Modern Beauty Salon : Annual Report 2019/20

UNCOMPROMISING

CONTENT

CORPORATE PROFILE

ANNUAL REPORT 2019/20 003

CORPORATE

PROFILE

Modern Healthcare Technology Holdings Limited (formerly known as Modern Beauty Salon Holdings Limited) ("the Company") and its subsidiaries ("the Group" or "Modern Healthcare") is a leader of the beauty industry in Hong Kong offering professional treatments as well as quality services and products with natural ingredients. We are positioned at the high-end of the beauty industry that is dedicated to providing beauty and wellness services to customers who pursue a rejuvenating experience from the highest level of technical expertise and impeccable guest service. Our business operation is composed of five service lines as follows:

MANAGEMENT

DISCUSSION AND ANALYSIS

Business Review

Overview

During the financial year ended 31 March 2020 ("FY2020" or "the year under review"), revenue of the Group amounted to approximately HK$522.6 million, representing a decrease of 9.3% compared with approximately HK$576.0 million for the year ended 31 March 2019 ("FY2019" or the "same period last year"). The receipts from sales of prepaid beauty packages during the year under review was HK$496.3 million, a decrease of 8.6% over the same period last year. The employees benefit expenses and occupancy costs and depreciation charge of other properties leased for own use decreased by 2.3% to HK$311.7 million and decreased by 19.4% to HK$92.2 million respectively as compared with the same period last year. The Group recorded an operating loss of HK$17.3 million during the year under review (FY2019: operating loss of HK$2.2 million).

MANAGEMENT

DISCUSSION AND ANALYSIS

Singapore

During the FY2020, the Group operated a total of 10 beauty and wellness service centres in Singapore (FY2019: 11). During the FY2020, the revenue from operations in Singapore was HK$57.6 million, as compared with HK$60.8 million for the same period last year. Revenue recognised for provision of beauty and wellness services and receipts from sales of prepaid beauty packages in Singapore amounted to HK$52.2 million and HK$44.1 million respectively, as compared with HK$55.3 million and HK$54.4 million for the same period last year.

The Group will proceed with its Singapore business development in a prudent and steady manner. With relentless dedication to customer satisfaction, we will continue to focus on providing quality services that serve our customers well and enhance our brand awareness.

Financial Review

Revenue

Set out below is a breakdown on the revenue of the Group by service lines and product sales during FY2020 (with comparative figures for FY2019):

Revenue of the Group was mainly contributed by the beauty, facial and slimming services. The Group's revenue from beauty and wellness services decreased by about 9.4% from approximately HK$543.1 million in FY2019 to approximately HK$492.3 million in FY2020.

The Group reported that the sales of new prepaid beauty packages of the Group amounted to HK$496.3 million, representing a decrease of 8.6% compared with HK$543.2 million for FY2019, while cash and cash equivalents in hand were maintained at a healthy level.

ANNUAL REPORT 2019/20 011

MANAGEMENT

DISCUSSION AND ANALYSIS

Set out below is an analysis on the deferred revenue:

Employee benefit expenses

Employee benefit expenses (including staff's salaries and bonuses as well as directors' remunerations) represented the largest component of the Group's operating costs. During the year under review, employee benefit expenses decreased by about 2.3% from HK$319.1 million in FY2019 to approximately HK$311.7 million. Employee benefit expenses accounted for 59.6% of our revenue in FY2020, as compared to 55.4% for FY2019. The total headcount of the Group as at 31 March 2020 decreased by 6.9% to 1,087, as compared to a headcount of 1,167 for the FY2019. The decrease of the amount of employee benefits expenses and headcount is mainly due to the continuous cost efficiency that we endeavor to pursue. The Group's remuneration policies are in line with the prevailing market practices and are determined based on the individual performance and experience. For the purpose of motivating and rewarding our staff, discretionary bonus and share options may be granted to eligible employees based on individual performance and the Group's results. The Group introduced the elite system since the first quarter of 2010, whereby excellent staff with outstanding performance may receive discretionary bonus in recognition of their contribution.

Occupancy costs and depreciation charge of other properties leased for own use

During the year under review, the Group's occupancy costs and depreciation of other properties leases for own use were approximately HK$92.2 million (2019: HK$114.5 million), accounting for approximately 17.7% of our revenue (2019: 19.9%). As of 31 March 2020, the Group operated a total of 35 service centres in Mainland China and Hong Kong with a total weighted average gross floor area of 209,000 square feet, representing a decrease of 11.4% as compared to 236,000 square feet in FY2019. As of 31 March 2020, the Group had 10 centres in Singapore, with a total weighted average gross floor area of approximately 20,000 square feet (FY2019: approximately 21,000 square feet).

Bank charges, advertising costs and building management fees

Bank charges recorded changes in line with sales of new prepaid beauty packages, which decreased by 5.7% to HK$25.2 million. Advertising costs increased to HK$5.3 million from HK$4.4 million for the same period last year. Advertising cost as a percentage of revenue in FY2020 was 1.0% which remained stable compared with that of the same period last year. This reflected the Group's ability to enjoy cost advantage in advertising cost as it could spread such costs across an enlarged service centre network that covers Hong Kong, Mainland China and Singapore. Advertising cost is allocated in an effective way to raise brand awareness and capture a greater market share. Building management fees decreased by about 6.8% from HK$14.0 million in FY2019 to approximately HK$13.0 million during the year under review. It accounts for 2.5% of our revenue in FY2020, as compared to 2.4% for FY2019.

ANNUAL REPORT 2019/20 019

CORPORATE

GOVERNANCE REPORT

Directors' Attendance at Board/Board Committee/General Meetings

A summary of all Directors' attendance at the Board meetings, Board Committee meetings and general meetings held during the year under review is set out in the following table:

Notes:

1. Chairperson of the Board and Chairperson of the Nomination Committee of the Company.
2. Chairperson of the Audit Committee of the Company.
3. Chairperson of the Remuneration Committee of the Company.
4. Resigned with effect from 1 March 2020.

Respective Responsibilities, Accountabilities and Contributions of the Board and the Management

The Board is responsible for the leadership and control of the Group (comprising the Company and its subsidiaries) and oversees the Group's business, strategic decisions and performance. The Board has the functions of considering and approving the strategies, financial objectives, annual budget and investment proposals of the Group. The Independent Non-executive Directors, who combine to offer diverse industry expertise, serve the important function of advising the management on strategy and ensuring that the Board maintains high standards of financial and other mandatory reporting requirements as well as providing adequate checks and balances for safeguarding the interests of shareholders and the Company as a whole. Significant transactions shall be approved by the Board.

The members of the Board have no financial, business, family or other material/relevant relationship with each other.

The Board also takes up the corporate governance functions pursuant to the Code. During the year under review, the work performed by the Board on corporate governance function is summarised as follows:

1. developed and reviewed policies and practices on corporate governance;

ANNUAL REPORT 2019/20 029

REPORT

OF THE DIRECTORS

Directors' Interests in Transaction, Arrangement or Contract

Save as disclosed in the sections headed "Connected Transactions" and "Continuing Connected Transactions" below and in note 29 to the financial statements and those exempted from the reporting, annual review, announcement and independent shareholders' approval requirements under the Listing Rules, no transaction, arrangement or contract of significance to the business of the Group to which the Company, its subsidiaries, its holding companies or any subsidiaries of its holding companies was a party and in which a Director or an entity connected with a Director had a material interest, whether directly or indirectly, subsisted at the end of the year under review or at any time during the year under review.

Competing Interest

Save as disclosed in the sections headed "Connected Transactions" and "Continuing Connected Transactions" below, none of the Directors or their respective associates (as defined in the Listing Rules) had an interest in a business, which competes or may compete with the business of the Group.

Directors' and Chief Executive's Interests and Short Positions in the Shares, Underlying Shares and Debentures

As at 31 March 2020, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ("the SFO") as recorded in the register kept by the Company pursuant to Section 352 of the SFO or otherwise notified to the Company and The Stock Exchange of Hong Kong Limited ("the Stock Exchange") pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code") set out in Appendix 10 to the Listing Rules, were as follows:

Long positions in Shares, underlying Shares and Debentures of the Company

Notes:

1. The percentage has been compiled based on the total number of Shares of the Company in issue as at 31 March 2020 (i.e. 904,483,942 Shares).
2. Dr. Tsang Yue, Joyce is the spouse of Dr. Lee Soo Ghee and is deemed to be interested in the Shares in which Dr. Lee Soo Ghee is deemed or taken to be interested for the purpose of the SFO.

REPORT

OF THE DIRECTORS

Save as disclosed above, as at 31 March 2020, none of the Directors and chief executive of the Company nor their respective associates had any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or pursuant to section 352 of the SFO, to be entered in the register referred to therein, or notified to the Company and the Stock Exchange pursuant to the Model Code.

Directors' Rights to Acquire Shares or Debentures

At no time during the year under review was the Company, any of its holding companies, subsidiaries or fellow subsidiaries a party to any arrangements to enable the Directors or Chief Executive of the Company or any of their respective spouses or children under 18 years of age to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Substantial Shareholders' and Other Persons' Interests and Short Positions in the Shares and Underlying Shares

As at 31 March 2020, the interests or short positions of substantial shareholders and other persons of the Company in the shares and underlying shares of the Company as recorded in the register required to be kept under section 336 of the SFO, or as otherwise notified to the Company, were as follows:

Long positions of substantial shareholders and other persons in the Shares and underlying Shares of the Company

INDEPENDENT

AUDITOR'S REPORT

Independent auditor's report to the shareholders of Modern Healthcare Technology Holdings Limited (formerly known as Modern Beauty Salon Holdings Limited) (Incorporated in the Cayman Islands with limited liability)

Opinion

We have audited the consolidated financial statements of Modern Healthcare Technology Holdings Limited (formerly known as Modern Beauty Salon Holdings Limited) ("the Company") and its subsidiaries ("the Group") set out on pages 46 to 110, which comprise the consolidated statement of financial position as at 31 March 2020, the consolidated statement of profit or loss, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement 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 March 2020 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. 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 HKICPA's Code of Ethics for Professional Accountants ("the Code") together with any ethical requirements that are relevant to our audit of the consolidated financial statements in the Cayman Islands, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

ANNUAL REPORT 2019/20 043

INDEPENDENT

AUDITOR'S REPORT

Information other than the consolidated financial statements and auditor's report thereon

The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than 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.

Responsibilities of the directors 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 HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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 assisted by the Audit Committee in discharging their responsibilities for overseeing the Group's financial reporting process.

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, 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 HKSAs 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.

INDEPENDENT

AUDITOR'S REPORT

Auditor's responsibilities for the audit of the consolidated financial statements (continued)

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

• 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.
• 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.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• 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.
• 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.
• 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.

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 communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.

ANNUAL REPORT 2019/20 045

INDEPENDENT

AUDITOR'S REPORT

Auditor's responsibilities for the audit of the consolidated financial statements (continued)

From the matters communicated with the Audit Committee, 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.

The engagement partner on the audit resulting in this independent auditor's report is Yip Ka Ming, Alice.

KPMG

Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road

Central, Hong Kong

29 June 2020

ANNUAL REPORT 2019/20 047

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Note: The Group has initially applied HKFRS 16 at 1 April 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 2(c).

The notes on pages 53 to 110 form part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ANNUAL REPORT 2019/20 051

CONSOLIDATED CASH

FLOW STATEMENT

CONSOLIDATED CASH

FLOW STATEMENT

Note: The Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1 April 2019 to recognise right-of-use assets and lease liabilities relating to leases which were previously classified as operating leases under HKAS 17. Previously, cash payments under operating leases made by the Group as a lessee of HK$114,450,000 were classified as operating activities in the consolidated cash flow statement. Under HKFRS 16, except for short-term lease payments not included in the measurement of lease liabilities, all other rentals paid on leases are now split into capital element and interest element (see note 20(b)) and classified as financing cash outflows. Under the modified retrospective approach, the comparative information is not restated. Further details on the impact of the transition to HKFRS 16 are set out in note 2(c).

The notes on pages 53 to 110 form part of these financial statements.

ANNUAL REPORT 2019/20 053

NOTES TO

THE FINANCIAL STATEMENTS

1 General information

Modern Healthcare Technology Holdings Limited (formerly known as Modern Beauty Salon Holdings Limited) ("the Company") was incorporated in the Cayman Islands with limited liability. The address of its registered office is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The address of its principal place of business is Workshops Nos. 66-68, 6th Floor, Sino Industrial Plaza, 9 Kai Cheung Road, Kowloon Bay, Kowloon, Hong Kong. The Company's shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited ("the Stock Exchange").

The Company is an investment holding company. The principal activities of its subsidiaries are provision of beauty and wellness services and the sales of skincare and wellness products. In the opinion of the directors of the Company, Dr. Tsang Yue, Joyce ("Dr. Tsang"), who is a director of the Company, is the ultimate controlling party of the Company.

2 Significant accounting policies

1. Statement of compliance
   These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs"), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. Significant accounting policies adopted by the Company and its subsidiaries ("the Group") are disclosed below.
   The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 2(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.
2. Basis of preparation of the financial statements
   The consolidated financial statements for the year ended 31 March 2020 comprise the Company and its subsidiaries.
   The measurement basis used in the preparation of the financial statements is the historical cost basis except that the investment properties (see note 2(f)) are stated at their fair values as explained in the accounting policies set out below.
   The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Basis of preparation of the financial statements (continued)
   The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates 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.
   Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 31.
2. Changes in accounting policies
   The HKICPA has issued a new HKFRS, HKFRS 16, Leases, and a number of amendments to HKFRSs that are first effective or available for early adoption for the current accounting period of the Group.
   Except for HKFRS 16, Leases, early adoption of amendment to HKFRS 16-COVID-19-Related Rent Concessions and amendments to HKFRS 3, Definition of a business, none of the developments have had a material effect on how the Group's results and financial position for the current or prior periods have been prepared or presented.
   HKFRS 16, Leases and early adoption of amendment to HKFRS 16-COVID-19-Related Rent Concessions
   HKFRS 16 replaces HKAS 17, Leases, and the related interpretations, HK(IFRIC) 4, Determining whether an arrangement contains a lease, HK(SIC) 15, Operating leases - incentives, and HK(SIC) 27, Evaluating the substance of transactions involving the legal form of a lease. It introduces a single accounting model for lessees, which requires a lessee to recognise a right-of-use asset and a lease liability for all leases, except for leases that have a lease term of 12 months or less ("short-term leases") and leases of low-value assets. The lessor accounting requirements are brought forward from HKAS 17 which remain substantially unchanged.
   HKFRS 16 also introduces additional qualitative and quantitative disclosure requirements which aim to enable users of the financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.
   The Group has initially applied HKFRS 16 as from 1 April 2019. The Group has elected to use the modified retrospective approach and has therefore recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 April 2019. Comparative information has not been restated and continues to be reported under HKAS 17.

ANNUAL REPORT 2019/20 055

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Changes in accounting policies (continued)
   Further details of the nature and effect of the changes to previous accounting policies and the transition options applied are set out below:
2. 1. New definition of a lease
      The change in the definition of a lease mainly relates to the concept of control. HKFRS 16 defines a lease on the basis of whether a customer controls the use of an identified asset for a period of time, which may be determined by a defined amount of use. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.
      The Group applies the new definition of a lease in HKFRS 16 only to contracts that were entered into or changed on or after 1 April 2019. For contracts entered into before 1 April 2019, the Group has used the transitional practical expedient to grandfather the previous assessment of which existing arrangements are or contain leases. Accordingly, contracts that were previously assessed as leases under HKAS 17 continue to be accounted for as leases under HKFRS 16 and contracts previously assessed as non-lease service arrangements continue to be accounted for as executory contracts.
   2. Lessee accounting and transitional impact
      HKFRS 16 eliminates the requirement for a lessee to classify leases as either operating leases or finance leases, as was previously required by HKAS 17. Instead, the Group is required to capitalise all leases when it is the lessee, including leases previously classified as operating leases under HKAS 17, other than those short-term leases and leases of low-value assets which are exempt. As far as the Group is concerned, these newly capitalised leases are primarily in relation to property, plant and equipment as disclosed in note 11(c). For an explanation of how the Group applies lessee accounting, see note 2(i)(i).
      At the date of transition to HKFRS 16 (i.e. 1 April 2019), the Group determined the length of the remaining lease terms and measured the lease liabilities for the leases previously classified as operating leases at the present value of the remaining lease payments, discounted using the relevant incremental borrowing rates at 1 April 2019. The weighted average of the incremental borrowing rates used for determination of the present value of the remaining lease payments was 3.45%.
      To ease the transition to HKFRS 16, the Group applied the following recognition exemption and practical expedients at the date of initial application of HKFRS 16:
   3. 1. the Group elected not to apply the requirements of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use assets to leases for which the remaining lease term ends within 12 months from the date of initial application of HKFRS 16, i.e. where the lease term ends on or before 31 March 2020; and
      2. when measuring the lease liabilities at the date of initial application of HKFRS 16, the Group applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment).

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Changes in accounting policies (continued)
2. 1. Lessee accounting and transitional impact (continued)
      As a practical expedient on the early adoption of amendment relating to the issuance of COVID-19- Related Rent Concessions, the Group elected not to assess whether a rent concession that meets the following condition is a lease modification:
   2. 1. the change in lease payments results in revised consideration for the lease immediately preceding the change;
      2. any reduction in lease payments affects only payments originally due on or before 30 June 2021; and
      3. there is no substantive change in other terms and conditions of the lease.

The Group has accounted for any change in lease payment resulting from these rental concessions the same way it had accounted for the change in applying HKFRS 16, as if the change were not a modification.

The following table reconciles the operating lease commitments as disclosed in note 27(a) as at

31 March 2019 to the opening balance for lease liabilities recognised as at 1 April 2019:

The right-of-use assets in relation to leases previously classified as operating leases have been recognised at an amount equal to the amount recognised for the remaining lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position at 31 March 2019.

ANNUAL REPORT 2019/20 057

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Changes in accounting policies (continued)
2. 1. Lessee accounting and transitional impact (continued)
      The following table summarises the impacts of the adoption of HKFRS 16 on the Group's consolidated statement of financial position:

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Changes in accounting policies (continued)
2. 1. Leasehold investment property
      Under HKFRS 16, the Group is required to account for all leasehold properties as investment properties when these properties are held to earn rental income and/or for capital appreciation ("leasehold investment properties"). The adoption of HKFRS 16 does not have a significant impact on the Group's financial statements as the Group previously elected to apply HKAS 40, Investment properties, to account for all of its leasehold properties that were held for investment purposes as at 31 March 2019. Consequentially, these leasehold investment properties continue to be carried at fair value.
   2. Lessor accounting
      In addition to leasing out the investment property referred to in paragraph c above, the Group leases out a number of building units as the lessor of operating leases. The accounting policies applicable to the Group as a lessor remain substantially unchanged from those under HKAS17.

Amendments to HKFRS 3, Definition of a business

The Group had early adopted the amendments to HKFRS 3, Definition of business, in the current accounting period. The amendment clarifies and simplifies the assessment on whether an acquired set of activities and assets is not a business. The Group has applied the amendment to transactions for which the acquisition date is on or after 1 April 2019.

1. Subsidiaries and non-controlling interests
   Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.
   An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.
   Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests' proportionate share of the subsidiary's net identifiable assets.

ANNUAL REPORT 2019/20 059

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Subsidiaries and non-controlling interests (continued)
   Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with note 2(m) depending on the nature of the liability.
   Changes in the Group's interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.
   When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or a joint venture.
   In the Company's statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see note 2(j)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).
2. Goodwill
   Goodwill represents the excess of
3. 1. the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group's previously held equity interest in the acquiree; over
   2. the net fair value of the acquiree identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 2(j)).

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Investment properties
   Investment properties are land and/or buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property.
   Investment properties are stated at fair value, unless they are still in the course of construction or development at the end of the reporting period and their fair value cannot be reliably measured at that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in note 2(r)(iii).
   In the comparative period, when the Group held a property interest under an operating lease and used the property to earn rental income and/or for capital appreciation, the Group could elect on a property- by-property basis to classify and account for such interest as an investment property. Any such property interest which had been classified as an investment property was accounted for as if it were held under a finance lease (see note 2(i)), and the same accounting policies were applied to that interest as were applied to other investment properties leased under finance leases. Lease payments were accounted for as described in note 2(i).
2. Property, plant and equipment
   Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 2(j)).
   Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.
   Depreciation is calculated to write off the cost of items of property, plant and equipment and other properties leased for own use less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:
3. • Leasehold land is depreciated over the unexpired term of lease.
   • The Group's interest in buildings situated on leasehold land and other properties leased for

own use are depreciated over the shorter of the unexpired term of lease and the buildings' estimated useful lives.

- Leasehold improvements

- Equipment and machinery

- Furniture and fixtures

- Motor vehicles

- Computers

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

ANNUAL REPORT 2019/20 061

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Intangible assets (other than goodwill)
   Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 2(j)). Intangible assets, if acquired in a business combination, are measured at fair value at acquisition date.
   Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets' estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

Both the period and method of amortisation are reviewed annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

1. Leased assets
   At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.
2. 1. As a lessee
   2. 1. Policy applicable from 1 April 2019
         At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.
         Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Leased assets (continued)
2. 1. As a lessee (continued)
   2. 1. Policy applicable from 1 April 2019 (continued)
         The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see notes 2(g) and 2(j)(ii)), except for the following types of right-of-use asset:

• right-of-useassets that meet the definition of investment property are carried at fair value in accordance with note 2(f).

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Groups presents right-of-use assets that do not meet the definition of an investment property in property, plant and equipment and presents lease liabilities separately.

1. Policy applicable prior to 1 April 2019
   In the comparative period, as a lessee the Group classified leases as finance leases if the leases transferred substantially all the risks and rewards of ownership to the Group. Leases which did not transfer substantially all the risks and rewards of ownership to the Group were classified as operating leases.
   Where the Group had the use of assets held under operating leases, payments made under the leases were charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis was more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received were recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals were charged to profit or loss in the accounting period in which they were incurred.

ANNUAL REPORT 2019/20 063

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Leased assets (continued)
2. 1. As a lessor
      When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. If this is not the case, the lease is classified as an operating lease.

When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. The rental income from operating leases is recognised in accordance with note 2(r)(iii).

1. Credit losses and impairment of assets
2. 1. Credit losses from financial instruments and lease receivables
      The Group recognises a loss allowance for expected credit losses ("ECLs") on financial assets measured at amortised cost (including cash and cash equivalents, trade and other receivables) and lease receivables.
      Measurement of ECLs
      ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).
      Expected cash shortfalls of trade and other receivables are discounted using the effective interest rate determined at initial recognition or an approximation thereof, while lease receivables are discounted using the discount rate used in the measurement of the lease receivable.
      The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
      In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Credit losses and impairment of assets (continued)
2. 1. Credit losses from financial instruments and lease receivables (continued) Measurement of ECLs (continued)
      ECLs are measured on either of the following bases:
   2. • 12-monthECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
      • lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

Loss allowances for trade receivables and lease receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

Significant increases in credit risk

In assessing whether the credit risk of a financial instrument (including a loan commitment) has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when (i) 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 (ii) the financial asset is 90 days past due. The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

• failure to make payments of principal or interest on their contractually due dates;
• an actual or expected significant deterioration in a financial instrument's external or internal credit rating (if available);
• an actual or expected significant deterioration in the operating results of the debtor; and
• existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor's ability to meet its obligation to the Group.

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

ANNUAL REPORT 2019/20 065

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Credit losses and impairment of assets (continued)
2. 1. Credit losses from financial instruments and lease receivables (continued) Significant increases in credit risk (continued)
      ECLs are remeasured at each reporting date to reflect changes in the financial instrument's credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.
      Basis of calculation of interest income
      Interest income recognised in accordance with note 2(r)(iv) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.
      At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
      Evidence that a financial asset is credit-impaired includes the following observable events:
   2. • significant financial difficulties of the debtor;
      • a breach of contract, such as a default or past due event;
      • it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
      • significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
      • the disappearance of an active market for a security because of financial difficulties of the issuer.

Write-off policy

The gross carrying amount of a financial asset or lease receivable 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 amounts 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.

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Credit losses and impairment of assets (continued)
2. 1. Impairment of other non-current assets
      Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:
   2. • property, plant and equipment;
      • intangible assets;
      • goodwill; and
      • investments in subsidiaries in the Company's statement of financial position.

If any such indication exists, the asset's recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

• Calculation of recoverable amount
  The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are 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. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
• Recognition of impairment losses
  An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).
• Reversals of impairment losses
  In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
  A reversal of an impairment loss is limited to the asset's carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

ANNUAL REPORT 2019/20 067

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Inventories
   Inventories are assets which are held for sale in the ordinary course of business, or in the form of materials or supplies to be consumed in the rendering of services.
   Inventories are carried at the lower of cost and net realisable value.
   Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
   Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
   When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
2. Trade and other receivables
   A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due.
   Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 2(j)(i)).
3. Trade and other payables
   Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.
4. Cash and cash equivalents
   Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Cash and cash equivalents are assessed for ECL in accordance with the policy set out in note 2(j)(i).

ANNUAL REPORT 2019/20 069

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Income tax
   Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.
   Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
   Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
   Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.
   The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.
   Where investment properties are carried at their fair value in accordance with the accounting policy set out in note 2(f), the amount of deferred tax recognised is measured using the tax rates that would apply on sales of those assets at their carrying value at the reporting date unless the property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time, rather than through sale. In all other cases, the amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.
   The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Income tax (continued)
   Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.
   Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:
2. • in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
   • in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
   • • the same taxable entity; or
     • different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.
3. Provisions and contingent liabilities
   Provisions are recognised when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.
   Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
4. Revenue and other income
   Income is classified by the Group as revenue when it arises from the sale of goods, the provision of services or the use by others of the Group's assets under leases in the ordinary course of the Group's business.
   Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

ANNUAL REPORT 2019/20 071

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Revenue and other income (continued)
   Further details of the Group's revenue and other income recognition policies are as follows:
2. 1. Sale of skincare and wellness products
      Revenue is recognised when goods are delivered to the customers which is taken to be the point in time when the customer takes possession of and accepts the products.
   2. Provision of beauty and wellness services
      The Group sells prepaid packages for beauty and wellness services which comprise multiple numbers of treatments.
      Revenue from the rendering of services is recognised when the services have been rendered to customers.
      Prepaid packages sold are non-refundable and customers may not exercise all of their contractual rights within the contract period of one year. Those unexercised contractual rights are referred to as "breakage". An expected breakage amount is determined by historical experience and is recognised as revenue in proportion to the pattern of rights exercised by the customers.
      In respect of the value of the prepaid beauty and wellness services for which the related services have not yet been rendered and have not yet expired, adjusted for breakage, is recorded as deferred revenue in the consolidated financial statements.
      Any residual deferred revenue at the end of the contractual service period is fully recognised in profit or loss.
   3. Rental income from operating leases
      Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Variable lease payments that do not depend on an index or a rate are recognised as income in the accounting period in which they are earned.
   4. Interest income
      Interest income is recognised as it accrues using the effective interest method. For financial assets measured at amortised cost or fair value through other comprehensive income (recycling) that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss allowance) of the asset (see note 2(j)(i)).

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Revenue and other income (continued)
2. 1. Government grants
      Government grants are recognised in the statement of financial position initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.
   2. Commission income
      Commission income is recognised when services are rendered.
3. Translation of foreign currencies
   Foreign currency transactions during the year are translated into Hong Kong dollars at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.
   Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into Hong Kong dollars using the foreign exchange rates ruling at the transaction dates. Non- monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Hong Kong dollars using the foreign exchange rates ruling at the dates the fair value was measured.
   The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items, including goodwill arising on consolidation of foreign operations acquired, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.
   On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.
4. Related parties
5. 1. A person, or a close member of that person's family, is related to the Group if that person:
   2. 1. has control or joint control over the Group;
      2. has significant influence over the Group; or
      3. is a member of the key management personnel of the Group or the Group's parent.

ANNUAL REPORT 2019/20 073

NOTES TO THE

FINANCIAL STATEMENTS

2 Significant accounting policies (continued)

1. Related parties (continued)
2. 1. An entity is related to the Group if any of the following conditions applies:
   2. 1. 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).
      2. 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).
      3. Both entities are joint ventures of the same third party.
      4. One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
      5. The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.
      6. The entity is controlled or jointly controlled by a person identified in (a).
      7. A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
      8. 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 Group'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 their dealings with the entity.

1. Segment reporting
   Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group's various lines of business and geographical locations.
   Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

3 Segment information

The Group has two reportable segments as follows:

NOTES TO THE

FINANCIAL STATEMENTS

3 Segment information (continued)

1. Geographic information
   The following table sets out information about the geographical location of (i) the Group's revenue from external customers and (ii) the Group's property, plant and equipment ("specified non-current assets"). The geographical location of customers is based on the location at which the services were provided or the goods delivered. The geographical location of the specified non-current asset is based on the physical location of the asset, in the case of property, plant and equipment. Specified non-current assets do not include investment properties, intangible assets, goodwill, deferred tax assets and deposits.

Note: The Group has initially applied HKFRS 16 at 1 April 2019 using the modified retrospective approach. Under this approach, comparative information is not restated. See note 2(c).

4 Revenue

The principal activities of the Group are the provision of beauty and wellness services and sales of skincare and wellness products.

Since all the revenue comprises revenue recognised from provision of beauty and wellness services and expiry of prepaid beauty packages and sales of skincare and wellness products transferred to customers at a point in time, no revenue derived from services transferred over time.

NOTES TO THE

FINANCIAL STATEMENTS

7 Income tax in the consolidated statement of profit or loss

1. Taxation in the consolidated statement of profit or loss represents:

The provision for Hong Kong Profits Tax for 2020 is calculated at 16.5% (2019: 16.5%) of the estimated assessable profits for the year, except for one subsidiary of the Group which is a qualifying corporation under the two-tiered Profits Tax rate regime.

For this subsidiary, the first HK$2 millions of assessable profits are taxed at 8.25% and the remaining assessable profits are taxed at 16.5%.

The provision for Hong Kong Profits Tax for 2020 is taken into account a reduction granted by the Hong Kong SAR Government of 75% of the tax payable for the year of assessment 2018-19 subject to a maximum reduction of HK$30,000 for each business (2019: a maximum reduction of HK$30,000 was granted for the year of assessment 2017-18 and was taken into account in calculating the provision for 2019).

Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

ANNUAL REPORT 2019/20 079

NOTES TO THE

FINANCIAL STATEMENTS

7 Income tax in the consolidated statement of profit or loss (continued)

1. Reconciliation between the tax expenses and accounting loss at applicable tax rates:

8 Directors' emoluments

Directors' emoluments disclosed with reference to section 383(1) of the Hong Kong Companies Ordinance and Part

2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows:

NOTES TO THE

FINANCIAL STATEMENTS

9 Individuals with highest emoluments

Of the five individuals with the highest emoluments, one (2019: one) is the director whose emolument is disclosed

in note 8. The aggregate of the emoluments in respect of the other four (2019: four) individuals are as follows:

The emoluments of the four (2019: four) individuals with the highest emoluments are within the following bands:

During the year, no emoluments were paid by the Group to any of the directors or the highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office (2019: Nil).

NOTES TO THE

FINANCIAL STATEMENTS

11 Property, plant and equipment and right-of-use assets (continued)

1. As of 31 March 2020 and 2019 the Group's land and buildings at their carrying amounts are situated in Hong Kong under medium-term leases.
2. Impairment loss on property, plant and equipment
   During the year ended 31 March 2020, the Group conducted a review of its property, plant and equipment and determined that the recoverable amount of certain property, plant and equipment and right-of-use assets are estimated to be less than its carrying amount. Based on the results of the review, an impairment loss of HK$9,933,000 (2019: HK$5,103,000) was recognised in "impairment loss on property, plant and equipment" in the Group's consolidated statement of profit or loss. The recoverable amount of the property, plant and equipment is estimated based on value in use calculation.
3. Right-of-useassets
   The analysis of the net book value of right-of use assets by class of underlying asset is as follows:

The analysis of expense items in relation to leases recognised in profit or loss is as follows:

ANNUAL REPORT 2019/20 083

NOTES TO THE

FINANCIAL STATEMENTS

11 Property, plant and equipment and right-of-use assets (continued)

1. Right-of-useassets (continued)

Note: The Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1 April 2019 to recognise right-of-use assets relating to leases which were previously classified as operating leases under HKAS 17. After initial recognition of right-of-use assets at 1 April 2019, the Group as a lessee is required to recognise the depreciation of right-of-use assets, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term. Under this approach, the comparative information is not restated. See note 2(c).

During the year, additions to right-of-use assets were HK$41,520,000 which related to the capitalised lease payments payable under new tenancy agreements.

Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in notes 20(c) and 23, respectively.

1. Ownership interests in leasehold land and buildings held for own use
   The Group holds several buildings units for provision of beauty and wellness services and sales of skincare and wellness. The Group is the registered owner of these property interests, including the whole or part of undivided share in the underlying land. Lump sum payments were made upfront to acquire these property interests from their previous registered owners, and there are no ongoing payments to be made under the terms of the land lease, other than payments based on rateable values set by the relevant government authorities. These payments vary from time to time and are payable to the relevant government authorities.
2. Other properties leased for own use
   The Group has obtained the right to use other properties as its warehouses and beauty centres through tenancy agreements. The leases typically run for an initial period of 1 to 3 years. Lease payments are adjusted periodically to reflect market rentals.
   During the year ended 31 March 2020, the Group leased a number of beauty centres which contain variable lease payment terms that are based on sales generated from the beauty centres and minimum annual lease payment terms that are fixed. These payment terms are common in beauty centres in Hong Kong where the Group operates. No variable lease payment was incurred for the year as the thresholds were not met.

NOTES TO THE

FINANCIAL STATEMENTS

12 Investment properties

Investment properties were revalued as at 31 March 2020. Details of the fair value measurement are disclosed in note 12(a)(i).

As of 31 March 2020, all the Group's investment properties are situated in Hong Kong, with remaining lease term between 10 and 30 years.

1. Fair value measurement of investment properties
2. 1. Fair value hierarchy
      The following table presents the fair value of the Group's investment properties measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:
   2. • Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date
      • Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available
      • Level 3 valuations: Fair value measured using significant unobservable inputs