Consolidated Income and Expenditure Account 綜合收支表 For the year ended 31 March 3 31 Note (HK$ 000) INCOME Government Subvention from 5 393,39

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1 Finances 財務概況 Independent Auditor s Report 獨立核數師報告 Independent Auditor s Report 獨立核數師報告 TO THE COUNCIL OF HONG KONG TRADE DEVELOPMENT COUNCIL (Incorporated in Hong Kong under the Hong Kong Trade Development Council Ordinance) We have audited the consolidated financial statements of Hong Kong Trade Development Council ( HKTDC ) and its subsidiaries (collectively the Group ) set out on pages 74 to 123, which comprise the consolidated balance sheet as at 31 March 2015, and the consolidated income and expenditure account, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in funds for the year then ended, and a summary of significant accounting policies and other explanatory information. COUNCIL S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The Council of HKTDC is 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 Section 23 of the Hong Kong Trade Development Council Ordinance, and for such internal control as the Council determines 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 24 of the Hong Kong Trade Development Council Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report AUDITOR S RESPONSIBILITY (Cont d) 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 judgement, 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 Council, 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 HKTDC and its subsidiaries as at 31 March 2015, and of their financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards 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. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 28 May

2 Consolidated Income and Expenditure Account 綜合收支表 For the year ended 31 March 3 31 Note (HK$ 000) INCOME Government Subvention from 5 393, ,537 Trade Declaration Charge Income Generated from the Group s 2(d) Operational Activities Exhibitions and Missions 1,877,418 1,862,281 Product Magazines and Online 196, ,650 Marketplace HKCEC Operation 172, ,097 Other Operational Income 45,806 44,146 2,292,227 2,264,174 Investment Income 2(h) 103,332 70,543 Interest on Bank Deposits 2(d) 5,355 5,470 Miscellaneous Income 12,448 9,945 2,413,362 2,350,132 Total Income 2,806,753 2,739,669 EXPENDITURE Staff Costs 2(n) & 6 705, ,876 Rent and Rates 22,594 21,692 Other Office Expenses 101,205 93,719 Exhibitions and Missions 1,296,012 1,364,917 Other Promotional Activities 423, ,591 Trade-related Activities 20,951 20,929 Exchange Differences 2(e) 27,425 (699) Depreciation of HKCEC Atrium 2(f) 77,027 77,261 Link Extension Depreciation of Other Property, 2(f) & (g) 66,584 71,812 Plant and Equipment and Amortisation of Land Use Rights Loss/(Gain) on Disposal of Property, 2(f) 36 (76) Plant and Equipment Consolidated Statement of Comprehensive Income 綜合全面收益表 For the year ended 31 March 3 31 Note (HK$ 000) Surplus for the Year 62, Other Comprehensive Income Item that will not be Reclassified to Income or Expenditure Actuarial (Loss)/Gain on Defined Benefit Retirement Schemes 19 (849) 108,561 Items that may be Reclassified Subsequently to Income or Expenditure Realisation of Cash Flow Hedges 19 (446) 15,612 Fair Value (Loss)/Gain on Forward 19 (22,853) 1,921 Foreign Currency Contracts at Year End Fair Value Loss on Interest Rate 19 (1,475) Swap Contracts at Year End (23,299) 16,058 Other Comprehensive Income (24,148) 124,619 for the Year Total Comprehensive Income 38, ,827 for the Year Total Expenditure 2,741,111 2,732,022 Surplus before Finance Costs 65,642 7,647 Finance Costs 2(l) & 14 (2,733) (7,439) Surplus for the Year 62, Transfer to Other Specific Funds 19 (109,943) (57,747) Transfer from General Fund 16 47,034 57,

3 Consolidated Balance Sheet 綜合資產負債表 As at 31 March 3 31 Note (HK$ 000) NON-CURRENT ASSETS Property, Plant and Equipment 7 1,686,570 1,785,975 Land Use Rights 8 50,509 51,946 1,737,079 1,837,921 CURRENT ASSETS Accounts Receivable, Deposits and , ,260 Prepayments Fixed-income and Equity Securities 11 1,838,834 1,681,338 Derivative Financial Instruments Cash and Bank Balances , ,179 2,853,306 2,803,407 TOTAL ASSETS 4,590,385 4,641,328 NON-CURRENT LIABILITIES Defined Benefit Retirement 6(b)(ii) 79,150 55,775 Scheme Liabilities Receipts in Advance 15 40,728 75,624 Bank Borrowings , , , ,399 CURRENT LIABILITIES Accounts Payable, Accruals and 15 1,141,201 1,170,833 Receipts in Advance Bank Borrowings 14 72,000 72,000 Derivative Financial Instruments 12 24,924 1,475 1,238,125 1,244,308 TOTAL LIABILITIES 1,592,003 1,681,707 NET ASSETS 2,998,382 2,959,621 Financed By: GENERAL FUND 16 1,355,455 1,349,401 RESERVE FUND 17 1,032,704 1,121,819 EXHIBITION CONTRACTING , ,784 SERVICES FUND OTHER SPECIFIC FUNDS , ,617 TOTAL FUNDS 2,998,382 2,959,621 (Signed) Jack So, GBS, OBE, JP Chairman of HKTDC <OBE > (Signed) The Honourable Andrew Leung, GBS, JP Chairman of Staff and Finance Committee <> Consolidated Statement of Cash Flows 綜合現金流量表 For the year ended 31 March 3 31 (HK$ 000) OPERATING ACTIVITIES Surplus for the Year 62, Government Subvention from Trade (393,391) (389,537) Declaration Charge Investment Income (103,332) (70,543) Interest on Bank Deposits (5,355) (5,470) Finance Costs 2,733 7,439 Adjustments for items not involving the Movement of Cash: Depreciation for HKCEC Atrium Link 77,027 77,261 Extension Depreciation of Other Property, 66,584 71,812 Plant and Equipment and Amortisation of Land Use Rights Loss/(Gain) on Disposal of Property, 36 (76) Plant and Equipment Ineffective Portion of Cash Flow Hedges 780 3,299 Retirement Benefit Expenses 22,526 25,490 (Increase)/Decrease in Accounts Receivable, (6,721) 32,646 Deposits and Prepayments (Decrease)/Increase in Accounts Payable, (64,528) 36,670 Accruals and Receipts in Advance Net Cash Outflow from Operating Activities (340,732) (210,801) INVESTING ACTIVITIES Interest on Bank Deposits 5,355 5,470 Addition of Property, Plant and Equipment (43,042) (50,673) Proceeds from Disposal of Property, Plant and Equipment Change in Fixed-income and Equity Securities (54,164) 10,415 Decrease in Deposits held by Fund Managers 53,701 5,157 for Investments Net Cash Outflow from Investing Activities (37,913) (29,495) Net Cash Outflow before Financing Activities (378,645) (240,296) FINANCING ACTIVITIES Government Subvention from Trade 393, ,537 Declaration Charge Repayment of Bank Borrowings (72,000) (72,000) Finance Costs (2,733) (7,439) Net Cash Inflow from Financing Activities 318, ,098 Net (Decrease)/Increase in Cash and Cash (59,987) 69,802 Equivalents Cash and Cash Equivalents at beginning of 732, ,137 the Year Cash and Cash Equivalents at end of 672, ,939 the Year Analysis of Balances of Cash and Cash Equivalents: Cash and Bank Balances 706, ,179 Less: Deposits held by Fund Managers (33,539) (87,240) for Investments 672, ,939 The Consolidated Financial Statements were approved by the Council on 28 May

4 Consolidated Statement of Changes in Funds 綜合資金總額變動表 For the year ended 31 March 3 31 Note (HK$ 000) Total Funds at the beginning 2,959,621 2,834,794 of the Year Comprehensive Income Surplus for the Year dealt with 62, in the Consolidated Income and Expenditure Account Other Comprehensive Income Realisation of Cash Flow Hedges 19 (446) 15,612 Fair Value (Loss)/Gain on Forward 19 (22,853) 1,921 Foreign Currency Contracts at Year End Fair Value Loss on Interest Rate 19 (1,475) Swap Contracts at Year End Actuarial (Loss)/Gain on Defined 19 (849) 108,561 Benefit Retirement Schemes Total Comprehensive Income 38, ,827 for the Year Total Funds at the end of the Year 2,998,382 2,959, GENERAL INFORMATION Hong Kong Trade Development Council ( HKTDC ) was incorporated in 1966 under the Hong Kong Trade Development Council Ordinance to promote Hong Kong s external trade in goods and services. The address of its registered office is 38/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong. 2. PRINCIPAL ACCOUNTING POLICIES (a) Basis of Preparation The Consolidated Financial Statements included the Financial Statements of HKTDC and its subsidiaries, HKTDC (Japan) Limited and HKTDC Limited (collectively the Group ). The Consolidated Financial Statements of the Group have been prepared in accordance with the Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants and under the historical cost convention, as modified by investments in fixed-income and equity securities and derivative financial instruments, which are carried at fair value. The preparation of Consolidated Financial Statements in conformity with HKFRSs requires the use of certain accounting estimates and assumptions. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements, are disclosed in note (a) HKTDC (Japan) Limited 4 During the year, the Group has assessed the new or revised standards, amendments and improvements to existing standards (collectively the new HKFRSs ) that have come into effect and are considered relevant to its operations

5 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (a) Basis of Preparation (Cont d) As at 31 March 2015, the following new HKFRSs have been adopted by the Group for the financial year beginning on or after 1 April 2014 and are considered relevant to the Group s operations: 2. (a) PRINCIPAL ACCOUNTING POLICIES (Cont d) (b) New HKFRSs which are NOT Yet Effective (Cont d) The Group will apply the above new HKFRSs when they become effective. The Group has already commenced an assessment of the related impact to the Group. The Group is not yet in a position to state whether any substantial financial impact will be resulted. 2. (b) HKAS 32 (Amendment) Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities 32 HKAS 36 (Amendment) Impairment of Assets Recoverable Amount Disclosure for Non-financial Assets 36 The adoption of these new HKFRSs has no material impact on the Group s result. (b) New HKFRSs which are NOT Yet Effective As at 31 March 2015, the following new HKFRSs which are considered relevant to the Group s operations, are in issue but not yet effective: (b) Effective for accounting periods beginning on or after HKAS 1 (Amendment) Disclosure Initiative 1 January HKAS 16 and HKAS 38 (Amendment) Clarification of Acceptable Methods of 1 January 2016 Depreciation and Amortisation HKAS 19 (2011) (Amendment) Employee Benefits 1 July (2011) HKFRSs (Amendment) Annual Improvements 2012, July HKFRSs (Amendment) Annual Improvements July HKFRS 9 Financial Instruments 1 January HKFRS 15 Revenue from Contracts with Customers 1 January (c) Consolidation 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 subsidiary is fully consolidated from the date on which control is transferred to the Group. Inter-company transactions, balances and unrealised gains or losses on transactions between group companies are eliminated. Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In HKTDC s own Balance Sheet as disclosed in note 23, investment in subsidiaries is stated at cost less provision for impairment loss. (d) Income Recognition Income generated from exhibitions and missions, and trade publications (product magazines and online marketplace) is recognised when the relevant exhibition or mission is held and the relevant trade publication is published. Government subvention is recognised in the specific fiscal year as approved by the Government of Hong Kong Special Administrative Region (the HKSAR Government ). Income generated from HKCEC operation and other operational income is recognised when services are rendered. The recognition of investment income is set out in note 2(h). Interest on bank deposits is recognised on a time proportion basis using the effective interest method. (c) 23 (d) 2(h) 80 81

6 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (e) Foreign Currencies Translation Items included in the Financial Statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The Consolidated Financial Statements are presented in Hong Kong dollars ( HK$ ), which is HKTDC s functional and presentation currency. 2. (e) 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (f) Property, Plant and Equipment (Cont d) Property, plant and equipment are depreciated at rates sufficient to write off their cost over their estimated useful lives on a straightline basis at the following annual rates: Leasehold land classified Shorter of remaining lease term as finance lease and useful life 2. (f) (f) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Income and Expenditure Account. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated 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. All other repairs and maintenance costs are expensed in the Consolidated Income and Expenditure Account during the financial period in which they are incurred. (f) Office buildings and staff 2% quarters Furniture, equipment 20% to 33-1/3% and fittings Motor vehicles and vessels 25% Leasehold improvements Over the unexpired lease periods HKCEC Atrium Link Extension Over the unexpired operating periods Operating assets and exhibition Over the number of years stand systems ranging from two to eight for which the assets are expected to be used 2% 20% 33-1/3% 25% No depreciation is provided for freehold land. The assets residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are dealt with in the Consolidated Income and Expenditure Account

7 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (g) Land Use Rights Land use rights represent operating lease prepayment for land less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of operating lease prepayment for land over the remaining lease term. (h) Fixed-income and Equity Securities Fixed-income and equity securities including fixed-income securities, equity securities and financial derivatives are stated at fair value at the balance sheet date. The fair values of quoted investments are based on current bid prices. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Investment income comprising interest, gain or loss on disposal of securities, and any increase or decrease in portfolio valuation net of fees and charges is recognised in the Consolidated Income and Expenditure Account. Regular purchases and sales of investments are recognised on the trade-date the date on which the Group commits to purchase or sell the asset. Investments 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. (i) Impairment of Investments in Subsidiaries and Non-financial Assets Assets 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 or cash-generating units. Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 2. (g) (h) (i) 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (j) Derivative Financial Instruments Derivative financial instruments include forward foreign currency and interest rate swap contracts which are designated as effective cash flow hedges. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. Forward foreign currency and interest rate swap contracts are initially recognised at fair value at inception and subsequently re-measured at their fair value, using quoted forward exchange rates and interest rates at the balance sheet date. The effective portion of changes in the fair value of the cash flow hedges which result in gains or losses is recognised in Other Comprehensive Income and the Hedging Reserve. Any gain or loss relating to the ineffective portion is recognised immediately in the Consolidated Income and Expenditure Account. Amounts accumulated in the Hedging Reserve are transferred to the Consolidated Income and Expenditure Account in the periods when the hedged items are expensed. However, when the hedged items result in the recognition of non-financial assets or liabilities, the gains and losses previously deferred in the Hedging Reserve are transferred to the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in the Hedging Reserve at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Consolidated Income and Expenditure Account. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in the Hedging Reserve is immediately transferred to the Consolidated Income and Expenditure Account. 2. (j) 84 85

8 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (k) Cash and Cash Equivalents Cash and cash equivalents include cash in hand, time deposits held with banks and other short-term highly liquid investments that are readily convertible into cash. (l) Borrowings and Borrowing Costs Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Consolidated Income and Expenditure Account over the period of the borrowings using the effective interest method. Borrowings are classified as Current Liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Loan interest and other borrowing costs are charged to the Consolidated Income and Expenditure Account except for those interest costs which are capitalised as part of the cost of construction of a qualifying asset during the period of time that is required to complete and prepare the asset for its intended use or sale. (m) Income Tax HKTDC is exempted under Section 87 of the Hong Kong Inland Revenue Ordinance from all taxes payable under the Ordinance. 2. (k) (l) (m) PRINCIPAL ACCOUNTING POLICIES (Cont d) (n) Employee Benefits (i) Defined Benefit Retirement Schemes The Group operates a Defined Benefit Retirement Scheme in Hong Kong which provides retirement benefits linked to final salaries for its employees who have been members of the scheme before 1 December The assets of the scheme are held by a trustee separately from those of the Group and are invested through an investment manager. The Group also participates in a Defined Benefit Retirement Scheme in overseas. The net asset or net liability recognised in the Consolidated Balance Sheet in respect of Defined Benefit Retirement Schemes is the excess or shortfall in fair value of scheme assets over the present value of the defined benefit obligation at the end of the reporting period. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yield of high-quality bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the Group s retirement benefit obligation. The defined benefit obligation is calculated annually by independent qualified actuaries using the Projected Unit Credit Method. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in Other Comprehensive Income in the period in which they arise. 2. (n) (i) (ii) Defined Contribution Retirement Schemes The Group participates in a Defined Contribution Retirement Scheme for employees who have joined the Group s services after 1 December 2000 in compliance with the Mandatory Provident Fund Ordinance. The Group s contributions to the Mandatory Provident Fund are expensed as incurred. For certain overseas employees, the Group also contributed to respective local Defined Contribution Retirement Schemes. (ii)

9 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (n) Employee Benefits (Cont d) (iii) Employee Leave Entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave. (o) Operating Leases Leases where substantially all the rewards and risks of ownership of the assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are expensed on a straight-line basis over the lease term. (p) Provisions Provisions are recognised when either a present legal or constructive obligation, as a result of a past event, exists at the balance sheet date and where the amount of the obligation can be reliably estimated. (q) Receivables Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. If the collection of receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as Current Assets. If not, they are presented as Non-current Assets. 2. (n) (iii) (o) (p) (q) 2. PRINCIPAL ACCOUNTING POLICIES (Cont d) (s) Related Parties A party is considered to be related to the Group if the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policies, and vice versa. For the purpose of the Consolidated Financial Statements, transactions between the Group and the HKSAR Government departments, agencies or HKSAR Government controlled entities, other than those transactions such as payment of rent and rates, fees etc., that arise in the normal dealings between the HKSAR Government and the Group, are considered to be related party transactions. (t) Contingent Liabilities A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the Consolidated Financial Statements. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision. 2. (s) (t) (r) Payables Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Payables 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. (r) 88 89

10 3. FINANCIAL RISK MANAGEMENT (a) Financial Risk Factors (i) Investment Risk and Credit Risk The Group adopts a prudent and conservative investment policy approved by the HKSAR Government. The management regularly monitors the fair value of the investments and performance of the portfolios reported by the Fund Managers on a quarterly basis. The Group s investment portfolio consists mostly of fixed-income and equity securities. As at 31 March 2015, most of the fixed income securities had high credit ratings of A- or above as measured by Standard & Poor s or equivalent. In addition, the Group has closely monitored the performance of their investments in equity securities. The Group s investment portfolio is also exposed to certain price risk of equity securities which are diversified globally. The foreign currency exposures in debt instruments are managed using financial derivatives. The Group engaged an external consultant to measure the risk exposure of its investment portfolio at the balance sheet date by adopting value-at-risk approach. It is a measurement of volatility taking into account the historical and forecast returns, expected standard deviation and correlation of the asset classes in the investment portfolio. With a 95% confidence level, it is measured that the maximum likely loss of the investment portfolio is HK$56 million (2014: HK$53 million) over a onemonth period. The overall risk exposure is considered minimal. 3. (a) (i) A- 95% 5, , FINANCIAL RISK MANAGEMENT (Cont d) (a) Financial Risk Factors (Cont d) (ii) Foreign Exchange Risk The Group carries out promotional activities in overseas countries and the related expenditure is principally paid in foreign currencies. Forward foreign currency contracts are entered into for hedging foreign currency payments and foreign exchange risk exposure is considered minimal. (iii) Interest Rate Risk The Group has interest-bearing assets, mainly, time deposits. During the year, if the interest rate on the time deposits had been 100 basis points per annum higher or lower with all other variables held constant, interest income would have been HK$5.6 million (2014: HK$5.6 million) higher or lower. Other than the portion of bank loans hedged by the interest rate swaps, the Group is exposed to interest rate risk arising from floating rate borrowings. During the year, if interest rate on the bank loans had been 100 basis points higher or lower with all other variables held constant, interest costs incurred would have been HK$2.7 million (2014: HK$1.1 million) higher or lower. 3. (a) (ii) (iii) The Group only places liquid funds with reputable banks with sound credit rating. The Group does not expect any losses from non-performance by the banks. As at 31 March 2015, the Group s placed deposits in banks with short-term credit ratings of A-1 or above as measured by Standards & Poor s or equivalent. The Group is also exposed to credit risk in relation to trade and other receivables. The Group s maximum exposure to credit risk is the carrying amounts of these financial assets. To manage this risk, the management has monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the management reviews regularly the recoverable amount of each individual trade receivables to ensure that adequate impairment is made for the irrecoverable amounts. The credit risk is considered minimal A

11 3. FINANCIAL RISK MANAGEMENT (Cont d) 3. (a) Financial Risk Factors (Cont d) (iv) Liquidity Risk The Group maintains sufficient cash and liquid assets including marketable securities to finance its operations and is not exposed to significant liquidity risk. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. (a) (iv) The following tables provide the undiscounted cash flows of significant financial liabilities: Total Within 1 Between Between Contractual Year or 1 and 2 and Over Undiscounted On Demand 2 Years 5 Years 5 Years Cash Flow 1 (HK$ 000) FINANCIAL RISK MANAGEMENT (Cont d) (b) Capital Management The Group s capital consists of the General Fund, Reserve Fund, Exhibition Contracting Services Fund and Other Specific Funds, which are set up for various designated purposes as described in notes 16 to 19. The Group s capital also consists of bank borrowings. It is the Group s objective to maintain sufficient Reserve Fund and bank borrowing balances to safeguard the Group s ability to continue as a going concern and to support its current and future capital and operating expenditure requirements. In order to maintain the capital structure, the Group obtains funding arrangement through government subvention agreed between HKTDC and the HKSAR Government as set out in note 5 and bank borrowings as set out in note 14. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings (including current and noncurrent borrowings as shown in the Consolidated Balance Sheet) divided by total capital. Total capital comprises total borrowings plus total funds as shown in the Consolidated Balance Sheet. 3. (b) At 31 March Accounts Payable, Accruals 494, ,080 and Other Payables Bank Borrowings 74,835 74, , ,828 Derivative Financial Instruments Outflow 376, ,369 Inflow (351,366) (351,366) As at 31 March 2015 and 2014, the Group s gearing ratio was as follows: (HK$ 000) Total Borrowings 306, ,000 Total Funds 2,998,382 2,959,621 At 31 March Total Capital 3,304,382 3,337,621 Accounts Payable, Accruals 492, ,832 and Other Payables Bank Borrowings 77,335 75, ,216 18, ,401 Derivative Financial Instruments Outflow 381, ,208 Inflow (380,281) (380,281) Gearing Ratio 9.3% 11.3% 92 93

12 3. FINANCIAL RISK MANAGEMENT (Cont d) (c) Fair Value Estimation Financial instruments that are measured at fair value in the Consolidated Balance Sheet required disclosure of fair value measurements by level of the following fair value measurement hierarchy: 3. (c) 3. FINANCIAL RISK MANAGEMENT (Cont d) (c) Fair Value Estimation (Cont d) 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 3. (c) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). 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 held by the Group 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). is the current bid price. These instruments are included in Level 1. Instruments of the Group included in Level 1 are fixed-income and equity securities. The fair value of financial instruments that are not traded in Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques authorise the use of observable market data where it is available and rely as little as possible on entity specific estimates. The following table presents the Group s assets and liabilities that were measured at fair value as at 31 March 2015 and 2014: If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. Level 1 Level 2 Total (HK$ 000) If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. At 31 March Assets Fixed-income and Equity Securities 1,820,628 18,206 1,838,834 Liabilities Derivative Financial Instruments 24,924 24,924 At 31 March Assets Fixed-income and Equity Securities 1,686,880 (5,542) 1,681,338 Derivative Financial Instruments ,686,880 (4,912) 1,681,968 Liabilities Derivative Financial Instruments 1,475 1,475 Specific valuation techniques used to value financial instruments include: Quoted market prices or dealer quotes for similar instruments. The fair value of interest rate swap contracts is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments

13 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The management makes estimates based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Impairment of Property, Plant and Equipment HKTDC regularly reviews whether there are any indications of impairment of property, plant and equipment. If impairment indicators exist, HKTDC will test whether the carrying amount of an asset is higher than its recoverable amount which is the greater of its net selling price and its value in use in accordance with the accounting policy stated in note 2(i). In determining the value in use, management assesses the present value of the estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. Estimates and judgements are applied in determining these future cash flows and the discount rate. 5. GOVERNMENT SUBVENTION FROM TRADE DECLARATION CHARGE In accordance with the funding arrangement agreed between HKTDC and the HKSAR Government for the financial years ending 31 March 2014 to 2018, government subvention payable to HKTDC will be determined having regard to the HKSAR Government s financial position, HKTDC s funding requirements and by way of reference to the total amount of trade declaration charge received in the preceding year but in any case will not be less than the subvention level for the year ended 31 March (i) STAFF COSTS The total amount of staff costs (including directors pay and allowances) comprises: 6. (HK$ 000) Staff Salaries and Discretionary 523, ,909 Performance Pay Accommodation and Other 132, ,349 Allowances, and Staff-related Expenses Retirement Benefit Expenses 49,340 50, , ,876 (a) Directors Pay and Allowances The directors are key management of the Group and include the Executive Director, Deputy Executive Directors and Assistant Executive Directors. Their total salaries and allowances for the year were as follows: (a) Executive Other Director Directors Total Total (HK$ 000) In December 2013, HKTDC was advised by the HKSAR Government that the amount of government subvention from the trade declaration charge payable to HKTDC for the year ending 31 March 2015 would be HK$ million (2014: HK$ million), and there would be no subsequent reconciliation with the actual receipts from the trade declaration charge. Of the total appropriation of HK$ million, HK$20.95 million (2014: HK$20.93 million) was used to fund traderelated activities organised by The Hong Kong Shippers Council, the Hong Kong/Japan Business Co-operation Committee and the governmental relations service, and the balance of HK$ million (2014: HK$ million) was applied to fund the activities directly under the Group , ,954 2, , , ,861 Salaries and Discretionary 6,021 14,783 20,804 18,762 Performance Pay Accommodation and Other 1,603 3,936 5,539 5,046 Allowances, Retirement Benefit and Staff-related Expenses 7,624 18,719 26,343 23,

14 6. STAFF COSTS (Cont d) 6. (a) Directors Pay and Allowances (Cont d) The salaries and discretionary performance pay for all directors of the Group fell within the following ranges: (a) No. of No. of Directors Directors (HK$) 1,000,001 to 1,500,000 1,000,001 1,500, ,000,001 to 2,500,000 2,000,001 2,500, ,000,001 to 3,500,000 3,000,001 3,500, ,000,001 to 4,500,000 4,000,001 4,500, ,000,001 to 5,500,000 5,000,001 5,500, STAFF COSTS (Cont d) (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes (Cont d) The HK Scheme was established under a trust arrangement. It is registered under the Occupational Retirement Schemes Ordinance of Hong Kong ( ORSO ), and has been granted with MPF Exemption by the Mandatory Provident Fund Schemes Authority. HKTDC is the sole employer participating in the HK Scheme. In accordance with relevant clauses of the Trust Deed of the HK Scheme, the Council has an unconditional right to the surplus of the HK Scheme. As a result, the asset ceiling under paragraph 64 and 65 of HKAS 19 and the minimum funding requirements of HK(IFRIC) Interpretation 14 do not apply to the HK Scheme. 6. (b) 19 (2011) During the year, the Chairman and Council members of the Group did not receive any remuneration for their services rendered to the Group (2014: Nil) The HK Scheme is administered by HSBC Institutional Trust Services (Asia) Limited who acts as the trustee to the HK Scheme. The key responsibilities of the trustee are to ensure that the HK Scheme is administered in accordance with the trust deed and rules and to act on behalf of all members impartially, prudently and in good faith. (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes HKTDC has Defined Benefit Retirement Schemes in Hong Kong and in overseas (collectively the Schemes ). The major Defined Benefit Retirement Scheme is in Hong Kong (the HK Scheme ), which represents 98% of the total scheme assets of HKTDC as at 31 March (b) % The HK Scheme is mainly exposed to investment risk and interest rate risk. The investment manager of the HK Scheme has been assigned an investment mandate with the targeted asset allocation to achieve a diversified portfolio. The Group s management monitors the overall position of the HK Scheme on a quarterly basis. Since the HK Scheme is a final salary lump sum scheme, its exposure to longevity risk is limited. The HK Scheme is a defined benefit scheme that provides lump sum benefits based on a factor of a member s final salary and years of service upon the member s retirement, death, disability or leaving service. The HK Scheme has been closed to new employees since 1 December

15 6. STAFF COSTS (Cont d) (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes (Cont d) Details of the Schemes are as follows: (i) Retirement benefit expenses recognised in the Consolidated Income and Expenditure Account were as follows: 6. (b) (i) 6. STAFF COSTS (Cont d) (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes (Cont d) (iii) Movement in the fair value of scheme assets of the year was as follows: 6. (b) (iii) (HK$ 000) (HK$ 000) Current Service Cost 35,601 37,144 Net Interest Cost 1,387 1,277 Administrative Expenses 1,966 1,807 38,954 40,228 (ii) Net scheme liabilities recognised in the Consolidated Balance Sheet and represented by the Retirement Benefit Scheme Fund were as follows: (ii) (HK$ 000) At the beginning of the Year 761, ,534 Interest Income on Scheme 16,056 7,310 Assets Return on Scheme Assets, 76,400 61,827 excluding Amounts included in Interest Income Employer Contributions 16,428 14,738 Employee Contributions 8,230 8,188 Actual Benefits Paid (56,542) (65,906) Administrative Expenses paid (1,966) (1,807) from Scheme Assets At the end of the Year 820, ,884 Fair Value of Scheme Assets 820, ,884 as at the end of the Year Present Value of Benefit (899,640) (817,659) Obligation as at the end of the Year Deficit (79,150) (55,775) (iv) Movement in the present value of benefit obligation of the (iv) year was as follows: (HK$ 000) At the beginning of the Year 817, ,380 Current Service Cost 35,601 37,144 Interest Cost 17,443 8,587 Employee Contributions 8,230 8,188 Actuarial Loss arising from 11,553 20,906 Experience Adjustment Actuarial Loss/(Gain) arising 65,696 (67,640) from Change in Financial Assumptions Actual Benefits Paid (56,542) (65,906) At the end of the Year 899, ,

16 6. STAFF COSTS (Cont d) (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes (Cont d) Further information of the HK Scheme is disclosed below: 6. (b) 6. STAFF COSTS (Cont d) (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes (Cont d) (vi) The HK Scheme assets were composed of: 6. (b) (vi) (v) The principal actuarial assumptions used as at 31 March were as follows: (v) Discount Rate 1.3% 2.1% Expected Rate of Future 4.0% 4.0% Salary Increase Equities Securities 54.9% 53.9% Fixed-income Securities 39.4% 38.9% Cash and Other Net Assets 5.7% 7.2% 100% 100.0% The sensitivity analysis of the present value of benefit obligation to changes in actuarial assumptions were as follows: (vii) There are no assets of the HK Scheme that were invested in the Group s own financial instruments or properties as at 31 March (vii) Increase/(Decrease) in Present Value of Benefit Obligation Change in Increase in Decrease in Assumption Assumption Assumption HK$ 000 HK$ 000 (viii) Currently, the HK Scheme has a benchmark asset allocation of 50% in equities and 50% in bonds and cash. The long term strategic asset allocations of the HK Scheme are set and reviewed from time to time by the Group taking into account the HK Scheme s membership, liability profile, liquidity requirements, and the risk appetite of the Group. (viii) 50% 50% Discount Rate 0.25% (14,975) 15,381 Expected Rate of Future 0.25% 11,710 (11,479) Salary Increase (ix) The expected Group s contributions to the HK Scheme for the following year are HK$13.90 million. (ix) 1,390 The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period

17 6. STAFF COSTS (Cont d) (b) Retirement Benefit Scheme Defined Benefit Retirement Schemes (Cont d) (x) The costs of benefits are jointly funded by the Group and the members. Members contributions are based on a fixed percentage of basic salary as stipulated by the rules of the HK Scheme. These Group s contributions are determined with reference to the funding valuation carried out by the HK Scheme s actuary in accordance with the ORSO requirements. The last funding valuation of the HK Scheme was carried out as at 31 March (b) (x) PROPERTY, PLANT AND EQUIPMENT 7. Furniture, Operating HKCEC Land, Equipment, Motor Assets and Atrium Office Fitting and Vehicles Exhibition Link Buildings and Leasehold and Stand Extension Staff Quarters Improvements Vessels Systems Total (HK$ 000) (xi) The weighted average duration of the defined benefit obligation as at 31 March 2015 is 7.0 years (2014: 7.2 years). (xi) (xii) The expected maturity analysis of the benefit payments from the HK Scheme based on the adopted actuarial assumptions: (xii) (HK$ 000) /15 Cost At 1 April ,481, , ,973 5, ,198 2,904,086 Additions 36,102 6,940 43,042 Disposals (5,572) (172) (5,607) (11,351) At 31 March ,481, , ,503 5, ,531 2,935,777 Within One Year 28,612 Between One and Two Years 93,524 Between Two and Five Years 221,976 Over Five Years 982,193 (c) Retirement Benefit Scheme Defined Contribution Retirement Schemes During the year, the Group s contributions to the Defined Contribution Retirement Schemes amounted to HK$10.39 million (2014: HK$10.39 million). (c) 1, ,039 Accumulated Depreciation At 1 April , , ,552 4, ,069 1,118,111 Depreciation of HKCEC Atrium 77,027 77,027 Link Extension Depreciation of Other Property, 14,133 38, ,937 65,147 Plant and Equipment Depreciation written back on (5,355) (172) (5,551) (11,078) Disposals At 31 March , , ,698 4, ,455 1,249,207 Net Book Value At 31 March ,016, ,097 98, ,076 1,686,

18 7. PROPERTY, PLANT AND EQUIPMENT (Cont d) LAND USE RIGHTS 8. The Group s interests in land use rights in Hong Kong and outside of Furniture, Operating Hong Kong represent prepaid operating lease payments. Their net book HKCEC Land, Equipment, Motor Assets and values are analysed as follows: Atrium Office Fitting and Vehicles Exhibition Link Buildings and Leasehold and Stand (HK$ 000) Extension Staff Quarters Improvements Vessels Systems Total At beginning of the Year 51,946 53,382 Amortisation (1,437) (1,436) (HK$ 000) At end of the Year 50,509 51, /14 Cost At 1 April ,481, , ,617 5, ,751 2,865,475 Additions 37, ,765 50,673 Disposals (10,234) (510) (1,318) (12,062) At 31 March ,481, , ,973 5, ,198 2,904,086 Accumulated Depreciation At 1 April , , ,806 4, , ,476 Depreciation of HKCEC Atrium 77,261 77,261 Link Extension Depreciation of Other Property, 14,135 42, ,715 70,376 Plant and Equipment Depreciation written back on (10,220) (510) (1,272) (12,002) Disposals At 31 March , , ,552 4, ,069 1,118,111 Net Book Value At 31 March ,093, , ,421 1,200 26,129 1,785, SUBSIDIARIES Details of the wholly owned subsidiaries as at 31 March 2015 are as follows: Interest Issued Ordinary Held Place of Incorporation Share Capital/ Directly/ Name and Operations Registered Capital Indirectly Principal Activities HK$ HKTDC (Japan) Limited Hong Kong 22,800, % Property Holding and Directly Leasing HKTDC Limited Hong Kong 1 100% Trade Promotion Directly Guangzhou Gang Mao Consultancy The People s 3,460, % Consultancy and Business and Management Company Limited Republic of China Indirectly Support HKTDC Design Gallery (Guangdong) Trading The People s 28,142, % Wholesale and Retail Company Limited Republic of China Indirectly