OKG Technology : Annual Report 2016

LEAP Holdings Group Limited

前進控股集團有限公司

(Incorporated in the Cayman Islands with limited liability) Stock Code: 1499

ANNUAL REPORT 2016

CONTENTS

Corporate Information	2
Chairman's Statement	3
Management Discussion and Analysis	4
Biographical Details of Directors and Senior Management	11
Corporate Governance Report	15
Directors' Report	26
Independent Auditors' Report	37
Consolidated Statement of Profit or Loss and Other Comprehensive Income	39
Consolidated Statement of Financial Position	40
Consolidated Statement of Changes in Equity	42
Consolidated Statement of Cash Flows	43
Notes to the Consolidated Financial Statements	44
Financial Highlights	94

LEAP Holdings Group Limited Annual Report 2016 1

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Mr. Ip Ying Chau (Chairman) Mr. Chan Wing Chung Ms. Tung Ah Pui Athena Mr. Chan Chiang Kan

Mr. Mui Wai Sum (Appointed on 29 April 2016)

Independent Non-executive Directors

Mr. Cheung Kwok Yan Wilfred

Mr. Feng Zhidong

Mr. Ho Ho Ming

AUDIT COMMITTEE

Mr. Cheung Kwok Yan Wilfred (Chairman)

Mr. Feng Zhidong

Mr. Ho Ho Ming

NOMINATION COMMITTEE

Mr. Ip Ying Chau (Chairman)

Mr. Ho Ho Ming

Mr. Feng Zhidong

REMUNERATION COMMITTEE

Mr. Feng Zhidong (Chairman)

Mr. Ip Ying Chau

Mr. Ho Ho Ming

COMPANY SECRETARY

Ms. So Hau Kit

AUTHORISED REPRESENTATIVES

Mr. Ip Ying Chau

Ms. Tung Ah Pui Athena

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Units 2701-02, 27th Floor, Win Plaza, 9 Sheung Hei Street, San Po Kong, Kowloon, Hong Kong

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN THE CAYMAN ISLANDS

Appleby Trust (Cayman) Ltd.

Clifton House, 75 Fort Street, PO Box 1350, Grand Cayman, KY1-1108, Cayman Islands

BRANCH SHARE REGISTRAR AND TRANSFER OFFICE IN HONG KONG

Union Registrars Limited

Suites 3301-04

Two Chinachem Exchange Square

338 King's Road

North Point, Hong Kong

COMPLIANCE ADVISER

TC Capital International Limited

Suites 1903-1904, 19th Floor, Tower 6, the Gateway, Harbour City, 9 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong

LEGAL ADVISER AS TO HONG KONG LAW

Loong and Yeung

Solicitors of Hong Kong

Room 1603, 16/F, China Building,

29 Queen's Road Central, Hong Kong

PRINCIPAL BANKS

The Hong Kong and Shanghai Banking Corporation

Limited

DBS Bank (Hong Kong) Limited

AUDITORS

HLB Hodgson Impey Cheng Limited

Certified Public Accountants

31st Floor, Gloucester Tower, The Landmark,

11 Pedder Street, Central, Hong Kong

COMPANY'S WEBSITE

www.leapholdings.hk

STOCK CODE

1499

2 LEAP Holdings Group Limited Annual Report 2016

CHAIRMAN'S STATEMENT

Dear Shareholders,

On behalf of the board (the "Board") of directors (the "Directors") of LEAP Holdings Group Limited (the "Company", together with subsidiaries of the Company, the "Group"), it is my pleasure to present to the shareholders the annual report of the Group for the year ended 31 March 2016 (the "Review Period").

The Company was successfully listed (the "Listing") on the Main Board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange") on 2 September 2015 (the "Listing Date"). This is an important milestone of our history and the listing status has elevated the Group in all business aspects, especially in establishing a better reputation in the industry for taking new projects. This is particularly crucial to the Group in the face of the expected growth in the construction industry due to the active development in residential property market and infrastructures in Hong Kong. We accept the challenge to maximise value to our shareholders, and to this end, we have considered carefully in deploying the net proceeds received from the share offer with reference to market condition and in accordance with the prospectus of the Company dated 21 August 2015 (the "Prospectus").

Over the financial year, our project works remained robust, especially for our foundation works and ancillary work services, with increase in revenue by approximately HK$88.3 million for the Review Period as compared to the previous year in this segment. Revenue from the construction wastes handling services also showed improvement, segment revenue was recorded at approximately HK$67.2 million the Review Period, representing an increase of approximately HK$5.6 million as compared to the previous year.

Although our Group's profits attributable to owners of the Company decreased by approximately HK$9.3 million or 24.1% from approximately HK$38.5 million for the year ended 31 March 2015 to approximately HK$29.2 million for the Review Period, the decrease in profits attributable to owners of the Company was mainly due to the non- recurring listing expenses of approximately HK$12.0 million (2015: HK$3.8 million) incurred during the Review Period. Excluding the aforementioned non-recurring expenses, our Group's profits attributable to owners of the Company would have been approximately HK$41.2 million for the Review Period.

Our Group has been relentlessly looking for new businesses, despite the uncertainty the construction industry in Hong Kong is facing, including the drop in amounts of capital works projects due to filibustering in the Legislative Council causing delay in funding approval for public works. During the Review Period, our Group managed to be awarded 14 new contracts with total contract value of approximately HK$274.0 million.

We envisage demand for foundation works will remain high owing to the housing market driven by property investments and a growing population. I note that the Government intends to increase construction supply and provide a lot of opportunities. According to the 2015-16 Budget Speech, the Government is budgeted to invest approximately HK$76.3 billion on public infrastructure. We would continue to focus on our core businesses of foundation works and ancillary services and construction wastes handling services in Hong Kong.

The Group entered the FY2017 with good momentum and we remain optimistic for the long term in spite of the increase in the number of competitors in the industry.

On behalf of the Board, I wish to take this opportunity to thank our dedicated employees for their continued loyalty, diligence and contributions throughout the year. I would also like to express my sincere gratitude to our shareholders, business partners, customers, suppliers and subcontractors for their continued support to our Group.

Ip Ying Chau

Chairman and Chief Executive Officer

LEAP Holdings Group Limited Annual Report 2016 3

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Group's major sources of revenue were from foundation works and ancillary services and construction wastes handling services in Hong Kong.

The Company's shares (the "Shares") were successfully listed on the Stock Exchange on 2 September 2015 when 286,000,000 new Shares had been offered for subscription and 286,000,000 Shares for sale, at an offer price of HK$0.25 per Share.

Foundation Works and Ancillary Services

The foundation works of the Group mainly included site formation works, excavation and lateral support ("ELS") works, piling construction, pile caps or footing construction and reinforced concrete structure works and ancillary services mainly included hoarding and demolition works and lease of machinery.

During the Review Period, revenue from this segment amounted to approximately HK$332.1 million, approximately HK$88.3 million more than that for the year ended 31 March 2015. Such growth was mainly attributable to the commencement of the newly awarded projects in Ma On Shan, Kwun Tong and Aberdeen. During the Review Period, such projects contributed significantly to the growth of the Group's revenue in this segment and recorded revenue of approximately HK$68.2 million.

Gross profit of this segment during the Review Period was approximately HK$61.4 million, increased approximately 4.3% as compared with approximately that of HK$58.9 million for the year ended 31 March 2015. Such increase was mainly due to the commencement of the newly awarded projects in Ma On Shan, Kwun Tong and Aberdeen. Gross profit margin of this segment for the Review Period was approximately 18.5%, representing a decrease of 5.7 percentage points from approximately that of 24.2% for the year ended 31 March 2015. The decrease was mainly due to various design-and-build foundation and ancillary services projects with higher gross profit margin in North Point, Kwai Chung and Causeway Bay had carried out substantial work in the previous financial year.

4 LEAP Holdings Group Limited Annual Report 2016

MANAGEMENT DISCUSSION AND ANALYSIS (continued)

Construction Wastes Handling Services

The Group's construction wastes handling services mainly included the management and operation of public fill reception facilities such as public fill banks and temporary construction waste sorting facilities, for construction and demolition materials.

During the Review Period, revenue from this segment amounted to approximately HK$67.2 million, increased approximately HK$5.6 million as compared with that of HK$61.6 million for the year ended 31 March 2015. Gross profit of this segment for the Review Period was approximately HK$9.0 million, increased approximately 164.1% as compared with that of HK$3.4 million for the year ended 31 March 2015. Such increase was mainly due to decrease in cost of sales. The decrease in cost of sales was mainly attributable to: (i) the decrease in cost of diesel fuel for transportation as a result of decreased average purchase price of diesel fuel; (ii) the decrease in the machinery rental cost after the addition of machinery and motor vehicles; and (iii) the decrease in the usage of parts and consumables for machinery and motor vehicles after the replacement of old ones. Gross profit margin of this segment for the Review Period was approximately 13.4%, representing an increase of 7.9 percentage points from approximately 5.5% for the year ended 31 March 2015. Such increase was mainly due to the decrease in cost of sales as mentioned above.

New Projects Awarded

During the Review Period, the Group had been awarded 14 new contracts with total contract value of approximately HK$274.0 million. Details of the new projects were as follows:

Type of Projects	Site Location	Type of Works
Foundation Works and Ancillary Services	Southern district	Foundation works
Foundation Works and Ancillary Services	Eastern district	Bored piles construction works
Foundation Works and Ancillary Services	Yau Tsim Mong district	Disposal of excavated materials
Foundation Works and Ancillary Services	Sai Kung district	Hoarding, pipe pile and king post works
Foundation Works and Ancillary Services	Tsuen Wan district	Hoarding and demolition works
Foundation Works and Ancillary Services	Kowloon City district	Piling foundation works and ancillary works
Foundation Works and Ancillary Services	Yuen Long district	Site formation, ELS and concrete
		footing construction
Foundation Works and Ancillary Services	Wan Chai district	Hoarding and demolition works
Foundation Works and Ancillary Services	Southern district	Piling foundation works and ancillary works
Foundation Works and Ancillary Services	Kowloon City district	Site formation works
Foundation Works and Ancillary Services	Southern district	Ground investigation related works
Foundation Works and Ancillary Services	Eastern district	Hoarding, foundation and ELS works
Foundation Works and Ancillary Services	Sha Tin district	Hoarding, foundation and ELS works
Foundation Works and Ancillary Services	Kwun Tong district	ELS works

LEAP Holdings Group Limited Annual Report 2016 5

MANAGEMENT DISCUSSION AND ANALYSIS (continued)

Projects in Progress

As at 31 March 2016, the Group had 18 projects in progress with total contract value amounted to approximately HK$650.3 million. Details of projects in progress were as follows:

Type of Projects	Site Location	Type of Works
Foundation Works and Ancillary Services	Southern district	Foundation works
Foundation Works and Ancillary Services	Eastern district	Bored piles construction works
Foundation Works and Ancillary Services	Yau Tsim Mong district	Disposal of excavated materials
Foundation Works and Ancillary Services	Sai Kung district	Hoarding, pipe pile and king post works
Foundation Works and Ancillary Services	Tsuen Wan district	Hoarding and demolition works
Foundation Works and Ancillary Services	Kowloon City district	Piling foundation works and ancillary works
Foundation Works and Ancillary Services	Yuen Long district	Site formation, ELS and concrete footing
		construction
Foundation Works and Ancillary Services	Wan Chai district	Hoarding and demolition works
Foundation Works and Ancillary Services	Southern district	Piling foundation works and ancillary works
Foundation Works and Ancillary Services	Eastern district	Hoarding, foundation and ELS works
Foundation Works and Ancillary Services	Sha Tin district	Hoarding, foundation and ELS works
Foundation Works and Ancillary Services	Kwun Tong district	ELS works
Foundation Works and Ancillary Services	Kwai Tsing district	Reinforced concrete structure works
Foundation Works and Ancillary Services	Sha Tin district	Site formation and ELS works
Foundation Works and Ancillary Services	Yau Tsim Mong district	ELS and piling works
Foundation Works and Ancillary Services	Yau Tsim Mong district	ELS and piling and structure works
Foundation Works and Ancillary Services	Yau Tsim Mong district	Earthwork
Construction Wastes Handling	Tseung Kwan O Area	Operation of temporary construction
	137 and Tuen Mun	waste sorting facilities
	Area 38

Completed Projects

During the Review Period, the Group completed 11 projects. Details of completed projects were as follows:

Type of Projects	Site Location	Type of Works
Foundation Works and Ancillary Services	Kowloon City district	Site formation works
Foundation Works and Ancillary Services	Southern district	Ground investigation related works
Foundation Works and Ancillary Services	Kowloon City district	Sheet piling works
Foundation Works and Ancillary Services	Tai Po district	Removal and disposal of existing filled materials
Foundation Works and Ancillary Services	Southern district	Foundations, ELS and pile caps works
Foundation Works and Ancillary Services	Sha Tin district	Site formation works
Foundation Works and Ancillary Services	Sha Tin district	Foundation works
Foundation Works and Ancillary Services	Eastern district	Foundation, ELS and pile cap works
Foundation Works and Ancillary Services	Eastern district	Site formation and foundation works
Foundation Works and Ancillary Services	Kwai Tsing district	Site formation and ELS works
Foundation Works and Ancillary Services	Wan Chai district	Foundation works

6 LEAP Holdings Group Limited Annual Report 2016

MANAGEMENT DISCUSSION AND ANALYSIS (continued)

FINANCIAL REVIEW

Revenue

Revenue increased significantly by approximately 30.8% from approximately HK$305.3 million for the year ended 31 March 2015 to approximately HK$399.3 million for the Review Period. The growth is mainly due to the commencement of the newly awarded projects in Ma On Shan, Kwun Tong and Aberdeen during the Review Period.

Gross profit and gross profit margin

Gross profit increased by approximately 13.0% from approximately HK$62.3 million for the year ended 31 March 2015 to approximately HK$70.4 million for the Review Period. The increase in gross profit was mainly due to the increase in business activities of the commencement of the newly awarded projects mentioned above. Gross profit margin for the Review Period was approximately 17.6%, representing a decrease of 2.8 percentage points from approximately 20.4% for the year ended 31 March 2015. The decrease was mainly due to the lower gross profit margin achieved for the foundation works and ancillary services segment as a result of the carrying out of substantial works for projects located in North Point, Kwai Chung and Causeway Bay, which have a higher gross profit margin, during the year ended 31 March 2015.

Other income and net gains

Other income and net gains mainly consisted of interest income, gain or loss on the disposal of property, plant and equipment and government grants. During the Review Period, other income and net gains amounted to approximately HK$0.9 million (2015: HK$6.2 million).

Administrative and other operating expenses

The administrative and other operating expenses of the Group for the Review Period amounted to approximately HK$32.6 million, representing an increase of approximately 83.7% compared with approximately HK$17.7 million for the year ended 31 March 2015. Such increase was mainly due to the one-off listing expenses incurred of approximately HK$12.0 million (2015: HK$3.8 million), increase in staff costs and charity donation during the Review Period.

Finance costs

Finance costs decreased by approximately 20.7% from approximately HK$1.4 million for the year ended 31 March 2015 to approximately HK$1.1 million for the Review Period, which is mainly due to the decrease in the amount of bank borrowings during the Review Period. Most of the new borrowings drawn during the Review Period was made during the end of the Review Period and as such the said new borrowings did not have a significant impact on finance costs for the Review Period.

LEAP Holdings Group Limited Annual Report 2016 7

MANAGEMENT DISCUSSION AND ANALYSIS (continued)

Income tax expense

Income tax expense increased by approximately 7.6% from approximately HK$7.9 million for the year ended 31 March 2015 to approximately HK$8.5 million for the Review Period. Such increase was due to the one-off listing expenses which was not tax deductible.

Profit for the year

The Group recorded a net profit of approximately HK$29.2 million for the Review Period, representing a decrease of approximately 29.8% compared with approximately HK$41.6 million for the year ended 31 March 2015. The decrease in the profit for the year was mainly due to the increase in administrative and other operating expenses as discussed above.

PROSPECTS

Affordable housing supply is expected to increase because of the continual hyperactive housing market driven by property investments and a growing population. Therefore, demand for foundation works is expected to remain high. According to the 2015 Policy Address, the private sector is expected to produce about 14,600 flats per year in the coming five years, compared with about 11,400 flats per year in the past five years. The demand for commercial buildings is also expected to remain high, given the number of newly registered companies in Hong Kong continues to grow, from about 139,530 units in 2010 to about 167,280 units in 2014. This implies the continual demand for office space and hence foundation works. According to the 2015-16 Budget Speech, the Government is budgeted to invest approximately HK$76.3 billion on public infrastructure. The investment will cover (i) the proposal of developing a new commercial district between Hong Kong Island and Lantau Island through building an artificial island; and (ii) the feasibility study of the six sites inside the hotel belt near Victoria Harbour and next to the Kai Tak Cruise Terminal. As a result, with the Government's initiative, it is expected the demand for foundation works service will continue to increase in Hong Kong, providing opportunities for the growth of the foundation industry. However, the construction industry becomes more and more competitive due to the increase in the number of competitors. As such, the Group strives to develop its relationship with different customers for exploring future opportunities. The Group would continue to focus on its core businesses on foundation works and ancillary services and construction wastes handling services in Hong Kong. In order to achieve the continuing growth of its core businesses, the Group would reinforce its well-established position in the market via its reputation, expertise and experienced management.

8 LEAP Holdings Group Limited Annual Report 2016

MANAGEMENT DISCUSSION AND ANALYSIS (continued)

USE OF PROCEEDS FROM THE INITIAL PUBLIC OFFERING

The net proceeds from the share offer received by the Company in relation to the Listing were approximately HK$60.2 million, after deduction of underwriting fees and commissions and expenses. These proceeds are intended to be applied in accordance with the proposed application set out in the section headed "Future plans and use of proceeds" in the Prospectus. Such uses were to acquire machinery and equipment, strengthen the workforce and manpower, repay the outstanding bank borrowings to reduce our finance costs and fund general working capital as follows:

		Actual use of
		proceeds from
		the Listing
	Planned use	Date to 31
	of proceeds	March 2016
	HK$'000	HK$'000
Repayment of the outstanding bank borrowing	8,000	5,583
Acquisition of machinery and equipment	36,500	27,646
Strengthening the workforce and manpower	10,200	4,718
General working capital	5,500	5,500
	60,200	43,447

The Directors are not aware of material change to the planned use of proceeds as at the date of this report. Any net proceeds that were not applied immediately have been placed in the short-term demand deposits with authorised financial institutions or licensed banks in Hong Kong as at the date of this report.

LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES

The Group has funded the liquidity and capital requirements primarily through capital contributions from shareholders, bank borrowings, cash inflows from operating activities and proceeds received from the Listing on the Listing Date.

As at 31 March 2016, the Group had cash and bank balances of approximately HK$50.3 million (31 March 2015: approximately HK$22.5 million). The increase was mainly due to the net proceeds received from the Listing. The interest-bearing loans of the Group as at 31 March 2016 was approximately HK$29.9 million (31 March 2015: approximately HK$25.7 million).

The gearing ratio is calculated based on the amount of total interest-bearing loans divided by total equity. The gearing ratio of the Group as at 31 March 2016 was approximately 17.9% (as at 31 March 2015: approximately 29.8%). As a result of the increased equity following the Listing, the Group's gearing ratio decreased. The Group did not carry any hedging for its floating borrowings.

LEAP Holdings Group Limited Annual Report 2016 9