IMPORTANT

17 July 2013 S.342(1)

If you are in any doubt about any of the contents of this listing document, you should obtain independent professional advice.

TONLY ELECTRONICS HOLDINGS LIMITED通 力 電 子 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability) Stock Code: 1249

LISTING BY WAY OF INTRODUCTION OF THE ENTIRE ISSUED SHARE CAPITAL OF THE COMPANY

ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED

Joint Sponsors

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this listing document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this listing document.

This listing document is published in connection with the Listing on the Main Board of the Stock Exchange and contains particulars given in compliance with the Securities and Futures (Stock Market Listing) Rules (Chapter 571V of the Laws of Hong Kong) and the Listing Rules solely for the purpose of giving information with regard to our Group.

This listing document does not constitute an offer of, nor is it calculated to invite offers for, shares or other securities of our Company, nor have any such shares or other securities been allotted with a view to any of them being offered for sale to or subscription by the public. No Shares will be issued and allotted in connection with, or pursuant to, this listing document.

Your attention is drawn to the section headed “Risk Factors” in this listing document.

Information regarding the proposed arrangements for the listing of, and dealings and settlement of dealings in, our Shares following the Listing is set out in the section headed “Information about this listing document and the Introduction” in this listing document.

S.342(2A)

A1A 1LR 11.073rd Sch 29S.342(1)(a)(iv)LR8.02

LR 11.20

EXPECTED TIMETABLE

i

2013(Note 1)

Register of members of TCLM closes for EGM, record date for EGM and EGM date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 1 August

Register of members of TCLM re-opens and Last day of dealings in TCLM Shares on a cum entitlement basis. . . . . . . . . . . . . . . . . Friday, 2 August

First day of dealings in TCLM Shares on an ex entitlement basis . . . . . . . . . . . . . . . . . .Monday, 5 August

Latest time for lodging transfers of TCLM Shares cum entitlement to our Shares pursuant to the Distribution at . . . . . . . . . . . . 4:30 p.m. on Tuesday, 6 August

Register of members of TCLM closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 7 August

Distribution Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 7 August

Register of members of TCLM re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 8 August

Share certificates of our Shares to be despatched (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 13 August

Dealings in our Shares on the Stock Exchange expected to commence (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 14 August

Payment to Overseas TCLM Shareholders of the net proceeds of the sale of the Shares which they would otherwise receive pursuant to the Distribution on or around (Note 3) . . . . . . . . . . . . . . . . . . . . Wednesday, 28 August

Notes:

(1) All dates and times refer to Hong Kong local time.

(2) The share certificates of our Shares are expected to be despatched to TCLM Qualifying Shareholders on Tuesday, 13 August 2013. The share certificates will only become valid if the Spin-off becomes unconditional. One share certificate of our Share(s) will be issued to each TCLM Qualifying Shareholder for their entitlement to our Share(s), save for share certificates to be issued to HKSCC Nominees Limited, which may be in such denominations as requested by them. In the event the Spin-off does not become unconditional on Tuesday, 13 August 2013, the share certificates of our Shares may not be despatched on Tuesday, 13 August 2013 and dealings in our Shares on the Stock Exchange may not commence on Wednesday, 14 August 2013. In such event, we will make an announcement of the above and, if necessary, of a revised timetable. Investors who trade in our Shares prior to the receipt of the share certificates or prior to such share certificates becoming valid do so entirely at their own risk.

(3) If there are any TCLM Overseas Shareholders at the close of business on the Distribution Record Date, the directors of TCLM will make enquiries, based on legal opinions provided by legal advisers if the directors of TCLM consider it necessary, as to whether the transfer of our Shares to TCLM Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange. If, after making such enquiry, the directors of TCLM are of the opinion that it would be necessary or expedient, on account of either the legal restrictions under the laws of the relevant place or any requirements of the relevant regulatory body or stock exchange in that place, not to transfer our Shares to such TCLM Overseas Shareholders, the TCLM Excluded Shareholders (if any) will be entitled to the Distribution but will not receive our Shares. Instead, they will receive a cash amount equals to the net proceeds of the sale by TCLM (if such proceeds shall exceed HK$100.00) on their behalf of our Shares to which they would otherwise be entitled pursuant to the Distribution after dealings in our Shares commence on the Stock Exchange at the prevailing market price. The net proceeds of such sale will be paid to the relevant TCLM Excluded Shareholders in Hong Kong dollars. Cheques for such net proceeds are expected to be despatched within approximately two weeks following the commencement of dealings in our Shares on the Main Board. Further information is set out in the section headed “the Distribution and Spin-off” in this listing document.

A1A 22

CONTENTS

ii

We have not authorised anyone to provide you with information which is different from

that contained in this listing document. Any information or representation not made in this listing

document must not be relied upon by you as having been authorised by us, the Joint Sponsors, any

of our respective Directors or any other person or party involved in the Introduction.

Page

Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Glossary of technical terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Waivers from strict compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Information about this listing document and the Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Directors and parties involved in the Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Corporate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Industry overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

History and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

The Distribution and Spin-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Directors and senior management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

Relationship with the Remaining TCLM Group and the Controlling Shareholders . . . . . . . . . 155

Continuing connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Substantial shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Future plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

CONTENTS

iii

Page

Appendices

Appendix I – Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

Appendix II – Unaudited pro forma financial information . . . . . . . . . . . . . . . . . . . . . . . . . II-1

Appendix III – Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1

Appendix IV – Summary of the constitution of our Company and

Cayman Islands company law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

Appendix V – Statutory and general information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

Appendix VI – Documents available for inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1

SUMMARY

1

This summary aims to give you an overview of the information contained in this listing document. As this is a summary, it does not contain all of the information which may be important to you. You should read the whole document before you decide to invest in our Shares.

There are risks associated with any investment. Some of the particular risks in investing in our Shares are summarised in the section headed “Risk Factors” in this listing document. You should read that section carefully before you decide to invest in our Shares.

OVERVIEW

We are a leading vertically-integrated manufacturing services provider in the audio-visual (“AV”) products industry, and principally engaged in the research and development, manufacturing and sales of AV Products (excluding TV sets) for third parties’ brands on an ODM basis. Our products generally fall into three categories, namely (i) video products, mainly DVD Players, BD Players and Media Boxes; (ii) audio products, mainly Home Theater System (家庭影院) (“HTS”), Micro & Mini speakers (小型音箱) (“Micro & Mini”), Soundbars, Dockings and Wireless Speakers; and (iii) other products, mainly Advanced Broadcasting System-Satellite (直播星) (“ABS-s”) and components. During the Track Record Period, our Group only conducted a small amount of AV Products business on an OEM basis in 2010.

According to the market research report prepared by Euromonitor which was commissioned by us (the “Euromonitor Report”), we were the largest video products manufacturer and the third largest HTS & Soundbars manufacturer in the PRC, in terms of production volume in 2012. China is the largest manufacturing location for AV Products (excluding TV sets) with products production volume of approximately 261.0 million units in 2012, representing approximately 82.1% of the total global production, and Euromonitor expects that China will continue its leadership over other regions, although the AV production volume in China is expected to slightly decrease to approximately 227.9 million units in 2015. In terms of products development, BD Players, Dockings and HTS & Soundbars are expected to be the key growth drivers with a forecasted CAGR (2012-2015) of approximately 19.0%, 9.3%, and 6.8%, respectively, while DVD Players are expected to decrease with a CAGR (2012-2015) of approximately -16.2% due to the declining demand and replacement by BD Players.

Our principal business model is to fulfill production orders for AV Products (excluding TV sets) on an ODM basis for well-known brands in the global AV consumer products industry, which will be our business focus in the foreseeable future. Along the industry value chain, our current value range mainly covers product design, design and manufacturing of certain components and parts as well as product processing and assembly.

Upstream

Semiconductors Optical pickups

Key electroniccomponents

manufacturing

Midstream

Our business scope*

Product and innovative design

Electronic hardware development

Application Software

development Mechanical parts

development

Product design

Plastic parts Electroacoustic

parts Remote

controllers Loader

Mechanism

Components and parts manufacturing

SMT PCB assembly Final assembly

Processing andassembly

Sales and distribution

Downstream

After-sales service

LR 11.07A1A 28(1)(a)3rd Sch 13rd Sch 33rd Sch 29

SX1-8

SX1-4

SX2-4

SX2-4

* The capabilities and services in category of “Product design” are provided in our ODM business and are not included in our OEM business.

SX1-4

SUMMARY

2

We commenced our DVD Players manufacturing business on an ODM/OEM basis in 2002, and have since then expanded and diversified our product portfolio progressively to include audio products and other products such as ABS-s. Among our products, the sales of DVD Players accounted for approximately 66.0%, 64.2%, 34.4% and 25.1% of our turnover for each of the three years ended 31 December 2012 and the three months ended 31 March 2013. However, in view of the shrinking global market demand for DVD Players in recent years according to Euromonitor, we expect that our future growth will mainly be driven by, inter alia, the further increase of our market share of the traditional AV Products (excluding TV sets) (such as BD Players, HTS and Micro & Mini), our expansion into the growing new audio products sector and our continued development in the ABS-s market in China. During the three years ended 31 December 2012, the turnover of our video products represented a CAGR of approximately -15.0%, while the turnover of our audio products and other products represented a CAGR of approximately 92.2% and 34.3%, respectively.

Based on our Company’s unaudited management records, the following table sets out the breakdown of our turnover by product category and the respective CAGRs for the periods indicated:

Year ended 31 December 2010-2012 Three months ended 31 March

2010 2011 2012 CAGR 2012 2013 (unaudited) HK$’000 % to total Material HK$’000 % to total Material HK$’000 % to total Material % HK$’000 % to total Material HK$’000 % to total Material turnover gross profit turnover gross profit turnover gross profit turnover gross profit turnover gross profit margin(4) margin(4) margin(4) margin(4) margin(4)

Video products 3,312,275 88.0 3,625,725 88.4 2,393,832 65.5 –15.0 564,361 70.2 394,975 44.1 – DVD Players 2,482,718 66.0 21.5 2,632,772 64.2 18.8 1,257,652 34.4 18.2 –28.8 320,397 39.8 18.7 225,011 25.1 19.9– BD Players 829,557 22.0 19.3 968,646 23.6 20.1 1,122,765 30.7 22.4 16.3 241,290 30.0 22.9 164,830 18.4 23.2– Media Boxes – 0.0 N/A 24,307 0.6 19.9 13,415 0.4 24.4 N/A (1) 2,674 0.4 21.1 5,134 0.6 25.5

Audio products 236,157 6.3 451,058 11.0 872,619 23.9 92.2 126,102 15.7 223,418 25.0 – Traditional(2) 236,157 6.3 12.6 443,858 10.8 18.3 690,771 18.9 22.3 71.0 116,884 14.5 21.8 170,009 19.0 23.3– New(3) – 0.0 N/A 7,200 0.2 15.3 181,848 5.0 25.0 N/A (1) 9,218 1.2 11.8 53,409 6.0 26.6

Other products 214,217 5.7 22,671 0.6 386,620 10.6 34.3 113,055 14.1 276,256 30.9 – ABS-s 197,512 5.2 16.0 2,580 0.1 19.3 366,431 10.0 23.7 36.2 108,380 13.5 21.9 247,908 27.7 24.3– Components 16,705 0.5 38.5 20,091 0.5 36.6 20,189 0.6 33.2 9.9 4,675 0.6 37.1 28,348 3.2 36.1

Total 3,762,649 100.0 20.2 4,099,454 100.0 19.1 3,653,071 100.0 21.2 –1.5 803,518 100.0 20.9 894,649 100.0 23.3

Notes:(1) The CAGR is not available as no revenue was recorded for Media Boxes and new audio products in 2010.(2) Mainly HTS and Micro & Mini.(3) Mainly Soundbars, Dockings and Wireless Speakers.(4) Included the unallocated costs and gross profit margin for the years ended 31 December 2010, 2011 and 2012 and for the

three months ended 31 March 2013 were 11.4%, 9.5%, 11.7% and 11.6%, respectively. The nature of unallocated costs mainly represent staff costs, patent fees, depreciation, transportation costs and rental expenses, etc.

Suppliers and customers

We use various components throughout our manufacturing process. Our suppliers are mainly from the Mainland China, Taiwan, Japan, South Korea and the U.S. For the years ended 31 December 2010, 2011 and 2012 and for the three months ended 31 March 2013, our domestic purchases accounted for approximately 53.9%, 58.5%, 58.1% and 60.8% of the total purchases, respectively. For the three months ended 31 March 2013, we had around 460 suppliers. We have developed stable business relationships with our five largest suppliers for each of the three years ended 31 December 2012 and for the three months ended 31 March 2013, ranging from three to twelve years. During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, purchases from our five largest suppliers accounted for approximately 18.9%, 25.2%, 24.4% and 21.0% of our total purchase, respectively, and purchase from our largest supplier accounted for approximately 4.4%, 9.0%, 9.4% and 8.8% of our total purchase, respectively.

SX2-8

SUMMARY

3

With our track record of providing high-quality ODM products and our accumulated know-how, we have established a solid customer base, comprising well-known international AV Products brands, including Philips, LG and Toshiba etc. Our business relationship with our top five customers for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 ranges from one to twelve years. We believe that, during our long-term cooperation with these well-known brands, we have enhanced our product knowledge, obtained latest market trends and first-hand industry information, and improved our technological and production capabilities in response to their stringent requirements, which in turn, enabled us to maintain competitiveness. For the years ended 31 December 2010, 2011 and 2012 and for the three months ended 31 March 2013, sales to our five largest customers accounted for approximately 87.8%, 88.2%, 71.4% and 69.7% of our total turnover, respectively, and sales to our largest customer accounted for approximately 28.6%, 32.0%, 32.1% and 35.6% of our total turnover, respectively.

Research and Development

In the fast-changing consumer electronics market, in order to pro-actively meet customers’

requirements, we plan to take the initiative in new products innovation which reflects the market trend

(such as Wireless Speakers) by enhancing our insight in consumers and technology pre-research, in an

effort to continuously provide higher value-added ODM solutions.

• Video products: In view of the trend of three-networks convergence, we plan to expand

our product portfolio to include internet streaming media-based video products through the

enhancement of our software capacity and user experience.

• Audio products: We plan to continue to increase our investments in the research and

development of electroacoustic, wireless transmission, network applications and new

mechanical parts, to develop Soundbar products supporting smart television sets and

Docking/Wireless Speaker products supporting smartphones, thereby enriching our product

mix.

• Other business: We will further invest in the research of digital satellite signals technology,

and actively seek for the ABS-s business in China and the DVB-s (Digital Video

Broadcasting – Satellite) business internationally.

With ODM business in relation to the AV Products (excluding TV sets) being our main business, we focus on, and actively invest in, research and development. Our research and development expenditure increased year by year, amounting to approximately 1.9%, 2.2%, 4.3% and 4.7% of our turnover, respectively, during the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013. We established our research and development teams in Huizhou, Shenzhen and Xi’an totalling 525 members as at 31 March 2013, of which (i) our team in Huizhou is principally responsible for the development of customized products and new product introduction, and we established a new electroacoustic products development team there in 2012, including senior experts from Japan; (ii) our team in Shenzhen is principally responsible for the planning and preliminary development for future technology platforms; and (iii) our team in Xi’an is primarily focusing on software development to support our expansion into multimedia internet applications. For details of our research and development, please refer to the section headed “Business – Research and Development” on page 129 in this listing document.

As at the Latest Practicable Date, we had registered 73 patents in China and 5 of which were invention patents. Further details of the intellectual property rights of our Group are set out in the sections headed “Business – Intellectual Property” and “Further Information about The Business of Our Group – Material intellectual property rights of our Group” in Appendix V on pages 130 and V – 12 to this listing document, respectively.

SX1-8

SX1-4

SUMMARY

4

Production

As at the Latest Practicable Date, our production facilities for AV Products (excluding TV sets) were located in Huizhou, Guangdong Province, China with a total gross floor area of approximately 64,497 sq.m.. Our existing production facility for AV Products (excluding TV sets) has five workshops, comprising nine SMT production lines, three PCB assembly lines and final assembly workshops. Through years of cooperation with well-known international brands, we have improved the production efficiency and manufacturing quality in respect of our AV Products (excluding TV sets), and our production expertise has met the international quality standards and customers’ requirements. In order to further improve the competitiveness of our products, we have acquired the manufacturing capability for loaders components and speakers through the vertical integration of components and parts productions. The production lead time for our video and audio products, the period of time starting from the receipt of production orders from customers to the delivery of products to the address designated by the customer, ranges from 2 weeks to 3 weeks.

The table below sets out the designed production capacity, actual output and utilization rate of the final assembly workshops at our existing production facility for AV Products (excluding TV sets) during the Track Record Period:

For the three months ended For the year ended 31 December 31 March

Final assembly workshops 2010 2011 2012 2013 (’000 units) (’000 units) (’000 units) (’000 units) (in terms of (in terms of (in terms of (in terms of final products) final products) final products) final products)

Designed production capacity(1),(2) 20,160 20,160 15,760 (4) 3,940Actual output 16,957 19,905 14,905 3,600Utilization rate(3) 84.1% 98.7% 94.6% 91.3%

Notes:

1. The computation of the designed capacity of our production facility is based on a large number of assumptions, which include the daily operation time, the number of working days, the capacity of each production line per hour and the total number of our production lines for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

2. It is assumed that our production facilities operate 12.5 hours per day, 25.5 days per month and 11.5 months per year (after deducting 0.5 month of statutory holidays) to calculate the designed production capacity.

3. It is derived from the actual output being divided by the annual designed production capacity for the relevant periods.

4. Our production capacity depends on the product mix to be produced in that year. In 2012, the proportion of output of audio products increased. As the level of complexity required to produce audio products increased and the Standard Time for the production of an audio product is more than that of a video product, the production capacity in 2012 is adjusted downward.

To support our future business development, our new production facility for AV Products (excluding TV sets) located in Zhongkai High-tech Zone, Huizhou City, with an annual designed production capacity of approximately 17 million units of final products and 18 million units of speakers, had partially commenced operations as at the Latest Practicable Date, and substantially all of the equipment and machineries at our existing production facility for AV Products (excluding TV sets) will be relocated, upon which such facility will be closed. The production facilities of Regency Optics-Electron will not be relocated to the new production facility. As our existing equipment and machineries are being moved by stages to the new production facility, which is close to our existing production facility being in Huizhou, the operations of our new production facility has partially commenced as at the Latest Practicable Date, and it is currently expected that the relocation of our production plant will be completed around the end of August 2013 and the expenses involved for such relocation will be around HK$3.8 million. Our Directors consider that the relocation of our production facility is not expected to have any material adverse effect on our business and operations.

SX1-11

SUMMARY

5

Industry Recognition

We have obtained various awards from governments and other authorities in the period from 2004 to 2013 in recognition of our market position and achievements in the industry, including the First Prize for Outstanding Quality Management Circle (QCC Award) in China’s Electronic Information Industry. We have also been accredited with various industrial certifications for our products as well as our internal management and control system, including ISO9001:2008. Please refer to the section headed “Business – Awards, Recognitions and Certifications” on page 132 in this listing document for further details.

Recent Development

Subsequent to the Track Record Period, our business remains to be driven by the AV Products (excluding TV sets) (such as DVD Players, BD Players, HTS and Micro & Mini). Based on our Company’s unaudited management records, our turnover and gross profit margin for the five months ended 31 May 2013 were approximately HK$1,627.8 million and 12.2%, respectively, and the following table sets out the breakdown of our turnover by product category for the periods indicated:

For the For the Year ended 31 December three months ended two months ended

2010 2011 2012 31 March 2013 31 May 2013 Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$000 HK$/unit ’000 units HK$000 HK$/unit

Video productsDVD Players 14,590 2,482,718 170 17,108 2,632,772 154 9,523 1,257,652 132 1,825 225,011 123 1,650 205,054 124BD Players 1,397 829,557 594 1,965 968,646 493 2,726 1,122,765 412 428 164,830 385 467 160,538 344Media Boxes – – – 114 24,307 213 58 13,415 231 20 5,134 257 9 2,418 269

Sub-total 15,987 3,312,275 207 19,187 3,625,725 189 12,307 2,393,832 195 2,273 394,975 174 2,126 368,010 173

Audio products

Traditional 372 236,157 635 686 443,858 647 986 690,771 701 260 170,009 654 225 147,337 655

New (1) – – – 27 7,200 267 592 181,848 307 131 53,409 408 233 92,055 395

Sub-total 372 236,157 635 713 451,058 633 1,578 872,619 553 391 223,418 571 458 239,392 523

Other products

ABS-s 598 197,512 330 5 2,580 516 1,020 366,431 359 701 247,908 354 288 112,042 389

Components N/A 16,705 N/A N/A 20,091 N/A N/A 20,189 N/A N/A 28,348 N/A N/A 13,681 N/A

Sub-total 598 214,217 N/A 5 22,671 N/A 1,020 386,620 N/A 701 276,256 N/A 288 125,723 N/A

3,762,649 4,099,454 3,653,071 894,649 733,125

Note: (1) Mainly Soundbars, Dockings and Wireless Speakers.

Subsequent to the Track Record Period and up to 31 May 2013, based on our Company’s unaudited management records, the total amounts of production orders from and the sales revenue attributable to our Japanese customers had increased and not been adversely affected by the recent depreciation of Yen. Our Directors confirm that there has been no material adverse change in the financial or trading position or prospects of our Group since 31 March 2013 (being the date to which the latest audited combined financial statements of our Group were made up) and up to the date of this listing document.

SX1-8

SX3-8

SX3-8

SUMMARY

6

As at the Latest Practicable Date, we had completed the construction and the renovation and equipment fitting of our new production facility, and had partially commenced operations of such production facility. Please refer to the section headed “Business – Production Facilities – Our new production facility” on page 114 in this listing document for further details.

As particularly disclosed in the section headed “History and Development” on page 83 in this listing document, a subscription agreement entered into among TCLM, Star Force, Run Fu and Tonly Electronics for the subscription of the shares of Tonly Electronics by Run Fu and Star Force was completed on 28 December 2012 as a result of which, Tonly Electronics became owned as to 80% by TCLM, 9.2% by Star Force and 10.8% by Run Fu. As Tonly Electronics is the holding company of all our operating subsidiaries, since 1 January 2013, 20% of our profit would be shared by Run Fu and Star Force, which are the non-controlling shareholders of Tonly Electronics.

COMPETITIVE STRENGTHS

We believe our market position and our potential for further growth are attributable to the following competitive strengths:

• Solidinternationalanddomesticcustomerbase

• Dedicationtoresearchanddevelopmentandproductinnovation

• Adoption of advanced production technology to achieve vertical integration of productioncapabilities

• Professional,stableandexperiencedmanagementteam

BUSINESS STRATEGIES

Our business focus is shifting from DVD and BD Players to a diversified product portfolio that includes Media Boxes and audio products. Our objective is to become a leading ODM provider in the international AV Product market. To achieve this, we plan to implement the following strategies:

• Expandthecooperationwithourexistingcustomersandexpandourcustomerbase

• Optimise production capacity allocation and enhance production efficiency to increaseprofitability

• Continuetofocusonproductandtechnologydevelopmentandproducttransformation

• Buildstrongmanagementandoperationalteams

BACKGROUND INFORMATION OF OUR GROUP AND THE TCLM GROUP

TCLM was incorporated in the Cayman Islands on 23 April 1999 and have been listed on the Main Board since 26 November 1999. TCLM is principally engaged in research and development, manufacture and sale of consumer electronic products including TV sets. Our Company was incorporated in the Cayman Islands on 8 February 2013, as the vehicle company holding our Group. Our Group is principally engaged in the business of research and development, manufacture and sale of AV Products (excluding TV sets) on ODM basis. We commenced our DVD Player manufacturing business on an ODM/OEM basis in 2002. As of the date of this listing document, our Company is wholly-owned by TCLM.

SUMMARY

7

On 13 March 2013, TCLM submitted a proposal for the Spin-off to the Stock Exchange pursuant

to Practice Note 15 to the Listing Rules and has obtained confirmation from the Stock Exchange on 17

April 2013 that it may proceed with the proposal. Immediately following completion of the Distribution,

the Remaining TCLM Group will be principally engaged in the manufacturing and sale of TV sets

(excluding AV Products), whereas our Group will focus on the ODM of AV Products (excluding TV sets).

The Spin-off is aiming to allow separate platforms for the two businesses of the TCLM Group with clear

delineation.

The board of directors of TCLM believes that the Spin-off will bring about the following benefits to

both TCLM and our Company:

• TCLM and the Company, operating in different business segments, are believed to have

different growth paths and different business strategies. By delineating clearly between

TCLM’s TV products and our AV ODM/OEM products, the Spin-off will allow separate

platforms for the businesses of the two groups, while ensuring to the extent possible that

potential negative effects cast on the amount of orders given by our clients’ group to us,

as a result of the potential conflict due to the fact that the Company is currently merely a

subsidiary of the TCLM, are avoided;

• theSpin-offwillcreatetwogroupsofcompaniesandwillofferinvestorswithanopportunity

to participate in the future development of both the TCLM Group as well as us and flexibility

to invest in both or either of the groups;

• theSpin-offwillenablethemanagementofTCLMtocontinuetofocusonbuildingthecore

businesses of the TCLM Group, thereby enhancing the decision-making process and its

responsiveness to market changes;

• theSpin-offwillprovideamechanismtoattractandmotivateourmanagementtobedirectly

in charge of our operating and financial performance on a standalone basis;

• the Spin-off will provide separate fund-raising platforms for the TCLMGroup and for us

with respect to their respective operations and future expansion, which will in particular

boost our smooth transformation towards a dedicated company for its business; and

• investors will be provided with more details of our results of operations and can better

analyse a more tightly focused company where risk issues are isolated, identified and

understood.

Upon the completion of the Distribution and the Listing, our Company will cease to be the

subsidiary of TCLM and our Group will be spun off from the TCLM Group. As the Listing will not

involve fund raising and offering of new Shares, the TCLM Qualifying Shareholders will have the same

attributable interest in both groups before and immediately after Listing.

SUMMARY

8

THE DISTRIBUTION

On 15 July 2013, the board of directors of TCLM declared a conditional special interim dividend to the TCLM Shareholders which will effectively distribute the entire issued share capital of our Company as at the Distribution Record Date. The Distribution is subject to TCLM Shareholders’ approval as required under article 152 of the articles of association of TCLM. Pursuant to the Distribution, each TCLM Qualifying Shareholder or TCLM Excluded Shareholder will be entitled to 1 Share or equivalent cash payment (after deducting expenses) (as appropriate) for every 10 TCLM Shares held as at the close of business on the Distribution Record Date. Based on the issued share capital of TCLM as at the Latest Practicable Date and assuming it will remain unchanged as at the close of business on the Distribution Record Date, a total of 133,109,811 Shares representing the entire issued share capital of our Company in issue will be distributed. Our Company has appointed Kim Eng Securities (Hong Kong) Limited as our agent in providing matching service to the TCLM Qualifying Shareholders to facilitate the disposal of any Shares which the TCLM Qualifying Shareholders may receive in odd lots. For details, please refer to the announcement dated 17 July 2013 made by TCLM.

If there are any TCLM Overseas Shareholders at the close of business on the Distribution Record Date, the directors of TCLM will make enquiries, based on legal opinions provided by legal advisers if the directors of TCLM consider it necessary, as to whether the transfer of our Shares to the TCLM Overseas Shareholders may contravene the applicable securities legislations of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange. If, after making such enquiry, the directors of TCLM are of the opinion that it would be necessary or expedient, on account either of the legal restrictions under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place, not to transfer our Shares to such TCLM Overseas Shareholders, the TCLM Excluded Shareholders (if any) will be entitled to the Distribution but will not receive our Shares. Instead, they will receive a cash amount equals to the net proceeds of the sale by TCLM, if such net proceeds shall exceed HK$100.00, on their behalf of our Shares to which they would otherwise be entitled pursuant to the Distribution after dealings in our Shares commence on the Stock Exchange at the prevailing market price. If the net proceeds shall be below HK$100.00, the Company will retain such amount in the Company’s account. The net proceeds of such sale will be paid to the relevant TCLM Excluded Shareholders in Hong Kong dollars. Cheques for such net proceeds are expected to be despatched within approximately two weeks following the commencement of dealings in our Shares on the Main Board. As at the Latest Practicable Date, there was no TCLM Overseas Shareholder.

SPIN-OFF

The Spin-off will be implemented in compliance with the Listing Rules including Practice Note 15 to the Listing Rules. According to the Listing Rules including Practice Note 15 to the Listing Rules, approval by the shareholders of TCLM is not required for the Spin-off, while the Distribution and the Non-Competition Arrangements are subject to the approval by the TCLM Shareholders as required under Article 152 of the articles of association of TCLM and Chapter 14A of the Listing Rules respectively. As the Spin-off will be effected by way of introduction with no new offering of new Shares or any other securities, there will be no dilution of the attributable interest of the TCLM Qualifying Shareholders.

The Spin-off is conditional upon:

(a) the Stock Exchange approving the Spin-off;

(b) the approval of the Non-Competition Arrangements by TCLM Shareholders at the EGM;

(c) the approval of the Distribution by TCLM Shareholders at the EGM; and

(d) the Listing Committee granting listing of, and permission to deal in, our Shares in issue as at the Distribution Record Date on the Main Board.

SUMMARY

9

OUR SHAREHOLDERS

Immediately before the Distribution and as at the date of this listing document, TCL Corporation is our ultimate Controlling Shareholder, whose indirect interests are held through its direct wholly owned subsidiary, T.C.L. Industries, and its indirect non-wholly owned subsidiary, TCLM which directly holds our entire issued share capital. Immediately after the Distribution and the Listing, TCL Corporation will remain to be our ultimate Controlling Shareholder, while TCLM will become our sister company held indirectly by TCL Corporation. TCL Corporation is a major PRC conglomerate that designs, develops, manufactures and markets a wide range of the electronic, telecommunications, information technology and electrical products.

Pursuant to the Deed of Non-Competition entered into among our Company, TCL Corporation and T.C.L. Industries, each of TCL Corporation and T.C.L. Industries (together the “Covenantors”) shall undertake and covenant with our Company that it shall not and shall procure that its associates not to, directly or indirectly, carry on or be engaged or interested in the research and development, manufacturing and sales relating to AV Products (excluding TV sets) from time to time.

Notwithstanding the undertaking above,

1. there is no restriction on the Covenantors directly or indirectly engaging or having an interest in or continuing to engage or have an interest in the Relevant Business if they are so involved through their respective direct or indirect interest in our Group;

2. there is no restriction on the Covenantors either directly or indirectly holding or being interested in shares or other securities in any company which is engaged or interested in any Relevant Business and whose Shares or securities are listed on a stock exchange (the “Subject Company”) provided that (i) the aggregate number of shares held by the Covenantors or in which they are interested does not amount to more than 10% of the issued shares of the Subject Company; (ii) the revenue or assets of the Subject Company attributable to the Relevant Business recorded in the consolidated audited accounts of the latest full financial year immediately before the acquisition is less than 20% of its consolidated total revenue or consolidated total assets (as the case may be); or (iii) neither the Covenantors nor any of their subsidiaries can exercise any control, directly or indirectly, over the board of directors of the Subject Company; and

3. there is no restriction on the Covenantors directly or indirectly engaging in the sales of AV Products (excluding TV sets) which are purchased by the Covenantors or any of their subsidiaries from our Group with the sole purpose of such subsequent sales to customers.

Pursuant to the Second Variation Deed entered into among TCL Corporation, T.C.L. Industries and TCLM, research and development, manufacturing and sales relating to AV Products (excluding TV sets) shall cease to be included in the scope of the Restricted Activity (as defined in the Original Non-Competition Deeds) to the only extent that TCL Corporation and T.C.L. Industries or any of them carry on or engage in research and development, manufacturing and sales relating to AV Products (excluding TV sets) by way of equity investment in our Company.

After the completion of the Distribution and the Listing, there will be certain continuing connected transactions between our Group and the TCL Corporation Group (including the Remaining TCLM Group). Details of these continuing connected transactions are set out in the section headed “Continuing Connected Transactions” on page 166 in this listing document.

SX2-3

SUMMARY

10

FUTURE PLANS

Please see the section headed “Business – Business Strategies” on page 106 in this listing document for a detailed description of our future plans.

FINANCIAL INFORMATION

Our results of operations are subject to the influence of numerous factors, the most significant of which are set out below:

• Globalmarketdemandforourproducts;• Researchanddevelopmentcosts;• Materialscostsandlaborcosts;• Exchangeratesandhedging;• Productmixandpricing;and• Preferentialtaxratesandincentives.

The following tables set forth the summary of the combined financial information of our Group for the Track Record Period. Our Company attained net profit margins of 4.3%, 2.3%, 2.6% and 3.9% for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively. We have derived the summary from our combined financial information set forth in the Accountants’ Report in Appendix I to this listing document. The summary below should be read together with the combined financial information in Appendix I to this listing document, including the accompanying notes.

Summary of Combined Statements of Comprehensive Income Three months Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK’000 HK’000 (unaudited)

TURNOVER 3,762,649 4,099,454 3,653,071 803,518 894,649

Cost of sales (3,334,589) (3,711,861) (3,225,620) (727,859) (791,307)

Gross profit 428,060 387,593 427,451 75,659 103,342

Other income and gains, net 51,028 70,045 110,810 48,270 57,506Selling and distribution costs (139,783) (124,087) ( 141,929) (24,576) (36,852)Administrative expenses (61,476) (114,565) (125,501) (25,361) (38,878)Research and development costs (70,039) (89,584) (156,653) (30,800) (42,486)Other operating expenses, net 1,176 2,401 – – (386)

208,966 131,803 114,178 43,192 42,246

Finance costs (5,378) (7,457) (3,514) (525) (2,133)Share of profits or losses of an associate – 6 2 (88) (38)

PROFIT BEFORE TAX 203,588 124,352 110,666 42,579 40,075

Income tax expense (41,527) (29,897) (15,920) (9,307) (5,376)

PROFIT FOR THE YEAR/PERIOD (Note 1) 162,061 94,455 94,746 33,272 34,699

Note:

1. Since 1 January 2013, 20% of our profit would be shared by Run Fu and Star Force, which are the non-controlling shareholders of Tonly Electronics.

SX1-4

SX1-4

3rd Sch 27

SFC1-6

SUMMARY

11

Summary of Combined Statements of Financial Position As at 31 December As at 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Total non-current assets 115,602 124,226 230,832 282,269Total current assets 2,633,388 2,657,741 3,326,361 3,285,961Total current liabilities 2,215,918 2,129,982 3,151,829 3,126,673Total non-current liabilities 11,376 14,006 3,265 3,632

Net assets 521,696 637,979 402,099 437,925

Equity attributable to owners of the parent 521,696 637,979 301,480 330,100Non-controlling interests – – 100,619 107,825

Total equity 521,696 637,979 402,099 437,925

Our turnover increased from the year ended 31 December 2010 to the year ended 31 December 2011. The increase was mainly attributable to an increase in sales of video products. Turnover from our video products increased, primarily due to an increase in sales volume of DVD Players and BD Players. The increase in sales of audio products also contributed to the increase in our total turnover. Turnover from our audio products increased, primarily due to increase in sales volume of audio products (both traditional and new audio products recorded year-on-year increase in sales volume). Our turnover decreased from the year ended 31 December 2011 to the year ended 31 December 2012. The decrease was mainly attributable to decrease in sales of video products. Turnover from our video products decreased, primarily due to shrink of market demand for DVD Players. Our turnover for the three months ended 31 March 2013 increased as compared to the three months ended 31 March 2012. The increase was mainly attributable to increase in sales of ABS-s products.

The decrease in gross profit from the year ended 31 December 2010 to the year ended 31 December 2011 was primarily due to (i) reduction in average selling price of DVD Players, and (ii) the postponement by PRC government of its public tender for ABS-s in year 2011. The increase in gross profit from the year ended 31 December 2011 to the year ended 31 December 2012 and for the three months ended 31 March 2013 as compared to the three months ended 31 March 2012 was primarily due to the increase in gross profit of our audio products and other products, which was the result of (i) enforcing effective costs control for traditional audio products by more stringent vendor selection and wider use of automated production facilities, which results in higher gross profit margin and (ii) introduction of new audio products such as dockings and soundbar with higher material gross profit margin; and (iii) the re-opening of public tender for ABS-s in year 2012 in which we successfully bade the contracts for the supply of ABS-s to a number of provisional radio, film and television bureaus in the PRC.

The significant decrease in equity attributable to owners of the parent from approximately HK$638.0 million as at 31 December 2011 to approximately HK$301.5 million as at 31 December 2012 was primarily due to (i) a dividend of approximately HK$502.6 million being declared for the year ended 31 December 2012; and (ii) a subscription agreement entered into among TCLM, Star Force, Run Fu and Tonly Electronics for the subscription of the shares of Tonly Electronics by Run Fu and Star Force was completed on 28 December 2012 and the effect of which was that Tonly Electronics became owned as to 80% by TCLM, 9.2% by Star Force and 10.8% by Run Fu. The abovementioned decrease in equity attributable to owners of the parent was partially offset by the profit for the year ended 31 December 2012.

SUMMARY

12

Three months Year ended 31 December ended 31 March

2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(unaudited)

Net cash flows from/(used in)

operating activities 533,275 67,050 296,227 178,365 (163,247)

Net cash flows from/(used in)

investing activities (895,214) 476,483 198,212 16,732 (42,523)

Net cash flows from/(used in)

financing activities 745,059 (623,204) 8,503 (123,892) (40,764)

NET INCREASE/(DECREASE)

IN CASH AND CASH

EQUIVALENTS 383,120 (79,671) 502,942 71,205 (246,534)

Cash and cash equivalent at

beginning of year/period 179,800 568,997 492,841 492,841 995,562

Effect of foreign exchange rate

changes, net 6,077 3,515 (221) 1,096 (163)

Cash and cash equivalent at

end of year/period 568,997 492,841 995,562 562,142 748,865

For the three months ended 31 March 2013, we had net cash flows used in operating activities of

HK$163.2 million, primarily attributable to: (i) profit before tax of HK$40.1 million and (ii) an decrease

in inventories of HK$20.4 million, partially offset by: (i) an increase in trade receivables of HK$90.0

million; (ii) a decrease in trade payable of HK$28.8 million and a decrease in other payables and accruals

of HK$74.3 million. For further details, please refer to the section headed “Financial Information –

Liquidity and capital Resources” on page 227 in this listing document.

SUMMARY

13

DERIVATIVE FINANCIAL INSTRUMENTS

Our use of derivative financial instruments is solely limited to hedging against foreign exchange rates and interest rates. In light of the import-export nature of our business and our significant US dollar-denominated receivables from our customers and to hedge against the risk of fluctuation of the US dollar against the Renminbi, we entered into certain foreign-exchange forward contracts to sell US dollars and buy Renminbi at specified exchange rates on specified future dates. In addition, we also entered into certain interest rate swaps contracts to manage our interest rate exposures during the Track Record Period.

For the three months ended For the year ended 31 December 31 March 2010 2011 2012 2013 HK$ in million HK$ in million HK$ in million HK$ in million

Unrealised fair value gains/(loss)

on derivative financial instruments 0.2 2.1 20.4 (6.2)

Realised gain on settlement of

derivative financial instruments 11.2 32.2 30.7 11.0

As at 31 December As at 31 March 2010 2011 2012 2013 RMB in million RMB in million RMB in million RMB in million

Buy-RMB/sell-US$ forward

currency contracts outstanding 831 2,006 1,405 1,456

USD in million USD in million USD in million USD in million

Pay-fix/receive floating interest

rate swap contracts outstanding 95.7 – 104.8 121.7

If the value of RMB or US$ depreciated to zero before the above contracts are settled or the 3-month LIBOR rate fell to zero, the maximum exposure of the derivative contracts entered into during the Track Record Period would be the nominal value of the derivative contracts the Company entered into during the Track Record Period as stated above. For details of our hedging policy, please refer to the section headed “Financial Information – Quantitative and Qualitative Disclosure about Market Risks” on page 242 in this listing document.

LISTING EXPENSES

The estimated total listing expenses in relation to the Listing are approximately HK$28.0 million. Such listing expenses would be shared by TCLM and our Company on a 50:50 basis. No listing expenses were recognised as prepayments as at 31 December 2010 and 2011. For the year ended 31 December 2012 and the three months ended 31 March 2013, listing expenses of HK$8.5 million and HK$0.7 million, respectively, were incurred and accrued. We estimate that a further sum of approximately HK$4.8 million will be incurred by August 2013 as costs associated with the Listing to the extent they are incremental costs not attributable to the equity transaction and charged to our combined statement of comprehensive income. Our listing expenses mainly comprise professional fees in relation to the Listing.

SX1-8

SUMMARY

14

DISCLOSURE REQUIRED UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Group had deposits with a subsidiary of TCL Corporation of approximately HK$43.3 million, HK$141.5 million, HK$614.8 million and HK$310.4 million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. Pursuant to Rule 13.13 of the Listing Rules, such deposits constitute an advance to an entity by our Group that exceeds 8% of the total assets of our Group as at 31 December 2012 and 31 March 2013, respectively. For details of such deposits, please see the section headed “Continuing Connected Transactions” on pages 184 to 190 in this listing document.

Save as disclosed above, our Directors confirmed that, as at the Latest Practicable Date, there were no circumstances that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

DIVIDEND POLICY

For the year ended 31 December 2012, our Group had declared dividends of approximately HK$502.6 million of which approximately HK$120.0 million was settled in 2012 and the remaining balance of approximately HK$382.6 million will be settled by cash out of our internal resources before Listing. For details of our dividend policy, please refer to the section headed “Financial Information – Dividend Policy” on page 247 in this listing document.

MAJOR RISK FACTORS

Our Directors believe that there are certain risks involved in our operations. Many of these risks are beyond our control and can be categorized into: (i) risks relating to our Group; (ii) risks relating to the industry; (iii) risks relating to conducting business in the PRC; and (iv) risks relating to the Introduction.

We believe that the following are some of the major risks that may have a material adverse effect on us:

• Wederive a significantportionofour sales froma small numberofmajor customers.Anydecrease in our sales from our major customers or significant change in the operations or financial condition of our major customers would materially and adversely affect our business, financial condition, results of operations and prospect.

• Wearesubjecttoriskofcurrencyfluctuationsandanyongoinghedgingtransactionsmaynotfully shield us from foreign-exchange fluctuations.

• The sales and profitability of our ODM products are significantly dependent on ourcustomers’ business performance.

The risks mentioned above are not the only significant risks that may affect our business and results of operations. As different investors may have different interpretations and standards for determining materiality of a risk, you are cautioned that you should carefully read the entire section headed “Risk Factors” on pages 25 to 43 in this listing document.

DEFINITIONS

15

In this listing document, unless the context otherwise requires, the following expressions shall have the following meanings.

“Articles” or “Articles of the articles of association of our Company, as amended from time Association” to time

“associate(s)” has/have the meaning ascribed to it under the Listing Rules

“Board” our board of Directors

“Business Day(s)” any day(s) (excluding Saturday(s) and Sunday(s)) in Hong Kong on which licenced banks in Hong Kong are open for banking business throughout their normal business hours

“BVI” the British Virgin Islands

“CAGR” compound annual growth rate

“CCASS” the Central Clearing and Settlement System established and operated by HKSCC

“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct clearing participant or general clearing participant

“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodian participant

“Companies Law” the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands as amended, supplemented or otherwise modified from time to time

“Companies Ordinance” Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time

“Company” Tonly Electronics Holdings Limited（通力電子控股有限公司）, an exempted company with limited liability incorporated on 8 February 2013 under the laws of Cayman Islands and is a non-wholly owned subsidiary of T.C.L. Industries

“connected person(s)” has/have the meaning ascribed to it under the Listing Rules

“Controlling Shareholder(s)” has/have the meaning ascribed to it under the Listing Rules and unless the context requires otherwise, refers to TCL Corporation and T.C.L. Industries

“Deed of Non-Competition” the deed of non-competition dated 15 July 2013 executed by TCL Corporation and T.C.L. Industries in favour of our Group

“Directors” director(s) of our Company

A1A 5S.342(1)(a)(iv)

A1A 27A

DEFINITIONS

16

“Distribution” the payment of a special interim dividend by TCLM to the TCLM Shareholders to be settled,

(a) by way of distribution in specie of such number of Shares to the TCLM Qualifying Shareholders in the proportion of one Share for every ten TCLM Shares held by them as at the close of business on the Distribution Record Date (rounding down any fraction to the nearest whole unit and fractional entitlements will not be allotted to the TCLM Qualifying Shareholders but will be aggregated and sold and the sale proceeds after deduction of related expenses will be retained by and for the benefit of our Company); and

(b) by way of cash payments (after deducting expenses) to the TCLM Excluded Shareholders which are equal to the net proceeds of the sale by TCLM on their behalf of our Shares to which the TCLM Excluded Shareholders would otherwise be entitled to receive

in either case, on the terms and conditions contained in this listing document

“Distribution Record Date” 7 August 2013, being the record date for ascertaining entitlements to the Distribution

“EGM” the extraordinary general meeting of TCLM to be held on 1 August 2013 for approving, among other things, the Distribution and the Non-Competition Arrangements

“Euromonitor” Euromonitor International, a global research organization and provider of international market intelligence on consumer products, services and lifestyles, an Independent Third Party

“Group”, “we”, “our” and “us” our Company and its subsidiaries or, where the context otherwise requires, in respect of the period prior to our Company becoming the holding company of its present subsidiaries, the present subsidiaries of our Company, some or any of them

“HKSCC” Hong Kong Securities Clearing Company Limited

“HKSCC Nominees” HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC

“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the PRC

“Hong Kong Share Registrar” Tricor Investor Services Limited, the Hong Kong branch share registrar and transfer office of our Company

DEFINITIONS

17

“Huizhou Mobile” Huizhou TCL Mobile Communication Co. Ltd.（惠州TCL移動通信有限公司）, a company established on 29 March 1999 under the laws of the PRC and is an indirect wholly owned subsidiary of TCL Communication

“Independent Third Party(ies)” a person(s) or company(ies) which is/are independent of and not connected with any directors, chief executives, Controlling Shareholders and substantial shareholders of our Company or any of its subsidiaries and their respective associates

“Introduction” the listing of the entire issued share capital of our Company on the Stock Exchange by way of introduction

“Joint Sponsors” BNP Paribas Securities (Asia) Limited and Kim Eng Securities (Hong Kong) Limited

“Latest Practicable Date” 10 July 2013, being the latest practicable date prior to the printing of this listing document for ascertaining certain information in this listing document

“Listing” the listing of our Shares on the Main Board

“Listing Committee” the listing sub-committee of the board of directors of the Stock Exchange

“Listing Date” the date on which dealings in our Shares on the Main Board commence

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange as amended, supplemented or otherwise modified from time to time

“Main Board” the stock market operated by the Stock Exchange, which excludes Growth Enterprise Market of the Stock Exchange and the options market

“Non-Competition Arrangements” the proposed arrangements, which are expected to be passed at the EGM, involving the entering into of the Deed of Non-Competition and the Second Variation Deed

“ODM” original design manufacturing under which the manufacturer owns the design of the products which are sold under the customer’s brand

“OEM” original equipment manufacturing whereby products are manufactured in whole or in part in accordance with the customer’s specifications and are marketed under the customer’s own brandnames

DEFINITIONS

18

“PARFT” Provincial Administration of Radio, Film and Television of the PRC

“PRC” or “China” the People’s Republic of China which, for the purposes of this listing document only, excludes Hong Kong, the Macao Special Administrative Region of the PRC and Taiwan

“Regency Optics-Electron” Guangdong Regency Optics-Electron Corp. (廣東瑞捷光電股份有限公司), a limited liability company established on 2 July 2010, under the laws of the PRC, and a 60% owned subsidiary of TCL Technoly Electronics

“Remaining TCLM Group” TCLM and its subsidiaries after the Distribution, which excludes our Group

“Reorganisation” the corporate reorganisation of our Group in preparation for the Listing as described under the section headed “Reorganisation” in this listing document

“Run Fu” Run Fu Holdings Limited (潤富控股有限公司), established under the laws of BVI

“SAFE” State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局)

“SARFT” State Administration of Radio, Film and Television of the PRC

(中華人民共和國國家廣播電影電視總局)

“SAT” State Administration of Taxation of the PRC (中華人民共和國國家稅務總局)

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“Second Variation Deed” the second deed of variation dated 15 July 2013 executed by TCL Corporation, T.C.L. Industries and TCLM

“Share(s)” ordinary share(s) of HK$1.00 each in the share capital of our Company

“Shareholder(s)” holder(s) of our Share(s)

“Shenzhen Tongli” Shenzhen Tongli Science and Technology Development Co., Ltd.

(深圳市通力科技開發有限公司), a limited liability company established on 8 February 2012, under the laws of the PRC, and a wholly-owned subsidiary of TCL Audio Video

DEFINITIONS

19

“Spin-off” the separate listing of our Shares on the Main Board by way of introduction, which is to be effected by the Distribution

“Star Force” Star Force Investment Limited (星科投資有限公司), established under the laws of BVI

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary(ies)” has the meaning ascribed to it under the Companies Ordinance

“substantial shareholder(s)” has/have the meaning ascribed to it under the Listing Rules

“Takeovers Code” The Hong Kong Codes on Takeovers and Mergers and Share Repurchase as amended, supplemented or otherwise modified from time to time

“TCL Audio Video” Huizhou TCL Audio Video Electronics Co., Ltd. (惠州TCL音視頻電子有限公司), a limited liability company established on 26 October 2005 under the laws of the PRC and a wholly-owned subsidiary of TCL Tech HK

“TCL Communication” TCL Communication Technology Holdings Limited (TCL通訊科技控股有限公司), a limited liability company incorporated on 26 February 2004, under the laws of Cayman Islands and is a non-wholly owned subsidiary of T.C.L. Industries, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 02618)

“TCL Corporation” TCL Corporat ion (TCL集團股份有限公司) , a joint s tock company established on 19 April 2002 under the laws of the PRC, the ultimate Controlling Shareholder of the Company and TCLM, the shares of which are listed on Shenzhen Stock Exchange (stock code: 000100)

“TCL Corporation Group” TCL Corporation and its subsidiaries, which exclude our Group

“TCL King” TCL King Electrical Appliances (Huizhou) Co., Ltd. (TCL王牌電器（惠州）有限公司), a company established on 8 September 1994 under the laws of the PRC and an indirect wholly owned subsidiary of TCLM

“T.C.L. Industries” T.C.L. Industries Holdings (H.K.) Limited (T.C.L.實業控股（香港）有限公司), a company incorporated on 16 July 1996, under the laws of Hong Kong and a wholly owned subsidiary of TCL Corporation

“TCL OEM Sales” TCL OEM Sales Limited, a limited liability company established on 22 October 1999, under the laws of Hong Kong and a wholly-owned subsidiary of TCL Tech HK

DEFINITIONS

20

“TCL Real Estate (Huizhou)” TCL Real Estate (Huizhou) Co., Ltd. (惠州TCL房地產開發有限公司), a company established on 29 December 2004 under the laws of the PRC and a non-wholly owned subsidiary of TCL Corporation

“TCL Tech HK” TCL Technology (HK) Company Limited, a limited liability company established on 11 November 2008, under the laws of Hong Kong, and a wholly-owned subsidiary of Tonly Electronics

“TCL Technoly Electronics” TCL Technoly Electronics (Huizhou) Co., Ltd. (TCL通力電子（惠州）有限公司), a limited liability company established on 26 January 2000, under the laws of the PRC and a wholly-owned subsidiary of TCL Tech HK

“TCLM” TCL Multimedia Technology Holdings Limited (TCL多媒體科技控股有限公司), a limited liability company incorporated on 23 April 1999, under the laws of Cayman Islands and is a non-wholly owned subsidiary of T.C.L. Industries, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 01070)

“TCLM Excluded Shareholder(s)” the TCLM Overseas Shareholder(s) whom the board of directors of TCLM, after making enquiries and based on the legal opinion provided by legal advisers, considers it necessary or expedient not to transfer our Shares to, on account either of legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place

“TCLM Group” TCLM and its subsidiaries before the Distribution, which includes our Group

“TCLM Overseas Shareholder(s)” TCLM Shareholder(s) whose addresses appear on the register of members of TCLM at the close of business on the Distribution Record Date and are in jurisdictions outside Hong Kong

“TCLM Qualifying Shareholders” TCLM Shareholders at the close of business on the Distribution Record Date other than the TCLM Excluded Shareholders

“TCLM Shareholders” holder(s) of the TCLM Shares

“TCLM Shares” ordinary share(s) of HK$1.00 each in the share capital of TCLM

“Tonly Electronics” Tonly Electronics Limited (通力電子有限公司), a limited company incorporated on 28 September 2012 under the laws of the BVI and a 80% subsidiary of Tonly International

“Tonly International” Tonly International Limited (通力國際有限公司), a limited company incorporated on 15 February 2013 under the laws of the BVI and a wholly-owned subsidiary of the Company

DEFINITIONS

21

“Tongli OEM” Tongli OEM Sales Ltd., a corporation incorporated on 23 February 2011 under the laws of the State of Delaware, U.S. and a wholly-owned subsidiary of TCL OEM Sales

“Track Record Period” the three financial years ended 31 December 2012 and the three months ended 31 March 2013

“VAT” value added tax, payable under the Provisional Regulations

Concerning Value-Added Tax of the PRC (中華人民共和國增值稅暫行條例)

“Xi’an TCL Software” Xi’an TCL Software Development Co., Ltd. (西安TCL軟件開發有限公司), a limited liability company established on 10 May 2012 under the laws of the PRC and a wholly-owned subsidiary of TCL Tech HK

“HK$” or “HK dollars” Hong Kong dollars and cents, respectively, the lawful currency of or “HK cents” Hong Kong

“RMB” Renminbi, the lawful currency of the PRC

“U.S.” the United States of America

“US$” or “USD” United States dollars, the lawful currency of the U.S.

“sq.ft.” square feet

“sq.m.” or “m2” square metres

“%” per cent.

Unless otherwise specified, for the purpose of this listing document and for illustration purpose only, Hong Kong dollar amounts have been translated using the following rates:

US$1 = HK$7.76RMB1 = HK$1.26

No representation is made that any amounts in US$, RMB or HK$ were or could have been converted at the above rate or at any other rates, or at all.

For ease of reference, the names of certain PRC laws and regulations or the PRC established companies or entities have been included in this listing document in both Chinese and English languages. The English names of these companies and entities are only the English translation of their respective official Chinese names. In the event of any inconsistency, the Chinese version shall prevail.

The English text of this listing document shall prevail over the Chinese text in case of inconsistency.

GLOSSARY OF TECHNICAL TERMS

22

The glossary contains certain definitions and other terms used in this listing document in

connection with the Group and its business. They may not correspond to standard industry definitions.

“AV” Audio-visual

“AV Products” Audio-visual products

“ABS-s” Advanced Broadcasting System – Satellite (直播星), a satellite-used receiver specifically designed for use in China, mainly for

remote area

“ADSL” Asymmetric Digital Subscriber Line which is a type of digital

subscriber line (DSL) technology, a data communications

technology that enables faster data transmission over copper

telephone lines than a conventional voiceband modem can provide

“BD Player” Blu-ray player

“CKD” Complete Knocked Down which is a complete kit containing

the parts needed to assemble a product. The parts are typically

manufactured in one country or region, then exported to another

country or region for final assembly

“CPC” Collaborative Product Commerce, an e-business strategy for

exploiting new Web-based commerce opportunities life cycle

processes

“Cun Cun Tong” A program of ABS-s which is implemented to every village in

China (村村通)

“Dockings” A device with a docking station or cradle and speaker

“DQA” Design Quality Assurance

“DVD Player” DVD player

“HD” High-definition

“HTS” Home Theater System (家庭影院系統)

“Hu Hu Tong” A program of ABS-s which is implemented to every household in

China (戶戶通)

“IC” Integrated circuit

GLOSSARY OF TECHNICAL TERMS

23

“IPTV” Internet Protocol Television which is an interactive network TV

based on the use of broadband cable TV network and a variety of

technologies of internet, multimedia, communication and so on,

which is designed to offer the interactive services such as digital

television to households

“IPD” Integrated Product Development, a structured concept and process

of product development

“Media Boxes” A device that plays internet streaming contents and local contents

stored in USB devices, HDD or USB disk, etc.

“Micro & Mini” Micro & Mini Speaker (小型音箱)

“OTT” Over the top

“PCB” Printed circuit board

“SKD” Semi Knocked Down which is an incomplete kit containing

the parts needed to assemble a product. The parts are typically

manufactured in one country or region, then exported to another

country or region for final assembly

“SMT” Surface mount technology

“Soundbar” A loudspeaker enclosure that creates sound from a single cabinet

bar

“Standard Time” The required labour hours for a process or a product under the

standard working environment

“Wireless Speaker” A speaker with built-in wireless transmission technology

FORWARD-LOOKING STATEMENTS

24

This listing document contains forward-looking statements that state our belief, expectations, or

intentions for the future. These forward-looking statements reflect the current view of our Company with

respect to future events and are, by their nature, subject to significant risks, assumptions and uncertainties.

These forward-looking statements include, without limitation, statements relating to:

• ourbusinessandoperatingstrategiesandourvariousmeasurestoimplementsuchstrategies;

• our operations and business prospects, including development plans for our existing

business;

• ourfinancialconditionandresultsofoperations;

• thegeneraleconomictrendofthePRC;and

• theregulatoryenvironmentandindustryoutlookgenerally.

The words “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”,

“intend”, “ought to”, “may”, “plan”, “potential”, “project”, “seek”, “should”, “will”, “would” and similar

expressions, as they relate to us, are intended to identify a number of these forward-looking statements.

These forward-looking statements reflecting our current views with respect to future events are not a

guarantee of future performance and are subject to certain risks, uncertainties and assumptions, including

the risk factors described in this listing document. One or more of these risks or uncertainties may

materialize, or underlying assumptions may prove incorrect.

Subject to the requirements of the Listing Rules and applicable laws, we do not have any obligation

nor do we intend to publicly update or otherwise revise the forward-looking statements in this listing

document, whether as a result of new information, future events or otherwise. As a result of these and

other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this

listing document might not occur in the way we expect, or at all. Accordingly, you should not place undue

reliance on any forward-looking statements. All forward-looking statements in this listing document are

qualified by reference to this cautionary statement.

In this listing document, statements of or references to the intentions of our Company or any of our

Directors are made as of the date of this listing document. Any such intentions may potentially change in

light of future developments.

RISK FACTORS

25

You should consider carefully all the information set out in this listing document and, in particular, should consider the following risks associated with our Company. You should pay particular attention to the fact that our Company is incorporated in the Cayman Islands and we have operations conducted outside Hong Kong and are governed by a legal and regulatory environment which in some respects may differ from that in Hong Kong. Any of the risks and uncertainties described below could have a material adverse effect on our business, results of operations and financial condition or on the trading price of our Shares.

RISKS RELATING TO OUR GROUP

We derive a significant portion of our sales from a small number of major customers. Any decrease in our sales from our major customers or significant change in the operations or financial condition of our major customers would materially and adversely affect our business, financial condition, results of operations and prospect.

A substantial proportion of our revenue is generated from the sales to a limited number of major customers. Sales to our five largest customers accounted for approximately 87.8%, 88.2%, 71.4% and 69.7%, respectively, of our total revenue, whereas sales to our largest customer accounted for approximately 28.6%, 32.0%, 32.1% and 35.6%, respectively, of our total revenue for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013. For further details relating to our top five customers for the three months ended 31 March 2013, please see “Business – Sales and Marketing – Customers” in this listing document.

If for whatever reason any of our major customers terminates or significantly decreases its orders from us or there is any other adverse change in our business relationship with our major customers, and we were unable to identify suitable new customers or at all, we may experience slowed growth, no growth at all or even negative growth, and our business, financial condition and results of operations would be materially and adversely affected.

In addition, any significant changes in the operations or financial condition of our major customers, including liquidity problems, changes in ownership, restructuring, bankruptcy or liquidation, might lead to reduction or discontinuance of business with that customer, or require us to assume more credit risk relating to receivables from that customer, which could have a material adverse effect on our business, financial condition and results of operations.

In 2013, one of top five customers during the Track Record Period agreed to transfer its business relating to audio, video, multimedia and accessories, to a third party, according to the news release published by the acquirer whereas sales to such customer accounted for approximately 28.6%, 32.0%, 32.1% and 35.6%, respectively, of our total revenue for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013. We did not experience any material decline in relation to our sales to such major customer since 1 January 2013. We cannot assure you that, after completion of the said disposal, we will be able to continue to secure the business relationship with the acquirer of the said business or maintain the same level of business with it as we did in the past with that customer before such acquisition. Accordingly, if we fail to secure our business relationship with the said acquirer or the amount of purchase orders from it substantially reduces in the future and we fail to identify a suitable replacement customer, our business, financial condition and results of operations would be materially and adversely affected.

SX1-9

SFC1-1

RISK FACTORS

26

We are subject to risk of currency fluctuations and any ongoing hedging transactions may not fully shield us from foreign-exchange fluctuations.

During the Track Record Period, while our expenses and costs are mainly denominated in

Renminbi, a substantial portion of our revenue is denominated in US dollar given the export-oriented

nature of our business. Any significant fluctuations in the exchange rates between Renminbi and US dollar

may materially and adversely affect our results of operations. Any future exchange rate volatility relating

to Renminbi may give risk to uncertainties in the value of net assets, profits and dividends. For the year

ended 31 December 2010, our net exchange gain amounted to approximately HK$10.5 million. For the

years ended 31 December 2011 and 2012 and the three months ended 31 March 2013, our net exchange

loss amounted to approximately HK$8.7 million, HK$17.9 million and HK$3.7 million, respectively.

In light of the import-export nature of our business and our significant US dollar-denominated

receivables from our customers and to hedge against the risk of fluctuation of the US dollar against

the Renminbi, we entered into certain foreign-exchange forward contracts to sell US dollars and buy

Renminbi at specified exchange rates on specified future dates. In addition, we also entered into certain

interest rate swaps contracts to manage our interest rate exposures during the Track Record Period. We

held such derivative financial instruments at fair value, which was linked to the spot exchange rates in

the international market. We recognized unrealized fair value gains on derivative financial instruments

of approximately HK$0.2 million, HK$2.1 million and HK$20.4 million for each of the three years

ended 31 December 2010, 2011 and 2012, respectively. We recognized unrealized fair value losses on

derivative financial instruments of approximately HK$6.2 million for the period ended 31 March 2013.

We also realized a gain on settlement of derivative financial instruments of approximately HK$11.2

million, HK$32.2 million, HK$30.7 million and HK$11.0 million, respectively, for each of the three

years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

The buy-RMB/sell-US$ forward currency contracts outstanding as at 31 December 2010, 2011 and 2012

and 31 March 2013 were approximately RMB831 million, RMB2,006 million, RMB1,405 million, and

RMB1,456 million, respectively. The pay-fix/receive floating interest rate swap contracts outstanding

as at 31 December 2010, 2011 and 2012 and 31 March 2013 were approximately US$95.7 million, nil,

US$104.8 million and US$121.7 million, respectively. If the value of RMB or US$ depreciated to zero

before the above contracts are settled or the 3-month LIBOR rate fell to zero, the maximum exposure

of the derivative contracts entered into during the Track Record Period would be the nominal value of

the derivative contracts the Company entered into during the Track Record Period as stated above. In

the future, we intend to continue to conduct foreign-exchange and interest rate hedging transactions. We

cannot assure you, however, that such transactions will be risk-free, and any loss resulting from such

transactions may materially and adversely affect our financial condition and results of operations.

The sales and profitability of our ODM products are significantly dependent on our customers’ business performance.

We cater our ODM business to a number of electronics manufacturers worldwide. The principal products we supply include DVD Players, BD Players, Media Boxes, HTS, Micro & Mini, Soundbars, Dockings and Wireless Speakers. Sales to our customers are significantly affected by the respective customers’ business performance and by factors relating to these customers that are beyond our control. The under-performance of our customers’ business, their failure to market their products successfully, seasonality of demand for our customers’ products, adverse change in economic conditions in the markets in which our customers operate, in particular, Japan, the United States, Europe and the PRC, including

RISK FACTORS

27

recessionary periods such as the recent global downturn and unforeseen natural disasters, might lead to changes in their purchasing practices or their demand for our products, thereby materially and adversely affecting our business, financial condition, results of operations and prospect.

We may fail to successfully maintain our existing customers and develop new customers, as a result of which our business, financial condition, results of operations and prospect would be materially and adversely affected.

Our customers are mainly located in Europe, the United States and Asia-Pacific (including China) and are mostly overseas brand owners. The success of our business depends on our ability to maintain and expand the volume of business with our existing customers and to source and develop new customers.

However, there is no assurance that we will be successful to continue to maintain good business relationships with our existing customers or to develop new customers. Moreover, as most of our customers are brand owners, potential customers may not be willing to place orders with us if our existing customers may be their competitors. If we are not able to expand the volume of business with our existing customers or to extend our customer base by adding new customers at desired levels or at all, it could have a material adverse effect on our business, financial condition, results of operations and prospect.

Further, our business with our customers has been, and we expect it will continue to be, conducted on the basis of actual purchase orders received from time to time. Our customers may cancel, reduce or defer purchase orders at any time. Accordingly, the volume of our customers’ purchase orders and the type of products sold may vary significantly from period to period and it is difficult for us to forecast the quantities and trends of future orders. There is no assurance that our customers will continue to place purchase orders with us in the future at the same quantity and price level as in the current or prior periods, or at all.

Our performance may fluctuate due to transition of business focus as a result of the general decline in video products market.

Our Group’s business primarily focuses on video products which accounted for approximately 88.0%, 88.4%, 65.5% and 44.1%, respectively, of our Group’s total revenue for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013. Due to the general decline in demand for video products and the general increase in demand for audio products in the global market, we are shifting our focus to the newly developed audio products, including but not limited to Soundbars, Dockings and Wireless Speakers. Nevertheless, there is no assurance that we will be successful to increase or maintain our market share and ranking in the audio products market, or even if we can, that the sales of our audio products would generate the revenue at a level comparable to that from the sales of our video products.

Our failure to successfully develop our audio product business or increase its market share or develop new audio products appealing to our customers, may reduce our competitiveness, slow down our future growth and affect our profitability, which would materially and adversely affect our business, financial condition, results of operations and prospect.

We may fail to anticipate technology innovation and successfully develop and market new products in time, or at all, which would materially and adversely affect our business, results of operations and prospect.

RISK FACTORS

28

Consumer electronics products are subject to rapid technological changes which often cause product obsolescence. Companies within the consumer electronics industry are continuously developing new products with heightened performance and functionality. This puts pricing pressure on existing products and constantly threatens to make them, or causes them to be obsolete. To maintain the popularity of our products, we actively invest in research and development. There is no assurance that our research and development efforts will result in the introduction of new technologies or new products or that they will be completed on time or generate expected benefits. If we fail to introduce new products or new technologies that meet market demand, we may possess significant amounts of obsolete inventory that can only be sold at substantially lower prices and profit margins than we anticipate, and we may also be unable to compete effectively due to our failure to offer products most demanded by the marketplace. If any of these failures occur, our business, results of operations and prospect would be materially and adversely affected.

The process of developing and marketing new products is inherently complex and uncertain. Meanwhile, there are a number of risks, including the following:

• We cannot assure you that we will have adequate funding and resources necessary forinvestments in new products and technologies.

• We cannot assure you that we can anticipate successfully new products and technologieswhich will gain market acceptance and that such products can be successfully marketed.

• Wecannotassureyouthatournewlydevelopedproductsortechnologiescanbesuccessfullyprotected as proprietary intellectual property rights.

• Ourproductsmaybecomeobsoleteduetorapidadvancementsintechnologyandchangesinconsumer preferences.

Our results of operation may fluctuate significantly and there is no assurance that our results of operation will continue to improve in the future.

During the year ended 31 December 2011, we experienced a decline in business in terms of gross profit and net profit compared to those for the year ended 31 December 2010. Such decline was mainly due to the shrinking of demand for DVD Players and the decrease in average prices for DVD Players. Since our business is affected by various factors, including but not limited to global market conditions, our major customers business performance, price, cost of purchase, labour costs, research and development expenses, exchange rate, etc., our results of operation may fluctuate significantly. In addition, given the industry’s low entry barrier and highly competitive business environment, we attained net profit margins of approximately 4.3%, 2.3%, 2.6% and 3.9%, respectively, for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively. Accordingly, there is no assurance that our business or profitability will be able to sustain or our results of operation will continue to improve in the future.

Change or shortage of key components and parts could cause adverse impact on our business, financial condition and results of operations.

During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March

2013, we procured various key components and parts such as IC, loaders, plastic and metal parts and

PCB boards for production purpose, and our material costs accounted for approximately 90.0%, 89.3%,

89.2% and 86.7%, respectively, of our total cost of sales for the three years ended 31 December 2010,

2011 and 2012 and the three months ended 31 March 2013. If we fail to secure adequate supplies of

SX3-9

RISK FACTORS

29

these key components and parts at competitive prices, our gross margins may be adversely affected due

to higher prices that we are required to pay for the alternative source of such components and parts.

Further, we may experience chronic shortages of components and parts for high growth product categories

during periods of exceptionally high demand, where manufacturers may not be able to produce enough

components and parts to satisfy our demand. Therefore, if we fail to anticipate the need for our key

components and parts, we may be unable to fulfil the production requirements of our customers in a timely

manner.

While we strive to produce key components and parts internally, we are dependent on a number of

external manufacturers and suppliers. Such manufacturers and suppliers manufacture the key components

and parts we need, including IC and loaders. While we have sought to assure supply where necessary

through long-term cooperation and other measures to consolidate our relationship with them, if we are

unable to maintain our relationship with our major suppliers or any of our manufacturers or suppliers

ceases to supply the components and parts we need on commercially acceptable terms, or at all, and we

are unable to identify suitable replacing manufacturers or suppliers in a timely manner, this could result in

a reduction in the availability of components and parts essential to us or an increase of our costs.

The occurrence of any of these events may cause production delay, increase our costs of production

and weaken our competitiveness, thereby adversely affecting our business results and financial condition,

as well as leading to strained relationships with our customers.

Our operation may be interrupted during the course of movement of plant.

As at the Latest Practicable Date, we were in the process of moving into our new production

facility which had partially commenced operations. If, during the course of relocation, our orders cannot

be delivered on time or at all, or our product certification is delayed due to the change of our business

address, our business, results of operations, financial condition and prospect may be materially and

adversely affected.

Our recent and future expansion may place significant cost on our management, personnel, systems and resources, and our failure to effectively manage our growth may adversely affect our business.

Our business operations have expanded significantly in recent years, and we expect to further expand our business by tapping into the fast growing audio product market and the market of other products such as ABS-s. This expansion has placed, and our intended expansion will continue to place, a significant cost on our management, personnel, systems and resources. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, enhance our design and manufacturing capabilities, satisfy customer requirements, execute our business plan or respond to any change in market condition. Further, as we become a public company, we need to upgrade our network and information technology infrastructure since efficient information and control systems would enable us to prepare accurate and timely financial information and other required disclosures. To successfully manage our growth, we believe that we should:

• recruitandretainskilledemployeesnecessarytosupportourexpandedoperations;

• continuetomaintainadequatecontroloverourcostsandexpenses;

SX2-6

RISK FACTORS

30

• continue tomaintain strong relationshipswith our key suppliers, customers andother thirdparties; and

• enhanceourdesign,manufacturing,packagingandlogisticsservicesandafter-salessupport.

All of these measures will require substantial management efforts and resources. We cannot assure you that we will be able to implement the measures successfully or to effectively manage our growth, and failure to do so may materially and adversely affect our business and prospect.

We may encounter difficulties in recruiting and retaining key personnel, and our failure to attract, hire, assimilate or retain qualified personnel could adversely affect our business and prospect.

Our future growth and success depend to a significant extent on the availability of capable engineers and senior management personnel, many of whom would be difficult to replace, and their continued contributions to our business. Accordingly, recruiting, retaining and training highly-skilled engineers and other personnel are crucial to our continued success.

The loss of any key employee, the failure of any key employee to perform satisfactorily his or her duties or our failure to attract, hire, assimilates or retain key employee could have a significant adverse impact on our operations. Additionally, as we rely on our core management personnel in respect of our business operations, business plan, strategic policy and so forth, any change or alteration of the composition of our management team, which might arise in the future, may adversely affect the internal stability and business continuity of our Group. To effectively manage our recent growth as well as any future growth, we will need to recruit, train, assimilate, motivate and retain qualified employees. Competition in the recruitment of qualified employees is intense in China, and recruiting personnel with the combination of skills and attributes required to execute our business strategy may be difficult, time-consuming and expensive.

Product defects resulting in a large-scale product recall or successful products liability claim against us, could result in a significant cost or impact on our reputation and adversely affect our business, results of operations and financial condition.

We manufacture various products in accordance with internationally accepted quality standards and

specifications provided by our customers. However, we cannot assure that all products produced by us are

defect-free. Consequently, any defect in products identified by our customers might erode our reputation

and affect our long-term cooperation relationships with our customers.

Product defects may also result in product liability claims by the end-consumers against us or even

subsequent large-scale product recall. Any claim brought by our customers or end-consumers against us

for damages, which, even if unsuccessful, would likely be time-consuming to defend, and could result in

costly litigation and payment of damages. Such claims could harm our reputation and market position.

If we fail to maintain an effective quality control system, our business may be adversely affected.

Pursuant to the framework agreements and supplemental agreements signed with our customers, we

are required to ensure that our production facilities meet the relevant standards set out in the major system

certifications for quality control management (e.g. ISO9001), and our production process is undertaken

SX1-11

RISK FACTORS

31

and our products are manufactured in accordance with their standards. We have met all the relevant

certification requirements for the production facilities during the Track Record Period. Further, most of

the customers we serve are internationally well-known brand owners. To maintain our competitiveness,

our products require a high degree of skill and precision with safety and quality assurance.

Accordingly, the effectiveness of our quality control system is our utmost priority to our customers

and vital to our continued success. The quality and safety of our products expected by our customers

require us to adopt a stringent quality control system which involves us placing a significant amount of

resources to ensure that every step of the production process is being strictly monitored. If we are unable

to maintain our effective quality control system or to renew our quality control certifications, it may result

in a decrease in demand for our products or cancellation or loss of orders from our customers.

Furthermore, for the years ended 31 December 2010, 2011 and 2012 and the three months ended

31 March 2013, export sales accounted for approximately 94.1%, 99.7%, 89.6% and 66.2%, respectively,

of our total revenue. Accordingly, we may risk producing products that are found to be in breach of the

laws and regulations of the relevant jurisdiction(s) as a result of any change of laws or regulations in

these jurisdictions relating to product safety from time to time. The occurrence of any such event may

cause us to be subject to administrative investigations or be liable to penalties or incur additional costs of

compliance and maintenance, thereby adversely affecting our business, reputation and prospect.

We may fail to obtain or renew various licences and permits necessary for our business operations, as a result of which our business and prospects would be materially and adversely affected.

In accordance with the PRC laws and regulations, we are required to obtain and maintain various

licences and permits in order to commence and operate our business at our production facilities. For

example, we need to obtain the licence necessary for manufacturing ABS-s in China. Such licence is

valid until May 2014. We cannot assure you that the licences and permits necessary for our business

operations will be successfully renewed by us on time, or at all. The eligibility criteria for such licences

and permits may change from time to time and may become more stringent. In addition, new requirements

for the grant or renewal of such licences and permits may come into effect in the future. The introduction

of any new and/or more stringent laws or regulations may significantly escalate our compliance and

maintenance costs or may limit our Group to continue our existing operations or may limit or prohibit us

from expanding our business. Any such event may have a material and adverse effect on our business and

prospects.

Supply and demand for ABS-s are largely driven by government policies and any change in such policies may significantly affect our sales of ABS-s.

ABS-s is a satellite-used receiver specifically designed for use in China. Pursuant to the PRC laws

and regulations, entities manufacturing ABS-s shall obtain licences granted by the Ministry of Industry

and Information Technology of the PRC and General Administration of Quality Supervision, Inspection

and Quarantine of the PRC, and the qualified manufacturers shall also go through the bidding process

initiated by the SARFT for the supply of ABS-s in China. Accordingly, the production and sales of ABS-s

are regulated by the PRC government, and the demand and supply for ABS-s in China are largely driven

by government policies which are subject to change from time to time and beyond our control.

SX2-11

SFC1-4

RISK FACTORS

32

For the year ended 31 December 2011, the number of ABS-s sold by us reduced substantially

to approximately 5,000 units from approximately 598,000 units for the year ended 31 December 2010.

Such substantial reduction was primarily attributable to the postponement of the tendering process for

ABS-s until late 2011 by the government. To the best of our Directors’ information and knowledge,

such postponement was caused by the review and research in relation to the upgrading of the technical

standards of ABS-s products conducted by the government in 2011. There is no assurance that the PRC

government will not change its policies on ABS-s in the future or that the public tender will continue to

be conducted by the SARFT, and any change in government policies on ABS-s, such as change in the

licensing conditions or product specifications, or any suspension or delay of the public tender, etc., may

negatively impact the supply or demand for, and hence our sales of, ABS-s products, as a result of which

our business, results of operations and prospects would be adversely affected.

Seasonal fluctuation of demand for our products may materially and adversely affect our financial condition and results of operations.

Historically, our sales were subject to seasonality. Revenue fluctuations throughout the year are

common in the AV Product industry which is subject to the seasonal purchase patterns of customers and

end-consumers. We generally experience higher sales in the third quarter of the year where our customers

place purchasing orders with us in anticipation of stronger market demand for their products during

Christmas and the Chinese New Year. However, these sales patterns may not be indicative of future

sales performance which may fluctuate substantially. Seasonal fluctuations in the future may not match

the expectations of investors. Should there be any reduction in the demand for our products in the third

quarter in any year, our financial condition and results of operations may be materially and adversely

affected.

Limits on intellectual property protection may make us vulnerable to competition from third parties that use our technology and expertise.

While we have developed technology and expertise which differentiate our products from those

of our competitors, some of our unique technology and expertise are either not fully capable of being

protected by intellectual property rights or protected only to a limited extent pursuant to legal limitations

in certain jurisdictions. Since our operations are mainly located in the PRC, we only applied for patents in

the PRC but not other parts of the world.

Accordingly, we may be unable to effectively prevent third parties from using our technology and

expertise not protected by intellectual property rights to produce products similar to ours. In addition, we

may be unable to prevent third parties from developing technologies that are similar or superior to our

technology, or from designing around or reverse engineering our patents and trade secrets. The occurrence

of such event will result in reducing the competitive advantage of our products and technologies, which

may materially and adversely affect our business, results of operations and prospects.

RISK FACTORS

33

Our future products and technologies might later be found to have infringed upon a third party’s intellectual property rights, and any successful infringement or licensing claims against us may adversely affect our results of operations and reputation.

We use in our manufacturing process and business operations some of the proprietary technologies

and other intellectual property rights licenced from third parties. Accordingly, we may, in the future, be

subject to legal proceedings or claims from time to time relating to the use of intellectual property rights

of others in the ordinary course of our business. If we are found to have violated the terms of the relevant

licensing agreement or infringed the intellectual property rights of others, we may be prohibited from

using such intellectual property, or may incur additional royalties or licensing fees and legal costs and fees

or be forced to develop alternative designs or products. In addition, we may incur substantial expenses

in defending such infringement claims against us, regardless of their merit. Successful infringement or

licensing claims against us may result in substantial monetary liabilities, which may materially disrupt the

continuity of our business and the stability of our financial condition, and adversely affect our results of

operations and reputation.

Any change or discontinuation of preferential tax treatment we currently enjoy would increase our tax liability, thereby adversely affecting our business and results of operations.

As at the Latest Practicable Date, some of our Group members were enjoying preferential tax

treatments granted by the governmental authorities. For example, TCL Technoly Electronics had been

granted the status of “High and New Technology Enterprise”. According to the applicable PRC laws and

regulations, during the period of the grant of such status, TCL Technoly Electronics is entitled to the

reduced enterprise income tax rate of 15%, and within three months prior to the expiration of the validity

period of the “High and New Technology” certificate, we need to apply for the renewal of such status.

Further, Shenzhen Tongli first became eligible to sell software products in September 2012 and became

qualified as a software enterprise in November 2012, thereby becoming entitled to (a) an immediate VAT

refund upon payment for any VAT payment exceeding 3% (if the actual VAT burden of our software

products exceeds 5%); and (b) a total exemption of software enterprise profits tax for two years and a

half reduction for three years. There is no assurance that the PRC policies on preferential tax treatments

will not change or that the current preferential tax treatments we enjoy or will be entitled to enjoy will

not be cancelled. There is also no assurance that we will continue to be accredited as “High and New

Technology Enterprise” or “software enterprise” upon expiration of the relevant certificate. If any of such

change, cancellation or discontinuation of preferential tax treatment occurs, the resulting increase in our

tax liability would adversely affect our business and results of operations.

A material disruption of our operations could adversely affect our business.

Our business, financial condition and results of operations may be adversely affected by any

disruption of operations at our production facilities. Our production facilities are subject to operation

risks, such as the breakdown or failure of our major equipment, power supply or maintenance, natural

disasters (including but not limited to earthquake, fire, flood and storm), industrial accidents and the need

to comply with the directives of relevant government authorities such as planned shutdowns of our plants

for maintenance, statutory inspections and testing, which may therefore lead to temporary, permanent,

partial or complete shut-downs in operations. The occurrence of any of these risks may result in an

adverse effect on the continuity of our business operations and our results of operations and if continued,

our prospects.

RISK FACTORS

34

We may be subject to liability in connection with industrial accidents at our manufacturing facilities.

Due to the nature of our operations, we are subject to the risks of our employees being exposed to industrial-related accidents at our premises. We cannot assure that industrial accidents, whether due to malfunctions of machinery or other reasons, will not occur in the future at our production facilities. Under such circumstances, we may be subject to employee’s claims for compensation and administrative penalty, and if we are found to be liable and a substantial amount of damages was ordered by the court to be paid to our employee concerned or substantial amount of penalty is imposed by the governmental authority on us, our business, results of operations and reputation may be adversely affected.

In addition, we may experience interruptions in our operations and may be required to change the manner in which we operate, as a result of governmental investigations or the implementation of safety measures due to accidents. Any of the foregoing could adversely affect our business, financial condition and results of operations.

Our business operations may be materially and adversely affected by acts of God and epidemics or pandemics which are beyond our control.

Natural disasters, epidemics or pandemics and other acts of God which are beyond our control may adversely affect the economy, infrastructure and livelihood of the people in the PRC and other parts of the world. Our business, results of operations and financial condition may be adversely and materially affected if such natural disasters occur in the PRC or other parts of the world to which our products are exported.

We cannot assure you that we will declare dividend in the future.

For each of the two years ended 31 December 2010 and 2011, our Group did not pay any dividends. For the year ended 31 December 2012, our Group had declared dividends of approximately HK$502.6 million of which approximately HK$120.0 million was settled in 2012 and the remaining balance of approximately HK$382.6 million will be settled by cash out of our internal resources before listing. Please refer to the section headed “Financial Information – Dividend Policy” for further details of our dividend policy. There is no assurance that future dividend will be declared and paid in an amount equivalent to or exceeding historical dividend declared or at all. Therefore, investors are cautioned not to use historical dividend as an indication of the amount of future dividend to be declared or paid. The payment and the amount of any future dividend will depend on the results of our operations, cash flow, financial condition, statutory and regulatory restrictions on the payment of dividend, future prospects and other factors that we may consider relevant. The declaration, payment and amount of any future dividend will also be subject to our discretion.

We have experienced negative cash flow from operating activities and the occurrence of such event in the future could negatively affect our liquidity and may materially and adversely affect our business and financial condition.

For the three months ended 31 March 2013, we had net cash flows used in operating activities of HK$163.2 million, primarily attributable to: (i) profit before tax of HK$40.1 million and (ii) an decrease in inventories of HK$20.4 million, partially offset by: (i) an increase of trade receivables of HK$90.0 million; (ii) a decrease in trade payable of HK$28.8 million and a decrease in other payables and accruals of HK$74.3 million. There can be no assurance that we will not face negative cash flow in the future, which could negatively affect our liquidity and may materially and adversely affect our businesses, prospects, financial condition and results of operations.

RISK FACTORS

35

Certain of our leased properties are subject to title encumbrances, and we may be required to vacate such properties.

With respect to certain properties we currently lease, the lessors have not yet produced to us title documents with respect to the lease of such properties, which are being used as our manufacturing plants, offices, warehouses and staff dormitories. According to our PRC legal advisers, the relevant leases may be invalid under PRC laws and regulations, in which event we may be required to vacate such properties, which could interrupt our business operations if we are unable to obtain an alternative lease in a timely manner, or at all.

Further, none of the leases with respect to our leased properties in the PRC have been registered with the relevant PRC authorities. According to our PRC legal adviser, the relevant PRC authorities may require us to apply for registrations of such leases within a stipulated period of time. If we fail to do so, we may be liable to a fine of RMB1,000 to RMB10,000 per offended incident. We also cannot assure you that we would not be subject to any claims for compensation or penalty with respect to any actual or alleged illegal and/or unauthorised use of, or defective title to, any land or building leased or occupied by us.

RISKS RELATING TO THE INDUSTRY

Our industry is affected by general economic and market conditions. There has been significant deterioration and volatility in the worldwide markets recently. As a result, our business may be adversely affected.

According to the industry data from Euromonitor, the decrease in the global sale of DVD Players in the next two years will be between 19% to 20%. Our Company is principally engaged in the manufacturing and sales of AV Products (excluding TV sets) for internationally renowned brands on an ODM basis, and may therefore be affected by the economic conditions of regions where our customers operate their business. Thus, we may experience a decrease in the sales of these products.

Substantially all of our products were exported to overseas countries as designated by our customers. During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our export sales amounted to approximately 94.1%, 99.7%, 89.6% and 66.2%, respectively, of our total revenue. Accordingly, our business depends substantially on the global economic and market conditions. Slowing economic growth or a recession could have a material adverse effect on our business, financial condition and results of operations as well as affecting our expansion strategies. Periods of relatively slow economic growth, a recession or public perception that a slowdown or recession may occur, may decrease the demand for our products, thereby adversely affecting our sales and profitability. As our products are ultimately sold to consumers in the retail market, any drop in consumer spending power could lead to a drop in the amount of purchases from our customers and, in turn, adversely affect the demand for our products thereby adversely affecting our results of operations and financial conditions. This is particularly so as AV Products are generally considered discretionary consumption items and the AV Products industry is very sensitive to changes in the economy.

Certain recent adverse financial developments have impacted the global financial markets. These developments include a general slowing of economic growth and a drop in consumer expenditure in general, substantial volatility in equity securities markets, volatility and tightening of liquidity in credit markets. Our Directors believe that the economic downturn would affect the purchasing power of our customers and their demands.

RISK FACTORS

36

It is difficult to predict how long these conditions will exist and which markets and businesses of

our Group may be affected. These developments could continue to present risks for an extended period of

time for our Group, including a potential slowdown in our sales to customers. If this economic downturn

continues, our business, results of operations and financial condition may be materially and adversely

affected.

Our industry has low entry barrier and is highly competitive.

Our industry is highly competitive and is characterised by frequent introduction of new styles,

short product life cycles, price sensitivity, and customers’ focus on quality and timely delivery. We

cannot assure you that we will be able to sustain our competitive position in the future. Our competitors,

including new entrants, may offer better product development or manufacturing services and/or lower

prices than we do and they may increase their market share at our expense. To the extent that we are not

able to provide ideas on or manufacture new products as timely as other AV Products manufacturers, our

operating results may be materially and adversely affected.

The industry in which we operate does not have a high entry barrier, nor is there any heavy capital

requirement or other entry barriers for new competitors to participate in the relevant business. Hence,

we cannot assure you that there will not be any significant increase in the number of competitors in the

industry which can manufacture products with comparable or better quality or with lower pricing than us.

Such competition could adversely affect our business, results of operations and prospect.

Any failure to comply with environmental regulations would expose us to penalties, fines, suspensions or actions in other forms.

The operations of our Group are subject to the environmental protection laws and regulations

promulgated by the PRC government. These laws and regulations require us to adopt effective measures

to control and properly dispose of solid waste and other environmental pollutants. We could be exposed to

penalties, fines, suspensions or actions in other forms if we fail to comply with these laws and regulations.

The environmental laws and regulations in China may be amended from time to time and changes in those

laws and regulations may cause us to incur additional costs in order to comply with the more stringent

rules. There is no assurance that we would be able to support changes in technical requirements which

could be required as a result of changes to environmental laws and regulations or that our operation will

always be in compliance with the applicable environmental regulations. In the event that changes to

existing laws and regulations require us to incur additional compliance costs or require costly changes to

our production process, the production costs of our Group could increase and we may lose our business

with certain customers, which will decrease our market share and materially and adversely affect our

business, financial conditions and results of operations.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

Fluctuation of RMB exchange rate may adversely affect our operations and financial results.

The value of the RMB is subject to changes in the PRC government’s policies and depends, to a

large extent, on domestic and international economic and political developments, as well as supply and

demand in the local market. Since 1994, the conversion of RMB into foreign currencies, including Hong

RISK FACTORS

37

Kong dollars and USD, has been based on exchange rates published by the People’s Bank of China,

which are set daily based on the previous day’s interbank foreign exchange market rates in the PRC and

current exchange rates on the world financial markets. On 21 July 2005, the PRC government introduced

a managed floating exchange rate system to allow the value of RMB to fluctuate within a regulated band

based on market supply and demand and by reference to a basket of currencies. On the same day, the value

of RMB appreciated by approximately 2% against USD. As an ODM enterprise serving internationally

renowned companies, a substantial portion of our business are materials import, processing and export

business and export settlements are all denominated in US dollars. Accordingly, any appreciation of RMB

against USD, Hong Kong dollar or any other foreign currencies may subject us to increased costs. Any

significant depreciation in the exchange rates of RMB against USD or Hong Kong dollar could adversely

affect the value of our dividend payment, which would be funded by RMB but paid in Hong Kong dollars.

In addition, under the current foreign exchange regime in the PRC, there can be no assurance that

sufficient foreign currency will be available in the PRC at a given exchange rate to satisfy the demands of

a particular enterprise in full. There can also be no assurance that shortages in the availability of foreign

currency will not restrict our ability to obtain sufficient foreign currency in the PRC to satisfy our foreign

currency needs.

Political and legal developments and economic policies of the PRC government and social conditions and legal developments of the PRC could affect our business.

Our financial condition, results of operations and prospects are to a significant degree subject to the

economic, political and legal developments of the PRC, as most of our assets are located in the PRC and

all of our products are manufactured in the PRC. The economic, political and social conditions, as well as

government policies, including taxation policies, of the PRC, could affect our business. The PRC economy

differs from the economies of other countries in many respects. The PRC economy has historically been

a planned economy and has been in a transitional stage to a more market economy. Although the PRC

government has implemented measures emphasising the use of market forces for economic reform in

recent years, there can be no assurance that economic, political or legal systems of the PRC will not

develop in a way that is detrimental to our business, results of operations and prospects.

Uncertainties regarding interpretation and enforcement of the PRC laws and regulations may impose adverse impact on our business, operations and profitability.

Although many laws and regulations have been promulgated and amended in the PRC since 1978,

the PRC legal system is still not sufficiently comprehensive when compared to the legal systems of certain

developed countries. The interpretation of the PRC laws and regulations may be influenced by momentary

policy changes reflecting domestic political and social changes. In addition, it may also be difficult to

enforce judgments and arbitration awards in the PRC.

We contribute to social insurance and housing fund to the extent accepted by the local authority

where we operate our business. We have been making payments in accordance with relevant social

insurance policies and regulations carried out by the local social insurance authority. Further details

in relation to our social insurance and housing fund contributions are set out in “Business – Staff –

Social insurance and housing fund contributions” in this listing document. There is no assurance that

the interpretation and implementation of the relevant social insurance policies, laws and regulations by

RISK FACTORS

38

the local social insurance or housing fund authorities will remain consistent in the future, or if there is

any change in their interpretation or implementation, whether such change would have retrospective

effect. We also cannot assure you that there will not be labour disputes or claims in respect of employee

complaints regarding payment of pension, medical, unemployment, work-related injury and/or maternity

insurance and housing fund contributions or that such claims will not be brought against us in the future,

and that we will not be required to pay such contributions or any related damage in the future. The

occurrence of any of the above could have an adverse effect on our financial condition and results of

operations.

Many laws and regulations in the PRC are promulgated in broad principles and the Central People’s

Government has gradually laid down implementation rules and has continued to refine and modify such

laws and regulations. As the PRC legal system develops, the promulgation of new laws or refinement and

modification of existing laws may affect foreign investors. There can be no assurance that future changes

in legislation or the interpretation thereof will not have an adverse effect upon our business, operations or

profitability.

PRC regulations on loans to and direct investment by offshore holding companies in the PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiary.

As an offshore holding company of our PRC subsidiary, we may make loans to our PRC subsidiary,

or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary

are subject to the PRC regulations and foreign exchange loan registrations. For example, loans by us to

our PRC subsidiary to finance their activities cannot exceed statutory limits and must be registered with

the SAFE or its local counterpart. We may also determine to finance our PRC subsidiary by means of

capital contributions. These capital contributions must be approved by the Ministry of Commerce of the

PRC or its local counterpart. We cannot assure you that we can obtain these government registrations or

approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to finance

our PRC subsidiary. If we fail to receive relevant registrations or approvals, our ability to capitalise our

PRC operations would be negatively affected which would adversely and materially affect our liquidity

and our ability to expand our business.

PRC regulations relating to acquisitions of the PRC companies by foreign entities may limit our ability to acquire the PRC companies and adversely affect the implementation of our strategy as well as our business and prospects.

The Rules on the Acquisition of Domestic Enterprises by Foreign Investors (2009 Revision)（關於外國投資者併購境內企業的規定）(“M&A Rules”), which were promulgated on 22 June 2009 and were effective from the same day, provide the rules with which foreign investors must comply if they are

seeking to acquire shares in a domestic enterprise, whether through a purchase agreement with existing

shareholders or through a direct subscription from a company, that would result in that company becoming

a foreign-funded enterprise. The M&A Rules further require that the business scope of the resultant

foreign-funded enterprise conform to the Foreign Investment Industrial Guidance Catalogue（外商投資產業指導目錄）. The M&A Rules also provide the takeover procedures for the acquisition of equity interests in domestic enterprises.

RISK FACTORS

39

There are uncertainties as to how the M&A Rules will be interpreted or implemented. If we decide

to acquire a PRC company in the future, there is no assurance that we or the owners of such PRC company

can successfully complete all necessary approval requirements under the M&A Rules. This may restrict

our ability to implement our expansion and acquisition strategy and could materially and adversely affect

our future growth.

Our business may be affected if there is a labour shortage or substantial increase in labour costs in the PRC.

Our total staff costs for each of the three years ended 31 December 2010, 2011 and 2012 and the

three months ended 31 March 2013 were approximately HK$173.8 million, HK$219.5 million, HK$264.1

million and HK$77.0 million, respectively, which accounted for approximately 4.6%, 5.4%, 7.2% and

8.6% of our total revenue for the same period. If there is a shortage of labour in the PRC where our

productions take place, our operations  might be adversely affected and extra time and resources will

be deployed to recruit new labour, as a result of which our cost of production will increase.  In the

future, labour costs may continue to increase significantly and additional legislations or the increased

statutory minimum wages may be enacted by the PRC government which further increases the employers’

obligations to pay for employee’s benefits and welfare.

The occurrence of any of the above will raise our overall cost of production and hence, the selling

prices of our products, which could have a material adverse effect on our business, financial condition and

results of operations.

We are a holding company and rely on dividend payments from our subsidiaries. If our subsidiaries incur debts or losses, it may impair their ability to pay dividend or other distributions to us, which could adversely affect our ability to pay dividend to our Shareholders.

We are a holding company and conduct substantially all of our business through our operating

subsidiaries. As a result, our ability to pay dividend depends on dividend and other distributions received

from our operating subsidiaries. If our subsidiaries incur debts or losses, it may impair their ability to

pay dividend or other distributions to us, which could adversely affect our ability to pay dividend to our

Shareholders.

The ability of our subsidiaries to pay any dividend in a given year to us depends on the legal

and regulatory requirements to which the relevant subsidiary is subject. Generally, our subsidiaries

could not pay any dividend to us if they do not have any distributable profits. Limitations on the ability

of our subsidiaries to remit their after-tax profits to us in the form of dividend or other distributions

could adversely affect our ability to grow, invest, pay dividend and other distributions, and conduct

our business. We also cannot assure you that our subsidiaries will generate sufficient earnings and cash

flow to pay dividend or otherwise distribute sufficient funds to us to enable us to pay dividend to our

Shareholders.

In respect of our PRC subsidiary, the newly enacted Enterprise Income Tax Law and its

implementation rules stipulate that if an entity is deemed to be a non-PRC resident enterprise which has

no establishment or place of business in the PRC or has establishment or place of business in the PRC but

the income has no relationship with such establishment or place, withholding tax at the rate of 10% will be

RISK FACTORS

40

applicable to any dividend paid to it by its PRC subsidiary, unless it is entitled to reduction or elimination

of such tax, including under relevant tax treaties.

In addition, restrictive covenants in bank credit facilities, joint venture agreements or other

arrangements that we or our subsidiaries may enter into in the future may also restrict the ability of our

subsidiaries to pay dividend or make distributions to us. These restrictions would reduce the amount of

dividend or other distributions we could receive from our subsidiaries, which in turn would restrict our

ability to pay dividend to our Shareholders.

Dividend payable by us to our Shareholders and gain on the sale of our Shares may be subject to the PRC tax.

Under the Enterprise Income Tax Law and its implementation regulations, dividend income of non-

resident enterprises (enterprises that do not have an establishment or place of business in the PRC, or that

have such establishment or place of business but the relevant income is not effectively connected with

such establishment or place of business) is generally subject to PRC enterprise income tax at the rate of

10% to the extent such dividend has its source within the PRC unless it can be reduced pursuant to the

respective tax treaty between the PRC and the jurisdiction in which the non-resident enterprise resides

which reduces or exempts the relevant tax. Similarly, any gain realised on the transfer of shares by such

non-resident enterprises is subject to a 10% PRC enterprise income tax if such gain is regarded as income

derived from sources within the PRC. Since it is uncertain whether our Company will be considered a

PRC resident enterprise, dividend payable to our Shareholders with respect to our Shares, or the gain our

Shareholders may realise from the transfer of our Shares, may be treated as income derived from sources

within the PRC and be subject to the PRC tax.

Further, according to the applicable FIEs Tax Law, income such as dividends and profits

distribution from the PRC derived from a foreign enterprise which has no establishment in the PRC is

subject to a 20% withholding tax, subject to reduction as provided by any applicable double taxation

treaty, unless the relevant income is specifically exempted from tax under the applicable FIEs Tax Law. If

we are required under the Enterprise Income Tax Law to withhold the PRC tax on dividend payable to our

foreign Shareholders, or if you are required to pay the PRC tax on the transfer of your Shares, the value of

your investment in our Shares may be materially and adversely affected.

RISKS RELATING TO THE INTRODUCTION

Shareholders’ interests in the share capital of our Company may be diluted in the future.

We may in the future expand our capabilities and business through acquisition, joint venture and

strategic partnership with parties who can add value to our business. We may require additional equity

funding after the Introduction and the equity interest of our Shareholders will be diluted should our

Company issue new Shares to finance future acquisitions, joint ventures and strategic partnerships and

alliances.

The interests of our Controlling Shareholders may differ from those of our other Shareholders, and such Shareholders may be disadvantaged by the actions of our Controlling Shareholders.

RISK FACTORS

41

Our Controlling Shareholders will control the exercise of approximately 61.31% of the voting

rights in the general meeting of our Company immediately after the Distribution. In light of the foregoing,

our Controlling Shareholders could exercise significant influence in determining the outcome of any

corporate transaction or other matters submitted to our Shareholders for approval, including mergers,

consolidations and the sale of all, or substantially all, of our assets, election of directors, and other

significant corporate actions.

The interests of our Controlling Shareholders may differ from the interests of our other

Shareholders. If the interests of our Controlling Shareholders conflict with the interests of other

Shareholders, or if our Controlling Shareholders choose to cause our business to pursue strategic

objectives that conflict with the interests of our other Shareholders, those Shareholders could be

disadvantaged by the actions of our Controlling Shareholders.

There may be a lack of liquidity of our Shares and volatility of their market price.

Prior to the Introduction, there has been no public market for our Shares. There is no guarantee

that a liquid public market for our Shares will be developed or be sustainable upon completion of the

Introduction.

If an active public market for our Shares could not develop after the Introduction, the market price

and liquidity of our Shares might be adversely affected. The stock market of Hong Kong generally has

experienced increasing price and volume fluctuations, some of which have been unrelated or have not

corresponded to the results of operations of such companies in recent years. Volatility in the price of

our Shares may be caused by factors beyond our control and may be unrelated or disproportionate to our

operating results.

It may be difficult to effect service of legal process and enforce judgments against us and our management.

Our Company is a company incorporated in the Cayman Islands under the Companies Law with

limited liability and the Companies Law differs in some respects from those of Hong Kong or other

jurisdictions where you may be located. As a result, the remedies available to our minority Shareholders

may be different from those they would have under the laws of Hong Kong or other jurisdictions.

Our Company’s corporate affairs are governed by its memorandum of association and the Articles,

the Companies Law and the common law of the Cayman Islands. The rights of our Shareholders to take

legal action against our Directors and our Company, actions by minority Shareholders and the fiduciary

responsibilities of our Directors to our Company under the Cayman Islands law are to a large extent

governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived

in part from comparatively limited judicial precedent in the Cayman Islands as well as from English

common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The

rights of our Shareholders and the fiduciary responsibilities of our Directors under the Cayman Islands

law may not be as clearly established as they would be under statutes or judicial precedents in Hong Kong

or other jurisdictions where you may be located. In particular, the Cayman Islands has a less developed

body of securities laws.

RISK FACTORS

42

In addition, although our Company will be subject to the Listing Rules and the Takeovers Code

upon the listing of our Shares on the Stock Exchange, our Shareholders will not be able to bring actions on

the basis of violations of the Listing Rules and must rely on the Stock Exchange to enforce its rules.

Furthermore, the Takeovers Code does not have the force of law and only provide standards of

commercial conduct acceptable for takeover and merger transactions and share repurchases in Hong Kong.

As a result of any or all of the above, our Shareholders may have more difficulty in protecting their

interests in the face of actions taken by our Company’s management, directors or major shareholders than

they would as shareholders of a Hong Kong company or companies incorporated in other jurisdictions.

Further information on the constitution of our Company and the Companies Law, is set out in the

section headed “Summary of the Constitution of our Company and Cayman Islands Company Law” in

Appendix IV to this listing document.

We cannot guarantee the accuracy of facts and other statistics with respect to the AV industry and the global economy contained in this listing document.

We have derived certain facts and other statistics in this listing document relating to the AV

industry and the global economy from various government publications and organisations that we

believe to be reliable. While we believe that such facts and statistics are appropriate sources for such

information, and our Directors have taken reasonable care in the reproduction of the information and

have no reason to believe that such information is false or misleading or that any fact has been omitted

that would render such information false or misleading, they have not been prepared or independently

verified by us, the Joint Sponsors or any of our or their respective affiliates or advisers. Therefore, we

make no representation as to the accuracy of such facts and statistics, which may not be consistent with

other information complied within or outside the PRC or available from other sources. Such facts and

other statistics include the facts and statistics contained in this section, the sections headed “Summary”,

“Industry Overview” and “Business” in this listing document. Due to possibly flawed or ineffective

sampling or discrepancies between published information and market practices or other reasons, such facts

and statistics may be inaccurate or may not be comparable to official statistics and you should not place

undue reliance on them. Accordingly, you should consider carefully how much weight or importance you

should attach to or place on such facts or statistics.

Forward-looking statements contained in this listing document are subject to risks and uncertainties.

This document contains certain statements that are “forward-looking” and indicated by the use of

forward-looking terminology such as “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “going

forward”, “intend”, “ought to”, “may”, “plan”, “potential”, “project”, “seek”, “should”, “will” or “would”

or similar expressions. You are cautioned that reliance on any forward-looking statement involves risk and

uncertainties, any or all of those assumptions could prove to be inaccurate and as a result, the forward-

looking statements based on those assumptions could also be incorrect. The risks and uncertainties in this

regard consist of those identified in the risk factors discussed above. In light of these and other risks and

uncertainties, the enclosure of forward-looking statements in this listing document should not be regarded

as representations by us that the plans and objectives will be achieved, and you should not place undue

reliance on such statements.

RISK FACTORS

43

We strongly caution you not to place any reliance on any information contained in press articles or other media regarding us and the Spin-off.

Prior to the publication of this listing document, there has been press and media coverage regarding

us and the Spin-off. Such press and media coverage included certain project development and operational

information, financial information, financial projections, valuations and other information about us that

are not contained in this listing document. There may continue to be additional press and media coverage

on us and the Spin-off. We do not accept any responsibility for any such press or media coverage or the

accuracy or completeness of any such information. We make no representation as to the appropriateness,

accuracy, completeness or reliability of any such information or publication. To the extent that any such

information appearing in publications other than this listing document is inconsistent or conflicts with the

information contained in this listing document, we disclaim it, and accordingly you should not rely on any

such information.

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

44

In preparation for the Listing, we have sought the following waivers from strict compliance with

the relevant provisions of the Listing Rules.

CONTINUING CONNECTED TRANSACTIONS

TCL Corporation and TCLM have entered into, and will continue to carry on certain transactions,

which would constitute non-exempt continuing connected transactions for our Company under the Listing

Rules after the Listing. Our Company has applied to the Stock Exchange for, and has been granted

a waiver from strict compliance with the announcement and/or independent shareholders’ approval

requirements under Chapter 14A of the Listing Rules for such transactions. Further details of such non-

exempt continuing connected transactions and the waiver granted are set out in the section headed

“Continuing Connected Transactions” in this listing document.

MANAGEMENT PRESENCE

Pursuant to Rule 8.12 of the Listing Rules, an issuer must have a sufficient management presence in

Hong Kong, which normally means that at least two of its executive directors must be ordinarily resident

in Hong Kong. We do not and, for the foreseeable future, will not have a sufficient management presence

in Hong Kong for the purposes of satisfying the requirements under Rule 8.12 of the Listing Rules. We

have applied for a waiver from strict compliance with Rule 8.12 of the Listing Rules on the basis that, as

our headquarters and principal business operations are located in the PRC, our management is best able

to attend to its functions by being based in the PRC. We have received from the Stock Exchange a waiver

from strict compliance with Rule 8.12 of the Listing Rules subject to the following conditions:

(a) we will appoint two authorised representatives, Mr. Yu Guanghui and Ms. Pang Siu

Yin, pursuant to Rule 3.05 of the Listing Rules who will act as the Company’s principal

communication channel with the Stock Exchange. Both the authorised representatives

have means to contact all members of the Board (including the independent non-executive

Directors) promptly at all times as and when the Stock Exchange wishes to contact the

members of the Board for any matters;

(b) each Director and authorised representative will provide his or her mobile phone number,

office phone number, fax number and e-mail address to the Stock Exchange;

(c) each Director, who is not an ordinary resident in Hong Kong, possesses valid travel

documents to visit Hong Kong and will be able to meet with the relevant members of the

Stock Exchange within a reasonable period of time, when required; and

LR8.12

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

45

(d) in compliance with Rule 3A.19 of the Listing Rules, we will retain a qualified institution

as compliance advisor, SinoPac Securities (Asia) Limited, for a period commencing on the

Listing Date and ending on the date on which the Company distributes its annual results for

the first full financial year commencing after the Listing Date in accordance with Rule 13.46

of the Listing Rules to provide the Company with advice on compliance with the Listing

Rules, as well as all other applicable laws, rules, codes and guidelines. The compliance

advisor will act as an additional channel of communication with the Stock Exchange.

INFORMATION ABOUT THIS DOCUMENT AND THE INTRODUCTION

46

DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS LISTING DOCUMENT

This listing document, for which our Directors collectively and individually accept full

responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving

information about our Group. Our Directors, having made all reasonable enquiries, confirm that to the best

of their knowledge and belief the information contained in this listing document is accurate and complete

in all material respects and not misleading or deceptive, and there are no other matters the omission of

which would make any statement herein or this listing document misleading.

This listing document is published in connection with the Introduction. It may not be used for any

other purpose and, in particular, no person is authorised to use or reproduce this listing document or any

part thereof in connection with any offering, or invitation to the offer, of our Shares or other securities

of our Company. Accordingly, there is no, and will not be any, offer of or solicitation, or an invitation

by or on behalf of our Company and the Joint Sponsors to subscribe for or purchase any of our Shares.

Neither this listing document nor any other document or information (or any part thereof) delivered or

supplied under or in relation to the Introduction may be used for the purpose of making, and the delivery,

distribution and availability of this listing document or such other document or information (or any part

thereof) does not constitute, any offer of or solicitation or an invitation by or on behalf of our Company

and/or the Joint Sponsors to subscribe for or purchase any of our Shares.

APPLICATION FOR LISTING ON THE STOCK EXCHANGE

Application has been made to the Listing Committee for granting listing of, and permission to deal

in, on the Main Board, our Shares in issue as at the Distribution Record Date. Dealings in our Shares on

the Stock Exchange are expected to commence on 14 August 2013. Save as disclosed herein, none of our

Shares are listed on or dealt in on any other stock exchange and no such listing or permission to list is

being or is proposed to be sought in the near future.

According to the Listing Rules including Practice Note 15 to the Listing Rules, approval by TCLM

Shareholders is not required for the Spin-off.

ABOUT THE INTRODUCTION

The Introduction does not involve an offering of new Shares or any other securities and no new

proceeds will be raised pursuant to the Introduction. By undertaking the Introduction on the Stock

Exchange, we seek to avail the TCLM Qualifying Shareholders with a liquid public market for our Shares.

COMMENCEMENT OF DEALINGS IN OUR SHARES

Dealings in our Shares on the Main Board are expected to commence on 14 August 2013. Our

Shares will be traded on the Main Board in board lots of 2,000 Shares each.

A1A 2LR 11.12LR 19.08(1)

A1A 14(1)LR8.19(1)

INFORMATION ABOUT THIS DOCUMENT AND THE INTRODUCTION

47

SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

Subject to the granting of listing of, and permission to deal in, our Shares on the Stock Exchange and the compliance with the stock admission requirements of HKSCC, our Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in our Shares on the Stock Exchange or on any other date HKSCC chooses. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.

All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements have been made for our Shares to be admitted into CCASS. If you are unsure about the details of CCASS settlement arrangements and how such arrangements will affect your rights and interests, you should seek the advice of your stockbrokers or other professional advisers.

NO CHANGE IN THE NATURE OF BUSINESS

No change in the nature of business of our Group is contemplated following the Introduction.

HONG KONG STAMP DUTY

Dealings in Shares registered in the Hong Kong Branch Share Register kept by our Company are subject to Hong Kong stamp duty.

PROFESSIONAL TAX ADVICE RECOMMENDED

If you are unsure about the taxation implications of the purchasing, holding or disposal of, dealing in, or the exercise of any rights in relation to, our Shares, you should consult an expert. It is emphasised that none of our Company, the Joint Sponsors, any of their respective directors, agents, employees, advisers or affiliates or any other person or party involved in the Introduction accepts responsibility for any tax effects on, or liabilities of, any person resulting from the purchasing, holding or disposal of, dealing in, or the exercise of any rights in relation to, our Shares.

CONDITIONS OF THE INTRODUCTION

The Introduction is subject to the fulfillment of the conditions that, amongst other things, the Listing Committee grants the listing of, and permission to deal in, our Shares on the Main Board.

SPIN-OFF

The Spin-off will be implemented in compliance with the Listing Rules including Practice Note 15 to the Listing Rules. According to the Listing Rules including Practice Note 15 to the Listing Rules, approval by the shareholders of TCLM is not required for the Spin-off, while the Distribution and the Non-Competition Arrangements are subject to the approval by the shareholders of TCLM as required under article 152 of the articles of association of TCLM and Chapter 14A of the Listing Rules, respectively. As the Spin-off will be effected by way of introduction with no new offering of new Shares or any other securities, there will be no dilution of the attributable interest of the TCLM Qualifying Shareholders.

A1A 14(2)

A1A 30

DIRECTORS AND PARTIES INVOLVED IN THE INTRODUCTION

48

DIRECTORS

Name Residential Address Nationality

Chairman and Non-executive Director

YUAN, Bing (袁冰) Flat 1041, Tower 426 Chinese No. 92 Donghu 6th Street Huicheng District Huizhou, Guangdong Province the PRC

Executive Directors

YU, Guanghui (于廣輝) 2C Block, Mangrove Bay Citic Chinese Sandriver Road, Nanshan District Shenzhen, Guangdong Province the PRC

SONG, Yonghong (宋永紅) 9-8B Hai Yin Greatwall Chinese Nanshan District Shenzhen, Guangdong Province, the PRC

REN, Xuenong (任學農) Room 407, Block 4 Chinese Qiaocheng Haoyuan, Baishizhou Nanshan District, Shenzhen Guangdong Province the PRC

Non-executive Director

LEONG, Yue Wing (梁耀榮) 89 Highgate Crescent Singaporean Singapore

Independent non-executive Directors

POON, Chiu Kwok (潘昭國) Flat G, 22F., Block 19 Chinese Laguna City, Kwun Tong Hong Kong

LI, Qi (李其) 10 Lianfeng Hutong Chinese Dongcheng District Beijing the PRC

YOUNG, Shiao Ming (楊曉明) Room 1502, Building No. 1 Taiwanese 506 Long, Huangpi South Road Luwan District Shanghai the PRC

A1A 41(1)3rd Sch 6

DIRECTORS AND PARTIES INVOLVED IN THE INTRODUCTION

49

PARTIES INVOLVED IN THE INTRODUCTION

Joint Sponsors BNP Paribas Securities (Asia) Limited

59/F-63/F, Two International Finance Centre

8 Finance Street, Central

Hong Kong

Kim Eng Securities (Hong Kong) Limited

Level 30, Three Pacific Place

1 Queen’s Road East

Hong Kong

Auditors and reporting Ernst & Young

accountants Certified Public Accountants

22/F CITIC Tower

1 Tim Mei Avenue

Central

Hong Kong

Our legal advisers

as to Hong Kong law Herbert Smith Freehills

23/F., Gloucester Tower

15 Queen’s Road Central

Central

Hong Kong

Cheung Tong & Rosa Solicitors

Room 501

5/F., Sun Hung Kai Centre

30 Harbour Road

Hong Kong

as to PRC law Jia Yuan Law Office

F408, Ocean Plaza

158 Fuxing Men Nei Street

Xicheng District, Beijing

the PRC

as to Cayman Islands law Maples and Calder

53rd Floor, The Center

99 Queen’s Road Central

Hong Kong

A1A 3

A1A 43rd Sch 183rd Sch 43

DIRECTORS AND PARTIES INVOLVED IN THE INTRODUCTION

50

Joint Sponsors’ legal advisers

as to Hong Kong law Deacons

5th Floor

Alexandra House

18 Chater Road

Central

Hong Kong

as to PRC law Zhong Lun Law Firm

36-37/F, SK Tower

6A Jianguomenwai Avenue

Beijing

the PRC

Property valuer Asset Appraisal Limited

Room 901, 9/F.

On Hong Commercial Building

145 Hennessy Road

Wanchai

Hong Kong

CORPORATE INFORMATION

51

Registered office PO Box 309, Ugland House, Grand Cayman

KY1-1104, Cayman Islands

Headquarter No. 37 District

Zhongkai High-tech Zone,

Huizhou City

Guangdong Province

Principal place of business 13/F, TCL Tower

in Hong Kong 8 Tai Chung Road, Tsuen Wan

Hong Kong

Company website http://www.tonlyele.com (information on the

website does not form part of this listing document)

Compliance adviser SinoPac Securities (Asia) Limited

Company secretary PANG, Siu Yin, Solicitor, Hong Kong

Authorised representatives YU, Guanghui

10/F, Block A, TCL Tower

No.1 Gaoxin Nan Road, Nanshan District

Shenzhen, Guangdong

the PRC

PANG, Siu Yin

Room 501

5/F., Sun Hung Kai Centre

30 Harbour Road

Hong Kong

Audit committee POON, Chiu Kwok (Chairman)

LI, Qi

YOUNG, Shiao Ming

Remuneration committee YOUNG, Shiao Ming (Chairman)

POON, Chiu Kwok

LI, Qi

YUAN, Bing

YU, Guanghui

Nomination Committee YUAN, Bing (Chairman)

POON, Chiu Kwok

LI, Qi

YOUNG, Shiao Ming

YU, Guanghui

A1A 29(2)

A1A 6A1A 43S.342(1)(a)

LR8.17

A1A 42

A1A 6

CORPORATE INFORMATION

52

Hong Kong branch share Tricor Investor Services Limited

registrar and transfer office 26/F Tesbury Centre

28 Queen’s Road East

Hong Kong

Principal share registrar Royal Bank of Canada Trust Company (Cayman) Limited

4th Floor, Royal Bank House

24 Shedden Road, George Town

Grand Cayman

KY1-1110

Cayman Islands

Principal bankers China Construction Bank

(Huizhou Development District Branch)

1/F TCL Technology Building

17 Wai Fung San Road, Zhongkai High-tech Zone

Huizhou

the PRC

Bank of China (Huizhou Branch)

22 Medina Road

Huizhou

the PRC

Agricultural Bank of China (Huizhou Branch)

20 Huang Cheng Xi Yi Road

Huizhou

the PRC

Industrial and Commercial Bank of China Limited

(Huizhou Branch)

3 Jiangbei Wenming Yi Road

Huizhou

the PRC

A1A 3A1A 43LR8.16LR19.05(3)(a)LR19.05(5)

INDUSTRY OVERVIEW

53

This section contains certain information which is derived from various official government

or publicly available sources and from the market research report prepared by Euromonitor which

was commissioned by us (the “Euromonitor Report”), unless otherwise indicated. We believe that

the sources of such information are appropriate and have taken reasonable care in extracting

and reproducing such information. We have no reason to believe that such information is false

or misleading in any material respect or that any fact has been omitted that would render such

information false or misleading in any material respect. The information has not been independently

verified by us, our Controlling Shareholders, the Joint Sponsors, any other party involved in the

Introduction or their respective directors, officers, employees, advisers, agents and no representation

is given as to the accuracy or completeness of such information. Accordingly, such information should

not be unduly relied upon.

The Joint Sponsors and our Directors have exercised reasonable care in reproducing market

data disclosed in this listing document, and have no reasonable ground to believe and do not believe

that any such information being included in this listing document is untrue. Our Directors have further

confirmed that, after taking reasonable care, there is no adverse change in the market information

since the date of the Euromonitor Report, which may qualify, contradict or have an impact on the

information as disclosed in this section.

INTRODUCTION

The Group is principally engaged in the research and development, manufacturing and sales of AV

Products (excluding TV sets) for third parties’ brands on an ODM basis. The following information sets

forth an overview of (i) the AV Products industry which is defined to comprise the product categories as

video products (comprising DVD and BD Players) and audio products (comprising HTS & Soundbars,

Micro & Mini, audio separates, speakers, Dockings and other audio products), and excluding TV sets; and

(ii) the ABS-s products, which is a satellite-used receiver specifically designed for use in China, mainly

for remote area.

SOURCE OF INFORMATION

Euromonitor Report & the research methodology

Euromonitor is a global research organization and provider of international market intelligence

on consumer products, services and lifestyles, an Independent Third Party. It was commissioned by our

Group and TCLM Group in February 2013 to produce the Euromonitor Report for a global view of the AV

industry and the segments of video products, audio products and ABS-s products at a fee of US$61,600.

Figures and statistics provided in this listing document and attributed to Euromonitor or the Euromonitor

Report have been extracted from the Euromonitor Report and published with the consent of Euromonitor.

For the market data disclosed in the listing document, Euromonitor primarily undertook top-down

central research with bottom-up intelligence to present a more comprehensive and accurate picture of the

AV industry in the PRC and global. The information quoted from Euromonitor is not official government

information. Methodology conducted by Euromonitor provides a roadmap to interpret the reasonable

ground.

INDUSTRY OVERVIEW

54

Euromonitor began with an assessment of as much relevant background information as is publicly

available through sources covering: authority statistics, reports and/or databases (e.g. China National

Statistics Yearbook, 2012 Year Book of China Information Industry, etc.), trade associations and other

semi-official sources, such as the Blu-ray Disc Association, China Audio Industry Association, China

Users Association for Satellite Communications, Broadcasting & Television, etc., Independent analysts’

and research group’s reports and Euromonitor Passport data. Furthermore, Euromonitor would reconcile

these sources against any industrial bias.

Euromonitor did company research to make use of market information as revealed via drawing on

sources such as company annual reports and accounts (as available), browsing company website to explore

their product/brand portfolios, etc. To generate an industry consensus and provide perspective on the

market size and growth for consumer electronics market, Euromonitor conducted over 40 trade interviews

with multiple organizations, such as suppliers, trade associations, manufacturers and retailers. A reliable

data set and valid conclusions are reached by independently building segment consensus. To take integrity

assessment, Euromonitor used multiple secondary and primary sources to validate any data or information

collected with no reliance on any single-source. Furthermore, a test of each respondent’s information and

views against those of others is applied to ensure reliability and to eliminate bias from various sources.

Specifically for ensuring forecasting accuracy, Euromonitor adopted its standard practice of both

quantitative as well as qualitative forecasting in terms of the market size, growth trends, etc., on the

basis of a comprehensive and in-depth review of the market development history, and a cross check

with established government and industry figures, trade interviews, and statistical analysis tools where

possible.

OVERVIEW OF THE AV PRODUCTS INDUSTRY

1. Industry demand of AV Products and trends

The AV industry recorded a global retail sales value of approximately US$30,099.0 million in 2012

according to the Euromonitor Report, representing a decrease of approximately 5.2% over the previous

year. In terms of the global retail sales value, the audio products accounted for approximately 73.1%, and

the video products accounted for approximately 26.9%, of global retail sales value, respectively. Amid

the uncertainties of the global economy, particularly in the mainstream markets such as the developed

countries, the global retail sales value of the AV Products is forecasted to decline to approximately

US$30,033.9 million in 2015. However, emerging markets such as Asia Pacific (excl. Japan) and Latin

America are expected to sustain their growth despite the overall market decline and continue to increase

its share of the total market.

The diagram below sets forth the AV industry demand from 2010 to 2012, as well as the forecast

demand from 2013 to 2015.

INDUSTRY OVERVIEW

55

Global Retail Sales Value of AV Products, 2010-2015E

31,357.2

23,306.4

6,727.5

(USD million)

31,747.8 30,099.0 30,325.5 30,218.7 30,033.9

21,920.7 22,728.9 21,991.4 22,666.5 23,047.1

9,436.5 9,018.9 8,107.6 7,659.0 7,171.6

Video products Audio products

2010 2011 2012 2013e 2014e 2015e

Source: Euromonitor International, March 2013

Note: The above data includes video products such as standalone BD and DVD Players and audio products such as HTS & Soundbars, Micro & Mini, audio separates, speakers, Dockings and other audio products.

In terms of geographical mix, the global AV Products market has the following trends due to

different market dynamics:

■ The contribution from the US and Europe is expected to remain stable amid the current

economic slow down in these regions, as well as the weaker demand in certain video and

audio products. The video products, HTS and other audio products in the US and the DVD

Players and Micro & Mini speakers in Europe, have more notable slow down in terms of the

market growth. According to the Euromonitor Report, sales value of AV Products in the US

and Europe are expected to decrease slightly with a CAGR (2012-2015) of approximately

-0.9% and -0.1%, respectively.

■ The contribution from Japan is expected to decrease due to the lower market demand and

pricing of AV products.. Pricing remained a primary concern for Japanese consumers in

choosing audio systems which are discretionary entertainment options and any cut back in

consumer spending will directly impact growth, therefore, the premium and luxury categories

such as audio separates and speakers will be most affected in such a situation. According to

the Euromonitor Report, sales value of AV Products in Japan is expected to decrease with a

CAGR (2012-2015) of approximately -9.9%.

■ The contribution from emerging markets such as Asia Pacific (excl. Japan) and Latin

America is expected to continue to increase as these markets have relatively less impact from

the current economy downturn as compared to other regions. According to the Euromonitor

Report, sales value of AV Products in Asia Pacific (excl. Japan) and Latin America are

expected to grow further with a CAGR (2012-2015) of approximately 3.7% and 2.3%,

respectively.

SX1-5

INDUSTRY OVERVIEW

56

Global Retail Sales Value of AV Products by Region, 2010-2015E

11,213.6

3,503.6

2,879.92,722.7

3,946.6

1,771.5

5,319.3

11,441.9

3,363.8

2,964.02,913.4

4,279.6

1,796.8

4,988.3

10,686.5

3,117.5

2,823.82,997.7

4,012.7

1,553.2

4,907.6

10,964.5

2,884.1

2,926.93,156.4

4,247.2

1,232.4

4,914.0

10,818.6

2,752.9

2,976.43,303.0

4,310.8

1,168.9

4,888.1

10,651.5

2,675.2

3,016.9

3,478.6

4,299.6

1,136.9

4,775.2

(USD million)

31,747.830,099.0 30,325.5 30,218.7 30,033.9

2010 2011 2013e 2014e 2015e

US Europe Japan China Asia Paci�c excl. China and Japan Latin America Rest of World

31,357.2

2012

Source: Euromonitor International, March 2013

Note: The above data includes video products such as standalone BD and DVD Players and audio products such as HTS & Soundbars, Micro & Mini, audio separates, speakers, Dockings and other audio products.

In terms of product mix, the global AV Products market has the following shifts in product

category:

■ The contribution from the Audio products has increased from approximately 69.9% in 2010

to approximately 73.1% in 2012. The trend is expected to increase further to approximately

77.6% in 2015, driven by the increasing demand in products such as HTS & Soundbars and

Dockings.

■ The contribution from the video products has decreased from approximately 30.1% in 2010

to approximately 26.9% in 2012. The trend is expected to further decrease to approximately

22.4% in 2015. Such decrease is mainly due to the expected decrease in DVD Players

demand but was partly offset by the expected increase in BD Players demand.

Global Retail Sales Value Share by Product Category, 2010 versus 2012 versus 2015E

30.1%

69.9%

26.9%

73.1%

22.4%

77.6%

2010 2012 2015e

Video products

Audio products

Source: Euromonitor International, March 2013

Note: The above data includes video products such as standalone BD and DVD Players and audio products such as HTS & Soundbars, Micro & Mini, audio separates, speakers, Dockings and other audio products.

SX1-5

INDUSTRY OVERVIEW

57

2. Production of AV Products and trends

China is the largest manufacturing location for AV Products, attracting global leading brand owners

to manufacture their products in China either through directly from its manufacturing sites in China or

partnership with the ODM/OEM players. Development of the ODM/OEM players is corresponding to

the industry trend whereby some of the brand owners have preference to outsource their product design

and manufacturing process to specialised ODM/OEM players, allowing such brand owners to focus on

product planning, sales and marketing and brand management. AV Products production volume in China

reached approximately 261.0 million units in 2012, representing approximately 82.1% of the total global

production.

China’s AV Production Volume vs. Global AV Production Volume, 2010-2015E

320.9

257.0

(Million units)

317.3 317.8 308.5 294.3281.0

2010 2011 2012 2013e 2014e 2015e

257.7 261.0 252.7 240.0 227.9

Global AV products PRC AV products

Source: Euromonitor International, March 2013

Note: The above data includes video products such as BD and DVD Players and audio products such as HTS & Soundbars, Micro & Mini, audio separates, speakers, Dockings and other audio products.

According to the Euromonitor Report, the AV Products production volume in China will

slightly decrease to 227.9 million units in 2015, representing a CAGR (2012-2015) of approximately

-4.4%, primarily due to the decrease of global industry demand of AV Products. In addition, labor

competitiveness in other Southeast Asia countries showed rising market presence in the global ODM/OEM

industry. However, Euromonitor expects that China will continue its leadership over other regions, and

the BD Players, Dockings and HTS & Soundbars will be the key growth drivers with a forecasted CAGR

(2012-2015) of approximately 19.0%, 9.3%, and 6.8%, respectively. Such increase is expected to be

driven by the increasing consumers demand in HD media and upgrade of the home entertainment systems

for better sound quality, which product price continues to decline to an affordable level.

SX1-10

INDUSTRY OVERVIEW

58

China’s AV Production Volume by Product Category, 2010-2015E

257.0

102.8

154.2

(Million units)

257.7 261.0 252.7 240.0227.9

2010 2011 2012 2013e 2014e 2015e

105.6 108.7 111.5114.6

117.9

152.2 152.4 141.1 125.4110.0

Video products Audio products

Source: Euromonitor International, March 2013

Note: The above data includes video products such as BD and DVD Players and audio products such as HTS & Soundbars, Micro & Mini, audio separates, speakers, Dockings and other audio products.

Top 5 Video and HTS & Soundbars Manufacturers in the PRC, Ranked by Production Volume in 2012

Rank Company Name

Production Volume in 2012

(’000 units)

Market Share

in 2012 (%)

1 Tonly Electronics Holdings Ltd. 13,203.0 7.5%2 Malata Group Co Ltd. 7,960.0 4.5%3 Foxconn Technology Group 6,041.2 3.4%4 Shenzhen Sea Star Technology Co Ltd 4,500.0 2.6%5 Eastern Technologies Holding Limited 4,051.6 2.3%

Source: Euromonitor International, March 2013

Note: The above data includes video products such as BD and DVD Players and audio products such as HTS & Soundbars.

OVERVIEW OF THE VIDEO PRODUCTS INDUSTRY

1. Overview

According to the Euromonitor Report, the global retail sales value of the video products is

approximately US$8,107.6 million in 2012. The market is expected to witness a decline to approximately

US$6,727.5 million in 2015, mainly due to the increasing availability of the internet as a video

distribution channel and change of consumer behaviour from purely in-home entertainment to mobile

device entertainment especially the younger generation.

INDUSTRY OVERVIEW

59

While DVD Players demand is expected to decline, it is believed by Euromonitor that the market will not be entirely obsolete. Low-cost DVD Players will continue to exist in the emerging markets which broadband internet access remains relatively expensive. In addition, BD Players will continue to replace DVD Players in the developed markets as consumers continue to demand for higher quality videos. BD Players demand is expected to increase with a CAGR (2012-2015) of approximately 1.9%.

Retail Sales Value of BD and DVD Players Globally, 2010-2015E

(USD million)

9,436.5 9,018.98,107.6

7,659.0 7,171.6

2010 2011 2012 2013e 2014e 2015e

5,615.6 4,591.6 3,455.6 2,787.1 2,230.9

3,820.9 4,427.3 4,652.0 4,871.9 4,940.7

6,727.5

1,807.5

4,920.0

BD players DVD players

Source: Euromonitor International, March 2013

Note: The above data includes products such as standalone BD and DVD Players.

2. Production of the video products in China

According to the Euromonitor Report, China was the largest production location for video products and manufactured approximately 152.4 million units of video products in 2012, accounting for approximately 88.9% of total global production volume in that year. In view of the continuous decline of the DVD Players market, most manufacturers have adjusted their orders portfolio to explore new products that could contribute higher margin such as the BD Players. As an export-oriented industry, around 80% of video products produced by the PRC manufacturers were exported in 2012.

Production Volume of BD and DVD Players in the PRC, 2010-2015E

154.2

148.2

5.9

(Million units)

152.2 152.4141.1

125.4110.0

2010 2011 2012 2013e 2014e 2015e

142.4 134.0 117.9 98.978.9

9.818.4 23.3 26.5 31.0

BD players DVD players

Source: Euromonitor International, March 2013

Note: The above data includes products such as BD and DVD Players.

INDUSTRY OVERVIEW

60

3. Competitive landscape of the video products manufacturers in the PRC

As the global largest manufacturing site for video products, the ODM/OEM players in the PRC

are able to attract large orders from the global leading brand owners by taking advantage of the relatively

completed industry supply chain, low labour cost and geographical location in China. Guangdong

province has been the major manufacturing site for video products manufacturers.

According to the Euromonitor Report, the video products manufacturing market in the PRC

is fragmented and has over 100 manufacturers. The market share of top 5 players, in aggregate, was

approximately 22.8% in 2012 in terms of the production volume, there is no single manufacturer who

has a market share of above 10%. Tonly Electronics Holdings Ltd. was the largest video products

manufacturer with a market share of 8.1% in 2012, followed by Malata Group Co., Ltd. and Foxconn

Technology Group with a market share of 5.1% and 4.0%, respectively.

Top 5 Video Products Manufacturers in the PRC, Ranked by Production Volume in 2012

Production Market Volume ShareRank Company Name in 2012 in 2012 (’000 units) (%)

1 Tonly Electronics Holdings Ltd. 12,311.1 8.1%

2 Malata Group Co Ltd. 7,840.0 5.1%

3 Foxconn Technology Group 6,041.2 4.0%

4 Shenzhen Sea Star Technology Co Ltd. 4,500.0 3.0%

5 China Hualu Group Co Ltd. 4,000.0 2.6%

Source: Euromonitor International, March 2013

Note: The above data includes products such as BD and DVD Players.

OVERVIEW OF THE AUDIO PRODUCTS INDUSTRY

1. Overview

According to the Euromonitor Report, the global retail sales value of the audio products is

approximately US$21,991.4 million in 2012, representing a decrease of approximately 3.2% from the

previous year. It is expected to maintain stable growth between 2012-2015 to reach approximately

US$23,306.4 million in 2015. The demand of the audio products is also driven by the increasing

availability of internet access and mobile devices such as smartphones which increase the integration

and compatibility of multimedia functions. As a result, products such as Dockings has a relatively higher

growth rate of approximately 3.8% in 2012.

According to the Euromonitor Report, the top 5 countries consuming audio products in 2011

included the United States, China, France, Germany, United Kingdom and Japan, with a total share of

approximately 55.6% in the market.

SX1-10

INDUSTRY OVERVIEW

61

Retail Sales Value of Audio Products Globally, 2010-2015E

(USD million)

21,920.7 22,728.9 21,991.422,666.5 23,047.1

2010 2011 2012 2013e 2014e 2015e

8,128.6 8,314.5 8,128.1 8,642.4 9,045.1

2,249.9 2,384.3 2,343.6 2,404.4 2,431.61,427.4 1,359.9 1,274.4 1,227.6 1,188.8

1,930.0 2,187.8 2,271.4 2,344.2 2,369.8

3,439.5 3,596.0 3,384.9 3,408.0 3,397.6

4,745.3 4,886.4 4,589.0 4,639.9 4,614.2

23,306.4

9,397.0

2,464.01,147.5

2,321.4

3,394.2

4,582.3

Audio Separates Dockings Micro & Mini

HTS & Soundbars Speakers Other Audio Products

Source: Euromonitor International, March 2013

2. Production of the audio products in China

According to the Euromonitor Report, China was the largest production location for the audio

products and manufactured approximately 108.7 million units in 2012, accounting for approximately

74.2% of the total global production volume. Among the products manufactured, production volume

of Dockings and HTS & Soundbars experienced higher growth rates than other products, with a CAGR

(2010-2012) of approximately 12.8% and 9.8%, respectively, highlighting the continuing demand for such

products in view of the multimedia compatibility trend from the smartphone devices.

Production Volume of Audio Products in the PRC, 2010-2015E

102.8

19.7

9.5

(Million units)

105.6 108.7 111.5 114.6 117.9

2010 2011 2012 2013e 2014e 2015e

21.8 23.7 25.5 27.2 28.99.6 10.3 10.9 11.5 12.0 12.524.4 22.7 21.7 20.8 19.9 19.4

16.9 19.3 21.5 23.6 25.8 28.0

9.8 10.1 10.3 10.5 10.7

22.7 21.6 20.8 19.9 19.2 18.5

Audio Separates Dockings Micro & Mini

HTS & Soundbars Speakers Other Audio Products

Source: Euromonitor International, March 2013

INDUSTRY OVERVIEW

62

3. Competitive landscape of the audio products industry in the PRC

As the global largest manufacturing site for audio products, the ODM/OEM players in the PRC are able to attract large orders from the global leading brand owners by taking advantage of the relatively completed industry supply chain, low labour cost and geographical location in China. Guangdong province has been the major manufacturing site for audio products manufacturers.

According to the Euromonitor Report, the audio market covers a wide range of products including HTS & Soundbars, Dockings, Micro & Mini, audio separate, speakers and other audio products, and the manufacturing market is fragmented, with over 1,500 manufacturers. Regarding the largest product category of audio products, HTS & Soundbars represented approximately 21.8% of the overall production volume in 2012 and also the key product of the Company in the audio products, below sets forth the combined contribution of the top 5 manufacturers to the market share in 2012 in terms of the production volume. The HTS and Soundbars manufacturing market in the PRC is relatively fragmented, with the top 5 manufacturers contributing a combined market share of approximately 31.4%. Although there are over 1,500 manufacturers engaged in the audio products market and many of them have a presence in the Soundbars, Eastern Technologies Holding Limited led the market by taking a market share of approximately 17.1% in 2012, ahead of other manufacturers.

Top 5 HTS & Soundbars Manufacturers in the PRC, Ranked by Production Volume in 2012

Production Market Volume ShareRank Company Name in 2012 in 2012 (’000 units) (%)

1 Eastern Technologies Holding Limited 4,051.6 17.1%2 Guoguang Electric Company Limited 1,200.0 5.1%3 Tonly Electronics Holdings Ltd. 1,015.0 4.3%4 Guangzhou Panyu Vtrek Electronics Co Ltd. 651.5 2.8%5 Taiwan DAHW Group 504.3 2.1%

Source: Euromonitor International, March 2013

OVERVIEW OF THE ABS-S INDUSTRY

ABS-s is a satellite-used receiver specifically designed for use in China. It has been identified as a key component to implement the digital TV signal applications to remote and some of the inland areas. ABS-s products were launched mainly via two programs: “Cun Cun Tong” (to every village) and “Hu Hu Tong” (to every household).

“Cun Cun Tong” (村村通) program

“Cun Cun Tong” (村村通) (to every village) program was introduced in 2008 when SARFT issued the “China Radio and Television Broadcasting Satellite System of “Cun Cun Tong” Technical System White Paper” (中國廣播電視直播衛星“村村通”系統技術體制白皮書), in which it was stated that “Cun Cun Tong” was one of the important programs during the period of 11th Five-Year plan, and was mainly designed to address the issue in areas that lacks TV signal coverage such as the countryside and some of the inland areas. “Cun Cun Tong” was designed to receive Satellite TV signal from Chinasat 9/Zhongxing 9, which was the communication satellite launched by China in 2008.

SX1-10

INDUSTRY OVERVIEW

63

The selection of manufacturers for the supply of ABS-s is conducted through a bidding process

by the SARFT. The first round of bidding process was in 2008 and approximately 3.7 million units were

purchased. The second and third rounds of bidding process were conducted in 2010, which included an

upgrade of its encryption system and approximately 9.3 million units in total were purchased. The fourth

round of bidding process was conducted in 2011 and 3.5 million units were purchased. The fifth round

of bidding process was conducted in 2012 and 3.2 million units were purchased. It is estimated that the

overall ABS-s units purchased were approximately 19.7 million since 2008.

“Hu Hu Tong” (戶戶通) program

“Hu Hu Tong” (戶戶通) (to every household) program was initiated by SARFT in 2011, as the supplementary scheme to “Cun Cun Tong” to accelerate the satellite TV signal applications. Ningxia and

Neimenggu were selected as the first batch of experimental regions. SARFT has also established the Radio

and Television Satellite Broadcast Management Center (廣播電視衛星直播管理中心) in 2011 to facilitate the construction of the public service system.

In 2012, the General Office of the Central Committee of The Communist Party of China (CCCPC)

and the General Office of the State Council issued the “Outline of China’s Cultural Reform and

Development in the 12th Five-Year Plan Period (2011-15)” (國家“十二五”時期文化改革發展規劃綱要). It is stated that during the five-year plan period from 2011 to 2015, application of ABS-s would be facilitated further to achieve the objective of covering 200 million households. As of July 2012,

households with ABS-s in the PRC have reached to 0.9 million through “Hu Hu Tong” program, and the

number increased to 3.2 million by October 2012 and 8.3 million by the end of March 2013.

Manufacturers are required to apply for Licence in order to be qualified for ABS-s production,

which largely increased the entry barriers in the industry. According to the Euromonitor Report, only 24

manufacturers were granted the Licence for the production of ABS-s from the PRC government which

includes Tonly, Hisense (海信), Jiuzhou (九州), Shenzhou (神舟), Skyworth (創維), Changhong (長虹),

Coship (同洲) and Konka (康佳), etc., and they are also the major bid winners of “Cun Cun Tong” and “Hu Hu Tong” programmes.

The top 3 ABS-s manufacturers under “Cun Cun Tong” program included Hisense, Jiuzhou and

Shenzhou, with production volume of over 1.0 million units in 2012 by each. Tonly supplied more than

0.6 million units, followed by Skyworth, Changhong, Konka and Haier, whose individual supply was

approximately 0.5 million units. However, the market share of ABS-s manufacturers under “Hu Hu

Tong” program cannot be estimated, mainly due to the reasons that the bidding process of “Hu Hu Tong”

program are carried out by regional governments, unlike “Cun Cun Tong” Program, for which SARFT

adopted centralized purchase, as well as that it just started in 2012

The following diagram sets forth the production volume of ABS-s products from 2010 to 2012, as

well as the forecast production volume from 2013 to 2015.

SX1-10

INDUSTRY OVERVIEW

64

Production Volume of ABS-s in the PRC, 2010-2015E

5.3

2010 2011 2012 2013e 2014e 2015e

(Million units)

2.4

9.7

11.8

14.8 15.0

Source: Euromonitor International, March 2013

With the commencement of the 12th Five-Year Plan, the National Development and Reform Commission (NDRC) and SARFT issued “National 12th Five-Year Plan for the Construction of Broadcasting Television Cun Cun Tong Program” (全國“十二五”廣播電視村村通工程建設規劃) in August 2011. This plan was developed to promote the acceleration and improvement of the construction of broadcasting television in rural areas. The plan has an objective for “Cun Cun Tong” program to cover 824,483 administrative villages (行政村) that were newly equipped with electricity, small amount of households from the natural villages (自然村) and 488,813 forest farms (林區/林場) where there were no electricity. The plan targets to complete most construction of broadcasting television in rural areas by the end of 2015.

ENTRY BARRIERS FOR MANUFACTURING AV PRODUCTS IN THE PRC

According to the Euromonitor Report, the following are the key entry barriers for manufacturing AV Products in the PRC:

1. Video products industry

There are various entry barriers for video products industry. Firstly, the video products manufacturers need to maintain their business through economy of scale, as both DVD and BD Players have relatively low gross margin due to the trend of continuing price declining. Secondly, they need to obtain the IP Licences granted by IP owners to manufacture the video products, particularly for BD Players. Thirdly, they also have to equip with accumulated technology and know-how such as wireless technology, in face of the rapid development of streaming media technology and applications, and build a strategic relationship with the key technology solution suppliers such as IC manufactuers.

2. Audio products industry

Audio products competitiveness lies in (i) the research and development capacity and product innovations, (ii) advanced production technology, and (iii) customer recognition. The audio products manufacturers should be capable of investing sufficient resources in the research and development of new products and applications, such as electroacoustic products, software development, and mechanical parts development. However, without a thorough understanding of market trends and user experience, the manufacturers could face difficulties in providing innovative products to the market. For new entrants, they will have difficulties in obtaining the business from leading brand owners of the audio products as most of them have already established strategic relationship with the major ODM/OEM services providers.

SFC1-3

INDUSTRY OVERVIEW

65

3. ABS-s industry

Production of ABS-s products requires Licences to be granted by the Ministry of Industry and

Information Technology, as it is a well regulated industry by China’s government. In addition, the

research and development and production of ABS-s products involve highly specialized and integrated

technologies including hardware, software, coding and decoding technology, etc, which increase the

capital and technological requirements on the manufacturers, thereby creating high entry barrier.

RAW MATERIAL COST FOR MANUFACTURING AV PRODUCTS IN THE PRC

According to the Euromonitor Report, the AV Products ODM/OEM manufacturers mainly purchase

components and parts (e.g. IC, loader, PCB) rather than raw materials directly for the manufacturing of

AV Products. Therefore, while the price fluctuation of raw materials (such as copper) may have a level

of impact to the cost of components and parts, but it does not necessary have direct correlation with the

purchasing costs of AV Products manufacturers.

Copper is a major raw material of the components and parts that used in the AV Products. The

following chart shows monthly spot prices of copper in China during the Track Record Period.

China Copper Monthly Spot Price, 2010-2012

50,000

55,000

60,000

65,000

70,000

75,000

80,000

Jan/

2010

Feb/

2010

Mar

/201

0Ap

r/201

0M

ay/2

010

Jun/

2010

Jul/2

010

Aug/

2010

Sep/

2010

Oct

/201

0N

ov/2

010

Dec

/201

0Ja

n/20

11Fe

b/20

11M

ar/2

011

Apr/2

011

May

/201

1Ju

n/20

11Ju

l/201

1Au

g/20

11Se

p/20

11O

ct/2

011

Nov

/201

1D

ec/2

011

Jan/

2012

Feb/

2012

Mar

/201

2Ap

r/201

2M

ay/2

012

Jun/

2012

Jul/2

012

Aug/

2012

Sep/

2012

Oct

/201

2N

ov/2

012

Dec

/201

2

(RMB/tonne)

Yangtze River Spot Price

Source: Yangtze River Spot Price

Commodity prices are mainly influenced by market participants’ forecasts, which are driven by

supply and demand, as well as the overall macroeconomic environment. According to Yangtze River Spot

Prices, the unit price of copper in China fluctuated during 2010-2011 with the peak in February 2011,

however, the price changes returned to stable in 2012. The annual average price of copper increased by

approximately 12.5% in 2011, and then decreased by approximately 13.6% in 2012.

SX1-6

REGULATIONS

66

Set out below are the principal PRC laws, regulations and policies relating to the operations of the Group.

RELATED LAWS, REGULATIONS AND POLICIES

Related laws, regulations and policies on digital audio and video products manufacturing

Promulgated on 3 July 2009 by the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (AQSIQ) and implemented on 1 September 2009, it is stipulated in the “ China Compulsory Certification “ that the related products must be certified and labeled with the certification mark before releasing from the manufacture, marketing, import or use for any commercial purposes.

Where a product listed into the Catalogue, without certification, is released from the manufacture, marketed, imported or used for any commercial purposes, correction shall be ordered to be made and a fine of not less than RMB50,000 but not more than RMB0.2 million shall be imposed; the illegal income shall be confiscated.

Audio and video equipment is listed as the eighth category in The Announcement of the Issuance of the Mandatory Product Certification Directory Description and Definition Table promulgated and implemented on 11 December 2012 by the Administration of the People’s Republic of China.

On 24 December 2011, the NDRC and MOFCOM jointly promulgated the Catalogue of Industries for Guiding Foreign Investment (2011), which became effective on 31 January 2012. The Catalogue of Industries for Guiding Foreign Investment (2011) revised, HD digital camcorder, digital sound equipment, digital audio, video equipment, digital TV broadcasting studio equipment, digital cable TV system equipment, digital audio and video broadcasting equipment, digital TV down converter, digital TV ground broadcasting single frequency network (SFN) equipment, digital satellite television uplink station equipment, satellite public reception of TV (SMATV) front-end equipment manufacturing fall into the “encouraged investment category”.

On 23 June 2011, digital audio and video equipment is listed as the fifth category in The Key Field Guide to High-tech Industrialization of the Currently Development of Priority (2011).

Related laws, regulations and policies on digital audio and video products export

On 10 December 2001 the State Council promulgated Regulation of the People’s Republic of China on the Administration of the Import and Export of Goods, in which it is stipulated that where there are quantitative limits of the state on the goods limited in exportation, the goods shall be subject to the administration of quotas, and other goods limited in importation shall be subject to the administration of licences. For the goods limited in exportation that are subject to the administration of licences, the export business operators shall file applications and present the export licence.

Promulgated and implemented on 31 December 2012 by the Ministry of Commerce and the General Administration of Customs of the people’s Republic of China (“Customs”), it is stipulated in the “Catalogue of goods subject to export licence administration 2013”, digital audio and video products do not belong to the goods under export licence administration.

On 20 November 2003, the Ministry of Commerce, the National Development and Reform Commission, Ministry of Science and Technology, Ministry of Finance, the Ministry of Information Industry, the General Administration of Customs, the State Administration of Taxation, and the State

REGULATIONS

67

Quality Inspection Administration jointly issued the Opinions on Further Implementing the Strategy of

Rejuvenating Trade Through Science and Technology to encourage and promote high-tech product export.

On 23 February 2012, the Ministry of Commerce promulgated and implemented “ Twelfth Five-

Year “Development Planning for Electrical and High-tech Products Import and Export, electronic audio

industry and video equipment industry are listed as key industries to encourage the backbone of color TV

enterprises in a wider and deeper levels in line with international standards to strengthen the research and

the guidance of the international market, and promote the internationalization of enterprises:

Improve the export promotion policy

Timely revise relevant laws, strengthen coordination and cooperation between fiscal, financial,

investment, trade, industrial policies, form policy, improve and regulate the export order and other

provisions.

Strengthen the industrial support system

Cultivate 200 export bases and 2000 export base enterprises for 25 industries to build support for

technology research and development, information service, product certification, inspection, personnel

training, and public service platform.

Create a fair trade environment

Speed up the establishment of early warning mechanism, high-tech products trade friction and

the rapid reaction mechanism and coping mechanisms. Strengthen the key export market access policy,

technical regulations, certification and product standards for the collection, collation, translation etc. to

help enterprises understand the major importing country regulations, standards and conformity assessment

procedures, and guide enterprises to engage in foreign trade and overseas investment. Establish enterprises

export control training mechanism; introduce the relevant provisions of the state and the UN Security

Council sanctions resolution to help enterprises in export activities to raise the awareness of risk

prevention.

Promote a sound intellectual property protection system

Promote the enterprises to obtain the relevant safety, environmental protection and other aspects

of certification. Actively promote the mutual recognition for export product inspection. Push the patented

technology of enterprises to enter the international technology alliance, standard forum and patent

alliance, and engage in the formulating and revising of various international standards organizations.

Promote trade facilitation

Simplify the administrative examination and approval procedures for quota Licence management,

and clean up unreasonable restrictive measures relating to import. Timely adjust the catalogue of

automatic import licence of goods according to the status of industrial development and demand.

Promote quality inspection, customs and other departments to further improve the efficiency of customs

clearance of imports of advanced technology and equipment. Continue to deepen reform of the system of

REGULATIONS

68

verification of import payments, and simplify the procedures of verification. Perfect the way of classified

management of enterprises and measures for customs, inspection and management of import and export

commodities to improve the efficiency of customs clearance. Promote business visa facilitation. Promote

the signing of business visa reciprocity agreements to facilitate domestic businessmen to go abroad.

Related laws, regulations and policies on satellite television ground receiving equipment

Promulgated and implemented on 5 October 1993 by the State Council, it is stipulated in the

Provisions on the Administration of Ground Receiving Facilities for Satellite television Transmissions

that the State shall practice a system of granting licences in respect to the production import, sale,

installation and use of satellite ground receiving installations. The conditions for granting licences for the

production import, sale installation and use of satellite ground receiving installations shall be stipulated

by the relevant administrative departments under the State Council. The enterprises designated by the

administrative department of electronics industry under the State Council may produce the satellite ground

receiving installations and no other units may be allowed to produce such installations.

Promulgated and implemented on 1 June 2000 by The Ministry of Information Industry of the

People’s Republic of China, it is stipulated in The Production and Management of Fixed-point TV

Broadcast Satellite Ground Receiving that the fixed-point equipment means the television broadcast

satellite ground receiving equipment, radio antenna, connected tuner, TV receiving satellite programs

(including decoder), satellite receiving modulation integrated equipment, and televisions or set-top boxes

with satellite television receiving function. The Ministry of Information Industry of the TV broadcast

satellite ground receiving equipment implements dynamic fixed-point production management, and

jointly with the TV, industry and commerce, customs, public security, security and other administrative

departments further strengthens the TV broadcast satellite ground receiving equipment production,

sale, import, installation, use and management. Enterprises and institutions other than the Ministry of

information industry of the fixed-point units shall be engaged in the television broadcast satellite ground

receiving equipment production.

Promulgated and implemented on 13 September 2010 by Ministry of Industry and Information

Technology, it is stipulated in The Detailed Rules for the Implementation of the Qualification Certificate

Management for TV Broadcast Satellite Ground Receiving Equipment Fixed-point Production Enterprise

that the TV broadcast satellite ground receiving equipment fixed-point production enterprise qualification

certificate is the certificate for enterprises with TV broadcast satellite ground receiving equipment

fixed-point production. Enterprises without such qualification certificate shall not be engaged in related

products production and sales.

According to the Administrative Regulations of the People’s Republic of China on Production

licences for Industrial Products, which was promulgated by the State Council on 9 July 2005 and came

into force as of 1 September 2005, the State implements production permit system of quality on the

production of satellite TV broadcasting terrestrial radio and television transmitting equipment, and

communication products enterprises. Any enterprise that has not obtained a production licence for a

product listed in such catalogue shall be prohibited from producing the relevant product. No entity or

individual may sell or use in the course of business activities any product listed in the Catalogue for which

it has not obtained a production licence.

REGULATIONS

69

According to the People’s Republic of China Industrial Products Production Licence Management

Approach Revised, which was promulgated by the General Administration of Quality Supervision,

Inspection and Quarantine of the People’s Republic of China (AQSIQ) on 15 September 2005, came into

effect on 1 November 2005 and was amended on 21 April 2010, the AQSIQ is responsible for the work

of the unified management of the national industrial products production licence, the implementation of

the production permit system management products, unified product catalog, unified examination, unified

certification mark, and unified supervision and management.

According to the Implementation of the Production Permit System Management Catalog Notice,

which was promulgated and came into effect by the General Administration of Quality Supervision,

Inspection and Quarantine of the People’s Republic of China on 20 November 2012, broadcast satellite

ground receiving equipment continue belongs to the implementation of the production permit system

management products.

According to the Notice to Further Develop the Radio and Television Coverage Work in the

New Era, which was promulgated by the State Council on 20 September 2006, the State will continue

to implement centralized bidding and purchasing of large, unified “every village” equipment. Bidding

and purchasing of other equipment shall be conducted by the provinces (area, city) unified bidding

procurement.

According to Measures for the Administration of Tenders and Invitations to Bid in Government

Procurement of Goods and Services, which was promulgated by the Ministry of Finance on 11 August

2004, Invitations to bid concerning goods or services may be classified into public invitations to bid and

invitation-based tenders for bid. A public invitation for bid means that a bid-invitation procurement entity

lawfully invites uncertain suppliers to bid by announcement. An invitation-based tender for bid means

that a bid-invitation procurement entity lawfully and randomly selects three or more suppliers from the

qualified ones, whom are invited by an invitation letter to bid.

Invitations to Bid

Where the procurement of goods and services is carried out in the form of invitation-based

tender for bid, the bid-invitation procurement entity shall promulgate an announcement on preliminary

qualification examination through a medium designated by the finance department of the people’s

government at the provincial level or above for releasing government procurement information, and

promulgate the qualifications of the bidders. The period of the announcement shall be no less than 7

workdays.

Tenders for Bid

A bidder shall compile bidding documents according to the requirements in the bid-invitation

documents; a bidder shall, prior to the submission deadline of bidding documents as required in the bid-

invitation documents, submit the sealed bidding documents to the bidding place.

REGULATIONS

70

Opening of Bid, Bid Evaluation and Determination of Bid

The opening of bid shall be presided over by the bid-invitation procurement entity, and shall be

participated in by the purchaser, the bidders, and representatives from relevant sectors.

The bid evaluation shall be organized by the bid-invitation procurement entity, while the bid

evaluation committee lawfully established by the bid-invitation procurement entity shall be responsible for

the specific bid evaluation affairs. The bid evaluation committee shall be composed of the representatives

of the purchaser and the relevant experts in technical and economic fields, etc., and the members shall be

an odd number of 5 persons or more. Of which, the experts in technical and economic fields, etc. shall be

no less than two thirds of the total number of the members. For any technically complicated project whose

sum of money for procurement is no less than RMB3 million, the experts in technical and economic fields

in the bid evaluation committee shall be an odd number of 5 persons or more.

As for a project legally subject to the bid, the department in-charge shall issue the Notice on Putting

Tender Evaluation Outcomes on Record through the bidding website. The tendering agency shall issue

a bid winning notice to the bid winner upon the strength of the Notice on Putting Tender Evaluation

Outcomes on Record. The bid winning notice has the same legal effect on the purchaser and the winning

supplier.

TAXATION

The applicable income tax laws, regulations, notices and decisions (collectively referred to as

“Applicable FIEs Tax Law”) related to FIEs and their investors include the following:

• theEITLawpromulgatedbytheStateCouncilon16March2007whichcameintoeffecton

1 January 2008;

• Implementing Rules of the Enterprise Income Tax Law of PRC （中華人民共和國企業所得稅法實施條例） promulgated by the State Council on 6 December 2007 which came into effect on 1 January 2008;

• Notice on the Implementation of the Transitional Preferential Policies in respect of

Enterprise Income Tax （國務院關於實施企業所得稅過度優惠政策的通知） (“Notice”) promulgated by the State Council on 26 December 2007 which came into effect on the same

date;

• Income Tax Law Applicable to Individuals of PRC （中華人民共和國個人所得稅法） promulgated by the Standing Committee of the NPC on 10 September 1980 and last amended

on 30 June 2011 and its latest Implementation Regulations promulgated on 19 July 2011; and

• Notice on Relevant Policies Concerning Individual Income Tax （關於個人所得稅若干政策問題的通知） issued by the Ministry of Finance and the State Tax Bureau on 13 May 1994.

REGULATIONS

71

PRC Enterprises Income Tax

Taxpayer

The taxpayer of income tax of foreign invested enterprises refers to Sino-foreign equity joint

ventures, Sino-foreign contractual joint ventures and foreign-capital enterprises that are established in the

PRC.

Tax Rate

In accordance with the New EIT Law, a unified enterprise income tax rate of 25% and unified tax

deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested

enterprises. In accordance with the Notice, the EIT rate applicable to foreign-invested enterprises

which are currently subject to a deducted rate will be gradually increased up to 25% within five years

commencing from 1 January 2008.

Any enterprise with foreign investment shall be allowed, when filing a consolidated income tax

return, to deduct from the amount of tax payable the foreign income tax already paid abroad in respect of

the income derived from sources outside the PRC. The deductible amount shall, however, not exceed the

amount of income tax otherwise payable under the EIT Law in respect of the income derived from sources

outside the PRC.

Pursuant to the EIT Law, the Income Tax Law of the PRC for Enterprises with Foreign Investment

and Foreign Enterprises （中華人民共和國外商投資企業和外國企業所得稅法） and its Implementing Rules shall be abolished, and the rate of EIT applicable to all resident enterprises, including foreign

invested enterprises and domestic companies in the PRC shall be at a uniform rate of 25% in five years.

According to the EIT Law, any enterprise established prior to the promulgation of the EIT Law and is

currently enjoying tax incentives, shall be entitled to continue to enjoy such incentives till the date of

expiry. In the case of an enterprise that had been established before the EIT Law, but had not declared its

first profitable year, the term of any entitlement to tax incentives shall commence from 1 January 2008 for

a transition period of five years.

According to the Notice which was promulgated and came into effect on 26 December 2007,

commencing from 1 January 2008, enterprises that previously enjoy the preferential policies of low tax

rates shall be gradually transited to enjoy the statutory tax rate within 5 years after the implementation

of the EIT Law. Among them, the enterprises that enjoy the EIT rate of 15% shall be subject to the EIT

rate of 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012. The enterprises that

previously enjoy the tax rate of 24% shall be subject to the tax rate of 25% commencing from 2008. As

of 1 January 2008, enterprises that previously enjoy “2-year exemption and 3-year half payment”, “5-

year exemption and 5-year half payment” of the enterprise income tax and other preferential treatments

in the form of periodic tax deductions and exemptions may, after the implementation of the EIT Law,

continue to enjoy the relevant preferential treatments under the preferential measures and the time period

prescribed in the former tax law, administrative regulations and relevant documents until the expiration

of the said time period. However, if such an enterprise has not enjoyed the preferential treatments yet

REGULATIONS

72

because of its failure to make profits, its preferential time period shall be calculated from 2008. The

expression “enterprises enjoying the preferential policies” as mentioned above refers to the enterprises

established and registered in the industrial and commercial administrative department and in other

registration administrative departments prior to 16 March 2007.

Value-Added Tax

The Provisional Regulations Concerning Value-Added Tax of the PRC （中華人民共和國增值稅暫行條例） promulgated by the State Council and amended on 5 November 2008 came into effect on 1 January 2009. Under these regulations and the Implementing Rules of the Provisional Regulations

Concerning Value-Added Tax of the PRC （中華人民共和國增值稅暫行條例實施細則）, value-added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services

provided within the PRC.

The value-added tax rates shall be as follows:

(a) The tax rate for goods sold or imported by taxpayers other than the goods set forth in Items

2 and 3 below shall be 17%.

(b) The tax rate for sale or import of the following goods by taxpayers shall be 13%:

(i) grain, edible vegetable oil;

(ii) tap water, heating, air-conditioning, hot water, coal gas, liquid petroleum gas;

(iii) natural gas, methane, and coal products for use by residents;

(iv) books, newspapers, magazines;

(v) feed, chemical fertilizer, agrochemicals, agricultural equipment and machinery,

Agricultural film; and

(vi) other goods specified by the State Council.

(c) The tax rate for goods exported by taxpayers shall be zero, except where otherwise

determined by the State Council.

(d) The tax rate for processing and repair and replacement services provided by taxpayers shall

be 17%. The value-added tax rates for small scale taxpayer shall be 3%.

Business Tax

With effect from 1 January 2009, businesses that provide services (including entertainment

business), assign intangible assets or sell immovable property are liable to business tax at a rate ranging

from 3% to 20%, of the charges of the services provided, intangible assets assigned or immovable

property sold, as the case may be.

REGULATIONS

73

The formula for calculation of the amount of tax payable is set forth below:

Amount of tax payable = amount of business × tax rate

The amount of tax payable shall be calculated in RMB. Taxpayers that settle their amounts of

business income in foreign exchange shall convert the amounts into RMB at the foreign exchange market

rate.

PRC Customs Duties

According to the Customs Law of the PRC （中華人民共和國海關法）, the consignee of the imports, the consignor of exports and the owner of the imports and the exports are the persons obligated

to pay customs duties (generally speaking, exports are not subject to customs duties). The PRC Customs is

the authorities in charge of the collection of customs duties.

The customs duties in the PRC mainly fall under ad valorem duties, namely the price of import/

export commodities is the basis for the calculation of the duties. When calculating the customs duties,

import/export commodities shall be classified under appropriate tax items in accordance with the category

provisions of the Customs Import and Export Tariff and shall be subject to tax levies pursuant to relevant

tax rates.

Under the laws of the PRC, raw materials, supplementary materials, parts, components, accessories

and packing materials imported for processing and assembling finished products for foreign parties or

for manufacturing products for export shall be exempt from import duties pursuant to the actual amount

of goods processed for export; or import duties may be levied upfront on import materials and parts and

subsequently refunded pursuant to the actual amount of goods processed for export.

To encourage the introduction of foreign investment, commencing from 1992, the PRC exercised

exemption and reduction of customs duties on the import of equipment, machinery, parts and other

materials within the total investment of foreign investment companies. But after the adjustment of policies

as of 1 April 1996, such exemption and reduction has been terminated, while the foreign investment

companies incorporated before then can still continue to enjoy such preferential treatment within the grace

period.

As from 1 January 1998, according to the Notice of the State Council regarding the Adjustment

of Taxation Policy of Import Equipment （國務院關於調整進口設備稅收政策的通知）, in respect of the foreign investment projects that fall under Encouraging Category and Restricted B Category of the

Industrial Guidance Catalogue of Foreign Investment （外商投資產業指導目錄鼓勵類和限制乙類） and also involve the transfer of technology, the equipment imported for its own use within the total investment

can be exempt from the customs duties, except for the commodities listed in the Catalogue of the Non-tax

Exemption Import Commodity of Foreign Investment Projects （外商投資項目不予免稅的進口商品目錄）.

REGULATIONS

74

Tax on Dividends from PRC Enterprise with Foreign Investment

According to the Applicable FIEs Tax Law, income such as dividends and profits distribution from

the PRC derived from a foreign enterprise which has no establishment in the PRC is subject to a 20%

withholding tax, subject to reduction as provided by any applicable double taxation treaty, unless the

relevant income is specifically exempted from tax under the Applicable FIEs Tax Law. The profit derived

by a foreign investor from a PRC enterprise with foreign investment is exempted from PRC tax according

to the Applicable FIEs Tax Law. However, following the enforcement of the EITL from 1 January 2008,

dividends of the year 2008 and the years afterwards distributed from foreign investment enterprises to

foreign investors shall be subject to the Enterprise Income Tax. Profits accumulated by foreign investment

enterprises before 1 January 2008 but distributed to foreign investors after 1 January 2008 are exempted

from the Enterprise Income Tax.

Apart from the above, the Applicable FIEs Tax Law provides that:

(a) pursuant to the Implementing Rules of the Enterprise Income Tax Law of PRC （中華人民共和國企業所得稅實施條例） promulgated by the State Council commencing on 1 January 2008, 10% income tax is applicable to dividends payable from a foreign enterprise which has

no establishment in the PRC to investors that are “non-resident enterprises” (and that do not

have an establishment or place of business in the PRC, or that have such establishment or

place of business but the relevant income is not effectively connected with the establishment

or place of business); and

(b) pursuant to the Notice concerning Tax Rates for Dividends Declared （關於下發協議股息稅率情況一覽表的通知） issued by the State Administration of Taxation, 5% withholding tax is applicable to dividends payable from the PRC subsidiary to its Hong Kong holding

company, pursuant to an arrangement for the avoidance of double taxation between Mainland

China and Hong Kong which provides for a withholding tax at a rate of 5% for dividend

payments the Hong Kong holding company receives from the PRC entities in which it holds

an interest of 25% or more, to the extent such dividends have their source within the PRC.

In addition, the Applicable FIEs Tax Law also provides that dividends received by a qualified PRC

tax resident from another PRC tax resident are exempted from withholding tax.

LABOUR LAWS AND SAFETY MATTERS

Relevant labour and safety laws and regulations in the PRC include the PRC Labour Law （中華人民共和國勞動法）, the PRC Labour Contract Law （中華人民共和國勞動合同法）, the Decision of the State Council on Establishing the Unified Basic Pension Insurance System for the Employees of

Enterprises （國務院關於建立統一的企業職工基本養老保險制度的決定）, the Decision of the State

Council on Establishing the Basic Medical Insurance System for the Urban Employees （國務院關於建立城鎮職工基本醫療保險制度的決定）, the Regulation on Work-related Injury Insurance （工傷保險條例）, the Regulation on Unemployment Insurance （失業保險條例）, the Provisional Insurance Measures

for Maternity of Employees （企業職工生育保險試行辦法）, the Interim Provisions on Registration

of Social Insurance （社會保險登記管理暫行辦法）, the Interim Regulation on the Collection and

REGULATIONS

75

Payment of Social Insurance Premiums （社會保險費徵繳暫行條例） and other related regulations, rules and provisions issued by the relevant governmental authorities from time to time are applicable to our

operations in the PRC.

According to the Social Insurance Law of the PRC (中華人民共和國社會保險法), which was promulgated on 28 October 2010 and became effective from 1 July 2011, employers are obliged to make

contributions to, and employees including migrant workers from rural areas are required to participate

in, all social insurance schemes, which include basic pension insurance, basic medical insurance,

unemployment insurance, work-related injury insurance and maternity insurance schemes. Basic pension

insurance and basic medical insurance and unemployment insurance contributions shall be paid by both

employers and employees. Employees shall participate in work-related injury insurance and maternity

insurance schemes. Work-related injury insurance and maternity insurance contributions shall be paid by

employers rather than employees.

Pursuant to the Social Insurance Law of the PRC, if an employer fails to pay work-related injury

insurance contributions in accordance with the law, it shall pay work-related injury insurance benefits in

the case of a work-related injury accident. If the employer fails to make such payment, the benefits shall

first be reimbursed by the work-related injury insurance fund. Work-related injury insurance benefits

reimbursed by the work-related injury insurance fund shall be repaid by the employer. If the employer

fails to make repayment, social insurance agencies may recover such benefits from the employer in

accordance with the law.

Furthermore, as to unemployment insurance, employers shall provide unemployed individuals

with certification of expiry or termination of their employment in a timely manner, and within 15

days of such expiry or termination, inform social insurance agencies of the list of the unemployed

individuals. Unemployed individuals shall undertake the procedures for unemployment registration with

the designated public employment service institutions in a timely manner by producing the certification

of expiry or termination of their employment issued by their former employers. The period for receiving

unemployment insurance benefits shall be calculated from the date of unemployment registration.

An employer shall register with the local social insurance agency in accordance with the provisions

of the Social Insurance Law of the PRC. Moreover, an employer shall declare and make social insurance

contributions in full and on time. Except for mandatory exceptions such as force majeure, social insurance

may not be paid late, reduced or be exempted. If an employer fails to report the social insurance premium

payable in accordance with the relevant regulations, the social insurance agency shall provisionally set the

amount payable at 110% of the premium paid in the previous month. Once the employer has retroactively

undertaken the reporting procedures, the social insurance agency shall settle the amount in accordance

with the relevant regulations. Where an employer fails to make social insurance contributions in full

and on time, the social insurance agency may order rectification within a specified time limit. If the

employer fails to rectify within the specified time limit, the social insurance agency may enquire with

the relevant banks and financial institutions in which the employer has an account in, and may apply

with the relevant administrative department above county level to allocate and transfer the unpaid social

insurance contributions and notify the relevant banks or other financial institutions in writing to allocate

and transfer the unpaid social insurance contributions. Where the balance in the employer’s bank account

is less than the overdue social insurance contributions, the social insurance agency may request the

employer to provide a guarantee and sign a social insurance payment agreement for the delayed payment.

If the employer does not make the social insurance contributions within the specified time limit and fail

REGULATIONS

76

to provide a guarantee with respect to the same, the social insurance agency may request the people’s

court to seize the property of the employer (equivalent in value to the unpaid overdue social insurance

contributions), and collect the overdue social insurance contributions from the proceeds obtained from the

auction of such property.

According to the PRC Labour Law （中華人民共和國勞動法） and the PRC Labour Contract Law

（中華人民共和國勞動合同法）, labour contracts in written form shall be executed to establish labour relationships between employees and employers. The employers must provide wages which are no lower

than local minimum wage standards to the employees from time to time. The employers are required to

establish a system for labour safety and sanitation, strictly abide by State rules and standards and provide

relevant education to the employees. The employers are also required to provide the employees with

labour safety and sanitation conditions meeting State rules and standards and carry out regular health

examinations of the employees engaged in hazardous occupations.

As required under the Decision of the State Council on Establishing the Unified Basic Pension

Insurance System for the Employees of Enterprises, the Decision of the State Council on Establishing

the Basic Medical Insurance System for the Urban Employees, the Regulation on Work-related Injury

Insurance, the Provisional Insurance Measures for Maternity of Employees, the Interim Regulation on

the Collection and Payment of Social Insurance Premiums and the Interim Provisions on Registration of

Social Insurance, the employers are obliged to provide the employees in the PRC with welfare schemes

covering basic pension insurance, unemployment insurance, maternity insurance, injury insurance and

basic medical insurance.

The PRC Production Safety Law （中華人民共和國安全生產法） requires that the employers maintain safe production conditions as required by the PRC Production Safety Law and other relevant

laws, administrative regulations, national standards and industrial standards. It further provides that

any entity that is not sufficiently equipped to ensure safe production may not engage in production and

business operation activities, and that companies must provide production safety education and training

programmers to employees. The design, manufacture, installation, use, checking and maintenance of

the safety equipment are required to conform to applicable national or industrial standards. In addition,

it is required that labour protection equipment must meet the national or industrial standards and that

companies must supervise and educate their employees to wear or use such equipment according to the

prescribed rules.

PRODUCT LIABILITY ADMINISTRATION

As required by the General Principles of the Civil Law of the PRC (Order No.37 of the President,

effective 1 January 1987), Tort Law of the PRC (Order No.21 of the President, effective 1 July 2010),

Product Quality Law of the PRC (2000 Revision) (Order No.33 of the President, effective 1 September

1993) and Law of the PRC on Protection of Consumer Rights and Interests (Order No. 11 of the President,

effective 1 January 1994):

If financial damages or physical injuries are incurred to an individual due to substandard product

quality, the producer of the product and the seller shall assume civil liability in accordance with the laws.

If the parties providing transportation or warehousing is liable to the substandard product quality, the

producer of the product and the seller are entitled to demand compensation from the said party for the

losses.

REGULATIONS

77

A producer shall assume tort liability for damages to other persons due to defective products.

A seller shall assume tort liability for damages to other persons caused by defective products that are

resulted from the fault of the seller. If damages are caused by defective products, the infringer may

demand compensation from the producer or the seller of the products. If defective products are caused

by the producer, the seller shall have recourse against the producer after it has paid the compensation.

If defective products are due to the fault of the seller, the producer shall have recourse against the seller

after it has paid the compensation. If damages to other persons are caused by defective products that are

resulted from the fault of a third party such as the party providing transportation or warehousing, the

producer and the seller of the products shall have the right to recover their respective losses from such

third party. If defective products are found after they have been put into circulation, the producer or

the seller shall take remedial measures such as issuance of warning, recall of products, etc. in a timely

manner. The producer or the seller shall bear tort liability if it has not taken remedial measures in a

timely manner or has not make efforts to take remedial measures, thus causing damages. If the products

are produced and sold even with known defects therein, causing deaths or severe damage to the health of

others, the infringee shall have the right to claim respective punitive damages.

Where an infringer shall assume administrative liability or criminal liability for the same conduct, it

shall not prejudice the tort liability that the infringer shall legally assume. Where the assets of an infringer

are not adequate for payments for the tort liability and administrative liability or criminal liability for the

same conduct, the infringer shall first assume the tort liability.

The methods in bearing tort liability mainly includes: (1) cessation of infringement; (2) removal

of obstruction; (3) elimination of danger; (4) return of property; (5) restoration to the original status; (6)

compensation for losses; (7) extending an apology; and (8) elimination of consequences and restoration

of reputation. The above methods of bearing tort liability may be adopted individually or jointly. Where

a tort causes any personal injury to another person, the infringer shall compensate the victim for the

reasonable costs and expenses for treatment and rehabilitation, such as medical treatment expenses,

nursing fees and travel expenses, as well as the lost wages. If the victim suffers any disability as a result,

the infringer shall also pay the costs of disability assistance equipment for the living of the victim and the

disability indemnity. If it causes the death of the victim, the infringer shall also pay the funeral service

fees and the death compensation.

REGULATIONS RELATING TO INTELLECTUAL PROPERTY

Under the revised Patent Law of the PRC （中華人民共和國專利法） promulgated on 27 December 2008 and effective on 1 October 2009, there are three types of patents, including invention patents, design

patents and utility model patents. Invention patents are valid for twenty years, while design patents and

utility model patents are valid for ten years, in each case commencing on their respective application

dates. Persons or entities who use patents without the consent of the patent owners, make counterfeits

of patented products, or engage in activities that infringe upon patent rights are held liable to the patent

owner for compensation and may be subject to fines and even criminal punishment.

Both Trademark Law of the PRC （中華人民共和國商標法） promulgated by the National People’s Congress Standing Committee in 1982 and amended in 2001, and the Regulation on Implementation of

Trademark Law of the PRC （中華人民共和國商標實施條件） promulgated by the State Council in 2002 provide protection to the holders of registered trademarks. In the PRC, registered trademarks include

commodity trademarks, service trademarks, collective marks and certificate marks.

REGULATIONS

78

ENVIRONMENTAL PROTECTION REGULATIONS

In accordance with the Environmental Protection Law （環境保護法） adopted by the Standing Committee of the National People’s Congress on 26 December 1989, the Administration Supervisory Department of Environmental Protection sets the national guidelines for the discharge of pollutants. The provincial and municipal governments of provinces, autonomous regions and municipalities may also set their own guidelines for the discharge of pollutants within their own provinces or districts in the event that the national guidelines are inadequate.

A company or an enterprise which causes environmental pollution and discharges other polluting materials which endanger the public should implement environmental protection methods and procedures into their business operations. This may be achieved by setting up a system of accountability within the company’s business structure for environmental protection; adopting effective procedures to prevent environmental hazards such as waste gases, water and residues, dust powder, radioactive materials and noise arising from production, construction and other activities from polluting and endangering the environment. The environmental protection system and procedures should be implemented simultaneously with the commencement of and during the operation of construction, production and other activities undertaken by the company. Any company or enterprise which discharges environmental pollutants should report and register such discharge with the Administration Supervisory Department of Environmental Protection and pay any fine imposed for the discharge. A fee may also be imposed on the company for the cost of any work required to restore the environment to its original state. Companies which have caused severe pollution to the environment are required to restore the environment or remedy the effects of the pollution within a prescribed time limit. If a company fails to report and/or register the environmental pollution caused by it, it will receive a warning or be penalized. Companies which fail to restore the environment or remedy the effects of the pollution within the prescribed time will be penalized or have their business Licences terminated. Companies or enterprises which have polluted and endangered the environment must bear the responsibility for remedying the danger and effects of the pollution, as well as to compensate for any loss or damages suffered as a result of such environmental pollution.

On 29 November 1998, the State Council promulgated the Regulations on the Administration of

Construction Project Environmental Protection （建設項目環境保護管理條例）. On 28 October 2002 the Standing Committee approved the Law of the People’s Republic of China on Appraising of Environment

Impacts （中華人民共和國環境影響評價法） which became effective on 1 September 2003. According to the aforesaid laws, the PRC Government has set up a system to appraise the environmental impact from construction projects, and classify and administer the environmental impact appraisals in accordance with the degree of the environmental impact. If the construction project may result in a material impact on the environment, a thorough environmental impact report on the potential environmental impact is required; if the construction project may result in a slight impact on the environment, an environmental impact statement of analyzing or special evaluation will be required; and if the construction project may only result in very little impact on the environment, an environmental impact appraisal is not required but an registration form of environmental impact is needed to be filed. The construction units responsible for the construction projects must submit the aforesaid environmental impact appraisal documents to the relevant administrative departments of environmental protection for examination and approval. If the construction units fail to submit the aforesaid environmental impact appraisal documents according to the applicable PRC laws and regulations or if the documents are not approved after examination by the relevant administrative departments, the departments responsible for examination and approving the relevant construction projects shall not approve such projects and the construction units shall not commence the construction.

REGULATIONS

79

Under the Prevention and Control of Water Pollution Law （水污染防治法）, companies which discharge pollutants directly or indirectly into bodies of water must register with the environmental

protection department of the local government at county level or above in the area where they are

situated. Such companies must provide information on their facilities which discharge such pollutants,

their treatment plants, the type, amount and concentration of the pollutants discharged under normal

business operations, in accordance with regulations set by the Administration Supervisory Department

of Environmental Protection. If there are significant changes to the type, amount or concentration of

pollutants being discharged, such changes must be reported immediately. The dismantling or non-usage

of pollution treatment plants also require the approval of the environmental protection department of the

local government at county level or above.

Under the Prevention and Control of Atmospheric Pollution Law （大氣污染防治法）, companies which discharge pollutants into the atmosphere must provide details of the discharge to the environmental

protection department of the local government. Such details must include the facilities which discharge

such pollutants, their treatment plants, the type, amount and concentration of the pollutants discharged

under normal business operations, in accordance with regulations made by the Administration

Supervisory Department of Environmental Protection. If there are significant changes to the type,

amount or concentration of pollutants being discharged, such changes must be reported immediately. The

dismantling or non-usage of pollution treatment plants also requires the approval of the environmental

protection department of the local government.

Under the Prevention and Control of Solid Waste Pollution Law （固體廢物污染環境防治法）, companies which discharge solid waste pollution shall be responsible for their pollution. Companies must

register with the local relevant authority for their solid waste pollution, and must provide information in

relation to the type, amount, discharge and treatment of such pollution, in accordance with regulations

made by the Administration Supervisory Department of Environmental Protection. If there are significant

changes to the type, amount or concentration of pollutants being discharged, such changes must be

reported immediately. The dismantling or non-usage of pollution treatment plants also requires the

approval of the environmental protection department of the local government.

WHOLLY FOREIGN-OWNED ENTERPRISE (“WFOE”)

The establishment, operation and management of corporate entities in China are governed by the

Company Law of the PRC （中華人民共和國公司法） (“Company Law”), which was adopted by the Standing Committee on 29 December 1993 and became effective on 1 July 1994. It was latest amended

on 27 October 2005 and became effective from 1 January 2006. Under the Company Law, the companies

are generally classified into two categories: limited liability companies and limited companies by shares.

The Company Law also applies to foreign-invested limited liability companies. According to the Company

Law, where laws on foreign investment have different stipulations, such stipulations shall prevail.

According to the Implementing Opinion on Several Issues Concerning the Application of Law in the

Administration of the Examination, Approval and Registration of Foreign-invested Companies （關於外商投資的公司審批登記管理適用法律若干問題的執行意見） issued jointly by the State Administration for Industry and Commerce, MOFCOM, the General Administration of Customs and the State Administration

of Foreign Exchange on 24 April 2006 and became effective on the same day, the organization structure

of limited liability companies in the form of a foreign equity joint venture, wholly foreign-owned limited

liability company or foreign-invested stockholding limited company shall comply with the provisions

of the Company Law and the articles of associations. Furthermore, where a foreign-invested company

REGULATIONS

80

increases its registered capital, the shareholders of a limited liability company (including one-person

limited company), or the stock holding limited company established by way of promotion shall pay no less

than 20% of the registered capital to be increased when the company applies for modifying the registration

of registered capital. The time of capital contribution of the remaining portion shall meet the provisions

of the Company Law, the laws on foreign investment and Regulations on the Administration of Company

Registration. If other laws or administrative regulations provide otherwise, such provisions shall prevail.

A WFOE is governed by the Law of the PRC on Wholly Foreign-owned Enterprises （中華人民共和國外資企業法）, which was promulgated on 12 April 1986 and revised on 31 October 2000, and its Implementation Regulations promulgated on 12 December 1990 and revised on 12 April 2001 (“WFOE Law”).

Procedures for Establishment of a WFOE

The establishment of a WFOE must be approved by the MOFCOM. If two or more foreign investors jointly apply for the establishment of a WFOE, a copy of the contract between the parties must also be submitted to the MOFCOM (or its delegated authorities) for its record. A WFOE must also obtain a business Licence from the relevant local Administration for Industry and Commerce before it can commence business operation.

Nature of WFOE

A WFOE is a limited liability company under the WFOE Law. A WFOE is a legal person who is entitled to independently assume civil obligations, enjoy civil rights and own, use and dispose of property. It is required to have a registered capital contributed by the foreign investor(s). The liability of the foreign investor(s) is limited to the amount of registered capital it subscribed to contribute. A foreign investor is permitted to make its contributions by installments and the registered capital shall be contributed within the required time period as approved by the MOFCOM (or its delegated authorities) in accordance with relevant PRC laws and regulations.

Profit Distribution

The WFOE Law provides that a WFOE shall withdraw reserve fund and employee bonus and benefit fund from the after-tax profit. The allocation ratio for the employee bonus and welfare fund shall be determined by the enterprise. However, at least 10% of the after-tax profits must be allocated to the reserve fund. If the cumulative total of allocated reserve funds reaches 50% of the enterprise’s registered capital, the enterprise will not be required to make any additional contribution. The enterprise is prohibited from distributing dividends unless the losses (if any) of previous years have been made up.

FOREIGN EXCHANGE CONTROL

The Foreign Exchange Management Regulations （外匯管理條例） promulgated by the State Council on 29 January 1996 as amended on 5 August 2008, and the Regulations on the Administration

of Foreign Exchange Settlement, Sale and Payment （結匯、售匯及付匯管理規定） promulgated by the People’s Bank of China on June 20, 1996 which became effective on 1 July 1996, apply and provide regulatory provisions to the foreign exchange transactions for foreign-invested enterprises. Foreign-invested enterprises are permitted to convert after-tax dividends into foreign exchange and to remit such foreign exchange from their bank accounts in PRC.

A1A 31

REGULATIONS

81

According to the Foreign Exchange Management Regulations, China will not impose any

restrictions on international payments or transfers on current account. Foreign exchange payments from

current account shall, in accordance with the regulations of the SAFE relating to foreign exchange

payments and purchases, be made out of own foreign exchange funds on the strength of valid documents

or be made with foreign exchange purchased from any financial institution engaged in foreign exchange

settlement and sales business. Any foreign exchange income or payment from capital account shall subject

to the approval of or registration with the SAFE. Where any guarantee is to be provided for an overseas

purpose, an application shall be submitted to the relevant foreign exchange administrative authority

which shall, in light of the assets, liabilities and other circumstances of the applicant, make a decision to

approve or decline the application. Where state provisions require that the business scope of an applicant

be approved by the relevant competent authority, the applicant shall go through the approval formalities

before submitting an application to the relevant foreign exchange administrative authority. After entering

into an overseas guarantee contract, an applicant shall make the appropriate registrations with the relevant

foreign exchange administrative authority for the overseas

In addition, according to the relevant PRC law and regulation, where a foreign-invested enterprise

seek a loan from its overseas shareholder, it must apply to SAFE or local SAFE department for foreign

loan registration certificates and foreign exchange settlements. The aggregate amount of such foreign

loans must not exceed the margin between the total investment and registered capital of such foreign

invested enterprises multiplied by the rate of the foreign shareholders’ paid-in capital divided by their

subscribed capital, and the foreign loans must be registered with the local SAFE department.

Pursuant to the Circular of the SAFE on Relevant Issues concerning Foreign Exchange

Administration of Financing and Return Investments Undertaken by Domestic Residents through Overseas

Special Purpose Vehicles （關於境內居民通過境外特殊目的公司融資及返程投資外匯管理有關問題的通知, “SAFE Circular No. 75”), promulgated on 21 October 2005 and effective on 1 November 2005,

(a) a PRC citizen or enterprises, or a PRC resident, must register with the local SAFE branch

before he, she or it establishes or controls an overseas special purpose vehicle (SPV), for

the purpose of obtaining overseas equity financing using the assets of or equity interests in a

domestic enterprise;

(b) when a PRC resident contributes the assets of or its equity interests in a domestic enterprise

to an overseas SPV, or engages in overseas financing after contributing assets or equity

interests in a domestic enterprise to an overseas SPV, such PRC resident must register his or

her interest in the overseas SPV or any change to his or her interest in the overseas SPV with

the local SAFE branch;

(c) when the overseas SPV undergoes a material event outside the PRC, such as a change in

share capital or merger and acquisition, the PRC resident must, within 30 days after the

occurrence of such event, register such change with the local SAFE branch.

Pursuant to SAFE Circular No. 75, failure to comply with these registration procedures may result

in penalties, including the imposition of restrictions on a PRC subsidiary’s foreign exchange activities and

its ability to distribute any dividends to the overseas SPV.

REGULATIONS

82

M&A Rules

On 8 August 2006, six PRC governmental and regulatory agencies, including the MOFCAM

and the CSRC, promulgated the Regulation on the Acquisitions of Domestic Enterprises by Foreign

Investors （關於外國投資者併購境內企業的規定） (“M&A Rules”) which became effective on 8 September 2006 and was revised on 22 June 2009. Pursuant to the M&A Rules, merger or acquisition

of a domestic enterprise by a foreign investor means (i) that a foreign investor purchases equity interest

owned by shareholders in a domestic enterprise other than a foreign-invested enterprise or subscribes to

the increased capital of a domestic company, whereby to convert such domestic company into a foreign-

invested company, or (ii) that a foreign investor establishes a foreign-invested enterprise through which

assets of a domestic enterprise are subsequently acquired by agreement and operated, or (iii) that a foreign

investor acquires the assets of a domestic enterprise by agreement and subsequently establishes a foreign-

invested enterprise with such assets and then operate such assets.

Under such M&A Rules, establishment of a foreign-invested enterprise by foreign investors through

merger with and acquisition of a domestic entity shall be subject to approval by the approval authority,

and to completion of new registration, or amendment to existing registration, with the registration

administrative authority.

HISTORY AND DEVELOPMENT

83

OUR HISTORY

Our Company

For the purpose of the Listing, our Company was incorporated on 8 February 2013 in the Cayman Islands as an exempted company with limited liability, which became the ultimate holding company of our Group as a result of the Reorganisation. Details of the Reorganisation are set out in the section headed “Reorganisation” in this listing document.

Our Company has a number of direct and indirect subsidiaries incorporated in the BVI, the U.S., Hong Kong and the PRC. The corporate history of each of the subsidiaries is set out below.

Tonly International

Tonly International was incorporated in the BVI on 15 February 2013 for the purpose of Reorganisation as set out in the section headed “Reorganisation” in this listing document.

After the Reorganisation and as at the Latest Practicable Date, Tonly International is a direct wholly owned subsidiary of our Company.

Tonly Electronics

A restructuring (the “Restructuring”) took place at the end of December 2012, under which Tonly Electronics was established and became the holding company of our Group. Tonly Electronics was incorporated in the BVI on 28 September 2012 and authorised to issue a maximum of 50,000 shares of a single class each with a par value of of US$1.00 for investment holding purposes. On 31 October 2012, 1 fully paid share was issued to TCLM. On 18 December 2012, TCLM transferred its entire shareholding in TCL Tech HK to Tonly Electronics in exchange for Tonly Electronics issuing 49,999,999 shares to TCLM. By completion of this process, Tonly Electronics became the holding company of our Group. On 26 November 2012, a shareholder’s resolution of Tonly Electronics was passed, the Company is authorised to issue a maximum of 140,000,000 shares of a single class each with a par value of HK$1.00.

In order to motivate the contribution of certain of our employees and to provide them a direct economic interest in attaining the long-term business objectives our Group, on 8 December 2012, Tonly Electronics, TCLM, Star Force and Run Fu entered into a subscription agreement pursuant to which Tonly Electronics agreed to issue and allot 34,640,000 shares, 9,733,600 shares and 11,426,400 shares to TCLM, Star Force and Run Fu respectively at consideration of HK$90,756,800, HK$25,502,032 and HK$29,937,168. The consideration was arrived at after arm’s length negotiation between the parties to the subscription agreement and on normal commercial terms with reference to the value of the then AV business of the TCLM Group in the sum of approximately HK$131.1 million calculated based on the aggregate audited net asset value of the main operating companies engaged in AV business for the year ended 31 December 2011 less the dividend declared in the year 2012. As at the Latest Practicable Date, all such companies were our Group members.

Since then and up to the Latest Practicable Date, Run Fu is held by two limited partnerships established in the PRC, namely Huizhou Guangsheng Investment Partnership Enterprise (Limited

Partnership) (惠州市廣勝投資合夥企業（有限合夥）) and Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) (惠州市銀輝宇投資合夥企業（有限合夥）) as to approximately 55.56%

A1A 5

HISTORY AND DEVELOPMENT

84

and 44.44% respectively. Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) is

owned by (i) Mr. Song Yonghong, our executive Director, (ii) Mr. Ren Xuenong, our executive Director,

and (iii) 3 employees of our Group, as to approximately 46.50%, 20.03% and 33.47% respectively.

Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) is owned by Mr.Yu Guanghui,

our executive Director and his wife, as to approximately 99% and 1% respectively. Since then and up to

the Latest Practicable Date, Star Force is held by four limited partnerships established in the PRC, namely

(i) Huizhou Ruiguangjia Investment Partnership Enterprise (Limited Partnership) (惠州市瑞廣嘉投資合夥企業（有限合夥）); (ii) Huizhou Fenjin Investment Partnership Enterprise (Limited Partnership) (惠州市奮進投資合夥企業（有限合夥）); (iii) Huizhou Yinze Investment Partnership Enterprise (Limited

Partnership) (惠州市銀澤投資合夥企業（有限合夥）) and (iv) Huizhou Tongrui Investment Partnership

Enterprise (Limited Partnership) (惠州市通瑞投資合夥企業（有限合夥）), as to approximately 30.52%, 23.73%, 21.89% and 23.86% respectively. There are 171 partners in total of those four limited

partnerships. Among the 171 partners, 168 are the employees of our Group. Each of the remaining 3

partners are the trustee holding the relevant benefits for 1 employee of our Group. None of the partners

and their respective beneficiaries is a connected person of our Group.

Such subscription agreement was properly and legally completed and settled on 28 December 2012

and the effect of which was that Tonly Electronics became owned as to 80% by TCLM, 9.2% by Star

Force and 10.8% by Run Fu. TCLM’s interest in Tonly Electronics was then effectively diluted to 80%.

After the Reorganisation as set out in the section headed “Reorganisation” in this listing document

and as at the Latest Practicable Date, Tonly Electronics was 80% owned by Tonly International.

TCL Tech HK

TCL Tech HK was an indirect subsidiary of our Company and wholly owned by Tonly Electronics.

It was incorporated in Hong Kong as a limited liability company on 11 November 2008 under the

Companies Ordinance, with an authorised share capital of HK$50,000,000.00 divided into 50,000,000

shares of HK$1.00 each, all of which have been issued and fully paid.

TCL Tech HK was acquired by TCLM on 18 December 2008 from a secretarial company at a

nominal consideration of HK$1.00 to be used as an investment holding company. From 18 December

2008 to 17 December 2012, TCL Tech HK was wholly owned by TCLM. On 18 December 2012,

TCLM transferred its entire shareholding in TCL Tech HK to Tonly Electronics for the purpose of the

Restructuring as set out in the sub-section headed “Tonly Electronics” in this section in this listing

document.

After the Reorganisation and as at the Latest Practicable Date, TCL Tech HK remains an indirect

subsidiary of our Company and wholly owned by Tonly Electronics.

TCL OEM Sales

TCL OEM Sales was an indirect subsidiary of our Company and wholly owned by TCL Tech HK.

It was incorporated in Hong Kong as a limited liability company on 22 October 1999 under the Companies

Ordinance, with an authorised share capital of HK$10,000.00 divided into 10,000 shares of HK$1.00 each,

out of which 2 shares have been issued and fully paid.

HISTORY AND DEVELOPMENT

85

TCL OEM Sales was acquired by TCL Electronics (HK) Limited and TCL Holdings (BVI) Limited,

both are indirect wholly owned subsidiaries of TCLM, on 21 June 2000 from a secretarial company at an

aggregate nominal consideration of HK$2.00. On 15 May 2002, TCL Electronics (HK) Limited transferred

its entire shareholding in TCL OEM Sales to TCL Overseas Holdings Limited. From 15 May 2002 to

19 December 2012, TCL OEM Sales was wholly owned by TCL Overseas Holdings Limited and TCL

Holdings (BVI) Limited. On 20 December 2012, TCL Overseas Holdings Limited and TCL Holdings

(BVI) Limited transferred their respective entire shareholding in TCL OEM Sales to TCL Tech HK for an

aggregate consideration of HK$15,333,552.12.

TCL OEM Sales principally engages in the business of trading of AV Products (excluding TV sets).

After the Reorganisation and as at the Latest Practical Date, TCL OEM Sales remains a direct

wholly-owned subsidiary of TCL Tech HK and an indirect subsidiary of our Company.

TCL Technoly Electronics

TCL Technoly Electronics was a wholly-owned foreign enterprise which was established by

TCL Holdings (BVI) Limited in the PRC on 26 January 2000 with an initial registered capital of RMB

16,000,000 and an initial total investment amount of RMB22,850,000. The relevant business licence

was granted to TCL Technoly Electronics on 26 January 2000. According to its business licence, the

scope of business of TCL Technoly Electronics included manufacturing and operating the business of

electrical audio products, hi-fi audio products, home theatre systems, speaker units, laser disc machine,

computer network audio players and sound amplifier etc (60% of products for international sales and

40% for domestic sales). As at 9 March 2000, the paid-up capital of TCL Technoly Electronics amounted

to RMB15,952,500, all of which was contributed by TCL Holdings (BVI) Limited, a wholly owned

subsidiary of TCLM.

The board resolution approving the total investment amount and the registered capital of TCL

Technoly Electronics being increased from RMB22,850,000 to RMB52,850,000 and from RMB

16,000,000 to RMB46,000,000 respectively was passed on 18 April 2000. An approval certificate for

such increase was obtained on 26 April 2000 from the relevant PRC governmental authority and it was

approved by the relevant industry and commerce administrative department on 26 April 2000. As at 10

April 2000, the paid-up capital of TCL Technoly Electronics amounted to RMB45,722,100, all of which

was contributed by TCL Holdings (BVI) Limited.

The board resolution approving the establishment of TCL Tonly Huizhou Shenzhen AV Research

Institute (TCL通力惠州深圳AV研究所) was passed on 18 April 2000 and the establishment of this centre was approved by the relevant industry and commerce administrative department on 2 August 2000.

The scope of business was changed on 5 March 2001 to include manufacturing, selling, researching

and developing electrical audio products, hi-fi audio products, home theatre systems, speaker units, laser

disc machine, computer network audio players and sound amplifier etc (60% of products for international

sales and 40% of products for domestic sales). An approval certificate for such change of scope of

business was obtained on 11 April 2001 from the relevant PRC governmental authority and an updated

business licence was granted to TCL Technoly Electronics on 19 June 2001.

HISTORY AND DEVELOPMENT

86

On 20 May 2004, the board resolution approving TCL Holdings (BVI) Limited to transfer its entire

interest in TCL Technoly Electronics to TCL International Electronics (BVI) Limited was passed, and

such transfer was approved by the relevant industry and commerce administrative department on 21 July

2004.

The scope of business was changed on 23 August 2006 to include manufacturing, selling,

researching and developing electrical audio products, hi-fi audio products, home theatre systems, speaker

units, laser disc machine, computer network audio players, sound amplifier and digital television set-top

boxes etc (60% of products for international sales and 40% of products for domestic sales). An approval

certificate for for such change of scope of business was obtained on 18 September 2006 from the relevant

PRC governmental authority and an updated business licence was granted to TCL Technoly Electronics on

20 November 2006.

The board resolution approving the total investment amount and the registered capital of TCL

Technoly Electronics being increased from RMB52,850,000 to RMB82,850,000 and from RMB

46,000,000 to RMB76,000,000 was passed on 18 March 2008. An approval certificate for such increase

was obtained on 2 April 2008 from the relevant PRC governmental authority and it was registered by the

relevant industry and commerce administrative department on 23 May 2008. As at 24 April 2008, the

paid-up capital of TCL Technoly Electronics amounted to RMB76,000,000, all of which was contributed

by TCL International Electronics (BVI) Limited.

The scope of business was changed on 20 November 2008 to include manufacturing, selling,

researching and developing electrical audio products, hi-fi audio products, home theatre systems, speaker

units, laser disc machine, computer network audio players, sound amplifier, digital television set-top

boxes and satellite television broadcast receiver equipment (the above mentioned products include the

whole machine, SKD components and CKD parts), products be sold internationally and domestically.

An approval certificate for such change of scope of business was obtained on 24 December 2008 from

the relevant PRC governmental authority and an updated business licence was granted to TCL Technoly

Electronics on 6 January 2009.

On 6 November 2009, the board resolution approving the transfer of interest in TCL Technoly

Electronics and the change of scope of business was passed such that TCL International Electronics

(BVI) Limited shall transfer its entire interest in TCL Technoly Electronics to TCL Tech HK and the

scope of business would then include manufacturing, selling, researching and developing electrical

audio products, hi-fi audio products, home theatre systems, speaker units, laser disc machine, computer

network audio players, sound amplifier, digital television set-top boxes and satellite television broadcast

receiver equipment, portable televisions (the above mentioned products include the whole machine,

SKD components and CKD parts), products be sold both internationally and domestically. An approval

certificate for such changes was obtained on 29 January 2010 from the relevant PRC governmental

authority and an updated business licence was granted to TCL Technoly Electronics on 3 March 2010.

HISTORY AND DEVELOPMENT

87

The scope of business was changed on 15 December 2011 to include manufacturing, selling,

researching and developing electrical audio products, hi-fi audio products, home theatre systems, speaker

units, laser disc machine, computer network audio players, sound amplifier, digital television set-top

boxes and satellite television broadcast receiver equipment, portable televisions, digital media players,

mobile phone accessories and plastic injection moulding components of the accessories of the above

products (the above mentioned include the whole machine, SKD components and CKD parts), products

be sold internationally and domestically. An approval certificate for such change of scope of business was

obtained on 29 December 2011 from the relevant PRC governmental authority and an updated business

licence was granted to TCL Technoly Electronics on 4 January 2012.

The scope of business was changed on 28 December 2012 to include researching and developing,

manufacturing and selling of satellite TV broadcasting receivers, digital television set-top boxes, system

equipment and relevant software, information technology equipment (including IPTV, OTT, digital media

box, ADSL etc), audio, visual and related equipment (including laser disc machine, projector, hi-fi audio

products, digital television), low voltage power source and electrical transformer, mobile communication

devises, mobile phone accessories, electrical audio system equipment (including electrical audio products,

headsets and speakers), the software and plastic injection moulding components of the accessories of the

above products (the above mentioned products include whole machine, SKD components, CKD parts),

products be sold domestically and internationally, provision of the installation and testing of electrical

equipment (those of the above which involved specific regulation, qualified operation and permitted

operation are to be operated according to relevant governmental regulations). An approval certificate for

such change of scope of business was obtained on 1 February 2013 from the relevant PRC governmental

authority and an updated business licence was granted to TCL Technoly Electronics on 7 February 2013.

After the Reorganisation and as at the Latest Practicable Date, TCL Technoly Electronics remains a

direct wholly subsidiary of TCL Tech HK and an indirect subsidiary of our Company.

Xi’an TCL Software

Xi’an TCL Software was a wholly-owned foreign enterprise which was established by TCL Tech

HK in the PRC on 10 May 2012 with a registered capital of US$2,000,000. The relevant business licence

was granted to Xi’an TCL Software on 10 May 2012. According to its business licence, the scope of

business of Xi’an TCL Software included software research, development and trading of electronic

products, the provision of technical support and services in respect of electronic products. As at 8 June

2012, the paid-up capital of Xi’an TCL Software amounted to US$2,000,000, all of which was contributed

by TCL Tech HK. An updated business licence was granted to Xi’an TCL Software on 18 July 2012

reflecting the total investment amount of US$2,000,000.

After the Reorganisation and as at the Latest Practicable Date, Xi’an TCL Software remains a direct

wholly owned subsidiary of TCL Tech HK and an indirect subsidiary of our Company.

HISTORY AND DEVELOPMENT

88

TCL Audio Video

TCL Audio Video was established in the PRC on 26 October 2005, with an initial registered

capital of RMB100,000,000 and the entire interest of it was held by TCL Holdings (BVI) Limited.

At establishment, the scope of business of TCL Audio Video included researching and developing,

manufacturing and selling CRT color television (including analog and digital television) LCD, PDP, rear

projection television, DVD player (including DVD PLAYER series, DVD RECORDER series, PMP),

home theatre series (the above products include whole machine, SKD components, CKD parts), products

be sold internationally and domestically. The relevant business licence was granted to TCL Audio Video

on 26 October 2005. As at 19 September 2006, the paid-up capital of TCL Audio Video amounted to RMB

25,000,000, all of which was contributed by TCL Holdings (BVI) Limited.

The board resolution approving the registered capital and the total investment amount of TCL

Audio Video being decreased from RMB100,000,000 to RMB25,000,000 and from RMB200,000,000 to

RMB50,000,000 respectively and the scope of business being changed was passed on 20 June 2006. The

scope of business of TCL Audio Video would then include researching and developing, manufacturing and

selling of DVD player (including DVD PLAYER series, DVD RECORDER series, PMP), home theatre

series, digital television set-top box, portable television (the above products include whole machine,

SKD components, CKD parts), products be sold internationally and domestically. An approval certificate

for such decreases and change was obtained on 17 August 2006 from the relevant PRC governmental

authority and an updated business licence was granted to TCL Audio Video on 16 October 2006.

On 6 November 2009, the board resolution approving the transfer of the entire interest in TCL

Audio Video from TCL Holdings (BVI) Limited to TCL Tech HK was passed. An approval certificate for

such changes was obtained on 30 December 2009 from the relevant PRC governmental authority and an

updated business licence was granted to TCL Audio Video on 5 March 2010.

The scope of business was changed on 5 December 2011 to include manufacturing, selling and

researching and developing home theatre series, digital television set-top box, portable television,

electrical audio products, hi-fi audio products, speaker unit, laser disc machine, computer network audio

player, sound amplifier, internet media player, mobile phone accessories and plastic injection moulding

components of the accessories of the above products (the above mentioned products include whole

machine, SKD components, CKD parts and processing business), products be sold internationally and

domestically. An approval certificate for such change of scope of business was obtained on 19 December

2011 from the relevant PRC governmental authority and an updated business licence was granted to TCL

Audio Video on 10 January 2012.

After the Reorganisation and as at the Latest Practicable Date, TCL Audio Video remains a direct

wholly owned subsidiary of TCL Tech HK and an indirect subsidiary of our Company.

Regency Optics-Electron

In order to achieve vertical integration of our production process, TCL Technoly Electronics

acquired 60% shareholding in Regency Optics-Electron by way of capital contribution in the amount of

RMB30,000,000 which was fully paid on 20 December 2012.

HISTORY AND DEVELOPMENT

89

TCL Technoly Electronics, the then sole shareholders of Regency Optics-Electron being two

individuals, and Regency Optics-Electron entered into a capital contribution agreement on 30 November

2012 pursuant to which TCL Technoly Electronics and the other two shareholders would contribute

RMB30,000,000, RMB13,650,000 and RMB6,350,000 pro rata to their respective ultimate shareholding

in Regency Optics-Electron as their respective contribution to Regency Optics-Electron. The effect of

such capital contribution was that Regency Optics-Electron became owned as to 60% by TCL Technoly

Electronics and 27.3% and 12.7% respectively by the two shareholders. Such two shareholders of

Regency Optics-Electron, save and except for their respective shareholding in Regency Optics-Electron,

are independent of and not connected with any of our Directors or the substantial shareholders of our

Company or any of its subsidiaries and their respective associates. An updated business registration

licence was granted to TCL Technoly Electronics on 25 December 2012.

Regency Optics-Electron was established in the PRC on 2 July 2010. The scope of business of

Regency Optics-Electron includes manufacturing, researching and developing and trading of metal and

plastics, delicate moulding tools, communication equipment, optical boards, optical films, light guide

panels and optical accessories and components; import and export of goods and technologies (no trading

on items prohibited by laws, rules and regulations; trading only upon approval sought for items restricted

by laws, rules and regulations, excluding the operation of shopping malls and warehouses).

Regency Optics-Electron principally engages in the business of mould and plastic components and

parts production. After the acquisition by our Group, part of Regency Optics-Electron’s mould and plastic

components and parts production capacity can be used to satisfy the demand within our Group, while its

remaining production capacity can be used for external sales of which TCLM is one of its customers.

With the acquisition of Regency Optics-Electron, our Group can integrate mould and plastic

components and parts production processes into our upper stream operations. Our Directors believe that

the mould and plastic components and parts business of Regency Optics-Electron can synergise with our

Group’s current operations and enhance our production capabilities and costs effectiveness.

After the Reorganisation and as at the Latest Practicable Date, Regency Optics-Electron remains a

60% owned subsidiary of TCL Technoly Electronics and an indirect subsidiary of our Company.

Tongli OEM

Tongli OEM was an indirect subsidiary of our Company and wholly owned by TCL OEM sales. It

was incorporated in the State of Delaware, the U.S. on 23 February 2011, with 1,500 authorised shares of

common stock, 10 shares of which were issued to TCL OEM Sales on 23 February 2011. As at the Latest

Practicable Date, its amount of common stock is US$1,000.00.

It principally engages in the business of inventory management and trading of AV Products

(excluding TV sets) in the State of California, the U.S..

HISTORY AND DEVELOPMENT

90

After the Reorganisation and as at the Latest Practical Date, Tongli OEM remains a direct wholly-

owned subsidiary of TCL OEM Sales and an indirect subsidiary of our Company.

Shenzhen Tongli

Shenzhen Tongli was established in the PRC on 8 February 2012, with an initial registered capital

of RMB10,000,000. At establishment, the scope of business includes the software research, development,

trading and the provision of technical support of electrical sound products, laser disc players, computer

network audio players, sound amplifier, digital television set-top boxes, satellite television broadcasting

receivers, portable television, home theatre systems, hi-fi audio products, car sound system, mini speakers,

speakers and projectors (excluding items prohibited and requiring pre-approvals under laws, rules &

regulations and State Council decisions). As at 19 December 2011, the paid-up capital of Shenzhen Tongli

amounted to RMB10,000,000, all of which was contributed by TCL Audio Video.

After the Reorganisation and as at the Latest Practicable Date, Shenzhen Tongli remains the direct

wholly owned subsidiary of TCL Audio Video and an indirect subsidiary of our Company.

OUR BUSINESS HISTORY

The history of our Group dates back to 2000 when TCLM established TCL Technoly Electronics.

We commenced our DVD Players manufacturing business on an ODM/OEM basis in 2002, and have

since then expanded and diversified our product portfolio progressively to include audio products and

other products such as ABS-s. Our Group originally is part of TCLM Group which is principally engaged

in the research and development, manufacture and sale of a wide range of electronic consumer products

including television sets and AV Products. Through certain restructuring within TCLM Group, our Group

is principally engaged in the ODM of AV Products (excluding TV sets), such as DVD Players, BD

Players, etc. for international esteemed brands.

Our Group milestones since the establishment of TCL Technoly Electronics and up to the Latest

Practicable Date are set out below:

2000 • EstablishmentofTCLTechnolyElectronics

• TCLOEMSalesbecameawhollyownedsubsidiaryofTCLMGroup

2002 • AccreditedISO9001:2008Certification

• Commencement of DVD Player manufacturing business on an ODM/OEM

basis

2004 • AccreditedISO14001:2004Certification

• DeliveryofthefirstbatchofDVDRecorder（刻錄機）

3rd Sch 21

HISTORY AND DEVELOPMENT

91

• Awardedthe2004EnterpriseContributoryAwardforLargeExporterfromthe

People’s Government of Huizhou （惠州市大型出口企業貢獻獎）

2005 • EstablishmentofTCLAudioVideo

• Awardedthe2005Top100ExportEnterpriseAward(2005年度出口百強企業)

from Huizhou External Trade and Economic Cooperation Bureau （對外貿易經濟合作局）

• Accredited of theHigh andNewTechnologyEnterpriseCertification (高新技術企業認證) from Guangdong Province

2006 • TCLM Group’s integration of the business resources for DVD Player and

ABS-s and setting up the Home Networking Business Department (TCL家庭網絡事業部)

• AccreditedwithGB/T28001/2001Certification

• AccreditedwithQC080000:2012Certification

2007 • Awarded the 2007 Enterprise FirstMerit Award for Large Exporter from the

People’s Government of Huizhou（惠州市大型出口企業一等獎）

2008 • ProductionanddeliveryofportableDVDPlayer

2009 • ProductionanddeliveryofBDPlayer

• Obtained the Production Permit for the production of ABS-s from the State

Administrative of Quality Supervision, Inspection and Quarantine of the PRC

government

• Mr.YuGuanghui,ourexecutiveDirector,wasawarded“StarofEntrepreneur–

the 2nd Session of the Outstanding Talent Award” （突出貢獻人才獎“創業之星”） by the Huizhou government

• Accredited as a “State Quality Trustworthy Unit”（全國品質信得過單位）by CHC State High Tech Products Quality Monitoring and Advancing Work

Committee（CHC全國高科技品質監督促進工作委員會）

• TCLTechHKbecame the sole shareholder ofTCLTechnolyElectronics and

TCL Audio Video

2010 • ProductionanddeliveryofHTS

HISTORY AND DEVELOPMENT

92

• AwardedAGradeTax-payingEnterprisebytheStateTaxationBureauandthe

Local Taxation Bureau from 2010 to 2013 for four consecutive years

• TCLM Group renamed the TCL Home Networking Business Department as

TCL AV Business Department

2011 • Commencement of the development of overseas vendor managed inventory

business by the establishment of Tongli OEM in the U.S.

• AwardedHuizhouAdvancedCross-borderRMBClearanceWorkingUnit

• Commencementofdevelopmentofthenewaudioproductsbusinessesincluding

hi-fi and docking

• Completionoflayingthefoundationforthenewproductionfacilityinorderto

achieve corporate automation and establish information technology system in

future corporate structure

2012 • EstablishmentofShenzhenTongli

• EstablishmentofXi’anTCLSoftware

• TCLOEMSalesbecameawhollyownedsubsidiaryofourGroup

• TCL Technoly Electronics became the controlling shareholder of Regency

Optics-Electron to achieve vertical integration of mould production and plastic

injection technology into our upper stream production process

• Passed the technical check of “Hu Hu Tong”（戶戶通）by Ningxia Digital Broadcast Satellite Public Service and commencement of the business of “Hu

Hu Tong”（戶戶通）in the area

• AccreditedRegionalAdvancedWorkUnitAward（全區人才工作先進單位）by the People’s Communist Party Huizhou Zhongkai High Tech Park Committee

（中共惠州仲愷高新區委會）

• AccreditedwithISO/TS16949:2009Certification

2013 • Completion of the construction of our new production facility and currently

in the process of moving into our new production facility which has partially

commenced operations

For further particulars on business strategies of our Group, please refer to the section headed

“Business – Business Strategies” in this listing document.

REORGANISATION

93

GENERAL

In contemplation of the Listing, members of our Group have undergone certain restructuring steps whereby a coherent corporate structure of our Group has been established which is suitable for listing on the Main Board. The Reorganisation involved the following steps:

(1) Incorporation of our Company;

(2) Incorporation of Tonly International;

(3) Acquisition of 80% interest in Tonly Electronics from TCLM by Tonly International;

(4) Acquisition of interest in Tonly International by our Company from TCLM; and

(5) the Distribution.

CORPORATE STRUCTURE PRIOR TO THE COMPLETION OF STEP 3 AND STEP 4 OF THE REORGANISATION

Set out below is the shareholding structure of TCLM Group (in shades) after completing step 1 and step 2 of the Reorganisation and immediately prior to the completion of step 3 and step 4 of the Reorganisation:

TCL Corporation(PRC)

TCLM(Cayman Islands)

Xi’an TCLSoftware

(PRC)

TCL OEMSales(HK)

TCL TechnolyElectronics

(PRC)

TCLAudio Video

(PRC)

Tongli OEM(US)

RegencyOptics-Electron(PRC) (note 4)

Shenzhen Tongli(PRC)

TCL Tech HK(HK)

Tonly Electronics(BVI)

Other membersof TCLM Group

(including our Company and Tonly International)

Connected person(note 1)

Run Fu(BVI)

T.C.L. Industries(HK)

Public

61.31% 38.65% 0.04%

100%

100% 100%

100%

80%

100% 100%

100%60%100%

9.2%

100%

10.8%

100%

Four limited partnerships (PRC)

(note 2)

Two limited partnerships (PRC)

(note 3)

Star Force (BVI)

Notes:

1. As at the Latest Practicable Date, Mr. Leong Yue Wing, our non-executive Director, holds 494,672 shares in TCLM, representing approximately 0.04% of the issued share capital of TCLM.

2. At as the Latest Practicable Date, Star Force is held by four limited partnerships established in the PRC, namely (i) Huizhou Ruiguangjia Investment Partnership Enterprise (Limited Partnership) (惠州市瑞廣嘉投資合夥企業(有限合夥)); (ii) Huizhou Fenjin Investment Partnership Enterprise (Limited Partnership) (惠州市奮進投資合夥企業(有限合夥)); (iii) Huizhou Yinze Investment Partnership Enterprise (Limited Partnership) (惠州市銀澤投資合夥企業(有限合夥)) and (iv) Huizhou Tongrui Investment Partnership Enterprise (Limited Partnership) (惠州市通瑞投資合夥企業(有限合夥)), as to approximately 30.52%, 23.73%, 21.89% and 23.86% respectively. There are 171 partners in total of those four limited partnerships. Among the 171 partners, 168 are the employees of our Group. Each of the remaining 3 partners are the trustee holding the relevant benefits for 1 employee of our Group. None of the partners and their respective beneficiaries is connected persons of our Group.

REORGANISATION

94

3. At as the Latest Practicable Date, Run Fu is held by two limited partnerships established in the PRC, namely Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) (惠州市廣勝投資合夥企業(有限合夥)) and Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) (惠州市銀輝宇投資合夥企業(有限合夥)) as to approximately 55.56% and 44.44% respectively. Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) is owned by (i) Mr. Song Yonghong, our executive Director, (ii) Mr. Ren Xuenong, our executive Director, and (iii) 3 employees of our Group, as to approximately 46.50%, 20.03% and 33.47% respectively. Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) is owned by Mr. Yu Guanghui, our executive Director and his wife, as to approximately 99% and 1% respectively.

4. As at the Latest Practicable Date, the other 40% of the shareholding of Regency Optics-Electron were held by two other shareholders being two individuals as to 27.3% and 12.7%. Such two shareholders, save and except for their respective shareholding in Regency Optics-Electron, are independent of and not connected with any of our Directors or our substantial shareholders of our Company or any of its subsidiaries and their respective associates.

DETAILS OF THE REORGANISATION

1. Incorporation of the Company

On 8 February 2013, our Company was incorporated in the Cayman Islands under the

Companies Law as an exempted company with an authorised share capital of US$50,000.00 divided

into 50,000 shares of US$1.00 each, of which one share was issued and allotted fully paid by our

Company to Mapcal Limited on 8 February 2013. The said one fully paid share was transferred to

TCLM on the same day.

By completion of this process, we became a wholly owned subsidiary of TCLM.

2. Incorporation of Tonly International

On 15 February 2013, Tonly International was incorporated in the BVI and authorised to

issue a maximum of 50,000 shares of a single class each with a par value of US$1.00 each, of

which 1 share was subscribed at par by us.

By completion of this process, Tonly International became a wholly owned subsidiary of our

Company.

3. Acquisition of 80% interest in Tonly Electronics from TCLM by Tonly International

On 10 July 2013, TCLM transferred 84,640,000 shares in Tonly Electronics (representing

80% total issued share capital thereof) to Tonly International in consideration and in exchange for

which an aggregate number of 99 shares in Tonly International were issued and allotted, credited as

fully paid to TCLM.

By completion of this process, (i) Tonly Electronics became a 80% owned subsidiary of

Tonly International; and (ii) the shareholding in Tonly International was 99% and 1% directly held

by TCLM and us.

A1A 23(1)3rd Sch 23rd Sch 29S.342(1)(a)

REORGANISATION

95

4. Acquisition of interest in Tonly International by our Company from TCLM

On 10 July 2013, TCLM transferred 99 shares in Tonly International to us, as consideration

for such acquisition, our Company shall issue and allot to TCLM such number of Shares which

equals to one tenth of TCLM Shares in issue as at the close of business on Distribution Record

Date (rounding down any fraction to the nearest whole unit and fractional entitlements will

not be allotted to the TCLM Qualifying Shareholders but will be aggregated and sold and the

sale proceeds after deduction of related expenses will be retained by and for the benefit of our

Company). Based on the issued share capital of TCLM as at the Latest Practicable Date, a total of

133,109,811 Shares were issued and allotted to TCLM on 10 July 2013, the balance (if any) will be

issued and allotted to TCLM on Distribution Record Date.

By completion of this process, Tonly International became our wholly owned subsidiary.

5. The Distribution

On 15 July 2013, the board of directors of TCLM declared a conditional special interim

dividend to the TCLM Shareholders. which will effectively distribute the entire issued share

capital of our Company as at the Distribution Record Date. The Distribution is subject to TCLM

Shareholders’ approval as required under article 152 of the articles of association of TCLM. It was

resolved that the Distribution will be satisfied by way of distribution in specie of such number of

Shares to the TCLM Qualifying Shareholders in proportion of 1 Share for every 10 TCLM Shares

held by them as at the close of business on the Distribution Record Date. The TCLM Excluded

Shareholders (if any) will receive cash payment (after deducting expenses) which equal to the

net proceeds of the sale by TCLM (if such proceeds shall exceed HK$100.00) on their behalf of

our Shares to which the TCLM Excluded Shareholders would otherwise be entitled to receive. In

either case, the Distribution will be satisfied on the terms and conditions contained in this listing

document.

Based on the total number of TCLM Shares in issue as at the close of business on

Distribution Record Date, 1 Share or the equivalent cash payment (after deducting expenses) will

be distributed for every 10 TCLM Shares held by the TCLM Shareholders on the Distribution

Record Date. Our Company has appointed Kim Eng Securities (Hong Kong) Ltd as our agent in

providing matching service to the TCLM Qualifying Shareholders to facilitate the disposal of any

Shares which the TCLM Qualifying Shareholders may receive in odd lots. For details, please refer

to the announcement dated 17 July 2013 made by TCLM.

REORGANISATION

96

CORPORATE STRUCTURE AFTER THE COMPLETION OF STEP 3 AND STEP 4 OF THE REORGANISATION

Set out below is the shareholding structure of our Group (in shades) immediately after the completion of step 3 and step 4 of the Reorganisation and prior to the Distribution and the Listing:

TCL Corporation(PRC)

TCLM(Cayman Islands)

Other membersof TCLM Group

Xi’an TCLSoftware

(PRC)

TCL OEMSales(HK)

TCL TechnolyElectronics

(PRC)

TCLAudio Video

(PRC)

Tongli OEM(US)

RegencyOptics-Electron(PRC) (note 4)

Shenzhen Tongli(PRC)

TCL Tech HK(HK)

Tonly Electronics(BVI)

Our Company(Cayman Islands)

Tonly International(BVI)

Star Force (BVI)

Four limited partnerships (PRC)

(note 2)

Run Fu(BVI)

Two limited partnerships (PRC)

(note 3)

T.C.L. Industries(HK)

Connected person (note 1)Public

61.31% 38.65%

100%

0.04%

100%

100% 100%

100%

80%

100%

100% 100%

100%60%100%

9.2%

100%

10.8%

100%

Notes:

1. As at the Latest Practicable Date, Mr. Leong Yue Wing, our non-executive Director, holds 494,672 shares in TCLM, representing approximately 0.04% of the issued share capital of TCLM.

2. At as the Latest Practicable Date, Star Force is held by four limited partnerships established in the PRC, namely (i) Huizhou Ruiguangjia Investment Partnership Enterprise (Limited Partnership) (惠州市瑞廣嘉投資合夥企業(有限合夥)); (ii) Huizhou Fenjin Investment Partnership Enterprise (Limited Partnership) (惠州市奮進投資合夥企業(有限合夥)); (iii) Huizhou Yinze Investment Partnership Enterprise (Limited Partnership) (惠州市銀澤投資合夥企業(有限合夥)) and (iv) Huizhou Tongrui Investment Partnership Enterprise (Limited Partnership) (惠州市通瑞投資合夥企業(有限合夥)), as to approximately 30.52%, 23.73%, 21.89% and 23.86% respectively. There are 171 partners in total of those four limited partnerships. Among the 171 partners, 168 are the employees of our Group. Each of the remaining 3 partners are the trustee holding the relevant benefits for 1 employee of our Group. None of the partners and their respective beneficiaries is connected persons of our Group.

3. At as the Latest Practicable Date, Run Fu is held by two limited partnerships established in the PRC, namely Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) (惠州市廣勝投資合夥企業(有限合夥)) and Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) (惠州市銀輝宇投資合夥企業(有限合夥)) as to approximately 55.56% and 44.44% respectively. Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) is owned by (i) Mr. Song Yonghong, our executive Director, (ii) Mr. Ren Xuenong, our executive Director, and (iii) 3 employees of our Group, as to approximately 46.50%, 20.03% and 33.47% respectively. Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) is owned by Mr. Yu Guanghui, our executive Director and his wife, as to approximately 99% and 1% respectively.

4. As at the Latest Practicable Date, the other 40% of the shareholding of Regency Optics-Electron were held by two other shareholders being two individuals as to 27.3% and 12.7%. Such two shareholders, save and except for their respective shareholding in Regency Optics-Electron, are independent of and not connected with any of our Directors or our substantial shareholders of our Company or any of its subsidiaries and their respective associates.

REORGANISATION

97

CORPORATE STRUCTURE AFTER THE REORGANISATION AND THE LISTING

Set out below is the expected shareholding structure of our Group (in shades) immediately after the Reorganisation and the Listing:

TCL Corporation(PRC)

T.C.L. Industries(HK)

TCLM(Cayman Islands)

Other membersof TCLM Group

PublicConnected person

(note 1 and 2)

61.31%(note 1)

38.65% (note 1) 0.04%

100%

Xi’an TCLSoftware

(PRC)

TCL OEMSales(HK)

TCL TechnolyElectronics

(PRC)

TCLAudio Video

(PRC)

Star Force(BVI)

Four limited partnerships (PRC)

(note 3)

Run Fu(BVI)

Two limited partnerships (PRC)

(note 4)

Tongli OEM(US)

RegencyOptics-Electron(PRC) (note 5)

Shenzhen Tongli(PRC)

TCL Tech HK(HK)

Tonly International(BVI)

Tonly Electronics(BVI)

Our Company(Cayman Islands)

100% 100%100% 100%

100%60%100%

9.2%

100%

10.8%

100%100%

100%

80%

Notes:

1. The percentages are calculated based on the issued share capital of TCLM and its respective shareholdings as at the Latest Practicable Date and assuming they will remain unchanged immediately after the Reorganisation and the Listing.

2. Immediately after the Reorganisation and the Listing, Mr. Leong Yue Wing, our non-executive Director, who holds 494,672 TCLM Shares, will hold 49,467 Shares pursuant to the Distribution, representing approximately 0.04% of the issued share capital of TCLM and our Company.

3. As at the Latest Practicable Date and immediately after the Reorganisation and the Listing, assuming no changes in the shareholdings of TCLM and of our Directors in TCLM Group after the Latest Practicable Date, Star Force remains and will remain to be held by four limited partnerships established in the PRC, namely (i) Huizhou Ruiguangjia Investment Partnership Enterprise (Limited Partnership) (惠州市瑞廣嘉投資合夥企業(有限合夥)); (ii) Huizhou Fenjin Investment Partnership Enterprise (Limited Partnership) (惠州市奮進投資合夥企業(有限合夥)); (iii) Huizhou Yinze Investment Partnership Enterprise (Limited Partnership) (惠州市銀澤投資合夥企業(有限合夥)) and (iv) Huizhou Tongrui Investment Partnership Enterprise (Limited Partnership) (惠州市通瑞投資合夥企業(有限合夥)), as to approximately 30.52%, 23.73%, 21.89% and 23.86% respectively. There are 171 partners in total of those four limited partnerships. Among the 171 partners, 168 are the employees of our Group. Each of the remaining 3 partners are the trustee holding the relevant benefits for 1 employee of our Group. None of the partners and their respective beneficiaries is connected persons of our Group.

4. As at the Latest Practicable Date and immediately after the Reorganisation and the Listing, assuming no changes in the shareholdings of TCLM Group and of our Directors in TCLM Group after the Latest Practicable Date, Run Fu remains and will remain to be held by two limited partnerships established in the PRC, namely Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) (惠州市廣勝投資合夥企業(有限合夥)) and Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) (惠州市銀輝宇投資合夥企業(有限合夥)) as to approximately 55.56% and 44.44% respectively. Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) is owned is owned by (i) Mr. Song Yonghong, our executive Director, (ii) Mr. Ren Xuenong, our executive Director, and (iii) 3 employees of our Group, as to approximately 46.50%, 20.03% and 33.47% respectively. Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) is owned by Mr. Yu Guanghui, our executive Director and his wife, as to approximately 99% and 1% respectively.

5. As at the Latest Practicable Date, the other 40% of the shareholding of Regency Optics-Electron were held by two other shareholders being two individuals as to 27.3% and 12.7%. Such two shareholders, save and except for their respective shareholding in Regency Optics-Electron, are independent of and not connected with any of our Directors or our substantial shareholders of our Company or any of its subsidiaries and their respective associates.

The principal business of each of our Group member are set out in Appendix V of this listing document under the heading “Further information about our interest in the Group’s members”.

THE DISTRIBUTION AND SPIN-OFF

98

THE DISTRIBUTION

On 15 July 2013, the board of directors of TCLM declared a conditional special interim dividend to the TCLM Shareholders which will effectively distribute the entire issued share capital of our Company as at the Distribution Record Date. The Distribution is subject to the TCLM Shareholders’ approval as required under article 152 of the articles of association of TCLM. Pursuant to the Distribution, each TCLM Qualifying Shareholder or TCLM Excluded Shareholder will be entitled to 1 Share or equivalent cash payment (after deducting expenses) (as appropriate) for every 10 TCLM Shares held as at the close of business on the Distribution Record Date. Based on the issued share capital of TCLM as at the Latest Practicable Date and assuming it will remain unchanged on the Distribution Record Date, a total of 133,109,811 Shares representing the entire issued share capital of our Company in issue will be distributed. Our Company has appointed Kim Eng Securities (Hong Kong) Ltd as our agent in providing matching service to TCLM Qualifying Shareholders to facilitate the disposal of any Shares which TCLM Qualifying Shareholders may receive in odd lots. For details, please refer to the announcement dated 17 July 2013 made by TCLM.

If there are any TCLM Overseas Shareholders at the close of business on the Distribution Record Date, the directors of TCLM will make enquiries, based on legal opinions provided by legal advisers if the directors of TCLM consider it necessary, as to whether the transfer of our Shares to the TCLM Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory body or stock exchange. If, after making such enquiry, the directors of TCLM are of the opinion that it would be necessary or expedient, on account of either the legal restrictions under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place, not to transfer our Shares to such TCLM Overseas Shareholders, the TCLM Excluded Shareholders (if any) will be entitled to the Distribution but will not receive our Shares. Instead, they will receive a cash amount which equals to the net proceeds of the sale by TCLM (if such proceeds shall exceed HK$100.00) on their behalf of our Shares to which they would otherwise be entitled pursuant to the Distribution after dealings in our Shares commence on the Stock Exchange at the prevailing market price. The net proceeds of such sale will be paid to the relevant TCLM Excluded Shareholders in Hong Kong dollars. Cheques for such net proceeds are expected to be despatched within approximately two weeks following the commencement of dealings in our Shares on the Main Board. As at the Latest Practicable Date, there was no TCLM Overseas Shareholder.

Neither the Distribution nor the Spin-Off involves any offering of new Shares or any other securities and no new proceeds will be raised.

The Spin-off is conditional upon:

(a) the Stock Exchange approving the Spin-Off;

(b) the approval of the Non-Competition Arrangements by TCLM Shareholders at the EGM;

(c) the approval of the Distribution by TCLM Shareholders at the EGM; and

(d) the Listing Committee granting listing of, and permission to deal in, our Shares in issue as at the Distribution Record Date on the Main Board.

A1A 15(2)(a)

A1A 15(2)(b)

THE DISTRIBUTION AND SPIN-OFF

99

The share certificates of our Shares are expected to be despatched to the TCLM Qualifying Shareholders on Tuesday, 13 August 2013. One share certificate of our Shares will be issued to each TCLM Qualifying Shareholder for their entitlement to our Shares, save for share certificates to be issued to HKSCC Nominees Limited, which may be in such denominations as requested by them. In the event the Spin-off does not become unconditional on Tuesday, 13 August 2013, the share certificates of our Shares may not be despatched on Tuesday, 13 August 2013 and dealings in our Shares on the Stock Exchange may not commence on Wednesday, 14 August 2013. In such event, we will make an announcement of the above and, if necessary, of a revised timetable.

The TCLM Qualifying Shareholders who hold TCLM Shares through CCASS Clearing Participants or CCASS Custodian Participants will receive our Shares through their respective brokers or custodians who are CCASS Clearing Participants or CCASS Custodian Participants.

REASONS FOR THE SPIN-OFF

TCLM has concluded that the Group’s business has grown to a scale which merits a separate listing and that such listing will be beneficial to the Group for the following reasons:

(a) TCLM and the Company, operating in different business segments, are believed to have different growth paths and different business strategies. By delineating clearly between TCLM’s branded products and our ODM/OEM products, the Spin-off will allow separate platforms for the businesses of the two groups, while ensuring to the extent possible that potential negative effects cast on the amount of orders given by our clients’ group to us, as a result of the potential conflict due to the fact that the Company is currently merely a subsidiary of the TCLM, are avoided;

(b) the Spin-off will create two groups of companies and will offer investors with an opportunity to participate in the future development of both the TCLM Group as well as us and flexibility to invest in both or either of the groups;

(c) the Spin-off will enable the management of TCLM to continue to focus on building the core businesses of the TCLM Group, thereby enhancing the decision-making process and its responsiveness to market changes;

(d) the Spin-off will provide a mechanism to attract and motivate our management to be directly in charge of our operating and financial performance on a standalone basis;

(e) the Spin-off will provide separate fund-raising platforms for the TCLM Group and for us with respect to their respective operations and future expansion, which will in particular boost our smooth transformation towards a dedicated company for its business, and

(f) investors will be provided with more details of our results of operations and can better analyse a more tightly focused company where risk issues are isolated, identified and understood.

TCL Corporation will continue to be the ultimate Controlling Shareholder of both TCLM and us and will enjoy the benefits from the development of both companies through the creation or unlocking of shareholder value. In light of the above, each of TCLM and us considers the Spin-off to be in the interests of our respective shareholders as a whole.

A1A 15(2)(g)

BUSINESS

100

OVERVIEW

We are a vertically integrated manufacturing services provider in the AV Products industry, and

principally engaged in the research and development, manufacturing and sales of AV Products (excluding

TV sets) for third parties’ brands on an ODM basis. Our products generally fall into three categories,

namely (i) video products, mainly DVD Players, BD Players and Media Boxes; (ii) audio products, mainly

HTS, Micro & Mini, Soundbars, Dockings and Wireless Speakers; and (iii) other products, mainly ABS-s

and components. During the Track Record Period, the Group only conducted a small amount of AV

Products business on an OEM basis in 2010.

We commenced our DVD Players manufacturing business on an ODM/OEM basis in 2002,

and have since then expanded and diversified our product portfolio progressively to include audio

products and other products such as ABS-s. Among our products, the sales of DVD Players accounted

for approximately 66.0%, 64.2%, 34.4% and 25.1% of our turnover for each of the three years ended

31 December 2012 and the three months ended 31 March 2013. However, in view of the shrinking

global market demand for DVD Players in recent years according to Euromonitor, we expect that our

future growth will mainly be driven by the further increase of our market share of the traditional AV

Products (such as BD Players, HTS and Micro & Mini, excluding TV sets), our expansion into the

growing new audio products sector and our continued development in the ABS-s market in China. For

the three years ended 31 December 2012, the turnover of our video products represented a CAGR of

approximately -15.0%, while the turnover of our audio products and other products represented a CAGR

of approximately 92.2% and 34.3%, respectively. Set out below are our main product categories:

Video

products

DVD Players BD Players Media Boxes

Audio

products

Traditional

audio

products

HTS Micro & Mini

New audio

products

Soundbars Dockings Wireless Speakers

Other

products

ABS-s Components

LR 11.07A1A 28(1)(a)

3rd Sch 13rd Sch 33rd Sch 29

SX1-8

A1A 34(1)(c)

BUSINESS

101

The following table, which is based on our Company’s unaudited management records, sets out the

breakdown of our turnover by product category and the respective CAGRs for the periods indicated:

2010- Three months ended Year ended 31 December 2012 31 March

2010 2011 2012 CAGR 2012 2013 (unaudited)

% to total % to total % to total % to total % to total

HK$’000 turnover HK$’000 turnover HK$’000 turnover % HK$’000 turnover HK$’000 turnover

Video products 3,312,275 88.0 3,625,725 88.4 2,393,832 65.5 (15.0) 564,361 70.2 394,975 44.1– DVD Players 2,482,718 66.0 2,632,772 64.2 1,257,652 34.4 (28.8) 320,397 39.8 225,011 25.1

– BD Players 829,557 22.0 968,646 23.6 1,122,765 30.7 16.3 241,290 30.0 164,830 18.4

– Media Boxes – 0.0 24,307 0.6 13,415 0.4 N/A(1) 2,674 0.4 5,134 0.6

Audio products 236,157 6.3 451,058 11.0 872,619 23.9 92.2 126,102 15.7 223,418 25.0– Traditional(2) 236,157 6.3 443,858 10.8 690,771 18.9 71.0 116,884 14.5 170,009 19.0

– New(3) – 0.0 7,200 0.2 181,848 5.0 N/A(1) 9,218 1.2 53,409 6.0

Other products 214,217 5.7 22,671 0.6 386,620 10.6 34.3 113,055 14.1 276,256 30.9– ABS-s 197,512 5.2 2,580 0.1 366,431 10.0 36.2 108,380 13.5 247,908 27.7

– Components 16,705 0.5 20,091 0.5 20,189 0.6 9.9 4,675 0.6 28,348 3.2

Total 3,762,649 100.0 4,099,454 100.0 3,653,071 100.0 (1.5) 803,518 100.0 894,649 100.0

Notes:(1) The CAGR is not available as no revenue was recorded for Media Boxes and new audio products in 2010.(2) Mainly HTS and Micro & Mini.(3) Mainly Soundbars, Dockings and Wireless Speakers.

With our track record of providing high-quality ODM products and our accumulated know-how,

we have established a solid customer base. Our customers for AV Products own well-known international

brands, including Philips, LG and Toshiba etc., and our customers for ABS-s products include SARFT

and a number of PARFTs. We believe that, during our long-term cooperation with these globally well-

known brands and government agencies, we have enhanced our product knowledge, obtained latest market

trends and first-hand industry information, and improved our technological and production capabilities in

response to their stringent requirements, which in turn, enabled us to maintain competitiveness.

BUSINESS

102

The following table sets out the breakdown of our turnover by locations of our customers and the respective CAGRs for the periods indicated:

Year ended 31 December Three months ended 31 March

2010- 2010 2011 2012 2012 2012 2013 CAGR (unaudited) % to total % to total % to total % to total % to total

HK$’000 turnover HK$’000 turnover HK$’000 turnover % HK$’000 turnover HK$’000 turnover

Japan 1,450,605 38.6 1,971,474 48.1 1,456,442 39.9 0.2 262,637 32.7 162,631 18.2

Europe 1,487,862 39.5 1,495,097 36.5 1,172,152 32.1 (11.2) 289,550 36.0 318,851 35.6

The PRC 221,752 5.9 12,122 0.3 380,185 10.4 30.9 130,498 16.2 302,739 33.8

United States 83,371 2.2 160,044 3.9 353,101 9.7 105.8 49,119 6.1 61,461 6.9

Korea 492,523 13.1 456,380 11.1 285,869 7.8 (23.8) 66,218 8.3 42,507 4.8

Others 26,536 0.7 4,337 0.1 5,322 0.1 (55.2) 5,496 0.7 6,460 0.7

3,762,649 100.0 4,099,454 100.0 3,653,071 100.0 (1.5) 803,518 100.0 894,649 100.0

Our customers designate the distribution of our products to their ultimate customers globally, with the major shipping destinations being Europe, Asia Pacific (excluding the PRC), Latin America and North America.

Our principal business model is to fulfill production orders for AV Products on an ODM basis for well-known brands in the global AV consumer products industry, which will be our business focus in the foreseeable future. Along the industry value chain, our current value range mainly covers the product design, design and manufacturing of certain components and parts as well as product processing and assembly.

Upstream

Semiconductors Optical pickups

Key electroniccomponents

manufacturing

Midstream

Our business scope*

Product and innovative design

Electronic hardware development

Application software

development Mechanical parts

development

Product design

Plastic parts Electroacoustic

parts Remote

controllers Loader

mechanism

Components and parts manufacturing

SMT PCB assembly Final assembly

Processing andassembly

Sales and distribution

Downstream

After-sales service

* The capabilities and services in the category of “Product design” are provided in our ODM business and are not included in our OEM business.

SX2-4

SX1-4

BUSINESS

103

As at the Latest Practicable Date, our production facilities for AV Products (excluding TV sets)

were located in Huizhou, Guangdong Province, China, with a total gross floor area of approximately

64,497 sq.m.. Our production base for AV Products (excluding TV sets) has five workshops, comprising

nine SMT production lines, three PCB assembly lines and final assembly workshops. Through years

of cooperation with well-known international brands, we have improved the production efficiency

and manufacturing quality in respect of our AV Products, and our production expertise has met the

international quality standards and customers’ requirements. In addition, through the acquisition of a

controlling equity interest in Regency Optics-Electron in December 2012, we have achieved vertical

integration of production of selected components and parts to reinforce our production capability.

As of 31 March 2013, our designed production capacity for final products reached approximately

4.0 million units. To support our future business development, our new production facility for AV

Products (excluding TV sets) located in Zhongkai High-tech Zone, Huizhou City, with an annual designed

capacity of approximately 17 million units of final products and 18 million units of speakers. We are

in the process of moving into the new production facility which has partially commenced operations.

Substantially all of the equipment and machineries at our existing production facility for AV Products will

be relocated, upon which such production facility will be closed.

COMPETITIVE STRENGTHS

We believe that our market position and our potential for further growth are attributable to the

following competitive strengths:

Solid international and domestic customer base

We have a solid customer base, comprising well-known brand owners, including Philips, LG and

Toshiba etc. Over the years, we have been continuously developing new customers while retaining our

major existing customers. We uphold the ideals of win-win and mutually-accompanied growth, and have

established long-term cooperative relationships with our customers. We have adopted the key account

management model, joint product development and management model and quality assurance management

model to ensure closer cooperation and communication with our customers, by which we design products

together with our customers and provide them with more accurate, seamless and value-added products

and services that cater to their needs. We have established long-term relationships with our five largest

customers for the three months ended 31 March 2013, for a cooperation period ranging from one to twelve

years.

Our solid relationship with our major customers is underpinned by our strong sales team. As at

the 31 March 2013, our sales team comprised approximately 61 members, including Japanese and South

Korean personnel who possessed rich international marketing experience. To better serve our customers,

we have a designated team serving each customer that consists of sales, research and development,

procurement, supply chain, manufacturing and quality control personnel.

BUSINESS

104

In addition, we hold a licence issued by the Ministry of Industry and Information Technology for

the production of ABS-s products, which is valid and effective until May 2014 and can be renewed. As at

the Latest Practicable Date, we were one of the companies qualified to carry out ABS-s business in China.

We have established business relationships for ABS-s business with SARFT and a number of PARFTs.

Dedication to research and development and product innovation

We emphasize product innovation and actively invest in research and development. Our research

and development expenditure increased year by year, amounting to approximately 1.9%, 2.2%, 4.3%

and 4.7% of our turnover for the years ended 31 December 2010, 2011 and 2012 and the three months

ended 31 March 2013, respectively. As of 31 March 2013, our research and development team included

388 staff in Huizhou, 60 staff in Shenzhen and 77 staff in Xi’an, totalling 525 members. Our research

and development team in Huizhou is principally responsible for the development of customized products

and new product introduction, and we established an electroacoustic products development team in 2012

comprising approximately 60 members, including senior experts from Japan. Our team in Shenzhen is

principally responsible for the planning and preliminary development for future technology and platforms.

To support our expansion into multimedia internet applications, we established a team in Xi’an in 2012

with priority on software development.

As at the Latest Practicable Date, our applications for registration of 160 patents (including 49

inventions, 98 utility models and 13 designs patents) had been accepted, with 73 patents (including 5

inventions, 62 utility models and 6 design patents) having been registered in China. In 2012, the total

number of projects we have completed included 16 research projects, 4 software development projects and

59 customised product series comprising 519 products.

We have accumulated technology over the years in demodulation and decoding of digital audio

and video, laser servo control, large-power power supply, a full range of digital amplifiers, wireless

technology, DSP audio processing, streaming media network applications and electroacoustic technology,

which helps us provide comprehensive product development services for international and domestic

customers.

We have established a research and development management system based on the concept of

IPD in line with customers’ requirements, to enhance our ability to actively and closely cooperate with

our customers and to develop products that meet specific requirements within a relatively short period of

time. For example, soon after the introduction of a particular smartphone model by a well-known brand

to the consumer market in September 2012, we commenced the design and development of our Docking

products compatible for use by this smartphone model, and such docking products were delivered in early

November 2012, which were one of the earliest peripheral products for this smartphone model introduced

to the consumer market.

BUSINESS

105

Adoption of advanced production technology to achieve vertical integration of production capabilities

We have implemented vertical integration, adopted flexible production method, made use of

overseas supply chain and established a quality assurance system in line with international standards to

monitor our product quality, production process and costs.

Our vertical integration enables us to offer a wide range of services covering product design, design

and manufacturing of certain components and parts, and product assembly. For example, we could provide

relevant product design solutions and services, as well as manufacture certain electroacoustic parts, loader

mechanism, remote controllers and plastic parts. Among them, we acquired the production capability for

plastic parts through our acquisition of a controlling equity interest in Regency Optics-Electron in 2012.

We believe that our vertical integration capabilities allow us to achieve synergy and benefit from lower

production costs and better control over product quality.

We have implemented flexible cell lines for manufacturing, which improve our production

efficiency and flexibility. It effectively reduces the average number of workers on each production line,

while the line’s production capacity remains the same. The production processes along the manufacturing

cell line can be adjusted to manufacture different products and in varying sizes of product orders in a most

efficient manner. Moreover, flexible cell line requires less time to switch production objective from one

product to another and from one order size to another than the traditional production line. In addition,

we have adopted advanced production technique throughout the production process, which enhances our

production efficiency and capacity.

In order to better control costs in the delivery of our products around the world, we have

established cooperative relationships with overseas manufacturers whereby we provide components and

parts for them to assemble locally. In addition, we provide technical and service support to factories of

other suppliers of our customers around the world.

We have established a quality control system in line with international standards, and have been

accredited with the certification of five major systems, namely, ISO9001, ISO14001, TS16949, QC080000

and OHSAS18001, as well as the recognition from our customers (such as GP certification). We are

reviewed and examined multiple times by our customers and third parties annually, which drive us to

continuously to improve our product quality.

Professional, stable and experienced management team

We have been supplying AV Products (excluding TV sets) to major international well-known

brands for more than a decade under the leadership of our experienced management team. Our executive

Directors and senior management have been engaged in the consumer electronics industry for an average

of about 15 years, with extensive knowledge and experience in business management.

Mr. Yu Guanghui, an executive Director and our chief executive officer, has accumulated nearly

20 years of experience in the consumer electronics industry, and has engaged in and presided over a

number of significant cooperations between our company and well-known international brands. During the

Company’s development, Mr. Yu established ODM business and led us to secure well-known international

companies as our partners, meet customers’ needs through continuous improvement of products creation

BUSINESS

106

chain, products quality chain and vertically integrated products supply chain. We believe that our

management team possesses in-depth knowledge critical to our success and is capable of seizing market

opportunities, formulating sound business strategies, assessing and managing risks, implementing

management and production schemes and increasing our overall profit to maximize our shareholder value.

BUSINESS STRATEGIES

Our business focus is shifting from traditional DVD and BD Players to a diversified product

protfolio that includes Media Boxes, audio products and ABS-s. Our objective is to become a leading

ODM provider in the international AV Products market. To achieve this, we plan to implement the

following strategies:

Expand the cooperation with our existing customers and expand our customer base

We intend to expand cooperation with our existing customers, many of whom are leaders in the

global AV Products markets. With our ODM experience and in line with the customers’ product strategy,

we will actively design products together with our customers and further jointly expand our current AV

Products (excluding TV sets) to the next-generation internet-based products such as Media Boxes, so as to

increase the variety of our products to be supplied to our customers.

For other business, we plan to actively participate in the tender of SARFT and PARFTs to capture

opportunities arising from the domestic market for ABS-s in the next three years and increase our sales in

China. At the same time, we will actively develop ODM business for the production of similar products

for international well-known brands.

Optimise production capacity allocation and enhance production efficiency to increase profitability

We plan to optimise our manufacturing technology and production capacity allocation, in order

to satisfy our customers’ needs for product diversification with higher efficiency and better quality. In

particular, we plan to:

• Vertical integration: improve our production technology and capacity for key products

such as remote controllers and loader mechanism, and expand our speaker production and

injection molding capacity, through a series of measures such as optimization of production

process and increasing the proportion of injection moulding for internal use, in order to

reduce costs and better control our product quality.

• Flexible production: increase our production flexibility to enhance production efficiency,

by raising the proportion of flexible production cell lines to total production lines.

• Application of self-developed automation devices: continue to develop automatic

equipment and increase their applications in order to further save labor costs.

• Integrated logistics: through designing the logistics layout of our new plant, improve and

optimize integrated logistics management to reduce wastage.

A1A 34(1)(a)

BUSINESS

107

In 2011, we commenced the construction of our new production facility in Zhongkai Hi-tech Zone,

Huizhou City, with a gross floor area of approximately 78,000 sq.m. We expect to complete the relocation

of our AV production activities to our new production facility in the second half of 2013, where we will

adopt more advanced production technology and improved logistics layout, and will be equipped with

the new silent room, laboratory and DQA laboratory that are in line with international standards. The

production capacity of our new production facility is expected to reach approximately 17 million units

of final products and 18 million units of speakers for the year ended 31 December 2013. As at the Latest

Practicable Date, we had completed the construction and renovation and equipment fitting of our new

production facility and had partially commenced operations in such facility.

Continue to focus on product and technology development and product transformation

In the fast-changing consumer electronics market, in order to pro-actively meet customers’

requirements, we plan to take the initiative in new products innovation which reflects the market trend

(such as Wireless Speakers) by enhancing our insight in consumers and technology pre-research, in an

effort to continuously provide higher value-added ODM solutions.

• Video products: in view of the trend of three-networks convergence, we plan to expand

our product portfolio to include internet streaming media-based video products through the

enhancement of our software capacity and user experience.

• Audio products: we plan to continue to increase our investments in the research and

development of electroacoustic, wireless transmission, network applications and new

mechanical parts, to develop Soundbar products supporting smart television sets and

Docking/Wireless Speaker products supporting smartphones, thereby enriching our product

mix.

• Other business: we will further invest in the research of digital satellite signals technology,

and actively seek for the ABS-s business in China and the DVB-s (Digital Video

Broadcasting – Satellite) business internationally.

Build strong management and operational teams

We plan to continue to strengthen our management and operational teams to better support our

business development. We plan to attract, develop and retain experienced management personnel and

experts in the field of AV technology, continue to maintain and improve our competitive remuneration

package, optimize the allocation of our human resources, and provide better services for well-known

brand customers in the world as an AV ODM service provider. In addition, we will continue to improve

staff training programs, comprehensive job qualification system and further learning programs, in order to

help to achieve our development goals.

OUR PRODUCTS

Our products generally fall into three categories, namely (i) video products, mainly DVD Players,

BD Players and Media Boxes; (ii) audio products, mainly HTS, Micro & Mini, Soundbars, Dockings and

Wireless Speakers; and (iii) other products, mainly ABS-s and components.

A1A 28(8)

A1A 34(1)(c)

BUSINESS

108

Video Products

We have been engaging in the research and development, manufacturing and sales of video

products for over a decade, during which we have gradually expanded our customer base, and have

established the leading position in the DVD Players market. Along with the development of display

technology from standard definition to high definition, we have began the development of BD Players

platform and its related technologies since early 2008, and secured business opportunities from our

customers. According to Euromonitor, the production volume of DVD Players and BD Players in the PRC

accounted for approximately 88.9% of the global market in 2012, and we were the largest manufacturer in

the PRC in terms of production volume, with a market share of approximately 8.1% in that year.

Our video products comprise mainly DVD Players, BD Players and Media Boxes. The following

table, which is based on our Company’s unaudited management records, sets out further information on

the sales of our video products for the periods indicated:

Year ended 31 December 2010-2012 Three months ended 31 March Two months ended 31 May

2010 2011 2012 CAGR 2012 (unaudited) 2013 2013 (unaudited) Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit % % % ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit

DVD Players 14,590 2,482,718 170 17,108 2,632,772 154 9,523 1,257,652 132 (19.2) (28.8) (11.9) 2,281 320,397 140 1,825 225,011 123 1,650 205,054 124BD Players 1,397 829,557 594 1,965 968,646 493 2,726 1,122,765 412 39.7 16.3 (16.7) 613 241,290 394 428 164,830 385 467 160,538 344Media Boxes – – – 114 24,307 213 58 13,415 231 N/A (1) N/A (1) N/A (1) 12 2,674 223 20 5,134 257 9 2,418 269

Total 15,987 3,312,275 207 19,187 3,625,725 189 12,307 2,393,832 195 (12.3) (15.0) (2.9) 2,906 564,361 194 2,273 394,975 174 2,126 368,010 173

Note:

(1) CAGR is not available as no revenue was recorded in 2010 for Media Boxes.

BUSINESS

109

– DVD Players

DVD Player is a standalone device that can play DVDs and other disc formats (CD/SACD). It

cannot play Blu-ray and do not have recording capability.

According to Euromonitor, due to the development of display technology from standard definition

to high definition, and more importantly the rising popularity of internet video streaming, the global

demand for DVD Players has been in rapid decline in recent years. For the three years ended 31 December

2012, our sales volume, sales revenue and average unit price of DVD Players represented a CAGR of

approximately -19.2%, -28.8% and -11.9%, respectively. The average price fell to approximately HK$132

per unit in 2012 from approximately HK$170 per unit in 2010, mainly due to the fact that the market

demand was decreasing and the competition became keener, whereas at the same time our Company

continued to reduce product costs by optimizing product design.

– BD Players

BD Player is a standalone device that can play Blu-ray and other disc format (DVD/CD/MP3/

SACD).

According to Euromonitor, with the increasing popularity and development of high definition

TV, BD and high definition technology are widely used in the field of video products, and accordingly,

sales of BD Players have gradually increased. For the three years ended 31 December 2012, our sales

volume, sales revenue and average unit price of BD Players represented a CAGR of approximately 39.7%,

16.3% and -16.7%, respectively. The average price fell from approximately HK$594 per unit in 2010

to approximately HK$412 per unit in 2012 and further to approximately HK$385 per unit for the three

months ended 31 March 2013, mainly due to the decrease in price of components for BD Players.

– Media Boxes

Media Box is a standalone device that can play internet streaming contents and local contents

stored in USB devices, HDD or USB disk, etc.

According to Euromonitor, in 2011, due to the accelerating integration of cable TV networks,

telecommunication networks and the internet, and the rapid development of wireless technology, BD

Players evolved quickly to incorporate network technology to use network multimedia as the main content

carrier. To this end, we engaged a large number of software engineers to respond to such technological

trend, and started the design and production of Media Boxes, which were put into mass production and

sales in 2011.

According to Euromonitor, there is an increasing number of consumers interested in the AV

entertainment by accessing streaming media. We expect that, with the rapid development of internet

enabled multimedia and network technology, Media Boxes will be the next video products with great

growth potential.

BUSINESS

110

Audio Products

Before we commenced the production of traditional audio products in 2010, we had already commenced the designs and development of these products. According to Euromonitor, internet popularity and increasing ease of access to internet brought about revolutionary impact on audio products. With the development of internet enabled and wireless technologies and intelligent mobile devices (such as smartphones and tablets), huge opportunities have arisen in the new audio products market supporting their applications. From 2010, we have expanded our business into the new audio products by starting the research and technology development for the new audio products platform, and put these products into mass production in 2011.

Our audio products can be categorized into traditional and new audio products. The following table, which is based on our Company’s unaudited management records, sets out further information on the sales of our audio products for the periods indicated:

Year ended 31 December 2010-2012 Three months ended 31 March Two months ended 31 May

2010 2011 2012 CAGR 2012 2013 2013

Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit % % % ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit

Traditional 372 236,157 635 686 443,858 647 986 690,771 701 62.8 71.0 5.1 187 116,884 625 260 170,009 654 225 147,337 655New(1) – – – 27 7,200 267 592 181,848 307 N/A(1) N/A(1) N/A(1) 46 9,218 200 131 53,409 408 233 92,055 395

Total 372 236,157 635 713 451,058 633 1,578 872,619 553 106.0 92.2 (6.7) 233 126,102 541 391 223,418 571 458 239,392 523

Note:

(1) CAGR is not available as no revenue was recorded in 2010 for new audio products

– Traditional audio products

HTS

HTS is a home entertainment system consisting of BD/DVD/CD players, amplifiers and speakers. It is designed to offer comprehensive AV experience and seeks to reproduce a real cinema experience at home.

Micro & Mini

Micro & Mini refers to bookshelf speaker system with built-in audio amplification, audio and/or video playback.

For the three years ended 31 December 2012, our sales volume, sales revenue and average unit price of traditional audio products represented a CAGR of approximately 62.8%, 71.0% and 5.1%, respectively. The average price rose to HK$701 per unit in 2012 from HK$635 per unit in 2010 and rose to HK$654 per unit for the three months ended 31 March 2013 from HK$625 per unit for the three months ended 31 March 2012, mainly due to the fact that the sales of HTS is growing fast with more value-added features.

BUSINESS

111

– New audio products

Our new audio products include Soundbars, Dockings and Wireless Speakers, which are new

types of products designed in response to the development of the network, wireless technology and

intelligent mobile devices (such as smartphones and tablets). From 2011, we have expanded our

business into the new audio products by commencing the research and technology development for

the new audio products platform, and put into production in that year.

Soundbars

Soundbar is a special loudspeaker enclosure that creates a reasonable stereo effect from a single cabinet, designed in light of the emergence of thin-TV. It is designed to provide better sound quality for AV entertainments including television programs, movies and music, etc. Soundbar is also to be used in conjunction with other home entertainment devices, such as TVs, BD/DVD/MP3 players, game consoles and smartphones, etc. for sound quality enhancement purpose.

Dockings

Docking is a standalone device with a docking station or cradle and speaker, designed for

rich sound quality and easy portable music playback. Compatible portable media players and

smartphones can be placed in the cradle for music playback. It includes docking with built-in

wireless technology (i.e. bluetooth, wifi, etc).

Wireless speakers

Wireless speaker is a standalone speaker with built-in wireless technology, designed to fill

the room with rich audio quality wirelessly from a compact device, such as computers, portable

media players and smartphones. It does not have built-in amplification or video and audio input.

Other Products

Our other products mainly include ABS-s and components. The following table, which is based

on our Company’s unaudited management records, sets out further information on the sales of our other

products for the periods indicated:

Year ended 31 December 2010-2012 Three months ended 31 March Two months ended 31 May

2010 2011 2012 CAGR 2012 2013 2013

Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price volume revenue price ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit % % % ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit

ABS-s 598 197,512 330 5(2) 2,580 516(2) 1,020 366,431 359 30.6 36.2 4.3 290 108,380 374 701 247,908 354 288 112,042 389Components(1) N/A 16,705 N/A(1) N/A(1) 20,091 N/A(1) N/A 20,189 N/A(1) N/A 9.9 N/A(1) N/A 4,675 N/A N/A 28,348 N/A N/A 13,681 N/A

Total 598 214,217 N/A(1) 5 22,671 N/A(1) 1,020 386,620 N/A(1) 30.6 34.3 N/A(1) 290 113,055 N/A 701 276,256 N/A 288 125,723 N/A

BUSINESS

112

Note:

(1) As various different types of components are included in this category, it is considered inappropriate to aggregate the sales volume of each different component for comparison purpose and the CAGR is not available for the same reason.

(2) For the year ended 31 December 2011, the Company sold approximately 5,000 units of ABS-s at an average price of HK$516 per unit, which was higher than the overall average unit prices of such product category for the years ended 31 December 2010 and 2012. The higher average unit price of ABS-s for the year ended 31 December 2011 was primarily due to: (i) the type of ABS-s products sold by us was mainly ABS-s “Hu Hu Tong” (戶戶通), which has enhanced features and accordingly, was sold at a price higher than the other type of ABS-s (being “Cun Cun Tong” (村村通)); and (ii) the ABS-s “Hu Hu Tong” (戶戶通) sold in the year ended 31 December 2011 was an initial batch of such product category in China commissioned by the PRC government and thus was sold in a small volume, with enhanced features and at a higher price. The substantial reduction in the sales of ABS-s for the year ended 31 December 2011 was primarily due to the postponement of tendering process for ABS-s until late 2011 by the government in that year. To the best of our Directors’ information and knowledge, such postponement was mainly due to the review and research in relation to the upgrading of the technical standards of ABS-s products conducted by the government in 2011.

– ABS-s product

ABS-s is a satellite-used receiver specifically designed for use in China, mainly for remote area.

ABS-s products sold by us currently bear the trademark of TCL Corporation, which our Group has been granted the licence for use under the Trademark Licence Agreement. For further details of this agreement, please see the section headed “Continuing Connected Transactions – Trademark Licence Agreement” in this listing document.

In June 2008, China successfully launched a radio and television broadcasting satellite “Zhongxing

9”, through which advanced broadcasting satellite television services are provided. According to Outline

of China’s Cultural Reform and Development in the 12th 5 years Plan Period in 2011-2015, Zhongxing

9’s signals cover the remote or rural areas that are not covered by China’s cable TV, with a total of

200 million potential users, which is a bright market prospect. There are two major types of our ABS-s

products, namely, ABS-s “Cun Cun Tong”(村村通) and “Hu Hu Tong”(戶戶通). Under the permit of the Ministry of Industry and Information Technology, which is valid till May 2014, we have been permitted

to engage into the production of ABS-s products since 2009, and become one of the companies that are

qualified to carry out this business in China.

After more than three years of efforts, we sold over 1 million units for our ABS-s products in 2012,

and our product coverage was expanded to 13 provinces (or autonomous regions) around the country,

which has laid a solid foundation for our future growth. We believe that, ABS-s products will become one

of our key growth segments in the future. For the three years ended 31 December 2012, our sales volume,

sales revenue and average unit price of ABS-s products represented a CAGR of approximately 30.6%,

36.2% and 4.3%, respectively.

SFC1-4

BUSINESS

113

– Components

During the Track Record Period, we sold various components to our customers mainly to enable them to provide after-sales service for their end customers. In order to enhance the competitiveness of our products and our ability to vertically integrate the production, we acquired a controlling shareholding in Regency Optics-Electron in December 2012. For further details, please refer to the section headed “History and Development – Regency Optics-Electron” in this listing document. Regency Optics-Electron is principally engaged in moulds and plastic components and parts productions. As at the Latest Practicable Date, Regency Optics-Electron supplied moulds and plastic components and parts to us as well as third parties, including TCL Corporation Group. For details, please refer to the section headed “Continuing Connected Transactions – Master Sale and Purchase Agreement” in this listing document. We plan to continue to provide moulds and plastic components and parts to third parties through Regency Optics-Electron, after satisfying our own needs.

PRODUCTION FACILITIES

Our existing production facility

As at the Latest Practicable Date, all of our production facilities for AV Products (excluding TV sets) were located in Huizhou City, Guangdong Province, China. Such production facilities have a total gross floor area of approximately 64,497 sq.m..

Our production facility for AV Products (excluding TV sets) has five workshops, comprising nine SMT production lines, three PCB assembly lines and final assembly workshops. The table below sets out the designed production capacity, actual output and utilization rate of the final assembly workshops (in terms of final products) of our Group during the Track Record Period:

For the three months

For the years ended 31 December ended

31 March

Final assembly workshops 2010 2011 2012 2013 (’000 units) (’000 units) (’000 units) (’000 units) (in terms of (in terms of (in terms of (in terms of final products) final products) final products) final products)

Designed production capacity(1),(2) 20,160 20,160 15,760(4) 3,940Actual output 16,957 19,905 14,905 3,600Utilization rate(3) 84.1% 98.7% 94.6% 91.3%

Notes:

1. During the Track Record Period, the computation of the designed capacity of our production facility is based on a large number of assumptions, which include the daily operation time, the number of working days, the capacity of each production line per hour and the total number of our production lines for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

2. It is assumed that our production facilities operate 12.5 hours per day, 25.5 days per month and 11.5 months per year (after deducting 0.5 month of statutory holidays) to calculate the designed production capacity.

3. It is derived from the actual output being divided by the annual designed production capacity for the relevant periods.

4. Our production capacity depends on the product mix to be produced in that year. In 2012, the proportion of output of audio products increased. As the level of complexity required to produce audio products increased and the Standard Time for the production of an audio product (between 600 seconds and 1,000 seconds depending on the type of audio product) is more than that of a video product (around 260 seconds for a DVD Player and 450 seconds for a BD Player), the production capacity in 2012 is adjusted downward. Specifically, in 2012, we had 12 large-sized final assembly lines (200 final products per hour calculated based on the planned product mix for 2012) and 19 small-sized final assembly lines (100 final products per hour calculated based on the planned product mix for 2012). Therefore, the adjusted production capacity for 2012 was calculated in the following way: (number of final assembly lines) x (hourly production capacity for each final assembly line) x (total operating hours in 2012).

SX2-11

BUSINESS

114

We started the production of speakers in April 2012. The designed production capacity and actual output of speakers for 2012 were 2.23 million units and 614,668 units, respectively.

The production lead time for our video and audio products, the period of time starting from the receipt of production orders from customers to the delivery of products to the address designated by the customer, ranges from 2 weeks to 3 weeks.

Our new production facility

The current utilization rate of our existing production facility is nearly full, and it is not able to meet our future development needs. Therefore, in 2011 we commenced the construction of our new production facility for AV Products (excluding TV sets) in Zhongkai High-tech Zone, Huizhou City, the layout of which will further enhance our internal logistic efficiency. The gross floor area of our new production facility amounts to approximately 78,000 sq.m., which provides additional spaces for our future business development. Given our intention to expand our ODM business for new audio products and that the production capacity for speaker is crucial for development of ODM business for audio products, we significantly increased the designed production capacity for speaker of our new production facility. The annual designed production capacity or our new production facility amount to approximately 17 million units of final products and 18 million units of speakers. As at 31 December 2012, we had invested, in aggregate, approximately HK$94 million in the construction of our new production facility. Total estimated investment amount for our new production facility for AV Products (excluding TV sets) is expected to be approximately HK$320 million, and the remaining balance will be paid out of our internal resources.

When our new production facility fully commences its commercial production, our old production facility will cease to operate, whereupon substantially all of our existing production and research and development facilities will be moved to our new plant, and our old production facility will be closed (with its lease terminated). Since we will relocate our equipment and machineries substantially to the new production facility, we consider that the relocation to the new production facility will not result in any significant write-off of assets and other provisions. The production facilities of Regency Optics – Electron will not be relocated to the new production facility.

As our existing equipment and machineries are being moved by stages to the new production facility, which is close to our existing production facility being in Huizhou, the operations of our new production facility has partially commenced as at the Latest Practicable Date, and it is currently expected that the relocation of our production plants will be completed around the end of August 2013 and expenses involved for such relocation will be around HK$3.8 million, our Directors consider that the relocation of our production facility is not expected to have any material adverse effect on our business and operations.

As at the Latest Practicable Date, we had completed the construction and renovation and equipment fitting of such production facility and had partially commenced operations in such facility.

As advised by to our PRC legal advisers, as at the Latest Practical Date, we had obtained necessary licences and permits to construct the abovementioned production facility and none of these licences and permits were revoked, withdrawn or suspended.

SX1-11

SX1-11

SX1-11

BUSINESS

115

PRODUCTION PROCESS

With our cooperation with international well-known brand over a decade, our manufacturing

capabilities in respect of video and audio products have been continuing to enhance, which is mainly

reflected from the continuous improvement of our production efficiency and product quality as a result of

technology improvement, production automation, flexible production, rapid human resources duplication,

development of manufacturing execution system (MES) and other management improvement efforts,

thereby maintaining our competitiveness in the industry. According to Euromonitor, we were one of

the largest manufacturers of audio and video products in China in terms of the production volume as

at 31 December 2012. Our current production capacity and scale are capable of satisfying the needs

of our customers’ orders and the trial production of new products. In order to further improve the

competitiveness of our products, we have established the manufacturing capacity for loaders components

and speakers by the vertical integration of components and parts productions.

The following figure shows the general production process of our major products. At our

production base located in Huizhou City, the production process usually takes one to two week(s) from the

procurement of raw materials from our suppliers to the delivery of products to our customers.

BUSINESS

116

Final assembly

where final products are assembled

QA inspection and warehousing

Quality inspection of the products for warehousing when qualified

QA inspection and warehousing

Shipment

A full set of electronic materialsA full set of

materials for final assembling

PCB assembly:

printed circuit board assembly, where parts are inserted in circuit boards

SMT:

surface-mount lines, where parts are welded and mounted on circuit boards using surface-mount technology :

BUSINESS

117

Automation

We endeavor to the researches on automatic technologies as well as their applications at different production stages. Currently, we adopt various advanced techniques throughout the production process. Such techniques include surface mounting technology, error-proof scanning system for materials, mix-board-proofing scanning system, automatic testing system, error-proof scanning system for accessories, error-proofing for color-box packaging and code scanning, automatic high-voltage testing system, auto-stacking system, auto-screw-driving machine, and automation in accessories packaging.

Moulding and plastic injection capability

In December 2012, we paid RMB30 million to acquire 60% shareholding in Regency Optics-Electron and became its controlling and largest shareholder since then. Regency Optics-Electron, located in Lilin Industrial Zone, Huizhou, Guangdong Province, owns a production base with gross floor area of approximately 40,000 sq.m.. The production base is equipped with 45 sets of molding equipment and 56 sets of plastic injection machines, which process and provide mould and plastic parts for our Group. The spare production capacity is utilized to produce mould and plastic parts for external customers. For further details, please refer to the section headed “History and Development–Regency Optics-Electron” of this listing document.

PROCUREMENT

We use various components and parts throughout our manufacturing process. We need key components and parts such as IC, loaders, plastic mechanical parts, metal mechanical parts and PCB boards. Moreover, we also purchase a wide variety of other components such as wires, paper boxes and electronic materials, etc. The table below, which is based on our Company’s unaudited management records, set out the average purchase prices of our major type of components during the Track Record Period:

For the three months ended For the year ended 31 December 31 March

2010 2011 2012 2013 HK$ HK$ HK$ HK$

IC 3.29 3.16 3.03 3.06Loaders 35.89 34.21 32.8 32.45Plastic parts 2.62 2.51 2.43 2.95Metal parts 2.42 2.32 2.21 2.12PCB boards 1.63 1.53 1.45 1.52

The Directors consider that as there are vast varieties of materials grouped under each of the major type of components with different prices, the above overall average unit purchase price is for illustrative purpose and may not be meaningful.

Some of the components and parts we use are made of metals, primarily copper. The market prices of these metals were fluctuating during the Track Record Period. However, we were not directly affected by the price fluctuation of such metals during the Track Record Period, as we did not directly purchase these metals but instead purchased the components and parts made up of metallic materials as finished goods at steady prices. In order to monitor the supply of components for our production, we

SX2-6

SX1-6

BUSINESS

118

procure components and parts for our production in accordance with the orders our customers placed with us and have maintained more than one supplier candidate as a result of which we are flexible to make procurement from  other suppliers with competitive pricing. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material shortage of components and parts that we needed for our production, or any delayed delivery due to shortage of such materials, or material fluctuation in the price of raw materials, which could result in material adverse effect on our business or results of operations. For details, please refer to the section headed “Financial Information – Key Factors Affecting our Results of Operations – Materials Costs and Labor Costs” for the sensitivity analysis on price fluctuation of our major components and parts”.

We generally take into account the fluctuation of our costs when we negotiate the price with the customers at the beginning of each quarter. We perform cost review internally on a monthly basis and should there be any material increase, we could request to increase the price of our ODM products during the quarterly pricing review discussion with our customers. Accordingly, the Directors believe that the Company would be able to pass, to some extent, the increase in material costs to the customers. In addition, we will mitigate the potential shortage or supply risk by seeking alternative materials and searching for additional suppliers. Our Directors believe that the current supply of components and parts we need is sufficient, and it is expected that in the foreseeable future we could normally obtain more components and parts from multiple sources at commercially reasonable prices.

Our suppliers are mainly from the PRC, Taiwan, Japan, South Korea and the U.S.. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our domestic purchases accounted for approximately 53.9%, 58.5%, 58.1% and 60.8% of the total purchases, respectively. In order to ensure a quick supply, we maintain safety inventories and adopt real time purchasing.

TCL Corporation Group has in-house component and part factories to produce and supply various raw materials, such as plastic, PCB, wires, optical disc and batteries, and we made purchases from TCL Corporation Group for certain components and parts during the Track Record Period, which accounted for 14.9%, 2.0%, 1.4% and 1.3% of our total purchases of components and parts for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively. Our Directors are of the view that the above purchases were on normal commercial terms and were negotiated on an arm’s length basis, and those terms were fair and reasonable. Our Directors confirmed that, upon the Listing, the above transactions with TCL Corporation Group will constitute continuing connected transaction. For details, please refer to the section headed “Continuing Connected Transactions – Master Sale and Purchase Agreement” in this listing document.

Import Arrangement of Components and Parts

During the Track Record Period, we purchased from overseas countries certain components and parts for production. In this connection, the relevant members of the TCL Corporation Group acted as intermediaries for purchasing these components and parts from our subsidiaries outside the PRC who had purchased such materials from overseas suppliers, for further import into China. These imported components and parts were then sold by the relevant members of the TCL Corporation Group, as a local supplier, to our Company’s nominated subsidiaries in the PRC. Our Directors confirmed that, upon the Listing, the above transactions with TCL Corporation Group will constitute continuing connected transactions. For further details, please refer to the section headed “Continuing Connected Transactions – Master Oversees Materials Sourcing Agreement” in this listing document.

SX2-6

SX1-6

SX2-6

SX1-12

SX2-1(ii)

BUSINESS

119

SUPPLIERS

Most of the components and parts for our production are purchased from external suppliers during the Track Record Period. We select our potential suppliers by reference to a number of factors such as their operation scale, product quality, cost, delivery arrangement, range of services and innovation (if applicable). As at 31 March 2013, we had around 460 suppliers and a majority of these suppliers are recurring supplier during the Track Record Period. We have developed stable business relationships with our top five suppliers for each of the three years ended 31 December 2012 and the three months ended 31 March 2013, ranging from three to twelve years. Our cost management and quality benchmark in our production are enhanced by raising improvement target to suppliers and providing on-site counselling to suppliers to improve their management and product quality.

The purchasing agreements entered into with our suppliers are generally for a term of one year. The principal terms of our standard purchasing agreements include production capacity assurance, raw material management and packaging methods, and they normally do not include the types of products purchased, specifications, quantity or price. We place purchase order with our suppliers when we purchase components and parts, in which the product type, specifications, quantity, price, delivery date and terms of purchase order are specified.

In addition to the above agreements, we generally enter into quality assurance agreements with our suppliers for a term of one year to ensure the quality of products procured by us, as well as to protect us from any third party’s claims due to the quality of products procured from our suppliers. The quality assurance agreement generally provides for the acceptance criteria for the goods purchased by us, raw materials management, quality control, disposal of sub-standard goods, claims provision, ownership of intellectual property rights and the channel of communications in relation to product quality.

During the years ended 31 December 2012 and the three months ended 31 March 2013, purchases from our five largest suppliers accounted for approximately 18.9%, 25.2%, 24.4% and 21.0% of our total purchase, respectively, and purchase from our largest supplier accounted for approximately 4.4%, 9.0%, 9.4% and 8.8% of our total purchase, respectively. Save as TCL Corporation Group, none of our Directors, their respective associates or any Shareholders holding more than 5% of the issued share capital of the Company, held any interest in our five largest suppliers during the Track Record Period and up to the Latest Practicable Date.

The suppliers typically grant us credit terms ranging from 0 to 90 days, with the longest period of not more than 120 days. Transportation cost are usually paid by our suppliers.

During the Track Record Period, there was no material cancellation or delay of delivery by our suppliers, and none of our suppliers had filed for bankruptcy, insolvency or similar proceedings, which resulted in material adverse effects on our business or results of operations during the Track Record Period.

SUB-CONTRACTING

During the Track Record Period, notwithstanding that we possessed the relevant production capability, we outsourced certain parts of our production processes to sub-contractors to optimize our cost and balance the demand for our production resources in low and peak seasons, so that we could focus more of our resources on higher value-added process and better manage the overall flow of our operations.

SX1-12

A1A 28(1)(b)(i)A1A 28(1)(b)(ii)

A1A 28(1)(b)(v)

BUSINESS

120

During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013,

there were 7, 8, 10 and 8 sub-contractors engaged by us and TCL King was one of our sub-contractors.

TCL King is an indirect wholly owned subsidiary of TCLM. We engaged TCL King to provide sub-

contracting services such as SMT when we encounter temporary production bottleneck, especially during

the peak season. For the years ended 31 December 2010, 2011 and 2012 and the three months ended

31 March 2013, fees paid by us to TCL King in aggregate amounted to approximately HK$0.3 million,

HK$3.1 million, HK$2.0 million and nil, respectively, representing approximately 0.01%, 0.08%, 0.06%

and nil, respectively, of our total costs of sales. Our Directors have confirmed that our purchases from

TCL King were on normal commercial terms and were negotiated on an arm’s length basis, and those

terms were fair and reasonable. Please see the section headed “Relationship with the Remaining TCLM

Group and the Controlling Shareholders – Transactions with the Remaining TCLM Group during the

Track Record Period” in this listing document for further details.

Our Directors have confirmed that our Group currently has no intention to continue the aforesaid

transactions with TCL King.

We normally enter into purchasing agreements with our sub-contractors. According to these

purchasing agreements, they are required to use raw materials provided by us in their production, render

SMT processing services, in consideration of payment of processing fee by us. Unqualified products will

be returned to the sub-contractors. In addition, according to such purchasing agreements, our quality

control and assurance staff are allowed to check all the production materials (and purchase orders) of such

sub-contractors to ensure their compliance with our requirements. Without our prior approval, such sub-

contractors cannot further outsource any parts of the production process to other manufacturers. Pursuant

to such purchasing agreements, we are not required to pay any deposit when placing orders with such sub-

contractors. As at the Latest Practicable Date, there were no sub-contractors who had been unable to fullfil

any order we placed.

For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March

2013, fees paid to our sub-contractors accounted for approximately 3.7%, 4.7%, 5.9% and 5.8% of total

costs of sales, respectively, and fees paid to our largest sub-contractor accounted for approximately 1.2%,

1.4%, 2.6% and 2.6% of total costs of sales respectively. Our Directors have confirmed that, save as

TCL Corporation Group, all of the aforesaid sub-contractors were Independent Third Parties. To the best

knowledge of our Directors, save as TCL Corporation Group, none of our Directors, supervisors, their

respective associates or Shareholders holding more than 5% of the issued share capital of the Company,

held any interest in the abovementioned five largest sub-contractors during the Track Record Period and

up to the Latest Practicable Date.

INVENTORY CONTROL

Inventory includes components and parts, work-in-progress and finished goods. Our inventory is

based on a balanced material demand and supply model, which is driven by the clients’ product demand.

This model can secure the supply of materials while keeping the inventory at the minimum level. For

certain materials with long-procurement cycle, such as IC, we procure such materials based on the

projection from our customers to ensure their needs can be satisfied once the orders are confirmed. For the

purchase of materials with short-term cycle, such as plastic case, we determine the purchases and delivery

of materials by customers’ orders or production invoices.

BUSINESS

121

We monitor our inventory turnover and inventory levels through setting up a strict inventory control system (such as inventory turnover management, inventory security management, invoice kitting analysis and obsolete material management), to ensure that the inventory is purchased according to demand. We set up an inventory turnover ratio, and through the IT decision support system to monitor the inventory turnover by year, month and day (macroeconomic ratio) as well as inventory aging levels, which help us assess, analysis and improve the inventory management. Where obsolete inventory exists, we will carry out the procedures of handling obsolete materials which conduct periodic clearance through replacement, resales and repurchase by suppliers at lower prices, to minimize the loss from obsolete goods.

Generally, we maintain the inventory of components and parts at a level which we consider is sufficient for our operations. For frequently used key components, electronic materials and mechanical parts, we generally maintain adequate supply for use of around 20, 14 and 7 days, respectively. We consider that by storing raw materials at such levels, we are able to maintain a balance between bulk purchases, supply risk and inventory risk. The management of our Group will review our inventory level on a monthly basis. During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our inventory turnover days were 26 days, 28 days, 34 days and 38 days, respectively.

We make full provisions for obsolete materials that have no demand or alternative usage solution in the coming 12 weeks. If such materials are not used for any order or subject to any solution for usage in the next three months, they will be moved to the waste storage and discarded.

INFORMATION SYSTEM

In order to enhance our capabilities as an ODM supplier, we introduced a CPC system and a data archive system for our product research and development data management and project synergy management.

In 2010, we introduced enterprise resource planning system to achieve integration of the management of the corporate, business and financial functions of our operations, enhance our overall operational efficiency, and speed up the generation of our monthly financial reports.

In 2011, we developed a customized supply chain decision-supporting system to support flexible supply chain planning, quick response and high-efficiency turnover in accordance with our Company’s need.

In 2012, we upgraded and enhanced our manufacturing execution system according to our needs, achieved digitalized code and scanning management for finished products, and established a quality tracking system.

SALES AND MARKETING

ODM products

During the Track Record Period, we did not engage in any retail business and did not use our own brand in the sale of our video and audio products. We fulfil the production orders for AV Products (excluding TV sets) placed by our customers principally on an ODM basis. We sell AV Products directly to brand product customers and retail chain customers who then sell our AV Products to the market under their own brands. Our customer base has expanded from very few customers at the earlier stage of our business development to currently a number of well-known international brands owners. A majority of our AV Products are sold by our customers in regions such as Asia-Pacific, Europe and the United States.

BUSINESS

122

We conduct our marketing and promotion and customer relationship building through participating

in large international exhibitions. From 2010 to 2012, we participated in various exhibitions, including

China Import and Export Fair, Hong Kong Electronics Fair and International CES in Las Vegas.

ABS-s products

There are two major types of our ABS-s products, namely, “Cun Cun Tong” (村村通) and “Hu

Hu Tong” (戶戶通). These products are sold under TCL’s trademarks. For further details, please refer to the section headed “Continued Connected Transactions – Trademark Licence Agreement” in this listing

document. Our customers for ABSs products include the SARFT and a number of PARFTs. Under the

applicable laws and regulations in the PRC, enterprises shall obtain licence for the production, import,

sale, installation and use of satellite ground receiving equipment. For further details of the regulatory

environment of ABS-s business, please refer to “Regulations – Related laws, regulations and policies

on satellite television ground receiving equipment” in this listing document. As at the Latest Practicable

Date, we had obtained the necessary licence for the production of ABS-s products and during the Track

Record Period, as required by the relevant PRC laws and regulations, we participated into the open

tendering process for the sale of ABS-s products in China. The key part of such process is summarized as

follows:

1. A tender document is released publicly on the website of the tenderer engaged by the

relevant government authority.

2. Enterprises that fulfil the criteria as set out in the tender document prepare and submit the

tender bid within a specified time.

3. The tender bid will then be assessed by the tenderer engaged by the government. A bid

evaluation committee will be established, comprising experts selected randomly from a pool

of experts by the tenderer engaged by the government, to perform the evaluation.

4. Once the bid evaluation process is completed, the bid result will be released, and the tenderer

will give a bid winning notice to the successful bidder.

5. The successful bidder, upon the receipt of the winning notice, will sign a supply contract

with the relevant entity designated by the government.

In order to be in a position to participate in the tendering process for the production of ABS-s in the

PRC, one must possess the relevant governmental licences and permits. Generally, the tender document(s)

would specify the qualifications of the bidder and the quality and specification of the products required.

Before submitting a tender bid for ABS-s products in the PRC, we normally consider (i) the payment

terms, (ii) the quantity of the products that needs to be delivered, (iii) the delivery time of the products,

and (iv) the aftersales service required, as specified in the tender document.

During the Track Record Period, we submitted tender for 19 projects in which we were successful

in 15 of them, which was about 79%.

SX-1-13

BUSINESS

123

Customers

We mainly had 19, 14, 28 and 28 customers for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively. Our Directors have confirmed that (i) none of our customers during the Track Record Period were our distributors; (ii) we sold our products to them outright and without recourse, except where our products were returned for repair or replacement for quality reason; and (iii) a majority of our customers are recurring customers during the Track Record Period. Sales to our five largest customers accounted for approximately 87.8%, 88.2%, 71.4% and 69.7% of our total turnover, respectively, and sales to our largest customer accounted for approximately 28.6%, 32.0%, 32.1% and 35.6% of our total turnover, for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

The table below set out the background information of our top five customers during the Track Record Period:

Year/period being top five customers of the Company

Years of business relationship with

the Company Background Information

Customer A 2010, 2011,2012 and the three months ended 31 March 2013

12 Principally engaged in the manufacturing and marketing of consumer electronics under its brand name worldwide

Customer B 2010, 2011and 2012

6 Principally engaged in broad range of businesses, including the electronics business of television, digital imaging and mobile communications devices under its brand name

Customer C 2012 3 Principally engaged in the production and sells electronic products worldwide

Customer D 2012 and the three months ended 31 March 2013

3 Principally engaged in the development, manufacture and sales of electronic products under its brand name primarily in Japan, North America, Europe and China

Customer E 2010, 2011 and 2012 4 Principally engaged in the production and sale of consumer electronics, mobile communications and home appliances under its brand name worldwide

Customer F 2010 and 2011 7 Principally engaged in the research and development, manufacture, and sale of electronic and electric products worldwide

Customer G 2010 and 2011 2 Principally engaged in the manufacturing and product assembly services

Customer H the three months ended 31 March 2013

1 Government authority engaged in monitoring of broadcasting activities in the PRC

Customer I the three months ended 31 March 2013

4 Principally engaged in design, development, manufacture and sales of audio products and electronic systems worldwide

Customer J the three months ended 31 March 2013

1 Government authority engaged in monitoring of broadcasting activities in the PRC

A1A 28(1)(b)(iii)A1A 28(1)(b)(iv)

SX1-5

SX2-5

BUSINESS

124

Save and except for Customer G (which is a subsidiary of TCLM in Poland and further details of which are disclosed below), none of our top five customers during the Track Record Period had ever ceased purchasing from our Group up to the Latest Practicable Date.

Although our top five customers during the Track Record Period are mainly from Europe and Japan, the relatively weaker market performance in these regions is not considered material to our sales volume and sales revenue. This is primarily due to the reason that we have diversified our product portfolio (from DVD Players to different kinds of AV Products such as HTS, new audio products), which help us secure more orders of different products from our existing customers in Europe and Japan, despite the amount of single order might have decreased. In addition, according to the Euromonitor Report, more consumer electronics brand companies choose to outsource production to ODM/OEM partners so as to reduce their costs and focus more on the sales and marketing. Our top five customers, especially the European and Japanese customers also follow the market practice and this has positive impact on our results. During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, sales revenue from our top five European and Japanese customers represented approximately 77.5%, 81.4%, 70.5% and 53.4% of our turnover respectively.

Save and except for a customer which is a subsidiary of TCLM in Poland, none of our Directors, their respective associates or shareholders holding more than 5% of the issued share capital of our Company, held any interest in our five largest customers during the Track Record Period and up to the Latest Practicable Date. Our Group sold components and parts to a subsidiary of TCLM in Poland for its further assembly into finished products and supply of such finished products to an overseas buyer designated by our Group during the two years ended 31 December 2011. Our sales to such subsidiary of TCLM in Poland had been gradually reduced in 2011 and were terminated in the year ended 31 December 2012, and since 2011, our Group has been selling components and parts to an Independent Third Party in Indonesia for its further assembly and supply of finished products to such designated buyer. For further details, please see “Relationship with the Remaining TCLM Group and the Controlling Shareholders – Transactions with the Remaining TCLM Group during the Track Record Period” and “Continuing Connected Transactions – Continuing Connected Transactions Subject to the Reporting, Announcement and Independent Shareholders’ Approval Requirements – 2. Master Sale and Purchase Agreement” in this listing document.

Seasonality

Historically, our sales were subject to seasonality. Revenue fluctuations throughout the year are common in the AV Product industry which is subject to the seasonal purchase patterns of customers and end-consumers. We generally experience higher sales in the third quarter of the year where our customers place purchasing orders with us in anticipation of stronger market demand for their products during Christmas and the Chinese New Year. Please refer to “Risk factors – Seasonal fluctuation of demand for our products may materially and adversely affect our financial condition and results of operations” in this listing document for further details of the risk associated with the seasonal pattern of our business.

ODM BUSINESS

Framework agreement

We generally enter into legally binding framework agreements with our customers, and may enter into supplemental agreement(s) or issue purchasing orders setting out the detailed terms of sales when our customers are prepared to make purchase with us.

SX1-5(i)

SX1-5(ii)

SX2-5

A1A 28(1)(b)(v)

SX1-13

BUSINESS

125

The framework agreements entered into with our customers for the sales of AV Products (excluding TV sets) generally have an initial term of 1 to 3 year(s). Unless terminated in advance by the parties, such framework agreements will be renewed automatically for another one year period. Such framework agreements and the supplemental agreements (if any) signed with other customers usually set out the terms including payment terms, price adjustment mechanism, product design liabilities of the parties, specifications of the products purchased, lead time, delivery arrangements, standards for quality of products, product warranty and use of intellectual property rights. Generally, no minimum purchase amount or quantity is contained in these agreements. During the Track Record Period, there was no material breach of these agreements by us or by our customers that would have material adverse effect on our business, results of operations or financial condition.

Pricing

When pricing our ODM products, we take into account various factors such as market situation, customer relationship, credit granted, product specifications, transportation, mode of delivery, production cost, licensing costs, packaging requirements, quantity and together with research and development costs. We review product prices at least every quarter of the year.

Generally, our major customers regularly provide us with fixed-term non-binding rolling forecasts on the quantity of products required and purchase may be made by them according to the procurement schedule over a fixed period of time. In order to support our customers’ business and maintain our own competitiveness in the industry, usually before the start of production of each particular type of product and each year thereafter we generally would negotiate with our customers for a non-binding target discount rate of the selling price to be achieved for a fixed period of time. Our Company would then try to ease the impact of such proposed discounted selling price by negotiating with our suppliers at an early stage to lower our costs and to adopt other costs saving measures, including improving our production and management efficiency in the production process. Depending on whether our Company could lower our expected costs and taking into account other pricing factors mentioned above, our Company would finalise with our customers on the actual discount rate (usually ranges from 3% to 6%, if any) to be given. For details of the movements of the selling prices of our products during the Track Record Period, please refer to the section headed “Financial Information – Review of Historical Results of Operations” in this listing document.

Credit policy

With respect to our existing customer, corresponding credit limit may be granted to them in

accordance with our credit assessment and policy. Credit limit may be granted to our major customers

which is generally determined by reference to their volume of and our business relationship with them.

In general, we issue invoice upon despatching products or the receipt of products by customers. We

take out insurance from China Export & Credit Insurance Corporation in China with respect to all of our

invoices issued by us to our customers for export sales. Such insurance covers the bad debts arising from

default payment by our customers for export sales, their bankruptcy and overseas political reasons. We

generally grant to all ODM customers a credit period ranging from 15 days to 4 months. For customers

that are not granted with credit period, we require them to settle payment before delivery by means of

prepayments, letters of credit or telegraphic transfer.

SX1-13

SX2-13

BUSINESS

126

We review overdue balances and our receivable balances on an ongoing basis and an assessment is made by our management team as to whether or not a provision for impairment of trade receivables should be made. For further details of our policy on provision for impairment, please see the section headed “Financial Information – Analysis of Selected Combined Statement of Financial Position Items – Trade Receivables Analysis” in this listing document.

Save and except for one incident in year 2012 where one of our customers reduced and deferred its order for BD Players due to market situation, during the Track Record Period, we did not experience any cancellation, reduction or deferral of orders other than those which occurred in the ordinary course of business and which had material impact on us, or any bankruptcy or default on the part of any of our ODM customers, nor was there any claim records with the China Export & Credit Insurance Corporation in China. The incident caused the products concerned became obsolete and such obsolescence losses in the amount of US$0.87 million were fully provided for the year ended 2012.

For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our trade receivable turnover days were 53 days, 44 days, 65 days and 88 days respectively. As of 31 December 2010, 2011 and 2012 and 31 March 2013, our trade receivables amounted to approximately HK$509.7 million, HK$467.8 million, HK$825.2 million and HK$914.4 million respectively. For details of the analysis of our trade receivables, please refer to the section headed “Financial Information – Management Discussion and Analysis” in this listing document.

Export and logistics

During the Track Record Period, we exported products to overseas markets (including Australia, Canada, the US, South Africa and Malaysia) as required pursuant to the contracts entered into with our customers. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, export sales accounted for approximately 94.1%, 99.7%, 89.6% and 66.2%, respectively, of our total revenue respectively.

Almost all of our ODM products are sold to our major customers on the basis of FOB at various ports in Shenzhen as designated by our customers. Unless otherwise as specifically required in the contracts with our customers, we are normally only responsible for the delivery of products to various ports in Shenzhen as designated by our customers, and such customers are responsible for product transportation arrangements and import tariff beyond the ports.

As to the local delivery of products, we generally engage third party logistics companies to deliver our products to the customers. Such logistics companies generally bear the risks relating to delivery. During the Track Record Period, we did not incur any liabilities or losses due to delay in delivery that could have a material adverse impact on our results of operations or financial conditions.

After sales services

For the sales of our ODM products, generally we are responsible for the costs and expenses arising from such number of defective products that exceeds the quality allowance during the warranty period as agreed between the parties at the time of delivery. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, we made provisions for the expenses incurred by product maintenance, repairment and replacement pursuant to the agreements entered into with our customers of

SX2-13

BUSINESS

127

approximately HK$38.3 million, HK$43.3 million, HK$37.2 million and HK$10.5 million, respectively.

For details, please see “Financial Information – Analysis of Selected Combined Statements of Financial

Position Items – Provisions” in this listing document.

During the Track Record Period, save as mentioned above, we did not have any products recall or

return, nor were we made subject to any product liabilities or other claims or investigations arising from

any product quality issues, which would have any significant adverse effect on our results of operations or

financial conditions.

Foreign exchange hedging

As an ODM enterprise serving internationally renowned companies, a substantial portion of our

business are materials import, processing and export business and export settlements are all denominated

in US dollars. As our operating entities are located in Mainland China, except that part of the raw

materials purchased outside China are denominated in US dollars, other expenses are denominated in

RMB. Accordingly, there is a higher proportion of exposure to US dollars settlements. Although our

presentation currency is Hong Kong dollars, we closely monitor the movements in the exchange rate of

USD against RMB and conduct foreign exchange hedging transactions in stages and batches to reduce the

volatility risks of USD against RMB.

Our foreign exchange hedging strategies are as follows:

1. Conduct forecasts on the exchange income and expense amounts and net exposure thereof for

the year based on the operating budget, receivables turnover days and payables turnover days

of the foreign exchange business for the year; and update the rolling forecasts every three

months according to the actual operating conditions.

2. We usually use forward-foreign exchange contracts to hedge against the exposure in

foreign exchange transactions. In order to hedge against the exposure in foreign exchange

transactions, we will also select other foreign exchange derivative contracts such as foreign

exchange combined options, interest rate or currency swap contracts.

3. We enter into forward-foreign exchange contracts or foreign exchange combined option

contracts to hedge against the foreign exchange exposure.

4. We use forward hedging combinations (simultaneously enter into two forward contracts

with the same point of time of settlement but in opposite directions) to hedge against the

overlapping exposure in the receipts and payments and recognise gain on hedging as a result

of certain differences between the spot price or the future price at the same point of time in

different foreign exchange markets.

5. We will have certain restrictions on the transaction amount based on the length of the

remaining period of payment.

6. The pricing terms of our export business will be determined on the basis of the foreign

exchange derivative contracts entered into between us and the counterparties, such as pricing

of forward transactions, to achieve the purpose of hedging.

BUSINESS

128

7. Given our import and export trading background, we will make use of the exchange rate and interest rate differences of different foreign exchange markets and different currencies, and recognise gain on hedging through entering into contracts of combined financial products with the banks of counterparties.

8. We will adopt strategies of reverse closing or early settlement to manage risks in a timely manner in the event of volatile movements in the foreign exchange transaction market.

We have a professional team of foreign exchange risk management where members, the chief financial officer and the finance manager of which possess extensive experience in foreign exchange risk management and transactions. They monitor closely the global foreign exchange and financial landscape on a daily basis. Our chief financial officer and finance manager monitor our foreign currency hedging activities based on the internal foreign exchange hedging policies on a real-time basis. We also have established a relatively comprehensive annual foreign exchange hedging plan and the approval procedures for single transaction business.

With respect to the annual plan, at the end of each year, our foreign exchange risk management team will prepare the annual foreign exchange risk management plan according to the operating forecasts, proposed by the finance manager and then submitted the same to the chief financial officer for approval prior to submitting to the Board for approval.

In addition, our foreign exchange risk management team obtains the USD/RMB spot exchange rate and forward exchange rate in the foreign exchange markets in mainland China and Hong Kong from the banks of different foreign exchange counterparties on a daily basis. We consider each foreign exchange transaction by taking into account various factors including future USD settlement exposure, exchange rate and financial conditions. We can only conduct the transaction with the banks of our counterparties after being approved by the chief financial officer and the finance manager who have conducted risk assessment on the transaction and made implementation decision. Once the foreign exchange contract entered into with the banks is implemented, the transaction will be included in the bank and financial statements of the company. The foreign exchange risk management team will also monitor the settlement of foreign exchange contracts on pre-determined date of settlement and prepare a monthly settlement record on the profit or loss for the period of the completed contracts.

We recognized unrealized fair value gains on derivative financial instruments of HK$0.2 million, HK$2.1 million and HK$20.4 million for each of the three years ended 31 December 2010, 2011 and 2012, respectively. We recognized unrealized fair value losses on derivative financial instruments of HK$6.2 million for the three months ended 31 March 2013. We also realized a gain on settlement of derivative financial instruments of HK$11.2 million, HK$32.2 million and HK$30.7 million and HK$11.0 million for each of the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

In the future, we intend to continue to conduct foreign-exchange and interest rate hedging transactions in compliance with our internal policies and controls. We cannot assure you, however, that such transactions will be risk-free, and any loss resulting from such transactions may materially and adversely affect our financial condition and results of operations. See section headed “Risk Factors – We are subject to risk of currency fluctuations and any ongoing hedging transactions may not fully shield us from foreign-exchange fluctuations” in this listing document.

BUSINESS

129

RESEARCH AND DEVELOPMENT

We believe that research and development is fundamental to maintaining our competitiveness and sustaining our continuous growth. We currently focus on the research and development of new products, new technologies and new processes, with a view to providing better delivery time, cost management and product quality as well as reducing the risks associated with applying new technologies and new processes and launching new product platforms. We will, based on the development of the market, products and technologies, project development trend of new technologies, new processes and new product platforms, and formulate the relevant technology and platform development planning as well as developing and reserving various relevant resources early. Since 2008, we have successfully and rapidly expanded the business of BD Players and audio related products which we believe, is partly attributable to and based on our early market research and the preparation of platform and technologies.

We possess advanced research and development facilities and capabilities in various aspects of the AV Product business. We will be equipped with an advanced acoustic laboratory at our new production facility. In addition, we are able to independently carry out pre-testing of Dolby and DTS certification testing. Our laboratory for mechanical parts can quickly conduct preliminary simulation and verification of mechanical parts. At the same time, we have a comprehensive power supply test device and testing system.

Research and development team

We have an outstanding research and development team and have established research arms in Huizhou, Shenzhen and Xi’an:

Our research team in Huizhou is principally responsible for the research and development of customised products and new product introduction. We established a new electroacoustic products development group in 2012, including senior experts from Japan. Adjacent to the production base, such research team works in a way that provides rapid on-site service and on-site trouble shooting.

Our research team in Shenzhen is principally responsible for the planning and preliminary development for future technology platforms. Leverage on the geographical advantages of Shenzhen, it can quickly grasp the most state-of-the-art technologies and the latest information in the industry. We have established a Shenzhen-based research and development team specialising in advanced technologies and platforms.

Our research team in Xi’an is principally responsible for the development of software. Given abundant high-calibre human resources in Xi’an, to cope with the transformation towards multi-media and internet applications, we established an advanced technology-based software development team in Xi’an in 2012.

As at 31 March 2013, our professional research and development team comprised a total of 525 members. Approximately 85% of them possessed a bachelor’s degree or above, including 24 master’s degree holders and one doctorate degree holder, three of which were research and development expatriates. We believe that we enjoy competitive strengths over the size and overall capability of development personnel, so that we can smoothly adapt our business to the AV segment in face of challenge and achieve breakthroughs rapidly.

A1A 28(5)

BUSINESS

130

The following table sets out the number of our new products developed during the year ended 31 December 2012 and the three months ended 31 March 2013:

No. of base models For the year For the 3 monthsProduct type ended 31 December 2012 ended 31 March 2013

Video products 38 9Audio products 21 8

Total 59 17

The following table sets out our research and development expenses and its percentage to sales our total revenue during the Track Record Period:

For the year Total research and development expenses Percentage toended 31 December at the end of the relevant years sales revenue (HK$ million) (%)

2010 70 1.92011 90 2.22012 157 4.32013 (for the 3 months ended 31 March 2013) 42 4.7

INTELLECTUAL PROPERTY

We use in our production various product designs technologies and manufacturing know-how that were developed by us or third parties through licensing arrangement. We non-exhaustively rely on the laws and regulations of patent, copyright and trademark, as well as confidentiality agreements signed by our senior management and key research and development personnel to protect our intellectual property rights.

We have made efforts to obtain intellectual property protection for some of our products and production know-how, and as at the Latest Practicable Date, there were a total of 160 patents applied by us for registration in China and 73 of them had been registered, to protect our proprietary processes and technologies against claims or infringement by third parties. In addition, since we use intellectual properties owned by third parties under the licensing agreements, there is no assurance that we will not in the future be subject to legal proceedings and claims from time to time relating to our use of intellectual property rights of others in the ordinary course of our business. Please refer to “Risk factors - Limits on intellectual property protection may make us vulnerable to competition from third parties that use our technology and expertise“ and “Risk factors - Our future products and technologies might later be found to have infringed upon a third party’s intellectual property rights, and any successful infringement or licensing claims against us may adversely affect our results of operations and reputation” in this listing document for details of the relevant risk profile.

The following table illustrates the number of patent applications accepted during the year ended 31 December 2010, 2011 and 2012 and for the period from 1 January 2013 to the Latest Practicable Date. Further details of the intellectual property rights of our Group are set out in the section headed “Further Information about the Business of Our Company – Material intellectual property rights of our Group” in Appendix V to this listing document.

BUSINESS

131

Statistics on the number of accepted annual patent applications

For the period from 1 January 2013 to the Latest For the year ended 31 December Practicable 2010 2011 2012 Date Total

Inventions 3 4 34 3 44Utility models 7 13 67 9 96Designs 0 0 7 5 12

Total 10 17 108 17 152

During the Track Record Period and up to the Latest Practicable Date, we were not involved in any infringement of other’s intellectual property or infringement of our intellectual property by others that would have a material adverse impact on our business and we were not involved in any proceedings involving infringement of intellectual property rights.

QUALITY CONTROL

We emphasise stringent quality control over our products. We believe that product quality is of utmost importance to our business and have implemented a comprehensive quality control measures. Our quality control measures cover all stages of our operations, from product development, trial and mass production, shipping to the final stage of user feedback, which are being effectively monitored. Our well-established quality assurance system framework ensures our products to be of consistently high quality.

Our quality control team is made up of five divisions. The quality director of our quality control team is directly accountable to our chief executive officer. As at 31 March 2013, our quality control team had approximately 370 members, among which 179 had obtained tertiary qualifications or above. All of them could only report to work after completing the required training.

Our Company has established a sound quality assurance model to monitor quality activities throughout the stages of product development, from product planning, product development (project argumentation, planning, design and development, validation and release) to mass production, as well as monitoring the quality of components and the corresponding suppliers. We also monitor the processes and the quality of our shipments upon mass production and gather customer feedback when our products are delivered to the market, hence forming a PDCA closed-loop mode. Meanwhile, the management engineering department monitors the operation of the entire system of our Company and evaluates the effectiveness of the various systems in operation, providing product quality services.

Supplier quality management

We pro-actively identify our customers’ requirement of product quality at the early stage of product development, and transform such requirement into internal requirements and formulate specific quality plans. At the same time, we implement assessment and validation of the quality of our products at various stages to ensure the quality of output across stages of product development.

BUSINESS

132

We have a sound quality management model for suppliers and procurement of components. Before a new supplier is introduced, an investigation of the supplier’s background information, a comparison of qualifications and an onsite visits are normally conducted by us and thereafter a quality assurance agreement, a purchasing agreement and statement confirming the suppliers’ compliance with our environmental requirements are signed by the potential supplier which fulfils our requirements. The supplier will only be included in our list of suppliers after it has been approved by our components committee. If the brand image of our Company and our customers is affected by market complaints as a result of failure of components due to quality reasons, we reserve our right to claim against the relevant suppliers in accordance with relevant agreements or quality control agreements.

Product quality management

We actively gather customer feedback to establish an after-sales database and analyze the market information gathered to promote the improvement of internal quality. At the same time, we timely identify market and product serviceability requirements and formulate strategies on customer service and technical support.

Our plants and relevant facilities are inspected by various levels of PRC national quality inspection agencies in China on a regular basis to ensure that we comply with the Chinese product quality laws and regulations. Since 2001, our products have been in line with the standards of the relevant product quality and technology in the inspection of relevant agencies. During the Track Record Period we had not been administratively sanctioned as a result of any breach of product quality laws and regulations.

We value the establishment of various management systems. Some advanced concepts assimilated in the process of cooperation with major international customers have inspired the continuous improvement of our quality control. The major system certifications we have obtained so far are: ISO9001, ISO14001, QCO80000, OHSAS18001 and TS16949, as well as GP and OEM GP certificates awarded by our customers.

During the Track Record Period and up to the Latest Practicable Date, there was neither any incident of failure of our quality control systems which had a material impact on us nor any substantial product quality claims against us from our customers.

AWARDS, RECOGNITIONS AND CERTIFICATIONS

We obtained various awards from governments and other authorities in the period from 2004 to 2013 and details of the awards obtained are set out in the list as follows:

Year(s) of Awarding organisationaward Award or institution

2013 2012 Advanced Unit of Huizhou Federation of Trade Union

Grassroots Trade Union of Huizhou

TCL Technoly Electronics (Huizhou) China Radio & Television

Co., Ltd. was awarded the Scientific Equipment Industrial Association

and Technological Innovation Award

in 2012 for its advanced broadcasting

satellite system integrated receiver

decoder

BUSINESS

133

Year(s) of Awarding organisationaward Award or institution

TCL Technoly Electronics (Huizhou) China Radio & Television

Co., Ltd. was awarded the Equipment Industrial Association

Scientifically and Technologically

Innovative Enterprise Award in 2012

2012 Awarded the First Prize for Outstanding China Quality Management for

Quality Management Circle Electronics Industry

(QCC Award) in China’s Electronic

Information Industry

Best Outdoor Advertising Award, CCBN Organising Committee

Best Science and Technology

Application Award and recommended

on the exhibition booths shortlist in the

third session of CCBN Creative

Design Contest

Accredited Regional Advanced Work The People’s Communist Party

Unit Award Huizhou Zhongkai High Tech

Park Committee

Passed the technical check of “Hu Hu Tong” Office of Ningxia Digital Broadcast

by Ningxia Digital Broadcast Satellite Satellite Public Service in

Public Service and commencement of Ningxia Hui Autonomous Region

“Hu Hu Tong” in the area

2011 Contract-abiding and Trustworthy Enterprise Huizhou Administration for

Industry and Commerce

2009 Appointed Executive Director of the China Audio Industry Association

Eighth Council of China Audio Industry

Association

2009 Accredited as a CHC State High Tech Products

State Quality Trustworthy Unit Quality Monitoring and

Advancing Work Committee

2007 Awarded the 2007 Enterprise The People’s Government of

First Merit Award for Huizhou City

Large Exporter

2005 Awarded the 2005 Top 100 Export Enterprise Huizhou External Trade and

Economic Cooperation Bureau

Accredited as a High and New Technology Guangdong Provincial Department

Enterprise Certification Award of Science and Technology

2004 Awarded the 2004 Enterprise The People’s Government of

Contributory Award for Large Exporter Huizhou City

from Huizhou

BUSINESS

134

The following table sets out major industry recognitions received by us or our senior management:

Participant in its/his capacity or on behalf ofYear our Group Title Organisation

2009 Yu Guanghui “Star of Business Venture” of the The People’s 2nd Outstanding Contribution Government of Talent Award in Huizhou City Huizhou City

The following table sets out our major certifications:

IssuingYear of organisation orgrant Nature Recipient Certification authority Validity period

2012 Quality Management Shenzhen ISO9001:2008 SGS Certification 10 December 2012 System Certification Tongli Centre to 9 December 2015

2012 Automotive Quality TCL Technoly ISO/TS16949:2009 SGS Certification 10 December 2012 Management System Electronics/ Centre to 9 December Certification TCL 2015 Audio Video

2011 High-Tech Enterprise TCL Technoly High Tech Guangdong 13 October 2011 Certification Electronics Enterprise Provincial to 13 October 2014 Department of Science and Technology

2006 Hazardous TCL Technoly QC080000:2012 Guangdong CEPREI 6 November 2011 Substance Process Electronics/ Certification to 5 November Management TCL Centre 2015 System Certification Audio Video

2006 Occupational Health TCL Technoly GB/T28001/2001 Guangdong CEPREI 9 December 2011 and Safety Electronics/ Certification to 8 December Management System TCL Centre 2014 Certification Audio Video

2004 Environmental TCL Technoly ISO14001:2004 Guangdong CEPREI 17 August 2010 Management System Electronics/ Certification to 16 August 2013 Certification TCL Centre Audio Video

BUSINESS

135

IssuingYear of organisation orgrant Nature Recipient Certification authority Validity period

2002 Quality Management TCL Technoly ISO9001:2008 SGS Certification 10 December 2012 System Certification Electronics/ Centre to 9 December TCL ` 2015 Audio Video

COMPETITION

With the acceleration of the global AV industry upgrade and the product replacement cycle, the

AV industry is highly competitive and dynamic. We expect to face competition from other ODM/OEM

manufacturers, given that our customers generally stick to one group of ODM/OEM suppliers. We will

compete over production scale and processes, product innovation, research and development technology,

cost, price, marketing channels and other aspects. Apart from competition from the growing number

of AV Product manufacturers in China, we expect to face competition from manufacturers in other

regions, such as Asia (including Thailand, Indonesia and India) and South America, which have better

tax advantages and lower labour cost. Nevertheless, our Directors see little significance in competing

with low-end manufacturers, in particular producers without product design capabilities and vertically-

integrated production processes, given that we make AV Products (excluding TV sets) primarily for

world-renowned brands on an ODM basis and such products have a high value-added design and

competitive cost and are compliant with strict quality standards. Our directors believe that we will have

effective competition in the mid- and high-end manufacturing industries mainly through reasonable

pricing, quality products and flexible production as well as by providing our customers with high value-

added product solutions.

The DVD/BD player market is mature and highly competitive. We expect to compete with other

manufacturers in terms of cost and price. Given the global trend of gradual declining of DVD/BD Player

production volume, most of the international brands have withdrawn from such manufacturing business.

Hence, leveraging our Group’s leading position in the DVD/BD Player market, we believe that our

products will still be superior to those of other key competitors in terms of product quality and price and

our global market position will be continuously consolidated.

Audio products, especially new audio products, are currently in the phase of drastic growth. We

expect to face competition from other mid- and high-end manufacturers in terms of product design and

quality as well as advanced technology. However, we believe that, with our long-term cooperation with

customers of international brands, the leading position we have achieved will make us competitive in the

mid- and high-end markets.

Benefitted by the policies of the PRC government, the satellite receiver products market grew

rapidly during the Track Record Period. As manufacturers mainly get orders through tender, opportunities

are plenty despite fierce market competition. We compete with other bidders mainly in terms of our

experience and strength in ODM as well as the provision of cost-effective products.

BUSINESS

136

STAFF

As at 31 March 2013, we had signed labour contracts with 3,279 staff members (who were

our employees) out of our total 3,407 staff members, whereas the remaining 128 staff members were

despatched through employment agencies. The following table shows the breakdown of our employees

and staff members despatched through employment agencies, by function, as at 31 March 2013:

Number of employees

Sales 61

Research and development 525

Production 2,071

Quality control 370

Supply chain 283

Administration and management 97

3,407

As at 31 March 2013, 3,279, or approximately 96.2%, of our total staff members had signed direct

employment contracts with us. The remaining 128, or approximately 3.8%, of our total staff members had

entered into separate employment agreement with the relevant employment agencies and we, in turn, had

entered into separate back-to-back agreements with such agencies. As at the Latest Practicable Date, we

had engaged four employment agencies, which were Independent Third Parties, to avoid reliance on any

single employment agency. According to the back-to-back agreements entered into between our Group

and the employment agencies engaged by us, we agree to pay salaries to the staff members despatched

by the employment agencies directly and the employment agencies agree to sign labour contracts with

these personnel directly, provide benefits and make contributions to the relevant funds for such personnel.

Our Directors are of the view that we can optimise administrative costs in human resources by obtaining

addition workforce through employment agencies to solve temporary labour shortage, especially during

the peak season. The use of employment agencies can also ease our administrative burden by requiring

these employment agencies to be primarily responsible for the payment of social insurance and housing

fund contributions to personnel despatched by them.

Our PRC legal advisers have opined that the staff members despatched by the relevant employment

agencies are their own employees. Our PRC legal advisers have further confirmed that our entering into

of the back-to-back agreements with such employment agencies do not contravene the relevant labour

laws, rules and regulations of the PRC, including but not limited to the PRC Labour Law and PRC Labour

Contract Law.

A1A 28(7)

BUSINESS

137

As confirmed by our PRC legal advisers, in the case where the relevant employment agencies fail to fulfil their obligations to make social insurance or housing fund contributions for the staff members despatched by them to us, these staff members have no cause of actions against us under the PRC laws and regulations for breach of the obligation to make social insurance and housing fund contributions by their employers. Our PRC legal advisers have also confirmed that we have provided benefits and made contributions to the relevant funds in accordance with the applicable laws and regulations in the PRC for the staff members who are our employees in all material respects. There were no major disputes between our Group and our staff members (whether employed by us or despatched by the employment agencies) during the Track Record Period.

All of our staff members are paid a fixed salary and a bonus depending on their performance. Our staff members are also granted other allowances based on their positions. We regularly review compensation and benefit policies to ensure that our practices are in line with market norms and relevant labour regulations. For each operating unit, different and specific ways of performance evaluation are used. Incentives and bonuses of staff members are calculated based on their position, year of service as well as our assessment of their individual performance.

Our PRC legal advisers have confirmed that salaries paid to our staff members comply with the local statutory minimum wage requirement.

We provide regular training to our staff members to keep them informed of the latest developments of our products and production process. We also arrange training for our sales teams in the area of sales technique.

Social insurance and housing fund contributions

Under the Social Insurance Law of the PRC (中華人民共和國社會保險法), employers are obliged to make contributions to, and employees including migrant workers from rural areas are required to participate in, all social insurance schemes, which include basic pension insurance, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance schemes. Further details relating to the PRC laws and regulations on social insurance and housing funds contributions by the PRC entities are set out in the section headed “Regulations – Labour Laws and Safety Matters” in this listing document. We are a typical manufacturing enterprise mainly employing migrant workers from rural areas and temporary workers, which normally have high mobility and different levels of acceptance of the social insurances and housing fund systems. Thus, during the Track Record Period, we had contributed to social insurance and housing funds for employees to the extent accepted by the local authorities where we operate our business. We have been making payments to selected social welfare schemes, based on the local interpretation and implementation of relevant social insurance and housing fund policies and regulations by the local authority. Our contributions to such social welfare schemes are charged to the consolidated profit and loss account as and when incurred.

With respect to our key operating subsidiaries, namely, TCL Technoly Electronics and TCL Audio Video, the Social Security Management Bureau of Huizhou City (惠州市社會保險基金管理局) issued written confirmations in March 2013 and June 2013 stating that, amongst others, (a) the relevant government bureau understands the number of staff members who have participated in the scheme, the salary and amount of social insurance contributions made by these entities for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 and that it agrees to the manner of contributions made by such entities, and such entities will not be required to make any further contributions or any amount for late payment; and (b) such entities have complied, and made social insurance and other insurance contributions in accordance with, the relevant social insurance policies and regulations.

BUSINESS

138

Additionally, the Housing Fund Management Center of Huizhou City (惠州市住房公積金管理中心) issued written confirmations in March 2013 and June 2013, stating that (a) it understands the number of staff members who have participated in the scheme, the salary and amount of housing fund contributions made by TCL Technoly Electronics and TCL Audio Video for the years ended 31 December 2010, 2011 and 2012, and the three months ended 31 March 2013 and that they agree to the manner of contributions made by these entities and such entities will not be required to make any further contributions or any amount for late payment; (b) such entities have made housing funds contributions in accordance with the relevant housing fund regulations; and (c) such entities were not involved in any investigation or administrative penalty by the relevant government bureaus in connection with housing fund contributions. Our PRC legal advisers have opined that the Social Security Management Bureau of Huizhou City (惠州市社會保險基金管理局) and the Housing Fund Management Center of Huizhou City (惠州市住房公積金管理中心) are the competent government authorities in making the relevant confirmations.

During the Track Record Period and up to the Latest Practicable Date, we had not received any complaint from our employees for lack of contributions for social insurance or housing funds nor had we received any notice or legal documents from the regulatory authorities of social insurances or housing fund requesting contributions for the relevant insurance or funds. According to clause 20 of the Labour and Social Security Inspection Ordinance, any violation or breach of the labour and social security laws and regulations which have not been discovered or charged by, or complained to the administrative office of the Labour and Social Security Bureau within two years of such violation or breach, the Labour and Social Security Authority will not pursue further actions. According to clause 27 of the Labour Dispute Mediation & Arbitration Law, the right to claim under arbitration is within one year since the claimant’s knowledge of the infringement of such rights.

As opined by our PRC legal advisers, based on the letters of confirmations received from the relevant local government authorities, their enquiries with such local authorities and their consideration of the implementation of the applicable laws and regulations by such local authorities, our key PRC operating subsidiaries, namely TCL Technoly Electronics and TCL Audio Video, will not be claimed or penalized by the relevant governmental authorities for any further contributions or any amount for late payment, and save as the above and the disclosures under the sub-section headed “Regency Optics-Electron” in this section in this listing document, during the Track Record Period, all of our PRC subsidiaries complied with the applicable laws and regulations in connection with social insurance and housing fund in all material respects.

Our Directors have further confirmed that, in the event that we are required to make retrospective contributions to social insurance and housing fund for our employees, it would not have material adverse effect on us.

Please refer to “Risk factors – Uncertainties regarding interpretation and enforcement of the PRC laws and regulations may impose adverse impact on our business, operations and profitability” in this listing document for the risk associated with the potential difference in the interpretation of the relevant laws and regulations by governmental authorities and possible claims by our employees against us on the same matter. Our Controlling Shareholders, TCL Corporation and T.C.L. Industries, have given an indemnity to each members of our Group against, among others, all claims, actions, losses, damages, costs or expenses suffered or incurred by any of the members of our Group in connection with the social insurance and housing funds required to be made by the relevant laws and regulations in the PRC, which any member of our Group has failed to make in accordance with such laws and regulations from their respective date of establishment to the Listing Date.

BUSINESS

139

Regency Optics-Electron

In December 2012, we acquired 60% shareholding in Regency Optics-Electron by way of capital contribution and became its controlling shareholder since then. We are aware that Regency Optics-Electron did not contribute the social insurance and housing funds for its employees in full prior to completion of our acquisition of 60% shareholding in Regency Optics-Electron and we have sought an undertaking from the then existing shareholders of Regency Optics-Electron that any loss or liability which may be incurred as a result of events taken place before 1 December 2012 (whether such events are discovered before or after such date) will be borne by them in full. Our PRC legal advisers have opined that since December 2012, Regency Optics-Electron has complied with the applicable laws and regulations in connection with social insurance and housing funds in all material respects. Our Directors have confirmed that, in light of the above, the irregularities of Regency Optics-Electron in social insurance and housing fund contributions prior to December 2012 are not expected to have any material adverse effect on us.

With respect to Regency Optics-Electron, the Social Security Management Bureau of Huizhou City (惠州市社會保險基金管理局) issued a written confirmation in June 2013 stating that, amongst others, (a) the relevant government bureau understands the number of staff members who have participated in the scheme, the salary and amount of social insurance contributions made by these entities for the three months ended 31 March 2013 and that it agrees to the manner of contributions made by such entities, and such entities will not be required to make any further contributions or any amount for late payment; and (b) such entities have complied, and made social insurance and other insurance contributions in accordance with, the relevant social insurance policies and regulations. Additionally, the Housing Fund Management Center of Huizhou City (惠州市住房公積金管理中心) issued a written confirmation in June 2013, stating that (a) it understands the number of staff members who have participated in the scheme, the salary and amount of housing fund contributions made by Regency Optics-Electron for the three months ended 31 March 2013, they agree to the manner of contributions made by these entities and such entities will not be required to make any further contributions or any amount for late payment; (b) such entities have made housing funds contributions in accordance with the relevant housing fund regulations; and (c) such entities were not involved in any investigation or administrative penalty by the relevant government bureaus in connection with housing fund contributions.

We maintained good working relationships with our staff members during the Track Record Period. We believe that our management policies, working environment, staff development opportunities and benefits have contributed to building good staff relations and retention of our staff members. During the Track Record Period, our staff members did not participate in any collective bargaining of terms and conditions of employment through any trade union or group. As at the Latest Practicable Date, we had not experienced any labour shortage, strikes or any labour disputes with our employees which would have a material impact on our business.

OCCUPATIONAL HEALTH AND SAFETY

We are subject to the PRC Production Safety Law, PRC Labour Law and other relevant laws, administrative regulations, national standards and industrial standards which stipulate the requirements to maintain safe production conditions and to protect the occupational health of employees. Pursuant to these requirements, any entity that is not sufficiently facilitated or equipped to ensure safe production shall not engage in production and business operation activities. Entities operating in the PRC must provide production safety education and training programmes, as well as a safe working environment to employees. The design, manufacture, installation, use, inspection and maintenance of production facilities and equipment are required to conform to applicable national or industrial standards.

We have implemented safety measures at our production facilities to ensure compliance with applicable regulatory requirements and to minimise the risk of injury of employees. We conduct periodic inspections of operating facilities to ensure that our production operations are in compliance with existing laws and regulations. We also require safety performance reports to be submitted on a regular basis and conduct regular training sessions for employees at our production facilities on accident prevention and management. Further, we require new employees to receive work safety training and personnel operating specialised equipment to possess necessary certifications required by the relevant laws and regulations. We have installed safety devices such as work station ventilation system, central air-conditioning and pipeline system, smoke detectors and combustible gas leakage detectors. We have also established strict rules and guidelines for work safety and occupational health safety and obtained GB/T28001/2001 Occupational Health and Safety Management System Certification. In addition, we have implemented a safety management system to ensure clear-cut responsibility and distinct function for our daily operation including training, supervision, examination, assessment and accident management.

BUSINESS

140

During the Track Record Period and as at the Latest Practicable Date, we did not experience any

material or prolonged stoppages of production due to equipment failure and we did not experience any

severe accidents during our production process. As at the Latest Practicable Date, our production facilities

had complied with all applicable laws, regulations and standards in the PRC.

ENVIRONMENTAL PROTECTION

We are subject to certain laws and regulations in relation to environmental protection. Please refer

to the section headed “Regulations” in this listing document for further information about these laws and

regulations.

We believe that our production processes do not cause any damages that have material adverse

impacts on the environment. We are subject to all national and local PRC laws and regulations relating to

environmental protection. In connection with our Company’s plants, we have to conduct environmental

impact assessments and obtain approval for the assessments before commencement of construction

as well as obtain acceptance certificate for completion of construction and fire safety of buildings

upon completion. We shall submit reports and obtain discharge permits from the relevant government

authorities in China for discharge of wastewater, gas pollutants and noise from our plants, and regularly

invite the inspection authorities of environmental protection in Huizhou to carry testing of our Company.

We also properly handle the hazardous solid wastes that arise in the course of production and engage

waste recovery companies to process such hazardous wastes. According to the written confirmation

issued by the relevant government bureau, we have complied with the relevant environment protection

policies and regulations and there were no breach or any administration penalty imposed by the relevant

government bureau.

Based on the past experience of our management, the nature of the industry and future development

trends in the industry, our Directors believe that our Group’s current environmental conservation facilities

are adequate to satisfy the relevant environmental laws and regulations and do not expect any major

or significant expenditures to be incurred in this respect. During the three years ended 31 December

2010, 2011 and 2012 and the three months ended 31 March 2013, our expenses directly incurred for

environmental protection were approximately HK$0.8 million, HK$0.2 million, HK$0.2 million and

HK$0.04 million, respectively. Those directly incurred environmental protection expenses included the

annual external assessment fee for environmental management system (ISO14001) and the fee for external

examination of the raw materials we used and prohibited substances in products manufactured by us. We

estimate that in 2013 and 2014, this kind of expenses will slightly increase compared to the level in 2012.

Our Directors have confirmed that, we did not violate any applicable environmental laws or

regulations in the PRC, nor were we subject to any material environmental claims, lawsuits, penalties

or administrative sanctions, and the operations of our Group were in compliance with the relevant

environmental regulations of the PRC during the Track Record Period in all material aspects. Our PRC

legal advisers have confirmed that we have currently obtained all environmental permits and approvals

necessary for conducting activities in our production facilities.

BUSINESS

141

INSURANCE

In accordance with the regulatory requirements of local governments in the PRC, we maintain

insurance that covers unemployment, pension, work-related injury, maternity and medical expenses for

our employees in the PRC. Furthermore, we maintain insurance policies which cover losses or damages

in respect of our buildings, machinery, equipment, inventories and loading and unloading during

transportation. At the same time, we maintain product liability insurance, export credit insurance and

business interruption insurance.

Our Directors believe that our Group’s insurance coverage is in line with industry practice. During

the Track Record Period and up to the Latest Practicable Date, our Group had not had any material claims

or liabilities arising from any accidents relating to our operations, nor did we experience any material

production interruptions or product liability incidents. In addition, we plan to purchase the relevant types

of insurance required for listed companies such as directors’ liability insurance upon Listing.

During the Track Record Period and up to the Latest Practicable Date, there had been no fire,

explosion, spill, corrosion, pollution, or other unexpected or dangerous accident causing personal injury or

death, property damage, environmental damage or business interruption which had a material effect on us.

PROPERTIES

Owned Properties and Land

As at the Latest Practicable Date, we held the State-owned land use right certificates to occupy one parcel of land in No. 37 Zhongkai High-tech Zone, Huizhou City, Guangdong Province, with a site area of approximately 46,245 sq.m. The buildings erected on such parcel of land have a total gross floor area of approximately 77,911.59 sq.m. As at the Latest Practicable Date, the Construction Land Planning

Permit (建設用地規劃許可證), the Construction Works Planning Permit (建設工程規劃許可證) and the Construction Works Commencement Permit (建築工程施工許可證) had been obtained by our Company for such parcel of land, and we had completed the fire inspection and applied for the building ownership certificate  in respect of the buildings erected thereon.  Our PRC legal advisers have confirmed that, based on the current development status, they are not aware of any foreseeable legal impediment for the Company to obtain the required building ownership certificate.

Leased Properties

As at the Latest Practicable Date, we leased the following five properties for production, office and storage use, with an aggregate gross floor area of approximately 113,276.63 sq.m.:

• Nos.12and13Districts,ZhongkaiHigh-techZone,HuizhouCity,GuangdongProvince

• BuziIndustrialZone,LilinTown,HuizhouCity,GuangdongProvince

• LilinTown,HuizhouCity,GuangdongProvince

BUSINESS

142

• RoomA1001, A1002, A1003, A1006 and a room on Level 10 and Basement 1, Block A,TCL Industrial Research Building, No. 006 Gaoxin South First Road, Nanshan District, Shenzhen City, Guangdong Province

• Level 5,YinghuadaResearch andDevelopmentBuilding,No. 50 JinyeFirstRoad,GaoxinDistrict, Xi’an City, Shaanxi Province

As of the Latest Practicable Date, the lessor of a property we leased (being Nos. 12 and 13

Districts, Zhongkai High-tech Zone, Huizhou City) could not produce to us title documents with respect

to the property. As at the Latest Practicable Date, such property had a gross floor area of approximately

64,497 sq.m., which was being used as our production plants, offices, warehouses and staff dormitories

and was therefore crucial to our business. Our PRC legal advisers have advised that the relevant lease may

be invalid under the PRC laws and regulations. Our Directors believe that in the event that we are required

to vacate such property, we can easily and quickly find alternative buildings for rent without any material

disruption to, or any material adverse impact on, our operations and financial condition. We are relocating

from our existing production facility to our new production facility, and have partially commenced

operations of such production facility. Upon the completion of the relocation, our existing production

facility will be closed and we will no longer use the aforesaid property, namely, Nos. 12 and 13 Districts,

Zhongkai High-tech Zone, Huizhou City. It is currently expected that the relocation of our production

plants will be completed around the end of August 2013 and the estimated expenses involved in such

relocation will be approximately HK$3.8 million. As at the Latest Practicable Date, our Directors were not

aware of any situation where we may be required to vacate the relevant property during the period of our

relocation.

Further, none of the leases with respect to our leased properties in the PRC have been registered

with the relevant PRC authorities. According to our PRC legal advisers, the relevant PRC authorities may

require us to apply for registrations of such leases within a stipulated period of time. If we fail to do so,

we may be liable to a fine of RMB1,000 to RMB10,000 per offended incident.

As advised by our PRC legal advisers, save as disclosed above, as at the Latest Practicable Date,

we had obtained all state-owned land use right certificates for all of our properties, and we are entitled to

occupy, use, transfer, lease, pledge or otherwise dispose of the land use rights in respect of the properties

held by us under the applicable PRC laws and regulations. Please refer to the “Property Valuation” set

forth in Appendix III to this listing document for further details of our properties.

LEGAL AND ADMINISTRATIVE PROCEEDINGS

Save as disclosed below, during the Track Record Period and up to the Latest Practicable Date,

there were no material legal proceedings, regulatory inquiries or investigations made or pending or

threatened against any member of our Group. Members of our Group may from time to time be subject to

various legal or administrative proceedings arising in the ordinary course of business such as proceedings

in respect of disputes with suppliers or customers, labour disputes or infringement of intellectual property

rights.

SX3-11

SX3-11

A1A 28(6)A1A 40

BUSINESS

143

No. Plaintiff DefendantCause of action

Subject matter and amount Progress

1. TCL Technoly Electronics

Dongguan Tianyang Electronics Co., Ltd.

（東莞天楊 電子有限 公司）(“Dongguan Tianyang”)

Dispute over quality claims

Payment of loss arising from quality issue amounting to RMB6.0 million

In the trial

2. Dongguan Tianyang

TCL Technoly Electronics

Dispute over sale and purchase agreement

Payment in the amount of RMB0.4 million and interests

In the trial

TCL Technoly Electronics brought a lawsuit before the People’s Court of Huicheng District, Huizhou City, Guangdong Province (the “Huizhou Court”) in November 2011, demanding Dongguan Tianyang, a supplier of TCL Technoly Electronics, to compensate its loss resulted from their supply of defective chip capacitors. The defective chip capacitors caused TCL Technoly Electronics in scrapping of PCB boards, which resulted in a loss of approximately RMB6.0 million. During the proceedings of the case, Dongguan Tianyang brought another lawsuit in the same court in March 2012, claiming for the payment of the outstanding purchase price due to it by TCL Technoly Electronics in the sum of approximately RMB0.4 million. The Huizhou Court consolidated the two suits abovementioned. On 25 December 2012, the product quality assessment institute appointed by the Huizhou Court issued an assessment report stating that the chip capacitors supplied by Dongguan Tianyang were of sub-standard quality. As at the Latest Practicable Date, the above assessment institute is still in the process of evaluating the amount of losses.

COMPLIANCE WITH APPLICABLE LAWS

As at the Latest Practicable Date, save as disclosed in the section headed “Business – Staff – Social insurance and housing fund contributions” in this listing document, each member of our Group had obtained the requisite governmental licences, permits and certification and renewals thereof which are necessary for its operations, and had complied, in all material aspects, with all applicable laws and regulations in the jurisdiction where it was operating.

INTERNAL CONTROL

We have adopted certain internal control measures to facilitate the efficient operation of our business, including (i) the appointment of Hong Kong legal advisers and compliance adviser to facilitate our compliance with the relevant requirements of the Listing Rules upon Listing; (ii) the appointment of PRC legal advisers to facilitate the compliance with relevant requirements of the PRC laws and regulations upon Listing; (iii) our Hong Kong legal advisers, compliance advisor or other relevant professionals will provide regular training to our Directors and senior management upon Listing so as to refresh and strengthen their knowledge on corporate governance and the Listing Rules; and (iv) our Audit Committee comprising all independent non-executive Directors will review the internal control system and procedures in order to comply with the relevant requirements of the Listing Rules and, will disclose their opinions after conducting due diligence on compliance and internal control matters in the annual report of our Company after Listing.

DIRECTORS AND SENIOR MANAGEMENT

144

DIRECTORS

Our Board consists of seven Directors, including three executive Directors, two non-executive

Directors and three independent non-executive Directors.

The information of our Directors is set out as follows:

Name AgeDate of Appointment

to the Board Position/Title Roles and Responsibilities

YUAN, Bing（袁冰） 43 11 April 2013 Chairman and Non-

executive Director

Responsible for the

strategic planning and

corporate development

of our Group, chairman

of the nomination

committee and member

of the remuneration

committeeYU, Guanghui（于廣輝） 45 8 February 2013 Executive Director and

Chief Executive Officer

Oversees the overall

management of our

Group, member of the

remuneration committee

and nomination

committee

SONG, Yonghong

（宋永紅）46 25 March 2013 Executive Director and

Chief Operating Officer

Oversees the general

operations of our GroupREN, Xuenong（任學農） 42 25 March 2013 Executive Director and

Chief Financial Officer

Oversees the financial

affairs of our GroupLEONG, Yue Wing

（梁耀榮）60 12 July 2013 Non-executive Director Advises on the overall

management of our

GroupPOON, Chiu Kwok

（潘昭國）51 12 July 2013 Independent Non-executive

Director

Chairman of the audit

committee, member

of the remuneration

committee and

nomination committeeLI, Qi（李其） 52 12 July 2013 Independent Non-executive

Director

Member of the audit

committee, the

remuneration committee

and nomination

committeeYOUNG, Shiao Ming

（楊曉明）62 12 July 2013 Independent Non-executive

Director

Chairman of the

remuneration committee,

member of the audit

committee and the

nomination committee

A1A 41(1)3rd Sch 6

DIRECTORS AND SENIOR MANAGEMENT

145

Non Executive Director

Mr. YUAN Bing

Aged 43, Mr. Yuan is the Chairman and a Non-executive Director of our Company. He is also the

chairman of the board of directors of T.C.L. Industries and the vice president of TCL Corporation.

Mr. Yuan currently holds certain positions in the subsidiaries of TCL Corporation, namely, the

president and director of Xinjiang TCL Equity Investment Co., Ltd (新疆TCL股權投資有限公司) and the legal representative and chairman of the board of directors of Beijing Sinopharm Hundric Medline Info.

Tech. Co., Ltd. (北京國藥恒瑞美聯信息技術有限公司).

Mr. Yuan also holds certain positions in a number of entities in which TCL Corporation Group

had invested in. He is the vice chairman of the board of directors of Guangzhou TCL Medical Equipment

Co., Ltd (廣州TCL醫療設備有限公司), the legal representative of Urumqi TCL Chuangdong Equity

Investment Management Co., Ltd (烏魯木齊TCL創動股權投資管理有限公司), the legal representative and the chairman of the board of directors of Huizhou TCL Kaichuang Enterprise Management Co.,

Ltd (惠州市TCL愷創企業管理有限公司), an executive partner (authorized representative) of Huizhou

Kaichuang Venture Capital Partners (Limited Partnership) (惠州市愷創創業投資合夥企業（有限合夥）),

the legal representative of Nanjing Chuangdong Equity Investment Fund Mandagement Co., Ltd. (南京創動股權投資基金管理有限公司), an executive partner (authorized representative) of Nanjing Zijin

Chuangdong Investment Partnership (Limited Partnership) (南京紫金創動投資合夥企業（有限合夥）), the legal representative and chairman of the board of directors of Shanxi TCL-Huirong Venture Capital

Management Co., Ltd. (山西TCL匯融創業投資管理有限公司), the legal representative and chairman

of the board of directors of Wuxi TCL Investment & Consultant Co., Ltd (無錫TCL投資諮詢有限公司), an executive partner (authorized representative) and chairman of the board of directors of TCL-WX

Creative Capital Partnership (Limited Partnership) (無錫TCL創業投資合夥企業（有限合夥）), the legal

representative and the chairman of the board of directors of TCL-WX Creative Capital Ltd. (無錫TCL創動投資有限公司), a director of CRTVU-Online Educational Technology Co., Ltd. (電大在綫遠程教育技術有限公司), a director of Highly Information Industry Co. Ltd (翰林匯信息產業股份有限公司), a

director of TCL New Technology (Huizhou) Co., Ltd. (TCL新技術（惠州）有限公司), a director of Petro

AP Company Limited (亞太石油有限公司), a director of Shanxi United Magnesium Industry Co., Ltd.

(山西聯合鎂業有限公司), and the chairman of the board of directors of Shanxi TCL-Huirong Creative

Investment Co., Ltd. (山西TCL匯融創業投資有限公司).

Mr. Yuan joined TCL Corporation Group in May 1999. From May 1999 to August 2000, Mr. Yuan

was a supervisor of the Financial Department of TCL Corporation. From September 2000 to May 2004, he

was a manager of the Financial Department of TCL International Holdings Company Limited. From May

2004 to May 2005, he was the deputy general manager of TCL International Holdings Limited. He was

the vice chief and then the chief at the Strategic Development Department of TCL Corporation during the

period from January 2002 to May 2005 and from June 2005 to July 2005, respectively. From August 2005

to April 2006, he was the general manager of the Financial Management Centre of TCL Corporation. He

was an executive director and the chief financial officer of TCLM from October 2006 to January 2009.

From May 2006 to June 2008, he was the financial director of TCL Corporation. He was the adjunct head

of department of the Investment Management Department of the Financial Management Centre of TCL

A1A 41(1)A1A 41(4)

DIRECTORS AND SENIOR MANAGEMENT

146

Corporation from July 2006 to September 2007. From October 2006 to July 2011, he was the member of

the executive committee of TCL Corporation Group. He was the vice-president of TCL Corporation from

July 2007 to January 2011. He was the senior vice-president of TCL Corporation from February 2011 to

July 2011.

Mr. Yuan has over 22 years of experience in the consumer electronics products industry. Mr. Yuan

obtained an EMBA Degree from CEIBS (China Europe International Business School) in 2009 and an

undergraduate degree from Shanxi University of Finance & Economics in 1991.

In the three years immediately preceding the date of this listing document, Mr. Yuan did not hold

any directorship in any publicly listed companies. Currently, Mr. Yuan does not hold any directorship in

any other publicly listed companies.

Mr. Yuan has not entered into any service contract with our Company.

Executive Directors

Mr. YU Guanghui

Aged 45, is an executive Director and Chief Executive Officer of our Company. He is currently a

director of each members of our Group. He is also the vice president of TCL Corporation. Mr. YU joined TCL Corporation in 1993. He had held the positions of Engineer of TCL Huizhou Shouhua Science Park, Deputy General Manager of TCL King, Deputy General Manager of TCL Electronics (HK) Co., Ltd., General Manager of TCL Overseas Holdings Co., Ltd., Vice President of Electronics Business Unit and Overseas Business Unit of the Company, General Manager of AV Business Unit and President of the Company. Mr. YU has rich management experience in materials procurement, manufacturing, product management, business development and cooperation with world-class companies. Mr. YU graduated from the Shaanxi Normal University with a Master’s degree in Physics in 1993, and obtained a MBA degree from Peking University in 2005 and an EMBA degree from Cheung Kong Graduate School of Business in 2009.

Save and except for the directorship in the following publicly listed company, in the three years immediately preceding the date of this listing document, Mr. Yu did not hold any directorship in any publicly listed companies. Mr. Yu currently holds directorship in the following publicly listed company:

Date of commencementName of the company Listing venue Stock code Title of service

TCLM Hong Kong 01070 Executive Director 17 February 2009

It is expected that Mr. Yu will cease to be a director of TCLM before the Listing Date.

Mr. Yu has entered into a service contract with our Company with effect from 12 July 2013.

SC4.5

A1A 41(4)

SC4.5

DIRECTORS AND SENIOR MANAGEMENT

147

Mr. SONG Yonghong

Aged 46, is an executive Director and Chief Operating Officer of our Company. He is currently a

director of TCL Technoly Electronics, TCL Audio Video, Shenzhen Tongli and Xi’an TCL Software. Mr. SONG joined TCL Corporation Group in 2003. Since 2010, he has been the Deputy Managing Director and General Manager of Product Centre of AV Division of our Group. From 2003 to 2009, he had been the Deputy General Manager of AV Division of TCLM. From 2009 to 2010, Mr. SONG had held the position of General Manager of Global Product Centre of TCLM and Senior Vice President of TCLM. Prior to joining TCL Corporation, Mr. SONG had held the positions of Deputy General Manager of Dongguan Jinzheng Digital Technology Co., Ltd. Mr. SONG has substantial experience in management and business development in the field of electronic products. Mr. SONG graduated from the Faculty of Physics of Shaanxi Normal University with a Bachelor’s degree in Science in 1990 and obtained an IEMBA degree from the Hong Kong University of Science and Technology in 2012.

In the three years immediately preceding the date of this listing document, Mr. Song did not hold any directorship in any publicly listed companies. Currently, he does not hold any directorship in any other publicly listed companies.

Mr. Song has entered into a service contract with our Company with effect from 12 July 2013.

Mr. REN Xuenong

Aged 42, is an executive Director and Chief Financial Officer of our Company. Since July 2004,

Mr. REN has been the Financial Controller and the Head of the Finance Department of AV Division of

our Group. He is currently a director of all subsidiaries of our Group established in the PRC and of Tongli

OEM. Mr. REN is a practising accountant in the PRC and has rich financial and accounting experience

in the field of electronic products. From 1996 to 2001, Mr. REN had been the Deputy Manager of the

Finance Department of TCL King. Mr. REN graduated from Hunan College of Finance and Economics

with a certificate of accountancy and audit in 1991.

In the three years immediately preceding the date of this listing document, Mr. Ren did not hold

any directorship in any publicly listed companies. Mr. Ren currently does not hold any directorship in any

other publicly listed companies.

Mr. Ren has entered into a service contract with our Company with effect from 12 July 2013.

SC4.5

SC4.5

DIRECTORS AND SENIOR MANAGEMENT

148

Non-executive Director

Mr. LEONG Yue Wing

Aged 60, is a non-executive Director of our Company. Mr. LEONG had previously been CEO of

TCLM from 1 October 2007 to 30 September 2009 and was responsible for the overall management of

TCLM including strategy, business development and operations. Prior to joining TCLM, Mr. LEONG was

associated with Royal Philips Electronics since 1978 and retired in April 2007 as Executive Vice President

– Philips Consumer Electronics. Mr. LEONG has extensive management experience in the production and

sales of AV and consumer electronics products, and has been actively involved in business development

in the PRC, Asia Pacific region, Latin American, North American and European markets. Mr. LEONG

obtained a Bachelor’s degree in Mechanical Engineering in 1976 and a MBA from the University of

Singapore (currently the National University of Singapore) in 1988.

In the three years immediately preceding the date of this listing document, Mr. Leong held

directorships in the following publicly listed companies:

Name of the Company Listing venue Stock Code Title Period

TCLM Hong Kong 01070 Executive Director 20 January 2007 to

31 March 2010

TCLM Hong Kong 01070 Non-executive Director 1 April 2010 to

30 June 2011

Currently, Mr. Leong does not hold any directorship in any other publicly listed companies.

Mr. Leong has not entered into any service contract with our Company.

Independent non-executive Directors

Mr. POON Chiu Kwok

Aged 51, is an independent non-executive Director of our Company. Mr. POON has over 20 years

of experience in regulatory affairs, investment banking, and management of listed companies. Mr. POON

worked in the Listing Division of the Stock Exchange on compliance and regulatory matters from 1990

to 1992. Mr. POON then served as an executive director and managing director of several investment

banks from 1993 to 2006. Mr. POON obtained several academic degrees, including a bachelor’s degree in

arts, majoring in business studies, and a master’s degree in arts, majoring in international accounting, a

bachelor’s degree in laws and a postgraduate diploma in laws in 1994, 1997, 2004 and 2010 respectively.

Mr. POON is currently a member and associate instructor of Hong Kong Securities and Investment

Institute, a Fellow member of both Institute of Chartered Secretaries and Administrators, and Hong Kong

Institute of Chartered Secretaries and a member of its Technical Consultation Panel.

SC4.5

SC4.5

DIRECTORS AND SENIOR MANAGEMENT

149

In the three years immediately preceding the date of this listing document, Mr. POON held directorships in the following publicly listed companies:

Name of the company Listing venue Stock Code Title Period

Tsingtao Brewery Company Stock Exchange 00168 Independent 23 June 2005 - Limited Shanghai Stock Exchange 600600 non-executive director 10 June 2011China Tianrui Group Cement Stock Exchange 01252 Independent 9 December 2011 - Company Limited non-executive director 24 December 2012

Mr. Poon currently holds directorships in the following publicly listed companies:

Date of commencementName of the company Listing venue Stock Code Title of service

Huabao International Holdings Stock Exchange 00336 Executive director, Vice President and 1 May 2006 Limited Company SecretaryNingbo Port Company Limited Shanghai Stock Exchange 601018 Independent non-executive director 1 April 2008Yuanda China Holdings Limited Stock Exchange 02789 Independent non-executive director 12 April 2011Guangzhou Shipyard International Stock Exchange 00317 Independent non-executive director 31 May 2011 Company Limited Shanghai Stock Exchange 600685Sunac China Holdings Limited Stock Exchange 01918 Independent non-executive director 8 June 2011Changan Minsheng APLL Logistics Stock Exchange 08217 Independent non-executive director 30 September 2011 Co., Ltd.

Mr. Poon has not entered into any service contract with our Company.

Mr. LI Qi

Aged 52, is an independent non-executive Director of our Company. Mr. Li is an associated professor in the Department of Applied Economics and the assistant to the Dean at Guanghua School of Management of Peking University, as well as the president of Guanghua School of Management, Shenzhen Branch. At present, his research covers various areas including the economy of the PRC and corporate governance. From April 2003 to December 2006, Mr. Li served as an independent director of Shandong Juli Group Co., Limited which is listed on the Shenzhen Stock Exchange (stock code: 000880). Mr. Li graduated from the Economics Department of Peking University in July 1983. From July 1983 to June 1989, he held a teaching position at the Department of Economics and Management of the School of Economics of Peking University. He received his doctorate degree in social and economic science from Vienna University of Economics and Business of Austria in June 1997.

In the three years immediately preceding the date of this listing document, Mr. Li did not hold any directorship in any publicly listed companies. Mr. Li currently does not hold any directorship in any other publicly listed companies.

Mr. Li has not entered into any service contract with our Company.

DIRECTORS AND SENIOR MANAGEMENT

150

Mr. YOUNG Shiao Ming

Aged 62, is an independent non-executive Director of our Company. Mr. Young has years of

experience in information technology, financial services and business management. Mr. Young is

currently the Deputy Chairman of Shanghai Fu Gang Electronics Trading Company Limited (上海富港電子貿易有限公司) which is principally engaged in the retail sales of electronic products and related accessories. Mr. Young had also served in a variety of senior executive management roles in the Greater

China Region of IBM. Mr. Young had also served as the Senior Advisor for the Greater China Region of

Silver Lake Private Equity.

Since December 2007, Mr. Young has been serving as an independent director of Pactera

Technology International Limited which is listed on the U.S. NASDAQ Stock Market (stock code:

PACT). Mr. Young received his Bachelor’s degree in Applied Mathematics from the National Chung

Hsing University, Taiwan in 1973.

Save and except for the directorship in the following publicly listed company Mr. Young is currently holding, in the three years immediately preceding the date of this listing document, he did not hold any directorships in any other publicly listed companies. Mr. Young currently holds directorship in the following publicly listed company:

Date of commencementName of the Company Listing venue Stock Code Title of service

Pactera Technology U.S. NASDAQ PACT Independent Director December 2007 International Limited

Mr. Young has not entered into any service contract with our Company.

Save as disclosed above, there is no information to be disclosed pursuant to paragraphs (h) to (w) of Rule 13.51(2) of the Listing Rules or any other matters concerning any Director that need to be brought to the attention of the shareholders of our Company.

SENIOR MANAGEMENT

Mr. WANG Xiaofeng, aged 47, is a Deputy General Manager of our Group as well as General

Manager of Sales Center of our Group. He has held these offices since October 2006. Mr. WANG joined TCL Corporation in 1997. From December 1998 to May 2001, he had been the Manager of the Marketing Department and the Product Planning Department of TCL Electrical Appliance Sales Company. From May 2001 to September 2002, he had been the General Manager of the Monitor Division of TCLM. From September 2002 to May 2004, Mr. WANG had held the office of General Manager of the AV Division of TCLM. From May 2004 to November 2005, he had been a Director of Human Resources and a Director of Operation of Component Strategic Business Unit of TCL Corporation. From November 2005 to October 2006, he had been General Manager of the Flat Panel Business Group of TTE Corporation. Mr. WANG has strong ability in the management process from product planning to sales and marketing, as well as advertising and promotion, particularly in TV and AV industry. Mr WANG graduated from the School of Management of Xi’an Jiaotong University with a Bachelor’s degree in Management Engineering in

SC4.5

A1A 41(5)

SC4.5

DIRECTORS AND SENIOR MANAGEMENT

151

1988 and obtained a Master degree in International Industrial Trading from Xi’an Jiaotong University in 1994 and an EMBA degree from the University of Texas at Arlington in 2006. Mr. WANG is now taking CEIBS (China Europe International Business School) Global EMBA programme.

Mr. HUANG Wei, aged 38, is a Deputy General Manager of our Group. He is currently the

chairman and a director of Regency Optics-Electron. He joined TCL Corporation in 1998. From 1998 to 2005, he had been the Head of Computer Technology Research & Development Department and Procurement Department of TCL Computer Technology Company. From 2005 to 2009, Mr. HUANG had been the Operation Controller and Supply Chain Controller of TCL Communication. From 2009 to 2011, he had been the General Manager of Moulding Centre, Controller of General Utilities Sourcing Division of Global Manufacturing Centre and General Manager of General Utilities Sourcing Division of Global Manufacturing Centre of TCLM. In 2010, Mr. HUANG had been the Deputy General Manager of our Group and General Manager of Supply Chain Centre of our Group. Mr. HUANG has rich management experience in product management and business development in the field of electronic products. Mr. HUANG graduated from Nanjing University of Science and Technology with a Bachelor’s degree in Mechanical Design & Manufacturing in 1996, and obtained an EMBA degree from the CEIBS (China Europe International Business School) in 2009.

COMPANY SECRETARY

Ms. PANG Siu Yin, aged 52, is a practicing solicitor in Hong Kong and a partner of Messrs. Cheung Tong & Rosa Solicitors, Hong Kong. She is also a member of the Chartered Institute of Arbitrators, the United Kingdom and the Hong Kong Securities and Investment Institute. She holds a Master’s degree of Laws from The Victoria University of Manchester. She is an independent non-executive director of Perfect Shape (PRC) Holdings Limited (stock code: 01830). She is also the company secretary of TCLM, TCL Communication, Perfectech International Holdings Limited (stock code: 00765) and DaChan Food (Asia) Limited (stock code: 03999), all of which are companies listed on the Stock Exchange.

Compensation

The aggregate amounts of remuneration of our Directors for each of the three years ended 31 December 2012 and the three months ended 31 March 2013 were approximately HK$0.58 million, HK$2.5 million, HK$2.2 million and HK$1.1 million respectively. Details of the arrangement for remuneration are set out in Note 10 to the Accountants’ Report in Appendix I to this listing document. Under such arrangement and pursuant to our Directors’ service contracts and letters of appointment referred to in the paragraph headed “Particulars of Directors’ service contracts and letters of appointment” under the section headed “Statutory and General Information” as set out in Appendix V to this listing document, the aggregate amount of directors’ fee and other emoluments payable to our Directors for the year ending 31 December 2013 is estimated to be approximately HK$1.57 million, excluding any discretionary bonus.

Our Directors and senior management receive compensation in the form of salaries, benefits in kind and/or discretionary bonuses relating to the performance of our Group. We reimburse them for expenses which are necessarily and reasonably incurred for providing services to us or executing their functions in relation to our operations. We regularly review and determine the remuneration and compensation packages of our Directors and senior management.

After the Listing, our remuneration committee will review and determine the remuneration and compensation packages of our Directors and senior management with reference to salaries paid by comparable companies, time commitment and responsibilities of our Directors and performance of our Group.

SC4.5

A1A 42LR8.17

A1A 33(2)(a)A1A 33(2)(b)A1A 33(2)(d)

A1A 46(3)

DIRECTORS AND SENIOR MANAGEMENT

152

During the Track Record Period, no remuneration was paid by us to, or received by, our Directors as an inducement to join or upon joining us.

CORPORATE GOVERNANCE

Our Directors recognise the importance of incorporating elements of good corporate governance in management and internal control procedures so as to achieve effective accountability.

Our Company has adopted a system of corporate governance.

Our Company is committed to the view that the Board should include a balanced composition of executive and non-executive Directors (including independent non-executive Directors) so that there is a strong independent element on the Board, which can effectively exercise independent judgement. Our Company is also committed to the view that the independent non-executive Directors should be of sufficient calibre and number for their views to carry weight. The independent non-executive Directors, are free of any business or other relationship with our Company, except being the independent non-executive Directors of our Company, which could interfere in any material manner with the exercise of their independent judgement.

BOARD COMMITTEES

We have set up three Board committees. The table below set out the membership information of these committee on which each Director serves:

Audit Remuneration NominationBoard Committee Director Committee Committee Committee

Chairman and Non-executive DirectorMr. YUAN, Bing – M C

Executive DirectorMr. YU, Guanghui – M MMr. SONG, Yonghong – – –Mr. REN, Xuenong – – –

Non-executive DirectorMr. LEONG, Yue Wing – – –

Independent Non-executive DirectorMr. POON, Chiu Kwok C M MMr. LI, Qi M M MMr. YOUNG, Shiao Ming M C M

Notes:

C Chairman of the relevant Board committeesM Member of the relevant Board committees

A1A 33(2)(e)

DIRECTORS AND SENIOR MANAGEMENT

153

Audit committee

Our Company established an audit committee on 12 July 2013 with written terms of reference in compliance with Rule 3.21 and the “Corporate Governance Code and Corporate Governance Report” (the “CG Code”) as set out in Appendix 14 to the Listing Rules. The primary duties of our audit committee are mainly to make recommendations to our Board on the appointment and removal of the external auditor, review financial statements and materials and provide advice in respect of financial reporting and oversee the internal control procedures of our Company. At present, our audit committee comprises Mr. Poon Chiu Kwok, Mr. Li Qi and Mr. Young Shiao Ming, all being independent non-executive Directors. Mr. Poon is the chairman of our audit committee.

Remuneration committee

Our Company established a remuneration committee on 12 July 2013 with written terms of reference in compliance with the CG Code. The primary functions of our remuneration committee are to make recommendations to our Board on the overall remuneration policy and structure relating to all Directors and senior management of our Group, review performance based remuneration and ensure none of our Directors determines their own remuneration. At present, our remuneration committee comprises Mr. Young Shiao Ming, Mr. Poon Chiu Kwok and Mr. Li Qi, all being independent non-executive Directors, Mr. Yuan Bing being a non-executive Director and Mr. Yu Guanghui being an executive Director. Mr. Young is the chairman of our remuneration committee.

Nomination Committee

Our Company established a nomination committee on 12 July 2013 with written terms of reference

in compliance with the CG Code. The primary functions of our nomination committee are to review and

supervise the structure, size and composition of the Board; to identify qualified individuals to become

members of the Board; to assess the independence of the independent non-executive Directors; and to

make recommendations to the Board on the appointment or re-appointment of Directors. At present,

our nomination committee comprises Mr. Poon Chiu Kwok, Mr. Li Qi and Mr. Young Shiao Ming, all

being independent non-executive Directors, Mr. Yuan Bing being a non-executive Director and Mr. Yu

Guanghui being an executive Director. Mr. Yuan is the chairman of our nomination committee.

COMPLIANCE ADVISER

We have appointed SinoPac Securities (Asia) Limited as our compliance adviser on 12 July 2013

pursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, the compliance

adviser will advise us, among others, in the following circumstances:

(1) before the publication of any regulatory announcement, circular or financial report;

(2) where a transaction, which might be a notifiable or connected transaction, is contemplated

including share issues and share repurchases;

(3) where our business activities, developments or results deviate from any forecast, estimate, or

other information in this listing document; and

DIRECTORS AND SENIOR MANAGEMENT

154

(4) where the Stock Exchange makes an inquiry of us regarding unusual movements in the price

or trading volume of our Shares.

The term of appointment of our compliance adviser shall commence on the Listing Date and end on

the date of despatch of our financial results for the first full financial year commencing after the Listing

Date and such appointment shall be subject to extension by mutual agreement.

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

155

BACKGROUND INFORMATION OF THE TCLM GROUP

TCLM was incorporated in the Cayman Islands under the Companies Law as an exempted company

with limited liability on 23 April 1999, the shares of which have been listed on the Main Board of

the Stock Exchange since 26 November 1999. As at the Latest Practicable Date, TCLM was the sole

Shareholder. Immediately upon completion of the Distribution, TCLM will no longer be interested in the

issued share capital of our Company. Upon completion of the Distribution, our Company will cease to be

a subsidiary of TCLM.

On 13 March 2013, TCLM submitted a proposal for the Spin-off to the Stock Exchange pursuant

to Practice Note 15 to the Listing Rules and obtained confirmation from the Stock Exchange that it

may proceed with the proposal on 17 April 2013. Our Directors expect that, immediately following

the completion of the Distribution, the Remaining TCLM Group will be principally engaged in the

manufacture and sale of television sets (excluding AV Products), whereas our Group will focus on the

ODM of AV Products (excluding TV sets). The Spin-off is aiming to allow separate platforms for the two

businesses of the TCLM Group with clear delineation. The board of directors of TCLM believes that the

Spin-off will bring about a number of benefits to both TCLM and our Company, which are set out under

the paragraph headed “Reasons for the Spin-off” in the section headed “The Distribution and Spin-off” in

this listing document.

Through the Spin-off, the Remaining TCLM Group and our Group can be clearly delineated into

two separate business models so that they could further their businesses under independent platforms in

the two distinct groups. As there is no fund raising, the TCLM Qualifying Shareholders will have the

same attributable interest in both groups before and immediately after the Listing. Upon the completion of

the Distribution, the Remaining TCLM Group will be principally engaged in research and development,

manufacturing and sale of television sets.

Before the Distribution, our Group is an integral part of the TCLM Group but we are operating

independently from the Remaining TCLM Group. Save for some transactions as described in this section

and the section headed “Continuing Connected Transactions” in this listing document, our Group does not

have any significant business relationship with the Remaining TCLM Group.

Transactions with the Remaining TCLM Group during the Track Record Period

Transactions which will not continue after the Listing

Before the Distribution and during the Track Record Period, our Group as part of the TCLM Group

conducted certain intra-group transactions within TCLM Group and the counter party is the Remaining

TCLM Group.

During the Track Record Period, our Group had obtained certain transportation services from

TCLM Group for exporting components and parts to a subsidiary of TCLM in Poland for further assembly

and supply of the finished products to an overseas buyer designated by our Group. The amounts involved

in such transactions were HK$5.4 million for the year ended 31 December 2010, nil for the two years

ended 31 December 2012 and the three months ended 31 March 2013.

A1A 28(2)

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

156

During the Track Record Period, we engaged TCL King, a wholly owned subsidiary of TCLM, to provide sub-contracting services such as SMT when we encountered temporary production bottleneck especially during peak season. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our purchase from TCL King in aggregate amounted to approximately HK$0.3 million, HK$3.1 million, HK$2.0 million and nil, respectively, representing approximately 0.01%, 0.08%, 0.06% and nil, respectively, of our total costs of sales.

During the Track Record Period, we leased certain properties from the Remaining TCLM Group as our offices, factory, warehouse and dormitory. The amounts involved in such transactions were HK$1.0 million, HK$0.2 million, HK$0.2 million and nil for the three years ended 31 December 2012 and the three months ended 31 March 2013.

During the Track Record Period, the Remaining TCLM Group had provided financial services to our Group. The amounts involved in such transactions were HK$92,000, HK$485,000, HK$2,000 and nil for the three years ended 31 December 2012 and the three months ended 31 March 2013.

The aforesaid transactions will not continue after the Listing.

Transactions which will continue after the Listing

During the Track Record Period, in order to maintain a stable and reliable source of supply of the necessary materials for our Group’s operation, we had purchased certain components and parts from TCLM Group in the PRC for our production. The amounts involved in such transactions were HK$404.1 million, HK$3.4 million, HK$5.4 million and HK$1.0 million for the three years ended 31 December 2012 and the three months ended 31 March 2013. Our Group had sold to the Remaining TCLM Group – certain components and parts which were used by them in their production process or for their further assembly into finished products. The amounts involved in such transactions were HK$440.8 million, HK$195.5 million, HK$13.2 million and HK$27.6 million for the three years ended 31 December 2012 and the three months ended 31 March 2013.

During the Track Record Period, our Group engaged the Remaining TCLM Group to provide us with: foreign exchange hedging services in Hong Kong, consultancy service, legal service and other general administrative services and in return our Group paid TCLM service fees of HK$3.5 million, HK$18.4 million, HK$5.5 million and HK$0.2 million, respectively, for the three years ended 31 December 2012 and the three months ended 31 March 2013.

The aforesaid transactions will continue after the Listing.

Our Directors have confirmed that all such transactions with the Remaining TCLM Group during the Track Record Period were on normal commercial terms and were negotiated on an arm’s length basis, and those terms were fair and reasonable.

TCLM Group from time to time enters into connected transactions and/or continuing connected transaction with TCL Corporation Group. Before the Distribution and during the Track Record Period, the transactions of TCLM Group with TCL Corporation Group included the transactions of our Group with TCL Corporation Group since all such transactions were under the arrangements or agreements entered into between TCL Corporation and TCLM. Such transactions will also continue to exist after the Listing. Further details relating to these transactions are set out in the section headed “Continuing Connected Transactions” in this listing document.

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

157

BACKGROUND INFORMATION OF THE CONTROLLING SHAREHOLDERS

Following the Distribution and the Listing, TCL Corporation will continue to be our ultimate

Controlling Shareholder. TCL Corporation and its subsidiaries (including the TCLM Group) is a

major PRC conglomerate that designs, develops, manufactures and markets a wide range of electronic,

telecommunications, information technology and electrical products.

Transactions with TCL Corporation Group during the Track Record Period

In addition to the transactions with TCL Corporation Group via TCLM Group, during the Track

Record Period, our Group entered into various agreements directly with TCL Corporation Group.

On 12 April 2012, to ensure an efficient and effective progress of a construction project (the

“Construction Project A”) on a piece of land in Huizhou owned by our Group, our Group entered into a

construction management agreement with TCL Real Estate (Huizhou), a subsidiary of TCL Corporation,

to appoint the latter as a construction manager to provide it with construction management service for the

Construction Project A. As at 31 March 2013, HK$0.9 million management service fee has been accrued

to TCL Real Estate (Huizhou). We expected a sum of HK$8.7 million will be paid to TCL Real Estate

(Huizhou) in the year ending 31 December 2013.

On 17 October 2012, our Group and TCL King, a wholly owned subsidiary of TCLM, both as

purchasers, entered into a tripartite agreement with Huizhou Mobile, a subsidiary of TCL Communication,

as vendor, pursuant to which the parties to the agreement would cooperate in a construction project

(“Construction Project B”) on another piece of land in Huizhou (the “Land”) for building dormitory

for employees of our Group. Due to certain restrictions imposed by the relevant authorities in the PRC,

Huizhou Mobile, as the owner of the Land, could not then transfer the Land to the purchasers, thus,

according to the said agreement, shall execute various contracts in relation to the Construction Project

B on behalf of our Group and TCL King so as to enable the purchasers to commence the Construction

Project B as soon as possible. Pursuant to a Land Use Right Grant Contract entered into between the

Huizhou Land Resources Administration (as the Grantor) and Huizhou Mobile (as the Grantee) on 4

November 2011, the land parcel of the property (Lot No. GZK2011-09) with a land area of 73,727 sq.m.

were granted by the Grantor to the Grantee at a land premium of RMB 95,410,000. As revealed by a State-

owned Land Use Right Certificate (Ref: Hui Fu Guo Yong (2013) No. 13021450284 (惠府國用(2013)第13021450284號)) dated 1 April 2013, the land use rights of the property with an area of 12,931.8 sq.m., which will be transferred to our Group, are held by Huizhou Mobile for residential use.

According to the above contract and the Urban Real Estate Administration Law of the People’s

Republic of China promulgated by Standing Committee of the National People’s Congress on 1 January

1995 and amended on 27 August 2009, the transfer of the right of land use from the Grantee to the others

shall comply with the following conditions:

(1) having paid all the fees for the grant of the land use right as agreed upon in the granting

contract and obtained the certificated of the land use right; and

A1A 27A

SFC1-2

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

158

(2) having fulfilled twenty-five percent or more of the total investment for development in the

case of housing projects.

Once those conditions are satisfied, Huizhou Mobile would enter into a transfer agreement with

each of the purchasers to transfer such portion of the Land together with the buildings thereon to the

relevant purchaser. The above conditions have been met and our Company entered into the transfer

agreement with Huizhou Mobile on 26 June 2013. The consideration for the transfer to our Group of the

portion of the Land (which will take up approximately 17.5% of the Land after the completion of the

transfer) was approximately HK$38.4 million. The consideration for the transfer was determined after

arm’s length negotiation and on normal commercial terms and determined with reference to a valuation

report on both the land use rights and the buildings thereon issued by an independent valuer. As at the

Latest Practicable Date, the Group had funded approximately HK$16 million to meet the construction

costs, which, according to the said agreement, would be offset against the amount of consideration to be

paid by the Group after the completion of the transfer.

To facilitate the Construction Project B, on 17 December 2012, all the parties to the above-

mentioned tripartite agreement entered into a management agreement separately with TCL Real Estate

(Huizhou) to appoint the latter as a service provider to provide management services for the Construction

Project B. The said management agreement was subject to a master quartet agreement which was entered

into among the parties to the tripartite agreement and TCL Real Estate (Huizhou) on 17 December 2012

setting out the basic principles and the framework under which the parties should follow in relation to the

engagement of the management services. Our Group paid a sum of HK$3.7 million for the year ended 31

December 2012.

On 7 December 2012 and 25 February 2013, our Group entered into two purchase agreements with

TCL Corporation Group to purchase certain air-conditioning systems from the latter. Further to these

air-conditioning system purchase agreements, on 30 January 2013, our Group entered into a purchase

agreement with TCL Corporation Group to purchase certain lighting system from the latter. We expected

that a sum of HK$3.5 million will be paid to TCL Corporation Group in the year ending 31 December

2013.

The Directors are of the view that all such transactions with TCL Corporation Group during the

Track Record Period were on normal commercial terms, fair and reasonable, and the terms of which were

negotiated on an arm’s length basis.

Given the Remaining TCLM Group will remain as a subsidiary of TCL Corporation, it is viewed

that it is logical, reasonable and easy for administration and monitoring that the transactions between

our Group and the Remaining TCLM Group as disclosed in the sub-section headed “Transactions with

the Remaining TCLM Group during the Track Record Period” in this section in this listing document

that would be continued after the Listing be rearranged such that they would be grouped under the

arrangements or agreements entered into between our Group and TCL Corporation Group. Details of

the continuing connected transactions in this respect are disclosed in the section headed “Continuing

Connected Transactions”.

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

159

Non-Competition Arrangements

Pursuant to a deed of non-competition dated 15 November 1999 and a deed of variation deed dated

10 June 2002 (together the “Original Non-Competition Deeds”), TCL Corporation and T.C.L. Industries

have undertaken to TCLM not to directly and indirectly, carry on or be engaged or interested in the

manufacture, assembly, distribution and maintenance of audio-visual products and products relating to

internet related information technology.

Taking into account the Original Non-Competition Deeds and in order to ensure that there is a

clear delineation between the businesses of our Group and the Remaining TCLM Group following the

Distribution and the Listing, relevant arrangements set out below (the “Non-Competition Arrangements”)

are expected to be passed at the EGM and, if passed, to be entered into.

Pursuant to the Deed of Non-Competition entered into among our Company, TCL Corporation and

T.C.L. Industries, each of TCL Corporation and T.C.L. Industries (each a “Covenantor”, together, the

“Covenantors”) shall undertake and covenant with our Company for itself and as agent and trustee for its

subsidiaries and the Shareholders that it shall not and shall procure that its associates not to, directly or

indirectly, carry on or be engaged or interested in the research and development, manufacturing and sales

relating to AV Products (excluding TV sets) (hereinafter collectively called “Relevant Business”), from

time to time.

Notwithstanding the undertaking above,

1. there is no restriction on the Covenantors directly or indirectly engaging or having an

interest in or continuing to engage or have an interest in the Relevant Business if they are so

involved through their respective direct or indirect interest in our Group;

2. there is no restriction on the Covenantors either directly or indirectly holding or being

interested in shares or other securities in any company which is engaged or interested

in any Relevant Business and whose shares or securities are listed on a stock exchange

(the “Subject Company”) provided that (1) the aggregate number of shares held by the

Covenantors or in which they are interested does not amount to more than 10 per cent. of

the issued shares of the Subject Company; (2) the revenue or assets of the Subject Company

attributable to the Relevant Business recorded in the consolidated audited accounts of

the latest full financial year immediately before the acquisition is less than 20% of its

consolidated total revenue or consolidated total assets (as the case may be); or (3) neither

the Covenantors nor any of their subsidiaries can exercise any control, directly or indirectly,

over the board of directors of the Subject Company; and

3. there is no restriction on the Covenantors directly or indirectly engaging in the sales of

AV Products (excluding TV sets) which are purchased by the Covenantors or any of their

subsidiaries from our Group with the sole purpose of such subsequent sales to customers.

SX2-3

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

160

For good corporate governance practices, in relation to compliance with the terms of the Deed of

Non-Competition, the Company will adopt the following measures:

(i) Each of TCL Corporation and T.C.L. Industries shall make a semi-annual confirmation to the

Company regarding its compliance with the Deed of Non-Competition and disclosure in this

regard will be made in the interim or annual report of the Company. Disclosure on how the

Deed of Non-Competition is complied with and enforced is consistent with the principles of

making voluntary disclosures in the corporate governance report of the Company;

(ii) The independent non-executive Directors of the Company shall review the information

provided by TCL Corporation and T.C.L. Industries in respect of the compliance and

enforcement of the Deed of Non-Competition;

(iii) Each of TCL Corporation and T.C.L. Industries shall undertake to provide all information

necessary for the review by the independent non-executive Directors of the Company and the

enforcement of the Deed of Non-Competition; and

(iv) The Company shall disclose decisions on matters reviewed by its independent non-executive

Directors in relation to the compliance and enforcement of the Deed of Non-Competition

through the interim report, annual report and by way of announcements to the public.

According to the Articles of Association of the Company, a Director shall not be entitled to vote

on (nor shall be counted in the quorum in relation to) any resolution of the Directors in respect of any

contract or arrangement or any other proposal in which the Director or any of his associates has any

material interest, and if he shall do so his vote shall not be counted (nor is he to be counted in the quorum

for the resolution), but this prohibition shall not apply to any of the following matters, namely:

(i) the giving to such Director or any of his associates of any security or indemnity in respect of

money lent or obligations incurred or undertaken by him or any of them at the request of or

for the benefit of the Company or any of its subsidiaries;

(ii) the giving of any security or indemnity to a third party in respect of a debt or obligation of

the Company or any of its subsidiaries for which the Director or any of his associates has

himself/themselves assumed responsibility in whole or in part and whether alone or jointly

under a guarantee or indemnity or by the giving of security;

(iii) any proposal concerning an offer of shares, debentures or other securities of or by the

Company or any other company which the Company may promote or be interested in for

subscription or purchase where the Director or any of his associates is/are or is/are to be

interested as a participant in the underwriting or sub-underwriting of the offer;

SX1-3

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

161

(iv) any proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries including:

(A) the adoption, modification or operation of any employees’ share scheme or any share incentive scheme or share option scheme under which the Director or any of his associates may benefit; or

(B) the adoption, modification or operation of a pension or provident fund or retirement, death or disability benefits scheme which relates both to Directors, their associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or any of his associates, as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and

(v) any contract or arrangement in which the Director or any of his associates is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company.

Second Variation Deed

Pursuant to the Second Variation Deed entered into among TCL Corporation, T.C.L. Industries and TCLM, research and development, manufacturing and sales relating to AV Products (excluding TV sets) shall cease to be included in the scope of the Restricted Activity (as defined in the Original Non-Competition Deeds) to the only extent that TCL Corporation and T.C.L. Industries or any of them carry on or engage in research and development, manufacturing and sales relating to AV Products (excluding TV sets) by way of equity investment in the Company.

Except for the interest in our Group’s business, none of our Controlling Shareholders and our Directors is interested in any business which competes or is likely to compete, directly or indirectly, with the business of our Group.

CLEAR DELINEATION AND INDEPENDENCE FROM THE TCL CORPORATION GROUP (INCLUDING THE REMAINING TCLM GROUP)

It is expected that upon completion of the Distribution, our Group will cease to be a subsidiary of TCLM which demonstrates the independence of our Group from the TCL Corporation Group and the delineation of the business operations of the two groups. In addition, our Directors consider that our Group is capable of carrying on its business independently of the TCL Corporation Group after the Listing based on the following particulars:

Management independence

As at the Latest Practicable Date, save and except for Mr. Yuan Bing holding certain positions in the TCL Corporation Group, including among others, a director of T.C.L. Industries and a vice president of TCL Corporation; and Mr. Yu Guanghui being a vice president of TCL Corporation and an executive director of TCLM, none of our Directors hold any position in the TCL Corporation Group. It is expected that Mr. Yu Guanghui will cease to be a director of TCLM before Listing Date. Details of Mr. Yuan’s positions in the TCL Corporation Group and in certain entities which the TCL Corporation Group had invested in are set out in the section headed “Directors and Senior Management” in this listing document.

SX2-3

A1A 27A

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

162

Under the Articles, a Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall, if his interest in the contract or arrangement or proposed contract or arrangement is material, declare the nature of his interest at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration if he knows his interest then exists, or in any other case, at the first meeting of the Board after he knows that he is or has become so interested. The Articles do not require a Director who is so interested not to attend any meeting of the Board. However, the Articles do provide that a Directors shall not vote (or be counted in the quorum) in respect of any board resolution approving any contract or arrangement or proposed contract or arrangement in which he or any of his associates is materially interested, except in certain prescribed circumstances, details of which are set out in Appendix IV “Summary of the Constitution of our Company and Cayman Islands Company Law” to this listing document.

Whether a Director is conflicted or non-conflicted on any matter depends on the particular circumstances of the matter under consideration. The fact that a Director also holds directorships in other companies does not create a conflict for that Director unless the matter under consideration involves his personal interests or those of the other companies as well as the Group. In all other circumstances, a Director is able to act without being conflicted.

The provision in the Articles ensure that matters involving a conflict of interest which may arise from time to time will be managed in line with accepted corporate governance practice with a view to ensuring that decisions are taken having regard to the best interest of the Company and our Shareholders (including the minority Shareholders, that is the Shareholders other than T.C.L. Industries) taken as a whole.

Based on the above reasons, our Directors are of the view that our Directors and the senior management of our Group are able to function independently from the TCL Corporation Group and potential conflict of interests can be avoided and where it arises, can be resolved.

Operational independence

The core businesses of the Remaining TCLM Group and our Group, by their very nature, are separate and distinct businesses which are independently operated in distinct markets. Our Directors expect that, immediately following the completion of the Distribution, the Remaining TCLM Group will remain to be engaged principally in research and development, manufacturing and sale of television sets (excluding AV Products), whereas our Group will focus on the ODM of AV Products (excluding TV sets). By the nature of the products and services provided by our Group and the Remaining TCLM Group, there is a clear delineation between the business retained by the Remaining TCLM Group and the business of our Group and there will not be any overlapping of businesses.

To ensure the independence of the operation and business of our Group from the TCL Corporation Group (including the Remaining TCLM Group), our Group has its own production, merchandising and marketing, product development, logistics, procurement and administration, finance and human resources teams which have been operated and is expected to continue to operate separately and independently of the TCL Corporation Group. Should we notice any connected transactions between the TCL Corporation Group and our Group arises, our Group will comply with the relevant requirements under Chapter 14A of the Listing Rules.

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

163

Financial independence

Our Group has an independent financial system and finance team which are responsible for its own treasury functions despite members of our Group were subsidiaries of TCLM during the Track Record Period.

During the Track Record Period, our Group also has its own internal control procedures which are independent from that of the TCL Corporation Group.

Balances between the Remaining TCLM Group and our Group were non-trade in nature. During the Track Record Period, net amounts due from the Remaining TCLM Group to our Group amounted to approximately HK$25.0 million, HK$145.0 million as at 31 December 2010 and 2011 respectively, while net amounts due to the Remaining TCLM Group from our Group amounted to approximately HK$466.6 million and HK$436.8 million as at 31 December 2012 and 31 March 2013, respectively. All such non-trade balance between our Group and the Remaining TCLM Group was settled in full before Listing.

Certain subsidiaries of our Group have entered into receivable purchase agreements with banks for the factoring of trade receivables with certain designated customers. As at 31 December 2010, 2011 and 2012 and 31 March 2013, trade receivables factored to banks aggregating to HK$150.5 million, HK$191.3 million, HK$307.4 million and HK$230.6 million were guaranteed by TCLM. Relevant banks have agreed, in principle, to release such guarantees, by replacement by other security and/or by provision of corporate guarantees by our Group upon the Listing.

During the Track Record Period, the guarantee from TCLM to our Group’s non-deliverable forward/interest rate swap provided by HSBC amounted to nil, US$3.5 million, US$3.5 million and US$3.5 million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. HSBC has agreed that upon the Listing of our Company, the guarantee given by TCLM will be released and our Company would provide such guarantee instead.

During the Track Record Period, TCLM has obtained a US$120 million term loan facility from the Bank of China which was jointly guaranteed by TCL OEM Sales and certain subsidiaries of TCLM. The Bank of China has agreed to release the guarantee given by TCL OEM Sales before Listing.

During the Track Record Period, TCL Corporation had guaranteed certain of our Group’s bank loans up to HK$246.6 million as at 31 December 2011. Such guarantee given by TCL Corporation had been released in 2012.

During the Track Record Period, our Group had deposited certain amount in TCL Finance Company Limited (“Finance Company”), a non wholly subsidiary of TCL Corporation, in the sum of HK$43.3 million, HK$141.5 million, HK$614.8 million and HK$310.4 million for the three years ended 31 December 2012 and the three months ended 31 March 2013. During the Track Record Period, Finance Company did not provide any loan to our Group and our Group has no intention to obtain any loan from Finance Company after Listing. The deposit services will continue after the Listing under the Master Financial Services Agreement entered into between our Company and TCL Corporation on 12 July 2013. Further details of the Master Financial Services Agreement are set out in the section headed “Continuing Connected Transactions” in this listing document.

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

164

Save and except for the deposits we are placing in Finance Company as mentioned above, our Group will not have any outstanding non-trading balances with, and guarantees from or to the TCL Corporation Group upon Listing. On the basis above, our Directors are of the view that the financial system of our Group is independent from the TCL Corporation Group.

Administrative independence

Our Group has its own administration, finance and human resources team of staff to carry out its own administrative and operation functions which is independent of that of the TCL Corporation Group and without requiring any substantial support from the TCL Corporation Group or its associates. Our Group has our own capabilities and personnel to perform all essential administrative functions, including financial and accounting management, invoicing and billing, and human resources. Each of the TCL Corporation Group and our Group will be managed and operated by its own board of directors and senior management separately and independently and in the interests of its shareholders.

Since our Group’s operation base is in the PRC, we currently do not have an office of our own in Hong Kong. In preparation for the Listing and as a transitional arrangement, our Company entered into the Services Agreement with TCLM, pursuant to which TCLM shall provide to our Group certain general administrative services and a small part of its office premises in Hong Kong until we can find a suitable place after the Listing. We expect the transitional period will end by 31 December 2013. Our Directors are of the view that these arrangements will not affect the independence of the management of our business given such arrangements are only transitional in nature.

Our Directors are of the view, and the Joint Sponsors concur, that there is no undue reliance by our Group on the TCL Corporation Group in any aspect of its operations based on the reasons stated above.

CORPORATE GOVERNANCE MEASURES TO AVOID CONFLICT OF INTERESTS

Our Directors recognise the importance of incorporating elements of good corporate governance in management conducive to the protection of the interests of our Shareholders. In particular, the following corporate governance measures in relation to managing potential conflict of interests between our Group and the TCL Corporation Group are taken:

(a) our Directors or, if appropriate, the disinterested Directors will be responsible for deciding and given authority to decide, without attendance by any Directors with beneficial or conflict interests in the new business opportunity, whether or not to take up a new business opportunity which relates to the manufacture and sale of AV Products (excluding TV

sets) and is referred to our Group by the TCL Corporation Group. For this purpose, the

disinterested Directors may, from time to time, engage external professional advisers as they may consider necessary to advise them on the issues which relate to the above matters;

(b) any transaction (if any) between (or proposed to be made between) our Group and connected

persons will be required to comply with Chapter 14A of the Listing Rules, including,

where applicable, the announcement, reporting and independent shareholders’ approval

requirements and with those conditions imposed by the Stock Exchange for the granting of

waiver from strict compliance with the relevant requirements under the Listing Rules;

RELATIONSHIP WITH THE REMAINING TCLM GROUP ANDTHE CONTROLLING SHAREHOLDERS

165

(c) in the event that there is conflict of interests in the operations of our Group and the TCL

Corporation Group and their associates, and in respect of any proposed contracts or

arrangements between our Group and the TCL Corporation Group and its associates, any

Director who is considered to be interested in a particular matter or the subject matter, he/

she shall disclose his/her interests to our Board. Pursuant to the Articles, should a Director

have any material interests in the matter, he/she may not vote on the resolutions of our Board

approving the same and shall not be counted in the quorum of the relevant Board meeting. A

relevant board meeting attended by disinterested Directors who have no material interest in

the matter shall be held to deliberate on the matters; and

(d) our independent non-executive Directors shall be delegated with the authority to review on

half yearly basis the compliance and enforcement of the Deed of Non-Competition by our

Controlling Shareholders and will disclose decisions with basis on matters reviewed in our

interim and annual report or by way of announcement to the public in addition to complying

with the disclosure requirements under the Listing Rules. The Controlling Shareholders

also undertake to provide all information necessary for the enforcement of the Deed of

Non-Competition as requested by our Company from time to time and make declaration

on compliance with the Deed of Non-Competition in the interim and annual report of our

Company.

On the basis that all Directors (except Mr. Yuan Bing and Mr. Yu Guanghui) and senior

management of our Group will not hold any position in the TCL Corporation Group, and that each of

our executive Directors and senior management has extensive and relevant experience in the consumer

electronics products business, our Directors are of the view that our Board will have the expertise to

transact business which may potentially involve conflict of interests between the TCL Corporation Group

and our Group objectively, impartially and in the best interest of our Company and our Shareholders as

a whole. Besides, conflict of interests of any Directors who also hold positions in the TCL Corporation

Group will not affect the business operations of our Group as the daily business operations of our Group

are operated and implemented by employees of our Group under the strategic directions of our Board, or

as the case may be, the experienced and disinterested Board.

Our Directors consider that the above corporate governance measures are sufficient to manage

any potential conflict of interests between the TCL Corporation Group and our Group and to protect the

interests of our Shareholders, in particular, our minority Shareholders.

CONTINUING CONNECTED TRANSACTIONS

166

CONNECTED TRANSACTIONS

TCLM has, since the listing of its shares, had a number of continuing connected transactions with TCL Corporation Group. During the Track Record Period, the transactions of our Group with TCL Corporation Group were under the arrangements or agreements entered into between TCLM and TCL Corporation. TCLM had fully complied with the Listing Rules for each of its continuing connected transactions with TCL Corporation Group. In particular, for each of the years ended 31 December 2012, the independent non-executive directors of TCLM confirmed that all the continuing connected transactions between TCLM (which included our Group) and TCL Corporation were entered into (i) in the ordinary and usual course of the TCLM Group’s business; (ii) in accordance with the terms of the respective agreements governing such transactions which were fair and reasonable and in the interests of the shareholders of TCLM as a whole; and (iii) either on normal commercial terms or on terms no less favourable to the TCLM Group than those available to or from Independent Third Parties. Ernst & Young, TCLM’s auditors, also issued their unqualified letter containing their findings and conclusions in respect of such continuing connected transactions.

TCL Corporation Group, as a major PRC conglomerate that designs, develops, manufactures and markets a wide range of electronic, telecommunications, information technology and electrical products, has been providing various services to its subsidiaries (including our Group), including among others, call centre services, general technology support or financial services, etc. Given the size of TCL Corporation Group, it enjoys economies of scale in providing these services and it is able to offer competitive commercial terms, which are often better than its competitors. In addition, in view of the relationship and years of cooperation between our Group and TCL Corporation Group as a result of which (i) we and TCL Corporation Group have a thorough understanding of each other’s operations and business needs; (ii) we share similar operation and corporate culture as well as communication systems which have facilitated efficient negotiation, execution and performance of the transactions between us and TCL Corporation Group; and (iii) taking into account the commercial rationale for the transactions as illustrated under each of the continuing connected transactions in this section which often provided added benefit to our Group, the Board considers that it is in the commercial interest of our Shareholders and our Group as a whole to continue the following continuing connected transactions with TCL Corporation Group upon Listing instead of seeking new cooperation with other parties.

Accordingly, our Company intends to continue these continuing connected transactions with TCL Corporation Group (including the Remaining TCLM Group) after Listing. Upon Listing, TCL Corporation, being our Controlling Shareholder, as well as TCLM, being an associate of TCL Corporation, are connected persons of our Company. Thus any transactions of our Group with any member of TCL Corporation Group (including TCLM) are connected transactions. Our Group entered into several agreements with TCL Corporation and TCLM. The transactions contemplated under these agreements will therefore constitute continuing connected transactions of our Company. All these agreements require the transactions thereunder be carried out on terms which are comparable to terms which may be available to our Group from Independent Third Parties or on terms no less favourable to our Group than those available to or from Independent Third Parties. Further, nothing in these agreements has restricted the freedom of our Group to source from or supply such goods or services to any party other than TCL Corporation Group, which gives flexibility to our Group. Hence, our Group, if we deem fit, can source from or supply the relevant goods or services from whatever sources or distribution channels available to us. To ensure our Group will continue to operate independently from TCL Corporation Group, our

independent non-executive Directors will, in each financial year, review all the continuing connected

transactions that they are entered into (i) in the ordinary and usual course of our Group’s business; (ii)

in accordance with the terms of the respective agreements governing such transactions which are fair

SX2-1

SX1-1(i)

SX1-1(ii)

CONTINUING CONNECTED TRANSACTIONS

167

and reasonable and in the interests of the shareholders of our Company as a whole; and (iii) either on

normal commercial terms or on terms no less favourable to our Group than those available to or from

Independent Third Parties. Our auditors will also issue letter containing their findings and conclusions in

respect of these continuing connected transactions. In view of the aforesaid and in particular, the terms

and the reasons for these transactions, the entering into of various continuing connected transactions with TCL Corporation Group will not impair our ability to carrying on our business independently of TCL Corporation.

The details of these agreements are set out as below:

EXEMPTED CONNECTED TRANSACTION

Deed of Non-Competition

The Deed of Non-Competition has been entered into among TCL Corporation, T.C.L. Industries and our Company on 15 July 2013. Further details of the Deed of Non-Competition are contained in the section headed “Relationship with the Remaining TCLM Group and Controlling Shareholders – Non-Competition Arrangements” in this listing document. No consideration will be payable by either party under the deed when entered into. Accordingly, the deed will constitute a de minimis connected transaction and will be exempted from the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

EXEMPTED CONTINUING CONNECTED TRANSACTIONS

1. Trademark Licence Agreement

As explained above in the section headed “Relationship with the Remaining TCLM Group and the Controlling Shareholder” in this listing document, TCL Corporation Group is a major PRC conglomerate that designs, develops, manufactures and markets a wide range of electronic, telecommunications, information technology and electrical products. It owns and has registered “TCL” trademarks in various international classes for its wide-ranging business, in particular in international class 9, which covers apparatus and instruments for conducting, switching, transforming, accumulating, regulating or controlling electricity; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; compact discs, DVDs and other digital recording media; data processing equipment, computers; etc. Being a Controlling Shareholder of various subsidiaries engaging in different business segments, TCL Corporation is prepared to grant its subsidiaries (including our Group) trademark licence for their respective businesses.

Transaction Details

By the Trademark Licence Agreement dated 12 July 2013 entered into between TCL Corporation and our Company, we were granted, free of charge, non-exclusive right to use two “TCL” trademarks for the operation, advertising, marketing and sales promotion activities of our ABS-s products for a term from the Listing Date to 31 December 2015. The Trademark Licence Agreement entitles our Company to automatically renew on the same terms every three years thereafter until the expiry of 30 years from 31 December 2015.

SX1-2(i)

SX1-2(i)

SX2-2(i)

CONTINUING CONNECTED TRANSACTIONS

168

TCL Corporation Group owns and has registered two “TCL” trademarks in international class 9 in the PRC with registration number 1255062 and 4246770 respectively. Our ABS-s products are currently produced with and sold under these two “TCL” trademarks. Given these two “TCL” trademarks in class 9 are also used by other members of TCL Corporation Group and have been used extensively by them in a wide range of electronic, telecommunications, information technology and electrical products, it will be unreasonable for TCL Corporation to transfer these two “TCL” trademarks to our Company but to licence them to us. Such trademarks are considered to be important to the successful long-term operation of our ABS-s business of our Group. Under the applicable laws and regulations of the PRC, licence is required for the production, import, sale, installation and use of satellite ground receiving equipment which covers the production and sale of ABS-s products. In order to be in a position to participate in the tendering process for the

production of ABS-s in the PRC, one must possess such licence. Apart from the quality of our

products, one of the criteria upon which such licence was granted to our ABS-s products was that

they bear “TCL” trademarks which is a reputable brand name in the PRC. It is therefore important

for our Company to be able to continue to use the “TCL” trademarks on our ABS-s products. The

Trademark Licence Agreement allows our Group to secure the use of such “TCL” trademarks

over a reasonable period of time with no consideration payable to TCL Corporation Group. Our

Directors (including independent non-executive Directors) consider that the continuing connected

transactions under the Trademark Licence Agreement are in the ordinary and usual course of

business of our Company, on normal commercial terms, fair and reasonable and in the interests of

our Company and our Shareholders as a whole.

As our Group is not required to pay any royalty to TCL Corporation for the term from

the Listing Date to 31 December 2015 under the Trademark Licence Agreement, the continuing

connected transactions contemplated thereunder constitute de minimis connected transactions and

thus are exempt from the reporting, annual review, announcement and independent shareholders’

approval requirements under Rule 14A.33(3) of the Listing Rules.

2. Master Call Centre Services Supply Agreement

Transaction Details

In view of the expected increase in our Group’s sale of ABS-s in future, on 12 July

2013, TCL Corporation and our Company entered into the Master Call Centre Services Supply

Agreement, pursuant to which TCL Corporation Group has agreed to provide our Group with the

call centre services for a term from the Listing Date to 31 December 2015, including but not limited

to providing our Group with a 24-hour hotline, supporting the marketing and after-sales service of

various products (especially, ABS-s) of our Group sold in the PRC and providing our Group with

analysed customer information obtained through the operation of the customer call centre. For the

avoidance of doubt, our Group is entitled to use call centre services provided by other independent

service providers.

TCL Corporation Group has a well-established and extensive call centre service network

in the PRC. It has been providing call centre services to its subsidiaries (including our Group)

in various business segments. Due to economies of scale in providing call centre services, TCL

Corporation Group is able to provide such services at a more competitive pricing as compared with

other Independent Third Parties. Such call centre services are particularly important to enhance

SX1-2(i)

SX2-2(i)

SX1-1(ii)

SX1-2(ii)

CONTINUING CONNECTED TRANSACTIONS

169

the competitiveness of our ABS-s products by supporting the marketing and after-sales services

thereof. If our Company is to set up a call centre of our own to provide basic call centre services,

we estimate that at least approximately RMB0.11 million and RMB0.18 million respectively is

needed for setting up and for annual operation fees. The call centre operated by TCL Corporation

Group is well established and professional in the provision of call centre services and is able to

provide more comprehensive service due to its size and network. Based on our expected demand for

such call centre services and the estimated establishment and operation costs of a call centre, our

Directors are of the view that it would not be cost effective and efficient at this stage to establish

our own call centre.

Our Group shall pay TCL Corporation Group the service fee which is calculated based on the standard rate and the number of hours of calls handled by TCL Corporation Group in respect of our ABS-s products. The standard rate will be reviewed by TCL Corporation within 60 days after each of its financial year end.

Our Directors (including independent non-executive Directors) are of the view that in order to streamline the cost structure and operations of our Group, it will be beneficial for our Group to subcontract the call centre services to specialized service providers. Given the close relationship between our Group and TCL Corporation Group, our Group will be placed in a better position to monitor the services to be provided by TCL Corporation Group under the Master Call Centre Services Supply Agreement than by other outside service providers. Our Directors consider that the continuing connected transactions under the Master Call Centre Service Supply Agreement and the proposed annual caps thereof are in the ordinary and usual course of business of our Company, on normal commercial terms, fair and reasonable and in the interests of our Company and our Shareholders as a whole.

Historical Amounts and Proposed Annual Caps

The historical figures and the projected annual caps for the service fees payable are set out in the table below:

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 6 23 7

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 75 89 103

CONTINUING CONNECTED TRANSACTIONS

170

The following factors have been taken into account in determining the proposed annual caps under the Master Call Centre Services Supply Agreement:

(a) for the year ending 31 December 2013, the proposed annual cap is the estimated pro rata amount calculated based on the actual service fees of approximately HK$10,000 paid to TCL Corporation Group for the services provided in the first quarter of 2013, which was determined by the standard rate times the actual hours of calls handled by TCL Corporation Group; and

(b) for the two years ending 31 December 2015, the proposed annual caps have taken into account the estimated increase of cumulative ABS-s population in these two years which in turn increase the number of ABS-s users who may need call centre services.

Since each of the percentage ratios, where applicable, calculated by reference to the Listing

Rules, for the Master Call Centre Services Supply Agreement on an annual basis is less than 0.1%,

the continuing connected transactions contemplated thereunder are exempt from the reporting,

annual review, announcement and independent shareholders’ approval requirements under Rule

14A.33(3) of the Listing Rules.

3. Services Agreement

Transaction Details

On 12 July 2013, TCLM and our Company entered into the Services Agreement, pursuant

to which TCLM, as a service provider, has agreed to provide for our Group certain general

administrative services such as maintaining files of corporate and commercial documentation and

assisting our Group administering our general insurance obligation, etc, and a small part of its

office premises in Hong Kong for our Group from the Listing Date to 31 December 2013.

During the three years ended 31 December 2012, our Group had engaged TCLM to provide

us with the following services: foreign exchange hedging services in Hong Kong, consultancy

service, legal service and other general administrative services. The reason for a significant

increase in the service fee in the year ended 31 December 2011 was that additional consultancy

service was required by us to help develop our business. As our Group develops, we no longer

require most of the aforesaid services from TCLM.

However, given our Group’s operation base is in the PRC, currently, we do not have an

office of our own in Hong Kong. In preparation for the Listing and as a transitional arrangement,

our Company entered into the Services Agreement with TCLM. The scope of services under the

Services Agreement comprises only the provision of general administrative services and a small

part of its office premises in Hong Kong. Other services, such as foreign exchange hedging services

in Hong Kong, will no longer be used for the year ending 31 December 2013. In consideration

of the provision of part of its office premises and such general administrative services by TCLM,

our Company shall pay TCLM a service fee, based on actual costs incurred by TCLM plus an

administrative fee which shall be no less favourable than (i) those offered by TCLM to other

independent clients and/or (ii) those offered to our Company by other independent service

providers for the provision of comparable services and premises. Given we have engaged TCLM to

SX2-1

SX1-1(ii)

CONTINUING CONNECTED TRANSACTIONS

171

provide such general administrative services in the past three years, they already have a thorough

understanding of our needs in this regard; and given we expect that the provision of such services

is of temporary duration and we will no longer require these services after 2013, it may not be cost

efficient for our Group to source such services from other Independent Third Parties. Our Directors

(including independent non-executive Directors) are of the view that in order to maximize cost

efficiency, it will be beneficial for our Group to receive general administrative services from TCLM

and use part of its office premises until our Company can find a suitable office in Hong Kong after

the Listing. Our Directors consider that the continuing connected transactions under the Services

Agreement and the proposed annual service fees thereof are in the ordinary and usual course of

business of our Company, on normal commercial terms, fair and reasonable and in the interests of

our Company and our Shareholders as a whole.

Historical Amounts and Proposed Annual Service Fees

The historical figures and projected annual cap for the service fees payable are set out in the

table below:

For the year ended 31 December

2010 2011 2012 (HK$’000) (HK$’000) (HK$’000)

Historical figures 3,494 18,398 5,499

For the year ending 31 December

2013 2014 2015 (HK$’000) (HK$’000) (HK$’000)

Proposed annual cap 1,250 – –

The proposed annual service fee for the year ending 31 December 2013 is determined

based on (i) the monthly service fee paid by our Group to TCLM in the first 4 months of the year

2013; (ii) the market rate of the premises to be provided by TCLM; and (iii) the estimate costs

to be incurred by TCLM for the provision of such general administrative services. Since each

of the percentage ratios, where applicable, calculated by reference to the Listing Rules, for the

Services Agreement on an annual basis is less than 0.1%, the continuing connected transactions

contemplated thereunder are exempt from the reporting, annual review, announcement and

independent shareholders’ approval requirements under Rule 14A.33(3) of the Listing Rules.

SX1-1(iii)

CONTINUING CONNECTED TRANSACTIONS

172

C O N T I N U I N G C O N N E C T E D T R A N S A C T I O N S S U B J E C T T O T H E R E P O R T I N G AND ANNOUNCEMENT REQUIREMENTS BUT EXEMPT FROM INDEPENDENT SHAREHOLDERS’ APPROVAL REQUIREMENT

1. Technology Support Services and Trade Names Licence Agreement

Background

TCL Corporation Group, as a major PRC conglomerate, in order to achieve cost and

administrative efficiency, takes up all advertising, brand promotion and related work for all of its

subsidiaries. Such centralisation of brand promotion efforts has been viewed to be of the interest

to all members of TCL Corporation Group since as a result thereof much intangible value can be

generated to the trade name of TCL.

During the Track Record Period, our Group, as part of TCLM Group, similar to other

members of the TCL Corporation Group, had been reimbursing TCL Corporation for such

advertising and brand promotion costs at a stipulated rate of approximately 0.25% of the revenue.

The annual amount of branding fees paid by our Group to TCL Corporation were approximately

HK$8.7 million, HK$10.1 million and HK$8.9 million respectively for the three years ended 31

December 2012.

After years of efforts in advertising and brand promotion, the trade name of TCL enjoys

considerable goodwill. Our Directors consider that it is in the interest and benefit of our Company

to be able to continue to use it for our business development and client development.

Given the products manufactured by us are mainly on a ODM basis, we may not take the

benefit of brand promotion as extensively as other members of TCL Corporation Group after the

Spin-off. Having said that, after arm’s length negotiations with TCL Corporation, with the same

stipulated rate of revenue payable to TCL Corporation, TCL Corporation has agreed to provide us

with extensive technology support services on top of allowing us to use the trade name of TCL.

Transaction Details

On 12 July 2013, TCL Corporation and our Company entered into the Technology Support

Services and Trade Names Licence Agreement, pursuant to which TCL Corporation has granted

our Group, a non-exclusive, non-licensable and non-transferable licence to use (i) the general

technology support services provided by TCL Corporation Group; and (ii) to use “TCL” trade name

and other trade names from time to time used by TCL Corporation Group, for a term from the

Listing Date to 31 December 2015.

Our Group has our own research and development department which is specific to our

products only. TCL Corporation Group has its own development centre known as Industry

Research Institute which conducts forward-looking technology research, develops industries

convergence technology and new product, establishment of technology management platform for

TCL Corporation and its subsidiaries, integrates and coordinates the technology resource of various

members of TCL Corporation Group and leads and organizes governmental technology projects.

Our Group considers that it would be beneficial and cost effective to us if we could share such

know-how, expertise, experience and research results of TCL Corporation Group and provide our

SX2-2(i)

SX1-1(ii)

SX1-2(ii)

CONTINUING CONNECTED TRANSACTIONS

173

Group with the know-how, research results, expertise and experience relevant to our new product

development, especially in view of product convergence in electronic products industry. The

sharing of such technology support or know-how is particularly important since our products may

be required to cross over with other electronic products.

The Trademark Licence Agreement is only for our ABS-s products so as to enable us to use

the “TCL” trademarks on our ABS-s products. It does not entitle us to use the trade name of TCL

for other purposes. By entering into the Technology Support Services and Trade Names Licence

Agreement, our Group is able to use the trade name of TCL for our business development and client

development. Further, a number of our Group members are using “TCL” as part of their company

names.

Our Group shall pay TCL Corporation a licence fee to be calculated at a rate of 0.25% of the

revenue of our Group and subject to downward revision as shall be mutually agreed by the parties.

Such rate has been a long standing and well established rate charged by TCL Corporation to each

of its members. It is considered to be a reasonable rate by our Directors in view of the technology

support services provided by TCL Corporation Group.

Our Directors consider that the continuing connected transactions under Technology Support

Services and Trade Names Licence Agreement and the proposed licence fees are in the ordinary and

usual course of business of our Company, on normal commercial terms, fair and reasonable and in

the interests of our Company and our Shareholders as a whole.

Proposed Annual Caps

The projected annual caps for the licence fee payable are set out in the table below:

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 9,855 10,643 11,495

The proposed annual caps are determined (i) assuming the licence fee be calculated at a rate of 0.25% of the revenue of our Group, (ii) after taking into account the total sales of our Group’s products in the year ended 31 December 2012 amounting to HK$3.65 billion, and (iii) the estimated steady annual growth in the sales of our products for the three years ending 31 December 2015. Our Group expects that the sales of AV Products (excluding TV sets) will become increasingly

concentrated in certain well-known international brands, most of which are our customers and have

long-term relationships with us. Further, our Group has input substantial resources in developing

audio products and thus we expect there will be growth in the sales of our audio products in the

three years ending 31 December 2015. Accordingly, although the global sales of AV Products are

expected to decrease in the coming few years, our Group expects that we can maintain a steady

growth in the sales of our products in the three years ending 31 December 2015.

SX1-2(ii)SX2-2(i)

SX2-1SX1-1(iii)

SX2-1(i)(b)

CONTINUING CONNECTED TRANSACTIONS

174

Since each of the percentage ratios, where applicable, calculated by reference to the Listing Rules, for the Technology Support Services and Trade Names Licence Agreement on an annual basis is more than 0.1% but less than 5%, the continuing connected transactions contemplated thereunder are subject to the reporting, annual review and announcement but exempt from independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

2. Master Lease (Tenant) Agreement

Transaction Details

On 12 July 2013, TCL Corporation as landlord, and our Company as tenant entered into the Master Lease (Tenant) Agreement for a term from the Listing Date to 31 December 2015, pursuant to which our Group shall lease certain premises from TCL Corporation Group. The expiry date of each of the leases contemplated under the Master Lease (Tenant) Agreement shall not be later than 31 December 2015.

The rental shall be determined with reference to the prevailing market rate which shall be no more than the rent payable by an Independent Third Party to TCL Corporation Group for comparable tenancies. In addition to the rental, unless otherwise agreed, TCL Corporation Group shall pay all the (i) taxes, (ii) management fees, (iii) other charges payable to the central and local government of the PRC or the government of Hong Kong and (iv) the routine repair and maintenance fees.

Due to geographical proximity, our Group has been leasing certain properties with a total area of approximately 70,000 sq.m. in Shenzhen and Huizhou from TCL Corporation Group as its offices, factory, warehouse and dormitory. Our Directors (including independent non-executive Directors) consider that it is the interests of our Company and our Shareholders as a whole to enter into the Master Lease (Tenant) Agreement in order to regulate the existing and new leases entered into between our Group and TCL Corporation Group. Our Directors consider that the continuing connected transactions under the Master Lease (Tenant) Agreement and the proposed annual caps thereof are in the ordinary and usual course of business of our Company, on normal commercial terms, fair and reasonable and in the interests of our Company and our Shareholders as a whole.

Historical Amounts and Proposed Annual Caps

The historical figures and projected annual caps for the rent payable are set out in the table

below:

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 11,367 11,946 12,401

SX1-1(ii)

CONTINUING CONNECTED TRANSACTIONS

175

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 13,745 5,720 5,821

The following factors have been taken into account in determining the proposed annual caps:

(a) for the year ending 31 December 2013, the proposed annual cap is determined based on (i) the historical amount of rents paid by our Group to TCL Corporation Group; and (ii) the estimated aggregate annual rents payable calculated based on the total area of the properties leased and the current average rent per sq. m. under the existing leases; and

(b) for the two years ending 31 December 2015, the proposed annual caps have taken into account the estimated annual increase in market rentals during these two years.

In determining the proposed annual caps for the two years ending 31 December 2015, we have also taken into account the construction agreement dated 17 October 2012 entered into between Huizhou Mobile and us, pursuant to which our Group, being the purchaser of a portion of a piece of land in Huizhou, the PRC, shall cooperate with Huizhou Mobile, being the vendor of the land, in the construction project thereon. Upon satisfaction of certain conditions imposed by the relevant authorities in the PRC in relation to the transfer of state-owned land use rights, Huizhou Mobile shall enter into a transfer agreement with our Group pursuant to which Huizhou Mobile will transfer to our Group the agreed portion of the land together with the buildings thereon. On 26 June 2013, our Company entered into the transfer agreement with Huizhou Mobile and the consideration for the transfer amounts to approximately HK$38.4 million. Our Group expects such transfer will be completed by the end of 2013 and our Group will use the buildings as staff quarters; and in turn, our Group will no longer need to lease properties from TCL Corporation Group for such purposes. Further, as mentioned in the section headed “Business – Production Facilities – Our new production facility” in this listing document, we are constructing a new production facility for AV Products

(excluding TV sets) in Huizhou. When our new production facility fully commences its commercial

production, our old production facility will cease to operate and our production and research and development facilities will be moved to our new plant. It is currently expected that the relocation of our production plant will be completed around the end of August 2013. The lease of old production site with TCL Corporation is expected to be terminated by the end of 2013. In this connection, our Group expects the proposed annual caps for the rent payable under the Master Lease (Tenant) Agreement for the two years ending 31 December 2015 will be decreased.

Since each of the percentage ratios, where applicable, calculated by reference to the

Listing Rules, for the Master Lease (Tenant) Agreement on an annual basis is more than 0.1% but

less than 5%, the continuing connected transactions contemplated thereunder are subject to the

reporting, annual review and announcement but exempt from independent shareholders’ approval

requirements under Chapter 14A of the Listing Rules.

SX1-1(iii)

SX2-1

SX1-1(iii)

CONTINUING CONNECTED TRANSACTIONS

176

CONTINUING CONNECTED TRANSACTIONS SUBJECT TO THE REPORTING, ANNOUNCEMENT AND INDEPENDENT SHAREHOLDERS’ APPROVAL REQUIREMENTS

1. Master Overseas Materials Sourcing Agreement

Transaction Details

On 12 July 2013, TCL Corporation and our Company has entered into the Master Overseas Materials Sourcing Agreement for a term from the Listing Date to 31 December 2015, pursuant to which the relevant member of TCL Corporation Group shall:

(a) act as the intermediary for our Group to import the required articles, things, parts or components manufactured or produced in areas other than the PRC which are required for the manufacture or production of the Company’s products (“Overseas Materials”). Such Overseas Materials are not manufactured or produced by TCL Corporation Group, but are purchased by our Company’s overseas subsidiaries from Independent Third Parties overseas independently and TCL Corporation Group is not at all involved in such purchases. TCL Corporation Group subsequently purchases such Overseas Materials from our Company’s overseas subsidiaries. The purchase price to be paid by TCL Corporation Group shall be the purchase price paid or to be paid by our Company’s overseas subsidiaries to Independent Third Parties for the purchase of the Overseas Materials (the “Import Price”); and

(b) sell such Overseas Materials to our Company’s nominated subsidiaries in the PRC.

It should be noted that TCL Corporation Group merely acts as the intermediary for the Group to facilitate custom clearance for importing the Overseas Materials and the sole purpose of entering into of the Master Overseas Materials Sourcing Agreement is for facilitating custom clearance and import logistics of Overseas Materials only, and such sales and purchases to and/or from TCL Corporation Group have been eliminated in the combined financial statements. The second part of the Overseas Materials sourcing service mentioned above is different from and does not form part of the transactions under the “Sourcing of components and parts from TCL Corporation Group” described in the section of “Master Sale and Purchase Agreement” below.

Insofar as the purchases made by TCL Corporation Group from our overseas subsidiaries of Overseas Materials are concerned, all the risk related to the Overseas Materials as purchased are transferred to TCL Corporation Group when the delivery of such materials have been made to the overseas warehouse designated by TCL Corporation Group. The risk of such Overseas Materials will stay with TCL Corporation Group until the custom clearance in relation thereof has been completed and such Overseas Materials have then been sold to our subsidiaries in the PRC.

The settlement currency for the payment of Import Price by TCL Corporation Group to our Company’s overseas subsidiaries is in USD while TCL Corporation Group sells Overseas Materials to our Company’s nominated subsidiaries in the PRC in RMB. If there is any currency risk involved, it shall be borne by TCL Corporation Group.

The price determination of such sourcing fees is as follows:

(a) in respect of the purchase of Overseas Materials by TCL Corporation Group from our Group in places other than the PRC: the relevant Company’s overseas subsidiary charges TCL Corporation Group the costs of Overseas Materials; and

(b) in respect of the sale of Overseas Materials by TCL Corporation Group to the Company’s nominated subsidiaries in the PRC: TCL Corporation Group charges the relevant Company’s nominated subsidiary in PRC (i) the Import Price, (ii) all import duties payable by TCL Corporation Group, and (iii) an administrative charge being 1% of the Import Price.

SX3-1(i)

SX3-1(i)

CONTINUING CONNECTED TRANSACTIONS

177

Of the above administrative charge at 1% of Import Price, approximately 90% covers the actual expenses including import administrative expenses, insurance fee and all out-of-pocket expenses incurred by TCL Corporation Group relating to the importation and delivery of the relevant Overseas Materials into the PRC; and the remaining approximately 10% represents the mark-up received by TCL Corporation Group. TCL Corporation Group generally charges its other members such administrative charge at a rate of 1% of the relevant import price, out of which the proportion of actual expenses and mark-up received by TCL Corporation Group is also approximately 90% and 10%, respectively. The above administrative charge shall be no less favourable than those charged by Independent Third Parties for the purpose of importing Overseas Materials for the Group.

The credit period we offer to Independent Third Parties ranges from 60 to 180 days and the credit period offered by Independent Third Parties to us ranges from 15 to 120 days. The relevant member of our Group in the PRC shall pay the Import Price plus import duties and administrative charge to TCL Corporation Group not more than 30 days after the receipt of Overseas Materials. TCL Corporation Group will pay the cost of Overseas Materials to the relevant member of the Group in places other than the PRC not more than 30 days after the receipt of payment (Import Price plus import duties and administrative charge) from the relevant member of the Group in the PRC. Such credit period falls within the range of or no less favourable than the credit period offered to and by Independent Third Parties. The payment terms largely correspond to the payment terms allowed by the PRC governmental authorities and Independent Third Parties to which import duties and other expenses are paid.

Our Directors (including independent non-executive Directors) are of the view that in respect of the Master Overseas Materials Sourcing Agreement, the arrangement of sourcing Overseas Materials via TCL Corporation Group is the best alternative for our Group to source Overseas Materials for our Group’s production. Instead of opting to import directly from our Company’s overseas subsidiaries and/or from designated overseas Independent Third Parties, the sourcing of Overseas Materials through TCL Corporation Group will facilitate custom clearance and import logistic of sourcing Overseas Materials of our Group.

Given TCL Corporation Group is one of the largest conglomerates in Huizhou, the PRC, where our production facility locates, it maintains a sound record in General Administration of Customs of the PRC (中華人民共和國海關總署). TCL Corporation is classified as a class AA enterprise whereas our Company is classified as a class A enterprise. Based on the requirements of “The Measures of the Customs of the PRC on the Classified Management of Enterprises” (《中華人民共和國海關企業分類管理辦法》) published by the General Administration of Customs of the PRC on 14 October 2010 and implemented since 1 January 2011, the General Administration of Customs shall, in light of the enterprises’ performances in observing laws, administrative regulations, customs rules, relevant provisions on corruption and their respective business management status as well as the Customs supervision and statistical records, etc., to evaluate and provide classification to consignees and consigners of import and export of goods registered with the Customs. The consignee or consigner of import or export of goods in class AA shall meet the following requirements: (1) meeting the requirements of the management category of class A, and having been subject to the management of class A for at least one year; (2) having the error rate of import or export declaration below 3% during the previous year; (3) meeting the requirements for customs administration, enterprise business management and trading safety upon the inspection of the Customs; (4) submitting a “Evaluation Report on Enterprise Business Management Status” and the audit report for the previous year as issued by an accounting firm annually; and (5) submitting a “Form on the Import and Export Business” every semi-annually, and the enterprises are being reviewed annually. Accordingly, it enjoys more advantages and is in a better position than our Company to perform custom clearance in the area. In particular, it is benefited by the privileged

SX3-1(i)

SX3-1(i)

SX3-1

SX3-1

SX2-1(i)(a)

CONTINUING CONNECTED TRANSACTIONS

178

policy under “Measures of the Customs of the PRC on the Classified Management of Enterprises” (《中華人民共和國海關對企業實施分類管理辦法》). TCL Corporation, as a class AA enterprise, is able to enjoy the economic benefits, convenience and efficiency brought by import duties determined based on its actual transaction price instead of estimation by the customs authority. For other non-class AA enterprises, when the transaction price cannot be ascertained, import duties will be determined by the customs authority based on any of the followings: (i) the transaction price of same goods imported to the same country or region; (ii) the transaction price of similar goods imported to the same country or region; (iii) the cost of producing same or similar goods in the PRC; or (iv) any other reasonable pricing basis. Import duties determined on such estimation basis are generally higher than those determined based on the actual transaction price. Moreover, the time needed for custom clearance is usually longer when custom duties determined on such basis as the custom authority would need more time and effort to communicate with the enterprise concerned in order to ascertain and verify the transaction price. Therefore, our Group, by sourcing Overseas Materials from TCL Corporation Group, is able to enjoy the economic benefits, convenience and efficiency brought by import duties determined based on the actual transaction price instead of estimation by the customs authority.

Our Directors (including independent non-executive Directors) shall review the classifications of our Company and TCL Corporation pursuant to the General Administration of Customs semi-annually. If there is any reclassification where TCL Corporation is the same or at a lower level of class than us, the Board shall review and re-consider whether it would be in our Group’s interests as a whole to continue the transactions with TCL Corporation Group under the Master Overseas Materials Sourcing Agreement.

Furthermore, there are specific and professional departments of TCL Corporation Group responsible for the custom clearance and import logistic of sourcing various overseas materials for our Group and its other members. Such arrangement of custom clearance and import logistic in bulk can achieve economies of scale and thus increase the flexibility and efficiency and decrease the marginal costs involved and can provide custom clearance service at a more competitive price than other service providers. Our Company is able to and free to source from any Independent Third Parties such custom clearance and import logistic services and our Company has obtained quotations from certain Independent Third Parties for the provision of such services. It is noted that TCL Corporation Group has a comparative price advantage on the administrative charges over them. For illustrative purpose only, we estimated that by sourcing custom clearance services from TCL Corporation Group, we could save approximately HK$140,000, HK$199,000 and HK$284,000 for each of the three years ended 31 December 2012, respectively, comparing to the quotation of such services by Independent Third Parties. Further, our Company believes that TCL Corporation being our Controlling Shareholder is a more reliable business partner than other Independent Third Parties in performing such custom clearance and import logistic function. Currently, we have 4 staff who are qualified with custom licence, with 4 to 15 years of relevant experience, to handle custom clearance for our Group. If our Company were to perform the entire custom clearance function, including custom clearance for Overseas Materials as envisaged under the Master Overseas Materials Sourcing Agreement, additional qualified staff would have to be employed and accordingly, additional operating costs would have to be incurred. For illustrative purpose only, we estimated that by sourcing custom clearance services from TCL Corporation Group, we could save approximately HK$244,000, HK$348,000 and HK$497,000 for each of the three years ended 31 December 2012, respectively, comparing to performing custom clearance by ourselves. Our Directors consider that the continuing connected transactions under the Master Overseas Materials Sourcing Agreement and the proposed annual caps thereof are in the ordinary and usual course of business of our Company, on normal commercial terms, fair and reasonable and in the interests of our Company and our Shareholders as a whole.

SX1-1(ii)SX1-2(iii)

SX2-1(iii)(a)

CONTINUING CONNECTED TRANSACTIONS

179

Historical Amounts and Proposed Annual Caps

The historical figures and projected annual caps of the continuing connected transactions under the Master Overseas Materials Sourcing Agreement are set out in the table below:

Purchase of the Overseas Materials by TCL Corporation Group from our Company’s overseas subsidiaries in places other than the PRC

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 30,383 75,036 138,866

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 150,310 150,310 150,310

Sale of the Overseas Materials by TCL Corporation Group to the Company’s nominated

subsidiaries in the PRC

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 69,794 99,363 142,005

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 158,336 158,336 158,336

Prior to mid-2010, TCL Corporation Group purchased Overseas Materials from an overseas

subsidiary of the TCLM (i.e. a member of the TCLM Group). Such purchase was terminated in

May 2010. Starting from the second half of 2010, TCL Corporation Group has been purchasing

Overseas Materials from a subsidiary of our Company. Given the purchase made prior to mid

2010 by TCL Corporation Group was purchased from TCLM Group, they did not constitute a

continuing connected transaction of our Group and hence the purchase amount was not included in

the historical figures for the year ended 31 December 2010. For this reason, there is a significant

difference between the purchase amount of the Overseas Materials by TCL Corporation Group and

the sale amount of the Overseas Materials to our Group in the year ended 31 December 2010.

SX1-2(iii)

CONTINUING CONNECTED TRANSACTIONS

180

Based on the price determined for the sourcing fees paid to TCL Corporation provided

above, our Directors confirm that our Company is not subject to any transfer pricing challenged by

the relevant tax authorities or any associated risks.

In determining the proposed annual caps for the transactions under the Master Overseas

Materials Sourcing Agreement for the three years ending 31 December 2015, our Company (i) has

taken into account the estimated pro rata amount calculated based on the actual purchase amount

of Overseas Materials by TCL Corporation Group and the actual sales amount of such materials

to the Company’s nominated subsidiaries in the sum of HK$41.1 million and HK$47.5 million

respectively, for the first four months ended 30 April 2013; and (ii) has taken into account the

seasonal factor as demonstrated in the Track Record Period that there is a pattern of lower sales

in the first quarter of the year since it is usually the low season for the industry and the sales are

normally affected by the Chinese New Year holiday.

Since each of the percentage ratios, where applicable, calculated by reference to the Listing

Rules, for the Master Overseas Materials Sourcing Agreement on an annual basis is more than 5%,

the continuing connected transactions contemplated thereunder are subject to the reporting, annual

review, announcement and independent shareholders’ approval requirements under Chapter 14A of

the Listing Rules.

2. Master Sale and Purchase Agreement

Transaction Details

On 12 July 2013, TCL Corporation and our Company have entered into the Master Sale and

Purchase Agreement for a term from the Listing Date to 31 December 2015, pursuant to which:

Sourcing of components and parts from TCL Corporation Group

Our Company shall procure our subsidiaries to favourably consider purchasing part of

our Group’s required components and parts produced or manufactured in the PRC from TCL

Corporation Group provided that they can offer terms (including price, payment terms and credit

terms) no less favourable than terms available from Independent Third Parties and are capable of

meeting the timeline, quality and quantity of the relevant order placed. Such components and parts

include mainly circuit boards, wire, tooling and mobile communication module.

TCL Corporation shall procure the relevant members of TCL Corporation Group to sell to

the relevant members of our Group the requested components and parts.

Sale of components, parts and accessories to TCL Corporation Group

If the relevant member of TCL Corporation Group requests or makes a written offer to any

member of our Group to purchase from our Group any components and parts or accessories, our

Company shall procure our subsidiaries to favourably consider offering to supply to or accepting

such offer to purchase made by relevant member of TCL Corporation Group provided that the terms

(including price, payment terms and credit terms) of the offer by TCL Corporation Group are no

less favourable than terms available to our Group from Independent Third Parties.

SX1-2(iii)

SX1-2(iii)

SX1-1(iii)

SX2-1SX2-1(iii)(b)

SX1-2(iv)

SX3-1(ii)

CONTINUING CONNECTED TRANSACTIONS

181

The components and parts supplied to TCL Corporation Group are mainly plastic products manufactured by Regency Optics-Electron and to be used by TCL Corporation Group in their production process. To ensure our Group members’ demand can be fully satisfied, we will only consider accepting orders of non-Group members (including TCL Corporation Group) if we have spare capacity to supply. Other components and parts supplied to TCL Corporation Group are mainly loader, integrated circuits and metallic components.

From 2013 onwards, our Group commences to supply accessories to TCL Corporation Group in response to the request of TCL Corporation Group. Such accessories, which are mainly speakers and Soundbars, do not bear any brands of our ODM customers. Since our Group has long term trading relationship with well-known international brands, we are well adapted to the rapid technology change and our products are compatible to other electronics products, including those produced by TCL Corporation Group. Due to geographical proximity of our production facility and that of the TCL Corporation Group and the compatibility and quality of our accessories, TCL Corporation Group sources from us accessories which are subsequently sold to TCL Corporation Group’s customers as accessory to or part and parcel of TCL Corporation Group’s electronics products, including television sets and mobile phones. Such sourcing and subsequent sale of accessories by TCL Corporation would not affect its compliance with its undertakings and covenants made under the Deed of Non-Competition in favour of our Group. Our Company considers that TCL Corporation Group is a reliable customer and that supplying accessories to TCL Corporation Group can generate sales on normal commercial terms. The amount of such sales of accessories is not significant to our Group’s total sales or to TCL Corporation Group’s total purchases and our Group currently has no intention to develop the business of sale of accessories actively.

There is no minimum commitment of components, parts and accessories to be purchased by TCL Corporation Group or to be supplied by us, and the Company can sell its spare components, parts and accessories to alternative customers at similar terms offered to TCL Corporation Group. On the other hand, our Company is in control to source from any Independent Third Parties components and parts and our Company has obtained quotations from certain Independent Third Parties for such components and parts. It is noted that TCL Corporation Group has a comparative price advantage on supplying such components and parts to us over them. In the event that any sale and purchase under the Master Sale and Purchase Agreement are conducted, a purchase order setting out all the terms of the transaction will be entered into by the relevant subsidiaries of our Group and TCL Corporation Group provided always that such terms shall be no less favourable than terms available to our Group from Independent Third Parties.

Our Directors (including independent non-executive Directors) are of the view that in respect of the Master Sale and Purchase Agreement, insofar as transactions concerning the sourcing of components and parts, it will continue to facilitate the smooth operation of the Group’s business by providing a stable and reliable source of supply of the necessary materials manufactured in the PRC for the Group’s manufacture of the AV Products (excluding TV sets) and the necessary finished goods for the Group’s operations. Due to geographical proximity of the production facility of our Group and that of TCL Corporation Group, we can also enjoy the benefit of saving transportation and storage costs from sourcing components and parts from TCL Corporation Group. Insofar as sale of components and parts is concerned, it allows the Group to better manage its level of components and parts by providing additional flexibility to the Group for managing its spare components and parts (if any) and insofar as sale of accessories is concerned, the Group may generate revenue by supplying to TCL Corporation Group on normal commercial terms. The credit period we offer to Independent Third Parties ranges from 15 to 180 days and the credit period offered by Independent Third Parties to us ranges from 15 to 120 days. The credit period we offer to TCL Corporation Group is 60 days whereas the credit period TCL Corporation Group offers to us is also 60 days. Such credit period fall within the range of credit period offered to and by Independent Third Parties and hence are comparable to those offered by Independent Third Parties. Our Directors consider that the continuing connected transactions under the Master Sale and Purchase Agreement and the proposed annual caps thereof are in the ordinary and usual course of business of our Company, on normal commercial terms, fair and reasonable and in the interests of our Company and our Shareholders as a whole.

SX2-1(ii)(c)

SX1-2(iv)

SX1-2(iv)

SX2-1(ii)(b)

SX2-1(iii)(a)

SX1-1(ii)

CONTINUING CONNECTED TRANSACTIONS

182

Historical Amounts and Proposed Annual Caps

The settlement currency under the Master Sale and Purchase Agreement is RMB. The historical figures and projected aggregate annual caps of the continuing connected transactions under the Master Sale and Purchase Agreement are set out in the table below:

Sourcing of components and parts

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 474,600 66,838 40,855

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 43,367 43,367 43,367

Sale of components and parts and accessories

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 441,259 195,498 13,212

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 138,713 138,713 138,713

For sourcing of components and parts during the year ended 31 December 2010, our Group sourced components and parts, which principally are SKD, from a subsidiary of TCL Corporation in Hong Kong; hence, the amount of sourcing in that year was exceptionally high. From 2011 onwards, as we have our own Hong Kong subsidiary to source components and parts, our demand for sourcing from TCL Corporation Group dropped significantly for the two years ended 31 December 2012.

For the sale of components and parts during the two years ended 31 December 2011, we sold a substantial amount of components and parts to a subsidiary of TCLM in Poland (i.e. a member of the TCL Corporation Group) for its further assembly into finished products and supply of such finished products to an overseas buyer designated by our Group. However, such sales had been gradually reduced in 2011 and were terminated in the year ended 31 December 2012. Starting from 2011, our Group has been selling the components and parts to an Independent Third Party in Indonesia for its further assembly and supply of finished products to such designated buyer. Given

SX1-2(iv)

SX1-2(iv)

SX2-1(ii)(a)

CONTINUING CONNECTED TRANSACTIONS

183

such sales were to an Independent Third Party, they did not constitute a continuing connected transaction and hence the sales amount was not included in the historical figures for the two years ended 31 December 2012 under the Master Sale and Purchase Agreement. For this reason, the amount of sales dropped significantly from HK$441.3 million in the year ended 31 December 2010 to HK$195.5 million in the year ended 31 December 2011 and further to HK$13.2 million in the year ended 31 December 2012.

In order to achieve vertical integration of our production process, our Group acquired 60% shareholding in Regency Optics-Electron on 20 December 2012. Regency Optics-Electron sold plastic components and parts to TCL Corporation in the sum of approximately HK$82.5 million in the year ended 31 December 2012. As Regency Optics-Electron was not our subsidiary until 20 December 2012, its sales amount was not included in the historical figures for the year ended 31 December 2012 under the Master Sale and Purchase Agreement.

In determining the proposed annual caps for sourcing components and parts under the Master Sale and Purchase Agreement for the three years ending 31 December 2015, our Company (i) has taken into account the estimated pro rata amount calculated based on the actual amount of components and parts sourced from TCL Corporation Group in the first four months ended 30 April 2013 in the sum of HK$11.7 million; and (ii) has taken into account the seasonal factor as demonstrated in the Track Record Period that there is a pattern of lower sales in the first quarter of the year since it is usually the low season for the industry and the sales are normally affected by the Chinese New Year holiday.

In determining the proposed annual caps for sale of components, parts and accessories under the Master Sale and Purchase Agreement for the three years ending 31 December 2015, our Company (i) takes into account the estimated pro rata amount calculated based on the actual total amount of plastic components, parts and accessories supplied to TCL Corporation Group in the sum of HK$41.6 million in the first four months ended 30 April 2013; and (ii) has taken into account the seasonal factor as demonstrated in the Track Record Period that there is a pattern of lower sales in the first quarter of the year since it is usually the low season for the industry and the sales are normally affected by the Chinese New Year holiday.

Since each of the percentage ratios, where applicable, calculated by reference to the Listing Rules, for the Master Sale and Purchase Agreement on an annual basis is more than 5%, the continuing connected transactions contemplated thereunder are subject to the reporting, annual review, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

SX2-1(ii)(d)

SX1-1(iii)

SX2-1

CONTINUING CONNECTED TRANSACTIONS

184

3. Master Financial Services Agreement

Transaction Details

On 12 July 2013, TCL Corporation, Finance Company and our Company has entered into the Master Financial Services Agreement for a term starting from the Listing Date to 31 December 2013. Finance Company is a non-bank financial institution (非銀行金融機構) duly established in the PRC with Financial Licence approved and issued by China Banking Regulatory Commission (“CBRC”) (經中國銀行業監督管理委員會核准取得 《金融許可證》) and the pricing policies and the operation of which are subject to guidelines issued by CBRC. According to the

Notice for Corporate Group Finance Company Risk Assessment and Categorisation Monitoring

Guidelines《(企業集團財務公司風險評價和分類監管指引》的通知) issued by CBRC dated 10 November 2007 (the “Notice”), Finance Company was rated as Grade 2 (Satisfactory) by

CBRC for the year 2009, 2010 and 2011 in its risk rating assessment. According to the Notice,

there are five levels of rating in risk assessments of non-bank financial institutions with Grade

1 being excellent and the overall risk exposure of finance companies of business conglomerates

is qualitatively and quantitatively analysed based on its management, operation and affairs of

the business conglomerates. Management assessment includes the setup and effectiveness of the

systems to monitor areas such as corporate governance, functional orientation, internal control,

compliance management, internal audit and information systems. Operation assessment mainly

covers capital adequacy, quality of assets, market risk, profitability, liquidity and service standards.

Assessment on affairs of the business conglomerates to which the finance companies belong

include fundamental status of the conglomerates, its control over its members and their support

provided to the finance companies. The risk rating of Finance Company is currently being assessed

and the assessment result is expected to be available in late 2013. It does not accept deposit from

corporation not being a member of the TCL Corporation Group. One of the functions of the Finance

Company is to centralise cash management for members of the TCL Corporation Group and thus

to facilitate clearing among members of the TCL Corporation Group. Its major scope of services

includes but not limited to provision of guarantee to, arrangement of entrusted loans and entrusted

investment among, arrangement of documentary bills service and letter of credit discounting

services for, settlement services among, receiving deposits from, arrangement of loans and finance

lease to, making consumed loan and buyer loan to, fellow members of its group; and investment in

financial institutions, investment in securities.

SX1-2(v)

SX2-2(v)

SX2-2(v)

CONTINUING CONNECTED TRANSACTIONS

185

The approximate figures for the total assets value, current ratio and profits after tax of

Finance Company for the years ended on 31 December 2010, 2011 and 2012 respectively are as

follows:

For the year ended 31 December

2010 2011 2012

Total assets value (RMB) 3,400,000,000 5,500,000,000 5,500,000,000

Current ratio 1.20 1.12 1.12

Profits after tax (RMB) 27,550,000 53,940,000 81,310,000

The main terms of the Master Financial Services Agreement are as follows:

Deposit Services

Our Group may from time to time and in our absolute discretion to deposit with and withdraw our deposits from Finance Company. There is no restriction on our ability to deposit our cash with independent commercial banks in or outside of the PRC now or in the future should we so wish. Currently, we maintain deposits with independent commercial banks in and outside of the PRC and expect to continue to do so depending on our contractual and other requirements. It is part of the ordinary and usual treasury activities of our Group to deposit money with financial institutions. Our Group deposits money with Finance Company because (i) Finance Company is a non-bank financial institution (非銀行金融機構) duly established in the PRC with Financial Licence approved and issued by CBRC (經中國銀行業監督管理委員會核准取得 《金融許可證》) and the pricing policies and the operation of which are subject to guidelines issued by CBRC; (ii) our Company believes that Finance Company, being a fellow subsidiary of our Company controlled by TCL Corporation, is in a better position to serve the financial needs of our Group as TCL Corporation has been the ultimate Controlling Shareholder of our Group members since the inception of our Group and has a thorough understanding of the operations and development needs of our Group. Accordingly, Finance Company may be able to service the Group more efficiently; and (iii) if Finance Company decides to accept any amount of cash deposits from any relevant member of our Group (including current deposits, fixed deposits or any other form of deposits), the interest rates offered by Finance Company shall not be lower than the interest rates offered by other independent financial institutions from time to time. Other terms and conditions offered by Finance Company as a whole shall also not be less favourable than those offered by other independent financial institutions and shall be on normal commercial terms.

If any relevant member of our Group demands repayment of any money deposited by it with Finance Company in accordance with the relevant terms and procedure and Finance Company fails to follow the repayment demand, such member of our Group shall then have the right to request TCL Corporation to repay the outstanding deposit amount on behalf of Finance Company in full.

SX3-2SX1-1(ii)

SX1-2(v)

SX2-2(v)

CONTINUING CONNECTED TRANSACTIONS

186

Other Financial Services

Our Group may from time to time and in its absolute discretion request Finance Company

to provide other financial services (“Other Financial Services”), including, among other things,

financial advisory services, settlement advisory services, insurance agency services, agency lending

and borrowings, bills, letter of credit discounting, documentary bills services and any other services

approved by the China Banking Regulatory Commission. The fees charged by Finance Company

in respect of Other Financial Services shall not be higher than the fees determined by People’s

Bank of China (if applicable) and the fees charged by other independent financial institutions in

respect of such services. Other terms and conditions of Other Financial Services offered by Finance

Company shall not be less favourable than those offered by other independent financial institutions

and shall be on normal commercial terms.

The relevant member of our Group determines in its absolute discretion to use Other

Financial Services provided by Finance Company or any other independent financial institutions.

The relevant member of our Group may enter into separate written agreements with Finance

Company in relation to the provision of the specific services under Other Financial Services with

a view to setting out the detailed terms of the transactions, as long as such terms comply with the

requirements of the Listing Rules.

Our Directors (including independent non-executive Directors) are of the view that the

principal purpose of entering into the Master Financial Services Agreement is to provide cost

efficient financial services to all relevant members of our Group. Finance Company has been

providing financial services to our Group and has a thorough understanding of the operations and

development needs of our Group. Accordingly, it is expected that Finance Company will be more

efficient in terms of processing transactions for our Group than other financial institutions given

their close relationships. Our Directors consider that the continuing connected transactions under

the Master Financial Services Agreement and the proposed annual caps thereof are in the ordinary

and usual course of business of our Company, on normal commercial terms, fair and reasonable and

in the interests of our Company and our Shareholders as a whole.

Historical Amounts and Proposed Annual Caps

The historical figures and proposed annual cap being the maximum daily balance of deposits

placed in Finance Company during each of the financial year are set out in the table below:

Deposit Services

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 43,258 141,498 614,804

SX1-1(ii)

SX2-2(v)

CONTINUING CONNECTED TRANSACTIONS

187

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 656,993 N/A N/A

(Note1) (Note1)

The historical figures and proposed annual cap for the fees paid or payable for other financial

services are set out in the table below:

Other Financial Services

For the year ended 31 December

2010 2011 2012 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Historical figures 180 539 31

For the year ending 31 December

2013 2014 2015 (HK$ ’000) (HK$ ’000) (HK$ ’000)

Proposed annual cap 1,250 N/A N/A

(Note1) (Note1)

Note:

1. Our Group has applied to the Stock Exchange for the transactions contemplated under the Master Financial Services Agreement for a waiver from strict compliance with the announcement and independent shareholders’ approval requirements set out in Chapter 14A of the Listing Rules which will expire on 31 December 2013. We will submit such non-exempt continuing connected transactions under the Master Financial Services Agreement (together with the proposed annual caps) to our independent shareholders for approval by 31 December 2013.

For the three years ended 31 December 2012, since our Group’s cashflow remained positive,

there was an increase in our cash balance and our deposit increased accordingly. During the Track

Record Period, due to the continuous appreciation of RMB, our Company increased our proportion

of RMB deposit. Following the internal policy of TCLM, our then holding company during the

three years ended 31 December 2012, which RMB were primary deposited with Finance Company,

our deposit with Finance Company increased substantially during the period.

In determining the proposed annual caps for the Deposit Services for the year ending 31

December 2013, our Company has taken into account the maximum daily balance of deposit we

placed in Finance Company from 1 January 2013 to the Latest Practicable Date as we expected that

the amount of deposit we placed with Finance Company would continue to decrease during the year

as we have to distribute part of our cash reserve to TCLM in the form of distribution of our profits

for the year ended 31 December 2011 and satisfy construction costs of our new production facility.

SX3-2

SX1-1(iii)

SX2-1

CONTINUING CONNECTED TRANSACTIONS

188

In determining the proposed annual caps for Other Financial Services for the year ending

31 December 2013, our Group has taken into account (i) the expected demand of Regency Optics-

Electron for bills discounting services amounting to approximately HK$25 million for the year

ending 31 December 2013 which is estimated based on the actual amount of bill receivables of

Regency Optics-Electron which used bill discounting services in the first four months ended 30

April 2013; and (ii) the bill discounting service charge at a rate of 5% per annum. Such rate is

charged by Finance Company to each member of TCL Corporation Group for the same service.

Comparing to the quotation of such service provided by Independent Third Parties, the pricing of

Finance Company is more favourable than those terms available to our Group from Independent

Third Parties.

Since each of the percentage ratios, where applicable, calculated by reference to the Listing

Rules, for the Master Financial Services Agreement on an annual basis is more than 5%, the

continuing connected transactions contemplated thereunder are subject to the reporting, annual

review, announcement and independent shareholders’ approval requirements under Chapter 14A of

the Listing Rules. Further, the continuing connected transactions contemplated under the Master

Financial Services Agreement also constitute the provision of financial assistance under Rule

14.04(1)(e) of the Listing rules and thus a discloseable transaction under Chapter 14 of the Listing

Rules and also an advance to any entity which is subject to the requirements under Rule 13.13 of

the Listing Rules.

Internal Control and Corporate Governance Measures

Our Directors are of the view that the entering into of the Master Financial Services Agreement

(including the proposed annual caps) are in the ordinary and usual course of business of our Company, on

normal commercial terms, fair and reasonable and in the interests of our Company and our shareholders as

a whole. In order to further safeguard the interests of our independent shareholders, we have adopted the

following measures with respect to the transactions under the Master Financial Services Agreement:

1. Independent Shareholders’ approval:

We will submit the Master Financial Services Agreement (together with the proposed annual

caps) to our independent Shareholders for approval by 31 December 2013. Appropriate disclosure

of the historical and on-going transactions between us and TCL Corporation Group which will

continue under the Master Financial Services Agreement has been made in this listing document,

enabling our Shareholders to form an informed view of the transactions. A waiver expiring on 31

December 2013 has been granted by the Stock Exchange. If independent Shareholders’ approval

cannot be obtained by 31 December 2013, we will not continue with the transactions under

the Master Financial Services Agreement to the extent they constitute non-exempt continuing

connected transactions under Chapter 14A of the Listing Rules. In such event, it is not expected

that we will suffer any adverse legal consequences since we are not prohibited to terminate the

transactions pursuant to the Master Financial Services Agreement; however, we may not be able

to continue in enjoying the better interest rate and/or reliable and efficient services provided by

Finance Company.

CONTINUING CONNECTED TRANSACTIONS

189

2. Independent financial system:

Our Group has established an independent finance department with a team of independent

financial staff. We have adopted a sound and independent audit system and a comprehensive

financial management system. Our finance department will monitor the maximum daily balance

of the deposits on a daily basis to ensure that the aggregate deposits do not exceed the applicable

annual caps.

We also maintain accounts with independent banks. TCL Corporation Group does not share

any bank account with us nor does it control the use of any of our bank accounts. Should the

balance at the end of any day exceed the maximum daily balance of deposits, the excess funds will

be transferred to our designated bank accounts with an independent commercial bank.

3. Risk control measures:

We will request the Finance Company and TCL Corporation Group to provide us with

sufficient information including various financial indicators, such as its asset size, liquidity ratios,

operation ratios, level of bad assets and its risk rating assessed by CBRC (if and when available) at

the end of every quarter as well as annual and interim financial statements to enable us to monitor

and review their financial condition. Finance Company and TCL Corporation Group shall notify

us, subject to compliance with applicable laws and regulations, should it be subject to any judicial,

legal or regulatory proceedings or investigations which are reasonably likely to have a material

impact on the financial condition of any of them. If our Group considers that there is any material

adverse change in the financial condition of Finance Company, we will take appropriate measures

(including early uplift of deposits and a moratorium on further deposits) to protect our financial

position.

Finance Company will also provide us a monthly report on the status of our deposits so as

to enable us to monitor and ensure that the relevant annual cap under the Master Financial Services

Agreement has not been exceeded.

Our Company will, from time to time at our sole discretion, request for the deposits with

Finance Company to be withdrawn (either in full or in part) to assess and ensure the liquidity and

safety of our deposits.

Pursuant to the Master Financial Services Agreement, TCL Corporation Group has

undertaken that if the Finance Company fails to make any repayment in accordance with the

relevant terms and procedure, TCL Corporation Group shall repay any outstanding deposit amount

on behalf of Finance Company in full. Such undertaking provides indemnification for our deposits

with Finance Company under the Master Financial Services Agreement.

SX3-2

CONTINUING CONNECTED TRANSACTIONS

190

4. Internal control measures:

Our Company will prepare risk assessment reports of the funds deposited with Finance

Company every quarter which will be submitted to our Board for consideration. The contents of

such risk assessment reports include the total balance and maximum daily balance of the deposits

for the reporting period, a summary of the interest rates of the deposits with Finance Company

during the reporting period, and the terms thereof. It will also report to the Board every six months

with respect to the deposits under the Master Financial Services Agreement including compliance

with annual caps and any potential change in the risk profile of Finance Company.

In particular, our audit committee will scrutinize the implementation and enforcement of

the transactions under the Master Financial Services Agreement. If our audit committee is of the

view that it would be in our interests to reduce the level of deposits with Finance Company, we

will take appropriate steps to implement its decision. Any material findings in the risk assessment

reports, the views of our audit committee on the deposits under the Master Financial Services

Agreement (including its views on how the terms of the Master Financial Services Agreement have

been complied with) and its decisions on matters in relation thereto will be disclosed in our annual

reports.

CONFIRMATION FROM OUR DIRECTORS

Our Directors (including our independent non-executive Directors) confirmed that the non-

exempt continuing connected transactions described above are fair and reasonable and in the interests

of our Company and our Shareholders as a whole, and all such non-exempt continuing connected

transactions have been entered into and will be carried out in the ordinary and usual course of business

of our Company on normal commercial terms. In addition, our Directors (including our independent

non-executive Directors) confirmed the respective proposed annual caps for the non-exempt continuing

connected transactions are fair and reasonable and in the interests of our Company and our Shareholders

as a whole.

CONFIRMATION FROM THE JOINT SPONSORS

The Joint Sponsors are of the view that (i) the non-exempt continuing connected transactions

described above have been entered into in the ordinary and usual course of business of our Company, on

normal commercial terms, fair and reasonable and in the interests of our Shareholders as a whole, and (ii)

the respective proposed annual caps for the non-exempt continuing connected transactions are fair and

reasonable and in the interests of our Shareholders as a whole.

CONTINUING CONNECTED TRANSACTIONS

191

WAIVER FROM STRICT COMPLIANCE OF THE LISTING RULES

As the above non-exempt continuing connected transactions are expected to continue on a

recurring basis and are expected to extend over a period of time, our Directors (including our independent

non-executive Directors) consider that strict compliance with the announcement and/or independent

shareholders’ approval requirements under the Listing Rules would be impractical unduly burdensome

and in particular, would add unnecessary administrative costs to our Company. Accordingly, we have

applied to the Stock Exchange for, and the Stock Exchange has granted, a waiver to our Company

under Rule 14A.42(3) of the Listing Rules from strict compliance with the announcement and/or the

independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. Apart from the

announcement and/or independent shareholders’ approval requirements of which the waiver is sought, we

will comply with the relevant requirements under Chapter 14A of the Listing Rules, including, but not

limited to, the proposed annual caps set out above. We will comply with the relevant rules of Chapter 14A

of the Listing Rules (including shareholders’ approval requirements as appropriate) if the waiver from

the Stock Exchange expires or any of the respective proposed annual caps set out above are exceeded,

or when the relevant agreement expires or is renewed or when any terms of the non-exempt continuing

connected transactions are materially altered or our Company enters into new agreements with any

connected persons.

Our Company confirms that we will comply with the applicable requirements under Chapter 14A of

the Listing Rules as amended from time to time. We will immediately inform the Stock Exchange if there

are any material changes to the aforesaid transactions.

SUBSTANTIAL SHAREHOLDERS

192

So far as our Directors are aware, immediately following completion of the Introduction, the

following persons will have an interest or short position in our Shares and the underlying Shares which

would fall to be disclosed to our Company under provisions of Divisions 2 and 3 of Part XV of the SFO,

or who will be, directly or indirectly, interested in 10% or more of the nominal value of any class of share

capital carrying rights to vote in all circumstances at general meetings of members of our Group other

than our Company:

Long and short positions in our Shares and underlying Shares

Number of ShareholdingName of Shareholder Nature of interest securities held percentage (Note 1) (Note 2)(%)

TCL Corporation (Note 3) Interest in controlled 816,094,475(L) 61.31

corporation

T.C.L. Industries Beneficial owner 816,094,475(L) 61.31

Notes:

1. The letter “L” denotes the person/corporation’s long position in our Shares.

2. The shareholding percentage is calculated based on the issued share capital of TCLM as at the Latest Practicable Date and assuming it will remain unchanged as at the close of business on the Distribution Record Date.

3. TCL Corporation is deemed to be interested in 816,094,475 Shares held by T.C.L. Industries, a company wholly owned by it.

A1A 27AA1A 28(2)A1A 45(2)3rd Sch 30

SHARE CAPITAL

193

HK$

Authorised share capital:

500,000,000 Shares of HK$1.00 each 500,000,000

Issued Shares immediately before the Listing:

133,109,811 Shares of HK$1.00 each 133,109,811

Assumptions

The above table is based on the issued share capital of TCLM as at the Latest Practicable Date and assuming it will remain unchanged as at the close of business on the Distribution Record Date.

The above table takes no account of any Shares which may be issued and allotted or repurchased by our Company under the general mandates for the allotment and issue or repurchase of Shares granted to our Directors as referred to below or otherwise.

Ranking

The Shares are ordinary shares in the share capital of our Company and will rank equally in all respects with each other, and will qualify for all dividends, income and other distributions declared, made or paid and any other rights and benefits attaching or accruing to the Shares following the completion of the Introduction.

Share Option Scheme

Our Company has not adopted any share option scheme.

General mandate to issue Shares

Upon the Introduction becoming unconditional, our Directors have been granted a general unconditional mandate to allot, issue and deal with additional Shares with a total nominal value of not more than the sum of:

i. 20% of the aggregate nominal amount of our share capital in issue immediately following completion of the Introduction; and

ii. the nominal amount of our share capital repurchased by our Company (if any) pursuant to the repurchase mandate (as referred to below).

Our Directors may, in addition to our Shares which they are authorised to issue under this mandate, allot, issue and deal in our Shares pursuant to a rights issue, scrip dividend scheme or similar arrangements providing for allotment of Shares in lieu of the whole or in part of any dividend in accordance with the Articles.

A1A 15(1)A1A 23(1)3rd Sch 23rd Sch 29

A1A 44

SHARE CAPITAL

194

This mandate will expire:

– at the conclusion of our next annual general meeting;

– on the date by which our next annual general meeting is required by the Articles or any

applicable laws to be held; or

– when the authority given to our Directors is revoked or varied by an ordinary resolution of

our Shareholders in general meeting,

whichever is the earliest.

For further details of this general mandate, see paragraph headed “Resolutions in writing of our sole

Shareholder passed on 12 July 2013” in the sub-section headed “Further Information about Our Company

and Our Subsidiaries” in Appendix V to this listing document.

General mandate to repurchase Shares

Upon the Introduction becoming unconditional, our Directors have been granted a general

unconditional mandate to exercise all the powers of our Company to repurchase Shares with a total

nominal amount of not more than 10% of the total nominal amount of our share capital in issue

immediately following completion of the Introduction. This mandate only relates to repurchases made

on the Stock Exchange, or on any other stock exchange on which the Shares are listed (and which is

recognised by the SFC and the Stock Exchange for this purpose), and which are in accordance with the

Listing Rules. A summary of the relevant Listing Rules is set out in the paragraph headed “Repurchase by

our Company of our own securities” in the sub-section headed “Further Information about Our Company

and Our Subsidiaries” in Appendix V to this listing document.

This mandate will expire:

– at the conclusion of our next annual general meeting;

– on the date by which our next annual general meeting is required by the Articles or any

applicable laws to be held; or

– when the authority given to our Directors is revoked or varied by an ordinary resolution of

our Shareholders in general meeting;

whichever is the earliest.

For further details of this general mandate, see paragraph headed “Resolutions in writing of our sole

Shareholder passed on 12 July 2013” in the sub-section headed “Further Information about Our Company

and Our Subsidiaries” in Appendix V to this listing document.

SHARE CAPITAL

195

Undertakings to the Stock Exchange under the Listing Rules

(A) Undertaking by us

Pursuant to Rule 10.08 of the Listing Rules, we have undertaken to the Stock Exchange that we will

not issue any further Shares or securities convertible into our equity securities (whether or not of a class

already listed) or enter into any agreement to such issue within six months from the Listing Date (whether

or not such issue of Shares or our securities will be completed within six months from the commencement

of dealing), except pursuant to the circumstances provided under Rule 10.08 of the Listing Rules.

(B) Undertaking by our Controlling Shareholders

Pursuant to Rule 10.07(1) of the Listing Rules, each of our Controlling Shareholders has

undertaken to our Company and the Stock Exchange that:

(a) each of them shall not and shall procure that its associates or companies controlled by each

of them or its nominees or trustees (as the case may be) shall not, in the period commencing

on the date of this listing document and ending on the date which is six months from the

Listing Date (“First Six-Month Period”) dispose of, nor enter into any agreement to dispose

of or otherwise create any options, rights, interests or encumbrances in respect of, any of

our Shares in respect of which they are shown by this listing document to be the beneficial

owners (whether direct or indirect); and

(b) in the period of six months immediately after the expiry of the First Six-Month Period,

dispose of, nor enter into any agreement to dispose of or otherwise create any options,

rights, interests or encumbrances in respect of, any of our Shares referred to in (a) above if,

immediately following such disposal or upon the exercise or enforcement of such options,

rights, interests or encumbrances, our Controlling Shareholders would cease to be the

Controlling Shareholders (as defined in the Listing Rules) of our Company.

Each of our Controlling Shareholders has also undertaken to our Company and the Stock Exchange

that within the period commencing on the date by reference to which disclosure of its shareholding is

made in this listing document and ending on the date which is 12 months from the Listing Date, each of

them will:

(a) when it pledges or charges any Shares beneficially owned by it in favour of an authorised

institution pursuant to Note (2) to Rule 10.07(2) of the Listing Rules, immediately inform

our Company in writing of such pledge or charge together with the number of Shares so

pledged or charged; and

(b) when it receives indications, either verbal or written, from the pledgee or chargee that any

of the pledged or charged Shares will be disposed of, immediately inform our Company in

writing of such indications.

FINANCIAL INFORMATION

196

You should read this section in conjunction with our combined financial information including the notes thereto, as set forth in the Accountants’ Report in Appendix I to this listing document. The accountants’ report has been prepared on the basis set out in Appendix I to this listing document and in accordance with our accounting policies that are in conformity with Hong Kong Financial Reporting Standards (“HKFRSs”).

This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section headed “Risk Factors” and “Business” in this listing document.

OVERVIEW

We are a leading vertically-integrated manufacturing services provider in the AV Products industry, and principally engaged in the research and development, manufacturing and sales of AV Products (excluding TV sets) for third parties’ brands on an ODM basis. Our products generally fall into three categories, namely (i) video products, mainly DVD Players, BD Players and Media Boxes; (ii) audio products, mainly HTS, Micro & Mini, Soundbars, Dockings and Wireless Speakers; and (iii) other products, mainly ABS-s and components. During the Track Record Period, the Group only conducted a small amount of AV Products business on an OEM basis in 2010.

BASIS OF PRESENTATION

Pursuant to the Reorganisation, our Company became the holding company of the companies now comprising our Group on 10 July 2013. The companies now comprising our Group were under the common control of TCLM before and after the Reorganisation. Accordingly, the Financial Information has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Track Record Period.

For the purpose of preparing this Financial Information, the related financial information of businesses and operations historically not associated with the manufacture and sale of AV Products (excluding TV sets) (the “AV Product Business”) of our Group has been excluded from the Financial Information throughout the Track Record Period as such businesses and operations are distinct and identifiable businesses, which operated autonomously and were retained by the Remaining TCLM Group pursuant to the Reorganisation.

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows of our Group for the Track Record Period and the three months ended 31 March 2012 include the results and cash flows of AV Product Business from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the Controlling Shareholder, where this is a shorter period. The combined statements of financial position of our Group as at 31 December 2010, 2011 and 2012 and as at 31 March 2013 have been prepared to present the assets and liabilities of the AV Product Business using the existing book values from our Controlling Shareholder’s perspective. Please refer to the text of the Accountants’ Report which is set out in Appendix I to this listing document.

RECENT DEVELOPMENT

As disclosed in the section headed “History and Development” in this listing document, a subscription agreement entered into among TCLM, Star Force, Run Fu and Tonly Electronics for the subscription of the shares of Tonly Electronics by Run Fu and Star Force was completed on 28 December 2012 and the effect of which was that Tonly Electronics became owned as to 80% by TCLM, 9.2% by Star Force and 10.8% by Run Fu. As Tonly Electronics is the holding company of all our operating subsidiaries, since 1 January 2013, 20% of our profit would be shared by Run Fu and Star Force, which are the non-controlling shareholders of Tonly Electronics.

LR 11.07A1A 28(1)(a)3rd Sch 13rd Sch 33rd Sch 29

FINANCIAL INFORMATION

197

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations are subject to the influence of numerous factors, the most significant of

which are set out below:

• Globalmarketdemandforourproducts;

• Researchanddevelopmentcosts;

• Materialscostsandlaborcosts;

• Exchangeratesandhedging;

• Productmixandpricing;and

• Preferentialtaxratesandincentives.

Global market demand for our products

Our products are supplied to global markets including Europe, Asia Pacific (including the PRC),

Latin American and North America, and the demand for our products also derives from global markets.

In addition, we will adjust our product mix to cater for the changing demand from our global

consumers. During the Track Record Period, the overall demand for video products went down reasonably

as a result of the impact of Internet Media Box, in particular, the demand for DVD Players declined

significantly, while the demand for BD Players was rising slowly; the market demand for traditional

audio products (HTS) was relatively stable; new audio products (Docking, Soundbar, Wireless speaker)

had a huge growth potential in market demand due to the growing of sales of smart phones and smart

TVs. For the three years ended 31 December 2012 and the three months ended 31 March 2013, turnover

from DVD Players accounted for 66.0%, 64.2%, 34.4% and 25.1% of our total turnover respectively;

while turnover from BD Players accounted for 22.0%, 23.6%, 30.7% and 18.4% of our total turnover

respectively; and turnover from audio products accounted for 6.3%, 11.0%, 23.9% and 25.0% of our total

turnover respectively. We believe that in the face of changes in market demand, through product mix

adjustment, our turnover from audio products will continue to grow, accounting for a larger proportion

of our total turnover, and will replace video products to become our main products in the next three

years. Our competitive advantages will also come from the accumulation of development in technologies

for our audio products, stable and efficient supply chains, as well as maintaining the long-term strategic

cooperative relationships with our customers.

Research and development costs

In view of the need for technology innovation and the adjustment of our product mix, we have

increased our expenditure in research and technology development for the past three years. For the three

years ended 31 December 2012 and the three months ended 31 March 2013, the research and development

cost amounted to HK$70.0 million, HK$89.6 million, HK$156.7 million and HK$42.5 million, accounting

for 1.9%, 2.2%, 4.3% and 4.7% of the total turnover, respectively. Especially in 2012, we set up a

software research and development institution in Xi’an and a digital video products research center in

Shenzhen, in order to speed up the process of the development of audio and digital video products. We

believe that in view of the technology innovation and product mix adjustment, it is necessary to increase

investment in the research and development, which ensures our products with better-quality and become

more competitive in the market.

FINANCIAL INFORMATION

198

Materials costs and labor costs

Cost of components and parts accounts for a substantial portion of our cost of sales. Our

components and parts are generally divided into three categories: (i) technology-intensive components and

parts, such as IC and loaders; (ii) labor-intensive components and parts, such as connectors and packaging

materials; and (iii) components which are made of commodities, including metals and petroleum, as basic

materials, such as plastic mechanical parts, metal mechanical parts and PCB.

Due to the technology development and innovation in the electronics industry and keen market

competition, the price of technology-intensive components and parts had been declining over the Track

Record Period. As there was an increasing trend in labor costs in the upstream labor-intensive industry

year by year, the price of labor-intensive components and parts were also rising year by year. The cost of

components and parts usually fluctuate with the changes in the market price of commodities like metals

and petroleum.

If the price of components and parts continue to fluctuate in future and we are unable to pass on

any increased cost of components and parts to our customers, our financial condition and operating results

may be adversely affected.

For illustration purposes only, a sensitivity analysis on price fluctuation of our major components and parts, being IC and loader, during the Track Record Period is set out as follows, although the price of our major components and parts (i.e. IC and loaders) had shown a decreasing trend during the Track Record Period, the price may increase due to the market demand and supply. Therefore, the following table demonstrate how the hypothetical effects of increase in components and parts prices affecting our net profit, assuming we are not able to pass on such changes to our customers while all other factors remain unchanged:

Hypothetical Hypothetical increase of 3% in increase of 5% in price of our major prices of our major components and parts components and parts (HK$’million) (HK$’million)

Decrease in our net profit:Year ended 31 December 2010 36.9 61.5Year ended 31 December 2011 42.8 71.3Year ended 31 December 2012 36.2 60.4Three months ended 31 March 2013 8.9 14.8

We have also been affected by increasing labor costs. As the government of Guangdong Province,

China continued to raise the minimum wage level in the past three years, our staff cost has been increasing

year by year. As the production facilities in coastal cities have been gradually relocated to the mainland

of China and the economy of mainland China has grown rapidly, the competition for hiring manufacturing

workers in Guangdong Province was intensified. Over the past three years, we have continued to improve

staff wage and benefit in order to maintain a competitive salary package in the labor market. With the

above factors, our labor costs are likely to continue to increase in the future, it will have an adverse impact

on our results of operation.

FINANCIAL INFORMATION

199

Exchange rates and hedging

During the Track Record Period, while our expenses and costs are mainly denominated in RMB,

a substantial portion of our turnover is denominated in US dollars given the export-oriented nature of

our business. We are therefore exposed to foreign exchange rate risk. Any significant fluctuations in

the exchange rates between RMB and US dollars may materially and adversely affect our results of

operations. See the section headed “Risk Factors – We are subject to risk of currency fluctuations and any

ongoing hedging transactions may not fully shield us from foreign-exchange fluctuations” in this listing

document.

In light of the import-export nature of our business and our significant US dollars-denominated

receivables from our customers and to hedge against the foreign exchange rate risk, we entered into

certain foreign exchange forward contracts to sell US dollars and buy RMB at specified exchange rates

on specified future dates during the Track Record Period. We maintain internal policies and controls

for managing our Group’s use of derivative financial instruments. For details of our foreign exchange

risk management, please see the section headed “Financial Information – Quantitative and Qualitative

Disclosure about Market Risks – Exchange Rate Risk”.

Product mix and pricing

Our pricing strategy varies for different product categories. For video products, the market demand

of DVD Players has been decreasing rapidly year by year, and many competitors have gradually exited

from the competition for DVD Players. Accordingly, our pricing strategy is to maintain a slight decline in

its gross profit level; the market demand for BD Players is rising slowly and the market potential of BD

Players is not expected to be huge due to development of the global internet. We will, by leveraging on

our research and development advantages, increase the functions of our BD Players in order to maintain

the leading position and the competitiveness of our BD Players. Regarding audio products, the market

demand is relatively stable for traditional audio products, and is potentially huge for new audio products.

We intend to continue to expand the market share of audio products and to gradually increase the profit

margin. We will adjust our product mix according to the market demand trend and business development

strategy in a timely manner, and our sales and financial departments will come up with comprehensive

quotations for our products that have competitive advantages with reference to the pricing level of our

peers.

Preferential tax rates and incentives

TCL Technoly Electronics, a subsidiary of our Group, is a High and New Technology Enterprise,

which is entitled to a preferential corporate income tax rate of 15% and the tax incentive of reduction

of the income tax by research and development expenses. Shenzhen Tongli first became eligible to sell

software products in September 2012 and became qualified as a software enterprise in November 2012,

thereby becoming entitled to (i) an immediate VAT refund upon payment for any VAT payment exceeding

3% (if the actual VAT burden of our software products exceeds 3%) and (ii) a total exemption of software

enterprise profits tax for two years and a half reduction for three years. Any change in the preferential

tax policies and the accreditation standards issued by the Chinese government for high-tech and software

enterprises will have significant impact on our tax costs.

FINANCIAL INFORMATION

200

CRITICAL ACCOUNTING POLICIES, JUDGEMENT AND ESTIMATES

We have prepared our combined financial information in accordance with HKFRSs, which requires us to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The assumptions and estimates are based on our historical experience and various other factors that our management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions. Therefore, when reviewing our combined financial information, you should consider our selection of critical accounting policies, the judgments and other uncertainties affecting the application of such policies, and the sensitivity of reported results to changes in the conditions and assumptions. Our significant accounting policies, critical accounting judgement and estimates are summarised in notes 4 and 5 to our combined financial information included in the Accountants’ Report as set out in Appendix I to this listing document. We believe that the followings are the most significant judgments and estimates used in the preparation of our combined financial information.

Basis of combination and business combinations

This financial information includes the financial statements of our Company and its subsidiaries now comprising our Group and excludes the financial information of businesses unrelated to AV Product Business for the Track Record Period and the three months ended 31 March 2012. As explained in the paragraph headed “Basis of Presentation” above, the acquisition of subsidiaries and business under common control has been accounted for using merger accounting.

The merger accounting involves incorporating the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book value from the perspective of TCL Multimedia, the controlling shareholder of the Company. No amount is recognised in respect of goodwill or the excess of the acquirers’ interest in the net fair value of acquirees’ identifiable assets, liabilities and contingent liabilities over the consideration transferred and other items at the time of common control combination.

The acquisition of subsidiaries other than those under common control has been accounted for using the acquisition method.

The financial statements of the subsidiaries are prepared for the same reporting period as our Company, using consistent accounting policies. Except for the common control combination as mentioned above, the results of subsidiaries are combined from the date of acquisition, being the date on which our Group obtains control, and continue to be combined until the date that such control ceases. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated on combination in full.

FINANCIAL INFORMATION

201

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Non-controlling interests represent the equity interests in a subsidiary held by parties other than

the Controlling Shareholder. Total comprehensive income within a subsidiary is attributed to the non-

controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an

equity transaction.

If our Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill)

and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the

cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration

received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit

or loss. Our Group’s share of components previously recognised in other comprehensive income is

reclassified to profit or loss or retained profits, as appropriate.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to our Group and

when the revenue can be measured reliably.

We recognise revenue from the sale of our products when the significant risks and rewards of

ownership have been transferred to the buyer, provided that our Group maintains neither managerial

involvement to the degree usually associated with ownership, nor effective control over the goods sold.

All of our products sales, including audio products, video products and other products, are complete and

recorded as revenue when delivered to our customers. Delivery of audio, video products to our overseas

customers occurs when we deliver the products to the port and execute a bill of lading for FOB shipping.

Delivery of our other products to our customers in the PRC occurs when our PRC customers pick up the

products from the delivery point.

We recognise income from the rendering of services, when the services are rendered.

We recognise interest income, on an accrual basis using the effective interest method by applying

the rate that exactly discounts the estimated future cash receipts over the expected life of the financial

instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Financial Assets

We classify our financial assets into three categories: (i) financial assets at fair value through profit

or loss, (ii) loans and receivables and (iii) available-for-sale investment, depending on the purpose for

which the assets in question were acquired. We determine the classification at initial recognition and re-

evaluate the classification at the end of each of the Track Record Period.

We offset financial assets and liabilities and report the net amount in the balance sheet when there

is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net

basis, or realize the asset and settle the liability simultaneously.

A1A 33(1)

FINANCIAL INFORMATION

202

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market. We classify them as current assets, except for those with maturities

greater than 12 months from the balance sheet date, which we classify as non-current assets.

We initially recognise loans and receivables at fair value plus transaction costs and subsequently

carry them at amortised cost using the effective interest method less any allowance for impairment. We

assess at the end of each of the Track Record Period whether there is objective evidence that a financial

asset or a group of financial assets is impaired. We derecognise financial assets when the rights to receive

cash flows from the assets have expired or have been transferred and we have transferred substantially all

risks and rewards of ownership.

Trade and Other Receivables

We initially recognise trade and other receivables at fair value and subsequently measure them

at amortised cost using the effective interest method, less provision for impairment. We establish a

provision for impairment of trade and other receivables when there is objective evidence that we will

not be able to collect all amounts due according to the original terms of the receivables. We consider

significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial

reorganisations and default or delinquency in payments to be indicators that the receivable is impaired.

The amount of the provision is the difference between the asset’s carrying amount and the present value

of estimated future cash flows, discounted at the original effective interest rate. We reduce the carrying

amount of the assets through the use of an allowance account, and we recognize the amount of the loss in

profit or loss within other operating expenses. When a receivable is uncollectible, it is written off against

the allowance account for receivables. We credit subsequent recoveries of amounts previously written off

against other operating expenses in profit or loss.

Available-for-sale investment

Available-for-sale financial investments are non derivative financial assets in unlisted equity

investments. Equity investments classified as available for sale are those which are neither classified as

held for trading nor designated at fair value through profit or loss. It is stated at cost less any impairment

losses.

Derivative financial instruments

Our Group uses derivative financial instruments, such as forward currency contracts and interest

rate swaps, to hedge our foreign currency risk and interest rate risk, respectively. Such derivative financial

instruments are initially recognised at fair value on the date on which a derivative contract is entered into

and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is

positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value of derivatives are taken directly to profit or

loss.

FINANCIAL INFORMATION

203

The fair value of forward currency contracts is calculated by reference to current forward exchange

rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is

determined by reference to market values of similar instruments.

The fair values measured based on the valuation techniques for which all inputs which have a

significant effect on the recorded fair value are observable, either directly or indirectly.

Inventories

We state inventories at the lower of cost and net realisable value. We determine cost using the

weighted average method. The cost of finished goods and work in progress comprises components and

parts costs, direct labor costs, other direct costs and related production overheads (based on normal

operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the

ordinary course of business, less applicable variable distribution costs.

Property, Plant and Equipment

We state property, plant and equipment at historical cost less accumulated depreciation and

accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the

acquisition of items of property, plant and equipment.

We include subsequent costs in an asset’s carrying amount or recognize them as a separate asset, as

appropriate, only when it is probable that we will receive the future economic benefits associated with the

item and that the cost of the item can be measured reliably. We derecognise from the carrying amount any

replaced part. We charge all other repairs and maintenance to profit or loss during the financial period in

which they are incurred.

We calculate the depreciation of property, plant and equipment using the straight-line method to

allocate their costs, less their estimated residual value, if any, over their estimated useful lives, as follows:

Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 20%

Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%-20%

Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . 20%-33.3%

Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%

We state construction in progress, which refers to direct expenditures for the construction of

buildings, at cost. Capitalized costs include costs incurred during the construction phase which directly

relates to the asset under construction. Once all the activities necessary to prepare an asset to be available

for use are substantially completed, we transfer the construction in progress to property, plant and

equipment. No depreciation is provided in respect of construction in progress.

We review and adjust the assets’ useful lives and residual value, as appropriate, at the end of each

reporting period. We immediately write down an asset’s carrying amount to its recoverable amount if the

asset’s carrying amount is greater than its estimated recoverable amount. We determine gains or losses on

disposals by comparing the proceeds with the carrying amounts and recognize such amounts in profit or

loss.

FINANCIAL INFORMATION

204

Impairment of Non-financial Assets

We review assets for impairment whenever events or changes in circumstances indicate that certain

carrying amount may not be recoverable. We recognize an impairment loss for the amount by which

the asset’s carrying amount exceeds its recoverable amount. We recognise the recoverable amount at

the higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing

impairment, we group assets at the lowest levels for which there are separately identifiable cash flows

(cash-generating units). We review at each balance sheet date non-financial assets other than goodwill that

suffered an impairment for possible reversal of the impairment.

Provision

We recognise provision when a present obligation (legal or constructive) has arisen as a result of

a past event and it is probable that a future outflow of resources will be required to settle the obligation,

provided that a reliable estimate can be made.

When the effect of discounting is material, the amount recognised for a provision is the present

value at the end of each of the Track Record Period of the future expenditures expected to be required to

settle the obligation. The increase in the discounted present value amount arising from the passage of time

is included in finance costs in profit or loss.

Provisions for product warranties granted by our Group on certain products are recognised based

on sales volume, past experience of the level of repairs and returns and industry average for defective

products, discounted to their present values as appropriate.

Income Taxes

We are subject to income tax in numerous jurisdictions. Significant judgment is required in

determining the provision for income taxes. There are many transactions and calculations for which

the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax

outcome of these matters is different from the amounts that were initially recorded, such differences will

affect the current income tax and deferred tax provision in the period in which such determination is

made.

Identification of functional currencies

The functional currency for each entity in our Group is the currency of the primary economic

environment in which it primarily generates and expends cash. The determination of functional currencies

involves significant judgment. We reconsider the functional currencies of our entities if there is a

change in the underlying transactions, events and conditions which determine their primary economic

environment. Due to the existence of various functional currencies in our Group, there are currency

translation differences when we combine results of the entities in our Group and present the combined

financial information in HK dollars, which is our presentation currency, which we record as “other

comprehensive income” in our combined statements of comprehensive income.

FINANCIAL INFORMATION

205

RESULTS OF OPERATIONS

The following table presents our combined statements of comprehensive income during the Track Record Period, details of which are set out in the Accountants’ Report in Appendix I to this listing

document.

Year ended 31 December Three months ended 31 March

2010 % of 2011 % of 2012 % of 2012 % of 2013 % of HK$’000 turnover HK$’000 turnover HK$’000 turnover HK$’000 turnover HK$’000 turnover (unaudited)

Turnover 3,762,649 100.0% 4,099,454 100.0% 3,653,071 100.0% 803,518 100.0% 894,649 100.0%Costs of sales (3,334,589) -88.6% (3,711,861) -90.5% (3,225,620) -88.3% (727,859) -90.6% (791,307) -88.4%

Gross profit 428,060 11.4% 387,593 9.5% 427,451 11.7% 75,659 9.4% 103,342 11.6%

Other income and gains, net 51,028 1.4% 70,045 1.7% 110,810 3.0% 48,270 6.0% 57,506 6.4%Selling and distribution costs (139,783) -3.7% (124,087) -3.0% (141,929) -3.9% (24,576) -3.1% (36,852) -4.1%Administrative expenses (61,476) -1.6% (114,565) -2.8% (125,501) -3.4% (25,361) -3.2% (38,878) -4.3%Research and development costs (70,039) -1.9% (89,584) -2.2% (156,653) -4.3% (30,800) -3.8% (42,486) -4.7%Other operating expenses, net 1,176 0.0% 2,401 0.1% - 0.0% - 0.0% (386) 0.0%

208,966 131,803 114,178 43,192 42,246Finance costs (5,378) -0.1% (7,457) -0.2% (3,514) -0.1% (525) -0.1% (2,133) -0.2%Share of profits or losses of an associate – 0.0% 6 0.0% 2 0.0% (88) 0.0% (38) 0.0%

PROFIT BEFORE TAX 203,588 124,352 110,666 42,579 40,075Income tax expense (41,527) -1.1% (29,897) -0.7% (15,920) -0.4% (9,307) -1.2% (5,376) -0.6%

PROFIT FOR THE YEAR/PERIOD 162,061 94,455 94,746 33,272 34,699

OTHER COMPREHENSIVE INCOMEExchange differences on translation of foreign operations 14,690 21,828 493 278 1,127

OTHER COMPREHENSIVE INCOME FOR THE YEAR/PERIOD 14,690 21,828 493 278 1,127

TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD 176,751 116,283 95,239 33,550 35,826

Profit attributable to: Owners of the parent 162,061 94,455 94,746 33,272 27,785 Non-controlling interests – – – – 6,914

162,061 94,455 94,746 33,272 34,699

Total comprehensive income attributable to: Owners of the parent 176,751 116,283 95,239 33,550 28,620 Non-controlling interests – – – – 7,206

176,751 116,283 95,239 33,550 35,826

A1A 33(1)

3rd Sch 27

FINANCIAL INFORMATION

206

Turnover

We derive our turnover primarily from the sale of three product categories: (i) video products,

mainly DVD Players, BD Players and Media Box; (ii) audio products, mainly HTS, Micro & Mini,

Soundbars, Dockings and Wireless Speakers; and (iii) other products, mainly ABS-s and components, as

described in detail in the section headed “Business” of this listing document.

The following table, which is based on our Company’s unaudited management records, sets out the

breakdown of our turnover by product category and the respective CAGRs for the periods indicated:

Year ended 31 December 2010-2012

2010 2011 2012 CAGR Sales Sales Average Sales Sales Average Sales Sales Average Sales Sales Average volume revenue price volume revenue price volume revenue price volume revenue price ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit % % %

Video productsDVD Players 14,590 2,482,718 170 17,108 2,632,772 154 9,523 1,257,652 132 –19.2 –28.8 –11.9

BD Players 1,397 829,557 594 1,965 968,646 493 2,726 1,122,765 412 39.7 16.3 –16.7

Media Boxes – – – 114 24,307 213 58 13,415 231 N/A (1) N/A (1) N/A (1)

Sub-total 15,987 3,312,275 207 19,187 3,625,725 189 12,307 2,393,832 195 –12.3 –15.0 –2.9

Audio productsTraditional(2) 372 236,157 635 686 443,858 647 986 690,771 701 62.8 71.0 5.1

New(3) – – – 27 7,200 267 592 181,848 307 N/A(1) N/A(1) N/A(1)

Sub-total 372 236,157 635 713 451,058 633 1,578 872,619 553 106.0 92.2 -6.7

Other productsABS-s 598 197,512 330 5 2,580 516 1,020 366,431 359 30.6 36.2 4.3

Components N/A 16,705 N/A N/A 20,091 N/A N/A 20,189 N/A N/A 9.9 N/A

Sub-total 598 214,217 N/A 5 22,671 N/A 1,020 386,620 N/A 30.6 34.3 N/A

Total 3,762,649 4,099,454 3,653,071 –1.5

A1A 32(1)

FINANCIAL INFORMATION

207

Three months ended 31 March Two months ended 31 May

2012 (unaudited) 2013 2013 (unaudited) Sales Sales Average Sales Sales Average Sales Sales Average volume revenue price volume revenue price volume revenue price ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit ’000 units HK$’000 HK$/unit

Video productsDVD Players 2,281 320,397 140 1,825 225,011 123 1,650 205,054 124

BD Players 613 241,290 394 428 164,830 385 467 160,538 344

Media Boxes 12 2,674 223 20 5,134 257 9 2,418 269

Sub-total 2,906 564,361 194 2,273 394,975 174 2,126 368,010 173

Audio productsTraditional(2) 187 116,884 625 260 170,009 654 225 147,337 655New(3) 46 9,218 200 131 53,409 408 233 92,055 395

Sub-total 233 126,102 541 391 223,418 571 458 239,392 523

Other productsABS-s 290 108,380 374 701 247,908 354 288 112,042 389Components N/A 4,675 N/A N/A 28,348 N/A N/A 13,681 N/A

Sub-total 290 113,055 N/A 701 276,256 N/A 288 125,723 N/A

Total 803,518 894,649 733,125

Notes:(1) The CAGR is not available as no turnover was recorded for Media Boxes and new audio products in 2010.(2) Mainly HTS and Micro & Mini.(3) Mainly Soundbars, Dockings and Wireless Speakers.

FINANCIAL INFORMATION

208

The following table sets out our turnover by the locations of our customers during the Track Record Period:

Year ended 31 December Three months ended 31 March

2010- 2010 2011 2012 2012 2012 2013 CAGR (unaudited) HK$’000 % HK$’000 % HK$’000 % % HK$’000 % HK$’000 %

Japan 1,450,605 38.6 1,971,474 48.1 1,456,442 39.9 0.2 262,637 32.7 162,631 18.2Europe 1,487,862 39.5 1,495,097 36.5 1,172,152 32.1 (11.2) 289,550 36.0 318,851 35.6The PRC 221,752 5.9 12,122 0.3 380,185 10.4 30.9 130,498 16.2 302,739 33.8United States 83,371 2.2 160,044 3.9 353,101 9.7 105.8 49,119 6.1 61,461 6.9Korea 492,523 13.1 456,380 11.1 285,869 7.8 (23.8) 66,218 8.3 42,507 4.8Others 26,536 0.7 4,337 0.1 5,322 0.1 (55.2) 5,496 0.7 6,460 0.7

3,762,649 100.0 4,099,454 100.0 3,653,071 100.0 (1.5) 803,518 100.0 894,649 100.0

Our customers designate the distribution of our products to their ultimate customers globally, with the major shipping destinations being Europe, Asia Pacific (excluding the PRC), Latin America and North America. Turnover from our BD players decreased from HK $262.6 million for the three months ended 31 March 2012 to HK$162.6 million for the three months ended 31 March 2013, primarily due to the fact that one of our Japanese customer substantially reduced its BD Players business with us as it began its own in-house production in 2013.

Cost of sales

Cost of sales mainly comprised material costs, manufacturing overhead, direct labour costs, transportation and installation costs, custom duty and others. The following table, which is based on our Company’s unaudited management records, sets out the breakdown of our cost of sales during the Track Record Period.

Year ended 31 December Three months ended 31 March

2010 2011 2012 2012 2013 (unaudited) HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Material costs of : Video products 2,618,193 78.5 2,931,510 79.0 1,910,572 59.2 448,648 61.7 310,502 39.3 – DVD Players 1,948,718 58.4 2,137,811 57.6 1,028,619 31.9 260,456 35.8 180,158 22.8 – BD Players 669,475 20.1 774,225 20.9 871,814 27.0 186,083 25.6 126,517 16.0 – Media Boxes – – 19,474 0.5 10,139 0.3 2,109 0.3 3,827 0.5 Audio products 206,327 6.2 368,689 9.9 673,139 20.9 99,499 13.7 169,590 21.4 – Traditional 206,327 6.2 362,589 9.8 536,722 16.6 91,371 12.6 130,370 16.5 – New – – 6,100 0.1 136,417 4.3 8,128 1.1 39,220 4.9 Other products 176,238 5.3 14,821 0.4 293,126 9.1 87,538 12.0 205,799 26.0 – ABS-s 165,971 5.0 2,082 0.1 279,645 8.7 84,599 11.6 187,684 23.7 – Components 10,267 0.3 12,739 0.3 13,481 0.4 2,939 0.4 18,115 2.3Unallocated costs Manufacturing overhead and direct labour costs 273,684 8.2 330,393 8.9 292,906 9.1 69,365 9.5 78,201 9.9 Others 60,147 1.8 66,448 1.8 55,877 1.7 22,809 3.1 27,215 3.4

3,334,589 100.0 3,711,861 100.0 3,225,620 100.0 727,859 100.0 791,307 100.0

FINANCIAL INFORMATION

209

During the Track Record Period, our cost of sales generally fluctuated in line with our turnover.

Our material costs generally fluctuated with the market. During the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 we spent HK$3,000.8 million, HK$3,315.0 million, HK$2,876.8 million and HK$685.9 million for purchasing materials, representing 90.0%, 89.3%, 89.2% and 86.7% of our costs of sales, respectively. The major components of our material costs are IC and loader.

The following table, which is based on our Company’s unaudited management records, sets out the breakdown of material costs by type of components:

Year ended 31 December Three months ended 31 March

 

2010 2011 2012 2012(unaudited)

2013

HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %

IC 690,174 23 795,605 24 747,978 26 166,041 26 186,367 27

Loaders 540,136 18 629,854 19 460,294 16 104,379 17 108,657 16

Plastic parts 276,908 9 265,202 8 230,147 8 51,808 8 56,391 8

Metal parts 206,464 7 198,901 6 143,842 5 31,721 5 34,454 5

PCB boards 131,909 4 139,513 4 120,460 4 26,254 4 29,090 4

Others 1,155,167 39 1,285,945 39 1,174,116 41 255,482 40 270,932 40

  3,000,758 100 3,315,020 100 2,876,837 100 635,685 100 685,891 100

The fluctuation of the material costs of different types of components during the Track Record Period was primarily affected by our Company’s sales, the products mix and the average purchase prices of components during the Track Record Period. In general, the average purchase prices of components exhibited a downward trend during the Track Record Period, primarily due to the improvement in component design and structure resulting in lower costs as well as our Company’s effective bargaining with its suppliers.

• The increase in ICmaterialcosts in theyearended31December2011was in linewith theincrease in our Company’s sales in the same year. The proportion of IC material costs as a percentage to the total material costs increased in the year ended 31 December 2012 despite the decreased turnover in the same year, primarily due to the fact that a higher proportion of IC components were used in production as the product sophistication increased. The IC material costs for the three months ended 31 March 2013 increased compared to the three months ended 31 March 2012, primarily due to the increase in average purchase price of IC for the three months ended 31 March 2013 compared to the three months ended 31 March 2012.

• The fluctuation of loader material costs during the Track Record Period was generally inline with the fluctuation of our Company’s sales and the decrease in average purchase prices during the same period.

• Thedecrease inmaterialcostsofplasticpartsandmetalpartsduring the threeyearsended31 December 2012 was primarily due to the fact that: (i) a lower proportion of plastic parts were used in production as the Company’s products were getting more sophisticated and smaller in size; and (ii) the average purchase prices of plastic parts and metal parts decreased during the same period. The material costs of plastic parts for the three months ended 31 March 2013 increased compared to the three months ended 31 March 2012, primarily due to the increase in average purchase price of plastic parts for the three months ended 31 March 2013 compared to the three months ended 31 March 2012.

FINANCIAL INFORMATION

210

Gross profit

Based on our Company’s unaudited management records, during the Track Record Period, our

gross profit and gross profit margin by business segment was as follows:

Year ended 31 December 2010

Video products Audio products Other products Total DVD BD Media Players Players Boxes Traditional New ABS-s Components HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 2,482,718 829,557 – 236,157 – 197,512 16,705 3,762,649

Material costs (1,948,718) (669,475) – (206,327) – (165,971) (10,267) (3,000,758)

Material gross profit 534,000 160,082 – 29,830 – 31,541 6,438 761,891

Unallocated costs* – – – – – – – (333,831)

Gross profit 428,060

Material gross profit margin 21.5% 19.3% N/A 12.6% N/A 16.0% 38.5% 20.2%

Gross profit margin N/A N/A N/A N/A N/A N/A N/A 11.4%

Year ended 31 December 2011

Video products Audio products Other products Total DVD BD Media Players Players Boxes Traditional New ABS-s Components HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 2,632,772 968,646 24,307 443,858 7,200 2,580 20,091 4,099,454

Material costs (2,137,811) (774,225) (19,474) (362,589) (6,100) (2,082) (12,739) (3,315,020)

Material gross profit 494,961 194,421 4,833 81,269 1,100 498 7,352 784,434

Unallocated costs* – – – – – – – (396,841)

Gross profit 387,593

Material gross profit margin 18.8% 20.1% 19.9% 18.3% 15.3% 19.3% 36.6% 19.1%

Gross profit margin N/A N/A N/A N/A N/A N/A N/A 9.5%

FINANCIAL INFORMATION

211

Year ended 31 December 2012

Video products Audio products Other products Total DVD BD Media Players Players Boxes Traditional New ABS-s Components HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 1,257,652 1,122,765 13,415 690,771 181,848 366,431 20,189 3,653,071Material costs (1,028,619) (871,814) (10,139) (536,722) (136,417) (279,645) (13,481) (2,876,837)

Material gross profit 229,033 250,951 3,276 154,049 45,431 86,786 6,708 776,234Unallocated costs* – – – – – – – (348,783)

Gross profit 427,451

Material gross profit margin 18.2% 22.4% 24.4% 22.3% 25.0% 23.7% 33.2% 21.2%Gross profit margin N/A N/A N/A N/A N/A N/A N/A 11.7%

Three months ended 31 March 2012 (unaudited)

Video products Audio products Other products Total DVD BD Media Players Players Boxes Traditional New ABS-s Components HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 320,397 241,290 2,674 116,884 9,218 108,380 4,675 803,518Material costs (260,456) (186,083) (2,109) (91,371) (8,128) (84,599) (2,939) (635,685)

Material gross profit 59,941 55,207 565 25,513 1,090 23,781 1,736 167,833Unallocated costs* – – – – – – – (92,174)

Gross profit 75,659

Material gross profit margin 18.7% 22.9% 21.1% 21.8% 11.8% 21.9% 37.1% 20.9%Gross profit margin N/A N/A N/A N/A N/A N/A N/A 9.4%

Three months ended 31 March 2013

Video products Audio products Other products Total DVD BD Media Players Players Boxes Traditional New ABS-s Components HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Turnover 225,011 164,830 5,134 170,009 53,409 247,908 28,348 894,649Material costs (180,158) (126,517) (3,827) (130,370) (39,220) (187,684) (18,115) (685,891)

Material gross profit 44,853 38,313 1,307 39,639 14,189 60,224 10,233 208,758Unallocated costs* – – – – – – – (105,416)

Gross profit 103,342

Material gross profit margin 19.9% 23.2% 25.5% 23.3% 26.6% 24.3% 36.1% 23.3%Gross profit margin N/A N/A N/A N/A N/A N/A N/A 11.6%

* The nature of unallocated costs mainly represent staff costs, patent fees, depreciation, transportation costs and rental

expense, etc.SX1-8

FINANCIAL INFORMATION

212

Our gross profit decreased from HK$428.1 million for the year ended 31 December 2010 to

HK$387.6 million for the year ended 31 December 2011 and then increased to HK$427.5 million for the

year ended 31 December 2012. Our gross profit increased from HK$75.7 million for the three months

ended 31 March 2012 to HK$103.3 million for the three months ended 31 March 2013.

The decrease in gross profit from the year ended 31 December 2010 to the year ended 31 December

2011 was primarily due to (i) reduction in average selling price of DVD Players (from HK$170 in 2010

to HK$154 in 2011) and (ii) the postponement by PRC government of its public tender for ABS-s in year

2011.

The increase in gross profit from the year ended 31 December 2011 to the year ended 31 December

2012 was primarily due to the increase in gross profit of our audio products and other products, which

was the result of (i) enforcing effective costs control for traditional audio products by more stringent

vendor selection and wider use of automated production facilities. which results in higher material gross

profit margin and (ii) introduction of new audio products such as dockings and soundbar with higher

material gross profit margin; and (iii) the re-opening of public tender for ABS-s in year 2012 in which

we successfully bade the contracts for the supply of ABS-s to a number of provincial radio, film and

television bureaus in the PRC. The abovementioned increase in gross profit was partially offset by the

decrease in gross profit of our video products, which was primarily due to the shrink of market demand for

DVD Players and the significant decrease in sales of our DVD Players.

The increase in our gross profit for the three months ended 31 March 2013 as compared to our

gross profit for the three months ended 31 March 2012 was primarily due to the increase in gross profit

of our audio products and other products which was the result of (i) enforcing effective costs control

for traditional audio products by more stringent vendor selection and wider use of automated production

facilities, which resulted in higher material gross profit margin and (ii) increase of sales of new audio

products such as dockings and soundbar with higher material gross profit margin; and (iii) the Company

successfully bade the contracts for the supply of ABS-s to a number of provincial radio, film and

television bureaus in the PRC. The abovementioned increase in gross profit was partially offset by the

decrease in gross profit of the Company’s video products, which was primarily due to the decrease in the

sales of DVD Players as a result of the shrinking market demand for DVD Players globally.

The reasons for the increase in BD Player’s material gross profit margin from the year ended 31

December 2010 to the year ended 31 December 2012 and for the three months ended 31 March 2013

as compared to the year ended 31 December 2012 was primarily due to (i) improvement in the product

design, such that the costs for bill of materials are lowered; (ii) more stringent vendor selection, such that

the purchase costs are lowered; and (iii) widely use of automated production facilities and improvement in

the production process, such that the production efficiency is improved.

SFC1-4

SX1-16(i)

SX1-16(i)

FINANCIAL INFORMATION

213

Other income and gains, net

Other income and gains, net mainly includes realised gains on settlement of derivative financial instruments, net unrealised fair value gains on derivative financial instruments, interest income, income from research and development services provided, net foreign exchange difference, and government grants. The following table sets out the breakdown of our other income and gains, net during the Track Record Period:

Year ended 31 December Three months ended 31 March 2013

2010 2011 2012 2012 2013 HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 % (unaudited)

Interest income 9,957 19.5 16,287 23.3 30,931 27.9 4,513 9.3 14,238 24.8Sales of components and parts and scrap materials 5,003 9.8 2,097 3.0 3,549 3.2 4,526 9.4 504 0.8Income from research and development services provided 9,440 18.5 12,390 17.7 19,942 18.0 7,641 15.8 26,549 46.2Realised gains on settlement of derivative financial instruments 11,227 22.0 32,157 45.9 30,676 27.7 16,794 34.8 11,023 19.2Unrealised fair value gains on derivative financial instruments, net – transactions not qualifying as hedges 221 0.4 2,098 3.0 20,435 18.4 13,193 27.3 – 0.0Foreign exchange difference, net 10,528 20.6 – 0.0 – 0.0 – 0.0 – 0.0Government grants 3,152 6.2 1,169 1.7 2,431 2.2 1,477 3.1 4,769 8.3Gain on disposal of items of property, plant and equipment 46 0.1 – 0.0 257 0.2 – 0.0 – 0.0Gain on bargain purchase of a subsidiary – 0.0 – 0.0 878 0.8 – 0.0 – 0.0Others 1,454 2.9 3,847 5.4 1,711 1.6 126 0.3 423 0.7

51,028 100.0 70,045 100.0 110,810 100.0 48,270 100.0 57,506 100.0

Interest income arises from bank deposits pledged for outstanding bills payable and short term

deposits.

Income from research and development services provided. Upon the request by our ODM

customers, we will provide product development services such as product design, testing, authentication,

prototype production and project management on new and potential audio and visual products and charge

fees on a cost plus basis ranging from 5% to 10% for these services accordingly.

Realised gains on settlement of derivative financial instruments/Unrealised fair value gains on

derivative financial instruments, net – transactions not qualifying as hedges: We entered into a number

of derivative financial instruments such as foreign-exchange forward contracts and interest rate swaps

throughout the Track Record Period to (i) hedge the risk of depreciation of the US dollars against the

RMB in light of our US dollars-denominated receivables from our US customers and (ii) hedge the

interest rate difference between local RMB bank deposits rate and the US dollars borrowings rate.

SX1-16(i)

SX2-16(i)

FINANCIAL INFORMATION

214

We frequently entered into foreign-exchange forward contracts during the Track Record Period,

often several each month, to hedge our exposure to depreciation of the US dollars against RMB. Under

these contracts, we and the banks, our counterparty, agreed to exchange specified amounts of US dollars

for RMB on specified future dates at specified forward exchange rates. If, with respect to each settlement,

the spot market exchange rate as of the current month-end is lower than the forward exchange rate, we

realize a valuation gain, which mitigates the negative effects of a weak US dollars on our US dollars-

denominated assets. Conversely, if the spot market exchange rate as of the current month-end is higher

than the forward exchange rate, we realise a valuation loss, while our US dollars-denominated assets

benefit from a strong US dollars. During the Track Record Period, the Group did not enter into any

foreign exchange combined options and currency swap contracts for hedging.

We frequently entered into interest rate swaps during the Track Record Period to hedge our

interest rate risk arising from bank loans and bills payable. Under these swaps, we and the banks, our

counterparty, agreed that we pay interest at specific rates to the banks on the principal loan amount, who

in exchange pays us interest at a LIBOR-based interest rate of the same principal amount, which are used

to satisfy our LIBOR-based interest rate payments under the original bank loans and bills payable. The

LIBOR-based interest rate under the interest rate swap arrangement is determined by the 3-month LIBOR

rate plus a range from 0% to 1.8% per annum. With respect to each settlement, if the spot market LIBOR-

based interest rate as of current month-end is higher than the specific rates, we realised a valuation gain;

on the contrary, if the spot market LIBOR-based interest rate as of the current month-end is lower than the

specific rates, we realised a valuation loss.

Since foreign-exchange contracts and interest rate swaps are derivative financial instruments, we

hold them at fair value, which is linked to the spot market exchange rates. We calculate fair-value gains or

losses from each such contract based on the differentials between the actual settlement prices and the spot

market rates as of the month-end prior to the respective settlement dates.

We maintain internal policies and controls for managing our Group’s use of derivative financial

instruments. For details of our foreign exchange risk management, please see the section headed

“Financial Information – Quantitative and Qualitative Disclosure about Market Risks – Exchange Rate

Risk”.

Foreign exchange difference, net. Our net exchange gains comprise (i) unrealised gains on period-

end translation of foreign currency-denominated balance sheet items into functional currencies of the

Group companies; and (ii) realised gains on trade transactions triggered by fluctuations in currency

exchange rates.

The realised gains on settlement of derivative financial instruments were significantly higher than

the foreign exchange differences because foreign currency forward contracts and interest rate swaps were

entered into by the Group only to hedge the foreign exchange risks arising from transactional risk, i.e.

currency mismatch between its US$ receipts from export sales and RMB payment for PRC operations

and the interest rate risk. The Group did not enter into any derivative financial instruments to hedge the

translational risk arising from revaluation of foreign currency denominated receivables and payables

and cash and bank balances, which has significantly contributed to the foreign exchange differences

recognised during the Track Record Period.

SX2-7(i)

SX2-7(i)

SX1-7(i)

FINANCIAL INFORMATION

215

The following tables detailed the foreign currency forward contracts outstanding as at the end of

each of the Track Record Period:

As at 31 December As at 31 March

2010 2011 2012 2013

No. of contracts 45 78 55 49

Duration 4 months to 4 months to 1 month to 3 months to

12 months 18 months 15 months 15 months

Exchange rate

(RMB/US$) 6.47 to 6.80 6.28 to 6.52 6.23 to 6.48 6.25 to 6.48

Nominal amount US$ 1,016,228 to US$3,000,000 to US$5,000,000 to US$5,000,000 to

US$14,237,165 US$10,000,000 US$18,706,280 US$19,003,513

RMB19,587,900 to RMB390,000 to RMB1,900,179 to RMB1,900,179 to

RMB104,174,157 RMB101,840,000 RMB118,992,488 RMB119,000,000

The following tables detailed the interest rate swaps contracts outstanding as at the end of each of the Track Record Period:

As at 31 December As at 31 March

2010 2011 2012 2013

No. of contracts 10 nil 7 8

Duration 12 months N/A 12 months to 12 months to

13 months 13 months

Interest rate LIBOR to N/A LIBOR+0.7% to LIBOR+0.7% to

LIBOR+1.0% LIBOR+1.8% LIBOR+1.8%

Nominal amounts US$996,302 to N/A US$9,982,570 to US$9,982,570 to

US$15,361,419 US$18,706,279 US$18,706,279

The Group did not enter into any interest rate swap contract as at 31 December 2011 since the

outstanding loan balances were of short-term (3 months) and our management considered the interest rate

risk was low.

Government grants represented the non-recurring financial subsidies to support the Group

on its business development and its overseas export business. There are no unfulfilled conditions

or contingencies relating to these grants. For the three months ended 31 March 2013, we received a

government grant of HK$4.8 million for the VAT allowance granted for one of our group companies in

Shenzhen since late 2012. For further details of such VAT allowance, please refer to the section headed

“Key Factors Affecting our Results of Operations – Preferential Fax Rates and Incentives” above.

SX2-7(i)

SX2-7(i)

FINANCIAL INFORMATION

216

Selling and distribution costs

Selling and distribution costs mainly include salary and welfare, transportation expense to move our

products from our production facilities to the port, after sales services and reimbursement of general brand

advertising costs payable to TCL Corporation. For the years ended 31 December 2010, 2011 and 2012 and

the three months ended 31 March 2013, selling and distribution costs were HK$139.8 million, HK$124.1

million, HK$141.9 million and HK$36.9 million, respectively.

The following table sets out the breakdown of our selling and distribution costs during the Track Record Period:

Year ended 31 December Three months ended 31 March

2010 2011 2012 2012 2013 (unaudited) HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Salary and welfare 8,353 6.0 12,266 9.9 19,538 13.8 3,582 14.6 7,735 21.0Office utilities 2,917 2.1 6,523 5.3 7,414 5.2 1,406 5.7 2,045 5.5After sales services 38,276 27.4 43,258 34.9 32,465 22.9 3,574 14.6 10,498 28.5Transportation expense 51,225 36.6 23,821 19.2 36,156 25.5 5,413 22.0 9,169 24.9Entertainment expense 2,369 1.7 2,744 2.2 3,507 2.5 747 3.0 772 2.1Consultancy fee 2,075 1.5 – 0.0 5,026 3.5 – 0.0 307 0.8Travelling expense 2,214 1.6 3,467 2.8 4,176 2.9 771 3.1 1,053 2.9Property insurance fee 5,976 4.3 4,498 3.6 6,700 4.7 1,811 7.4 482 1.3Reimbursement of general brand advertising costs 8,713 6.2 10,062 8.1 8,905 6.3 2,474 10.1 2,237 6.1Custom declaration fee 4,264 3.1 5,167 4.2 3,840 2.7 911 3.7 866 2.3Material consumption 7,197 5.1 8,371 6.7 8,265 5.8 1,950 7.9 961 2.6Others 6,204 4.4 3,910 3.1 5,937 4.2 1,937 7.9 727 2.0

139,783 100.0 124,087 100.0 141,929 100.0 24,576 100.0 36,852 100.0

Administrative expenses

Administrative expenses primarily include salary, welfare and staff related costs for our

administration staff, office utilities, transportation and travelling expenses, professional fees and foreign

exchange difference, net. For the years ended 31 December 2010, 2011 and 2012 and the three months

ended 31 March 2013, administrative expenses were HK$61.5 million, HK$114.6 million, HK$125.5

million and HK$38.9 million, respectively.

FINANCIAL INFORMATION

217

The following table sets out the breakdown of our administrative expenses during the Track Record

Period:

Year ended 31 December Three months ended 31 March

2010 2011 2012 2012 2013 (unaudited) HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %

Salaries, welfare and

staff-related costs 24,731 40.2 37,778 33.0 45,948 36.6 8,277 32.6 12,605 32.4

Office utilities 9,895 16.1 19,200 16.8 18,149 14.5 3,691 14.6 5,672 14.6

Entertainment expense 3,862 6.3 1,500 1.3 2,281 1.8 651 2.6 556 1.4

Transportation and travelling

expense 3,626 5.9 7,310 6.4 5,091 4.1 1,207 4.8 1,628 4.2

Depreciation and amortisation 2,928 4.8 1,860 1.6 2,630 2.1 792 3.1 743 1.9

Local surcharge 3,965 6.4 4,773 4.2 3,772 3.0 671 2.6 1,039 2.7

Professional fees 1,794 2.9 1,883 1.6 11,981 9.5 2,370 9.3 1,564 4.0

Maintenance, cleansing and

security expense 2,865 4.7 5,107 4.5 4,267 3.4 2,347 9.3 943 2.4

Management fee expense 3,494 5.7 18,398 16.1 5,499 4.4 3,864 15.2 2,254 5.8

Bank charges 2,491 4.1 3,803 3.3 1,305 1.0 814 3.2 1,617 4.2

Unrealised fair value losses on

derivative financial instruments,

net – transactions not qualifying

as hedges – 0.0 – 0.0 – 0.0 – 0.0 6,157 15.9

Foreign exchange difference,

net – 0.0 8,668 7.6 17,855 14.2 480 1.9 3,776 9.7

Others 1,825 2.9 4,285 3.6 6,723 5.4 197 0.8 324 0.8

61,476 100.0 114,565 100.0 125,501 100.0 25,361 100.0 38,878 100.0

Research and development costs

Research and development costs mainly refer to (i) staff costs; (ii) materials consumed in laboratory

testing and development on new products and existing products and (iii) certification testing fees, etc.

In order to maintain our competitiveness in the audio and visual in ODM/ OEM industry, we have re-

orientated our business strategy by diversifying our product portfolio into a range of new audio and visual

products such as DVD Players, BD Players and Home Theatre System, Mini-Speakers, Soundbars and

Dockings etc. Substantial amount of resources was invested across the years for the development of new

products which led to the increasing trend of research and development costs incurred.

FINANCIAL INFORMATION

218

The following table sets out the breakdown of our research and development costs during the Track

Record Period:

Year ended 31 December Three months ended 31 March

2010 2011 2012 2012 2013 (unaudited) HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %Salaries, welfare and staff-related costs 30,821 44.0 51,788 57.8 95,831 61.2 16,805 54.6 27,824 65.5Certification testing fees 24,509 35.0 16,974 18.9 38,046 24.3 7,591 24.6 5,659 13.3Office utilities 6,104 8.7 3,166 3.5 4,659 3.0 903 2.9 1,306 3.1Material consumption 3,098 4.4 4,365 4.9 3,482 2.2 868 2.8 708 1.7Depreciation 1,530 2.2 1,728 1.9 2,100 1.3 460 1.5 653 1.5Rental expenses 1,860 2.7 2,622 2.9 4,288 2.7 1,065 3.5 1,051 2.5Travelling expenses 1,030 1.5 1,481 1.7 1,260 0.8 318 1.0 310 0.7Others 1,087 1.5 7,460 8.4 6,987 4.5 2,790 9.1 4,975 11.7

70,039 100.0 89,584 100.0 156,653 100.0 30,800 100.0 42,486 100.0

The certification testing fees are fees incurred in obtaining the independent certification of our products for qualifying the safety and technical requirement pursuant to the government and industry standards. Such fees increases in accordance to the number and complexity of the products in development and it increased significantly in 2012 mainly due to the significant increase in the number of products under development and the technical requirement for such products development were much higher than those in 2011.

Other operating expenses

Other operating expenses refer to reversal of impairment of trade receivables, net and loss on disposal of items of property, plant and equipment. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our net reversal of impairment of trade receivables, were HK$1.2 million, HK$2.4 million, nil and nil, respectively while our loss on disposal of items of property, plant and equipment were nil, HK$0.02 million, nil and HK$0.4 million, respectively.

Finance costs

Finance costs represented interest expenses on our bank and other borrowings, including short term loans and factored trade receivables from bank and loan from a subsidiary of TCL Corporation, a financial institution approved by the People’s Bank of China. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our finance costs were HK$5.4 million, HK$7.5 million, HK$3.5 million and HK$2.1 million, respectively.

Income tax expense

Income tax expense mainly represent the amount of enterprise income tax and deferred tax provision in respect of withholding tax levied on dividends declared. For the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, our income tax expense was HK$41.5 million, HK$29.9 million, HK$15.9 million and HK$5.4 million, respectively.

SX1-16(i)

SX2-16(i)

FINANCIAL INFORMATION

219

Our effective tax rate for the years ended 31 December 2010, 2011 and 2012 and the three months

ended 31 March 2013 was 20.4%, 24.0%, 14.4% and 13.4%, respectively.

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends

declared to foreign investors from the foreign investment enterprises established in the PRC. The

requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower

withholding tax rate may be applied if there is a tax treaty between the PRC and the jurisdiction of the

foreign investors. The applicable rate for our Group is 5%. We are therefore liable for withholding taxes

on dividends distributed by those subsidiaries established in the PRC in respect of earnings generated

from 1 January 2008.

REVIEW OF HISTORICAL RESULTS OF OPERATIONS

Three months ended 31 March 2013 compared to three months ended 31 March 2012

Turnover

Turnover increased by HK$91.1 million, or 11.3%, from HK$803.5 million for the three months

ended 31 March 2012 to HK$894.6 million for the three months ended 31 March 2013. The increase was

mainly attributable to the increased sales of other products (mainly ABS-s) and audio products. Turnover

from our ABS-s products increased from HK$108.4 million for the three months ended 31 March 2012

to HK$247.9 million for the three months ended 31 March 2013, primarily due to the increase in sales

volume of our ABS-s products. We sold 0.7 million units of our ABS-s products for the three months

ended 31 March 2013, compared to 0.3 million units for the three months ended 31 March 2012, an

increase of 133.3%. Turnover from our audio products increased from HK$126.1 million for the three

months ended 31 March 2012 to HK$223.4 million for the three months ended 31 March 2013, primarily

due to increase in sales volume of audio products (both traditional and new audio products recorded

period-to-period increase in sales volume). We sold 0.4 million units of our audio products for the three

months ended 31 March 2013, compared to sales of 0.2 million units for the three months ended 31 March

2012, an increase of 100.0%. Nevertheless, the increase in turnover from our ABS-s products and audio

products was partially offset by the decrease in turnover from our video products. Turnover from our

DVD Players decreased from HK$320.4 million for the three months ended 31 March 2012 to HK$225.0

million for the three months ended 31 March 2013. We sold 1.8 million units of our DVD Players for the

three months ended 31 March 2013, compared to sales of 2.3 million units for the three months ended 31

March 2012 primarily due to shrink of market demand for DVD Players. Turnover from our BD players

decreased from HK$241.3 million for the three months ended 31 March 2012 to HK$164.8 million for

the three months ended 31 March 2013, primarily due to the fact that one of our Japanese customer

substantially reduced its BD Players business with us as it began its own in-house production in 2013.

Cost of sales

Cost of sales increased by HK$63.4 million, or 8.7%, from HK$727.9 million for the three months

ended 31 March 2012 to HK$791.3 million for the three months ended 31 March 2013. The increase in

cost of sales was generally in line with our increase in turnover.

FINANCIAL INFORMATION

220

Gross profit

Gross profit increased by HK$27.6 million, or 36.5%, from HK$75.7 million for the three months

ended 31 March 2012 to HK$103.3 million for the three months ended 31 March 2013. Overall gross

profit margin increased from 9.4% for the three months ended 31 March 2012 to 11.6% for the three

months ended 31 March 2013, which was mainly attributable to the increase in gross profit of our audio

products and ABS-s products. The increase in gross profit of our audio products was the result of (i)

enforcing effective costs control for traditional audio products by more stringent vendor selection and

wider use of automated production facilities, which resulted in higher material gross profit margin and

(ii) increased of sales of new audio products such as dockings and soundbar with higher material gross

profit margin. The increase in gross profit of our ABS-s products was due to the decrease of material

costs. The abovementioned increase in gross profit was partially offset by the decrease in gross profit of

the Company’s video products, which was primarily due to the decrease in the sales of DVD Players as a

result of the shrinking market demand for DVD Players globally and the decrease in sales of BD Players

as a result of the fact that one of our Japanese customer substantially reduced in BD Players business with

us as it began its in-house production in 2013. Although the average selling price of our DVD Players and

BD Players decreased for the three months ended 31 March 2013, our gross profit and gross profit margin

increased as a whole primarily due to our improvements in product design and costs control.

Other income and gains, net

Other income and gains, net increased by HK$9.2 million, or 19.3%, from HK$48.3 million for

the three months ended 31 March 2012 to HK$57.5 million for the three months ended 31 March 2013,

primarily due to the increase in (i) interest income as the Group had a larger bank balance; (ii) income

from research and development services as we expanded the scope of the product development services

provided to our ODM customers in relation to their new and potential audio and visual products.

Selling and distribution costs

Selling and distribution costs increased by HK$12.3 million, or 50.0%, from HK$24.6 million

for the three months ended 31 March 2012 to HK$36.9 million for the three months ended 31 March

2013. The increase was mainly attributable to: (i) increase in salaries and welfare costs which was in line

with the increase in headcount of sales department and (ii) increase in after sales services expenses and

transportation expense in relation to the increased sales of ABS-s products.

Administrative expenses

Administrative expenses increased by HK$13.5 million, or 53.1%, from HK$25.4 million for

the three months ended 31 March 2012 to HK$38.9 million for the months ended 31 March 2013. The

increase was mainly attributable to increase in salaries and welfare costs which was in line with the

increase in headcount of administrative and managerial staff and the unrealized fair value losses on

derivative financial instruments (as the appreciation of RMB against US dollar was less than that expected

by the Company), partially offset by a decrease in maintenance, cleansing and security expense and

management fee expenses.

FINANCIAL INFORMATION

221

Research and development costs

The research and development services mainly consisted of services such as product design, testing,

authentication, prototype production and project management on new products. Research and development

costs increased by HK$11.7 million, or 38.0%, from HK$30.8 million for the three months ended 31

March 2012 to HK$42.5 million for the three months ended 31 March 2013. The increase was mainly

attributable to increase in salaries and welfare costs which was in line with the increase in headcount of

research and development staff, partially offset by a decrease of certification testing fee.

Finance costs

Finance costs increased by HK$1.6 million, or 320.0%, from HK$0.5 million for the three months

ended 31 March 2012 to HK$2.1 million for the months ended 31 March 2013. The increase was mainly

attributable to the significant increase in amount of trade receivables factored.

Income tax expense

Income tax expense decreased by HK$3.9 million, or 41.9%, from HK$9.3 million for the three

months ended 31 March 2012 to HK$5.4 million for the three months ended 31 March 2013. The effective

tax rate had decreased from 21.9% for the three months ended 31 March 2012 to 13.4% for the three

months ended 31 March 2013. The decrease in effective tax rate was mainly attributable to the fact that

TCL Technoly Electronics, a major subsidiary of our Group which is granted the status of “High and New

Technology Enterprise” (which will expire in 2014), has enjoyed preferential tax rate since May 2012 and

therefore the applicable tax rate dropped from 25% in the three months ended 31 March 2012 to 15% in

the three months ended 31 March 2013.

Profit attributable to the owners of the parent

As a result of the foregoing, our profit attributable to the owners of the parent decreased by HK$5.5

million, or 16.5%, from HK$33.3 million for the three months ended 31 March 2012 to HK$27.8 million

for the three months ended 31 March 2013.

Exchange differences on translation of foreign operations

Exchange differences on translation of foreign operations increased by HK$0.8 million, or 266.7%,

from HK$0.3 million for the three months ended 31 March 2012 to HK$1.1 million for the months ended

31 March 2013. The increase was mainly attributable to the fluctuation of RMB closing rate.

Total comprehensive income for the period

As a result of the foregoing, total comprehensive income attributable to owners of the parent

decreased by 14.6% from HK$33.5 million for the three months ended 31 March 2012 to HK$28.6 million

for the three months ended 31 March 2013.

FINANCIAL INFORMATION

222

Year ended 31 December 2012 compared to year ended 31 December 2011

Turnover

Turnover decreased by HK$446.4 million, or 10.9%, from HK$4,099.5 million for the year ended

31 December 2011 to HK$3,653.1 million for the year ended 31 December 2012. The decrease was

mainly attributable to decrease in sales of video products. Turnover from our video products decreased

from HK$3,625.7 million for the year ended 31 December 2011 to HK$2,393.8 million for the year ended

31 December 2012, primarily due to shrink of market demand for DVD Players leading to the decrease

in both average selling price and sales volume of our video products-DVD Players. We sold 9.5 million

units of our DVD Players in the year ended 31 December 2012, compared to sales of 17.1 million units of

our DVD Players in the year ended 31 December 2011, a decrease of 44.4%. Nevertheless, the decrease

in turnover from our visual products is partially offset by (i) increase in sales of our audio products and

(ii) increase in sales of our other products (mainly ABS-s). Turnover from our audio products increased

from HK$451.1 million for the year ended 31 December 2011 to HK$872.6 million for the year ended

31 December 2012, primarily due to increase in sales volume of audio products (both traditional and

new audio products recorded year-on-year increase in sales volume). We sold 1.6 million units of our

audio products in the year ended 31 December 2012, compared to sales of 0.7 million units of our audio

products in the year ended 31 December 2011, an increase of 128.6%. Turnover from our other products

such as (mainly ABS-s) increased from HK$22.7 million for the year ended 31 December 2011 to

HK$386.6 million for the year ended 31 December 2012. The revival of sales in ABS-s was due to re-

opening of public tender for ABS-s in 2012 in which that we successfully bade the contracts in open

tender for the supply of ABS-s to a number of provincial radio and television bureaus in the PRC in 2012.

We sold 1.0 million units of our ABS-s in the year ended 31 December 2012, compared to sales of 5,000

units of our ABS-s in the year ended 31 December 2011.

Cost of sales

Cost of sales decreased by HK$486.3 million, or 13.1%, from HK$3,711.9 million for the year

ended 31 December 2011 to HK$3,225.6 million for the year ended 31 December 2012. The decrease in

cost of sales was generally in line with our decrease in turnover.

Gross profit

Gross profit increased by HK$39.9 million, or 10.3%, from HK$387.6 million for the year ended 31 December 2011 to HK$427.5 million for the year ended 31 December 2012. Overall gross profit margin increased from 9.5% for the year ended 31 December 2011 to 11.7% for the year ended 31 December 2012, was primarily due to the increase in gross profit of our audio products and other products, which was the result of (i) enforcing effective costs control for traditional audio products by more stringent vendor selection and wider use of automated production facilities. which resulted in higher material gross profit margin and (ii) introduction of new audio products such as dockings and soundbar with higher material gross profit margin; and (iii) the re-opening of public tender for ABS-s in year 2012 in which the Company successfully bade the contracts for the supply of ABS-s to a number of provincial radio, film and television bureaus in the PRC. The abovementioned increase in gross profit was partially offset by the decrease in gross profit of the Company’s video products, which was primarily due to the decrease in the sales of DVD Players as a result of the shrinking market demand for DVD Players globally.

FINANCIAL INFORMATION

223

Other income and gains, net

Other income and gains, net increased by HK$40.8 million, or 58.2%, from HK$70.0 million for the year ended 31 December 2011 to HK$110.8 million for the year ended 31 December 2012, primarily due to increase in realised gains on settlement of derivative financial instruments and bank interest income. The increase in realised gains on settlement of derivative financial instruments was mainly due to the appreciation of RMB against US dollars during 2012 as well as the increased number of derivative financial instruments contracts we entered into. The increase in interest income was attributed to our increased average balance of bank deposits.

Selling and distribution costs

Selling and distribution costs increased by HK$17.8 million, or 14.4%, from HK$124.1 million for the year ended 31 December 2011 to HK$141.9 million for the year ended 31 December 2012. The increase was mainly attributable to an increase in transportation expenses incurred for local delivery of ABS-s products to end users in rural areas in the PRC, and an increase in salary and welfare, partially offset by a decrease in after sales services.

Administrative expenses

Administrative expenses increased by HK$10.9 million, or 9.5%, from HK$114.6 million for the year ended 31 December 2011 to HK$125.5 million for the year ended 31 December 2012. The increase was mainly attributable to (i) an increase in salaries, welfare and staff-related costs as a result of an increase in headcount to meet our business development and an increase in minimum wages and welfare for PRC staffs; (ii) foreign exchange loss due to fluctuation of exchange rate for RMB against USD; and (iii) an increase in professional fees due to preparation for listing, the increase is partially offset by a decrease in management fee expenses.

Research and development costs

Research and development costs increased by HK$67.1 million, or 74.9%, from HK$89.6 million for the year ended 31 December 2011 to HK$156.7 million for the year ended 31 December 2012. The increase was mainly attributable to (i) increase in number of research staffs due to headcount increment and increase in minimum wages and welfare for PRC staffs; (ii) increase in materials costs consumed in laboratory testing and development on new products and existing products and (iii) increase in certification testing fees.

Finance costs

Finance costs decreased by HK$4.0 million, or 53.3%, from HK$7.5 million for the year ended 31 December 2011 to HK$3.5 million for the year ended 31 December 2012, which was mainly attributable to repayment of bank loans.

Income tax expense

Income tax expense decreased by HK$14.0 million, or 46.8%, from HK$29.9 million for the year ended 31 December 2011 to HK$15.9 million for the year ended 31 December 2012. The effective tax rate had decreased from 24.0% in the year ended 31 December 2011 to 14.4% in the year ended 31 December

FINANCIAL INFORMATION

224

2012. The decrease in effective tax rate was due to the fact that TCL Technoly Electronics, a major subsidiary of our Group which is granted the status of “High and New Technology Enterprise” (which will expire in 2014), has enjoyed preferential tax rate since May 2012, and therefore the applicable tax rate dropped from 25% in year 2011 to 15% in 2012 and the overprovision for income tax was reversed in year 2012.

Profit attributable to the owners of the parent

As a result of the foregoing, our profit attributable to the owners of the parent increased by HK$0.2 million, or 0.3%, from HK$94.5 million for the year ended 31 December 2011 to HK$94.7 million for the year ended 31 December 2012.

Exchange differences on translation of foreign operations

Exchange differences on translation of foreign operations decreased by 97.7% from HK$21.8 million for the year ended 31 December 2011 to HK$0.5 million for the year ended 31 December 2012, mainly because no material fluctuation noted in RMB closing rate as at 31 December 2011 and 2012.

Total comprehensive income for the year

As a result of the foregoing, total comprehensive income attributable to owners of the parent decreased by 18.1% from HK$116.3 million for the year ended 31 December 2011 to HK$95.2 million for the year ended 31 December 2012.

Year ended 31 December 2011 compared to year ended 31 December 2010

Turnover

Turnover increased by HK$336.9 million, or 9.0%, from HK$3,762.6 million for the year ended 31 December 2010 to HK$4,099.5 million for the year ended 31 December 2011. The increase was mainly attributable to an increase in sales of video products. Turnover from our video products increased from HK$3,312.3 million for the year ended 31 December 2010 to HK$3,625.7 million for the year ended 31 December 2011, primarily due to the enriched product mix resulting in the increase in sales volume of DVD Players and BD Players. We sold 19.1 million units of our DVD Players and BD Players in the year ended 31 December 2011, compared to sales of 16.0 million units of our DVD Players and BD Players in the year ended 31 December 2010, an increase of 19.3%. The increase in sales of audio products also contributed to the increase in our total turnover. Turnover from our audio products increased from HK$236.2 million for the year ended 31 December 2010 to HK$451.1 million for the year ended 31 December 2011, primarily due to increase in sales volume of audio products (both traditional and new audio products recorded year-on-year increase in sales volume). We sold 0.7 million units of our audio products in the year ended 31 December 2011, compared to sales of 0.4 million units of our audio products in the year ended 31 December 2010, an increase of 75.0%. However, the increase in sales of our audio and video products are partially offset by a decrease in sales of other products. Turnover from our other products decreased from HK$214.2 million for the year ended 31 December 2010 to HK$22.7 million for the year ended 31 December 2011, primarily due to the decrease in sales of ABS-s as the PRC government postponed its public tender for ABS-s until late 2011. We sold approximately 5,000 units of our ABS-s in the year ended 31 December 2011, compared to sales of approximately 0.6 million units of our ABS-s in the year ended 31 December 2010, a decrease of approximately 99.2%.

SFC1-4

FINANCIAL INFORMATION

225

Cost of sales

Cost of sales increased by HK$377.3 million, or 11.3%, from HK$3,334.6 million for the year ended 31 December 2010 to HK$3,711.9 million for the year ended 31 December 2011. The increase in cost of sales was generally in line with our increase in turnover.

Gross profit

Gross profit decreased by HK$40.5 million, or 9.5%, from HK$428.1 million for the year ended 31 December 2010 to HK$387.6 million for the year ended 31 December 2011. Overall gross profit margin decreased from 11.4% for the year ended 31 December 2010 to 9.5% for the year ended 31 December 2011, which was primarily due to (1) reduction in sales revenue of video products-DVD Players and other products-ABS-s as a result of the shrink in demand for DVD Players globally and postponement by PRC government of its public tender for ABS-s in year 2011 respectively, and (2) decrease in material gross profit margin of video products-DVD Players from approximately 21.5% to approximately 18.8% from approximately HK$534.0 million to HK$495.0 million. The average selling price per unit of our DVD Players decreased from HK$170 in 2010 to HK$154 in 2011.

Other income and gains, net

Other income and gains, net increased by HK$19.0 million, or 37.3%, from HK$51.0 million for the year ended 31 December 2010 to HK$70.0 million for the year ended 31 December 2011 primarily due to increase in realised gains on settlement of derivative financial instruments and bank interest income. The increase in realised gains on settlement of derivative financial instruments was mainly due to the appreciation of RMB against US dollars during 2011 as well as the increased number of derivative financial instruments contracts we entered into. The increase in interest income was attributed to our increased average balance of bank deposits.

Selling and distribution costs

Selling and distribution costs decreased by HK$15.7 million, or 11.2%, from HK$139.8 million for the year ended 31 December 2010 to HK$124.1 million for the year ended 31 December 2011. The decrease was mainly attributable to a decrease in transportation expenses. In 2010, we incurred additional transportation expenses for shipping costs and freight charges for exporting components and parts to a subsidiary of TCLM in Poland for further assembly and supply of finished products to an overseas customer designated by our Group. Such sales arrangement was significantly reduced in year 2011. However, the abovementioned decrease in transportation expenses was partially offset by the increase in other selling and distribution costs such as salary and welfare, office utilities and product warranty.

Administrative expenses

Administrative expenses increased by HK$53.1 million, or 86.3%, from HK$61.5 million for the

year ended 31 December 2010 to HK$114.6 million for the year ended 31 December 2011. The increase

was mainly attributable to (i) an increase in staff costs due to an increase in headcount to meet our

business development and increase in minimum wages and welfare for PRC staffs; (ii) an exchange loss

due to fluctuation of exchange rate for RMB during year 2011; (iii) an increase in office utilities due to

increase in rental area and maintenance fee for office and (iv) an increase in management fee expenses due

to increase in consultancy fee recharged from the Remaining TCLM Group for developing audio business

and foreign exchange hedging services.

FINANCIAL INFORMATION

226

Research and development costs

Research and development costs increased by HK$19.6 million, or 28.0%, from HK$70.0 million

for the year ended 31 December 2010 to HK$89.6 million for the year ended 31 December 2011. The

increase was mainly attributable to (i) increase in staff costs for research staff; (ii) increase in materials

costs consumed in laboratory testing and development on new products and existing products and (iii)

increase in certification testing fees.

Finance costs

Finance costs increased by HK$2.1 million, or 38.9%, from HK$5.4 million for the year ended 31

December 2010 to HK$7.5 million for the year ended 31 December 2011, which was mainly attributable

to increase in trade receivables factored to bank in year 2011.

Income tax expense

Income tax expense decreased by HK$11.6 million, or 28.0%, from HK$41.5 million for the year

ended 31 December 2010 to HK$29.9 million for the year ended 31 December 2011. The effective tax

rates increased from 20.4% in the year ended 31 December 2010 to 24.0% in the year ended 31 December

2011. The increase in effective tax rate was due to the fact that TCL Technoly Electronics, our major

subsidiary of our Group and being granted the status of High and New Technology Enterprises (which

expired in 2011), enjoyed preferential tax rate in year 2010, and therefore the applicable tax rate had been

increased from 15% in year 2010 to 25% in 2011.

Profit attributable to the owners of the parent

As a result of the foregoing, our profit attributable to the owners of the parent decreased by

HK$67.6 million, or 41.7%, from HK$162.1 million for the year ended 31 December 2010 to HK$94.5

million for the year ended 31 December 2011.

Exchange differences on translation of foreign operations

Exchange differences on translation of foreign operations increased by 48.3% from HK$14.7

million for the year ended 31 December 2010 to HK$21.8 million for the year ended 31 December 2011,

mainly because appreciation of RMB.

Total comprehensive income for the year

As a result of the foregoing, total comprehensive income for the year decreased by 34.2% from

HK$176.8 million for the year ended 31 December 2010 to HK$116.3 million for the year ended 31

December 2011.

FINANCIAL INFORMATION

227

LIQUIDITY AND CAPITAL RESOURCES

We have historically met our working capital and other capital requirements primarily from net

cash generated from our operating activities and advances from loan and factored trade receivables from

banks and financial institution.

Going forward, we believe our funding requirements will be satisfied through cash generated from

our operating activities and borrowings from banks and financial institutions. Based on our current and

anticipated operations and conditions in the markets and industry in which we operate, we believe that we

have the ability to generate adequate cash from our operations to fund both our ongoing operating cash

needs and the continuing expansion of our business, in particular audio products and ABS-s. We regularly

monitor our liquidity requirements and our compliance with debt covenants (if any) to ensure that we

maintain sufficient cash resources and adequate means of debt financing.

We have not experienced and do not expect to experience any difficulties in meeting our

obligations as they fall due. However, our ability to fund our working capital needs, repay our

indebtedness and finance other obligations depends on our future results of operations and cash flow,

which are in turn subject to prevailing economic conditions, the level of spending by our customers and

many other factors.

The following table is a condensed summary of our combined statements of cash flows during the

Track Record Period:

Three months Year ended 31 December ended 31 March

2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Net cash flows from/(used in) operating activities 533,275 67,050 296,227 178,365 (163,247)Net cash flows from/(used in) investing activities (895,214) 476,483 198,212 16,732 (42,523)Net cash flows from/(used in) financing activities 745,059 (623,204) 8,503 (123,892) (40,764)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 383,120 (79,671) 502,942 71,205 (246,534)Cash and cash equivalent at beginning of year/period 179,800 568,997 492,841 492,841 995,562Effect of foreign exchange rate changes, net 6,077 3,515 (221) 1,096 (163)

Cash and cash equivalent at end of year/period 568,997 492,841 995,562 562,142 748,865

A1A 32(5)(a)

A1A 32(5)(b)

FINANCIAL INFORMATION

228

Net cash from/(used in) operating activities

We derive our cash inflow from operating activities primarily through the receipt of payments for

the sale of our products. Our cash outflow from operating activities is used primarily for components

and parts purchases, wages, selling and distribution expenses, administrative expenses and research and

development costs. Our net cash flows from operating activities reflect our profit before tax, as adjusted

for: (i) non-cash items such as depreciation of our property, plant and equipment and unrealised fair value

gains on derivative financial instruments; and (ii) the effects of changes in certain balance sheet items

such as inventories, trade receivables, prepayments, deposits and other receivables, trade payables, bills

payable, and other payables and accruals.

For the three months ended 31 March 2013, we had net cash flows used in operating activities of

HK$163.2 million, primarily attributable to: (i) profit before tax of HK$40.1 million and (ii) an decrease

in inventories of HK$20.4 million, partially offset by: (i) an increase of trade receivables of HK$90.0

million; (ii) a decrease in trade payable of HK$28.8 million and a decrease in other payables and accruals

of HK$74.3 million.

For the year ended 31 December 2012, we had net cash flows from operating activities of

HK$296.2 million, primarily attributable to: (i) profit before tax of HK$110.7 million; (ii) a decrease in

prepayments, deposits and other receivables of HK$441.7 million; (iii) an increase in other payables and

accruals of HK$105.7 million; and (iv) an increase in trade payables of HK$58.5 million, partially offset

by: (i) an increase in trade receivables of HK$349.8 million; (ii) an increase in inventories of HK$53.2

million; and (iii) income taxes paid of HK$24.8 million.

For the year ended 31 December 2011, we had net cash flows from operating activities of HK$67.1

million, primarily attributable to: (i) profit before tax of HK$124.4 million; (ii) an increase in other

payables and accruals of HK$165.4 million; and (iii) a decrease in inventories of HK$64.8 million; (iv)

a decrease in trade receivables of HK$49.9 million; and (v) an increase in trade payables of HK$46.6

million, partially offset by: (i) an increase in prepayments, deposits and other receivables of HK$366.9

million; and (ii) income taxes paid of HK$40.1 million.

For the year ended 31 December 2010, we had net cash flows of operating activities of HK$533.3

million, primarily attributable to: (i) profit before tax of HK$203.6 million; (ii) an increase in trade

payables of HK$187.8 million; (iii) an increase in other payables and accruals of HK$59.8 million; (iv) a

decrease in prepayments, deposits and other receivables of HK$180.9 million; and (v) a decrease in trade

receivables of HK$51.9 million, partially offset by: (i) an increase in inventories of HK$138.4 million;

and (ii) income taxes paid of HK$49.6 million.

Net cash from/(used in) investing activities

We use cash in investing activities primarily through bills receivable endorsed, increase in pledged

deposits, purchase of property, plant and equipment and purchase of other investment.

A1A 28(8)

FINANCIAL INFORMATION

229

For the three months ended 31 March 2013, we had net cash flows used in investing activities of HK$42.5 million, primarily attributable to: (i) interest received of HK$14.2 million and (ii) increase of bills payable of HK$124.7 million, partially offset by: (i) purchase of items of property, plant and equipment of HK$51.1 million and (ii) purchase of other investment of HK$132.3 million.

For the year ended 31 December 2012, we had net cash flows from investing activities of HK$198.2 million, primarily attributable to: (i) a decrease in bills receivable of HK$412.8 million; and (ii) an increase in bills payable of HK$371.4 million, partially offset by: (i) an increase in pledged deposits of HK$501.5 million; and (ii) purchase of property, plant and equipment of HK$102.8 million.

For the year ended 31 December 2011, we had cash flows from investing activities of HK$476.5 million, primarily attributable to: (i) a decrease in pledged deposits of HK$514.7 million; and (ii) an increase in bills payable of HK$283.7 million, partially offset by an increase in bills receivable of HK$340.0 million.

For the year ended 31 December 2010, we had cash flows used in investing activities of HK$895.2 million, primarily attributable to an increase in pledged deposits of HK$827.3 million.

Net cash from/(used in) financing activities

We use cash in financing activities primarily arose from bank borrowings and payment of dividends to the Remaining TCLM Group.

For the three months ended 31 March 2013, we had net cash flows used in financing activities of HK$40.8 million, primarily attributable to the repayment of loan from a company held by a non-controlling shareholder of HK$40.8 million.

For the year ended 31 December 2012, we had net cash flows from financing activities of HK$8.5 million, primarily attributable to: (i) proceeds from bank loans of HK$106.2 million; (ii) capital contribution from TCLM of HK$90.8 million; and (iii) capital contribution from non-controlling shareholders of HK$55.4 million, partially offset by: (i) repayment of bank loans of HK$123.9 million; and (ii) payment of dividend of HK$120.0 million.

For the year ended 31 December 2011, we had net cash flows used in financing activities of HK$623.2 million, primarily attributable to repayment of bank loans of HK$821.4 million, partially offset by proceeds from bank loans of HK$198.2 million.

For the year ended 31 December 2010, we had net cash flows from financing activities of HK$745.1 million, primarily attributable to proceeds from bank loans of HK$974.9 million, partially offset by repayment of bank loans of HK$229.8 million.

Working Capital

Our Directors are of the opinion that, taking into account the financial resources available to us including our cash and cash equivalents in hand, internally generated funds and available banking facilities, we will have sufficient working capital to meet our present requirements, that is for at least twelve months commencing from the date of this listing document.

A1A 36LR8.21A(1)(a)&(b)

FINANCIAL INFORMATION

230

INDEBTEDNESS

Bank Loans

As at 31 December As at 31 March As at 31 May

2010 2011 2012 2013 2013 (Unaudited) Contractual Contractual Contractual Contractual Contractual interest interest interest interest interest rate (%) HK$’000 rate (%) HK$’000 rate (%) HK$’000 rate (%) HK’000 rate (%) HK’000

Current bank borrowings:

– secured (note a) LIBOR+(0.8 to 1.0) 745,059 – LIBOR+1.10 106,197 LIBOR+1.10 106,357 LIBOR+1.10 106,354

4.98/

– unsecured – LIBOR+3.05 124,335 – – –

745,059 124,335 106,197 106,357 106,354

All of our bank loans are repayable within one year.

Note:

(a) As at 31 December 2010 and 2012 and 31 March 2013, our Group’s bank loans are secured by certain of our Group’s time deposits amounting to HK$748.3 million, HK$106.5 million and HK$106.8 million, respectively.

To manage our exposure to fluctuations in the exchange rate of the U.S. dollar against the RMB,

the Group entered into certain agreements with banks in relation to U.S. dollar bank loan facilities pledged

by our deposits in Renminbi for the year ended 31 December 2010. The bank loans in 2010 have been

repaid in full for the year ended 31 December 2011. For the two years ended 31 December 2012 and

the three months ended 31 March 2013, the Group satisfied our capital requirements through general

bank loans and letters of credit/letters of guarantee. We utilised proceeds from bank borrowings as our

additional working capital and to finance our capital expenditure. During the Track Record Period and

as at the Latest Practicable Date, we did not experience any significant difficulties in securing external

borrowings and no default or delay in repayment of bank and other borrowings occurred on the part of us.

As at 31 May 2013, we had bank facilities lines of HK$232.0 million, of which HK$106.4 million

were utilized. Our Directors confirm that there has been no material change in our indebtedness and

contingent liabilities since 31 May 2013 and up to the Latest Practicable Date.

As at 31 May 2013, we have provided a joint guarantee for a term loan facility of US$120,000,000

in favor of TCL Multimedia. Such guarantee will be released before Listing.

Except as disclosed herein, our Group did not have any outstanding mortgages, charges, debentures,

loan capital, bank overdrafts, loans, debt securities or other similar indebtedness, finance leases or hire

purchase commitments, liabilities under acceptances or acceptance credits or any guarantees outstanding

as at 31 May 2013.

A1A 32(3)A1A 32(1)3rd Sch 23

FINANCIAL INFORMATION

231

Current Assets and Liabilities

Our current assets and liabilities as at the respective reporting periods indicated are as follows:

As at As at As at 31 December 31 March 31 May

2010 2011 2012 2013 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

CURRENT ASSETSInventories 312,766 261,180 344,649 323,025 333,861Trade receivables 509,712 467,813 825,218 914,395 838,788Bills receivable 76,638 420,155 21,239 35,523 20,917Prepayments, deposits and other receivables 315,984 684,219 285,391 278,285 158,264Tax recoverable – 191 967 1,204 857Derivative financial instruments 22,024 15,153 35,651 33,443 27,334Other investment – – – 132,306 134,325Pledged deposits 827,267 316,189 817,684 818,915 477,982Cash and cash equivalents 568,997 492,841 995,562 748,865 848,814

Total current assets 2,633,388 2,657,741 3,326,361 3,285,961 2,841,142

CURRENT LIABILITIESTrade payables 694,195 726,281 798,917 767,357 737,978Bills payable 85,159 368,065 766,041 885,128 519,225Other payables and accruals 484,070 664,063 1,210,656 1,093,656 1,032,389Interest-bearing bank borrowings 745,059 124,335 106,197 106,357 106,354Tax payable 83,261 92,179 93,942 89,978 90,192Derivative financial instruments 21,367 11,855 11,877 15,786 11,317Provisions 102,807 143,204 164,199 168,411 199,860

Total current liabilities 2,215,918 2,129,982 3,151,829 3,126,673 2,697,315

NET CURRENT ASSETS 417,470 527,759 174,532 159,288 143,827

Our net current assets decreased from HK$174.5 million as at 31 December 2012 to HK$159.3 million as at 31 March 2013. The decrease was primary due to purchase of items of property, plant and equipment and the repayment of loan from a company held by a non-controlling shareholder. Other investment represents a principal guaranteed deposit purchased by our Group during the three months ended 31 March 2013 with fixed return and maturity at a bank in the PRC.

Our net current assets decreased from HK$527.8 million as at 31 December 2011 to HK$174.5 million as at 31 December 2012. The decrease was primarily due to dividend declared in year 2012.

Our net current assets increased from HK$417.5 million as at 31 December 2010 to HK$527.8 million as at 31 December 2011. The increase was primarily due to operating profit for the year ended 31 December 2011.

As at 31 May 2013, we had net current assets of HK$143.8 million. Our current assets mainly consisted of inventories of HK$333.9 million, trade and bills receivables of HK$859.7 million, pledged deposits of HK$478.0 million and cash and cash equivalents of HK$848.8 million. The key components of our current liabilities included trade and bills payables of HK$1,257.2 million and other payables and accruals of HK$1,032.4 million. The non-trading amounts due from/to the Remaining TCLM Group and TCL Corporation Group will be fully settled before Listing.

FINANCIAL INFORMATION

232

ANALYSIS OF SELECTED COMBINED STATEMENTS OF FINANCIAL POSITION ITEMS

Inventories

The following table sets out inventory as at the end of the reporting period indicated:

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Components and parts 124,741 103,649 101,231 137,486Work in progress 56,542 38,378 58,516 100,672Finished goods 131,483 119,153 184,902 84,867

312,766 261,180 344,649 323,025

Our inventories decreased from HK$312.8 million as at 31 December 2010 to HK$261.2 million as at 31 December 2011. The decrease was mainly resulting in the significant drop of goods in transit held by our Group as at 31 December 2011, owing to the cease of exporting arrangement of video products to a subsidiary of TCLM in Poland for further assembly and then supply of finished products to an overseas buyer designated by our Group, which required our Group to release the ownership of inventories upon arrival to the port of Poland.

Our inventories increased from HK$261.2 million as at 31 December 2011 to HK$344.6 million as at 31 December 2012. Such an increase in inventories was mainly due to the increase in ABS-s inventory level, the reason for the increase was due to (i) the PRC government had stopped its public tender for ABS-s in year 2011 and therefore there is no ABS-s inventory included in year 2011; (ii) longer transportation lead time required for delivering ABS-s to rural areas and (iii) the complex procedure for acknowledge of receipt of ABS-s by PRC government, which results in delay in income recognition.

Our inventories decreased from HK$344.6 million as at 31 December 2012 to HK$323.0 million as at 31 March 2013. The decrease was mainly due to the delivery of finished goods of ABS-s products, partially offset by the increase of components and parts and work in progress due to the postponement of product delivery requested by customers.

Average inventory turnover days equals the average of the beginning and ending inventory balances of the year divided by cost of sales of the corresponding year and multiplied by 365 days. Our average inventory turnover days were 26, 28, 34 days and 38 days for each of the years ended 31 December 2010, 2011 and 2012 and for the three months ended 31 March 2013 respectively. Our inventory turnover days are relatively stable for year ended 31 December 2010 and 2011 while our inventory turnover days were higher in 2012 compared to 2011 because of the stock up of ABS-s in 2012. Our inventory turnover days increased for the three months ended 31 March 2013 due to the postponement of product delivery requested by customers and such products were then delivered by the Latest Practicable Date.

Up to 31 May 2013, inventories of HK$310.9 million, or 96.2% of our inventories of components and parts, work-in-progress and finished goods as at 31 March 2013 had been utilised.

A1A 32(5)(b)

SX1-16(iii)

FINANCIAL INFORMATION

233

Trade receivables

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Trade receivables 512,077 467,813 825,218 914,395

Provision for impairment of receivables as at

beginning of the year (3,442) (2,365) – –

Provision for impairment of receivables (1,156) – – –

Reversal of provision for impairment of

receivables 2,332 2,425 – –

Exchange realignment (99) (60) – –

Trade receivables – net 509,712 467,813 825,218 914,395

Trade receivables primarily comprise amounts to be received from third parties and related parties. Our trade receivables amounted to HK$509.7 million, HK$467.8 million, HK$825.2 million and HK$914.4 million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. The decrease in our trade receivables from HK$509.7 million as at 31 December 2010 to HK$467.8 million as at 31 December 2011 was primarily because several major customers’ receivable had been factored to bank without recourse. Please refer to paragraph “Off-Balance Sheet Transactions” for further details.

Our trade receivables increased from HK$467.8 million as at 31 December 2011 to HK$825.2 million as at 31 December 2012. The increase was primarily due to (i) we extended the credit terms for two of our major customers by 30 days, which still falls within our internal credit policy, (ii) the ABS-s business of HK$146.2 million in 2012 which generally has a longer credit term of 150 days to 180 days.

Our trade receivables increased from HK$825.2 million as at 31 December 2012 to HK$914.4 million as at 31 March 2013. The increase was mainly due to the significant increase in sales of ABS-s products.

The following table sets out an aged analysis of our trade receivables as at the end of the reporting period indicated:

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Neither past due nor impaired 485,241 454,451 798,978 837,394

Less than 90 days past due 16,933 13,144 24,026 75,057

90-180 days past due 1,792 – 76 1,486

Over 180 days past due 5,746 218 2,138 458

509,712 467,813 825,218 914,395

SX1-16(ii)

SX2-16(ii)

FINANCIAL INFORMATION

234

Average trade receivable turnover days equals the average of the beginning and ending trade receivable balances of the reporting period divided by turnover of the corresponding period and multiplied by the number of days or the period. Our average trade receivable turnover days were 53, 44, 65 and 88 days for each of the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively. If the factored receivables were included in the calculation, our average trade receivable turnover days would be 64, 64, 102 days and 124 days.

The decrease in the average trade receivable turnover days from 53 days for the year ended 31 December 2010 to 44 days for the year ended 2011 was primarily due to the postponement by PRC government of its public tender for ABS-s in 2011 which generally has a longer credit term of 150 days to 180 days. The primary considerations for longer credit terms granted to the customers of ABS-s are due to (i) these ABS-s customers are all Radio and Television Satellite Broadcast Management Center, which belongs to the administrative department of the PRC Government; (ii) ABS-s is a public tender project offered by the PRC Government, the credit terms are stated in the related tendering documents, subject to the compliance of the requirements as stipulated in the tendering documents by the companies submitting the tender; and (iii) the receivables related to the ABS-s project are mainly settled by the funds from the PRC Government, and contract sum ranging from 25% to 50% should be paid to our Group as deposits in advance. The trade receivables from ABS-s customers were approximately HK$11.4 million, HK$14.9 million, HK$146.2 million and HK$320.6 million for each of the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

The increase in the average trade receivable turnover days from 44 days for the year ended 31 December 2011 to 65 days for the year ended 31 December 2012 was primarily due to longer credit periods granted to overseas customers taking into account (i) the length of relationship with those overseas customers and their payment history; (ii) the current business scope and the future business plan with those overseas customers; and (iii) the extended credit terms being covered by the insurance of China Export & Credit Insurance Corporation which still falls within the Company internal credit policy. The aggregate trade receivables covered by the insurance of China Export & Credit Insurance Corporation were approximately HK$807.7 million, HK$2,680.0 million, HK$3,058.7 million and HK$572.9 million for each of the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013, respectively.

The increase in the average trade receivable turnover days from 65 days for the year ended 31 December 2012 to 88 days for the three months ended 31 March 2013 was primarily due to the increase in sales of ABS-s products with longer credit terms.

Our trading terms with our overseas customers are mainly on letters of credit with tenures ranging from 15 days to 4 months and certain long term strategic customers are on the open-account basis with credit terms of no more than 180 days. Each of our customers has a maximum credit limit. We seek to maintain strict control over our outstanding receivables and purchase export insurance to minimise credit risk. Overdue balances are reviewed regularly by senior management. Trade receivables are non-interest-bearing. Up to 31 May 2013, trade receivable of HK$584.1 million, or 63.9% of our trade receivable balance as at 31 March 2013 had been settled by our customers.

Bills receivable

Bills receivable primarily arose from certain commercial acceptance bills endorsed by a subsidiary of the Remaining TCLM Group, to meet its short term funding purpose amounting to HK$76.6 million, HK$420.2 million, HK$7.4 million and HK$1.9 million for the year ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 respectively. All such bills receivable will be settled before Listing. After listing, in situation where transactions are made with the Remaining TCLM Group, our Group may, in its ordinary course of business, receive commercial acceptance bills endorsed by such member of the Remaining TCLM Group.

SX1-16(ii)

SFC1-4

SX2-16(ii)

SX2-16(ii)

SFC1-7

FINANCIAL INFORMATION

235

As at 31 December 2012 and 31 March 2013, apart from the commercial acceptable bills of HK$7.4

million and HK$1.9 million endorsed by the subsidiary of the Remaining TCLM Group, an aggregate

of HK$13.8 million and HK$33.6 million bills receivable was consolidated from the books of Regency

Optics-Electron, which was acquired in the end of 2012.

Prepayments, deposits and other receivables

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Prepayments and deposits 19,416 47,277 66,855 38,428

Other receivables 122,199 235,720 126,189 124,297

Prepaid land lease payments 448 336 338 338

Due from the Remaining TCLM Group 172,828 389,842 90,862 114,638

Due from the TCL Corporation Group 1,093 11,044 1,147 584

315,984 684,219 285,391 278,285

Prepayments and deposits primarily arose from advance to suppliers. The increase from HK$19.4

million as at 31 December 2010 to HK$47.3 million as at 31 December 2011 and the increase from

HK$47.3 million as at 31 December 2011 to HK$66.9 million as at 31 December 2012 were mainly due

to the prepayment in late 2011 for purchase of authentication cards which were the components for the

production of ABS-s in 2012. The decrease from HK$66.9 million as at 31 December 2012 to HK$38.4

million as at 31 March 2013 was mainly due to decrease of prepayments to suppliers for the receipt of

components and parts from suppliers.

Other receivables primarily arose from VAT receivables. The increase from HK$122.2 million as at

31 December 2010 to HK$235.7 million as at 31 December 2011 and the decrease from HK$235.7 million

as at 31 December 2011 to HK$126.2 million as at 31 December 2012, were mainly attributable to the

delay of the VAT refund for the overseas sales during year 2011, there is no such delay in year 2012. The

decrease from HK$126.2 million as at 31 December 2012 to HK$124.3 million as at 31 March 2013 was

mainly due to decrease of VAT receivable.

Due from the Remaining TCLM Group mainly represents (i) interest-bearing deposits in an internal

settlement center of the Remaining TCLM Group whereby funds are centralised for capital management

purpose, amounting to HK$73.8 million, HK$144.6 million, HK$65.5 million and HK$92.8 million in

year ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 respectively,

such deposits are collected before Listing; and (ii) advance to the Remaining TCLM Group, amounting to

HK$91.6 million, HK$234.7 million, HK$14.8 million and HK$15.5 million in year ended 31 December

2010, 2011 and 2012 respectively and the three months ended 31 March 2013. The advance was

substantially settled by the Remaining TCLM Group in year 2012.

The amount due from the Remaining TCLM Group and TCL Corporation Group will be settled

before Listing.

FINANCIAL INFORMATION

236

Other investment

Other investment represents a principal guaranteed deposit with fixed return and maturity placed in a bank in the PRC. We made such structured deposit in order to gain the benefit for higher interest rate of 4.1% per annum. This deposit is stated at cost less any impairment losses.

Cash and cash equivalents and pledge deposits

Included in our cash and bank balances are deposits of HK$43.3 million, HK$141.5 million, HK$614.8 million and HK$310.4 million placed with a subsidiary of TCL Corporation, a financial institution approved by the People’s Bank of China as at 31 December 2010, 2011 and 2012 and as at 31 March 2013 respectively. For details on such deposits, please refer to the section headed “Continuing Connected Transactions – Continuing Connected Transactions Subject to the Reporting, Announcement and Independent Shareholders’ Approval Requirements – 3. Master Financial Services Agreement” in this listing document.

Pledge deposits primarily arose from security for bank borrowings and bills payable. The decrease from HK$827.3 million as at 31 December 2010 to HK$316.2 million as at 31 December 2011, was mainly due to repayment of a secured bank borrowings in year 2011. The increase from HK$316.2 million as at 31 December 2011 to HK$817.7 million as at 31 December 2012, was mainly due to increase of bills payable. The increase from HK$817.7 million as at 31 December 2012 to HK$818.9 as at 31 March 2013 was mainly due to increase of bills payable.

Trade payables

Our trade payables primarily arose from the purchases of components and parts. We had trade payables of HK$694.2 million, HK$726.3 million, HK$798.9 million and HK$767.4 million as at 31 December 2010, 2011 and 2012 and as at 31 March 2013, respectively.

The following table sets out an aging analysis of our trade payables as at the dates indicated:

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Current to 90 days 649,688 696,177 774,473 710,68791 to 180 days 44,470 30,042 23,728 55,733181 to 365 days 37 – 105 244Over 365 days – 62 611 693

694,195 726,281 798,917 767,357

Average trade payables turnover days is equal to the average of the beginning and ending trade payables balances of the year divided by cost of sales of the corresponding year and multiplied by 365 days. Our average payables turnover days were 64, 70, 86 and 89 days for the years ended 31 December 2010, 2011 and 2012 and for the three months ended 31 March 2013, respectively. Our trade payables increased from HK$694.2 million as at 31 December 2010 to HK$726.3 million as at 31 December 2011 mainly due to extended payment period agreed with the suppliers. Our trade payables increased by HK$72.6 million from HK$726.3 million as at 31 December 2011 to HK$798.9 million as at 31 December 2012, primarily due to extended payment period agreed with the suppliers from 60 days to 90 days. Our trade payables decreased from HK$798.9 million as at 31 December 2012 to HK$767.4 million as at 31 March 2013, primarily due to less production in the first quarter for the Chinese New Year holiday (i.e. less purchase as well as trade payable decreased).

SX1-16(iii)

FINANCIAL INFORMATION

237

Up to 31 May 2013, trade payables of HK$564.4 million, or 73.6% of our trade payables as at 31 March 2013, had been settled.

Bills payable

Our bills payable were HK$85.2 million, HK$368.1 million, HK$766.0 million and HK$885.1 million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. Bills payable include the outstanding amounts of our obligation under letters of credit related to purchases during the Track Record Period. In order to take advantage of the interest rate differential between RMB deposits and US dollars letters of credit, time deposits of our Group of HK$79.0 million, HK$316.2 million, HK$711.2 million and HK$712.1 million were pledged as securities for our bills payable as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. Our bills payable increased from HK$85.2 million as of 31 December 2010 to HK$368.1 million as of 31 December 2011 and further to HK$766.0 million as of 31 December 2012 as we used more letters of credit in our purchases. Our bills payable increased from HK$766.0 million as at 31 December 2012 to HK$885.1 million as at 31 March 2013 was mainly due to as we used more letters of credit in our purchases.

Other payables and accruals As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Other payables 87,162 86,665 188,110 146,482Accruals 246,431 328,474 367,711 383,945Receipts in advance – 3,310 93,395 10,455Due to the Remaining TCLM Group 147,810 244,847 557,465 551,406Due to the TCL Corporation Group 2,667 767 3,975 1,368

484,070 664,063 1,210,656 1,093,656

Our other payables and accruals were HK$484.1 million, HK$664.1 million, HK$1,210.7 million and HK$1,093.7 million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively.

Other payables primarily arose from production and processing cost payable, transportation cost payable, VAT payable and amount due to a non-controlling shareholder of Regency Optics-Electron. The other payables remain stable when comparing the balance as at 31 December 2010 and 2011. The increase from HK$86.7 million as at 31 December 2011 to HK$188.1 million as at 31 December 2012 was mainly due to increase in amount due to a non-controlling shareholder of Regency Optics-Electron in year 2012. Our other payables decreased from HK$188.1 million as at 31 December 2012 to HK$146.5 million as at 31 March 2013, mainly due to the settlement of amount due to a non-controlling shareholder of HK$40.7 million.

Accruals primarily arose from payroll expenses and patent fee. The increase from HK$246.4 million as at 31 December 2010 to HK$328.5 million as at 31 December 2011 and the increase from HK$328.5 million as at 31 December 2011 to HK$367.7 million, were mainly due to increase in payroll expenses. Our accruals increased from HK$367.7 million as at 31 December 2012 to HK$383.9 million as at 31 March 2013, mainly due to increase of accruals for patent fees.

FINANCIAL INFORMATION

238

Receipt in advance as at 31 December 2012 primarily included the deposits received from the

customers in relation to the sale of our ABS-s products in late 2012. Our receipt in advance decreased

from HK$93.4 million as at 31 December 2012 to HK$10.5 million as at 31 March 2013 was mainly due

to the delivery of ABS-s products and the recognition of related sales.

Due to the Remaining TCLM Group and TCL Corporation amounted to HK$150.5 million,

HK$245.6 million, HK$561.4 million and HK$552.8 million as at 31 December 2010, 2011 and 2012 and

31 March 2013 respectively. The amounts due to the Remaining TCLM Group and TCL Corporation will

be settled before Listing.

Provisions

The provision represents management’s best estimate of our Group’s liability under warranties of

15 to 36 months granted on our products, based on prior experience and industry averages for defective

products. Corresponding product warranty expenses of HK$38.3 million, HK$43.3 million, HK$32.5

million and HK$10.5 million had been charged to selling and distribution expenses for the year ended 31

December 2010, 2011 and 2012 and three months ended 31 March 2013 respectively.

MAJOR FINANCIAL RATIOS

Three months ended Year ended 31 December 31 March

Notes 2010 2011 2012 2013

Turnover growth 1 N/A 9.0% -10.9% 11.3%

Net profit growth 2 N/A -41.7% 0.3% 4.3%

Gross margin 3 11.4% 9.5% 11.7% 11.6%

Net profit margin before

interest and tax 4 5.6% 3.2% 3.1% 4.7%

Net profit margin 5 4.3% 2.3% 2.6% 3.9%

Return on equity 6 33.0% 16.3% 20.2% 35.7%

Return on total assets 7 7.7% 3.4% 3.0% 3.2%

As at Year ended 31 December 31 March

Notes 2010 2011 2012 2013

Current ratio 8 1.2 1.2 1.1 1.1

Quick ratio 9 1.0 1.1 0.9 0.9

Gearing ratio 10 142.8% 19.5% 35.2% 32.2%

Debt to equity ratio 11 Net cash Net cash Net cash Net cash

Interest coverage ratio 12 38.9 17.7 32.5 19.8

A1A 32(5)(b)

FINANCIAL INFORMATION

239

Notes:

1. The calculation of turnover growth is based on the difference between our turnover of respective period and previous period, divided by our turnover of previous period multiplied by 100%.

2. The calculation of net profit growth is based on our net profit of respective period divided by our net profit of previous period multiplied by 100%.

3. The calculation of gross margin is based on our gross profit of respective period divided by our turnover of respective period multiplied by 100%.

4. The calculation of net profit margin before interest & tax is based on our net operating profit before interest and tax of respective period divided by our turnover of respective period multiplied by 100%.

5. The calculation of net profit margin is based on our net profit of respective period divided by our turnover of respective period multiplied by 100%.

6. For each of the three years ended 31 December 2012, the calculation of return on equity is based on the profit attributable to owners of the parent of the respective period divided by average of the beginning and ending equity attributable to owners of the parent of the respective period and multiplied by 100%. For the three months ended 31 March 2013, the calculation of return on equity is based on the profit attributable to owners of the parent divided by average of the beginning and ending total shareholders equity, multiplied by 365/90, and then multiplied by 100%.

7. For each of the three years ended 31 December 2012, the calculation of return on total assets is based on the profit attributable to owners of the parent of the respective period divided by average of the beginning and ending total assets of the respective period and multiplied by 100%. For the three months ended 31 March 2013, the calculation of return on assets is based on the profit attributable to owners of the parent divided by average of the beginning and ending total assets, multiplied by 365/90, and then multiplied by 100%.

8. The calculation of current ratios is based on our total current assets as of the respective period end divided by our total current liabilities as of the respective period end.

9. The calculation of quick ratios is based on our current assets minus inventories as of the respective period end divided by our total current liabilities as of the respective period end.

10. The calculation of gearing ratios is based on our total debt (including payables incurred not in the ordinary course of business) as of the respective date divided by equity attributable to the Shareholders as of the respective period multiplied by 100%.

11. The calculation of debt to equity ratios is based on net debts (being total borrowings net of cash and cash equivalents) as of the respective date divided by equity attributable to the Shareholders as of the respective period.

12. The calculation of interest coverage is based on our profit before finance costs and tax as of the respective dates divided by our finance costs as of the respective date.

Please refer to “Three months ended 31 March 2013 compared to three months ended 31 March

2012”, “Year ended 31 December 2012 compared to year ended 31 December 2011” and “Year ended

31 December 2011 compared to Year ended 31 December 2010” above for a discussion of the factors

affecting turnover growth, net profit growth and gross and net profit margins during the respective

periods.

Return on equity and return on total assets

Our return on equity for the years ended 31 December 2010, 2011 and 2012 and for the three

months end 31 March 2013 was 33.0%, 16.3%, 20.2% and 35.7%, respectively. The decrease in return on

equity ratio from 33.0% in 2010 to 16.3% in 2011 was mainly due to reduction of net profit. The increase

in return on equity ratio from 16.3% in 2011 to 20.2% in 2012 was mainly due to dividend declared in

2012.

FINANCIAL INFORMATION

240

Our return on total assets for the years ended 31 December 2010, 2011 and 2012 and for the three

months ended 31 March 2013 was 7.7%, 3.4%, 3.0% and 3.2%, respectively. The decrease in return

on total assets ratio from 7.7% in 2010 to 3.4% in 2011 was mainly due to reduction of net profit. The

decrease in return on total assets from 3.4% in 2011 to 3.0% in 2012 was mainly due to an increase in

total assets as the trade receivables increased significantly primarily due to (1) the Company extended the

credit terms for two of its major customers by 30 days, and (2) the ABS-s business of HK$146.2 million in

2012 which generally has a longer credit term of 150 days to 180 days, and (3) increase in total asset as a

result of the acquisition of controlling shareholding of Regency Optics-Electron by the end of 2012.

Current and quick ratio

As at 31 December 2010, 2011 and 2012 and 31 March 2013, our current ratio was 1.2, 1.2, 1.1 and

1.1, and quick ratio was 1.0, 1.1, 0.9 and 0.9, respectively. The current ratio and the quick ratio remained

stable throughout the Track Record Period.

Gearing ratio

Our gearing ratio for the years ended 31 December 2010, 2011 and 2012 and the three months

ended 31 March 2013 was 142.8%, 19.5%, 35.2% and 32.2%, respectively. The decrease in gearing ratio

between 2010 and 2011 was mainly due to repayment of bank loan. The increase in gearing ratio between

2011 and 2012 was mainly due to the decrease in equity as a result of the declaration of dividend in 2012.

Debt to equity ratio

The Company was in a net cash position throughout the Track Record Period.

Interest coverage ratio

Our interest coverage ratio for the years ended 31 December 2010, 2011 and 2012 and the three

months ended 31 March 2013 was 38.9, 17.7, 32.5 and 19.8, respectively. The interest coverage ratio

decrease between 2010 and 2011 was mainly due to increase in finance costs with decrease in operating

profit. The interest coverage ratio increase between 2011 and 2012 was mainly due to decrease in finance

costs as a result of the decrease in borrowings. The interest coverage ratio decreased from 32.5 as at 31

December 2012 to 19.8 as at 31 March 2013 mainly due to the increase in trade receivables factored.

CAPITAL EXPENDITURES

Our capital expenditures were incurred primarily in connection with purchases of property, plant

and equipment and prepaid land lease payments. Our capital expenditures, represented by the cash used

for the purchase of property, plant and equipment and prepaid land lease payments, were HK$15.9

million, HK$4.1 million, HK$102.8 million and HK$51.1 million for the years 31 December 2010, 2011

and 2012 and the three months end 31 March 2013, respectively. We expect that our capital expenditures

in the remaining of 2013 will be approximately HK$112.6 million, and those will be in connection with

construction of our new plant for AV Products (excluding TV sets) in Zhongkai High-tech Zone, Huizhou

City.

FINANCIAL INFORMATION

241

OPERATING LEASE ARRANGEMENTS

We lease certain office premises and factories under operating lease arrangement for terms ranging

from one to three years. As at the dates indicated below, we had total future minimum lease payments

under non-cancellable operating leases falling due as follows:

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Within 1 year 171 416 1,721 2,516

CONTINGENT LIABILITIES

As at the dates indicated below, we had not provided for the following contingent liabilities as set

out below:

A joint guarantee given to banks in connection with a term loan facility of US$120.0 million

(equivalent to approximately HK$934.0 million, HK$932.3 million, HK$930.2 million and HK$931.6

million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively) for TCLM, which was

utilised by TCLM to extent of HK$615.2 million, HK$616.6 million, HK$555.5 million and HK$494.7

million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. Such guarantee will be

released before Listing.

CAPITAL COMMITMENTS

In addition to our operating lease commitments, we had the following capital commitments as at the

dates indicated below:

As at As at 31 December 31 March

2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Contracted, but not provided for property,

plant and equipment – 4,668 91,936 90,722

Authorised but not contracted for property,

plant and equipment – – 169,844 138,524

Total – 4,668 261,780 229,246

Our capital commitments are primarily related to the investment in a new factory.

A1A 32(4)3rd Sch 24

A1A 32(5)(b)

FINANCIAL INFORMATION

242

OFF-BALANCE SHEET TRANSACTIONS

Certain subsidiaries of our Group have entered into receivables purchase agreements with banks

for the factoring of trade receivables with certain designated customers. As at 31 December 2010, 2011

and 2012, 31 March 2013 and 31 May 2013, trade receivables factored to banks aggregating to HK$150.5

million, HK$307.0 million, HK$451.6 million, HK$279.0 million and HK$479.9 million, respectively,

and all of which were derecognised from the combined statement of financial position because, in the

opinion of our directors, we have transferred substantially all the risks and rewards of ownership in

respect of the relevant factored receivables to banks.

As at 31 May 2013, we had factoring lines under receivables purchase agreements of approximately

HK$776.3 million, of which approximately HK$479.9 million were utilized.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

We are exposed to various types of market risks including currency risk, interest rate risk, price

risk, credit risk and liquidity risk.

Exchange rate risk

Our Group has transactional currency exposure. Such exposure mainly arises from sales

transactions denominated in USD. We regularly monitor our foreign exchange exposure and will consider

the need to hedge against significant foreign currency exposure where appropriate. We entered into

foreign currency forward contracts during the Track Record Period to hedge against fluctuations in the

foreign currency.

The following table demonstrates the sensitivity at the end of each reporting period to a reasonably possible change in the US dollars exchange rate, with all other variables held constant, of our Group’s profit before tax (due to the change in the fair value of monetary assets and liabilities).

Increase/ Increase/ (decrease) in (decrease) in exchange rate % profit before tax HK$’000

31 March 2013If HK$ weakens against the US$ 5 24,948If RMB weakens against the US$ 5 43,495If HK$ strengthens against the US$ (5) (24,948)If RMB strengthens against the US$ (5) (43,495)

31 December 2012If HK$ weakens against the US$ 5 19,540If RMB weakens against the US$ 5 30,025If HK$ strengthens against the US$ (5) (19,540)If RMB strengthens against the US$ (5) (30,025)

FINANCIAL INFORMATION

243

31 December 2011If HK$ weakens against the US$ 5 33,609If RMB weakens against the US$ 5 2,880 If HK$ strengthens against the US$ (5) (33,609)If RMB strengthens against the US$ (5) (2,880)

31 December 2010If HK$ weakens against the US$ 5 (545)If RMB weakens against the US$ 5 23,275If HK$ strengthens against the US$ (5) 545If RMB strengthens against the US$ (5) (23,275)

We maintain and follow our internal policies and controls for managing our Group’s use of

derivative financial instruments. Our finance department has overall responsibilities regarding managing

our hedging activities and implementing our internal policy and controls regarding the use of derivative

financial instruments. In addition, our finance department also participates in the management of our

hedging activities from internal control perspective and conduct regular internal auditing and inspection to

ensure our hedging activities are in compliance with our policies and applicable laws and regulations.

Our use of derivative financial instruments is not for investment or speculative purposes, but is

solely limited to hedging against foreign exchange rates and interest rates. In light of the import-export

nature of our business and our significant US dollar-denominated receivables from our customers and

to hedge against the risk of fluctuation of the US dollar against the Renminbi, we entered into certain

foreign-exchange forward contracts to sell US dollars and buy Renminbi at specified exchange rates on

specified future dates. In addition, we also entered into certain interest rate swaps contracts to manage our

interest rate exposures during the Track Record Period. As a matter of policy, our derivative products are

strictly related to actual business transactions for hedging against foreign exchange rate and interest rate

fluctuations involved only and all speculative transactions are strictly forbidden. We have an internal and

centralised policy on the use of financial derivative instruments which includes the following procedures

to review, examine and approve all hedging transactions:

• We impose certain limitations on the duration of the hedging contracts. Under normal

circumstances, the maximum duration shall be the shorter period of time of i) payment terms

of the underlying financial assets/liabilities and ii) 24 months;

• Thepercentageofcurrencyandinterestrateexposurebeinghedgedshallbe70%to80%ofthe required foreign currency and 100% of the underlying loan balances, respectively;

• Should the foreign exchange market moves abruptly against our existing hedging contract positions, with the loss on the derivative financial instruments exceeding 2% of the nominal amount of the respective contracts, we would have no hesitation in executing stop loss procedures, including but not limited to reverse position squaring and advance delivery;

• Themembers of finance department reviews and ensures the compatibility of the hedgingtransaction and the business transaction;

• Our finance department reviews and examines the viability of the hedging transaction andthe completeness of the necessary documents for approving the transaction;

• Final approval is required of from the finance manager, the chief financial officer or theBoard;

SX1-7(ii)

SX1-7(ii)

SX2-7(ii)

SX1-7(ii)SX2-7(ii)

SX1-7(ii)

FINANCIAL INFORMATION

244

• Uponapprovalon thehedging transaction,our financemanager is responsible for selectingcredible derivative products and financial institutions, formulating the transactions based on the transaction amount, maturity date and forward exchange rate at maturity date as offered by the financial institutions, and liaising internally to complete the hedging transaction; and

• We possess a professional team in foreign exchange risks management, of which theteammates, together with the chief financial officer (i.e. Mr. Ren Xuenong, who is responsible for monitoring the foreign exchange risks and whose relevant qualification and expertise are set out in the section headed “Directors and Senior Management – Directors” in this listing document) and finance managers, have more than 5 years experience in managing foreign exchange risks and corresponding transactions.

According to our internal policy, we only select major financial institutions as counterparties to our hedging contracts. Also, the amounts and maturity of the hedging contracts must match the corresponding business transactions’ to avoid any unnecessary exposure under these contracts. As ongoing monitoring measures, our finance department also monitors the execution of the derivative contracts, and reports regularly the overall exposures, amount of the derivative contracts, the profit and loss of the hedging contracts and other information to the chief financial officer and management. Our finance department at least annually reviews and examines matters including the compliance of the hedging transactions, the soundness of the internal control policy and the accuracy of the disclosure of information, and reports to the chief financial officer and management.

We did not adopt hedge accounting for our foreign currency forward contracts and interest rate swap contracts because the criteria for adopting hedge accounting are not met in accordance with the relevant accounting standards. Changes in the fair value of our foreign currency forward contracts and interest rate swap contracts are recognised in profit or loss. During the Track Record Period, our hedging policies operated effectively and our Group realised a gain on settlement of derivative financial instruments of HK$11.2 million, HK$32.2 million, HK$30.7 million and HK$11.0 million for each of the three years ended 31 December 2010, 2011 and 2012 and period ended 31 March 2013, respectively. The buy-RMB/sell-US$ forward currency contracts outstanding as at 31 December 2010, 2011, 2012 and 31 March 2013 were RMB831 million, RMB2,006 million, RMB1,405 million and RMB1,456 million, respectively. The pay-fix/receive-floating interest rate swap contracts outstanding as at 31 December 2010 and 2012 and 31 March 2013 were US$95.7 million, US$104.8 million and US$121.7 million, respectively. If the value of RMB or US$ depreciated to zero before the above contracts are settled or the 3-month LIBOR rate fell to zero, the maximum exposure of the derivative contracts entered into during the Track Record Period would be the nominal value of the derivative contracts the Company entered into during the Track Record Period as stated above.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Our Group’s interest rate risk arises from bank loans and bills payable, which are predominantly denominated in RMB and US dollars. Our Group does not have any significant exposure to risk of changes in market interest rates as our Group’s debt obligations were either with fixed interest rates or short-term floating interest rates. Our Group has no significant interest-bearing assets other than the cash and bank balances.

Our Group has entered into certain interest rates swap contracts to hedge our exposure to interest rate risk.

Other price risk

The principal components and parts used in the production of our products include IC and loader. Our Group is exposed to fluctuations in the price of components and parts which are influenced by

SX1-7(ii)

SX1-7(i)

SX1-8

FINANCIAL INFORMATION

245

regional supply and demand conditions. Fluctuations in the price of these components and parts could adversely affect our Group’s financial performance. Our Group has not entered into any commodity derivative instruments to hedge against the risk of adverse changes to commodity prices.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a customer contract or financial instrument, leading to a financial loss. Our Group trades only with recognised and creditworthy customers. It is our Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an on-going basis and our Group’s exposure to bad debts is not significant.

Our Group does not require collateral from our trading partners. As at 31 March 2013, our Group had certain concentrations of credit risk as 23.8% (31 December 2012:17.7%, 2011: 19.1%, 2010: 26.2%) and 59.1% (31 December 2012: 44.5%, 2011: 77.9%, 2010: 76.4%) of trade receivables were due from our Group’s largest customer and our five largest customers, respectively. We believe that our Group adequately manages concentration of credit risk. We have established long-term business relationships with our major customers. Additionally, we have purchased insurance to protect against potential losses from unrecovered trade receivables.

The credit risk of our other financial assets, which mainly consist of cash and cash equivalents, amounts due from related parties and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these financial assets set out in our combined financial statements included in “Appendix I – Accountants’ Report” to this listing document.

Liquidity risk

Liquidity risk is the risk that our Group will not be able to meet our financial obligations as they fall due. Our Group monitors its risk to a shortage of funds by considering the maturity of both our financial assets and projected cash flows from operations. Our Group’s objective is to maintain a balance between continuity of funding and flexibility through use of bank borrowings and other borrowings to meet our working capital requirements. During the Track Record Period, we did not receive any requests for early repayment of any bank borrowings.

Inflation

Inflation in China has not materially or adversely impacted our results of operations in recent years although there has been a recent trend towards inflation which could affect our costs and our advantages as a China-based manufacturer. According to National Bureau of Statistics, PRC, the consumer price inflation in China was 3.3%, 5.4% and 2.6% in 2010, 2011 and 2012, respectively.

DISCLOSURE REQUIRED UNDER THE LISTING RULES

Our Group had deposits with a subsidiary of TCL Corporation of HK$43.3 million, HK$141.5 million, HK$614.8 million and HK$310.4 million as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. Pursuant to Rule 13.13 of the Listing Rules, such deposits constitute an advance to an entity by our Group that exceeds 8% of the total assets of our Group as at 31 December 2012 and 31 March 2013, respectively. For details of such deposits, please see the section headed “Continuing Connected Transactions”.

FINANCIAL INFORMATION

246

Saved as disclosed above, our Directors have confirmed that, as at the Latest Practicable Date, there

are no circumstances that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the

Listing Rules.

PROPERTY INTERESTS AND PROPERTY VALUATION

Assets Appraisal Limited, an independent property valuer, has valued our property interests as

at 31 May 2013 and is of the opinion that the value of our property interests is an aggregate amount of

approximately RMB117.0 million (equivalent to approximately HK$147.4 million). The full text of the

letter, summary of value and valuation certificates with regard to such property interests are set out in

Appendix III to this listing document.

The statement below shows the reconciliation of aggregate amounts of certain properties and

prepaid land lease payments as reflected on the audited combined financial statements as at 31 March

2013 with the valuation of these properties and prepaid land lease payments as at 31 May 2013 as set out

in Appendix III to this listing document.

HK$ million

Valuation of properties owned by our Group as at 31 May 2013 as set out

in the property valuation report in Appendix III to this listing document 147.4

Net book value of the following properties as at 31 March 2013 as set out

in Appendix I to this listing document:

– Construction in progress 132.0

– Prepaid land lease payments 16.4

Net book value as at 31 March 2013 148.4

Add: Additions during the period from 1 April 2013 to 31 May 2013 27.3

Net book value as at 31 May 2013 175.7

Net valuation deficit (28.3)

LISTING EXPENSES

The estimated total listing expenses in relation to the listing are approximately HK$28.0 million.

Such listing expenses would be shared by TCLM and our Company on a 50:50 basis. No listing expenses

were recognised as prepayments as at 31 December 2010 and 2011. For the year ended 31 December

2012 and the three months ended 31 March 2013, listing expenses of HK$8.5 million and HK$0.7 million

were incurred and accrued. We estimate that a further HK$4.8 million will be incurred by August 2013

as costs associated with the Listing to the extent they are incremental costs not attributable to the equity

transaction and charged to our combined statement of comprehensive income. Our listing expenses mainly

comprise professional fees in relation to the Listing.

FINANCIAL INFORMATION

247

DIVIDEND POLICY

For each of the two years ended 31 December 2010 and 2011, our Group did not declare any

dividends. For the year ended 31 December 2012, our Group declared dividends of approximately

HK$502.6 million of which approximately HK$120.0 million was settled in 2012 and the remaining

balance of approximately HK$382.6 million will be settled by cash out of our internal resources before

Listing. Declaration of dividends is subject to the discretion of our Directors, depending on our results

of operations, working capital, cash position, future operations, and capital requirements, as well as any

other factors which our Directors may consider relevant. In addition, any declaration and payment as well

as the amount of the dividends will be subject to our constitutional documents and the Cayman Islands

Companies Law. Any future declarations and payments of dividends may or may not reflect our historical

declarations and payments of dividends and will be at the absolute discretion of our Directors. Under

applicable PRC law, each of our subsidiaries in the PRC may only distribute after-tax profits after it has

made (i) allocations or allowances for recovery of accumulated losses and (ii) allocations to the statutory

reserves.

Dividends may be paid out of our Group’s distributable profits as permitted under the relevant laws.

To the extent that profits are distributed as dividends, such profits will not be available to be reinvested in

our Group’s operations. There can be no assurance that our Group will be able to declare or distribute any

dividends in the amount set out in any of our plans or at all. Our Group’s dividend distribution record in

the past may not be used as a reference or basis to determine the level of dividends that may be declared

or paid by our Group in the future.

DISTRIBUTABLE RESERVES

Our Company was incorporated in the Cayman Islands and has not carried out any business

since the date of its incorporation save for investment holdings and the transactions related to the

Reorganisation. Accordingly, our Company had no reserve available for distribution to our Shareholders

as at 31 March 2013.

UNAUDITED PRO FORMA NET TANGIBLE ASSETS OF THE GROUP

The following is an illustrative statement of unaudited pro forma combined net tangible assets of the Group which has been prepared in accordance with paragraph 4.29 of the Listing Rules for the purpose of illustrating the effect of the Listing as if it had been taken place on 31 March 2013 and based on the audited combined net assets attributable to owners of our Company as at 31 March 2013 as shown in the Accountants’ Report, the text of which is set out in Appendix I to this listing document, and adjusted as described below.

A1A 16

SX1-16(iii)

A1A 33(5)

A1A 21

FINANCIAL INFORMATION

248

The unaudited pro forma combined net tangible assets of the Group has been prepared for illustrative purpose only and, because of its nature, it may not give a true and fair picture of the financial position of the Group after the completion of the Listing or at any future dates.

Audited Unaudited combined net pro forma tangible assets combined net Unaudited attributable to Estimated tangible assets pro forma owners of the expenses attributable to combined net Company as at relating to owners of the tangible assets 31 March 2013 the Listing Company per Share HK$’000 HK$’000 HK$’000 HK$ (note 1) (note 2) (note 3)

Based on 133,109,811 Shares assumed to be in issue immediately prior to the Listing (note 3) 330,100 (4,826) 325,274 2.44

Notes:

1. The audited combined net tangible assets attributable to owners of the Company as at 31 March 2013 is arrived at after deducting non-controlling interests of HK$107,825,000 from the audited combined net assets of HK$437,925,000 as at 31 March 2013, as shown in the Accountants’ Report, the text of which is set out in Appendix I to this listing document.

2. The amount represents estimated expenses relating to the Listing expected to be incurred by the Group subsequent to 31 March 2013 which mainly include professional fees for the Joint Sponsors, the Company’s legal advisers and reporting accountants and other listing related expenses.

3. The unaudited pro forma combined net tangible assets per Share is arrived at after the adjustments as described in note 2 above and is based on 133,109,811 Shares assumed to be in issue immediately prior to the Listing.

4. No adjustment has been made to the unaudited pro forma combined net tangible assets to reflect any trading results or other transactions of the Group entered into subsequent to 31 March 2013.

NO MATERIAL ADVERSE CHANGE

Our Directors have confirmed that up to the date of this listing document, there has been no material adverse change in our financial or trading position since 31 March 2013, the end of period reported in the Accountants’ Report set out in Appendix I to this listing document, and there has been no event since 31 March 2013 which would materially affect the information shown in the Accountants’ Report set out in Appendix I to this listing document.

Our Directors have also confirmed that as at the date of this listing document, our Company had not been affected by the impairment losses, the potential withdrawal of any banking facilities, early payment of outstanding loans required by banks, requests by banks to increase the amount of pledge(s) for secured borrowings, cancellation of orders, bankruptcy or default on the part of any customers and/or suppliers, etc.

A1A 34(1)(a)A1A 34(1)(b)A1A 38

SC2.2(a)

FUTURE PLANS

249

Our business focus is shifting from traditional DVD and BD Players to a diversified product

protfolio that includes Media Boxes, audio products and ABS-s. Our objective is to become a leading

ODM provider in the international AV Products market. For a detailed description of our future plans,

please see the section headed “Business – Business Strategies” in this listing document.

APPENDIX I ACCOUNTANTS’ REPORT

I – 1

22/F, CITIC Tower1Tim Mei AvenueCentral, Hong Kong

17 July 2013

The DirectorsTonly Electronics Holdings LimitedBNP Paribas Securities (Asia) LimitedKim Eng Securities (Hong Kong) Limited

Dear Sirs,

We set out below our report on the financial information of Tonly Electronics Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) comprising the combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for each of the years ended 31 December 2010, 2011 and 2012, and the three-month period ended 31 March 2013 (the “Track Record Period”), and the combined statements of financial position of the Group as at 31 December 2010, 2011 and 2012 and 31 March 2013, and the statement of financial position of the Company as at 31 March 2013, together with the notes thereto (the “Financial Information”), and the combined statement of comprehensive income, combined statement of changes in equity and combined statement of cash flows of the Group for the three-month period ended 31 March 2012 (the “Interim Comparative Information”), prepared on the basis of presentation set out in note 2.1 of Section II below, for inclusion in the listing document of the Company dated 17 July 2013 (the “Listing Document”) in connection with the listing of the shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 8 February 2013. Pursuant to a group reorganisation (the “Reorganisation”) as more fully explained in the section headed “Reorganisation” to the Listing Document, the Company became the holding company of the subsidiaries now comprising the Group. Apart from the Reorganisation, the Company has not commenced any business or operation since its incorporation.

As at the date of this report, no statutory financial statements have been prepared for the Company, as it is not subject to statutory audit requirements under the relevant rules and regulations in its jurisdiction of incorporation.

As at the date of this report, the Company has direct and indirect interests in the subsidiaries as set out in note 1 of Section II below. All companies now comprising the Group have adopted 31 December as their financial year end date. The statutory financial statements of the companies now comprising the Group were prepared in accordance with the relevant accounting principles applicable to these companies in the countries in which they were incorporated and/or established. Details of their statutory auditors during the Track Record Period are set out in note 1 of Section II below.

For the purpose of this report, the directors of the Company (the “Directors”) have prepared the combined financial statements of the Group (the “Underlying Financial Statements”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Underlying Financial Statements for each of the years ended 31 December 2010, 2011 and 2012, and the three-month period ended 31 March 2013 were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

A1A 373rd Sch 313rd Sch 42LR8.06A1A 43rd Sch 3

APPENDIX I ACCOUNTANTS’ REPORT

I – 2

The Financial Information set out in this report has been prepared from the Underlying Financial

Statements after making such adjustments as appropriate.

Directors’ responsibility

The Directors are responsible for the preparation of the Underlying Financial Statements, the

Financial Information and the Interim Comparative Information that give a true and fair view in

accordance with HKFRSs, and for such internal control as the Directors determine is necessary to

enable the preparation of the Underlying Financial Statements, the Financial Information and the Interim

Comparative Information that are free from material misstatement, whether due to fraud or error.

Reporting accountants’ responsibility

It is our responsibility to form an independent opinion and a review conclusion on the Financial

Information and the Interim Comparative Information, respectively, and to report our opinion and review

conclusion thereon to you.

For the purpose of this report, we have carried out procedures on the Financial Information in

accordance with Auditing Guideline 3.340 Prospectuses and the Reporting Accountant issued by the

HKICPA.

We have also performed a review of the Interim Comparative Information in accordance with Hong

Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by

the Independent Auditor of the Entity issued by the HKICPA. A review consists principally of making

enquiries of management and applying analytical procedures to the financial information and, based

thereon, assessing whether the accounting policies and presentation have been consistently applied unless

otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of

assets and liabilities and transactions. It is substantially less in scope than an audit and therefore provides

a lower level of assurance than an audit. Accordingly, we do not express an opinion on the Interim

Comparative Information.

Opinion in respect of the Financial Information

In our opinion, for the purpose of this report and on the basis of presentation set out in note 2.1 of

Section II below, the Financial Information gives a true and fair view of the state of affairs of the Group

as at 31 December 2010, 2011 and 2012 and 31 March 2013, and of the state of affairs of the Company as

at 31 March 2013, and of the combined results and cash flows of the Group for each of the Track Record

Period.

Review conclusion in respect of the Interim Comparative Information

Based on our review which does not constitute an audit, for the purpose of this report, nothing has

come to our attention that causes us to believe that the Interim Comparative Information is not prepared,

in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

APPENDIX I ACCOUNTANTS’ REPORT

I – 3

I. FINANCIAL INFORMATION

(A) COMBINED STATEMENTS OF COMPREHENSIVE INCOME

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Unaudited)

TURNOVER 7 3,762,649 4,099,454 3,653,071 803,518 894,649

Cost of sales (3,334,589) (3,711,861) (3,225,620) (727,859) (791,307)

Gross profit 428,060 387,593 427,451 75,659 103,342

Other income and gains, net 7 51,028 70,045 110,810 48,270 57,506

Selling and distribution costs (139,783) (124,087) (141,929) (24,576) (36,852)

Administrative expenses (61,476) (114,565) (125,501) (25,361) (38,878)

Research and development costs (70,039) (89,584) (156,653) (30,800) (42,486)

Other operating expenses, net 9 1,176 2,401 – – (386)

208,966 131,803 114,178 43,192 42,246

Finance costs 8 (5,378) (7,457) (3,514) (525) (2,133)

Share of profits or losses

of an associate – 6 2 (88) (38)

PROFIT BEFORE TAX 9 203,588 124,352 110,666 42,579 40,075

Income tax expense 12 (41,527) (29,897) (15,920) (9,307) (5,376)

PROFIT FOR THE YEAR/PERIOD 162,061 94,455 94,746 33,272 34,699

OTHER COMPREHENSIVE INCOME

Exchange differences on translation of

foreign operations 14,690 21,828 493 278 1,127

OTHER COMPREHENSIVE INCOME

FOR THE YEAR/PERIOD 14,690 21,828 493 278 1,127

TOTAL COMPREHENSIVE INCOME

FOR THE YEAR/PERIOD 176,751 116,283 95,239 33,550 35,826

3rd Sch 27

APPENDIX I ACCOUNTANTS’ REPORT

I – 4

(A) COMBINED STATEMENTS OF COMPREHENSIVE INCOME (continued)

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Unaudited)

Profit attributable to:

Owners of the parent 162,061 94,455 94,746 33,272 27,785

Non-controlling interests – – – – 6,914

162,061 94,455 94,746 33,272 34,699

Total comprehensive income attributable to:

Owners of the parent 176,751 116,283 95,239 33,550 28,620

Non-controlling interests – – – – 7,206

176,751 116,283 95,239 33,550 35,826

Details of the dividends declared/paid by the Company’s subsidiaries to their then shareholders

during the Track Record Period are disclosed in note 13 of Section II below.

APPENDIX I ACCOUNTANTS’ REPORT

I – 5

(B) COMBINED STATEMENTS OF FINANCIAL POSITION

As at As at 31 December 31 March 2010 2011 2012 2013 Notes HK$’000 HK$’000 HK$’000 HK$’000

NON-CURRENT ASSETS

Property, plant and equipment 16 46,396 39,299 146,176 192,796

Prepaid land lease payments 17 21,978 16,444 16,105 16,074

Investment in an associate 18 – 385 387 351

Deferred tax assets 29 47,228 68,098 68,164 69,521

Deposits paid for the acquisition of

property, plant and equipment – – – 3,527

Total non-current assets 115,602 124,226 230,832 282,269

CURRENT ASSETS

Inventories 19 312,766 261,180 344,649 323,025

Trade receivables 20 509,712 467,813 825,218 914,395

Bills receivable 76,638 420,155 21,239 35,523

Prepayments, deposits and other

receivables 21 315,984 684,219 285,391 278,285

Other investment 22 – – – 132,306

Tax recoverable – 191 967 1,204

Derivative financial instruments 23 22,024 15,153 35,651 33,443

Pledged deposits 24 827,267 316,189 817,684 818,915

Cash and cash equivalents 24 568,997 492,841 995,562 748,865

Total current assets 2,633,388 2,657,741 3,326,361 3,285,961

CURRENT LIABILITIES

Trade payables 25 694,195 726,281 798,917 767,357

Bills payable 85,159 368,065 766,041 885,128

Other payables and accruals 26 484,070 664,063 1,210,656 1,093,656

Interest-bearing bank borrowings 27 745,059 124,335 106,197 106,357

Tax payable 83,261 92,179 93,942 89,978

Derivative financial instruments 23 21,367 11,855 11,877 15,786

Provisions 28 102,807 143,204 164,199 168,411

Total current liabilities 2,215,918 2,129,982 3,151,829 3,126,673

APPENDIX I ACCOUNTANTS’ REPORT

I – 6

(B) COMBINED STATEMENTS OF FINANCIAL POSITION (continued)

As at As at 31 December 31 March 2010 2011 2012 2013 Notes HK$’000 HK$’000 HK$’000 HK$’000

NET CURRENT ASSETS 417,470 527,759 174,532 159,288

TOTAL ASSETS LESS CURRENT

LIABILITIES 533,072 651,985 405,364 441,557

NON-CURRENT LIABILITIES

Deferred tax liabilities 29 11,376 14,006 3,265 3,632

Net assets 521,696 637,979 402,099 437,925

EQUITY

Equity attributable to

owners of the parent

Issued capital 30 – – – –

Reserves 31 521,696 637,979 301,480 330,100

521,696 637,979 301,480 330,100

Non-controlling interests – – 100,619 107,825

Total equity 521,696 637,979 402,099 437,925

APPENDIX I ACCOUNTANTS’ REPORT

I – 7

(C) COMBINED STATEMENTS OF CHANGES IN EQUITY

Attributable to owners of the parent

Exchange Non- Issued Reserve Capital Merger fluctuation Retained controlling Total capital funds reserve reserve reserve profits Total interests equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 31(i)) (Note 31(ii)) (Note 31(iii))

At 1 January 2010 – 21,463 – 151,377 20,859 266,123 459,822 – 459,822

Profit for the year – – – – – 162,061 162,061 – 162,061Other comprehensive income for the year: Exchange differences on translation of foreign operations – – – – 14,690 – 14,690 – 14,690

Total comprehensive income for the year – – – – 14,690 162,061 176,751 – 176,751Deemed distribution to the then shareholders – – – (114,877) – – (114,877) – (114,877)Transfer from retained profits – 12,652 – – – (12,652) – – –

At 31 December 2010 and 1 January 2011 – 34,115* –* 36,500* 35,549* 415,532* 521,696 – 521,696

Profit for the year – – – – – 94,455 94,455 – 94,455Other comprehensive income for the year: Exchange differences on translation of foreign operations – – – – 21,828 – 21,828 – 21,828

Total comprehensive income for the year – – – – 21,828 94,455 116,283 – 116,283Transfer from retained profits – 2,440 – – – (2,440) – – –

At 31 December 2011 and 1 January 2012 – 36,555* –* 36,500* 57,377* 507,547* 637,979 – 637,979

Profit for the year – – – – – 94,746 94,746 – 94,746Other comprehensive income for the year: Exchange differences on translation of foreign operations – – – – 493 – 493 – 493

Total comprehensive income for the year – – – – 493 94,746 95,239 – 95,239

Deemed partial disposal of equity interests in a subsidiary – – (8,357) – (11,574) – (19,931) 75,370 55,439Acquisition of a subsidiary (note 32) – – – – – – – 25,249 25,249Capital contribution from TCL Multimedia – – – 90,757 – – 90,757 – 90,757Dividends declared/paid to the then shareholders – – – – – (502,564) (502,564) – (502,564)Transfer from retained profits – 17,991 – – – (17,991) – – –

At 31 December 2012 – 54,546* (8,357)* 127,257* 46,296* 81,738* 301,480 100,619 402,099

APPENDIX I ACCOUNTANTS’ REPORT

I – 8

(C) COMBINED STATEMENTS OF CHANGES IN EQUITY (continued)

Attributable to owners of the parent

Exchange Non- Issued Reserve Capital Merger fluctuation Retained controlling Total capital funds reserve reserve reserve profits Total interests equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 31(i)) (Note 31(ii)) (Note 31(iii))

At 1 January 2013 – 54,546 (8,357) 127,257 46,296 81,738 301,480 100,619 402,099

Profit for the period – – – – – 27,785 27,785 6,914 34,699Other comprehensive income for the period: Exchange differences on translation of foreign operations – – – – 835 – 835 292 1,127

Total comprehensive income for the period – – – – 835 27,785 28,620 7,206 35,826

At 31 March 2013 – 54,546* (8,357)* 127,257* 47,131* 109,523* 330,100 107,825 437,925

(Unaudited)At 1 January 2012 – 36,555 – 36,500 57,377 507,547 637,979 – 637,979

Profit for the period – – – – – 33,272 33,272 – 33,272Other comprehensive income for the period: Exchange differences on translation of foreign operations – – – – 278 – 278 – 278

Total comprehensive income for the period – – – – 278 33,272 33,550 – 33,550

At 31 March 2012 – 36,555 – 36,500 57,655 540,819 671,529 – 671,529

* These reserve accounts comprise the combined reserves of HK$521,696,000, HK$637,979,000, HK$301,480,000 and HK$330,100,000 in the combined statements of financial position as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively.

APPENDIX I ACCOUNTANTS’ REPORT

I – 9

(D) COMBINED STATEMENTS OF CASH FLOWS

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIESProfit before tax 203,588 124,352 110,666 42,579 40,075Adjustments for: Finance costs 8 5,378 7,457 3,514 525 2,133 Share of profits or losses of an associate – (6) (2) 88 38 Interest income 7 (9,957) (16,287) (30,931) (4,513) (14,238) Gain on bargain purchase of a subsidiary 7 – – (878) – – Loss/(gain) on disposal of items of property, plant and equipment 9 (46) 24 (257) – 386 Unrealised fair value losses /(gains) on derivative financial instruments, net – transactions not qualifying as hedges 9 (221) (2,098) (20,435) (13,193) 6,157 Depreciation 9 12,977 13,111 12,163 3,293 4,583 Amortisation of prepaid land lease payments 9 146 458 338 84 85 Reversal of impairment of trade receivables, net 9 (1,176) (2,425) – – –

210,689 124,586 74,178 28,863 39,219Decrease/(increase) in inventories (138,395) 64,848 (53,200) 27,412 20,368Decrease/(increase) in trade receivables 51,900 49,876 (349,846) (48,877) (90,032)Increase in bills receivable – – – – (21,717)Decrease/(increase) in prepayments, deposits and other receivables 180,856 (366,888) 441,673 258,257 5,147Increase/(decrease) in trade payables 187,816 46,647 58,518 (128,727) (28,777)Increase/(decrease) in bills payable 4,791 (4,791) 26,534 – (3,907)Increase/(decrease) in other payables and accruals 59,835 165,420 105,748 29,071 (74,277)Increase in provisions 30,730 34,956 20,909 16,703 3,665

Cash generated from/(used in) operations 588,222 114,654 324,514 182,702 (150,311)Interest paid (5,378) (7,457) (3,514) (525) (2,133)Hong Kong profits tax paid (21,121) (12,502) (419) (1,812) (1,299)Overseas taxes paid (28,448) (27,645) (24,354) (2,000) (9,504)

Net cash flows from/(used in) operating activities 533,275 67,050 296,227 178,365 (163,247)

APPENDIX I ACCOUNTANTS’ REPORT

I – 10

(D) COMBINED STATEMENTS OF CASH FLOWS (continued)

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Net cash flows from/(used in) operating activities 533,275 67,050 296,227 178,365 (163,247)

CASH FLOWS FROM INVESTING ACTIVITIESInterest received 9,957 16,287 30,931 4,513 14,238Purchases of items of property, plant and equipment (15,946) (4,071) (102,753) (10,853) (51,083)Decrease/(increase) in bills receivable (76,638) (339,964) 412,847 72,719 5,462Increase/(decrease) in bills payable 36,462 283,749 371,397 (46,476) 124,666Prepayment of land lease payments (22,013) (16,554) – – –Deposit paid for acquisition of property, plant and equipment – – – – (3,527)Purchase of other investment – – – – (132,306)Proceeds from disposal of items of property, plant and equipment 231 – 1,109 – 27Proceeds from disposal of a land use right – 22,650 – – –Investment in an associate – (355) – – –Acquisition of a subsidiary 32 – – (13,863) – –Decrease/(increase) in pledged deposits (827,267) 514,741 (501,456) (3,171) –

Net cash flows from/(used in) investing activities (895,214) 476,483 198,212 16,732 (42,523)

CASH FLOWS FROM FINANCING ACTIVITIESNew bank loans 974,865 198,228 106,197 – –Repayment of bank loans (229,806) (821,432) (123,892) (123,892) –Capital contribution from TCL Multimedia – – 90,757 – –Capital contribution from non-controlling shareholders – – 55,439 – –Repayment of loan from a company held by a non-controlling shareholder – – – – (40,764)Dividends paid – – (119,998) – –

Net cash flows from/(used in) financing activities 745,059 (623,204) 8,503 (123,892) (40,764)

APPENDIX I ACCOUNTANTS’ REPORT

I – 11

(D) COMBINED STATEMENTS OF CASH FLOWS (continued)

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Note HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(Unaudited)

NET INCREASE/(DECREASE)

IN CASH AND

CASH EQUIVALENTS 383,120 (79,671) 502,942 71,205 (246,534)

Cash and cash equivalents

at beginning of year/period 179,800 568,997 492,841 492,841 995,562

Effect of foreign exchange rate

changes, net 6,077 3,515 (221) 1,096 (163)

CASH AND CASH EQUIVALENTS

AT END OF YEAR/PERIOD 568,997 492,841 995,562 565,142 748,865

ANALYSIS OF BALANCES OF

CASH AND CASH

EQUIVALENTS

Cash and bank balances 24 568,997 492,841 995,562 565,142 748,865

APPENDIX I ACCOUNTANTS’ REPORT

I – 12

(D) STATEMENT OF FINANCIAL POSITION OF THE COMPANY

As at 31 March 2013 Note HK$’000

NON-CURRENT ASSET

Investment in a subsidiary –

Net asset –

EQUITY

Issued capital 30 –

Total equity –

APPENDIX I ACCOUNTANTS’ REPORT

I – 13

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION

The Company is an exempted company with limited liability incorporated in the Cayman Islands. The registered address of the Company is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The principal place of business of the Company is located at 13/F, TCL Tower, 8 Tai Chung Road, Tsuen Wan, Hong Kong.

The Company is an investment holding company. During the Track Record Period, the Company’s subsidiaries were principally involved in the manufacture and sale of audio-visual products (the “AV Product Business”).

In the opinion of the Directors, TCL Multimedia Technology Holdings Limited (“TCL Multimedia”), a company incorporated in the Cayman Islands and listed on the Main Board of the Stock Exchange, is the immediate holding company of the Company, and the ultimate holding company of the Company is TCL Corporation, which is registered in the People’s Republic of China (the “PRC”).

For the purpose of this Financial Information, the Company and its subsidiaries are hereafter collectively referred to as “the Group”; whereas TCL Multimedia and its subsidiaries, but excluding the Group, are collectively referred to as “the Remaining TCL Multimedia Group”; and TCL Corporation and its subsidiaries, but excluding the Group and the Remaining TCL Multimedia Group, are collectively referred to as “the TCL Corporation Group”.

Prior to the incorporation of the Company, the AV Product Business was carried out by certain subsidiaries of TCL Multimedia. In order to rationalise the current structure of the Group, the Company underwent the Reorganisation to acquire the companies now comprising the Group on 10 July 2013. Details of the Reorganisation are set out in the section headed “Reorganisation” to the Listing Document.

As at the date of this report, the Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

Place and date Nominal value of Percentage of of incorporation/ issued ordinary/ equity attributable registration registered to the Company PrincipalCompany name and operations share capital Direct Indirect activities

Tonly International Limited British Virgin US$100 100 – Investment (formerly known as Fastgrow Islands/ Ordinary holding Holdings Limited) Hong Kong (Note (a)) 15 February 2013

Tonly Electronics Limited British Virgin HK$105,800,000 – 80 Investment (formerly known as Tonly Islands/ Ordinary holding Holding Limited) Hong Kong (Note (a)) 28 September 2012

TCL Technology (HK) Hong Kong HK$50,000,000 – 80 Trading of Company Limited 11 November 2008 Ordinary audio-visual (Note (b)) products and components

TCL OEM Sales Limited Hong Kong HK$2 – 80 Trading of (Note (b)) 22 October 1999 Ordinary audio-visual products and components

Tongli OEM Sales Limited United States US$1,000 – 80 Trading of (Note (a)) 23 February 2011 Ordinary audio-visual products and components

APPENDIX I ACCOUNTANTS’ REPORT

I – 14

Place and date Nominal value of Percentage of of incorporation/ issued ordinary/ equity attributable registration registered to the Company PrincipalCompany name and operations share capital Direct Indirect activities

TCL Technoly Electronics PRC RMB76,000,000 – 80 Manufacture (Huizhou) Co., Ltd. 26 January 2000 and sale of (Note (c)) audio-visual products and components

Huizhou TCL Audio Video PRC RMB25,000,000 – 80 Manufacture Electronics Co., Ltd. 26 October 2005 and sale of (Note (c)) audio-visual products and components

Xi’an TCL Software PRC US$2,000,000 – 80 Software Development Co., Ltd. 10 May 2012 development (Note (d))

Shenzhen Tongli Science PRC RMB10,000,000 – 80 Software and Technology 8 February 2012 development Development Co., Ltd. (Note (e))

Regency Optics-Electron Corp. PRC RMB50,000,000 – 48 Manufacture (Note (f)) 2 July 2010 and sale of audio-visual components

Notes:(a) No audited financial statements have been prepared for these entities since their incorporation as these

entities were not subject to any statutory audit requirements under the relevant rules and regulations in their jurisdictions of incorporation.

(b) The statutory financial statements of these entities for the years ended 31 December 2010, 2011 and 2012 prepared under HKFRSs were audited by Ernst & Young, Hong Kong.

(c) These entities are registered as wholly-foreign-owned enterprises under the PRC Law. The statutory financial statements of these subsidiaries for the years ended 31 December 2010, 2011 and 2012, prepared

under PRC Generally Accepted Accounting Principles (“PRC GAAP”), were audited by深圳大信會計師事務所, certified public accountants registered in the PRC.

(d) This entity is registered as a wholly-foreign-owned enterprise under the PRC Law. The statutory financial statements of this entity for the period ended 31 December 2012, prepared under PRC GAAP, were audited

by深圳大信會計師事務所, certified public accountants registered in the PRC.

(e) This entity is registered as a limited liability company under the laws of the PRC. The statutory financial statements of this entity for the period ended 31 December 2012, prepared under PRC GAAP, were audited

by深圳大信會計師事務所, certified public accountants registered in the PRC.

(f) This entity is registered as a limited liability company under the laws of the PRC. The statutory financial statements of this entity for the year ended 31 December 2012, prepared under PRC GAAP, were audited by

深圳大信會計師事務所, certified public accountants registered in the PRC. Regency Optics-Electron Corp. is a company acquired by a non-wholly owned subsidiary of the Company and, accordingly, is accounted for as a subsidiary by virtue of the Company’s control over it.

APPENDIX I ACCOUNTANTS’ REPORT

I – 15

2.1 BASIS OF PRESENTATION

Pursuant to the Reorganisation as more fully explained in the section headed “Reorganisation” to the Listing Document, the Company became the holding company of the companies now comprising the Group subsequent to the end of the Track Record Period on 10 July 2013. The companies now comprising the Group were under the common control of TCL Multimedia before and after the Reorganisation. Accordingly, for the purpose of this report, the Financial Information has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Track Record Period.

For the purpose of this report, the related financial information of businesses and operations historically not associated with the AV Product Business of the Group has been excluded from the Financial Information throughout the Track Record Period as such businesses and operations are distinct and identifiable businesses, which operated autonomously and were retained by the Remaining TCL Multimedia Group pursuant to the Reorganisation.

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for the Track Record Period and the three-month ended 31 March 2012 include the results and cash flows of AV Product Business from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the controlling shareholder, where this is a shorter period. The combined statements of financial position of the Group as at 31 December 2010, 2011 and 2012 and 31 March 2013 have been prepared to present the assets and liabilities of the AV Product Business using the existing book values from the controlling shareholder’s perspective.

Equity interests in companies now comprising the Group held by parties other than the controlling shareholder and changes therein prior to the Reorganisation are presented as non-controlling interests in equity. All intra-group transactions and balances have been eliminated on combination.

2.2 BASIS OF PREPARATION

The Financial Information has been prepared from the Underlying Financial Statements of the Group after making adjustments to exclude the financial information of the businesses unrelated to AV Product Business. The Underlying Financial Statements have been prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong. All HKFRSs effective for the accounting period commencing from 1 January 2013, together with the relevant transitional provisions, have been early adopted by the Group in the preparation of the Financial Information throughout the Track Record Period and the period covered by the Interim Comparative Information.

The Financial Information has been prepared under the historical cost convention, except for derivative financial instruments, which have been measured at fair value, and is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

3. ISSUED BUT NOT YET EFFECTIVE HKFRSs

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in the Financial Information.

HKFRS 9 Financial Instruments 2

HKFRS 10, HKFRS 12 Amendments to HKFRS 10, HKFRS 12 and HKFRS 27 (2011) and HKFRS 27 (2011) – Investment Entities 1

AmendmentsHKAS 32 Amendments Amendments to HKAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities 2

HKAS 36 Amendments Amendments to HKAS 36 Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets 1

HK (IFRIC) – Int 21 Levies 1

1 Effective for annual periods beginning on or after 1 January 20142 Effective for annual periods beginning on or after 1 January 2015

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, the Group considers that these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

APPENDIX I ACCOUNTANTS’ REPORT

I – 16

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of combination and business combinations

This Financial Information includes the financial statements of the Company and its subsidiaries now comprising the Group and excludes the financial information of businesses unrelated to AV Product Business for the Track Record Period and the three-month ended 31 March 2012. As explained in note 2.1 above, the acquisition of subsidiaries and business under common control has been accounted for using merger accounting.

The merger accounting involves incorporating the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book value from the perspective of TCL Multimedia, the controlling shareholder of the Company. No amount is recognised in respect of goodwill or the excess of the acquirer’s interest in the net fair value of acquirees’ identifiable assets, liabilities and contingent liabilities over the consideration transferred and other items at the time of common control combination.

The acquisition of subsidiaries other than those under common control has been accounted for using the acquisition method.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Except for the common control combination as mentioned above, the results of subsidiaries are combined from the date of acquisition, being the date on which the Group obtains control, and continue to be combined until the date that such control ceases. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated on combination in full.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Non-controlling interests represent the equity interests in a subsidiary held by parties other than the controlling shareholder. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate.

Subsidiaries

A subsidiary is an entity (including a structured entity) controlled by the Company and/or its other subsidiaries.

The Group controls an investee when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., the existing rights that give the Group the current ability to direct the relevant activities of the investee).

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control described above.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s investment in an associate is stated in the combined statements of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The Group’s share of the post-acquisition results and reserves of the associate is included in the combined statements of comprehensive income and combined reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its associate are eliminated to the extent of the Group’s investments in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of the associate is included as part of the Group’s investment in an associate and is not individually tested for impairment.

APPENDIX I ACCOUNTANTS’ REPORT

I – 17

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than deferred tax assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. 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. An impairment loss is charged to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at the end of each of the Track Record Period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person

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

(ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or of a parent of the Group;

or

(b) the party is an entity where any of the following conditions applies:

(i) the entity and the Group are members of the same group;

(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Group are joint ventures of the same third party;

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

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

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

(vii) 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).

APPENDIX I ACCOUNTANTS’ REPORT

I – 18

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold improvements 20%Plant and machinery 5% – 20%Furniture, fixtures and equipment 20% – 33.3%Motor vehicles 20%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents buildings under construction and plant and machinery in the process of installation, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and installation. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to profit or loss on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently amortised on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

Financial assets within the scope of HKAS 39 are classified as financial assets at fair value through profit or loss (including derivative financial instruments), loans and receivables and available-for-sale investment as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.

APPENDIX I ACCOUNTANTS’ REPORT

I – 19

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

The Group’s financial assets include cash and bank balances, trade, bills receivables, other receivables, other investment and derivative financial instruments (the accounting policy of which are further explained in the accounting policy “Derivative Financial Instruments”).

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is recognised in profit or loss. The loss arising from impairment is recognised in profit or loss in finance costs for loans and in other operating expenses for receivables.

Available-for-sale investment

Available-for-sale financial investments are non derivative financial assets in unlisted equity investments. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss.

After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in profit or loss in other revenue and gains, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to profit or loss in other operating expenses. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognised in profit or loss as other revenue and gains in accordance with the policies set out for “Revenue recognition” below.

When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets and management’s intent to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or to maturity. Reclassification to the held-to-maturity category is permitted only when the Group has the ability and intent to hold until the maturity date of the financial asset.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.

APPENDIX I ACCOUNTANTS’ REPORT

I – 20

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• therightstoreceivecashflowsfromtheassethaveexpired;or

• theGrouphastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythe received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group assesses at the end of each of the Track Record Period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

APPENDIX I ACCOUNTANTS’ REPORT

I – 21

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other operating expenses in profit or loss.

Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the profit or loss, is removed from other comprehensive income and recognised in profit or loss.

In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. The determination of what is “significant” or “prolonged” requires judgement. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss – is removed from other comprehensive income and recognised in profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of HKAS 39 are classified as financial liabilities at fair value through profit or loss and loans and borrowings, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Group’s financial liabilities include trade, bills payables, other payables, derivative financial instruments (the accounting policy of which are further explained in the accounting policy “Derivative Financial Instruments”) and interest-bearing bank borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest-bearing bank borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

APPENDIX I ACCOUNTANTS’ REPORT

I – 22

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in profit or loss.

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Derivative financial instruments

Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risk and interest rate risk, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values of similar instruments.

The fair values measured are based on the valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

APPENDIX I ACCOUNTANTS’ REPORT

I – 23

Cash and cash equivalents

For the purpose of the combined statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the statement of financial position, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of each of the Track Record Period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss.

Provisions for product warranties granted by the Group on certain products are recognised based on sales volume and past experience of the level of repairs and returns, discounted to their present values as appropriate.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of each of the Track Record Period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of each of the Track Record Period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability ina transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries and an associate,when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

• when the deferred tax asset relating to the deductible temporary differences arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

APPENDIX I ACCOUNTANTS’ REPORT

I – 24

• inrespectofdeductibletemporarydifferencesassociatedwithinvestmentsinsubsidiariesandanassociate,deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each of the Track Record Period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each of the Track Record Period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

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

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Government grants

Government grants are recognised at their fair values where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

(b) income from the rendering of services, when the services are rendered; and

(c) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Employee benefits

Pension schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) in Hong Kong under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Certain subsidiaries outside Hong Kong are required to contribute a certain percentage of their payroll costs to pension schemes operated by the respective governments. The only obligation of the Group with respect to the pension schemes is to pay the required ongoing contributions. Contributions under the schemes are charged to profit or loss as they become payable in accordance with the rules of the pension schemes.

A1A 33(4)(a)A1A 33(4)(b)A1A 33(4)(c)

APPENDIX I ACCOUNTANTS’ REPORT

I – 25

Research and development costs

All research costs are charged to profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

Borrowing costs

Borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of each of the Track Record Period. Differences arising on settlement or translation of monetary items are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

The functional currencies of certain overseas subsidiaries and an associate are currencies other than the Hong Kong dollar. As at the end of each of the Track Record Period, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates prevailing at the end of each of the Track Record Period and their statements of comprehensive income are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

For the purpose of the combined statement of cash flows, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for each of the Track Record Period.

5. SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES

The preparation of the Group’s Financial Information and the Interim Comparative Information requires management to make judgement, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

APPENDIX I ACCOUNTANTS’ REPORT

I – 26

Judgement

In the process of applying the Group’s accounting policies, management has made the following judgement, apart from those involving estimations, which has the most significant effect on the amounts recognised in the Financial Information:

Derecognition of financial assets – Receivable purchase arrangements

The Group has entered into certain receivable purchase arrangements with its banks on its trade receivables. As at 31 December 2010, 2011 and 2012 and 31 March 2013, the Group has determined that it has transferred substantially all risks and rewards of ownership associated with these trade receivables which were purchased by the relevant banks. Accordingly, the relevant trade receivables with aggregate carrying amounts of HK$150,509,000, HK$307,041,000, HK$451,574,000 and HK$279,049,000, respectively, are fully derecognised. Further details are given in note 20 to the Financial Information.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of each of the Track Record Period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

(i) Useful lives and impairment of property, plant and equipment

The Group determines the useful lives and related depreciation charges for its property, plant and equipment based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. The estimated useful lives could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles.

Management will increase the depreciation charge where useful lives are less than previously estimated, or it will write off or write down technically obsolete or non-strategic assets that have been abandoned. Actual economic lives of property, plant and equipment may differ from estimated useful lives. Periodic review could result in a change in depreciable lives and therefore depreciation in the future periods.

(ii) Impairment of trade receivables

Impairment of trade receivables is made based on assessment of the recoverability of receivables due from customers. The identification of impairment requires management judgements and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact on the carrying amount of the receivables and impairment losses/reversal of impairment losses in the period in which such estimate has been changed.

(iii) Provision against obsolete and slow-moving inventories

The Group reviews the condition of its inventories and makes provision against obsolete and slow-moving inventory items which are identified as no longer suitable for sale or use. Management estimates the net realisable value for such inventories based primarily on the latest invoice prices and current market conditions. The Group carries out an inventory review at the end of each of the Track Record Period and makes provision against obsolete and slow-moving items. Management reassesses the estimation at the end of the reporting period.

The provision against obsolete and slow-moving inventories requires the use of judgements and estimates. Where the expectation is different from the original estimate, such difference will impact on the carrying value of inventories and the write-down of inventories recognised in the periods in which such estimates have been changed.

APPENDIX I ACCOUNTANTS’ REPORT

I – 27

(iv) Warranty provisions

Provision has been made for value-added costs to repair or replace defective goods, such as labour costs (whether incurred internal or external) and material costs, and costs that may not be recoverable from suppliers for the rework, in accordance with contractual terms or the Group’s policy. In determining the amount of provisions, the management estimates the extent of repairs and replacements with reference to its past experience, technological needs and industrial averages for defective products. The estimation may be adversely affected by many factors, including additional variations to the plans requested by the customers or because of technical needs, and unforeseen problems and circumstances. Any of these factors may affect the extent of repair or replacement required and therefore affect the ultimate repair and replacement costs to be incurred in the future periods. Details of the movement on the provision are set out in note 28 to the Financial Information.

(v) Deferred tax assetsDeferred tax assets are recognised for temporary difference arising from warranty provision, accrual of expenses and unutilised tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details on deferred tax assets are included in note 29 to the Financial Information.

6. SEGMENT INFORMATION

For management purpose, the Group has only one reportable operating segment which is the manufacture and sale of audio-visual products. Since this is the only reportable operating segment of the Group, no further operating segment analysis thereof is presented.

Geographical informationRevenue from external customers based on the locations of these customers is analysed as follows:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Japan 1,450,605 1,971,474 1,456,442 262,637 162,631Europe 1,487,862 1,495,097 1,172,152 289,550 318,851PRC 221,752 12,122 380,185 130,498 302,739United States 83,371 160,044 353,101 49,119 61,461Korea 492,523 456,380 285,869 66,218 42,507Others 26,536 4,337 5,322 5,496 6,460

3,762,649 4,099,454 3,653,071 803,518 894,649

The non-current assets of the Group (excludes deferred tax assets) are substantially located in the PRC.

APPENDIX I ACCOUNTANTS’ REPORT

I – 28

Information about major customers

Revenue from each major customer which accounted for 10% or more of the Group’s revenue for each of the Track Record Period, is set out below:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Customer A 1,075,908 1,311,441 1,172,175 289,380 318,852Customer B 949,071 1,274,544 454,759 97,833 N/A*Customer C 492,523 456,380 N/A* N/A* N/A*Customer D 411,954 N/A* N/A* N/A* N/A*Customer E N/A* N/A* N/A* 98,726 N/A*Customer F N/A* N/A* N/A* N/A* 131,648

* Less than 10% of revenue

7. TURNOVER, OTHER INCOME AND GAINS, NET

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of the Group’s other income and gains, net, is as follow:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Interest income 9,957 16,287 30,931 4,513 14,238Sales of raw materials and scrap materials 5,003 2,097 3,549 4,526 504Income from research and development services provided 9,440 12,390 19,942 7,641 26,549Realised gains on settlement of derivative financial instruments 11,227 32,157 30,676 16,794 11,023Unrealised fair value gains on derivative financial instruments, net – transactions not qualifying as hedges 23 221 2,098 20,435 13,193 –Foreign exchange differences, net 10,528 – – – –Government grants* 3,152 1,169 2,431 1,477 4,769Gain on disposal of items of property, plant and equipment 46 – 257 – –Gain on bargain purchase of a subsidiary 32 – – 878 – –Others 1,454 3,847 1,711 126 423

51,028 70,045 110,810 48,270 57,506

Note:

* Certain government grants have been received to subsidise the Group’s export business and future business development. There are no unfulfilled conditions or contingencies relating to these grants.

APPENDIX I ACCOUNTANTS’ REPORT

I – 29

8. FINANCE COSTS

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Interest on bank loans 3,904 5,417 – – 871Interest on factored trade receivables 693 2,040 3,514 525 1,262Interest on loans from a subsidiary of TCL Corporation 781 – – – –

5,378 7,457 3,514 525 2,133

9. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Cost of inventories sold 3,340,263 3,712,153 3,211,497 727,859 787,696Write-down/(write-back) of inventories to net realisable value (5,674) (292) 14,123 – 3,611Depreciation 16 12,977 13,111 12,163 3,293 4,583Research and development costs – current year expenditure 70,039 89,584 156,653 30,800 42,486Amortisation of prepaid land lease payments 17 146 458 338 84 85Minimum lease payments under operating leases in respect of land and buildings 20,444 20,973 13,951 4,290 4,140Auditors’ remuneration 527 610 1,021 – –

Employee benefit expense (including Directors’ remuneration – note 10):Wages and salaries 167,526 208,671 249,983 47,952 71,337Defined contribution expense 6,252 10,825 14,070 4,540 5,575

173,778 219,496 264,053 52,492 76,912

Product warranty provision: 28Additional provision 38,276 43,258 37,218 3,574 10,498Reversal of unutilised provision – – (4,753) – –

38,276 43,258 32,465 3,574 10,498

Unrealised fair value losses/(gains) on derivative financial instruments, net – transactions not qualifying as hedges 23 (221) (2,098) (20,435) (13,193) 6,157Foreign exchange difference, net (10,528) 8,668 17,855 480 3,720Loss/(gain) on disposal of items of property, plant and equipment* (46) 24 (257) – 386Reversal of impairment of trade receivables, net* 20 (1,176) (2,425) – – –

APPENDIX I ACCOUNTANTS’ REPORT

I – 30

Note:

* The loss on disposal of items of property, plant and equipment and the net reversal of impairment of trade receivables are included in “Other operating expenses” on the face of the combined statements of comprehensive income.

10. DIRECTORS’ REMUNERATION

Directors’ remuneration for the Track Record Period and the three-month period ended 31 March 2012, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Fees – – – – –

Other emoluments:Salaries, allowances and benefits in kind 478 2,189 2,148 323 405Discretionary performance-related bonuses – 271 – – 650Pension scheme contributions 100 89 95 26 30

578 2,549 2,243 349 1,085

578 2,549 2,243 349 1,085

(a) Non-executive directors and independent non-executive directors

Subsequent to the end of the Track Record Period, two directors were appointed as non-executive directors of the Company on 11 April 2013 and 12 July 2013, respectively, and three directors were appointed as independent non-executive directors of the Company on 12 July 2013.

(b) Executive directors

Salaries, Discretionary allowances performance- Pension and benefits related scheme Total in kind bonuses contributions remuneration HK$’000 HK$’000 HK$’000 HK$’000

Year ended 31 December 2010Mr. YU Guanghui 244 – 70 314Mr. SONG Yonghong 188 – 30 218Mr. REN Xuenong 46 – – 46

478 – 100 578

Year ended 31 December 2011Mr. YU Guanghui 1,327 123 70 1,520Mr. SONG Yonghong 785 148 19 952Mr. REN Xuenong 77 – – 77

2,189 271 89 2,549

A1A 33(2)(b)

A1A 33(2)(c)

A1A 33(2)(d)

APPENDIX I ACCOUNTANTS’ REPORT

I – 31

Salaries, Discretionary allowances performance- Pension and benefits related scheme Total in kind bonuses contributions remuneration HK$’000 HK$’000 HK$’000 HK$’000

Year ended 31 December 2012Mr. YU Guanghui 1,343 – 70 1,413Mr. SONG Yonghong 739 – 25 764Mr. REN Xuenong 66 – – 66

2,148 – 95 2,243

Three-month period ended 31 March 2013Mr. YU Guanghui 222 650 18 890Mr. SONG Yonghong 97 – 8 105Mr. REN Xuenong 86 – 4 90

405 650 30 1,085

Three-month period ended 31 March 2012 (Unaudited)Mr. YU Guanghui 215 – 18 233Mr. SONG Yonghong 98 – 8 106Mr. REN Xuenong 10 – – 10

323 – 26 349

There was no arrangement under which a director waived or agreed to waive any remuneration during the Track Record Period and the three-month period ended 31 March 2012.

During the Track Record Period and the three-month period ended 31 March 2012, no remuneration was paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office.

A1A 33(2)(e) – (g)

APPENDIX I ACCOUNTANTS’ REPORT

I – 32

11. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the years ended 31 December 2010, 2011 and 2012 and the three-month periods ended 31 March 2012 and 2013, included nil, 2, 2, 1 and 1 directors, respectively, details of whose remuneration are set out in note 10 above. Details of the remuneration of the remaining 5, 3, 3, 4 and 4 non-director, highest paid employees for the years ended 31 December 2010, 2011 and 2012 and the three-month periods ended 31 March 2012 and 2013, respectively, are as follows:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Salaries, allowances and benefits in kind 3,597 2,437 2,748 646 949Discretionary performance-related bonuses – 333 25 – –Pension scheme contributions 17 35 26 11 5

3,614 2,805 2,799 657 954

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Nil to HK$1,000,000 5 2 2 4 4HK$1,000,001 to HK$1,500,000 – 1 1 – –

5 3 3 4 4

During the Track Record Period and the three-month period ended 31 March 2012, no remuneration was paid by the Group to any of the five highest paid employees as an inducement to join or upon joining the Group or as compensation for loss of office.

A1A 33(3)(a) – (c)

A1A 33(3)(d) – (e)

APPENDIX I ACCOUNTANTS’ REPORT

I – 33

12. INCOME TAX

Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profits arising in Hong Kong during Track Record Period and the three-month period ended 31 March 2012. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries/jurisdictions in which the Group operates.

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Current – Hong Kong Charge for the year/period 10,870 8,749 18,636 3,350 610 Overprovision in prior years – (2,820) (4,565) – –Current – Elsewhere Charge for the year/period 37,297 39,646 22,829 8,276 5,676 Overprovision in prior years – – (7,881) – (149)Deferred (note 29) (6,640) (15,678) (13,099) (2,319) (761)

Total tax charge for the year/period 41,527 29,897 15,920 9,307 5,376

Certain of the Group’s subsidiaries in the PRC enjoyed a total exemption of Corporate Income Tax for two years and a half reduction for three years. Also, a subsidiary of the Group in the PRC was designated as “High and New Technology Enterprise” and accordingly can enjoy a preferential Corporate Income Tax rate of 15%.

A reconciliation of the tax expense applicable to profit before tax at the statutory/applicable rates to the tax expense at the effective tax rate is as follows:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Profit before tax 203,588 124,352 110,666 42,579 40,075

Tax at the statutory/applicable tax rates of different countries/jurisdictions 46,927 26,332 32,457 8,853 10,704Lower tax rates for specific provinces or enacted by local authorities (15,819) (1,231) (11,835) (104) (3,533)Adjustments in respect of current tax of previous periods – (2,820) (12,446) – –Effect of withholding tax at 5% on the distributable profits of the Group’s PRC subsidiaries 11,376 2,630 2,859 403 773Effect on opening deferred tax of decrease in rate – – 7,447 – –Profits and losses attributable to an associate – (2) (1) 22 9Income not subject to tax (4,490) (2,414) (9,753) (82) (1,025)Expenses not deductible for tax 3,533 7,402 3,594 87 371Tax losses not recognised – – 3,598 128 1,089Tax losses utilised from previous periods – – – – (3,012)

Tax charge at the Group’s effective tax rate 41,527 29,897 15,920 9,307 5,376

APPENDIX I ACCOUNTANTS’ REPORT

I – 34

13. DIVIDENDS

The dividends declared/paid by the Company’s subsidiaries to their then shareholders during the Track Record Period and the three-month period 31 March 2012 were as follows:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Interim dividends – – 502,564 – –

No dividend has been paid or declared by the Company since its incorporation.

14. PROFIT ATTRIBUTABLE TO OWNERS OF THE COMPANY

The combined profit attributable to owners of the Company for the three-month period ended 31 March 2013 were all generated by the subsidiaries now comprising the Group.

15. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the preparation of the results of the Group for the Track Record Period as disclosed in note 2.1 above.

APPENDIX I ACCOUNTANTS’ REPORT

I – 35

16. PROPERTY, PLANT AND EQUIPMENT

Furniture, Leasehold Plant and fixtures and Motor Construction improvement machinery equipment vehicles in progress Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

31 December 2010

At 1 January 2010: Cost 3,335 42,164 18,162 2,788 – 66,449 Accumulated depreciation (2,983) (12,475) (8,192) (826) – (24,476)

Net carrying amount 352 29,689 9,970 1,962 – 41,973

At 1 January 2010, net of accumulated depreciation 352 29,689 9,970 1,962 – 41,973 Additions 632 9,888 5,026 400 – 15,946 Disposals – (134) (34) (17) – (185) Depreciation provided during the year (462) (7,550) (4,397) (568) – (12,977) Exchange realignment 18 1,166 387 68 – 1,639

At 31 December 2010, net of accumulated depreciation 540 33,059 10,952 1,845 – 46,396

At 31 December 2010: Cost 4,108 53,728 23,771 2,960 – 84,567 Accumulated depreciation (3,568) (20,669) (12,819) (1,115) – (38,171)

Net carrying amount 540 33,059 10,952 1,845 – 46,396

31 December 2011

At 1 January 2011: Cost 4,108 53,728 23,771 2,960 – 84,567 Accumulated depreciation (3,568) (20,669) (12,819) (1,115) – (38,171)

Net carrying amount 540 33,059 10,952 1,845 – 46,396

At 1 January 2011, net of accumulated depreciation 540 33,059 10,952 1,845 – 46,396 Additions – 579 2,868 486 138 4,071 Disposals – (8) (16) – – (24) Depreciation provided during the year (133) (8,730) (3,710) (538) – (13,111) Exchange realignment 22 1,368 490 84 3 1,967

At 31 December 2011, net of accumulated depreciation 429 26,268 10,584 1,877 141 39,299

At 31 December 2011: Cost 4,298 56,809 27,784 3,593 141 92,625 Accumulated depreciation (3,869) (30,541) (17,200) (1,716) – (53,326)

Net carrying amount 429 26,268 10,584 1,877 141 39,299

APPENDIX I ACCOUNTANTS’ REPORT

I – 36

Furniture, Leasehold Plant and fixtures and Motor Construction improvement machinery equipment vehicles in progress Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

31 December 2012

At 1 January 2012: Cost 4,298 56,809 27,784 3,593 141 92,625 Accumulated depreciation (3,869) (30,541) (17,200) (1,716) – (53,326)

Net carrying amount 429 26,268 10,584 1,877 141 39,299

At 1 January 2012, net of accumulated depreciation 429 26,268 10,584 1,877 141 39,299 Additions 50 2,833 6,306 1,568 91,996 102,753 Disposals – (233) (601) (18) – (852) Depreciation provided during the year (141) (6,667) (4,607) (748) – (12,163) Acquisition of a subsidiary (note 32) 2,539 12,592 – – 1,672 16,803 Exchange realignment – (14) 5 4 341 336

At 31 December 2012, net of accumulated depreciation 2,877 34,779 11,687 2,683 94,150 146,176

At 31 December 2012: Cost 5,272 74,197 31,938 4,811 94,150 210,368 Accumulated depreciation (2,395) (39,418) (20,251) (2,128) – (64,192)

Net carrying amount 2,877 34,779 11,687 2,683 94,150 146,176

31 March 2013

At 1 January 2013: Cost 5,272 74,197 31,938 4,811 94,150 210,368 Accumulated depreciation (2,395) (39,418) (20,251) (2,128) – (64,192)

Net carrying amount 2,877 34,779 11,687 2,683 94,150 146,176

At 1 January 2013, net of accumulated depreciation 2,877 34,779 11,687 2,683 94,150 146,176 Additions – 10,978 1,995 624 37,486 51,083 Disposals – (12) (393) (8) – (413) Depreciation provided during the period (435) (2,682) (1,269) (197) – (4,583) Exchange realignment 1 135 40 9 348 533

At 31 March 2013, net of accumulated depreciation 2,443 43,198 12,060 3,111 131,984 192,796

At 31 March 2013: Cost 5,282 85,430 33,390 5,444 131,984 261,530 Accumulated depreciation (2,839) (42,232) (21,330) (2,333) – (68,734)

Net carrying amount 2,443 43,198 12,060 3,111 131,984 192,796

APPENDIX I ACCOUNTANTS’ REPORT

I – 37

17. PREPAID LAND LEASE PAYMENTS

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Carrying amount at 1 January – 22,426 16,780 16,443Additions 22,013 16,554 – –Disposals – (22,650) – –Amortised during the year/period (146) (458) (338) (85)Exchange realignment 559 908 1 54

Carrying amount at 31 December 22,426 16,780 16,443 16,412Current portion included in other receivables (note 21) (448) (336) (338) (338)

Non-current portion 21,978 16,444 16,105 16,074

The leasehold land is situated in the PRC and is held under a long term lease.

18. INVESTMENT IN AN ASSOCIATE

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Share of net assets – 385 387 351

Particulars of the associate are as follows:

Percentage of Place of ownership interest Particulars of registration attributable to the Group PrincipalName registered capital and operations as at 31 December 31 March activities 2010 2011 2012 2013

Beijing Optical RMB900,000 PRC – 33.3 26.7 26.7 Consulting services Consulting on high definition Co., Ltd.* technology

* Not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network

The Group’s shareholding in the associate is held through an indirectly non-wholly-owned subsidiary of the Company.

The percentage of the Group’s voting power held in relation to the associate is 20% as at 31 December 2011 and 2012 and 31 March 2013, and the Group’s profit sharing is 33.3%, 26.7% and 26.7% as at 31 December 2011 and 2012 and 31 March 2013, respectively.

The above associate has been accounted for using the equity method in this Financial Information and its financial year end is coterminous with that of the Group.

APPENDIX I ACCOUNTANTS’ REPORT

I – 38

The following table illustrates the summarised financial information of the Group’s associate extracted from its management accounts on a 100% basis:

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Assets – 1,201 1,456 1,280Liabilities – 45 296 228Revenue – 2,859 1,964 402Profit/(loss) – 18 5 (113)

19. INVENTORIES

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Raw material 124,741 103,649 101,231 137,486Work in progress 56,542 38,378 58,516 100,672Finished goods 131,483 119,153 184,902 84,867

312,766 261,180 344,649 323,025

20. TRADE RECEIVABLES

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Due from third parties 324,546 449,735 726,299 831,270Provision for impairment (1,178) – – –

323,368 449,735 726,299 831,270

Due from related parties: The Remaining TCL Multimedia Group (note) 161,549 9,475 28,707 30,556 Provision for impairment (1,187) – – –

160,362 9,475 28,707 30,556

The TCL Corporation Group (note) 25,982 8,603 70,212 52,569

186,344 18,078 98,919 83,125

509,712 467,813 825,218 914,395

Note: As at 31 December 2010, 2011 and 2012 and 31 March 2013, the amounts were unsecured, repayable within one year and interest-free.

APPENDIX I ACCOUNTANTS’ REPORT

I – 39

Sales to third party customers

The majority of the Group’s sales in the PRC were mainly made on the cash-on-delivery basis or on commercial bills guaranteed by banks with credit periods ranging from 60 to 180 days. For overseas sales, the Group usually requires settlement by letters of credit with tenures ranging from 15 to 120 days. Sales to certain long term strategic customers were made on the open-account basis with credit terms of no more than 180 days.

Sales to related parties

Sales to related parties were made on the open-account basis.

The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

The movements in the provision for impairment of trade receivables are as follows:

31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 3,442 2,365 – –Impairment losses recognised (note 9) 1,156 – – –Impairment losses reversed (note 9) (2,332) (2,425) – –Exchange realignment 99 60 – –

At 31 December/31 March 2,365 – – –

The above provision for impairment of trade receivables is a provision for individually impaired trade receivables. The individually impaired trade receivables relate to customers that were in financial difficulties and only a portion of the receivables is expected to be recovered.

The aged analysis of the trade receivables that are not considered to be impaired is as follows:

31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Neither past due nor impaired 485,241 454,451 798,978 837,394Less than 90 days past due 16,933 13,144 24,026 75,05790 – 180 days past due 1,792 – 76 1,486Over 180 days past due 5,746 218 2,138 458

509,712 467,813 825,218 914,395

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there were no recent history of default. Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the Directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

Certain subsidiaries of the Group have entered into receivable purchase agreements with banks for the factoring of trade receivables with certain designated customers. At 31 December 2010, 2011 and 2012 and 31 March 2013, trade receivables factored to banks aggregated to HK$150,509,000, HK$307,041,000, HK$451,574,000 and HK$279,049,000, respectively, and all of which were derecognised from the combined statement of financial position because, in the opinion of the Directors, the Group has transferred substantially all the risks and rewards of ownership in respect of the relevant factored receivables to banks as at the end of each Track Record Period.

APPENDIX I ACCOUNTANTS’ REPORT

I – 40

As at 31 December 2010, 2011 and 2012 and 31 March 2013, trade receivables factored to banks aggregating to HK$150,509,000, HK$191,294,000 and HK$307,372,000 and HK$230,559,000 were guaranteed by TCL Multimedia.

21. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Prepayments and deposits 19,416 47,277 66,855 38,428Other receivables 122,199 235,720 126,189 124,297Prepaid land lease payments (note 17) 448 336 338 338Due from the Remaining TCL Multimedia Group (note) 172,828 389,842 90,862 114,638Due from the TCL Corporation Group (note) 1,093 11,044 1,147 584

315,984 684,219 285,391 278,285

Note: The amounts were unsecured, repayable within one year and interest-free, except for the aggregate amounts of HK$73,788,000, HK$144,586,000, HK$65,535,000 and HK$92,804,000 due from the Remaining TCL Multimedia Group as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively, which bore interest ranged from 0.36% to 1.17%, 0.36% to 1.31%, 0.39% to 1.33% and 0.39% to 1.49% per annum, being the savings rates offered by the People’s Bank of China, during the three years ended 31 December 2010, 2011 and 2012 and the three-month period ended 31 March 2013, respectively. Further details of the interest income attributable to the amounts due from the Remaining TCL Multimedia Group are set out in note 36 to the Financial Information.

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

22. OTHER INVESTMENT

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Principal guaranteed deposit, at cost – – – 132,306

The Group’s other investment represents investment in a principal guaranteed deposit placed in a bank in the PRC. In the opinion of the directors, the fair value of this principal guaranteed deposit cannot be reliably measured because (a) this principal guaranteed deposit does not have quoted market prices in an active market; (b) the range of reasonable fair value estimates is significant for this principal guaranteed deposit; and (c) the probabilities of the various estimates cannot be reasonably assessed and used in estimating fair value. As such, this principal guaranteed deposit is stated at cost less any impairment losses.

APPENDIX I ACCOUNTANTS’ REPORT

I – 41

23. DERIVATIVE FINANCIAL INSTRUMENTS

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Assets

Forward currency contracts 22,024 15,153 27,862 28,065Interest rate swap – – 7,789 5,378

22,024 15,153 35,651 33,443

Liabilities

Forward currency contracts 16,558 11,855 10,319 14,410Interest rate swap 4,809 – 1,558 1,376

21,367 11,855 11,877 15,786

The Group has entered into various forward exchange contracts and interest rate swaps to manage its exchange rate exposures and interest rate exposures, respectively. They are not designated for hedge purposes and are measured at fair value through profit or loss. Net unrealised gains of HK$221,000, HK$2,098,000, HK$20,435,000 and net unrealised loss of HK$6,157,000, as a result of changes in the fair values of these non-hedging derivative financial contracts, were recognised in profit or loss for the three years ended 31 December 2010, 2011 and 2012 and for the three-month period ended 31 March 2013, respectively.

24. CASH AND BANK BALANCES AND PLEDGED DEPOSITS

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Cash and bank balances 1,396,264 809,030 1,813,246 1,567,780Less: Pledged deposits (827,267) (316,189) (817,684) (818,915)

Cash and cash equivalents 568,997 492,841 995,562 748,865

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with banks with high credit ratings and no recent history of default.

At 31 December 2010, 2011 and 2012 and 31 March 2013, time deposits of the Group of HK$748,267,000, nil, HK$106,486,000 and HK$106,842,000 were pledged as securities for the Group’s bank loans (note 27). In addition, the remaining time deposits of the Group of HK$79,000,000, HK$316,189,000, HK$711,198,000 and HK$712,073,000 were pledged as securities for the Group’s bills payable amounting to HK$80,368,000, HK$368,065,000, HK$717,721,000 and HK$720,119,000 as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively.

APPENDIX I ACCOUNTANTS’ REPORT

I – 42

Included in the Group’s cash and bank balances were deposits of HK$43,258,000, HK$141,498,000, HK$614,804,000 and HK$310,418,000 placed with a subsidiary of TCL Corporation, a financial institution approved by the People’s Bank of China as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively. The interest rates for these deposits ranged from 0.36% to 1.17%, 0.36% to 1.31%, 0.39% to 1.33% and 0.39% to 1.49% per annum, being the savings rates offered by the People’s Bank of China, during the three years ended 31 December 2010, 2011 and 2012 and three-month period ended 31 March 2013, respectively. Further details of the interest income attributable to the deposits with a subsidiary of TCL Corporation are set out in note 36 to the Financial Information.

25. TRADE PAYABLES

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Due to third parties 653,033 704,619 753,051 708,116

Due to related parties: The Remaining TCL Multimedia Group (note) 772 749 1,142 3,345 The TCL Corporation Group (note) 40,390 20,913 44,724 55,896

41,162 21,662 45,866 59,241

694,195 726,281 798,917 767,357

Note: As at 31 December 2010, 2011 and 2012 and 31 March 2013, the amounts were unsecured, repayable within one year and interest-free.

An aged analysis of the trade payables as at the end of each of the Track Record Period, based on the invoice date, is as follows:

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Current to 90 days 649,688 696,177 774,473 710,68791 to 180 days 44,470 30,042 23,728 55,733181 to 365 days 37 – 105 244Over 365 days – 62 611 693

694,195 726,281 798,917 767,357

The trade payables are non-interest-bearing and are normally settled with credit periods ranging from 15 to 120 days.

APPENDIX I ACCOUNTANTS’ REPORT

I – 43

26. OTHER PAYABLES AND ACCRUALS

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Other payables (note (a)) 87,162 86,665 188,110 146,482Accruals 246,431 328,474 367,711 383,945Receipts in advance – 3,310 93,395 10,455Due to the Remaining TCL Multimedia Group (note (b)) 147,810 244,847 557,465 551,406Due to the TCL Corporation Group (note (b)) 2,667 767 3,975 1,368

484,070 664,063 1,210,656 1,093,656

Notes:

(a) As at 31 December 2012, other payables were non-interest-bearing and were expected to be settled within one year, except for a loan from a company held by a non-controlling shareholder of Regency Optics-Electron (as defined in note 32) of HK$40,686,000 as at 31 December 2012 which bore interest at 1.98% per month and was fully settled by the Group in January 2013.

(b) As at 31 December 2010, 2011 and 2012 and 31 March 2013, the amounts were unsecured, repayable within one year and interest-free.

27. INTEREST-BEARING BANK BORROWINGS

As at 31 December As at 31 March

2010 2011 2012 2013

Contractual Contractual Contractual Contractual

interest interest interest interest

rate (%) Maturity HK$’000 rate (%) Maturity HK$’000 rate (%) Maturity HK$’000 rate (%) Maturity HK$’000

CurrentBank loans – secured LIBOR+ 2011 745,059 – – LIBOR+1.10 2013 106,197 LIBOR+1.10 2013 106,357

(0.8 to 1.0)

Bank loans – unsecured – – 4.98/ 2012 124,335 – – – –

LIBOR+3.05

745,059 124,335 106,197 106,357

Notes:

(a) As at 31 December 2010, 2011 and 2012 and 31 March 2013, the carrying amounts of the Group’s bank borrowings approximated to their fair values.

(b) As at 31 December 2010 and 2012 and 31 March 2013, the Group’s bank loans were secured by certain of the Group’s time deposits amounting to HK$748,267,000, HK$106,486,000 and HK$106,842,000, respectively.

(c) TCL Corporation has guaranteed certain of the Group’s bank loans up to HK$246,609,000 as at 31 December 2011.

APPENDIX I ACCOUNTANTS’ REPORT

I – 44

(d) The bank loans that are denominated in the following currencies other than the functional currencies of the entities to which they relate:

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

United States dollar 745,059 62,683 106,197 106,357

28. PROVISIONS

Product warranties

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 68,724 102,807 143,204 164,199Additional provision 38,276 43,258 37,218 10,498Amount utilised during the year/period (7,546) (8,302) (11,556) (6,833)Reversal of unutilised amounts – – (4,753) –Exchange realignment 3,353 5,441 86 547

At 31 December/31 March 102,807 143,204 164,199 168,411

The warranty provision represents management’s best estimate of the Group’s liability under warranties of 15 to 36 months granted on its products, based on prior experience and industry averages for defective products.

APPENDIX I ACCOUNTANTS’ REPORT

I – 45

29. DEFERRED TAX

The movements in deferred tax liabilities and assets during the Track Record Period were as follows:

Deferred tax liabilities

Fair value adjustment arising from Withholding acquisition of tax for a subsidiary dividend Total Notes HK$’000 HK$’000 HK$’000

At 1 January 2010 – – –

Deferred tax charged to profit or loss during the year 12 – 11,376 11,376

Gross deferred tax liabilities at 31 December 2010 and 1 January 2011 – 11,376 11,376

Deferred tax charged to profit or loss during the year 12 – 2,630 2,630

Gross deferred tax liabilities at 31 December 2011 and 1 January 2012 – 14,006 14,006

Deferred tax credited to profit or loss during the year 12 – (11,147) (11,147)

Acquisition of a subsidiary 12, 32 406 – 406

Gross deferred tax liabilities at 31 December 2012 and 1 January 2013 406 2,859 3,265

Deferred tax charged/(credited) to profit or loss during the period 12 (406) 773 367

Gross deferred tax liabilities at 31 March 2013 – 3,632 3,632

APPENDIX I ACCOUNTANTS’ REPORT

I – 46

Deferred tax assets

Accruals and other provisions Notes HK$’000

At 1 January 2010 27,715

Deferred tax credited to profit or loss during the year 12 18,016

Exchange realignment 1,497

Gross deferred tax assets at 31 December 2010 and 1 January 2011 47,228

Deferred tax credited to profit or loss during the year 12 18,308

Exchange realignment 2,562

Gross deferred tax assets at 31 December 2011 and 1 January 2012 68,098

Effect on opening deferred tax of change in rates 12 (7,447)

Deferred tax credited to profit or loss during the year 12 9,805

Exchange realignment (2,292)

Gross deferred tax assets at 31 December 2012 and 1 January 2013 68,164

Deferred tax credited to profit or loss during the period 12 1,128

Exchange realignment 229

Gross deferred tax assets at 31 March 2013 69,521

The Group has tax losses of nil, nil, HK$18,329,000 and HK$21,246,000 as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively, that are available for offsetting against future taxable profits of the companies in which the losses arose, subject to certain tax rules of the countries in which the Group operates. Deferred tax assets have not been recognised in respect of these losses as the utilisation of which is uncertain.

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in the PRC. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between the PRC and the jurisdiction of the foreign investors. For the Group, the applicable rate is 5%. The Group is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in the PRC in respect of earnings generated from 1 January 2008.

30. SHARE CAPITAL

There was no authorised and issued capital as at 31 December 2010, 2011 and 2012 since the Company has not yet been incorporated.

The Company was incorporated on 8 February 2013 with an initial authorised share capital of US$50,000 divided into 50,000 shares of a par value of US$1 each. On the date of incorporation, 1 ordinary share of US$1 were issued and allotted by the Company to its then shareholder.

APPENDIX I ACCOUNTANTS’ REPORT

I – 47

On 10 July 2013, written resolution of the sole shareholder of the Company was passed pursuant to which (a) the authorised share capital of the Company was increased from US$50,000 to the aggregate of (1) US$50,000 and (2) HK$500,000,000 by creation of 500,000,000 ordinary shares of HK$1 each; and (b) the allotment of 133,109,811 ordinary shares of HK$1 each to TCL Multimedia as a result of the Reorganisation.

Following the aforesaid increase in authorised share capital, the one issued share on the date of incorporation was repurchased by the Company. Subsequent thereto, the initial authorised and unissued share capital of US$50,000 was cancelled by the Company.

Company

As at 31 March 2013 HK$’000

Issued and fully paid: 1 ordinary share of US$1 each –

31. RESERVES

The amounts of the Group’s reserves and the movements therein for each of Track Record Period and the three-month period ended 31 March 2012 are presented in the combined statement of changes in equity.

(i) Reserve funds

Pursuant to the relevant laws and regulations in the PRC, a portion of the profits of the Company’s subsidiaries in the PRC has been transferred to the reserve funds which are restricted to use.

(ii) Capital reserve

The Group’s capital reserve represents the difference between the amounts of the consideration and the carrying value of the partial interests in a subsidiary disposed of.

(iii) Merger reserve

The merger reserve of the Group represents the capital contributions from the equity holders of the subsidiaries now comprising the Group before the completion of the Reorganisation. The addition during the Track Record Period represents the injection of additional capital by TCL Multimedia to Tonly Electronics Limited and the deduction during the Track Record Period represents consideration paid to the Remaining TCL Multimedia Group for the acquisition of equity interests of certain subsidiaries which is accounted for as deemed distribution to the then shareholders of the relevant subsidiaries.

32. BUSINESS COMBINATION

On 10 December 2012, TCL Technoly Electronics (Huizhou) Co., Ltd. (“Technoly Huizhou”), an 80% owned subsidiary of the Group, entered into a capital injection agreement with certain independent third parties to invest RMB30,000,000 (equivalent to approximately HK$36,996,000) for a 60% equity interest of the enlarged capital of Guangdong Regency Optics-Electron Corp. (“Regency Optics-Electron”). Regency Optics-Electron is mainly engaged in the manufacture and sale of audio-visual modules and light guide plates. The capital injection was completed on 25 December 2012. The capital injection was for the Group’s vertical integration of the supply chain.

The Group has elected to measure the non-controlling interest in Regency Optics-Electron at the non-controlling interest’s proportionate share of Regency Optics-Electron’s identifiable net assets.

APPENDIX I ACCOUNTANTS’ REPORT

I – 48

The aggregate fair values of the identifiable assets and liabilities of the Regency Optics-Electron as at the date of capital injection are as follows:

Fair value recognised on acquisition Notes HK$’000

Property, plant and equipment 16 16,803Inventories 28,283Trade receivables 7,545Bills receivable 13,879Other receivables 42,876Cash and bank balances 23,133Trade payables (14,061)Other payables and accruals (54,929)Deferred tax liabilities 29 (406)

Total identifiable net assets at fair value 63,123Non-controlling interests (25,249)

37,874

Gain on bargain purchase 7 (878)

Satisfied by cash 36,996

An analysis of the cash flows in respect of the capital injection of Regency Optics-Electron is as follows:

HK$’000

Cash consideration (36,996)Cash and bank balances acquired 23,133

Net outflow of cash and cash equivalents included in cash flows from investing activities (13,863)

Since the completion of the capital injection, Regency Optics-Electron had neither contributed to the Group’s turnover nor consolidated profit for the year ended 31 December 2012.

Had the capital injection taken place at the beginning of the year, the revenue and the profit of the Group for the year would have been HK$3,763,986,000 and HK$96,510,000, respectively.

33. CONTINGENT LIABILITIES

At the end of each of the Track Record Period, the Group has provided a joint guarantee for a term loan facility of US$120,000,000 (equivalent to HK$933,972,000, HK$932,316,000, HK$930,192,000 and HK$931,596,000 as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively) in favor of TCL Multimedia, which was utilised to extent of HK$615,181,000, HK$616,570,000, HK$555,529,000 and HK$494,724,000 as at 31 December 2010, 2011 and 2012 and 31 March 2013, respectively.

APPENDIX I ACCOUNTANTS’ REPORT

I – 49

34. OPERATING LEASE ARRANGEMENTS

As lessee

The Group leases certain of its office properties and factories under operating lease arrangements. These leases are negotiated for terms ranging from one to three years.

As at each of the end of the Track Record Period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Within one year 171 416 1,721 2,516

35. COMMITMENTS

In addition to the operating lease commitments detailed in note 34 above, the Group had the following capital commitments at the end of each of the Track Record Period:

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Contracted, but not provided for – 4,668 91,936 90,722Authorised, but not contracted for – – 169,844 138,524

– 4,668 261,780 229,246

APPENDIX I ACCOUNTANTS’ REPORT

I – 50

36. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions and balances detailed elsewhere in the Financial Information, the Group had the following material transactions with related parties during the Track Record Period and the three-month period ended 31 March 2012:

Three-month period Year ended 31 December ended 31 March 2010 2011 2012 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

Recurring:The TCL Corporation Group:Sales of raw materials 30,383 75,036 138,866 33,011 29,432Purchases of raw materials 140,316 162,807 177,439 52,680 43,501Rental expense 10,328 11,784 12,251 3,388 3,268Reimbursement of general brand advertising costs 8,713 10,062 8,905 2,474 2,237Interest income 305 1,205 2,846 468 3,224Interest expense and other finance service fee 869 54 29 19 223Call centre services fee 6 23 7 3 10Construction service fee expense – – 3,686 – 927

The Remaining TCL Multimedia Group:Sales of finished goods 440,782 195,498 13,212 315 27,571Purchases of raw materials 404,078 3,394 5,421 3,700 952Management fee expense 3,494 18,398 5,499 753 222

Non-recurring:The TCL Corporation Group:Sales of finished goods 477 – – – –

The Remaining TCL Multimedia Group:Transportation fee expense 5,400 – – – –Rental expense 1,039 162 150 – –Interest income 1,504 1,863 1,463 560 35Other finance service fee 92 485 2 – –Subcontracting fee expense 347 3,072 2,010 – –

The transactions were conducted at terms and conditions mutually agreed between the relevant parties. The Directors are of the opinion that those related party transactions were conducted in the ordinary course of business of the Group.

(b) Other transaction with related parties:

During the Track Record Period, the Remaining TCL Multimedia Group has transferred bills receivable at aggregate face values of HK$76,638,000, HK$420,155,000, and HK$7,360,000 and HK$1,918,000 to the Group for the years ended 31 December 2010, 2011 and 2012 and three-month period ended 31 March 2013, respectively. The bills receivable was matured in the subsequent year to which they relate.

APPENDIX I ACCOUNTANTS’ REPORT

I – 51

(c) Outstanding balances with related parties

Other than balances with related parties as disclosed in notes 20, 21, 25 and 26 to the Financial Information, the Group had no outstanding balances with related parties as at the end of each of the Track Record Period.

(d) Compensation of key management personnel of the Group

Further details of Directors’ emoluments are included in note 10 to the Financial Information.

37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments, other than derivatives, comprise bank loans, bills receivable, cash and short term deposits and other investment. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables, trade and bills payables, which arise directly from its operations.

The Group also enters into derivative transactions including principally interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The Group’s accounting policies in relation to derivatives are set out in note 4 to the Financial Information.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with floating interest rates.

In general, the Group’s treasury department (the “Group Treasury”) implements all external financings to meet borrowing needs of all subsidiaries. In some cases, subsidiaries may borrow directly from local banks upon approval from the Group Treasury in advance. At subsidiary level, financing is generally done on a short term floating rate basis. Long term financings are normally done at Group level.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings). There is no material impact on other components of the Group’s equity.

APPENDIX I ACCOUNTANTS’ REPORT

I – 52

Increase/ Increase/ (decrease) (decrease) in in profit basis points before tax HK$’000

2010

United States dollar 25 (1,089)

United States dollar (25) 1,089

2011

United States dollar 25 (9)Renminbi 25 (28)

United States dollar (25) 9Renminbi (25) 28

2012

United States dollar 25 (250)

United States dollar (25) 250

31 March 2013

United States dollar 25 (185)

United States dollar (25) 185

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. In addition, certain bank loans were denominated in currencies other than the functional currencies of the entities to which they relate. The Group tends to accept foreign currency exchange risk avoidance or allocation terms when arriving at purchase and sale contracts. The Group takes rolling forecast on the foreign currency revenue and expenses and matches the currency and the amount incurs, so as to alleviate the impact on business due to exchange rate fluctuations. The Group uses forward currency contracts to reduce the foreign currency exposures.

The following table demonstrates the sensitivity at the end of each of the Track Record Period to a reasonably possible change in the exchange rates of currencies other than the functional currencies of the relevant operating units, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities). There is no material impact on other components of the Group’s equity.

APPENDIX I ACCOUNTANTS’ REPORT

I – 53

Increase/ Increase/ (decrease) in (decrease) exchange in profit rates before tax % HK$’000

2010

If Hong Kong dollar weakens against United States dollar 5 (545)If Renminbi weakens against United States dollar 5 23,275

If Hong Kong dollar strengthens against United States dollar (5) 545If Renminbi strengthens against United States dollar (5) (23,275)

2011

If Hong Kong dollar weakens against United States dollar 5 33,609If Renminbi weakens against United States dollar 5 2,880

If Hong Kong dollar strengthens against United States dollar (5) (33,609)If Renminbi strengthens against United States dollar (5) (2,880)

2012

If Hong Kong dollar weakens against United States dollar 5 19,540If Renminbi weakens against United States dollar 5 30,025

If Hong Kong dollar strengthens against United States dollar (5) (19,540)If Renminbi strengthens against United States dollar (5) (30,025)

31 March 2013

If Hong Kong dollar weakens against United States dollar 5 24,948If Renminbi weakens against United States dollar 5 43,495

If Hong Kong dollar strengthens against United States dollar (5) (24,948)If Renminbi strengthens against United States dollar (5) (43,495)

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

APPENDIX I ACCOUNTANTS’ REPORT

I – 54

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty and by geographical region. The Group had certain concentrations of credit risks of the total trade receivables due from the Group’s largest external customer and the Group’s five largest external customers are as follows:

As at As at 31 December 31 March 2010 2011 2012 2013 % % % %

Due from the Group’s largest external customer 26.2 19.1 17.7 23.8Due from the Group’s five largest external customers 76.4 77.9 44.5 59.1

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade and other receivables are disclosed in notes 20 and 21, respectively, to the Financial Information.

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans.

The maturity profile of the Group’s financial liabilities as at the end of the Track Record Period, based on the contractual undiscounted payments, was as follows:

Within 1 year or on demand As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Interest-bearing bank borrowings 753,026 125,017 107,604 106,518Trade payables 694,195 726,281 798,917 767,357Bills payable 85,159 368,065 766,041 885,128Other payables (note 26) 87,162 86,665 188,110 146,482Due to the Remaining TCL Multimedia Group (note 26) 147,810 244,847 557,465 551,406Due to the TCL Corporation Group (note 26) 2,667 767 3,975 1,368

1,770,019 1,551,642 2,422,112 2,458,259

Within 1 year or on demand As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

The maximum amount of the guarantee given to banks in connection with banking facilities granted to TCL Multimedia (note 33) 933,972 932,316 930,192 931,596

APPENDIX I ACCOUNTANTS’ REPORT

I – 55

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the Track Record Period.

The Group monitors capital using a gearing ratio, which is net debt divided by the total capital. The Group’s policy is to maintain the gearing ratio not exceeding 100%. Net debt is calculated as a total of interest-bearing bank borrowings less cash and bank balances and pledged deposits. Total capital refers to equity attributable to owners of the parent. The gearing ratios as at the end of each of the Track Record Period were as follows:

As at As at 31 December 31 March 2010 2011 2012 2013 HK$’000 HK$’000 HK$’000 HK$’000

Interest-bearing bank borrowings (note 27) 745,059 124,335 106,197 106,357Less: Cash and bank balances (note 24) (568,997) (492,841) (995,562) (748,865) Pledged deposits (note 24) (827,267) (316,189) (817,684) (818,915)

Net debt (651,205) (684,695) (1,707,049) (1,461,423)

Equity attributable to owners of the parent 521,696 637,979 301,480 330,100

Gearing ratio – – – –

III. EVENTS AFTER THE REPORTING PERIOD

In addition to the subsequent events as detailed in notes 10 and 30 in this report, on 10 July 2013,

the companies now comprising the Group completed the Reorganisation in preparation for the

listing of the Company’s shares on the Stock Exchange. Further details of the Reorganisation are

set out in the section headed “Reorganisation” in the Listing Document.

IV. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group, the Company or any of its

subsidiaries in respect of any period subsequent to 31 March 2013.

Yours faithfully,

Ernst & YoungCertified Public Accountants

Hong Kong

3rd Sch 43

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

II – 1

The information set forth in this appendix does not form part of the Accountants’ Report from Ernst & Young, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, as set forth in Appendix I to this listing document, and is included herein for information only. The unaudited pro forma financial information should be read in conjunction with the section headed “Financial Information” and the “Accountants’ Report” set forth in Appendix I to this listing document.

A. UNAUDITED PRO FORMA COMBINED NET TANGIBLE ASSETS

The following is an illustrative statement of unaudited pro forma combined net tangible assets of the Group which has been prepared in accordance with paragraph 4.29 of the Listing Rules for the purpose of illustrating the effect of the Listing as if it had been taken place on 31 March 2013 and based on the audited combined net assets attributable to owners of our Company as at 31 March 2013 as shown in the Accountants’ Report, the text of which is set out in Appendix I to this listing document, and adjusted as described below.

The unaudited pro forma combined net tangible assets of the Group has been prepared for illustrative purpose only and, because of its nature, it may not give a true and fair picture of the financial position of the Group after the completion of the Listing or at any future dates.

Audited Unaudited combined net pro forma tangible assets combined net Unaudited attributable to Estimated tangible assets pro forma owners of the expenses attributable to combined net Company as at relating to owners of the tangible assets 31 March 2013 the Listing Company per Share HK$’000 HK$’000 HK$’000 HK$ (note 1) (note 2) (note 3)

Based on 133,109,811 Shares assumed to be in issue immediately prior to the Listing (note 3) 330,100 (4,826) 325,274 2.44

Notes:

1. The audited combined net tangible assets attributable to owners of the Company as at 31 March 2013 is arrived at after deducting non-controlling interests of HK$107,825,000 from the audited combined net assets of HK$437,925,000 as at 31 March 2013, as shown in the Accountants’ Report, the text of which is set out in Appendix I to this listing document.

2. The amount represents estimated expenses relating to the Listing expected to be incurred by the Group subsequent to 31 March 2013 which mainly include professional fees for the Joint Sponsors, the Company’s legal advisers and reporting accountants and other listing related expenses.

3. The unaudited pro forma combined net tangible assets per Share is arrived at after the adjustments as described in note 2 above and is based on 133,109,811 Shares assumed to be in issue immediately prior to the Listing.

4. No adjustment has been made to the unaudited pro forma combined net tangible assets to reflect any trading results or other transactions of the Group entered into subsequent to 31 March 2013.

3rd Sch 33rd Sch 43rd Sch 42

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

II – 2

B. INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

22/F, CITIC Tower1Tim Mei AvenueCentral, Hong Kong

17 July 2013

The Directors

Tonly Electronics Holdings Limited

Dear Sirs,

We have completed our assurance engagement to report on the compilation of pro forma financial

information of Tonly Electronics Holdings Limited (the “Company”) and its subsidiaries (hereinafter

collectively referred to as the “Group”) by the directors of the Company (the “Directors”) for illustrative

purposes only. The pro forma financial information consists of the pro forma combined net tangible

assets as at 31 March 2013, and related notes as set out in Appendix II of the listing document issued by

the Company (the “Pro Forma Financial Information”). The applicable criteria on the basis of which the

Directors have compiled the Pro Forma Financial Information are described in note 2 to note 4.

The Pro Forma Financial Information has been compiled by the Directors to illustrate the impact

of listing of shares of the Company on the Group’s financial position as at 31 March 2013 as if the

transaction had taken place at 31 March 2013. As part of this process, information about the Group’s

financial position has been extracted by the Directors from the Group’s financial statements for the period

ended 31 March 2013, on which an accountant’s report has been published.

Directors’ responsibility for the Pro Forma Financial Information

The Directors are responsible for compiling the Pro Forma Financial Information in accordance

with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong

Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro

Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of

Certified Public Accountants (the “HKICPA”).

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

II – 3

Reporting accountant’s responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountant comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Pro Forma Financial Information, in accordance with paragraph 4.29 of the Listing Rules and with reference to AG7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Pro Forma Financial Information.

The purpose of Pro Forma Financial Information included in the listing document is solely to illustrate the impact of the listing of shares of the Company on unadjusted financial information of the Group as if the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the transaction would have been as presented.

A reasonable assurance engagement to report on whether the Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the transaction, and to obtain sufficient appropriate evidence about whether:

• Therelatedproformaadjustmentsgiveappropriateeffecttothosecriteria;and

• TheProFormaFinancialInformationreflectstheproperapplicationofthoseadjustmentstothe unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the Group, the transaction in respect of which the Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

II – 4

Opinion

In our opinion:

(a) the Pro Forma Financial Information has been properly compiled on the basis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purpose of the Pro Forma Financial Information as

disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & YoungCertified Public Accountants

Hong Kong

APPENDIX III PROPERTY VALUATION

III – 1

The following is the text of a letter, summary of valuation and valuation certificate, prepared

for the purpose of incorporation in this listing document received from Asset Appraisal Limited, an

independent property valuer, in connection with the valuation as at 31 May 2013 of the property interests

held by the Group.

Rm 901, 9/F, On Hong Commercial Building,No.145 Hennessy Road, Wanchai, Hong Kong

Tel: (852) 2529 9448 Fax: (852) 3521 9591香港灣仔軒尼詩道145號安康商業大廈9樓901室中誠達資產評值顧問有限公司

17 July 2013

The Board of DirectorsTonly Electronics Holdings Limited

Dear Sirs,

Re: Valuation of property interests situated in the People’s Republic of China (the “PRC”)

In accordance with the instructions of Tonly Electronics Holdings Limited (the “Company”)

to value the property interests (the “Properties”) held by the Company and its subsidiaries (altogether

referred to as the “Group”) situated in the People’s Republic of China (the “PRC”), we confirm that

we have carried out inspections of the properties, made relevant enquiries and obtained such further

information as we consider necessary for the purpose of providing you with our opinion of the market

value of the Properties as at 31 May 2013 (the “date of valuation”).

BASIS OF VALUATION

Our valuation of the Properties represents the market value which we would define as intended to

mean “the estimated amount for which an asset or liability should exchange on the valuation date between

a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the

parties had each acted knowledgeably, prudently and without compulsion”.

TITLESHIP

We have been provided with copies of legal documents regarding the Properties. However, we have

not verified ownership of the Properties and the existence of any encumbrances that would affect their

ownership.

Further, we have relied upon the legal opinion provided by the PRC legal advisers, namely Jia Yuan

Law Office （北京市嘉源律師事務所） (the “PRC Legal Opinion”), to the Company on the relevant laws and regulations in the PRC, on the nature of leasehold interests in the property situated in the PRC. Its

material content has been summarized in the valuation certificate attached herewith.

3rd Sch 343rd Sch 46

5.06(7)

I.F.5.06(8) &5.07

55.06(1)(l)

5.06(1)(o)

APPENDIX III PROPERTY VALUATION

III – 2

VALUATION METHODOLOGY

The Properties have been valued by the comparison method where comparison was based on price

information of comparable properties. Comparable properties of similar size, character and location have

been analysed and carefully selected of each property in order to arrive at a fair comparison of capital

values.

The Groups’ interests in those Properties rented by it have no commercial value due either to the

short-term nature of the leases or the prohibition against assignment or sub-letting or otherwise due to the

lack of substantial profit rents.

ASSUMPTIONS

Our valuation has been made on the assumption that the owner sells their interests in the Properties

on the market without the benefit of deferred terms contracts, leaseback, joint ventures, management

agreements or any similar arrangement which would serve to affect the value of the their property

interests.

For those properties which are held by the owners by means of long term Land Use Rights granted

by the PRC Government, we have assumed that the owners have free and uninterrupted rights to use the

Properties for the whole of the respective unexpired terms of the land use rights.

Unless stated as otherwise, we have assumed that the owners of the Properties have the right to sell,

mortgage, charge or otherwise dispose of the Properties to any person without payment of any additional

premium or substantial fee to government authorities.

Other special assumptions for our valuation (if any) would be stated out in the footnotes of the

valuation certificate attached herewith.

LIMITING CONDITIONS

No allowance has been made in our report for any charges, mortgages or amounts owing on

the Properties valued nor for any expenses or taxation. Unless otherwise stated, it is assumed that the

Properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect

their values.

We have relied to a very considerable extent on the information given by the Group and have

accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements,

particulars of occupancy, lettings, and all other relevant matters.

We have not carried out detailed site measurements to verify the correctness of the floor areas

in respect of the Properties but have assumed that the floor areas shown on the legal documents handed

to us are correct. All documents and contracts have been used as reference only and all dimensions,

measurements and areas are approximations.

APPENDIX III PROPERTY VALUATION

III – 3

The Properties were last inspected on between 17 January 2013 and 26 February 2013 by Mr.

Tse Wai Leung, who is a member of The Hong Kong Institute of Surveyors and a member of the Royal

Institution of Chartered Surveyors. However, no structural survey has been made for them. In the course

of our inspection, we did not note any apparent defects. We are not, however, able to report whether the

buildings and structures inspected by us are free of rot, infestation or any structural defect. No test was

carried out on any of the building services and equipment.

We have had no reason to doubt the truth and accuracy of the information provided to us by the

Group. We have also sought confirmation from the Group that no material factors have been omitted from

the information supplied. We consider that we have been provided with sufficient information to reach an

informed view, and we have no reason to suspect that any material information has been withheld.

In valuing the Properties, we have complied with all the requirements contained in Chapter 5 and

Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong

Kong Limited and the HKIS Valuation Standards (2012 Edition) published by The Hong Kong Institute of

Surveyors.

All monetary sums stated in this report are in Renminbi (RMB).

Our summary of valuation and valuation certificate are attached herewith.

Yours faithfully,

for and on behalf of

Asset Appraisal Limited

Tse Wai LeungMFin BSc MRICS MHKIS RPS(GP)

Director

Tse Wai Leung is a member of the Royal Institution of Chartered Surveyors, a member of The Hong Kong Institute of Surveyors, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC.. He is on the list of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers of the Hong Kong Institute of Surveyors, Registered Business Valuer under the Hong Kong Business Valuation Forum and has over 10 years’ experience in valuation of properties in Hong Kong, in Macau and in the PRC.

5.06(1)(o)

I.F.5.05 &5.06(9)

PN12 14

I.F.5.06(7)

5.06(1)(s)I.F.5.06(7)PN12 4.2

APPENDIX III PROPERTY VALUATION

III – 4

SUMMARY OF VALUATION

Property interest Market Value attributable in existing Interest to the state as at Attributable Company as at 31 May to the 31 MayProperty 2013 Company 2013 RMB (%) RMB

Group I – Properties held by the Group for self-occupation

1. Land and buildings located at 117,000,000 80% 93,600,000 No. 37 Zhongkai High-tech Zone, Huizhou City, Guangdong Province, the PRC.

Group II – Properties rented by the Group

2. Factory complex and 66 living quarters No commercial 80% No commercial located at Nos. 12 and 13 value value Zhongkai High-tech Zone, Huizhou City, Guangdong Province, the PRC.

3. Factory complex located at No commercial 60% No commercial Buzi Industrial Zone, value value Lilin Town, Huizhou City, Guangdong Province, the PRC.

4. Factory building located at No commercial 60% No commercial Industrial Zone, value value Lilin Town, Huizhou City, Guangdong Province, the PRC.

5. Room A1001, A1002, A1003, A1006 and No commercial 80% No commercial a room on Level 10 and Basement 1, value value Block A, TCL Industrial Research Building, No. 006 Gaoxin South First Road, Nanshan District, Shenzhen City, Guangdong Province, the PRC.

6. Level 5, No commercial 80% No commercial Yinghuada Research and value value Development Building, No. 50 Jinye First Road, Gaozin District, Xi’an City, Shaanxi Province, the PRC.

Grand total: 117,000,000 93,600,000

APPENDIX III PROPERTY VALUATION

III – 5

VALUATION CERTIFICATE

Group I – Properties held by the Group for self-occupation

Property Description and tenure Particulars of occupancy

Market Valuein existingstate as at

31 May 2013RMB

1. Land and buildings located at No. 37 Zhongkai High-tech Zone, Huizhou City, Guangdong Province, the PRC.

（廣東省惠州市仲愷高新區37號小區之土地及建築物）

The property comprises a parcel of industrial land with a site area of approximately 46,245 sq.m. on which four blocks of single to five-storey buildings are erected.

The buildings include a 5-storey (including 1 basement level) factory building, a single-storey warehouse, a single-storey ancillary building and a 5-storey composite building with a total gross floor area of approximately 77,911.59 sq.m.. The above buildings were completed in January 2013 and internal decoration works for the buildings are current underway.

The land use rights of the property have been granted for a term expiring on 8 September 2061 for industrial use.

The property is currently vacant.

117,000,000

(80% interest attributable to the Company

RMB93,600,000)

Notes:

1. Pursuant to a Land Use Right Grant Contract entered into between the Huizhou Land Resources Administration Zhongkai

High-tech Industry Development Zone Bureau (as the Grantor) and TCL Technoly Electronics (Huizhou) Co., Ltd. (TCL通力電子（惠州）有限公司, as the Grantee), a 80%-owned subsidiary of the Company on 8 September 2011, the land parcel of the property (Lot No. 0140010837) with a land area of 46,245 sq.m. were granted by the Grantor to the Grantee for a land use right term of 50 years for industrial uses at a land premium of RMB13,260,000 which has been settled in full.

2. As revealed by a State-owned Land Use Right Certificate (Ref: Hui Fu Guo Yong (2011) Di No. 13021450145 （惠府國用(2011)第13021450145號)） dated 25 October 2011, the land use rights of the property with an area of 46,245 sq.m. are held by TCL Technoly Electronics (Huizhou) Co., Ltd. （TCL通力電子（惠州）有限公司）, a 80%-owned subsidiary of the Company, for a term expiring on 8 September 2061 for industrial use.

5.06(1)(r)

I.F.5.06(1)(a)(b)(c)(d)(e)(f)(g)(h)(i)(j)

APPENDIX III PROPERTY VALUATION

III – 6

3. As revealed by a Construction Land Use Planning Permit （建設用地規劃許可證） (Ref: Di Zi Di No. 441302(2011)60055 (地字第441302(2011)60055號)) issued by the Huizhou City Housing, Urban Planning and Construction Bureau （惠州市住房和城鄉規劃建設局） on 6 December 2011, the planned land use of the property is industrial.

4. As revealed by a Planning Permit of Construction Work （建設工程規劃許可證） (Ref: Jian Zi Di No. 441302(2012)60014 (建字第441302(2012)60014號)) issued by the Huizhou City Housing, Urban Planning and Construction Bureau on 31 March 2012, the development of the 5-storey (including 1 basement level) factory building of the property with a gross floor area of approximately 56,955.53 sq.m. has been approved.

5. As revealed by a another Planning Permit of Construction Work （建設工程規劃許可證） (Ref: Jian Zi Di No. 441302(2012)60078 （建 字 第441302(2012)60078號) ） issued by the Huizhou City Housing, Urban Planning and Construction Bureau on 31 March 2012, the development of the single-storey warehouse of the property with a gross floor area of approximately 51.48 sq.m. has been approved.

6. As revealed by another Planning Permit of Construction Work （建 設 工 程 規 劃 許 可 證） (Ref: Jian Zi Di No. 441302(2012)60015 （建 字 第441302(2012)60015號) ） issued by the Huizhou City Housing, Urban Planning and Construction Bureau on 24 December 2012, the development of the single-storey ancillary building of the property with a gross floor area of approximately 821.67 sq.m. has been approved.

7. As revealed by another Planning Permit of Construction Work （建 設 工 程 規 劃 許 可 證） (Ref: Jian Zi Di No. 441302(2012)60013 （建 字 第441302(2012)60013號) ） issued by the Huizhou City Housing, Urban Planning and Construction Bureau on 31 March 2012, the development of the 5-storey composite building of the property with a gross floor area of approximately 20,082.91 sq.m. has been approved.

8. As revealed by a Construction Works Commencement Permits （建築工程施工許可證） (Ref: 441305201208173201) issued by the Huizhou City Housing, Urban Planning and Construction Bureau on 17 August 2012, the carrying out of construction work for the subject buildings with a total gross floor area of approximately 77,911.59 sq.m. has been approved.

9. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

i. TCL Technoly Electronics (Huizhou) Co., Ltd. is the sole legal owner of the land use rights of the property and has the rights to occupy, use, transfer, lease, mortgage or otherwise dispose the land use rights of the property by other legal means throughout the valid term stipulated in the State-owned Land Use Right Certificate;

ii. As confirmed by the Group and upon verification by the PRC Lawyer, the land use rights of the property are free from any seizure, mortgage, encumbrances or third party restrictions;

iii. TCL Technoly Electronics (Huizhou) Co., Ltd. has obtained the Construction Land Use Planning Permit, Planning Permit of Construction Work and Construction Works Commencement Permits for the construction of the property;

iv. The Urban Development Section of the Planning and Development Bureau of Huizhou Zhongkai High Technoly

Industry Development Zone (惠州仲愷高新技術產業開發區規劃建設局城鄉建設科) issued a written confirmation to certify that TCL Technoly Electronics (Huizhou) Co., Ltd. holds the building ownership rights of the 5-storey (including 1 basement level) factory building of the property with a gross floor area of 56,955.53 sq.m.; and

v. As at the date of the PRC Legal Opinion, TCL Technoly Electronics (Huizhou) Co., Ltd. has obtained all necessary consents, approvals and certificates in accordance with relevant laws and regulations for the development of the property. As verified by the PRC Legal Adviser, none of the consents, approvals and certificates was revoked, modified, cancelled or repealed as at the date of the PRC Legal Opinion, As such, TCL Technoly Electronics (Huizhou) Co., Ltd. has the rights to legally occupy the property. There shall be no foreseeable and material legal impediment for TCL Technoly Electronics (Huizhou) Co., Ltd.’s obtaining building ownership certificate for the property. Upon obtaining the building ownership certificate for the property, TCL Technoly Electronics (Huizhou) Co., Ltd. shall legally secure the ownership rights of the property and has the rights to exclusively occupy, use, demise, transfer, lease, mortgage or other dispose of the property.

APPENDIX III PROPERTY VALUATION

III – 7

VALUATION CERTIFICATE

Group II – Properties rented by the Group

Property Description and tenure Particulars of occupancy

Market Value in existing state as at

31 May 2013 RMB

2. Factory complex and 66 living quarters located at Nos. 12 and 13 Zhongkai High-tech

Zone, Huizhou City, Guangdong Province, the PRC.

（廣東省惠州市仲愷高新區12及13號小區之廠房大樓及66個宿舍單位）

The property comprises various units within 8 blocks of single to six-storey factory/warehouse buildings and 66 living quarters completed in the 1990’s.

As advised by the Company, and based on our enquiry and the lease agreement, total gross floor area of the factory and living quarters are approximately 64,497.62 sq.m. and 2,640 sq.m. respectively.

The property is held by the Group under two tenancy agreements for a term commencing on 1 January 2013 and expiring on 31 December 2013 at a total monthly rent of RMB637,807.39 exclusive of management fees, water charges, electricity charges and other outgoings.

The property is occupied by the Group for factory, office, warehouse and dormitory purposes.

No commercial value

Notes:

1. Pursuant to a tenancy agreement provided by the Company, TCL Technoly Electronics (Huizhou) Co., Ltd. （TCL通力電子（惠州）有限公司）, a 80%-owned subsidiary of the Company, rented the property with a gross floor area of approximately 52,488.48 sq.m. and 66 living quarters from TCL Real Estate (Huizhou) Co., Ltd. （惠州TCL房地產開發有限公司）, for a lease term commencing on 1 January 2013 and expiring on 31 December 2013 at a monthly rent of RMB523,720.56 exclusive of management fees, water charges, electricity charges and other outgoings.

2. Pursuant to another tenancy agreement provided by the Company, Huizhou TCL Audio Video Electronics Co. Ltd.（惠州TCL音視頻電子有限公司）, a 80%-owned subsidiary of the Company, rented the property with a gross floor area of approximately 12,009.14 square metres from TCL Real Estate (Huizhou) Co., Ltd. (惠州TCL房地產開發有限公司）for a term commencing on 1 January 2013 and expiring on 31 December 2013 at a monthly rent of RMB114,086.83 exclusive of management fees, water charges, electricity charges and other outgoings.

3. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

i. The lessor is unable to provide the relevant building ownership certificate to prove his legal title to the property. If there is a dispute over the ownership of the aforesaid property, it would affect the use of the property. According to terms of the tenancy agreement, the lessor must have the legal rights in order to lease out the property. The lessor is liable to compensate for the loss to the Group in case of the tenancy agreement of the leased property is void;

5.06(1)(r)

I.F.5.06(1)(a)(b)(c)(d)(e)(f)(g)(h)(i)(j).05

APPENDIX III PROPERTY VALUATION

III – 8

VALUATION CERTIFICATE

Property Description and tenure Particulars of occupancy

Market Value in existing state as at

31 May 2013 RMB

3. Factory complex located at

Buzi Industrial Zone,Lilin Town,Huizhou City,Guangdong Province,the PRC.

（廣東省惠州市瀝林鎮埔仔工業區之廠房）

The property comprises a 3 blocks of 2 to 4-storey factory building and an ancillary building completed in about 2011.

The total gross floor area of the property is approximately 25,108 sq.m..

The property is held by the Group under a tenancy for a term commencing on 1 December 2012 and expiring on 30 November 2017 at a tax exclusive monthly rent of RMB251,080 (or a tax inclusive monthly rent of RMB301,296) exclusive of water charges, electricity charges and other outgoings. It is subject to rent review after the third anniversary of the lease term.

The property is occupied by the Group for factory and warehouse purposes.

No commercial value

Notes:

1. Pursuant to a tenancy agreement provided by the Company, Guangdong Regency Optics-Electron Corp. （廣東瑞捷光電股份有限公司）, a 60%-owned subsidiary of the Company, rented the property with a gross floor area of approximately 25,108 sq.m. from Huizhou Dongmeng Real Estate Property Co., Ltd. （惠州市東盟房產置業有限公司）, an Independent Third Party, for a lease term commencing on 1 December 2012 and expiring on 30 November 2017 at a monthly rent of RMB251,080 (or a tax inclusive monthly rent of RMB301,296) exclusive of water charges, electricity charges and other outgoings. It is subject to rent review after the third anniversary of the lease term.

2. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

i. Huizhou Dongmeng Real Estate Property Co., Ltd. has obtained the Building Ownership Certificate of the property and has the right to lease the property;

ii. Guangdong Regency Optics-Electron Corp. has the rights to occupy and use the property and its legal rights under the tenancy agreement are protected by law; and

iii. As confirmed by the Group, the tenancy agreement has not been registered but this will not impair the lessee’s interests under the tenancy agreement.

5.06(1)(r)

I.F.5.06(1) (a)(b)(c)(d)(e)(f)(g)(h)(i)(j).05

APPENDIX III PROPERTY VALUATION

III – 9

VALUATION CERTIFICATE

Property Description and tenure Particulars of occupancy

Market Value in existing state as at

31 May 2013 RMB

4. Factory building located at

Industrial Zone,Lilin Town,Huizhou City,Guangdong Province,the PRC.

（廣東省惠州市瀝林鎮工業區之廠房大樓）

The property comprises a 3-storey factory building completed in about 2004.

The total gross floor area of the property is approximately 15,678 sq.m..

The property is held by the Group under a tenancy for a term commencing on 1 September 2010 and expiring on 31 August 2013 at a monthly rent of RMB66,390 exclusive of water charges, electricity charges and other outgoings.

The property is occupied by the Group for factory and warehouse purposes.

No commercial value

Notes:

1. Pursuant to a tenancy agreement dated 12 July 2010, Guangdong Regency Plastic Co., Ltd. （廣東瑞捷塑膠有限公司）the predecessor of Guangdong Regency Optics-Electron Corp., a 60%-owned subsidiary of the Company, rented the property

with total gross floor area of approximately 15,678 sq.m. from Dingcun Villagers’ Group （定村村民小組）, an Independent Third Party, for a lease term commencing on 1 September 2010 and expiring on 31 August 2013 at a monthly rent of RMB66,390 exclusive of water charges, electricity charges and other outgoings.

2. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

i. As confirmed by the Company, the land use rights of the property are collective-owned;

ii. Pursuant to the regulation of Guangdong Collective-owned land use rights Management Method（廣東省集體建設用地使用權流轉管理辦法）, consensus from two-third or above of the members of the Economic Group Organization（集體經濟組織成員）or the representatives of villagers is required for leasing the property. The aforesaid tenancy agreement of the leased property would be void if the lessor violated the aforesaid regulation;

iii. As confirmed by the PRC legal advisers, Dingcun Villagers’ Group has provided the relevant document to prove that the lessor has obtained the consensus from the members of the Economic Group Organization or the representatives of villagers.

iv. Guangdong Regency Optics-Election Corp. has the rights to occupy and use the property and its legal rights under the tenancy agreement are protected by law; and

v. As confirmed by the Group, the tenancy agreement has not been registered but his will not impair the lessee’s interests under the tenancy agreement.

5.06(1)(r)

I.F.5.06(1) (a)(b)(c)(d)(e)(f)(g)(h)(i)(j).05

APPENDIX III PROPERTY VALUATION

III – 10

VALUATION CERTIFICATE

Property Description and tenure Particulars of occupancy

Market Value in existing state as at

31 May 2013 RMB

5. Room A1001, A1002, A1003, A1006and a room onLevel 10 andBasement 1,Block A,TCL IndustrialResearch Building,No. 006 GaoxinSouth First Road,Nanshan District,Shenzhen City,Guangdong Province,the PRC.

（廣東省南山區高新南一道006號TCL工業研究院大廈A座10樓A1001房、A1002房、A1003房、A1006房、北面靠西側房及地下負一層實驗室）

The property comprises 3 workshop units and a laboratory within a 19-storey (plus 1 basement level) industrial building completed in about 2005.

The total gross floor area of the property is approximately 3,666.88 sq.m..

The property is held by the Group under 3 tenancy agreements with total monthly rent of RMB298,524 exclusive of management fee, water charges, electricity charges and other outgoings expiring on 31 December 2013.

The property is occupied by the Group for ancillary offices and industrial purposes.

No commercial value

Notes:

1. Pursuant to a tenancy agreement dated 27 November 2012, Shenzhen Tongli Science and Technology Development Co., Ltd. （深圳市通力科技開發有限公司）, a 80%-owned subsidiary of the Company, rented Room A1002, A1006 and a room on Level 10 and Basement 1 with a total gross floor area of approximately 2,922.76 sq.m. from TCL Industrial Research Institute Co., Ltd. （深圳TCL工業研究院有限公司）, for a lease term commencing on 1 January 2013 and expiring on 31 December 2013 at a monthly rent of RMB237,506 exclusive of management fee, water charges, electricity charges and other outgoings.

2. Pursuant to a tenancy agreement dated 28 June 2013, Shenzhen Tongli Science and Technology Development Co., Ltd. （深圳市通力科技開發有限公司）, a 80%-owned subsidiary of the Company, rented Unit A1003 with a total gross floor area of approximately 481 sq.m. from TCL Industrial Research Institute Co.,Ltd. （深圳TCL工業研究院有限公司）for a lease term commencing on 3 June 2013 and expiring on 31 December 2013 at a monthly rent of RMB39,442 exclusive of management fee, water charges, electricity charges and other outgoings.

3. Pursuant to a tenancy agreement dated 28 June 2013, Shenzhen Tongli Science and Technology Development Co., Ltd. （深圳市通力科技開發有限公司）, a 80%-owned subsidiary of the Company, rented Unit A1001 with a total gross floor area of approximately 263.12 sq.m. from TCL Industrial Research Institute Co.,Ltd. （深圳TCL工業研究院有限公司）for a lease term commencing on 2 May 2013 and expiring on 31 December 2013 at a monthly rent of RMB21,576 exclusive of management fee, water charges, electricity charges and other outgoings.

4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

i. TCL Industrial Research Institute Co., Ltd. （深圳TCL工業研究院有限公司） has obtained the Building Ownership Certificate of the property and has the right to lease the property;

ii. Shenzhen Tongli Science and Technology Development Co., Ltd. has the rights to occupy and use the property and its legal rights under the tenancy agreement are protected by law; and

iii. As confirmed by the Group, the tenancy agreements have not been registered but this will not impair the lessee’s interests under the tenancy agreement.

5.06(1)(r)

I.F.5.06(1) (a)(b)(c)(d)(e)(f)(g)(h)(i)(j).05

APPENDIX III PROPERTY VALUATION

III – 11

VALUATION CERTIFICATE

Property Description and tenure Particulars of occupancy

Market Value in existing state as at

31 May 2013 RMB

6. Level 5,Yinghuada ResearchandDevelopment Building,No. 50 Jinye First Road,Gaozin District,Xi’an City,Shaanxi Province,the PRC.

（陝西省西安市高新區錦業一路50號英華達研發樓五層）

The property comprises the all office units on Level 5 within a 7-storey (plus 1 basement level) office building completed in 2009.

The gross floor area of the property is approximately 1,686.13 sq.m..

The property is held by the Group under a tenancy for a term commencing on 15 November 2011 and expiring on 14 November 2014 at a monthly rent of RMB84,306.5 exclusive of water charges, electricity charges and other outgoings.

The property is occupied by the Group as offices.

No commercial value

Notes:

1. Pursuant to a tenancy agreement dated 11 November 2011, TCL Technoly Electronics (Huizhou) Co., Ltd. （TCL通力電子（惠州）有限公司）, a 80%-owned subsidiary of the Company, rented the property with a gross floor area of approximately 1,686.13 sq.m. from Yinghuada (Xi’an) Communication Technology Co., Ltd. （英華達（西安）通信科技有限公司）, an Independent Third Party, for a lease term commencing on 15 November 2011 and expiring on 14 November 2014 at a monthly rent of RMB84,306.5 exclusive of water charges, electricity charges and other outgoings.

2. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:

i. Yinghuada (Xi’an) Communication Technology Co., Ltd. has obtained the Building Ownership Certificate of the property and has right to lease the property;

ii. TCL Technology Electronics (Huizhou) Co., Ltd. has the right to occupy and use the property and its legal rights under the tenancy agreement are protected by law; and

iii. As confirmed by the Group, the tenancy agreement has not been registered but this will not impair the lessee’s interests under the tenancy agreement.

5.06(1)(r)

I.F.5.06(1) (a)(b)(c)(d)(e)(f)(g)(h)(i)(j).05

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 1

Set out below is a summary of certain provisions of the memorandum of association and the

Articles of our Company and of certain aspects of Cayman Islands company law.

SUMMARY OF THE CONSTITUTION OF THE COMPANY

1. Memorandum of Association

The Memorandum of Association of the Company was adopted on 12 July 2013 and states, inter

alia, that the liability of the members of the Company is limited, that the objects for which the Company

is established are unrestricted and the Company shall have full power and authority to carry out any object

not prohibited by the Companies Law or any other law of the Cayman Islands.

The Memorandum of Association is available for inspection at the address specified in Appendix

VI in the section headed “Documents Available for Inspection”.

2. Articles of Association

The Articles of Association of the Company were adopted on 12 July 2013 and include provisions

to the following effect:

2.1 Classes of Shares

The share capital of the Company consists of ordinary shares. The capital of the Company at the

date of adoption of the Articles is HK$500,000,000 divided into 500,000,000 shares of HK$1.00 each.

2.2 Directors

(a) Power to issue and allot Shares

Subject to the provisions of the Companies Law and the Memorandum and Articles of

Association, the unissued shares in the Company (whether forming part of its original or any

increased capital) shall be at the disposal of the Directors, who may offer, allot, grant options over

or otherwise dispose of them to such persons, at such times and for such consideration, and upon

such terms, as the Directors shall determine.

Subject to the provisions of the Articles of Association and to any direction that may be

given by the Company in general meeting and without prejudice to any special rights conferred on

the holders of any existing shares or attaching to any class of shares, any share may be issued with

or have attached thereto such preferred, deferred, qualified or other special rights or restrictions,

whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such

times and for such consideration as the Directors may determine. Subject to the Companies Law

and to any special rights conferred on any shareholders or attaching to any class of shares, any

share may, with the sanction of a special resolution, be issued on terms that it is, or at the option of

the Company or the holder thereof, liable to be redeemed.

LR 19.08(3)LR 19.10(2)

App 3r.9

App 3r.6(1)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 2

(b) Power to dispose of the assets of the Company or any subsidiary

The management of the business of the Company shall be vested in the Directors who, in

addition to the powers and authorities by the Articles of Association expressly conferred upon

them, may exercise all such powers and do all such acts and things as may be exercised or done

or approved by the Company and are not by the Articles of Association or the Companies Law

expressly directed or required to be exercised or done by the Company in general meeting, but

subject nevertheless to the provisions of the Companies Law and of the Articles of Association and

to any regulation from time to time made by the Company in general meeting not being inconsistent

with such provisions or the Articles of Association, provided that no regulation so made shall

invalidate any prior act of the Directors which would have been valid if such regulation had not

been made.

(c) Compensation or payment for loss of office

Payment to any Director or past Director of any sum by way of compensation for loss of

office or as consideration for or in connection with his retirement from office (not being a payment

to which the Director is contractually entitled) must first be approved by the Company in general

meeting.

(d) Loans to Directors

There are provisions in the Articles of Association prohibiting the making of loans to

Directors or their respective associates which are equivalent to the restrictions imposed by the

Companies Ordinance.

(e) Financial assistance to purchase Shares

Subject to all applicable laws, the Company may give financial assistance to Directors

and employees of the Company, its subsidiaries or any holding company or any subsidiary of

such holding company in order that they may buy shares in the Company or any such subsidiary

or holding company. Further, subject to all applicable laws, the Company may give financial

assistance to a trustee for the acquisition of shares in the Company or shares in any such subsidiary

or holding company to be held for the benefit of employees of the Company, its subsidiaries,

any holding company of the Company or any subsidiary of any such holding company (including

salaried Directors).

(f) Disclosure of interest in contracts with the Company or any of its subsidiaries

No Director or proposed Director shall be disqualified by his office from contracting with

the Company either as vendor, purchaser or otherwise nor shall any such contract or any contract or

arrangement entered into by or on behalf of the Company with any person, company or partnership

of or in which any Director shall be a member or otherwise interested be capable on that account

of being avoided, nor shall any Director so contracting or being any member or so interested be

liable to account to the Company for any profit so realised by any such contract or arrangement by

App 13Br.5(4)

App 13Br.5(2)

App 13Br.5(3)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 3

reason only of such Director holding that office or the fiduciary relationship thereby established,

provided that such Director shall, if his interest in such contract or arrangement is material, declare

the nature of his interest at the earliest meeting of the board of Directors at which it is practicable

for him to do so, either specifically or by way of a general notice stating that, by reason of the facts

specified in the notice, he is to be regarded as interested in any contracts of a specified description

which may be made by the Company.

A Director shall not be entitled to vote on (nor shall be counted in the quorum in relation to)

any resolution of the Directors in respect of any contract or arrangement or any other proposal in

which the Director or any of his associates has any material interest, and if he shall do so his vote

shall not be counted (nor is he to be counted in the quorum for the resolution), but this prohibition

shall not apply to any of the following matters, namely:

(i) the giving to such Director or any of his associates of any security or indemnity in

respect of money lent or obligations incurred or undertaken by him or any of them at

the request of or for the benefit of the Company or any of its subsidiaries;

(ii) the giving of any security or indemnity to a third party in respect of a debt or

obligation of the Company or any of its subsidiaries for which the Director or any of

his associates has himself/themselves assumed responsibility in whole or in part and

whether alone or jointly under a guarantee or indemnity or by the giving of security;

(iii) any proposal concerning an offer of shares, debentures or other securities of or by the

Company or any other company which the Company may promote or be interested in

for subscription or purchase where the Director or any of his associates is/are or is/are

to be interested as a participant in the underwriting or sub-underwriting of the offer;

(iv) any proposal or arrangement concerning the benefit of employees of the Company or

any of its subsidiaries including:

(A) the adoption, modification or operation of any employees’ share scheme or any

share incentive scheme or share option scheme under which the Director or any

of his associates may benefit; or

(B) the adoption, modification or operation of a pension or provident fund or

retirement, death or disability benefits scheme which relates both to Directors,

their associates and employees of the Company or any of its subsidiaries and

does not provide in respect of any Director or any of his associates, as such any

privilege or advantage not generally accorded to the class of persons to which

such scheme or fund relates; and

(v) any contract or arrangement in which the Director or any of his associates is/are

interested in the same manner as other holders of shares or debentures or other

securities of the Company by virtue only of his/their interest in shares or debentures or

other securities of the Company.

A1A 7(1)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 4

(g) Remuneration

The Directors shall be entitled to receive by way of remuneration for their services such sum

as shall from time to time be determined by the Directors, or the Company in general meeting, as

the case may be, such sum (unless otherwise directed by the resolution by which it is determined)

to be divided amongst the Directors in such proportions and in such manner as they may agree,

or failing agreement, equally, except that in such event any Director holding office for less than

the whole of the relevant period in respect of which the remuneration is paid shall only rank in

such division in proportion to the time during such period for which he has held office. Such

remuneration shall be in addition to any other remuneration to which a Director who holds any

salaried employment or office in the Company may be entitled by reason of such employment or

office.

The Directors shall also be entitled to be paid all expenses, including travel expenses,

reasonably incurred by them in or in connection with the performance of their duties as Directors

including their expenses of travelling to and from board meetings, committee meetings or general

meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge

of their duties as Directors.

The Directors may grant special remuneration to any Director who shall perform any special

or extra services at the request of the Company. Such special remuneration may be made payable to

such Director in addition to or in substitution for his ordinary remuneration as a Director, and may

be made payable by way of salary, commission or participation in profits or otherwise as may be

agreed.

The remuneration of an executive Director or a Director appointed to any other office in the

management of the Company shall from time to time be fixed by the Directors and may be by way

of salary, commission or participation in profits or otherwise or by all or any of those modes and

with such other benefits (including share option and/or pension and/or gratuity and/or other benefits

on retirement) and allowances as the Directors may from time to time decide. Such remuneration

shall be in addition to such remuneration as the recipient may be entitled to receive as a Director.

(h) Retirement, appointment and removal

The Directors shall have power at any time and from time to time to appoint any person to be

a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director

so appointed shall hold office only until the next general meeting of the Company and shall then be

eligible for re-election at that meeting.

The Company may by ordinary resolution remove any Director (including a Managing

Director or other executive Director) before the expiration of his period of office notwithstanding

anything in the Articles of Association or in any agreement between the Company and such

Director (but without prejudice to any claim for compensation or damages payable to him in respect

of the termination of his appointment as Director or of any other appointment of office as a result

of the termination of this appointment as Director). The Company may by ordinary resolution

A1A 7(2)3rd Sch 5

App 3r.4(2)

App 3r.4(3)App 13Br.5(1)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 5

appoint another person in his place. Any Director so appointed shall hold office during such time

only as the Director in whose place he is appointed would have held the same if he had not been

removed. The Company may also by ordinary resolution elect any person to be a Director, either

to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall

hold office only until the next following general meeting of the Company and shall then be eligible

for re-election but shall not be taken into account in determining the Directors who are to retire

by rotation at such meeting. No person shall, unless recommended by the Directors, be eligible

for election to the office of Director at any general meeting unless, during the period, which shall

be at least seven days, commencing no earlier than the day after the despatch of the notice of the

meeting appointed for such election and ending no later than seven days prior to the date of such

meeting, there has been given to the Secretary of the Company notice in writing by a member of the

Company (not being the person to be proposed) entitled to attend and vote at the meeting for which

such notice is given of his intention to propose such person for election and also notice in writing

signed by the person to be proposed of his willingness to be elected.

There is no shareholding qualification for Directors nor is there any specified age limit for

Directors.

The office of a Director shall be vacated:

(i) if he resigns his office by notice in writing to the Company at its registered office or

its principal office in Hong Kong;

(ii) if an order is made by any competent court or official on the grounds that he is or may

be suffering from mental disorder or is otherwise incapable of managing his affairs

and the Directors resolve that his office be vacated;

(iii) if, without leave, he is absent from meetings of the Directors (unless an alternate

Director appointed by him attends) for 12 consecutive months, and the Directors

resolve that his office be vacated;

(iv) if he becomes bankrupt or has a receiving order made against him or suspends

payment or compounds with his creditors generally;

(v) if he ceases to be or is prohibited from being a Director by law or by virtue of any

provision in the Articles of Association;

(vi) if he is removed from office by notice in writing served upon him signed by not less

than three-fourths in number (or, if that is not a round number, the nearest lower round

number) of the Directors (including himself) for the time being then in office; or

(vii) if he shall be removed from office by an ordinary resolution of the members of the

Company under the Articles of Association.

App 3r.4(4)

App 3r.4(5)

A1A 7(4)A1A 7(5)

App 3r.4(3)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 6

At every annual general meeting of the Company one-third of the Directors for the time

being, or, if their number is not three or a multiple of three, then the number nearest to, but not less

than, one-third, shall retire from office by rotation, provided that every Director (including those

appointed for a specific term) shall be subject to retirement by rotation at least once every three

years. A retiring Director shall retain office until the close of the meeting at which he retires and

shall be eligible for re-election thereat. The Company at any annual general meeting at which any

Directors retire may fill the vacated office by electing a like number of persons to be Directors.

(i) Borrowing powers

The Directors may from time to time at their discretion exercise all the powers of the

Company to raise or borrow or to secure the payment of any sum or sums of money for the

purposes of the Company and to mortgage or charge its undertaking, property and assets (present

and future) and uncalled capital or any part thereof.

(j) Proceedings of the Board

The Directors may meet together for the despatch of business, adjourn and otherwise regulate

their meetings and proceedings as they think fit in any part of the world. Questions arising at any

meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman

of the meeting shall have a second or casting vote.

2.3 Alteration to constitutional documents

No alteration or amendment to the Memorandum or Articles of Association may be made except by

special resolution.

2.4 Variation of rights of existing shares or classes of shares

If at any time the share capital of the Company is divided into different classes of shares, all or any

of the rights attached to any class of shares for the time being issued (unless otherwise provided for in the

terms of issue of the shares of that class) may, subject to the provisions of the Companies Law, be varied

or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal

value of the issued shares of that class or with the sanction of a special resolution passed at a separate

meeting of the holders of the shares of that class. To every such separate meeting all the provisions of the

Articles of Association relating to general meetings shall mutatis mutandis apply, but so that the quorum

for the purposes of any such separate meeting and of any adjournment thereof shall be a person or persons

together holding (or representing by proxy or duly authorised representative) at the date of the relevant

meeting not less than one-third in nominal value of the issued shares of that class.

The special rights conferred upon the holders of shares of any class shall not, unless otherwise

expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied

by the creation or issue of further shares ranking pari passu therewith.

A1A 7(3)3rd Sch 22

App 13Br.1

A1A 25(3)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 7

2.5 Alteration of capital

The Company in general meeting may, from time to time, whether or not all the shares for the time

being authorised shall have been issued and whether or not all the shares for the time being issued shall

have been fully paid up, by ordinary resolution, increase its share capital by the creation of new shares,

such new capital to be of such amount and to be divided into shares of such respective amounts as the

resolution shall prescribe.

The Company may from time to time by ordinary resolution:

(a) consolidate and divide all or any of its share capital into shares of a larger amount than its

existing shares. On any consolidation of fully paid shares and division into shares of larger

amount, the Directors may settle any difficulty which may arise as they think expedient and

in particular (but without prejudice to the generality of the foregoing) may as between the

holders of shares to be consolidated determine which particular shares are to be consolidated

into each consolidated share, and if it shall happen that any person shall become entitled

to fractions of a consolidated share or shares, such fractions may be sold by some person

appointed by the Directors for that purpose and the person so appointed may transfer

the shares so sold to the purchaser thereof and the validity of such transfer shall not be

questioned, and so that the net proceeds of such sale (after deduction of the expenses of

such sale) may either be distributed among the persons who would otherwise be entitled to a

fraction or fractions of a consolidated share or shares rateably in accordance with their rights

and interests or may be paid to the Company for the Company’s benefit;

(b) cancel any shares which at the date of the passing of the resolution have not been taken or

agreed to be taken by any person, and diminish the amount of its share capital by the amount

of the shares so cancelled subject to the provisions of the Companies Law; and

(c) sub-divide its shares or any of them into shares of smaller amount than is fixed by the

Memorandum of Association, subject nevertheless to the provisions of the Companies Law,

and so that the resolution whereby any share is sub-divided may determine that, as between

the holders of the shares resulting from such sub-division, one or more of the shares may

have any such preferred or other special rights, over, or may have such deferred rights or be

subject to any such restrictions as compared with the others as the Company has power to

attach to unissued or new shares.

The Company may by special resolution reduce its share capital or any capital redemption

reserve in any manner authorised and subject to any conditions prescribed by the Companies Law.

A1A 7(6)A1A 7(9)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 8

2.6 Special resolution – majority required

A “special resolution” is defined in the Articles of Association to have the meaning ascribed thereto

in the Companies Law, for which purpose, the requisite majority shall be not less than three-fourths of

the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of

corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general

meeting of which notice specifying the intention to propose the resolution as a special resolution has been

duly given and includes a special resolution approved in writing by all of the members of the Company

entitled to vote at a general meeting of the Company in one or more instruments each signed by one or

more of such members, and the effective date of the special resolution so adopted shall be the date on

which the instrument or the last of such instruments (if more than one) is executed.

In contrast, an “ordinary resolution” is defined in the Articles of Association to mean a resolution

passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote

in person or, in the case of corporations, by their duly authorised representatives or, where proxies are

allowed, by proxy at a general meeting held in accordance with the Articles of Association and includes

an ordinary resolution approved in writing by all the members of the Company aforesaid.

2.7 Voting rights

Subject to any special rights, privileges or restrictions as to voting for the time being attached to

any class or classes of shares, at any general meeting on a poll every member present in person (or, in the

case of a member being a corporation, by its duly authorised representative) or by proxy shall have one

vote for each share registered in his name in the register of members of the Company.

Where any member is, under the Listing Rules, required to abstain from voting on any particular

resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on

behalf of such member in contravention of such requirement or restriction shall not be counted.

In the case of joint registered holders of any share, any one of such persons may vote at any

meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if

more than one of such joint holders be present at any meeting personally or by proxy, that one of the said

persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in

respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the

order in which the names of the joint holders stand on the register in respect of the relevant joint holding.

A member of the Company in respect of whom an order has been made by any competent court or

official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of

managing his affairs may vote by any person authorised in such circumstances to do so and such person

may vote by proxy.

Save as expressly provided in the Articles of Association or as otherwise determined by the

Directors, no person other than a member of the Company duly registered and who shall have paid all

sums for the time being due from him payable to the Company in respect of his shares shall be entitled to

be present or to vote (save as proxy for another member of the Company), or to be reckoned in a quorum,

either personally or by proxy at any general meeting.

App 13Br.1

A1A 25(1)

App 3r.14

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 9

At any general meeting a resolution put to the vote of the meeting shall be decided by way of a

poll save that the chairman of the meeting may allow a resolution which relates purely to a procedural or

administrative matter as prescribed under the Listing Rules to be voted on by a show of hands.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise

such person or persons as it thinks fit to act as its proxy(ies) or representative(s) at any general meeting

of the Company or at any general meeting of any class of members of the Company provided that, if more

than one person is so authorised, the authorisation shall specify the number and class of shares in respect

of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled

to exercise the same rights and powers on behalf of the recognised clearing house (or its nominee(s))

which he represents as that recognised clearing house (or its nominee(s)) could exercise as if it were an

individual member of the Company holding the number and class of shares specified in such authorisation,

including, where a show of hands is allowed, the right to vote individually on a show of hands.

2.8 Annual general meetings

The Company shall in each year hold a general meeting as its annual general meeting in addition

to any other general meeting in that year and shall specify the meeting as such in the notice calling it;

and not more than 15 months (or such longer period as the Stock Exchange may authorise) shall elapse

between the date of one annual general meeting of the Company and that of the next.

2.9 Accounts and audit

The Directors shall cause to be kept such books of account as are necessary to give a true and

fair view of the state of the Company’s affairs and to show and explain its transactions and otherwise in

accordance with the Companies Law.

The Directors shall from time to time determine whether, and to what extent, and at what times and

places and under what conditions or regulations, the accounts and books of the Company, or any of them,

shall be open to the inspection of members of the Company (other than officers of the Company) and

no such member shall have any right of inspecting any accounts or books or documents of the Company

except as conferred by the Companies Law or any other relevant law or regulation or as authorised by the

Directors or by the Company in general meeting.

The Directors shall, commencing with the first annual general meeting, cause to be prepared and

to be laid before the members of the Company at every annual general meeting a profit and loss account

for the period, in the case of the first account, since the incorporation of the Company and, in any other

case, since the preceding account, together with a balance sheet as at the date to which the profit and loss

account is made up and a Director’s report with respect to the profit or loss of the Company for the period

covered by the profit and loss account and the state of the Company’s affairs as at the end of such period,

an auditor’s report on such accounts and such other reports and accounts as may be required by law.

Copies of those documents to be laid before the members of the Company at an annual general meeting

shall not less than 21 days before the date of the meeting, be sent in the manner in which notices may

be served by the Company as provided in the Articles of Association to every member of the Company

and every holder of debentures of the Company provided that the Company shall not be required to send

App 13Br.6

App 13Br.3(3)r.4(2)

App 13Br.4(1)

App 13Br.3(3)

App 3r.5

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 10

copies of those documents to any person of whose address the Company is not aware or to more than one

of the joint holders of any shares or debentures.

The Company shall at any annual general meeting appoint an auditor or auditors of the Company

who shall hold office until the next annual general meeting. The remuneration of the auditors shall be

fixed by the Company at the annual general meeting at which they are appointed provided that in respect

of any particular year the Company in general meeting may delegate the fixing of such remuneration to

the Directors.

2.10 Notice of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting called for the passing of a special

resolution shall be called by not less than 21 days’ notice in writing and any other extraordinary general

meeting shall be called by not less than 14 days’ notice in writing. The notice shall be inclusive of the day

on which it is served or deemed to be served and of the day for which it is given, and shall specify the

time, place and agenda of the meeting, particulars of the resolutions to be considered at the meeting and,

in the case of special business, the general nature of that business. The notice convening an annual general

meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution

shall specify the intention to propose the resolution as a special resolution. Notice of every general

meeting shall be given to the auditors and all members of the Company (other than those who, under the

provisions of the Articles of Association or the terms of issue of the shares they hold, are not entitled to

receive such notice from the Company).

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned

above, it shall be deemed to have been duly called if it is so agreed:

(a) in the case of a meeting called as an annual general meeting, by all members of the Company

entitled to attend and vote thereat or their proxies; and

(b) in the case of any other meeting, by a majority in number of the members having a right

to attend and vote at the meeting, being a majority together holding not less than 95% in

nominal value of the shares giving that right.

All business shall be deemed special that is transacted at an extraordinary general meeting and also

all business shall be deemed special that is transacted at an annual general meeting with the exception of

the following, which shall be deemed ordinary business:

(a) the declaration and sanctioning of dividends;

(b) the consideration and adoption of the accounts and balance sheets and the reports of the

Directors and the auditors and other documents required to be annexed to the balance sheet;

(c) the election of Directors in place of those retiring;

(d) the appointment of auditors;

App 13Br.3(1)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 11

(e) the fixing of, or the determining of the method of fixing of, the remuneration of the Directors

and of the auditors;

(f) the granting of any mandate or authority to the Directors to offer, allot, grant options over or

otherwise dispose of the unissued shares of the Company representing not more than 20% (or

such other percentage as may from time to time be specified in the Listing Rules) in nominal

value of its then existing issued share capital and the number of any securities repurchased

pursuant to sub-paragraph (g) below; and

(g) the granting of any mandate or authority to the Directors to repurchase securities of the

Company.

2.11 Transfer of shares

Transfers of shares may be effected by an instrument of transfer in the usual common form or in

such other form as the Directors may approve which is consistent with the standard form of transfer as

prescribed by the Stock Exchange.

The instrument of transfer shall be executed by or on behalf of the transferor and, unless the

Directors otherwise determine, the transferee, and the transferor shall be deemed to remain the holder of

the share until the name of the transferee is entered in the register of members of the Company in respect

thereof. All instruments of transfer shall be retained by the Company.

The Directors may refuse to register any transfer of any share which is not fully paid up or on

which the Company has a lien. The Directors may also decline to register any transfer of any shares

unless:

(a) the instrument of transfer is lodged with the Company accompanied by the certificate for

the shares to which it relates (which shall upon the registration of the transfer be cancelled)

and such other evidence as the Directors may reasonably require to show the right of the

transferor to make the transfer;

(b) the instrument of transfer is in respect of only one class of shares;

(c) the instrument of transfer is properly stamped (in circumstances where stamping is required);

(d) in the case of a transfer to joint holders, the number of joint holders to whom the share is to

be transferred does not exceed four;

(e) the shares concerned are free of any lien in favour of the Company; and

(f) a fee of such maximum as the Stock Exchange may from time to time determine to be

payable (or such lesser sum as the Directors may from time to time require) is paid to the

Company in respect thereof.

A1A 7(8)LR 8.13

App 3r.1(1)r.1(2)

App 3r.1(3)

App 3r.1(2)

App 3r.1(1)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 12

If the Directors refuse to register a transfer of any share they shall, within two months after the

date on which the transfer was lodged with the Company, send to each of the transferor and the transferee

notice of such refusal.

The registration of transfers may, on 14 days’ notice being given by advertisement published on the

Stock Exchange’s website, or, subject to the Listing Rules, by electronic communication in the manner

in which notices may be served by the Company by electronic means as provided in the Articles of

Association or by advertisement published in the newspapers, be suspended and the register of members

of the Company closed at such times for such periods as the Directors may from time to time determine,

provided that the registration of transfers shall not be suspended or the register closed for more than

30 days in any year (or such longer period as the members of the Company may by ordinary resolution

determine provided that such period shall not be extended beyond 60 days in any year).

2.12 Power of the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles of Association to purchase its

own shares subject to certain restrictions and the Directors may only exercise this power on behalf of the

Company subject to the authority of its members in general meeting as to the manner in which they do so

and to any applicable requirements imposed from time to time by the Stock Exchange and the Securities

and Futures Commission of Hong Kong. Shares which have been repurchased will be treated as cancelled

upon the repurchase.

2.13 Power of any subsidiary of the Company to own shares

There are no provisions in the Articles of Association relating to the ownership of shares by a

subsidiary.

2.14 Dividends and other methods of distribution

Subject to the Companies Law and Articles of Association, the Company in general meeting

may declare dividends in any currency but no dividends shall exceed the amount recommended by the

Directors. No dividend may be declared or paid other than out of profits and reserves of the Company

lawfully available for distribution, including share premium.

Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise

provide, all dividends shall (as regards any shares not fully paid throughout the period in respect of which

the dividend is paid) be apportioned and paid pro rata according to the amounts paid up on the shares

during any portion or portions of the period in respect of which the dividend is paid. For these purposes no

amount paid up on a share in advance of calls shall be treated as paid up on the share.

The Directors may from time to time pay to the members of the Company such interim dividends

as appear to the Directors to be justified by the profits of the Company. The Directors may also pay half-

yearly or at other intervals to be selected by them at a fixed rate if they are of the opinion that the profits

available for distribution justify the payment.

App 3r.3(1)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 13

The Directors may retain any dividends or other moneys payable on or in respect of a share upon

which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities

or engagements in respect of which the lien exists. The Directors may also deduct from any dividend or

other moneys payable to any member of the Company all sums of money (if any) presently payable by him

to the Company on account of calls, instalments or otherwise.

No dividend shall carry interest against the Company.

Whenever the Directors or the Company in general meeting have resolved that a dividend be paid

or declared on the share capital of the Company, the Directors may further resolve: (a) that such dividend

be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up on the basis

that the shares so allotted are to be of the same class as the class already held by the allottee, provided

that the members of the Company entitled thereto will be entitled to elect to receive such dividend (or

part thereof) in cash in lieu of such allotment; or (b) that the members of the Company entitled to such

dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of

the whole or such part of the dividend as the Directors may think fit on the basis that the shares so

allotted are to be of the same class as the class already held by the allottee. The Company may upon the

recommendation of the Directors by ordinary resolution resolve in respect of any one particular dividend

of the Company that notwithstanding the foregoing a dividend may be satisfied wholly in the form of an

allotment of shares credited as fully paid without offering any right to members of the Company to elect to

receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to a holder of shares may be paid by cheque or

warrant sent through the post addressed to the registered address of the member of the Company entitled,

or in the case of joint holders, to the registered address of the person whose name stands first in the

register of members of the Company in respect of the joint holding or to such person and to such address

as the holder or joint holders may in writing direct. Every cheque or warrant so sent shall be made payable

to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first

on the register of members of the Company in respect of such shares, and shall be sent at his or their risk

and the payment of any such cheque or warrant by the bank on which it is drawn shall operate as a good

discharge to the Company in respect of the dividend and/or bonus represented thereby, notwithstanding

that it may subsequently appear that the same has been stolen or that any endorsement thereon has been

forged. The Company may cease sending such cheques for dividend entitlements or dividend warrants

by post if such cheques or warrants have been left uncashed on two consecutive occasions. However, the

Company may exercise its power to cease sending cheques for dividend entitlements or dividend warrants

after the first occasion on which such a cheque or warrant is returned undelivered. Any one of two or

more joint holders may give effectual receipts for any dividends or other moneys payable or property

distributable in respect of the shares held by such joint holders.

Any dividend unclaimed for six years from the date of declaration of such dividend may be

forfeited by the Directors and shall revert to the Company.

App 3r.13(1)

A1A 7(7)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 14

The Directors may, with the sanction of the members of the Company in general meeting, direct

that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and

in particular of paid up shares, debentures or warrants to subscribe securities of any other company,

and where any difficulty arises in regard to such distribution the Directors may settle it as they think

expedient, and in particular may disregard fractional entitlements, round the same up or down or provide

that the same shall accrue to the benefit of the Company, and may fix the value for distribution of such

specific assets and may determine that cash payments shall be made to any members of the Company upon

the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific

assets in trustees as may seem expedient to the Directors.

2.15 Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company shall be

entitled to appoint another person who must be an individual as his proxy to attend and vote instead of

him and a proxy so appointed shall have the same right as the member to speak at the meeting. A proxy

need not be a member of the Company.

Instruments of proxy shall be in common form or in such other form as the Directors may from time

to time approve provided that it shall enable a member to instruct his proxy to vote in favour of or against

(or in default of instructions or in the event of conflicting instructions, to exercise his discretion in respect

of) each resolution to be proposed at the meeting to which the form of proxy relates. The instrument of

proxy shall be deemed to confer authority to vote on any amendment of a resolution put to the meeting

for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated

therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates provided

that the meeting was originally held within 12 months from such date.

The instrument appointing a proxy shall be in writing under the hand of the appointor or his

attorney authorised in writing or if the appointor is a corporation either under its seal or under the hand of

an officer, attorney or other person authorised to sign the same.

The instrument appointing a proxy and (if required by the Directors) the power of attorney or other

authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall

be delivered at the registered office of the Company (or at such other place as may be specified in the

notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent

therewith) not less than 48 hours before the time appointed for holding the meeting or adjourned meeting

at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently

to the date of a meeting or adjourned meeting, not less than 48 hours before the time appointed for the

taking of the poll and in default the instrument of proxy shall not be treated as valid. No instrument

appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of

its execution. Delivery of any instrument appointing a proxy shall not preclude a member of the Company

from attending and voting in person at the meeting or poll concerned and, in such event, the instrument

appointing a proxy shall be deemed to be revoked.

App 13Br.2(2)

App 3r.11(1)

App 3r.11(2)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 15

2.16 Calls on shares and forfeiture of shares

The Directors may from time to time make calls upon the members of the Company in respect of

any moneys unpaid on their shares (whether on account of the nominal amount of the shares or by way

of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed times and

each member of the Company shall (subject to the Company serving upon him at least 14 days’ notice

specifying the time and place of payment and to whom such payment shall be made) pay to the person

at the time and place so specified the amount called on his shares. A call may be revoked or postponed

as the Directors may determine. A person upon whom a call is made shall remain liable on such call

notwithstanding the subsequent transfer of the shares in respect of which the call was made.

A call may be made payable either in one sum or by instalments and shall be deemed to have been

made at the time when the resolution of the Directors authorising the call was passed. The joint holders of

a share shall be jointly and severally liable to pay all calls and instalments due in respect of such share or

other moneys due in respect thereof.

If a sum called in respect of a share shall not be paid before or on the day appointed for payment

thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed for

payment thereof to the time of actual payment at such rate, not exceeding 15% per annum, as the Directors

may determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part.

If any call or instalment of a call remains unpaid on any share after the day appointed for payment

thereof, the Directors may at any time during such time as any part thereof remains unpaid serve a notice

on the holder of such shares requiring payment of so much of the call or instalment as is unpaid together

with any interest which may be accrued and which may still accrue up to the date of actual payment.

The notice shall name a further day (not being less than 14 days from the date of service of the

notice) on or before which, and the place where, the payment required by the notice is to be made, and

shall state that in the event of non-payment at or before the time and at the place appointed, the shares in

respect of which such call was made or instalment is unpaid will be liable to be forfeited.

If the requirements of such notice are not complied with, any share in respect of which such notice

has been given may at any time thereafter, before payment of all calls or instalments and interest due in

respect thereof has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture

shall include all dividends and bonuses declared in respect of the forfeited shares and not actually paid

before the forfeiture. A forfeited share shall be deemed to be the property of the Company and may be re-

allotted, sold or otherwise disposed of.

A person whose shares have been forfeited shall cease to be a member of the Company in respect

of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all

moneys which at the date of forfeiture were payable by him to the Company in respect of the shares,

together with (if the Directors shall in their discretion so require) interest thereon at such rate not

exceeding 15% per annum as the Directors may prescribe from the date of forfeiture until payment, and

the Directors may enforce payment thereof without being under any obligation to make any allowance for

the value of the shares forfeited, at the date of forfeiture.

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 16

2.17 Inspection of register of members

The register of members of the Company shall be kept in such manner as to show at all times the

members of the Company for the time being and the shares respectively held by them. The register may,

on 14 days’ notice being given by advertisement published on the Stock Exchange’s website, or, subject

to the Listing Rules, by electronic communication in the manner in which notices may be served by the

Company by electronic means as provided in the Articles of Association or by advertisement published

in the newspapers, be closed at such times and for such periods as the Directors may from time to time

determine either generally or in respect of any class of shares, provided that the register shall not be

closed for more than 30 days in any year (or such longer period as the members of the Company may

by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any

year).

Any register of members kept in Hong Kong shall during normal business hours (subject to

such reasonable restrictions as the Directors may impose) be open to inspection by any member of the

Company without charge and by any other person on payment of such fee not exceeding HK$2.50 (or

such higher amount as may from time to time be permitted under the Listing Rules) as the Directors may

determine for each inspection.

2.18 Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting

proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election

of a chairman which shall not be treated as part of the business of the meeting.

Two members of the Company present in person or by proxy shall be a quorum provided always

that if the Company has only one member of record the quorum shall be that one member present in

person or by proxy.

A corporation being a member of the Company shall be deemed for the purpose of the Articles of

Association to be present in person if represented by its duly authorised representative being the person

appointed by resolution of the directors or other governing body of such corporation or by power of

attorney to act as its representative at the relevant general meeting of the Company or at any relevant

general meeting of any class of members of the Company.

The quorum for a separate general meeting of the holders of a separate class of shares of the

Company is described in paragraph 2.4 above.

2.19 Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles of Association concerning the rights of minority

shareholders in relation to fraud or oppression.

App 13Br.3(2)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 17

2.20 Procedure on liquidation

If the Company shall be wound up, and the assets available for distribution amongst the members

of the Company as such shall be insufficient to repay the whole of the paid-up capital, such assets shall

be distributed so that, as nearly as may be, the losses shall be borne by the members of the Company

in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the

winding up on the shares held by them respectively. And if in a winding up the assets available for

distribution amongst the members of the Company shall be more than sufficient to repay the whole of

the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the

members of the Company in proportion to the capital paid up at the commencement of the winding up on

the shares held by them respectively. The foregoing is without prejudice to the rights of the holders of

shares issued upon special terms and conditions.

If the Company shall be wound up, the liquidator may with the sanction of a special resolution of

the Company and any other sanction required by the Companies Law, divide amongst the members of the

Company in specie or kind the whole or any part of the assets of the Company (whether they shall consist

of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any

property to be divided as aforesaid and may determine how such division shall be carried out as between

the members or different classes of members of the Company. The liquidator may, with the like sanction,

vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members of the

Company as the liquidator, with the like sanction and subject to the Companies Law, shall think fit, but

so that no member of the Company shall be compelled to accept any assets, shares or other securities in

respect of which there is a liability.

2.21 Untraceable members

The Company shall be entitled to sell any shares of a member of the Company or the shares to

which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if: (a) all

cheques or warrants, not being less than three in number, for any sums payable in cash to the holder of

such shares have remained uncashed for a period of 12 years; (b) the Company has not during that time

or before the expiry of the three month period referred to in (d) below received any indication of the

whereabouts or existence of the member; (c) during the 12 year period, at least three dividends in respect

of the shares in question have become payable and no dividend during that period has been claimed by

the member; and (d) upon expiry of the 12 year period, the Company has caused an advertisement to be

published in the newspapers or subject to the Listing Rules, by electronic communication in the manner

in which notices may be served by the Company by electronic means as provided in the Articles of

Association, giving notice of its intention to sell such shares and a period of three months has elapsed

since such advertisement and the Stock Exchange has been notified of such intention. The net proceeds of

any such sale shall belong to the Company and upon receipt by the Company of such net proceeds it shall

become indebted to the former member for an amount equal to such net proceeds.

App 3r.13(2)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 18

SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION

1. Introduction

The Companies Law is derived, to a large extent, from the older Companies Acts of England,

although there are significant differences between the Companies Law and the current Companies Act of

England. Set out below is a summary of certain provisions of the Companies Law, although this does not

purport to contain all applicable qualifications and exceptions or to be a complete review of all matters

of corporate law and taxation which may differ from equivalent provisions in jurisdictions with which

interested parties may be more familiar.

2. Incorporation

The Company was incorporated in the Cayman Islands as an exempted company with limited

liability on 8 February 2013 under the Companies Law. As such, its operations must be conducted mainly

outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar

of Companies of the Cayman Islands and pay a fee which is based on the size of its authorised share

capital.

3. Share Capital

The Companies Law permits a company to issue ordinary shares, preference shares, redeemable

shares or any combination thereof.

The Companies Law provides that where a company issues shares at a premium, whether for

cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares shall

be transferred to an account called the “share premium account”. At the option of a company, these

provisions may not apply to premia on shares of that company allotted pursuant to any arrangement in

consideration of the acquisition or cancellation of shares in any other company and issued at a premium.

The Companies Law provides that the share premium account may be applied by a company, subject to

the provisions, if any, of its memorandum and articles of association, in such manner as the company may

from time to time determine including, but without limitation:

(a) paying distributions or dividends to members;

(b) paying up unissued shares of the company to be issued to members as fully paid bonus

shares;

(c) in the redemption and repurchase of shares (subject to the provisions of section 37 of the

Companies Law);

(d) writing-off the preliminary expenses of the company;

(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of

shares or debentures of the company; and

LR19.10(3)S.342(1)(a)(i)

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 19

(f) providing for the premium payable on redemption or purchase of any shares or debentures of

the company.

No distribution or dividend may be paid to members out of the share premium account unless

immediately following the date on which the distribution or dividend is proposed to be paid the company

will be able to pay its debts as they fall due in the ordinary course of business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman

Islands, a company limited by shares or a company limited by guarantee and having a share capital may, if

so authorised by its articles of association, by special resolution reduce its share capital in any way.

Subject to the detailed provisions of the Companies Law, a company limited by shares or

a company limited by guarantee and having a share capital may, if so authorised by its articles of

association, issue shares which are to be redeemed or are liable to be redeemed at the option of the

company or a shareholder. In addition, such a company may, if authorised to do so by its articles of

association, purchase its own shares, including any redeemable shares. The manner of such a purchase

must be authorised either by the articles of association or by an ordinary resolution of the company. The

articles of association may provide that the manner of purchase may be determined by the directors of the

company. At no time may a company redeem or purchase its shares unless they are fully paid. A company

may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would

no longer be any member of the company holding shares. A payment out of capital by a company for the

redemption or purchase of its own shares is not lawful unless immediately following the date on which the

payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary

course of business.

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by

a company for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly,

a company may provide financial assistance if the directors of the company consider, in discharging their

duties of care and to act in good faith, for a proper purpose and in the interests of the company, that such

assistance can properly be given. Such assistance should be on an arm’s-length basis.

4. Dividends and Distributions

With the exception of section 34 of the Companies Law, there are no statutory provisions relating

to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman

Islands in this area, dividends may be paid only out of profits. In addition, section 34 of the Companies

Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and

articles of association, the payment of dividends and distributions out of the share premium account (see

paragraph 3 above for details).

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 20

5. Shareholders’ Suits

The Cayman Islands courts can be expected to follow English case law precedents. The rule in Foss

v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a class action

against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the

company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are

themselves in control of the company, and (c) an action which requires a resolution with a qualified (or

special) majority which has not been obtained) has been applied and followed by the courts in the Cayman

Islands.

6. Protection of Minorities

In the case of a company (not being a bank) having a share capital divided into shares, the Grand

Court of the Cayman Islands may, on the application of members holding not less than one-fifth of the

shares of the company in issue, appoint an inspector to examine into the affairs of the company and to

report thereon in such manner as the Grand Court shall direct.

Any shareholder of a company may petition the Grand Court of the Cayman Islands which may

make a winding up order if the court is of the opinion that it is just and equitable that the company should

be wound up.

Claims against a company by its shareholders must, as a general rule, be based on the general

laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as

established by the company’s memorandum and articles of association.

The English common law rule that the majority will not be permitted to commit a fraud on the

minority has been applied and followed by the courts of the Cayman Islands.

7. Disposal of Assets

The Companies Law contains no specific restrictions on the powers of directors to dispose of assets

of a company. As a matter of general law, in the exercise of those powers, the directors must discharge

their duties of care and to act in good faith, for a proper purpose and in the interests of the company.

8. Accounting and Auditing Requirements

The Companies Law requires that a company shall cause to be kept proper books of account with

respect to:

(a) all sums of money received and expended by the company and the matters in respect of

which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company; and

(c) the assets and liabilities of the company.

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 21

Proper books of account shall not be deemed to be kept if there are not kept such books as are

necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

9. Register of Members

An exempted company may, subject to the provisions of its articles of association, maintain its

principal register of members and any branch registers at such locations, whether within or without

the Cayman Islands, as its directors may from time to time think fit. There is no requirement under the

Companies Law for an exempted company to make any returns of members to the Registrar of Companies

of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public

record and are not available for public inspection.

10. Inspection of Books and Records

Members of a company will have no general right under the Companies Law to inspect or obtain

copies of the register of members or corporate records of the company. They will, however, have such

rights as may be set out in the company’s articles of association.

11. Special Resolutions

The Companies Law provides that a resolution is a special resolution when it has been passed

by a majority of not less than two-thirds (or such greater number as may be specified in the articles

of association of the company) of such members as, being entitled to do so, vote in person or, where

proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose

the resolution as a special resolution has been duly given. Written resolutions signed by all the members

entitled to vote for the time being of the company may take effect as special resolutions if this is

authorised by the articles of association of the company.

12. Subsidiary Owning Shares in Parent

The Companies Law does not prohibit a Cayman Islands company acquiring and holding shares in

its parent company provided its objects so permit. The directors of any subsidiary making such acquisition

must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the

subsidiary.

13. Mergers and Consolidations

The Companies Law permits mergers and consolidations between Cayman Islands companies and

between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger”

means the merging of two or more constituent companies and the vesting of their undertaking, property

and liabilities in one of such companies as the surviving company, and (b) “consolidation” means the

combination of two or more constituent companies into a consolidated company and the vesting of the

undertaking, property and liabilities of such companies to the consolidated company. In order to effect

such a merger or consolidation, the directors of each constituent company must approve a written plan

of merger or consolidation, which must then be authorised by (a) a special resolution of each constituent

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 22

company and (b) such other authorisation, if any, as may be specified in such constituent company’s

articles of association. The written plan of merger or consolidation must be filed with the Registrar of

Companies together with a declaration as to the solvency of the consolidated or surviving company,

a list of the assets and liabilities of each constituent company and an undertaking that a copy of the

certificate of merger or consolidation will be given to the members and creditors of each constituent

company and that notification of the merger or consolidation will be published in the Cayman Islands

Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not

agreed between the parties, will be determined by the Cayman Islands court) if they follow the required

procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation

which is effected in compliance with these statutory procedures.

14. Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved

by a majority in number representing 75% in value of shareholders or creditors, depending on the

circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand

Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express to the Grand

Court his view that the transaction for which approval is sought would not provide the shareholders with a

fair value for their shares, the Grand Court is unlikely to disapprove the transaction on that ground alone

in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were

approved and consummated the dissenting shareholder would have no rights comparable to the appraisal

rights (i.e. the right to receive payment in cash for the judicially determined value of his shares) ordinarily

available, for example, to dissenting shareholders of United States corporations.

15. Take-overs

Where an offer is made by a company for the shares of another company and, within four months

of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the

offeror may at any time within two months after the expiration of the said four months, by notice require

the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may

apply to the Grand Court of the Cayman Islands within one month of the notice objecting to the transfer.

The burden is on the dissenting shareholder to show that the Grand Court should exercise its discretion,

which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between

the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out

minority shareholders.

16. Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may

provide for indemnification of officers and directors, except to the extent any such provision may

be held by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide

indemnification against the consequences of committing a crime).

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 23

17. Liquidation

A company may be placed in liquidation compulsorily by an order of the court, or voluntarily (a)

by a special resolution of its members if the company is solvent, or (b) by an ordinary resolution of its

members if the company is insolvent. The liquidator’s duties are to collect the assets of the company

(including the amount (if any) due from the contributories (shareholders)), settle the list of creditors and

discharge the company’s liability to them, rateably if insufficient assets exist to discharge the liabilities

in full, and to settle the list of contributories and divide the surplus assets (if any) amongst them in

accordance with the rights attaching to the shares.

18. Stamp Duty on Transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands

companies except those which hold interests in land in the Cayman Islands.

19. Taxation

Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the

Company may obtain an undertaking from the Governor in Cabinet:

(a) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits,

income, gains or appreciations shall apply to the Company or its operations; and

(b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in

the nature of estate duty or inheritance tax shall be payable by the Company:

(i) on or in respect of the shares, debentures or other obligations of the Company; or

(ii) by way of the withholding in whole or in part of any relevant payment as defined in

section 6(3) of the Tax Concessions Law (2011 Revision).

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits,

income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty.

There are no other taxes likely to be material to the Company levied by the Government of the Cayman

Islands save certain stamp duties which may be applicable, from time to time, on certain instruments

executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to

any double tax treaties that are applicable to any payments made by or to the Company.

20. Exchange Control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

APPENDIX IV SUMMARY OF THE CONSTITUTION OF OURCOMPANY AND CAYMAN ISLANDS COMPANY LAW

IV – 24

21. General

Maples and Calder, the Company’s legal advisers on Cayman Islands law, have sent to the

Company a letter of advice summarising aspects of Cayman Islands company law. This letter, together

with a copy of the Companies Law, is available for inspection as referred to in the section headed

“Documents Available for Inspection” in Appendix VI. Any person wishing to have a detailed summary of

Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with

which he/she is more familiar is recommended to seek independent legal advice.

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 1

FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES

1. Incorporation of our Company

On 8 February 2013, our Company was incorporated in the Cayman Islands under the Companies Laws as an exempted company with an authorised share capital of US$50,000.00 divided into 50,000 shares of US$1.00 each, of which one share was issued and allotted fully paid by our Company to Mapcal Limited on 8 February 2013. The said one fully paid share was transferred to TCLM on the same day.

As our Company was incorporated in the Cayman Islands, we operate subject to the relevant laws and regulations of the Cayman Islands and our constitution which comprises a memorandum of association and the Articles. A summary of the relevant laws and regulations of the Cayman Islands and of our Company’s constitution is set out in Appendix IV to this listing document.

2. Changes in share capital of our Company

(a) Increase in authorised share capital

(i) As at the date of incorporation of our Company, its authorised share capital was US$50,000.00 divided into 50,000 shares of US$1.00 each, of which one share was issued and allotted to Mapcal Limited fully paid on 8 February 2013 and transferred to TCLM on the same day.

(ii) On 10 July 2013, written resolution of the sole shareholder of the Company was passed pursuant to which (aa) the authorised share capital of the Company was increased from US$50,000.00 to the aggregate of (1) US$50,000.00 and (2) HK$500,000,000.00 by the creation of 500,000,000 new Shares; and (bb) the allotment of 133,109,811 Shares as described in paragraph 4(d) below.

(iii) Following the increase in authorised share capital referred to in paragraph 2(a)(ii) above, the one issued share referred to in paragraph 2(a)(i) above was repurchased by our Company. Subsequent thereto, the initial authorised and unissued share capital of US$50,000.00 was cancelled by our Company.

As at the Latest Practicable Date, our authorised share capital was HK$500,000,000.00 divided into 500,000,000 Shares, of which 133,109,811 Shares were issued fully paid or credited as fully paid, and 366,890,189 Shares remained unissued. There is no present intention to issue any of the authorised but unissued share capital of our Company after the Distribution Record Date and, without the prior approval of our Shareholders in general meeting, no issue of Shares will be made which would effectively alter the control of our Company. Save as disclosed in this paragraph and in the paragraphs headed “Incorporation of Our Company” and “Group Reorganisation” of this Appendix, there has been no alteration in the share capital of our Company since its incorporation.

A1A 5A1A 6S.342(1)(a)(i)(iv)LR8.02

A1A 263rd Sch 11

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 2

(b) Founder shares

Our Company has no founder shares, management shares or deferred shares.

3. Resolutions in writing of our sole Shareholder passed on 12 July 2013

By resolutions in writing of our sole Shareholder passed on 12 July 2013:

(a) we approved and adopted the Articles;

(b) conditional on the fulfilment of the conditions of Spin-off as stated in the section headed

“the Distribution and Spin-off – the Distribution” in this listing document:

(i) the Introduction was approved and our Directors were authorised to (aa) implement

the Introduction; and (bb) do all things and execute all documents in connection with

or incidental to the Introduction with such amendments or modifications (if any) as

our Directors may consider necessary or appropriate;

(ii) a general unconditional mandate was given to our Directors to exercise all powers of

our Company to allot, issue and deal with (including the power to make an offer or

agreement, or grant securities which would or might require Shares to be issued and

allotted), otherwise than by way of rights issue, scrip dividend schemes or similar

arrangements in accordance with the Articles, Shares with an aggregate nominal

amount of not exceeding the sum of (aa) 20% of the aggregate nominal amount of

the share capital of our Company in issue immediately following completion of

the Introduction; and (bb) the nominal amount of the share capital of our Company

which may be purchased by our Company pursuant to the authority granted to our

Directors as referred to in paragraph 3(b)(iii) below, until the conclusion of the next

annual general meeting of our Company, or the date by which the next annual general

meeting of our Company is required by the Articles or any applicable law to be held,

or the passing of an ordinary resolution by Shareholders revoking or varying the

authority given to our Directors, whichever occurs first;

(iii) a general unconditional mandate (the “Repurchase Mandate”) was given to our

Directors to exercise all powers of our Company to purchase Shares on the Stock

Exchange, with an aggregate nominal amount of not exceeding 10% of the aggregate

nominal amount of the share capital of our Company in issue immediately following

completion of the Introduction, until the conclusion of the next annual general

meeting of our Company, or the date by which the next annual general meeting of our

Company is required by the Articles or any applicable law to be held, or the passing of

an ordinary resolution by Shareholders revoking or varying the authority given to our

Directors, whichever occurs first; and

A1A 243rd Sch 4

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 3

(iv) the extension of the general mandate to allot, issue and deal with Shares pursuant to paragraph 3(b)(ii) above to include the nominal amount of Shares which may be purchased or repurchased pursuant to paragraph 3(b)(iii) above; and

(d) the form and substance of each of the service agreements or letters of appointment to be made between our Directors and our Company were approved.

4. Group reorganisation

The companies comprising our Group underwent a reorganisation to rationalise our Group’s structure in preparation for the Listing, which involved the following:

(a) Incorporation of our Company

On 8 February 2013, our Company was incorporated in the Cayman Islands under the

Companies Laws as an exempted company with an authorised share capital of US$50,000.00

divided into 50,000 shares of US$1.00 each, of which one share was issued and allotted fully

paid by our Company to Mapcal Limited on 8 February 2013. The said one fully paid share was

transferred to TCLM on the same day.

By completion of this process, we became a wholly owned subsidiary of TCLM.

(b) Incorporation of Tonly International

On 15 February 2013, Tonly International was incorporated in the BVI and authorised to

issue a maximum of 50,000 shares of a single class each with a par value of US$1.00 each, of

which 1 share was subscribed at par by us.

By completion of this process, Tonly International became a wholly owned subsidiary of our

Company.

(c) Acquisition of 80% interest in Tonly Electronics from TCLM by Tonly International

On 10 July 2013, TCLM transferred 84,640,000 shares in Tonly Electronics (representing

80% total issued share capital thereof) to Tonly International in consideration and in exchange for

which an aggregate number of 99 shares in Tonly International were issued and allotted, credited as

fully paid to TCLM.

By completion of this process, (i) Tonly Electronics became a 80% owned subsidiary of

Tonly International; and (ii) the shareholding in Tonly International was 99% and 1% directly held

by TCLM and us, respectively.

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 4

(d) Acquisition of interest in Tonly International by our Company from TCLM

On 10 July 2013, TCLM transferred 99 shares in Tonly International to us, as consideration for such acquisition, our Company shall issue and allot to TCLM such number of Shares which equals to one tenth of TCLM Shares in issue as at the close of business on Distribution Record Date (rounding down any fraction to the nearest whole unit and fractional entitlements will not be allotted to the TCLM Qualifying Shareholders but will be aggregated and sold and the sale proceeds after deduction of related expenses will be retained by and for the benefit of our Company). Based on the issued share capital of TCLM as at the Latest Practicable Date, a total of 133,109,811 Shares were issued and allotted to TCLM on 10 July 2013, the balance (if any) will be issued and allotted to TCLM on Distribution Record Date.

By completion of this process, Tonly International became our wholly owned subsidiary.

(e) The Distribution

On 15 July 2013, the board of directors of TCLM declared a conditional special interim dividend to the TCLM Shareholders which will effectively distribute the entire issued share capital of our Company as at the Distribution Record Date. The Distribution is subject to the TCLM Shareholders’ approval as required under article 152 of the articles of association of TCLM. It was resolved that the Distribution will be satisfied by way of distribution in specie of such number of Shares to the TCLM Qualifying Shareholders in proportion of 1 Share for every 10 TCLM Shares held by them as at the close of business on the Distribution Record Date. TCLM Excluded Shareholders (if any) will receive cash payment (after deducting expenses) which equals to the net proceeds of the sale by TCLM, if such net proceeds shall exceed HK$100.00, on their behalf of our Shares to which the TCLM Excluded Shareholders would otherwise be entitled to receive. In either case, the Distribution will be satisfied on the terms and conditions contained in this listing document. Our company has appointed Kim Eng Securities (Hong Kong) Ltd as our agent in providing matching service to the TCLM Qualifying Shareholders to facilitate the disposal of any Shares which they may receive in odd lots. For details, please refer to the announcement dated 17 July 2013 made by TCLM.

5. Changes in share capital of our subsidiaries

Our subsidiaries are listed in the Accountants’ Report set out in Appendix I to this listing document.

Save for the alterations described in paragraph 4 above, the following alterations in the share capital of our subsidiaries took place within the two years immediately preceding the date of this listing document:

1. Tonly Electronics

On 31 October 2012, 1 fully paid share was issued and allotted to TCLM in consideration for US$1 being paid by TCLM. On 26 November 2012, the said 1 fully paid share was re-denominated in Hong Kong dollars and was recorded to have been issued at HK$1.00 with a premium of HK$6.80. On 18 December 2012, 49,999,999 shares were issued and allotted to TCLM in exchange for TCLM transferred its entire shareholding in TCL Tech HK to Tonly Electronics. On 28 December 2012, 34,640,000 shares, 9,733,600 shares and 11,426,400 shares were issued and allotted to TCLM, Star Force and Run Fu respectively at consideration of HK$90,756,800, HK$25,502,032 and HK$29,937,168.

2. Regency Optics-Electron

On 10 December 2012, Regency Optics-Electron increased its registered share capital from RMB10,800,000 to RMB50,000,000.

3rd Sch 11

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 5

6. Further information about our interest in the Group’s members

The following sets out the corporate information of the companies in which we hold interest:

(a) Tonly International Limited (通力國際有限公司 )

(i) Name of subsidiary: Tonly International Limited(ii) Place of incorporation: BVI(iii) Authorised capital: US$50,000.00(iv) Issued share capital: US$100.00(v) Attributable interest to our Group: 100%(vi) Economic nature: limited liability company(vii) Term of operation: n/a(viii) Principal business: investment holding

(b) Tonly Electronics Limited (通力電子有限公司 )

(i) Name of subsidiary: Tonly Electronics Limited(ii) Place of incorporation: BVI(iii) Authorised capital: HK$140,000,000.00(iv) Issued share capital: HK$105,800,000.00(v) Attributable interest to our Group: 80%(vi) Economic nature: limited liability company(vii) Term of operation: n/a(viii) Principal business: investment holding

(c) TCL Technology (HK) Company Limited

(i) Name of subsidiary: TCL Technology (HK) Company Limited(ii) Place of incorporation: Hong Kong(iii) Authorised capital: HK$50,000,000.00(iv) Issued share capital: HK$50,000,000.00(v) Attributable interest to our Group: 80%(vi) Economic nature: limited liability company(vii) Term of operation: n/a(viii) Principal business: trading of audio-visual products

(d) Xi’an TCL Software Development Co. Ltd. (西安TCL軟件開發有限公司 )

(i) Name of subsidiary: Xi’an TCL Software Development Co. Ltd.(ii) Place of incorporation: PRC(iii) Total investment: US$2,000,000.00(iv) Registered capital: US$2,000,000.00(v) Attributable interest to our Group: 80%(vi) Economic nature: limited liability company (wholly foreign-owned enterprise)(vii) Term of operation: 10 years (up to 7 May 2022)(viii) Principal business: software research, development and trading of electronic products; provision of technical support and services in respect of electronic products

A1A 29(1)

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 6

(e) TCL OEM Sales Limited

(i) Name of subsidiary: TCL OEM Sales Limited(ii) Place of incorporation: Hong Kong(iii) Authorised Capital: HK$10,000.00(iv) Issued share capital: HK$2.00(v) Attributable interest to our Group: 80%(vi) Economic nature: limited liability company(vii) Term of operation: n/a(viii) Principal business trading of audio and visual products

(f) TCL Technoly Electronics (Huizhou) Co. Ltd. (TCL通力電子（惠州）有限公司 )

(i) Name of subsidiary: TCL Technoly Electronics (Huizhou) Co.

Ltd.

(ii) Place of incorporation: PRC

(iii) Total investment: RMB$82,850,000.00

(iv) Registered capital: RMB$76,000,000.00

(v) Attributable interest to our Group: 80%

(vi) Economic nature: limited liability company (wholly foreign-

owned enterprise)

(vii) Term of operation: 15 years (up to 25 January 2015)

(viii) Principal business: researching and developing, manufacturing

and selling of satellite TV broadcasting

receivers, digital television set-top

boxes, system equipment and relevant

sof tware , in format ion technology

equipment, audio, visual and related

equipment, low voltage power source

and electrical transformer, mobile

communication devises, mobile phone

accessories, electrical audio system

equipment, the software and plastic

injection moulding components of

the accessories of the above products,

p roducts to be so ld domest ica l ly

and internationally, provision of the

installation and testing of electrical

equipment

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 7

(g) Huizhou TCL Audio Video Electronics Co. Ltd. (惠州TCL音視頻電子有限公司 )

(i) Name of subsidiary: Huizhou TCL Audio Video Electronics Co.

Ltd.

(ii) Place of incorporation: PRC

(iii) Total investment: RMB$50,000,000.00

(iv) Registered capital: RMB$25,000,000.00

(v) Attributable interest to our Group: 80%

(vi) Economic nature: limited liability company (wholly foreign

owned enterprise)

(vii) Term of operation: 12 years (up to 25 October 2017)

(viii) Principal business: manufactur ing, se l l ing domest ica l ly

and internationally and researching

and developing home theatre series,

digital television set-top box, portable

television, electrical audio products, hi-

fi audio products, speaker unit, laser

disc machine, computer network audio

player, sound amplifier, internet media

player, mobile phone accessories and

plastic injection moulding components

of the accessories of the above products

(h) Tongli OEM Sales Limited

(i) Name of subsidiary: Tongli OEM Sales Limited

(ii) Place of incorporation: State of Delaware, the United States

of America

(iii) Amount of common stock: US$1,000.00

(iv) Attributable interest to our Group: 80%

(v) Economic nature: corporation

(vi) Term of operation: n/a

(vii) Principal business: Inventory management and trading of

audio and visual products

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 8

(i) Guangdong Regency Optics-Electron Corp. (廣東瑞捷光電股份有限公司 )

(i) Name of subsidiary: Guangdong Regency Optics-Electron Corp.

(ii) Place of incorporation: PRC

(iii) Total investment: RMB$50,000,000.00

(iv) Registered capital: RMB$50,000,000.00

(v) Attributable interest to our Group: 48%

(vi) Economic nature: company limited by share

(vii) Term of operation: 30 years (up to 2 July 2040)

(viii) Principal business: Manufacturing, researching and developing

and trading of metal and plastics, delicate

moulding tools, communication equipment,

optical boards, optical films, light guide

p a n e l s a n d o p t i c a l a c c e s s o r i e s a n d

components; import and export of goods

and technologies

(j) Shenzhen Tongli Science and Technology Development Co. Ltd. (深圳市通力科技開發有限公司 )

(i) Name of subsidiary: Shenzhen Tongli Science and Technology

Development Co. Ltd.

(ii) Place of incorporation: PRC

(iii) Total investment: RMB$10,000,000.00

(iv) Registered capital: RMB$10,000,000.00

(v) Attributable interest to our Group: 80%

(vi) Economic nature: limited liability company

(vii) Term of operation: 15 years (up to 8 February 2027)

(viii) Principal business: Software research, development, trading

and the provision technical support

of electr ical audio products , laser

disc players, computer network audio

p l a y e r s , s o u n d a m p l i f i e r , d i g i t a l

te lev is ion se t - top boxes , sa te l l i te

te lev is ion broadcas t ing rece ivers ,

por tab le t e lev i s ion , home thea t re

systems, hi-fi systems, car sound system,

mini speakers, speakers and projectors

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 9

7. Repurchase by our Company of our own securities

This paragraph includes information required by the Stock Exchange to be included in this listing

document concerning the repurchase by us of our own securities.

(a) Shareholders’ approval

All proposed repurchases of securities (which must be fully paid up in the case of shares)

by a company listed on the Stock Exchange must be approved in advance by an ordinary resolution

of the shareholders, either by way of general mandate or by specific approval of a particular

transaction.

Note: Pursuant to a resolution in writing passed by our sole Shareholder on 12 July 2013, the Repurchase Mandate was given to our Directors authorising any repurchase by our Company of Shares on the Stock Exchange of up to 10% of the aggregate nominal amount of the share capital of our Company in issue immediately following completion of the Introduction, such mandate to expire at the conclusion of the next annual general meeting of our Company, or the date by which the next annual general meeting of our Company is required by the Articles or applicable Cayman Islands laws to be held, or the passing of an ordinary resolution by Shareholders in general meeting revoking or varying the authority given to our Directors, whichever occurs first.

(b) Source of funds

Repurchases must be paid out of funds legally available for the purpose in accordance with

the Articles and the Companies Law. A listed company may not repurchase its own securities on the

Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance

with the trading rules of the Stock Exchange. Under the Cayman Islands laws, any repurchases by

us may be made out of our profits, our share premium account or out of the proceeds of a fresh

issue of Shares made for the purpose of the repurchase or, if so authorised by the Articles and

subject to the Companies Law, out of capital. Any premium payable on a redemption or purchase

over the par value of our Shares to be repurchased must be provided for out of either or both of

our profits or from our share premium account or, if authorised by the Articles and subject to the

Companies Law, out of capital.

(c) Reasons for repurchases

Our Directors believe that it is in the best interests of our Company and our Shareholders

for our Directors to have general authority from our Shareholders to enable our Company to

repurchase Shares in the market. Such repurchases may, depending on market conditions and

funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or

earnings per Share and will only be made if our Directors believe that such repurchases will benefit

our Company and our Shareholders.

(d) Funding of repurchases

In repurchasing securities, we may only apply funds legally available for such purpose in

accordance with the Articles, the Listing Rules and the applicable laws of the Cayman Islands.

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 10

On the basis of the current financial position of our Group as disclosed in this listing

document and taking into account our current working capital position, our Directors consider

that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse

effect on the working capital and/or the gearing position of our Group as compared with the

position disclosed in this listing document. However, our Directors do not propose to exercise the

Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse

effect on the working capital requirements of our Group or the gearing levels which in the opinion

of our Directors are from time to time appropriate for our Group.

(e) General

None of our Directors nor, to the best of their knowledge having made all reasonable

enquiries, any of their associates currently intends to sell any Shares to our Company or our

subsidiaries.

Our Directors have undertaken to the Stock Exchange that, so far as the same may be

applicable, they will exercise the Repurchase Mandate in accordance with the Listing Rules and the

applicable laws of the Cayman Islands.

If, as a result of a securities repurchase, a Shareholder’s proportionate interest in the voting

rights of our Company is increased, such increase will be treated as an acquisition for the purpose

of the Takeovers Code. In certain circumstances, a Shareholder or a group of Shareholders acting

in concert (depending on the level of increase of the Shareholders’ interest) could as a result of

increase of its or their interest, obtain or consolidate control of our Company and become obliged

to make a mandatory offer in accordance with Rule 26 of the Takeovers Code. Save as aforesaid,

our Directors are not aware of any consequences which would arise under the Takeovers Code as a

consequence of any repurchases pursuant to the Repurchase Mandate.

Our Directors will not exercise the Repurchase Mandate if the repurchase would result in

the number of Shares which are in the hands of the public falling below 25% of the total number of

Shares in issue (or such other percentage as may be prescribed as the minimum public shareholding

under the Listing Rules).

No connected person of our Company has notified us that he/she/it has a present intention to

sell Shares to our Company, or has undertaken not to do so if the Repurchase Mandate is exercised.

8. Registration under Part XI of the Companies Ordinance

Our Company has established our head office and a principal place of business in Hong Kong for

the purpose of registration under Part XI of the Companies Ordinance at 13/F, TCL Tower, 8 Tai Chung

Road, Tsuen Wan, Hong Kong. Our Company has been registered as an oversea company under Part XI

of the Companies Ordinance. TCL Tech HK of 13/F., TCL Tower, 8 Tai Chung Road, Tsuen Wan, New

Territories, Hong Kong has been appointed as the agent of our Company for the acceptance of service of

process in Hong Kong.

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 11

FURTHER INFORMATION ABOUT THE BUSINESS OF OUR COMPANY

9. Summary of material contracts

The following contracts (not being contract entered into in the ordinary course of business) had

been entered into by the members of our Group within the two years preceding the date of this listing

document and are or may be material to the business of the Group taken as a whole:

(a) a subscription agreement dated 8 December 2012 entered into among TCLM, Star Force and

Run Fu as subscribers and Tonly Electronics pursuant to which Tonly Electronics issued

and allotted 34,640,000 shares, 9,733,600 shares and 11,426,400 shares to TCLM, Star

Force and Run Fu respectively at the consideration of HK$90,756,800, HK$25,502,032 and

HK$29,937,168;

(b) a share transfer agreement dated 10 July 2013 entered into between TCLM and Tonly

International pursuant to which TCLM transferred its entire shareholding in Tonly

Electronics to Tonly International relating to the corporate reorganisation of our Group

referred to item (c) of the paragraph headed “Group reorganisation” of this appendix;

(c) a share transfer agreement dated 10 July 2013 entered into between TCLM and our Company

pursuant to which TCLM transferred its entire shareholding in Tonly International to our

Company relating to the corporate reorganisation of our Group referred to item (d) of the

paragraph headed “Group reorganisation” of this appendix;

(d) a deed of indemnity dated 12 July 2013 executed by TCL Corporation and T.C.L. Industries

in favour of our Group;

(e) the Deed of Non-Competition; and

(f) the sponsors agreement dated 17 July 2013 entered into by our Company and the Joint

Sponsors.

A1A 523rd Sch 17

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 12

10. Material intellectual property rights of our Group

(a) Patents

As at the Latest Practical Date, our Group had registered the following patents which are

material in relation to our business:

No.RegisteredOwner Name of Patent Patent Number

Typesof Patent

Date of Grantof Patent

1. TCL Technoly

Electronics

一種RCA插座(A kind of

RCA plug socket*)

200810067507.3 Invention 4 May 2011

2. TCL Technoly

Electronics, TCL

Corporation

一種運放增益控制電路(A kind of playback

amplifying control

circuit*)

201020505033.9 Utility Model 30 March 2011

3. TCL Technoly

Electronics, TCL

Corporation

光碟播放機 (Disc

playing machine*)

201020618312.6 Utility Model 8 June 2011

4. TCL Technoly

Electronics

電路板及顯示裝置 (Circuit board and

display device*)

201120500585.5 Utility Model 22 August 2012

5. TCL Technoly

Electronics

LLC電路及LLC電源(LLC circuit and LLC

power supply*)

201120555249.0 Utility Model 5 September 2012

Our Directors consider that all of the above 5 registered patents are being actively used by

our Company and are essential in our production process.

A1A 28(4)

SX1-14

SX1-14

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 13

According to the PRC laws, a utility model or a granted design has a validity period of ten

years from the date of its application and a granted invention has a validity period of twenty years

from the date of its application.

(b) Computer software copyright registration

As at the Latest Practicable Date, the Group had registered the following computer software

under the Measures for the Registration of Computer Software Copyrights (《計算機軟件著作權登記》) of the PRC which is material in relation to our business:

RegisteredOwner

Title of ComputerSoftware Registration No.

Date of First Publication Expiry Date

Shenzhen Tongli 通力 CBHD 藍光播放機軟件 V7.1

(Tongli CBHD

Blu-ray Player

Software V7.1*)

2012SR068804 30 July 2012 31 December

2062

Our Directors consider that the above software is an important CBHD decoding software with core decoding, decryption module applied to our Blu-ray Players.

(c) Domain names

As at the Latest Practicable Date, our Group had registered the following domain name which is material in relation to our business:

Domain Name Registrant Expiry Date

tonlyele.com Tonly Electronics Limited 23 January 2018

(d) Trademarks

As at the Latest Practicable Date, our Group had registered the following trademark which is material in relation to our business:

Trademark Registration No. Registrant Registration Date Expiry Date Class

REGENCY 9341408 Regency 7 June 2012 6 June 2022 9 Optics-Electron

SX1-14

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 14

As at the Latest Practicable Date, our Group had applied for registration of the following

trademarks which are material in relation to our business:

Application Place of Date of No. Trademark No. Applicant Application Class Application

1. a series of trademarks in different colours:

A. 302561247 Tonly Hong Kong 9 and 35 25 March 2013 International

B.

C.

2. a series of trademarks in different colours:

A. 302558836 Tonly Hong Kong 9 and 35 27 March 2013 International

B.

C.

3. 12328365 TCL Technoly PRC 9 26 March 2013 Electronics

4. 12328405 TCL Technoly PRC 35 26 March 2013 Electronics

11. Connected transactions and related party transactions

Save as disclosed in the sections headed “Relationship with the Remaining TCLM Group and the

Controlling Shareholders” and “Continuing Connected Transactions” of this listing document and in note

36 to the Accountants’ Report, the text of which is set out in Appendix I to this listing document, during

the two years immediately preceding the date of this listing document, we have not engaged in any other

material connected transactions or related party transactions.

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 15

FURTHER INFORMATION ABOUT DIRECTORS AND SHAREHOLDERS

12. Directors

(a) Disclosure of interests of Directors

Save as disclosed in the section headed “History and Development” and in this sub-section

headed “Further Information about Directors and Shareholders” in this listing document,

none of our Directors or any of their associates was engaged in any dealings with our Group

during the two years preceding the date of this listing document.

(b) Particulars of Directors’ service contracts and letters of appointment

Executive Directors

Each of our executive Directors has entered into a service contract with our Company

pursuant to which they agreed to act as executive Directors for an initial term of three

years with effect from 12 July 2013. The term of service shall be renewed and extended

automatically by one year on the expiry of such initial term and on the expiry of every

successive period of one year thereafter, unless either party has given at least three months’

written notice of non-renewal before the expiry of the then existing term. The aforesaid

term(s) is subject to certain termination provisions including retirement by rotation as

required by the Articles of Association and the Listing Rules. Pursuant to their respective

service contract, each of our executive Directors undertook with the Company that for

so long as he is our Director, he will not engage in any business which either directly or

indirectly competes with the business of the Group.

Each of our executive Directors is entitled to a salary subject to the Board’s review.

An executive Director may not vote on any resolution of our Directors regarding the amount

of salary payable to him. The current annual salaries of our executive Directors are as

follows:

Name Annual salary (HK$)

Mr. YU, Guanghui 1,080,000

Mr. SONG, Yonghong 840,000

Mr. REN, Xuenong 600,000

Non-executive Director

Each of our non-executive Directors has entered into a letter of appointment with

our Company pursuant to which they agreed to act as non-executive Director for a term of

three years with effect from 12 July 2013 subject to certain termination provisions including

retirement by rotation as required by the Articles of Association and the Listing Rules and

termination by either party giving at least three months’ written notice.

A1A 45(1)(a)(b)(c)(1A)

A1A 46(1)3rd Sch 19

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 16

Each of our non-executive Directors is entitled to a director’s fee of HK$180,000 per

annum. Save for directors’ fees, none of our non-executive Directors is expected to receive

any other remuneration for holding their office as a non-executive Director.

Independent non-executive Directors

Each of our independent non-executive Directors has entered into a letter of

appointment for a term of two years commencing from 12 July 2013 subject to certain

termination provisions including retirement by rotation as required by the Articles of

Association and the Listing Rules and termination by not less than three months’ notice in

writing served by our independent non-executive Director or our Company.

Each of our independent non-executive Directors is entitled to a director’s fee of

HK$180,000 per annum. Save for directors’ fees, none of our independent non-executive

Directors is expected to receive any other remuneration for holding their office as an

independent non-executive Director.

Save as disclosed aforesaid, none of our Directors has or is proposed to have a service

contract with our Company or any of our subsidiaries other than contracts expiring or

determinable by the employer within one year without the payment of compensation (other

than statutory compensation).

(c) Remuneration of Directors

(i) The aggregate emoluments paid and benefits in kind granted by our Group to our

Directors in respect of the financial year ended 31 December 2012 was approximately

HK$2.2 million.

(ii) Under the arrangements currently in force, the aggregate emoluments (excluding

discretionary bonus) payable by our Group to and benefits in kind receivable by our

Directors (including our independent non-executive Directors) for the year ending 31

December 2013, are expected to be approximately HK$1.57 million.

(iii) None of our Directors or any past directors of any member of our Group has been

paid any sum of money for each of the three years ended 31 December 2012 as (i) an

inducement to join or upon joining our Company; or (ii) for loss of office as a director

of any member of our Group or of any other office in connection with the management

of the affairs of any member of our Group.

(iv) There has been no arrangement under which a Director has waived or agreed to waive

any emoluments for each of the three years ended 31 December 2012.

A1A 46(2)(3)

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 17

(d) Interests and short positions of our Directors in our Shares, underlying Shares or debentures of our Company and our associated corporations following the Introduction

Immediately following the Introduction, assuming no changes in the shareholdings of TCL

Corporation, TCLM and TCL Communication, and of our Directors in TCL Corporation, TCLM

and TCL Communication after the Latest Practicable Date, the interests or short positions of our

Directors and our chief executives of our Company in the shares, underlying shares and debentures

of our Company and our associated corporations (within the meaning of Part XV of the SFO)

which will have to be notified to our Company and the Stock Exchange pursuant to Divisions 7

and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed

to have under such provisions of the SFO) or which will be required, pursuant to section 352 of the

SFO, to be recorded in the register referred to therein or which will be required to be notified to

our Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by

Directors of Listed Issuers contained in the Listing Rules, will be as follows:

(A) Interests in the shares of our Company - Long Positions

Approximate Number percentage of of shares issued share capital Number of ordinary shares held held under of the Company Personal Family Other equity immediately after theName of Director Interest Interest Interest derivatives Total Introduction (%)(Note 1)

LEONG Yue Wing 49,467 – – – 49,467 0.04

(B) Interests in the shares of our associated corporations – Long Positions

Interests in the shares of Tonly Electronics – Long Positions

Approximate percentage of issued Number share capital Number of ordinary shares held of shares of Tonly Electronics Personal Family Other under equity immediately afterName of Director Interest Interest Interest derivatives Total the Introduction (%)

YU Guanghui – – 11,426,400 – 11,426,400 10.80 (Note 2)

SONG Yonghong – – 11,426,400 – 11,426,400 10.80 (Note 3)

A1A 45(1)(a)(b)(c)

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 18

Interests in the shares of TCL Corporation – Long Positions

Approximate percentage of issued share capital of TCL Corporation (assuming the number of issued shares of TCL Corporation remains Number unchanged after the Number of ordinary shares held of shares held Latest Practicable Date Personal Family Other under equity until the completionName of Director Interest Interest Interest derivatives Total of the Introduction) (%)

YUAN Bing – – – 285,800 (Note 4) 285,800 0.003

YU Guanghui – – – 1,026,000 (Note 5) 1,026,000 0.01

Interests in the shares of TCLM - Long Positions

Approximate percentage of issued share capital of TCLM (assuming the number of issued shares of TCLM remains unchanged after the Number of ordinary shares held Number of Latest Practicable Date

Personal Family Other shares held under until the completionName of Director Interest Interest Interest equity derivatives Total of the Introduction)(%)

LEONG Yue Wing 494,672 – – – 494,672 0.04

Interests in the shares of TCL Communication – Long Positions

Approximate percentage of issued share capital of TCL Communication (assuming the number of issued shares of TCL Communication remains unchanged after the Number of ordinary shares held Number of shares Latest Practicable Date Personal Family Other held under until the completionName of Director Interest Interest Interest equity derivatives Total of the Introduction)(%)

YUAN Bing – – – 750,121 (Note 6) 750,121 0.70

YU Guanghui 740 – – – 740 0.0001

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 19

Notes:

1. The total issued share capital of the Company is calculated based on the issued share capital of TCLM as at the Latest Practicable Date and assuming it will remain unchanged as at the close of business on the Distribution Record Date.

2. As at the Latest Practicable Date, Run Fu holds 11,426,400 shares in Tonly Electronics and Mr. YU Guanghui is deemed to be interested in such shares in Tonly Electronics since he and his wife own Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) (惠州市銀輝宇投資合夥企業(有限合夥)) as to approximately 99% and 1% respectively and Huizhou Yinhuiyu Investment Partnership Enterprise (Limited Partnership) in turn holds 44.44% of the total issued share capital of Run Fu.

3. As at the Latest Practicable Date, Run Fu holds 11,426,400 shares in Tonly Electronics and Mr. SONG Yonghong is deemed to be interested in such shares in Tonly Electronics since he owns 46.50% of the effective interest of Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) (惠州市廣勝投資合夥企業(有限合夥) and Huizhou Guangsheng Investment Partnership Enterprise (Limited Partnership) in turn holds 55.56% of the total issued share capital of Run Fu.

4. As at the Latest Practicable Date, Mr. YUAN Bing holds options to subscribe for 285,800 shares in TCL Corporation.

5. As at the Latest Practicable Date, Mr. YU Guanghui holds options to subscribe for 1,026,000 shares in TCL Corporation.

6. As at the Latest Practicable Date, Mr. YUAN Bing holds options to subscribe for 750,121 shares in TCL Communication.

13. Interest discloseable under the SFO and substantial shareholders

So far as our Directors are aware, immediately following completion of the Distribution and the

Listing, the following persons will have an interest or short position in our Shares or underlying Shares of

our Company which would fall to be disclosed to our Company under the provisions of Divisions 2 and 3

of Part XV of the SFO and who will be expected, directly or indirectly, to be interested in 10% or more of

our Shares:

Capacity/nature of Number and class of Percentage ofName of Shareholder interest securities shareholding (Note 1) (Note 2)(%)

TCL Corporation (Note 3) Interest in controlled 816,094,475 (L) 61.31

corporation

T.C.L. Industries Beneficial owner 816,094,475 (L) 61.31

Notes:

1. The letter “L” denotes the person/corporation’s long position in our Shares.

2. The shareholding percentage is calculated based on the issued share capital of TCLM as at the Latest Practicable Date and assuming it will remain unchanged as at the close of business on the Distribution Record Date.

3. TCL Corporation is deemed to be interested in 816,094,475 Shares held by T.C.L. Industries, a company wholly owned by it.

A1A 45(2)3rd Sch 30

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 20

14. Disclaimers

Save as disclosed in this listing document:

(a) our Directors are not aware of any person (not being a Director or chief executive of our

Company) who will, immediately following the completion of the Introduction, have an

interest or a short position in Shares or underlying Shares which would fall to be disclosed to

our Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who will,

directly or indirectly, be interested in 10% or more of the nominal value of any class of share

capital carrying rights to vote in all circumstances at general meetings of our Company or

any other member of our Group;

(b) none of our Directors has any interest or short position in any of the shares, underlying

shares or debentures of our Company or any associated corporations within the meaning of

Part XV of the SFO, which will have to be notified to our Company and the Stock Exchange

pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions

which any of them is deemed to have under such provisions of the SFO) or which will be

required, pursuant to section 352 of the SFO, to be entered in the register referred to therein

or which will be required to be notified to our Company and the Stock Exchange pursuant to

the Model Code for Securities Transactions by Directors of Listed Issuers, in each case once

our Shares are listed;

(c) none of our Directors nor any of the parties listed in paragraph 22 below has been interested

in the promotion of, or has any direct or indirect interest in any assets which have been,

within the two years immediately preceding the date of this listing document, acquired or

disposed of by or leased to our Company or any of our subsidiaries, or are proposed to be

acquired or disposed of by or leased to our Company or any other member of our Group

nor will any Director apply for our Shares either in his/her own name or in the name of a

nominee;

(d) none of our Directors is materially interested in any contract or arrangement subsisting at the

date of this listing document which is significant in relation to business of our Group; and

(e) none of the parties listed in paragraph 22 below:

(i) is interested legally or beneficially in any securities of any member of our Group; or

(ii) has any right (whether legally enforceable or not) to subscribe for or to nominate

persons to subscribe for securities in any member of our Group.

OTHER INFORMATION

15. Share Option Scheme

As at the date of this listing document, we have not adopted any share option scheme.

A1A 45(1)(a)(b)(c)

A1A 47(1)(a)(b)

A1A 47(2)

A1A 9(1)

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 21

16. Tax and other indemnity

The Controlling Shareholders have, under the deed of indemnity (item(d) of the paragraph 9 of this appendix), given an indemnity to the Group in respect of taxation falling on the Company or on any of its subsidiaries up to and including the Listing Date, save in certain circumstances including where provision has been made in the audited accounts of the Company or its subsidiaries for the three years ended 31 December 2012.

Under the terms of the deed of indemnity (item(d) of the paragraph 9 of this appendix), the Controlling Shareholders have also given an indemnity to each members of our Group against, among others, all claims, actions, losses, damages, costs or expenses suffered or incurred by any of the members of our Group in connection with the social insurances, housing funds, work-related injury or such other contributions as required to be made by the relevant laws and regulations in the PRC, which any member of our Group has failed to make in accordance with such laws and regulations from their respective date of establishment to the Listing Date.

17. Litigation

Save as disclosed in the section headed “Business – Legal and Administrative Proceedings” of this listing document, no member of our Group is engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration or claim of material importance is known to our Directors to be pending or threatened by or against our Company, that would have a material adverse effect on our results of operations or financial condition of our Company.

18. Preliminary expenses

The preliminary expenses of our Company are estimated to be approximately HK$50,000 and are payable by our Company.

19. Promoter

(a) Our Company does not have any promoter.

(b) Within the two years preceding the date of this listing document, no amount or benefit has been paid or given to any promoters of our Company in connection with the Introduction or the related transactions described in this listing document.

20. Estimated expenses in relation to the Introduction

The estimated expenses of Introduction which mainly comprises professional fees for the Joint Sponsors, legal and other professional fees, the Stock Exchange listing fees, printing and other expenses relating to the Introduction, are estimated to be approximately HK$28.0 million. Such listing expenses would be shared and payable by TCLM and our Company on a 50:50 basis.

21. Joint Sponsors

As at the Latest Practicable Date, BNP Paribas Securities (Asia) Limited is not independent pursuant to Rule 3A.07(9) of the Listing Rules given that it acted as the financial adviser to TCLM in relation to the Spin-off.

A1A 40

A1A 20(1)3rd Sch 15

A1A 8(1)(2)

3rd Sch 16

A1A 20(2)

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 22

Kim Eng Securities (Hong Kong) Limited declared its independence from the Company pursuant to

Rule 3A.08 of the Listing Rules and satisfies the independence criteria applicable to sponsors set out in

Rule 3A.07 of the Listing Rules.

The Joint Sponsors have made an application on behalf of our Company to the Listing Committee

for listing of, and permission to deal in, our Shares in issue as mentioned in this listing document. All

necessary arrangements have been made to enable such Shares to be admitted into CCASS.

22. Qualifications of experts

The following are the qualifications of the experts who have given opinions or advice which are

contained in this listing document:

Name Qualification

BNP Paribas Securities (Asia) Licenced to conduct type 1 (dealing in securities), type 2

Limited (dealing in futures contract), type 4 (advising on securities),

type 6 (advising on corporate finance) and type 7

(providing automated trading services) of regulated

activities under the SFO

Kim Eng Securities (Hong Kong) Licenced to conduct type 1 (dealing in securities), type 4

Limited (advis ing on secur i t ies) and type 6 (advis ing on

corporate finance) of regulated activities under the SFO

Ernst & Young Certified Public Accountants

Jia Yuan Law Office PRC Legal Advisers on PRC laws

Maples and Calder Cayman Islands Attorneys-at-law

Asset Appraisal Limited Professional property valuer

Euromonitor International Industry expert

23. Consents of experts

Each of named experts in paragraph 22 of this appendix has given and has not withdrawn their

respective written consents to the issue of this listing document with the inclusion of their report and/

or letter and/or opinion and/or summary of valuations and/or legal opinion (as the case may be) and the

references to their names or summaries of opinions included herein in the form and context in which they

respectively appear.

A1A 9(1)

3rd Sch 183rd Sch 43

A1A 9(2)A1A 9(3)S.342B

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 23

24. Taxation of holders of Shares

Dealings in Shares registered on our Company’s Hong Kong branch register of members

will be subject to Hong Kong stamp duty. Intending holders of Shares are recommended to consult

their professional advisers if they are in any doubt as to the taxation implications of subscribing for,

purchasing, holding or disposing of or dealing in Shares. It is emphasised that none of our Company, our

Directors or the other parties involved in the Introduction can accept responsibility for any tax effect on,

or liabilities of, holders of Shares resulting from their subscription, purchase, holding or disposal of or

dealing in Shares.

Profits from dealings in our Shares arising in or derived from Hong Kong may also be subject to

Hong Kong profits tax.

The sale, purchase and transfer of Shares are subject to Hong Kong stamp duty, the current rate of

which is 0.2% of the consideration or, if higher, the value of our Shares being sold or transferred.

Under present Cayman Islands law, transfers and other dispositions of Shares are exempt from

Cayman Islands stamp duty.

25. Miscellaneous

(a) Within two years preceding the date of this listing document:

(i) save as disclosed in the sections headed “History and Development – Our History”,

“Reorganisation” and “the Distribution and Spin-off – the Distribution” in this listing

document, no share or loan capital of our Company or of any of our subsidiaries has

been issued, agreed to be issued or is proposed to be issued fully or partly paid either

for cash or for a consideration other than cash;

(ii) save as disclosed in the sections headed “Reorganisation”, “the Distribution and Spin-

off – the Distribution”, “Share Capital” and the paragraphs headed “Changes in Share

Capital of our Company” and “Group Reorganisation” of this appendix in this listing

document, no share or loan capital of our Company or any of our subsidiaries is under

option or is agreed conditionally or unconditionally to be put under option;

(iii) no commissions, discounts, brokerages or other special terms have been granted in

connection with the issue or sale of any share or loan capital of our Company or any

of our subsidiaries; and

(iv) no commission has been paid or payable for subscribing or agreeing to subscribe, or

procuring or agreeing to procure the subscriptions, for any shares in our Company or

any of our subsidiaries;

(b) our Directors confirm that there has been no material adverse change in the financial or

trading position or prospects of our Group since 31 March 2013 (being the date to which the

latest audited combined financial statements of our Group were made up) and up to the date

of this listing document;

A1A 27

A1A 13

3rd Sch 14

A1A 34(1)(a)A1A 34(1)(b)A1A 38

APPENDIX V STATUTORY AND GENERAL INFORMATION

V – 24

(c) our Directors confirm that there has not been any interruption in the business of our Group

which may have or has had a significant effect on the financial position of our Group in the

12 months preceding the date of this listing document; and

(d) our Directors have been advised that no material liability for estate duty would be likely to

fall upon any member of our Group.

A1A 28(6)

A1A 10

APPENDIX VI DOCUMENTS AVAILABLE FOR INSPECTION

VI – 1

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Herbert Smith

Freehills at 23/F, Gloucester Tower, 15 Queen’s Road Central, Hong Kong during normal business hours

up to and including the date which is 14 days from the date of this listing document:

(a) the memorandum of association of our Company and the Articles;

(b) the Accountants’ Report prepared by Ernst & Young, the text of which is set out in Appendix

I to this listing document;

(c) the assurance report prepared by Ernst & Young on unaudited pro forma financial

information, the text of which is set out in Appendix II to this listing document;

(d) the audited combined financial statements of companies comprising our Company for each

of the three financial years ended 31 December 2010, 2011 and 2012 and the three months

ended 31 March 2013;

(e) the valuation report (including a letter, a summary of valuation and the valuation certificates)

prepared by Asset Appraisal Limited relating to the property interests of our Group, the text

of which is set out in Appendix III to this listing document;

(f) the Companies Law;

(g) the letter of advice prepared by Maples and Calder summarising certain aspects of Cayman

Islands company law as referred to in Appendix IV to this listing document;

(h) the legal opinions prepared by the Jia Yuan Law Office in respect of certain aspects of our

Group and the property interests of our Group in the PRC;

(i) the material contracts referred to in the sub-paragraph headed “Summary of material

contract” under the paragraph headed “Further Information about the Business of Our

Company” in Appendix V to this listing document; and

(j) the written consents referred to in the sub-paragraph headed “Consents of experts” under the

paragraph headed “Other Information” in Appendix V to this listing document.

S.342(1)(a)(iii)LR 19.10(6)

A1A 53(1)

A1A 53(4)

A1A 53(5)

A1A 53(3)

A1A 53(2)