu Jie (Chief Executive Officer) Beneficial owner 10,400,000 10,400,000 (L) 0.94% Li Wenjin Beneficial owner 2,890,000 2,890,000 (L) 0.26% Notes: (i) The letter L denotes a long position in Shares. (i) L * The percentage is calculated based on the total number of issued shares of the Company as at 31 December 2015 which were 1,112,014,000 ordinary shares. * 1,112,014, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

64 Report of the Directors Save as disclosed above, as at 31 December 2015, none of the Directors, the Chief Executive nor their associates had any interests or short positions in any Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as 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. SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES The register of substantial Shareholders maintained under Section 336 of the SFO shows that as at 31 December 2015, the Company had been notified of the following substantial Shareholders interests and short positions, being 5% or more of the Company s issued share capital. These interests are in addition to those disclosed above in respect of the Directors and the Chief Executive. XV % Total number Name of shareholder Capacity Class of securities of Shares (Note 1) 1 Approximate percentage of shareholding (Note 2) 2 Hi Sun Technology (China) Limited Beneficial owner Ordinary 364,000,000 (L) 32.73% ( Hi Sun ) FMR LLC Investment manager Ordinary 79,002,280 (L) 7.10% Notes: 1. The letter L denotes a long position in Shares. 1. L 2. The percentage is calculated based on the total number of issued shares of the Company as at 31 December 2015 which was 1,112,014,000 ordinary shares. 2. 1,112,014,000 Save as disclosed above, other than the Directors or the Chief Executive, there were no other parties who had interests or short positions in the Shares or underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO as at 31 December

65 Report of the Directors CONNECTED TRANSACTIONS The following are the continuing connected transactions of the Group during the year ended 31 December 2015 which are subject to the reporting, announcement, annual review and/or independent shareholders approval requirements under Chapter 14A of the Listing Rules: 14A Framework agreements with Hi Sun (i) O n 1 9 D e c e m b e r 2012, the Company entered into a framework agreement (the Framework Agreement ) with Hi Sun, a substantial shareholder of the Company. As Hi Sun was a connected person of the Company, the transactions contemplated under the Framework Agreement constituted continuing connected transactions under the Listing Rules. (i) Pursuant to the Framework Agreement, the Group agreed to sell and Hi Sun (together with its subsidiaries) agreed to purchase the E-payment Terminal products for the mobile and other payment solutions services of Hi Sun and its subsidiaries ( Hi Sun Group ). The term of the Framework Agreement commenced from 15 January 2013, the date on which the relevant approval was obtained from the independent shareholders of the Company at its special general meeting, and expired on 31 December The annual caps of the total contract value for the sale and purchase of E-payment Terminal products under the Framework Agreement for the three years ended 31 December 2013, 2014 and 2015 were HK$330,000,000, HK$600,000,000 and HK$700,000,000 respectively. Since one or more of the applicable percentage ratios (other than the profits ratio) in respect of the said annual caps exceeded 5% and HK$10,000,000, the transactions contemplated under the Framework Agreement were subject to the reporting, announcement, independent shareholders approval and annual review requirements under Chapter 14A of the Listing Rules. 330,000, ,000, ,000,000 5% 10,000,000 14A 60 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

66 Report of the Directors Considering that the transactions in relation to the sale and purchase of E-payment Terminal products between the Group and Hi Sun Group would continue after the expiry of the term of the Framework Agreement, the Company and Hi Sun entered into a new framework agreement on 31 December 2015 (the New Framework Agreement ). The term of the New Framework Agreement commenced from 22 January 2016, the date on which the relevant approval was obtained from the independent shareholders of the Company at its special general meeting, and will expire on 31 December The annual caps of the total contract value for the sale and purchase of E-payment Terminal products under the New Framework Agreement for the three years ending 31 December 2016, 2017 and 2018 were HK$300,000,000, HK$350,000,000 and HK$400,000,000 respectively. As one or more of the applicable percentage ratios (other than the profits ratio) in respect of the said annual caps of the total contract value for the sale and purchase of the E-payment Terminal products under the New Framework Agreement exceeded 5% and HK$10,000,000, the transactions contemplated under the New Framework Agreement were subject to the reporting, announcement, independent shareholders approval and annual review requirements under Chapter 14A of the Listing Rules. 300,000, ,000, ,000,000 5% 10,000,000 14A 61

67 Report of the Directors (ii) Considering that the business transactions in relation to the sale and purchase of the mag-stripe card security decoder chips (the Chips ) between the Group and Hi Sun Group would continue after the expiry of the term of the framework agreement dated 21 February 2013, the Company and Hi Sun entered into a new framework agreement on 31 December 2013 (the New Framework Agreement ). The term of the New Framework Agreement commenced from 1 January 2014 and will expire on 31 December The annual caps of the total contract value for the sale and purchase of the Chips under the New Framework Agreement for each of the financial years ending 31 December 2014, 2015 and 2016 were HK$50,000,000, HK$60,000,000 and HK$65,000,000 respectively. As one or more of the applicable percentage ratios (other than the profits ratio) in respect of the annual caps of the total contract value for the sale and purchase of the Chips payable under the New Framework Agreement on an annual basis exceeded 0.1% and HK$1,000,000 but was less than 5%, such continuing connected transactions were only subject to the reporting, announcement and annual review requirements and were exempt from the independent shareholders approval requirements under Chapter 14A of the Listing Rules. (ii) 50,000,000 60,000,00065,000, % 1,000,000 5% 14A Please also refer to note 30(a) to the consolidated financial statements. 30(a) The independent non-executive Directors have reviewed the above continuing connected transactions and in their opinion, these transactions entered into by the Company were: (i) in the ordinary and usual course of business of the Group; (i) (ii) on normal commercial terms or better; and (ii) (iii) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. (iii) 62 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

68 Report of the Directors The Company auditor was engaged to report on the Group s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information and with reference to Practice Note 740 Auditor s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules issued by the Hong Kong Institute of Certified Public Accountants. The auditor of the Company has issued a letter containing its findings and conclusions in respect of the continuing connected transactions in accordance with Rule 14A.56 of the Listing Rules and a copy of this letter has been provided to the Stock Exchange A.56 A summary of significant related party transactions made during the year was disclosed in note 30 to the financial statements. MANAGEMENT CONTRACTS No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year ended 31 December DEED OF NON-COMPETITION AND CONFLICTS OF INTERESTS A deed of non-competition was entered into between the Company and Hi Sun on 1 December 2010 ( Deed of Non-Competition ). 30 Hi Sun has signed an annual declaration of compliance with the Deed of Non-competition confirming it has complied with the non-competition undertakings in the Deed of Non-Competition. The independent non-executive directors of the Company have reviewed the abovementioned undertakings and considers that Hi Sun has complied with the Deed of Non-Competition during the financial year ended 31 December Mr. Li Wenjin, an executive Director of the Company, is also an executive director of Hi Sun and certain of its subsidiaries. If any conflicts of interest should arise between the Group and Hi Sun Group in a particular transaction, any common directors of the two groups and any Director with an interest in the relevant transaction(s) will be required to abstain from voting on the relevant Board resolutions. Based on the above, none of the Directors have any interest in any competing business that is discloseable under Rule 8.10(2) of the Listing Rules. 8.10(2) 63

69 Report of the Directors MAJOR CUSTOMERS AND SUPPLIERS The percentages of purchases and sales for the year ended 31 December 2015 attributable to the Group s major suppliers and customers are as follows: Purchases the largest supplier 26.75% five largest suppliers combined 54.72% 26.75% 54.72% Sales the largest customer 16.54% five largest customers combined 44.44% 16.54% 44.44% The total sales included the electronic payment products sold to a subsidiary of Hi Sun, which amounted to approximately HK$148.5 million (representing approximately 5.17% of the total sales amount), being one of the Group s five largest customer for the year. Hi Sun is the controlling shareholder of the Company holding approximately 32.73% of its issued share capital and Mr. Li Wenjin, an executive Director of the Company and an executive director of Hi Sun, was interested in 6,400,000 ordinary shares in, representing approximately 0.23% of, the issued share capital of Hi Sun as at 31 December % 32.73% 6,400, % Save as disclosed, none of the Directors, their associates or any shareholder (which to the knowledge of the Directors own more than 5% of the Company s share capital) had an interest in the major customers or suppliers noted above. PENSION SCHEME The subsidiaries operating in Hong Kong are required to participate in a defined contribution retirement scheme or the Group or Company set up in accordance with the Hong Kong Mandatory Provident Fund Ordinance. Under the scheme, the employees are required to contribute 5% of their monthly salaries up to a maximum of HK$1,500 and they can choose to make additional contributions. The employer s monthly contributions are calculated at 5% of the employee s monthly salaries up to a maximum of HK$1,500 (the Mandatory Contributions ). The employees are entitled to 100% of the employer s Mandatory Contributions upon their retirement at the age of 65 years old, death or total incapacity. 5% 5% 1,500 5% 1, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

70 Report of the Directors In addition, pursuant to the government regulations in the PRC, the Group is required to contribute an amount to certain retirement benefit schemes based on approximately 7% to 20% of the basic wages of those workers in the PRC. The local municipal government undertakes to assume the retirement benefits obligations of those workers of the Group. SUFFICIENCY OF PUBLIC FLOAT Based on the information that is publicly available to the Company and within the knowledge of the Directors, the Directors confirm that the Company has maintained during the year the amount of public float as required under the Listing Rules. AUDITORS The financial statements have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for re-appointment at the forthcoming annual general meeting of the Company. 7% 20% On behalf of the Board Nie Guoming Chairman Hong Kong, 8 March

71 Independent Auditor s Report Independent Auditor s Report To the shareholders of PAX Global Technology Limited (incorporated in Bermuda with limited liability) We have audited the consolidated financial statements of PAX Global Technology Limited (the Company ) and its subsidiaries set out on pages 68 to 155, which comprise the consolidated balance sheet as at 31 December 2015, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. DIRECTORS RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The Directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with Section 90 of the Companies Act 1981 of Bermuda and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

72 Independent Auditor s Report We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries as at 31 December 2015, and of their financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 8 March

73 Consolidated Income Statement Year ended 31 December Notes HK$ 000 HK$ 000 Revenue 5 2,870,794 2,373,272 Cost of sales 7 (1,778,304) (1,508,406) Gross profit 1,092, ,866 Other income 5 109,235 70,445 Selling expenses 7 (235,715) (218,568) Administrative expenses 7, 8 (308,037) (253,549) Operating profit/ profit before income tax 657, ,194 Income tax expense 10 (37,687) (71,388) Profit for the year 620, ,806 Profit attributable to: Owners of the Company 620, ,806 Non-controlling interests (450) 620, ,806 HK$ per share HK$ per share Earnings per share for the profit attributable to owners of the Company: Basic 11(a) Diluted 11(b) The notes on pages 74 to 155 are an integral part of these consolidated financial statements PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

74 Consolidated Statement of Comprehensive Income Year ended 31 December HK$ 000 HK$ 000 Profit for the year 620, ,806 Other comprehensive loss, net of tax Items that may be subsequently reclassified to profit or loss Exchange differences arising on translation of the financial statements of foreign subsidiaries (101,930) (33,464) Total comprehensive income for the year, net of tax 518, ,342 Attributable to: Owners of the Company 518, ,342 Non-controlling interests (445) 518, ,342 The notes on pages 74 to 155 are an integral part of these consolidated financial statements

75 Consolidated Balance Sheet As at 31 December Notes HK$ 000 HK$ 000 ASSETS Non-current assets Property, plant and equipment 13 11,480 11,428 Leasehold land Intangible assets 14 15,625 Other non-current assets 18 31,400 Deferred income tax assets Total non-current assets 59,614 11,649 Current assets Inventories , ,461 Trade and bills receivables 18 1,261, ,278 Deposits and other receivables 18 43,719 14,084 Restricted cash 19 8,935 16,112 Cash at bank and on hand 20 2,144,312 1,918,729 Total current assets 4,020,585 3,322,664 Total assets 4,080,199 3,334,313 EQUITY Equity attributable to owners of the Company Share capital , ,081 Reserves 23 2,966,373 2,438,099 3,077,574 2,548,180 Non-controlling interests 13,025 Total equity 3,090,599 2,548,180 The notes on pages 74 to 155 are an integral part of these consolidated financial statements PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

76 Consolidated Balance Sheet (Continued) As at 31 December Notes HK$ 000 HK$ 000 LIABILITIES Non-current liabilities Deferred income tax liabilities 25 2,057 Current liabilities Trade payables , ,754 Other payables and accruals , ,864 Taxation payable 45,658 77,515 Total current liabilities 987, ,133 Total liabilities 989, ,133 Total equity and liabilities 4,080,199 3,334,313 The financial statements were approved by the Board of Directors on 8 March 2016 and were signed on its behalf. NIE GUOMING Director LI WENJIN Director The notes on pages 74 to 155 are an integral part of these consolidated financial statements

77 Consolidated Statement of Changes in Equity Attributable to owners of the Company Reserves Share option reserve Noncontrolling interests Share capital Share premium Capital reserve Exchange reserve Retained earnings Total Total equity HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 For the year ended 31 December 2015 Balance at 1 January ,081 1,306,427 (414,978) 62,680 64,839 1,419,131 2,438,099 2,548,180 Comprehensive income Profit for the year 620, ,736 (450) 620,286 Other comprehensive loss Exchange differences arising on translation of the financial statements of foreign subsidiaries (101,935) (101,935) 5 (101,930) Total comprehensive income (101,935) 620, ,801 (445) 518,356 Transaction with owners Share option scheme value of services provided 14,690 14,690 14,690 share options exercised 1,120 17,012 17,012 18,132 Dividends paid (22,229) (22,229) (22,229) Non-controlling interests arising on business combination 13,470 13,470 Total transaction with owners 1,120 17,012 14,690 (22,229) 9,473 13,470 24,063 Balance at 31 December ,201 1,323,439 (414,978) 77,370 (37,096) 2,017,638 2,966,373 13,025 3,090,599 For the year ended 31 December 2014 Balance at 1 January ,452 1,237,947 (414,978) 34,073 98,303 1,027,325 1,982,670 2,087,122 Comprehensive income Profit for the year 391, , ,806 Other comprehensive loss Exchange differences arising on translation of the financial statements of foreign subsidiaries (33,464) (33,464) (33,464) Total comprehensive income (33,464) 391, , ,342 Transaction with owners Share option scheme value of services provided 28,607 28,607 28,607 share options exercised 5,629 68,480 68,480 74,109 Total transaction with owners 5,629 68,480 28,607 97, ,716 Balance at 31 December ,081 1,306,427 (414,978) 62,680 64,839 1,419,131 2,438,099 2,548,180 The notes on pages 74 to 155 are an integral part of these consolidated financial statements PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

78 Consolidated Cash Flow Statement Year ended 31 December Notes HK$ 000 HK$ 000 Cash flows from operating activities Cash generated from operations 26(a) 386, ,392 Hong Kong profits tax paid (42,913) (4,274) PRC corporate income tax paid (26,047) (13,777) Net cash generated from operating activities 317, ,341 Cash flows from investing activities Acquisition of a subsidiary, net of cash acquired 29 (1,363) Purchase of property, plant and equipment (5,248) (7,493) Interest received 20,675 23,677 Prepayments for acquisitions of subsidiaries (21,975) Net cash (used in)/generated from investing activities (7,911) 16,184 Cash flows from financing activities Proceeds from issuance of shares in connection with exercise of share options 18,132 74,109 Dividends paid (22,229) Net cash (used in)/generated from financing activities (4,097) 74,109 Net increase in cash and cash equivalents Exchange losses on cash and cash equivalents Cash and cash equivalents at beginning of the year 305, ,634 (79,544) (24,312) 1,918,729 1,698,407 Cash and cash equivalents at end of the year 20 2,144,312 1,918,729 The notes on pages 74 to 155 are an integral part of these consolidated financial statements

79 1 GENERAL INFORMATION PAX Global Technology Limited (the Company ) is an investment holding company and together with its subsidiaries (collectively referred to as the Group ) are principally engaged in the development and sale of electronic funds transfer pointof-sale ( E-payment Terminal ) products and provision of related services (collectively, the E-payment Terminal solutions business ). 1 The Company is a limited liability company incorporated in Bermuda. The Company was listed on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange ) on 20 December The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda These financial statements are presented in thousands of units of Hong Kong dollars (HK$ 000), unless otherwise stated. These financial statements have been approved for issue by the Board of Directors on 8 March SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated Basis of preparation The consolidated financial statements of the Company have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by The Hong Kong Institute of Certified Public Accountants. The consolidated financial statements have been prepared under the historical cost convention PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

80 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) The preparation of financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note Changes in accounting policy and disclosures (a) New and amended standards adopted by the Group Amendment to HKAS 19 regarding defined benefit plans: employee contributions. This narrow scope amendment applies to contributions from employees or third parties to defined benefit plans. The amendment distinguishes between contributions that are linked to service only in the period in which they arise and those linked to service in more than one period. The amendment allows contributions that are linked to service, and do not vary with the length of employee service, to be deducted from the cost of benefits earned in the period that the service is provided. Contributions that are linked to service, and vary according to the length of employee service, must be spread over the service period using the same attribution method that is applied to the benefits (a) 19 Annual improvements These amendments include changes from the cycle of the annual improvements project, that affect the below standards: HKFRS 8, Operating segments ; HKAS 16, Property, plant and equipment and HKAS 38, Intangible assets ; and HKAS 24, Related Party Disclosures

81 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) Changes in accounting policy and disclosures (continued) (a) New and amended standards adopted by the Group (continued) Annual improvements The amendments include changes from the cycle of the annual improvements project that affect the below standards: HKFRS 3, Business combinations ; HKFRS 13, Fair value measurement ; and HKAS 40, Investment property (a) The adoption of the improvements made in the Cycle has required additional disclosures in the segment note. Other than that, the remaining amendments are not material to the Group. (b) New Hong Kong Companies Ordinance (Cap. 622) In addition, the requirements of Part 9 Accounts and Audit of the new Hong Kong Companies Ordinance (Cap. 622) come into operation during the financial year, as a result, there are changes to presentation and disclosures of certain information in the consolidated financial statements. (b) (c) New and amended standards not yet adopted (c) A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2015, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: 76 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

82 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) Changes in accounting policy and disclosures (continued) (c) New and amended standards not yet adopted (continued) HKFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of HKFRS 9 was issued in July It replaces the guidance in HKAS 39 that relates to the classification and measurement of financial instruments. HKFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through income statement. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through income statement with the irrevocable option at inception to present changes in fair value in other comprehensive income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in HKAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through income statement. HKFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes (c)

83 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.1 Basis of preparation (continued) Changes in accounting policy and disclosures (continued) (c) New and amended standards not yet adopted (continued) Contemporaneous documentation is still required but is different to that currently prepared under HKAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Group is yet to assess HKFRS 9 s full impact (c) 39 9 HKFRS 15, Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces HKAS 18 Revenue and HKAS 11 Construction contracts and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group is assessing the impact of HKFRS There are no other HKFRSs or HK(IFRIC) interpretations that are not yet effective that would be expected to have a material impact on the Group. 78 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

84 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Consolidation and combination Subsidiaries A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases (a) Business combination The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. (a) The Group recognises any non-controlling interest in the acquiree on an acquisition-byacquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation are measured at either fair value or the present ownership interests proportionate share in the recognised amounts of the acquiree s identifiable net assets. All other components of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by HKFRS. Acquisition-related costs are expensed as incurred. 79

85 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Consolidation and combination (continued) Subsidiaries (continued) (a) Business combination (continued) If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss (a) Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKAS 39 in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. 39 The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated income statement. 80 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

86 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Consolidation and combination (continued) Subsidiaries (continued) (a) Business combination (continued) Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group s accounting policies (a) (b) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners of the subsidiary in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (b) (c) Disposal of subsidiaries When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in the consolidated income statement. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the consolidated income statement. (c) 81

87 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Consolidation and combination (continued) Separate financial statements Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable cost of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee s net assets including goodwill. 2.3 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Directors that make strategic decisions Foreign currency translation (a) Functional and presentation currency Items included in the consolidated financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates or the currency in which funds from financing activities are generated ( the functional currency ). The consolidated financial statements are presented in HK$, which is the Company s functional and the Group s presentation currency. 2.4 (a) 82 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

88 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4 Foreign currency translation (continued) (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at yearend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges (b) (c) Group companies The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional (c) currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet (i) presented are translated at the closing rate at the date of that balance sheet; (ii) i n c o m e a n d e x penses for each income (ii) statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (iii) all resulting currency translation differences are (iii) recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are recognised in other comprehensive income. 83

89 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.5 Property, plant and equipment All property, plant and equipment is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate cost to their residual values over their estimated useful lives, as follows: Buildings 5% 10% 5% 10% Leasehold improvements 20% or over lease terms, whichever is shorter 20% Office furniture and equipment 18% 25% 18% 25% Plant and equipment 9% 25% 9% 25% Motor vehicles 18% 25% 18% 25% The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses in the consolidated income statement. 84 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

90 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 Intangible assets Goodwill Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units ( CGUs ), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed Contractual customer relationships Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method from three to ten years over the expected life of the customer relationships

91 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Leasehold land Leasehold land is stated at cost less accumulated amortisation and impairment losses. Cost represents upfront prepayments made for the rights to use the land for periods varying from 10 to 50 years. Amortisation of leasehold land is charged to the consolidated income statement on a straight-line basis over the period of the lease or when there is impairment, the impairment is charged to the consolidated income statement Impairment of non-financial assets Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date Financial assets Classification The Group classifies its financial assets in the following categories: at fair value through income statement, loans and receivables, and available for sales. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. As at 31 December 2015, the Group s financial assets mainly includes loans and receivables PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

92 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.9 Financial assets (continued) Classification (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified as non-current assets. The Group s loans and receivables include trade and bills receivables, deposits and other receivables, restricted cash and cash at bank in the consolidated balance sheet (Notes 2.13 and 2.14) Recognition and measurement Regular way purchases and sales of financial assets are recognised on the trade-date the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method

93 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.10 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty Impairment of financial assets Assets carried at amortised cost The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument s fair value using an observable market price. 88 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

94 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.11 Impairment of financial assets (continued) Assets carried at amortised cost (continued) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. Impairment testing of trade and other receivables is described in note Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses Trade, bills and other receivables Trade, bills and other receivables including retention money receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of trade, bills and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indication that the receivable is impaired. The amount of the allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognised in the consolidated income statement within administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the consolidated income statement

95 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.14 Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents include cash on hand and deposits held at call with banks and short-term highly liquid investments with original maturities of three months or less Share capital Ordinary shares are classified as equity Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively (a) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. (a) 90 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

96 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.17 Current and deferred income tax (continued) (b) Deferred income tax Inside basis differences Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised (b) Outside basis differences Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the forseeable future, deferred income tax liability in relation to taxable temporary differences arising from the associate s undistributed profit is not recognised. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. 91

97 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.17 Current and deferred income tax (continued) (c) Offsetting Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis (c) 2.18 Employee benefits (a) Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision, where appropriate, is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date (a) Employee entitlements to sick leave and maternity leave are not recognised until the time of leave. (b) Pension obligations The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the Pension Scheme ) set up pursuant to the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees basic salaries and are charged to the consolidated income statement as they become payable in accordance with the rules of the Pension Scheme. The assets of the Pension Scheme are held separately from those of the Group in an independently administrated fund. The Group s employer contributions vest fully with the employees when contributed to the Pension Scheme, except for the Group s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to vesting fully in the contributions, in accordance with the rules of the Pension Scheme. (b) 92 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

98 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.18 Employee benefits (continued) (b) Pension obligations (continued) The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due and are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available (b) In addition, pursuant to the government regulations in the People s Republic of China (the PRC ), the Group is required to contribute an amount to certain retirement benefit schemes based on approximately 7% to 20% of the wages for the year/period of those employees in the PRC. The local municipal government undertakes to assume the retirement benefits obligations of those employees of the Group. Contributions to these retirement benefits schemes are charged to the consolidated income statement as incurred. 7% 20% (c) Profit sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (c) 93

99 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.19 Share-based payments (a) Equity-settled share based payment transactions The Group operates an equity-settled, share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted: (a) including any market performance conditions; excluding the impact of any service and nonmarket performance vesting conditions (for example, remaining an employee of the entity over a specified time period); and including the impact of any non-vesting conditions. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. It recognises the impact of the revision to original estimates, if any, in the consolidated income statement, with a corresponding adjustment to equity. In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date. 94 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

100 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.19 Share-based payments (continued) (a) Equity-settled share based payment transactions (continued) When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium (a) (b) Share-based payment transactions among group entities The grant by the Company of options over its equity instruments to the employees of subsidiaries undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts. (b) 2.20 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 95

101 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.21 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts returns and value added taxes. The Group recognises revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group s activities, as described below. The Group bases its estimates of return on historical results, taking into consideration the type of customers, the type of transactions and the specifics of each arrangement (a) Sales of goods Sales of goods are recognised when a group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables, including retention money receivables, is reasonably assured. (a) (b) Provision of service Revenue from fixed-price contracts is generally recognised in the period in which the services are provided, using the straight-line basis over the terms of contracts. (b) (c) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. (c) 2.22 Leases (as the lessee for operating leases) Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

102 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.23 Value added tax refund Value added tax refund are recognised in other income in the consolidated income statement when there is a reasonable assurance that the refund will be received which generally occurs upon the receipt of the approval of tax refund from the local tax bureau Government grants Grants from the government are recognised in other income in the consolidated income statement at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all the attached conditions Research and development Research expenditure is expensed as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are expensed as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period Dividend distribution Dividend distribution to the Company s shareholders is recognised as a liability in the Group s financial statements in the period in which the dividends are approved by the Company s shareholders or directors, where appropriate

103 3 FINANCIAL RISK MANAGEMENT 3.1 Financial risk factors The Group s activities expose it to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk and interest rate risk. The Group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance (a) Foreign exchange risk The Group s foreign currency transactions are mainly denominated in Renminbi ( RMB ), HK$, United States dollar ( US$ ) and European dollar ( EUR ). The majority of assets and liabilities are denominated in RMB, HK$ and US$, and there are no significant assets and liabilities denominated in other currencies. The Group is subject to foreign exchange rate risk arising from future commercial transactions and recognised assets and liabilities denominating in a currency other than HK$, RMB or US$, which are the functional currencies of the major operating companies within the Group. The Group currently does not hedge its foreign currency exposure. (a) The management considers the foreign exchange risk with respect to US$ is not significant as HK$ is pegged to US$ and transactions denominated in US$ are mainly carried out by entities with the same functional currency. The exchange rate of RMB to HK$ is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. The Group manages its foreign currency risk by closely monitoring the movement of the foreign currency rates. For group companies with HK$ as their functional currency As at 31 December 2015, if RMB had weakened/ strengthened by 5% against HK$ with all other variables held constant, profit for the year and equity of the Group would have been approximately HK$6,621,000 (2014: HK$7,117,000) lower/higher, respectively, mainly as a result of the foreign exchange difference on translation of RMB denominated cash at bank and on hand and the current account with related parties. 5% 6,621,000 7,117, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

104 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (a) Foreign exchange risk (continued) For group companies with RMB as their functional currency (a) As at 31 December 2015, if HK$ had weakened/ strengthened by 5% against RMB with all other variables held constant, profit for the year and equity of the Group would have been approximately HK$5,044,000 (2014: HK$1,817,000) lower/higher, respectively, mainly as a result of the foreign exchange difference on translation of HK$ denominated cash at bank and on hand and the current account with related parties. 5% 5,044,000 1,817,000 For the group company with EUR as its functional currency As at 31 December 2015, if US$ had weakened/ strengthened by 5% against EUR with all other variables held constant, profit for the year and equity of the Group would have been approximately HK$238,000 (2014: Nil) lower/higher, respectively, mainly as a result of the foreign exchange difference on translation of US$ denominated cash at bank and on hand and trade payables. 5% 238,000 99

105 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (b) Credit risk The Group is exposed to credit risk in relation to its trade, bills and other receivables, restricted cash and deposits with banks (b) The carrying amounts of trade, bills and other receivables, restricted cash and deposits with banks represent the Group s maximum exposure to credit risk in relation to financial assets. To manage this risk, deposits of the Group are mainly placed with state-owned financial institutions and reputable banks. The Group has policies in place to ensure that sales are made to reputable and creditworthy customers with an appropriate financial strength, credit history and an appropriate percentage of down payments. It also has other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews regularly the authorisation of credit limits to individual customers and recoverable amount of each individual trade receivables to ensure that adequate impairment losses are made for irrecoverable amounts. The Group has concentration of credit risk. Sales of goods and services to the top five customers constituted 44.4% (2014: 38.9%) of the Group s revenue for the year ended 31 December They accounted for approximately 37.5% (2014: 50.2%) of the gross trade receivable balances as at 31 December Collections of outstanding receivable balances are closely monitored on an ongoing basis to minimise such credit risk. 44.4% 38.9% 37.5% 50.2% 100 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

106 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (c) Liquidity risk With prudent liquidity risk management, the Group aims to maintain sufficient cash at bank and on hand and ensure the availability of funding through an adequate amount of available financing, including short-term bank borrowings. Due to the dynamic nature of the underlying businesses, the Group s finance department maintains flexibility in funding by maintaining adequate amount of cash at bank and on hand and flexibility in funding through having available sources of financing (c) Surplus cash held by the operating entities over and above the balance required for working capital management are transferred to interest-bearing bank deposits with appropriate maturities to manage its overall liquidity position. As at 31 December 2015, the Group maintained cash at bank and on hand of approximately HK$2,144,312,000 (2014: HK$1,918,729,000), that are expected to be readily available and sufficient to meet the cash outflows of its financial liabilities, hence, management considers that Group s exposure to liquidity risk is not significant. 2,144,312,000 1,918,729,

107 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (c) Liquidity risk (continued) The table below analyses the Group s non-derivative financial liabilities into relevant maturity grouping based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying values as the impact of discounting is not significant (c) Less than 1 year Total HK$ 000 HK$ 000 At 31 December 2015 Trade payables 710, ,529 Other payables and accruals 59,207 59,207 Total 769, ,736 At 31 December 2014 Trade payables 423, ,754 Other payables and accruals 46,199 46,199 Total 469, , PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

108 3 FINANCIAL RISK MANAGEMENT (continued) 3.1 Financial risk factors (continued) (d) Interest rate risk The income and operating cash flows of the Group and the Company are both substantially independent of changes in market interest rates. Both the Group and the Company has no significant interest-bearing assets, except for deposits placed with banks (d) As at 31 December 2015, if interest rates on all interest-bearing bank and cash deposits had been 50 basis points higher/lower with all other variables held constant, profit for the year and equity of the Group would have been HK$8,227,000 (2014: HK$8,298,000) higher/lower respectively, due to higher/lower interest income earned on the deposits. 50 8,227,000 8,298, Capital management The Group regards its shareholders equity as capital. The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. 3.2 In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by total equity. As at 31 December 2014 and 2015, the Group had no borrowings, the gearing ratio is not applicable. 103

109 3 FINANCIAL RISK MANAGEMENT (continued) 3.3 Fair value estimation The inputs to valuation techniques used to measure fair value are categorised into three levels within a fair value hierarchy as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets is the current bid price. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

110 3 FINANCIAL RISK MANAGEMENT (continued) 3.3 Fair value estimation (continued) Specific valuation techniques used to value level 3 financial instruments include techniques such as discounted cash flow analysis In applying the discounted cash flow technique, management has taken into account the estimated amount that the Group would receive to sell the instrument at the balance sheet date, taking into account current interest rates and the current credit worthiness of the counterparties. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. There were no significant transfers of financial assets between the fair value hierarchy classifications during the year. At 31 December 2014 and 2015, the Group had no financial instruments stated at fair value. 3.4 Offsetting financial assets and financial liabilities No financial assets and financial liabilities were subject to offsetting, enforceable master netting arrangements and similar arrangements as at 31 December 2014 and

111 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments used in preparing the consolidated financial statements are evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are addressed below. 4 (a) Income taxes and deferred taxation Significant judgment is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the current tax and deferred tax assets and liabilities in the period in which such determination is made. (a) Deferred tax assets relating to certain temporary differences and tax losses are recognised when management considers it is probable that future taxable profit will be available against which the temporary differences or tax losses can be utilised. The outcome of their actual utilisation may be different. (b) Provision for inventories The Group assesses the carrying amounts of inventories in accordance with their net realisable value which is based on the realisability of these inventories. Net realisable value for inventories is determined by reference to management s estimates of the selling price based on prevailing market conditions, less applicable variable selling expenses. Based on management s best estimates, an impairment provision of HK$68,549,000 was made as at 31 December 2015 (31 December 2014: HK$29,421,000) (note 17). (b) 68,549,000 29,421, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

112 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (continued) (c) Impairment of receivables The Group makes provision for impairment of receivables based on an assessment of the recoverability of the receivables. Provisions are applied to the receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment requires the use of judgment and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of the receivables and provision for impaired receivables in the period in which such estimate has been changed. 4 (c) (d) Acquisition accounting Accounting for acquisitions require the Group to allocate the cost of acquisition to specific assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. In connection with the acquisition of Pax Italia S.r.l., as set out in note 29, the Group undertook a process to identify all assets and liabilities acquired, including acquired intangible assets. (d) Pax Italia S.r.l. 29 Judgments made in identifying all acquired assets, determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset s useful lives, could materially impact the calculation of goodwill and depreciation and amortisation charges in subsequent periods. Estimated fair values are based on information available near the acquisition date and on expectations and assumptions that were deemed reasonable by management. Determining the estimated useful lives of tangible and intangible assets acquired where applicable also requires judgment. 107

113 5 REVENUE AND OTHER INCOME The Group is principally engaged in the sale of E-payment Terminal products and the provision of related services. Revenue and other income recognised during the year were as follows: 5 Year ended 31 December HK$ 000 HK$ 000 Revenue Sales of electronic payment products 2,841,393 2,346,837 Provision of electronic payment services 29,401 26,435 2,870,794 2,373,272 Other income Interest income 19,833 23,198 Value added tax refund (note (i)) (i) 79,600 41,770 Subsidy income 8,402 3,934 Others 1,400 1, ,235 70,445 note (i) The amount represents the Group s entitlement to value added tax refund in relation to the sales of self-developed software products in the PRC. (i) 6 SEGMENT INFORMATION The management reviews the Group s internal reporting in order to assess performance and allocate resources. The management has determined the operating segments based on the internal reports reviewed by the Executive Directors to make strategic decisions. The Group is principally engaged in the E-payment Terminal solutions business, and the management considers that the Group operates in one single business segment. Due to acquisition of Pax Italia S.r.l. during the year (Note 29), a separate business unit has been set up for the operation in Italy. The Group has adopted the new organization structure as the internal reporting format to assess performance and allocate resources effective for the year ended 31 December The Group primarily operates in Hong Kong, the PRC (China excluding Hong Kong, Macau and Taiwan), the United States of America (the US ) and Italy. The management assesses the performance of the Group from a geographic perspective based on the locations of the subsidiaries in which revenues are generated. 6 Pax Italia S.r.l PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

114 6 SEGMENT INFORMATION (continued) The management assesses the performance of the operating segments based on a measurement of segmental operating profit/(loss). 6 An analysis of the Group s turnover and results during the year by segment is as follows: Year ended 31 December 2015 PRC, other than Hong Kong, Macau and Taiwan Hong Kong US Italy Elimination Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Turnover from external customers 1,748, , ,433 16,923 2,870,794 Intra-group turnover 894, ,275 (1,007,008) Total turnover 2,643,536 1,111, ,433 16,923 (1,007,008) 2,870,794 Segmental earnings/(loss) before interest expense, taxes, depreciation and amortisation ( EBITDA ) EBITDA 367, ,777 (24,159) (906) (2,904) 662,977 Depreciation (3,802) (260) (340) (158) (4,560) Amortisation (6) (438) (444) Segmental operating profit/ (loss) and profit/(loss) before income tax 363, ,517 (24,499) (1,502) (2,904) 657,973 Income tax expense (37,687) Profit for the year 620,

115 6 SEGMENT INFORMATION (continued) 6 Year ended 31 December 2014 PRC, other than Hong Kong, Macau and Taiwan Hong Kong US Elimination Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Turnover from external customers 1,708, ,848 53,320 2,373,272 Intra-group turnover 566,826 41,981 (608,807) Total turnover 2,274, ,829 53,320 (608,807) 2,373,272 EBITDA EBITDA 331, ,429 (11,245) 1, ,195 Depreciation (3,289) (177) (529) (3,995) Amortisation (6) (6) Segmental operating profit/(loss) and profit/(loss) before income tax 327, ,252 (11,774) 1, ,194 Income tax expense (71,388) Profit for the year 391, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

116 6 SEGMENT INFORMATION (continued) The segment assets and liabilities at 31 December 2015 and additions to non-current assets for the year ended 31 December 2015 are as follows: 6 As at 31 December 2015 PRC, other than Hong Kong, Macau and Taiwan Hong Kong US Italy Elimination Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment assets 3,064,034 1,539,148 86,403 43,019 (652,405) 4,080,199 Segment liabilities 1,302, , ,075 5,467 (651,197) 989,600 Year ended 31 December 2015 PRC, other than Hong Kong, Macau and Taiwan Hong Kong US Italy Elimination Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Additions to non-current assets (including prepayments for acquisitions of subsidiaries) 22,431 15,124 15,826 53,

117 6 SEGMENT INFORMATION (continued) The segment assets and liabilities at 31 December 2014 and additions to non-current assets for the year ended 31 December 2014 are as follows: 6 As at 31 December 2014 PRC, other than Hong Kong, Macau and Taiwan Hong Kong US Elimination Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Segment assets 2,415,257 1,142,449 38,297 (261,690) 3,334,313 Segment liabilities 884,063 99,881 59,781 (257,592) 786,133 Year ended 31 December 2014 PRC, other than Hong Kong, Macau and Taiwan Hong Kong US Elimination Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Additions to non-current assets 6, , PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

118 6 SEGMENT INFORMATION (continued) Segmental EBITDA represents segmental operating profit/ (loss) before finance costs, income tax expense, depreciation of property, plant and equipment, amortisation of leasehold land and intangible assets. Segment assets consist primarily of property, plant and equipment, leasehold land, intangible assets, inventories, deposits and other receivables, trade and bills receivables, restricted cash and cash at bank and on hand. Segment liabilities consist primarily of trade payables, other payables and accruals and taxation payable. 6 EBITDA Additions to non-current assets mainly comprise additions to property, plant and equipment, intangible assets including additions resulting from acquisition through business combination and prepayments for acquisitions of subsidiaries. In 2015, revenue of approximately HK$474,805,000 is derived from the largest customer, representing 16.5% of the total revenue, which is attributable to the HK operating segment; HK$256,467,000 is derived from the second largest customer, representing 8.9% of the total revenue, which is attributable to the PRC operating segment. In 2014, revenue of approximately HK$255,850,000 is derived from the largest customer, representing 10.8% of the total revenue, which is attributable to the HK operating segment; HK$222,171,000 is derived from the second largest customer, representing 9.4% of the total revenue, which is attributable to the PRC operating segment. 474,805, % 256,467, % 255,850, % 222,171, % Information provided to the Executive Directors is measured in a manner consistent with that in the consolidated financial statements. The Group is mainly domiciled in Hong Kong, the PRC, the US and Italy. 113

119 6 SEGMENT INFORMATION (continued) The Group s non-current assets by geographical location, which is determined by the geographical location in which the asset is located, is as follows: 6 As at 31 December HK$ 000 HK$ 000 Non-current assets PRC, other than Hong Kong, Macau and Taiwan 27,517 10,283 Hong Kong 15, US Italy 16,022 59,614 11,649 7 EXPENSES BY NATURE Expenses included in cost of sales, selling expenses and administrative expenses are analysed as follows: 7 Year ended 31 December HK$ 000 HK$ 000 Auditors remuneration 2,152 1,949 Depreciation of property, plant and equipment (note 13) 13 4,560 3,995 Amortisation of leasehold land (note 15) Amortisation of intangible assets (note 14) Employee benefit expenses (including Directors emoluments) (note 9) 9 280, ,943 Costs of inventories sold (note 17) 17 1,702,730 1,480,103 Operating lease rentals in respect of buildings 18,392 15,828 Research and development costs 157, ,841 Sales commission 13,293 48,991 Provision of trade receivables (note 18(c)) 18(c) 3, Loss on disposal of property, plant and equipment 37 Provision for obsolete inventories 17 (note 17) 39,492 18,687 Donation 1,106 1, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

120 8 NET FOREIGN EXCHANGE LOSS The net foreign exchange loss recognised in administrative expenses for the year ended 31 December 2015 amounted to HK$7,618,000 (2014: HK$3,017,000). 9 EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTORS EMOLUMENTS) 8 7,618,000 3,017,000 9 Year ended 31 December HK$ 000 HK$ 000 Wages and salaries 241, ,365 Share options granted to directors and employees 13,568 26,628 Social security and pension costs 25,578 20, , ,943 Five highest paid individuals The five individuals whose emoluments were the highest in the Group for the year ended 31 December 2015 included two Directors (2014: one). The emoluments payable to the remaining three (2014: four) individuals during the year are as follows: Year ended 31 December HK$ 000 HK$ 000 Salaries, allowances, share options and benefits in kind 12,864 23,133 Pension cost ,917 23,

121 9 EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTORS EMOLUMENTS) (continued) The emoluments fell within the following bands: 9 Number of individuals Emolument band HK$3,500,001 HK$4,000,000 3,500,0014,000,000 1 HK$4,000,001 HK$4,500,000 4,000,0014,500,000 1 HK$4,500,001 HK$5,000,000 4,500,0015,000,000 1 HK$5,000,001 HK$5,500,000 5,000,0015,500, HK$5,500,001 HK$6,000,000 5,500,0016,000,000 1 HK$7,000,001 HK$7,500,000 7,000,0017,500, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

122 10 INCOME TAX EXPENSE 10 Year ended 31 December HK$ 000 HK$ 000 Current income tax PRC corporate income tax 11,588 54,407 Hong Kong profits tax 59,481 26,578 Over provision in prior year, net (Note a) a (32,476) (9,597) Total current income tax 38,593 71,388 Deferred income tax (906) Income tax expense 37,687 71,388 Hong Kong profits tax has been provided for at the rate of 16.5% (2014: 16.5%) on the estimated assessable profit for the year ended 31 December % 16.5% Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the Group operates. Note a: Wonder Pax Technology (Shenzhen) Co. Ltd. ( Wonder Pax ), a subsidiary of the Group, obtained the approval from the relevant applicable tax authorities in April 2015 for a preferential tax treatment and is fully exempted from PRC corporate tax for two years, starting from 2014, followed by a 50% tax exemption for the ensuing three years. The over provision of income tax accrued by Wonder Pax in financial year 2014, being calculated at the tax rate of 25%, of approximately HK$32,976,000 was credited to the profit and loss for the year ended 31 December a 50% 32,976,00025% Pax Computer Technology (Shenzhen) Co., Ltd. ( Pax Computer Shenzhen ), a subsidiary of the Company, is located in the Shenzhen Special Economic Zone. Pursuant to the Corporate Income Tax Law of the PRC effective from 1 January 2008 (the CIT Law ), Pax Computer Shenzhen is subject to Income Tax of 25% unless the preferential rate is applicable. Pax Computer Shenzhen is qualified as a High and New Technology Enterprise under the CIT Law and is eligible and approved to enjoy a preferential tax rate of 15% for 3 years from 2015 to As such, the applicable corporate income tax rate of Pax Computer Shenzhen is 15% for the year ended 31 December % 15% 15% 117

123 10 INCOME TAX EXPENSE (continued) 10 Pax Technology, Inc. and Pax Italia S.r.l., subsidiaries of the Company in the US and Italy respectively, were operating at net loss positions and did not have any taxable profit for the year ended 31 December 2015 (2014: Nil). Pax Technology, Inc. Pax Italia S.r.l. The taxation on the Group s profit before income tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities in the respective jurisdictions as follows: Year ended 31 December HK$ 000 HK$ 000 Profit before income tax 657, ,194 Tax calculated at domestic tax rates applicable to profits in the respective countries 64,086 75,458 Income not subject to taxation (1,462) (946) Tax incentives for research and development expenses available for a subsidiary incorporated in the PRC (note (i)) (i) (5,352) (5,173) Expenses not deductible for taxation purposes 8,219 8,020 Unrecognised tax losses 4,672 3,626 Over provision in prior year, net (note a) a (32,476) (9,597) 37,687 71,388 note (i): The Group obtained an incentive from the PRC tax authority relating to the research and development expenses of a subsidiary in the PRC. Under such tax incentive rule, the Group may claim an additional tax deduction up to 50% of the relevant research and development expenses incurred in a year approved by the PRC tax authority. (i) 50% The weighted average applicable tax rate was 9.7% (2014: 16.3%) for the year ended 31 December % 16.3% 118 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

124 11 EARNINGS PER SHARE (a) Basic Basic earnings per share is calculated by dividing the profit for the year attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year. 11 (a) Year ended 31 December Profit attributable to owners of the Company (HK$ 000) Weighted average number of ordinary shares in issue (thousand shares) Basic earnings per share (HK$ per share) 620, ,806 1,108,940 1,079, (b) Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: share options. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company s shares for the period) based on the monetary value of the subscription rights attached to outstanding share option. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. (b) 119

125 11 EARNINGS PER SHARE (continued) (b) Diluted (continued) 11 (b) Year ended 31 December Profit attributable to owners of the Company (HK$ 000) 620, ,806 Weighted average number of ordinary shares in issue (thousand shares) Adjustments for share options (thousand shares) 1,108,940 1,079,975 16,681 30,914 Weighted average number of ordinary shares for diluted earnings per share (thousand shares) 1,125,621 1,110,889 Diluted earnings per share (HK$ per share) DIVIDENDS The interim dividends paid in 2015 were HK$22,229,000 (HK$0.02 per ordinary share) (2014: Nil). A final dividend in respect of the year ended 31 December 2015 of HK$0.02 per ordinary share, amounting to HK$22,240,000, is to be proposed at the annual general meeting on 22 April These financial statements do not reflect this dividend payable ,229,000 ( 0.02 ) ,240,000 Year ended 31 December HK$ 000 HK$ 000 Interim dividend paid of HK$0.02 (2014: HK$ Nil) per ordinary share Proposed final dividend of HK$0.02 (2014: HK$ Nil) per ordinary share , ,240 44, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

126 13 PROPERTY, PLANT AND EQUIPMENT 13 Buildings Leasehold improvements Office furniture and equipment Plant and equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2014 Opening net book amount 1,505 3,926 1, ,152 Additions 1,664 3,153 2,676 7,493 Depreciation (note 7) 7 (884) (1,744) (534) (833) (3,995) Exchange differences (30) (71) (56) (28) (185) Disposal (37) (37) Closing net book amount 591 3,738 4,315 2,784 11,428 At 31 December 2014 Cost 7,537 1,043 13,485 7,133 7,199 36,397 Accumulated depreciation (6,946) (1,043) (9,747) (2,818) (4,415) (24,969) Net book amount 591 3,738 4,315 2,784 11,428 Year ended 31 December 2015 Opening net book amount 591 3,738 4,315 2,784 11,428 Acquisition of a subsidiary (note 29) Additions 1,664 3, ,248 Depreciation (note 7) 7 (581) (288) (2,107) (818) (766) (4,560) Exchange differences (10) 10 (214) (527) (97) (838) Closing net book amount 1,386 4,909 2,970 2,215 11,480 At 31 December 2015 Cost 7,122 2,649 16,323 6,418 6,970 39,482 Accumulated depreciation (7,122) (1,263) (11,414) (3,448) (4,755) (28,002) Net book amount 1,386 4,909 2,970 2,215 11,480 All depreciation of the Group s property, plant and equipment has been charged to administrative expenses. 121

127 14 INTANGIBLE ASSETS 14 Goodwill Contractual customer relationships and others Total HK$ 000 HK$ 000 HK$ 000 Year ended 31 December 2015 Opening net book amount Acquisition of a subsidiary (note 29) 29 8,181 7,955 16,136 Amortisation charge (note 7) 7 (438) (438) Exchange differences (37) (36) (73) Closing net book amount 8,144 7,481 15,625 At 31 December 2015 Cost 8,144 7,919 16,063 Accumulated amortisation (438) (438) Net book amount 8,144 7,481 15,625 Amortisation of HK$438,000 (2014: Nil) has been charged to administrative expenses. 438,000 Goodwill is monitored by the management at the operating segment level. An operating segment level summary of the goodwill allocation is presented below: Year ended 31 December HK$ 000 HK$ 000 Italy 8, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

128 14 INTANGIBLE ASSETS (continued) Impairment test for goodwill The recoverable amount of a CGU is determined based on a value-in-use calculation. The calculation uses pre-tax cash flow projection based on financial budgets approved by management covering a five-year period. Management prepared its budget within the five-year period using the estimated growth rates of 3% to 30%. 3% growth rate is used to extrapolate cash flows beyond the five-year period. The growth rate does not exceed the long-term average growth rate for Italy in which the CGU operates. 14 3% 30% 3% The management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount of the unit to exceed its recoverable amount. There was no impairment provision for intangible assets for the year ended 31 December 2015 (2014: HK$Nil). 15 LEASEHOLD LAND The Group s interests in leasehold land represent upfront payments for land and their net carrying values are analysed as follows: 15 Year ended 31 December HK$ 000 HK$ 000 Opening net carrying value Amortisation (note 7) 7 (6) (6) Exchange difference (12) (5) Closing net carrying value The Group s leasehold land is located in the PRC and is held on leases of between 10 to 50 years. Amortisation of the Group s leasehold land has been charged to the administrative expenses

129 16 SUBSIDIARIES The following is a list of principal subsidiaries as at 31 December 2015: 16 Name Place of incorporation and type of legal entity Principal activities and place of operation Particulars of issued and paid up/registered capital Interest held Pax Technology Limited Hong Kong, limited liability company Sales of E-payment Terminal products and provision of related services in Hong Kong HK$113,125, ,125, % (Pax Computer Technology (Shenzhen) Co., Ltd.) (*) The PRC, limited liability company Development and sales of E-payment Terminal products and provision of related services in the PRC HK$200,000, ,000, % (Wonder Pax Technology (Shenzhen) Co., Ltd.) ( Wonder Pax ) (*) The PRC, limited liability company Development of software and hardware of E-payment Terminal products and provision of related services in PRC HK$20,000,000 20,000, % Pax Technology, Inc. The US, limited liability company Sales of E-payment Terminal products in the US US$1,000 1, % Pax Italia S. r. l. Italy, limited liability company Development and customising EUR100,000 software systems and sales of 100,000 E-payment Terminal products in Italy 70% * The English names of Pax Computer Shenzhen and Wonder Pax represent the best effort by the management of the Group in translating their Chinese names as they do not have official English names. * The non-controlling interests in respect of Pax Italia S.r.l. are not material. Pax Italia S.r.l. 124 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

130 17 INVENTORIES 17 As at 31 December HK$ 000 HK$ 000 Raw materials 169, ,861 Work in progress 109,116 73,653 Finished goods 284, , , ,461 The cost of inventories included in cost of sales during the year amounted to approximately HK$1,702,730,000 (2014: HK$1,480,103,000), which included provision for inventories of HK$39,492,000 (2014: HK$18,687,000). 1,702,730,000 1,480,103,000 39,492,000 18,687,

131 18 TRADE AND BILLS RECEIVABLES, DEPOSITS AND OTHER RECEIVABLES 18 As at 31 December HK$ 000 HK$ 000 Current portion Trade receivables (note (a)) (a) 995, ,703 Amounts due from related parties (note 30(b)) 30(b) 70,912 Less: provision for impairment of (c) receivables (note (c)) (3,694) (660) Trade receivables, net 1,062, ,043 Bills receivables (note (b)) (b) 198, ,235 Trade and bills receivables 1,261, ,278 Deposits and other receivables 43,719 14,084 Trade and bills receivables, deposits and other receivables 1,304, ,362 Non-current portion Prepayments for acquisitions of subsidiaries (note 28 (a) and (b)) 28(a) (b) 21,975 Others 9,425 31,400 The carrying amounts of the Group s trade and bills receivables, deposits and other receivables are denominated in the following currencies: As at 31 December HK$ 000 HK$ 000 HK$ 8,658 13,163 RMB 947, ,313 US$ 337,261 58,886 EUR 11,396 1,304, ,362 The fair values of trade and bills receivables, deposits and other receivables approximated their carrying values as at 31 December 2014 and PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

132 18 TRADE AND BILLS RECEIVABLES, DEPOSITS AND OTHER RECEIVABLES (continued) (a) Trade receivables The Group s credit terms to trade debtors range generally from 0 to 180 days. However, credit terms of more than 180 days may be granted to customers on a case-by-case basis upon negotiation. As at 31 December 2014 and 2015, the ageing analysis of the trade receivables and amounts due from related parties is as follows: 18 (a) As at 31 December HK$ 000 HK$ 000 Up to 90 days , , to 180 days , , to 365 days ,174 54,135 Over 365 days ,343 62,175 1,066, ,703 As at 31 December 2015, trade receivables included retention money receivables of HK$69,300,000 (2014: HK$55,877,000), which represents approximately 2% to 5% (2014: approximately 2% to 5%) of the relevant contract sum granted to certain number of the customers in the PRC that has a retention period of three to five years. As at 31 December 2015, retention money receivables aged over 365 days amounted to HK$48,960,000 (2014: HK$43,565,000). The Group s sales are made to several major customers and there is concentration of credit risks. Sales of goods and services to the top five customers constituted approximately 44.4% (2014: 38.9%) of the Group s turnover for the year ended 31 December They accounted for approximately 37.5% (2014: 50.2%) of the gross trade receivable balances as at 31 December Receivables that were neither past due nor impaired amounted to approximately HK$1,050,799,000 (2014: HK$641,671,000) as at 31 December ,300,000 55,877,000 2% 5% 2% 5% 36548,960,000 43,565, % 38.9% 37.5% 50.2% 1,050,799, ,671,

133 18 TRADE AND BILLS RECEIVABLES, DEPOSITS AND OTHER RECEIVABLES (continued) (a) Trade receivables (continued) As of 31 December 2015, trade receivables of HK$11,772,000 (2014: HK$20,372,000) were past due but not impaired. These relate to a number of independent customers for whom there is no significant financial difficulty and based on past experience, the overdue amounts can be recovered. The ageing analysis of these trade receivables is as follows: 18 (a) 11,772,000 20,372,000 As at 31 December HK$ 000 HK$ 000 Up to 90 days 90 7,256 17, to 180 days , to 365 days , Over 365 days 365 1,412 11,772 20,372 (b) Bills receivables The balance represents bank acceptance notes with maturity periods of within six months. (b) The maturity profile of the bills receivables of the Group is as follows: As at 31 December HK$ 000 HK$ 000 Up to 90 days 90 84,493 97, to 180 days , , , , PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

134 18 TRADE AND BILLS RECEIVABLES, DEPOSITS AND OTHER RECEIVABLES (continued) (c) Provision for impairment of trade receivables The movement on the provision for impairment of trade receivables is as follows: 18 (c) As at 31 December HK$ 000 HK$ 000 At beginning of the year Provision for the year (note 7) 7 3, Bad debt written off in current year (597) Exchange difference (35) At end of the year 3, The maximum exposure to credit risk at the reporting date is the carrying values of each class of receivables mentioned above. The Group did not hold any collateral as security for these receivables as at 31 December 2015 (2014: Nil). The other classes within trade and bills receivables, deposits and other receivables do not contain impaired assets. 129

135 19 RESTRICTED CASH 19 As at 31 December HK$ 000 HK$ 000 Restricted bank deposits 8,935 16,112 Restricted cash represents bank deposits of the Group which were placed as guarantee deposits for tenders and as securities for sales of goods to customers and were denominated in RMB. As at 31 December 2015, the effective interest rate on restricted bank deposits was 0.35% (2014: 0.35%) per annum. All restricted cash were kept in the bank accounts opened with banks in the PRC as at 31 December 2014 and 2015, where the remittance of funds is subject to foreign exchange control. 20 CASH AT BANK AND ON HAND 0.35% 0.35% 20 As at 31 December HK$ 000 HK$ 000 Cash at bank and on hand 1,873,312 1,422,992 Short-term bank deposits 271, ,737 2,144,312 1,918,729 As at 31 December 2015, funds of the Group amounting to HK$1,038,387,000 (2014: HK$958,408,000) were deposited in bank accounts opened with banks in the PRC where the remittance of funds is subject to foreign exchange control. 1,038,387, ,408, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

136 20 CASH AT BANK AND ON HAND (continued) The effective interest rate per annum on short-term bank deposits of the Group was 0.6% (2014: 1.0%) per annum. These deposits have an average maturity of 91 days (2014: 91 days) The carrying amounts of cash at bank and on hand were denominated in the following currencies: As at 31 December HK$ 000 HK$ 000 HK$ 849, ,714 RMB 1,028, ,527 US$ 246, ,384 EUR 19, ,144,312 1,918,729 The maximum exposure to credit risk of the Group as at 31 December 2015 were HK$2,144,207,000 (2014: HK$1,918,561,000). 2,144,207,000 1,918,561,

137 21 SHARE CAPITAL Ordinary shares, issued and fully paid 21 Number of Ordinary shares ordinary shares of HK$0.1 each 0.1 Thousand shares HK$ January ,100, ,081 Employee share option scheme: Proceeds from shares issued 11,200 1,120 At 31 December ,112, ,201 1 January ,044, ,452 Employee share option scheme: Proceeds from shares issued 56,297 5,629 At 31 December ,100, , SHARE OPTION SCHEME (a) Share option scheme On 1 December 2010, the board of directors of the Company approved a share option scheme (the Scheme ) for the issuance of in aggregate no more than 10% in nominal amount of the aggregate of shares in issue on the listing date of the Company, representing 100,000,000 shares (subject to the terms of the scheme and the relevant provisions under the Listing Rules). The purpose of the Scheme is to reward participants who have contributed or will contribute to the Group and to encourage participants to work towards enhancing the value of the Company and its Shares for the benefit of the Company and its shareholders as a whole. The Scheme became effective on 1 December 2010 and unless otherwise cancelled or amended, will remain valid and effective for the period of 10 years from that date. 22 (a) 10% 100,000, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

138 22 SHARE OPTION SCHEME (continued) (b) Share option movements 22 (b) Name Date of grant Exercised price (HK$) Number of Share Options held as at 1 January 2015 Granted during the year Exercised during the year Lapsed during the year Number of Share Options held as at 31 December 2015 Directors Nie Guoming 22 June 2012* * Lu Jie 22 June 2012* * Li Wenjin 22 June 2012* ,000,000 (10,000,000) * Total for Directors 10,000,000 (10,000,000) Employees (In aggregate) 22 June 2012* ,000,000 6,000,000 * (In aggregate) 28 May 2014* ,274,000 (1,140,000) 18,134,000 * Total for Employees 25,274,000 (1,140,000) 24,134,000 Consultants (In aggregate) 28 May 2014* ,640,000 (60,000) 1,580,000 * Total for Consultants 1,640,000 (60,000) 1,580,000 Total 36,914,000 (11,200,000) 25,714,

139 22 SHARE OPTION SCHEME (continued) (b) Share option movements (continued) 22 (b) Name Date of grant Exercised price (HK$) Number of Share Options held as at 1 January 2014 Granted during the year Exercised during the year Lapsed during the year Number of Share Options held as at 31 December 2014 Directors Nie Guoming 22 June 2012* ,000,000 (8,000,000) * Lu Jie 22 June 2012* ,000,000 (10,000,000) * Li Wenjin 22 June 2012* ,000,000 10,000,000 * Total for Directors 28,000,000 (18,000,000) 10,000,000 Employees (In aggregate) 22 June 2012* ,361,000 (36,957,000) (2,404,000) 6,000,000 * (In aggregate) 28 May 2014* ,554,000 (1,280,000) 19,274,000 * Total for Employees 45,361,000 20,554,000 (38,237,000) (2,404,000) 25,274,000 Consultants (In aggregate) 28 May 2014* ,700,000 (60,000) 1,640,000 * Total for Consultants 1,700,000 (60,000) 1,640,000 Total 73,361,000 22,254,000 (56,297,000) (2,404,000) 36,914,000 * The share options will be vested to the grantees, among which 30% of the share options would be vested on the date of grant, a further 30% of the share options be vested on the first anniversary of the date of grant and the remaining 40% of the share options will be vested on the second anniversary of the date of grant. The validity period of these share options shall be 5 years from the date of grant. * 30% 30% 40% 134 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

140 22 SHARE OPTION SCHEME (continued) (b) Share option movements (continued) Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: 22 (b) Year ended 31 December Average exercise price in HK$ Average exercise price in HK$ per share option Options (thousands) per share option Options (thousands) At 1 January , ,361 Granted ,254 Exercised (10,000) (54,957) Exercised (1,200) (1,340) Lapsed (2,404) At 31 December , ,914 On 22 June 2012, 80,400,000 share options were granted to certain directors and employees at an exercise price of HK$1.23 per share. The share options will be vested to the grantees as to 30% of the share options be vested on the date of grant, a further 30% of the share options be vested on the first anniversary of the date of grant and the remaining 40% of the share options be vested on the second anniversary of the date of grant. These options will expire on 21 June ,400, % 30% 40% 135

141 22 SHARE OPTION SCHEME (continued) (b) Share option movements (continued) On 28 May 2014, 22,254,000 share options were granted to certain employees and consultants at an exercise price of HK$4.86 per share. The share options will be vested to the grantees as to 30% of the share options be vested on the date of grant, a further 30% of the share options be vested on the first anniversary of the date of grant and the remaining 40% of the share options be vested on the second anniversary of the date of grant. These options will expire on 27 May (b) 22,254, % 30% 40% During the year ended 31 December 2015, share based payment expense of HK$14,690,000 (2014: HK$28,607,000) was recognised in the consolidated income statement and the same amount was credited in equity. The weighted average share price immediately before the share options exercised dates was HK$8.95 (31 December 2014: HK$4.71) per share. As at 31 December 2015, out of the 25,714,000 (31 December 2014: 36,914,000) outstanding options, 16,812,400 (31 December 2014: 21,336,000) options were exercisable. 14,690,000 28,607, ,714,000 36,914,000 16,812,400 21,336,000 (c) Fair value of share options The directors of the Company have used the Binomial Model to determine the fair value of the options granted on 28 May 2014, which is to be expensed over the vesting period. Significant judgement on parameters, such as risk free rate, dividend yield and expected volatility at the grant date, is required to be made by the directors in applying the Binomial Model, which are summarised as below. (c) Fair value of share option at date of grant HK$1.995 Weighted average share price at the grant date HK$4.860 Risk free rate 1.152% Dividend yield Expected volatility (note (i)) (i) 53.38% note (i): The expected volatility, measured as the standard deviation of daily trading price volatility of the shares of comparable companies over 5 years. (i) See note 9 for the total expenses recognised in the consolidated income statement for share options granted to directors and employees PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

142 23 RESERVES 23 Share premium Capital reserve (note (i)) Share option reserve Exchange reserve Retained earnings Total (i) HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 For the year ended 31 December 2015 Balance at 1 January ,306,427 (414,978) 62,680 64,839 1,419,131 2,438,099 Comprehensive income Profit for the year 620, ,736 Other comprehensive loss Exchange differences arising on translation of the financial statements of foreign subsidiaries (101,935) (101,935) Total comprehensive income (101,935) 620, ,801 Transaction with owners Share option scheme value of services provided 14,690 14,690 share options exercised 17,012 17,012 Dividends paid (22,229) (22,229) Total transaction with owners 17,012 14,690 (22,229) 9,473 Balance at 31 December ,323,439 (414,978) 77,370 (37,096) 2,017,638 2,966,

143 23 RESERVES (continued) 23 Share premium Capital reserve (note (i)) Share option reserve Exchange reserve Retained earnings Total (i) HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 For the year ended 31 December 2014 Balance at 1 January ,237,947 (414,978) 34,073 98,303 1,027,325 1,982,670 Comprehensive income Profit for the year 391, ,806 Other comprehensive loss Exchange differences arising on translation of the financial statements of foreign subsidiaries (33,464) (33,464) Total comprehensive loss (33,464) 391, ,342 Transaction with owners Share option scheme value of services provided 28,607 28,607 share options exercised 68,480 68,480 Total transaction with owners 68,480 28,607 97,087 Balance at 31 December ,306,427 (414,978) 62,680 64,839 1,419,131 2,438, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

144 23 RESERVES (continued) Note: 23 (i) Capital reserve Capital reserve represents the difference between (i) the aggregate of the consideration for the acquisitions upon the reorganisation completed on 15 February 2010; and (ii) the aggregate of the share capital and share premium of the direct owned subsidiaries of the Company. (i) (i) (ii) (ii) Statutory reserves The subsidiary of the Company in the PRC is required to allocate 10% of the company s net profit to the statutory reserves fund until such fund reaches 50% of its registered capital. The statutory reserves fund can be utilised, upon approval by the relevant authorities, to offset accumulated losses or to increase its registered capital, provided that such fund is maintained at a minimum of 25% of its registered capital. As at 31 December 2015, retained earnings comprised statutory reserves fund amounting to HK$124,972,000 (2014: HK$124,972,000). (ii) 10% 50% 25% 124,972, ,972,

145 24 TRADE PAYABLES, OTHER PAYABLES AND ACCRUALS 24 As at 31 December HK$ 000 HK$ 000 Trade payables 702, ,679 Amount due to a related party (note 30(b)) 30(b) 7,764 12, , ,754 Other payables and accruals Receipt in advance from customers 51, ,292 Other tax payables 62,560 63,669 Accrued expenses 40,506 38,735 Others 76,393 33, , , , , PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

146 24 TRADE PAYABLES, OTHER PAYABLES AND ACCRUALS (continued) (a) The ageing analysis of trade payables is as follows: 24 (a) As at 31 December HK$ 000 HK$ 000 Up to 90 days , , to 180 days ,509 25, to 365 days Over 365 days 365 2,013 2, , ,754 The average credit period granted by the Group s suppliers ranges from 0 to 180 days

147 25 DEFERRED INCOME TAX (a) Deferred income tax assets are recognised for tax losses carry forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. At 31 December 2015, the Group has unrecognised tax losses to be carried forward against future taxable income amounted to HK$96,434,000 (2014: HK$71,219,000). Tax losses amounting to HK$94,406,000 (2014: HK$71,219,000) will expire from 2028 to The remaining tax losses have no expiry date. The potential deferred income tax assets in respect of these tax losses which have not been recognised will be calculated based on the effective income tax rates according to prevailing tax laws and regulations in which the Group operates. 25 (a) 96,434,000 71,219,000 94,406,000 71,219,000 (b) Cai Shui 2008 Circular 1, which was jointly issued by the Ministry of Finance and the State Administration of Taxation, took effect on 22 February Under the circular, dividends declared by foreign investment enterprises ( FIEs ) to foreign investors out of their cumulative retained earnings as at 31 December 2007 shall be exempt from withholding income tax. For dividends declared out of profit earned after 1 January 2008, withholding income tax will be levied on the foreign investor at a tax rate of 10% unless the foreign investor s jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding tax arrangement. (b) % As at 31 December 2015, deferred income tax liabilities have not been provided for in the consolidated financial statements in respect of the withholding tax that would be payable on unremitted earnings of the PRC subsidiary of the Group amounting to approximately HK$61,308,000 (2014: HK$46,902,000), as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. 61,308,000 46,902, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

148 26 CASH GENERATED FROM OPERATIONS (a) Reconciliation of profit before income tax to cash generated from operations 26 (a) Year ended 31 December HK$ 000 HK$ 000 Profit before income tax 657, ,194 Adjustment for: Interest income (note 5) 5 (19,833) (23,198) Depreciation of property, plant and equipment (note 7) 7 4,560 3,995 Amortisation of leasehold land 7 (note 7) 6 6 Amortisation of intangible assets 7 (note 7) 438 Loss on disposal of property, plant and equipment 37 Share-based payments 14,690 28,607 Provision of trade receivables 18 (note 18) 3, Provision for obsolete inventories 17 (note 17) 39,492 18, , ,960 Changes in working capital: Increase in trade and bills receivables, deposits and other receivables (466,035) (284,891) Increase in inventories (154,855) (39,779) Decrease in restricted cash 6, Increase in trade payables, other payables and accruals 299,446 4,988 Cash generated from operations 386, ,

149 26 CASH GENERATED FROM OPERATIONS (continued) (b) In the consolidated cash flow statement, proceeds from sale of property, plant and equipment comprise: 26 (b) Year ended 31 December HK$ 000 HK$ 000 Net book amount 37 Loss on disposal of property, plant and equipment (37) Proceeds from sale of property, plant and equipment 27 CONTINGENT LIABILITIES As at 31 December 2014 and 2015, the Group had no contingent liabilities. 28 COMMITMENTS (a) Capital commitments On 9 December 2014, Pax Technology Limited, a wholly owned subsidiary of the Company ( Pax Technology ) entered into an agreement with the shareholders of (Nanchang Kashuo Information Technology Company Limited, Nanchang Kashuo ) to acquire an attributable 51% equity interest in Nanchang Kashuo for a cash consideration of RMB30,600,000 (equivalent to approximately HK$36,115,000) and capital injection of RMB14,700,000 (equivalent to approximately HK$17,349,000) ( Acquisition ). Following completion, control of the operations of Nanchang Kashuo will be transferred to the Group and Nanchang Kashuo will become a subsidiary of the Group. As at 31 December 2015, prepayment in the amount of HK$15,012,000 was made for the Acquisition, and as at the date of this report, the Acquisition is yet to complete (a) 30,600,000 36,115,000 14,700,000 17,349,000 51% 15,012, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

150 28 COMMITMENTS (continued) (b) On 25 November 2015, Wonder Pax, a wholly owned subsidiary of the Group, entered into an agreement with (Suzhou Ieasy Information Technology Co., Ltd., Ieasy ) and its shareholders to acquire and subscribe for an aggregate 60% of the enlarged equity interests in Ieasy for a cash consideration of RMB30,000,000 (equivalent to approximately HK$35,407,000). Following completion, control of the operations of Ieasy will be transferred to the Group and leasy will become a subsidiary of the Group. As at 31 December 2015, prepayment in the amount of HK$6,963,000 was made for the acquisition. The acquisition was completed on 5 February 2016 and will be accounted for using method of acquisition accounting. Management is still in the process of completing the purchase price allocation of the acquisition. 28 (b) 30,000,000 35,407,000 60% 6,963,000 (c) Operating lease commitments (c) As at 31 December 2015, the Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of certain office premises as follows: As at 31 December HK$ 000 HK$ 000 Not later than one year 11,561 6,415 Later than one year and not later than five years 11,292 2,116 22,853 8,

151 29 ACQUISITION OF A SUBSIDIARY, NET OF CASH ACQUIRED On 13 July 2015, the Group acquired 70% equity interest in Pax Italia S.r.l. at a consideration of approximately HK$39,776,000 (equivalent to EUR4,670,000) through capital injection. Prior to the acquisition, Pax Italia S.r.l. was one of the largest customers of the Group in Europe. It is principally engaged in developing and customising software systems for customers in Italy. Acquisition-related costs of HK$1,006,000 have been charged to administrative expenses in the consolidated income statement for the year ended 31 December ,776,000 4,670,000Pax Italia S.r.l. 70% Pax Italia S.r.l. 1,006,000 The fair values of assets acquired and liabilities assumed, the consideration paid and the non-controlling interests at the acquisition date are summarised in the table below: HK$ 000 Consideration paid as at acquisition date 39,776 Recognised amounts of identifiable assets acquired and liabilities assumed Property, plant and equipment (note 13) Inventories 1,796 Trade receivables 9,319 Cash and cash equivalents 38,413 Intangible assets contractual customer relationships and others (note 14) 14 7,955 Trade payables (6,320) Other payables and accruals (268) Short-term loan (3,407) Deferred income tax liabilities (2,625) Total identifiable net assets 45,065 Non-controlling interests (13,470) Goodwill (note 14) 14 8,181 39,776 Cash consideration paid 39,776 Less: cash and cash equivalents acquired (38,413) Net cash outflow on acquisition 1,363 Acquisition-related costs included in administrative expenses in the consolidated income statement for the year 1, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

152 29 ACQUISITION OF A SUBSIDIARY, NET OF CASH ACQUIRED (continued) The goodwill is attributable to the synergies expected to arise after the Group s acquisition of this subsidiary. None of the goodwill recognised is expected to be deductible for income tax purposes. 29 The fair value of trade receivables is HK$9,319,000. The gross contractual amount for trade receivables due is HK$9,319,000 all of which is expected to be collectible. Deferred income tax liabilities of HK$2,625,000 have been provided in relation to these fair value adjustments. 9,319,000 9,319,000 2,625,000 The revenue included in the consolidated income statement since 13 July 2015 contributed by Pax Italia S.r.l. was HK$16,924,000. Pax Italia S.r.l. suffered a loss of HK$1,502,000 over the same period. Pax Italia S.r.l. 16,924,000Pax Italia S.r.l. 1,502,000 Had Pax Italia S.r.l. been consolidated from 1 January 2015, the consolidated income statement would show pro-forma revenue of HK$25,037,000 and loss of HK$2,173,000. Pax Italia S.r.l. 25,037,0002,173,000 The fair value of the acquired identifiable assets was provisional pending receipt of the final valuations of those assets. 30 RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has, directly or indirectly, the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions

153 30 RELATED PARTY TRANSACTIONS (continued) (a) Transactions with related parties Except for those disclosed below, the Group has no significant transactions with related parties during the year. All the related party transactions disclosed below were also either connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. 30 (a) 14A Year ended 31 December HK$ 000 HK$ 000 Sales of electronic payment products to subsidiaries of Hi Sun Technology (China) Limited ( Hi Sun )* (note (i)) Licence fees to a subsidiary of Hi Sun (note (ii)) Rental fees paid to a subsidiary of Hi Sun (note (iii) and (v)) Purchase of raw materials from a subsidiary of Hi Sun (notes (iv)) * (i) 148,505 55,025 (ii) 5,078 (iii) (v) 1,604 1,401 (iv) 39,061 38,794 * The Company is an associated company of Hi Sun whose shares are listed on the Main Board of the Stock Exchange. note (i): The sales of electronic payment products to subsidiaries of Hi Sun were transacted pursuant to the terms and conditions set out in the framework agreement entered into by the Company and the relevant party on 19 December note (ii): Licence fee to a subsidiary of Hi Sun was conducted pursuant to terms and conditions set out in the licence agreement entered into by the Company and the relevant party on 13 April note (iii): Rental fees paid to a subsidiary of Hi Sun was charged at a fixed monthly fee mutually agreed between the two parties. note (iv): Purchase of raw materials from a subsidiary Hi Sun was conducted pursuant to terms and conditions set out in the framework agreement entered into by the Company and the relevant party on 31 December The term of such agreement commenced from 1 January note (v): These transactions were de minimis continuing connected transactions exempt from the reporting, annual review, announcement and independent shareholders approval requirements under Chapter 14A of the Listing Rules. * (i) (ii) (iii) (iv) (v) 14A 148 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

154 30 RELATED PARTY TRANSACTIONS (continued) (b) Balances with related parties The balances with the subsidiaries of Hi Sun are unsecured, interest free and with a credit period of 60 days. 30 (b) 60 As at 31 December HK$ 000 HK$ 000 Amounts due from subsidiaries of Hi Sun 70,912 Amount due to a subsidiary of Hi Sun 7,764 12,075 (c) Key management compensation (c) Details of key management compensation during the year have been disclosed in note

155 31 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY Balance sheet of the Company 31 As at 31 December Notes HK$ 000 HK$ 000 ASSETS Non-current assets Investment in a subsidiary 588, ,886 Total non-current assets 588, ,886 Current assets Deposits and other receivables 591 1,397 Amount due from a subsidiary 119, ,694 Cash at bank and on hand 837, ,991 Total current assets 958, ,082 Total assets 1,547,007 1,448,968 EQUITY Equity attributable to owners of the Company Share capital 111, ,081 Reserves (a) 1,426,321 1,333,396 Total equity 1,537,522 1,443, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

156 31 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (continued) Balance sheet of the Company (continued) 31 As at 31 December Notes HK$ 000 HK$ 000 LIABILITIES Current liabilities Other payables and accruals 9,485 5,491 Total current liabilities and total liabilities 9,485 5,491 Total equity and liabilities 1,547,007 1,448,968 The balance sheet of the Company was approved by the Board of Directors on 8 March 2016 and was signed on its behalf NIE GUOMING Director LI WENJIN Director 151

157 31 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (continued) (a) Reserve movement of the Company 31 (a) Share premium Share option reserve (Accumulated loss)/retained earnings Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 Balance at 1 January ,306,427 62,680 (35,711) 1,333,396 Profit for the year 83,452 83,452 Share option scheme value of services provided 14,690 14,690 share options exercised 17,012 17,012 Dividends paid (22,229) (22,229) Total transaction with owners 17,012 14,690 61,223 92,925 Balance at 31 December ,323,439 77,370 25,512 1,426,321 Balance at 1 January ,237,947 34,073 (25,564) 1,246,456 Loss for the year (10,147) (10,147) Share option scheme value of services provided 28,607 28,607 share options exercised 68,480 68,480 Total transaction with owners 68,480 28,607 (10,147) 86,940 Balance at 31 December ,306,427 62,680 (35,711) 1,333, SUBSEQUENT EVENTS In November 2015, Wonder Pax, a wholly owned subsidiary of the Group, entered into an agreement with Ieasy and its shareholders, to acquire and subscribe for an aggregate of 60% of the enlarged equity interests in Ieasy with RMB30,000,000 (equivalent to HK$35,407,000). Such acquisition and subscription completed in February ,000,000 35,407,000 60% 152 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

158 33 BENEFITS AND INTERESTS OF DIRECTORS (DISCLOSURES REQUIRED BY SECTION 383 OF THE HONG KONG COMPANIES ORDINANCE (CAP. 622), COMPANIES (DISCLOSURE OF INFORMATION ABOUT BENEFITS OF DIRECTORS) REGULATION (CAP. 622G) AND HK LISTING RULES) (a) Directors and chief executive s emoluments The remuneration of every Director and chief executive of the Company during the year is set out below: G (a) For the year ended 31 December 2015 Emoluments paid or receivable in respect of a person s services as a director, whether of the Company or its subsidiary undertaking Fees Salary Discretionary bonuses Housing allowance Estimated Employer s money value of contribution to other benefits a retirement (Note (a)) benefit scheme Emoluments paid or receivable in respect of director s other services in Remunerations connection paid or with the receivable in management respect of of the affairs accepting of the Company office as or its subsidiary director undertaking (a) HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Name Total Executive Directors Nie Guoming (Chairman) 1, , ,036 Lu Jie (Chief Executive Officer) 900 1,148 3, ,865 Li Wenjin 800 2, ,018 2,700 1,947 8, ,919 Independent Non-Executive Directors Yip Wai Ming Wu Min Man Kwok Kuen, Charles Total ,060 1,947 8, ,

159 33 BENEFITS AND INTERESTS OF DIRECTORS (DISCLOSURES REQUIRED BY SECTION 383 OF THE HONG KONG COMPANIES ORDINANCE (CAP. 622), COMPANIES (DISCLOSURE OF INFORMATION ABOUT BENEFITS OF DIRECTORS) REGULATION (CAP. 622G) AND HK LISTING RULES) (continued) (a) Directors and chief executive s emoluments (continued) G (a) Fees For the year ended 31 December 201 Emoluments paid or receivable in respect of a person s services as a director, whether of the Company or its subsidiary undertaking Salary Discretionary bonuses Housing allowance Estimated money value of other benefits (Note (a)) Employer s contribution to a retirement benefit scheme Remunerations paid or receivable in respect of accepting office as director Emoluments paid or receivable in respect of director s other services in connection with the management of the affairs of the Company or its subsidiary undertaking (a) HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Name Total Executive Directors Nie Guoming (Chairman) 1, , ,348 Lu Jie (Chief Executive Officer) , ,171 Li Wenjin 800 1, ,509 2,700 1,687 4,040 1, ,028 Independent Non-Executive Directors Yip Wai Ming Wu Min Man Kwok Kuen, Charles Total ,042 1,687 4,190 1, ,520 Note (a): Other benefits include leave pay, share options and insurance premium. (a) 154 PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

160 33 BENEFITS AND INTERESTS OF DIRECTORS (DISCLOSURES REQUIRED BY SECTION 383 OF THE HONG KONG COMPANIES ORDINANCE (CAP. 622), COMPANIES (DISCLOSURE OF INFORMATION ABOUT BENEFITS OF DIRECTORS) REGULATION (CAP. 622G) AND HK LISTING RULES) (continued) (b) Directors retirement benefits None of the directors received or will receive any retirement benefits during the year (2014: Nil) G (b) (c) Directors termination benefits (c) None of the directors received or will receive any termination benefits during the year (2014: Nil). (d) Consideration provided to third parties for making available directors services During the year ended 31 December 2015, the Company did not pay consideration to any third parties for making available directors services (2014: Nil). (d) (e) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporates and connected entities with such directors (e) During the year ended 31 December 2015, there is no loans, quasi-loans and other dealing arrangements in favour of the directors, or controlled body corporates and connected entities of such directors (2014: Nil). (f) Directors material interests in transactions, arrangements or contracts (f) No significant transactions, arrangements and contracts in relation to the Company s business to which the Company was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year (2014: Nil). 155

161 Five Years Financial Summary A summary of the published consolidated results and of the consolidated assets and liabilities of the Group for the last five financial years, as extracted from the audited financial statements and reclassified as appropriate, is set as below: HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Results Revenue 2,870,794 2,373,272 1,472,488 1,313,330 1,103,180 Gross profit 1,092, , , , ,702 Operating profit 657, , , , ,463 Profit for the year attributable to owners of the Company 620, , , , ,795 Financial position Assets and liabilities Total assets 4,080,199 3,334,313 2,832,808 2,193,760 2,006,038 Total liabilities 989, , , , ,884 Capital and reserves Total equity 3,090,599 2,548,180 2,087,122 1,810,834 1,601, PAX GLOBAL TECHNOLOGY LIMITED ANNUAL REPORT 2015

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