FIH Mobile : Announcements and Notices -

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2038)

The Group from time to time has been carrying out the Lease Income Transaction with the Hon Hai Group, which has been a de minimis continuing connected transaction for the Company exempt from the Independent Shareholders' approval, annual review and all disclosure requirements pursuant to Rule 14A.76(1) of the Listing Rules since the latest term of the Lease Income Agreement commencing from 1 January 2017. The Company has envisaged that the cumulative annual amounts of the Lease Income Transaction may reach 0.1% or more of applicable percentage ratios and has therefore set the Annual Caps.

Based on the maximum amount of the Annual Caps, certain applicable percentage ratios are above 0.1% but all relevant percentage ratios are less than 5%. In accordance with Rule 14A.76(2) of the Listing Rules, the Lease Income Transaction together with the Annual Caps for the three years ending 31 December 2019 are exempt from the circular (including independent financial advice) and the Independent Shareholders' approval requirements.

The Lease Income Transaction is subject to the annual review requirements under Rules 14A.55 to 14A.59 of the Listing Rules.

The Group is a vertically integrated manufacturing service provider for the handset industry worldwide. It provides a wide range of manufacturing services, including ancillary logistics and distribution services, to its customers in connection with the production and distribution of handsets.

The Hon Hai Group is the leading global manufacturing service provider in the 3C industries. Hon Hai is the ultimate controlling shareholder of the Company holding approximately 63.63% of the total number of issued shares of the Company as at the date of this announcement, and hence a connected person of the Company under the Listing Rules.

The Group from time to time has been carrying out the Lease Income Transaction with the Hon Hai Group, which has been a de minimis continuing connected transaction for the Company exempt from the Independent Shareholders' approval, annual review and all disclosure requirements pursuant to Rule 14A.76(1) of the Listing Rules since the latest term of the Lease Income Agreement commencing from 1 January 2017. Reference is made to the Company's 2013 annual report and announcement dated 11 August 2016 respectively. The Company has envisaged that the cumulative annual amounts of the Lease Income Transaction may reach 0.1% or more of applicable percentage ratios and has therefore set the Annual Caps.

Pursuant to the Lease Income Agreement, the Group has agreed to lease to the Hon Hai Group premises owned by the Group as agreed between the parties from time to time for a term up to 31 December 2019 upon and subject to the terms and conditions set out therein.

The rental payable by the Hon Hai Group under the Lease Income Transaction shall be determined on a fair and reasonable basis with reference to the average market rental of other similar local properties in the market. If the average market rental is not available, the rental payable shall be determined on a "cost plus" basis. If both the average market rental basis and the "cost plus" basis are not appropriate or applicable, the rental payable under the Lease Income Transaction shall be agreed between the relevant parties based on reasonable commercial principles. As the locations and the conditions of the properties vary, the Group is not able to fix the rentals but has instead agreed to the pricing policies set out above. The current monthly rentals of the leased premises covered by the Lease Income Transaction have been determined with reference to market rentals as more detailed below.

The rental payable under the Lease Income Agreement will be paid within such period agreed by the parties from time to time. The relevant parties will enter into a specific lease agreement for each of the premises leased by the relevant member company of the Group to the relevant member company of the Hon Hai Group pursuant to the Lease Income Agreement. Under the current specific lease agreements, the rentals are payable by the relevant member company of the Hon Hai Group to the relevant member company of the Group either on a monthly or quarterly basis.

The rental payable by the Hon Hai Group under the Lease Income Transaction shall be determined on a fair and reasonable basis with reference to the average market rental of other similar local properties in the market. For the purpose of obtaining the average market rental or the market rental (if only one independent transaction is available), the Group refers to (i) at least one recent lease transaction (in general, within three months of the proposed transaction with the Hon Hai Group) of the Group leasing a similar local property to an independent party; (ii) if (i) is not available, at least one quotation from an independent party interested to lease the subject property or at least one similar local property offered for rent in the market; or (iii) if (i) and (ii) are not available, a market rental provided by an independent professional valuer engaged by the Group.

If the average market rental is not available, the rental payable shall be determined on a "cost plus" basis. Cost plus is determined based on the relevant cost of the transaction plus a margin as agreed between the Group and the Hon Hai Group. The cost is calculated based on the Group's accounting records and includes the depreciation/amortisation costs relating to construction and land use rights, property tax, capital cost and other direct costs attributable to the subject property. In determining the margin, the Group refers to the margin for the Group's lease to an independent party of the property similar to the subject property proposed to be leased to the Hon Hai Group. In general, the Company will select one independent transaction (most related to the subject property in nature) within three months of the proposed lease transaction with the Hon Hai Group to determine the market margin. Although none of the current rentals under the Lease Income Transaction are determined based on the "cost plus" basis, this pricing policy remains to be relevant to cater to such circumstances in the future.

If both the average market rental basis and the "cost plus" basis are not appropriate or applicable, the rental payable under the Lease Income Transaction shall be agreed between the relevant parties based on reasonable commercial principles. In respect of any unutilised properties, with an aim to improving asset optimisation, the Group may lease such properties to the Hon Hai Group at a rental lower than market rentals and/or lower than a rental based on cost-plus only if the Group is not able to lease such properties to independent parties at higher rentals. The Company will attempt to solicit interests from independent parties to rent the properties and will ensure that the rentals offered to the Hon Hai Group will not be lower than any rentals offered by interested independent parties. The operation departments of the Group carry out the asset utilisation and optimisation management and would solicit interests from potential tenants including the Hon Hai Group. The accounting departments of the Group will review any proposed rentals of properties under this pricing policy. None of the current rentals under the Lease Income Transaction are based on this pricing policy, but it remains to be relevant to cater to such circumstances in the future.

The Group has built its own manufacturing and other premises and may have surplus space from time to time. The Company considers it in its best interests to lease out such surplus space and generate additional income for the Group at prices comparable to the market and/or above the costs attributable to the leased premises pursuant to the relevant agreement in respect of the Lease Income Transaction.

The table below sets out the historical actual amounts of the Lease Income Transaction for the year ended 31 December 2016 and for the nine months ended 30 September 2017 and the Annual Caps.

The Annual Caps are determined with reference to projections of the Company which in turn are prepared by the Company mainly with reference to the following major factors:

• total of the actual amounts of the Lease Income Transaction for the nine months ended 30 September 2017;

• the projected amount of the Lease Income Transaction for the three months ending 31 December 2017 based on the current specific lease agreements relating to the Lease Income Transaction and the Group's surplus space which may be available to be leased to the Hon Hai Group;

• the average annual growth rate of the Lease Income Transaction during 2014-2016; and

• an additional buffer of 5%, to cater for any increase in the transaction which is unexpected but not substantial.

  The Directors (including the independent non-executive Directors) consider that the Annual Caps are fair and reasonable, the entering into of the Lease Income Transaction is in the Group's ordinary and usual course of business, and the terms of the Lease Income Transaction are fair and reasonable, on normal commercial terms and in the interests of the Company and its Shareholders as a whole. In view of their relationship with Hon Hai, Mr. WANG Chien Ho and Mr. HUANG Chin Hsien (both being executive Directors) have abstained from voting on the Board resolutions in relation to the Lease Income Transaction and the Annual Caps.

  INTERNAL CONTROL

  The Group has adopted the following internal control procedures over the continuing connected transactions of the Company including the Lease Income Transaction:

• Before entering into a transaction under the continuing connected transactions of the Company, the purchase departments and/or the operation departments (as the case may be) of the Group will review and check whether the pricing is fair and reasonable adhering to the pricing terms and details. In addition to reviewing the pricing before entering into a transaction under the continuing connected transactions of the Company where the pricing terms under the relevant agreements are applied for the first time or the pricing terms are different from those used previously, the accounting departments of the relevant member companies of the Group will review the aforesaid works carried out by the purchase departments and/or the operation departments (as the case may be) on a quarterly basis.

• The accounting department of the Company is primarily responsible to review and monitor the continuing connected transactions ensuring that the annual caps of the relevant continuing connected transactions are not exceeded and the continuing connected transactions have been conducted in accordance with the pricing policies or mechanisms under the framework agreements relating to such continuing connected transactions. The accounting department of the Company will consult with the Group's internal audit function in respect of continuing connected transaction compliance issues and annually report to the chief financial officer of the Company, who (in his own capacity and on behalf of the Group's management designated for the purposes of the Group's enterprise risk management and internal controls) will report to the audit committee of the Company and also provide a confirmation to the audit committee that the continuing connected