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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  GET Holdings Limited    8100   BMG3867N1406

GET HOLDINGS LIMITED

(8100)
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GET : SUPPLEMENTARY ANNOUNCEMENT ON THE ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2016

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07/20/2017 | 11:18am EDT

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

GET HOLDINGS LIMITED

智 易 控 股 有 限 公 司 *

(Incorporated in the Cayman Islands and continued in Bermuda with limited liability)

(Stock code: 8100) SUPPLEMENTARY ANNOUNCEMENT ON THE ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2016

This announcement is made at the request of The Stock Exchange of Hong Kong Limited ("Stock Exchange").

Reference is made to the annual report of GET Holdings Limited ("Company", together with its subsidiaries, referred to as the "Group") for the year ended 31 December 2016 ("Annual Report"). Unless otherwise defined, capitalised terms used in this announcement shall have the same meanings as those defined in the Annual Report.

The board of directors ("Directors") of the Company ("Board") wishes to provide the shareholders of the Company and potential investors with additional information of the Group for the year ended 31 December 2016 as follows:

SOFTWARE BUSINESS

As disclosed in the Annual Report, the Group recorded an impairment loss on goodwill of approximately HK$30 million (2015: nil) in relation to the Boom Max Group, i.e. the cash generating unit ("CGU") of the Software Business.

Calculation of impairment loss

As at 31 December 2016, the carrying amount of the Boom Max Group was approximately HK$848 million which included (i) goodwill of approximately HK$500 million attributable to the Group's 65.177% interest in the Boom Max Group; (ii) goodwill of approximately HK$267 million attributable to the non-controlling interests in the Boom Max Group; and (iii) net operating assets of approximately HK$81 million of the Boom Max Group.

* For identification purposes only

As at 31 December 2016, the recoverable amount of the Boom Max Group was approximately HK$807 million (equivalent to approximately US$104,041,000, being an amount shown in the valuation report on the Boom Max Group for the year ended 31 December 2016 prepared by the independent valuer) which was determined based on the value in use ("VIU") using the valuation method of discounted cash flow. It requires estimates concerning future cash flows and associated discount rate and growth rate assumptions which are based on the management's expectation of future business performance and prospects of the Boom Max Group.

In accordance with Hong Kong Accounting Standard 36, an impairment loss shall be recognised for the CGU if the recoverable amount of the CGU is less than the carrying amount of the CGU. The impairment loss on goodwill of the Boom Max Group of approximately HK$41 million to reduce the carrying amount of the Boom Max Group of approximately HK$848 million to its recoverable amount of approximately HK$807 million. After the allocation of impairment loss to non-controlling interests, the Company recognised an impairment loss on goodwill of HK$30 million in relation to the Boom Max Group for the year ended 31 December 2016 in a prudent manner with reference to its holding of 65.177% interest in the Boom Max Group.

Key basis and assumptions adopted for projected cash flow of the Software Business

The expected average sales growth rate during the forecast period from 2017 to 2021 ("Forecast Period") in 2016 was 14.47% while the expected average sales growth rate during the forecast period from 2016 to 2020 in 2015 was 16.89%. As a result of the deteriorating financial performance and the decrease in the turnover of the Software Business in 2016 by approximately 12% as compared to that for 2015 due to volatility of the global economy, the management of the Group revised the 5-year cash flow forecast of the Boom Max Group based on the financial results of the Boom Max Group for the year 2016 in a conservative manner which resulted in the decrease in the recoverable amount of the CGU of the Software Business. As a result, the projected average sales growth rate for the Forecast Period in 2016 was lower as compared to the projection made in 2015. There were no significant changes in the basis adopted in the preparation of the projected cash flow for the Forecast Period in 2016 as compared with those adopted in the preparation of the projected cash flow for the forecast period from 2016 to 2020 in 2015, except for the application of the declining revenue of the Boom Max Group in 2016 as a base for the projected cash flow for the Forecast Period in 2016. The expected average sales growth rate during the Forecast Period was with reference to a research on software industry conducted on an international research platform for companies, industries and M&A deals analysis while similar approach was adopted for determining the then expected average sales growth rate during the forecast period from 2016 to 2020 in 2015. The expected annual gross profit margins and annual net profit margins during the Forecast Period were predicted to be maintained at the historical levels in 2015 and 2016 given that the information technology market and the global economy have not changed significantly.

The VIU of the CGU of the Software Business was developed through the application of the weighted-average-cost-of-capital ("WACC") to discount the free cash flows to the CGU. The WACC was calculated by taking into account the cost of equity and the cost of debt. The cost of equity is calculated according to the Capital Asset Pricing Model.

Risk-free Rate

1.97%

Levered Beta

0.951

Market Risk Premium

9.06%

Size Premium

5.60%

Cost of Equity 16.19%

The 10-year Hong Kong Sovereign Bond Yield as at 31 December 2016 ("Valuation Date") was used as the risk-free rate of Hong Kong because government bonds are regarded as risk- free. This rate, as obtained from an international research database, was approximately 1.97%. As the Company is listed on the Stock Exchange and the principal operating subsidiaries of the Boom Max Group are located in Hong Kong, reference is made to the Hang Seng index annualised expected return when determining the expected market return of Hong Kong. The expected market return of Hong Kong, a forward-looking rate, was approximately 11.03%. It is the annualised expected rate of return of Hong Kong equity market proxied as the market capitalisation weighted average of the expected internal rate of return of each company in the Hang Seng Index. The internal rate of return is derived using the dividend discount model based on estimates from market consensus taking into account dividend yield, growth rate and payout ratio by an international research database. Therefore, the market risk premium, which was the difference between the expected market return and the risk-free rate, was estimated to be 9.06%. The market risk premium is the additional required return over the risk free rate when investing in equity market. A small company risk premium of 5.60%, suggested by an international consulting firm based on its research and database, was applied to the relatively small size of the Boom Max Group. The small company risk premium can be added to cost of capital estimation models as an adjustment for the additional risk of smaller companies relative to large companies. The research done by the international consulting firm provides different size premiums for different companies with various range of market capitalisation. In the research, all companies on the New York Stock Exchange ("NYSE") were ranked by the combined market capitalisation of their eligible equity securities. The companies were then split into 10 equally populated groups or deciles. Eligible companies traded on the NYSE MKT (the former American Stock Exchange) and the Nasdaq National Market ("NASDAQ") were then assigned to the appropriate deciles according to their capitalisation in relation to the NYSE breakpoints. The market capitalisation of the Boom Max Group falls within the smallest range stated in the research and the corresponding small company risk premium was applied. The small company risk premium was calculated over the years from 1963 to 2015 during which the actual return in excess of risk free rate minus the return in excess of risk free rate as predicted by Capital Asset Pricing Model. The levered beta of approximately 0.951 was derived from the average of unlevered beta of approximately 0.868 guideline public companies in similar industries.

Guideline Public Companies

Unlevered Beta

AVG Technologies

0.867

NQ Mobile Inc.

0.959

Symantec Corporation

0.868

Trend Micro Inc

0.924

Check Point Software Technologies Ltd.

0.836

Absolute Software Corp

0.847

Advenica AB

0.691

F-Secure OYJ

0.954

Average of unlevered beta

0.868

The levered beta is calculated by multiplying

the unlevered beta to the multiple of (1

minus 16.50% of Hong Kong tax rate) and the ratio of debt to equity and then plus 1. As at the Valuation Date, the average debt to equity ratio of the comparable companies of approximately 11.43% was adopted as proxy to estimate the debt to equity ratio of the Boom Max Group. The amount of cost of debt adopted was 7% which was the sum of International Monetary Fund China Hong Kong Prime Loan Rate as at the Valuation Date of 5% and an additional percentage of 2%. International Monetary Fund China Hong Kong Prime Loan Rate of 5% was Hong Kong prime lending rate that commercial banks generally charged the most creditworthy clients as at the Valuation Date. An additional percentage of 2% was added to the cost of debt because of the credit risk for lending money to the Group. The WACC of the Boom Max Group for 2016 was approximately 15.13%. The terminal growth rate of approximately 3.28%, which was the average of the inflation rates of Hong Kong from 2007 to 2016, was applied in the valuation as of the Valuation Date.

There are no significant changes in the methodology and sources of market data applied in the valuation for 2016 except from (i) the removal of one of the guideline public companies, namely, Qihoo 360 Technology Company Ltd. which was delisted from the New York Stock Exchange in July 2016 and no information on that company was publicly available since then; and (ii) the addition of two guideline public companies, namely, Absolute Software Corp (ABT CN Equity) and Advenica AB (ADVE SS Equity). These two guideline public companies, which were previously dual-listed, were delisted from one of the listing venues in 2015 and excluded from the valuation for 2015 so as to avoid the comparison with companies with significant corporate action and great fluctuation in market data. Such change in the comparable companies led to a decrease in the WACC from 16.64% in 2015 to 15.13% in 2016. The projected cash flow for the Forecast Period from 2017 to 2021 was not affected by the change in the comparable companies. Companies satisfying the following criteria, are adopted as comparable companies for the valuation: (1) the comparable company is principally engaged in corporate management solutions and IT contract services related business; (2) the principal business of the comparable company is located in the PRC and/or Hong Kong;

(3) the shares of the comparable company are listed on major stock exchange and have been actively traded for a reasonable period of time; and (4) detailed financial and operational information in respect of the comparable company are publicly available.

GET Holdings Ltd. published this content on 20 July 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 20 July 2017 15:18:05 UTC.

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Managers
NameTitle
Long Zhang Chief Executive Officer & Executive Director
Jing Shong Wong Chairman & Compliance Officer
Tsan Kit Chui Independent Non-Executive Director
Yung Chan Independent Non-Executive Director
Hong Kei Cheng Independent Non-Executive Director
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