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If you are in any doubt as to any aspect of this circular or as to the action to be taken, you shouldconsult your stockbroker or other registered dealer in securities, bank manager, solicitor, professionalaccountant or other professional advisers.

If you have sold or transferred all your shares in SDM Group Holdings Limited, you should at oncehand this circular to the purchaser, the transferee or to the bank, stockbroker or other agent throughwhom the sale or transfer was effected for transmission to the purchaser or transferee.

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

SDM Group Holdings Limited(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8363)

VERY SUBSTANTIAL ACQUISITIONAND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial adviser to the Company

Capitalised terms used in this cover page shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 5 to 38 of this circular.

A notice convening the EGM to be held on Monday, 23 September 2019 at 2:30 p.m. at No. 6Cambridge Road, Kowloon Tong, Kowloon, Hong Kong is set out on pages EGM-1 to EGM-3 of thiscircular.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attendthe EGM, you are requested to complete the form of proxy in accordance with the instructions printedthereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong,Union Registrars Limited at Suites 3301–04, 33/F., Two Chinachem Exchange Square, 338 King’s Road,North Point, Hong Kong as soon as possible but in any event not less than 48 hours before the timeappointed for holding of the EGM or any adjournment thereof. Completion and return of the form ofproxy will not preclude you from attending and voting in person at the EGM or any adjournment thereofshould you so wish, and in such event, the form of proxy shall be deemed to be revoked.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

3 September 2019

GEM has been positioned as a market designed to accommodate small and mid-sizedcompanies to which a higher investment risk may be attached than other companies listedon the Exchange. Prospective investors should be aware of the potential risks of investingin such companies and should make the decision to invest only after due and carefulconsideration.

Given that the companies listed on GEM are generally small and mid-sizedcompanies, there is a risk that securities traded on GEM may be more susceptible to highmarket volatility than securities traded on the Main Board and no assurance is given thatthere will be a liquid market in the securities traded on GEM.

CHARACTERISTICS OF GEM

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Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Appendix I — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

Appendix II — Accountants’ report of Ability Education . . . . . . . . . . . . . . . . . . . . . II-1

Appendix III — Accountants’ report of Institute Training . . . . . . . . . . . . . . . . . . . . III-1

Appendix IV — Unaudited pro forma financialinformation of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

Appendix V — Management discussion andanalysis of the Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

Appendix VI — Valuation report on the Target Companies . . . . . . . . . . . . . . . . . . . VI-1

Appendix VII — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1

Notice of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EGM-1

CONTENTS

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In this Circular, unless the context otherwise requires, the following expressions have thefollowing meanings:

‘‘Ability Completion’’ completion of the acquisition of the Ability Sale Shares inaccordance with the terms and conditions of the AbilitySale and Purchase Agreement

‘‘Ability Completion Date’’ the date of the Ability Completion, being (a) 5 BusinessDays after the first date by which all conditions precedentunder the Ability Sale and Purchase Agreement (other thancondition precedent (d)) have been fulfilled (or waived); or(b) any other date agreed in writing between the parties

‘‘Ability Education’’ Ability Education Pty Ltd, a limited company incorporatedin Australia and one of the Target Companies

‘‘Ability Sale and PurchaseAgreement’’

the agreement entered into between the Purchaser, SDMGroup Limited, the original guarantor and the Vendor on 14January 2019 in relation to the acquisition of the entireissued share capital of Ability Education by the Purchaseras varied by the Deeds of Variation

‘‘Ability Sale Shares’’ 1,200 ordinary shares, 50 class A shares and 50 class Bshares of Ability Education, representing the entire issuedshare capital of Ability Education upon Completion of theAbility Sale and Purchase Agreement

‘‘Acquisition’’ the Acquisition of the Sale Shares by the Purchaserpursuant to the Sale and Purchase Agreements

‘‘Announcement’’ the announcement of the Company dated 14 January 2019in relation to, among other things, the Acquisition

‘‘associate(s)’’ has the meaning as ascribed to it under the GEM ListingRules

‘‘AUD’’ Australian dollar, the lawful currency in Australia

‘‘Board’’ the board of Directors

‘‘Bond Placing’’ the placing of unlisted bonds pursuant to the placingagreement dated 11 December 2017

‘‘Business Day(s)’’ a day that is not a Saturday, Sunday, public holiday or bankholiday in Melbourne, Victoria, Australia

‘‘Company’’ SDM Group Holdings Limited, a company incorporated inthe Cayman Islands with limited liability and the Shares ofwhich are listed on the GEM of the Stock Exchange

DEFINITIONS

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‘‘Completion Date’’ the date of the Completion, being (a) 5 Business Days afterthe first date by which all conditions precedent under theAbility Sale and Purchase Agreement or Institute Sale andPurchase Agreement (other than condition precedent (d))have been fulfilled or waived (as the case may be); or (b)any other date agreed in writing between the parties

‘‘Completions’’ Ability Completion and Institute Completion

‘‘connected person(s)’’ has the meaning ascribed to it under the GEM Listing Rules

‘‘Deeds of Variation’’ the deeds of variation dated 29 March 2019, 21 May 2019and 30 August 2019 entered into between the parties of theSale and Purchase Agreements and the stakeholder of thedeposits in relation to the extension of the Long Stop Dateand the change of the guarantor from SDM Group Limited,a wholly-owned subsidiary of the Company, to theCompany

‘‘Director(s)’’ the director(s) of the Company

‘‘EBITDA’’ earnings before interest, tax, depreciation and amortization

‘‘EGM’’ the extraordinary general meeting of the Company to beheld on Monday, 23 September 2019 at 2:30 p.m. at No. 6Cambridge Road, Kowloon Tong, Kowloon, Hong Kong toapprove, inter alia, the Sale and Purchase Agreements andthe transactions contemplated thereunder

‘‘ELICOS’’ English Language Intensive Courses for Overseas Students

‘‘Enlarged Group’’ the Group as enlarged by the Acquisition

‘‘GEM’’ the GEM of the Stock Exchange

‘‘GEM Listing Rules’’ The Rules Governing the Listing of Securities on the GEM

‘‘Group’’ the Company and its subsidiaries

‘‘Guarantor’’ the Company

‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong

‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

‘‘Institute Completion’’ completion of the acquisition of the Institute Sale Shares inaccordance with the terms and conditions of the InstituteSale and Purchase Agreement

DEFINITIONS

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‘‘Institute Completion Date’’ the date of the Institute Completion, being (a) 5 BusinessDays after the first date by which all conditions precedentunder the Institute Sale and Purchase Agreement (other thancondition precedent (d)) have been fulfilled (or waived); or(b) any other date agreed in writing between the parties

‘‘Institute Sale and PurchaseAgreement’’

the agreement entered into between the Purchaser, SDMGroup Limited, the original guarantor and the Vendor on 14January 2019 in relation to the acquisition of the entireissued share capital of Institute Training by the Purchaseras varied by the Deeds of Variations

‘‘Institute Sale Shares’’ 1,000 ordinary shares of Institute Training, representing theentire issued share capital of Institute Training uponCompletion of the Institute Sale and Purchase Agreement

‘‘Institute Training’’ Childrens Services Education Pty Ltd, a limited companyincorporated in Australia and one of the Target Companies

‘‘Latest Practicable Date’’ 30 August 2019, being the latest practicable date prior tothe printing of this circular for the purpose of ascertainingcertain information contained herein

‘‘Long Stop Date’’ the Ability Long Stop Date (as defined below) and theInstitute Long Stop Date (as defined below)

‘‘PRC’’ the People’s Republic of China, which for the purpose ofthis circular, excludes Hong Kong, the Macau SpecialAdministrative Region of the PRC and Taiwan

‘‘Purchaser’’ Australian Apex Education Pty Ltd, a limited companyincorporated in Australia and a wholly-owned subsidiary ofthe Company

‘‘S$’’ Singapore dollars, the lawful currency of the Republic ofSingapore

‘‘Sale and PurchaseAgreements’’

the Ability Sale and Purchase Agreement and the InstituteSale and Purchase Agreement

‘‘Sales Shares’’ the Ability Sale Shares and the Institute Sale Shares

‘‘Share(s)’’ ordinary share(s) of HK$0.1 each in the share capital of theCompany

‘‘Shareholder(s)’’ holder(s) of the Share(s)

‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

DEFINITIONS

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‘‘Target Companies’’ Ability Education and Institute Training

‘‘US$’’ United States of America dollar, the lawful currency of theUnited States of America

‘‘Vendor’’ MEGT (Australia) Ltd, a limited company incorporated inAustralia

‘‘VET’’ vocational education and training

‘‘%’’ per cent.

For illustration purpose only and unless otherwise stated, the conversion of AUD to HK$are based on the exchange rate of AUD1.00 = HK$5.70. No presentation is made that anyamounts in AUD and HK$ have been or could be converted at the relevant dates at the aboverate or any other rates or at all.

DEFINITIONS

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(Stock Code: 8363)

Executive Directors:Mr. Chiu Ka Lok (Chairman)Mr. Chun Chi Ngon Richard(Chief Executive Officer)

Non-executive Directors:Dr. Chun ChunMs. Yeung Siu Foon

Independent non-executive Directors:Mr. Lau Sik YuenDr. Yuen Man Chun RoyceMr. Chak Chi Shing

Registered office:Clifton House75 Fort StreetP.O. Box 1350Grand Cayman, KY1-1108Cayman Islands

Head office and principal place of businessin Hong Kong:

Room 202B, 2/FLiven House62–63 King Yip StreetKwun TongHong Kong

3 September 2019

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITIONAND


INTRODUCTION

Reference is made to the Announcement whereby the Board announced that after tradinghours on 14 January 2019 (as amended by an announcement of the Company dated 29 January2019), the Purchaser and SDM Group Limited, a wholly-owned subsidiaries of the Company,entered into the Sale and Purchase Agreements with the Vendor, pursuant to which thePurchaser has conditionally agreed to acquire and the Vendor has conditionally agree to sellthe Sale Shares, which represented the entire issued share capital of the Target Companies, atan aggregate consideration of AUD7,600,000 (equivalent to approximately HK$43,320,000),subject to adjustment.

Reference is made to the announcement of the Company dated 29 March 2019 wherebythe Board announced that, on 29 March 2019, the Company, the Purchaser, SDM GroupLimited, the Vendor and the stakeholder of the deposits entered into a deed of variation,pursuant to which the parties agreed to remove SDM Group Limited as the guarantor in theSale and Purchase Agreements and the Company shall assume all obligations and liabilities of

LETTER FROM THE BOARD

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SDM Group Limited as the Guarantor in the Sale and Purchase Agreements and would bebound by the terms as the Guarantor in the Sale and Purchase Agreements with effect on andfrom 14 January 2019.

Reference is made to the announcement of the Company dated 21 May 2019 and 30August 2019 whereby the Board announced that, on 21 May 2019 and 30 August 2019, theCompany, the Purchaser, the Vendor, Ability Education and Institute Training entered intodeeds of variation to further extend the Long Stop Date.

The purpose of this circular is to provide you with, among other things, (i) further detailsof the Sale and Purchase Agreements and the transactions contemplated thereunder; (ii) theaccountants’ report of the Target Companies; (iii) pro forma financial information on theEnlarged Group; (iv) the valuation report on the Target Companies; and (v) a notice of theEGM and a proxy form.

(1) THE ABILITY SALE AND PURCHASE AGREEMENT

Date

14 January 2019

Parties

Purchaser: Australian Apex Education Pty Ltd, a wholly-owned subsidiary of theCompany

Guarantor the Company

Vendor MEGT (Australia) Ltd

To the best of knowledge, information and belief of the Directors, after having madeall reasonable enquiries, the Vendor is a third party independent of the Company andconnected persons of the Company.

Assets to be acquired

The Vendor has conditionally agreed to sell, and the Purchaser has conditionallyagreed to purchase, the Ability Sale Shares, representing the entire issued share capital ofAbility Education. Accordingly, the Purchaser will assume the business operation ofAbility Education, including but not limited to its licenses, assets, liabilities andemployees, upon Ability Completion.

The Ability Education meets the ELICOS National Standards of Australia andpossesses the Commonwealth Register of Institutions and Courses for Overseas Students(CRICOS) license under the Australian Skills Quality Authority (ASQA) of the AustralianGovernment, which allows Ability Education to provide courses to international studentsstudying on student visas. As one of the conditions precedent of the Ability Sale andPurchase Agreement, in December 2018, ASQA has completed its audit on Ability


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Education and its existing CRICOS license will remain valid until July 2020. Given (i)Ability Education did not meet any difficulties in renewing such licenses in the past; (ii)with reference to a letter issued by ASQA dated 12 December 2018 in relation to thelatest audit result in December 2018, ASQA did not terminate or revoke the licenses; and(iii) the advice received by the Company from professional parties specialised in mattersin relation to compliance and renewal of licenses with ASQA, the Company expectsAbility Education will have no difficulty in renewing the licenses and that such licenseswill be renewed shortly before its expiration and will have a valid period of at least fiveto seven years upon renewal.

Consideration and payment

The net consideration of approximately AUD37,865 (equivalent to approximatelyHK$216,000) for the Ability Sale Shares is determined after arm’s length negotiationbetween the Vendor and the Purchaser which will be calculated in accordance with thefollowing formula:

Net consideration = Gross consideration + Target working capital (subject toadjustment)

where:

(i) the gross consideration is AUD4,560,000 (equivalent to approximatelyHK$25,992,000) which is determined after arm’s length negotiation betweenthe Vendor and the Purchaser taking into account

(a) Ability Education possesses all necessary licenses to provide courses tointernational students studying on student visas;

(b) the application of new licenses is lengthy and costly as the applicant isrequired to have existing campuses readily available to provide educationservices before such application, while the renewal procedure of suchlicenses is relatively simple. With reference to the relevant industrypractice, the Group estimates that it may incur no less than AUD5,000,000(equivalent to approximately HK$28,500,000) over a period of at least ninemonths for the application of new licenses with capacity comparable tothat of Ability Education;

(c) the existing learning materials and student base of Ability Education andits collaboration with a number of reputable institutions, colleges anduniversities;

(d) the campuses of Ability Education are located in central business districtsof Sydney and Melbourne, Australia; and

(e) the consideration offered to the Vendor by independent third parties;


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(ii) the target working capital represents the net assets or liabilities of AbilityEducation excluding property, plant and equipment, intangible assets and cashdue to the fact that

(a) it is expected that Ability Education may distribute cash to the Vendorprior to Ability Completion; and

(b) the assets and liabilities of Ability Education (other than property, plantand equipment, intangible assets and cash) prior to Ability Completionrepresent cash not yet received or paid which should belong to the Vendor.

As such, the amount of assets and liabilities of Ability Education (other thanproperty, plant and equipment, intangible assets) should be deducted from oradded back to the gross consideration in calculating the net consideration.

Pursuant to the Ability Sale and Purchase Agreement, the target working capitalof Ability Education is net liabilities of AUD4,522,135 (equivalent toapproximately HK$25,776,000) (the ‘‘Ability Target Working Capital’’),which is calculated with reference to the financial information of AbilityEducation as at 30 June 2018.

The net consideration shall be satisfied by the Purchaser in cash in the followingmanner:

(a) a deposit of AUD100,000 (equivalent to approximately HK$570,000) was paidby the Purchaser to an escrow account; and

(b) the remaining balance shall be paid by the Purchaser to the Vendor upon theAbility Completion, subject to adjustment of the Ability Target Working Capitalwith the Ability Adjustment Amount (as defined below).

The Directors consider that the calculation of net consideration for the Ability SaleShares is fair and reasonable as the valuation exceeds the net consideration of the AbilitySale Shares, based on (i) the valuation of 100% equity interest of Ability Education ofapproximately AUD2,976,000 (equivalent to approximately HK$16,963,000) asdetermined by an independent third party valuer, Avista Valuation Advisory Limited,using the market approach on the enterprise value based on the EBITDA of comparablecompanies which primarily provide education services in Australia with publicly availablefinancial information; and (ii) the expected net consideration of approximatelyAUD37,865 (equivalent to approximately HK$216,000) as determined based on thefinancial information of Ability Education as at 30 June 2018.

The consideration shall be financed by (i) the net proceeds raised from the BondPlacing by the Company in December 2017; and (ii) internal financial resources of theCompany.


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Working capital adjustment on consideration

The Vendor shall deliver to the Purchaser the management balance sheet of AbilityEducation within 30 days upon Ability Completion with calculation of the working capitalof Ability Education (the ‘‘Ability Completion Account’’). The amounts stated in theAbility Completion Account are subject to the verification of the Purchaser and thePurchaser has engaged professional parties in Australia on the verification of the AbilityCompletion Account. The consideration for the Ability Sale and Purchase Agreementshall be subject to adjustment based on the Ability Completion Account (the ‘‘AbilityAdjustment Amount’’).

In the event the asset balance of the target working capital as shown in the AbilityCompletion Account is:

(a) equal to the Ability Target Working Capital, the consideration will not beadjusted;

(b) greater than the Ability Target Working Capital, the Purchaser must pay to theVendor an amount equal to the difference as an increase of the consideration;and

(c) less than the Ability Target Working Capital, the Vendor must pay to thePurchaser an amount equal to the difference as a decrease of the consideration.

The Purchaser must pay to the Vendor or the Vendor must pay to the Purchaser (asthe case may be) the Ability Adjustment Amount within 10 Business Days after the end ofthe respective objection period, being 10 Business Days upon the issue of the AbilityCompletion Account.

The Purchaser, the Vendor and the Guarantor shall enter into an escrow deedpursuant to the Ability Sale and Purchase Agreement. The Vendor shall pay an amount upto approximately AUD731,000 (equivalent to approximately HK$4,167,000) (the ‘‘Set-offCap’’) to an escrow account on Ability Completion, which shall be (i) released to thePurchaser in the event the net consideration for the Ability Sale Shares and/or theInstitute Sale Shares is negative; and/or (ii) applied as the payment for the netconsideration of the Institute Sale Shares. The Set-off Cap is determined after arm’slength negotiation between the Vendor and the Purchaser taking into account an amountof AUD1 million in addition to the then target working capital of Ability Education at thetime of the negotiation, after netting off the final target working capital as disclosed inthe Ability Sale and Purchase Agreement.

In the event the absolute value of the negative consideration for the Ability SaleShares and/or the Institute Sale Shares, being the amount payable by the Vendor to thePurchaser, exceeds the absolute value of the Set-off Cap, the Vendor must pay the excessamount to the Purchaser in cash within 10 Business Days after the end of the objectionperiod.


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Based on the latest financial information of Ability Education as at 31 March 2019,the target working capital of Ability Education was liability balance of approximatelyAUD4,285,000 (equivalent to approximately HK$24,425,000). As such, it is expected thatthe net consideration for the Ability Sale Shares shall be approximately AUD275,000(equivalent to approximately HK$1,568,000) based on the latest financial information ofAbility Education as at 31 March 2019. Please refer to the section headed ‘‘Informationon the Target Companies — Ability Education’’ for the detailed illustrative calculation ofthe target working capital of Ability Education as at 31 March 2019.

The Directors consider that the target working capital as shown in the AbilityCompletion Account would not materially differ from the Ability Target Working Capitalas Ability Education shall continue to record net current liabilities before AbilityCompletion, as the current liabilities of Ability Education as at 31 March 2019 principallyrepresented deferred revenue which would not be recognised as revenue until the relevantcourses have been provided to the students. As such, it is expected that the netconsideration for the Ability Sale Shares will not be more than the gross consideration ofAUD4,560,000 (equivalent to approximately HK$25,992,000).

The Company will publish further announcement to provide further information oncethe net consideration for the Ability Sale Shares is finalised.

Conditions precedent

Completion of the Ability Sale and Purchase Agreement is subject to the fulfillmentof the following conditions precedent:

(a) the execution of the Ability Sale and Purchase Agreement and the Institute Saleand Purchase Agreement by the Purchaser and the Vendor;

(b) (i) all filing and registration with the Stock Exchange which are necessary orrequired to facilitate the consideration of the purchase of the Ability SaleShares by the Stock Exchange having been lodged; and (ii) all necessaryauthorisations, consents and approval from the Stock Exchange in relation tothe purchase of the Ability Sale Shares contemplated under the Ability Sale andPurchase Agreement having been obtained;

(c) passing by the Shareholders of the Company (other than those prohibited fromvoting under the GEM Listing Rules, if applicable) resolutions at the generalmeeting of the Company approving the purchase of the Ability Sale Sharescontemplated under Ability Sale and Purchase Agreement;

(d) the following material adverse change events did not occur:

(i) the aggregate revenue of the business of Ability Education for the 12month period prior to (and including) the month immediately before themonth in which Ability Completion is scheduled to occur has decreased by10% or more compared to the aggregate revenue of the business of Ability


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Education for the 12 month period prior to (and including) the monthimmediately before the month in which the Ability Sale and PurchaseAgreement is signed; or

(ii) the average number of active students for the business of Ability Educationfor the 12 month period prior to (and including) the month immediatelybefore the month in which Ability Completion is scheduled to occur hasdecreased by 10% or more compared to the average number of activestudents for the business of Ability Education for the 12 month periodprior to (and including) the month immediately before the month in whichthe Ability Sale and Purchase Agreement is signed;

(e) the Vendor grants or procures the assignment/grant of the occupancy rights ofthe premises operated/occupied by Ability Education and/or Institute Trainingto the Purchaser on terms reasonably acceptable to the Purchaser and theVendor;

(f) the Vendor grants or procures an assignment of certain key contracts to thePurchaser on terms no less favourable than those in place at the date of theAbility Sale and Purchase Agreement;

(g) the staff of Ability Education as specified in the Ability Sale and PurchaseAgreement, namely the manager and the campus coordinators of AbilityEducation which are responsible for the daily administrative operation of thecampuses of Ability Education, remain employed by Ability Education andthere are sufficient personnel to conduct the business of Ability Educationimmediately prior to Ability Completion;

(h) the CRICOS registration and ASQA approvals held by Ability Education at thedate of the Ability Sale and Purchase Agreement have not been terminated orrevoked; and

(i) Ability Education complying with any written instruction or direction by theAustralian Skills Quality Authority (ASQA) arising from any audit of AbilityEducation by ASQA.

For the avoidance of doubt, the fulfillment of the above conditions precedent of theAbility Sale and Purchase Agreement and the Institute Sale and Purchase Agreement isnot inter-conditional.

None of the above conditions (b) and (c) is capable of being waived by the Purchaseror the Vendor. The Purchaser may waive conditions (d), (g), (h) and (i) and above bynotice of waiver to the Vendor. The Purchaser and the Vendor may jointly waiveconditions (e) and (f) above. As at the Latest Practicable Date, conditions (a), (b), (e), (h)and (i) above have been fulfilled. The Purchaser has no intention to waive any of theconditions precedent above.


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Termination due to non-fulfillment of conditions

Either the Purchaser or the Vendor may, if not otherwise in breach of the AbilitySale and Purchase Agreement, terminate the Ability Sale and Purchase Agreement bygiving notice to all other parties at any time before Ability Completion if any condition isnot fulfilled or waived (as the case may be) before the Ability Long Stop Date (as definedbelow), or any condition does not remain fulfilled in all respects at all times until AbilityCompletion (as the case may be).

Completion

Ability Completion is conditional on (i) conditions precedent (b) and (c) above beingfulfilled on or before 30 June 2019 and 30 September 2019 respectively, or any other dateagreed the Purchaser and the Vendor in writing; and (ii) the remaining conditionsprecedent above being fulfilled on or before 30 September 2019 or any other date agreedby the Purchaser and the Vendor in writing (the ‘‘Ability Long Stop Date’’).

Subject to the fulfillment of the above conditions (or waiver thereof), AbilityCompletion shall take place on the Ability Completion Date. After the AbilityCompletion, Ability Education will become an indirectly wholly-owned subsidiary of theCompany and the results of the Ability Education will be consolidated into the financialstatements of the Company.

Guarantee

The Guarantor guarantees to the Vendor the punctual performance by the Purchaserof the Purchaser’s obligation under the Ability Sale and Purchase Agreement. TheGuarantor must pay to the Vendor any amount that the Purchaser fails to pay the Vendoron or by the due date for payment and comply with any of the Purchaser’s obligations thatthe Purchaser fails to comply with on or by the due date for compliance as prescribed inthe Ability Sale and Purchase Agreement.

(2) THE INSTITUTE SALE AND PURCHASE AGREEMENT

Date

14 January 2019

Parties

Purchaser: Australian Apex Education Pty Ltd, a wholly-owned subsidiary of theCompany

Guarantor the Company

Vendor MEGT (Australia) Ltd


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To the best of knowledge, information and belief of the Directors, after having madeall reasonable enquiries, the Vendor is a third party independent of the Company andconnected persons of the Company.

Assets to be acquired

The Vendor has conditionally agreed to sell, and the Purchaser has conditionallyagreed to purchase, the Institute Sale Shares, representing the entire issued share capitalof Institute Training. Accordingly, the Purchaser will assume the business operation ofInstitute Training, including but not limited to its licenses, assets, liabilities andemployees, upon Institute Completion.

The Institute Training is a Registered Training Organisation under ASQA andpossesses the CRICOS license under ASQA of the Australian Government, which allowsInstitute Training to provide VET programmes to international students studying onstudent visas. Prior to May 2019, the business of Institute Training was operating as abusiness unit of the Vendor and the above licenses were registered under the Vendor. Asone of the conditions precedent of the Institute Sale and Purchase Agreement, the Vendorwill renew and transfer such licenses to the legal entity of Institute Training, which havebeen completed on 31 May 2019 and the license will expire by 30 May 2021.

Consideration and payment

The net consideration of approximately AUD1,817,741 (equivalent to approximatelyHK$10,361,000) for the Institute Sale Sales is determined after arm’s length negotiationbetween the Vendor and the Purchaser which will be calculated in accordance with thefollowing formula:

Net consideration = Gross consideration + Target working capital (subject toadjustment)

where:

(i) the gross consideration is AUD3,040,000 (equivalent to approximatelyHK$17,328,000) which is determined after arm’s length negotiation betweenthe Vendor and the Purchaser taking into account

(a) Institute Training possesses all necessary licenses to provide courses tointernational students studying on student visas;

(b) the application of new licenses is lengthy and costly as the applicant isrequired to have existing campuses readily available to provide educationservices before such application, while the renewal procedure of suchlicenses is relatively simple. With reference to the relevant industrypractice, the Group estimates that it may incur no less than AUD3,500,000(equivalent to approximately HK$19,950,000) over a period of at least ninemonths for the application of new licenses with capacity comparable tothat of Institute Training;


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(c) the existing learning materials and student base of Institute Training;

(d) the campuses of Institute Training are located in central business districtsof Sydney and Melbourne, Australia; and

(e) the consideration offered to the Vendor by independent third parties;

(ii) the target working capital represents the assets or liabilities of Institute Trainingexcluding property, plant and equipment and cash due to the fact that:

(a) it is expected that Institute Training may distribute cash to the Vendorprior to Institute Completion; and

(b) the assets and liabilities of Institute Training (other than property, plantand equipment and cash) prior to Institute Completion represent cash notyet received or paid which should belong to the Vendor.

As such, the amount of assets and liabilities of Institute Training (other thanproperty, plant and equipment) should be deducted from or added back to thegross consideration in calculating the net consideration.

Pursuant to the Institute Sale and Purchase Agreement, the target workingcapital of Institute Training is net liabilities of AUD1,222,259 (equivalent toapproximately HK$6,967,000) (the ‘‘Institute Target Working Capital’’),which is calculated with reference to the financial information of InstituteTraining as at 30 June 2018.

The net consideration shall be satisfied by the Purchaser in cash in the followingmanner:

(a) a deposit of AUD100,000 (equivalent to approximately HK$570,000) was paidby the Purchaser to an escrow account; and

(b) the remaining balance shall be paid by the Purchaser to the Vendor upon theInstitute Completion, subject to adjustment of the Institute Target WorkingCapital with the Institute Adjustment Amount (as defined below).

The Directors consider that the calculation of the net consideration for the InstituteSale Shares is fair and reasonable as the preliminary valuation exceeds the netconsideration of the Institute Sale Shares, based on (i) the valuation of 100% equityinterest of Institute Training of approximately AUD1,924,000 (equivalent toapproximately HK$10,967,000) as determined by an independent third party valuer,Avista Valuation Advisory Limited, using the market approach on the enterprise valuebased on the EBITDA of comparable companies which primarily provide educationservices in Australia with publicly available financial information; and (ii) the expectednet consideration of approximately AUD1,817,741 (equivalent to approximatelyHK$10,361,000) as determined based on the financial information of Institute Training asat 30 June 2018.


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The consideration shall be financed by (i) the net proceeds raised from the BondPlacing by the Company in December 2017; and (ii) internal financial resources of theCompany.

Working capital adjustment on consideration

The Vendor shall deliver to the Purchaser the management balance sheet of InstituteTraining within 30 days upon Institute Completion with calculation of the working capitalof Institute Training (the ‘‘Institute Completion Account’’). The amounts stated in theInstitute Completion Account are subject to the verification of the Purchaser and thePurchaser has engaged professional parties in Australia on the verification of the InstituteCompletion Account. The consideration for the Institute Sale and Purchase Agreementshall be subject to adjustment based on the Institute Completion Account (the ‘‘InstituteAdjustment Amount’’).

In the event the asset balance of the target working capital as shown in the InstituteCompletion Account is:

(a) equal to the Institute Target Working Capital, the consideration will not beadjusted;

(b) greater than the Institute Target Working Capital, the Purchaser must pay to theVendor an amount equal to the difference as an increase of the consideration;and

(c) less than the Institute Target Working Capital, the Vendor must pay to thePurchaser an amount equal to the difference as a decrease of the consideration.

The Purchaser must pay to the Vendor or the Vendor must pay to the Purchaser (asthe case may be) the Institute Adjustment Amount within 10 Business Days after the endof the respective objection period, being 10 Business Days upon the issue of the InstituteCompletion Account.

The Purchaser, the Vendor and the Guarantor shall enter into an escrow deedpursuant to the Institute Sale and Purchase Agreement. The Vendor shall pay an amountup to approximately AUD731,000 (equivalent to approximately HK$4,167,000) (the ‘‘Set-off Cap’’) to an escrow account on Ability Completion, which shall be (i) released to thePurchaser in the event the net consideration for the Ability Sale Shares and/or theInstitute Sale Shares is negative; and/or (ii) applied as the payment for the netconsideration of the Institute Sale Shares. The Set-off Cap is determined after arm’slength negotiation between the Vendor and the Purchaser taking into account an amountof AUD1 million in addition to the then target working capital of Ability Education at thetime of the negotiation, after netting off the final target working capital as disclosed inthe Ability Sale and Purchase Agreement.


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In the event the absolute value of the negative consideration for the Ability SaleShares and/or the Institute Sale Shares, being the amount payable by the Vendor to thePurchaser, exceeds the absolute value of the Set-off Cap, the Vendor must pay the excessamount to the Purchaser in cash within 10 Business Days after the end of the objectionperiod.

Based on the latest financial information of Institute Training as at 31 March 2019,the target working capital of Institute Training was liability balance of approximatelyAUD808,000 (equivalent to approximately HK$4,606,000). As such, it is expected thatthe net consideration shall be approximately AUD2,232,000 (equivalent to approximatelyHK$12,722,400) based on the latest financial information of Institute Training as at 31March 2019.

The Directors consider that the target working capital as shown in the InstituteCompletion Account would not materially differ from the Institute Target WorkingCapital as Institute Training shall continue to record net current liabilities before InstituteCompletion respectively, as the current liabilities of Institute Training as at 31 March2019 principally represented deferred revenue which would not be recognised as revenueuntil the relevant courses have been provided to the students.

As such, it is expected that the net consideration for the Institute Sale Shares will notbe more than the gross consideration of AUD3,040,000 (equivalent to approximatelyHK$17,328,000).

The Company will publish further announcement to provide further information oncethe net consideration for the Institute Sale Shares is finalised.

Conditions precedent

Completion of the Institute Sale and Purchase Agreement is subject to the fulfillmentof the following conditions precedent:

(a) the execution of the Ability Sale and Purchase Agreement and the Institute Saleand Purchase Agreement by the Purchaser and the Vendor;

(b) (i) all filing and registration with the Stock Exchange which are necessary orrequired to facilitate the consideration of the purchase of the Institute SaleShares by the Stock Exchange having been lodged; and

(ii) all necessary authorisations, consents and approval from the StockExchange in relation to the purchase of the Institute Sale Sharescontemplated under the Institute Sale and Purchase Agreement havingbeen obtained;

(c) passing by the Shareholders of the Company (other than those prohibited fromvoting under the GEM Listing Rules, if applicable) resolutions at the generalmeeting of the Company approving the purchase of the Institute Sale Sharescontemplated under Institute Sale and Purchase Agreement;


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(d) the following material adverse change events did not occur:

(i) the aggregate revenue of the business of Institute Training for the 12month period prior to (and including) the month immediately before themonth in which Institute Completion is scheduled to occur has decreasedby 10% or more compared to the aggregate revenue of the business ofInstitute Training for the 12 month period prior to (and including) themonth immediately before the month in which the Institute Sale andPurchase Agreement is signed; or

(ii) the average number of active students for the business of Institute Trainingfor the 12 month period prior to (and including) the month immediatelybefore the month in which Institute Completion is scheduled to occur hasdecreased by 10% or more compared to the average number of activestudents for the business of Institute Training for the 12 month period priorto (and including) the month immediately before the month in which theInstitute Sale and Purchase Agreement is signed;

(e) the Vendor grants or procures an assignment of certain key contracts to thePurchaser on terms no less favourable than those in place at the date of theInstitute Sale and Purchase Agreement;

(f) the business unit of Institute Training as specified in the Institute Sale andPurchase Agreement, namely the manager of Institute Training which areresponsible for the daily administrative operation of the campuses of InstituteTraining, remain employed or engaged by Institute Training and there aresufficient personnel to conduct the business of Institute Training immediatelyprior to Institute Completion;

(g) the transfer of the Institute Training business, including but not limited to, thetransfer of the assets, liabilities and employees of the Institute Training businessunit, to the legal entity of Institute Training has been completed; and InstituteTraining being granted the relevant permits and approvals, including but notlimited to, the CRICOS license registration by the relevant governmentauthorities and these approvals have not been terminated or revoked; and

(h) Institute Training complying with any written instruction or direction by theAustralian Skills Quality Authority (ASQA) arising from any audit of orcomplaint against Institute Training by ASQA.

For the avoidance of doubt, the fulfillment of the above conditions precedent of theAbility Sale and Purchase Agreement and the Institute Sale and Purchase Agreement arenot inter-conditional.

None of the above conditions (b) and (c) is capable of being waived by the Purchaseror the Vendor. The Purchaser may waive conditions (d), (f), (g) and (h) and above bynotice of waiver to the Vendor. The Purchaser and the Vendor may jointly waivecondition (e) above. As at the Latest Practicable Date, conditions (a), (b), (g) and (h)above have been fulfilled.


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Based on the latest information provided by the Vendor, the Group was aware thatthe average number of active students for Institute Training for the 12 month period priorto (and including) the month immediately before the month in which Institute Completionis scheduled to occur may decrease by 10% or more compared to that of thecorresponding period before the Institute Sale and Purchase Agreement was signed. Assuch, the condition (d)(ii) above may not be satisfied. Taking into account the factors asfurther discussed under the sections headed ‘‘Reasons for the Acquisition’’ and ‘‘Futureplan of the Target Companies and the Enlarged Group’’, the Purchaser is intended towaive the condition (d)(ii).

Save for the condition (d)(ii) above, the Purchaser has no intention to waive any ofthe conditions precedent above.

Termination due to non-fulfillment of conditions

Either the Purchaser or the Vendor may, if not otherwise in breach of the InstituteSale and Purchase Agreement, terminate the Institute Sale and Purchase Agreement bygiving notice to all other parties at any time before Institute Completion if any conditionis not fulfilled or waived (as the case may be) before the Institute Long Stop Date (asdefined below), or any condition does not remain fulfilled in all respects at all times untilInstitute Completion (as the case may be).

Completion

Institute Completion is conditional on (i) conditions precedent (b) and (c) abovebeing fulfilled on or before 30 June 2019 and 30 September 2019 respectively, or anyother date agreed the Purchaser and the Vendor in writing; and (ii) the remainingconditions precedent above being fulfilled on or before 6 December 2019 or any otherdate agreed by the Purchaser and the Vendor in writing (the ‘‘Institute Long StopDate’’).

Subject to the fulfillment of the above conditions (or waiver thereof), InstituteCompletion shall take place on the Institute Completion Date. After the InstituteCompletion, Institute Training will become an indirectly wholly-owned subsidiary of theCompany and the results of the Institute Training will be consolidated into the financialstatements of the Company.

Guarantee

The Guarantor guarantees to the Vendor the punctual performance by the Purchaserof the Purchaser’s obligation under the Institute Sale and Purchase Agreement. TheGuarantor must pay to the Vendor any amount that the Purchaser fails to pay the Vendoron or by the due date for payment and comply with any of the Purchaser’s obligations thatthe Purchaser fails to comply with on or by the due date for compliance as prescribed inthe Institute Sale and Purchase Agreement.


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(3) INFORMATION ON THE TARGET COMPANIES

Ability Education

Ability Education is a limited company incorporated in Australia on 14 August 1996and a wholly-owned subsidiary of the Vendor as at the Latest Practicable Date. AbilityEducation operates two campuses under the brand ‘‘Ability English’’ in central businessdistricts in Sydney and Melbourne, Australia since the year of 1996 and 2009respectively, with 29 classrooms each and have a total student capacity of 1,454 as at theLatest Practicable Date. The occupancy rights of the Melbourne and Sydney campuses ofAbility Education are leased from the Vendor and independent third party respectively.

Ability Education currently leases (i) its campus premises in Sydney from anindependent third party which will expire on 31 January 2024 with an option to extend to31 January 2029; and (ii) its campus premises in Melbourne from the Vendor which willexpire on 16 December 2023 with an option to extend to 16 December 2028. The leaseagreements in relation to the campus premise in Melbourne entered into by the Vendorand Ability Education were negotiated on normal commercial terms and comparable to (i)the rental market price in the region; and (ii) the rental expenses recharged by the Vendorto Ability Education in the past. As such, the Group considers that there would not be anymaterial financial impact to the profitability of Ability Education after the AbilityCompletion as a result of the renewed lease agreement.

Ability Education currently provides ELICOS courses covering conversational,practical and academic English with qualification equivalent to the International EnglishLanguage Testing System (IELTS), which was widely accredited in Australia and hascollaboration with a number of reputable institutions, colleges and universities inAustralia and overseas. The students of Ability Education mainly represent internationalstudents aged over 18 years old which English is not their first language. The revenue ofAbility Education primarily consisted of fees for the enrolment of such courses.

Under the requirement of the ASQA, students studying in Australia with visa mustbe referred by international academic consultants and agents. Ability Education hasalready established solid relationship with over 600 international academic consultantsand agents which would introduce students to enroll the ELICOS courses provided byAbility Education. Ability Education generally enters into framework agreements with theinternational academic consultants and agents. Ability Education generally pays to theinternational academic consultants and agents commission ranging from 20% to 30% ofthe tuition fees for the referrals of students, which shall be partially settled beforecommencement of the course by the students and the remaining balance shall be settledupon receipt of the tuition fee from the students. In the event the students shall withdrawfrom the course, the entire commission will not be paid.

Upon the Ability Completion, the Purchaser is entitled to continue to use the brand‘‘Ability English’’ to operate the business of Ability Education. Despite Ability Educationwas operated by the Vendor, a non-profit making organisation, there are no preferentialgovernmental policies that would cease to be enjoyed by Ability Education after theAbility Completion.


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Set out below is the financial information of Ability Education for the years ended30 June 2017 and 2018 and nine months ended 31 March 2019 as extracted from theaccountants’ report of Ability Education set out in Appendix II to this circular and theillustrative calculation of the Ability Target Working Capital as at 30 June 2018 and 31March 2019.

For the year ended

For the ninemonths ended

31 March201930 June 2017 30 June 2018

AUD’000 AUD’000 AUD’000

Revenue 14,148 13,444 10,628EBITDA (2,139) 357 (268)Loss before income tax (2,128) (241) (504)Loss after income tax (2,108) (720) (504)

As at31 March 2019

Target workingcapital as at

31 March 2019

Ability TargetWorkingCapital

AUD’000 AUD’000 AUD’000(Audited) (Note 2) (Note 1)

AssetsProperty, plant and equipment 363 — —

Intangible assets 16 — —

Cash and cash equivalents 1,238 — —

Trade and other receivables 1,074 1,074 1,475Deferred agents expenses andprepayments 1,248 1,248 1,704

GST receivable 64 64 113

4,003 2,386 3,292

LiabilitiesTrade and other payables 2 2 1Accruals 1,066 1,066 1,553Amount due to related parties(Note 3) 2,722 — —

Deferred revenue 5,229 5,229 5,973Provisions 374 374 69Provisions adjustment (Note 4) — — 218

9,393 6,671 7,814

Net liabilities 5,390 4,285 4,522


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Notes:

1. The Ability Target Working Capital as illustrated in the Ability Sale and Purchase Agreement iscalculated with reference to the financial information of Ability Education as at 30 June 2018.Please refer to the Announcement for details of the calculation.

2. Ability Education has adopted AASB 15 — Revenue¬ in the audited financial statements ofAbility Education for the nine months ended 31 March 2019. The revenue of Ability Education isprincipally contributed by the courses provided by Ability Education. Given such courses were,among other things, generally less than six months, the fulfillment of relevant performanceobligations of Ability Education may be measured as at the relevant period end. As such, there isno impact in the adoption of AASB 15 — Revenue in the audited financial statements of AbilityEducation for the nine months ended 31 March 2019 which would result in any differences withthe calculation method of target working capital of Ability Education.

3. The amount represented balance due to group companies of the Vendor which will be waivedprior to Ability Completion.

4. Amount represented adjustment in provision in relation to, among other things, annual leave andlong service payments, which was agreed between the Purchaser and the Vendor pursuant to theAbility Sale and Purchase Agreement.

As illustrated above, the net liabilities of Ability Education mainly represented thedeferred revenue, which is recorded upon the enrolment of the courses by its students inaccordance with the International Financial Reporting Standards. The deferred revenuewill be recognised as revenue upon the provision of the courses to such students.

Institute Training

Institute Training is a limited company incorporated in Australia on 17 January 2017.Institute Training operates 2 campuses under the brand ‘‘Institute’’ in central businessdistricts in Syndey and Melbourne, Australia since the year of 2006 and 2014respectively, with a total student capacity of around 1,000 as at the Latest PracticableDate. The occupancy rights of the Melbourne campus of Institute Training is owned bythe Vendor, where the occupancy right of the Sydney campus of Institute Training isleased from an independent third party.

Institute Training currently leases (i) its campus premises in Sydney from anindependent third party which will expire on 31 January 2024 with an option to extend to31 January 2029; and (ii) its campus premises in Melbourne from the Vendor which willexpire on 16 December 2023 with an option to extend to 16 December 2028. The leaseagreements in relation to the campus premise in Melbourne entered into by the Vendorand Institute Training were negotiated on normal commercial terms and comparable to (i)the rental market price in the region; and (ii) the rental expenses recharged by the Vendorto Institute Training in the past. As such, the Group considers that there would not be anymaterial financial impact to the profitability of Institute Training after the InstituteCompletion as a result of the renewed lease agreement.

Institute Training is a Registered Training Organisation in Australia and a specialistprovider for national accredited VET courses on early childhood education and care whichinclude both diploma-granting and certification-grating programmes. The students of


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Institute Training mainly represented international students aged over 18 years old whointend to pursue in the early childhood education career. The revenue of Institute Trainingprimarily consisted of fees for the enrolment of such courses.

Under the requirement of the ASQA, students studying in Australia with visa mustbe referred by international academic consultants and agents. Institute Training hasalready established solid relationship with over 600 international academic consultantsand agents which would introduce students to enroll the courses provided by InstituteTraining. Institute Training generally enters into framework agreements with theinternational academic consultants and agents. Institute Training generally pays to theinternational academic consultants and agents commission ranging from 20% to 30% ofthe tuition fees for the referrals of students, which shall be partially settled beforecommencement of the course by the students and the remaining balance shall be settledupon receipt of the tuition fee from the students. In the event the students shall withdrawfrom the course, the entire commission will not be paid.

The business of Institute Training was established by the Vendor and operated as thechildren’s services education and training services business unit of the Vendor since 2006.The legal entity of Institute Training was incorporated on 17 January 2017 and thebusiness unit of Institute Training has been transferred from the Vendor to InstituteTraining prior to Institute Completion as one of the conditions precedent under theInstitute Sale and Purchase Agreement.

Upon the Institute Completion, the Purchaser is entitled to continue to use the brand‘‘Institute’’ to operate the business of Institute Training. Despite Institute Training wasoperated by the Vendor, a non-profit making organisation, there are no preferentialgovernmental policies that would cease to be enjoyed by Institute after the InstituteCompletion, save for the preferential governmental policies on income tax as illustratedbelow.

Set out below is the financial information of Institute Training for the years ended 30June 2017 and 2018 and nine months ended 31 March 2019 as extracted from theaccountants’ report of Institute Training set out in Appendix III to this circular and theillustrative calculation of the Institute Target Working Capital as at 30 June 2018 and 31March 2019.

For the year ended


31 March201930 June 2017 30 June 2018

AUD’000 AUD’000 AUD’000

Revenue 6,837 6,329 3,116EBITDA 638 638 (495)Profit/(loss) before and afterincome tax (Note 1) 275 443 (629)


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As at31 March 2019

Target workingcapital as at 31

March 2019

Institute TargetWorkingCapital

AUD’000 AUD’000 AUD’000(Audited) (Note 3) (Note 2)

AssetsProperty, plant and equipment 1 — —

Cash and cash equivalents 798 — —

Trade and other receivables — 3,704 4,847Deferred agents expenses andprepayments 78 1,000 1,350

GST receivable 2 2 5

879 4,704 6,202

LiabilitiesTrade and other payables 333 1,250 1,655Deferred revenue 342 4,006 5,408Provisions 258 258 496Provisions adjustment (Note 4) — — (135)

933 5,514 7,424

Net liabilities 54 808 1,222

Notes:

1. As the business unit of Institute Training is part of the Vendor which is a charitable institutionunder the Income Tax Assessment Act 1997 of Australia, it is exempt from paying income tax.Upon the transfer of the business unit of Institute Training, Institute Training will be subject to anincome tax rate of 30% on its taxable income.

2. The Institute Target Working Capital as illustrated in the Institute Sale and Purchase Agreementis calculated with reference to the financial information of Institute Training as at 30 June 2018.Please refer to the Announcement for details of the calculation.

3. The difference between the audited balance and target working capital calculation of InstituteTraining as at 31 March 2019 was due to the adoption of AASB 15 — Revenue in the auditedfinancial statements of Institute Training for the nine months ended 31 March 2019. The revenueof Institute Training is principally contributed by the courses provided by Institute Training.Given such courses were, among other things, generally over twelve months, it is uncertain thatthe relevant performance obligations of Institute Training have been fulfilled as at the relevantperiod end, which resulted in, among other things, decrease in trade receivables, prepayments,other payables and deferred revenue, while the calculation target working capital of InstituteTraining as at 31 March 2019 was based on the calculation method without such impact, whichwas agreed by the Purchaser and the Vendor pursuant to the Institute Sale and PurchaseAgreement.


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For illustration purpose only, the target working capital calculated with reference to the auditedfinancial statements of Institute Training as at 31 March 2019, taking into account the effect ofthe adoption of AASB 15 — Revenue, was net liabilities of approximately AUD853,000, whichhave no material difference as compared to the target working capital of net liabilities ofAUD808,000 calculated under the methodology as agreed by the Purchaser and the Vendorpursuant to the Institute Sale and Purchase Agreement.

4. Amount represented adjustment in provision in relation to, among other things, annual leave andlong service payments, which was agreed between the Purchaser and the Vendor pursuant to theInstitute Sale and Purchase Agreement.

(4) INFORMATION ON THE VENDOR

The Vendor, MEGT (Australia) Ltd, is an Australian not-for-profit organization that hasbeen supporting local employers, apprentices, trainees, job seekers and students for over 35years, with its consultants work across every state in Australia providing quality employment,training and education solutions.

(5) REASONS FOR THE ACQUISITION

The Group is principally engaged in (i) business of jazz and ballet and pop danceacademy in Hong Kong; (ii) operation of kindergartens and pre-schools in Hong Kong andSingapore; and (iii) provision of swallowing and speech treatments. The Group is currentlydeveloping its early childhood education operation in Hong Kong and overseas. As at theLatest Practicable Date, the Group operates a total of seven kindergartens and pre-schools inHong Kong and Singapore. The Group has been seeking for further investment opportunities inthe education sector to improve its revenue stream and explore synergy effect with its existingearly childhood education business.

Ability Education

The Group considers the acquisition of Ability Education may improve theprofitability of the Group in the future due to the promising prospect of AbilityEducation and the synergy effect to the Group’s education business.

Promising prospect of Ability Education

According to (i) the statistics published by the Australian Trade and InvestmentCommission, Australia’s international education sector is forecasted to record a compoundannual growth rate of 3.8% and earnings are expected to double by 2025. The top eightsource of markets for international student enrolments are expected to be countries whereEnglish is not the first language; and (ii) the statistics from the Department of Educationof the Australian Government, the number of international students enrolment forELICOS courses in Australia has increased from 53,479 in 2015 to 59,829 in 2018.Among the international students enrolments, the number of Southeast Asia studentenrolment for ELICOS courses in Australia remained significant with over 19,000enrolments every year in particular the number of Chinese students enrolment for ELICOScourses in Australia has increased from 38,498 in 2015 to 47,762 in 2018. As such, theGroup considers the prospect of the business of provision of ELICOS courses forinternational students in Australia is promising.


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The Group has conducted feasibility studies on setting-up its own ELICOS collegeand applying for the relevant licenses in Australia. The application of new licenses islengthy and costly as the applicant is required to have existing campuses readily availableto provide education services before such application, while the renewal procedure ofsuch licenses is relatively simple. With reference to the relevant industry practice, theGroup estimates that it may incur no less than AUD5,000,000 (equivalent toapproximately HK$28,500,000) over a period of at least nine months for the applicationof new licenses with capacity comparable to that of Ability Education.

As such, the Group has considered exploring opportunities to acquire an ELICOScollege with relevant licenses in Australia. In September 2017, the Vendor placed AbilityEnglish out to open tender and the Group expressed its interest later in the same year andsubsequently entered into the Ability Sale and Purchase Agreement.

Despite Ability Education recorded net liabilities and net loss in the past years,

(i) Australia’s international education sector is forecasted to record promisinggrowth as discussed above;

(ii) Ability Education is well established in Australia with its campuses located inprime location in the central business districts of Sydney and Melbourne; and

(iii) The Group considers the current number of Chinese or Southeast Asian studentenrolments in Ability Education is disproportionately low. Despite having solidrelationship with over 600 international academic consultants and agents andthe increasing demand of students from Asia studying in Australia as discussedabove, Ability Education did not focus on the Southeast Asia market where over40% of the student base of Ability Education is from South America such asBrazil and Columbia, where students from Southeast Asia in particular Chinesestudents only represented around 2% of the student base of Ability Educationfor the two years ended 30 June 2018, which is primarily attributable to the factthat only one of the eight marketing team members of Ability Education wasresponsible for the Asia market (excluding Japan and Korea).

Leveraging on the increasing demand of students from Asia studying inAustralia as discussed above and the Group’s strong reputation and network inSoutheast Asia, the Group has identified international academic consultants andagents in who may refer students from Southeast Asia that are willing to pursuehigher education abroad in Australia by taking courses provided by AbilityEducation. The Group also intends to provide additional incentive to themarketing team of Ability Education to further capture the market share ofChinese and Southeast Asian students.

Based on the above, the Group considers the prospect of the Ability Education ispromising. As such, the Group considers the acquisition of Ability Education mayimprove the profitability of the Company in the future.


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Synergy effect to the Group’s education business

The Group considers that the acquisition of Ability Education may also createsynergy effect to its education business as:

(i) the courses provided by Ability Education have qualifications equivalent toIELTS and are recognised by reputable international universities and studentsmay strengthen their credibility in English by obtaining qualifications from thecourses provided by Ability Education. As such, the Group intends to providevarious level of courses under the brand of Ability Education for thekindergarten and preschool students or tutors of the Group in Hong Kong andSingapore, which may attract more students to enroll in the kindergartens andpreschools of the Group and increase in revenue stream of both AbilityEducation and the early childhood education business;

(ii) leveraging on the well-established campuses of Ability Education in primelocation of the central business districts of Sydney and Melbourne, the Groupmay organise study tours for its students in Hong Kong and Singapore toimprove the attractiveness of the Group’s early childhood education business;and

(iii) as publicity and word-of-mouth referrals is critical to the growth of the studentbase of the education industry, Ability Education may also benefit from themarketing effort through the Group’s early childhood education business inHong Kong and Singapore.

Institute Training

The Group considers the acquisition of Institute Training may improve theprofitability of the Group in the future due to the promising prospect of Institute Trainingand the synergy effect to the Group’s education business.

Reasons for the declining financial performance of Institute Training

Institute Training turned around from profit-making for the year ended 30 June 2018and recognised a loss after tax of approximately AUD629,000 for the nine months ended31 March 2019. The Group has assessed the latest financial information of InstituteTraining with reference to the financial due diligence result conducted by an internationalaccounting firm, and considered that the financial performance of Institute Trainingdeclined as a result of the following reasons:

A. Decrease in resources contributed by the Vendor

As the Vendor placed Institute Training on an open tender in September 2017,the Vendor has decreased the input of financial and human resources for themarketing and promotion of the business of the Institute Training, which led to thedecrease in students enrolling the courses of Institute Training. In particular, theadvertising and promotional expenses of Institute Training has decreased


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substantially from approximately AUD795,000 for the six months ended 31December 2017 to approximately AUD474,000 for the six months ended 31December 2018.

B. Uncertainty on the continuance of the courses of Institute Training

The diploma-granting and certification-granting courses provided by InstituteTraining are generally 18-month courses, while the courses provided by AbilityEducation are generally shorter. As such, the fees for the courses provided byInstitute Training are generally higher than that of Ability Education and significantto students.

Based on the feedback received from the academic consultants and agents,students are concerned whether Institute Training would continue to operate in thefuture and are less willing to settle the substantial course fees for enrolling for thecourses of Institute Training as a result of the open tender. Despite the repeatingefforts by the Vendor and Institute Training in reassuring the public that theircourses will continue in the future, the public were only notified in January 2019with the Announcement that the Group was acquiring Institute Training after theannouncement of the open tender in September 2017. As such, the uncertaintyhindered the students to enroll for the courses of Institute Training.

C. Depreciation of Brazilian Real (R$) against AUD

The existing students of Institute Training were mainly Brazilian whichrepresented nearly 25% of the total student base of Institute Training for the yearended 30 June 2017. However, the Brazilian Real (R$) has depreciated against theAUD from approximately 1:0.39317 at 30 June 2017 to approximately 1:0.34872 at30 June 2018. As such, the number of Brazilian students of Institute Trainingdecreased from around 186 at 30 June 2017 to around 75 at 30 June 2018.

As such, the number of students of Institute Training decreased from 776 at July2017 to 505 in June 2018, and further decreased to 369 in December 2018, and therevenue of Institute Training decreased from approximately AUD6.9 million for the yearended 30 June 2017 to approximately AUD6.3 million for the year ended 30 June 2018,and further decreased from approximately AUD3.4 million for the six months ended 31December 2017 to approximately AUD2.2 million for the six months ended 31 December2018. As a result, Institute Training turned around from profit-making and recognised lossfor the six months ended 31 December 2018.

The Group is of the view that, upon the Institute Completion and taking into accountthe synergy effect and the business plan of the Group as further discussed below, thefactors leading to the decline in the financial performance of Institute Training above willnot continue to materially affect Institute Training and the financial performance ofInstitute Training is expected to improve in the future.


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Promising prospect of Institute Training

Taking into account factors including (i) according to the statistics published by theAustralian Trade and Investment Commission, in addition to the growth rate as disclosedabove, the fastest growing sectors in onshore international education are expected to behigher education and VET over the period to 2025; (ii) the statistics from the Departmentof Education of the Australia Government, the number of international students enrolmentfor VET programmes in Australia has increased from 86,762 in 2015 to 130,610 in 2018,representing a compound annual growth rate of approximately 14.6%. Among theinternational students enrolments, the number of Southeast Asia student enrolment forVET programmes in Australia has increased from 41,246 in 2015 to 53,871 in 2018, inparticular the number of Chinese student enrolment for VET programmes in Australia hasincreased from 13,291 in 2015 to 22,341 in 2018; (iii) the increasing requirements in thecredentials and experience of the tutors; and (iv) the number of diploma-granting orcertification-granting programmes on early childhood education in Southeast Asia islimited, the Group considers the prospect of the business of provision of VETprogrammes on early childhood education in Australia is promising.

The Group has conducted feasibility studies on setting-up its own VET college andapplying for the relevant licenses in Australia. The application of new licenses is lengthyand costly as the applicant is required to have existing campuses readily available toprovide education services before such application, while the renewal procedure of suchlicenses is relatively simple. With reference to the relevant industry practice, the Groupestimates that it may incur no less than AUD3,500,000 (equivalent to approximatelyHK$19,950,000) over a period of at least nine months for the application of new licenseswith capacity comparable to that of Institute Training.

As such, the Group considered exploring opportunities to acquire a VET college withrelevant licenses in Australia. In September 2017, the Vendor placed Institute Training toopen tender and the Group expressed its interest later in the same year and subsequentlyentered into the Institute Sale and Purchase Agreement.

Despite Institute Training recorded net liabilities and net loss in past years asdiscussed in detail above,

(i) higher education and VET sector is expected to be the fastest growing sectors inAustralia’s international education sector over the period to 2025 as discussedabove;

(ii) Institute Training is well established in Australia with its campuses located inprime location of central business districts in Sydney and Melbourne; and

(iii) The Group considers the current number of Chinese or Southeast Asian studentenrolments in Institute Training is disproportionately low. Despite having solidrelationship with over 600 international academic consultants and agents andthe increasing demand of students from Asia studying in Australia as discussedabove, Institute Training did not focus on the Southeast Asia market where the


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majority of its students is from South America, which is primarily attributableto the fact that only one of the eight marketing team members of InstituteTraining was responsible for the Asia market (excluding Japan and Korea).

As such, the Group has identified academic consultants and agents who may referstudents from Southeast Asia that intend to pursue certificate or diploma in earlychildhood education by taking courses provided by Institute Training. The Group alsointends to provide additional incentive to the marketing team of Institute Training tofurther capture the market share of Chinese and Southeast Asian students.

Taking into account of the above and the business plans of the Group as furtherdiscussed below under the section headed ‘‘(6) Future plan of the Target Companies andthe Enlarged Group’’ below, the Group considers the prospect of Institute Training ispromising and financial performance of Institute Training will be improved in the future.As such, the Group considers the acquisition of Institute Training may improve theprofitability of the Company in the future.

Synergy effect to the Group’s education business

The Group also considers the acquisition of Institute Training may create synergyeffect to its early childhood business as:

(i) given the number of diploma-granting or certification-granting programmes onearly childhood education is limited and the increasing requirements in thecredentials and experience of the tutors, Institute Training may (a) providediploma-granting or certification-granting programmes on early childhoodeducation for the existing tutors of the Group’s early childhood educationbusiness; and (b) enable the Group to source qualified tutors for its educationbusiness which may in turn strengthen the brand image and credibility of thekindergartens and preschools of the Group; and

(ii) as publicity and word-of-mouth referrals is critical to the growth of the studentbase of the education industry, Institute Training may also benefit from themarketing effort through the tutors in the Group’s early childhood educationbusiness in Hong Kong and Singapore.


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Valuation of the Target Companies

The Directors have reviewed the comparable companies in the valuation report of theTarget Companies as set out in Appendix VI to this circular and have discussed with theindependent valuer on their criteria for selecting the comparable companies. The Directorsare given the understanding that the comparable companies were selected because they arecomparable to the Target Companies in terms of business nature and overall perceivedrisks and uncertainties that guided the market in reaching the expected returns as therespective Target Companies. In particular, the comparable companies were selectedprimarily based on the following criteria:

(i) the comparable companies are principally engaged in provision of educationservices ranging from tuition courses to vocational and tertiary education inAustralia; and

(ii) the comparable companies are listed in major exchange markets with publicavailable financial information;

Given the comparable companies with majority of revenue generated from providingeducation courses in Australia are limited, the Directors concur with the view of theindependent valuer to extend the search criteria to further include companies engaged inprovision of vocational and tertiary education in Australia as (i) the business model of thecomparable companies are similar to that of the Target Companies; and (ii) thecomparable companies generate revenue in a similar way as the Target Companies,namely income from enrolment fees.

Based on the selection criteria above, the independent valuer identified an exhaustivelist of seven comparable companies. The Directors concur with the view of theindependent valuer that the selected comparable companies represent the exhaustive listof comparable companies under the relevant criteria above and serve as the best availablecomparable companies for the valuation analysis.

Conclusion

As such, the Directors consider that the terms of the Sale and Purchase Agreements,including the consideration, are fair and reasonable and on normal commercial terms andthe Acquisition is in the interests of the Company and the Shareholders as a whole.


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(6) FUTURE PLAN OF THE TARGET COMPANIES AND THE ENLARGED GROUP

The Target Companies

Management team and plan on management and operation

Upon Completion, it is expected that Mr. David Windridge, the CEO of the Vendor,will retire as the sole director of the Target Companies. As Mr. David Windridge was notinvolved in the daily operation of the Target Companies, the Group is of the view that hisretirement would not have material adverse impact on the operation of the TargetCompanies. Upon the respective Completions, the Group intend to appoint Mr. Chiu KaLok, an executive Director, the chairman and controlling shareholder of the Company, asthe director of the Target Companies.

The Directors consider that the Group is capable of managing and operating thebusiness of the Target Companies, which principally engage in the education sector inAustralia, as

(i) the proposed management team of the Target Companies, comprised of Mr.Auyeung, Ms. Leung, Ms. Harper. and Ms. Haywood, have extensive expertiseor experience in the education sector in Australia. The profile of keymanagement for the Target Companies are set out as follows:

Mr. Auyeung will be proposed as the director of the Target Companies. Heworked in a number of international organisations and has extensive experiencein strategic planning, business process reengineering and business development.He holds master’s degrees from Australian Graduate School of Management andUniversity of New South Wales.

Ms. Leung will be proposed as the general manager of the Target Companies.She has worked as managerial role in a number of international organisationsand has extensive experience in sales and marking, advertising, businessdevelopment and strategic planning. She holds a master’s degree from theAustralian Graduate School of Management.

Ms. Harper is the existing international campus manager of the TargetCompanies. She has worked as managerial role in the VET industry for around20 years and has extensive experience in international education industry. Ms.Harper will be remain employed by the Target Companies pursuant to one ofthe condition precedents under the Sales and Purchase Agreements.

Ms. Haywood is the existing manager of Ability Education. She is specialisedin providing education in relation to English to both teenagers and adults inAustralia and overseas and has over 18 years’ experience within the ELICOSsector.


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In addition to the above key management, the existing management team of theTarget Companies, including a number of teachers and managers in relation tooperation, marketing and compliance, are expected to remain employed by theTarget Companies pursuant to the Sale and Purchase Agreements. UponCompletion, the Company will enter into service contracts with the abovemanagement for the long term development of the Target Companies;

(ii) the Group has consulted Hitch Advisory Pty Limited, the legal adviser to theCompany as to Australia Law, and was advised that there are no laws orregulations in Australia prohibiting the Group acquiring the shares of the TargetCompanies and the Target Companies holding the existing licenses or frommaking a profit from such licenses, provided that Target Companies maintainthe central management and control in Australia. Hitch Advisory Pty Limitedhas confirmed that the location of the central management and control of thebusiness is determined by, including but not limited to,

(a) the location of the meeting of the board of directors of the TargetCompanies;

(b) the location of the books and records of the Target Companies are kept;

(c) the location of the registered office and the register of shareholders; and

(d) the location of the personal who controls and directs the company’s dailyoperation.

As (a) the Group intends to conduct the board meeting regularly in Australiaafter the completion of the Acquisitions; (b) the books and records will be keptin Australia; (c) the registered office and the register of shareholders will bekept in Australia, where the Target Companies will remain and/or becomeregistered for taxation purposes in Australia for their profit-making activities;and (d) Mr. David Windridge, the sole director of the Target Companies, whowill resign after the completion of the Acquisition, is not involved in dailyoperation and the existing management which includes Ms. Harper and Ms.Haywood, who will remain employed by the Target Companies, and conduct thedaily operation of the Target Companies in Australia. As such, the Company isof the view that the Target Companies will continue to fulfill the relevantrequirements and hold the relevant licenses for profit-making activities after theAcquisitions.

(iii) the Target Companies possess all necessary licenses to provide courses tointernational students studying on student visas. Based on the fact that (a) thelicense of Ability Education was not terminated or revoked after the audit byASQA in December 2018; (b) the license of Institute Training has beensuccessfully transferred from the Vendor and registered under the legal entity ofInstitute Training on 31 May 2019 with a valid period of 2 years; and (c) the


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Target Companies did not meet any difficulties in renewing such licenses in thepast; the Group considers that the licenses of the Target Companies will remainvalid in the near future; and

(iv) the Directors have assessed the risks associated with the education industry andthe Target Companies as disclosed in the section headed ‘‘(8) Risk factors inrelation to the Target Companies and the education industry in Australia’’below.

As such, the Directors consider that the proposed management team has the relevantexpertise and experience to manage the existing operation team to operate the business ofthe Target Companies after completion of the Acquisition.

Development of business

The existing student base of both Ability Education and Institute Training primarilyconsisted of students from South America. Upon completion of the Acquisition, theTarget Companies shall leverage on the reputation of the Group’s business of jazz andballet and pop dance academy in Hong Kong and early childhood education business toattract students from Southeast Asia to enroll the courses provided by the TargetCompanies. According to the statistics from the Department of Education of theAustralian Government, the number of Asian student enrolment in Australia wasincreasing as discussed under the section headed ‘‘(5) Reasons for the Acquisition’’above. Leveraging on such increasing demand, the Group has identified academicconsultants and agents who may refer students from Southeast Asia to enrol the coursesprovided by the Target Companies. The Group also intend to provide additional incentiveto the marketing team of the Target Companies to further capture the market share ofChinese and Southeast Asian students.

Institute Training may also enrich its existing curriculum by organising placement inthe Group’s kindergartens and preschools in Hong Kong and Singapore. In addition,Ability Education and Institute training plan to explore further channels to expand itscapacity, including but not limited to (i) providing various kind or level of courses inrelation to English and VET programmes on early childhood education; (ii) setting-uponline module for overseas students to take courses online; and (iii) setting-up offshorecampus for overseas students to take courses in different countries.

Financing of working capital

Despite the Target Companies were expected to continue to record net liabilitiesupon the Completions, a significant portion of the liabilities of the Target Companies ismerely deferred income or contract liabilities which do not have material impact oncashflow and will be recognised as revenue when the relevant courses have been providedto the students.

In particular, the net liabilities of Ability Education as at 31 March 2019 wasapproximately AUD5.3 million, which included (i) the balance of deferred income orcontract liabilities of approximately AUD5.0 million; and (ii) an amount due to related


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parties of approximately AUD2.9 million which will be waived prior to AbilityCompletion. The net liabilities of Institute Training as at 31 March 2019 wasapproximately AUD54,000, which included the balance of deferred income or contractliabilities of approximately AUD342,000. As such, it is expected that there will be nosignificant financing requirement for the Target Companies immediately after theCompletions.

Nevertheless, in order to implement the business plan to develop the business of theTarget Companies as discussed above, the Group will finance the working capital of theTarget Companies with its internal financial resources. The Group is of the view that thefinancial position of the Target Companies will improve in the future after theimplementation of the business plans as discussed above.

The Group has a cash and bank balance of approximately HK$158.6 million as at 31July 2019. As such, the Directors considered the Group has sufficient financial resourcesfor financing the consideration of the Acquisition and the above business plan to developthe business of the Target Companies.

The Enlarged Group

Upon completion of the Acquisition, the Enlarged Group will leverage on (i) theaccredited English courses provided by Ability Education; (ii) the qualification of thecertificates and diploma of early childhood education provided by Institute Training; and(iii) the plan of the Target Companies as disclosed above to further enhance the existingeducation business of the Group to create synergy effect with the Group’s existing earlychildhood education business as discussed above under the section headed ‘‘Reasons forthe Acquisitions’’ above.

(7) FINANCIAL EFFECT OF THE ACQUISITION ON THE GROUP

Following each of the Ability Completion and Institute Completion, each of the TargetCompanies will become indirectly wholly-owned subsidiaries of the Company, and thefinancial results of each of the Target Companies will be consolidated into the Group’sfinancial statements. The unaudited pro forma financial information of the Enlarged Groupillustrating the financial impact of the Acquisition on the results, assets and liabilities of theGroup is set out in Appendix IV to this circular.

Assets and liabilities

The unaudited consolidated total assets and total liabilities of the Group as at 30June 2019, as extracted from the interim report of the Company for the year ended 30June 2019, were approximately HK$443.9 million and HK$455.3 million respectively.Based on the unaudited pro forma financial information of the Enlarged Group as set outin Appendix IV to this circular, assuming the Completion had taken place on 30 June2019, the pro forma total assets and total liabilities of the Enlarged Group would havebeen increased to approximately HK$500.2 million and HK$515.9 million respectively.


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Earnings

The audited loss after tax of the Group for the year ended 31 December 2018 asextracted from the annual report of the Company for the year ended 31 December 2018was approximately HK$59.7 million. According to the unaudited pro forma financialinformation of the Enlarged Group as set out in Appendix IV to this circular, assumingthe Acquisition had been completed on 1 January 2018, the pro forma loss after tax of theEnlarged Group for the year ended 31 December 2018 would amount to approximatelyHK$64.3 million.

(8) RISK FACTORS IN RELATION TO THE TARGET COMPANIES AND THEEDUCATION INDUSTRY IN AUSTRALIA

The Company sets out below the major risk factors in relation to the Target Companiesand the education industry in Australia for the Shareholders’ attention. The Directors assessedand believed that there are certain major risks involved in the operations of the TargetCompanies which includes, but does not limit to, the following:

The Target Companies may not be able to obtain or maintain all necessaryapprovals, licenses and permits and to make all necessary registrations and filingsfor their education services and any changes in law and government policy relatingto the landscape of education industry in Australia may affect the businessoperations of the Target Companies.

The Target Companies are required to obtain and maintain various approvals,licenses and permits and fulfill registration and filing requirements in order to conducttheir education services and operate their campuses, including but not limited to, theCRICOS registration and ASQA approvals. As at the Latest Practicable Date, the TargetCompanies possess all necessary licenses to provide courses to international studentsstudying on student visas, which are subject to renewal upon expiration in July 2020 (forAbility Education) and May 2021 (for Institute Training).

In addition, any changes in law and government policy relating to the landscape ofeducation industry in Australia may affect the business operations of the TargetCompanies. There can be no assurance that the Target Companies will be able to obtainall required permits and complete all necessary filings, renewals and registrations on atimely basis for their campuses in the event of occurrence of factors which is beyondcontrol and anticipation of the Target Companies. If the Target Companies fail to renewthe required licenses in a timely manner or obtain or renew any licenses and approvals,the Target Companies may be subject to fines, suspension of the non-compliant operationsor claims for compensation of any economic loss suffered by the students or otherrelevant parties.


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Capacity constraints of the campuses of the Target Companies could cause theTarget Companies to lose students to their competitors.

The campuses of the Target Companies are limited in number and size ofclassrooms. The ability of the Target Companies to serve their students is constrained bythe physical capacity of the campuses the Target Companies operate. As the TargetCompanies may not be able to admit all students who would like to enroll in the coursesdue to the capacity constraints, this would deprive the Target Companies of theopportunity to serve those students and to potentially develop a long-term relationshipwith them for continued services. If the Target Companies fail to expand their physicalcapacity as quickly as the demand for their services increases, the Target Companies maylose potential students to their competitors, and their results of operations and businessprospects may suffer as a result.

The Target Companies lease the premises of its campuses in Sydney and Melbourneand may not be able to control the quality, maintenance and management of thesepremises, nor can the Target Companies ensure that suitable premises can be foundto replace the existing campuses in the event that landlords refuse to renew therespective lease agreements or unacceptably increase rents upon the expiry of theirterms.

The Target Companies currently lease (i) their campus premises in Sydney from anindependent third party which will expire on 31 January 2024 with an option to extend to31 January 2029; and (ii) their campus premises in Melbourne from the Vendor whichwill expire on 16 December 2023 with an option to extend to 16 December 2028.However, the Target Companies are not in a position to effectively control the quality,maintenance and management of the buildings which the campuses are located in. In theevent the quality of the building premises deteriorates, or if any or all of the relevantlandlords of the campuses fail to properly maintain and renovate such building premisesin a timely manner or at all, the operation of the campuses of the Target Companies maybe materially and adversely affected. In addition, if any of the landlords of the campusesterminates the existing lease agreements, refuses to continue to lease the premises whensuch lease agreements expire or increases rent to a level not acceptable to the TargetCompanies, the Target Companies may not be able to find suitable premises for suchrelocation without incurring significant time and cost, or at all. If this occurs, thebusiness, result of operations and financial condition of the Target Companies may bematerially and adversely affected.

The business of the Target Companies relies on their ability to recruit and retaindedicated and qualified teachers and school personnel.

The Target Companies rely on their teachers for the provision of courses to theirstudents. The teachers are therefore critical to maintaining the quality of the courses andservices and to upholding reputation of the Target Companies. As at the Latest PracticableDate, the Target Companies have a team of around 140 teachers, most of whom did notenter into long term service contracts with the Target Companies.


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The Target Companies must continue to attract qualified teachers who have a strongcommand of their respective subject areas and meet the high standards of the TargetCompanies. The Target Companies seek to hire teachers who are capable of deliveringinnovative and inspirational classroom instructions. Teachers with the necessaryexperience and proficiency to teach the courses may be limited. There is no guaranteethat we can recruit and retain such personnel in the future. As a result, the TargetCompanies must provide competitive compensation and benefits packages to attract andretain qualified teachers. The Target Companies must also provide on-going training totheir teachers so that they can stay abreast of changes in student demands and other keytrends necessary to effectively teach their respective courses. The Target Companies maynot be able to hire and retain a sufficient number of qualified teachers and qualifiedschool personnel to keep pace with the anticipated growth while maintaining consistentteaching quality and the overall quality of their courses across different campuses, whichmay have a material and adverse effect on the reputation, business and results ofoperations of the Target Companies.

(9) GEM LISTING RULES IMPLICATIONS

As the relevant applicable percentage ratios (as defined under Chapter 19 of the GEMListing Rules) in respect of the Acquisition exceed 100%, the Acquisition constitutes a verysubstantial acquisition under Rule 19.06(5) of the GEM Listing Rules and is subject to thereporting, announcement and shareholders’ approval requirements under Chapter 19 of theListing Rules.

(10) THE EGM

The Company will convene the EGM on Monday, 23 September 2019 at 2:30 p.m. atNo. 6 Cambridge Road, Kowloon Tong, Kowloon, Hong Kong to consider the Acquisitioncontemplated under the Sale and Purchase Agreements. A notice of the EGM is set out onpages EGM-1 to EGM-3 of this circular.

In compliance with the GEM Listing Rules, voting on the ordinary resolution to beproposed at the EGM will be conducted by way of poll. Any Shareholder with a materialinterest in the Acquisition contemplated under the Sale and Purchase Agreements and his/her/its associate(s) are required to abstain from voting on the resolutions approving the same inaccordance with the GEM Listing Rules.

To the best of the Directors’ knowledge having made all reasonable enquiries, none of theShareholders is required to abstain from voting in respect of the ordinary resolutions approvingthe Acquisition contemplated under the Sale and Purchase Agreements at the EGM.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you areable to attend the EGM, you are requested to complete the form of proxy in accordance withthe instructions printed thereon and return the same to the Company’s branch share registrarand transfer office in Hong Kong, Union Registrars Limited at Suites 3301–04, 33/F., TwoChinachem Exchange Square, 338 King’s Road, North Point, Hong Kong as soon as possiblebut in any event not less than 48 hours before the time appointed for holding of the EGM or


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any adjournment thereof. Completion and return of the form of proxy will not preclude youfrom attending and voting in person at the EGM or any adjournment thereof should you sowish, and in such event, the form of proxy shall be deemed to be revoked.

(11) RECOMMENDATION

The Directors consider that the terms of the Sale and Purchase Agreements, including theconsideration, are fair and reasonable and in the interests of the Company and the Shareholdersas a whole. Accordingly, the Board recommends the Shareholders to vote in favour of theresolutions in relation to the Sale and Purchase Agreements to be proposed at the EGM.

(12) ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to thiscircular.

Shareholders and potential investors should note that completion of the Acquisitionis subject to the fulfilment or waiver of the conditions precedent (as the case maybe) andCompletion thereof may or may not proceed. Shareholders and potential investors aretherefore reminded to exercise caution when dealing in the Shares of the Company.

Yours faithfullyBy order of the Board

SDM Group Holdings LimitedCHIU Ka Lok

Chairman


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1. FINANCIAL INFORMATION

Financial information of the Group for each of the three years ended 31 December 2016,2017 and 2018 and the six months ended 30 June 2019, are disclosed in the followingdocuments which have been published on the websites of the Stock Exchange(www.hkexnews.hk) and the Company (www.sdm.hk).

The condensed consolidated financial statements of the Group for the six months ended30 June 2019 has been set out in pages 2 to 26 of the 2019 interim report of the Companywhich was posted on 14 August 2019 on the Stock Exchange’s website (www.hkexnews.hk).Please also see below quick link to the 2019 interim report:

https://www1.hkexnews.hk/listedco/listconews/gem/2019/0814/gln20190814121.pdf

The audited consolidated financial statements of the Group for the year ended 31December 2018 has been set out in pages 47 to 141 of the 2018 annual report of the Companywhich was posted on 29 March 2019 on the Stock Exchange’s website (www.hkexnews.hk).Please also see below quick link to the 2018 annual report:

http://www3.hkexnews.hk/listedco/listconews/GEM/2019/0329/GLN20190329055.pdf





2. INDEBTEDNESS OF THE GROUP

As at the close of business on 31 July 2019, being the latest practicable date for thepurpose of this statement of indebtedness prior to printing of the circular, the Enlarged Grouphad outstanding indebtedness of approximately HK$286.6 million, which comprised of:

(i) unsecured corporate bonds of approximately HK$73.1 million, which wereguaranteed by Wealthy Together Limited, the controlling shareholder of theCompany;

(ii) unsecured convertible note of approximately HK$195.0 million;

(iii) unsecured bank borrowings of approximately HK$0.4 million; and

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

– I-1 –

(iv) an unsecured amount due to the Vendor of approximately AUD3.4 million(equivalent to approximately HK$18.1 million).

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilitiesand normal trade payables, the Enlarged Group did not have any debt securities issued andoutstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness,liabilities under acceptance or acceptance credits, debentures, mortgages, charges, hirepurchase or finance lease commitments, guarantees or contingent liabilities.

3. WORKING CAPITAL

Taking into account the Acquisition and the financial resources available to the EnlargedGroup, including the internally generated funds, the Directors are of the opinion that in theabsence of unforeseeable circumstances, the Enlarged Group has sufficient working capitalavailable for its requirements, that is for at least the next 12 months from the date of thiscircular.

4. MATERIAL ADVERSE CHANGE

Reference is made to the profit warning announcement of the Company dated 10 May2019 in relation to the expected loss for the three months ended 31 March 2019 and the firstquarterly results announcement of the Company dated 15 May 2019 (the ‘‘First QuarterlyAnnouncements’’). As disclosed in the First Quarterly Announcements, despite the increase inrevenue contributed by the early childhood education business, the net loss of the Groupincreased as a result of the increase in legal and professional fees, amortization of intangibleassets acquired during second half of 2018 and staff costs for the three months ended 31 March2019. Please refer to the First Quarterly Announcements for further details.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware ofany material adverse change in the financial or trading position of the Group since 31December 2018 (being the date to which the latest published audited consolidated financialstatements of the Group were made up).

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Set out below is a discussion and analysis of the Group’s results of operation for each ofthe three years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June2019. The information set out below is principally extracted from the annual reports of theCompany for the three years ended 31 December 2016, 2017 and 2018 and the interim reportof the Company for the six months ended 30 June 2019, respectively, in order to providefurther information relating to the financial condition and results of the operations of theGroup during the periods stated.


– I-2 –

A. For the six months ended 30 June 2019

Business review

The Group continues focusing on engaging in business of jazz and ballet andpop dance academy in Hong Kong and pre-school education in Hong Kong andSingapore during the six months ended 30 June 2019.

Competition in the dance institution industry for children in Hong Kong wasintense. During the six months ended 30 June 2019, the Group operated twenty threedance centres in Hong Kong and continued to maintain and attract the students toenroll in the Group’s courses by developing new courses and enhancing courses torespond to changes in market trends so as to expand the Group’s coverage of itsdance academy business and effectively market the courses to a broader base ofstudents. The Company has no intention to dispose, downsize and/or terminate thedance academy business.

The Group implemented a strategy to enhance the Group’s current operation,which is to engage in the kindergarten business in Hong Kong by cooperating withChatsworth, being international kindergartens, primary and secondary schoolsoperated under the brand ‘‘Chatsworth’’ in Singapore for over 20 years. Meanwhile,the Company has also expedited its expansion in the overseas childhood educationmarket to diversify and further broaden its source of income. The Group will adoptinvestment approach prudently to consider all potential mergers or acquisitionsopportunities or cooperation with strong potential partners that can maximizeshareholders’ return in the long term.

As at 30 June 2019, the Group operates (i) twenty three dance centers in HongKong; (ii) one kindergarten in Hong Kong; (iii) six kindergartens and/or preschoolsin Singapore; and (iv) one treatment centre for the provision of swallowing andspeech treatments in Hong Kong.

Financial review

Dance academy business

Revenue of the dance academy business was mainly contributed by the self-operated dance centres in respect of the provision of elementary courses, CSTD jazzcourses, RAD ballet courses etc. to the students. During the six months ended 30June 2019, the dance academy business contributed revenue of approximatelyHK$29.3 million, representing an increase of approximately 1.4% as compared to therevenue of approximately HK$28.9 million for the corresponding period.

Early childhood education business

The Group commenced the early childhood education business upon theestablishment of the kindergarten in Hong Kong and the completion of theacquisition of six kindergartens in Singapore in 2018. During the six months ended


– I-3 –

30 June 2019, the early childhood education business contributed revenue ofapproximately HK$14.6 million and a segment loss of approximately HK$5.1 millionas (i) the kindergarten in Hong Kong will only commence its first curriculum inSeptember 2019; and (ii) the Group only completed acquisition of the kindergartensin Singapore in the second half of 2018.

Others

Revenue for the others segment represented revenue from the provision ofswallowing and speech treatments and provision of photograph services for childrenin Hong Kong. The Group recorded revenue of approximately HK$9.1 million and asegment profit of approximately HK$2.3 million from such segment of the sixmonths ended 30 June 2019.

Other income

Other income of the Group increased by approximately 46.5% fromapproximately HK$7.0 million for the six months ended 30 June 2018 toapproximately HK$10.3 million for the six months ended 30 June 2019.

Loss attributable to the owners of the Company

The loss attributable to the owners of the Company increased by approximatelyHK$6.2 million to approximately HK$14.5 million for the six months ended 30 June2019 mainly due to the increase in staff costs and other operating expenses.

Liquidity, financial resources, capital structure and treasury policy

The Group generally finances its operation through internally-generated cashflows and bank facilities provided by the banks during the six months ended 30 June2019. As at 30 June 2019, the total bank balances and cash of the Group amountedto approximately HK$186.2 million (As at 31 December 2018: approximatelyHK$55.0 million).

The Group has a bank borrowing of approximately HK$2.4 million as at 30June 2019. As at 30 June 2019, the current ratio (defined as total current assetsdivided by total current liabilities) was approximately 2.51 times as compared to1.22 times as at 31 December 2018.

As at 30 June 2019, the issued share capital of the Company wasHK$35,410,000 divided into 354,100,000 Shares.

As at 30 June 2019, the Group had outstanding corporate bonds with carryingamount of approximately HK$264.9 million, which were recorded as non-currentliabilities.


– I-4 –

The Group adopts a conservative approach towards its treasury policies. TheGroup’s credit risk is primarily attributable to trade receivables, amounts due fromrelated parties, pledged bank deposit and bank balances. In the view of the businessnature of the Group, the Directors considered that the credit risks of tradereceivables are immaterial after considering the credit quality and financial ability ofthe relevant financial institutions and there is no history of delay or default insettlement by them. The management considered there was no recoverability problemfrom the related parties of the Group. The pledged bank deposit and the bankbalances are deposited with banks which have good reputation.

To manage liquidity risk, the Board closely monitors the Group’s liquidityposition to ensure that the liquidity structure of the Group’s assets, liabilities andcommitments can meet its funding requirements.

Exposure to fluctuation in exchange rates and any related hedges

As at 30 June 2019, the Group have certain bank deposits, other receivables anddeposits which has exchanged to foreign currency denominated in Renminbi(‘‘RMB’’), United States Dollars (‘‘USD’’), Singapore Dollar (‘‘S$’’) and AUDwhich may expose the Group to foreign currency risk. The Group was exposed tocertain foreign currency exchange risks but it does not anticipate future currencyfluctuations to cause material operational difficulties or liquidity problems. TheGroup currently had no foreign currency hedging policy. However, the managementwill monitor foreign exchange position and will consider appropriate action shouldthe circumstances change.

Significant investment, material acquisitions and disposals

As at 30 June 2019, except for short-term investments including the financialassets at fair value through profit or loss and financial assets at fair value throughother comprehensive income amounted to approximately HK$32.4 million, there wasno other significant investment held by the Group.

During the six months ended 30 June 2019, save for the proposed Acquisition,the Group did not conduct any material acquisitions and disposals.

Contingent liabilities and capital commitment

As at 30 June 2019, the Group did not have any significant contingent liabilitiesand capital commitments.

Pledge of assets

As at 30 June 2019, the Group pledged its financial assets at fair value throughprofit or loss amounted to HK$3.8 million against its outstanding security marginaccount balances.


– I-5 –

Employees and remuneration policies

With increase in number of subsidiaries and dance centers, staff costs of theGroup, including Directors’ emoluments, were approximately HK$34.4 million forthe six months ended 30 June 2019 (2018: approximately HK$16.7 million).Remuneration is determined with reference to market terms and the performance,qualification and experience of individual employee. In addition to basic salaries,year-end discretionary bonuses were offered to those staff with outstandingperformance to attract and retain eligible employees to contribute to the Group.Apart from basic remuneration, the Company has adopted a share option scheme andshare options may be granted to eligible employees by reference to the Group’sperformance as well as individual contribution.

B. For the year ended 31 December 2018

Business review

The Group continues focusing on engaging in business of jazz and ballet andpop dance academy in Hong Kong.

During the year ended 31 December 2018, competition in the dance institutionindustry for children in Hong Kong was intense. During the year ended 31 December2018, the Group operated twenty three dance centres in Hong Kong and continued tomaintain and attract the students to enroll in the Group’s courses by developing newcourses and enhancing courses to respond to changes in market trends so as toexpand the Group’s coverage of its dance academy business and effectively marketthe courses to a broader base of students. The Company has no intention to dispose,downsize and/or terminate the dance academy business.

The Group implemented a strategy to enhance the Group’s current operation,which is to engage in the kindergarten business in Hong Kong by cooperating withChatsworth being operated international kindergartens, primary and secondaryschools under the brand ‘‘Chatsworth’’ in Singapore for over 20 years.

Meanwhile, the Company will also expedite its expansion in the overseasmarket to diversify and further broaden the source of income. The Group will adoptinvestment approach prudently to consider all potential mergers or acquisitionsopportunities or cooperation with strong potential partners that maximizeshareholders’ return in the long term.

During the year ended 31 December 2018, with the establishment of akindergarten in Hong Kong and completion of the acquisition of a number ofsubsidiaries as detailed under the section headed ‘‘Significant investment, materialacquisitions and disposals’’ below, the Group has commenced (i) the early childhoodeducation business; and (ii) the operation of the provision of swallowing and speechtreatments and provision of photographic services for children in Hong Kong.


– I-6 –

As at 31 December 2018, the Group operates (i) twenty three dance centres inHong Kong; (ii) one kindergarten in Hong Kong; (iii) six kindergartens and/orpreschools in Singapore; and (iv) one treatment centre for the provision ofswallowing and speech treatments in Hong Kong.

Financial review

During the year ended 31 December 2018, with the completion of theacquisition of a number of subsidiaries as detailed under the section headed‘‘Significant investment, material acquisitions and disposals’’ below, the Group hasthree operating segments, namely (i) the dance academy business; (ii) earlychildhood education business; and (iii) others including the operation of theprovision of swallowing and speech treatments and provision of photographicservices for children in Hong Kong.

Dance academy business

Revenue of the dance academy business was mainly contributed by the self-operated dance centres in respect of the provision of elementary courses, CSTD jazzcourses, RAD ballet courses etc. to the students. During the year ended 31 December2018, the dance academy business contributed revenue of approximately HK$61.7million, representing a decrease of approximately 4.0% as compared to the revenueof approximately HK$64.3 million for the corresponding year, which was mainlyattributable to the increasing competition as discussed above. The dance academybusiness record a loss of approximately HK$14.7 million for the year ended 31December 2018.

Early childhood education business

Upon the establishment of the kindergarten in Hong Kong and the completionof the acquisition of six kindergartens in Singapore as discussed above, the Groupcommenced the early childhood education business during the year ended 31December 2018 and recorded revenue of approximately HK$9.5 million. The earlychildhood education business recorded a loss of approximately HK$13.2 million forthe year ended 31 December 2018 as (i) the kindergarten in Hong Kong recorded aloss of approximately HK$10.0 million as the first curriculum will only commence inSeptember 2019; (ii) the Group only completed acquisition of the kindergartens inSingapore during the year, details of which are disclosed under the section headed‘‘Significant investment, material acquisitions and disposals’’ below; and (iii)transaction cost including but not limited to legal and professional fees for theabove acquisitions of approximately HK$2.6 million.


– I-7 –

Others

Revenue for the others segment represented revenue from the provision ofswallowing and speech treatments and provision of photograph services for childrenin Hong Kong. The Group recorded revenue of approximately HK$5.3 million and asegment profit of approximately HK$1.7 million from such segment for the yearended 31 December 2018.

Other income

Other income of the Group increased slightly by approximately 22% fromapproximately HK$10.4 million for the year ended 31 December 2017 toapproximately HK$12.7 million for the year ended 31 December 2018.

Loss attributable to owners of the Company

The Group recorded a loss attributable to owners of the Company amounted toapproximately HK$53.5 million for the year ended 31 December 2018 while theGroup recorded a loss attributable to owners of the Company amounted toapproximately HK$25.7 million for the year ended 31 December 2017. Suchincrease in loss was mainly due to the one-off non-operation costs in 2018.According to the HKFRS accounting standard, during the year 2018, the impairmentlosses on goodwill and fair value change in consideration of acquisition ofsubsidiaries amounted to HK$15.2 million were included. Furthermore, legal andprofessional fee for acquisition of local and overseas subsidiaries amounted toHK$5.3 million and license fee to government for waiver of land use amounted toHK$2.5 million were included. These one-off expenses were incurred in theacquisition of subsidiaries and expanding business in the international preschoolsmarket.


The Group generally finances its operation through internally-generated cashflows and bank facilities provided by the banks during the year ended 31 December2018. As at 31 December 2018, the total bank balances and cash of the Groupamounted to approximately HK$55 million (2017: approximately HK$133.8 million).The Group has a bank borrowing of approximately HK$3 million as at 31 December2018 and none as at 31 December 2017. As at 31 December 2018, the current ratio(defined as total current assets divided by total current liabilities) was approximately1.22 times as compared to 3.5 times as at 31 December 2017.

As at 31 December 2018 and 2017, the issued share capital of the Company wasHK$35,410,000 divided into 354,100,000 Shares.

As at 31 December 2018, the Group had outstanding corporate bonds withcarrying amount of approximately HK$69.2 million (2017: Nil). The corporate bonds(with face value of HK$1,000,000 for each of the bonds) carry interest at 5% perannum and will mature on the day falling on the second anniversary of the date of


– I-8 –

issue. The repayment of the bonds is guaranteed by Wealthy Together Limited, iswholly and beneficially owned by Mr. Chiu Ka Lok, an executive Director and theChairman of the Company.

The Group adopts a conservative approach towards its treasury policies. TheGroup’s credit risk is primarily attributable to trade receivables, amounts due fromrelated parties, pledged bank deposit and bank balances. In the view of the businessnature of the Group, the Directors considered that the credit risks of tradereceivables are immaterial after considering the credit quality and financial ability ofthe relevant financial institutions and there is no history of delay or default insettlement by them. The management considered there was no recoverability problemfrom the related parties of the Group. The pledged bank deposit and the bankbalances are deposited with banks which have good reputation.



As at 31 December 2018, the Group have certain bank deposits, otherreceivables and deposits which has exchanged to foreign currency denominated inRenminbi (‘‘RMB’’), United States Dollars (‘‘USD’’), Singapore Dollar (‘‘S$’’) andAUD which may expose the Group to foreign currency risk. The Group was exposedto certain foreign currency exchange risks but it does not anticipate future currencyfluctuations to cause material operational difficulties or liquidity problems. TheGroup currently had no foreign currency hedging policy. However, the managementwill monitor foreign exchange position and will consider appropriate action shouldthe circumstances change.


As at 31 December 2018, except for the held-for-trading investments amountedto approximately HK$3.6 million, there was no other significant investment held bythe Group.

During the year ended 31 December 2018, the Group has conducted thefollowing material acquisitions and disposals.

Acquisition of Global Win Group

Pursuant to the sales and purchase agreement dated 18 September 2017 andsubsequent supplemental agreements dated 30 March 2018 and 19 June 2018(collectively referred to the ‘‘Global Win S&P Agreements’’) entered into by theCompany and an executive director, Mr. Chiu Ka Lok, and a non-executive director,Dr. Chun Chun, (collectively referred to as the ‘‘Global Win Vendors’’), theCompany acquired the entire issued share capital of Global Win on 31 July 2018with total consideration of HK$32,000,000 which shall be satisfied by way of issue


– I-9 –

of 80,000,000 new Shares of the Company to each of the Global Win Vendors inproportion to their respective shareholdings in Global Win. The principal assets ofGlobal Win are its investment in the wholly owned subsidiaries, Hong Kong Speech& Swallowing Therapy Co. Limited (‘‘Hong Kong Speech’’) and Stage PhotographyCompany Limited (‘‘Stage Photography’’). Hong Kong Speech is engaged in theprovision of swallowing and speech treatments. Stage Photography is engaged in theprovision of photographic services for children. Please refer to the circular of theCompany dated 6 July 2018 for details.

Upon completion of the acquisition on 31 July 2018, the financial results ofGlobal Win Group was consolidated into the financial statements of the Company,which contributed revenue and net profit of approximately HK$5.3 million andHK$1.7 million respectively for the year ended 31 December 2018.

Acquisition of the Columbia Group

Pursuant to the sales and purchase agreement dated 29 June 2018 (the‘‘Columbia S&P Agreement’’) entered into by a wholly-owned subsidiary of theCompany and two independent third parties, the Group acquired 90% issued sharecapital of Columbia Academy Pte Limited and Columbia Junior Academy PteLimited, companies incorporated in Singapore with limited liabilities (collectivelyreferred to as the ‘‘Columbia Group’’) on 3 July 2018 with total cash considerationof S$2,059,000. Columbia Group is principally engaged in the operation of two pre-schools under the brand ‘‘Columbia Academy’’ in Singapore. Please refer to theannouncement of the Company dated 29 June 2018 for details.

Upon completion of the acquisition on 3 July 2018, the financial results ofColumbia Group was consolidated into the financial statements of the Company,which contributed revenue and net profit of approximately HK$4.9 million andHK$0.5 million respectively for the year ended 31 December 2018.

Acquisition of Tinkerland

Pursuant to the sales and purchase agreement dated 3 October 2018 (the‘‘Tinkerland S&P Agreement’’) entered into by a wholly-owned subsidiary of theCompany and two independent third parties, the Group acquired 90% issued sharecapital of Tinkerland Private Limited (‘‘Tinkerland’’), a company incorporated inSingapore with limited liabilities on 3 October 2018 with total cash consideration ofS$1,890,000. Tinkerland is principally engaged in the operation of a pre-school inSingapore. Please refer to the announcement of the Company dated 3 October 2018for details.

Upon completion of the acquisition on 3 October 2018, the financial results ofTinkerland was consolidated into the financial statements of the Company, whichcontributed revenue and net profit of approximately HK$1.6 million and HK$0.2million respectively for the year ended 31 December 2018.


– I-10 –

Acquisition of Happy Family Business

On 1 November 2018, a wholly-owned subsidiary of the Company entered intothe sale and purchase agreements (the ‘‘Happy Family S&P Agreements’’) with twoindependent third parties, pursuant to which the vendors have conditionally agreed tosell and the subsidiary has conditionally agreed to purchase certain assets relating tothe business of operating and managing the childcare centres currently carried out bythe vendors (the ‘‘Happy Family Business’’) at total cash consideration ofS$1,250,000. Please refer to the announcement of the Company dated 1 November2018 for details. The acquisition of the Happy Family Business was completed on 1January 2019.

Acquisition of BTT Group

Pursuant to the sales and purchase agreement dated 12 November 2018 enteredinto by a wholly owned subsidiary of the Company and three independent thirdparties, the Group acquired the entire issued share capital of Between Two Trees PteLimited and The Lighthouse Keepers Pte Limited (collectively referred to as the‘‘BTT Group’’), companies incorporated in Singapore with limited liabilities on 12November 2018 with total cash consideration of S$1,350,000. BTT Group isprincipally engaged in the operation of a pre-school in Singapore. Please refer to theannouncement of the Company dated 12 November 2018 for details.

Upon completion of the acquisition on 12 November 2018, the financial resultsof BTT Group was consolidated into the financial statements of the Company, whichcontributed revenue and net profit of approximately HK$1.0 million and HK$0.1million respectively for the year ended 31 December 2018.

Disposal of Metro Noble Limited

On 11 April 2018, the Group disposed of 100% of the entity interest in MetroNoble Limited for a cash consideration of HK$7,200,000.


The Group had no material contingent liabilities as at 31 December 2018.

As at 31 December 2018, the Group did not have any significant capitalcommitments except the followings:

(i) The Group has commitment to contribute a registered capital ofRMB3,000,000 (2017: RMB3,000,000) to its subsidiaries of each of 廣州

德理隆商務服務有限公司 (‘‘Guangzhou Delilong’’) and 廣州樂動心弦文

化發展有限公司 as at 31 December 2018; and


– I-11 –

(ii) Pursuant to Columbia S&P Agreement and Tinkerland S&P Agreement,the Group has commitment to acquire the remaining equity interest ofColumbia Group and Tinkerland at a total cash consideration ofS$324,000; and

(iii) Pursuant to Happy Family S&P Agreements, the Group has commitment toacquire the Happy Family Businesses at a consideration of S$1,250,000.Up to 31 December 2018, the Group has paid S$575,000 to the HappyFamily Vendors.

Pledge of assets

As at 31 December 2018, the Group pledged its held for trading investmentsamounted to HK$3.6 million against its outstanding security margin accountbalances.


With increase in number of subsidiaries, staff costs of the Group, includingDirectors’ emoluments, were approximately HK$38 million for the year ended 31December 2018 (2017: approximately HK$26.2 million). Remuneration isdetermined with reference to market terms and the performance, qualification andexperience of individual employee. In addition to basic salaries, year-enddiscretionary bonuses were offered to those staff with outstanding performance toattract and retain eligible employees to contribute to the Group. Apart from basicremuneration, the Company has adopted a share option scheme and share optionsmay be granted to eligible employees by reference to the Group’s performance aswell as individual contribution.


– I-12 –

C. For the year ended 31 December 2017

Business review

The Group continues focusing on engaging in business of jazz and ballet andpop dance academy in Hong Kong and the PRC.

During the year ended 31 December 2017, competition in the dance institutionindustry for children in Hong Kong is intense, the Group continues to maintain andattract the students to enroll in the Group’s courses by developing new courses andenhancing courses to respond to changes in market trends so as to expand theGroup’s coverage and effectively market the courses to a broader base of students.

The Group decides to implement a strategy to enhance the Group’s currentoperation, which is to engage in the kindergarten business in Hong Kong bycooperating with Chatsworth being operated international kindergartens, primary andsecondary schools under the brand ‘‘Chatsworth’’ in Singapore for over 20 years.

Meanwhile, the Company will also expedite its expansion in the overseasmarket to diversify and further broaden the source of income. The Group will adoptinvestment approach prudently to consider all potential mergers or acquisitionsopportunities or cooperation with strong potential partners that maximizeshareholders’ return in the long term.

Financial review

Revenue was mainly contributed by the self-operated dance centres in respect ofthe provision of elementary courses, CSTD jazz courses, RAD ballet courses etc. tothe students. For the year ended 31 December 2017, the Group recorded revenue ofapproximately HK$64.3 million, representing an increase of approximately 4.3%compared with the revenue of approximately HK$61.7 million for correspondingyear. There was no significant change for the total revenue as compared to the yearended 31 December 2016.

During the year ended 31 December 2017, the revenue from the provision ofelementary courses was the main source of revenue which amounted toapproximately HK$30.4 million (2016: approximately HK$29.7 million),representing approximately 47.2% (2016: approximately 48.1%) of the Group’s totalrevenue. Revenue generating from the provision of CSTD jazz courses and RADballet courses during the year ended 31 December 2017 were approximatelyHK$21.1 million (2016: approximately HK$19.4 million) and HK$3.7 million (2016:approximately HK$3.7 million) respectively, representing approximately 32.8%(2016: approximately 31.4%) and approximately 5.8% (2016: approximately 6.0%)of the Group’s total revenue respectively. There were no significant changes ascompared to year ended 31 December 2016.


– I-13 –

Other income of the Group increased by approximately 23.8% fromapproximately HK$8.4 million for the year ended 31 December 2016 toapproximately HK$10.4 million for the year ended 31 December 2017.

Rental expenses of the Group increased by approximately 15% fromapproximately HK$22.1 million for the year ended 31 December 2016 toapproximately HK$25.4 million for the year ended 31 December 2017, which wasmainly due to the increment in rental expenses of the Group’s leased dance centresand its head office.

Staff costs mainly comprise salaries, performance bonuses and retirementbenefits scheme contributions paid to the directors, instructors, teaching assistants,sales and marketing staff, operating staff and administrative staff. Staff costsincreased by approximately 6.1% from approximately HK$24.7 million for the yearended 31 December 2016 to approximately HK$26.2 million for the year ended 31December 2017.

Other operating expenses of the Group increased by approximately 17.3%, fromapproximately HK$23.8 million for the year ended 31 December 2016 toapproximately HK$27.9 million for the year ended 31 December 2017, which wasmainly attributable to additional professional fees incurred for continuingobligations, consultancy fee and credit card charges.

The Group recorded a loss attributable to owners of the Company amounted toapproximately HK$25.7 million for the year ended 31 December 2017 (2016:approximately HK$10.4 million). Such increase in loss was mainly due to the one-off non-operation costs during the year ended 31 December 2017 including (i) losson disposal of subsidiaries; and (ii) impairment losses on goodwill, other receivableand amount due from joint ventures.


The Group generally finances its operation through internally-generated cashflows and bank facilities provided by the banks during the year. As at 31 December2017, the total bank balances and cash of the Group amounted to approximatelyHK$133.8 million (2016: approximately HK$22.3 million).

There was no bank borrowings of the Group as at 31 December 2017 and 2016.

As at 31 December 2017, the current ratio (defined as total current assetsdivided by total current liabilities) was approximately 3.3 times as compared to that0.99 times as at 31 December 2016.

As at 31 December 2017, the gearing ratio (calculating based on total bankborrowings and obligation arising from put options written to non-controllingshareholders of subsidiary and other payables, divided by total equity and multipliedby 100%) was approximately 122.1% (2016: approximately 4.2%).


– I-14 –

As at 31 December 2017, the issued share capital of the Company wasHK$35,410,000 divided into 354,100,000 Shares.

The Group adopts a conservative approach towards its treasury policies. TheGroup’s credit risk is primarily attributable to trade receivables, rental deposits,amounts due from related parties, pledged bank deposit and bank balances. In theview of the business nature of the Group, the Directors considered that the creditrisks of trade receivables are immaterial after considering the credit quality andfinancial ability of the relevant financial institutions and there is no history of delayor default in settlement by them. The management of the Group considered that thecredit risks of rental deposits are insignificant after considering the financial abilityof the counterparties. The management considered there was no recoverabilityproblem from the related parties of the Group. The pledged bank deposit and thebank balances are deposited with banks which have good reputation.



As at 31 December 2017, the Group has certain bank deposits, other receivablesand deposits and available-for-sale investments which has exchanged to foreigncurrency denominated in RMB, which may expose the Group to foreign currencyrisk. The Group was exposed to certain foreign currency exchange risks but it doesnot anticipate future currency fluctuations to cause material operational difficultiesor liquidity problems. The Group currently had no foreign currency hedging policy.However, the management will monitor foreign exchange position and will considerappropriate action should the circumstances change. As at 31 December 2017, thebank deposits, other receivables and deposits and available-for-sale investmentsdenominated in RMB are approximately HK$43.4 million (2016: Nil), HK$2.5million (2016: HK$5.5 million) and HK$5.8 million (2016: Nil) respectively.


During the year ended 31 December 2017, the Group did not have anysignificant investments.

During the year ended 31 December 2017, the Group has conducted thefollowing material acquisitions and disposals.

Acquisition of Octopus Group

On 6 January 2017, the Group acquired 60% of the issued share capital ofOctopus Group Limited (‘‘Octopus’’) and the consideration was settled by cash ofHK$500,000 and issue of 2,400,000 new Shares of the Company. Octopus and its


– I-15 –

subsidiaries are engaged in providing extracurricular programs and English coursesto kindergartens in Hong Kong and the PRC and running English training centre inthe PRC.

Disposal of Octopus Group

On 27 December 2017, the Group disposed 60% of the equity interest inOctopus for cash consideration of HK$1,460,000.


As at 31 December 2017, the Group did not have any material contingentliabilities.


(i) The Group has commitment to contribute registered capital ofRMB3,000,000 (2016: Nil) to Guangzhou Delilong as at 31 December2017; and

(ii) Pursuant to the Global Win S&P Agreements, the Company agreed topurchase the entire issued share capital of Hong Kong Speech and StagePhotography with a total consideration of HK$32,000,000 by issuing80,000,000 new Shares of the Company to each of the Global WinVendors in proportion to their respective shareholdings in Hong KongSpeech and Stage Photography. As at 31 December 2017, the acquisitionwas still in process and not completed.

Pledge of assets

As at 31 December 2017, the Group did not pledge any assets.


As at 31 December 2017, the Group employed a total of 123 full-time and 91part-time employees (2016: 132 full-time and 93 part-time employees) respectively.Staff costs of the Group, including Directors’ emoluments, were approximatelyHK$26.2 million for the year ended 31 December 2017 (2016: approximatelyHK$24.7 million). Remuneration is determined with reference to market terms andthe performance, qualification and experience of individual employee. In addition tobasic salaries, year-end discretionary bonuses were offered to those staff withoutstanding performance to attract and retain eligible employees to contribute to theGroup. Apart from basic remuneration, the Company has adopted a share optionscheme and share options may be granted to eligible employees by reference to theGroup’s performance as well as individual contribution.


– I-16 –

D. For the year ended 31 December 2016

Business review

The Group continues focusing on engaging in business of jazz and ballet andpop dance academy in Hong Kong and the PRC.

During the year ended 31 December 2016, competition in the dance institutionindustry for children in Hong Kong is intense, the Group continues to maintain andattract the students to enroll in the Group’s courses by developing new courses andenhancing courses to respond to changes in market trends so as to expand theGroup’s coverage and effectively market the courses to a broader base of students.

The Group decides to implement a new strategy to enhance the Group’s currentoperation, which is to engage in the kindergarten business in Hong Kong bycooperating with Chatsworth being operated international kindergartens, primary andsecondary schools under the brand ‘‘Chatsworth’’ in Singapore for over 20 years.

On 29 December 2016, the Group established a new subsidiary located inKowloon Tong for preparing the development of the operation of day care centres,kindergartens and indoor theme-based kids clubs.

Meanwhile, the Company will also expedite its expansion in the PRC andoverseas market to diversify and further broaden the source of income. The Groupwill adopt investment approach prudently to consider all potential mergers oracquisitions opportunities or cooperation with strong potential partners thatmaximize shareholders’ return in the long term.

Financial review

Revenue was mainly contributed by the self-operated dance centres in respect ofthe provision of elementary courses, CSTD jazz courses, RAD ballet courses etc. tothe students. For the year ended 31 December 2016, the Group recorded revenue ofapproximately HK$61.7 million, representing an increase of approximately 9.6%compared with the revenue of approximately HK$56.3 million for correspondingyear. There was no significant change for the total revenue as compared to the yearended 31 December 2015.

During the year under review, the revenue from the provision of elementarycourses was the main source of revenue which amounted to approximately HK$29.7million (2015: approximately HK$29.4 million), representing approximately 48.1%(2015: approximately 52.2%) of the Group’s total revenue.

Revenue generating from the provision of CSTD jazz courses and RAD balletcourses during the year ended 31 December 2016 were approximately HK$19.4million (2015: approximately HK$17.0 million) and HK$3.7 million (2015:approximately HK$4.1 million) respectively, representing approximately 31.4%


– I-17 –

(2015: approximately 30.2%) and approximately 6.0% (2015: approximately 7.3%)respectively. There were no significant changes as compared to year ended 31December 2015.

Other income of the Group remained stable from approximately HK$8.2 millionfor the year ended 31 December 2015 to approximately HK$8.4 million for the yearended 31 December 2016.

Rental expenses of the Group increased by approximately 13.9% fromapproximately HK$19.4 million for the year ended 31 December 2015 to HK$22.1million for the year ended 31 December 2016 was due to the five centres opened inthe second half of 2015, representing approximately 34.5% and 35.8% respectivelyof the revenue for the years ended 31 December 2015 and 2016.

Staff costs mainly comprise salaries, performance bonuses and retirementbenefits scheme contributions paid to the directors, instructors, teaching assistants,sales and marketing staff, operating staff and administrative staff. Increased in staffcosts by approximately 16.5% from approximately HK$21.2 million for the yearended 31 December 2015 to approximately HK$24.7 million for the year ended 31December 2016 was due to the new centres opened in 2015.

Other operating expenses of the Group increased by approximately 12.3%, fromapproximately HK$21.2 million for the year ended 31 December 2015 toapproximately HK$23.8 million for the year ended 31 December 2016, which wasmainly attributable to additional professional fees incurred for continuing obligationsconsultancy fee and credit card charges.

The Group recorded a loss attributable to owners of the Company amounted toapproximately HK$10.4 million for the year ended 31 December 2016 while theGroup recorded a loss attributable to owners of the Company amounted toapproximately HK$4.5 million for the year ended 31 December 2015. Such increasein loss was mainly due to the additional operation costs of the New Centres in 2015,which were reflected in the increase in (i) rental expenses; (ii) staff costs and (iii)other operating expenses for the year.


The Group generally finances its operation through internally-generated cashflows and bank facilities provided by the banks during the year. As at 31 December2016, the total bank balances and cash of the Group amounted to approximatelyHK$22.3 million (2015: approximately HK$29.4 million).

There was no bank borrowings of the Group as at 31 December 2016 and 2015.

As at 31 December 2016, the current ratio (defined as total current assetsdivided by total current liabilities) was approximately 0.99 times as compared to that1.5 times as at 31 December 2015.


– I-18 –

As at 31 December 2016, the gearing ratio (calculating based on total bankborrowings and amounts due to related parties which is non-trade nature divided bytotal equity and multiplied by 100%) was approximately 11.5% (2015: approximately5.5%).

As at 31 December 2015 and 2016, the issued share capital of the Company wasHK$20,000,000 divided into 200,000,000 Shares.

The Group adopts a conservative approach towards its treasury policies. TheGroup’s credit risk is primarily attributable to trade receivables, rental deposits,amounts due from related parties, pledged bank deposit and bank balances. In theview of the business nature of the Group, the Directors considered that the creditrisks of trade receivables are immaterial after considering the credit quality andfinancial ability of the relevant financial institutions and there is no history of delayor default in settlement by them. The management of the Group considered that thecredit risks of rental deposits are insignificant after considering the financial abilityof the counterparties. The management considered there was no recoverabilityproblem from the related parties of the Group. The pledged bank deposit and thebank balances are deposited with banks which have good reputation.



As at 31 December 2016, the Group has certain bank deposits, other receivablesand deposits and available-for-sale investments which has exchanged to foreigncurrency denominated in RMB, which may expose the Group to foreign currencyrisk. The Group was exposed to certain foreign currency exchange risks but it doesnot anticipate future currency fluctuations to cause material operational difficultiesor liquidity problems. The Group currently had no foreign currency hedging policy.However, the management will monitor foreign exchange position and will considerappropriate action should the circumstances change. The bank deposits, otherreceivables and deposits and available-for-sale investments denominated in RMB asmentions above are equivalent to approximately Nil (2015: HK$21.4 million),HK$5.5 million (2015: HK$0.4 million) and NIL (2015: HK$10.1 million)respectively.


During the year ended 31 December 2016, the Group acquired a new companylocated in Kowloon Tong, which being prepared for development of kindergartensbusiness in 2017. The total capital expenditure and other initial investment incurredincidental to the opening of such company were approximately HK$1.2 million.


– I-19 –


The Group had no material contingent liabilities as at 31 December 2016 (2015:Nil).


(i) On 14 March 2016, the Group entered into a conditional sale and purchaseagreement with two independent third parties pursuant to which the Groupwill acquire 60% equity interest in Octopus. The total consideration of theacquisition consists of HK$500,000 cash and issuance of 2,400,000 newshares by the Company. Cash consideration of HK$250,000 as at 31December 2016 was paid and the remaining consideration was consideredas capital commitment as at 31 December 2016; and

(ii) Pursuant to the cooperative agreement entered with an independent thirdparty on 5 October 2016 for setting up kindergarten business inGuangzhou, the total investment cost of the Group is RMB2,000,000. Asat 31 December 2016, RMB1,100,000 was paid by the Group and theremaining investment cost of RMB900,000 is considered as capitalcommitment as at 31 December 2016.

Pledge of assets

As at 31 December 2016, the Group did not pledge any assets.


As at 31 December 2016, the Group employed a total of 132 full-time and 93part-time employees (2015: 120 full-time and 111 part-time employees) respectively.Staff costs of the Group, including Directors’ emoluments, were approximatelyHK$24.7 million for the year ended 31 December 2016 (2015: approximatelyHK$21.2 million). Remuneration is determined with reference to market terms andthe performance, qualification and experience of individual employee. In addition tobasic salaries, year-end discretionary bonuses were offered to those staff withoutstanding performance to attract and retain eligible employees to contribute to theGroup. Apart from basic remuneration, the Company has adopted a share optionscheme and share options may be granted to eligible employees by reference to theGroup’s performance as well as individual contribution.


– I-20 –

6. BUSINESS OVERVIEW AND PROSPECTS

The Group has been actively seeking new business opportunities from time to time inorder to diversify its business and enhance the long-term growth potential of the Group and theShareholder’s value.

The Group will continue enhancing the geographical coverage by opening and/oracquiring more centres in the future to strengthen our leading position in the industry. Openingand/or acquiring more centres will be located near populated residential areas in Hong Kong,in particular, in private housing estates in areas close to a network of schools or which arecurrently without the presence of the Group’s dance centres. In implementing the expansionplan, the Group will also consider to acquire existing dance centres, if the right opportunityshould arise as the Group can immediately benefit from the existing clientele base.

Going forward, the Group will implement a strategy to enhance the Group’s currentoperation, which is to engage in the operation of day care centres, kindergartens and indoortheme-based kid clubs through acquisition.

Meanwhile, the Company will also expedite its expansion in Singapore and other overseasmarkets to further broaden the source of income. The Group will adopt investment approachprudently to consider all potential mergers or acquisitions opportunities or cooperation withstrong potential partners that maximize shareholders’ return in the long term.


– I-21 –

The following is the text of a report, prepared for the sole purpose of inclusion in thiscircular, from the independent reporting accountant, Baker Tilly Hong Kong Limited, CertifiedPublic Accountants, Hong Kong.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OFABILITY EDUCATION PTY LTDTO THE DIRECTORS OF SDM GROUP HOLDINGS LIMITED

INTRODUCTION

We report on the historical financial information of Ability Education Pty Ltd (‘‘AbilityEducation’’) set out on pages II-1 to II-39, which comprises the statements of financialposition of Ability Education as at 30 June 2016, 2017, 2018 and 31 March 2019, thestatements of profit or loss and other comprehensive income, the statements of changes inequity and the statements of cash flows of Ability Education for each of the three years ended30 June 2016, 2017 and 2018 and the nine months ended 31 March 2019 (the ‘‘RelevantPeriods’’) and a summary of significant accounting policies and other explanatory information(together, the ‘‘Historical Financial Information’’). The Historical Financial Informationforms an integral part of this report, which has been prepared for inclusion in the investmentcircular of the SDM Group Holdings Limited (the ‘‘Company’’) dated 3 September 2019 (the‘‘Circular’’) in connection with the proposed acquisition of Ability Education by a subsidiaryof the Company.

SOLE DIRECTOR’S RESPONSIBILITY FOR THE HISTORICAL FINANCIALINFORMATION

The sole director of Ability Education is responsible for the preparation of HistoricalFinancial Information that gives a true and fair view in accordance with the basis ofpreparation and presentation set out in notes 2 and 3 to the Historical Financial Information,and for such internal control as the sole director of Ability Education determines is necessaryto enable the preparation of Historical Financial Information that is free from materialmisstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of the Circular in which theHistorical Financial Information of Ability Education is included, and such information isprepared based on accounting policies materially consistent with those of the Company.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Historical Financial Information and toreport our opinion to you. We conducted our work in accordance with Hong Kong Standard onInvestment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on HistoricalFinancial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified

APPENDIX II ACCOUNTANTS’ REPORT OF ABILITY EDUCATION

– II-1 –

Public Accountants (the ‘‘HKICPA’’). This standard requires that we comply with ethicalstandards and plan and perform our work to obtain reasonable assurance about whether theHistorical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts anddisclosures in the Historical Financial Information. The procedures selected depend on thereporting accountants’ judgement, including the assessment of risks of material misstatement ofthe Historical Financial Information, whether due to fraud or error. In making those riskassessments, the reporting accountants’ consider internal control relevant to the entity’spreparation of Historical Financial Information that gives a true and fair view in accordancewith the basis of preparation and presentation set out in notes 2 and 3 to the HistoricalFinancial Information in order to design procedures that appropriate in the circumstance, butnot for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. Our work also included evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by the sole director, as well as evaluating theoverall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

OPINION

In our opinion the Historical Financial Information gives, for the purposes of theaccountants’ report, a true and fair view of Ability Education’s financial position as at 30 June2016, 2017, and 2018 and 31 March 2019, and of Ability Education’s financial performanceand cash flows for the Relevant Periods in accordance with the basis of preparation andpresentation set out in notes 2 and 3 to the Historical Financial Information.

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information of Ability Educationwhich comprises the statement of profit or loss and other comprehensive income, the statementof changes in equity and the statement of cash flows for the nine months ended 31 March 2018and other explanatory information (the ‘‘Stub Period Comparative Financial Information’’).The sole director of Ability Education is responsible for the preparation and presentation of theStub Period Comparative Financial Information in accordance with the basis of preparation andpresentation set out in notes 2 and 3 to the Historical Financial Information. Our responsibilityis to express a conclusion on the Stub Period Comparative Financial Information based on ourreview. We conducted our review in accordance with Hong Kong Standard on ReviewEngagements 2410 ‘‘Review of Interim Financial Information Performed by the IndependentAuditor of the Entity’’ issued by the HKICPA. A review consists of making inquiries,primarily of persons responsible for financial and accounting matters, and applying analyticaland other review procedures. A review is substantially less in scope that an audit conducted inaccordance with Hong Kong Standards on Auditing (‘‘HKSAs’’) and consequently does notenable us to obtain assurance that we would become aware of all significant matters that mightbe identified in an audit. Accordingly, we do not express an audit opinion. Based on ourreview, nothing has come to our attention that causes us to believe that the Stub Period


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Comparative Financial Information, for the purposes of the accountants’ report, is notprepared, in all material respects, in accordance with the basis of preparation and presentationset out in notes 2 and 3 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OFSECURITIES ON THE GEM OF THE STOCK EXCHANGE OF HONG KONGLIMITED

Adjustments

In preparing the Historical Financial Information, no adjustments to the UnderlyingFinancial Statements as defined on page II-4 have been made.

Dividends

We refer to note 10 to the Historical Financial Information which states that no dividendshave been paid or declared by Ability Education in respect of the Relevant Periods.

Baker Tilly Hong Kong LimitedCertified Public AccountantsHong Kong, 3 September 2019Choi Kwong YuPractising certificate number P05071


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HISTORICAL FINANCIAL INFORMATION OF ABILITY EDUCATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of thisaccountants’ report.

The financial statements of Ability Education, on which the Historical FinancialInformation is based, were audited by us in accordance with the HKSAs issued by theHKICPA and have been prepared in accordance with the Hong Kong Financial ReportingStandards (‘‘HKFRSs’’) issued by the HKICPA (‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in Australian dollars (‘‘AUD’’), which isalso the functional currency of Ability Education, and all values are rounded to the nearestthousand (‘‘AUD’000’’) except when otherwise indicated.


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STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Year ended 30 JuneNine months ended

31 March2016 2017 2018 2018 2019

Note AUD’000 AUD’000 AUD’000 AUD’000 AUD’000(unaudited)

Revenue 5 15,261 14,148 13,444 10,321 10,628Other income 6 85 60 501 485 306Advertising and promotion expenses (3,426) (3,832) (3,022) (2,430) (2,491)Depreciation (20) (24) (393) (324) (236)Amortisation — — (228) (110) (15)Rental expenses (97) — — — (336)Staff costs (6,095) (6,433) (6,529) (4,907) (5,562)Other expenses (4,866) (6,047) (4,014) (2,880) (2,798)

Profit/(loss) before tax 8 842 (2,128) (241) 155 (504)Income tax expense 7 (253) (124) (335) (335) —

Profit/(loss) and totalcomprehensive income/(expense)for the year/period attributableto the owners of AbilityEducation 589 (2,252) (576) (180) (504)


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STATEMENTS OF FINANCIAL POSITION

As at 30 JuneAs at

31 March2016 2017 2018 2019

Note AUD’000 AUD’000 AUD’000 AUD’000

Non-current assetsProperty, plant and equipment 12 66 51 599 363Intangible assets 13 — — 30 16Deferred tax assets 21 459 335 — —

525 386 629 379

Current assetsTrade and other receivables and

prepayments 14 1,698 1,633 1,821 1,616Deferred agents expense 14 731 867 791 770Bank balances and cash 15 2,640 1,427 1,949 1,238

5,069 3,927 4,561 3,624

Current liabilitiesTrade and other payables and

accrued charges 16 1,858 2,203 1,286 1,068Deferred income/contract liabilities 17 3,545 5,332 5,561 5,229Amount due to holding company 18 1,814 720 2,921 2,722Tax payables 70 — — —

Provisions 19 109 115 54 316

7,396 8,370 9,822 9,335

Net current liabilities (2,327) (4,443) (5,261) (5,711)

Total assets less currentliabilities (1,802) (4,057) (4,632) (5,332)

Non-current liabilitiesProvisions 19 17 14 15 58

Net liabilities (1,819) (4,071) (4,647) (5,390)

Capital and reserves

Share capital 20 1,115 1,115 1,115 1,115Accumulated losses (2,934) (5,186) (5,762) (6,505)

Total deficit attributable to theowners of Ability Education (1,819) (4,071) (4,647) (5,390)


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STATEMENTS OF CHANGES IN EQUITY

Share capitalAccumulated

losses Total equityAUD’000 AUD’000 AUD’000

At 1 July 2015 1,115 (3,523) (2,408)Profit and total comprehensive incomefor the year — 589 589

At 30 June 2016 and 1 July 2016 1,115 (2,934) (1,819)Loss and total comprehensive expensefor the year — (2,252) (2,252)

At 30 June 2017 and 1 July 2017 1,115 (5,186) (4,071)Loss and total comprehensive expensefor the year — (576) (576)

At 30 June 2018 and 1 July 2018 1,115 (5,762) (4,647)Adjustments on initial application ofHKFRS15 — (239) (239)

At 1 July 2018 (restated) 1,115 (6,001) (4,886)Loss and total comprehensive expensefor the period — (504) (504)

At 31 March 2019 1,115 (6,505) (5,390)

For the nine months ended 31 March 2018(unaudited)

At 1 July 2017 1,115 (5,186) (4,071)Loss and total comprehensive expensefor the period — (180) (180)

At 31 March 2018 (Unaudited) 1,115 (5,366) (4,251)


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STATEMENTS OF CASH FLOWS


31 March2016 2017 2018 2018 2019


OPERATING ACTIVITIES

Profit/(loss) before taxation 842 (2,128) (241) 155 (504)Adjustments for:

Depreciation of property, plantand equipment 8 20 24 393 324 236

Amortisation of intangible assets 8 — — 228 110 15Impairment loss/(reversal of)

trade receivables 8 99 793 (722) (877) (135)Interest income 6 (51) (34) (24) (17) (5)

Operating cash flows beforemovements in working capital 910 (1,345) (366) (305) (393)

(Increase)/decrease in trade andother receivables, deposits andprepayments (494) (728) 534 785 349

(Increase)/decrease in deferredagents expense (145) (136) 76 89 21

Increase/(decrease) in trade andother payables and accruedcharges 1,011 345 (917) (936) (218)

(Decrease)/increase in deferredincome/contract liabilities (104) 1,787 229 (196) (580)

(Decrease)/increase in amount dueto holding company (2,264) (1,094) 1,002 3,007 (199)

Increase/(decrease) in provisions 15 3 (60) (8) 305

Cash (used in)/generated fromoperations (1,071) (1,168) 498 2,436 (715)

Income tax paid — (70) — — —

NET CASH (USED IN)/GENERATED FROMOPERATING ACTIVITIES (1,071) (1,238) 498 2,436 (715)


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31 March2016 2017 2018 2018 2019


INVESTING ACTIVITIESInterest received 51 34 24 17 5Purchases of items of property,

plant and equipment (28) (9) — — —

Additions to intangible assets — — — — (1)

NET CASH FLOWS GENERATEDFROM INVESTINGACTIVITIES 23 25 24 17 4

NET (DECREASE)/INCREASE INCASH AND CASHEQUIVALENTS (1,048) (1,213) 522 2,453 (711)

CASH AND CASHEQUIVALENTS ATBEGINNING OF THE YEAR/PERIOD 3,688 2,640 1,427 1,427 1,949

CASH AND CASHEQUIVALENTS AT END OFTHE YEAR/PERIOD 2,640 1,427 1,949 3,880 1,238

Major non-cash transactions:

During the year ended 30 June 2018, additions to property, plant and equipment andintangible assets of approximately AUD941,000 and approximately AUD258,000 respectivelywere settled through the current account with holding company.


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NOTES TO HISTORICAL FINANCIAL INFORMATION

1. GENERAL INFORMATION

Ability Education was a limited liability company incorporated and domiciled in Australia on 14 August 1996with fiscal financial year ended on 30 June. It is wholly-owned by MEGT (Australia) Limited (the ‘‘Vendor’’), alimited company incorporated in Australia. The address of registered office and principal place of business ofAbility Education is 29 Ringwood Street, Ringwood Victoria 3134 and Level 4–5, 10 Quay Street, Sydney NSW2000, respectively.

Ability Education is engaged in provision of English language courses for international students.

The Historical Financial Information is presented in Australian dollars (‘‘AUD’’), which is the same as thefunctional currency of Ability Education.

The Historical Financial Information has been prepared in accordance with the accounting policies set out innotes 2 and 3 which are in accordance with HKFRSs.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods,Ability Education has consistently applied Hong Kong Accounting Standards (‘‘HKASs’’), Hong Kong FinancialReporting Standards, amendments and interpretations (collectively ‘‘HKFRSs’’) which are effective for itsaccounting period beginning on 1 July 2018 throughout the Relevant Periods except that Ability Education adoptedHKFRS 9 ‘‘Financial Instruments’’ and HKFRS 15 ‘‘Revenue from Contracts with Customers and the relatedAmendments’’ on 1 July 2018. The accounting policy for financial instruments under HKFRS 9 and revenuerecognition under HKFRS 15 are set out in note 3 below.

2.1 Impacts and changes in accounting policies from initial application of HKFRS 15

Summary of effects arising from initial application of HKFRS 15

HKFRS 15 superseded HKAS 18 ‘‘Revenue’’, HKAS 11 ‘‘Construction Contracts’’ and the relatedinterpretations with effect for financial year beginning from 1 January 2018. Ability Education hasapplied HKFRS 15 for the first time for the nine months ended 31 March 2019.

Ability Education has applied the simplified method of HKFRS 15 retrospectively with thecumulative effect of initially applying this standard recognised at the date of initial application, 1 July2018. Under this method, the standard can be applied either to all contracts at the date of initialapplication or only to contracts that are not completed at this date. Any difference at the date of initialapplication is recognised in the opening accumulated losses (or other components of equity, asappropriate) and comparative information has not been restated. Furthermore, in accordance with thetransition provisions in HKFRS 15, Ability Education has elected to apply HKFRS 15 retrospectivelyonly to contracts that are not completed at 1 July 2018. Accordingly, certain comparative informationmay not be comparable as comparative information was prepared under HKAS 18 ‘‘Revenue’’ andHKAS 11 ‘‘Construction Contracts’’ and the related interpretations.

Ability Education recognises revenue under HKFRS 15 mainly from its course fee income.

Information about Ability Education’s accounting policies and performance obligation resultingfrom application of HKFRS 15 are set out in notes 3 and 5 respectively.

The cumulative effect of the initial application of HKFRS 15 was recognised as an adjustment tothe opening balance of accumulated losses as at 1 July 2018. Therefore, the comparative informationwas not restated and continues to be reported under HKAS 18 and related interpretations.


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The following table summarises the impacts of transition to HKFRS 15 on accumulated losses at1 July 2018.

AUD’000

Accumulated lossesEnrolment fee income recognised over time 239

Impact at 1 July 2018 239

The following adjustments were made to the amounts recognised in statement of financialposition at 1 July 2018. Line items that were not affected by the changes have not been included.

Amountsprepared under

previousHKFRS at

30 June 2018 Reclassification Remeasurement

Amountsprepared underHKFRS 15 at1 July 2018

AUD’000 AUD’000 AUD’000 AUD’000

Current assetsTrade and other receivables 1,821 — 9 1,830

LiabilitiesDeferred income 5,561 (5,561) — —

Contract liabilities — 5,561 248 5,809

Set out below are the amounts by which each financial statement line item was affected as at 31March 2019 and for nine months ended 31 March 2019 as a result of the adoption of HKFRS 15. Theadoption of HKFRS 15 has had no impact on the statement of profit or loss and other comprehensiveincome or on Ability Education’s operating, investing and financing cash flows.

Statement of financial position as at 31 March 2019:

Amounts prepared under

HKFRS 15PreviousHKFRS

Increase/(decrease)

AUD’000 AUD’000 AUD’000

Current liabilitiesDeferred income — 5,229 (5,229)Contract liabilities 5,229 — 5,229

Statement of profit or loss and other comprehensive income as at 31 March 2019:

Amounts prepared under


Increase/(decrease)

AUD’000 AUD’000 AUD’000

RevenueTuition revenue 10,628 10,588 40

2.2 Impact and changes in accounting policies from initial application of HKFRS 9

For the nine months ended 31 March 2019, Ability Education has applied HKFRS 9 and the relatedconsequential amendments to other HKFRSs. HKFRS 9 introduces new requirements for (1) the classificationand measurement of financial assets and financial liabilities, (2) expected credit losses (‘‘ECL’’) for financialassets and other items (for example, contract assets and trade receivables) and (3) general hedge accounting.


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Ability Education has applied HKFRS 9 in accordance with the transaction provisions set out in HKFRS9. i.e. applied the classification and measurement requirements (including impairment) retrospectively toinstruments that have not been derecognised as at 1 July 2018 (date of initial application) and has not appliedthe requirements to instruments that have already been derecognised as at 1 July 2018. The differencebetween carrying amounts as at 30 June 2018 and the carrying amounts as at 1 July 2018 are recogniesd in theopening accumulated losses, without restating comparative information.

Accordingly, certain comparative information may not be comparable as comparative information wasprepared under HKAS 39 ‘‘Financial Instruments: Recognition and Measurement’’.

Accounting policies resulting from application of HKFRS 9 are disclosed in note 3.

Classification and measurement of financial assets and financial liabilities

The director of Ability Education has reviewed and assessed Ability Education’s financial assetsand financial liabilities at 1 July 2018 based on the facts and circumstances that existed at that date andconcluded that there was no material impact on Ability Education’s statement of financial position uponadoption of HKFRS 9.

Impairment under ECL model

At 1 July 2018, the director of Ability Education has reviewed and assessed Ability Education’sexisting financial assets for impairment using reasonable and supportable information that is availablewithout undue cost or effort in accordance with the requirements of HKFRS 9 and have concluded thatno material financial impact exists, and therefore no adjustment to the opening accumulated losses at 1July 2018 has been recognised.

New and amendments to HKFRSs in issue but not yet effective

At the date of this report, Ability Education has not early applied the following new and amendments toHKFRSs and the new interpretations that have been issued but are not yet effective:

HKFRS 16 Leases1

HKFRS 17 Insurance Contracts2

HK(IFRIC) 23 Uncertainty over Income Tax Treatments1

Amendments to HKFRS 9 Prepayment Features with Negative Compensation1

Amendments to HKFRS 10 andHKAS 28

Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture3

Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement1

Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures1

Amendments to HKFRSs Annual Improvements to HKFRSs 2015–2017 Cycle1

1 Effective for annual periods beginning on or after 1 January 20192 Effective for annual periods beginning on or after 1 January 20213 Effective for annual periods beginning on or after a date to be determined

Except as described below, the director of Ability Education anticipates that the application of all othernew and amendments to HKFRSs and the new interpretations will have no material impact on the financialstatements in the foreseeable future.

HKFRS 16 ‘‘Leases’’

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements andaccounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 ‘‘Leases’’ and therelated interpretations when it becomes effective.


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HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset iscontrolled by a customer. Distinctions of operating leases and finance leases are removed for lesseeaccounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to berecognised for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certainexceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the leaseliability. The lease liability is initially measured at the present value of the lease payments that are not paid atthat date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact oflease modifications, amongst others. For the classification of cash flows, Ability Education currently presentsoperating lease payments as operating cash flows. Upon the application of HKFRS 16, lease payments inrelation to lease liability will be allocated into a principal and an interest portion which will be presented asfinancing cash flows by Ability Education and upfront prepaid lease payments will continue to be presentedas investing or operation cash flows in accordance to the nature as appropriate.

Other than certain requirements which are also applicable to lessor, HKFRS 16 substantially carriesforward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a leaseeither as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by HKFRS 16.

As at 31 March 2019, Ability Education has non-cancellable operating lease commitments ofAUD4,807,000 as disclosed in note 23. A preliminary assessment indicates that these arrangements will meetthe definition of a lease upon application of HKFRS 16, Ability Education will recognise a right-of-use assetand a corresponding liability in respect of all these leases unless they qualify for low value or short-termleases.

The application of new requirements may result in changes in measurement, presentation and disclosureas indicated above. Ability Education intends to elect the practical expedient to apply HKFRS 16 to contractsthat were previously identified as leases applying HKAS 17. Therefore, Ability Education will not reassesswhether the contracts are, or contain a lease which already existed prior to the date of initial application.Furthermore, Ability Education intends to elect the modified retrospective approach for the application ofHKFRS 16 as lessee and will recognise the cumulative effect of initial application to opening accumulatedlosses without restating comparative information.

3. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared in accordance with the accounting policies set outbelow which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Informationincludes applicable disclosures required by the Rules Governing the Listing of Securities on the GEM of The StockExchange of Hong Kong Limited (‘‘Listing Rules’’) and by the Hong Kong Companies Ordinance.

The Historical Financial Information has been prepared on the historical cost basis.

Historical cost is generally based on the fair value of the consideration given in exchange for goods andservices.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date, regardless of whether that price is directlyobservable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,Ability Education takes into account the characteristics of the asset or liability if market participants would takethose characteristics into account when pricing the asset or liability at the measurement date. Fair value formeasurement and/or disclosure purposes in the Historical Financial Information is determined on such a basis,except for share-based payment transactions that are within the scope of HKFRS 2 ‘‘Shared-based payment’’, leasingtransactions that are within the scope of HKAS 17, and measurements that have some similarities to fair value butare not fair value, such as net realisable value in HKAS 2 ‘‘Inventories’’ or value in use in HKAS 36 ‘‘Impairmentof assets’’.


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In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3based on the degree to which the inputs to the fair value measurements are observable and the significance of theinputs to the fair value measurement in its entirety, which are described as follows:

. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that theentity can access at the measurement date;

. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for theasset or liability, either directly or indirectly; and

. Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

As at 30 June 2016, 2017 and 2018 and 31 March 2019, Ability Education’s current liabilities exceeded theircurrent assets by approximately AUD2,327,000, approximately AUD4,443,000, approximately AUD5,261,000 andapproximately AUD5,711,000 respectively. The parent company has confirmed its intention to provide continuingfinancial support to Ability Education so as to enable Ability Education to meet their liabilities as and when theyfall due and to carry on their business without a significant curtailment of operation for the foreseeable future.Consequently, the sole director of Ability Education have prepared the Historical Financial Information on a goingconcern basis.

Revenue from contracts with customers (upon application of HKFRS 15 in accordance with transitionsin note 2)

Under HKFRS 15, Ability Education recognises revenue when (or as) a performance obligation issatisfied, i.e. when ‘‘control’’ of the goods or services underlying the particular performance obligation istransferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinctor a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progresstowards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

. the customer simultaneously receives and consumes the benefits provided by Ability Education’sperformance as Ability Education performs;

. Ability Education’s performance creates and enhances an asset that the customer controls asAbility Education performs; or

. Ability Education’s performance does not create an asset with an alternative use to AbilityEducation and Ability Education has an enforceable right to payment for performance completedto date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinctgood or service.

A contract asset represents Ability Education’s right to consideration in exchange for goods or servicesthat Ability Education has transferred to a customer that is not yet unconditional. It is assessed for impairmentin accordance with HKFRS 9. In contrast, a receivable represents Ability Education’s unconditional right toconsideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents Ability Education’s obligation to transfer goods or services to a customerfor which Ability Education has received consideration (or an amount of consideration is due) from thecustomer.


– II-14 –

A contract asset and a contract liability relating to the same contract are accounted for and presented ona net basis.

Over time revenue recognition: measurement of progress towards complete satisfaction of aperformance obligation

The progress towards complete satisfaction of a performance obligation is measured based on outputmethod, which is to recognise revenue on the basis of direct measurements of the value of the goods orservices transferred to the customer to date relative to the remaining goods or services promised under thecontract, that best depict Ability Education’s performance in transferring control of goods or services.

Revenue recognition (prior to 1 July 2018)

Revenue is measured at the fair value of the consideration received or receivable and representsamounts receivable for goods sold and services provided in the normal course of business, net of discountsand related goods and services tax (GST).

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable thatfuture economic benefits will flow to Ability Education and when specific criteria have been met for each ofAbility Education’s activities, as described below.

Revenue relating to the provision of tuition fees is determined with reference to the stage of completionof the course at reporting date. Stage of completion is determined with reference to the course days completedto date.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effectiveinterest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through theexpected life of the financial asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment held for use in the supply of goods or services, or for administrativepurposes are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, ifany.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment lesstheir residual values over their estimated useful lives using the straight-line method. The estimated usefullives, residual values and depreciation method are reviewed at the end of the reporting period, with the effectof any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal orretirement of an item of property, plant and equipment is determined as the difference between the salesproceeds and the carrying amount of the asset and is recognised in profit or loss.

Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at costs lessaccumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets withfinite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated usefullife and amortisation method are reviewed at the end of each reporting period, with the effect of any changesin estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that areacquired separately are carried at cost less any subsequent accumulated impairment losses.


– II-15 –

Impairment on tangible and intangible assets

At the end of the reporting period, Ability Education reviews the carrying amounts of its tangible andintangible assets with finite useful lives to determine whether there is any indication that those assets havesuffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset isestimated in order to determine the extent of the impairment loss, if any.

When it is not possible to estimate the recoverable amount of an individual asset individually, AbilityEducation estimates the recoverable amount of the cash-generated unit (‘‘CGUs’’) to which the asset belongs.When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated toindividual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable andconsistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessingvalue in use, the estimated future cash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and the risks specific to the asset (or aCGU) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, thecarrying amount of the asset (or a CGU) is reduced to its recoverable amount. In allocating the impairmentloss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) andthen to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. Thecarrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (ifmeasurable), its value in use (if determinable) and zero. The amount of the impairment loss that wouldotherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairmentloss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) isincreased to the revised estimate of its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairment loss been recognised for theasset (or a CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

Ability Education as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.Contingent rentals arising under operating leases are recognised as an expense in the period in which they areincurred. In the event that lease incentives are received to enter into operating leases, such incentives arerecognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense ona straight-line basis.

Deferred agent expenses

Deferred agents expense is incurred when a student referred by an agent is enrolled in a course inadvance of tuition being provided. Deferred agent expense is recorded as an asset and is recognised over theperiod of enrolment in the course, in line with the recognition of tuition revenue.

Retirement benefit costs and short-term employee benefits

Post-employment benefits plans

Ability Education provides post-employment benefits through defined contribution plans.


– II-16 –

Defined Contribution plans

Ability Education pays fixed contributions into independent entities in relation to several state plans ofAustralia and insurance for individual employees. Ability Education has no legal or constructive obligationsto pay contributions in addition to its fixed contributions, which are recognised as an expense in the periodthat relevant employee services are received.

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to bepaid as and when employees rendered the services. All short-term employee benefits are recognised as anexpense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

Liabilities recognised in respect of other long-term employee benefits (such as annual leave and longservice leave) are measured at the present value of the estimated future cash outflows expected to be made byAbility Education in respect of services provided by employees up to the reporting date. Any changes in theliabilities’ carrying amounts resulting from service cost, interest and remeasurements are recognised in profitor loss except to the extent that another HKFRS requires or permits their inclusions in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leaveand sick leave) after deducting any amount already paid.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from loss beforetaxation as reported in the statement of profit or loss and other comprehensive income because of income orexpense that are taxable or deductible in other periods, and items that are never taxable or deductible. AbilityEducation’s liability for current tax is calculated using tax rates that have been enacted or substantivelyenacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets andliabilities in the financial statements and the corresponding tax base used in the computation of taxable profit.Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets aregenerally recognised for all deductible temporary differences to the extent that it is probable that taxableprofits will be available against which those deductible temporary differences can be utilised. Such assets andliabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition(other than in a business combination) of other assets and liabilities in a transaction that affects neither thetaxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments insubsidiaries and interests in joint ventures, except where Ability Education is able to control the reversal ofthe temporary difference and it is probable that the temporary difference will not reverse in the foreseeablefuture. Deferred tax assets arising from deductible temporary differences associated with such investments andinterests are only recognised to the extent that it is probable that there will be sufficient taxable profits againstwhich to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeablefuture.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reducedto the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part ofthe asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the periodin which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enactedor substantively enacted by the end of the reporting period.


– II-17 –

The measurement of deferred tax liabilities and assets reflects the tax consequences that would followfrom the manner in which Ability Education expects, at the end of the reporting period, to recover or settlethe carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss, except when relate to items that are recognisedin other comprehensive income or directly in equity, in which case, the current and deferred tax are alsorecognised in other comprehensive income or directly in equity, respectively. Where current tax or deferredtax arises from the initial accounting for a business combination, the tax effect is included in the account forthe business combination.

Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount ofGST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST isrecognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables andpayables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the statement of cash flows on a gross basis, except for the GST componentof investing and financing activities, which are disclosed as operating cash flows.

Provisions

Provisions are recognised when Ability Education has a present obligation (legal or constructive) as aresult of a past event, it is probable that Ability Education will be required to settle that obligation, and areliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle thepresent obligation at the end of the reporting period, taking into account the risks and uncertaintiessurrounding the obligation. When a provision is measured using the cash flows estimated to settle the presentobligation, its carrying amount is the present value of those cash flows (where the effect of the time value ofmoney is material).

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to thecontractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value except for trade receivablesarising from contracts with customers which are initially measured accordance with HKFRS 15 since 1 July2018. Transaction costs that are directly attributable to the acquisition or issue of financial assets andfinancial liabilities (other than financial assets or financial liabilities at fair value through profit or loss(‘‘FVTPL’’)) are added to or deducted from the fair value of the financial assets or financial liabilities, asappropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assetsor financial liabilities at FVTPL are recognised immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or afinancial liability and of allocating interest income and interest expense over the relevant period. The effectiveinterest rate is the rate that exactly discounts estimated future cash receipts and payments (including all feesor points paid or received that form an integral part of the effective interest rate, transaction costs and otherpremiums or discounts) through the expected life of the financial asset or financial liabilities, or, whereappropriate, a shorter period to the net carrying amount on initial recognition.

Financial assets

Classification and subsequent measurement of financial assets (upon application of HKFRS 9 in accordancewith transitions in note 2)

Financial assets that meet the following conditions are subsequently measured at amortised cost:


– II-18 –

. the financial asset is held within a business model whose objective is to collect contractual cashflows; and

. the contractual terms give rise on specified dates to cash flows that are solely payments ofprincipal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at fair value throughother comprehensive income (‘‘FVTOCI’’):

. the financial asset is held within a business model whose objective is achieved by both collectingcontractual cash flows and selling; and


All other financial assets are subsequently measured at FVTPL, except that at the date of initialapplication of HKFRS 9/Initial recognition of a financial asset whereas Ability Education may irrevocablyelect to present subsequent changes in fair value of an equity investment in other comprehensive income ifthat equity investment is neither held for trading nor contingent consideration recognised by an acquirer in abusiness combination to which HKFRS 3 ‘‘Business Combinations’’ applies.

A financial asset is classified as held for trading if:

. it has been acquired principally for the purpose of selling in the near term; or

. on initial recognition it is a part of a portfolio of identified financial instruments that AbilityEducation manages together and has a recent actual pattern of short-term profit-taking; or

. it is a derivative that is not designated and effective as a hedging instrument.

In addition, Ability Education may irrevocably designate a financial asset that are required to bemeasured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantlyreduces an accounting mismatch.

(i) Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measuredsubsequently at amortised cost and debt instruments/receivables subsequently measured at FVTOCI. Forfinancial instruments other than purchased or originated credit-impaired financial assets, interest incomeis calculated by applying the effective interest rate to the gross carrying amount of a financial asset,except for financial assets that have subsequently become credit-impaired (see below). For financialassets that have subsequently become credit-impaired, interest income is recognised by applying theeffective interest rate to the amortised cost of the financial asset from the next reporting period. If thecredit risk on the credit impaired financial instrument improves so that the financial asset is no longercredit-impaired, interest income is recognised by applying the effective interest rate to the grosscarrying amount of the financial asset from the beginning of the reporting period following thedetermination that the asset is no longer credit impaired.

(ii) Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI ordesignated as FVTOCI are measured at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, excludeswith any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profitor loss excludes any dividend or interest earned on the financial asset and is included in the ‘‘othergains and losses’’ line item.


– II-19 –

Impairment of financial assets (upon application HKFRS 9 with transitions in accordance with note 2)

Ability Education recognises a loss allowance for ECL on financial assets which are subject toimpairment under HKFRS 9 (including trade and other receivables and bank balances). The amount of ECL isupdated at each reporting date to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected lifeof the relevant instrument. In contrast, 12-month ECL (‘‘12m ECL’’) represents the portion of lifetime ECLthat is expected to result from default events that are possible within 12 months after the reporting date.Assessment are done based on Ability Education’s historical credit loss experience, adjusted for factors thatare specific to the debtors, general economic conditions and an assessment of both the current conditions atthe reporting date as well as the forecast of future conditions.

Ability Education always recognises lifetime ECL for trade receivables. The ECL on these assets areassessed individually.

For all other instruments, Ability Education measures the loss allowance equal to 12m ECL, unlesswhen there has been a significant increase in credit risk since initial recognition in which case AbilityEducation recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised, based onsignificant increases in the likelihood or risk of a default occurring since initial recognition.

(i) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, AbilityEducation compares the risk of a default occurring on the financial instrument as at the reporting datewith the risk of a default occurring on the financial instrument as at the date of initial recognition. Inmaking this assessment, Ability Education considers both quantitative and qualitative information that isreasonable and supportable, including historical experience and forward-looking information that isavailable without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit riskhas increased significantly:

. an actual or expected significant deterioration in the financial instrument’s external (ifavailable) or internal credit rating;

. significant deterioration in external market indicators of credit risk, e.g. a significantincrease in the credit spread, the credit default swap prices for the debtor;

. existing or forecast adverse changes in business, financial or economic conditions that areexpected to cause a significant decrease in the debtor’s ability to meet its debt obligations;

. an actual or expected significant deterioration in the operating results of the debtor;

. an actual or expected significant adverse change in the regulatory, economic, ortechnological environment of the debtor that results in a significant decrease in the debtor’sability to meet its debt obligations.

Ability Education regularly monitors the effectiveness of the criteria used to identify whetherthere has been a significant increase in credit risk and revises them as appropriate to ensure that thecriteria are capable of identifying significant increase in credit risk before the amount becomes pastdue.

(ii) Definition of default

Ability Education considers that default has occurred when a financial asset is more than 90 dayspast due unless Ability Education has reasonable and supportable information to demonstrate that amore lagging default criterion is more appropriate.


– II-20 –

(iii) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events of default that have a detrimentalimpact on the estimated future cash flows of that financial asset have occurred. Evidence that afinancial asset is credit impaired includes observable data about the following events:

(a) significant financial difficulty of the issuer or the borrower;

(b) a breach of contract, such as a default or past due event;

(c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’sfinancial difficulty, having granted to the borrower a concession(s) that the lender(s) wouldnot otherwise consider;

(d) it is becoming probable that the borrower will enter bankruptcy or other financialreorganisation; or

(e) the disappearance of an active market for that financial asset because of financialdifficulties.

(iv) Write-off policy

Ability Education writes off a financial asset when there is information indicating that thecounterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example,when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, orin the case of trade receivables, when the amounts are over two years past due, whichever occurssooner. Financial assets written off may still be subject to enforcement activities under AbilityEducation’s recovery procedures, taking into account legal advice where appropriate. A write-offconstitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(v) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. themagnitude of the loss if there is a default) and the exposure at default. The assessment of theprobability of default and loss given default is based on historical data adjusted by forward-lookinginformation. Estimation of ECL reflects an unbiased and probability-weighted amount that isdetermined with the respective risks of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to AbilityEducation in accordance with the contract and the cash flows that Ability Education expects to receive,discounted at the effective interest rate determined at initial recognition.

Where ECL is measured on a collective basis or cater for cases where evidence at the individualinstrument level may not yet be available, the financial instruments are grouped on the following basis:

. Nature of financial instruments;

. Past-due status;

. Nature, size and industry of debtors; and

. External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each financialassets of Ability Education continue to share similar credit risk characteristics.


– II-21 –

Interest income is calculated based on the gross carrying amount of the financial asset unless thefinancial asset is credit impaired, in which case interest income is calculated based on amortised cost ofthe financial asset.

Ability Education recognises an impairment gain or loss in profit or loss for all financialinstruments by adjusting their carrying amount, with the exception of trade receivables where thecorresponding adjustment is recognised through a loss allowance account.

Classification and subsequent measurement of financial assets (before application of HKFRS 9 on 1 July2018)

Ability Education’s financial assets are classified as loans and receivables. The classification dependson the nature and purpose of the financial assets and is determined at the time of initial recognition. Allregular way purchases or sales of financial assets are recognised and derecognised on a settlement/trade datebasis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assetswithin the time frame established by regulation or convention in the marketplace.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade andother receivables, amounts due from related parties, amounts due from non-controlling shareholders ofsubsidiaries and bank balances and cash) are measured at amortised cost using the effective interest method,less any identified impairment losses (see accounting policy on impairment loss on financial assets).

Interest income is recognised by applying the effective interest rate, except for short-term receivableswhere the recognition of interest would be immaterial.

Impairment of financial assets (before application of HKFRS 9 on 1 July 2018)

Financial assets, other than those at FVTPL, of Ability Education are assessed for indicators ofimpairment at the end of the reporting period. Financial assets are considered to be impaired where there isobjective evidence that, as a result of one or more events that occurred after the initial recognition of thefinancial asset, the estimated future cash flows of the financial assets have been affected.

For financial assets, objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

. breach of contract, such as default or delinquency in interest or principal payments; or

. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

Objective evidence of impairment for a portfolio of receivables could include Ability Education’s pastexperience of collecting payments, an increase in the number of delayed payments and observable changes innational or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is thedifference between the asset’s carrying amount and the present value of the estimated future cash flowsdiscounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the differencebetween the asset’s carrying amount and the present value of the estimated future cash flow discounted at thecurrent market rate of return for a similar financial asset. Such impairment loss will not be reversed insubsequent periods.


– II-22 –

The carrying amount of the financial asset is reduced by the impairment loss directly for all financialassets with the exception of trade receivables, where the carrying amount is reduced through the use of anallowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.When a trade receivable is considered uncollectible, it is written off against the allowance account.Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets carried at amortised cost, if, in a subsequent period, the amount of impairment lossdecreases and the decrease can be related objectively to an event occurring after the impairment loss wasrecognised, the previously recognised impairment loss is reversed through profit or loss to the extent that thecarrying amount of the asset at the date the impairment is reversed does not exceed what the amortised costwould have been had the impairment not been recognised.

Derecognition of financial assets

Ability Education derecognises a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another entity. If Ability Education retains substantially all the risks and rewards ofownership of a transferred financial asset, Ability Education continues to recognise the financial asset andalso recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum ofthe consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group are classified as either financial liabilities or as equity inaccordance with the substance of the contractual arrangements and the definitions of a financial liability andan equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of a group entityafter deducting all of its liabilities. Equity instruments issued by group entities are recognised at the proceedsreceived, net of direct issue costs.

Financial liabilities at amortised cost

Financial liabilities including trade and other payables and accrued charges, amount due to a relatedparty, corporate bonds and bank and other borrowings are subsequently measured at amortised cost, using theeffective interest method.

Derecognition of financial liabilities

Ability Education derecognises financial liabilities when, and only when, Ability Education’sobligations are discharged, cancelled or have expired. The difference between the carrying amount of thefinancial liability derecognised and the consideration paid and payable is recognised in profit or loss.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Ability Education’s accounting policies, which are described in note 3, the sole directorof Ability Education is required to make judgments, estimates and assumptions about the carrying amounts of assetsand liabilities that are not readily apparent from other sources. The estimates and associated assumptions are basedon historical experience and other factors that are considered to be relevant. Actual results may differ from theseestimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accountingestimates are recognised in the period in which the estimate is revised if the revision affects only that period, or inthe period of the revision and future periods if the revision affects both current and future periods.


– II-23 –

The following are the key assumptions concerning the future, and other key sources of estimation uncertaintyat the end of the reporting period, that may have a significant risk of causing a material adjustment to the carryingamounts of assets within the next financial year.

Useful lives of depreciable assets

Management reviews the useful lives of depreciable assets at each reporting date, based on the expectedutility of the assets to Ability Education. Actual results, however, may vary.

Provisions for long service leave

The liability for long service leave is recognised and measured at the present value of the estimatedfuture cash flows to be made in respect of all employees at the end of each reporting period. In determiningthe present value of the liability attrition rate and pay increases through promotion and inflation have beentaken into account.

5. REVENUE AND SEGMENT INFORMATION

A. Revenue for the nine months ended 31 March 2019

(i) Disaggregation of revenue from contracts with customers


31 March2019

AUD’000

Types of service

Tuition revenue 10,628

Geographical marketAustralia 10,628

Timing of revenue recognitionA point of time —

Over time 10,628

Total 10,628

(ii) Performance obligations for contracts with customers

Tuition fees from education are generally paid in advance of tuition course provided and initiallyrecorded as ‘‘deferred revenue’’ and revenue is recognised over the period of tuition service because thestudents simultaneously receive and consume the benefits provided by Ability Education’s performanceas Ability Education performs.

(iii) Transaction price allocated to the remaining performance obligation for contracts with customers

All tuition fees are for periods of one year or less. As permitted under HKFRS 15, the transactionprice allocated to these unsatisfied contracts is not disclosed.


– II-24 –

B. Revenue for the years ended 30 June 2016, 2017 and 2018 and nine months ended 31 March 2018

Revenue represents the fair value of amounts received and receivable for services provided by AbilityEducation to outside customers, less discount and related GST. The following is an analysis of AbilityEducation’s revenue:

Year ended 30 June

Nine monthsended

31 March2016 2017 2018 2018

AUD’000 AUD’000 AUD’000 AUD’000(unaudited)

Tuition revenue 15,261 14,148 13,444 10,321

Geographical marketAustralia 15,261 14,148 13,444 10,321

C. Segment information

During the years ended 30 June 2016, 2017 and 2018 and nine months ended 31 March 2018 and 2019,Ability Education’s operation was solely derived from tuition revenue in Australia. For the purpose ofresources allocation and performance assessment, the chief operating decision maker (‘‘CODM’’) (i.e. thechief executive officer of Ability Education) reviewed the overall results and financial position of AbilityEducation as a whole prepared based on same accounting policies set out in note 3. Accordingly, AbilityEducation has only one single operating segment and no further analysis of this single segment is presented.

Information about major customers

No individual customer was accounted for over 10% of Ability Education’s total revenue duringthe Relevant Periods.

D. Segment assets and liabilities

As at each reporting period ended 30 June 2016, 2017, 2018 and 31 March 2018 and 2019, all the assetsand liabilities of Ability Education are located in Australia.

6. OTHER INCOME

Year ended 30 June Nine months ended2016 2017 2018 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000 AUD’000(unaudited)

Other incomeInterest income 51 34 24 17 5Others 34 26 477 468 301

85 60 501 485 306


– II-25 –

7. INCOME TAX EXPENSE



Australia income tax— Current tax 71 — — 47 —

Deferred tax (note 21) 182 124 335 288 —

253 124 335 335 —

Corporate income tax rate in Australia is calculated at 30% of the estimated assessable profits for theRelevant Periods.

No provision has been made for the years ended 30 June 2017 and 2018 and nine months ended 31 March2019 as Ability Education did not generate any assessable profits.

The income tax expenses for the Relevant Periods can be reconciled to the profit/(loss) before taxation per thestatements of profit or loss and other comprehensive income as follows:



Profit/(loss) before taxation 842 (2,128) (241) 155 (504)

Tax at the applicable rate of30% 253 (638) (72) 47 (151)

Tax effect of tax losses notrecognised — 638 72 — 151

Tax effect of unrecognisedtemporary difference — 124 335 288 —

Income tax expense for theyear/period 253 124 335 335 —


– II-26 –

8. PROFIT/(LOSS) BEFORE TAX

Profit/(loss) for the year/period has been arrived at after charging/(crediting):



Depreciation 20 24 393 324 236Amortisation — — 228 110 15Auditor’s remuneration 16 16 17 39 39Director’s remuneration — — — — —

Instructor costs 4,514 4,824 4,618 3,446 3,785Other staff costs 1,060 1,063 1,378 1,059 1,332Retirement benefits scheme

contributions 521 546 533 402 445

Total staff costs (excludingdirector’s remuneration) 6,095 6,433 6,529 4,907 5,562

Operating lease payment inrespect of tenancyagreements of rentedpremises entered into:Minimum lease payment —* —* —* —* 298

Impairment loss on tradereceivables, net off reversal 99 793 (722) (877) (135)

* No tenancy agreements were signed with landlord by Ability Education in these periods.

9. DIRECTOR’S, CHIEF EXECUTIVE’S AND EMPLOYEES’ EMOLUMENTS

Director’s and chief executive’s remuneration

David Windridge is the sole director of Ability Education for the Relevant Periods. No director’semoluments were paid by Ability Education during the Relevant Periods.

The five individuals with the highest emoluments in Ability Education did not include the sole directorduring the Relevant Periods. The emoluments of the five highest paid individuals are as follows:



Salaries and allowances 458 490 507 357 360Retirement benefit

contributions 43 44 47 34 33

501 534 554 391 393

Their emoluments individually were all below HK$1,000,000.

During the Relevant Periods, no emoluments had been paid by Ability Education to the sole director ofAbility Education or the five highest paid individuals as inducement to join Ability Education or ascompensation for loss of office.


– II-27 –

10. DIVIDENDS

No dividends have been paid or declared by Ability Education during the Relevant Periods.

11. EARNINGS/(LOSS) PER SHARE

No earnings/(loss) per share for the Relevant Periods is presented as its inclusion is considered notmeaningful for the purpose of this report.

12. PROPERTY, PLANT AND EQUIPMENT

Furniture,fixtures andequipmentAUD’000

COSTAt 1 July 2015 610Additions 28

At 30 June 2016 and 1 July 2016 638Additions 9Disposals (23)

At 30 June 2017 and 1 July 2017 624Additions 941

At 30 June 2018 and 31 March 2019 1,565

DEPRECIATIONAt 1 July 2015 552Provided for the year 20

At 30 June 2016 and 1 July 2016 572Provided for the year 24Disposals (23)

At 30 June 2017 and 1 July 2017 573Provided for the year 393

At 30 June 2018 and 1 July 2018 966Provided for the period 236

At 31 March 2019 1,202

CARRYING VALUES

At 30 June 2016 66

At 30 June 2017 51

At 30 June 2018 599

At 31 March 2019 363


– II-28 –

Depreciation is charged so as to write off the cost over their estimated useful lives, using the straight-linemethod, at the following rates per annum:

Furniture, fixtures and equipment 20%–50%

13. INTANGIBLE ASSETS

ComputerSoftwareAUD’000

COSTAt 1 July 2015, 30 June 2016 and 2017 38Additions 258

At 30 June 2018 and 1 July 2018 296Additions 1

At 31 March 2019 297

DEPRECIATIONAt 1 July 2015, 30 June 2016 and 2017 38Provided for the year 228

At 30 June 2018 and 1 July 2018 266Charge for the period 15

At 31 March 2019 281

CARRYING VALUES

At 30 June 2016 —

At 30 June 2017 —

At 30 June 2018 30

At 31 March 2019 16

The above intangible assets have finite useful lives and are amortised on a straight-line basis over thefollowing periods:

Software 1–5 years


– II-29 –

14. TRADE AND OTHER RECEIVABLES AND PREPAYMENTS/ DEFERRED AGENTS EXPENSE

Trade and other receivables and prepayments

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Trade receivables 1,509 2,133 1,144 921Allowance for doubtful debts (180) (973) (251) (116)

1,329 1,160 893 805Prepayments 324 446 647 478GST receivable — 24 113 64Other receivables 45 3 168 269

1,698 1,633 1,821 1,616

The following is an aged analysis of trade receivables presented based on the invoice date at the end ofthe reporting period, which approximated the respective revenue recognition dates:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

0 to 30 days 424 220 1,022 71331 to 90 days 368 398 55 16591 to 180 days 146 354 28 43180 days above 571 1,161 39 —

1,509 2,133 1,144 921

Aging of trade receivables which are past due but not impaired is as follows:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

0 to 30 days 424 220 815 67031 to 90 days 368 398 55 13591 to 180 days 146 354 23 —

180 days above 391 188 — —

1,329 1,160 893 805


– II-30 –

The movements in provision for impairment loss on trade receivables are as follows:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

At beginning of the year/period 81 180 973 251Add: Impairment loss recognised/

(reversal of) impairmentloss 99 793 (722) (135)

At end of the year/period 180 973 251 116

Deferred agents expense

Deferred agents expense represents referral expenses incurred when a customer referred by an agent isenrolled in a course in advance of tuition course being provided.

15. BANK BALANCES AND CASH

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Cash at bank and in hand 1,494 274 1,949 1,238Short-term bank deposits 1,146 1,153 — —

2,640 1,427 1,949 1,238

The bank balances and short-term bank deposits of Ability Education carry interest rate of approximately2.30% and 2.67% per annum on average throughout the Relevant Periods and are denominated in AUD.

16. TRADE AND OTHER PAYABLES AND ACCRUED CHARGES

Trade and other payables and accrued charges

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Trade payables 82 32 21 2Accrued expenses 1,776 2,171 1,265 1,066

1,858 2,203 1,286 1,068

The following is an aged analysis of accounts payables presented based on the invoice date.

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

0 to 90 days 82 32 21 2


– II-31 –

17. DEFERRED INCOME/CONTRACT LIABILITIES

Deferred income

Deferred income represents the course fee received in advance pursuant to the contracts with customers.

The balances were unsecured, non-interest bearing and repayable on demand.

Contract liabilities

Contract liabilities primarily arises from short term advances received from students in relation to theproportionate services not yet provided. Ability Education receives tuition fees from students in advance priorto the beginning of each academic year/semester. Tuition fees are recognised proportionately over the relevantperiods of the applicable course/program.

Deferred revenue that was included in the contract liabilities balance at the beginning of the ninemonths ended 31 March 2019 upon adoption of HKFRS 15 amounting to approximately AUD5,561,000 wasrecognised in the subsequent reporting period.

18. AMOUNT DUE TO HOLDING COMPANY

All balances as at 30 June 2016, 2017, 2018 and 31 March 2019 due to MEGT (Australia) Limited which areunsecured, non-interest bearing and repayable on demand.

19. PROVISIONS

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Analysed for reporting purpose as:Non-current liabilities 17 14 15 58Current liabilities 109 115 54 316

126 129 69 374


– II-32 –

Leasestraight-lining Annual leave

Long serviceleave Total

AUD’000 AUD’000 AUD’000 AUD’000

At 1 July 2015 — 58 53 111Addition — 103 24 127Utilisation during the year — (95) (17) (112)

At 30 June 2016 and 1 July 2016 — 66 60 126Addition — 80 29 109Utilisation during the year — (94) (12) (106)

At 30 June 2017 and 1 July 2017 — 52 77 129Addition — 65 31 96Utilisation during the year — (81) (75) (156)

At 30 June 2018 and 1 July 2018 — 36 33 69Addition 17 99 210 326Utilisation during the period — (21) — (21)

At 31 March 2019 17 114 243 374

The provision is made based on the best estimate of the above-mentioned liabilities at the end of therespective reporting period.

20. SHARE CAPITAL

A Classshares

B Classshares

Ordinaryshares Total

Number ofshares

Number ofshares

Number ofshares

Number ofshares

(Note 1) (Note 2) (Note 3)

Issued:Number of sharesAs at 1 July 2015, 30 June 2016, 2017,

2018 and 31 March 2019 50 50 1,200 1,300

AUD’000 AUD’000 AUD’000 AUD’000

Allotted and paid:Share capitalAs at 1 July 2015, 30 June 2016, 2017,

2018 and 31 March 2019 2 2 1,111 1,115

Notes:

1. 50 shares of A Class shares are issued and fully paid at AUD50 per share.

2. 50 shares of B Class shares are issued and fully paid at AUD50 per share.

3. 1,200 ordinary shares are issued and fully paid.

Ability Education does not have a limited amount of authorised capital and issued shares do not have a parvalue.


– II-33 –

Ordinary shares participate in dividends and the proceeds on winding up of Ability Education in proportion tothe number of shares held.

At the shareholder’s meetings each ordinary share is entitled to one vote when a poll is called, otherwise eachshareholder has one vote on a show of hands.

21. DEFERRED TAX ASSETS/(LIABILITIES)

The following is the deferred tax assets/(liabilities) recognised and movements thereon during the currentperiod and prior reporting years.

Provisionfor doubtful

debts

Property,plant andequipment Others

Tax lossescarry

forward TotalAUD’000 AUD’000 AUD’000 AUD’000 AUD’000

At 1 July 2015 24 6 69 542 641(Charged)/credited to profit or

loss for the year 30 — 108 (320) (182)

At 30 June 2016 and 1 July2016 54 6 177 222 459

(Charged)/credited to profit orloss for the year 238 (1) (139) (222) (124)

At 30 June 2017 and 1 July2017 292 5 38 — 335

(Charged)/credited to profit orloss for the year (292) (5) (38) — (335)

At 30 June 2018 and 31 March2019 — — — — —

The following is an analysis of the deferred tax balances for financial reporting purposes:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Deferred tax assets 460 336 — —

Deferred tax liabilities (1) (1) — —

459 335 — —

At 30 June 2016, 2017, 2018 and 31 March 2019, Ability Education had estimated unused tax losses of nil,AUD2,128,000, AUD2,369,000, AUD2,873,000 respectively, that are available for offset against future profits. Nodeferred tax asset has been recognised in respect of these unused tax losses due to the unpredictability of futureprofit streams. All tax losses may be carried forward indefinitely.

22. RETIREMENT BENEFITS SCHEME

Ability Education operates defined contribution plans for all employees. Ability Education pays fixedcontributions based on several Australia State plans and insurance schemes for employees. Ability Education has nolegal or constructive obligations to pay contributions in addition to its fixed contributions. The contribution madeare recognised as an expenses in the period when relevant employee services are received.


– II-34 –

The total contributions to the retirement benefits scheme charged to the statement of profit or loss and othercomprehensive income for the years ended 30 June 2016, 2017, 2018 and for the nine months ended 31 March 2018and 2019 are AUD521,000, AUD546,000, AUD533,000, AUD402,000 (unaudited) and AUD445,000 respectively.

23. COMMITMENTS

Operating Lease Commitments

Ability Education as lessee

At the end of each reporting period, Ability Education had commitments for future minimum leasepayments under non-cancellable operating leases falling due as follows:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Within one year — — — 976In the second to fifth year

inclusive — — — 3,831

— — — 4,807

24. CAPITAL RISK MANAGEMENT

Ability Education manages its capital to ensure Ability Education will be able to continue as a going concernwhile maximising the return to owners through the optimisation of the debt and equity balance. Ability Education’soverall strategy remains unchanged during the year/period.

The capital structure of Ability Education consists of net debt, which includes net of cash and cashequivalents and equity of Ability Education, comprising issued capital and accumulated losses.

Management of Ability Education reviews the capital structure regularly taking into account the cost ofcapital and the risk associated with the capital. Ability Education will balance its overall capital structure throughissuance of new shares and the raising of borrowings.

25. FINANCIAL INSTRUMENTS

Categories of financial instruments

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Financial assetsAmortised cost — — — 2,312Loans and receivables (including cash

and cash equivalents) 4,014 2,590 3,010 —

Financial liabilitiesAmortised cost 3,672 2,923 4,207 3,790


– II-35 –

Financial risk management objectives and policies

Ability Education’s financial instruments include trade and other receivables, bank balances and cash,trade and other payables and accrued charges and amount due to holding company. Details of these financialinstruments are disclosed in respective notes. The risks associated with these financial instruments and thepolicies on how to mitigate these risks are set out below. The management manages and monitors theseexposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Interest rate risk

Ability Education’s cash flow interest rate risk primarily relates to the bank balances.

Ability Education has not used any interest rate swaps to mitigate its exposure associated with interestrate risk. However, the management of Ability Education monitors interest rate exposure and will considerhedging significant interest rate exposure should the need arise.

In the opinion of management of Ability Education, a reasonably possible change in interest rate onbank balances is not expected to have significant impact to Ability Education in the near future, hencesensitivity analysis is not presented.

Foreign currency risk

Ability Education’s transactions are mainly conducted in Australian dollars, and the monetary assets andliabilities of Ability Education which are denominated in currency other than the functional currency of therespective entities are insignificant. Hence, Ability Education does not have a foreign currency hedging policyas the exposure to foreign currency risk is minimal.

Credit risk

Overview of the Company’s exposure to credit risk before adoption of HKFRS 9 as at 1 July, 2018

Ability Education’s maximum exposure to credit risk in the event of the counterparties’ failure toperform their obligations in relation to each class of recognised financial assets is the carrying amount ofthose assets as stated in the statement of financial position. In order to minimise the credit risk, AbilityEducation has policies in place for determination of credit limits, credit approvals and other monitoringprocedures to ensure that follow-up action is taken to recover overdue debts.

Before accepting any new customer, Ability Education carries out searches on the creditability of thenew customer and assesses the potential customer’s credit quality and defines credit limits by customer.Limits attributed to customers are reviewed once a year.

In addition, Ability Education reviews the recoverability of each individual debt on a regular basis toensure that adequate impairment losses are made for irrecoverable amounts. In this regard, Ability Educationconsiders that the credit risk is significantly reduced.

The credit risk on cash and cash equivalents is limited because the counterparties are placed in financialinstitutions with good credit standing.

Overview of the Company’s exposure to credit risk after adoption of HKFRS 9 as at 1 July 2018

The credit risk of Ability Education’s financial assets, which comprise bank balances, trade receivablesand other receivables, arises from default of the counterparty, with a maximum exposure equal to the carryingamounts of these instruments.


– II-36 –

Cash and cash equivalents

As the bank balances are deposited with creditworthy banks with no recent history of default. The ECLis close to zero.

Trade receivables

Ability Education’s trade receivables are due from a number of individual international students, creditquality of each student is assessed and outstanding receivables are regularly monitored. An impairmentanalysis is performed at each reporting date using a provision matrix to measure expected credit losses. Theprovision rates are based on financial situation and historical payment records for groupings of variousstudent segments with similar loss patterns. The calculation reflects the probability-weighted outcome, thetime value of money and reasonable and supportable information that is available at the reporting date aboutpast events, current conditions and forecasts of future economic conditions. Generally, trade receivables arewritten off after one year of the graduation of the specific students and are not subject to enforcementactivity. The maximum exposure to credit risk at the reporting date is the carrying value of each class offinancial assets disclosed in note 14 to these historical financial information. Ability Education does not holdcollateral as security.

Other receivables

Ability Education analysed the credit risk related to other receivables. Ability Education has assessedthat the ECL for other receivables are not material under the 12-month ECL method. Thus, no loss allowanceprovision was recognised during the Relevant Periods.

Liquidity risk

In the management of the liquidity risk, the sole director of Ability Education monitors and maintains alevel of cash and cash equivalents deemed adequate by management to finance Ability Education’s operationsand mitigate the effects of unexpected fluctuations in cash flows.


– II-37 –

The following tables detail Ability Education’s remaining contractual maturity for its financial liabilitiesbased on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows offinancial liabilities based on the earliest date on which Ability Education can be required to pay. The tableincludes both interest and principal cash flows. To the extent that interest flows are floating rate, theundiscounted amount is derived from interest rate at the end of each reporting period.

Within1 year or

on demand 1 to 2 years 3 to 5 years

Totalundiscounted

cash flowsCarryingamount

AUD’000 AUD’000 AUD’000 AUD’000 AUD’000

At 30 June 2016Trade and other payables and accrued

charges 1,858 — — 1,858 1,858Amount due to holding company 1,814 — — 1,814 1,814

3,672 — — 3,672 3,672


charges 2,203 — — 2,203 2,203Amount due to holding company 720 — — 720 720

2,923 — — 2,923 2,923



4,207 — — 4,207 4,207

At 31 March 2019Trade and other payables and accrued


3,790 — — 3,790 3,790

26. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in this report, Ability Education also had the following related party transactionsduring the Relevant Periods:



Management fee paid toholding company 4,084 4,787 3,595 2,657 2,181


– II-38 –

Compensation of key management personnel

The remuneration of sole director and other members of key management of Ability Education duringthe Relevant Periods were as follows:



Short-term benefits 339 281 301 213 192Post-employment benefits 32 26 27 20 18

371 307 328 233 210

27. EVENTS AFTER THE REPORTING PERIOD

Save as disclosed elsewhere in this report, there are no other significant events undertaken by AbilityEducation after 31 March 2019.

28. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Ability Education has been prepared in respect of any period subsequent to31 March 2019.


– II-39 –


ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OFMEGT INSTITUTETO THE DIRECTORS OF SDM GROUP HOLDINGS LIMITED

INTRODUCTION

We report on the historical financial information of MEGT Institute (‘‘InstituteTraining’’) set out on pages III-1 to III-35, which comprises the statements of financialposition of Institute Training as at 30 June 2016, 2017, 2018 and 31 March 2019, thestatements of profit or loss and other comprehensive income, the statements of changes inequity and the statements of cash flows of Institute Training for each of the three years ended30 June 2016, 2017 and 2018 and the nine months ended 31 March 2019 (the ‘‘RelevantPeriods’’) and a summary of significant accounting policies and other explanatory information(together, the ‘‘Historical Financial Information’’). The Historical Financial Informationforms an integral part of this report, which has been prepared for inclusion in the investmentcircular of the SDM Group Holdings Limited (the ‘‘Company’’) dated 3 September 2019 (the‘‘Circular’’) in connection with the proposed acquisition of Institute Training by a subsidiaryof the Company.

SOLE DIRECTOR’S RESPONSIBILITY FOR THE HISTORICAL FINANCIALINFORMATION

The sole director of Institute Training is responsible for the preparation of HistoricalFinancial Information that gives a true and fair view in accordance with the basis ofpreparation and presentation set out in notes 2 and 3 to the Historical Financial Information,and for such internal control as the sole director of Institute Training determines is necessaryto enable the preparation of Historical Financial Information that is free from materialmisstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of the Circular in which theHistorical Financial Information of Institute Training is included, and such information isprepared based on accounting policies materially consistent with those of the Company.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Historical Financial Information and toreport our opinion to you. We conducted our work in accordance with Hong Kong Standard onInvestment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on HistoricalFinancial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified

APPENDIX III ACCOUNTANTS’ REPORT OF INSTITUTE TRAINING

– III-1 –

Public Accountants (the ‘‘HKICPA’’). This standard requires that we comply with ethicalstandards and plan and perform our work to obtain reasonable assurance about whether theHistorical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts anddisclosures in the Historical Financial Information. The procedures selected depend on thereporting accountants’ judgement, including the assessment of risks of material misstatement ofthe Historical Financial Information, whether due to fraud or error. In making those riskassessments, the reporting accountants’ consider internal control relevant to the entity’spreparation of Historical Financial Information that gives a true and fair view in accordancewith the basis of preparation and presentation set out in notes 2 and 3 to the HistoricalFinancial Information in order to design procedures that appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. Our work also included evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by the sole director, as well as evaluating theoverall presentation of the Historical Financial Information.


OPINION

In our opinion the Historical Financial Information gives, for the purposes of theaccountants’ report, a true and fair view of Institute Training’s financial position as at 30 June2016, 2017, and 2018 and 31 March 2019, and of Institute Training’s financial performanceand cash flows for the Relevant Periods in accordance with the basis of preparation andpresentation set out in notes 2 and 3 to the Historical Financial Information.

REVIEW OF STUB PERIOD COMPARATIVE FINANCIAL INFORMATION

We have reviewed the stub period comparative financial information of Institute Trainingwhich comprises the statement of profit or loss and other comprehensive income, the statementof changes in equity and the statement of cash flows for the nine months ended 31 March 2018and other explanatory information (the ‘‘Stub Period Comparative Financial Information’’).The sole director of Institute Training is responsible for the preparation and presentation of theStub Period Comparative Financial Information in accordance with the basis of preparation andpresentation set out in notes 2 and 3 to the Historical Financial Information. Our responsibilityis to express a conclusion on the Stub Period Comparative Financial Information based on ourreview. We conducted our review in accordance with Hong Kong Standard on ReviewEngagements 2410 ‘‘Review of Interim Financial Information Performed by the IndependentAuditor of the Entity’’ issued by the HKICPA. A review consists of making inquiries,primarily of persons responsible for financial and accounting matters, and applying analyticaland other review procedures. A review is substantially less in scope that an audit conducted inaccordance with Hong Kong Standards on Auditing (‘‘HKSAs’’) and consequently does notenable us to obtain assurance that we would become aware of all significant matters that mightbe identified in an audit. Accordingly, we do not express an audit opinion. Based on ourreview, nothing has come to our attention that causes us to believe that the Stub Period


– III-2 –

Comparative Financial Information, for the purposes of the accountants’ report, is notprepared, in all material respects, in accordance with the basis of preparation and presentationset out in notes 2 and 3 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OFSECURITIES ON THE GEM OF THE STOCK EXCHANGE OF HONG KONGLIMITED

Adjustments

In preparing the Historical Financial Information, no adjustments to the UnderlyingFinancial Statements as defined on page III-4 have been made.

Dividends

We refer to note 10 to the Historical Financial Information which states that no dividendshave been paid or declared by Institute Training in respect of the Relevant Periods.

Baker Tilly Hong Kong LimitedCertified Public AccountantsHong Kong, 3 September 2019Choi Kwong YuPractising certificate number P05071


– III-3 –

HISTORICAL FINANCIAL INFORMATION OF INSTITUTE TRAINING

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of thisaccountants’ report.

The financial statements of Institute Training, on which the Historical FinancialInformation is based, were audited by us in accordance with the HKSAs issued by theHKICPA and have been prepared in accordance with the Hong Kong Financial ReportingStandards (‘‘HKFRSs’’) issued by the HKICPA (‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in Australian dollars (‘‘AUD’’), which isalso the functional currency of Institute Training, and all values are rounded to the nearestthousand (‘‘AUD’000’’) except when otherwise indicated.


– III-4 –

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


31 March2016 2017 2018 2018 2019


Revenue 5 5,360 6,864 6,329 4,800 3,116Other income 6 58 25 36 26 17Advertising and promotion expenses (980) (1,539) (1,534) (1,182) (685)Depreciation (243) (272) (283) (213) (153)Amortisation (37) (95) (117) (88) (27)Rental expenses (920) (983) (932) (749) (826)Staff costs (2,288) (2,525) (2,381) (1,831) (1,616)Other expenses (1,140) (1,000) (642) (426) (501)

(Loss)/profit before tax 8 (190) 475 476 337 (675)Income tax expense 7 — — — — —

(Loss)/profit and totalcomprehensive (expense)/incomefor the year/period attributableto the owners of InstituteTraining (190) 475 476 337 (675)


– III-5 –

STATEMENTS OF FINANCIAL POSITION

As at 30 JuneAs at

31 March2016 2017 2018 2019

Note AUD’000 AUD’000 AUD’000 AUD’000

Non-current assetsProperty, plant and equipment 12 648 384 134 1

648 384 134 1

Current assetsTrade and other receivables and

prepayments 13 230 218 131 65Deferred agents expense 13 — — — 16Bank balances and cash 14 475 329 1,612 798

705 547 1,743 879

Current liabilitiesTrade and other payables and

accrued charges 15 191 332 430 333Deferred income/contract liabilities 16 533 753 516 343Provisions 17 257 192 328 84

981 1,277 1,274 760

Net current (liabilities)/assets (276) (730) 469 119

Total assets less currentliabilities 372 (346) 603 120

Non-current liabilitiesProvisions 17 308 222 18 174

308 222 18 174

Net assets/(liabilities) 64 (568) 585 (54)

Capital and reserves

Share capital 18 — — — —

Reserves 64 (568) 585 (54)

Total equity/(deficit) attributableto the owners of InstituteTraining 64 (568) 585 (54)


– III-6 –

STATEMENTS OF CHANGES IN EQUITY

Share capital

(Accumulatedlosses)/

Retainedprofits Total equity

AUD’000 AUD’000 AUD’000

At 1 July 2015 — (247) (247)Net investment by MEGT (Australia)Limited — 501 501

Loss and total comprehensive expense forthe year — (190) (190)

At 30 June 2016 and 1 July 2016 — 64 64Net investment by MEGT (Australia)Limited — (1,107) (1,107)

Profit and total comprehensive income forthe year — 475 475

At 30 June 2017 and 1 July 2017 — (568) (568)Net investment by MEGT (Australia)Limited — 677 677

Profit and total comprehensive income forthe year — 476 476

At 30 June 2018 and 1 July 2018 — 585 585Net investment by MEGT (Australia)Limited — 36 36

Loss and total comprehensive expense forthe period — (675) (675)

At 31 March 2019 — (54) (54)

For the nine months ended 31 March 2018(unaudited)

At 1 July 2017 — (568) (568)Net investment by MEGT (Australia)Limited — 699 699

Profit and total comprehensive income forthe period — 337 337

At 31 March 2018 (Unaudited) — 468 468


– III-7 –

STATEMENTS OF CASH FLOWS


31 March2016 2017 2018 2018 2019



(Loss)/profit before taxation (190) 475 476 337 (675)Adjustments for:

Depreciation of property, plantand equipment 243 272 247 182 133

Impairment loss on tradereceivables — — — — 21

Loss on disposal of property,plant and equipment 8 — — 3 3 —

Interest income 6 — (2) (7) (3) (4)

Operating cash flows beforemovements in working capital 53 745 719 519 (525)

(Increase)/decrease in trade andother receivables, deposits andprepayments (19) 12 87 33 45

Increase in deferred agents expense — — — (27) (16)(Decrease)/increase in trade and

other payables and accruedcharges (23) 141 98 191 (97)

(Decrease)/increase in deferredincome/contract liabilities (2) 220 (237) (229) (173)

(Decrease)/increase in provisions (25) (151) (68) 17 (88)

NET CASH (USED IN)/GENERATED FROMOPERATING ACTIVITIES (16) 967 599 504 (854)

INVESTING ACTIVITIESInterest received — 2 7 3 4Purchases of items of property,

plant and equipment (35) (8) — — —

NET CASH FLOWS (USED IN)/GENERATED FROMINVESTING ACTIVITIES (35) (6) 7 3 4


– III-8 –


31 March2016 2017 2018 2018 2019


FINANCING ACTIVITIESNet investment by MEGT

(Australia) Ltd. 501 (1,107) 677 699 36

NET CASH FLOWS GENERATEDFROM/(USED IN) FINANCINGACTIVITIES 501 (1,107) 677 699 36

NET INCREASE/(DECREASE) INCASH AND CASHEQUIVALENTS 450 (146) 1,283 1,206 (814)

CASH AND CASHEQUIVALENTS ATBEGINNING OF THE YEAR/PERIOD 25 475 329 329 1,612

CASH AND CASHEQUIVALENTS AT END OFTHE YEAR/PERIOD 475 329 1,612 1,535 798


– III-9 –

NOTES TO HISTORICAL FINANCIAL INFORMATION

1. GENERAL INFORMATION

Institute Training was a business division conducted by MEGT (Australia) Ltd (the ‘‘Vendor’’), a limitedcompany incorporated in the Australia with fiscal financial year ended on 30 June. Accordingly, Institute Trainingwas not a separate legal entity. The address of registered office and principal place of business of Institute Trainingis 29 Ringwood Street, Ringwood Victoria 3134 and Level 4–5, 10 Quay Street, Sydney NSW 2000, respectively.

Institute Training is engaged in training of children’s services education and related training services business.

The Historical Financial Information is presented in Australian dollars (‘‘AUD’’), which is the same as thefunctional currency of Institute Training.

The Historical Financial Information has been prepared in accordance with the accounting policies set out innotes 2 and 3 which are in accordance with HKFRSs.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods,Institute Training has consistently applied Hong Kong Accounting Standards (‘‘HKASs’’), Hong Kong FinancialReporting Standards, amendments and interpretations (collectively ‘‘HKFRSs’’) which are effective for itsaccounting period beginning on 1 July 2018 throughout the Relevant Periods except that Institute Training adoptedHKFRS 9 ‘‘Financial Instruments’’ and HKFRS 15 ‘‘Revenue from Contracts with Customers and the relatedAmendments’’ on 1 July 2018. The accounting policy for financial instruments under HKFRS 9 and revenuerecognition under HKFRS 15 are set out in note 3 below.

2.1 Impacts and changes in accounting policies from initial application of HKFRS 15

Summary of effects arising from initial application of HKFRS 15

HKFRS 15 superseded HKAS 18 ‘‘Revenue’’, HKAS 11 ‘‘Construction Contracts’’ and the relatedinterpretations with effect for financial year beginning from 1 January 2018. Institute Training hasapplied HKFRS 15 for the first time for the nine months ended 31 March 2019.

Institute Training has applied the simplified method of HKFRS 15 retrospectively with thecumulative effect of initially applying this standard recognised at the date of initial application, 1 July2018. Under this method, the standard can be applied either to all contracts at the date of initialapplication or only to contracts that are not completed at this date. Any difference at the date of initialapplication is recognised in the opening accumulated losses (or other components of equity, asappropriate) and comparative information has not been restated. Furthermore, in accordance with thetransition provisions in HKFRS 15, Institute Training has elected to apply HKFRS 15 retrospectivelyonly to contracts that are not completed at 1 July 2018. Accordingly, certain comparative informationmay not be comparable as comparative information was prepared under HKAS 18 ‘‘Revenue’’ andHKAS 11 ‘‘Construction Contracts’’ and the related interpretations.

Institute Training recognises revenue under HKFRS 15 mainly from its course fee income.

Information about Institute Training’s accounting policies and performance obligation resultingfrom application of HKFRS 15 are set out in notes 3 and 5 respectively.

The cumulative effect of the initial application of HKFRS 15 was recognised as an adjustment tothe opening balance of retained profits as at 1 July 2018. Therefore, the comparative information wasnot restated and continues to be reported under HKAS 18 and related interpretations.


– III-10 –

Set out below are the amounts by which each financial statement line item was affected as at 1July 2018 as a result of the adoption of HKFRS 15. Line items that were not affected by the changeshave not been included.

At 1 July 2018(restated)Increase/(decrease)AUD’000

LiabilitiesDeferred income (516)Contract liabilities 516

Total liabilities —

Set out below are the amounts by which each financial statement line item was affected as at 31March 2019 and for nine months ended 31 March 2019 as a result of the adoption of HKFRS 15. Theadoption of HKFRS 15 has had no impact on the statement of profit or loss and other comprehensiveincome or on Institute Training’s operating, investing and financing cash flows.

Statement of financial position as at 31 March 2019:

Amount prepared under


Increase/(decrease)

AUD’000 AUD’000 AUD’000

LiabilitiesDeferred income — 343 (343)Contract liabilities 343 — 343

Total liabilities 343 343 —

2.2 Impact and changes in accounting policies from initial application of HKFRS 9

For the nine months ended 31 March 2019, Institute Training has applied HKFRS 9 and the relatedconsequential amendments to other HKFRSs. HKFRS 9 introduces new requirements for (1) the classificationand measurement of financial assets and financial liabilities, (2) expected credit losses (‘‘ECL’’) for financialassets and other items (for example, contract assets and trade receivables) and (3) general hedge accounting.

Institute Training has applied HKFRS 9 in accordance with the transaction provisions set out in HKFRS9. i.e. applied the classification and measurement requirements (including impairment) retrospectively toinstruments that have not been derecognised as at 1 July 2018 (date of initial application) and has not appliedthe requirements to instruments that have already been derecognised as at 1 July 2018. The differencebetween carrying amounts as at 30 June 2018 and the carrying amounts as at 1 July 2018 are recognised in theopening accumulated losses, without restating comparative information.

Accordingly, certain comparative information may not be comparable as comparative information wasprepared under HKAS 39 ‘‘Financial Instruments: Recognition and Measurement’’.

Accounting policies resulting from application of HKFRS 9 are disclosed in note 3.


– III-11 –

Classification and measurement of financial assets and financial liabilities

The director of Institute Training has reviewed and assessed Institute Training’s financial assetsand financial liabilities at 1 July 2018 based on the facts and circumstances that existed at that date andconcluded that there was no material impact on Institute Training’s statement of financial position uponadoption of HKFRS 9.

Impairment under ECL model

At 1 July 2018, the director of Institute Training has reviewed and assessed Institute Training’sexisting financial assets for impairment using reasonable and supportable information that is availablewithout undue cost or effort in accordance with the requirements of HKFRS 9 and have concluded thatno material financial impact exists, and therefore no adjustment to the opening accumulated losses at 1July 2018 has been recognised.

New and amendments to HKFRSs in issue but not yet effective

At the date of this report, Institute Training has not early applied the following new and amendments toHKFRSs and the new interpretations that have been issued but are not yet effective:

HKFRS 16 Leases1

HKFRS 17 Insurance Contracts2

HK(IFRIC) 23 Uncertainty over Income Tax Treatments1

Amendments to HKFRS 9 Prepayment Features with Negative Compensation1

Amendments to HKFRS 10 andHKAS 28

Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture3

Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement1

Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures1

Amendments to HKFRSs Annual Improvements to HKFRSs 2015–2017 Cycle1

1 Effective for annual periods beginning on or after 1 January 20192 Effective for annual periods beginning on or after 1 January 20213 Effective for annual periods beginning on or after a date to be determined

Except as described below, the director of Institute Training anticipates that the application of all othernew and amendments to HKFRSs and the new interpretations will have no material impact on the financialstatements in the foreseeable future.

HKFRS 16 ‘‘Leases’’

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements andaccounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 ‘‘Leases’’ and therelated interpretations when it becomes effective.

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset iscontrolled by a customer. Distinctions of operating leases and finance leases are removed for lesseeaccounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to berecognised for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certainexceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the leaseliability. The lease liability is initially measured at the present value of the lease payments that are not paid atthat date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact oflease modifications, amongst others. For the classification of cash flows, Institute Training currently presentsoperating lease payments as operating cash flows. Upon the application of HKFRS 16, lease payments inrelation to lease liability will be allocated into a principal and an interest portion which will be presented asfinancing cash flows by Institute Training and upfront prepaid lease payments will continue to be presented asinvesting or operation cash flows in accordance to the nature as appropriate.


– III-12 –

Other than certain requirements which are also applicable to lessor, HKFRS 16 substantially carriesforward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a leaseeither as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by HKFRS 16.

As at 31 March 2019, Institute Training has non-cancellable operating lease commitments ofapproximately AUD1,738,000 as disclosed in note 20. A preliminary assessment indicates that thesearrangements will meet the definition of a lease upon application of HKFRS 16, Institute Training willrecognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify forlow value or short-term leases.

The application of new requirements may result in changes in measurement, presentation and disclosureas indicated above. Institute Training intends to elect the practical expedient to apply HKFRS 16 to contractsthat were previously identified as leases applying HKAS 17. Therefore, Institute Training will not reassesswhether the contracts are, or contain a lease which already existed prior to the date of initial application.Furthermore, Institute Training intends to elect the modified retrospective approach for the application ofHKFRS 16 as lessee and will recognise the cumulative effect of initial application to opening accumulatedlosses without restating comparative information.

3. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared in accordance with the accounting policies set outbelow which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Informationincludes applicable disclosures required by the Rules Governing the Listing of Securities on the GEM of The StockExchange of Hong Kong Limited (‘‘Listing Rules’’) and by the Hong Kong Companies Ordinance.

The Historical Financial Information has been prepared on the historical cost basis.

Historical cost is generally based on the fair value of the consideration given in exchange for goods andservices.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date, regardless of whether that price is directlyobservable or estimated using another valuation technique. In estimating the fair value of an asset or a liability,Institute Training takes into account the characteristics of the asset or liability if market participants would takethose characteristics into account when pricing the asset or liability at the measurement date. Fair value formeasurement and/or disclosure purposes in the Historical Financial Information is determined on such a basis,except for share-based payment transactions that are within the scope of HKFRS 2 ‘‘Shared-based payment’’, leasingtransactions that are within the scope of HKAS 17, and measurements that have some similarities to fair value butare not fair value, such as net realisable value in HKAS 2 ‘‘Inventories’’ or value in use in HKAS 36 ‘‘Impairmentof assets’’.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3based on the degree to which the inputs to the fair value measurements are observable and the significance of theinputs to the fair value measurement in its entirety, which are described as follows:

. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that theentity can access at the measurement date;

. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for theasset or liability, either directly or indirectly; and

. Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.


– III-13 –

As at 30 June 2016 and 2017, Institute Training’s current liabilities exceeded their current assets byapproximately AUD276,000 and approximately AUD730,000 respectively. In addition, Institute Training recorded anet liability of approximately AUD568,000 and approximately AUD54,000 as at 30 June 2017 and 31 March 2019respectively. The parent company has confirmed its intention to provide continuing financial support to InstituteTraining so as to enable Institute Training to meet their liabilities as and when they fall due and to carry on theirbusiness without a significant curtailment of operation for the foreseeable future. Consequently, the sole director ofInstitute Training have prepared the Historical Financial Information on a going concern basis.

Revenue from contracts with customers (upon application of HKFRS 15 in accordance with transitionsin note 2)

Under HKFRS 15, Institute Training recognises revenue when (or as) a performance obligation issatisfied, i.e. when ‘‘control’’ of the goods or services underlying the particular performance obligation istransferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinctor a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progresstowards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

. the customer simultaneously receives and consumes the benefits provided by Institute Training’sperformance as Institute Training performs;

. Institute Training’s performance creates and enhances an asset that the customer controls asInstitute Training performs; or

. Institute Training’s performance does not create an asset with an alternative use to InstituteTraining and Institute Training has an enforceable right to payment for performance completed todate.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinctgood or service.

A contract asset represents Institute Training’s right to consideration in exchange for goods or servicesthat Institute Training has transferred to a customer that is not yet unconditional. It is assessed for impairmentin accordance with HKFRS 9. In contrast, a receivable represents Institute Training’s unconditional right toconsideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents Institute Training’s obligation to transfer goods or services to a customerfor which Institute Training has received consideration (or an amount of consideration is due) from thecustomer.

A contract asset and a contract liability relating to the same contract are accounted for and presented ona net basis.

Over time revenue recognition: measurement of progress towards complete satisfaction of aperformance obligation

The progress towards complete satisfaction of a performance obligation is measured based on outputmethod, which is to recognise revenue on the basis of direct measurements of the value of the goods orservices transferred to the customer to date relative to the remaining goods or services promised under thecontract, that best depict Institute Training’s performance in transferring control of goods or services.


– III-14 –

Revenue recognition (prior to 1 July 2018)

Revenue is measured at the fair value of the consideration received or receivable and representsamounts receivable for goods sold and services provided in the normal course of business, net of discountsand related goods and services tax (GST).

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable thatfuture economic benefits will flow to Institute Training and when specific criteria have been met for each ofInstitute Training’s activities, as described below.

Revenue relating to the provision of tuition fees is determined with reference to the stage of completionof the course at reporting date. Stage of completion is determined with reference to the course days completedto date.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effectiveinterest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through theexpected life of the financial asset to that asset’s net carrying amount on initial recognition.

Property, plant and equipment

Property, plant and equipment held for use in the supply of goods or services, or for administrativepurposes are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, ifany.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment lesstheir residual values over their estimated useful lives using the straight-line method. The estimated usefullives, residual values and depreciation method are reviewed at the end of the reporting period, with the effectof any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economicbenefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal orretirement of an item of property, plant and equipment is determined as the difference between the salesproceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment on tangible assets

At the end of the reporting period, Institute Training reviews the carrying amounts of its tangible assetswith finite useful lives to determine whether there is any indication that those assets have suffered animpairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated inorder to determine the extent of the impairment loss, if any.

When it is not possible to estimate the recoverable amount of an individual asset individually, InstituteTraining estimates the recoverable amount of the cash-generated unit (‘‘CGUs’’) to which the asset belongs.When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated toindividual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable andconsistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessingvalue in use, the estimated future cash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and the risks specific to the asset (or aCGU) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, thecarrying amount of the asset (or a CGU) is reduced to its recoverable amount. In allocating the impairmentloss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) andthen to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. Thecarrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if


– III-15 –

measurable), its value in use (if determinable) and zero. The amount of the impairment loss that wouldotherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairmentloss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) isincreased to the revised estimate of its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairment loss been recognised for theasset (or a CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

Institute Training as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.Contingent rentals arising under operating leases are recognised as an expense in the period in which they areincurred. In the event that lease incentives are received to enter into operating leases, such incentives arerecognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense ona straight-line basis.

Deferred agents expenses

Deferred agents expense is incurred when a student referred by an agent is enrolled in a course inadvance of tuition being provided. Deferred agent expense is recorded as an asset and is recognised over theperiod of enrolment in the course, in line with the recognition of tuition revenue.

Retirement benefit costs and short-term employee benefits

Post-employment benefits plans

Institute Training provides post-employment benefits through defined contribution plans.

Defined Contribution plans

Institute Training pays fixed contributions into independent entities in relation to several state plans ofAustralia and insurance for individual employees. Institute Training has no legal or constructive obligations topay contributions in addition to its fixed contributions, which are recognised as an expense in the period thatrelevant employee services are received.

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to bepaid as and when employees rendered the services. All short-term employee benefits are recognised as anexpense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

Liabilities recognised in respect of other long-term employee benefits (such as annual leave and longservice leave) are measured at the present value of the estimated future cash outflows expected to be made byInstitute Training in respect of services provided by employees up to the reporting date. Any changes in theliabilities’ carrying amounts resulting from service cost, interest and remeasurements are recognised in profitor loss except to the extent that another HKFRS requires or permits their inclusions in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leaveand sick leave) after deducting any amount already paid.


– III-16 –

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from loss beforetaxation as reported in the statement of profit or loss and other comprehensive income because of income orexpense that are taxable or deductible in other periods, and items that are never taxable or deductible. InstituteTraining’s liability for current tax is calculated using tax rates that have been enacted or substantively enactedby the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets andliabilities in the financial statements and the corresponding tax base used in the computation of taxable profit.Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets aregenerally recognised for all deductible temporary differences to the extent that it is probable that taxableprofits will be available against which those deductible temporary differences can be utilised. Such assets andliabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition(other than in a business combination) of other assets and liabilities in a transaction that affects neither thetaxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments insubsidiaries and interests in joint ventures, except where Institute Training is able to control the reversal ofthe temporary difference and it is probable that the temporary difference will not reverse in the foreseeablefuture. Deferred tax assets arising from deductible temporary differences associated with such investments andinterests are only recognised to the extent that it is probable that there will be sufficient taxable profits againstwhich to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeablefuture.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reducedto the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part ofthe asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the periodin which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enactedor substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would followfrom the manner in which Institute Training expects, at the end of the reporting period, to recover or settle thecarrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss, except when relate to items that are recognisedin other comprehensive income or directly in equity, in which case, the current and deferred tax are alsorecognised in other comprehensive income or directly in equity, respectively. Where current tax or deferredtax arises from the initial accounting for a business combination, the tax effect is included in the account forthe business combination.

Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount ofGST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST isrecognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables andpayables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the statement of cash flows on a gross basis, except for the GST componentof investing and financing activities, which are disclosed as operating cash flows.


– III-17 –

Provisions

Provisions are recognised when Institute Training has a present obligation (legal or constructive) as aresult of a past event, it is probable that Institute Training will be required to settle that obligation, and areliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle thepresent obligation at the end of the reporting period, taking into account the risks and uncertaintiessurrounding the obligation. When a provision is measured using the cash flows estimated to settle the presentobligation, its carrying amount is the present value of those cash flows (where the effect of the time value ofmoney is material).

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to thecontractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value except for trade receivablesarising from contracts with customers which are initially measured accordance with HKFRS 15 since 1 July2018. Transaction costs that are directly attributable to the acquisition or issue of financial assets andfinancial liabilities (other than financial assets or financial liabilities at fair value through profit or loss(‘‘FVTPL’’)) are added to or deducted from the fair value of the financial assets or financial liabilities, asappropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assetsor financial liabilities at FVTPL are recognised immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or afinancial liability and of allocating interest income and interest expense over the relevant period. The effectiveinterest rate is the rate that exactly discounts estimated future cash receipts and payments (including all feesor points paid or received that form an integral part of the effective interest rate, transaction costs and otherpremiums or discounts) through the expected life of the financial asset or financial liabilities, or, whereappropriate, a shorter period to the net carrying amount on initial recognition.

Financial assets

Classification and subsequent measurement of financial assets (upon application of HKFRS 9 in accordancewith transitions in note 2)

Financial assets that meet the following conditions are subsequently measured at amortised cost:

. the financial asset is held within a business model whose objective is to collect contractual cashflows; and


Financial assets that meet the following conditions are subsequently measured at fair value throughother comprehensive income (‘‘FVTOCI’’):

. the financial asset is held within a business model whose objective is achieved by both collectingcontractual cash flows and selling; and



– III-18 –

All other financial assets are subsequently measured at FVTPL, except that at the date of initialapplication of HKFRS 9/Initial recognition of a financial asset whereas Institute Training may irrevocablyelect to present subsequent changes in fair value of an equity investment in other comprehensive income ifthat equity investment is neither held for trading nor contingent consideration recognised by an acquirer in abusiness combination to which HKFRS 3 ‘‘Business Combinations’’ applies.

A financial asset is classified as held for trading if:

. it has been acquired principally for the purpose of selling in the near term; or

. on initial recognition it is a part of a portfolio of identified financial instruments that InstituteTraining manages together and has a recent actual pattern of short-term profit-taking; or

. it is a derivative that is not designated and effective as a hedging instrument.

In addition, Institute Training may irrevocably designate a financial asset that are required to bemeasured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantlyreduces an accounting mismatch.

(i) Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measuredsubsequently at amortised cost and debt instruments/receivables subsequently measured at FVTOCI. Forfinancial instruments other than purchased or originated credit-impaired financial assets, interest incomeis calculated by applying the effective interest rate to the gross carrying amount of a financial asset,except for financial assets that have subsequently become credit-impaired (see below). For financialassets that have subsequently become credit-impaired, interest income is recognised by applying theeffective interest rate to the amortised cost of the financial asset from the next reporting period. If thecredit risk on the credit impaired financial instrument improves so that the financial asset is no longercredit-impaired, interest income is recognised by applying the effective interest rate to the grosscarrying amount of the financial asset from the beginning of the reporting period following thedetermination that the asset is no longer credit impaired.

(ii) Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI ordesignated as FVTOCI are measured at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, excludeswith any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profitor loss excludes any dividend or interest earned on the financial asset and is included in the ‘‘othergains and losses’’ line item.

Impairment of financial assets (upon application HKFRS 9 with transitions in accordance with note 2)

Institute Training recognises a loss allowance for ECL on financial assets which are subject toimpairment under HKFRS 9 (including trade and other receivables and bank balances). The amount of ECL isupdated at each reporting date to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected lifeof the relevant instrument. In contrast, 12-month ECL (‘‘12m ECL’’) represents the portion of lifetime ECLthat is expected to result from default events that are possible within 12 months after the reporting date.Assessment are done based on Institute Training’s historical credit loss experience, adjusted for factors thatare specific to the debtors, general economic conditions and an assessment of both the current conditions atthe reporting date as well as the forecast of future conditions.

Institute Training always recognises lifetime ECL for trade receivables. The ECL on these assets areassessed individually.


– III-19 –

For all other instruments, Institute Training measures the loss allowance equal to 12m ECL, unlesswhen there has been a significant increase in credit risk since initial recognition in which case InstituteTraining recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised, based onsignificant increases in the likelihood or risk of a default occurring since initial recognition.

(i) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, InstituteTraining compares the risk of a default occurring on the financial instrument as at the reporting datewith the risk of a default occurring on the financial instrument as at the date of initial recognition. Inmaking this assessment, Institute Training considers both quantitative and qualitative information that isreasonable and supportable, including historical experience and forward-looking information that isavailable without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit riskhas increased significantly:

. an actual or expected significant deterioration in the financial instrument’s external (ifavailable) or internal credit rating;

. significant deterioration in external market indicators of credit risk, e.g. a significantincrease in the credit spread, the credit default swap prices for the debtor;

. existing or forecast adverse changes in business, financial or economic conditions that areexpected to cause a significant decrease in the debtor’s ability to meet its debt obligations;

. an actual or expected significant deterioration in the operating results of the debtor;

. an actual or expected significant adverse change in the regulatory, economic, ortechnological environment of the debtor that results in a significant decrease in the debtor’sability to meet its debt obligations.

Institute Training regularly monitors the effectiveness of the criteria used to identify whetherthere has been a significant increase in credit risk and revises them as appropriate to ensure that thecriteria are capable of identifying significant increase in credit risk before the amount becomes pastdue.

(ii) Definition of default

Institute Training considers that default has occurred when a financial asset is more than 90 dayspast due unless Institute Training has reasonable and supportable information to demonstrate that amore lagging default criterion is more appropriate.

(iii) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events of default that have a detrimentalimpact on the estimated future cash flows of that financial asset have occurred. Evidence that afinancial asset is credit impaired includes observable data about the following events:

(a) significant financial difficulty of the issuer or the borrower;

(b) a breach of contract, such as a default or past due event;

(c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’sfinancial difficulty, having granted to the borrower a concession(s) that the lender(s) wouldnot otherwise consider;


– III-20 –

(d) it is becoming probable that the borrower will enter bankruptcy or other financialreorganisation; or

(e) the disappearance of an active market for that financial asset because of financialdifficulties.

(iv) Write-off policy

Institute Training writes off a financial asset when there is information indicating that thecounterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example,when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, orin the case of trade receivables, when the amounts are over two years past due, whichever occurssooner. Financial assets written off may still be subject to enforcement activities under InstituteTraining’s recovery procedures, taking into account legal advice where appropriate. A write-offconstitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(v) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. themagnitude of the loss if there is a default) and the exposure at default. The assessment of theprobability of default and loss given default is based on historical data adjusted by forward-lookinginformation. Estimation of ECL reflects an unbiased and probability-weighted amount that isdetermined with the respective risks of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to InstituteTraining in accordance with the contract and the cash flows that Institute Training expects to receive,discounted at the effective interest rate determined at initial recognition.

Where ECL is measured on a collective basis or cater for cases where evidence at the individualinstrument level may not yet be available, the financial instruments are grouped on the following basis:

. Nature of financial instruments;

. Past-due status;

. Nature, size and industry of debtors; and

. External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each financialassets of Institute Training continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless thefinancial asset is credit impaired, in which case interest income is calculated based on amortised cost ofthe financial asset.

Institute Training recognises an impairment gain or loss in profit or loss for all financialinstruments by adjusting their carrying amount, with the exception of trade receivables where thecorresponding adjustment is recognised through a loss allowance account.

Classification and subsequent measurement of financial assets (before application of HKFRS 9 on 1 July2018)

Institute Training’s financial assets are classified as loans and receivables. The classification depends onthe nature and purpose of the financial assets and is determined at the time of initial recognition. All regularway purchases or sales of financial assets are recognised and derecognised on a settlement/trade date basis.Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets withinthe time frame established by regulation or convention in the marketplace.


– III-21 –

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade andother receivables, amounts due from related parties, amounts due from non-controlling shareholders ofsubsidiaries and bank balances and cash) are measured at amortised cost using the effective interest method,less any identified impairment losses (see accounting policy on impairment loss on financial assets).

Interest income is recognised by applying the effective interest rate, except for short-term receivableswhere the recognition of interest would be immaterial.

Impairment of financial assets (before application of HKFRS 9 on 1 July 2018)

Financial assets, other than those at FVTPL, of Institute Training are assessed for indicators ofimpairment at the end of the reporting period. Financial assets are considered to be impaired where there isobjective evidence that, as a result of one or more events that occurred after the initial recognition of thefinancial asset, the estimated future cash flows of the financial assets have been affected.

For financial assets, objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

. breach of contract, such as default or delinquency in interest or principal payments; or

. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

Objective evidence of impairment for a portfolio of receivables could include Institute Training’s pastexperience of collecting payments, an increase in the number of delayed payments and observable changes innational or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is thedifference between the asset’s carrying amount and the present value of the estimated future cash flowsdiscounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the differencebetween the asset’s carrying amount and the present value of the estimated future cash flow discounted at thecurrent market rate of return for a similar financial asset. Such impairment loss will not be reversed insubsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financialassets with the exception of trade receivables, where the carrying amount is reduced through the use of anallowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.When a trade receivable is considered uncollectible, it is written off against the allowance account.Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets carried at amortised cost, if, in a subsequent period, the amount of impairment lossdecreases and the decrease can be related objectively to an event occurring after the impairment loss wasrecognised, the previously recognised impairment loss is reversed through profit or loss to the extent that thecarrying amount of the asset at the date the impairment is reversed does not exceed what the amortised costwould have been had the impairment not been recognised.

Derecognition of financial assets

Institute Training derecognises a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another entity. If Institute Training retains substantially all the risks and rewards ofownership of a transferred financial asset, Institute Training continues to recognise the financial asset and alsorecognises a collateralised borrowing for the proceeds received.


– III-22 –

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum ofthe consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group are classified as either financial liabilities or as equity inaccordance with the substance of the contractual arrangements and the definitions of a financial liability andan equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of a group entityafter deducting all of its liabilities. Equity instruments issued by group entities are recognised at the proceedsreceived, net of direct issue costs.

Financial liabilities at amortised cost

Financial liabilities including trade and other payables and accrued charges, amounts due to relatedparties, corporate bonds and bank and other borrowings are subsequently measured at amortised cost, usingthe effective interest method.

Derecognition of financial liabilities

Institute Training derecognises financial liabilities when, and only when, Institute Training’s obligationsare discharged, cancelled or have expired. The difference between the carrying amount of the financialliability derecognised and the consideration paid and payable is recognised in profit or loss.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of Institute Training’s accounting policies, which are described in note 3, the sole directorof Institute Training is required to make judgments, estimates and assumptions about the carrying amounts of assetsand liabilities that are not readily apparent from other sources. The estimates and associated assumptions are basedon historical experience and other factors that are considered to be relevant. Actual results may differ from theseestimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accountingestimates are recognised in the period in which the estimate is revised if the revision affects only that period, or inthe period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertaintyat the end of the reporting period, that may have a significant risk of causing a material adjustment to the carryingamounts of assets within the next financial year.

Useful lives of depreciable assets

Management reviews the useful lives of depreciable assets at each reporting date, based on the expectedutility of the assets to Institute Training. Actual results, however, may vary.

Provisions for long service leave

The liability for long service leave is recognised and measured at the present value of the estimatedfuture cash flows to be made in respect of all employees at the end of each reporting period. In determiningthe present value of the liability attrition rate and pay increases through promotion and inflation have beentaken into account.


– III-23 –

5. REVENUE AND SEGMENT INFORMATION

A. Revenue for the nine months ended 31 March 2019

(i) Disaggregation of revenue from contracts with customers


31 March2019

AUD’000

Types of service

Tuition revenue 3,116

Geographical marketAustralia 3,116

Timing of revenue recognitionA point of time —

Over time 3,116

Total 3,116

(ii) Performance obligations for contracts with customers

Tuition fees from education are generally paid in advance of tuition course provided and initiallyrecorded as ‘‘deferred income’’ and revenue is recognised over the period of tuition service because thestudents simultaneously receive and consume the benefits provided by Institute Training’s performanceas Institute Training performs.

(iii) Transaction price allocated to the remaining performance obligation for contracts with customers

All tuition fees are for periods of one year or less. As permitted under HKFRS 15, the transactionprice allocated to these unsatisfied contracts is not disclosed.

B. Revenue for the years ended 30 June 2016, 2017 and 2018 and nine months ended 31 March 2018

Revenue represents the fair value of amounts received and receivable for services provided by InstituteTraining to outside customers, less discount and related GST. The following is an analysis of InstituteTraining’s revenue:

Year ended 30 June

Nine monthsended

31 March2016 2017 2018 2018

AUD’000 AUD’000 AUD’000 AUD’000(unaudited)

Tuition revenue 5,360 6,864 6,329 4,800

Geographical marketAustralia 5,360 6,864 6,329 4,800


– III-24 –

C. Segment information

During the years ended 30 June 2016, 2017 and 2018 and nine months ended 31 March 2018 and 2019,Institute Training’s operation was solely derived from training of early childhood education in Australia. Forthe purpose of resources allocation and performance assessment, the chief operating decision maker(‘‘CODM’’) (i.e. the chief executive officer of Institute Training) reviewed the overall results and financialposition of Institute Training as a whole prepared based on same accounting policies set out in note 3.Accordingly, Institute Training has only one single operating segment and no further analysis of this singlesegment is presented.

Information about major customers

No individual customer was accounted for over 10% of Institute Training’s total revenue duringthe Relevant Periods.

D. Segment assets and liabilities

As at each reporting period ended 30 June 2016, 2017, 2018 and 31 March 2018 and 2019, all the assetsand liabilities of Institute Training are located in Australia.

6. OTHER INCOME



Other incomeInterest income — 2 7 3 4Others 58 23 29 23 13

58 25 36 26 17

7. INCOME TAX EXPENSE

No provision has been made for the year ended 30 June 2016, 2017 and 2018 and nine months ended 31March 2018 and 2019 as Institute Training is part of MEGT (Australia) Ltd, which is a charitable institution interms of subsection 50–5 of the Income Tax Assessment Act 1997 of Australia, as amended, it is exempt frompaying income tax.


– III-25 –

8. (LOSS)/PROFIT BEFORE TAX

(Loss)/profit for the year/period has been arrived at after charging/(crediting):



Depreciation (Note (i)) 243 272 283 213 153Amortisation (Note (i)) 37 95 117 88 27Auditor’s remuneration — — — — —

Director’s remuneration — — — — —

Instructor costs 1,541 1,738 1,685 1,282 965Other staff costs 542 561 475 381 513Retirement benefits scheme

contributions 205 226 221 168 138

Total staff costs (excluding director’sremuneration) 2,288 2,525 2,381 1,831 1,616

Impairment loss on trade receivables,net off reversal — — — — 21

Loss on disposal of property, plantand equipment — — 3 3 —

Note:

(i) Part of the depreciation and the whole amortisation were charged by the MEGT (Australia) Ltd whichwere related to the percentage usage by Institute Training of MEGT (Australia) Ltd’s leased/ownedasset.

9. DIRECTOR’S, CHIEF EXECUTIVE’S AND EMPLOYEES’ EMOLUMENTS

Director’s and chief executive’s remuneration

David Windridge is the sole director of Institute Training for the Relevant Periods. No director’semoluments were paid by Institute Training during the Relevant Periods.

The five individuals with the highest emoluments in Institute Training did not include the sole directorduring the Relevant Periods. The emoluments of the five highest paid individuals are as follows:



Salaries and allowances 296 319 349 253 286Retirement benefit contributions 27 30 33 24 27

323 349 382 277 313

Their emoluments individually were all below HK$1,000,000.

During the Relevant Periods, no emoluments had been paid by Institute Training to the sole director ofInstitute Training or the five highest paid individuals as inducement to join Institute Training or ascompensation for loss of office.


– III-26 –

10. DIVIDENDS

No dividends have been paid or declared by Institute Training during the Relevant Periods.

11. (LOSS)/EARNINGS PER SHARE

No (loss)/earnings per share for the Relevant Periods is presented as its inclusion is considered notmeaningful for the purpose of this report.

12. PROPERTY, PLANT AND EQUIPMENT

Furniture,fixtures andequipmentAUD’000

COSTAt 1 July 2015 1,301Addition 35

At 30 June 2016 and 1 July 2016 1,336Addition 8Disposal (25)

At 30 June 2017 and 1 July 2017 1,319Disposal (112)

At 30 June 2018 and 31 March 2019 1,207

DEPRECIATIONAt 1 July 2015 445Provided for the year 243

At 30 June 2016 and 1 July 2016 688Provided for the year 272Eliminated on disposal (25)

At 30 June 2017 and 1 July 2017 935Provided for the year 247Eliminated on disposal (109)

At 30 June 2018 and 1 July 2018 1,073Provided for the period 133

At 31 March 2019 1,206

CARRYING VALUESAt 30 June 2016 648

At 30 June 2017 384

At 30 June 2018 134

At 31 March 2019 1


– III-27 –

Depreciation is charged so as to write off the cost over their estimated useful lives, using the straight-linemethod, at the following rates per annum:

Furniture, fixtures and equipment 20%–50%

13. TRADE AND OTHER RECEIVABLES AND PREPAYMENTS/DEFERRED AGENTS EXPENSE


At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Trade receivables — — — 21Allowance for doubtful debts — — — (21)

— — — —

Prepayments 192 211 125 63GST receivable 6 1 5 2Other receivables 32 6 1 —

230 218 131 65

The following is an aged analysis of trade receivables presented based on the invoice date at the end of thereporting period, which approximated the respective revenue recognition dates:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

0 to 90 days — — — 21

As at 30 June 2016, 2017, 2018, there was no trade receivables from third parties which are past due at theend of the reporting period. As at 31 March 2019, trade receivables of approximately AUD21,000 was past due andimpairment loss was provided by Institute Training.

Deferred agents expense

Deferred agents expense represents referral expenses incurred when a customer referred by an agent isenrolled in a course in advance of tuition course being provided.

14. BANK BALANCES AND CASH

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Cash at bank and in hand 475 329 1,612 798

The bank balances of Institute Training carry interest rate of approximately 2.30% per annum on averagethroughout the Relevant Periods and are denominated in AUD.


– III-28 –

15. TRADE AND OTHER PAYABLES AND ACCRUED CHARGES

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Trade payables 7 3 19 10Accrued expenses 184 329 411 323

191 332 430 333

The following is an aged analysis of accounts payables presented based on the invoice date.

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

0 to 90 days 7 3 19 10

16. DEFERRED INCOME/CONTRACT LIABILITIES

Deferred income

Deferred income represents the course fee received in advance pursuant to the contracts with customers.

The balances were unsecured, non-interest bearing and repayable on demand.

Contract liabilities

Contract liabilities primarily arises from short term advances received from students in relation to theproportionate services not yet provided. Institute Training receives tuition fees from students in advance priorto the beginning of each academic year/semester. Tuition fees are recognised proportionately over the relevantperiods of the applicable course/program.

Deferred revenue that was included in the contract liabilities balance at the beginning of the ninemonths ended 31 March 2019 upon adoption of HKFRS 15 amounting to approximately AUD516,000 wasrecognised in the subsequent reporting period.

17. PROVISIONS

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Analysed for reporting purpose as:Non-current liabilities 308 222 18 174Current liabilities 257 192 328 84

565 414 346 258


– III-29 –

Leasestraight-

lining Make good Annual leaveLong service

leave TotalAUD’000 AUD’000 AUD’000 AUD’000 AUD’000

At 1 July 2015 339 119 70 62 590Addition — 2 78 24 104Utilisation during the year (65) — (64) — (129)

At 30 June 2016 and1 July 2016 274 121 84 86 565Addition — 4 84 18 106Utilisation during the year (86) — (116) (55) (257)

At 30 June 2017 and1 July 2017 188 125 52 49 414

Addition — — 65 2 67Utilisation during the year (69) — (64) (2) (135)

At 30 June 2018 and1 July 2018 119 125 53 49 346

Addition 18 9 44 19 90Utilisation during the period (119) — (37) (22) (178)

At 31 March 2019 18 134 60 46 258

The provision is made based on the best estimate of the above-mentioned liabilities at the end of therespective reporting period.

18. SHARE CAPITAL

Institute Training does not have share capital as it was a business conducted by the Vendor and not a separatelegal entity during the Relevant Periods.

19. RETIREMENT BENEFITS SCHEME

Institute Training operates defined contribution plans for all employees. Institute Training pays fixedcontributions based on several Australia State plans and insurance schemes for employees. Institute Training has nolegal or constructive obligations to pay contributions in addition to its fixed contributions. The contribution madeare recognised as an expenses in the period when relevant employee services are received.

The total contributions to the retirement benefits scheme charged to the statement of profit or loss and othercomprehensive income for the years ended 30 June 2016, 2017, 2018 and for the nine months ended 31 March 2018and 2019 are approximately AUD205,000, approximately AUD226,000, approximately AUD221,000, approximatelyAUD168,000 (unaudited) and approximately AUD138,000 respectively.


– III-30 –

20. COMMITMENTS

Operating Lease Commitments

Institute Training as lessee

At the end of each reporting period, Institute Training had commitments for future minimum leasepayments under non-cancellable operating leases falling due as follows:

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Within one year — — — 353In the second to fifth year inclusive — — — 1,385

— — — 1,738

Operating lease commitments relate to the sublease of Level 4 of the Swanston Street campus buildingowned by MEGT (Australia) Ltd. The premise is leased by Ability Education Pty Ltd and subleased to MEGTInstitute. The lease agreement commenced on 17 December 2018 and expires after a term of five years, withthe option of one further term of five years.

21. CAPITAL RISK MANAGEMENT

Institute Training manages its capital to ensure Institute Training will be able to continue as a going concernwhile maximising the return to owners through the optimisation of the debt and equity balance. Institute Training’soverall strategy remains unchanged during the year/period.

The capital structure of Institute Training consists of net debt, which includes net of cash and cash equivalentsand equity of Institute Training, comprising issued capital and accumulated losses.

Management of Institute Training reviews the capital structure regularly taking into account the cost of capitaland the risk associated with the capital. Institute Training will balance its overall capital structure through issuanceof new shares and the raising of borrowings.

22. FINANCIAL INSTRUMENTS

Categories of financial instruments

At 30 JuneAt

31 March2016 2017 2018 2019

AUD’000 AUD’000 AUD’000 AUD’000

Financial assetsAmortised cost — — — 798Loans and receivables (including cash

and cash equivalents) 507 335 1,613 —

Financial liabilitiesAmortised cost 191 332 430 333


– III-31 –

Financial risk management objectives and policies

Institute Training’s financial instruments include trade and other receivables, bank balances and cash,trade and other payables and accrued charges. Details of these financial instruments are disclosed inrespective notes. The risks associated with these financial instruments and the policies on how to mitigatethese risks are set out below. The management manages and monitors these exposures to ensure appropriatemeasures are implemented on a timely and effective manner.

Market risk

Interest rate risk

Institute Training’s cash flow interest rate risk primarily relates to the bank balances.

Institute Training has not used any interest rate swaps to mitigate its exposure associated with interestrate risk. However, the management of Institute Training monitors interest rate exposure and will considerhedging significant interest rate exposure should the need arise.

In the opinion of management of Institute Training, a reasonably possible change in interest rate onbank balances is not expected to have significant impact to Institute Training in the near future, hencesensitivity analysis is not presented.

Foreign currency risk

Institute Training’s transactions are mainly conducted in Australian dollars, and the monetary assets andliabilities of Institute Training which are denominated in currency other than the functional currency of therespective entities are insignificant. Hence, Institute Training does not have a foreign currency hedging policyas the exposure to foreign currency risk is minimal.

Credit risk

Overview of the Company’s exposure to credit risk before adoption of HKFRS 9 as at 1 July 2018

Institute Training’s maximum exposure to credit risk in the event of the counterparties’ failure toperform their obligations in relation to each class of recognised financial assets is the carrying amount ofthose assets as stated in the statement of financial position. In order to minimise the credit risk, InstituteTraining has policies in place for determination of credit limits, credit approvals and other monitoringprocedures to ensure that follow-up action is taken to recover overdue debts.

Before accepting any new customer, Institute Training carries out searches on the creditability of thenew customer and assesses the potential customer’s credit quality and defines credit limits by customer.Limits attributed to customers are reviewed once a year.

In addition, Institute Training reviews the recoverability of each individual debt on a regular basis toensure that adequate impairment losses are made for irrecoverable amounts. In this regard, Institute Trainingconsiders that the credit risk is significantly reduced.

The credit risk on cash and cash equivalents is limited because the counterparties are placed in financialinstitutions with good credit standing.

Overview of the Company’s exposure to credit risk after adoption of HKFRS 9 as at 1July 2018

The credit risk of Institute Training’s financial assets, which comprise bank balances, trade receivablesand other receivables, arises from default of the counterparty, with a maximum exposure equal to the carryingamounts of these instruments.


– III-32 –

Cash and cash equivalents

As the bank balances are deposited with creditworthy banks with no recent history of default. The ECLis close to zero.

Trade receivables

Institute Training’s trade receivables are due from a number of individual international students, creditquality of each student is assessed and outstanding receivables are regularly monitored. An impairmentanalysis is performed at each reporting date using a provision matrix to measure expected credit losses. Theprovision rates are based on financial situation and historical payment records for groupings of variousstudent segments with similar loss patterns. The calculation reflects the probability-weighted outcome, thetime value of money and reasonable and supportable information that is available at the reporting date aboutpast events, current conditions and forecasts of future economic conditions. Generally, trade receivables arewritten off after one year of the graduation of the specific students and are not subject to enforcementactivity. The maximum exposure to credit risk at the reporting date is the carrying value of each class offinancial assets disclosed in note 13 to these historical financial information. Institute Training does not holdcollateral as security.

Other receivables

Institute Training analysed the credit risk related to other receivables. Institute Training has assessedthat the ECL for other receivables are not material under the 12-month ECL method. Thus, no loss allowanceprovision was recognised during the Relevant Periods.

Liquidity risk

In the management of the liquidity risk, the sole director of Institute Training monitors and maintains alevel of cash and cash equivalents deemed adequate by management to finance Institute Training’s operationsand mitigate the effects of unexpected fluctuations in cash flows.


– III-33 –

The following tables detail Institute Training’s remaining contractual maturity for its financial liabilitiesbased on the agreed repayment terms. The tables have been drawn up based on the undiscounted cash flows offinancial liabilities based on the earliest date on which Institute Training can be required to pay. The tableincludes both interest and principal cash flows. To the extent that interest flows are floating rate, theundiscounted amount is derived from interest rate at the end of each reporting period.

Within1 year or

on demand 1 to 2 years 3 to 5 years

Totalundiscounted

cash flowsCarryingamount

AUD’000 AUD’000 AUD’000 AUD’000 AUD’000


charges 191 — — 191 191

191 — — 191 191


charges 332 — — 332 332

332 — — 332 332


charges 430 — — 430 430

430 — — 430 430

At 31 March 2019Trade and other payables and accrued

charges 333 — — 333 333

333 — — 333 333

23. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in this report, Institute Training also had the following related party transactionsduring the Relevant Periods:



Management fee paid toholding company 1,308 1,413 1,157 914 871


– III-34 –

Compensation of key management personnel

The remuneration of sole director and other members of key management of Institute Training duringthe Relevant Periods were as follows:



Short-term benefits 245 222 230 168 176Post-employment benefits 22 21 22 16 17

267 243 252 184 193

24. EVENTS AFTER THE REPORTING PERIOD

Save as disclosed elsewhere in this report, there are no other significant events undertaken by InstituteTraining after 31 March 2019.

25. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statement of Institute Training has been prepared in respect of any period subsequent to31 March 2019.


– III-35 –


The information set out in this Appendix does not form part of the Accountants’ Reportsissued by Baker Tilly Hong Kong Limited, the Company’s reporting accountants, as set out in‘‘Appendix II — Accountants’ report of Ability Education and Appendix III — Accountants’report of Institute Training’’ and is included herein for information only. The unaudited proforma financial information should be read in conjunction with ‘‘Financial information of theGroup’’ set out in Appendix I and ‘‘Management discussion and analysis of the TargetCompanies’’ set out in Appendix V.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGEDGROUP

(I) Basis of preparation of the Unaudited Pro Forma Consolidated FinancialInformation of the Enlarged Group

On 14 January 2019, the Group has entered into sale and purchase agreements (the‘‘Agreements’’) with MEGT (Australia) Ltd (the ‘‘Vendor’’), pursuant to which theGroup has agreed to acquire the entire equity interest of Ability Education and InstituteTraining (collectively as the ‘‘Target Companies’’) (the ‘‘Acquisitions’’).

This unaudited pro forma financial information is prepared to provide information onthe Enlarged Group as a result of the completion of the Acquisitions on the basis of notesset out below for illustrating the effect of the Acquisitions by the Company, as if theAcquisitions had taken place on 30 June 2019 for the preparation of the unaudited proforma consolidated statement of financial position and as if it is assumed that theAcquisitions had taken place on 1 January 2018 for the preparation of the unaudited proforma consolidated statement of profit or loss and other comprehensive income andunaudited pro forma consolidated statement of cash flows.

The unaudited pro forma financial information is prepared for illustrative purposesonly and because of its hypothetical nature, it may not give a true picture to representwhat the results and cash flows, or financial position of the Enlarged Group had theAcquisitions been completed as at the respective dates to which it is made up or at anyfuture dates.

APPENDIX IV UNAUDITED PRO FORMA FINANCIALINFORMATION OF THE ENLARGED GROUP

– IV-1 –

The unaudited pro forma consolidated statement of financial position as at 30 June2019 is prepared based on (i) the unaudited condensed consolidated statement of financialposition of the Group as at 30 June 2019 as extracted from the unaudited condensedconsolidated financial statements set out in the published unaudited interim report of theGroup for the six months ended 30 June 2019 and (ii) the audited statement of financialposition of the Target Companies as at 31 March 2019 as extracted from the Accountants’Reports of the Target Companies set out in Appendix II and III to this Circular, aftermaking pro forma adjustments to the Acquisitions, as if the Acquisitions had completedon 30 June 2019. For the avoidance of doubt, the unaudited pro forma consolidatedstatement of profit or loss and other comprehensive income and the unaudited pro formaconsolidated statement of cash flows of the Enlarged Group for the year ended 31December 2018 are prepared based on (i) the audited consolidated statement of profit orloss and other comprehensive income and consolidated statement of cash flows of theGroup for the year ended 31 December 2018 as extracted from the consolidated financialstatements set out in the published annual report of the Group for the year ended 31December 2018 and (ii) the audited statement of profit or loss and other comprehensiveincome and the audited statement of cash flows of the Target Companies for the yearended 30 June 2018 as extracted from the Accountants’ Reports of the Target Companiesset out in Appendix II and III to this Circular, after making pro forma adjustments to theAcquisitions, as if the Acquisitions had taken place on 1 January 2018.


– IV-2 –

(II) Unaudited Pro Forma Consolidated Statement of Financial Position of theEnlarged Group

Pro-forma adjustments

The Groupas at

30 June 2019

AbilityEducation

as at31 March 2019

InstituteTraining as at31 March 2019

Acquisitions ofthe Target

Companies bythe Group Reclassification

Recognition oftransaction

costs

Pro Formatotal of the

EnlargedGroup at

30 June 2019HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 2) (Note 3) (Note 4) (Note 5)

Non-current assetsProperty, plant and

equipment 6,214 1,989 5 8,208Goodwill 53,465 — — 41,651 95,116Intangible assets 13,528 88 — 13,616Interest in joint venture 2,545 — — 2,545Deposits for Acquisitions

of subsidiaries/businesses 24,691 — — (1,096) 23,595

Other receivables, depositsand prepayments 8,908 — — 8,908

Deferred tax assets 331 — — 331Right-of-use assets 66,267 — — 66,267

175,949 2,077 5 218,586

Current assetsInventories 2,204 — — 2,204Trade and other

receivables andprepayments 31,820 8,856 356 41,032

Deferred agents expense — 4,220 88 4,308Amounts due from related

parties 13,623 — — 13,623Amounts due from non-

controllingshareholders ofsubsidiaries 1,416 — — 1,416

Financial assets at fairvalue 32,369 — — 32,369

Tax recoverable 21 — — 21Bank balances and cash 186,184 6,785 4,373 (10,720) 186,622

267,637 19,861 4,817 281,595


– IV-3 –


The Groupas at

30 June 2019

AbilityEducation

as at31 March 2019





costs


EnlargedGroup at

30 June 2019HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 2) (Note 3) (Note 4) (Note 5)

Current liabilitiesTrade and other payables

and accrued charges 14,653 5,853 1,825 14,917 4,000 41,248Deferred income/contract

liabilities 42,304 28,656 1,880 72,840Amounts due to related

parties 1,785 14,917 — (14,917) 1,785Provisions 100 1,732 460 2,292Tax payable 37 — — 37Consideration payable 15,635 — — 15,635Bank and other

borrowings 2,186 — — 2,186Lease liabilities 29,987 — — 29,987

106,687 51,158 4,165 166,010

Net current assets/(liabilities) 160,950 (31,297) 652 115,585

Total assets less currentliabilities 336,899 (29,220) 657 334,171


– IV-4 –


The Group asat 30 June

2019

AbilityEducation as at31 March 2019





costs


EnlargedGroup at 30

June 2019HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 2) (Note 3) (Note 4) (Note 5)

Capital and reservesShare capital 35,410 6,111 — (6,111) 35,410Reserves (38,057) (35,649) (297) 35,946 (4,000) (42,057)

Deficit attributable to theowners of theCompany (2,647) (29,538) (297) (6,647)

Non-controlling interests (9,090) — — (9,090)

Total deficit (11,737) (29,538) (297) (15,737)

Non-current liabilitiesProvisions 2,199 318 954 3,471Obligation arising from

put options written tonon-controllingshareholders of asubsidiary 9,145 — — 9,145

Deferred tax liabilities 2,229 — — 2,229Corporate bonds 264,947 — — 264,947Consideration payable 31,565 — — 31,565Lease liabilities 38,344 — — 38,344Bank and other

borrowings 207 — — 207

348,636 318 954 349,908

336,899 (29,220) 657 334,171


– IV-5 –

(III) Unaudited Pro Forma Consolidated Statement of Profit or loss and OtherComprehensive Income of the Enlarged Group


The Groupfor the year

ended31 December

2018

AbilityEducation for

the yearended

30 June 2018

InstituteTraining for

the yearended

30 June 2018

Recognitionof transaction

costs

Unauditedpro forma

total for theEnlarged

GroupHK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 2) (Note 5)

Revenue 76,492 81,577 38,404 196,473Other income 12,687 3,040 218 15,945Other gains and losses (18,024) — — (18,024)Changes in inventories of

finished goods 230 — — 230Finished goods purchased (2,630) — — (2,630)Advertising and promotion

expenses (7,968) (18,337) (9,308) (35,613)Depreciation (4,114) (2,385) (1,717) (8,216)Amortisation (528) (1,383) (710) (2,621)Rental expenses (24,845) — (5,655) (30,500)Staff costs (37,953) (39,617) (14,448) (92,018)Other expenses (43,674) (24,357) (3,896) (4,000) (75,927)Gain on disposal of

subsidiaries 331 — — 331Impairment loss on goodwill (4,000) — — (4,000)Impairment loss recognised on

financial assets (453) — — (453)Finance costs (5,587) — — (5,587)Share of results of joint

ventures 482 — — 482

(Loss)/profit before tax (59,554) (1,462) 2,888 (62,128)Income tax expense (170) (2,033) — (2,203)

(Loss)/profit for the year (59,724) (3,495) 2,888 (64,331)


– IV-6 –


The Groupfor the year

ended31 December

2018


the yearended

30 June 2018


the yearended

30 June 2018

Recognitionof transaction

costs

Unauditedpro forma

total for theEnlarged

GroupHK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 2) (Note 5)

Other comprehensive income(expense)

Item that may besubsequently reclassified toprofit or loss:Exchange differences

arising on translation offoreign operations 1,101 145 (119) 1,127

Total comprehensive(expense)/income for theyear (58,623) (3,350) 2,769 (63,204)

(Loss)/profit attributable to:Owners of the Company (53,505) (3,495) 2,888 (4,000) (58,112)Non-controlling interests (6,219) — — (6,219)

(59,724) (3,495) 2,888 (64,331)

Total comprehensive(expense)/incomeattributable to:

Owners of the Company (52,404) (3,350) 2,769 (4,000) (56,985)Non-controlling interests (6,219) — — (6,219)

(58,623) (3,350) 2,769 (63,204)


– IV-7 –

(IV) Unaudited Pro Forma Consolidated Statement of Cash Flows of the EnlargedGroup

Pro forma adjustments

The Group forthe year ended

31 December2018


the year ended30 June 2018



Acquisition ofthe TargetCompanies Reclassification


costs

Unaudited proforma total for

the EnlargedGroup

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(Note 1) (Note 2) (Note 2) (Note 3) (Note 4) (Note 5)


(Loss)/profit before taxation (59,554) (1,462) 2,888 (4,000) (62,128)Adjustments for:

Depreciation of property,plant and equipment 4,114 2,385 1,499 7,998

Amortisation of intangibleassets 528 1,383 — 1,911

Loss on change in fairvalue of held fortrading investments 5,783 — — 5,783

Foreign exchange gain, net (421) — — (421)Impairment loss recognised

on financial assets 453 — — 453Reversal of trade

receivables — (4,381) — (4,381)Interest income (2,085) (146) (42) (2,273)Impairment loss on

goodwill 4,000 — — 4,000Share of results of joint

ventures (482) — — (482)Gain on disposal of

subsidiaries (331) — — (331)Loss on disposal of

property, plant andequipment 1,235 — 18 1,253

Loss on change in fairvalue of obligationarising from put optionswritten to non-controlling shareholdersof a subsidiary 515 — — 515

Loss on change in fairvalue of considerationpayable 11,200 — — 11,200

Finance costs 5,587 — — 5,587


– IV-8 –



31 December2018







costs


the EnlargedGroup


Operating cash flows beforemovements in workingcapital (29,458) (2,221) 4,363 (31,316)

Increase in inventories (348) — — (348)Decrease in trade and other

receivables, deposits andprepayments 6,256 3,240 528 10,024

Decrease in deferred agentsexpense — 461 — 461

Increase in amounts duefrom related parties (63) — — (63)

Increase in amount due toholding company — 6,080 — (6,080) —

Increase in held for tradinginvestments (1,947) — — (1,947)

(Decrease)/increase in tradeand other payables andaccrued charges (437) (5,565) 595 6,080 673

(Decrease)/increase indeferred income/contractliabilities (3,926) 1,390 (1,438) (3,974)

Increase/(decrease) inprovisions 327 (364) (413) (450)

Cash (used in)/fromoperations (29,596) 3,021 3,635 (26,940)

Income tax refunded 30 — — 30Income tax paid (211) — — (211)

NET CASH (USED IN)/FROM OPERATINGACTIVITIES (29,777) 3,021 3,635 (27,121)

INVESTING ACTIVITIESInterest received 2,085 146 42 2,273Purchase of property, plant

and equipment (3,870) — — (3,870)Deposits paid for

acquisition ofsubsidiaries/businesses (22,466) — — (22,466)

Net cash outflow fromacquisitions ofsubsidiaries (28,987) — — (1,511) (30,498)

Net cash outflow fromdisposal of a subsidiary (4) — — (4)

Advances to related parties/joint ventures (1,148) — — (1,148)

Repayment from non-controlling shareholdersof subsidiaries 4 — — 4


– IV-9 –



31 December2018







costs


the EnlargedGroup


NET CASH FLOWS(USED IN)/FROMINVESTINGACTIVITIES (54,386) 146 42 (55,709)

FINANCING ACTIVITIESRepayment to related

parties (494) — — (494)Proceed from other

borrowing 1,904 — — 1,904Repayment of bank

borrowing (86) — — (86)Capital contribution from

minority shareholder ofa subsidiary 3,000 — — 3,000

Acquisitions of additionalinterests in subsidiaries (658) — — (658)

Net investments by MEGT(Australia) Ltd. — — 4,108 4,108

Interest paid (262) — — (262)

NET CASH FROMFINANCINGACTIVITIES 3,404 — 4,108 7,512

NET (DECREASE)/INCREASE IN CASHAND CASHEQUIVALENTS (80,759) 3,167 7,785 (75,318)

CASH AND CASHEQUIVALENTS ATBEGINNING OF THEYEAR 133,822 8,659 1,996 144,477

EFFECT OF FOREIGNEXCHANGE RATECHANGES 1,276 — — 1,276

CASH AND CASHEQUIVALENTS ATEND OF THE YEAR 54,339 11,826 9,781 70,435


– IV-10 –

Notes:

1. For the statement of financial position, the amounts are extracted without adjustments from theunaudited condensed consolidated financial statements set out in the published interim report ofthe Group for the six months ended 30 June 2019. For the statement of profit or loss and othercomprehensive income and statement of cash flows, the amounts are extracted withoutadjustments from the audited consolidated financial statements set out in the published annualreport of the Group for the year ended 31 December 2018.

2. The amounts are derived without adjustments from the accountants’ report on the Targetcompanies as set out in Appendix II and III to this circular. The financial information of theTarget Companies is presented in Australia dollars (‘‘AUD’’), being the functional andpresentation currency of the Target Companies, which is different from the presentation currencyof the Group, i.e. Hong Kong dollars (‘‘HK$’’). The assets and liabilities of the TargetCompanies are translated into HK$ at the exchange rate of AUD1 to HK$5.4803 using the closingrate at 30 June 2019. For the statement of profit or loss and other comprehensive income andstatement of cash flows, they are translated into HK$ at AUD1 to HK$6.0679, being the averageexchange rate for the year ended 30 June 2018. No representation is made that any amount inAUD could be or could have been converted to HK$ at the relevant date or for the relevantperiods at that rate or at all.

3. Pursuant to the Agreements, the Group would acquire the entire equity interest of the TargetCompanies for an aggregate consideration of AUD2,156,000 (equivalent to approximatelyHK$11,816,000) (subject to adjustment), which is satisfied by the Group in the following manner:

(i) by cash as exclusivity deposit of AUD200,000 (equivalent to approximately HK$1,096,000)is paid prior to the agreement date.

(ii) the remaining balance in the amount of AUD1,956,000 (equivalent to approximatelyHK$10,720,000) shall be paid in cash upon completion of the Acquisitions.

The calculation of the identifiable net assets of the Target Companies are as follows:

At30 June 2019

Note: HK$’000

The purchase consideration 11,816

Less: Carrying amounts of identifiable assets and liabilities (i) (29,835)

Goodwill (ii) 41,651

Notes:

(i) For the illustrative purpose of this unaudited pro forma financial information of theEnlarged Group, the directors of the Company had assumed that the fair values of the assetsand liabilities of the Target Companies at 31 March 2019 to be their respective carryingvalues at 30 June 2019. In the opinion of the directors of the Company, the TargetCompanies’ fair values of the assets and liabilities being acquired are subject to changesupon completion of the Acquisitions because the fair values of the assets and liabilitiesbeing acquired shall be assessed on the date of the completion. The possible changes to fairvalues of the assets and liabilities of the Target Companies being acquired were notreflected in the unaudited pro forma financial information of the Enlarged Group, andaccordingly, the goodwill so calculated, if any, may be materially different from that in thecalculation above.


– IV-11 –

(ii) The Company has consistently applied its accounting policies and assumptions under theHong Kong Accounting Standard 36 ‘‘Impairment of Assets’’ for the purpose of assessingimpairment of goodwill, and the goodwill arising from the Acquisitions does not need anyimpairment after the Directors’ review.

The net cash outflow on acquisition of the Target Companies are as follows:

HK$’000

Cash consideration paid (based on the exchange rate of AUD to HK$6.1024) 13,157Less: Deposit paid (1,096)Less: Cash and cash equivalents balances of the Target Companies at 1 July

2017 (based on the exchange rate of AUD to HK$6.0078) (10,550)

1,511

The above adjustment is not expected to have continuing effect on the Enlarged Group but will bereflected in the consolidated statement of financial position and consolidated statement of cashflow of the Group in the year when the transaction actually takes place.

4. The pro forma adjustment represents the reclassification of amount due to holding company as at31 March 2019, which will be reclassified as other payables upon the completion of theAcquisitions as this holding company will not be classified as such from the Company’sperspective.

5. The adjustment represents estimated transaction costs of approximately HK$4,000,000 whichinclude mainly professional fees payable by the Group in connection with the Acquisitions. Theadjustment has no continuing effect to the Enlarged Group but will be reflected in theconsolidated statement of profit or loss and other comprehensive income and consolidatedstatement of cash flows of the Group in the year these expenses are actually incurred.

6. The values of the unaudited pro forma financial information are round to the nearest thousand(HK$’000) except otherwise indicated.

7. No adjustment has been made to the unaudited pro forma financial information to reflect anytrading results or other transactions of the Group and the Target Companies entered intosubsequent to 30 June 2019.


– IV-12 –

(B) INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THECOMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report in respect of the unaudited pro forma financialinformation of the Target Companies, prepared for the sole purpose of inclusion in thiscircular, received from the reporting accountant, Baker Tilly Hong Kong Limited.

Independent Reporting Accountants’ Assurance Report on the Compilation of UnauditedPro Forma Financial Information

To: The Directors of SDM Group Holdings Limited

We have completed our assurance engagement to report on the compilation of unauditedpro forma financial information of SDM Group Holding Limited (the ‘‘Company’’) and itssubsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors of theCompany (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financialinformation consists of the unaudited pro forma consolidated statement of financial position asat 30 June 2019, the unaudited pro forma consolidated statement of profit or loss and othercomprehensive income for the year ended 31 December 2018, the unaudited pro formaconsolidated statement of cash flows for the year ended 31 December 2018 and related notes asset out on pages IV-1 to IV-12 of the circular issued by the Company dated 3 September 2019(the ‘‘Circular’’). The applicable criteria on the basis of which the Directors have compiledthe unaudited pro forma financial information are described on pages IV-13 to IV-15 of theCircular.

The unaudited pro forma financial information has been compiled by the Directors toillustrate the impact of the proposed very substantial acquisitions of the entire equity interest inAbility Education Pty Ltd and MEGT Institute on the Group’s financial position as at 31March 2019 and its financial performance and cash flows for the year ended 31 December2018 as if the transaction had taken place at 30 June 2019 and 1 January 2018, respectively. Aspart of this process, information about the Group’s financial position has been extracted by theDirectors from the Group’s unaudited condensed consolidated financial statements for the sixmonths ended 30 June 2019, on which no audit or review report has been published, whileinformation about the Group’s financial performance and cash flows have been extracted by theDirectors from the Group’s financial statements for the year ended 31 December 2018, onwhich an auditor’s report has been published.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited pro forma financial informationin accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on theGrowth Enterprise Market of The Stock Exchange of Hong Kong Limited (the ‘‘GEM Listing


– IV-13 –

Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma FinancialInformation for Inclusion in Investment Circulars’’ (‘‘AG 7’’) issued by the Hong KongInstitute of Certified Public Accountants (the ‘‘HKICPA’’).

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the ‘‘Code ofEthics for Professional Accountants’’ issued by the HKICPA, which is founded on fundamentalprinciples of integrity, objectivity, professional competence and due care, confidentiality andprofessional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 ‘‘Quality Control for Firmsthat Perform Audits and Reviews of Financial Statements, and Other Assurance and RelatedServices Engagements’’ issued by the HKICPA and accordingly maintains a comprehensivesystem of quality control including documented policies and procedures regarding compliancewith ethical requirements, professional standards and applicable legal and regulatoryrequirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 7.31 (7) of the GEMListing Rules, on the unaudited pro forma financial information and to report our opinion toyou. We do not accept any responsibility for any reports previously given by us on anyfinancial information used in the compilation of the unaudited pro forma financial informationbeyond that owed to those to whom those reports were addressed by us at the dates of theirissue.

We conducted our engagement in accordance with Hong Kong Standard on AssuranceEngagements 3420 ‘‘Assurance Engagements to Report on the Compilation of Pro FormaFinancial Information Included in a Prospectus’’ issued by the HKICPA. This standard requiresthat the reporting accountant plan and perform procedures to obtain reasonable assurance aboutwhether the Directors have compiled the unaudited pro forma financial information inaccordance with paragraph 7.31 of the GEM Listing Rules and with reference to AG 7 issuedby the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing anyreports or opinions on any historical financial information used in compiling the unaudited proforma financial information, nor have we, in the course of this engagement, performed an auditor review of the financial information used in compiling the unaudited pro forma financialinformation.

The purpose of unaudited pro forma financial information included in an investmentcircular is solely to illustrate the impact of a significant event or transaction on unadjustedfinancial information of the Group as if the event had occurred or the transaction had beenundertaken at an earlier date selected for purposes of the illustration. Accordingly, we do notprovide any assurance that the actual outcome of the event or transaction at 30 June 2019 or 1January 2018 would have been as presented.


– IV-14 –

A reasonable assurance engagement to report on whether the unaudited pro formafinancial information has been properly compiled on the basis of the applicable criteriainvolves performing procedures to assess whether the applicable criteria used by the Directorsin the compilation of the unaudited pro forma financial information provide a reasonable basisfor presenting the significant effects directly attributable to the event or transaction, and toobtain sufficient appropriate evidence about whether:

. the related pro forma adjustments give appropriate effect to those criteria; and

. the unaudited pro forma financial information reflects the proper application of thoseadjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard tothe reporting accountant’s understanding of the nature of the Group, the event or transaction inrespect of which the unaudited pro forma financial information has been compiled, and otherrelevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited proforma financial information.


Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled on thebasis stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the unaudited pro forma financialinformation as disclosed pursuant to paragraph 7.31(1) of the GEM Listing Rules.

Baker Tilly Hong Kong LimitedCertified Public Accountants

Hong Kong, 3 September 2019

Choi Kwong YuPractising certificate number P05071


– IV-15 –

1. MANAGEMENT DISCUSSION AND ANALYSIS OF ABILITY EDUCATION

Set out below is the management discussion and analysis of the operation results andbusiness review of Ability Education for each of the three years ended 30 June 2016, 2017 and2018 and the nine months ended 31 March 2019.

Business review

Revenue

The revenue of Ability Education principally consisted of fees for the enrolment ofsuch courses from the students, who are primarily referred by independent internationalacademic consultants and agents. For the three years ended 30 June 2016, 2017 and 2018and the nine months ended 31 March 2019, the revenue of Ability Education wasapproximately AUD15.3 million, AUD14.1 million, AUD13.4 million and AUD10.6million, respectively.

The decrease in revenue for the years ended 30 June 2017 and 2018 was primarilyattributable to the decrease in student numbers as a result of (i) increased competitionfrom new entrants; (ii) the change of the Vendor’s business focus in business other thanAbility Education; (iii) the uncertainty on the potential disposal of Ability Education bythe Vendor hindered the academic consultants and agents to refer students to AbilityEducation; and (iv) the Melbourne campus was flooded in June 2018 which the classesare affected (the Melbourne campus has subsequently resumed operation in July 2018).Nevertheless, the revenue for the nine months ended 31 March 2019 increased byapproximately 2.6% to approximately AUD10.6 million as compared to the correspondingperiod in 2018 primarily attributable to the increase in student numbers of AbilityEducation referred from the academic consultants and agents.

Other income

The other income of Ability Education primarily consists of bank interest income,commission on airport pickup and accommodation for the students. For the three yearsended 30 June 2016, 2017 and 2018 and nine months ended 31 March 2019, the otherincome of Ability Education was approximately AUD85,000, AUD60,000, AUD105,000and AUD306,000, respectively.

The other income of Ability Education remained relatively stable for the three yearsended 30 June 2016, 2017 and 2018. The other income of Ability Education increased toapproximately AUD306,000 nine months ended 31 March 2019 due to the increase inreceipt from students who are yet to be identified. Such unidentified receipt will betransferred to revenue upon identification.

APPENDIX V MANAGEMENT DISCUSSION AND ANALYSISOF THE TARGET COMPANIES

– V-1 –

Advertising and promotion expenses

The advertising and promotion expenses of Ability Education primarily consist ofagent expenses for the academic consultants and agents for referring students to AbilityEducation and other marketing expenses. For the three years ended 30 June 2016, 2017and 2018 and nine months ended 31 March 2019, the advertising and promotion expensesof Ability Education was approximately AUD3.4 million, AUD3.8 million, AUD3.0million and AUD2.5 million.

The advertising and promotion expenses decreased for the year ended 30 June 2018and nine months ended 31 March 2019 as a result of (i) the change of the Vendor’sbusiness focus in business other than Ability Education; (ii) cost reduction afterrestructuring of the marketing and admission team; and (ii) reduction in overseastravelling for the marketing team to meet agents and trade fairs. The advertising andpromotion expenses remained stable for the nine months ended 31 March 2019 ascompared to the corresponding period in 2018.

Rental expenses

Rental expenses represented the rental expenses for the campuses of AbilityEducation in Melbourne and Sydney beginning from December 2018 as Ability Educationentered into the relevant lease agreements. Prior to December 2018, the rental expensesfor the campuses of Ability Education were borne by the Vendor and recharged by theVendor as other expenses in the income statement of Ability Education.

Staff costs

Staff costs of Ability Education represent salaries, bonus and allowances to theteachers and other operating staff of Ability Education. For the three years ended 30 June2016, 2017 and 2018 and nine months ended 31 March 2019, the staff costs of AbilityEducation was approximately AUD6.1 million, AUD6.4 million, AUD6.5 million andAUD5.6 million, respectively. The staff costs increased slightly throughout the relevantperiod as a result of pay rise for awarding and retaining eligible employees.

Other expenses

Other expenses of Ability Education principally represents marketing and rentalexpenses recharged to the holding company, general operating expenses and impairmentlosses or reversal of impairment losses on trade receivables. For the year ended 30 June2016, 2017 and 2018 and 31 December 2018, other expenses were approximately AUD4.8million, AUD6.0 million, AUD3.6 million and AUD2.8 million.

Other expenses increased for the year ended 30 June 2017 mainly due to (i) theincrease in impairment loss on trade receivables from approximately AUD99,000 for theyear ended 30 June 2017 to approximately AUD794,000 for the year ended 30 June 2018;


– V-2 –

and (ii) the increase in rental expenses recharged by its holding company fromapproximately AUD1.8 million for the year ended 30 June 2016 to approximatelyAUD2.7 million for the year ended 30 June 2018.

Nevertheless, other expenses decreased for the year ended 30 June 2018 mainly dueto (i) the reversal of impairment loss of trade receivables of approximately AUD0.4million for the year ended 30 June 2018; and (ii) the decrease in operating expensesrecharged to the holding company as the holding company conducted less marketing andadmin services for Ability Education for the year ended 30 June 2018.

The other expenses for the nine months ended 31 March 2019 increased slightly ascompared to the corresponding period as a result of (i) the increase in recharge inadministration and other expenses as a result of the preparation of the financialinformation for the Acquisition; and netting off (ii) the decrease in recharge in rentalexpenses from the Vendor as Ability Education began to bear such expenses sinceDecember 2018.

Profit/(loss) after tax

As a result of the factors above, the profit after tax was approximately AUD842,000for the year ended 30 June 2016, and the loss after tax was approximately AUD2,128,000,AUD241,000 and AUD504,000 for the years ended 30 June 2017 and 2018 and ninemonths ended 31 March 2019, respectively.

Liquidity, financial resources, capital structure and major balance sheet items


The trade receivables of Ability Education represent receivables from its students. Asat 30 June 2016, 2017 and 2018 and 31 March 2019, the trade receivables, net ofimpairment, were approximately AUD1.3 million, AUD1.2 million, AUD0.9 million andAUD0.8 million respectively. The respective net balances were generally in line with therevenue of Ability Education for the year ended 30 June 2016, 2017 and 2018 and ninemonths ended 31 March 2019.

The ageing of the trade receivables has improved over the year ended 30 June 2016,2017 and 2018 and nine months ended 31 March 2019, with trade receivables aged over90 days or more decreased from approximately 47.5% and 71.0% as at 30 June 2016 and2017 respectively, to approximately 5.9% as at 30 June 2018 and no trade receivableswere aged over 90 days as at 31 March 2019. There were no material write off of tradereceivables during the year ended 30 June 2016, 2017 and 2018 and nine months ended 31March 2019.

Other receivables and prepayments mainly represent goods and services taxreceivable and prepayments to the academic consultants and agents for the referral ofstudents to Ability Education.


– V-3 –

As at 30 June 2016, 2017 and 2018 and 31 March 2019, other receivables andprepayments were approximately AUD369,000, AUD453,000, AUD928,000 andAUD811,000 respectively. Other receivables and prepayments increased as at 30 June2018 and 31 March 2019 as a result of insurance receivable in relation to the floodingincident in the Melbourne campus in June 2018.

Deferred agents expenses

Deferred agents expenses represent referral expenses incurred when a customerreferred by an agent is enrolled in a course in advance of the tuition course beingprovided. As at 30 June 2016, 2017 and 2018 and 31 March 2019, the deferred agentexpenses were relatively stable at approximately AUD731,000, AUD867,000,AUD791,000 and AUD770,000 respectively.

Cash and bank balances

As at 30 June 2016, 2017 and 2018 and 31 March 2019, the cash and bank balancesof Ability Education were approximately AUD2.6 million, AUD1.4 million, AUD1.9million and AUD1.2 million, respectively. The decrease in cash and bank balances for theyear ended 30 June 2017 and nine months ended 31 March 2019 were primarilyattributable to the net cash used in operating activities for the settlement of inter-groupbalances with its holding company.

The cash and bank balances of Ability Education were denominated in AUD.


Trade payables mainly represented agents commission payable. As at 30 June 2016,2017 and 2018 and 31 March 2019, trade payables were approximately AUD82,000,AUD32,000, AUD21,000 and AUD2,000, respectively.

Other payables and accrued charges mainly represent accrued staff costs andmarketing expenses. As at 30 June 2016, 2017 and 2018 and 31 March 2019, accruedexpenses were approximately AUD1.8 million, AUD2.2 million, AUD 1.3 million andAUD1.1 million. Such balanced decreased principally attributable to (i) the decrease inadvertising and promotion expenses for the year ended 30 June 2018 and nine monthsended 31 March 2019; and (ii) Ability Education settled the accrued charges faster duringthe nine months ended 31 March 2019 as a result of the potential disposal by the Vendor.

Deferred income/contract liabilities

Deferred income represents the course fee received in advance pursuant to thecontracts with the students and contract liabilities represent advances received fromstudents in relation to the tuition course, which will be recognised as revenue upon theprovision of the courses. Ability Education receives tuition fees from students in advanceprior to the beginning of each academic year or semester.


– V-4 –

As at 30 June 2016, 2017 and 2018 and 31 March 2019, deferred income andcontract liabilities were approximately AUD3.5 million, AUD5.3 million, AUD5.6 millionand AUD5.2 million respectively. Balance increased as at 30 June 2017 as more studentsenrolled the tuition class of Ability Education. There were no material fluctuation ondeferred income and contract liabilities as at 30 June 2018 and 31 March 2019 as theenrolment numbers were relatively stable.

Borrowings

As at 30 June 2016, 2017 and 2018 and 31 March 2019, Ability Education did nothave any borrowings.

Capital commitment

As at 30 June 2016, 2017 and 2018 and 31 March 2019, Ability Education did nothave any capital commitment.

Significant investments held

Ability Education did not hold any significant investment for the three years ended30 June 2016, 2017 and 2018 and nine months ended 31 March 2019.

Material acquisitions and disposals

Ability Education did not have any material acquisitions or disposals of subsidiaries,associates or joint ventures for the three years ended 30 June 2016, 2017 and 2018 andnine months ended 31 March 2019.


The staff costs of Ability Education were approximately AUD6.1 million, AUD6.4million, AUD6.5 million and AUD5.6 million for the years ended 30 June 2016, 2017 and2018 and nine months ended 31 March 2019. Remuneration is determined with referenceto market terms and the performance, qualification and experience of individualemployee. In addition to basic salaries, year-end discretionary bonuses were offered tothose staff with outstanding performance to attract and retain eligible employees tocontribute to Ability Education.

Charge on assets

As at 30 June 2016, 2017, 2018 and 31 March 2019, Ability Education did notpledge any of its assets.

Exposure to fluctuations in exchange rates and related hedges

All of the revenue and expenses of Ability Education are denominated in AUD andmost of the assets and liabilities of Ability Education are denominated in AUD, which isthe functional currency of Ability Education. Ability Education also uses AUD as its


– V-5 –

reporting currency. The Directors believe that the operations of Ability Education are notcurrently subject to any significant direct foreign exchange risk and the Ability Educationdid not use any financial instruments to hedge its exposure to such risk. The managementof the Ability Education monitors foreign exchange exposure and will consider hedgingsignificant foreign currency exposure should the need arise.

Contingent liabilities

As at 30 June 2016, 2017, 2018 and 31 March 2019, Ability Education did not haveany material contingent liabilities.

2. MANAGEMENT DISCUSSION AND ANALYSIS OF INSTITUTE TRAINING

Set out below is the management discussion and analysis of the operation results andbusiness review of Institute Training for each of the three years ended 30 June 2016, 2017 and2018 and the nine months ended 31 March 2019.

Business review

Revenue

The revenue of Institute Training principally consisted of fees for the enrolment ofsuch courses from the students, who are primarily referred by independent internationalacademic consultants and agents. For the three years ended 30 June 2016, 2017 and 2018and the nine months ended 31 March 2019, the revenue of Institute Training wasapproximately AUD5.4 million, AUD6.9 million, AUD6.3 million and AUD3.1 million,respectively.

The decrease in revenue for the years ended 30 June 2017 and 2018 and for the ninemonths ended 31 March 2019 was primarily attributable to the decrease in studentnumbers as a result of (i) increased competition from new entrants; (ii) the change inbusiness focus of the Vendor with the disposal of Institute Training which leads toreduction in marketing activities; and (iii) the process of transfer of the business unitsfrom the Vendor to the legal entity of Institute Training in 2018 leads to uncertainty onthe potential disposal of Institute Training by the Vendor, which hindered the academicconsultants and agents to refer students to Institute Training.

Other income

The other income of Institute Training primarily consists of bank interest income,commission on airport pickup and accommodation for the students. For the three yearsended 30 June 2016, 2017 and 2018 and nine months ended 31 March 2019, the otherincome of Institute Training was approximately AUD58,000, AUD25,000, AUD36,000and AUD17,000, respectively.


– V-6 –

Advertising and promotion expenses

The advertising and promotion expenses of Institute Training primarily consist ofagent expenses for the academic consultants and agents for referring students to InstituteTraining and other marketing expenses. For the three years ended 30 June 2016, 2017 and2018 and nine months ended 31 March 2019, the advertising and promotion expenses ofInstitute Training was approximately AUD1.0 million, AUD1.5 million, AUD1.5 millionand AUD0.7 million.

The advertising and promotion expenses were stable during the years ended 30 June2017 and 2018, and then it decreased for the nine months ended 31 March 2019 as aresult of the change of the Vendor’s business focus in business other than InstituteTraining.

Rental expenses

Rental expenses of Institute Training represent the rental expenses of its campuses inMelbourne and Sydney. For the three years ended 30 June 2016, 2017 and 2018 and ninemonths ended 31 March 2019, the rental expenses of Institute Training was approximatelyAUD0.9 million, AUD1.0 million, AUD0.9 million and AUD0.8 million. The rentalexpenses were stable throughout the relevant periods.

Staff costs

Staff costs of Institute Training represent salaries, bonus and allowances to theteachers and other operating staff of Institute Training. For the three years ended 30 June2016, 2017 and 2018 and nine months ended 31 March 2019, the staff costs of InstituteTraining was approximately AUD2.3 million, AUD2.5 million, AUD2.4 million andAUD1.6 million, respectively. The staff costs increased slightly for the year ended 30June 2017 as a result of payment of bonuses for awarding and retaining eligibleemployees. Staff costs remained relatively stable for the year ended 30 June 2018 andnine months ended 31 March 2019.

Other expenses

Other expenses of Institute Training principally represent administrative expensesrecharged to the holding company, general operating expenses and teaching materialsexpenses. For the year ended 30 June 2016, 2017 and 2018 and nine months ended 31March 2019, other expenses were approximately AUD1.1 million, AUD1.0 million,AUD0.6 million and AUD0.5 million.

Other expenses gradually decreased from 2016 and 2018 as a result of lessadministrative expenses recharged to the holding company after the incorporation of thelegal entity of Institute Training in January 2017, where the staff of Institute Trainingbegan to be responsible on the administrative work of Institute Training.


– V-7 –

Profit/(loss) after tax

As a result of the factors above, the loss after tax was approximately AUD190,000for the year ended 30 June 2016, the profit after tax was approximately AUD475,000 andAUD476,000 for the years ended 30 June 2017 and 2018 respectively, and the loss aftertax for the nine months ended 31 March 2019 was approximately AUD675,000.

Liquidity, financial resources, capital structure and major balance sheet items


The trade receivables of Institute Training represent receivables from its students. Asat 30 June 2016, 2017, 2018 and 31 March 2019, there were no major trade receivablesoutstanding.

Other receivables and prepayments mainly represent goods and services taxreceivable and prepayments to the academic consultants and agents for the referral ofstudents to Institute Training. As at 30 June 2016, 2017 and 2018 and 31 March 2019,other receivables and prepayments were approximately AUD230,000, AUD218,000,AUD131,000 and AUD65,000 respectively, which were generally in line with the revenuefor the respective period.

Cash and bank balances

As at 30 June 2016, 2017 and 2018 and 31 March 2019, the cash and bank balancesof Institute Training were approximately AUD475,000, AUD329,000, AUD1,612,000 andAUD798,000, respectively. The decrease in cash and bank balances for the year ended 30June 2017 was mainly due to the repayment of investment to the Vendor. The increase incash and bank balances for the year ended 30 June 2018 was mainly due to the net cashgenerated from operating activities. The decrease in cash and bank balances for the ninemonths ended 31 March 2019 were primarily attributable to the repayment of investmentcost to the Vendor as the Vendor intended to maintain minimal cash in Institute Trainingfor the proposed disposal.

The cash and bank balances of Institute Training were denominated in AUD.


Trade payables mainly represented agents commission payable. As at 30 June 2016,2017 and 2018 and 31 March 2019, trade payables were approximately AUD7,000,AUD3,000 and AUD19,000 and AUD10,000, respectively.

Other payables and accrued charges mainly represent accrued staff costs andmarketing expenses. As at 30 June 2016, 2017 and 2018 and 31 March 2019, accruedexpenses were approximately AUD184,000, AUD329,000, AUD411,000 andAUD323,000.


– V-8 –

Deferred income/contract liabilities

Deferred income represents the course fee received in advance pursuant to thecontracts with the students and contract liabilities represent advances received fromstudents in relation to the tuition course, which will be recognised as revenue upon theprovision of the courses. Institute Training receives tuition fees from students in advanceprior to the beginning of each academic year or semester.

As at 30 June 2016, 2017 and 2018 and 31 March 2019, deferred income andcontract liabilities were approximately AUD533,000, AUD753,000, AUD516,000 andAUD343,000 respectively, which were generally in line with the revenue of InstituteTraining for the respective period.

Borrowings

As at 30 June 2016, 2017 and 2018 and 31 March 2019, Institute Training did nothave any borrowings.

Capital commitment

As at 30 June 2016, 2017 and 2018 and 31 March 2019, Institute Training did nothave any capital commitment.

Significant investments held

Institute Training did not hold any significant investment for the three years ended30 June 2016, 2017 and 2018 and nine months ended 31 March 2019.

Material acquisitions and disposals

Institute Training did not have any material acquisitions or disposals of subsidiaries,associates or joint ventures for the three years ended 30 June 2016, 2017 and 2018 andnine months ended 31 March 2019.


The staff costs of Institute Training were approximately AUD2.3 million, AUD2.5million, AUD2.4 million and AUD1.6 million for the years ended 30 June 2016, 2017 and2018 and nine months ended 31 March 2019. Remuneration is determined with referenceto market terms and the performance, qualification and experience of individualemployee. In addition to basic salaries, year-end discretionary bonuses were offered tothose staff with outstanding performance to attract and retain eligible employees tocontribute to Institute Training.

Charge on assets

As at 30 June 2016, 2017, 2018 and 31 March 2019, Institute Training did notpledge any of its assets.


– V-9 –

Exposure to fluctuations in exchange rates and related hedges

All of the revenue and expenses of Institute Training are denominated in AUD andmost of the assets and liabilities of Institute Training are denominated in AUD, which isthe functional currency of Institute Training. Institute Training also uses AUD as itsreporting currency. The Directors believe that the operations of Institute Training are notcurrently subject to any significant direct foreign exchange risk and the Institute Trainingdid not use any financial instruments to hedge its exposure to such risk. The managementof the Institute Training monitors foreign exchange exposure and will consider hedgingsignificant foreign currency exposure should the need arise.

Contingent liabilities

As at 30 June 2016, 2017, 2018 and 31 March 2019, Institute Training did not haveany material contingent liabilities.


– V-10 –

The following is the text of a report, prepared for the sole purpose of inclusion in thiscircular, from the independent valuer, Avista Valuation Advisory Limited.

The Board of DirectorsSDM Group Holdings LimitedRoom 202B, 2/F, Liven House,61–63 King Yip Street, Kwun Tong, Hong Kong

3 September 2019

Dear Sirs/Madams,

Re: Valuation of 100% Equity Interest of Ability Education Pty Ltd. and ChildrenServices Education Pty Ltd.

In accordance with your instructions, AVISTA Valuation Advisory Limited (‘‘AVISTA’’or ‘‘we’’) has conducted a business valuation in connection with the 100% equity interests ofAbility Education Pty Ltd. and Children Services Education Pty Ltd. (collectively the‘‘Targets’’) as of 31 December 2018 (the ‘‘Valuation Date’’). We understand that SDM GroupHoldings Limited (the ‘‘Company’’, ‘‘SDM’’ or ‘‘you’’) intends to acquire entire shareholdingsof the Targets (the ‘‘Proposed Acquisitions’’).

It is our understanding that this appraisal is strictly addressed to the directors of theCompany (the ‘‘Directors’’) and used for the Proposed Acquisitions solely for your internalreference purpose. This report (the ‘‘Report’’) does not constitute an opinion on thecommercial merits and structure of the Proposed Acquisitions. We are not responsible forunauthorized use of the Report.

We accept no responsibility for the realisation and completeness of any estimated data, orestimates furnished by or sourced from any third parties which we have used in connectionwith this Report. We assumed that financial and other information provided to us are accurateand complete.

This Report presents the summary of the business appraised, describes the basis ofanalysis and assumptions, explains the analysis methodology adopted in this appraisal processto calculate the value, also the additional supporting documentation has been retained as a partof our work papers.

BASIS OF ANALYSIS

We have appraised the fair values of 100% equity interests of the Targets.

Fair value is the price that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date.

APPENDIX VI VALUATION REPORT ON THE TARGET COMPANIES

– VI-1 –

COMPANY BACKGROUND

SDM was founded in 2006 and has been listed on the Growth Enterprise Market(‘‘GEM’’) board of the Hong Kong Stock Exchange (Stock Code: 8363) since 2014. TheCompany and its subsidiaries are principally engaged in business of jazz and ballet and popdance academy, as well as educational services in Hong Kong and the People’s Republic ofChina (‘‘China’’).

Ability Education Pty Ltd. (‘‘Ability’’) and Children Services Education Pty Ltd.(‘‘Institute’’) are both subsidiaries of MEGT (Australia) Ltd. (‘‘MEGT’’), an Australian not-for-profit organization established in 1982 that provides support to employers, apprentices,trainees, job seekers and students through recruitment & management services, education groupand serves as an apprenticeship network provider. Ability, together with its subsidiaries, isprincipally engaged in providing English language education in Sydney and Melbourne.Institute is principally engaged in providing courses in relation to childhood educationcertificates and diploma for individuals in Sydney and Melbourne.

We understand that the Company is contemplating to acquire 100% equity interests of theTargets. Based on the assessment of the Company, the Proposed Acquisitions are regarded as avery substantial acquisition under the Listing Rules, in which the Company is required todispatch a circular to its shareholders (the ‘‘Circular’’) as of the Valuation Date.

SCOPE OF WORK

In conducting this valuation exercise, we have

. Co-ordinated with the Company’s representatives to obtain the required informationand documents for our valuation;

. Gathered the relevant information of the Targets, including the legal documents,licenses, financial statements, etc. made available to us;

. Discussed with the Company to understand the history, business model, operations,customer base, business development plan, etc. of the Targets for valuation purpose;

. Carried out researches in the sector concerned and collected relevant market datafrom reliable sources for analysis;

. Investigated into the information of the Targets made available to us and consideredthe basis and assumptions of our conclusion of value;

. Designed an appropriate valuation model to analyze the market data and derived theestimated fair values of the Targets; and

. Compiled a report on the valuation, which outlines our findings, valuationmethodologies and assumptions, and conclusion of value.


– VI-2 –

When performing our valuation, all relevant information, documents, and other pertinentdata concerning the assets, liabilities and contingent liabilities should have been provided tous. We relied on such data, records and documents in arriving at our opinion of values and hadno reason to doubt the truth and accuracy of the information provided to us by the Company,the Targets and their authorized representatives.

ECONOMY OVERVIEW

Overview of the Economy of Australia

According to the World Factbook from Central Intelligence Agency (‘‘CIA’’), the largestand the major trunk of the economy of Australia is the services sector as it has accounted foran approximate of 70% of the its gross domestic product (‘‘GDP’’) and 75% of jobs.

Australia is also well-known to be an exporter of commodities as it has a lot of naturalresources. By entering the year of 2018, Australia has first faced a sharp fall in global prices inits key export commodities and then the sluggish demand of resources and energy from China.It has placed down barriers and constraints to the growth of Australia economy.

According to the World Bank, the GDP of Australia has risen from approximatelyUSD1.1 trillion in 2010 to USD1.3 trillion in 2017, experiencing a stable compound annualgrowth rate (‘‘CAGR’’) of approximately 2.06% throughout the period. Some has suggestedthat the downturn in 2013 is originated from the downturn of housing market and the reverseof mining boom.

Australia’s GDP (2010–2017)

1.0

1.2

1.4

1.6

1.8

2.0

-12%

-7%

-2%

3%

8%

13%

18%

23%

2010 2011 2012 2013 2014 2015 2016 2017

21.9%

10.7%

2.0%

-6.9%-7.9%

-10.5%

9.5%

1.1

1.4

1.5

1.6

1.5

1.3

1.2

1.3

GDP (USD Trillion) Growth (%)

Source: The World Bank


– VI-3 –

INDUSTRY OVERVIEW

Overview of Australian Education Market

The education market in Australia can be divided into five segments, namely highereducation, vocation education and training (‘‘VET’’), English language intensive courses foroverseas students (‘‘ELICOS’’), secondary schools and non-award programmes such asexchange and foundation programmes. According to the Department of Education and Training(‘‘DET’’) under the Australian government, international education is the third largest exportfor the country and support around 130,000 jobs nationally. The industry is experiencing aconstant growth each year from AUD 16.9 billion in 2012 to AUD 31.0 billion in 2017.

Moreover, the number of international students coming abroad to study in Australia hasrisen every year from 452,868 in 2014 up to 652,158 as of 2018 Q3, which is a key parameterin determining the forecast of the industry. Most of the students are from China, constituting30% of the total as of September 2018, followed by India at 13% and around 4% to 6% fromNepal, Malaysia and Brazil.

The number of international students in Australia (2014 to 2018Q3)

0

200,000

400,000

600,000

800,000

2014 2015 2016 2017 2018 1–3Q

452,868498,155

554,179624,000 652,158

Number of international students

Source: Department of Education and Training, Australian government

Australia’s export income from education services (2012 to 2017)

0

10

20

30

40

201420132012 2015 2016 2017

21.318.516.9

24.128

31

Export income from education services (AUD Billion)

Source: Department of Education and Training, Australian government


– VI-4 –

LIMITATIONS OF THE REPORT

The Report is addressed strictly to the Directors for their internal reference only.Accordingly, the Report may not be used nor relied upon in any other connection by, and arenot intended to confer any benefit on, any person (including without limitation the respectiveshareholders of the Company and the Targets).

The Report does not constitute an opinion on the commercial merits and structure of theProposed Acquisitions. The Report does not purport to contain all the information that may benecessary or desirable to fully evaluate the Proposed Acquisitions. We are not required to andhave not conducted a comprehensive review of the business, technical, operational, strategic orother commercial risks and merits of the Proposed Acquisitions and such remain the soleresponsibility of the Directors and the management of the Company.

We have assumed and relied upon, and have not independently verified the accuracy,completeness and adequacy of the information provided or otherwise made available to us orrelied upon by us in the Report, whether written or verbal, and no representation or warrant,expressed or implied, is made and no responsibility is accepted by us concerning the accuracy,completeness or adequacy of all such information.

VALUATION ASSUMPTIONS OF BUSINESS ENTERPRISE VALUE ANALYSIS

In arriving at our opinion of value, we have considered the following principal factors:

. the economic outlook for the regions operated by the Targets and specificcompetitive environments affecting the industry;

. the business risks of the Targets;

. the price multiples of the comparable companies engaging in business operationssimilar to the Targets;

. the experience of the management teams of the Targets and support from itsshareholders; and

. the legal and regulatory issues of the industry in general.

A number of general assumptions have to be made in arriving at our value conclusion.The key assumptions adopted in this valuation include:

. There will be no material change in the existing political, legal, technological, fiscalor economic conditions, which might adversely affect the businesses of the Targets;

. We have assumed that there are no hidden or unexpected conditions associated withthe assets valued that might adversely affect the reported values. Further, we assumeno responsibility for changes in market conditions after the Valuation Date; and


– VI-5 –

. The working capital adjustments on consideration will not significantly affect thenormal operation of the businesses, and thus the calculation of the enterprise valuesof the Targets.

VALUATION APPROACH

General Valuation Approaches

There are three generally accepted approaches to appraise the fair value of the equityvalue of the Targets, namely Income Approach, Cost Approach and Market Approach (asdefined below). All three of them have been considered regarding the valuation of the Targets:

Income Approach The income approach provides an indication of value based on theprinciple that an informed buyer would pay no more than the presentvalue of anticipated future economic benefits generated by the subjectasset.

The fundamental method for income approach is the discounted cashflow (‘‘DCF’’) method. Under the DCF method, the value depends on thepresent value of future economic benefits to be derived from ownershipof the enterprise. Thus, an indication of the equity value is calculated asthe present value of the future free cash flow of a company lessoutstanding interest-bearing debt, if any. The future cash flow isdiscounted at the market-derived rate of return appropriate for the risksand hazards of investing in a similar business.

Cost Approach The cost approach considers the cost to reproduce or replace in newcondition the assets appraised in accordance with current market pricesfor similar assets, with allowance for accrued depreciation arising fromcondition, utility, age, wear and tear, or obsolescence (physical,functional or economical) present, taking into consideration past andpresent maintenance policy and rebuilding history.

Market Approach The market approach provides an indication of value by comparing thesubject asset to similar assets that have been sold in the market, withappropriate adjustments for the differences between the subject asset andthe assets that are considered to be comparable to the subject asset.

Under the market approach, the comparable company method computes aprice multiple for publicly listed companies that are considered to becomparable to the subject asset and then applies the result to a base ofthe subject asset. The comparable transaction method computes a pricemultiple using recent sale and purchase transactions of assets that areconsidered to be comparable to the subject asset and then applies theresult to a base of the subject asset.


– VI-6 –

Selected Valuation Approach

Each of the abovementioned approaches is appropriate in one or more circumstances, andsometimes, two or more approaches may be used together. Whether to adopt a particularapproach will be determined by the most commonly adopted practice in valuing businessentities that are similar in nature. In this appraisal regarding the fair value of the equity valueof the Targets, we applied the Market Approach due to the following reasons:

. Cost Approach is not appropriate in the current appraisal as it fails to consider theeconomic benefits of ownership of the business. We considered the consolidated netbook value of the Targets as of the Valuation Date may not truly reflect the value ofits equity interests, as part of value will be attributed to future benefit of the Targets,deriving from education related business.

. Income Approach is also considered inappropriate as plenty of assumptions wereinvolved in formulating the financial projections of the Targets, and the assumptionsmight not be able to reflect the uncertainties in the future performance of theTargets. Given that improper assumptions will impose significant impact on the fairvalue, Income Approach is not adopted in this valuation.

. Fair value arrived from Market Approach reflects the market expectations over thecorresponding industry as the price multiples of the comparable companies werearrived from market consensus. Since there are sufficient public companies in similarnature and business to that of the Targets, their market values are good indicators ofthe industry. Therefore, Market Approach has been adopted in this valuation.

By adopting the Market Approach, we have to select the appropriate comparable publiccompanies. The selection of the comparable companies was based on the comparability of theoverall industry sector. Although no two companies are ever exactly alike, behind thedifferences there are certain business universals such as required capital investment and overallperceived risks and uncertainties that guided the market in reaching the expected returns forcompanies with certain similar attributes.

The principal businesses of the Targets are the provision of accredited courses on Englisheducation and early childhood education and care in Australia. We have conducted our reviewto cover public companies with majority of revenue generated from providing educationcourses in Australia. Nonetheless, only limited companies engaged in provision of educationcourses in Australia could be identified. Thus, we extended our search criteria to furtherinclude companies engaged in provision of vocational and tertiary education in Australia sincethey generate revenue in a similar way as the Target, namely the income from enrolment fees.

The comparable public companies are selected with reference to the following selectioncriteria:

. The primary industry of the companies is provision of education services educationservices ranging from tuition courses to vocational and tertiary education;

. The companies have operation in Australia;


– VI-7 –

. The companies are listed in major exchange markets; and

. The financial information of the companies is available to the public.

With the abovementioned selection criteria, seven listed companies are identified. Thecomparable companies selected represent an exhaustive list based on our best knowledge andinformation available.

Details of the selected comparable companies are listed as follows:

CompanyName

StockCode

ListingLocation Business Description

RevenueContributionfrom BusinessSegment(s)

NavitasLimited

ASX: NVT Australia Navitas Limited provideseducational services forstudents and professionals inAustralia, the UnitedKingdom, Europe, Asia,Canada, the United States,and internationally. Itoperates through universitypartnerships, and careers andindustry segments.

University Courses:(64.3%); HigherEducationPrograms: (34.1%);Others: (1.6%)

IDP EducationLimited

ASX: IEL Australia IDP Education Limitedengages in the placement ofstudents into educationinstitutions in Asia,Australasia, andinternationally. Its servicesinclude counselling,application processing, pre-departure guidance,examinations, Englishlanguage teaching, clientrelations, digital marketing,online student recruitment,and shared services.

Education Services:(100.0%)


– VI-8 –

CompanyName

StockCode



RedHillEducationLimited

ASX: RDH Australia RedHill Education Limitedengages in the variouseducation businesses inAustralia. It operates in threesegments: Technology &Design, Greenwich, and GoStudy. The Greenwichsegment offers Englishlanguage intensive courses,and vocational education andtraining courses forinternational students.

English LanguageCourses: (56.7%);InformationTechnology andDesign Courses:(33.3%); AdvisoryRecruitment:(10.6%);IntersegmentEliminations:(-0.6%)

Top EducationGroup Ltd

SEHK:1752

Hong Kong Top Education Group Ltdprovides private highereducation services inAustralia. The companyoffers accreditedundergraduate andpostgraduate courses inbusiness, accounting, andlaw. It operates TOP Schoolof Law and the Sydney CitySchool of Business.

Provision of PrivateHigher EducationServices: (100.0%)


– VI-9 –

CompanyName

StockCode



UCW Limited ASX: UCW Australia UCW Limited, through itssubsidiaries, provideseducation services inAustralia and internationally.It offers accredited vocationaleducation to the studentmarket in the areas of fitness,sport and recreationmanagement, massagetherapy, and dance teaching;and certificate and diplomalevel courses in the field ofcommunity services tostudents in the areas of earlychildhood education and care,individual support, disability,ageing support, mental health,counselling, and communityservices.


Kip McGrathEducationCentresLimited

ASX:KME Australia Kip McGrath EducationCentres Limited providessupplementary English andmaths education services inAustralasia, the UnitedKingdom, Europe, andinternationally. It sellsfranchises and offers servicesto franchisees in theeducation field. The companyalso offers tutorial assistancein reading, spelling,comprehension, English, andmaths for primary andsecondary students; andKipOnline, a real time face-to-face online tutoringservice.



– VI-10 –

CompanyName

StockCode



AcademicsAustralasiaGroupLimited

ASX: AKG Australia Academies Australasia GroupLimited provides training andeducation services inAustralia and Singapore. Thecompany primarily offersEnglish language, senior highschool, Singapore governmentschool preparatory certificate,diploma, advanced diploma,and bachelor and masterdegree courses.


Source: S&P Capital IQ and annual reports of the comparable companies

As more than 50% of revenue of the above comparable companies are generated from theprovision of education-related services, while the principal operating locations of thesecompanies are all Australia, these comparable companies, together with the Targets, areconsidered to be similarly subject to fluctuations in the economy and performance of theAustralian education services industries, among other factors. Thus, we consider they areconfronted with similar industry risks and rewards.

After selecting the abovementioned comparable companies, we have to determine theappropriate valuation multiples for the valuation of the Targets, in which we have consideredprice-to-earnings (‘‘P/E’’), price-to-book (‘‘P/B’’), enterprise value/earnings before interestsand taxes (‘‘EV/EBIT’’) and enterprise value/earnings before interests, taxes, depreciation andamortization (‘‘EV/EBITDA’’) multiples.

The P/B multiple is considered not appropriate for this valuation because book valuecaptures only the tangible assets of a company which, if a company creates any added marketvalue (as reflected by a P/B multiple of larger than one), should have its own intangiblecompetencies and advantages. These intangible company-specific competencies and advantagesare not captured in the P/B multiple and so in general, the equity’s book value has littlebearing with its fair value. Thus, the P/B multiple is not a good measurement of the fair valueof a company.

In addition, P/E multiple is not adopted as tax policies differ in different listing countriesand the effect of tax on earnings of comparable companies should be eliminated. EV/EBITmultiples have eliminated tax effect on earnings but they still comprise non-cash items inearnings, such as depreciation and amortisation of fixed assets, therefore is also not adopted.


– VI-11 –

EV/EBITDA multiple is the most appropriate indicator of the fair value of the comparablecompanies, as this multiple removes any tax effect on earnings as well as non-cash items inearnings, Hence, it is adopted in the valuation of the Targets. Enterprise Value (‘‘EV’’) isgenerally derived based on the market capitalization of a company, plus net debt (total debtminus cash and short-term investment), minority interest and preferred shares.

The EV/EBITDA multiples of comparable companies are as follows:

No. Stock Code

ReportingCurrency(in mm)

Market Capas of

1 December2018

NetDebt

MinorityInterests EV EBITDA

LTM EV/EBITDABefore

LOMD andControl

Premium (1)

LTM EV/EBITDA

AfterLOMD and

ControlPremium

1 ASX:NVT AUD 1,812.8 201.9 0.9 2,015.5 83.2 24.2 22.72 ASX:IEL AUD 2,499.5 15.1 0.0 2,514.7 85.0 29.6 27.73 ASX:RDH AUD 81.2 (10.1) 0.0 71.1 7.5 9.5 9.04 SEHK:1752 AUD 155.7 (47.4) 0.0 108.4 7.4 14.6 13.75 ASX:UCW AUD 19.8 (5.4) 0.0 14.5 (0.2) N/A N/A6 ASX:KME AUD 33.3 (5.3) 0.0 28.0 3.0 9.3 8.77 ASX:AKG AUD 58.7 (11.7) 0.4 47.4 6.8 7.0 6.5

Maximum 27.7Minimum 6.5Median (4) 11.3

Lack of Marketability Discount (‘‘LOMD’’) (2) 20.7%Control Premium (3) 18.3%


– VI-12 –

Notes:

(1) Data sourced from S&P Capital IQ database. The equity values of the comparable companies arecomputed based on the market capitalization of the companies as of 31 December 2018. EV/EBITDAdata are based on the trailing 12-month (‘‘LTM’’) financial data of the comparable companies availableas of the Valuation Date.

(2) LOMD reflects the fact that there is no ready market for shares in a closely held company. Ownershipinterests in closely held companies are typically not readily marketable compared to similar interests inpublicly listed companies. Therefore, a share of stock in a privately held company is usually worth lessthan an otherwise comparable share in a publicly listed company.

As the shares of the Targets are unlikely to be listed in any major stock exchange or be marketable inany over-the-counter market in near future, the ownership interest in the Targets are not readilymarketable. However, the EV/EBITDA multiple adopted in the valuation was calculated from publiclisted companies, which represents marketable ownership interest; fair value calculated using such EV/EBITDA multiple, therefore, represents the marketable interest. Thus, LOMD was adopted to adjustsuch marketable interest fair value to non-marketable interest fair value.

While there is no available empirical study on marketability discount for companies specificallyengaged in Australian education related businesses, in this valuation exercise, the LOMD has beenmade reference to ‘‘Determining Discounts for Lack of Marketability: A Companion Guide to The FMVRestricted Stock Study (2018 Edition)’’ published by FMV Opinions, Inc. The overall average discountfor lack of marketability as observed in The FMV Study based on data from July 1980 through March2018 is 20.7%.

The value of non-marketable interest can be calculated from marketable interest using the followingformula:

Fair Value of Non-Marketable Interest = Fair Value of Marketable Interest x (1-LOMD)

(3) Control premium is the amount that a buyer is willing to pay over the minority equity value of thecompany in order to acquire a controlling interest in that company. The EV/EBITDA multiple adoptedin the valuation was calculated from public listed companies, which represents minority ownershipinterest; market value calculated using such EV/EBITDA multiple, therefore, represents the minorityinterest. Thus, control premium was adopted to adjust such minority interest market value to controllinginterest market value.

Adjustment for control is made by the application of a control premium to the value of the Targets’shares. The report ‘‘Control Premium Study: 4th Quarter 2018’’ by FactSet Mergerstat, LLC, areputable research company, suggested a median control premium is 18.3%. A control premium of18.3% is considered appropriate and suitable for this valuation as we understand that the Companyintends to acquire a controlling stake in the Targets.

The value of controlling interest can be calculated from minority interest using the following formula:

Fair Value of Controlling Interest = Fair Value of Minority Interest x (1 + Control Premium)

Combining the adjustments on LOMD and control premium,

Adjusted EV/EBITDA multiple = EV/EBITDA multiple x (1-LOMD) x (1 + Control Premium)

(4) Median and average share the same role in understanding the central tendency of a sets of numbers.Median, which would not be affected by extreme values, is regarded a better mid-point measure forskewed number distributions. Hence, median is adopted to derive the result, which we consider to be amore reasonable approach to prevent the outliners from distorting the result. We then multiply theconcluded multiple with the Targets’ EBITDA of approximately AUD263,000 for Ability andAUD170,000 for Institute to arrive at an equity value on a non-marketable basis.


– VI-13 –

Valuation Result

AUDAbility Institute

EBITDA of the Targets* 263,000 170,000Adjusted Median EV/EBITDA Multiple 11.3x 11.3xEstimated 100% EV of the Targets 2,976,000 1,924,000Add: Adjustment of Net Debt and Minority Interests# — —

Estimated 100% Equity Value of the Targets^ 2,976,000 1,924,000

* The EBITDA data are based on the consolidated audited financial statements of the Targets for the year ended31 December 2018.

# According to the Sale and Purchase Agreements, the Potential Acquisitions will be carried out on a debt-free,cash-free basis.

^ The amount does not equal to the multiple of EBITDA of the Targets and the minimum multiples illustratedabove due to rounding.

CONCLUSION OF VALUE

Based on our investigation and analysis method employed, it is our opinion that the fairvalues of the 100% equity interests of the Targets as of the Valuation Date are AUD2,976,000for Ability and AUD1,924,000 for Institute respectively.

The conclusion of the fair value was based on generally accepted valuation proceduresand practices that rely extensively on the use of numerous assumptions and the considerationof many uncertainties, not all of which can be easily quantified or ascertained.

We hereby certify that we have neither present nor prospective interests in SDM GroupHoldings Limited nor the value reported.

Yours faithfully,For and on behalf of

AVISTA Valuation Advisory Limited

Vincent C B PangCFA, FCPA (HK), FCPA (Aus.), MRICS

Managing Director


– VI-14 –

Analysed and Reported by:Ivan K K LuiCFA, FCPA (HK), LL.M.Director

Peter H C ChanFRMAssistant Manager

Oscar C L YiuAnalyst

Note: Mr. Vincent Pang is a CFA charterholder, a fellow member of Hong Kong Institute of Certified PublicAccountants and CPA Australia and a member of Royal Institution of Chartered Surveyors. Vincent has over15-year experience in financial valuation and business consulting in Hong Kong and China.


– VI-15 –

APPENDIX — GENERAL LIMITATIONS AND CONDITIONS

This Report was prepared based on the following general assumptions and limitingconditions:

. All data, including historical financial data, which we relied upon in reachingopinions and conclusions or set forth in the Report are true and accurate to our bestknowledge. Whilst reasonable care has been taken to ensure that the informationcontained in the Report is accurate, we cannot guarantee its accuracy and we assumeno liability for the truth or accuracy of any data, opinions, or estimates furnished byor sourced from any third parties which we have used in connection with the Report.

. We also assume no responsibilities in the accuracy of any legal matters. Inparticular, we have not carried out any investigation on the title of or anyencumbrances or any interest claimed or claimable against the property appraised.Unless otherwise stated in the Report, we have assumed that the owner’s interest isvalid, the titles are good and marketable, and there are no encumbrances that cannotbe identified through normal processes.

. We have not verified particulars of property, including their areas, sizes, dimensions,and descriptions, which we have used or have referred to in connection with thepreparation of this Report, unless otherwise stated in this Report. Any informationregarding areas, sizes, dimensions, and descriptions of property mentioned in thisReport are for identification purposes only, and no one should use such informationin any conveyance or other legal document. Any plans or graphical illustrationspresented in this Report are intended only for facilitating the visualization of theproperty and its surroundings and such plans or graphical illustrations should not beregarded as a survey or a scale for size.

. The value opinion presented in this Report is based on the prevailing or thenprevailing economic conditions and on the purchasing power of the currency statedin the Report as of the date of analysis. The date of value on which the conclusionsand opinions expressed apply is stated in this Report.

. This Report has been prepared solely for the use or uses stated. Except for extractionof or reference to the Report by the Company, its financial advisor and/or itsindependent financial advisor for their respective work in relation to the ProposedAcquisitions, it is not intended for any other use or purpose or use by any thirdparties. We hereby disclaim that we are not liable for any damages and/or loss arisenin connection with any such unintended use.

. Prior written consent must be obtained from AVISTA Valuation Advisory Limitedfor publication of this Report. Except for disclosure in the Circular in relation to theProposed Acquisitions, no part of this Report (including without limitation anyconclusion, the identity of any individuals signing or associated with this Report orthe firms/companies with which they are connected, or any reference to theprofessional associations or organisations with which they are affiliated or the


– VI-16 –

designations awarded by those organisations) shall be disclosed, disseminated ordivulged to third parties by any means of publications such as prospectus,advertising materials, public relations, news.

. No environmental impact study has been carried out, unless otherwise stated in thisReport. We assume all applicable laws and governmental regulations are beingcomplied with unless otherwise stated in this Report. We have also assumedresponsible ownership and that all necessary licenses, consents, or other approvalfrom the relevant authority or private organisations have been or to be obtained orrenewed for any use that is relevant to value analysis in this Report.

. Unless otherwise stated in this Report, the value estimate set out in this Reportexcludes the impact of presence of any harmful substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentiallyhazardous materials or of structural damage or environmental contamination. Forpurposes of evaluating potential structural and/or environmental defects, where theirexistence could have a material impact on value of the property, we wouldrecommend that advices from the relevant experts, such as a qualified structuralengineer and/or industrial hygienist, should be sought.


– VI-17 –

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept fullresponsibility, includes particulars given in compliance with the GEM Listing Rules for thepurpose of giving information with regard to the Company. The Directors, having made allreasonable enquiries, confirm that to the best of their knowledge and belief the informationcontained in this Circular is accurate and complete in all material respect and not misleading ordeceptive, and there are no other matters the omission of which would make any statementherein or this circular misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the authorised and issued share capital of the Companywere as follows:

Authorised: HK$

8,000,000,000 Shares of HK$0.1 each 800,000,000

Issued and fully paid or credited as fully paid:

354,100,000 Shares 35,410,000

There are no outstanding convertible securities, options or warrants in issue which conferany right to subscribe for, convertible or exchangeable into Shares as at the Latest PracticableDate.

SDM Asia Limited, a wholly-owned subsidiary of the Company, issued a convertible notewith the principal amount of US$25,000,000 (the ‘‘Convertible Note’’) to an independent thirdparty on 13 February 2019. Unless previously converted or redeemed in accordance with theterms and conditions of the Convertible Note, the Convertible Note will mature on 31 March2023. The Convertible Note shall be converted into preference shares of SDM Asia Limitedsubject to the terms and conditions of the Convertible Note. Please refer to the announcementsof the Company dated 27 December 2018 and 13 February 2019 for details of the ConvertibleNote.

Save for the Convertible Note, none of the members of the Group has granted anyoptions, warrants or other rights to call for the issue or agreed to issue any share or loancapital or any instrument convertible into or exchangeable for shares of such capital, and noneof the members of the Group is a party to or otherwise bound by any agreement for thepurchase or repurchase of shares of any member of the Group.

APPENDIX VII GENERAL INFORMATION

– VII-1 –

3. DISCLOSURE OF INTERESTS

(a) Directors and chief executive of the Company

As at the Latest Practicable Date, the interests or short positions of the Directors andchief executives of the Company in the Shares, underlying Shares and debentures of theCompany and its associated corporations (within the meaning of Part XV of the Securitiesand Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the ‘‘SFO’’)), which arerequired (a) to be notified to the Company and the Stock Exchange pursuant to Divisions7 and 8 of Part XV of the SFO (including interests or short positions which they are takenor deemed to have under such provisions of the SFO); or (b) pursuant to Section 352 ofthe SFO, to be entered in the register referred to therein; or (c) to be notified to theCompany and the Stock Exchange pursuant to the required standards of dealing bydirectors as referred to in Rule 5.46 of the GEM Listing Rules were as follows:

Long position in the Shares

Name of Director andchief executive

Nature of interest/holding capacity

Number ofordinary

Shares held

Approximatepercentage of

interests in theCompany’s

issued sharecapital

Mr. Chiu Ka Lok(‘‘Mr. Chiu’’)

Interest of a controlledcorporation

198,750,000(Note 1)

56.13%(Note 3)

Dr. Chun Chun(‘‘Dr. Chun’’)

Family interest 198,750,000(Note 2)

56.13%(Note 3)

Notes:

(1) Wealthy Together Limited (‘‘Wealthy Together’’) is wholly and beneficially owned by Mr. Chiu,an executive Director and the Chairman of the Company. Mr. Chiu is deemed to be interested in198,750,000 Shares held by Wealthy Together by virtue of his 100% shareholding interest inWealthy Together.

(2) Dr. Chun, a non-executive Director, is the spouse of Mr. Chiu and is therefore deemed to beinterested in all the Shares held/owned by Mr. Chiu (by himself or through Wealthy Together) byvirtue of the SFO.

(3) As at the Latest Practicable Date, the total issued share capital of the Company wasHK$354,100,000 divided into 354,100,000 Shares of HK$0.1 each.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors norchief executives of the Company had or was deemed to have any other interests or shortpositions in the Shares, underlying Shares or debentures of the Company or its associatedcorporations (within the meaning of Part XV of the SFO) which are required (a) to benotified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of PartXV of the SFO (including interests or short positions which they are taken or deemed to


– VII-2 –

have under such provisions of the SFO); or (b) pursuant to Section 352 of the SFO, to beentered in the register referred to therein; or (c) to be notified to the Company and theStock Exchange pursuant to the required standards of dealing by directors as referred to inRule 5.46 of the GEM Listing Rules.

(b) Interests of substantial Shareholders of the Company

So far as is known to the Directors, as at the Latest Practicable Date, the followingentities (not being Directors or chief executive of the Company) had, or were deemed tohave interests or short positions (directly or indirectly) in the Shares or underlying Sharesof the Company which would fall to be disclosed to the Company and the Stock Exchangeunder the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recordedin the register required to be kept by the Company pursuant to Section 336 of the SFOwere as follows:

Long positions in the Shares or underlying Shares of the Company

Name of ShareholderNature of interest/holding capacity

Number ofordinary

Shares held

Approximatepercentage of

interests in theCompany’s

issued sharecapital (Note 1)

Wealthy Together Beneficial owner 198,750,000(Note 1)

56.13%

Hui Pui Cheung Beneficial owner 60,246,000 17.01%

Chen Jiaxin Interest of a controlledcorporation

28,000,000 7.91%

Tycoon Mind Limited Beneficial owner 28,000,000 7.91%

Notes:

(1) As at the Latest Practicable Date, the total issued share capital of the Company wasHK$354,100,000 divided into 354,100,000 Shares of HK$0.1 each.

(2) Wealthy Together is beneficially and wholly-owned by Mr. Chiu, an executive Director and theChairman of the Company. By virtue of the SFO, Mr. Chiu is deemed to be interested in theShares held by Wealthy Together.

Save as disclosed above, as at the Latest Practicable Date, the Directors were notaware of any other persons (other than the Directors and the chief executive of theCompany) who had, or was deemed to have, interests or short positions in the Shares orunderlying Shares of the Company which fall to be disclosed to the Company and the


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Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, orwhich were recorded in the register required to be kept by the Company pursuant tosection 336 of the SFO.

4. DIRECTORS’ INTEREST IN ASSETS/CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date:

(i) none of the Directors had any interest, direct or indirect, in any assets which havebeen, since 31 December 2018 (being the date to which the latest published auditedconsolidated financial statements of the Group were made up), acquired or disposedof by or leased to any member of the Group, or are proposed to be acquired ordisposed of by or leased to any member of the Group; and

(ii) none of the Directors was materially interested in any contract or arrangemententered into with any member of the Group subsisting as at the Latest PracticableDate which was significant in relation to the business of the Group.

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, each of the executive and non-executive Directors hasentered into a service agreement with the Company for an initial term of three yearscommencing from the month of the Listing and will continue thereafter until terminated inaccordance with the terms of the agreement. Independent non-executive Directors areappointed for a term of three year initially and will continue thereafter unless terminated byeither party giving at least three months’ notice in writing.

Save as disclosed above, none of the Directors has entered into any service contracts withthe Company or any of its subsidiaries which is not determinable by the Group within one yearwithout payment compensation other than the statutory compensation.

6. COMPETING INTERESTS

As at the Latest Practicable Date, the Directors are not aware of any business or interestof the Directors or the controlling shareholder of the Company or any of their respectiveassociates that compete or may compete with the business of the Group and any other conflictsof interests which any such person has or may have with the Group.

7. LITIGATION

During 2017, a subsidiary of the Group was sued for failure to deliver vacant possessionof a premise, where the Company used to lease it for its dancing school, to the landlord whichclaimed against the Company for damages.

As at 31 December 2017, the Company has a rental deposit of approximately HK$400,000with the landlord. Based on legal opinion, the directors of the Company consider that the rentaldeposit is sufficient to cover the aforesaid damages but may not be fully recovered and,therefore, a provision of HK$400,000 was made.


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As at the Latest Practicable Date, save as disclosed above, no member of the Group wasengaged in any litigation or arbitration of material important and no litigation, arbitration orclaim of material importance was known to the Directors to be pending or threatened againstany member of the Group.

8. MATERIAL CONTRACTS

Save as disclosed below, no other contract (not being contracts in the ordinary course ofbusiness) had been entered into by any member of the Group within two years immediatelypreceding the date of this circular and up to the Latest Practicable Date which are or may bematerial:

(a) the investment agreements dated 1 September 2017 entered into between PrismInternational Pre-school Limited (‘‘Prism’’), a then indirect wholly-owned subsidiaryof the Company, and three individual investors (the ‘‘Prism First Investors’’), assupplemented by the supplemental agreements dated 25 September 2017 and 28September 2017, in respect of the allotment and issue to the Prism First Investors ofnew shares representing 35% of the then enlarged entire issued share capital of Prismat a total investment amount of HK$10,500,000 (details of which are disclosed in theannouncement of the Company dated 1 September 2017 and 9 October 2017);

(b) the sale and purchase agreement dated 18 September 2017 entered into between theCompany, Mr. Chiu and Dr. Chun, as supplemented by supplemental agreementsdated 30 March 2018 and 19 June 2018, in relation to the acquisition of the entireissued share capital of a target group consisting of Hong Kong Speech & SwallowingTherapy Co. Limited and Stage Photography Company Limited at a consideration ofHK$32,000,000 (details of which are disclosed in the announcement of the Companydated 18 September 2017, 3 April 2018 and 19 June 2018);

(c) the placing agreement dated 11 December 2017 entered into between the Companyand Pacific Foundation in relation to the placing of senior unlisted bonds in anaggregate principal amount of up to HK$80,000,000 in two tranches to be createdand issued by the Company (details of which are disclosed in the announcement ofthe Company dated 11 December 2017);

(d) the sale and purchase agreement dated 29 June 2018 entered into between SDMInternational Investments Pte Ltd, an indirectly wholly-owned subsidiary of theCompany, and Ms. Ho Mu Kwei and Mr. Tan Yew Poh in relation to the acquisitionof the entire issued share capital of Columbia Academy Pte Ltd and Columbia JuniorAcademy Pte Ltd at a consideration of approximately S$2,288,000 (details of whichare disclosed in the announcement of the Company dated 29 June 2018);

(e) the investment agreements dated 31 July 2018 entered into between PrismInternational Pre-School Limited (‘‘Prism’’) and Kung Rene Irene and RedOakPartners Inc. (the ‘‘Prism Second Investors’’) in relation to the allotment and issueby Prism to the Prism Second Investors of new shares representing 15% of the then


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enlarged share capital of Prism at a total investment amount of HK$4,500,000(details of which are disclosed in the announcements of the Company dated 1 August2018 and 8 August 2018);

(f) the sale and purchase agreement dated 3 October 2018 entered into between SDMTalent Pte Ltd, an indirectly wholly-owned subsidiary of the Company, and Ms.Gloria Tay Chui Lin and Ms. Eileen Ng Mui Yiah in relation to the acquisition ofthe entire issued share capital of Tinkerland Private Limited at a consideration ofS$2,100,000 (details of which are disclosed in the announcement of the Companydated 3 October 2018);

(g) the sale and purchase agreements dated 1 November 2018 entered into betweenKidzcare Schoolhouse Pte Ltd, an indirectly wholly-owned subsidiary of theCompany, and Happy Family Child Care Centre Pte Ltd and Happy FamilyPreschool Pte Ltd (both as vendors) and Madam Low Teng Lian as guarantor of theformer agreement and Madam Low Teng Lian and Mr. Gwee Yew Seng asguarantors of the latter agreement in relation to the acquisition of the assetsassociated with the operation and management of the businesses carried on by thevendor at an aggregate consideration of approximately S$1,250,000 (details of whichare disclosed in the announcement of the Company dated 1 November 2018);

(h) the sale and purchase agreement dated 12 November 2018 entered into between SDMSingapore Education Limited, an indirectly-wholly owned subsidiary of theCompany, Ms. Charmaine Teo Shuet Lynn and Mr. Koh Hui Hua in relation to theacquisition of the entire issued share capital of The Lighthouse Keepers Pte. Ltd.,Between Two Trees Pte. Ltd. and Between Two Trees Preschool at a considerationof approximately S$1,350,000 (details of which are disclosed in the announcement ofthe Company dated 12 November 2018);

(i) the subscription agreement dated 24 December 2018 entered into between theCompany, SDM Asia Limited, a wholly-owned subsidiary of the Company, andBarium Real Limited in relation to the subscription of the convertible note in theprincipal amount of US$25,000,000 issued by SDM Asia Limited as amended by anamendment deed dated 12 February 2019 (details of which are disclosed in theannouncements of the Company dated 27 December 2018 and 12 February 2019);and

(j) the Sale and Purchase Agreements and the Deeds of Variation.


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9. EXPERTS AND CONSENTS

The following are the names and qualification of the experts who have given its opinionsor advice which is included in this Circular:

Name Qualification

Avista Valuation Advisory Limited Independent valuer

Baker Tilly Hong Kong Limited Certified Public Accountants

Hitch Advisory Pty Limited Legal advisor as to Australia law

As at the Latest Practicable Date, each of Avista Valuation Advisory Limited, Baker TillyHong Kong Limited and Hitch Advisory Pty Limited has given and has not withdrawn itsconsent to the issue of this Circular with the inclusion of its letter, and reference to its name inthe form and context in which they appear.

As at the Latest Practicable Date, each of Avista Valuation Advisory Limited, Baker TillyHong Kong Limited and Hitch Advisory Pty Limited did not have any shareholding in anymember of the Group or the right (whether legally enforceable or not) to subscribe for or tonominate persons to subscribe for securities in any member of the Group.

Each of Avista Valuation Advisory Limited, Baker Tilly Hong Kong Limited and HitchAdvisory Pty Limited did not have any direct or indirect interests in any assets which havesince 31 December 2018 (being the date to which the latest published audited consolidatedfinancial statements of the Group were made up) been acquired or disposed of by or leased toany member of the Group, or are proposed to be acquired or disposed of by or leased to anymember of the Group.

10. GENERAL

(a) The registered office of the Company is at Clifton House, 75 Fort Street, PO Box1350, Grand Cayman, KY1-1108, Cayman Islands.

(b) The head office and principal place of business of the Company in Hong Kong issituated at Room 202B, 2/F, Liven House, 62–63 King Yip Street, Kwun Tong, HongKong.

(c) The company secretary of the Company is Mr. Au Wai Keung, who is a fellowmember of Hong Kong Institute of Certified Public Accountants and an associatemember of The Institute of Chartered Accountants in England and Wales.

(d) The compliance officer of the Company is Mr. Chiu Ka Lok, who is also anexecutive Director and the chairman of the Board.


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(e) The Company established an audit committee pursuant to a resolution of ourDirectors passed on 24 March 2014 in compliance with Rule 5.28 of the GEMListing Rules. Written terms of reference in compliance with paragraph C3.3 of theCG Code as set out in Appendix 15 to the GEM Listing Rules has been adopted. Theprimary duties of the audit committee are mainly to make recommendations to theBoard on the appointment and removal of external auditor; review the financialstatements and material advice in respect of financial reporting; and oversee internalcontrol procedures of our Company. At present, the audit committee of our Companyconsists of three members who are Mr. Lau Sik Yuen, Mr. Yuen Man Chun Royceand Mr. Chak Chi Shing. Mr. Lau Sik Yuen is the chairperson of the auditcommittee.

Mr. Lau Sik Yuen (‘‘Mr. Lau’’), aged 52, was appointed as our independent non-executive Director on 26 September 2014. Mr. Lau has over 21 years of experiencein auditing and financial accounting. Mr. Lau currently is the company secretary andchief financial officer of Xinyi Glass Holdings Limited, a company listed on theMain Board of the Stock Exchange (Stock code: 00868), responsible for theirfinancial, management and cost accounting, taxation, treasury and investor relationsstrategy and operation. Currently, Mr. Lau also serves as an independent non-executive director of China Qinfa Group Ltd. (Stock code: 00866), Dragon CrownGroup Holdings Limited (Stock code: 00935) and CTEH INC. (Stock code: 01620),all of which are companies listed on the Main Board of the Stock Exchange. Mr. Lauhad worked with PricewaterhouseCoopers over five years, responsible for auditing.Mr. Lau was the financial controller of a subsidiary of NWS Holdings Limited forover three years, a company listed on the Stock Exchange (Stock code: 00659). Mr.Lau graduated from Oregon State University, United States, with Bachelor ofScience in business administration. Mr. Lau is a fellow member of the Hong KongInstitute of Certified Public Accountants and a member of the American Institute ofCertified Public Accountants.

Dr. Yuen Man Chun Royce (‘‘Dr. Yuen’’), aged 54, was appointed as ourindependent non-executive Director on 26 September 2014. Dr. Yuen is also thechairman of the nomination committee of the Company and the member of the auditcommittee and remuneration committee of the Company. Dr. Yuen has over 25 yearsof experiences in brand-building and marketing management. Dr. Yuen has been thechief executive officer of New Brand New Limited, a company principally engagedin marketing and brand consulting, since August 2013. Dr. Yuen was the chairman ofOgilvy & Mather Advertising, a company principally engaged in offering integratedmarketing communications solutions, from April 2003 to January 2010, he wasresponsible for the management of the operation and profit and loss of Ogilvy’sGroup. From January 2010 to June 2011, Dr. Yuen was an executive director ofFantastic Natural Cosmetics Limited (FANCL), a company principally engaged inthe sale of skincare and health supplements, he was responsible for leading its globalstrategic planning and brand development. Dr. Yuen is also the chairman of TheAssociation of Accredited Advertising Agencies of Hong Kong, from December2005 to December 2009, an association that deals with issues concerning the futureof the advertising industry and the business of member agencies. Dr. Yuen obtained


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an Honour Diploma in Communications from Hong Kong Baptist University, HongKong, in December 1987, a master’s degree in Marketing from MacquarieUniversity, Australia, in September 1996 and a doctorate’s degree in businessadministration from Hong Kong Polytechnic University, Hong Kong, in November2000. Dr. Yuen is a visiting associate professor of The University of Hong Kong anda professor of The Hong Kong Polytechnic University. Dr. Yuen is council memberof the Hong Kong Trade Development Council and the Hong Kong Academy forPerforming Arts, and an advisory board member for many not-for-profit andgovernment bodies, including the Hong Kong Museum of History.

Mr. Chak Chi Shing (‘‘Mr. Chak’’), aged 38, obtained a bachelor’s degree inaccounting and finance from Curtin University of Technology in Australia. Mr. Chakhas over 10 years of professional experience in auditing, accounting, corporatefinance and financial management and also has years of experience in companysecretarial and corporate governance. Mr. Chak is currently an executive director ofChina Shenghai Food Holdings Company Limited, being a company listed on theMain Board of The Stock Exchange of Hong Kong Limited (stock code: 1676). Priorto joining of the Company, Mr. Chak served as the company secretary of BolinaHoldings Co., Ltd. (stock code: 1190) from March 2017 to August 2018, and thecompany secretary of the Company from March 2016 to July 2016. Mr. Chak is amember of CPA Australia and Hong Kong Institute of Certified Public Accountants.

(f) The Company’s principal share registrar and transfer office in Cayman Islands isAppleby Trust (Cayman) Ltd. at Clifton House, 75 Fort Street, P.O. Box 1350,Grand Cayman, KY1-1108, Cayman Islands.

(g) The Hong Kong branch share registrar and transfer office of the Company is UnionRegistrar Limited at Suites 3301–4, 33/F., Two Chinachem Exchange Square, 338King’s Road, North Point, Hong Kong.

(h) In the event of inconsistency, the English text of this circular shall prevail over theChinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal placeof business of the Company in Hong Kong at Room 202B, 2/F, Liven House, 62–63 King YipStreet, Kwun Tong, Hong Kong during normal business hours on any business day from thedate of this circular up to and including the date of the EGM.

(i) the memorandum and articles of association of the Company;

(ii) the annual reports of the Company for the financial years ended 31 December 2016,2017 and 2018 and the interim report of the Company for the six months ended 30June 2019;

(iii) the accountants’ reports on Ability Education and Institute Training, the text ofwhich is set out in Appendix II and III to this circular respectively;


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(iv) the accountants’ report on the unaudited pro forma financial information of theGroup, the text of which is set out in Appendix IV to this circular;

(v) the valuation report on the Target Companies, the text of which is set out inAppendix VI to this circular;

(vi) the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ inthis appendix;

(vii) the written consent referred to in the section headed ‘‘Experts and Consents’’ in thisappendix; and

(vii) this circular.


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(Stock Code: 8363)


NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the ‘‘EGM’’) ofSDM Group Holdings Limited (the ‘‘Company’’) will be held on Monday, 23 September 2019at 2:30 p.m. at No. 6 Cambridge Road, Kowloon Tong, Kowloon, Hong Kong or anyadjournment thereof for the purpose of considering and, if thought fit, passing with or withoutamendments, the following resolutions of the Company. Unless otherwise defined, capitalisedterms used in this notice shall have the same meanings as those defined in the circular of theCompany dated 3 September 2019 (the ‘‘Circular’’).

ORDINARY RESOLUTIONS

1. ‘‘THAT

(a) the sale and purchase agreement dated 14 January 2019 (the ‘‘Ability Sale andPurchase Agreement’’) entered into between the Australia Apex Education PtyLtd, a wholly-owned subsidiary of the Company, as the purchaser (the‘‘Purchaser’’), MEGT (Australia) Ltd as the vendor (the ‘‘Vendor’’) and SDMGroup Limited as the original guarantor (as supplemented and amended by thedeeds of variation dated 29 March 2019, 21 May 2019 and 30 August 2019respectively entered into between the parties of the Ability Sale and PurchaseAgreements and the stakeholder of the deposits in relation to the extension ofthe long stop date and the change of the guarantor from SDM Group Limited tothe Company (the ‘‘Deeds of Variation’’)) in respect of the acquisition of theentire issued share capital of Ability Education Pty Ltd at a gross considerationof AUD4,560,000 (subject to adjustments as detailed in the Circular) and thetransactions contemplated thereunder, be and is hereby approved, confirmed andratified; and

(b) any one of the Directors be and is hereby authorised to sign and execute suchdocuments, including under seal where applicable, and do all such acts andthings as he/she considers necessary, desirable or expedient in connection withthe implementation of or giving effect to the Ability Sale and PurchaseAgreement (as supplemented and amended by the Deeds of Variation) and thetransactions contemplated thereunder.’’

NOTICE OF THE EGM

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2. ‘‘THAT

(a) the sale and purchase agreement dated 14 January 2019 (the ‘‘Institute Saleand Purchase Agreement’’) entered into between the Purchaser, the Vendorand SDM Group Limited as the original guarantor (as supplemented andamended by Deeds of Variation) in respect of the acquisition of the entireissued share capital of Childrens’ Services Education Pty Ltd at a grossconsideration of AUD3,040,000 (subject to adjustments as detailed in theCircular) and the transactions contemplated thereunder, be and is herebyapproved, confirmed and ratified; and

(b) any one of the Directors be and is hereby authorised to sign and execute suchdocuments, including under seal where applicable, and do all such acts andthings as he/she considers necessary, desirable or expedient in connection withthe implementation of or giving effect to the Institute Sale and PurchaseAgreement (as supplemented and amended by the Deeds of Variation) and thetransactions contemplated thereunder.’’

Yours faithfullyBy order of the Board

SDM Group Holdings LimitedChiu Ka LokChairman

Hong Kong, 3 September 2019

Registered office:Clifton House75 Fort StreetP.O. Box 1350Grand Cayman, KY1-1108Cayman Islands

Head office and principal place ofbusiness in Hong Kong:

Room 202B, 2/F.Liven House61–63 King Yip StreetKwun TongHong Kong

Notes:

1. Any member of the Company entitled to attend and vote at the EGM shall be entitled to appoint anotherperson as his/her proxy to attend and vote instead of him/her. A member who is the holder of two or moreshares may appoint more than one proxy to represent him/her and vote on his/her behalf at the EGM. A proxyneed not be a member of the Company.

2. A form of proxy for use at the EGM is enclosed herewith.

3. The instrument appointing a proxy shall be in writing under the hand of the appointer or of his attorney dulyauthorised in writing or, if the appointer is a corporation, either under its seal or under the hand of an officer,attorney or other person authorised to sign the same.

NOTICE OF THE EGM

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4. To be valid, the instrument appointing a proxy and (if required by the Board) the power of attorney or otherauthority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall bedelivered to the Company’s branch share registrar and transfer office in Hong Kong, Union Registrars Limitedat Suites 3301–04, 33/F., Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong notless than 48 hours before the time appointed for holding of the EGM or any adjournment thereof.

5. Where there are joint holders of any shares, any one of such joint holders may vote at the EGM, either inperson or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one ofsuch joint holders be present at the EGM, the vote of the senior who tenders a vote, whether in person or byproxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose, seniorityshall be determined by the order in which the names stand in the register of members of the Company inrespect of the joint holding.

6. Completion and delivery of an instrument appointing a proxy shall not preclude a member from attending andvoting in person at the EGM if the member so wish and in such event, the instrument appointing a proxyshould be deemed to be revoked.

7. The Register of Members of the Company will be closed from Thursday, 19 September 2019 to Monday, 23September 2019 (both days inclusive) for the purpose of determining the right to attend and vote at the EGM,during which period no transfer of shares will be registered. In order to be eligible to attend and vote at theforthcoming EGM, all share transfer documents accompanied by the corresponding share certificates must belodged with the Company’s branch share registrar in Hong Kong, Union Registrars Limited, at Suites 3301–04, 33/F., Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong, for registration notlater than 4:00 p.m. on Wednesday, 18 September 2019.

8. If Typhoon Signal No. 8 or above, or a ‘‘black’’ rainstorm warning is in effect any time after 9:00 a.m. on thedate of the EGM, the meeting will be postponed. The Company will publish an announcement on the websiteof the Company at www.sdm.hk and on the website of the Stock Exchange at www.hkexnews.hk to notifyShareholders of the date, time and venue of the rescheduled meeting.

NOTICE OF THE EGM

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SDM Group Holdings Limited - :: HKEX :: HKEXnews ::

Documents