() (Incorporated in the Cayman Islands with limited liability) () Interim Report 2016
INTERIM REPORT 2016 Contents Corporate Information 2 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income Condensed Consolidated Statement of Financial Position Condensed Consolidated Statement of Changes in Equity 5 6 8 Condensed Consolidated Statement of Cash Flows 9 Notes to the Condensed Consolidated Financial Statements Report on Review of Condensed Consolidated Financial Statements 11 29 Management Discussion and Analysis 31 Corporate Governance and Other Information 42 TONGFANG KONTAFARMA HOLDINGS LIMITED 1
INTERIM REPORT 2016 Corporate Information BOARD OF DIRECTORS Executive Directors Huang Yu, Chairman Ng Qing Hai, Managing Director Zhang Yi (appointed on 12 July 2016) Deng Jinguang (resigned on 12 July 2016) Independent Non-Executive Directors Chan Sze Chung Zhang Ruibin Zhang Junxi Jack EXECUTIVE COMMITTEE Huang Yu, Chairman Ng Qing Hai Zhang Yi (appointed on 12 July 2016) Deng Jinguang (resigned on 12 July 2016) AUDIT COMMITTEE Chan Sze Chung, Chairman Zhang Ruibin Zhang Junxi Jack REMUNERATION COMMITTEE Zhang Ruibin, Chairman Chan Sze Chung Zhang Junxi Jack NOMINATION COMMITTEE Huang Yu, Chairman Ng Qing Hai Chan Sze Chung Zhang Ruibin Zhang Junxi Jack CREDIT AND RISKS MANAGEMENT COMMITTEE Zhang Junxi Jack, Chairman Huang Yu Ng Qing Hai Chang Sze Chung Zhang Ruibin SHARE DEALING COMMITTEE Huang Yu, Chairman Ng Qing Hai Zhang Yi (appointed on 12 July 2016) Deng Jinguang (resigned on 12 July 2016) 2 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Corporate Information P. O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands 138 9 2111 9686 2111 1276 info@tfkf.com.hk Estera Trust (Cayman) Limited P. O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands 183 22 PRINCIPAL BANKERS Hong Kong China CITIC Bank International Limited Fubon Bank (Hong Kong) Limited Standard Chartered Bank (Hong Kong) Limited The Hongkong and Shanghai Banking Corporation Limited UBS AG Mainland China The Bank of East Asia (China) Limited China Construction Bank Corporation Fubon Bank (China) Co., Ltd. Industrial and Commercial Bank of China Limited Ping An Bank Co., Ltd. REGISTERED OFFICE P. O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS 9th Floor, Allied Kajima Building 138 Gloucester Road, Wanchai, Hong Kong Tel.: 2111 9686 Fax: 2111 1276 Email: info@tfkf.com.hk PRINCIPAL SHARE REGISTRAR Estera Trust (Cayman) Limited P. O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY1-1108 Cayman Islands BRANCH SHARE REGISTRAR Tricor Secretaries Limited Level 22, Hopewell Centre 183 Queen s Road East Hong Kong CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY Si Tou Man Wai TONGFANG KONTAFARMA HOLDINGS LIMITED 3
INTERIM REPORT 2016 Corporate Information Appleby 1312 http://www.tfkf.com.hk http://www.irasia.com/listco/hk/tfkf/index.htm INDEPENDENT AUDITOR Deloitte Touche Tohmatsu SOLICITORS CFN Lawyers in association with Broad & Bright Paul Hastings P. C. Woo & Co. Appleby STOCK CODE 1312 WEBSITES http://www.tfkf.com.hk http://www.irasia.com/listco/hk/tfkf/index.htm 4 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended 30 June 2016 The board of directors ( Board ) of Tongfang Kontafarma Holdings Limited (formerly known as Allied Cement Holdings Limited) ( Company ) announces that the unaudited consolidated results of the Company and its subsidiaries ( Group ) for the six months ended 30 June 2016 with the comparative figures for the corresponding period in 2015 are as follows: Six months ended 30 June 2016 2015 Unaudited Unaudited Notes HK$ 000 HK$ 000 Revenue 3 238,802 259,189 Cost of sales (234,729) (238,856) Gross profit 4,073 20,333 Other income 4 22,864 26,388 Net foreign exchange loss (6) (895) Fair value losses on financial assets at fair value through profit or loss (1,953) Interest income on other principal protected deposits 1,666 5,937 Distribution and selling expenses (2,895) (2,811) Administrative expenses (25,853) (30,743) Finance costs 5 (6,879) (10,796) (Loss) profit before taxation (8,983) 7,413 Taxation 6 (3,999) (4,333) (Loss) profit for the period 7 (12,982) 3,080 Other comprehensive expense: Item that will not be reclassified subsequently to profit or loss: Exchange difference arising on translation to presentation currency (3,730) Total comprehensive (expense) income for the period (16,712) 3,080 (Loss) profit for the period attributable to: Owners of the Company (18,047) (3,614) Non-controlling interests 5,065 6,694 (12,982) 3,080 Total comprehensive (expense) income for the period attributable to: Owners of the Company (20,416) (3,614) Non-controlling interests 3,704 6,694 (16,712) 3,080 HK cents HK cents Loss per share 8 Basic (0.36) (0.07) TONGFANG KONTAFARMA HOLDINGS LIMITED 5
INTERIM REPORT 2016 Condensed Consolidated Statement of Financial Position At 30 June 2016 At 30 June At 31 December 2016 2015 Unaudited Audited Notes HK$ 000 HK$ 000 Non-current assets Property, plant and equipment 10 371,347 380,880 Deposit for acquisition of an investment 21 34,590 Deposits for equipment and machineries 81,273 81,565 Prepaid lease payments on land use rights 6,568 6,685 Club membership 278 Mining right 8,885 9,050 502,941 478,180 Current assets Properties held for sale 2,302 2,310 Inventories 26,122 34,330 Trade and bills receivables 11 305,904 295,440 Other receivables, deposits and prepayments 47,531 51,142 Loans receivable 12 225,546 Financial assets at fair value through profit or loss 13 124,135 82,227 Other principal protected deposits 14 54,323 205,327 Prepaid lease payments on land use rights 186 187 Amount due from a related party 21 157,341 157,937 Restricted bank deposit 1,429 Pledged short-term bank deposits 425,888 424,912 Time deposits 504,555 200,636 Bank balances and cash 296,171 697,297 2,171,433 2,151,745 Current liabilities Trade and bills payables 15 151,402 103,997 Other payables and deposits received 40,808 32,093 Amount due to a related party 21 2,137 2,137 Tax liabilities 89,009 86,425 Bank and other borrowings due within one year 16 780,000 777,456 1,063,356 1,002,108 Net current assets 1,108,077 1,149,637 Total assets less current liabilities 1,611,018 1,627,817 6 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Condensed Consolidated Statement of Financial Position At 30 June 2016 At 30 June At 31 December 2016 2015 Unaudited Audited Notes HK$ 000 HK$ 000 Capital and reserves Share capital 17 9,900 9,900 Share premium and reserves 1,177,343 1,197,759 Equity attributable to owners of the Company 1,187,243 1,207,659 Non-controlling interests 404,650 400,946 Total equity 1,591,893 1,608,605 Non-current liability Deferred taxation 19,125 19,212 1,611,018 1,627,817 TONGFANG KONTAFARMA HOLDINGS LIMITED 7
INTERIM REPORT 2016 Condensed Consolidated Statement of Changes in Equity For the six months ended 30 June 2016 Share capital Share Translation premium reserve Attributable to owners of the Company Special reserve Capital reserve Other reserves Retained profits Noncontrolling interests Total equity Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January 2015 (audited) 9,900 1,215,024 46,871 (392,735) 824 32,814 371,993 1,284,691 429,058 1,713,749 Profit and total comprehensive income for the period - - - - - - (3,614) (3,614) 6,694 3,080 At 30 June 2015 (unaudited) 9,900 1,215,024 46,871 (392,735) 824 32,814 368,379 1,281,077 435,752 1,716,829 Loss for the period - - - - - - (30,623) (30,623) (2,271) (32,894) Exchange difference arising on translation to presentation currency - - (42,795) - - - (42,795) (22,749) (65,544) Total comprehensive expense for the period - - (42,795) - - - (30,623) (73,418) (25,020) (98,438) Dividend distribution to non-controlling interests - - - - - - - - (9,786) (9,786) At 31 December 2015 (audited) 9,900 1,215,024 4,076 (392,735) 824 32,814 337,756 1,207,659 400,946 1,608,605 Loss for the period - - - - - - (18,047) (18,047) 5,065 (12,982) Exchange difference arising on translation to presentation currency - - (2,369) - - - - (2,369) (1,361) (3,730) Total comprehensive expense for the period - - (2,369) - - - (18,047) (20,416) 3,704 (16,712) At 30 June 2016 (unaudited) 9,900 1,215,024 1,707 (392,735) 824 32,814 319,709 1,187,243 404,650 1,591,893 8 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Condensed Consolidated Statement of Cash Flows For the six months ended 30 June 2016 Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Net cash from (used in) operating activities 45,147 (11,181) Net cash used in investing activities Proceeds from disposal of property, plant and equipment 8,905 92 Purchase of property, plant and equipment (4,676) (10,455) Deposit for acquisition of an investment (34,590) Purchase of club membership (278) Purchase of loans receivable (372,143) (1,050,633) Purchase of financial assets at fair value through profit or loss (114,494) (29,552) Placement of other principal protected deposits (107,143) (98,101) Proceeds from redemption of loans receivable 149,286 844,810 Proceeds from redemption of financial assets at fair value through profit or loss 69,214 Proceeds from other principal protected deposits upon maturity 255,952 96,203 Placement of pledged short-term bank deposits (422,484) (663,268) Withdrawal of pledged short-term bank deposits 421,444 16,017 Placement of time deposits (23,810) (702,306) Withdrawal of time deposits 727,623 Interest received from loans receivable 2,007 525 Interest received from financial assets at fair value through profit or loss 1,404 472 Interest received from other principal protected deposits 3,127 2,171 Other interest received 7,475 6,917 (160,804) (859,485) Net cash (used in) from financing activities Interest paid (5,536) (10,796) Other financial cost paid (800) New bank and other borrowings raised 780,000 927,617 Repayment of bank and other borrowings (778,000) (282,327) (4,336) 634,494 Net decrease in cash and cash equivalents (119,993) (236,172) Cash and cash equivalents at the beginning of the period 897,933 1,026,591 Effect of foreign exchange rate changes (1,024) Cash and cash equivalents at the end of the period 776,916 790,419 TONGFANG KONTAFARMA HOLDINGS LIMITED 9
INTERIM REPORT 2016 Condensed Consolidated Statement of Cash Flows For the six months ended 30 June 2016 Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Represented by Bank balances and cash 296,171 790,419 Time deposits with original maturity within 3 months 480,745 776,916 790,419 10 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 1. 34 2. 1. BASIS OF PREPARATION The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). 2. SIGNIFICANT ACCOUNTING POLICIES The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values, as appropriate. Except as described below, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2016 are the same as those followed in the preparation of the Group s annual financial statements for the year ended 31 December 2015. In the current period, the Group has applied, for the first time, the following amendments to Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the HKICPA. 11 Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations 1 Amendments to HKAS 1 Disclosure Initiative 16 38 Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation 16 41 Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants 27 Amendments to HKAS 27 Equity Method in Separate Financial Statements 10 12 28 Amendments to HKFRS 10, HKFRS 12 and HKAS 28 Investment Entities: Applying the Consolidation Exception Amendments to HKFRSs Annual Improvements to HKFRSs 2012 2014 Cycle The application of the above amendments to HKFRSs in the current period has had no material effect on the amounts reported and/or disclosures set out in these condensed consolidated financial statements. TONGFANG KONTAFARMA HOLDINGS LIMITED 11
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 3. 3. SEGMENT INFORMATION Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Manufacture and sales and trading of: Cement 225,031 259,059 Clinker 13,771 130 238,802 259,189 8 HKFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. During the six months ended 30 June 2016, for management purpose, the Group operates in one business unit based on its products and service, and has one operating segment: manufacture and sales of cement, clinker and slag, trading of cement and provision of technical services, if any. The chief operating decision maker monitors the revenue, results, assets and liabilities of its business unit as a whole based on the monthly sales reports, monthly delivery reports and monthly management accounts, and considers the segment assets and segment liabilities of the Group have included all assets and liabilities as stated in the condensed consolidated statement of financial position, respectively, and considers the segment revenue and segment results of the Group have represented all revenue and profit for the period as stated in the condensed consolidated statement of profit or loss and other comprehensive income, respectively. 12 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 4. 4. OTHER INCOME Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Interest income from banks 3,713 2,703 Interest income from loans receivable 4,696 605 Interest income from a non-controlling shareholder of the Group s subsidiary 3,716 4,187 Net gain on disposal and write-off of property, plant and equipment 6,585 61 Subsidy income 344 17,087 Sundry income 3,810 1,745 22,864 26,388 5. 5. FINANCE COSTS Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Interests on following borrowings: Bank loans 1,944 7,186 Other borrowings 3,592 3,610 Loans arrangement fee 543 Loans guarantee fee 800 6,879 10,796 TONGFANG KONTAFARMA HOLDINGS LIMITED 13
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 6. 6. TAXATION Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 The (charge) credit comprises: Current tax The People s Republic of China ( PRC ) Enterprise Income Tax (3,959) (2,711) Underprovision in prior years PRC Enterprise Income Tax (58) (459) Deferred tax 18 (1,163) (3,999) (4,333) 7. 7. (LOSS) PROFIT FOR THE PERIOD Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 (Loss) profit for the period has been arrived at after charging (crediting): Amortisation of mining right (included in administrative expenses) 132 141 Depreciation of property, plant and equipment 10,534 11,457 Total amortisation and depreciation 10,666 11,598 Cost of inventories recognised as expenses 234,729 238,856 Release of prepaid lease payments on land use rights 93 98 Net gain on disposal and write-off of property, plant and equipment (6,585) (61) Operating lease rentals in respect of premises 688 469 14 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 8. 8. LOSS PER SHARE The calculation of the basic loss per share attributable to owners of the Company is based on the following data: Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Loss Loss for the purpose of basic loss per share (loss for the period attributable to owners of the Company) (18,047) (3,614) Six months ended 30 June 2016 2015 Unaudited Unaudited Shares Shares Number of shares Weighted average number of ordinary shares for the purpose of basic loss per share 4,950,000,000 4,950,000,000 9. No diluted loss per share has been presented for both periods as there was no outstanding potential ordinary share during both periods and at the end of the reporting periods. 9. DIVIDEND The Board does not recommend the payment of an interim dividend (2015: Nil). No dividend was declared or paid by the Company during the current period (2015: Nil). TONGFANG KONTAFARMA HOLDINGS LIMITED 15
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 10. 4,676,000 14,600,000 11. 1201 10. PROPERTY, PLANT AND EQUIPMENT During the six months ended 30 June 2016, the Group acquired property, plant and equipment at a consideration of HK$4,676,000 (year ended 31 December 2015: HK$14,600,000). 11. TRADE AND BILLS RECEIVABLES The Group has a policy of allowing its trade customers credit periods normally ranging from 120 days to 1 year. The aged analysis of trade and bills receivables, net of allowance for bad and doubtful debts, is presented based on the invoice date at the end of the reporting period as follows: At 30 June At 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 090 0 to 90 days 166,198 161,123 91180 91 to 180 days 91,728 59,782 181365 181 to 365 days 35,523 47,388 1 Over 1 year 12,455 27,147 305,904 295,440 Included in bills receivables are bankers acceptances, commercial acceptances and post-dated cheques from the Group s trade customers. 16 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 12. 12. LOANS RECEIVABLE At 30 June At 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 Loans receivable Reverse repurchase agreements Loan note 80,406 Other loans receivable 145,140 225,546 (a) 75,400,000 89,762,000 2.07% 3.12% (b) 80,000,000 1.18% (c) 120,000,000 142,857,000 10%12% (a) Reverse repurchase agreements During the six months ended 30 June 2016, the Group, as the reverse repo party, entered into pledge-style bond repo transactions that were denominated in Renminbi ( RMB ) with the aggregate principal amount of RMB75,400,000 (equivalent to HK$89,762,000) through the Shanghai Stock Exchange with maturity periods from 1 day to 28 days and carried interest ranged from 2.07% to 3.12% per annum. Such reverse repurchase agreements are classified as loans and receivables and are stated at amortised cost. As at 30 June 2016, there were no outstanding reverse repurchase agreements since all of them had already matured and been redeemed. (b) Loan note During the six months ended 30 June 2016, the Group subscribed for a fixed coupon note that was denominated in Hong Kong dollars ( HK$ ) with the principal amount of HK$80,000,000 with maturity period of six months. The fixed coupon note carried interest at 1.18% per annum. Such loan note is classified as loans and receivables and is stated at amortised cost. The balance as at 30 June 2016 represented a fixed coupon note with maturity date in July 2016. (c) Other loans receivable Other loans receivable with aggregate principal amount of RMB120,000,000 (equivalent to HK$142,857,000) carrying interest ranged from 10% to 12% per annum are stated at amortised cost. The balance as at 30 June 2016 represented receivables with maturity within one year from the end of the reporting period. TONGFANG KONTAFARMA HOLDINGS LIMITED 17
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 13. 13. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS At 30 June At 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 Held for trading investments Bonds 80,172 78,126 Equity securities listed in Hong Kong 16,713 Equity securities listed outside Hong Kong 3,119 4,101 Financial assets designated as at fair value through profit or loss Exchange rate linked structured deposits 24,131 124,135 82,227 (a) 3.25% 4.00% (b) (c) 70,000,000 83,333,000 (a) Bonds The bonds were denominated in United States dollars ( US$ ) and carried interest at 3.25% to 4.00% per annum. The bonds are classified as held for trading investment since the Group intended to hold the bonds for short term and liquidity purposes. (b) Equity securities Equity securities are stated at fair value which are determined based on the quoted market bid price available on the relevant stock exchanges. (c) Exchange rate linked structured deposits During the six months ended 30 June 2016, the Group entered into principal protected exchange rate linked structured deposits that were denominated in RMB with the aggregate principal amount of RMB70,000,000 (equivalent to HK$83,333,000) with a bank with maturity periods ranging from one month to six months. 18 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 13. (c) 50,000,000 59,524,000 50,170,000 59,726,000 170,000202,000 270,000322,000 13. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (c) Exchange rate linked structured deposits (continued) A structured deposit with principal amount of RMB50,000,000 (equivalent to HK$59,524,000) had matured and been redeemed at RMB50,170,000 (equivalent to HK$59,726,000) during the six months ended 30 June 2016 and resulted in fair value gain on financial assets at fair value through profit or loss of RMB170,000 (equivalent to HK$202,000) for the six months ended 30 June 2016. The balance as at 30 June 2016 represented a structured deposit with maturity date in August 2016. Interest rates of these structured deposits vary depending on the movement of exchange rate between the US$ and the Australian dollars. Such structured deposits are designated as financial assets at fair value through profit or loss on initial recognition. The fair value of structured deposit classified as financial assets at fair value through profit or loss as at 30 June 2016 has been arrived at the basis on the valuation carried out at that date by Norton Appraisals Limited, a firm of independent and qualified professional valuers not connected with the Group, and resulted in fair value gain on financial assets at fair value through profit or loss of RMB270,000 (equivalent to HK$322,000) for the six months ended 30 June 2016. TONGFANG KONTAFARMA HOLDINGS LIMITED 19
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 14. 14. OTHER PRINCIPAL PROTECTED DEPOSITS At 30 June At 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 Other principal protected deposits Interest rate linked structured deposits 54,323 205,327 90,000,000 107,143,000 3.68%3.85% 215,000,000 255,952,000 15. Interest rate linked structured deposits During the six months ended 30 June 2016, the Group entered into principal protected interest rate linked structured deposits that were denominated in RMB with the aggregate principal amount of RMB90,000,000 (equivalent to HK$107,143,000) with a bank with maturity periods ranging from one month to six months and carried interest ranged from 3.68% to 3.85% per annum. During the six months ended 30 June 2016, structured deposits with aggregate principal amount of RMB215,000,000 (equivalent to HK$255,952,000) had matured and been redeemed. The balance as at 30 June 2016 represented a structured deposit with maturity date in August 2016. Interest rates of these structured deposits vary depending on the movement of the Shanghai Interbank Offered Rate. Such structured deposits are classified as loans and receivables and are stated at amortised cost. 15. TRADE AND BILLS PAYABLES An aged analysis of the Group s trade and bills payables, presented based on the invoice date, at the end of the reporting period is as follows: At 30 June At 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 090 0 to 90 days 107,906 60,043 91180 91 to 180 days 20,598 20,300 181365 181 to 365 days 19,876 20,324 1 Over 1 year 3,022 3,330 151,402 103,997 20 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 16. 780,000,000 927,617,000 778,000,000 282,327,000 1.37% 3.13% 17. 16. BANK AND OTHER BORROWINGS During the six months ended 30 June 2016, the Group obtained new bank loan and other borrowings of HK$780,000,000 (30 June 2015: bank loans of HK$927,617,000) and repaid bank loans of HK$778,000,000 (30 June 2015: bank loans and other borrowing of HK$282,327,000). Proceeds from new borrowings were used to finance the general operating activities of the Group. The bank and other borrowings of the Group are repayable within one year and bear interest at floating market rates which on average ranged from 1.37% to 3.13% per annum. 17. SHARE CAPITAL Number of shares Share capital HK$ 000 0.002 Ordinary shares of HK$0.002 each Authorised: At 1 January 2015, 31 December 2015 and 30 June 2016 100,000,000,000 200,000 Issued and fully paid: At 1 January 2015, 31 December 2015 and 30 June 2016 4,950,000,000 9,900 TONGFANG KONTAFARMA HOLDINGS LIMITED 21
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 18. 18. CAPITAL COMMITMENTS The Group had the following capital commitments: At 30 June At 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 Capital commitments contracted for but not provided in the condensed consolidated financial statements: capital contribution to a joint venture 476,190 477,897 acquisition of property, plant and equipment 3,794 3,807 acquisition of equity interest in a company 312,000 791,984 481,704 50% 400,000,000476,190,000 477,897,000 As announced by the Company on 15 February 2012, Shanghai Allied Cement Co., Ltd. ( Shanghai SAC ) entered into the (Bailonggang Project Construction Cooperation Agreement*) ( Cooperation Agreement ) and the (Principle Agreement for the Establishment of the Joint Venture Company*) ( JV Principle Agreement ) with (Shanghai Building Material (Group) Company Limited*) (formerly known as (Shanghai Building Material (Group) General Company*)) ( Shanghai Building Material ), a state-owned enterprise, for the purpose of setting up a joint venture company ( JV Company ) pursuant to the terms and conditions therein on 13 February 2012. Pursuant to the Cooperation Agreement, Shanghai Building Material and Shanghai SAC agreed to establish the JV Company to operate and manage the development of new cement production facilities at Bailonggang, Pudong, Shanghai ( Bailonggang Project ) under the terms of the JV Principle Agreement after the relevant government approvals for the Bailonggang Project being obtained. The commitment on capital contribution to a joint venture represents the 50% share of registered capital of the JV Company by the Group amounting to RMB400,000,000 (equivalent to approximately HK$476,190,000 (31 December 2015: HK$477,897,000)). Details of the transaction were set out in the announcements of the Company dated 15 February 2012 and 30 January 2014, respectively and the circular of the Company dated 16 March 2012. 22 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 18. 380,000,000 452,381,000 454,002,000 68,270,000 68,270,000 81,273,000 81,565,000 400,000,000 476,190,000 477,897,000 60% 291,200,000 29,120,000 34,590,000 18. CAPITAL COMMITMENTS (CONTINUED) On 28 September 2012, Shanghai SAC entered into three purchase agreements for the purchases of certain equipment and machineries at the aggregate consideration of RMB380,000,000 (equivalent to approximately HK$452,381,000 (31 December 2015: HK$454,002,000)). As at 30 June 2016, Shanghai SAC has settled the respective first payments of the total consideration in an aggregate amount of RMB68,270,000 (31 December 2015: RMB68,270,000) (equivalent to approximately HK$81,273,000 (31 December 2015: HK$81,565,000)) under the three purchase agreements. The equipment and machineries under the three purchase agreements were purchased for future use in the Bailonggang Project and the Group and the Company does not intend to retain such equipment and machineries for their own use. After the JV Company is established, Shanghai SAC may transfer, by way of disposal or otherwise, the equipment and machineries purchased at cost or novate the rights and obligations of the purchase agreements at cost to the JV Company in accordance with the relevant PRC rules and regulations, or subject to the relevant PRC rules and regulations, may transfer such equipment and machineries at cost by way of contribution in kind to satisfy its proportion of the registered capital of the JV Company. Details of the transaction were set out in the announcement and circular of the Company dated 3 October 2012 and 15 November 2012, respectively. Since the equipment and machineries under the three purchase agreements were purchased for future use in the Bailonggang Project, the total commitment of the Group to the Bailonggang Project, including the commitment under the three purchase agreements, would be limited to RMB400,000,000 (equivalent to approximately HK$476,190,000 (31 December 2015: HK$477,897,000)) being the commitment on capital contribution to a joint venture. On 28 January 2016, Kingwood Limited ( Kingwood ), an indirect wholly-owned subsidiary of the Company, and (Shenzhen Waranty Asset Management Co., Ltd.*) ( Shenzhen Waranty ) had entered into a sale and purchase agreement, pursuant to which Kingwood conditionally agreed to purchase, and Shenzhen Waranty conditionally agreed to sell, an aggregate of 60% equity interest in (Beijing Ziguang Pharmaceutical Co., Ltd.*) ( Ziguang Pharmaceutical ), a sino-foreign joint venture enterprise established in the PRC for an aggregate consideration of RMB291,200,000. As at 30 June 2016, the Group had paid RMB29,120,000 (equivalent to approximately HK$34,590,000) as deposit of the transaction. The acquisition was completed and the remaining balance of consideration was paid in July 2016. Details of the transaction were set out in the announcement and circular of the Company dated 28 January 2016 and 22 March 2016, respectively. TONGFANG KONTAFARMA HOLDINGS LIMITED 23
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 19. 52,380,000 0.75%1.55% 425,888,000 400,000,000 96,592,000 133,907,000 5,960,000 143,369,000 0.00%3.08% 424,912,000 777,456,000 69,249,000 20. 19. PLEDGE OF ASSETS At the end of the reporting period, certain of the Group s buildings and structures with aggregate carrying amount of HK$52,380,000, together with short-term bank deposits, carrying fixed interest rate ranging from 0.75% to 1.55% per annum, of HK$425,888,000 were pledged to secure bank loans to the extent of HK$400,000,000 granted to the Group and short-term bank facilities in respect of the issuance of bills payable to suppliers amounting to HK$96,592,000. (31 December 2015: certain of the Group s buildings and structures and plant and machinery with aggregate carrying amount of HK$133,907,000, prepaid lease payments on land use rights with carrying amount of HK$5,960,000, an other principal protected deposit with carrying value of HK$143,369,000 together with short-term bank deposits, carrying fixed interest rate ranging from 0.00% to 3.08% for annum, of HK$424,912,000 were pledged to secure bank loans to the extent of HK$777,456,000 granted to the Group and short-term bank facilities in respect of the issurance of bills payable to suppliers amounting to HK$69,249,000.) 20. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS The Group s financial assets at fair value through profit or loss are measured at fair value at the end of each reporting period. The following table gives information about how the fair values are determined (in particular, the valuation technique(s) and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). 24 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 20. 20. FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS (CONTINUED) Financial assets Fair value At At 30 June 31 December 2016 2015 Unaudited Audited HK$ 000 HK$ 000 Fair value hierarchy Valuation technique and key inputs Held for trading investments Bonds 80,172 78,126 Equity securities listed in Hong Kong 16,713 Equity securities listed outside Hong Kong 3,119 4,101 Financial assets designated as at fair value through profit or loss Exchange rate linked structured deposits 24,131 124,135 82,227 Level 2 Level 1 Level 1 Level 2 Price provided by a financial institution Quoted price in market Quoted price in market Discounted cash flow. Future cash flows are estimated based on the probabilities of future exchange rate movements (which are modelled using the implied volatility prices at the end of the reporting period from the foreign exchange options market) and contracted interest rates, discounted at a rate that reflects the credit risk of the Group or the counterparties, as appropriate. There were no transfers among Levels 1, 2 and 3 during the current period. The directors of the Company consider that the carrying amount of the Group s financial assets and financial liabilities recorded at amortised cost in the condensed consolidated financial statements approximate their fair values. TONGFANG KONTAFARMA HOLDINGS LIMITED 25
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 21. (a) 21. RELATED PARTY TRANSACTIONS AND BALANCES During the six months ended 30 June 2016, the Group had transactions and balances with related parties as follows: (a) Summary of transactions Six months ended 30 June 2016 2015 Unaudited Unaudited Notes HK$ 000 HK$ 000 A non-controlling shareholder of the Group s subsidiary Interest income (ii) 3,716 4,187 (b) (b) Key management personnel compensation Six months ended 30 June 2016 2015 Unaudited Unaudited HK$ 000 HK$ 000 Salaries and other short-term benefits 4,736 3,694 Post-employment costs 251 207 4,987 3,901 26 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 21. (c) 21. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) (c) Summary of balances At 30 June At 31 December 2016 2015 Unaudited Audited Notes HK$ 000 HK$ 000 Non-current assets Deposit for acquisition of an investment (i) 34,590 Current assets Loan to a non-controlling shareholder of the Group s subsidiary (ii) 157,143 157,706 Interest receivable from a non-controlling shareholder of the Group s subsidiary (ii) 198 231 Amount due from a related party 157,341 157,937 Current liabilities Dividend payable to a non-controlling shareholder of the Group s subsidiary (iii) 2,000 2,000 Amount due to a non-controlling shareholder of the Group s subsidiary (iii) 137 137 Amount due to a related party 2,137 2,137 Notes: (i) 29,120,000 34,590,000 60% (i) The amount represented the RMB29,120,000 (equivalent to approximately HK$34,590,000) paid by the Group to Shenzhen Waranty, a holding company of the Company, as deposit for acquisition an aggregate of 60% equity interest in Ziguang Pharmaceutical. (ii) 4.80%4.15% 4.15%4.80% (ii) The transactions and balances represented the provision of entrusted loans through a bank to a non-controlling shareholder of the Group s subsidiary. The maturity of the entrusted loans were extended in May 2016 and after the original maturity, the interest rate of the loans would be adjusted from 4.80% per annum to 4.15% per annum. Details of the transaction were set out in the announcement of the Company dated 27 May 2016. As at 30 June 2016, the principals of the loans carried interests at 4.15% and 4.80% per annum, were unsecured and were repayable in May 2017 and July 2017. (iii) (iii) The balances were unsecured, non-interest bearing and were repayable on demand. TONGFANG KONTAFARMA HOLDINGS LIMITED 27
INTERIM REPORT 2016 Notes to the Condensed Consolidated Financial Statements For the six months ended 30 June 2016 22. (a) 60% 291,200,000 (b) 148,500,000 148,500,000 0.002 0.68 123,800,000 24,700,000 22. EVENTS AFTER THE END OF THE REPORTING PERIOD (a) On 28 January 2016, Kingwood, an indirect wholly-owned subsidiary of the Company, and Shenzhen Waranty entered into a sale and purchase agreement, pursuant to which Kingwood conditionally agreed to purchase, and Shenzhen Waranty conditionally agreed to sell, an aggregate of 60% equity interest in Ziguang Pharmaceutical, a sinoforeign joint venture enterprise established in the PRC, representing the entire interest held by Shenzhen Waranty in Ziguang Pharmaceutical, for an aggregate consideration of RMB291,200,000. The acquisition was completed in July 2016. Details of the transaction were set out in the announcement and circular of the Company dated 28 January 2016 and 22 March 2016, respectively. (b) On 22 July 2016, the Board has resolved to grant to certain eligible participants ( Grantees ), subject to acceptance by such Grantees, a total of 148,500,000 share options ( Share Options ) to subscribe for a total number of 148,500,000 ordinary shares of HK$0.002 each of the Company ( Shares ) in the share capital of the Company under the share option scheme of the Company adopted on 28 April 2011. Each Share Option shall entitle the Grantees to subscribe for one Share upon exercise of such Share Option at an exercise price of HK$0.68 per Share. 123,800,000 Share Options are valid from 22 July 2016 to 21 July 2020 and 24,700,000 Share Options are valid from 22 July 2016 to 21 July 2021. All the Share Options shall be vested in accordance with their respective vesting conditions of the Share Options. Details of the grant of the Share Options were set out in the announcement of the Company dated 22 July 2016. * For identification purposes only 28 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Report on Review of Condensed Consolidated Financial Statements 528 3434 34 2410 TO THE BOARD OF DIRECTORS OF TONGFANG KONTAFARMA HOLDINGS LIMITED (FORMERLY KNOWN AS ALLIED CEMENT HOLDINGS LIMITED) (Incorporated in the Cayman Islands with limited liability) INTRODUCTION We have reviewed the condensed consolidated financial statements of Tongfang Kontafarma Holdings Limited (formerly known as Allied Cement Holdings Limited) (the Company ) and its subsidiaries (collectively referred to as the Group ) set out on pages 5 to 28, which comprise the condensed consolidated statement of financial position as of 30 June 2016 and the related condensed consolidated statement of profit or loss and other comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the sixmonth period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 Interim Financial Reporting ( HKAS 34 ) issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with HKAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. SCOPE OF REVIEW We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion. TONGFANG KONTAFARMA HOLDINGS LIMITED 29
INTERIM REPORT 2016 Report on Review of Condensed Consolidated Financial Statements 34 CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS 34. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, 26 August 2016 30 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Management Discussion and Analysis 238.8 259.2 7.9%13.0 3.1 0.360.07 4.1 20.3 80.0%1.7% 7.8%6.1 25.9 30.715.9% 6.9 10.8 36.3% FINANCIAL RESULTS The revenue of Tongfang Kontafarma Holdings Limited ( Company ) and its subsidiaries ( Group ) for the six months ended 30 June 2016 was HK$238.8 million (2015: HK$259.2 million), representing a decrease of 7.9% compared to the same period of last year. The loss for the period of the Group was HK$13.0 million (2015: profit of HK$3.1 million). The basic loss per share amounted to HK0.36 cents (2015: HK0.07 cents). The Group recorded a significant loss for the six months ended 30 June 2016 as compared to the unaudited net profit for the six months ended 30 June 2015. Such loss was primarily attributable to a decline in the selling prices of cement products in the People s Republic of China ( PRC ) as compared to the corresponding period of last year. The cement products of the Group have inevitably been impacted by the decline in overall market selling prices, especially for the price of products from the Group s manufacture and sales operations in Shandong province. Since the drop in average selling price of the Group s cement products exceeded the decrease in its average production cost, the Group s gross profit decreased. For the six months ended 30 June 2016, the gross profit of the Group was HK$4.1 million (2015: HK$20.3 million), representing a decrease of 80.0% compared to the same period of last year. The gross margin was 1.7%, representing a decrease of 6.1 percentage points from 7.8% for the six months ended 30 June 2015. For the six months ended 30 June 2016, the administrative expenses of the Group amounted to approximately HK$25.9 million (2015: HK$30.7 million), representing a decrease of 15.9% as compared to the same period of last year. This was mainly due to the decrease in legal and professional fees incurred. The Group had made best effort to refinance its borrowings with relatively low borrowing cost, as a result, the finance cost of the Group for the six months ended 30 June 2016 decreased to approximately HK$6.9 million (2015: HK$10.8 million), representing a decrease of 36.3% as compared to the same period of last year. TONGFANG KONTAFARMA HOLDINGS LIMITED 31
INTERIM REPORT 2016 Management Discussion and Analysis 340,637 6.7%6.7% 66.5%7% 11.1 3.2% 8.30.5 2.2 2.6% (CEMPI) 79.2582.17 3.68% 20.59%5.06% 40% BUSINESS REVIEW Macro Environment of the PRC Cement Industry in 2016 In the first half of 2016, the Chinese economy as a whole exhibited a steady, improved and promising development. According to the statistics of the National Bureau of Statistics of the PRC ( National Bureau of Statistics ), gross domestic product of the PRC for the first half of the year amounted to RMB34.0637 trillion, representing a year-on-year growth of 6.7%. In particular, the growth rates of the first and second quarters were both 6.7%, remaining in the range of 6.5% to 7% for six consecutive quarters. The National Bureau of Statistics announced that the production volume of cement above designated size across the PRC from January to June 2016 amounted to 1,110 million tons, representing a year-on-year increase of 3.2%. The accumulated growth rate surged by 8.3 percentage points year-on-year but dropped by 0.5 percentage point as compared with the period from January to May 2016. In June, production volume of cement across the PRC amounted to 220 million tons, representing a year-on-year growth of 2.6%. Although overall demand remained weak, both stimulation from infrastructure investment and rebound in real estate investment procured the year-on-year growth. According to a research from the China Cement Research Institute, in the first half of 2016, cement price index (CEMPI) of China jumped from 79.25 at the beginning of the year to 82.17 as at 30 June 2016, representing an aggregate growth of 3.68%. This departed from the downward trends in the first half of recent years. The continual price drop that squeezed cement corporate profit margin last year largely weakened the momentum of further price cut in the current year. Therefore, the year-on-year drop narrowed from 20.59% at the beginning of this year to 5.06% as at the end of June 2016. The dwindling sales and prices of cement due to the new economic trend in the PRC had an adverse impact on producers and posed a grave threat to the cement industry. According to the information from the Ministry of Industry and Information Technology of the PRC, the percentage of loss-making cement producers in the PRC for the first half of 2016 was over 40%. 32 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Management Discussion and Analysis 1,122,000 987,00013.7% 1. 615,000 408,000 50.7%10.3 9.9 4.0% 1.4 2.4 2. 339,000 377,000415,000 599,000 508,000579,000 12.3% 6.3 10.4 BUSINESS REVIEW (CONTINUED) Business Operation of the Group For the six months ended 30 June 2016, the Group is engaged principally in the manufacture and sales of cement, clinker and slag, trading of cement and provision of technical services with operations in Shandong province and Shanghai in the PRC. The Group s cement and clinker sales amounted to 1,122,000 tons (2015: 987,000 tons) for the six months ended 30 June 2016, increased by 13.7% compared to the same period of last year. 1. Shanghai Allied Cement Co., Ltd. ( Shanghai SAC ) For the six months ended 30 June 2016, cement distributed by Shanghai SAC amounted to 615,000 tons (2015: 408,000 tons), increased by 50.7% as compared to the same period of last year. Gross profit amounted to HK$10.3 million (2015: HK$9.9 million), representing an increase of 4.0% as compared to the same period of last year. During the period, Shanghai SAC continued to cautiously invest the surplus of the idle funds in its business operation in wealth management products in accordance with the Group s treasury policies and investment guidelines. Shanghai SAC recorded fair value gains and interest income on financial assets of HK$1.4 million (2015: interest income of HK$2.4 million). 2. Shandong Allied Wangchao Cement Limited ( Allied Wangchao ) For the six months ended 30 June 2016, clinker and cement produced by Allied Wangchao amounted to 339,000 tons (2015: 377,000 tons) and 415,000 tons (2015: 599,000 tons), respectively. 508,000 tons (2015: 579,000 tons) of cement and clinker were sold, decreased by 12.3% as compared to the same period of last year. Allied Wangchao recorded a gross loss of HK$6.3 million in the first half of 2016 (2015: gross profit of HK$10.4 million) mainly due to a fall in average selling prices. Resulted from the coordinated suspension of production across the industry during the period, the clinker production of Allied Wangchao recorded a decrease as compared to the same period of last year. In the first half of 2016, Allied Wangchao changed the gear wheels of its kilns to stabilise the kilns and accelerated their speed so as to enhance the amount and quality of its clinker output. Its grate cooler was also transformed and repaired to improve their reliability so as to increase the temperature of exhaust fumes from production line and enhance waste heat power generation. Staged combustion was further promoted during the period in order to save energy, reduce emissions and cut nitrogen oxide discharge. TONGFANG KONTAFARMA HOLDINGS LIMITED 33
INTERIM REPORT 2016 Management Discussion and Analysis 3. 4. 43.37450 (i) 4,000 (ii) 7.5 (iii) 800 BUSINESS REVIEW (CONTINUED) Business Operation of the Group (continued) 3. Shandong Shanghai Allied Cement Co., Ltd. ( Shandong SAC ) Shandong SAC is actively exploring the possibility of product and technology transformation and upgrade. Shandong SAC is also proactively looking for investment opportunity in the fields of energy-saving and environmental protection. 4. The development of new cement production facilities at Bailonggang, Pudong, Shanghai ( Bailonggang Project ) The Bailonggang Project is located at Heqing Town, Pudong New Area, Shanghai. It covers an area of 43.37 hectares and has 450 metres of shoreline along the Yangtze River. The Bailonggang Project will apply new dry process cement production lines with the most advanced technologies in the world. Major constructions will include: (i) two new dry process cement production lines with a daily capacity of 4,000 tons each that handle urban sludge and waste at the same time; (ii) two ancillary pure low-temperature waste heat power stations with a capacity of 7.5 MW each to fully utilise the waste heat from the cement kilns; and (iii) an ancillary dock with an annual throughput of approximately 8 million tons. This project is a resource-saving and environmental-friendly project. It will use cement kilns to realise a simultaneous hazard-free disposal of industrial solid waste, urban sludge, domestic waste and industrial hazardous waste while achieving a comprehensive utilisation of resources. An application for the postponement of the project has been submitted to the relevant government authority, and the application is currently pending approval. 34 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Management Discussion and Analysis 60% 15 36.9 BUSINESS REVIEW (CONTINUED) Medical, Pharmaceutical and Health Industry Business On 12 July 2016, the acquisition of 60% equity interest in (Beijing Ziguang Pharmaceutical Co., Ltd.*) ( Ziguang Pharmaceutical ), a sino-foreign joint venture enterprise established in the PRC, was completed. Ziguang Pharmaceutical is principally engaged in the manufacturing and sales of prescription drugs, including chemical drugs and traditional prescribed Chinese medicines through its subsidiaries. With effect from the same date, Mr. Zhang Yi ( Mr. Zhang ) was appointed as an executive Director of the Company and a member of the Executive Committee and the Share Dealing Committee. Mr. Zhang has over 15 years of experience in the pharmaceutical industry. Prior to joining the Group, Mr. Zhang acted as the general manager and chairman of other pharmaceutical companies. The Group is expected to achieve better returns and development from the appointment of Mr. Zhang as he will bring in his professional management experience in the pharmaceutical industry. In August 2016, the Group has invested in medical research with a focus in immunology and small molecule, which included identifying potent and selective small molecule modulators, and accumulating data through clinical studies. The result is critical in the discovery of related drugs and treatment for cancer and infectious diseases. Up to the date of this report, a total of HK$36.9 million was applied in the research of such medical and pharmaceutical project. TONGFANG KONTAFARMA HOLDINGS LIMITED 35
INTERIM REPORT 2016 Management Discussion and Analysis 495.0 380.0 1,226.7 1,322.8 296.2 697.3 425.9 424.9 504.6 200.6 780.0 777.5 FINANCIAL REVIEW Liquidity and Financing On 22 December 2014, additional shares of the Company were issued by way of open offer ( Open Offer ) to raise gross proceeds of HK$495.0 million. Details of the open offer and update on the use of proceeds are set out in the section headed Use of Proceeds from Open Offer. Except for the proceeds raised from the Open Offer, during the six months ended 30 June 2016, the Group s capital expenditure, daily operations and investments are mainly funded by cash generated from its operations and loans from principal bankers and third parties. During the six months ended 30 June 2016, the Group had refinanced bank loans with aggregate principal amount of HK$380.0 million by other borrowings from third parties. As at 30 June 2016, the Group maintained bank balances and cash reserves of approximately HK$1,226.7 million (31 December 2015: HK$1,322.8 million), including bank balances and cash of approximately HK$296.2 million (31 December 2015: HK$697.3 million), pledged short-term bank deposits of approximately HK$425.9 million (31 December 2015: HK$424.9 million) and time deposits of approximately HK$504.6 million (31 December 2015: HK$200.6 million). As at 30 June 2016, the Group had outstanding borrowings of HK$780.0 million (31 December 2015: HK$777.5 million) repayable within one year. There was no outstanding borrowing repayable after one year (31 December 2015: Nil). All of the Group s outstanding borrowings were denominated in Hong Kong dollars ( HK$ ) and were charged with interest at floating rates. 36 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Management Discussion and Analysis FINANCIAL REVIEW (CONTINUED) Liquidity and Financing (continued) The gearing ratio (total borrowings over total assets) of the Group as at 30 June 2016 was as follows: At 30 June 2016 Unaudited HK$ 000 At 31 December 2015 Audited HK$ 000 Total borrowings 780,000 777,456 Total assets 2,674,374 2,629,925 Gearing ratio 29.2% 29.6% 157.3 157.9 As at 30 June 2016, the amount due from a related party were HK$157.3 million (31 December 2015: HK$157.9 million), which represented the provision of entrusted loans through a bank to (Shanghai Building Material (Group) Company Limited*) (formerly known as (Shanghai Building Material (Group) General Company*)) ( Shanghai Building Material ) and the related interest receivable. Details of the transactions were set out in the announcement of the Company dated 27 May 2016. Financial Management and Policy The Group s financial policy aims at minimising the Group s financial risk exposure. Our policy is not to engage in speculative derivative financial transactions and not to invest the current capital in financial products with significant risk. TONGFANG KONTAFARMA HOLDINGS LIMITED 37
INTERIM REPORT 2016 Management Discussion and Analysis 24 19 50%400 476.2 477.9 380 452.4 454.0 68.3 68.3 81.3 81.6 FINANCIAL REVIEW (CONTINUED) Risk of Foreign Exchange Fluctuation The Group s operations are mainly located in Mainland China and its transactions, related working capital and borrowings are primarily denominated in Renminbi ( RMB ) and HK$. The Group closely monitors such foreign exchange exposure and will consider hedging significant currency exposure should the need arise. However, since the Group s consolidated financial statements are presented in HK$ which is different from its functional currency, being RMB, it is inevitable that the Group would face foreign exchange exposure in this respect, whether positive or negative, from translating the accounts to its presentation currency. Pledge of Assets Details regarding the pledge of assets are set out in note 19 to the condensed consolidated financial statements on page 24. Material Capital Commitments and Investments As announced by the Company on 15 February 2012, Shanghai SAC entered into the (Bailonggang Project Construction Cooperation Agreement*) and the(principle Agreement for the Establishment of the Joint Venture Company*) on 13 February 2012 with Shanghai Building Material, a state-owned enterprise, for the purpose of setting up a joint venture company ( JV Company ) to operate and manage the Bailonggang Project after the relevant government approvals for the Bailonggang Project being obtained. The 50% share of registered capital of the JV Company attributable to the Group amounting to RMB400 million (equivalent to approximately HK$476.2 million (31 December 2015: HK$477.9 million)) will be contributed and funded by internal resources of the Group. Details of the transaction were set out in the announcements of the Company dated 15 February 2012 and 30 January 2014, respectively, and the circular of the Company dated 16 March 2012. As announced by the Company on 3 October 2012, Shanghai SAC entered into three purchase agreements on 28 September 2012 for the purchases of certain equipment and machineries at the aggregate consideration of RMB380 million (equivalent to approximately HK$452.4 million (31 December 2015: HK$454.0 million)), for future use in the Bailonggang Project. The Company does not intend to retain such equipment and machineries for its own use. Up to 30 June 2016, Shanghai SAC settled the first installment of the total consideration under the three respective agreements in an aggregate amount of RMB68.3 million (31 December 2015: RMB68.3 million) (equivalent to approximately HK$81.3 million (31 December 2015: HK$81.6 million)). Details of the transaction were set out in the announcement and circular of the Company dated 3 October 2012 and 15 November 2012, respectively. 38 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Management Discussion and Analysis 60% 291.2 29.1 34.6 28 22 404 306 FINANCIAL REVIEW (CONTINUED) Material Capital Commitments and Investments (continued) As announced by the Company on 28 January 2016, Kingwood Limited ( Purchaser ), an indirect wholly-owned subsidiary of the Company, and (Shenzhen Waranty Asset Management Co., Ltd.*) ( Shenzhen Waranty ) entered into a sale and purchase agreement, pursuant to which the Purchaser conditionally agreed to purchase, and Shenzhen Waranty conditionally agreed to sell, an aggregate of 60% equity interest in Ziguang Pharmaceutical, a sino-foreign joint venture enterprise established in the PRC, representing the entire interest held by Shenzhen Waranty in Ziguang Pharmaceutical, for an aggregate consideration of RMB291.2 million. Up to 30 June 2016, the Group had paid RMB29.1 million (equivalent to approximately HK$34.6 million) as deposit of the transaction. The acquisition was completed and the remaining balance of consideration was paid in July 2016. Details of the transaction were set out in the announcement and circular of the Company dated 28 January 2016 and 22 March 2016, respectively. Events after the End of the Reporting Period Details regarding the events after the end of the reporting period are set out in note 22 to the condensed consolidated financial statements on page 28. EMPLOYEES As at 30 June 2016, the Group had 404 (31 December 2015: 306) employees. The Group maintains a policy of paying competitive remuneration packages and employees are also rewarded on performance related basis including salary and bonus. TONGFANG KONTAFARMA HOLDINGS LIMITED 39
INTERIM REPORT 2016 Management Discussion and Analysis 2025 STRATEGIC BUSINESS DEVELOPMENT Cement Business Regarding cement production, the Group has always insisted on carrying out technological revamps and energy-saving efforts. The Group is actively studying the use of straw as an alternative fuel which can protect the ecosystem by both assisting the disposal of straw and better utilising resources. Continuing to fulfill its corporate social responsibilities, the Group will strictly comply with the Staggering Production in Summer. During the suspension period, the Group will inspect and repair its cement kilns, carry out technological revamp, repair and maintain environmental protection equipment and offer training to its staff. Salary payment will be maintained during the suspension period. After resumption of production, the Group will ensure that the emission level complies with the required standard. The Group also coordinated with its regional peers to promote a market-oriented cement and clinker materials allocation system in order to secure market supplies, maintain an orderly market and satisfy market demand. According to the recently issued2025 (Action Plan of Shandong Province Regarding Made in China 2025 *), Shandong province will focus on developing several types of special cements and will lead cement businesses to expand their industry chain. Following the direction, the Group will designate a team to study the viability of producing the special cements in order to identify new development opportunities. Medical, Pharmaceutical and Health Industry Business The Board is of opinion that the acquisition of Ziguang Pharmaceutical is a valuable investment opportunity and will raise the Group s profile in the medical, pharmaceutical and health industry, and also create new revenue streams for the Group and further enhance Shareholders value. OUTLOOK During the first half of 2016, the global economy was unstable with many uncertainties. Global economic recovery fell short of expectations and trade remained weak. The macro-economic policies of major economies continued to diverge, causing volatility in the international financial market. As for the PRC, despite the constantly satisfactory economic development, the accumulated and deep-seated problems became more obvious, making reform and transformation more difficult. As such, the economy still faces challenges and huge downward pressure ahead. 40 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Management Discussion and Analysis 258,3609%2.4 46,6316.1% 0.9 3 2030 15 OUTLOOK (CONTINUED) According to the statistics of the National Bureau of Statistics, between January and June 2016, the total investment in fixed assets in the PRC amounted to RMB25.836 trillion, representing a growth rate of 9%, down 2.4 percentage points as compared with the same period of last year. The total investment in real estate development was RMB4.6631 trillion, represented a yearon-year increase of 6.1% but the growth rate decreased by 0.9 percentage point as compared with the period from January to May 2016. Businesses were suffering as overproduction in traditional industries was still remarkable, market demand remained weak, industrial product prices continued to drop while high production costs, weak sales, liquidity problems, credit crunch and high financing costs were still hurting businesses. With continual decrement in investment growth, it is expected that the cement demand in the PRC will remain weak, oversupply will persist and cement prices will stay low in 2016. Nonetheless, the long-awaited(medium- and Long-term Railway Network Plan*) has recently been issued by the National Development and Reform Commission of the PRC, pursuant to which nearly 30,000 kilometres of railway will be constructed during the period covered by the Thirteenth Five-Year Plan, thereby providing new stimulus to other components of the railway investment chain, such as infrastructure, railway equipment and building materials. The infrastructure industry will be benefited the most, thus boosting the demand for steel, cement and other building materials. As for the medical, pharmaceutical and health industry, according to the PRC government planning of Healthy China 2030 approved by the Political Bureau of Central Committee of China recently, Healthy China will be the executive development plan in the next 15 years. Therefore, health care sector will be the prioritized development sector in China. It is expected that the future investment by the PRC government in health care sector will continue to expand. The Group will keep pace with the development of China s industry and will take the initiative to explore new business models and investment opportunities to enrich the Group s development in the future. The focus of the Group will be placed on the philosophy of regional medical services, centralised management and commercialised operation as its core development. Overall, the Group aims to develop into a magnificent medical-and-health-oriented enterprise, while creating more value for the Group s business partners and the Company s shareholders, which is the vision of the Group for its future development. In line with the vision of the Group, the name of the Company was changed from Allied Cement Holdings Limited to Tongfang Kontafarma Holdings Limited in July 2016. The Board believes that the change of the name of the Company would better reflect the expansion of the Group s business scope and diversified operations with a more accurate display of the Group s strategic positioning, and offer the Company a new corporate identity and image. Details were set out in the announcements of the Company dated 1 June 2016, 15 July 2016 and 5 August 2016 and circular of the Company dated 20 June 2016. TONGFANG KONTAFARMA HOLDINGS LIMITED 41
INTERIM REPORT 2016 Corporate Governance and Other Information 1.5 330,000,000 495.0 487.3 375.7(i)338.8 60% (ii)36.9 148,500,000 0.68 22 INTERIM DIVIDEND The board of directors ( Board ) of Tongfang Kontafarma Holdings Limited ( Company ) considers that it is prudent to retain an appropriate level of funds to take advantage of business opportunities as and when they arise, and therefore does not recommend to declare an interim dividend for the six months ended 30 June 2016 (2015: Nil). USE OF PROCEEDS FROM OPEN OFFER As announced on 7 November 2014, the Company raised approximately HK$495.0 million before expenses by way of the open offer ( Open Offer ) of 330,000,000 new ordinary shares of the Company ( Offer Shares ) at a subscription price of HK$1.5 per Offer Share on the basis of one Offer Share for every two ordinary shares of the Company held by the shareholders of the Company ( Shareholders ). The Open Offer was completed on 22 December 2014. It was intended that the entire amount of the net proceeds amounting to approximately HK$487.3 million from the Open Offer after deducting the relevant expenses would be applied by the Company and its subsidiaries ( Group ) for the funding of the development of and/or investment in pharmaceutical and health industry business. Up to the date of this report, a total of HK$375.7 million of the net proceeds from the Open Offer were used which comprised of (i) HK$338.8 million for the settlement of the consideration for the acquisition of 60% equity interest in (Beijing Ziguang Pharmaceutical Co., Ltd.*), and (ii) HK$36.9 million for the investment in medical research with a focus in immunology and small molecule. The remaining amount will be used as intended. SHARE OPTION SCHEME The share option scheme of the Company was adopted on 28 April 2011 ( Share Option Scheme ). No share option was granted under the Share Option Scheme during the six months ended 30 June 2016, nor was there any share option outstanding at 31 December 2015 and 30 June 2016. The Company, however, granted 148,500,000 share options to certain eligible participants of the Group under the Share Option Scheme at the subscription price of HK$0.68 per share on 22 July 2016. Particulars of the grant of options are set out in Note 22 to the condensed consolidated financial statements. 42 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Corporate Governance and Other Information 571 XV (i) XV78 (ii)352 (iii) (a) DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION As at 30 June 2016, the interests and short positions of the directors ( Directors ) and chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong ( SFO )) which were required to be (i) notified to the Company and The Stock Exchange of Hong Kong Limited ( Stock Exchange ) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and chief executive were taken or deemed to have under such provisions of the SFO); (ii) entered in the register kept by the Company pursuant to Section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers ( Model Code ) as set out in Appendix 10 to the Rules Governing the Listing of Securities on the Stock Exchange ( Listing Rules ) were as follows: (a) Long positions in shares of the Company ( Share(s) ) Name of Director Capacity Numbers of Shares Percentage of interest in the Company (approximate) Huang Yu Interest of a controlled corporation Notes: 3,127,995,000 63.19% (1) 99% 52% 100%3,127,995,000 (2) 3,261,006,000 65.88% (1) As at 30 June 2016, Mr. Huang Yu owned 99% interests in the registered capital of Shenzhen Aorongxin Investment Development Co., Ltd.* ( Shenzhen Aorongxin ) and Shenzhen Aorongxin owned 52% interests in the registered capital of Shenzhen Waranty Assets Management Co., Ltd.* ( Shenzhen Waranty ). Shenzhen Waranty, through its subsidiary, namely Waranty Assets Management (HK) Limited ( Waranty Hong Kong ), owned 100% interests in the issued share capital of China Health Management Investment Limited ( China Health ). Since China Health is the beneficial owner of 3,127,995,000 Shares, Mr. Huang Yu was indirectly interested in the Shares held by China Health. (2) As at the date of this report, China Health directly held 3,261,006,000 Shares representing approximately 65.88% of the issued Shares. Therefore, Mr. Huang Yu was indirectly interested in such Shares. TONGFANG KONTAFARMA HOLDINGS LIMITED 43
INTERIM REPORT 2016 Corporate Governance and Other Information (b) DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION (CONTINUED) (b) Interest in associated corporation Name of Director Name of associated corporation Capacity Percentage of interest in the associated corporation (approximate) Huang Yu Shenzhen Aorongxin Beneficial Owner 99% 99% 52% 100% 3,127,995,000 XV 352 Note: As at 30 June 2016, Mr. Huang Yu owned 99% interests in the registered capital of Shenzhen Aorongxin and Shenzhen Aorongxin owned 52% interests in the registered capital of Shenzhen Waranty. Shenzhen Waranty, through its subsidiary, Waranty Hong Kong, owned 100% interests in the issued share capital of China Health. China Health directly held 3,127,995,000 Shares of the Company. Save as disclosed above, as at 30 June 2016, none of the Directors nor the chief executive of the Company and their respective associates had any interests or short positions in the Shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which were recorded in the register maintained by the Company pursuant to section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code. 44 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Corporate Governance and Other Information 336 SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS INTERESTS AND SHORT POSITIONS IN SHARES So far as is known to the Directors and the chief executive of the Company, as of 30 June 2016, the following persons, other than the Directors and the chief executive of the Company, had or were deemed or taken to have an interest and/or short position in the Shares or the underlying Shares of the Company as recorded in the register required to be kept by the Company under section 336 of the SFO: Name of Shareholders Capacity Long Positions Number of Shares Percentage of interest in shareholding (approximate) China Health Beneficial owner 3,127,995,000 1 (Note 1) 63.19% Waranty Hong Kong Interest of a controlled corporation 3,127,995,000 2 (Note 2) 63.19% Shenzhen Waranty Interest of a controlled corporation 3,127,995,000 3 (Note 3) 63.19% Interest of a controlled corporation Tongfang Jinrong Holdings (Shenzhen) Limited (Formerly known as Beijing Tongfang Chuangxin Investment Co., Ltd.*) ( Tongfang Jinrong ) 3,127,995,000 4 (Note 4) 63.19% Tsinghua Tongfang Co., Ltd.* ( Tsinghua Tongfang ) Interest of controlled corporations 3,241,989,000 5 (Note 5) 65.49% Shenzhen Aorongxin Interest of a controlled corporation 3,127,995,000 6 (Note 6) 63.19% TONGFANG KONTAFARMA HOLDINGS LIMITED 45
INTERIM REPORT 2016 Corporate Governance and Other Information 1. 3,127,995,000 2. 100% 3. 100% 4. 48% 5. 100% 113,994,000 3,241,989,000 65.49% 6. 52% 7. 3,261,006,000 65.88% 5 113,994,000 3,375,000,000 68.18% 336 SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS INTERESTS AND SHORT POSITIONS IN SHARES (CONTINUED) Notes: 1. The figure refers to the legal and beneficial interest of China Health in 3,127,995,000 Shares. 2. Waranty Hong Kong owned 100% interest in the issued share capital of China Health and was therefore deemed to have an interest in the Shares in which China Health was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 3. Shenzhen Waranty, through its subsidiary, namely Waranty Hong Kong, owned 100% interests in the issued share capital of China Health and was therefore deemed to have an interest in the Shares in which China Health was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 4. Tongfang Jinrong owned 48% interests in the registered capital of Shenzhen Waranty and was therefore deemed to have an interest in the Shares in which Shenzhen Waranty was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 5. Tsinghua Tongfang owned 100% interests in the registered capital of Tongfang Jinrong and was therefore deemed to have an interest in the Shares in which Tongfang Jinrong was interested. In addition, THTF Energy-Saving Holdings Limited ( THTF Energy-Saving ), an indirect wholly-owned subsidiary of Tsinghua Tongfang, was the beneficial owner of 113,994,000 Shares, and Tsinghua Tongfang was therefore also deemed to have an interest in the Shares in which THTF Energy-Saving was interested under the SFO. Tsinghua Tongfang was therefore interested in 3,241,989,000 Shares representing approximately 65.49% of the issued Shares. 6. Shenzhen Aorongxin owned 52% interests in the registered capital of Shenzhen Waranty and was therefore deemed to have an interest in the Shares in which Shenzhen Waranty was interested. The figure refers to the same interests of China Health in the Shares under the SFO. 7. As at the date of this report, China Health directly held 3,261,006,000 Shares representing approximately 65.88% of the issued Shares of the Company. Therefore, each of Waranty Hong Kong, Shenzhen Waranty, Shenzhen Aorongxin, Tongfang Jinrong and Tsinghua Tongfang was indirectly interested in such Shares. As disclosed in note 5 above, Tsinghua Tongfang was also deemed to have an interest in the 113,994,000 Shares held by its subsidiary THTF Energy-Saving. Therefore, Tsinghua Tongfang was interested in an aggregate of 3,375,000,000 Shares representing approximately 68.18% of the issued Shares. Save as disclosed above, as at 30 June 2016, the Company had not been notified by any person (other than a Director or chief executive of the Company or their respective associate(s)) of any interest and short position in the Shares and underlying shares which were required to be recorded in the register required to be kept under 336 of the SFO. 46 TONGFANG KONTAFARMA HOLDINGS LIMITED
INTERIM REPORT 2016 Corporate Governance and Other Information 13.51B(1) 218,000 CORPORATE GOVERNANCE CODE During the six months ended 30 June 2016, the Company has applied the principles of, and complied with, all the applicable code provisions of the Corporate Governance Code ( CG Code ) as set out in Appendix 14 to the Listing Rules. The Group has further strengthened its corporate governance, particularly in risk management (including environmental and social risks) which is integral to delivering its corporate strategies and ensuring the sustainability of its business. During 2016, the Group has engaged external consultants to provide assistance in the development of a structured approach to risk management and provide trainings and workshops on the topics of risk management and reporting on environmental, social and governance ( ESG ). With the facilitation by external consultants, the Group is in the progress of developing a structured risk management framework, identifying and assessing the principal risks from the external and internal environment. In addition, the Group identified material ESG issues and considered their impacts to different stakeholders during these trainings and workshops with the assistance of external consultants. The group management also evaluated its ESG initiatives and its performances during these workshops and trainings. The Group is in the progress of preparing the first ESG report in accordance with the Stock Exchange s requirement. CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND RELEVANT EMPLOYEES The Company has adopted the Model Code as its code of conduct regarding securities transactions by the Directors. All Directors have confirmed, following a specific enquiry by the Company that they had fully complied with the required standard as set out in the Model Code throughout the period under review. Relevant Employees who, because of their office in the Company, are likely to be in possession of inside information, have been requested to comply with the provisions of the Model Code. CHANGES IN DIRECTORS INFORMATION Pursuant to Rule 13.51B(1) of the Listing Rules, the changes in information on Directors are as follows: Director s salary of Mr. Ng Qing Hai, the Managing Director and an executive Director, was changed to HK$218,000 per month with effect from 1 January 2016. TONGFANG KONTAFARMA HOLDINGS LIMITED 47
INTERIM REPORT 2016 Corporate Governance and Other Information 47,538 *1206 1868 600100 2410 CHANGES IN DIRECTORS INFORMATION (CONTINUED) Director s salary of Mr. Huang, the Chairman and an executive Director, was changed to HK$47,538 per month with effect from 1 January 2016. Mr. Huang was appointed as a non-executive Director, the chairman of the Board, a member of the Nomination Committee and a member of the Risk Management Committee of Technovator International Limited (Stock code: 1206) with effect from 15 July 2016, the shares of which are listed on the Stock Exchange; a non-executive Director, the chairman of the Board, a member of the Remuneration Committee, a member of the Risk Management and Regulatory Compliance Committee and the chairman of the Nomination Committee of Neo-Neon Holdings Limited (Stock code: 1868) with effect from 15 July 2016, the shares of which are listed on the Stock Exchange; and the president, a member of the Remuneration and Appraisal Committee and a member of the Strategy Committee of Tsinghua Tongfang (stock code: 600100) with effect from 11 May 2016, the issued shares of which are listed on the Shanghai Stock Exchange. AUDIT COMMITTEE REVIEW The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group and discussed internal controls and financial reporting matters including a general review of the unaudited interim financial report for the six months ended 30 June 2016. In carrying out this review, the Audit Committee has relied on a review conducted by the Group s external auditors in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants as well as reports obtained from management. The Audit Committee has not undertaken detailed independent audit checks. PURCHASE, SALE OR REDEMPTION OF SHARES During the six months ended 30 June 2016, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Shares. * On behalf of the Board, Huang Yu Chairman Hong Kong, 26 August 2016 * For identification purposes only 48 TONGFANG KONTAFARMA HOLDINGS LIMITED