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Worldsec Ld (WSL)

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Monday 29 April, 2019

Worldsec Ld

Annual Report for the year ended 31 December 2018

RNS Number : 4265X
Worldsec Ld
29 April 2019
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WORLDSEC LIMITED

 

 

 

 

 

Annual Report for the year ended 31 December 2018

 

 

CORPORATE INFORMATION

 

 

Board of Directors

 

Non-Executive Chairman

Alastair GUNN-FORBES*

 

Executive Directors

Henry Ying Chew CHEONG (Deputy Chairman)

Ernest Chiu Shun SHE

 

Non-Executive Directors

Mark Chung FONG*

Martyn Stuart WELLS*

 

* independent

 

Company Secretary

Vistra Company Secretaries Limited

First Floor, Templeback, 10 Temple Back, Bristol, BS1 6FL, United Kingdom

 

Assistant Company Secretary

Estera Services (Bermuda) Limited

Canon's Court, 22 Victoria Street, Hamilton, HM 12, Bermuda

 

Registered Office Address

Canon's Court, 22 Victoria Street, Hamilton HM12, Bermuda

 

Registration Number

EC21466 Bermuda

 

Principal Bankers

The Hongkong and Shanghai Banking Corporation Limited

1 Queen's Road, Central, Hong Kong

 

External Auditor

BDO Limited

25th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong

 

Principal Share Registrar and Transfer Office

Estera Management (Bermuda) Ltd.     

Canon's Court, 22 Victoria Street, Hamilton HM12, Bermuda

 

International Branch Registrar

Link Market Services (Jersey) Limited

12 Castle Street, St Helier, JE2 3RT, Jersey, Channel Islands

 

United Kingdom Transfer Agent

Link Asset Services

The Registry, 34 Beckenham Rd, Beckenham, Kent, BR3 4TU, United Kingdom

 

Investor Relations

For further information about Worldsec Limited, please contact:

Henry Ying Chew CHEONG

Executive Director, Worldsec Group

Unit 607, 6th Floor, FWD Financial Centre, 308 Des Voeux Road Central, Sheung Wan, Hong Kong

[email protected]

 

Company's Website

http://www.worldsec.com

 

 

CONTENTS

 

 

 

Page

 

 

Chairman's statement

1

 

 

Directors' report

2

 

 

Statement of directors' responsibilities

17

 

 

Independent auditor's report

18

 

 

Consolidated statement of profit or loss and other comprehensive income

23

 

 

Consolidated statement of financial position

24

 

 

Consolidated statement of changes in equity

25

 

 

Consolidated statement of cash flows

26

 

 

Notes to the consolidated financial statements

27

 

 

Investment policy

78

 

 

Biographical notes of the directors

79

 

 

 

 

 

 

Chairman's Statement

 

 

RESULTS AND REVIEW

 

During the year ended 31 December 2018, the audited consolidated loss of Worldsec Limited (the "Company") and its subsidiaries (together the "Group") was US$803,000, compared with a loss of US$424,000 in 2017. Loss per share was US1.03 cents (2017: US0.75 cent). Net asset value per share was US6.3 cents (2017: US4.5 cents). Detailed discussion of the results and financial position of the Group is set out in the directors' report on pages 2 to 16.

 

With the support of shareholders, the Company successfully completed an open offer by way of the issue of new ordinary shares in April 2018. This has strengthened the Company's capital base to further the growth of Group.

 

Following the completion of the open offer, the Group expanded its investment portfolio by acquiring two new investments consisting of:

 

-    an equity interest in Agrios Global Holdings Ltd. ("Agrios"), the holding company of a data analytics driven agriculture technology group that leases and manages properties and equipment for eco-sustainable agronomy and provides advisory services to support aeroponic cultivation in the cannabis sector; and

-    an interest in an offshore term loan issued by Trillion Glory Limited, a Hong Kong indirect wholly-owned subsidiary of Guangzhou R&F Properties Co., Ltd. ("R&F Properties") which is a Chinese property company listed on the Main Board of the Stock Exchange of Hong Kong.

 

 

PROSPECTS

 

While China and the United States are making significant progress in resolving their trade dispute to allay market concern of a protracted and damaging standoff between the world's two largest economic powers, Britain has, after extended and tortuous discussion and debate and notwithstanding the passing of the original withdrawal deadline, yet to be able to end the political deadlock and uncertainty by plotting a path to withdraw from the European Union. Meantime, in reaction to the global economy showing signs of flagging, major central banks are generally taking a dovish approach towards monetary accommodation that continues to provide liquidity and support asset valuations in a historic low interest rate era, posing continued challenges for private equity investors to find investments with attractive returns within acceptable risk limits. Coupled with the slowing momentum in the economic growth in China where an ambitious reform agenda is being pursued, the outlook for the investment market, particularly in the Greater China and South East Asian region, remains challenging. Nonetheless, with the strengthening of the Group's financial resources following the successful completion of the open offer, I am confident that the Group would be capable of further expanding and diversifying its investment portfolio while meeting the investment objective of the Company.

 

 

NOTE OF APPRECIATION

 

I wish to thank my fellow directors and staff for their efforts and contributions made during the year ended 31 December 2018. I would also like to extend a note of appreciation to shareholders for their continued support of the Company.

 

 

                                                                                               Alastair Gunn-Forbes

                                                                                               Non-Executive Chairman

                                                                                               29 April 2019

 

 

 

DIRECTORS' REPORT

 

The directors submit the annual report of the Company and the audited consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2018.

 

 

PRINCIPAL ACTIVITIES

 

The principal activity of the Company is investment holding. The Company and its subsidiaries are primarily engaged in investment in unlisted companies in the Greater China and South East Asian region.

 

 

RESULTS AND FINANCIAL POSITION

 

The audited consolidated loss of the Company and its subsidiaries for the year ended 31 December 2018 was US$803,000, compared with a loss of US$424,000 in 2017. Loss per share was US1.03 cents (2017: US0.75 cent). The increase in the loss was principally due to the negative change in the fair value of financial assets that was recognised through the profit and loss account in accordance with the newly adopted International Financial Reporting Standard 9*. Excluding such negative change, the loss would have been US$474,000.

 

During the year under review, dividends received from the Group's investment in ICBC Specialised Ship Leasing Investment Fund continued to provide a stable return, generating revenue in the amount of US$96,000. In addition, interest income received from the Group's investment in the term loan issued by a subsidiary of R&F Properties amounted to US$40,000.

 

During the year under review, the Company raised additional equity capital through the issue of new ordinary shares under an open offer. This contributed to the increase in the net assets of the Group, which stood at US$5.4 million as at 31 December 2018, compared with US$2.5 million at the end of 2017. As the new ordinary shares were issued at a premium to the underlying net asset value, net asset value per share increased to US6.3 cents (2017: US4.5 cents).

 

The additional equity capital raised by the Company through the open offer also contributed to the increase in cash and cash equivalents, which stood at US$2.6 million as at 31 December 2018, compared with US$260,000 at the end of 2017.

 

Further details of the Group's results and financial position are set out in the consolidated statement of profit or loss and other comprehensive income on page 23, the consolidated statement of financial position on page 24 and notes to the consolidated financial statements on pages 27 to 77.

 

The Board does not propose to declare any dividend for the year ended 31 December 2018 (2017: nil).

 

* Please refer to note 2.1(a) to the consolidated financial statements on pages 28 to 33 for detailed discussion.

 

 

REVIEW

 

The Company is a closed-ended investment company with a premium listing under Chapter 15 of the Listing Rules of the Financial Conduct Authority (the "FCA") in the United Kingdom (the "UK"). In accordance with the Company's investment policy, a copy of which is set out on page 78, the investment strategy of the Group focuses on investing in small to medium sized trading companies based mainly in the Greater China and South East Asian region with a view to building a diversified portfolio of minority investments in such companies. The investment objective of the Company is to achieve attractive investment returns through capital appreciation on a medium to long term horizon. To spread the investment risk of the Group, none of the Group's investments at the time when made exceeded 20% of its gross assets.

 

DIRECTORS' REPORT (CONTINUED)

 

Velocity Mobile Limited ("Velocity"), one of the Group's investee companies, is the holding company of a technology group that provides real-time lifestyle mobile applications for premium consumers focusing in the areas of dining, travel, experiences and luxury goods. During the year under review, the Velocity group continued to achieve strong growth in revenue on the back of increased customer spend and engagement as well as significant productivity gain driven by automation. In the third quarter of 2018, the Velocity group launched Velocity for Business, which is a white-label product designed for enterprise customers. By the fourth quarter of 2018, the Velocity group had secured three corporate clients, including a world-renowned automobile manufacturer, on multi-year, multi-million dollar global deals. The launch of Velocity for Business is expected to enable the Velocity group to meaningfully scale customer numbers thereby further monetising the Velocity platform.

 

ayondo Ltd. ("Ayondo"), another of the Group's investee companies, is the holding company of a financial technology group that provides self-directed trading and social trading services for contract-for-differences and spread betting. During the latter part of the year under review, the Ayondo group focussed on pursuing its B2B strategy in Asia. In October 2018, the Ayondo group secured two separate contracts to collaborate with white-label partners by providing the Ayondo trading platform services to their clients in China and Cambodia. Subsequent to the year end, Ayondo requested in January 2018 suspension of trading in its shares on Catalist of the Singapore Exchange. In an announcement in February 2019, Ayondo explained in length that ayondo Markets Limited ("AML"), a 99.91% owned subsidiary of the Ayondo group operating a brokerage business and regulated in the UK, was seeking clarification from the FCA on certain accounting treatments in relation to a prescribed ratio for the purpose of compliance. Ayondo also announced the entering into with BUX Holding B.V. ("BUX"), one of the white-label partners of the Ayondo group, of a non-binding heads of terms for the disposal of AML to BUX (the "Proposed AML Disposal") in case there is a capital shortfall in AML which may arise from regulatory or working capital requirements. The Proposed AML Disposal will be subject to the entry into a definitive agreement between the parties, the approval by Ayondo shareholders and various conditions stipulated in a notice of compliance received from the Singapore Exchange Regulation. Ayondo further announced in February 2019 the entering into with Golden Nugget Jinzhuan Limited ("iMaibo"), a Chinese operator of a social trading platform with free content from key opinion leaders, of non-binding strategic alliance terms that may involve the eventual injection of an equity stake in iMaibo into Ayondo. In March 2019, Ayondo applied for an extension of time for the release of the financial statements of the Ayondo group for the year ended 31 December 2018, and in April 2019, Ayondo issued a profit warning in respect of such financial statements indicating an increase in loss due mainly to the impairment of certain intangible assets as tightening regulatory measures implemented in Europe had adversely affected the contract-for-difference market. Trading in the shares of Ayondo remains suspended. The last traded price of the Ayondo shares was S$0.048 recorded on 29 January 2019.

 

In China, Oasis Education Consulting (Shenzhen) Company Limited (奧偉詩教育諮詢(深圳)有限公司), a subsidiary of the 50% joint venture of the Group, Oasis Education Group Limited ("Oasis Education"), continued to provide consulting and support services to the Huizhou Kindergarten, which graduated 52 pupils in the summer of 2018. For the academic term commencing in February 2019, 35 new pupils have enrolled with the Huizhou Kindergarten, raising its total pupil enrolment to more than 250.

 

During the period under review, the Company raised new equity capital of US$4.3 million to strengthen its capital base with a view to furthering the development and expansion of the Group's investment portfolio. This was accomplished in April 2018 through an open offer of 28,367,290 new ordinary shares at US$0.15 per share to shareholders on the basis of one new share for every two existing shares held. In addition, the Company also proposed to carry out subsequent placings of up to 100,000,000 new ordinary shares should investor demand arise. No such placings, however, took place and the placing programme lapsed on 12 March 2019. Details relating to the fund raising exercise of the Company can be found in the Company's open offer and subsequent placings prospectus dated 13 March 2018, a copy of which is available on the website of the Company.

 

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

Following the completion of the open offer, the Group made two new investments:

 

Ÿ  In June 2018, the Group invested CAD330,000 (equivalent to US$249,000) in the equity capital of Agrios, the holding company of a data analytics driven agriculture technology group that provides property and equipment for lease and enhanced ancillary services to the cannabis industry. The Agrios group holds various leasing, consulting and service agreements with a producer and production license holder under the Washington State Liquor and Cannabis Board in the State of Washington of the United States. The services provided by the Agrios group to the licensee include property lease and management services, aeroponic equipment rentals, consulting services for agronomy, bio and video monitoring as well as nutrient and supplies procurement. In the fourth quarter of the year under review, the Agrios group completed the acquisition of Greenfields Agritech Limited, which has a 65% ownership interest in a joint venture in the Yunnan Province (the "Yunnan Province") in China. Once the required licenses are in place, the joint venture intends to make use of the low cost supply of hemp fibre to develop household products for the Chinese consumer market. In November 2018, Agrios was successfully listed and its shares commenced trading on the Canadian Securities Exchange.

 

Ÿ At about the same time of its investment in Agrios, the Group also invested US$1 million in the offshore term loan bearing interest at 8.5% per annum issued by Trillion Glory Limited, a Hong Kong indirect wholly-owned subsidiary of R&F Properties which is a Chinese property company listed on the Main Board of the Stock Exchange of Hong Kong. The first 15% of the principal of the term loan of US$150,000 was repaid on 15 October 2018, and the remaining 85% of the outstanding amount of US$850,000 will be due on 15 October 2019, which may be extended for no more than one year subject to all lenders' consent. The interest is payable in arrears on a quarterly basis.

 

As mentioned in the section headed "Results and Financial Position" on page 2, during the year under review, the Group's investment in the term loan issued by the subsidiary of R&F Properties contributed interest income amounting to US$40,000 while its investment in ICBC Specialised Ship Leasing Investment Fund generated dividend income amounting to US$96,000.

 

 

PROSPECTS

 

Amongst the Group's investee companies, Velocity shows relatively encouraging prospects, particularly following the launch of Velocity for Business with several multi-year, multi-million dollar global deals that could meaningfully contribute to continued growth in customer base and revenue for the Velocity group. Subsequent to the year end, Agrios has expanded its business through the establishment of a subsidiary unit in the State of Missouri of the United States to provide consulting services in relation to medical cannabis. The Agrios group has also teamed up with Kunming University of Science and Technology to conduct research on hemp fibre and products that could help facilitate the business development of its joint venture in the Yunnan Province. The outlook for Ayondo, however, appears somewhat uncertain pending, amongst other matters, the outcome of the clarification from the FCA on the compliance-related accounting treatment issue. But should the Proposed AML Disposal and the proposed transaction with iMaibo proceed in due course, the Ayondo group would be able to refocus its resources on the social trading activities. Nonetheless, as Velocity and Agrios remains at early phases in developing their business, they are not expected to generate any substantial contributions to the Group in the short term whereas the uncertainty surrounding Ayondo could adversely affect its fair value under the International Financial Reporting Standard 9.

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

Meantime, with a steady track record, the Huizhou Kindergarten is positioned to further attract new pupils and raise pupil enrolment. This could help improve the scale of operations of the Huizhou Kindergarten although any such improvement is not expected to have a material impact on the financial performance of Oasis Education in the short term. The Group's investments in ICBC Specialised Ship Leasing Investment Fund and in the term loan issued by a subsidiary of R&F Properties, on the other hand, will continue to generate a stable stream of recurrent income under the persistently low interest rate environment.

 

On a broader perspective, the long anticipated deadline on which Britain was originally slated to withdraw from the European Union has passed. Yet labourious and toilsome attempts to forge consensus on an exit deal have repeatedly failed. While Britain remains mired in a quandary over its withdrawal from the European Union, China and the United States appear to be on the path to resolving their trade dispute that has threatened to disrupt global economic growth and roiled financial markets across the globe.  Nonetheless, there have been signs of a slowdown in the world economy and major central banks, including the Federal Reserve in the United States which has indicated a pause in rate hiking, are generally adopting a dovish stance towards monetary policy normalisation to safeguard liquidity conditions. China has also acted to boost bank lending and rolled out massive tax and fee cuts in response to the slowing momentum in its economic growth. Under this mixed and challenging outlook, the Group will continue to exercise care and diligence in identifying appropriate investments with a view to further expanding and diversifying its investment portfolio in accordance with the Company's investment policy.

 

 

Directors

 

The directors during the year under review and up to the date of this report were:

 

Non-Executive Chairman

Alastair Gunn-Forbes*

 

Executive Directors

Henry Ying Chew Cheong

Ernest Chiu Shun She

 

Non-Executive Directors

Mark Chung Fong*

Martyn Stuart Wells*

 

* independent

 

Brief biographical notes of the directors serving at the date of this report are set out on pages 79 to 80.

 

Save as disclosed in this report and in note 25 to the consolidated financial statements on page 77, none of the directors had during the year under review or at the end of the year a material interest, directly or indirectly, in any contract of significance with the Company or any of its subsidiaries.

 

 

 

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

Messrs Alastair Gunn-Forbes and Mark Chung Fong have served on the Board for more than nine years. (In accordance with Provision B.7.1 of the UK Corporate Governance Code on corporate governance published in April 2016 by the Financial Reporting Council of the United Kingdom (the "Code"), both Messrs Alastair Gunn-Forbes and Mark Chung Fong retired by rotation and were re-elected to office by separate resolutions passed at the Annual General Meeting held on 2 November 2018.) During the past nine year period, however, neither of them has had any major interest in the issued share capital of the Company, has been an employee or involved in the daily management of any of the Group companies, or has had any material relationship with any of the Group companies or any of the major shareholders or managers of any such companies other than being a member of the Board. Accordingly, and in accordance with Provision B.1.1 of the Code, the Board has determined that their independence and objectivity have not been impaired and that they will therefore be able to continue to act independently in character and judgement.

 

At the Annual General Meeting held on 29 September 2014, shareholders approved the inclusion of the Group's non-executive directors, including Messrs Alastair Gunn-Forbes, Mark Chung Fong and Martyn Stuart Wells, as eligible participants of the Worldsec Employee Share Option Scheme 1997 (the "Scheme"). As explained in the 2014 annual report of the Company, the reason for such inclusion was to enable the Group to reward its non-executive directors for their commitments to the Company beyond the nominal annual fees that the Group could afford to pay during its development stage. Accordingly, and in accordance with Provision B.1.1 of the Code, given such circumstances, the Board has determined that the participation of Messrs Alastair Gunn-Forbes, Mark Chung Fong and Martyn Stuart Wells in the Scheme will not affect their ability to act independently in character and judgement.

 

 

DIRECTORS' INTERESTS

 

The interests of the individuals who were directors during the year under review in the issued share capital of the Company, including the interests of persons connected with a director (within the meaning of Sections 252, 253 to 255 of the United Kingdom Companies Act 2006 as if the Company were incorporated in England), the existence of which was known to, or could with reasonable diligence be ascertained by, that director, whether or not held through another party, were as follows:

 

 

At 1 January 2018

 

At 31 December 2018

 

No. of shares

 

No. of shares

Alastair Gunn-Forbes

30,000

 

45,000

Henry Ying Chew Cheong (Note i)

3,054,873

 

11,722,620

Mark Chung Fong

Nil

 

Nil

Ernest Chiu Shun She

366,730

 

550,095

Martyn Stuart Wells

Nil

 

Nil

 

Notes:   (i)

Mr Henry Ying Chew Cheong ("Mr Cheong") wholly owns HC Investment Holdings Limited ("HCIH"). HCIH beneficially owned 10,000,000 and 20,000,000 ordinary shares of US$0.001 each in the Company at 1 January 2018 and 31 December 2018, respectively.

 

 

In total, Mr Cheong and his associates were the legal and beneficial owners of 19,504,873 and 31,722,620 ordinary shares of US$0.001 each in the Company, representing 34.4% and 37.3% of the Company's issued share capital, at 1 January 2018 and 31 December 2018, respectively. The Company and Mr Cheong entered into a relationship agreement on 2 August 2013 (the "Relationship Agreement"). Pursuant to the Relationship Agreement, Mr Cheong has agreed to exercise his rights as a shareholder at all times, and to procure that his associates exercise their rights, so as to ensure that the Company is capable of carrying on its business independently of Mr Cheong or any control which Mr Cheong or his associates may otherwise be able to exercise over the Company. Moreover, Mr Cheong has undertaken to ensure, so far as he is able to, that all transactions, relationships and agreements between Mr Cheong or his associates and the Company or any of its subsidiaries are on arms' length terms on a normal commercial basis. Mr Cheong and the Company have also agreed, amongst other things, that he will not participate in the deliberations of the Board in relation to any proposal to enter into any commercial arrangements with Mr Cheong or his associates.

 

DIRECTORS' REPORT (CONTINUED)

 

(ii)

In April 2018, the Company raised new equity capital through an open offer of new ordinary shares to shareholders on the basis of one new ordinary share of US$0.001 each in the Company for every two existing ordinary shares held at the open offer price of US$ 0.15 per share. As a result, the directors' interests in the Company have changed since 4 April 2018.

 

 

At 1 January 2018

 

At 31 December 2018

 

No. of share options (Note)

 

No. of share options (Note)

Alastair Gunn-Forbes

500,000

 

500,000

Henry Ying Chew Cheong

500,000

 

500,000

Mark Chung Fong

500,000

 

500,000

Ernest Chiu Shun She

500,000

 

500,000

Martyn Stuart Wells

500,000

 

500,000

 

 

Note:

The share options entitle the holders to subscribe on a one for one basis new ordinary shares of US$0.001 each in the Company at an exercise price of US$0.122 per share. The share options vested six months from the date of grant on 1 December 2015 and were then exercisable within a period of 9.5 years.

         

 

Save as disclosed above, none of the above named directors had an interest, whether beneficial or non-beneficial, in any shares or debentures of any Group companies at the beginning or at the end of the year under review. Save as disclosed above, none of the above named directors, or members of their immediate families, held, exercised or were awarded any right to subscribe for any shares or debentures of any Group companies during the year.

 

The Board confirms that (i) the Company has complied with the independence provisions set out in the Relationship Agreement since it was entered into; and (ii) so far as the Company is aware, Mr Cheong and his associates have complied with the independence provisions set out in the Relationship Agreement since it was entered into and since 1 January 2018.

 

 

DIRECTORS' REMUNERATION

 

The remuneration of the directors for the year ended 31 December 2018 was as follows:

 

 

 

Fees

 

Share-based payment expenses

 

Other emoluments

 

 

Total

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

Alastair Gunn-Forbes

12.8

 

-

 

-

 

12.8

Henry Ying Chew Cheong

12.8

 

-

 

-

 

12.8

Mark Chung Fong

12.8

 

-

 

-

 

12.8

Ernest Chiu Shun She

12.8

 

-

 

-

 

12.8

Martyn Stuart Wells

12.8

 

-

 

-

 

12.8

 

 

 

 

 

 

 

 

 

64.0

 

-

 

-

 

64.0

 

 

PROVIDENT FUND AND PENSION CONTRIBUTION FOR DIRECTORS

 

During the year under review, there was no provident fund and pension contribution for the directors.

 

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

LETTERS OF APPOINTMENT/ SERVICE CONTRACTS

 

Messrs Alastair Gunn-Forbes, Mark Chung Fong and Martyn Stuart Wells, each has entered into a letter of appointment with the Company dated 28 November 2017 to serve as non-executive director. Each of them is entitled to a fee of £10,000 per annum. The appointment may be terminated on one month notice in writing.

 

Messrs Henry Ying Chew Cheong and Ernest Chiu Shun She, each has entered into a letter of appointment with the Company dated 2 August 2013 to serve as executive director. Each of them is entitled to a fee of £10,000 per annum. The appointment may be terminated on not less than six month notice in writing.

 

All directors are eligible to participate in the Group's bonus arrangements under which bonuses may be granted at the discretion of the Remuneration Committee and the Board. No bonus was recommended for the year ended 31 December 2018.

 

Save as disclosed above, there are no existing or proposed letters of appointment or service contracts between any of the directors and the Company or any of its subsidiaries which cannot be determined without payment of compensation (other than any statutory compensation) within one year.

 

 

MAJOR INTERESTS IN SHARES

 

At 25 March 2019, the Company was aware of the following direct or indirect interests representing 5% or more of the Company's issued share capital:

 

                                   

 

No. of shares

 

Percentage of
issued share capital

 

 

 

 

HC Investment Holdings Limited (Note i)          

20,000,000

 

23.5%

Yue Wai Keung           

4,837,500

 

5.7%

Luis Chi Leung Tong

5,000,000

 

5.9%

Henry Ying Chew Cheong

11,722,620

 

13.8%

Aurora Nominees Limited (Note ii)        

18,750,000

 

22.0%

Vidacos Nominees Limited (Note ii)      

5,500,000

 

6.5%

 

Notes:      (i)

Mr Cheong is the legal and beneficial owner of the entire issued share capital of HC Investment Holdings Limited.

 (ii)

Aurora Nominees Limited and Vidacos Nominees Limited act as custodians for their customers, to whom they effectively pass all rights and entitlements, including voting rights.

 

 

INTERNAL CONTROL, RISK MANAGEMENT AND FINANCIAL REPORTING

 

The Board is responsible for establishing and maintaining appropriate systems of internal control and risk management to safeguard the Group's interests and assets. The control measures that have been put in place cover key areas of operations, finance and compliance and aim to manage rather than eliminate risks that are inherent in the running of the business of the Group. Accordingly, the Group's systems of internal control and risk management are expected to provide reasonable but not absolute assurance against material misstatements, loss or fraud.

 

 

DIRECTORS' REPORT (CONTINUED)

 

Amongst the control measures, the key steps that have been put in place include:

 

-    the setting of the investment strategy and the approval of significant investment decisions of the Group by the Board to ensure consistency with the investment objective and compliance with the investment policy of the Company;

-    the segregation of duties between the investment management and accounting functions of the Group;

-    the adoption of written procedures in relation to the operations of the bank accounts of the Group;

-    the adoption of written procedures to deal with conflicts of interests and related party transactions;

 

-    the maintenance of proper accounting records providing with reasonable accuracy at any time information on the financial position of the Group;

-    the review by the Board of the management accounts of the Group on a regular basis; and

-    the engagement of external professionals to carry out company secretarial works for the Company and to assist the Group on compliance issues.

 

The Board considers the identification, evaluation and management of the principal risks faced by the Group under the changing environment to be an ongoing process and has kept under regular review the effectiveness of the Group's systems of internal control and risk management. The Board is satisfied that the arrangements that have been put in place represent an appropriate framework to meet the internal control and risk management requirements of the Group.

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The Board considers that the principal risks and uncertainties that are relevant to the Group include:

 

Target market risk

 

Under the investment policy of the Company, the Group focuses on investing in small to medium sized trading companies based mainly in the Greater China and South East Asian region. Consequently, a sharp or prolonged downturn in the economic environment or a heightened uncertainty in the political environment in these target markets could adversely and seriously affect the underlying investments and hence the cash flows of the Group. This is clearly a risk factor beyond the Group's control. Nevertheless, in line with the investment policy of the Company, the Board will seek to invest in and maintain a diversified portfolio in order to spread the investment risk of the Group.

 

Investment opportunity risk

 

Given the abundance of liquidity under the new normal of a persistently low interest rate environment, the private equity space has been awash with investment capital and dry powder competing for quality deals. This has been driving up valuations and narrowing the spreads of investment returns, thereby limiting the availability of attractive investment opportunities for the Group. Under such circumstances, with the approval from shareholders, the Company broadened its investment policy in the latter part of 2014. This offers greater flexibility for the Group to make investment choices from a broader range of opportunities to achieve the Company's investment objective under the persistently challenging and competitive environment. 

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

Key person risk

 

As the Group does not engage any external investment manager, the Board is responsible for overseeing the Group's investment management activities with frontline management duties delegated to the executive directors. The Group is therefore heavily dependent on the executive directors' abilities to identify and evaluate investment targets, execute and implement investment decisions, monitor investment performance and execute and implement exit decisions. Both of the executive directors, Messrs Henry Ying Chew Cheong and Ernest Chiu Shun She, have entered into a letter of appointment with the Company with a termination clause of not less than six month notice. Moreover, Mr Cheong is also the deputy chairman and a major shareholder beneficially holding a substantial interest in the Company's issued share capital.

 

Operational risks

 

The Group is exposed to various operational risks that are inherent in the running of its business, including, amongst others, the failure to comply with the investment policy of the Company, the failure to prevent misstatements, loss or fraud due to inadequacies in the Group's internal operational processes, and the failure to comply with applicable rules and regulations by the Group. As mitigating measures, the Board has established and maintained systems of internal control and risk management to safeguard the Group's interests and assets, details of which are set out in the section headed "Internal Control, Risk Management and Financial Reporting" on pages 8 to 9.

 

Financial risks

 

The Group is exposed to a variety of financial risks, including market risks, credit risk and liquidity risk, which arise from its operating and investment management activities. The Group's management of such risks is coordinated at the office of Worldsec Investment (Hong Kong) Limited, the principal operating subsidiary of the Group, in close cooperation with the Board. Details of the Group's approach on financial risk management are described in note 5(b) to the consolidated financial statements on pages 56 to 60.

 

 

VIABILITY STATEMENT

 

The directors have assessed the viability of the Company for the three years to 31 December 2021.

 

The directors consider that, for the purpose of this viability statement, a three year period is appropriate taking into account the Group's investment horizon under its investment strategy. Besides, there should unlikely be any significant change to most if not all of the principal risks and uncertainties facing the Group over the timeframe selected for the assessment.

 

In assessing the viability of the Company and its ability to meet liabilities as they fall due, the directors have taken into consideration, amongst others:

 

-    the investment strategy of the Group;

-    the current position including the existing financial status and cost structure of the Group;

-    the prospects of and the industry outlook for the Group;

-    the economic and political environment of the Greater China and South East Asian region, the primary target markets in which the Group focuses its investment; and

-    the potential adverse impact of the principal risks and uncertainties facing the Group and the effectiveness of the mitigating measures that have been put in place, details of which are described in the section headed "Principal Risks and Uncertainties" on pages 9 to 10.

 

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

The directors note, in particular, that the Group:

 

-    has a liquid amount of unrestricted cash and bank balances;

-    does not have any borrowings;

-    does not have any commitments other than certain leases with modest outstanding rental payments; and

-    has low operating expenses with a small but stable team under stringent cost control. 

 

Accordingly, the directors are confident that the Company will be able to continue in operation and meet its liabilities as they fall due over the assessment period.

 

 

GOING CONCERN

 

After making enquiries, and taking into account the increase in the equity capital of the Company following the completion of an open offer of new ordinary shares on 4 April 2018, the directors have formed a judgement, at the time of approving the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2018, that there was a reasonable expectation that the Group would have adequate resources to carry out its operations for a period of at least twelve months from the date of approving the consolidated financial statements. For this reason, the directors have adopted the going concern basis in preparing the consolidated financial statements.

 

 

CORPORATE GOVERNANCE

 

As a company with a premium listing on the Main Market of the London Stock Exchange, its business is subject to the principles contained in the Code, a copy of which is available on the website of the Financial Reporting Council of the United Kingdom. The Board confirms that, throughout the accounting period from 1 January to 31 December 2018, the Group complied with the relevant provisions of the Code, apart from certain exceptions set out and explained below.

 

The Board, comprising a non-executive chairman, two non-executive directors and two executive directors, is committed to maintaining a high standard of corporate governance. All non-executive directors are considered by the Board to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. All directors are able to take independent professional advice in furtherance of their duties, if necessary.

 

The Board is responsible for establishing strategic directions and setting objectives for the Company and making significant investment decisions and monitoring the performance of the Group. The management is responsible for the day to day running of the Group's operations.

 

 

BOARD MEETING

 

The Board held four meetings during the year under review and the table below gives the attendance record.

 

Director

Board Meeting

 

 

Alastair Gunn-Forbes

4/4

Henry Ying Chew Cheong

4/4

Ernest Chiu Shun She

4/4

Mark Chung Fong

4/4

Martyn Stuart Wells

4/4

 

 

DIRECTORS' REPORT (CONTINUED)

 

Although the Board notes the requirement for a Nomination Committee (Provision B.2.1 of the Code), to make recommendations to the Board on all new board appointments and to reassure shareholders of the suitability of a chosen director, the Board considers that, due to its small size and limited level of activities, it is not necessary to establish such a committee. The Board as a whole remains responsible for ensuring that a transparent, formal and rigorous process would be followed for any future board appointments, which would be made following a full review of the Board's balance of skills, experience, independence and knowledge. Any future recruitment process would also provide an opportunity to improve the diversity of the Board. The Board is satisfied that appropriate succession planning is in place for appointments to both the Board and senior management.

 

Again, due to its small size and limited level of activities, the Board has not appointed a senior independent director and did not consider an annual self-evaluation to be required during the year under review. The responsibilities normally rested with a senior independent director have been reverted to the Board as a whole. These decisions will be re-considered annually by the Board.

 

The Board established both an Audit Committee and a Remuneration Committee upon the re-activation of the Group's business in 2013. Details of these committees are set out below.

 

 

AUDIT COMMITTEE

 

The Audit Committee held two meetings during the year under review and the table below gives the attendance record.

 

Director

Audit Committee Meeting

 

 

Mark Chung Fong

2/2

Martyn Stuart Wells

2/2

 

The Audit Committee is chaired by Mr Mark Chung Fong and its other current member is Mr Martyn Stuart Wells. The Audit Committee is appointed by the Board and the committee's membership is comprised wholly of non-executive directors.

 

The terms of reference of the Audit Committee (copies of which are available at the Company's registered office and the Company's website) generally follow, where applicable, those stated in the provisions of the Code.

 

The Audit Committee meets a minimum of two times a year and may be convened at other times if required. The responsibilities of the Audit Committee include, amongst others, the examination and review of the Group's risk management, internal financial controls and financial and accounting policies and practices, as well as overseeing and reviewing the work of the Company's external auditor, their independence and the fees paid to them.

 

During the year under review, the activities undertaken by the Audit Committee in discharge of its duties and functions included (i) the review and recommendation to the Board of the reappointment of  BDO Limited as the Company's external auditor; (ii) the review and recommendation to the Board for approval of the annual report of the Company and the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2017; and (iii) the review and recommendation to the Board for approval of the interim report of the Company and the unaudited consolidated financial statements of the Company and its subsidiaries for the six months ended 30 June 2018. In recommending the reappointment of BDO Limited, the Audit Committee has taken into consideration, amongst others, BDO Limited's independence, objectivity and terms of engagement.

 

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

Subsequent to the year end, the activities that have been undertaken by the Audit Committee in relation to 2018 included (i) the review and recommendation to the Board of the annual report of the Company and the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2018; (ii) the monitoring of the effectiveness of the Group's risk management and internal financial controls; and (iii) the assessment of the effectiveness of the external audit process through feedback from the management involved in the audit and through interactions with and observations and review of the level of audit service provided. 

 

As the scale of the operations of the Group remains relatively insubstantial, the Board has decided and the Audit Committee concurs that it would not be necessary or cost-effective to set up an internal audit function.

 

In connection with the review of the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2018, the Audit Committee has identified and reviewed two issues which it considered significant and details on these matters are set out in the table below.

 

Significant Reporting Issue

Review and Assessment

Impairment review of the Group's interests in respect of its 50% owned joint venture, Oasis Education - At 31 December 2018, the Group had an equity interest of US$106,000 in and an amount of US$257,000 due from Oasis Education. These carrying amounts were significant in the Group's context and their valuation was subject to judgments, estimates and assumptions.

The Audit Committee has (i) reviewed the operational and financial performance and the latest development of Oasis Education and its subsidiary; and (ii) assessed the assumptions underlying the cash flow projection for Oasis Education and its subsidiary as well as the reliability of such projection by comparing relevant historic budgets with actual results.

Valuation of unlisted equity investments classified as financial assets at fair value through profit or loss ("FVTPL") - At 31 December 2018, the Group had unlisted equity interests in ICBC Specialised Ship Leasing Investment Fund and Velocity, which were all accounted for as financial assets at FVTPL totalling US$1,342,000 and carried at fair value (together the "unlisted Financial Assets at FVTPL"). These carrying amounts were significant in the Group's context and their valuation was subject to judgments and assumptions.

The Audit Committee has (i) reviewed the operational and financial performance and the latest development of the unlisted Financial Assets at FVTPL; and (ii) reviewed the valuation finding of Velocity prepared by an independent professional valuer and discussed with the valuer the methodologies, assumptions and input parameters used in relation to such valuation.

 

BDO Limited was appointed as the external auditor of the Company in February 2015, since when audit services have not been tendered competitively. The Audit Committee has concluded that a competitive tender of audit services is not necessary at this time, but acknowledges that circumstances could arise where a competitive tender for audit services may be desirable. The performance of BDO Limited as the Company's external auditor will be kept under annual review, and if satisfactory, BDO Limited will be recommended by the Audit Committee for reappointment. There are, however, no contractual obligations that would restrict the Audit Committee's choice of external auditor for the Company.

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

Any non-audit services that are to be provided by the Company's external auditor are reviewed in order to safeguard the auditor's objectivity and independence. During the year under review, BDO Financial Services Limited, an affiliate of BDO Limited, was engaged to act as the reporting accountant in connection with the Company's fund raising exercise that was completed in April 2018. Taking into account the nature and fee of the work that was involved, the Board has confirmed to the Audit Committee that, during the reporting period and subsequently thereafter, there had not been any non-audit services that were considered to have impaired the objectivity and independence of the external auditor of the Company.

 

As advised by the Audit Committee and concurred with by the Board, the annual report of the Company and the audited consolidated financial statements for the year ended 31 December 2018, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

 

REMUNERATION COMMITTEE

 

In accordance with Provision D.2.1 of the Code, the Company has set up a Remuneration Committee. The Remuneration Committee held one meeting during the year under review and the table below gives the attendance record.

 

Director

Remuneration Committee Meeting

 

 

Martyn Stuart Wells

1/1

Mark Chung Fong

1/1

Alastair Gunn-Forbes

1/1

 

The Remuneration Committee is chaired by Mr Martyn Stuart Wells and its other current members are Messrs Alastair Gunn-Forbes and Mark Chung Fong. The Remuneration Committee is appointed by the Board and the committee's membership is comprised wholly of non-executive directors.

 

The terms of reference of the Remuneration Committee (copies of which are available at the Company's registered office and the Company's website) generally follow, where applicable, those stated in the provisions of the Code. They provide for the Remuneration Committee to meet at least two times a year. However, as the Group has a very small and stable workforce with no personnel change since 31 December 2017, the Remuneration Committee did not consider it meaningful or necessary to hold more than one meeting during the year under review.

 

The Remuneration Committee's responsibilities include, amongst others, the evaluation of the performance of the executive directors and senior staff, and the comparison of the Group's remuneration policy with similar organisations in the market to form the basis for the recommendations to the Board to determine the remuneration packages, which may include the grant of share options under the Scheme, for individual staff and director members.

 

In accordance with the Main Principle of Provision D.2 of the Code, no director has been involved in deciding his own remuneration.

 

During the year under review, the activities undertaken by the Remuneration Committee in discharge of its duties and functions included the review of and recommendation to the Board to retain the Group's previous remuneration arrangements.

 

 

 

DIRECTORS' REPORT (CONTINUED)

 

AD HOC COMMITTEE

 

In accordance with Bye-law 98 of the Company, the Board set up in February 2018 an additional committee comprising of a minimum of two directors, to whom it delegated responsibility to deal with all matters relating to the Company's fund raising exercise. Details of the Company's fund raising exercise can be found in the open offer and subsequent placings prospectus of the Company dated 13 March 2018, a copy of which is available on the website of the Company.

 

 

WORLDSEC EMPLOYEE SHARE OPTION SCHEME 1997

 

On 1 December 2015, the Company granted to certain eligible persons a total of 2,950,000 share options to subscribe for new ordinary shares of US$0.001 each in the Company under the Scheme. The share options vested six months from the date of grant and were then exercisable within a period of 9.5 years.

 

The following table discloses the movements of the outstanding share options under the Scheme during the year under review.

 

 

 

Number of options

Grantee

Exercisable period

Balance at 1 January 2018

Granted during the year

Exercised during

the year

Forfeited during the year

Lapsed during the year

Balance at 31 December 2018

Exercise price per share

(US$)

Directors

1 June 2016 to 30 November 2025

2,500,000

-

-

-

-

2,500,000

0.122

Employees

1 June 2016 to 30 November 2025

450,000

-

-

-

-

450,000

0.122

 

 

2,950,000

-

-

-

-

2,950,000

 

 

Further details relating to the granting of the share options are set out in note 24 to the consolidated financial statements on pages 75 to 76.

 

 

RELATION WITH SHAREHOLDERS

 

Communication with shareholders is given high priority. Information about the Group's activities is provided in the annual report and the interim report of the Company which are sent to shareholders each year and are available on the website of the Company. All shareholders are encouraged to attend the Annual General Meeting at which directors are introduced and available for questions. Enquiries are dealt with in an informative and timely manner. Directors, including non-executive directors, are also available to meet with major shareholders on request.

 

 

DIRECTORS' REPORT (CONTINUED)

 

EXTERNAL AUDITOR

 

The consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2018 have been audited by BDO Limited.

 

A resolution will be submitted to the next Annual General Meeting to reappoint BDO Limited as the Company's external auditor.

 

 

 

 

On behalf of the Board

 

 

 

 

 

Henry Ying Chew Cheong

Executive Director

29 April 2019

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES                                                        

 

The directors are required under the Bermuda Companies Act 1981 to prepare consolidated financial statements for each financial year. The directors acknowledge responsibility for the preparation of the consolidated financial statements for the year ended 31 December 2018, which give a true and fair view of the financial position of the Group as at the end of that financial year and of the financial performance of the Group for that year and which provide the necessary information for shareholders to assess the business activities and performance of the Group during that year. In preparing these consolidated financial statements, the directors are required to:

 

-           select suitable accounting policies and then apply them consistently;

 

-           make judgments and estimates that are reasonable and prudent;

 

-              state whether the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and

 

-              prepare the consolidated financial statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

 

The directors confirm that the above requirements have been met.

 

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group. They are also responsible for the Group's system of internal financial controls, for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of frauds and other irregularities.

 

The directors further confirms that, to the best of their knowledge and understanding, the chairman's statements on page 1 and the directors' report on pages 2 to 16 include a fair review of the development and performance of the business and the position of the Company and its subsidiaries taken as a whole together with a description of the principal risks and uncertainties that they face.

 

 

 

 

On behalf of the Board

 

 

 

 

 

Henry Ying Chew Cheong

Executive Director

29 April 2019

 

 

 

 

 

INDEPENDENT AUDITOR'S REPORT                                                                                  

 

TO THE MEMBERS OF WORLDSEC LIMITED

(incorporated in Bermuda with limited liability)

 

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

 

OPINION

 

We have audited the consolidated financial statements of Worldsec Limited (the "Company") and its subsidiaries (together the "Group") set out on pages 23 to 77, which comprise the consolidated statement of financial position as at 31 December 2018, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

 

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2018 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

 

Basis for Opinion

 

We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (the "IESBA Code"), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Key Audit Matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

 

impairment review of interest in a joint venture and amount due from a joint venture

 

Refer to note 16 to the consolidated financial statements

 

The Group owns 50% in Oasis Education Group Limited ("Oasis Education"), which is accounted for using the equity method and considered for impairment if there is any indication that the investment may be impaired. The interest in the joint venture amounted to approximately US$106,000 as at 31 December 2018 and the Group's share of its losses of approximately US$11,000 for the year then ended.

 

Further, the Group has advanced an amount of approximately US$257,000 to Oasis Education as at 31 December 2018, which is subject to an impairment assessment.

 

The impairment review of investment in, and amount due from, Oasis Education is significant to our audit due to the significance of the carrying amounts subject to impairment review comparing to the Group's net loss, and judgement applied in determining if an impairment in carrying amounts is necessary.

 

INDEPENDENT AUDITOR'S REPORT (CONTINUED)                                                      

 

TO THE MEMBERS OF WORLDSEC LIMITED

(incorporated in Bermuda with limited liability)

 

Key Audit Matters (Continued)

 

impairment review of interest in a joint venture and amount due from a joint venture (CONTINUED)

 

Our response:

 

Our audit procedures included:

 

Ÿ  Understanding Oasis Education's operation and latest development;

 

Ÿ  Assessing the financial performance of Oasis Education based on information available to us;

 

Ÿ  Evaluating management's considerations of the impairment indicators of the investment in, and the amount due from, Oasis Education;

 

Ÿ  Assessing the appropriateness of the management's assumptions concerning the future cash flow to be generated from the operation of Oasis Education; and

 

Ÿ  Assessing reliability of the joint venture's forecast by comparing historical budget to actual performance and challenging management on any significant variances.

 

 

VALUATION OF UNLISTED EQUITY INVESTMENTS classified as financial assets at fair value through profit or loss ("FVTPL")

 

Refer to note 17 to the consolidated financial statements

 

The Group owns unlisted equity interests in ICBC Specialised Ship Leasing Investment Fund ("ICBC Shipping Fund") and Velocity Mobile Limited ("Velocity"), which are all accounted for as financial assets at FVTPL totalling approximately US$1,342,000 as at 31 December 2018 carried at fair value.

 

The valuations of unlisted equity investments classified as financial assets at FVTPL had been determined by management, who was assisted by an independent professional valuer. Such valuations involve the determination of the valuation models and the selection of the different inputs and the assumptions made in the valuation models by management. Any changes in valuation models adopted and input and assumptions applied could lead to significant changes in amounts reported as fair value in the consolidated financial statements.

 

We identified valuations of unlisted equity investments classified as financial assets at FVTPL as a key audit matter because the valuation of financial instruments without a quoted price is a complex area and involves a higher degree of estimation, uncertainty and judgement. These financial assets are material to the Group.

 

 

 

INDEPENDENT AUDITOR'S REPORT (CONTINUED)                                                      

 

TO THE MEMBERS OF WORLDSEC LIMITED

(incorporated in Bermuda with limited liability)

 

Key Audit Matters (Continued)

 

VALUATION OF UNLISTED EQUITY INVESTMENTS classified as financial assets at fair value through profit or loss ("FVTPL") (CONTINUED)

 

Our response:

 

Our audit procedures included:

 

Ÿ  Assessing the valuation methodologies applied on the unlisted equity investments;

 

Ÿ  Understanding and evaluating the reasonableness of key assumptions in the valuations;

 

Ÿ  Evaluating the reasonableness and relevance of the key input data used in the valuations;

 

Ÿ  Involving an auditor's expert to assist our assessment on the reasonableness and appropriateness of the valuation methodologies and key assumptions; and

 

Ÿ  Evaluating the competence, capabilities and objectivity of the independent professional valuer appointed by the Group and auditor's expert.

 

Other information in the annual report

 

The directors are responsible for the other information. The other information comprises the information included in the Company's annual report, but does not include the consolidated financial statements and our auditor's report thereon.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Directors' responsibilitIES for the consolidated financial statements

 

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

The directors are also responsible for overseeing the Group's financial reporting process. The audit committee of the Company (the "Audit Committee") assists the directors in discharging their responsibility in this regard.

 

 

INDEPENDENT AUDITOR'S REPORT (CONTINUED)                                                      

 

TO THE MEMBERS OF WORLDSEC LIMITED

(incorporated in Bermuda with limited liability)

 

Auditor's responsibilitIES for the audit of the consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

 

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

 

Ÿ  identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Ÿ  obtain an understanding of internal control relevant to the audit 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 Group's internal control.

 

Ÿ  evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

 

Ÿ  conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

Ÿ  evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

Ÿ  obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

 

 

 

 

INDEPENDENT AUDITOR'S REPORT (CONTINUED)                                                      

 

TO THE MEMBERS OF WORLDSEC LIMITED

(incorporated in Bermuda with limited liability)

 

Auditor's responsibilitIES for the audit of the consolidated financial statements (CONTINUED)

 

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

REPORT ON OTHER REGULATORY REQUIREMENTS

 

Under the listing rules of the Financial Conduct Authority in the United Kingdom (the "Listing Rules"), we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with the provisions of the UK Corporate Governance Code specified for our review in accordance with Listing Rule 9.8.10R(2). We have nothing to report arising from our review.

 

 

 

 

 

BDO Limited

Certified Public Accountants

Alfred Lee

Practising Certificate Number P04960

Hong Kong, 29 April 2019

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

 

 

Year ended 31 December

 

Notes

2018

 

2017

 

 

US$'000

 

US$'000

 

 

 

 

 

Revenue

7

136

 

96

Other income, gains and losses, net

9

(327)

 

3

Staff costs

10

(268)

 

(233)

Other expenses

 

(333)

 

(286)

Share of losses of a joint venture

16

(11)

 

(4)

 

 

 

 

 

Loss before income tax expense

11

(803)

 

(424)

Income tax expense

12

-

 

-

 

 

 

 

 

Loss for the year

 

(803)

 

(424)

 

 

 

 

 

Other comprehensive income, net of income tax

 

 

 

 

Items that may be reclassified subsequently to

profit or loss:

 

 

 

 

Share of other comprehensive (loss)/income of a

joint venture

 

16

 

(19)

 

 

17

 

 

 

 

 

Other comprehensive (loss)/income for the year,

net of income tax

 

 

(19)

 

 

17

 

 

 

 

 

Total comprehensive loss for the year

 

(822)

 

(407)

 

 

 

 

 

Loss for the year attributable to:

 

 

 

 

Owners of the Company

 

(803)

 

(424)

 

 

 

 

 

Total comprehensive loss for the year

attributable to:

 

 

 

 

Owners of the Company

 

(822)

 

(407)

 

 

 

 

 

 

 

 

Year ended 31 December

 

Notes

2018

 

2017

 

 

 

 

 

Loss per share - basic and diluted

13

US (1.03) cents

 

 US (0.75) cent

 

The accompanying notes form an integral part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2018

 

 

 

Notes

2018

 

2017

 

 

 

US$'000

 

US$'000

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

15

 

-

Interest in a joint venture

 

16

106

 

136

Financial assets at fair value through profit or loss

 

 

17

 

1,649

 

 

-

Available-for-sale financial assets

 

17

 

1,784

 

 

 

1,755

 

1,920

 

 

 

 

 

 

Current assets

 

 

 

 

 

Other receivables

 

 

8

 

8

Deposits and prepayments

 

 

30

 

234

Other financial assets at amortised cost

 

18

850

 

-

Amount due from a joint venture

 

16

257

 

257

Cash and cash equivalents

 

20

2,607

 

260

 

 

 

3,752

 

759

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Other payables and accruals

 

21

138

 

148

 

 

 

 

 

 

Net current assets

 

 

3,614

 

611

 

 

 

 

 

 

Net assets

 

 

5,369

 

2,531

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

Share capital

 

22

85

 

57

Reserves

 

23

5,284

 

2,474

 

 

 

 

 

 

Total equity

 

 

5,369

 

2,531

 

                                                                                                                                                       

The consolidated financial statements on pages 23 to 77 were approved and authorised for issue by the Board of Directors on 29 April 2019 and signed on its behalf by:

 

 

 

 

 

 

 

 

Alastair Gunn-Forbes

Director

 

Henry Ying Chew Cheong

Director

           

The accompanying notes form an integral part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF changes in equity

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

 

Equity attributable to owners of the Company

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Contri-

 

Share

 

currency

 

 

 

 

 

 

 

 

Share

 

Share

 

buted

 

option

 

translation

 

Special

 

Accumulated

 

 

 

 

capital

 

premium

 

surplus

 

reserve

 

reserve

 

reserve

 

losses

 

Total

 

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

(note 22)

 

(note 23)

 

(note 23)

 

(note 23)

 

(note 23)

 

(note 23)

 

(note 23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

57

 

3,837

 

9,646

 

206

 

(28)

 

625

 

(11,405)

 

2,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

 

-

 

-

 

-

 

-

 

-

 

(424)

 

(424)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of other comprehensive loss of a joint venture (note 16)

-

 

-

 

-

 

-

 

17

 

-

 

-

 

17

 

Total comprehensive

 loss for the year

-

 

-

 

-

 

-

 

17

 

-

 

(424)

 

(407)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2017 as originally presented

57

 

3,837

 

9,646

 

 

206

 

(11)

 

625

 

(11,829)

 

2,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial application of

   IFRS 9 (note 2.1(a))

-

 

-

 

-

 

-

 

-

 

-

 

(55)

 

(55)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restated balance as at

   1 January 2018

57

 

3,837

 

9,646

 

206

 

(11)

 

625

 

(11,884)

 

2,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

 

-

 

-

 

-

 

-

 

-

 

(803)

 

(803)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of other comprehensive income of a joint venture (note 16)

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19)

 

 

 

-

 

 

 

-

 

 

(19)

 

Total comprehensive

   loss for the year

 

-

 

 

-

 

 

-

 

 

-

 

 

(19)

 

 

-

 

 

(803)

 

 

(822)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issue of new shares by way of open offer (note 22)

28

 

4,227

 

-

 

-

 

-

 

-

 

-

 

4,255

 

Transaction costs attributable to issue of new shares

-

 

(540)

 

-

 

-

 

-

 

-

 

-

 

(540)

 

Transactions with owners

28

 

3,687

 

-

 

-

 

-

 

-

 

-

 

3,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2018

85

 

 

7,524

 

9,646

 

 

206

 

 

(30)

 

625

 

(12,687)

 

5,369

 

 

 

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

 

 

 

 

 

Year ended 31 December

 

 

 

 

 

2018

 

2017

 

 

 

 

 

US$'000

 

US$'000

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

Loss before income tax expense

 

(803)

 

(424)

Adjustments for:

 

 

 

 

Bank interest income

 

(1)

 

-

Depreciation of property, plant and equipment

 

-

 

21

Share of losses of a joint venture

 

11

 

4

Change in fair value of financial asset at fair value

     through profit or loss

 

329

 

 

-

 

 

 

 

Operating loss before working capital changes

 

(464)

 

(399)

Increase in deposits and prepayments

 

(2)

 

(6)

(Decrease)/increase in other payables and accruals

 

(10)

 

23

 

 

 

 

Net cash used in operating activities

 

(476)

 

(382)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of financial assets at fair value through

     profit or loss

 

 

(249)

 

 

-

Investment in other financial assets at amortised cost

 

(1,000)

 

-

Repayment of other financial assets at amortised cost

 

150

 

-

Bank interest income received

 

1

 

-

 

 

 

 

Net cash used in investing activities

(1,098)

 

-

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from issue of new shares

 

4,255

 

-

Payment for share issue costs

 

(334)

 

-

Prepaid share issue expenses

 

-

 

(206)

 

 

 

 

Net cash from/(used in) financing activities

 

3,921

 

(206)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

2,347

 

(588)

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

260

 

848

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

2,607

 

260

                   

                                                                                         

  

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

1.      GENERAL INFORMATION

 

         Worldsec Limited (the "Company") is a public listed company incorporated in Bermuda and its shares are listed on the Main Market of the London Stock Exchange. The address of the registered office of the Company is Canon's Court, 22 Victoria Street, Hamilton HM12, Bermuda. Its principal place of business is Unit 607, 6th Floor, FWD Financial Centre, 308 Des Voeux Road Central, Sheung Wan, Hong Kong.

 

The principal activity of the Company is investment holding. The principal activities of the Company's subsidiaries are set out in note 19 to the consolidated financial statements.

 

         The functional currency of the Company is Hong Kong Dollars ("HK$"). The consolidated financial statements of the Company and its subsidiaries (collectively referred to as the "Group") are presented in United States Dollars ("US$" or "USD").

 

         The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards ("IFRS"), International Accounting Standards ("IAS") and Interpretations adopted by the European Union ("EU") (collectively referred to as the "IFRSs").

 

 

2.      APPLICATION OF NEW AND REVISED IFRSs

 

2.1    New and revised IFRSs applied

 

The following new and revised IFRSs have been applied by the Group in the current year.

 

IFRS 9

Financial instruments

IFRS 15

Revenue from Contracts with Customers

Amendments to IFRS 15

Revenue from Contracts with Customers (Clarification to IFRS 15)

Annual Improvements to IFRSs 2014-2016 Cycle

Amendments to IAS 28, Investments in Associates and Joint Ventures

Amendments to IFRS 2

Classification and Measurement of Share-based Payment Transactions

International Financial Reporting Interpretations Committee ("IFRIC") 22

Foreign Currency Transactions and Advance Consideration

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.      APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(a)   IFRS 9 - Financial Instruments

 

IFRS 9 replaces IAS 39 "Financial Instruments: Recognition and Measurement" for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: (1) classification and measurement; (2) impairment and (3) transition. The adoption of IFRS 9 from 1 January 2018 has resulted in changes in the accounting policies of the Group and the amounts recognised in the consolidated financial statements.

 

(i)    Classification and measurement of financial instruments

 

The following table summarises the impact, net of tax, of transition to IFRS 9 on the opening balance of accumulated losses as at 1 January 2018 as follows:

 

Accumulated losses

US$'000

Balance as 31 December 2017

(11,829)

Reclassify investments from unlisted equity investments to fair value through profit or loss ("FVTPL")

 

(55)

Restated balance as at 1 January 2018

(11,884)

 

IFRS 9 carries forward the recognition, classification and measurement requirements for financial liabilities from IAS 39, except for financial liabilities designated at FVTPL, where the amount of change in fair value attributable to change in credit risk of the liability is recognised in other comprehensive income unless that would create or enlarge an accounting mismatch.  In addition, IFRS 9 retains the requirements in IAS 39 for derecognition of financial assets and financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. The adoption of IFRS 9 had no material impact on the Group's accounting policies related to financial liabilities and derivative financial instruments. The impact of IFRS 9 on the Group's classification and measurement of financial assets is set out below.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(a)   IFRS 9 - Financial Instruments (Continued)

 

(i)    Classification and measurement of financial instruments (Continued)

 

Under IFRS 9, except for certain trade receivables (that the trade receivables do not contain a significant financing component in accordance with IFRS 15), an entity shall, at initial recognition, measure a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs. A financial asset is classified as: (i) financial assets at amortised cost; (ii) financial assets at fair value through other comprehensive income ("FVOCI"); or (iii) financial assets at FVTPL. The classification of financial assets under IFRS 9 is generally based on two criteria: (i) the business model under which the financial asset is managed and (ii) its contractual cash flow characteristics (the "solely payments of principal and interest criterion", also known as "SPPI criterion"). Under IFRS 9, embedded derivatives is no longer required to be separated from a host financial asset. Instead, the hybrid financial instrument is assessed as a whole for the classification.

 

A financial asset is measured at amortised cost if it meets both of the following conditions and it has not been designated as at FVTPL:

 

-   It is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

-   The contractual terms of the financial asset give rise on specified dates to cash flows that meet the SPPI criterion.

 

On initial recognition of an equity investment that is not held for trading, the Group could irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income. This election is made on an investment-by-investment basis. All other financial assets not classified at amortised cost or FVOCI as described above are classified as FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or FVOCI at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(a)   IFRS 9 - Financial Instruments (Continued)

 

(i)    Classification and measurement of financial instruments (Continued)

 

The following accounting policies would be applied to the Group's financial assets as follows:

 

Financial assets at FVTPL

Financial assets at FVTPL are subsequently measured at fair value. Changes in fair value, dividends and interest income are recognised in profit or loss.

Financial assets at amortised cost

Financial assets at amortised cost are subsequently measured using the effective interest rate method. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain on derecognition is recognised in profit or loss.

 

As of 1 January 2018, certain unlisted equity investments were reclassified from available-for-sale financial assets at cost to financial assets at FVTPL. These unlisted equity instruments had no quoted price in an active market. The Group intends to hold these unlisted equity investments for long term strategic purposes. The Group designated such unlisted equity instruments at the date of initial application as measured at FVTPL. As at 1 January 2018, the difference between the previous carrying amount and the fair value of US$55,000 had been included in the opening accumulated losses.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(a)   IFRS 9 - Financial Instruments (Continued)

 

(i)    Classification and measurement of financial instruments (Continued)

 

The following table summarises the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 January 2018:

 

 

 

 

Carrying

Carrying

 

 

 

amount as at 1

amount as at 1

 

Original

New

January 2018

January 2018

 

classification

classification

under IAS 39

under IFRS 9

Financial assets

under IAS 39

under IFRS 9

US$'000

US$'000

Unlisted equity investments

Available-for-sale (at cost)

FVTPL

 

1,784

 

1,729

Other receivables

Loans and receivables

Amortised cost

 

8

 

8

Deposits

Loans and receivables

Amortised cost

 

28

 

28

Amount due from a joint venture

Loans and receivables

Amortised cost

 

 

257

 

 

257

Cash and cash equivalents

Loans and receivables

Amortised cost

 

260

 

260

 

(ii)   Impairment of financial assets

 

The adoption of IFRS 9 has changed the Group's impairment model by replacing the IAS 39 "incurred loss model" to the "expected credit losses ("ECLs") model". IFRS 9 requires the Group to recognise ECLs for financial assets at amortised cost earlier than IAS 39. Cash and cash equivalents are subject to ECL model but no impairment was recognised for the year as major counterparties at which cash and cash equivalents were held were banks with high credit ratings assigned by international credit-rating agencies.

 

Under IFRS 9, the losses allowances are measured on either of the following bases: (1) 12-month ECLs: these are the ECLs that result from possible default events within the 12 months after the reporting date; and (2) lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(a)   IFRS 9 - Financial Instruments (Continued)

 

(ii)   Impairment of financial assets (Continued)

 

Measurement of ECLs

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset's original effective interest rate. 

 

For debt financial assets, the ECLs are based on the 12-month ECLs. The 12-month ECLs is the portion of the lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.

 

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

 

The Group considers a financial asset to be in default when: (1) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or (2) the financial asset is more than 90 days past due.

 

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

 

Presentation of ECLs

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(a)   IFRS 9 - Financial Instruments (Continued)

 

(ii)   Impairment of financial assets (Continued)

 

Impact of the ECL model

Impairment of other receivables, deposits, other financial assets at amortised cost and amount due from a joint venture

Financial assets at amortised cost of the Group include other receivables, deposits, other financial assets at amortised cost and amount due from a joint venture. Applying the ECL model, no additional impairment for other receivables, deposits, other financial assets at amortised cost and amount due from a joint venture as at 1 January 2018 and 31 December 2018 was recognised as the amount of additional impairment measured under the ECL model was immaterial.

 

(iii)  Transition

 

The Group has applied the transitional provision in IFRS 9 such that IFRS 9 was generally adopted without restating comparative information. This means that differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 were recognised in reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 but rather those of IAS 39.

 

The following assessments were made on the basis of the facts and circumstances that existed at the date of initial application of IFRS 9 (the "DIA"):

 

-   The determination of the business model within which a financial asset was held; and

-   The designation of certain investments in equity investments not held for trading as at FVTPL.

 

If an investment in a debt investment had low credit risk at the DIA, then the Group assumed that the credit risk on the asset had not increased significantly since its initial recognition.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(b)   Others

 

IFRS 15 - Revenue from Contracts with Customers

 

The new standard establishes a single revenue recognition framework. The core principle of the framework is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. IFRS 15 supersedes existing revenue recognition guidance including IAS 18 "Revenue", IAS 11 "Construction Contracts" and related interpretations.

 

IFRS 15 requires the application of a 5-step approach to revenue recognition:

 

Step 1:  Identify the contract(s) with a customer

Step 2:  Identify the performance obligations in the contract

Step 3:  Determine the transaction price

Step 4:  Allocate the transaction price to each performance obligation

Step 5:  Recognise revenue when each performance obligation is satisfied

 

IFRS 15 includes specific guidance on particular revenue related topics that may change the current approach taken under IFRS. The standard also significantly enhances the qualitative and quantitative disclosures related to revenue.

 

The adoption of IFRS 15 had no impact on these financial statements as the Group did not have revenue from contracts with customers.

 

Amendments IFRS 15 - Revenue from Contracts with Customers (Clarifications to IFRS 15)

 

The amendments to IFRS 15 included clarifications on identification of performance obligations; application of principal versus agent; licenses of intellectual property; and transition requirements.

 

The adoption of these amendments had no impact on these financial statements as the Group had not previously adopted IFRS 15 and took up the clarifications in this, its first, year.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.       APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.1    New and revised IFRSs applied (Continued)

 

(b)   Others (Continued)

 

Annual Improvements to IFRSs 2014-2016 Cycle - Amendments to IAS 28, Investments in Associates and Joint Ventures

 

The amendments issued under the annual improvements process make small, non-urgent changes to standards where they are currently unclear.  They include amendments to IAS 28, clarifying that a venture capital organisation's permissible election to measure its associates or joint ventures at fair value is made separately for each associate or joint venture.

 

The adoption of these amendments had no impact on these financial statements as the Group was not a venture capital organisation.

 

Amendments to IFRS 2 - Classification and Measurement of Share-based Payment Transactions

 

The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.

 

The adoption of these amendments had no impact on these financial statements as the Group did not have any cash-settled share-based payment transaction and had no share-based payment transaction with net settlement features for withholding tax.

 

IFRIC 22 - Foreign Currency Transactions and Advance Consideration

 

The interpretation provides guidance on determining the date of the transaction for determining an exchange rate to use for transactions that involve advance consideration paid or received in a foreign currency and the recognition of a non-monetary asset or non-monetary liability. The interpretation specifies that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) is the date on which the entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

 

The adoption of this interpretation had no impact on these financial statements as the Group had not paid or received advance consideration in a foreign currency.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.      APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.2    New and revised IFRSs in issue but not yet effective

 

The Group has not applied the following new and revised IFRSs, potentially relevant to the Group's financial statements, that have been issued but are not yet effective. Certain new or revised IFRSs have yet been endorsed by the EU.

 

Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IFRS 3, Business Combinations1

Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IAS 12, Income Taxes1

Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IAS 23, Borrowing Costs1

IFRS 16

Leases1

Amendments to IAS 1 and IAS 8

Definition of Material2*

Amendments to IAS 19

Plan Amendment, Curtailment or Settlement1

Amendments to IAS 28

Long-term Interests in Associates and Joint Ventures1

Amendments to IFRS 3

Definition of a Business3*

Amendments to IFRS 9

Prepayment Features with Negative Compensation1

Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture#

IFRIC 23

Uncertainty over Income Tax Treatments1

 

1

Effective for annual periods beginning on or after 1 January 2019

2

Effective for annual periods beginning on or after 1 January 2020

3

Effective for business combinations and asset acquisitions which the acquisition date is on or after the beginning annual period beginning on or after 1 January 2020

#

The amendments were originally intended to be effective for annual periods beginning on or after 1 January 2016. The effective date has now been deferred/removed. Early application of the amendments continues to be permitted.

*

Not yet endorsed by the EU

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.      APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.2    New and revised IFRSs in issue but not yet effective (Continued)

 

Annual Improvements to IFRSs 2015-2017 Cycle - Amendments to IFRS 3, Business Combinations

 

The amendments issued under the annual improvements process make small, non-urgent changes to standards where they are currently unclear. They include amendments to IFRS 3 which clarify that when a joint operator of a business obtains control over a joint operation, this is a business combination achieved in stages and the previously held equity interest should therefore be remeasured to its acquisition date fair value.

 

Annual Improvements to IFRSs 2015-2017 Cycle - Amendments to IAS 12, Income Taxes

 

The amendments issued under the annual improvements process make small, non-urgent changes to standards where they are currently unclear. They include amendments to IAS 12 which clarify that all income tax consequences of dividends are recognised consistently with the transactions that generated the distributable profits, either in profit or loss, other comprehensive income or directly in equity.

 

Annual Improvements to IFRSs 2015-2017 Cycle - Amendments to IAS 23, Borrowing Costs

 

The amendments issued under the annual improvements process make small, non-urgent changes to standards where they are currently unclear. They include amendments to IAS 23 which clarify that a borrowing made specifically to obtain a qualifying asset which remains outstanding after the related qualifying asset is ready for its intended use or sale would become part of the funds an entity borrows generally and therefore included in the general pool.

 

IFRS 16 - Leases

 

IFRS 16, which upon the effective date will supersede IAS 17 "Leases" and related interpretations, introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Specifically, under IFRS 16, a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under the predecessor standard, IAS 17.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.      APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.2    New and revised IFRSs in issue but not yet effective (Continued)

 

IFRS 16 - Leases (Continued)

 

In respect of the lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

 

The Group has performed a preliminary assessment of potential impact of the adoption of IFRS 16 on the Group. As set out in note 26 to the consolidated financial statements, the total operating lease commitment of the Group in respect of rented office premises and warehouse as at 31 December 2018 amounted to approximately US$137,000. The directors anticipate that the adoption of IFRS 16 would not result in significant impact on the Group's results but expect that the above operating lease commitments will be recognised as right-of-use assets and lease liabilities in the Group's consolidated financial statements.

 

Amendments to IAS 1 and IAS 8 - Definition of Material

 

The amendments provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users.

 

Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures

 

The amendment clarifies that IFRS 9 applies to long-term interests ("LTI") in associates or joint ventures which form part of the net investment in the associates or joint ventures and stipulates that IFRS 9 is applied to these LTI before the impairment losses guidance within IAS 28.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.   APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.2    New and revised IFRSs in issue but not yet effective (Continued)

 

Amendments to IFRS 3 - Definition of a Business

 

The amendments clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business.

 

Amendments to IFRS 9 - Prepayment Features with Negative Compensation

 

The amendments clarify that prepayable financial assets with negative compensation can be measured at amortised cost or at FVOCI if specified conditions are met - instead of at FVTPL.

 

Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

 

The amendments clarify the extent of gains or losses to be recognised when an entity sells or contributes assets to its associate or joint venture. When the transaction involves a business, the gain or loss is recognised in full; conversely when the transaction involves assets that do not constitute a business, the gain or loss is recognised only to the extent of the unrelated investors' interests in the joint venture or associate.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

2.   APPLICATION OF NEW AND REVISED IFRSs (CONTINUED)

 

2.2    New and revised IFRSs in issue but not yet effective (Continued)

 

IFRIC 23 - Uncertainty over Income Tax Treatments

 

The interpretation supports the requirements of IAS 12 by providing guidance over how to reflect the effects of uncertainty in accounting for income taxes.

 

Under the interpretation, the entity shall determine whether to consider each uncertain tax treatment separately or together based on which approach better predicts the resolution of the uncertainty. The entity shall also assume the tax authority will examine amounts that it has a right to examine and have full knowledge of all related information when making those examinations. If the entity determines it is probable that the tax authority will accept an uncertain tax treatment, then the entity should measure current and deferred tax in line with its tax filings. If the entity determines it is not probable, then the uncertainty in the determination of tax is reflected using either the "most likely amount" or the "expected value" approach, whichever better predicts the resolution of the uncertainty.

 

Except for IFRS 16, the directors anticipate that the adoption of other new or revised standards would not result in significant impact on amounts reported in the consolidated financial statements of the Group.

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES

 

Statement of compliance

 

               The consolidated financial statements of the Group have been prepared in accordance with all applicable IFRSs issued by the International Accounting Standards Board as adopted by the EU.

 

Basis of preparation

              

               The consolidated financial statements have been prepared under the historical cost basis except for financial assets at FVTPL, which are measured at fair values as explained in the accounting policies set out below.

 

Basis of consolidation

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Subsidiaries

 

A subsidiary is an investee over which the Company is able to exercise control. The Company controls an investee if all three of the following elements are present: (1) power over the investee, (2) exposure, or rights, to variable returns from the investee, and (3) the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

 

Joint arrangements

 

The Group is a party to a joint arrangement where there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

 

The Group classifies its interests in joint arrangements as either:

-        Joint venture: where the Group has rights to only the net assets of the joint arrangement; or

-        Joint operation: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.

 

In assessing the classification of interests in joint arrangements, the Group considers:

-              The structure of the joint arrangement;

-              The legal form of the joint arrangement structured through a separate vehicle;

-              The contractual terms of the joint arrangement agreement; and

-              Any other facts and circumstances (including any other contractual arrangements).

 

Joint ventures are accounted for using the equity method whereby they are initially recognised at cost and thereafter, their carrying amount are adjusted for the Group's share of the post-acquisition change in the joint ventures' net assets except that losses in excess of the Group's interest in the joint venture are not recognised unless there is a legal and constructive obligation to make good those losses.

 

Profits and losses arising on transactions between the Group and its joint ventures are recognised only to the extent of unrelated investors' interests in the joint ventures. The investors' share in a joint venture's profits and losses resulting from such transactions is eliminated against the carrying value of the joint venture.

 

Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in the joint venture. Where there is objective evidence that the investment in a joint venture has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

 

The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes their purchase price and the costs directly attributable to the acquisition of the items.

 

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as an expense in profit or loss during the financial period in which they are incurred.

 

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives are as follows:

 

Leasehold improvements                                                               over the lease terms

 

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset's estimated recoverable amount.

 

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

 

Leasing

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

 

The Group as lessee

 

The total rentals payable under the operating leases are recognised in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

 

Revenue recognition

 

               Dividend income is recognised when the right to receive payment is established.

 

               Interest income is accrued on a time basis on the principal outstanding at the applicable interest rate.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Foreign currencies

 

Transactions entered into by the group entities in currencies other than the currency of the primary economic environment in which they operate are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

 

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

 

On consolidation, income and expense items of foreign operations are translated into the presentation currency of the Group (i.e. US$) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of the reporting period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity as foreign currency translation reserve (attributed to minority interests as appropriate). Exchange differences recognised in profit or loss of group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the foreign operation concerned are reclassified to other comprehensive income and accumulated in equity as foreign currency translation reserve.

 

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign currency translation reserve relating to that operation up to the date of disposal are reclassified to profit or loss as part of the profit or loss on disposal.

 

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the end of the reporting period. Exchange differences arising are recognised in the foreign currency translation reserve.

 

Share-based payments

 

The Group operates equity-settled share-based compensation plans and the share options are awarded to employees and directors providing services to the Group.

 

All services received in exchange for the grant of any share-based compensation are measured at their fair values. These are indirectly determined by reference to the equity instruments awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Share-based payments (Continued)

 

All share-based compensation is recognised as an expense in profit or loss over the vesting period if vesting conditions apply, or recognised as an expense in full at the grant date when the equity instruments granted vest immediately unless the compensation qualifies for recognition as an asset, with a corresponding increase in the share option reserve in equity. If vesting conditions apply, the expense is recognised over the vesting period, based on the best available estimate of the number of equity instruments expected to vest. Non-market vesting conditions are included in assumptions about the number of equity instruments that are expected to vest. Estimates are subsequently revised, if there is any indication that the number of equity instruments expected to vest differs from previous estimates.

 

At the time when the share options are exercised, the amount previously recognised in share option reserve will be transferred to share premium. After the vesting date, when the vested share options are forfeited or are still not exercised at the expiry date, the amount previously recognised in share option reserve will be transferred to retained profits.

 

Taxation

 

         Income tax expense represents the sum of the tax currently payable and deferred tax.

 

         Current tax

 

The tax currently payable is based on taxable profit for the year. Taxable profit differs from 'loss before income tax expense' as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

 

Deferred tax

 

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

 

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Taxation (Continued)

 

Deferred tax (Continued)

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

 

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

 

   When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

 

Cash and cash equivalents

 

For the purposes of the consolidated statement of cash flows, cash and cash equivalents included cash on hand and in banks.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied from 1 January 2018)

 

(i)       Financial assets

 

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

 

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

 

Financial assets with embedded derivatives are considered in their entirely when determining whether their cash flows are solely payment of principal and interest.

 

Debt instruments

 

Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:

 

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Financial assets at amortised cost are subsequently measured using the effective interest rate method. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain on derecognition is recognised in profit or loss.

 

FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets' cash flows represent solely payments of principal and interest, are measured at FVOCI. Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest rate method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses accumulated in other comprehensive income are reclassified to profit or loss.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied from 1 January 2018) (Continued)

 

(i)       Financial assets (Continued)

 

FVTPL: Financial assets at FVTPL include financial assets held for trading, financial assets designated upon initial recognition at FVTPL, or financial assets mandatorily required to be measured at fair value.  Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.  Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments.  Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at FVTPL, irrespective of the business model.  Notwithstanding the criteria for debt instruments to be classified at amortised cost or at FVOCI, as described above, debt instruments may be designated at FVTPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

 

Equity instruments

 

On initial recognition of an equity investment that is not held for trading, the Group could irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income. This election is made on an investment-by-investment basis. Equity investments at FVOCI are measured at fair value. Dividend income are recognised in profit or loss unless the dividend income clearly represents a recovery of part of the cost of the investments. Other net gains and losses are recognised in other comprehensive income and are not reclassified to profit or loss. All other equity instruments are classified as FVTPL, whereby changes in fair value, dividends and interest income are recognised in profit or loss.

 

(ii)      Impairment loss on financial assets

 

The Group recognises loss allowances for ECLs on financial assets measured at amortised cost. The ECLs are measured on either of the following bases: (1) 12-month ECLs: these are the ECLs that result from possible default events within the 12 months after the reporting date; and (2) lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

 

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset's original effective interest rate. 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied from 1 January 2018) (Continued)

 

(ii)      Impairment loss on financial assets (Continued)

 

For debt financial assets, the ECLs are based on the 12-month ECLs. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECLs.

 

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.

 

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

 

Despite the foregoing, the Group assumes that the credit risk on a debt instrument has not increased significantly since initial recognition if the debt instrument is determined to have low credit risk at the reporting date. A debt instrument is determined to have low credit risk if (1) it has a low risk of default; (2) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term; and (3) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. 

 

The Group considers a financial asset to be in default when: (1) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or (2) the financial asset is more than 90 days past due.

 

A financial asset is credit-impaired when one or more events of default that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

 

-    significant financial difficulty of the issuer or the borrower;

-    a breach of contract, such as a default or past due event;

-    the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

-    it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

-    the disappearance of an active market for that financial asset because of financial difficulty of the issuer or the borrower.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied from 1 January 2018) (Continued)

 

(ii)      Impairment loss on financial assets (Continued)

 

Interest income on credit-impaired financial assets is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset. For non credit-impaired financial assets interest income is calculated based on the gross carrying amount.

 

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amount subject to the write-off.

 

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

 

(iii)     Financial liabilities

 

The Group classifies its financial liabilities, depending on the purpose for which the liabilities were incurred.  Financial liabilities at FVTPL are initially measured at fair value and financial liabilities at amortised cost are initially measured at fair value, net of directly attributable costs incurred.

 

Financial liabilities at amortised cost

 

Financial liabilities at amortised cost including other payables and accruals are subsequently measured at amortised cost, using the effective interest method.  The related interest expense is recognised in profit or loss.

 

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

 

(iv)     Effective interest method

 

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

 

(v)      Equity instruments

 

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied from 1 January 2018) (Continued)

 

(vi)     Derecognition

 

The Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with IFRS 9.

 

Financial liabilities are derecognised when the obligations specified in the relevant contract are discharged, cancelled or expire.

 

Financial instruments (accounting policy applied until 31 December 2017)

 

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments.

 

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

 

Financial assets

 

The Group classifies its financial assets at initial recognition, depending on the purpose for which the assets were acquired. Regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including cash and bank balance) are measured at amortised cost using the effective interest method, less any impairment.

 

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied until 31 December 2017) (Continued)

 

Available-for-sale financial assets

 

These assets are non-derivative financial assets that are designated as available-for-sale or are not included in other categories of financial assets. When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

 

Impairment of financial assets

 

The Group assesses, at the end of each reporting period, whether there is any objective evidence that a financial asset is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

 

Evidence of impairment may include:

 

•  significant financial difficulty of the debtor;

•  a breach of contract, such as a default or delinquency in interest or principal payments;

•  granting a concession(s) to a debtor because of the debtor's financial difficulty; or

•  it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

 

For loans and receivables

 

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of a financial asset is reduced through the use of an allowance account. When any part of a financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

 

Impairment losses are reversed in subsequent periods when an increase in the asset's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

 

For available-for-sale financial assets

 

For available-for-sale equity investments that are carried at cost, the amount of impairment loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss shall not be reversed.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Financial instruments (accounting policy applied until 31 December 2017) (Continued)

 

Derecognition of financial assets

 

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire, or the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets.

 

On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable, and the cumulative gain or loss that had been recognised in other comprehensive income is reclassified to profit or loss.

 

Financial liabilities and equity instruments

 

Classification as debt or equity

 

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

 

Equity instruments

 

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.

 

Financial liabilities

 

Financial liabilities (including other payables and accruals) are subsequently measured at amortised cost using the effective interest method.

 

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or where appropriate a shorter period, to the net carrying amount on initial recognition.

 

Derecognition of financial liabilities

 

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Impairment of other assets

 

At the end of each reporting period, the Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

 

•  property, plant and equipment; and

•  interest in a joint venture

 

If the recoverable amount (i.e. the greater of fair value less costs to disposal and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

 

A reversal of an impairment loss is recognised in profit or loss immediately.

 

Value in use is based on the estimated future cash flows expected to be derived from the asset or cash generating unit, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash generating unit.

 

Related parties

 

(a)     A person or a close member of that person's family is related to the Group if that person:

 

(i)         has control or joint control over the Group;

(ii)        has significant influence over the Group; or

(iii)       is a member of key management personnel of the Group or the Company's parent.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

3.      SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Related parties (Continued)

 

(b)  An entity is related to the Group if any of the following conditions apply:

 

(i)         The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

(ii)        One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);

(iii)       Both entities are joint ventures of the same third party;

(iv)       One entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v)        The entity is a post-employment benefit plan for the benefit of the employees of the Group or an entity related to the Group;

(vi)       The entity is controlled or jointly controlled by a person identified in (a); or

(vii)      A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity).

(viii)     The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Company's parent.

 

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in his dealings with the entity and include:

 

(i)      that person's children and spouse or domestic partner;

(ii)      children of that person's spouse or domestic partner; and

(iii)     dependents of that person or that person's spouse or domestic partner.

        

 

4.      CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

 

In the application of the Group's accounting policies, which are described in note 3 to the consolidated financial statements, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to an accounting estimate are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

4.      CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

        

         Key sources of estimation uncertainty

 

The key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

 

(i)      Impairment of financial assets (including amount due from a joint venture)

 

The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

 

(ii)      Impairment of non-financial assets (including interest in a joint venture)

 

The Group assesses whether there are any indications of impairment for all non-financial assets at each reporting date. Non-financial assets are tested for impairment when there are indications that the carrying amounts may not be recoverable.

 

(iii)     Estimation of fair value of unlisted equity investments

 

The fair value of equity investments that are not traded in an active market is determined using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Details of the key assumptions used and the impact of changes to these assumptions are disclosed in note 5(c) to the consolidated financial statements.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                                                     

 

 

5.      FINANCIAL instruments

 

(a)  Categories of financial instruments

 

 

2018

 

2017

 

US$'000

 

US$'000

         Financial assets

 

 

 

 

 

 

 

         Financial assets at FVTPL

1,649

 

-

         Financial assets at amortised cost

3,749

 

-

         Loans and receivables         

-

 

553

         Available-for-sale financial assets

-

 

1,784

        

5,398

 

2,337

 

 

 

 

         Financial liabilities

 

 

 

 

 

 

 

         Financial liabilities at amortised cost

138

 

148

 

(b)  Financial risk management objectives

 

Management monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risks (including foreign currency risk, interest rate risk and price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The Group does not enter into or trade derivative financial instruments for speculative purposes.

 

Market risks

   

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and price risk.

 

There has been no change to the Group's exposure to market risks or the manner in which these risks are managed and measured.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

5.      FINANCIAL instruments (CONTINUED)

 

(b)  Financial risk management objectives (Continued)

 

                  Market risks (Continued)

 

(i)      Foreign currency risk

 

Certain financial assets and financial liabilities of the Group are denominated in foreign currencies other than the functional currency of the relevant group entities, which exposes the Group to foreign currency risk. The Group currently does not have a foreign currency hedging policy. However, management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. Under the Linked Exchange Rate System in Hong Kong, HK$ is currently pegged to the USD within a narrow range, the directors therefore consider that there is no significant foreign exchange risk with respect to the USD.

 

The currency giving rise to this risk was primarily British Pound Sterling ("GBP"). The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the end of reporting period were as follows:

 

 

 

Liabilities

 

Assets

 

 

2018

 

2017

 

2018

 

2017

 

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

 

GBP

72

 

81

 

1

 

7

 

The following table details the Group's sensitivity to a 10% (2017: 10%) increase and decrease in USD against the relevant foreign currency. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in the relevant foreign exchange rate. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts its translation as at year end for a 10% (2017: 10%) change in the relevant foreign currency rate. A positive number below indicates a decrease in loss for the year and in accumulated losses where USD strengthens 10% (2017: 10%) against the relevant foreign currency. For a 10% (2017: 10%) weakening of USD against the relevant foreign currency there would have been an equal and opposite impact on loss for the year and on accumulated losses.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

5.      FINANCIAL instruments (CONTINUED)

 

(b)  Financial risk management objectives (Continued)

 

                  Market risks (Continued)

 

(i)      Foreign currency risk (Continued)

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

 

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

 

Change in post-tax loss for the year

 

 

 

 

                   GBP impact

 

 

 

 

7

 

7

 

(ii)     Interest rate risk

 

The Group's exposure to changes in interest rates is mainly attributable to its bank deposits at variable interest rates. Bank deposits at variable rates expose the Group to cash flow interest rate risk. Debt investments measured at amortised cost at fixed rates expose the Group to fair value interest rate.

 

The directors consider that the exposure to cash flow interest rate risk was insignificant. Hence, no sensitivity analysis on the exposure to the Group's cash flow interest rate risk is presented.

 

(iii)    Price risk

 

Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from foreign currency risk), whether caused by factors specific to an individual investment or its issuer, or factors affecting all instruments.

 

All of the Group's unlisted investments are held for long term strategic purposes. Their performance is assessed at least annually against performance of any similar listed entities, based on the limited information available to the Group, together with an assessment of their relevance to the Group's long term strategic plans. 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

5.      FINANCIAL instruments (CONTINUED)

 

(b)  Financial risk management objectives (Continued)

 

(iii)    Price risk (Continued)

 

Sensitivity analysis

 

The sensitivity analysis on price risk includes the Group's financial instruments, which fair value or future cash flows will fluctuate because of changes in their corresponding or underlying asset's equity price.  If the prices of the Group's equity instruments had been 5% higher/lower, loss for the year and accumulated losses would have decreased/increased by approximately US$82,000.

 

The directors consider that the exposure to price risk was insignificant for the year ended 31 December 2017. Hence, no sensitivity analysis on the exposure to the Group's price risk is presented.

 

Credit risk

 

The Group's maximum exposure to credit risk which could cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arises from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

 

The credit risk on liquid funds is limited because the major counterparties are banks with high credit ratings assigned by international credit-rating agencies. As at 31 December 2018, approximately 99% (2017: 94%) of the bank balances were deposited with a bank with a high credit rating. Other than concentration of credit risk on liquid funds deposited with that bank, the Group did not have any other significant concentration of credit risk.

 

For other receivables, deposits, other financial assets at amortised cost and amount due from a joint venture, management makes periodic individual assessment on the recoverability based on historical settlement records, past experience, and also available reasonable and supportive forward-looking information starting from 1 January 2018. Management believes that there was no material credit risk inherent in the Group's outstanding balance of other receivables, deposits, other financial assets at amortised cost and amount due from a joint venture.

 

    

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

5.      FINANCIAL instruments (CONTINUED)

 

(b)  Financial risk management objectives (Continued)

 

Liquidity risk

 

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework to meet the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, by regularly monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities.

 

         Liquidity table

 

The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

 

        

 

 

On demand or

 

 

 

less than 1 year

 

 

 

2018

 

2017

 

 

 

US$'000

 

US$'000

        

 

 

 

 

 

         Other payables and accruals

 

 

138

 

148

 

(c)  Fair value of financial instruments

 

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the "fair value hierarchy"):

 

Level 1:   Quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

Level 2:   Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

5.      FINANCIAL instruments (CONTINUED)

 

(c)  Fair value of financial instruments (Continued)

 

(i)   Financial instruments not measured at fair value

 

Financial instruments not measured at fair value include cash and cash equivalents, other receivables, deposits, other financial assets at amortised cost, amount due from a joint venture and other payables and accruals.

 

Due to their short term nature, the carrying value of cash and cash equivalents, other receivables, deposits, other financial assets at amortised cost, amount due from a joint venture and other payables and accruals approximates fair value.

 

(ii)  Financial instruments measured at fair value

 

Financial assets at FVTPL included in the consolidated financial statements require measurement at, and disclosure of, fair value.

 

The fair value of financial instruments with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices.

 

The valuation techniques and significant unobservable inputs used in determining the fair value measurement of level 3 financial instruments, as well as the relationship between key observable inputs and fair value are set out in note (iii) below.

 

(iii) Information about level 3 fair value measurement

 

The fair value of the Group's unlisted equity investment in Velocity (as defined in note 17) was estimated using market approach.

 

Significant unobservable input

Enterprise value to sales ratio ("EV/Sales")                          14.3x

 

A 5% increase/decrease in EV/Sales and holding all other variables constant would have increased/decreased the carrying amount of the Group's unlisted equity investment in Velocity (as defined in note 17) by approximately US$27,000/US$27,000 respectively.

 

The fair value of the Group's unlisted equity investment in ICBC Shipping Fund (as defined in note 17) was estimated using the net asset value. There was no significant unobservable input.

 

There were no changes in these valuation techniques during the year.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

5.      FINANCIAL instruments (CONTINUED)

 

(c)  Fair value of financial instruments (Continued)

 

The following table provides an analysis of the Group's financial instruments carried at fair value by level of fair value hierarchy:

 

 

2018

 

Level 1

 

Level 2

 

Level 3

 

Total

 

US$'000

 

US$'000

 

US$'000

 

US$'000

 

 

 

 

 

 

 

 

Listed equity investments

307

 

-

 

-

 

307

Unlisted equity investments

-

 

-

 

1,342

 

1,342

 

307

 

-

 

1,342

 

1,649

 

No fair value hierarchy is presented for the year ended 31 December 2017 as all of the Group's equity investments were classified as available-for-sale financial assets measured at cost under IAS 39.

 

During the year, the Group transferred its equity investments of Ayondo (as defined in note 17) and Agrios (as defined in note 17) totalling approximately US$307,000 as at 31 December 2018 from Level 3 to Level 1 as their quoted market prices became available upon their listings on the respective stock exchanges in Singapore and Canada.

 

Reconciliation for financial assets at FVTPL carried at fair value based on significant unobservable inputs (Level 3) are as follows:

 

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

At 1 January under IAS 39

-

 

-

Reclassification from available-for-sale financial assets measured at cost (note 2.1(a)(i))

 

1,784

 

 

-

Remeasurement of financial assets at FVTPL (note 2.1(a)(i))

 

(55)

 

-

At 1 January under IFRS 9

1,729

 

-

Purchase

249

 

-

Transfer to Level 1

(607)

 

-

Fair value adjustment

(29)

 

-

At 31 December

1,342

 

-

 

Fair value adjustment of financial assets at FVTPL was recognised in the line item "other income, gains and losses, net" on the face of the consolidated statement of profit or loss and other comprehensive income.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

6.      Capital risk management

 

The Group's objective of managing capital is to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce cost of capital.

 

In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debts.

 

The capital structure of the Group consists only of equity attributable to owners of the Company, comprising share capital and reserves.

 

7.      REVENUE

 

The Group's revenue represents dividend income from financial assets at FVTPL/available-for-sale financial assets and interest income from other financial assets at amortised cost for the year. The Group had no revenue from contracts with customers. An analysis of the Group's revenue from principal activities is as follows:

 

 

Year ended 31 December

 

 

2018

 

2017

 

 

US$'000

 

US$'000

 

 

 

 

 

Dividend income from financial assets at

 

 

 

 

FVTPL/available-for-sale financial assets

 

96

 

96

Interest income from other financial assets at

 

 

 

 

amortised cost

 

40

 

-

 

 

136

 

96

 

 

8.      SEGMENT Information

 

An operating segment is a component of the Group that is engaged in business activities from which the Group may earn revenue and incur expenses, and is identified on the basis of the internal management reporting information that is provided to and regularly reviewed by the Group's chief operating decision makers in order to allocate resources and assess performance of the segment. For the years ended 31 December 2018 and 2017, the executive directors, who were the chief operating decision makers for the purpose of resource allocation and assessment of performance, have determined that the Group had only one single business component / reportable segment as the Group was only engaged in investment holding. The executive directors allocated resources and assessed performance on an aggregated basis. Accordingly, no operating segment is presented.

 

The major operations and the revenue of the Group arise from Hong Kong. The Board of Directors considers that most of the non-current assets (other than the financial instruments) of the Group are located in Hong Kong.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

9.      OTHER INCOME, GAINS AND LOSSES, NET

 

 

Year ended 31 December

 

 

2018

 

2017

 

 

US$'000

 

US$'000

 

 

 

 

 

Bank interest income

 

1

 

-

Sundry income

 

-

 

3

Change in fair value of financial assets at FVTPL

 

(329)

 

-

Foreign exchange gain

 

1

 

-

 

 

(327)

 

3

 

10.    STAFF COSTS

 

         The aggregate staff costs (including directors' remuneration) of the Group were as follows:

 

 

Year ended 31 December

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

Wages and salaries

261

 

228

Contributions to pension and provident fund

7

 

5

 

268

 

233

 

 

 

 

Compensation of key management personnel was as follows:

 

Year ended 31 December

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

Directors' fees

64

 

68

Other remuneration including

 

 

 

  contributions to pension and provident fund

-

 

-

 

64

 

68

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

11.    LOSS BEFORE INCOME TAX EXPENSE

 

         Loss before income tax expense has been arrived at after charging/(crediting):

 

 

Year ended 31 December

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

Auditor's remuneration

45

 

42

Depreciation of property, plant and equipment

-

 

21

Foreign exchange (gain)/loss

(1)

 

5

Operating lease rental expenses in respect of office

premises and warehouse

 

80

 

 

68

 

12.    INCOME TAX EXPENSE

 

            No provision for taxation has been made as the Group did not generate any assessable profits for United Kingdom Corporation Tax, Hong Kong Profits Tax or tax in other jurisdictions.

 

The tax charge for 2018 and 2017 can be reconciled to the loss before income tax expense per the consolidated statement of profit or loss and other comprehensive income as follows:

 

 

 

Year ended 31 December

 

 

2018

 

2017

 

 

US$'000

 

US$'000

 

 

 

 

 

Loss before income tax expense

 

(803)

 

(424)

 

 

 

 

 

Loss before tax calculated at 16.5% (2017: 16.5%)

 

(132)

 

(70)

Tax effect of non-deductible expenses

 

101

 

82

Tax effect of non-taxable income

 

(16)

 

(16)

Tax effect of deductible temporary differences

 

-

 

3

Tax effect of share of losses of a joint venture

 

2

 

1

Tax effect of estimated tax losses not recognised

 

45

 

-

 

 

 

 

 

Tax charge for the year

 

-

 

-

 

The estimated tax losses of approximately US$274,000 (2017: nil) can be carried forward indefinitely. No deferred tax asset has been recognised in respect of the unused tax losses due to the unpredictability of future profit streams. No deferred tax asset has been recognised in relation to the deductible temporary differences of approximately US$55,000 (2017: US$58,000) as it is not probable that taxable profits will be available against which the deductible temporary differences can be utilised. The deductible temporary differences can be carried forward indefinitely.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

13.     LOSS PER SHARE      

     

The loss and weighted average number of ordinary shares used in the calculation of basic and diluted loss per share were as follows.

 

 

 

Year ended 31 December

 

 

2018

 

2017

 

 

 

 

 

Loss for the year attributable to owners of the

Company (US$'000)

 

(803)

 

(424)

 

 

 

 

 

Weighted average number of ordinary shares for

the purposes of basic and diluted loss per share

 

77,874,040

 

56,734,580

 

 

 

 

 

Loss per share - basic and diluted

 

(1.03) cents

 

(0.75) cent

 

The weighted average of 77,874,040 ordinary shares for the year ended 31 December 2018 was derived from 56,734,580 ordinary shares issued as at 1 January 2018 after taking into account the effect of the completion in April 2018 of the open offer of 28,367,290 ordinary shares, details of which are set out in note 22 to the consolidated financial statements. The weighted average number of ordinary shares for the year ended 31 December 2017 has not been retrospectively adjusted for the open offer since the open offer price was higher than the market price of the shares on the date of the open offer.

 

Diluted loss per share was the same as basic loss per share for the years ended 31 December 2018 and 2017 as the impact of the potential dilutive ordinary shares outstanding had an anti-dilutive effect on the basic loss per share presented for the years ended 31 December 2018 and 2017.

 

 

14.     DIVIDENDS

 

No dividend was paid or proposed during the year, nor has any dividend been proposed since the end of the reporting period (2017: nil).

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

15.     PROPERTY, PLANT AND EQUIPMENT     

     

 

 

 

Leasehold improvements

 

 

 

US$'000

Cost

 

 

 

At 1 January 2017

 

 

69

Additions

 

 

-

At 31 December 2017 and 1 January 2018

 

 

69

Additions

 

 

-

At 31 December 2018

 

 

69

 

 

 

 

Accumulated depreciation

 

 

 

At 1 January 2017

 

 

48

Depreciation

 

 

21

At 31 December 2017 and 1 January 2018

 

 

69

Depreciation

 

 

-

At 31 December 2018

 

 

69

 

 

 

 

Carrying amount

 

 

 

At 31 December 2017

 

 

-

At 31 December 2018

 

 

-

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018       

 

 

16.     INTEREST IN A JOINT VENTURE

 

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

Unlisted investment, at cost

257

 

257

Share of post-acquisition losses

(121)

 

(110)

Share of post-acquisition other comprehensive loss

(30)

 

(11)

Share of net assets

106

 

136

 

Amount due from a joint venture

257

 

257

 

         The amount due from a joint venture was unsecured, interest-free and repayable on demand.

 

         Details of the joint venture at 31 December 2018 were as follows:

 

Name

 

Country of incorporation and operation

 

Proportion of ownership interest

 

Paid-up registered

capital

 

Principal activities

 

 

 

 

Direct

Indirect

 

 

 

 

Oasis Education Group Limited

奧偉詩教育集團有限公司

("Oasis Education")

 

 

50%

-

 

HK$4,000,000

 

Investment holding

 

 

 

 

 

 

 

 

 

 

奧偉詩教育咨詢(深圳)有限公司

 

 

 

-

50%

 

HK$5,000,000

 

Provision of education consulting and support services to kindergartens in the PRC

 

The contractual arrangement provides the Group with only the rights to the net assets of the joint arrangement, with the rights to the assets and obligations for the liabilities of the joint arrangement resting primarily with Oasis Education. Under IFRS 11, this joint arrangement was classified as a joint venture and has been included in the consolidated financial statements using the equity method.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018       

 

 

16.     INTEREST IN A JOINT VENTURE (CONTINUED)

 

The aggregate amounts relating to the joint venture that have been included in the consolidated financial statements of the Group as extracted from relating financial statements of the joint  venture, adjusted to reflect adjustments made by the Group when applying the equity method of accounting are set out below:

 

 

2018

 

2017

Results of the joint venture for the year

US$'000

 

US$'000

 

 

 

 

Revenue

-

 

-

Other income

-

 

20

Expenses

(22)

 

(28)

Loss for the year

(22)

 

(8)

Other comprehensive (loss)/income for the year

(38)

 

34

Total comprehensive (loss)/income for the year

(60)

 

26

 

 

 

 

 

Share of losses of the joint venture for the year

(11)

 

(4)

 

 

 

 

Share of other comprehensive (loss)/income of the 

joint venture for the year

 

(19)

 

 

17

 

 

 

 

Accumulated share of results of the joint venture

(121)

 

(110)

 

Assets and liabilities of the joint venture at 31 December

 

 

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

Non-current assets

-

 

-

Current assets

809

 

872

Non-current liabilities

-

 

-

Current liabilities

(598)

 

(601)

Net assets

211

 

271

 

 

 

 

Included in the above amounts were:

 

 

 

Cash and cash equivalents

48

 

51

Depreciation and amortisation

-

 

-

Interest income

-

 

-

Interest expense

-

 

-

Current financial liabilities (excluding trade and other payables)

 

-

 

 

-

 

Percentage of equity interest attributable to the Group

50%

 

50%

Share of net assets of the joint venture

106

 

136

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018       

 

 

17.     FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS/AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

 

2018

 

2017

 

US$'000

 

US$'000

 

 

 

 

Financial assets at FVTPL

 

 

 

Listed equity investments, at fair value

307

 

-

Unlisted equity investments, at fair value

1,342

 

-

 

1,649

 

-

 

 

 

 

Available-for-sale financial assets

 

 

 

Unlisted equity investments, at cost

-

 

1,784

 

During the year ended 31 December 2015, the Group acquired equity interest in ayondo Holding AG ("Ayondo AG") for a total cash consideration of CHF320,000 (equivalent to approximately US$325,000). During the year ended 31 December 2016, the Group acquired additional equity interest in Ayondo AG for a total cash consideration of CHF160,050 (equivalent to approximately US$163,000). In connection with the listing in March 2018 of ayondo Ltd. ("Ayondo"), the holding company of Ayondo AG, on Catalist, the sponsor-supervised listing platform of the Singapore Exchange Securities Trading Limited, the Group exchanged its equity interest in Ayondo AG into the equity interest in Ayondo under a pre-listing restructuring. Ayondo is a company incorporated in Singapore and is involved in self-directed trading and social trading services for contract-for-differences and spread betting.

 

During the year ended 31 December 2016, the Group acquired equity interest in Velocity Mobile Limited ("Velocity") for a total cash consideration of GBP337,120 (equivalent to approximately US$496,000). Velocity is a company incorporated in England and Wales and provides real-time lifestyle mobile applications for premium consumers focusing in the areas of dining, travel, experiences and luxury goods.

 

During the year, the Group invested CAD333,000 (equivalent to approximately US$249,000) in the equity capital of Agrios Global Holdings Ltd. ("Agrios"), the holding company of a data analytics driven agriculture technology group that provides property and equipment for lease and enhanced ancillary services to the cannabis industry. In November 2018, Agrios was listed on the Canadian Securities Exchange operated by CNSX Markets Inc..

 

As at 31 December 2018 and 2017, the Group also owned equity interest in ICBC Specialised Ship Leasing Investment Fund ("ICBC Shipping Fund") in an amount of US$800,000.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

17.     FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS/AVAILABLE-FOR-SALE FINANCIAL ASSETS (CONTINUED)

 

The Group's equity interests in Ayondo AG, Velocity and ICBC Shipping Fund were designated as available-for-sale financial assets until 31 December 2017. The investments were measured at cost less impairment at each reporting date because the investments did not have quoted market prices in an active market*, the variability in the range of reasonable fair value estimates for the investments was significant and therefore their fair value could not be reliably measured. These investments were reclassified to financial assets at FVTPL upon initial application of IFRS 9 at 1 January 2018. Detailed discussion is set out in note 2.1(a)(i) to the consolidated financial statements.

 

The directors had no intention to dispose of the financial assets at FVTPL at the end of the reporting period.

 

*   During the year, the holding company of Ayondo AG, Ayondo, became listed on Catalist in Singapore.

 

18.    OTHER FINANCIAL ASSETS AT AMORTISED COST

 

During the year, the Group invested US$1,000,000 in the offshore term loan bearing interest at 8.5% per annum issued by Trillion Glory Limited, a Hong Kong indirect wholly-owned subsidiary of Guangzhou R& F Properties Co., Ltd which is a Chinese property company listed on the Main Board of The Stock Exchange of Hong Kong Limited. During the year, the first 15% of the principal of the term loan of US$150,000 was repaid, and the remaining 85% of the outstanding amount of US$850,000 will be due on 15 October 2019, which may be extended for no more than one year subject to all lenders' consent. 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

19.    SUBSIDIARIES

 

         Details of the subsidiaries of the Company at 31 December 2018 were as follows:

 

Name

 

Country of incorporation and operation

 

Proportion of ownership interest

 

Proportion
of voting power held

 

Principal activities

 

 

 

 

 

 

 

 

 

Worldsec Financial Services Limited

 

The British

 Virgin

 Islands

 

 

100%

 

100%

 

Investment

 holding

Worldsec Corporate Finance Limited

 

The British

 Virgin

 Islands

 

 

100%*

 

100%*

 

Inactive

Worldsec International NV

 

Netherlands

 Antilles

 

 

100%*

 

100%*

 

Inactive

Worldsec Investment (Hong Kong) Limited

 

Worldsec Investment (China) Limited

 

 

Hong Kong

 

 

The British

 Virgin

 Islands

 

100%*

 

 

100%*

 

100%*

 

 

100%*

 

Investment

 holding

 

Investment

 holding

 

     Indirectly held subsidiaries

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

20.    CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of financial position were as follows:

 

 

       

2018

 

2017

 

 

 

US$'000

 

US$'000

 

 

 

 

 

 

 

Bank balances

 

2,606

 

259

 

Cash balances

 

1

 

1

 

 

 

 

 

 

 

 

 

2,607

 

260

 

 

         Bank balances bore interest at the then prevailing market rates ranging from 0.001% to 0.01% (2017: 0.001% to 0.01%) per annum and had original maturities of three months or less.

 

 

21.    OTHER PAYABLES AND ACCRUALS

 

 

       

2018

 

2017

 

 

 

US$'000

 

US$'000

 

 

 

 

 

 

 

Other payables and accruals

 

138

 

148

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

22.    SHARE CAPITAL

 

 

 

Number of

shares

 

Total value

US$'000

 

 

 

 

 

Authorised:

 

 

 

 

Ordinary shares of US$0.001 each

 

 

 

 

At 1 January 2017, 31 December 2017,

   1 January 2018 and 31 December 2018

 

 

60,000,000,000

 

 

60,000

 

 

 

 

 

Called up, issued and fully paid:

 

 

 

 

Ordinary shares of US$0.001 each

 

 

 

 

At 1 January 2017, 31 December 2017 and

     1 January 2018

 

 

56,734,580

 

 

57

Issue of new shares by way of open offer (Note)

 

28,367,290

 

28

 

 

 

 

 

At 31 December 2018

 

85,101,870

 

85

 

Note:

 

In April 2018, the Company issued 28,367,290 ordinary shares of US$0.001 each in the share capital of the Company at a price of US$0.15 per share by way of open offer on the basis of 1 new share for every 2 ordinary share held by qualifying shareholders, giving rise to gross proceeds of approximately US$4,255,000, comprising share capital of approximately US$28,000 and share premium of approximately US$4,227,000.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018                                        

 

 

23.    RESERVES

 

(a)   The share premium account represents the premium arising from the issue of shares of the Company at a premium.

 

(b)   The contributed surplus represents the amount arising from the reduction in the nominal value of the authorised and issued shares of the Company and the reduction in the share premium account pursuant to an ordinary resolution passed on 23 July 2003.

 

(c)   Share option reserve comprises the fair value of the Company's share options granted which have yet to be exercised, as further explained in the accounting policy for share-based payment transactions in note 3 to the consolidated financial statements. The amount will either be transferred to the issued capital account and the share premium account when the related options are exercised, or be transferred to accumulated losses should the related options expire or be forfeited.

 

(d)   Exchange differences relating to the translation of the net assets of the Group's foreign operations (including a joint venture) from their functional currencies to the Group's presentation currency were recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Such exchange differences accumulated in the foreign currency translation reserve will be reclassified to profit or loss on the disposal of the foreign operations.

 

(e)   The special reserve represents the amount arising from the difference between the nominal value of the issued share capital of each subsidiary and the nominal value of the issued share capital of the Company along with the surplus arising in a subsidiary on group reorganisation completed on 26 February 2007.

 

(f)    Accumulated losses represent accumulated net gains and losses recognised in the profit or loss of the Group.

 

 

24.    SHARE-BASED PAYMENTS

 

The Company operates an equity-settled share-based remuneration scheme for the employees and directors.

 

On 1 December 2015, the Company granted to certain eligible persons a total of 2,950,000 share options to subscribe for new ordinary shares of US$0.001 each in the share capital of the Company under the Worldsec Employee Share Option Scheme 1997 (the "Scheme") which was revised on 24 September 2014. The options vested six months from the date of grant and were then exercisable within a period of 9.5 years.

 

The following table discloses the movements of the outstanding share options under the Scheme during the years ended 31 December 2018 and 2017.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018       

 

 

24.    SHARE-BASED PAYMENTS (CONTINUED)

 

 

 

Number of options

Grantee

Exercisable period

Balance at 1 January 2018

Granted during the year

Exercised during

 the year

Forfeited during the year

Lapsed during the year

Balance at 31 December 2018

Exercise price per share

(US$)

Directors

1 June 2016 to 30 November 2025

2,500,000

-

-

-

-

2,500,000

0.122

Employees

1 June 2016 to 30 November 2025

450,000

-

-

-

-

450,000

0.122

 

 

2,950,000

-

-

-

-

2,950,000

 

 

 

 

Number of options

Grantee

Exercisable period

Balance at 1 January 2017

Granted during the year

Exercised during

 the year

Forfeited during the year

Lapsed during the year

Balance at 31 December 2017

Exercise price per share

(US$)

Directors

1 June 2016 to 30 November 2025

2,500,000

-

-

-

-

2,500,000

0.122

Employees

1 June 2016 to 30 November 2025

450,000

-

-

-

-

450,000

0.122

 

 

2,950,000

-

-

-

-

2,950,000

 

 

No share-based payment expenses were charged to the profit or loss during the year ended 31 December 2018 (2017: nil).

 

The options outstanding as at 31 December 2018 had a weighted average remaining contractual life of 6.5 years (2017: 7.5 years) and a weighted average exercise price of US$0.122 (2017: US$0.122).

 

Of the total number of options outstanding at the end of the year, all (2017: all) had vested and were exercisable at the end of the year.

 

No option was exercised during the years ended 31 December 2018 and 2017.

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018       

 

 

25.    RELATED PARTY TRANSACTIONS

 

Other than the compensation of key management personnel and the underwriting of certain open offer shares as disclosed below, the Group did not have any related party transactions during the years ended 31 December 2018 and 2017.

 

Compensation of key management personnel

 

Key management personnel are the directors only. The remuneration of directors is set out in note 10 to the consolidated financial statements.

 

Underwriting of open offer

 

In April 2018, the Company completed an open offer of 28,367,290 new ordinary shares of US$0.001 each in the share capital of the Company at US$0.15 per share. Of these, 18,416,489 shares were underwritten by Mr Henry Ying Chew Cheong, an executive director of the Company, in his personal capacity. As there was no underwriting consideration involved, the underwriting was not subject to the rules contained in Chapter 11 of the Listing Rules of the Financial Conduct Authority in the United Kingdom. Details relating to the open offer can be found in note 22 to the consolidated financial statements.

 

 

26.    OPERATING LEASE COMMITMENTS

 

Operating leases - lessee

 

At the reporting date, the Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of office premises and warehouse as follows:

 

 

 

 

2018

 

2017

 

 

 

US$'000

 

US$'000

 

 

 

 

 

 

Not later than one year

 

 

79

 

79

Later than one year and not later than five years

 

 

58

 

137

 

 

 

 

 

 

 

 

 

137

 

216

 

The leases run for an initial period of 2 to 3 years (2017: 2 to 3 years), with an option to renew the office premises lease upon expiry when all terms are renegotiated.

 

 

27.    CONTINGENT LIABILITIES

 

The Group had no material contingent liabilities at 31 December 2018 (2017: nil).

 

 

INVESTMENT POLICY

 

 

The Company will invest in small to medium sized trading companies, being companies, both start-up/early stage growth and established, with a turnover typically up to US$20 million, based mainly in the Greater China and South East Asian region, and thereby create a portfolio of minority investments in such companies.

 

The Company's investment objective is to achieve attractive investment returns through capital appreciation on a medium to long term horizon. The Directors consider between 2 to 4 years to be medium term and long term to be over 4 years. The Directors intend to build an investment portfolio of small to medium sized companies based mainly in the Greater China and South East Asian regions. The Company may also take advantage of opportunities to invest in companies in other jurisdictions, such as the United Kingdom, which have close trading links with Greater China and South East Asia. Investments will normally be in equity or preferred equity but if appropriate convertible loans or preference shares may be utilised.

 

The Company has no intention to employ gearing, but reserves the right to gear the Company to a maximum level of 25 per cent. of the last published Net Asset Value of the Group should circumstances arise where, in the opinion of the Directors, the use of debt would be to the advantage of the Company and the Shareholders as a whole.

 

The investment portfolio will consist primarily of unlisted companies but the Directors will also consider investing in undervalued listed companies, if and when such an opportunity arises. Where suitable opportunities are identified, investment in companies considering a stock market listing at the pre-initial public offering stage will be considered.

 

No more than 20 per cent. of the gross assets of the Group will be invested in any single investment. The Directors consider that opportunities will arise to invest in investee companies by the issue of new Ordinary Shares at a discount of no more than 10 per cent. of the mid market price at the time of agreement of their issue in exchange for new equity, preferred equity or convertible instrument in the investee company. Target sectors are financial services, consumer retail distribution, natural resources and infrastructure but the Company will seek to take advantage of opportunities in other sectors if these arise.

 

The Company's portfolio in due course will comprise at least five different investee companies, thereby reducing the potential impact of poor performance by any individual investment.

 

The Company does not intend to take majority interests in any investee company, save in circumstances where the Company exercises any rights granted under legal agreements governing its investment. Each investment by the Company will be made on terms individually negotiated with each investee company, and the Company will seek to be able to exercise control over the affairs of any investee company in the event of a default by the investee company or its management of their respective obligations under the legal agreements governing each investment. Where appropriate, the Company will seek representation on the board of companies in which it invests. Where board representation is secured in an investee company, remuneration for such appointment will be paid to the benefit of the Company thereby enhancing returns on the investment. There will be no intention to be involved in the day to day management of the investee company but the skills and connections of the board representative will be applied in assisting the development of the investee company, with the intention of enhancing shareholder value. The Company will arrange no cross funding between investee companies and neither will any common treasury function operate for any investee company; each investee company will operate independently of each other investee company.

 

Where the Company has cash awaiting investment, it will seek to maximise the return on such sums through investment in floating rate notes or similar instruments with banks or other financial institutions with an investment grade rating or investment in equity securities issued by companies which have paid dividends for each of the previous three years.

 

Any material change to the Investment Policy may only be made with the prior approval of the Shareholders.

 

 

BIOGRAPHICAL NOTES OF THE DIRECTORS                                                                

 

The Board of Directors has ultimate responsibility for the Group's affairs.

 

Brief biographical notes of the directors are set out below:

 

Alastair Gunn-Forbes - Non-Executive Chairman - aged 74

 

Mr Gunn-Forbes has been associated with Asian regional stock markets since 1973 when he was a fund manager at Brown Shipley Ltd. Subsequently, he was a director of W I Carr, Sons & Co. (Overseas) Ltd until 1985, since when he held directorships with other Asian securities firms in the United Kingdom prior to joining the Group in 1993. Mr Gunn-Forbes is the Chairman of Opera Holdings Limited, a recruitment company.

 

Henry Ying Chew Cheong - Executive Director and Deputy Chairman - aged 71

 

Mr Cheong holds a Bachelor of Science (Mathematics) degree from Chelsea College, University of London and a Master of Science (Operational Research and Management) degree from Imperial College, University of London.

 

Mr Cheong has over 40 years of experience in the securities industry. Mr Cheong and The Mitsubishi Bank in Japan (now known as The Bank of Tokyo-Mitsubishi UFJ Ltd) founded the Worldsec Group in 1991. In late 2002, Worldsec Group sold certain securities businesses to UOB Kay Hian Holdings Limited and following that Mr Cheong became the Chief Executive Officer of UOB Asia (Hong Kong) Ltd until early 2005. Prior to the formation of the Worldsec Group, Mr Cheong was a director of James Capel (Far East) Ltd for five years with overall responsibility for Far East Sales. His earlier professional experience includes 11 years with Vickers da Costa Limited in Hong Kong, latterly as Managing Director.

 

Mr Cheong was a member of the Securities and Futures Appeals Tribunal and a member of the Advisory Committee of the Securities and Futures Commission in Hong Kong ("SFC")(from 2009-2015). Mr Cheong was previously a member of Disciplinary Panel A of Hong Kong Institute of Certified Public Accountants (from 2005-2011). He was a member of the Corporate Advisory Council of the Hong Kong Securities Institute (from 2002-2009), a member of the Advisory Committee to the SFC (from 1993-1999), a member of the board of directors of the Hong Kong Future Exchange Limited (from 1994-2000), a member of GEM Listing Committee and Main Board Listing Committee of Hong Kong Exchange and Clearing Limited ("HKEX") (from May 2002-May 2006), a member of Derivatives Market Consultative Panel of HKEX (from April 2000-May 2006), a member of the Process Review Panel for the SFC (from November 2000-October 2006) and a member of the Committee on Real Estate Investment Trust of the SFC (from September 2003-August 2006).

 

Mr Cheong is an Independent Non-Executive Director of CK Asset Holdings Limited, CK Infrastructure Holdings Limited, CNNC International Limited, Greenland Hong Kong Holdings Limited, Hutchison Telecommunications Hong Kong Holdings Limited, New World Department Store China Limited, Skyworth Digital Holdings Limited and TOM Group Limited, all being listed companies in Hong Kong. Mr Cheong is also an Independent Director of BTS Group Holdings Public Company Limited, being listed in Thailand.

 

BIOGRAPHICAL NOTES OF THE DIRECTORS (CONTINUED)                                     

 

Ernest Chiu Shun She - Executive Director - aged 58

 

Mr She is an investment banker with extensive experience in the field of corporate finance having covered a broad and diverse range of financial advisory and fund raising activities in the Asian regional equity markets and having previously held executive management positions and directorships at various investment banks and financial institutions including, among others, Worldsec Corporate Finance Limited and UOB Asia (Hong Kong) Limited.

 

Since rejoining the Group to assist in the reactivation of its business operations in 2013, Mr She has been an Executive Director of the Company working on private equity investments.

 

Mr She has a deep-rooted and long-standing connection with the Worldsec group of companies being one of the co-founding team members at the time when the entities were established in the early 1990s. For more than a decade that followed and until the disposal by the Group of certain securities businesses to UOB Kay Hian Holdings Limited in 2002, Mr She held senior management positions at Worldsec Corporate Finance Limited and Worldsec International Limited with the main responsibility of developing and overseeing the Group's corporate finance activities.

 

Prior to his tenure at the Worldsec group of companies, Mr She was an Investment Analyst and an Associate Director at James Capel (Far East) Limited where he was primarily responsible for equity research in the real estate sector.

 

Mr She graduated from the University of Toronto with a Bachelor of Applied Science degree in Industrial Engineering and obtained from the Imperial College of Science and Technology a Master of Science degree in Management Science specialising in Operational Research. Mr She is a Chartered Financial Analyst.

 

From 2004 to 2010, Mr She served as an Independent Non-Executive Director and the Chairman of the Audit Committee of New Island Printing Holdings Limited, a company listed on the Main Board of The Stock Exchange of Hong Kong Limited.

 

 

Mark Chung Fong - Non-Executive Director - aged 67

 

Mr Fong was an Executive Director for China development of Grant Thornton International Ltd, a corporation incorporated in England and had retired from Grant Thornton effective from 1 January 2014. He has more than 40 years' experience in the accounting profession. Mr Fong obtained a bachelor's degree in science from the University College, London in August 1972 and a Master's degree in science from the University of Surrey in December 1973. He has been a Fellow of the Institute of Chartered Accountants in England and Wales since January 1983 and a Fellow of the Hong Kong Institute of Certified Public Accountants ("HKICPA") since March 1986. He was the President of the HKICPA in 2007. He has been appointed as the Chairman of the Audit Committee of HKICPA from 2016 to January 2019 and has also served on the Council of the Institute of Chartered Accountants in England and Wales from 2016 to 2018.

 

Martyn Stuart Wells - Non-Executive Director - aged 74

 

Mr Wells was formerly an Executive Director of Citicorp International Limited and has over 30 years' experience in the securities industry. In 1969 he joined Vickers da Costa, international stockbrokers. He was involved in the fund management industry for 20 years and participated in the launch of several country funds investing in the Asian region, serving as a director or as a member of the investment advisory councils of several of those funds. He lived in Hong Kong for almost 28 years and since 2000 has resided in England.


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