Fullshare Holdings Limited 豐盛控股有限公司 (Incorporated in the Cayman Islands with Limited Liability) (Stock Code: 607)

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Fullshare Holdings Limited, you should at once hand this circular and the form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

Fullshare Holdings Limited 豐盛控股有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 607)

(1) VERY SUBSTANTIAL DISPOSAL IN RELATION TO THE PROPOSED DISPOSAL OF 43% EQUITY INTEREST IN NANJING HIGH SPEED; (2) POSSIBLE VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE GRANT OF PUT OPTION; AND (3) NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser

A letter from the Board is set out on pages 6 to 30 of this circular. A notice convening the EGM to be held at VIP Meeting Room 1, Grand Wuji Hotel – the Unbound Collection By Hyatt, No. 119 Software Avenue, Nanjing City, Jiangsu Province, China on Wednesday, 16 June 2021 at 2:00 p.m. is set out on pages EGM-1 to EGM-3 of this circular. A form of proxy for use at the EGM is also enclosed. Whether or not you are able to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof in person should you so wish.

26 May 2021 CONTENTS

Page

DEFINITIONS ...... 1

LETTER FROM THE BOARD ...... 6

APPENDIX I – FINANCIAL INFORMATION OF THE GROUP ...... I-1

APPENDIX II – ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED ...... II-1

APPENDIX III – MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED ...... III-1

APPENDIX IV – UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP ...... IV-1

APPENDIX V – VALUATION REPORT ...... V-1

APPENDIX VI – GENERAL INFORMATION ...... VI-1

NOTICE OF EGM ...... EGM-1

–i– DEFINITIONS

In this circular, unless the context otherwise requires, the following words and expressions shall have the following meanings:

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

“Board” the board of directors of the Company

“Board of CHS” the board of directors of CHS

“business day” a day on which licensed banks are generally open for business in the PRC, excluding a Saturday, a Sunday (unless adjusted to a working day in accordance with applicable laws) or statutory holiday(s) in the PRC

“Call Option” the Vendor’s option to acquire the equity interest held by the Transferee in Nanjing High Speed after the First Completion Date and the transactions contemplated as particularised in the section headed “II. THE DISPOSAL – Call Option” in this circular

“Capital Increase” the capital contribution by the Employee Partnership Enterprise in an aggregate amount of RMB150 million to the registered capital of Nanjing High Speed pursuant to the capital increase agreement dated 4 December 2020 and entered into among the Employee Partnership Enterprise, Nanjing High Speed and the Vendor

“CHS” China High Speed Transmission Equipment Group Co., Ltd., a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 658)

“CHS Circular” the circular dated 26 May 2021 issued by CHS in relation to the Disposal

“CHS Director(s)” the director(s) of CHS

“CHS Group” CHS and its subsidiaries

“CHS Share(s)” ordinary share(s) of US$0.01 each in the issued share capital of CHS

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

–1– DEFINITIONS

“Company” or “Fullshare” Fullshare Holdings Limited (豐盛控股有限公司), a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 607)

“Completion Date” First Completion Date or Second Completion Date (as the case may be)

“Conditions Precedent” the conditions precedent contained in the Equity Transfer Agreement and each a “Condition Precedent”, details of which are set out under the paragraph headed “II. THE DISPOSAL – Conditions Precedent” in this circular

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

“Consideration” RMB4.3 billion, being the total consideration payable by the Transferee to the Vendor for the Sale Interest under the Equity Transfer Agreement

“Director(s)” the director(s) of Fullshare

“Disposal” the disposal of the Sale Interest by the Vendor to the Transferee pursuant to the terms and conditions of the Equity Transfer Agreement

“EGM” the extraordinary general meeting of the Company to be convened to approve, among other things, the Equity Transfer Agreement and the transactions contemplated thereunder

“Employee Partnership Shanghai Shifu Enterprise Management LLP* (上海釃福 Enterprise” 企業管理合夥企業(有限合夥)), a limited liability partnership enterprise established in the PRC and the general partner and limited partner of which are Shanghai Shiji and eight partnership enterprises, respectively

“Equity Transfer Agreement” the equity transfer agreement dated 30 March 2021 entered into among the Purchaser, the Vendor and Nanjing High Speed in relation to, among others, the Disposal and the grant of the Put Option

“First Batch Sale Interest” representing 37% of the equity interest in Nanjing High Speed

–2– DEFINITIONS

“First Completion Date” the date on which the industrial and commerce registration for (a) the transfer of First Batch Sale Interest to the Transferee and (b) the pledge of the First Batch Sale Interest in favour of the Vendor is completed

“Five Seasons” Five Seasons XVI Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Fullshare

“Group” the Company and it subsidiaries

“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China

“Independent Third Part(ies)” a person or company who or which is, to the best of the Directors’ and CHS Directors’ knowledge, information and belief, having made all reasonable enquiries, not a connected person of the Group and CHS Group, respectively.

“Joint Announcement” the joint announcement of Fullshare and CHS dated 30 March 2021 in relation to, among others, the Disposal and the Put Option

“Latest Practicable Date” 18 May 2021, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

“Nanjing High Speed” Nanjing High Speed Gear Manufacturing Co., Ltd.* (南京高速齒輪製造有限公司), a company established in the PRC with limited liability, a direct non-wholly owned subsidiary of the Vendor and an indirect non-wholly owned subsidiary of CHS

“NHS Valuation Report” the valuation report in respect of the valuation of the fair value of the 100% equity interest in Nanjing High Speed as at 31 December 2020 prepared by the Valuer

–3– DEFINITIONS

“Official Authorities” (i) governments at all levels (including but not limited to states, cities, counties, towns, districts, etc.) of any country and region, and any entity that exercises administrative, legislative, judicial, management, tax or other government functions; (ii) any international public organisation; (iii) any agency, department, branch or other political subordinate agency of the government, entity or organisation mentioned in (i) and (ii) above; (iv) any company, business, enterprise or other entity owned, partly owned or controlled by any government, institution, organization or other entity mentioned in (i), (ii), and (iii) above; and (vi) regulatory authority in Hong Kong that has jurisdiction over the Vendor’s direct and/or indirect controlling shareholder(s)

“PRC” or “China” the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan

“Purchaser” Shanghai Wensheng Asset Management Co., Ltd. (上海文盛資產管理股份有限公司), a company incorporated in the PRC with limited liability

“Put Option” the option of the Transferee to request the Vendor to repurchase all the equity interest of Nanjing High Speed acquired by the Transferee pursuant to the Disposal as particularised in the section headed “THE DISPOSAL – Put Option” in this circular

“RMB” Renminbi, the lawful currency of the PRC

“Sale Interest” the First Batch Sale Interest and the Second Batch Sale Interest

“Second Batch Sale Interest” representing 6% of the equity interest in Nanjing High Speed

“Second Completion Date” the date on which the industrial and commerce registration for the transfer of Second Batch Sale Interest to the Transferee is completed

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

–4– DEFINITIONS

“Shanghai Shiji” Shanghai Shiji Enterprise Management Consultancy Co., Ltd.* (上海釃吉企業管理諮詢有限公司), a company established in the PRC on 11 August 2020 with limited liability, which is principally engaged in investment holding business and is wholly-owned and controlled by Mr. Hu Yueming, a CHS Director

“Share(s)” ordinary share(s) of HK$0.01 each in the issued share capital of the Company

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

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Transferee” Shanghai Qiwo Enterprise Management Partnership (Limited Partnership)* (上海其沃企業管理合夥企業(有限合夥)), a partnership incorporated in the PRC with limited liability

“US$” or “USD” United States dollars, the lawful currency of the United States of America

“Valuer” or “AVISTA” AVISTA Valuation Advisory Limited, an independent valuer engaged by CHS to conduct the valuation of the fair value of 100% equity interest of Nanjing High Speed

“Vendor” or “Nanjing Gear” Nanjing Gear Enterprise Management Co., Ltd.* (南京高齒企業管理有限公司), a company established in the PRC with limited liability, an indirect wholly-owned subsidiary of CHS

“%” per cent.

* for identification purposes only

–5– LETTER FROM THE BOARD

Fullshare Holdings Limited 豐盛控股有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 607)

Executive Directors: Registered Office: Mr. Ji Changqun (Chairman and Chief Executive Officer) Cricket Square Ms. Du Wei Hutchins Drive, P.O. Box 2681 Mr. Shen Chen Grand Cayman KY1-1111 Cayman Islands Independent non-executive Directors: Mr. Lau Chi Keung Principal place of business Mr. Chow Siu Lui in Hong Kong: Mr. Tsang Sai Chung Unit 2805, Level 28 Admiralty Centre Tower 1 18 Harcourt Road, Admiralty Hong Kong

26 May 2021

To the Shareholders,

Dear Sir or Madam,

I. INTRODUCTION

Reference is made to the Joint Announcement, in relation to, among other things, the Disposal and the grant of Put Option.

–6– LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) further details of the Disposal; (ii) financial information of the Group; (iii) financial information of Nanjing High Speed; (iv) the unaudited pro forma financial information of the Group; and (v) the notice of the EGM to be convened and held for the purpose of considering and, if thought fit, approving, the Equity Transfer Agreement and the transactions contemplated thereunder.

II. THE DISPOSAL

The major terms of the Equity Transfer Agreement are summarised below:

Date: 30 March 2021 (after trading hours)

Parties: (1) the Purchaser

(2) the Vendor

(3) Nanjing High Speed

Pursuant to the Equity Transfer Agreement, if the Transferee is not the Purchaser itself, the identity of the Transferee is restricted to be a legal entity controlled or jointly controlled directly or indirectly by the Purchaser. The Transferee is not the Purchaser itself and the Transferee is Shanghai Qiwo Enterprise Management Partnership (Limited Partnership)* (上海其沃企業管理合夥企業(有限合夥)), a partnership incorporated in the PRC with limited liability. Further information of the Purchaser and the Transferee has been disclosed in the section headed “VIII. INFORMATION OF THE PURCHASER AND THE TRANSFEREE” in the “Letter from the Board” of this circular.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, each of the Purchaser, the Transferee and their respective ultimate beneficial owners is a third party independent of the Company and its connected persons.

Equity interest to be disposed of

The Sale Interest, comprising the First Batch Sale Interest (representing 37% of the equity interest in Nanjing High Speed) and the Second Batch Sale Interest (representing 6% of the equity interest in Nanjing High Speed), to be transferred to the Transferee.

Earnest money

Within seven (7) days upon signing of the Equity Transfer Agreement, the Purchaser shall pay an earnest money in the amount of RMB500,000,000 (the “Earnest Money”) into a designated account of the Vendor.

If the Transferee is not the Purchaser, the Earnest Money paid by the Purchaser shall be deemed as the Earnest Money paid by the Transferee.

–7– LETTER FROM THE BOARD

RMB400,000,000 of the Earnest Money shall serve as a deposit (the “Deposit”). If the Transferee fails to pay the Consideration timely in accordance with the terms and conditions of the Equity Transfer Agreement and if the Vendor terminates the Equity Transfer Agreement as a result of the breach, the Vendor shall have a right to forfeit the Deposit.

As at the Latest Practicable Date, the Vendor has received the Earnest Money from the Purchaser.

Consideration

The Consideration is in the sum of RMB4.3 billion payable by the Transferee to the Vendor by way of cash in the following manner:

(1) RMB1,000,000,000 to the Vendor within 7 days after all the Conditions Precedent are satisfied (the “First Instalment”). The Earnest Money can be applied as part of the First Instalment;

(2) RMB2,700,000,000 to the Vendor within 1 month after all the Conditions Precedent are satisfied (the “Second Instalment”); and

(3) RMB600,000,000 to the Vendor within 3 months after all the Conditions Precedent are satisfied (the “Remaining Instalment”).

After the First Instalment is paid, if the Transferee fails to settle the Second Instalment and/or the Remaining Instalment within the prescribed time, the Transferee shall, within ten (10) business days after 1 month or 3 months after all the Conditions Precedent are satisfied (as the case may be), return the First Batch Sale Interest to the Vendor at once and the Vendor shall return the First Instalment and/or the Second Instalment less the losses (as described below) incurred by the Vendor in one lump sum to the Transferee without interest and have a right to terminate the Equity Transfer Agreement. The Purchaser and the Transferee shall jointly and severally liable for the losses associated with the return (including but not limited to the tax expenses incurred during the transfer of First Batch Sale Interest from the Vendor to the Transferee) incurred by the Vendor. The Vendor is entitled to deduct the amount of losses and the Deposit from the First Instalment and/or the Second Instalment before returning the remaining amount of the First Instalment and/or the Second Instalment to the Transferee. The Purchaser undertakes that it shall procure the Transferee to include the aforesaid in the First Batch Transfer Agreement (as defined hereunder), failing which, the Vendor shall have the right to refuse to execute the First Batch Transfer Agreement.

–8– LETTER FROM THE BOARD

Basis of Consideration

The Consideration is determined with reference to (i) the preliminary appraised value (“Preliminary Value”) of 100% equity interest of Nanjing High Speed as at 31 December 2020, which amounts to approximately RMB9,916,000,000 under the preliminary valuation conducted by the Valuer; (ii) the unaudited financial statements of Nanjing High Speed for the ten months ended 31 October 2020; and (iii) the arm’s length negotiations between the Vendor and the Purchaser.

As advised by CHS, except for the share-based payment expenses in relation to the Capital Increase by Employee Partnership Enterprise of RMB547,674,000 which is one-off in nature, there is no other material change on the financial performance of Nanjing High Speed after 1 November 2020.

Based on the NHS Valuation Report as set out in Appendix V to this circular, the appraisal value (the “Appraisal Value”) of Nanjing High Speed was RMB9,916,000,000 as at 31 December 2020 and 43% of the corresponding Appraisal Value was RMB4,263,880,000, which the Consideration represented a premium of approximately 0.85% over such value.

There was no direct involvement by the Directors or the Company in the preparation of the NHS Valuation Report given that such valuation was conducted by CHS. It was the understanding of the Company and CHS that (i) the Valuer engaged by CHS should be qualified and experienced to conduct valuation on the relevant business and for listed companies in Hong Kong; (ii) the methodologies adopted should be commonly adopted in preparing valuation on the relevant business; and (iii) the valuation would be subject to the review of and assessment by the Company.

The Company has enquired into the Valuer’s qualification and experience and its scope of engagement with CHS. In respect of the valuation methodology adopted in the NHS Valuation Report, the Company notes that the Valuer has considered all the commonly adopted valuation approaches in the market (namely, asset approach, market approach and income approach) for the purpose of determining the Preliminary Value and the Appraisal Value of the 100% equity interest in Nanjing High Speed and considered that the market approach is the most appropriate valuation methodology in the case of Nanjing High Speed.

The Company has discussed with CHS in respect of the adoption of market approach and the Company notes that the Valuer adopted the comparable company method under the market approach. Given the fact that, as at 31 December 2020, no recent comparable transaction can be identified, the comparable transactions method was not adopted to prepare the aforesaid valuation. Under the comparable company method, the Valuer assessed the value of 100% equity interest of Nanjing High Speed with reference to the price-to-earnings multiples of an exhaustive list of the comparable companies principally engaged in manufacturing and sale of energy generation equipment in the PRC.

–9– LETTER FROM THE BOARD

The Company has also reviewed the selection criteria of the comparables used by the Valuer and the source of the comparables’ data. Based on the NHS Valuation Report, the selection of the comparable companies was based on the comparability of the overall industry sector. Although no two companies are exactly alike, behind the differences there are certain business universals such as required capital investment and overall perceived risks and uncertainties that guide the market in reaching the expected returns for companies with certain similar attributes.

There are in total seven comparable public companies which were selected with reference to the following selection criteria:

• The companies are in the industry of electrical equipment or industrial conglomerates, or sub-industry of industrial machinery, under Global Industry Classification Standard, as extracted from S&P Capital IQ;

• The principal business of the companies is the provision of the manufacturing and sales of energy generation equipment;

• The principal business activities of the companies are mainly conducted in the PRC;

• The companies are listed in all major exchange markets in the United States of America or Hong Kong;

• The companies are profit-making in the trailing 12-months as of 31 December 2020; and

• The financial information of the companies is available to the public.

The Valuer has considered a number of companies whose main business operations are principally engaged in manufacturing and sales of energy generation equipment in the world and is of the view that the seven comparable companies are the most relevant as comparables to Nanjing High Speed in terms of industry and operating location of the business amongst other selection criteria. Please refer to the valuation report as set out in Appendix V to this circular for further details. After taking into account the selection criteria above and having discussed with the Valuer, the Board of CHS considers that the selection of the seven comparable companies is exhaustive and sufficient in the context of the disposal of Nanjing High Speed; and for valuation purposes, and hence the seven comparable companies selected are fair and representative sample.

On the basis of the above, the Board considers that the seven comparable companies selected are fair and representative sample.

–10– LETTER FROM THE BOARD

As disclosed in the NHS Valuation Report, the net profit attributable to the owners of Nanjing High Speed for the twelve months ended 31 October 2020 (the “Net Profit”) of approximately RMB1,037,838,000 was adjusted by one-off foreign exchange losses arisen from intercompany balances of approximately RMB12,507,000 and other one-off gain of approximately RMB36,795,000 (including net impairment losses on financial assets of approximately RMB59,758,000, government subsidies of approximately RMB105,721,000, impairment losses on property, plant and equipment of approximately RMB8,962,000, fair value gain of approximately RMB9,894,000, investment gain of approximately RMB9,094,000, losses on disposal of assets of approximately RMB8,078,000 and net tax impact arisen from other one-off losses of approximately RMB11,117,000), of which these items are considered as non-recurring in nature. The CHS Directors have reviewed the consolidated financial statements of Nanjing High Speed for the year ended 31 December 2019 and the ten months ended 31 October 2019 and 31 October 2020, and discussed with the management of Nanjing High Speed to understand the underlying nature of the one-off foreign exchange losses arisen from intercompany balances and other one-off gain/(loss) items. Also, according to the letter from the auditor of Fullshare and CHS, Baker Tilly Hong Kong Limited (“Baker Tilly”), dated 30 March 2021 as enclosed in the Joint Announcement, Baker Tilly reviewed the accounting policies and calculations of the Net Profit and is of the view that the Net Profit, has been presented on a basis consistent in all material respects with the accounting policies normally adopted by the Company, CHS and their respective subsidiaries. Based on the above, the CHS Directors consider the relevant figures and adjustments on the Net Profit are accurate and complete.

The Company has discussed with the CHS Directors in relation to the above and the Directors consider that the relevant figures and adjustments on the Net Profit are accurate and complete.

The following table sets out the income statement of Nanjing High Speed for the twelve months ended 31 October 2020:

For the twelve months ended 31 October 2020 (RMB’000) (Unaudited)

Revenue from contracts with customers 12,307,530 Cost of sales (9,625,762) Gross profit 2,681,768

Selling and distribution expenses (358,759) Administrative expenses (429,530) Research and development costs (501,281) Net impairment losses recognised on financial assets (59,758) Other income 280,608 Other (losses)/gains – net (117,041)

–11– LETTER FROM THE BOARD

For the twelve months ended 31 October 2020 (RMB’000) (Unaudited)

Operating profit 1,496,007

Finance income 60,628 Finance costs (329,812) Finance costs – net (269,184)

Profit before income tax 1,226,823

Income tax expenses (179,787)

Profit for the year 1,047,036

Profit/(loss) attributable to: – Owners of Nanjing High Speed 1,037,838 – Non-controlling interests 9,198

1,047,036

The non-recurring items adjustments on the profit attributable to owners of Nanjing High Speed for the twelve months ended 31 October 2020 are set out below:

(RMB’000) (Unaudited)

Profit attributable to owners of Nanjing High Speed 1,037,838

One-off foreign exchange losses arisen from intercompany balances(note 2) 12,507

Other one-off (gain)/loss: Net impairment losses on financial assets(note 1) 59,758 Government subsidies(note 3) (105,721) Impairment losses on property, plant and equipment(note 1) 8,962 Net fair value gains on financial assets at fair value through profit or loss(note 1) (9,894) Investment gain(note 1) (9,094) Losses on disposal of property, plant and equipment, net(note 1) 8,078 Net tax impact arisen from the other one-off losses 11,117

Adjusted net profit attributable to owners of Nanjing High Speed 1,013,551

–12– LETTER FROM THE BOARD

Notes:

1. These items are defined in Bloomberg database and are considered as non-recurring in nature.

2. Foreign exchange losses arising from intercompany balances which affect the real and fair evaluation of Nanjing High Speed’s current operating results and profitability are regarded as one-off losses, regardless of whether they are relevant to the production and operation.

3. Government subsidies arising from the land resumption by the government authority are not relevant to the production and operation and are therefore regarded as one-off gains.

Furthermore, the Company notes that the assumptions and limiting conditions on which the NHS Valuation Report is based are mainly in respect of legal, political and economic environments of where Nanjing High Speed operates, going concern and financial position of Nanjing High Speed as well as limitations in respect of the scope of due diligence performed by the Valuer, which are general in nature and usually adopted in preparing business valuation.

Given the above, the Directors are satisfied that (i) the Valuer has sufficient qualification and experience for preparation of the NHS Valuation Report; and (ii) the methodology and the principal basis and assumptions adopted for the preparation of the NHS Valuation Report are appropriate, and therefore are of the view that the Preliminary Value which equals to the Appraisal Value serves as a fair and reasonable reference to the fair value of Nanjing High Speed as at 31 December 2020 and the consideration of RMB4.3 billion, for the shareholding interest in 43% of Nanjing High Speed, is fair and reasonable and is in the interest of the Company and its Shareholders as a whole.

In addition, the Consideration of RMB4,300 million represents a premium of approximately 89.9% over the 43% of the net asset value of Nanjing High Speed of approximately RMB2,264.6 million as of 31 December 2020.

Conditions Precedent

The Vendor and Nanjing High Speed

Unless waived pursuant to the Equity Transfer Agreement, the Vendor and Nanjing High Speed shall facilitate the fulfillment of the following conditions:

(1) the Vendor and Nanjing High Speed shall assist in the due diligence review on Nanjing High Speed and its subsidiaries (if any) (including but not limited to legal, financial and business aspects), and the Purchaser is satisfied with the results of the due diligence review (the Purchaser shall notify the Vendor of its satisfaction in writing);

(2) the Vendor has completed all necessary approval procedures for the Equity Transfer Agreement and the transactions contemplated thereunder, including but not limited to obtaining approval from its board of directors and shareholders;

–13– LETTER FROM THE BOARD

(3) the Equity Transfer Agreement and the transactions contemplated thereunder have been properly disclosed to the public in accordance with the requirements from the Official Authorities and the relevant laws, and all necessary approvals or consents for the Equity Transfer Agreement and the transactions contemplated thereunder have been obtained from the relevant parties (including but not limited to any government authorities or any related third parties of Nanjing High Speed) (if necessary) and there are no laws or regulations prohibiting the Disposal as at a Completion Date;

(4) other existing shareholders of Nanjing High Speed consented to waive their pre-emptive rights (if any) in relation to the Disposal;

(5) shareholders’ approval at the shareholders’ meeting of Nanjing High Speed for the Equity Transfer Agreement and the transactions contemplated thereunder has been obtained;

(6) written CHS Shareholders’ approval or CHS Shareholders’ approval at the general meeting of CHS for the Equity Transfer Agreement and the transactions contemplated thereunder has been obtained in accordance with the Listing Rules;

(7) Shareholders’ approval at the EGM for the Equity Transfer Agreement and the transactions contemplated thereunder has been obtained in accordance with the Listing Rules;

The Purchaser

Unless waived pursuant to the Equity Transfer Agreement, the Purchaser shall facilitate the fulfillment of the following conditions:

(8) the Purchaser has completed all necessary internal procedures for approving the Equity Transfer Agreement and the transactions contemplated thereunder, including but not limited to obtaining approval from its board of directors and shareholders and other internal approval procedures;

(9) all necessary approvals or consents of the relevant parties (including but not limited to the governing regulatory body on stated-owned assets, relevant governmental departments or any related parties of Nanjing High Speed) (if necessary) for the Equity Transfer Agreement and the transactions contemplated thereunder have been obtained and there are no laws or regulations prohibiting the Disposal as at a Completion Date;

–14– LETTER FROM THE BOARD

(10) the Purchaser shall assist in the due diligence review on the Purchaser and/or the Transferee (as the case may be) (including but not limited to the identity of the ultimate beneficial owner(s) of the Purchaser and/or the Transferee, legal, financial and business aspects), and the Vendor is satisfied with the results of the due diligence review (the Vendor shall notify the Purchaser of its satisfaction in writing); and

(11) the Purchaser is not in breach of the representations and warranties set forth in the Equity Transfer Agreement.

Neither party can waive the conditions set out in paragraphs (3), (6), (7) and (9) above. If any of the conditions set out above (except for paragraphs (6) and (7)) has not been fulfilled or waived (where applicable) by the time when the conditions in paragraphs (6) and (7) have been fulfilled, the Equity Transfer Agreement will be terminated automatically without any liability on the part of the Vendor and the Vendor shall return the Earnest Money in one lump sum to the Purchaser without interest within 30 business days from the date of termination of the Equity Transfer Agreement.

As at the Latest Practicable Date, save for conditions set out in paragraphs (2), (4), (5) and (6), none of the above conditions are fullfilled.

Completion

As the Consideration involves a considerable sum (i.e. RMB4.3 billion) payable by way of cash, the parties agreed to divide the payment of Consideration into three instalments in order to provide more flexibility and sufficient time to the Purchaser (or Transferee) in arranging financing of the Consideration. Therefore, the Disposal will be completed in two stages (i.e. the first stage will take place after the payment of the First Instalment and Second Instalment, and the second stage will take place after the payment of Remaining Instalment).

Upon receiving the First Instalment, the Vendor and the Transferee shall on the same date execute the following documents and a designated person of the Vendor, who is jointly authorised by the Vendor and the Transferee, shall on the same date file the same documents for completing relevant industrial and commerce registration in the PRC:

(a) an equity interest transfer agreement in relation to the transfer of First Batch Sale Interest to the Transferee (the “First Batch Transfer Agreement”); and

(b) a share pledge agreement in relation to the pledge of First Batch Sale Interest in favour of the Vendor (the “Share Pledge Agreement”).

–15– LETTER FROM THE BOARD

The Purchaser shall procure the Transferee to execute the Share Pledge Agreement to the satisfaction of the Vendor and the Share Pledge Agreement shall contain the following major terms, otherwise the Vendor shall have the right to refuse to execute the First Batch Transfer Agreement:

(a) the Share Pledge Agreement is to secure the Transferee’s payment obligations of (i) the Second Instalment; (ii) the damages resulting from the failure to pay the Second Instalment; (iii) the compensation resulting from the failure to pay the Second Instalment; and (iv) the reasonable costs and expenses incurred by the Vendor for its enforcement of the payment obligations of the Second Instalment of the Transferee; and

(b) the pledge period shall begin from the date of completing the registration of the Share Pledge Agreement until the full payment of the Second Instalment by the Transferee and the date of payment of the Second Instalment shall be no later than 1 month after all the Conditions Precedent are satisfied.

Within seven (7) days after payment of the Second Instalment by the Transferee, the Vendor shall release the pledge of the First Batch Sale Interest.

Completion of the First Batch Sale Interest shall take place when the industrial and commerce registration for (a) the transfer of First Batch Sale Interest to the Transferee and (b) the pledge of the First Batch Sale Interest in favour of the Vendor is completed. Completion of the First Batch Sale Interest shall take place on the First Completion Date.

Within ten (10) business days upon receiving the Remaining Instalment, the Vendor and the Transferee shall execute and file the equity interest transfer agreement (the “Second Batch Transfer Agreement” together with the First Batch Transfer Agreement, the “Final Transaction Agreements”) for completing relevant industrial and commerce registration in the PRC for the transfer of the Second Batch Sale Interest to the Transferee. Completion of the Second Batch Sale Interest shall take place when the industrial and commerce registration for the transfer of the Second Batch Sale Interest is completed. Completion of the Second Batch Sale Interest shall take place on the Second Completion Date.

Notwithstanding the other terms of the Equity Transfer Agreement, before the Second Completion Date, the Transferee should not transfer or pledge or create any encumbrance on the entire or part of the First Batch Sale Interest externally without obtaining written consent from the Vendor. If the Transferee breaches the aforesaid, the Transferee shall return the First Batch Sale Interest to the Vendor at once and the Vendor shall have a right to terminate the Equity Transfer Agreement unilaterally and shall return the First Instalment and/or the Second Instalment less the losses (as described below) incurred by the Vendor in one lump sum to the Transferee without interest. The Purchaser and the Transferee shall jointly and severally liable for the losses associated with the return (including but not limited to the tax expenses incurred during the transfer of First Batch Sale Interest from the Vendor to the Transferee) incurred by the Vendor. The Vendor is entitled to deduct the amount of losses from the First Instalment

–16– LETTER FROM THE BOARD and/or the Second Instalment before returning the remaining amount of First Instalment and/or the Second Instalment to the Transferee. The Purchaser undertakes that it shall procure the Transferee to include the aforesaid in the First Batch Transfer Agreement, failing which, the Vendor shall have the right to refuse to execute the First Batch Transfer Agreement.

The identity of the Transferee was yet to be confirmed when the Joint Announcement was published. As advised by the PRC legal advisers to the Vendor, in order to complete the industrial and commerce registration of change in the PRC for the transfer of equity interest in a company established in the PRC and for the purpose of regulatory filing, one of the legal requirements is to disclose the identity of the ultimate purchaser and the vendor in an equity transfer agreement. In view of the aforesaid legal requirement, the Vendor, Nanjing High Speed and the Purchaser agreed that once the identity of the Transferee is confirmed and upon receiving the First Instalment, the Second Instalment and/or the Remaining Instalment, the Vendor and the Transferee will execute the First Batch Transfer Agreement and/or the Second Batch Transfer Agreement (where applicable). The First Batch Transfer Agreement and the Second Batch Transfer Agreement will include certain major terms of the Equity Transfer Agreement including, among other things, the Sale Interest (for the First Batch Transfer Agreement, the equity interest in Nanjing High Speed to be transferred is 37% and for the Second Batch Transfer Agreement, the equity interest in Nanjing High Speed to be transferred is 6%), the Consideration (for the First Batch Transfer Agreement, the consideration will be RMB3,700,000,000 and for the Second Batch Transfer Agreement, the consideration will be RMB600,000,000), the Call Option and the undertakings mentioned in the paragraph headed “II. THE DISPOSAL – The Purchaser’s other undertakings”, but will not include any material terms that are not set out in this circular.

Put Option

During the three years from the Second Completion Date, in the event that the net profit after tax (i.e. the net profit after tax as appeared in the audited accounts of Nanjing High Speed (the “Net Profit”)) of Nanjing High Speed of any financial year audited by an accountant engaged by Nanjing High Speed is below RMB1,000,000,000 (the “Guaranteed Net Profit”), the Transferee shall have the right to request in writing the Vendor to repurchase all the equity interest of Nanjing High Speed acquired by the Transferee pursuant to the Disposal (the “Repurchase”) within 30 days after the annual audited consolidated financial statements for the relevant year is presented to the shareholders of Nanjing High Speed. For illustration purpose, if the Second Completion Date falls on a day within 2021, the Transferee shall have the right to request the Vendor to make the Repurchase within 30 days after the respective annual audited consolidated financial statements for each of the financial year 2021, 2022 and 2023 is presented and the audited net profit after tax of Nanjing High Speed for the relevant financial year is below the Guaranteed Net Profit. Provided that no written Repurchase request is made within 30 days after the annual audited consolidated financial statements of the relevant financial year of Nanjing High Speed is presented, the Put Option in respect of such financial year shall lapse.

–17– LETTER FROM THE BOARD

The Guaranteed Net Profit shall take into account all income and expenses of Nanjing High Speed including but not limited to non-recurring/non-operating items.

Net profit of a company is commonly referred to the “net profit” as appeared in the financial statement and it reflects a company’s ability to generate profit for its owners. As such, both the CHS Directors and the Purchaser are of the view that the Guaranteed Net Profit represents a full picture of the financial performance of Nanjing High Speed for the purpose of Put Option.

As of the Latest Practicable Date, the directors of Nanjing High Speed and the CHS Directors do not anticipate any significant non-recurring/non-operating gain or loss in the coming three years. In light of the above, the CHS Directors consider the inclusion of the non-recurring/non-operating items to the Guaranteed Net Profit is fair and reasonable. Based on the foregoing, the Directors consider the inclusion of the non-recurring/non-operating items to the Guaranteed Net Profit is fair and reasonable.

The repurchase consideration shall be calculated as follows (the “Repurchase Consideration”):

All the benefits The actual N (including dividends) consideration paid x (1 + (6% x )) - 365 (if any) received by by the Transferee the Transferee

N = number of days between the date of receiving the actual consideration in full (i.e. RMB4.3 billion) by the Vendor and the date of receiving the payment of Repurchase Consideration by the Transferee

The interest rate of 6% per annum is determined after arm’s length negotiation between the Vendor and the Purchaser with reference to the average cost of financing of the CHS Group for the year ended 31 December 2020 (approximately 6% per annum), which as set out in the CHS Circular, the CHS Directors are of the view that such interest rate stipulated under the Put Option is fair and reasonable and in the interest of CHS and its shareholders as a whole. Based on the aforesaid information, the Directors are of the view that the interest rate of 6% per annum stipulated under the Put Option is fair and reasonable and in the interest of the Company and its shareholders as a whole.

The equity interest of Nanjing High Speed to be repurchased by the Vendor shall be free from any encumbrances.

Upon receipt of the written Repurchase request from the Transferee, the Vendor shall within 50 business days pay the Repurchase Consideration to the Transferee. Upon receiving the Repurchase Consideration, the Transferee shall on the same date file the equity interest transfer documents for completing relevant industrial and commerce registration in the PRC for the transfer of the equity interest in Nanjing High Speed to the Vendor under the Repurchase.

–18– LETTER FROM THE BOARD

Call Option

Pursuant to the Equity Transfer Agreement, the Purchaser undertakes that after the First Completion Date, the Transferee and its direct/indirect controlling shareholder(s) will not change to a wholly foreign-owned or foreign-controlled legal entity without obtaining prior consent from the Vendor. In the event the Transferee breaches the aforesaid undertaking, the Vendor is entitled at its discretion to request in writing to acquire the entire equity interest held by the Transferee in Nanjing High Speed and the Transferee shall bear the tax payable in connection with the exercise of the Call Option by the Vendor. Subject to the equity interest held by the Transferee at the material time, the maximum consideration payable by the Vendor upon exercise of this Call Option shall be determined by the appraised value of Nanjing High Speed (which is capped at RMB10 billion) less all the benefits (e.g. dividends) (if any) distributed to the Transferee. For illustration purpose, if the Transferee at the material time holds 43% equity interest in Nanjing High Speed, the maximum consideration should be RMB4.3 billion less all the benefits (e.g. dividends) (if any) distributed to the Transferee. The Purchaser also undertakes that it shall procure the aforesaid to be included in the Final Transaction Agreements, failing which, the Vendor shall have the right to refuse to execute the Final Transaction Agreements.

Pursuant to the Equity Transfer Agreement, the Purchaser shall procure the Transferee to give the following written undertaking, failing which, the Vendor shall have the right to refuse to execute the Final Transaction Agreements: after the completion of the Disposal, if the Transferee transfers the equity interest in Nanjing High Speed in the future to another purchaser (the “Then Purchaser”), the Transferee shall procure the Then Purchaser to undertake that the Then Purchaser and its direct/indirect controlling shareholder(s) will not change to a wholly foreign-owned or foreign-controlled legal entity without obtaining prior consent from the Vendor. In the event the Then Purchaser breaches the aforesaid undertaking, the Vendor is entitled at its discretion to request in writing to acquire the entire equity interest held by the Then Purchaser in Nanjing High Speed and the Then Purchaser shall bear the tax payable in connection with the exercise of the Call Option by the Vendor. Subject to the equity interest held by the Then Purchaser at the material time, the maximum consideration payable by the Vendor upon exercise of this Call Option shall be determined by the appraised value of Nanjing High Speed (which is capped at RMB10 billion) less all the benefits (e.g. dividends) (if any) distributed to the Then Purchaser. For illustration purpose, if the Then Purchaser at the material time holds 43% equity interest in Nanjing High Speed, the maximum consideration should be RMB4.3 billion less all the benefits (e.g. dividends) (if any) distributed to the Then Purchaser.

–19– LETTER FROM THE BOARD

According to CHS Directors, the above arrangements are the result of the commercial decision reached by the Vendor, the Purchaser and Nanjing High Speed with a view to minimising management complications resulting from the Transferee (or, where applicable, the Then Purchaser) or its direct or indirect controlling shareholder(s) becoming a wholly foreign-owned or foreign-controlled legal entity. In view of the business nature of Nanjing High Speed, taking into consideration that its operations are mainly in the PRC, save for relevant experience and knowledge of the manufacturing and sale of gear, gear box and fittings, it is essential that the controlling shareholder of Nanjing High Speed and management appointed by it (if any) are familiar with the operation environment and culture in the PRC. Therefore the parties to the Equity Transfer Agreement have reached a consensus to such arrangement.

The exercise of the Call Option may constitute a notifiable transaction on the part of the Company under the Listing Rules. The Company will comply with the relevant requirements under the Listing Rules as and when appropriate should the Vendor exercises the Call Option.

The Purchaser’s other undertakings

The Purchaser undertakes that it shall procure the Transferee to execute a confirmation to the satisfaction of the Vendor before the First Completion Date, pursuant to which the Transferee undertakes not to acquire the control of Nanjing High Speed in terms of its equity interests within five years from the Second Completion Date. The Purchaser shall procure the aforesaid to be included in the Final Transaction Agreements, failing which, the Vendor shall have the right to refuse to execute the Final Transaction Agreements.

The Purchaser undertakes that, after the First Completion Date, it shall procure the Transferee not to restrict and to waive its pre-emptive rights (if any) in relation to any equity interest holding plan implemented by Nanjing High Speed for Nanjing High Speed’s employees (including its directors), whether in form of a capital increase in Nanjing High Speed or a transfer of equity interest in Nanjing High Speed by the Vendor. The Purchaser shall procure the aforesaid to be included in the Final Transaction Agreements.

The Purchaser undertakes that, if the Transferee is a related third party (a legal entity controlled or jointly controlled directly or indirectly by the Purchaser) designated by the Purchaser, each of the Transferee and its ultimate beneficial owner(s) shall be an Independent Third Party.

Further information on the information of the Purchaser and the Transferee has been disclosed in the section headed “Information on Purchaser and the Transferee” in the letter from the Board of this circular.

–20– LETTER FROM THE BOARD

III. REASONS FOR AND BENEFITS OF THE DISPOSAL

The CHS Directors consider that the Disposal represents a good opportunity for the CHS Group to realise its investment in Nanjing High Speed. Through the Disposal, on one hand, the CHS Group will be able to strengthen its cashflow, enhance its working capital position and allow for reallocation of its financial resources for the future development. In particular, CHS has long been committed to develop its mechanical transmission equipment business. In recent years, the sales in CHS’s mechanical transmission equipment business has maintained a stable growth. As disclosed in the interim report of CHS for the six months ended 30 June 2020, with the support and guidance of the incentive governmental measures for promoting wind power and other environmental protection measures, such as the “Notice on Promulgating the 2020 Wind Power and Solar Power Grid-Parity Projects” (《關於公佈2020年風電、光伏發電平價上網項目的通知》) jointly issued by the National Development and Reform Commission and the National Energy Administration, which introduces that a total of 11.3967GW of wind power grid-parity projects are entitled to grid-parity preferential treatment and reiterates that grid enterprises should be responsible for the grid connection of wind power and the priority dispatch for wind power, it is expected that the grid connection of wind power in China will speed up and the domestic consumption of wind energy will continue to rise. Hence, opportunities for wind power development is expected to arise as a result of the ongoing development. In addition, the CHS Group will continue to develop the industrial gear transmission equipment business and rail transportation gear transmission equipment business as well as diversify its product portfolio including the development and manufacturing of rotate vector (RV) reducer, a transmission device in the industrial robot system in light of the wide adoption of industrial automation and the strong demand for industrial robots in China. According to the website of International Federation of Robotics, a professional non-profit organization established in 1987 to promote research, development, use and international co-operation in the field of robotics worldwide, China has the world’s largest industrial robot market since 2013 which accounted for approximately 38% of the world’s total installations in 2017, 2018 and 2019.

Against the backdrop of the favourable market conditions and the government support as well as the CHS’s strong technical expertise and the support of experienced management team, according to the CHS Directors, CHS intends to raise funds to increase its production capacity and productivity with a view to continuously improve its market scale and operational efficiency in its mechanical transmission equipment business.

Furthermore, according to a research from QianZhan Industry Research Institute (前瞻產業研究院), the total transaction amount of industrial commodities in China has increased year by year from 2015 to 2019 and it reached RMB269.6 trillion in 2019. To capture the vast market potential of the commodity trading industry in the PRC and broaden its revenue stream, CHS seizes the opportunities to develop its trading business, which commenced in 2012. The bulk commodities trading business mainly involves the procurement and wholesale of refined oil and electrolytic copper whereas the trading business in steel industry chain mainly involves the procurement and wholesale of coal, coke (the raw material of steel) and steel.

–21– LETTER FROM THE BOARD

On the other hand, the Board of CHS considers that the Disposal represents an opportunity to broaden the shareholder base of Nanjing High Speed, considering that the Purchaser is a quality and resourceful investment firm in the PRC and that the strong investor profile of Purchaser will in turn boost the investor confidence in the market and may bring in additional resources and investment opportunities to Nanjing High Speed and CHS, while the CHS Group and the Group will be able to remain control of Nanjing High Speed as it will remain as an indirect non-wholly owned subsidiary of both CHS and Fullshare upon completion of the Disposal and will continue to enjoy the benefits from the growth and development of Nanjing High Speed as a controlling shareholder of Nanjing High Speed. As disclosed in the CHS Circular, the Board of CHS is of the view that (i) the terms of the Equity Transfer Agreement (including the Consideration, the Call Option and the Put Option) are fair and reasonable; (ii) the Equity Transfer Agreement is on normal commercial terms; and (iii) the entering into of the Equity Transfer Agreement is in the best interest of CHS and its shareholders as a whole.

On the basis of the above, the Board considers that the terms of the Equity Transfer Agreement (including the Consideration, the Call Option and the Put Option) and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and the entering into of the Equity Transfer Agreement is in the best interest of the Company and its shareholders as a whole.

As at the Latest Practicable Date, as set out in the CHS Circular and confirmed by the CHS Directors, CHS has not entered into any negotiation, agreement, arrangement, undertaking and understanding in respect of acquisition or investment in any business.

The Company will continue to focus on its existing businesses. As at the Latest Practicable Date, the Company has no current intention to downsize, cease, sell and/or dispose of its existing businesses although it will periodically review the performance and prospects of its businesses and the appropriate deployment/allocation of resources available to the Group to its businesses.

–22– LETTER FROM THE BOARD

IV. USE OF PROCEEDS

The expected net proceeds of the Disposal (after deducting transaction costs, professional expenses and tax to be incurred in connection with the Disposal) will be approximately RMB3.5 billion. As set out in the CHS Circular, the Board of CHS intends to apply the net proceeds of the Disposal for the following purposes:

(i) approximately RMB1.5 billion will be used for part of the costs for the expansion of CHS’s production capacities and strengthening of CHS’s research and development capabilities (the “Expansion”). The allocation of RMB1.5 billion for the Expansion will be as follows:

Purposes Details Estimated costs (RMB’000)

(a) Acquisition of lands CHS intends to expand its 200,000 production capacities in mechanical (b) Construction of new transmission equipment by 500,000 production plants, new acquiring lands and constructing production lines, new new production plants, new assembly lines and other production lines, new assembly ancillary facilities lines and other ancillary facilities since the demand for the wind gear transmission equipment and industrial gear transmission equipment is expected to rise in the coming years and the existing production plants have reached their respective maximum production capacities.

(c) Upgrade and renewal of CHS intends to improve the 800,000 existing production equipment efficiency, reliability and safety of and purchase of production the production and operation of its equipment existing and new production plants by upgrading and renewing a number of its existing production equipment in its production plants such as gear grinding machines, gear milling machines and planetary gear tooth surface polishing machine and purchasing production equipment for its new production plants.

Total 1,500,000

–23– LETTER FROM THE BOARD

(ii) approximately RMB0.6 billion will be used for the development and expansion of trading business to broaden CHS’s revenue stream;

(iii) approximately RMB0.9 billion will be used for the partial repayment of short-term bank borrowings (including accrued interest), which the due date of the bank borrowings is within six months from the Latest Practicable Date, to reduce the average costs of financing and capital; and

(iv) approximately RMB0.5 billion for general working capital.

V. FINANCIAL IMPACT OF THE DISPOSAL

Following completion of the Disposal, the equity interest of the Vendor in Nanjing High Speed will decrease from approximately 93.02% to approximately 50.02%. Nanjing High Speed will continue to be an indirect non-wholly owned subsidiary of CHS and the Company and its financial results will continue to be consolidated with each of the CHS Group and the Group’s results. The Disposal is accounted for as equity transaction and it is expected that it will have no pre-tax gain or loss to be recognised in profit or loss arising from the Disposal for the Company.

Based on the unaudited pro forma financial information of the Group as set out in Appendix IV to this circular, assuming the Disposal and the grant of Put Options had been completed on 31 December 2020, or both the Disposal and the exercise of the Put Option had been completed on 31 December 2020, the pro forma equity attributable to the Shareholders would be approximately RMB13,283 million and approximately RMB16,327 million, respectively, as compared to approximately RMB17,176 million as at 31 December 2020 as reported in the audited financial statements of the Group for the year ended 31 December 2020.

For the year ended 31 December 2020, the Group recorded an audited consolidated loss attributable to equity shareholders of the Company of RMB894 million. Based on the unaudited pro forma financial information of the Group as set out in Appendix IV to this circular, assuming the Disposal and the grant of Put Options had been completed on 1 January 2020 or both the Disposal and the exercise of the Put Option had been completed on 1 January 2020, the unaudited pro forma consolidated loss of the Group attributable to the equity shareholders of the Company for the year ended 31 December 2020 would be approximately RMB1,692 million and approximately RMB904 million, respectively.

–24– LETTER FROM THE BOARD

Shareholders should note that the unaudited pro forma financial information of the Group has been prepared for illustrative purpose only, and because of its hypothetical nature, it may not give the true picture of the financial position of the Group following completion of the Disposal and the exercise of the Put Option or any future date. Moreover, since the actual fair value of the assets and liabilities of Nanjing High Speed may be different at completion of the Disposal and the exercise of the Put Option as compared to their respective values used in the preparation of the unaudited pro forma financial information of the Group, the actual financial effects of the Disposal and the Put Option may be different from the financial information shown in Appendix IV to this circular.

Further details are set out in “Appendix IV – Unaudited Pro Forma Financial Information of the Group” to this circular.

VI. INFORMATION OF FULLSHARE, CHS AND THE VENDOR

Fullshare is a company incorporated in the Cayman Islands with limited liability, whose issued shares are listed on the Stock Exchange under the stock code 607. The Group (excluding CHS Group) is principally engaged in (a) property development and investment, (b) tourism, (c) investment and financial services and (d) provision of healthcare and education products and services.

CHS is an indirect non-wholly owned subsidiary of the Company, which holds approximately 73.91% shareholding interests in CHS as at the Latest Practicable Date. CHS is a company incorporated in the Cayman Islands with limited liability, whose issued shares are listed on the Stock Exchange under the stock code 658. CHS Group is principally engaged in the research, design, development, manufacture and distribution of various types of mechanical transmission equipment for a broad range of applications in wind power generation and industrial use.

The Vendor is an indirect wholly-owned subsidiary of CHS and is principally engaged in the investment holding business.

VII. INFORMATION ON NANJING HIGH SPEED

Nanjing High Speed is a company established under the laws of the PRC with limited liability, a direct non-wholly owned subsidiary of the Vendor, and an indirect non-wholly owned subsidiary of CHS. Nanjing High Speed has a registered capital of RMB2,150,000,000 as at the Latest Practicable Date, of which approximately 93.02% is owned by the Vendor and approximately 6.98% is owned by the Employee Partnership Enterprise respectively. Nanjing High Speed is principally engaged in manufacturing and sale of gear, gear box and fittings.

–25– LETTER FROM THE BOARD

Set out below is the financial information of Nanjing High Speed as extracted from the accountants’ report of Nanjing High Speed for the two years ended 31 December 2020, respectively:

For the year ended For the year ended 31 December 2020 31 December 2019 (RMB’000) (RMB’000) (Note 1) (Note 1)

Revenue from contracts with customers 13,181,084 9,420,303 Profit before income tax 1,028,191 345,080 Profit for the year 802,475 207,551 Net assets 5,275,008 8,901,176

Note:

1. CHS Group underwent an internal restructuring in May 2020.

Further details on the financial information of Nanjing High Speed are set out in “Appendix II – Accountants’ Report of Nanjing High Speed” to this circular.

Upon completion of the Disposal, the equity interest of the Vendor in Nanjing High Speed will decrease from approximately 93.02% to approximately 50.02%. Set out below is the shareholding structure of Nanjing High Speed upon completion of the Disposal:

100% Mr. Ji Mr. Hu Yueming Magnolia Wealth 100%

100% Eight partnership 38.69% Shanghai Shiji (GP) Glorious Time (Note 3) enterprises (LP) Fullshare (Note 2) (Note 4)

100% 1.09% 0.007% 99.993% Five Seasons The public (Note 1) shareholders The Employee 73.91% 25% Partnership Enterprise

CHS

100%

Goodgain Group Limited

100%

China Transmission Holdings Limited

100% The Transferee The Vendor

50.02% 43% 6.98%

Nanjing High Speed

–26– LETTER FROM THE BOARD

Notes:

1. Five Seasons, a company incorporated in the British Virgin Islands, is wholly-owned by the Company, while the issued share capital of the Company is owned as to approximately 38.69% by Magnolia Wealth International Limited (“Magnolia Wealth”) as at the Latest Practicable Date, a company incorporated in the British Virgin Islands, which is wholly and beneficially owned by Mr. Ji Changqun (“Mr. Ji”). Accordingly, Fullshare, Magnolia Wealth and Mr. Ji are considered to have interests in 1,208,577,693 shares of CHS, representing approximately 73.91% of the issued shares of CHS.

2. Glorious Time Holdings Limited (“Glorious Time”), a company incorporated in the British Virgin Islands, is wholly and beneficially owned by Mr. Ji. Accordingly, Mr. Ji is considered to have interests in 17,890,000 shares of CHS, representing approximately 1.09% of the issued shares of CHS.

3. The general partner of the Employee Partnership Enterprise is Shanghai Shiji. Mr. Hu Yueming, an executive director of CHS, is the sole director and sole shareholder of Shanghai Shiji.

4. Apart from Shanghai Shiji, the Employee Partnership Enterprise is owned as to approximately 23.58% by Shouguang Dingchuang Information Consultancy Services LLP* (壽光鼎創信息諮詢服務合夥企業(有限合夥)), 14.75% by Shouguang Ruiding Information Consultancy Services LLP* (壽光瑞鼎信息諮詢服務合夥企業(有限合夥)), 10.56% by Shouguang Jiding Information Consultancy Services LLP* (壽光吉鼎信息諮詢服務合夥企業(有限合夥)), 10.06% by Shouguang Dingwang Information Consultancy Services LLP* (壽光鼎旺信息諮詢服務合夥企業(有限合夥)), 12.06% by Shouguang Dingying Information Consultancy Services LLP* (壽光鼎盈信息諮詢服務合夥企業(有限合夥)), 15.84% by Shouguang Dingneng Information Consultancy Services LLP* (壽光鼎能信息諮詢服務合夥企業(有限合夥)), 6.68% by Shouguang Dingjian Information Consultancy Services LLP* (壽光鼎健信息諮詢服務合夥企業(有限合夥)) and 6.47% by Shouguang Dingmin Information Consultancy Services LLP* (壽光鼎敏信息諮詢服務合夥企業(有限合夥)), all of which are limited partners. Each of the eight partnership enterprises is a limited liability partnership established under the laws of the PRC and the general partner of which is Shanghai Shiji. The limited partners of each of the eight partnership enterprises are the designated employees of the CHS Group. The limited partners of the eight partnership enterprises consist of 276 natural persons.

VIII. INFORMATION OF THE PURCHASER AND THE TRANSFEREE

The Purchaser is established in the PRC with limited liability in 2006. As at the Latest Practicable Date, as informed by the Purchaser, the Purchaser is principally engaged in asset management, business and management consulting and investment management and has extensive experience in domestic capital market. The value of the loan cooperation funds (債權合作基金), which are under the management of the Purchaser, is approximately RMB100 billion and the funds include investments in new energy. It has branches in Shanghai, Beijing, Hangzhou, Nanjing and Guangzhou, and provides investment services to clients in 20 provinces and municipalities in the Beijing-Tianjin-Hebei, Yangtze River Delta and Pearl River Delta region and to the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, (i) the Purchaser has a diverse shareholder base with more than 15 shareholders and is owned as to approximately 30.44% by Zhejiang Wenhua Holdings Co., Ltd. (浙江文華控股有限公司)(“Zhejiang Wenhua”), being the single largest shareholder, and Zhejiang Wenhua is owned by Mr. Zhou Zhijie (周智杰) (as to 99%) and Mr. Zhou Xianfeng (周先鋒) (as to 1%) respectively. The other shareholders of the Purchaser include China Orient Asset Management Co., Ltd. (中國東方資產管理股份有限公司) (which holds approximately 3.58% of the Purchaser) and Zhongjin Pucheng Investment Co., Ltd.* (中金浦成投資有限公司) (which holds approximately 1.66% of the Purchaser), which is a direct wholly-owned subsidiary of China International Capital Corporation Limited (中國國際金融股份有限公司) (stock code: 601995), a company whose shares are listed on Shanghai Stock Exchange and (ii) each of the Purchaser, Zhejiang Wenhua, Mr. Zhou Zhijie (周智杰), Mr. Zhou Xianfeng (周先鋒), and the other shareholders and the ultimate beneficial owners of the Purchaser are third parties independent to the Company and its connected persons.

–27– LETTER FROM THE BOARD

As advised by the Purchaser, the Transferee is a limited partnership established in the PRC on 24 December 2020, mainly engaged in business including corporation management, business consulting, and information technology consulting etc. As of the Latest Practicable Date, the partners of the Transferee are Hangzhou Wensheng Xiangwen Asset Management Co., Ltd.* (杭州文盛祥文資產管理有限公司)(“Hangzhou Wensheng”) (being the sole limited partner) and Nanjing Jinya Enterprise Management Co., Ltd.* (南京錦雅企業管理有限公司) (“Nanjing Jinya”) (being the sole general partner). Hangzhou Wensheng is wholly owned by the Purchaser. The ultimate beneficial owners of Nanjing Jinya are the Purchaser (as to 50%) and Mr. Zhang Tao* (張濤) (as to 50%), who is a member of the senior management of the Purchaser. To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, each of the Transferee, its partners and the ultimate beneficial owner of its partners is a third party independent of both the Company and its connected persons.

As advised by the Purchaser, its roles in the Disposal include but not limited to taking part in the negotiation on the terms of the Equity Transfer Agreement, formulating the investment structure in relation to the acquisition of the Sale Interest, conducting due diligence review on Nanjing High Speed, procuring the obtainment of all necessary approvals or consents for the Equity Transfer Agreement, and arranging for financing of the acquisition of the Sale Interest.

As advised by the Purchaser, at the time of entering into the Equity Transfer Agreement, the investment structure of the transaction, the internal group structure of the Purchaser and financing arrangements of the Consideration, are yet to be confirmed. In particular, the Purchaser had yet to decide whether to acquire the Sale Interest by itself or through a legal entity controlled by itself. It was therefore agreed between the parties to the Equity Transfer Agreement that the Transferee is limited to either the Purchaser or a legal entity controlled or jointly controlled directly or indirectly by the Purchaser. In addition, a mechanism was built in the Equity Transfer Agreement to ensure the Transferee and its ultimate beneficial owner(s) are Independent Third Parties, including the Purchaser’s undertaking that each of the Transferee and its ultimate beneficial owner(s) shall be an Independent Third Party, and the Purchaser’s obligations to assist in the due diligence review on the Purchaser and/or the Transferee. In case the identity of the Transferee is not ascertained, the Vendor is also entitled not to execute the Final Transaction Agreements for the purpose of industrial and commerce registration of the Sale Interest. In light of the above, the CHS Directors decided to execute the Equity Transfer Agreement with the Purchaser even though the identity of the Transferee had not been determined as at the date of the Equity Transfer Agreement.

IX. IMPLICATIONS UNDER THE LISTING RULES

As the highest percentage ratio (as defined under Rule 14.07 of the Listing Rules) applicable to the Company in respect of the Disposal exceeds 75%, the Disposal constitutes a very substantial disposal for the Company and is, therefore, subject to the reporting, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

–28– LETTER FROM THE BOARD

The grant of the Call Option and Put Option would be treated as a transaction and classified by reference to the percentage ratios pursuant to Rules 14.04(1)(b) and 14.73 of the Listing Rules.

The exercise of the Call Option is at the discretion of the Vendor. According to Rule 14.75(1) of the Listing Rules, on the grant of the Call Option, only the premium (which is nil) will be taken into consideration for calculating the percentage ratios. The Company will comply with the then relevant Listing Rules on the exercise of the Call Option (where required).

The Put Option is exercisable at the discretion of the Transferee upon the occurrence of certain specified events, with the exercise price of the Put Option to be determined in accordance with the terms of the Equity Transfer Agreement. Given that the exercise of the Put Option is not at the Company’s discretion, pursuant to Rule 14.74 of the Listing Rules, the grant of the Put Option in the Equity Transfer Agreement will be classified as if it had been exercised. The grant of the Put Option constitutes a possible very substantial acquisition for the Company and is therefore subject to the reporting, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The Company will consult with the Stock Exchange as soon as practicable if the classification will change. The Company will comply with the relevant requirements under the Listing Rules as and when appropriate should the Transferee exercise the Put Option.

None of the Directors had material interests in the Equity Transfer Agreement and the transactions contemplated thereunder and thus no Director was required to abstain from voting on the board resolution(s) to approve the Equity Transfer Agreement and the transactions contemplated thereunder at the board meeting.

X. EGM

The Company will convene the EGM at VIP Meeting Room 1, Grand Wuji Hotel – the Unbound Collection By Hyatt, No. 119 Software Avenue, Nanjing City, Jiangsu Province, China on Wednesday, 16 June 2021 at 2:00 p.m. to consider and, if thought fit, to approve, among other things, the Equity Transfer Agreement and the transactions contemplated thereunder. The notice of EGM is set out on pages EGM-1 to EGM-3 of this circular. The voting on such resolution will be conducted by way of poll in accordance with Rule 13.39(4) of the Listing Rules.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, none of the Shareholders or any of their respective associates has any material interest in the Equity Transfer Agreement and the transactions contemplated thereunder and thus none of the Shareholders is required to abstain from voting at the EGM.

A form of proxy for use by the Shareholders at the EGM is accompanied with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar and transfer office of the Company in Hong Kong, Tricor

–29– LETTER FROM THE BOARD

Standard Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) if you so wish.

XI. CLOSURE OF REGISTER OF MEMBERS

In order to determine the entitlement to attend and vote at the EGM, the register of members and transfer books of the Company will be closed from Thursday, 10 June 2021 to Wednesday, 16 June 2021 (both days inclusive), during which period no transfer of Shares will be registered. The record date for entitlement to attend and vote at the EGM is 16 June 2021. In order to be eligible to attend and vote at the EGM, all transfer forms accompanied by the relevant share certificates must be lodged with the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration no later than 4:30 p.m. on Wednesday, 9 June 2021.

XII. GENERAL

Completion of the Disposal is subject to the satisfaction of the Conditions Precedent, and therefore, the Equity Transfer Agreement and the transactions contemplated thereunder may or may not proceed. Shareholders and potential investors of the Company are advised to exercise caution when dealing in the shares of the Company.

XIII. RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the terms of the Equity Transfer Agreement (including the Consideration, the Call Option and the Put Option) and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and in the best interests of the Company and its shareholders as a whole.

The Board would recommend the Shareholders to vote in favour of the ordinary resolution in relation to the Equity Transfer Agreement and the transactions contemplated thereunder at the EGM.

XIV. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully By Order of the Board Fullshare Holdings Limited JI CHANGQUN Chairman

–30– APPENDIX I FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for each of the year ended 31 December 2018, 2019 and 2020 are disclosed in the following documents of the Company, which have been published and are available on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.fullshare.com):

– the annual report of the Company for the year ended 31 December 2020 (pages 60 to 205) (https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0428/2021042800877.pdf);

– the annual report of the Company for the year ended 31 December 2019 (pages 59 to 201) (https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0427/2020042701116.pdf); and

– the annual report of the Company for the year ended 31 December 2018 (pages 61 to 201) (https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0426/ltn201904261596.pdf).

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 March 2021, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of the circular, the Group had the following indebtedness:

(a) Bank loans and other borrowings

RMB’000

Secured – Bank loans 2,284,218 – Loans from other financial institutions 1,001,452 – Loans from other third parties 1,086,686

Total secured borrowings 4,372,356

Unsecured – Bank loans 2,151,663 – Loans from ultimate holding company 1,214,022 – Loan from a joint venture 176,170 – Loans from other third parties 39,774

Total unsecured borrowings 3,581,629

7,953,985

– I-1 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) Lease liabilities of RMB402,416,000

RMB’000

Property, plant and equipment 969,167 Investment properties 4,918,918 Right-of-use assets regarding the land use rights 145,169 Financial assets at FVOCI 1,736,347 Properties under development 743,317 Properties held for sale 199,735 Pledged bank deposits 1,545,279

10,257,932

(d) Capital commitments

RMB’000

Contracted, but not provided for: – Purchase of property, plant and equipment 817,707 – Capital contributions to associates 177,000 – Capital contributions to joint ventures 350,000 1,344,707

Other commitment – Forward sale and purchase agreement 3,342,507

4,687,214

(e) Contingent liabilities

As at 31 March 2021, contingent liabilities not provided for in the consolidated financial statements were as follows:

(i) Mortgage facilities

RMB’000

Guarantees given to banks in connection with mortgage facilities 16,113

– I-2 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The Group provided guarantees in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of the Group’s properties. Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the Group is responsible to repay the outstanding mortgage principals together with accrued interest and penalties owed by the defaulted purchasers to the banks and the Group is entitled to retain the legal title and take over possession of the related properties. The Group’s guarantee period starts from the dates of grant of the relevant mortgage loans and ends when the Group obtains the “property title certificate” for the mortgagees, or when the Group obtains the “master property title certificate” upon completion of the construction. The Directors consider that in case of default in payments, the net realisable value of the related properties can cover the repayment of the outstanding mortgage principals together with the accrued interest and penalties. Therefore, no provision has been made for these guarantees.

(ii) As at 31 March 2021, the Group has issued financial guarantees to banks in respect of bank loans of RMB1,817,256,000 granted to an associate, two related parties and four independent third parties. These amounts represented the balances that the Group could be required to be paid if the guarantees were called upon in its entirety. An amount of RMB18,916,000 has been recognised as liabilities.

(iii) On 30 August 2019, a sale and purchase agreement is entered into between an independent third party (the “Subject Purchaser”), Fullshare Value Fund I (A) L.P. (the “Subject Vendor”), a joint venture of the Group, and the general partner of the Subject Vendor, pursuant to which the Subject Vendor agreed to sell, and the Purchaser agreed to purchase, the 100% of the issued and paid-up shares of Five Seasons XXII Limited (“BVI SPV”), a wholly-owned subsidiary of the Subject Vendor, subject to the terms and conditions thereof. The BVI SPV indirectly holds the interests of GSH Plaza in Singapore.

The former owner of the GSH Plaza is under certain legal cases with the property builders.

On the same day, in order to facilitate the conclusion of the sales, the Company entered into a deed of guarantee with the Subject Purchaser, pursuant to which, the Company agreed to guarantee to the Subject Purchaser the due and punctual performance and observance by the Subject Vendor of the Subject Vendor’s obligations under the sale and purchase agreement, subject to a maximum liability of up to SGD169,822,000 (equivalent to approximately RMB874,690,000) (the “Guarantee money”). The Guarantee money is used to compensate the Subject Purchaser for any adverse effect of the legal cases. These Guaranteed money would be reimbursed by the former owner.

– I-3 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The Company also entered into a letter of authority with Five Seasons XXII Pte. Ltd. (“Five Seasons XXII”), a wholly-owned subsidiary of BVI SPV, pursuant to which, Five Seasons XXII authorised the Company to represent Five Seasons XXII in respect of the authorised matters and the Company agreed to (i) engage professional parties and bear all costs incurred thereto; and (ii) put Five Seasons XXII in funds for any monies which Five Seasons XXII is liable to pay, in relation to the authorised matters, subject to a maximum aggregate amount of up to SGD1,000,000 (equivalent to approximately RMB5,151,000).

In the opinion of the Directors, based on the claim history from the Subject Purchaser to the Group and the reimbursement history from the former owner to the Group, the possibility of default or inability of discharging the relevant obligations by the Group is remote. Accordingly, no provision in relation to the guarantee has been made as at 31 March 2021.

(iv) On 12 November 2015, Nanjing High Speed and NGC Transmission Europe GmbH (collectively referred to as “NGC Parties”) jointly entered into a strategic cooperation agreement (the “Cooperation Agreement”) with Sustainable Energy Technologies GmbH (“SET”) on the development and sale of certain electromechanical differential gearboxes for the use in industrial plants and wind mills, including its production and marketing (the “Project”). The Cooperation Agreement was terminated prematurely by SET on 23 February 2018.

In 2019, NGC Transmission Europe GmbH received a claim (the “Claim”) filed by SET with a total amount of EUR11,773,000 (equivalent to RMB92,012,000 (the “Claimed Amount”) against NGC Parties for breaches of contractual obligations under the Cooperation Agreement relating to the Project.

As at 31 March 2021, the Claim was still awaiting for trial. The independent lawyers engaged by the CHS Group believe that there are solid arguments to rebut the Claim on the merits and is of a view that the settlement value to this case would be substantially below 50% of the total Claimed Amount. Based on the assessment of the independent lawyers, a compensation provision amounting to RMB8,066,000 was accrued by management of the Group.

– I-4 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(v) On 16 August 2019, it came to the attention of the Company that Mr. Ji was named a defendant in a proceeding involving claim for alleged overdue payments of approximately HK$1,466,000,000 (the “Proceeding”). No further information in respect of the Proceeding and the claim thereunder is available as at 31 March 2021. Pursuant to relevant terms of the Group’s loan agreements, the Proceeding might be considered as an event of default the occurrence of which will allow the lender to demand accelerated repayments for certain loans of the Group totalling approximately RMB1,100,000,000 as at 31 March 2020 (“Loan”). However, up to 31 March 2021, the Group has not received any request from any lender of the Loan for any accelerated repayment. Further, the management of the Company considers that adequate collaterals have been provided to secure the Loan. Accordingly, no adjustment or reclassification of the Loan is made to reflect the impact of the Proceeding.

Save as aforesaid or otherwise mentioned herein, the Group did not have any other outstanding borrowings, mortgages, charges, debentures, loan capital and overdraft, debt securities or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities at the close of business on 31 March 2021, being the latest practicable date for the purpose of this statement of indebtedness prior to printing of this circular.

The Directors confirm that there are no material changes in the indebtedness or contingent liabilities of the Group since 31 March 2021.

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the effects of the Disposal, in the absence of any unforeseen circumstances and after taking into account (i) the internal resources of the Group; and (ii) the Group’s presently available banking facilities, the Group will have sufficient working capital for its present requirements and for at least the next twelve months from the date of this circular.

– I-5 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Company will remain as the holding company of the CHS Group (including Nanjing High Speed) and there will be no material change in the Group’s business and operations upon completion of the Disposal.

(i) The Group (excluding CHS Group)

In 2021, the Group will continue focusing on the development of its existing business sectors. Based on the idea of building up the industrial platform, the Group will operate and integrate resources on the resource end and platform end of self-support, equity participation and cooperation, so as to form an industrial platform with complete industrial hierarchy, business synergy and transaction logic. The Group firmly believes that a diversified business portfolio will bring it sustained and stable revenue, whereas various businesses will also fully utilize the synergy effect, laying a solid foundation for development of the Group.

The Group will continue striving to maintain a sound financial management policy, improve the effective utilization rate of funds, strengthen the internal corporate governance, control the business risks and enhance the risk-resistant ability of the Group.

As the domestic measures to prevent and control the COVID-19 pandemic in China have been implemented effectively and put in place, the impact of the COVID-19 pandemic on the overall business of the Group has been mitigated gradually. It is expected that the operation of the Group, especially the sectors of domestic hotels and commerce, will gradually resume in year 2021. The Group will closely observe the relevant developments.

(ii) CHS Group

Set out below is the reproduction of the text contained in the section headed “4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP” contained in Appendix I to the CHS Circular.

The Group is principally engaged in the research, design, development, manufacture and distribution of various types of mechanical transmission equipment for a broad range of applications in wind power generation and industrial use.

– I-6 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Future prospects

China made a solemn promise to the world that “we strive to achieve the peak of carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.” Looking ahead to 2021, with the continuous promotion by the Chinese government for the development of renewable energy industry and the high initiative of state-owned enterprises engaged in the business fields of energy and power in developing new energy, the domestic wind power industry will embrace new opportunities in accelerated development. In 2021, “carbon neutrality” is one of the eight key economic tasks of the central government. The wind power serves as a key green energy supporting “carbon neutrality” and will enter into a critical stage of a new development. In February 2021, the State Council and the National Energy Administration issued the Guiding Opinions on Accelerating the Establishment and Improvement of a Green and Low-Carbon Loop Development Economic System (《關於加快建立健全綠色低碳迴圈發展經濟體系的指導意見》), which emphasises the acceleration of the high-quality development and high standard conservation, the establishment of an economic system for the development of a green and low-carbon circle to ensure the realization of the peak of carbon dioxide emissions and carbon neutrality. It also states the need to speed up the green upgrade of infrastructure, propel the transformation of energy system to a green and low carbon one and raise the utilisation rate of the renewable energy so as to promote the development of the wind power industry. In March 2021, the National Development and Reform Commission of China and other four departments jointly issued the Notice on the Guidance of Increasing Financial Support to Promote the Sound and Orderly Development in Wind Power and Photovoltaic Power Generation Industry (《關於引導加大金融支持力度促進風電和光伏發電等行業健康有序發展的通知》) and other nine initiatives, which stipulate that financial institutions may extend or renew loans upon negotiation with renewable energy enterprises on the commercial principles and independently issue subsidy and approve loans based on the market principle and rule of laws. More efforts shall be made in financial support to promote the sound and orderly development in wind power and other renewable energy industries. With the support and guidance of policies, the wind power serves as an important driving force to the transformation of global energy and will enter into a stage of “double speed” in the future development. The further increase of utilisation of wind power and stable investment and growth of the industry will propel the optimization of the wind power layout and effectively help the development of the Group’s wind power gear transmission equipment business.

In the future, the Group will adhere to the four core competitive strengths of “innovative thinking, zero defects, professional services, and customer orientation”, keep up with market policy trends, and outperform the average market development by the visionary market strategy, continue to invest in innovation, advanced manufacturing technologies, promote the management concept of zero defects, inject high-level investments in human resources and build an excellent corporate culture, etc., to achieve a development speed higher than the market average, and to be a stable and sustainable industry leader.

– I-7 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2020, being the date of which the latest published audited consolidated financial statements of the Group were made up.

6. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Set out below is the reproduction of the text contained in the section headed “Management Discussion and Analysis” of the Group for the three years ended 31 December 2018, 2019 and 2020, which are extracted from the annual reports of the Company for the years ended 31 December 2018, 2019 and 2020.

For the year ended 31 December 2018

Business Review

The revenue of Fullshare Holdings Limited (the “Company”) and its subsidiaries (the “Group”) for the year ended 31 December 2018 (the “Year 2018”) was derived from property, tourism, investment and financial services, healthcare and education and new energy businesses.

(1) Property business

(a) Property sales

During the Year 2018, the Group had contracted sales of approximately Renminbi (“RMB”) 232,180,000, representing a decrease of approximately 82% as compared with the year ended 31 December 2017 (the “Year 2017”). The Group made contracted sales for an aggregate gross floor area (“GFA”) of approximately 10,352 sq.m., representing a decrease of approximately 86% as compared with the Year 2017. The contract sales in the Year 2018 were mainly contributed by Yuhua Salon Project. As at 31 December 2018, the Group’s contracted sales for the contracts signed but properties not yet delivered were approximately RMB105,413,000 with a total GFA of 5,846 sq.m.. The decrease in contracted sales and GFA was mainly due to substantial completion of sales for certain projects in 2017. The average contracted selling price in the Year 2018 was approximately RMB22,428 per sq.m., representing an increase of approximately 30% as compared with the Year 2017.

– I-8 – As at 31 December 2018, a breakdown of the major properties held by the Group in the People’s Republic of China (the “PRC GROUP THE OF ”) INFORMATION FINANCIAL and their I APPENDIX construction status was as follows:

Interest Construction Expected Accumulated attributable progress of completion GFA GFA under GFA to be contracted to the Project name Address Project type the project date Site area completed construction constructed sales GFA Group (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.)

Yuhua Salon No. 119 Ruanjian Avenue, Office and Completed Completed 33,606 78,165 – – 52,612 100% (雨花客廳)A1 Yuhuatai District, commercial Nanjing, Jiangsu Province, project the People’s Republic of China (“PRC”)

Yuhua Salon A2 No. 119 Ruanjian Avenue, Office project Under Third quarter 30,416 – 14,461 – – 100% (雨花客廳) Yuhuatai District, Nanjing, construction of 2019 Jiangsu Province, the PRC - – I-9 – Yuhua Salon East to Ningdan Road, Office and Completed Completed 42,639 118,690 – – 67,948 100% (雨花客廳) Yuhuatai District, Nanjing, commercial C South Jiangsu Province, project the PRC

Yuhua Salon East to Ningdan Road, Apartment and Completed Completed 48,825 133,538 – – 67,875 100% (雨花客廳) Yuhuatai District, Nanjing, commercial C North Jiangsu Province, project the PRC

Amber Garden 1 and 2 Jiadong, Residential Completed Completed 79,717 214,227 – – 165,790 100% (琥珀花園) Xishanqiaojiedao, project Yuhuatai District, Nanjing, Jiangsu Province, the PRC PEDXIFNNILIFRAINO H GROUP THE OF INFORMATION FINANCIAL I APPENDIX Interest Construction Expected Accumulated attributable progress of completion GFA GFA under GFA to be contracted to the Project name Address Project type the project date Site area completed construction constructed sales GFA Group (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.)

Kunshan Herong North to Chinese Residential Completed Completed 48,553 145,990 – – 41,281 100% (昆山和融) Garden Road, project West to Huangshan Road, Development District, Kunshan, the PRC

Ma’anshan 23 Huaxili, No. 505 Huaxi Residential and Under Second quarter 422,591 7,099 – 252,814 6,168 65% Project Road, Huashan District, commercial construction of 2023 (馬鞍山項目) Ma’anshan, the PRC project

706,347 697,709 14,461 252,814 401,674 -0– I-10 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) Investment properties

During the Year 2018, the investment properties of the Group mainly included Wonder City* (虹悅城), certain units of Yuhua Salon* (雨花客廳), Nantong Youshan Meidi Garden Project* (南通優山美地花園項目), Huitong Building Project* (匯通大廈項目), Zhenjiang Youshan Meidi Garden Project* (鎮江優山美地花園項目) and Weihai Project* (威海項目).

Interest Term of attributable to Address Existing use contract GFA the Group (sq.m.)

Nanjing Wonder City (虹悅城) No. 619 Yingtian Da Jie, Shopping mall Medium-term 100,605 100% Yuhuatai District, Nanjing, covenant Jiangsu Province, the PRC

Yuhua Salon (雨花客廳) No. 119 Ruanjian Avenue, Office and Medium-term 91,858 100% (certain units) Yuhuatai District, Nanjing, shopping covenant Jiangsu Province, mall the PRC

Yuhua Salon (雨花客廳) No. 119 Ruanjian Avenue, Car park Medium-term 3,307 100% (certain units) Yuhuatai District, Nanjing, covenant Jiangsu Province, the PRC

Nantong Nantong Youshan Meidi No. 1888, Xinghu Avenue, Commercial Medium-term 20,876 100% Garden Project (南通 Nantong, Jiangsu Province, covenant 優山美地花園項目) the PRC

Huitong Building No. 20, Zhongxiu Street, Commercial Medium-term 20,461 100% Project (匯通大廈項 Nantong, Jiangsu Province, covenant 目) the PRC

Zhenjiang Zhenjiang Youshan At the cross of Guyang Commercial Medium-term 10,085 100% Meidi Garden Project North Road and Yushan covenant (鎮江優山美地花園項 North Road, 目) Jingkou District, Zhenjiang, Jiangsu Province, the PRC Weihai Weihai Project Block 1, No. 229, Commercial Medium-term 6,472 100% (威海項目) Rongshan Road, covenant Chengshan, Rongcheng City, Weihai, Shandong Province, the PRC

253,664

– I-11 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

During the Year 2018, the Group engaged in providing technical design and consulting services, green management services and entrusted construction services in the PRC. During the Year 2018, the revenue from both green building services and entrusted construction services was approximately RMB70,228,000 (2017: RMB129,525,000).

(2) Tourism business

In 2018, the Group gradually developed tourism business, to build an industrial layout that combines investment and operating business, and integrates long-term and short-term investments. The tourism property projects currently invested and held by the Group include the Laguna project in Queensland, Australia, the Sheraton project in Australia, the Jinling Five Seasons Hotel project in Nanjing and the Hainan Wenchang Five Seasons Hotel project.

The Laguna project is located in Bloomsbury of Queensland in Australia, adjacent to a large-scale comprehensive development project in the Great Barrier Reef with a land lot site area of approximately 29,821,920 sq.m. The land is currently held for future development.

The Sheraton project comprises the Sheraton Mirage Resort and the Golf Club project, which are located in Port Douglas of Queensland in Australia, a globally renowned tourist attraction. Since the refurbishment of Sheraton Mirage Resort and other nearby facilities including the lobby, guest rooms, golf clubhouse, indoor landscape and outdoor landscape, positive feedbacks have been received from customers on its overall refurbishment quality. During the Year 2018, the hotel has been operating steadily with improving customer service quality and increasing operating revenue and profit. The Sheraton project comprises 295 guest rooms, 4 restaurants and bars and an 18-hole golf course, with a total land lot site area of approximately 1,108,297 sq.m., and has a total GFA of approximately 62,328 sq.m.

Nanjing Jinling Five Seasons Hotel is located in the Software Valley, Nanjing, Jiangsu Province, and covers an estimated aggregate GFA of 66,919 sq.m.. The hotel is expected to open for business in the second quarter of 2019.

Wenchang Five Seasons Hotel project is located in the coastal area of Gaolong Bay, Qinglan, Wenchang City, Hainan Province. It is planned to be built into a five-star health living resort with a site area of 61,689 sq.m. The compilation of the detailed planning and design proposal for construction has been completed.

Currently, the Group has engaged in tourism supply chain business, involving providing domestic and overseas procurement agency and centralised procurement services for the upstream and downstream of the tourism supply chain, including sales of airline tickets, hotels, entrance tickets and tourist routes 60 travel agencies. The Group’s partners include resource suppliers, large-scale outbound tourism companies, online travel agency platforms and local guide agencies. In the sector of tourism supply chain business, the Group started to plan and build a tourism resource business to business (B2B) business platform, credit risk control system and financial support platform, to support and improve the tourism supply chain and supply chain to platform to business (S2B), business to business to consumer (B2B2C) businesses.

– I-12 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

During the Year 2018, the revenue from tourism business was approximately RMB628,930,000 (2017: RMB167,453,000).

(3) Investment and financial services business

During the Year 2018, the Group’s investment and financial services business consists of holding and investing in various listed and unlisted equities and treasury products and provision of investment and financial related services.

(a) Listed equity investments held for trading

The portfolio of listed equity investments of the Group held for trading as at 31 December 2018 and 2017 is set out as follows:

As at 31 December 2018

Unrealised holding Realised gain/(loss) gain (loss) Dividend arising on arising from received/ Effective revaluation disposal receivable shareholding Carrying for the for the for the interest as at amount as at year ended year ended year ended Number of 31 December Acquisition 31 December 31 December 31 December 31 December Stock code Name shares held 2018 cost 2018 2018 2018 2018 (Note 3) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

153.HK China Saite Group 203,800,000 8.74% 95,024 66,219 (33,553) – – (Note 1) Company Limited 1908.HK C&D International 40,000,000 5.44% 145,777 234,646 (8,930) (16,126) 14,892 (Note 1) Investment Group Limited 2098.HK Zall Smart 949,224,000 8.13% 1,307,463 3,542,707 (3,569,603) – 20,181 (Note 1) Commerce Group Ltd. (“Zall Group”) 8307.HK Medicskin Holdings 80,000,000 16.65% 45,334 16,861 (24,742) – 105 (Note 1) Limited 833581.NE CH-AUTO – 0.00% – – – 9,367 – (Note 2) Technology Corporation Ltd

3,860,433 (3,636,828) (6,759) 35,178

Notes:

1. These companies are listed companies on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

2. The company is a listed company on the National Equities Exchange and Quotations in the PRC.

3. All of the shares held by the Group are ordinary shares of the relevant company.

– I-13 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2017

Unrealised holding Realised gain/(loss) gain (loss) Dividend arising on arising from received/ Effective revaluation disposal receivable shareholding Carrying for the for the for the interest as at amount as at year ended year ended year ended Number of 31 December Acquisition 31 December 31 December 31 December 31 December Stock code Name shares held 2017 Cost 2017 2017 2017 2017 (Note 1) (Note 2) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

153.HK China Saite Group 203,800,000 8.74% 95,024 95,194 5,370 – – Company Limited 1908.HK C&D International 60,000,000 8.16% 218,666 345,317 99,931 – 3,488 Investment Group Limited 2098.HK Zall Group 949,224,000 8.16% 947,452 6,761,509 1,991,988 – – 8307.HK Medicskin Holdings 80,000,000 16.65% 45,334 40,037 (18,980) – 3,512 Limited 3332.HK Nanjing Sinolife – 0.00% – – – (2,644) 4,800 United Company Limited

7,242,057 2,078,309 (2,644) 11,800

Notes:

1. All of the above companies are listed companies on the Stock Exchange.

2. All of the shares held by the Group are ordinary shares of the relevant company.

The performance and prospect of the Group’s major investment during the Year 2018 are as follow:

Zall Group

The principal activities of Zall Group include developing and operating large-scale product-focused wholesale shopping malls which focus on sales of consumer goods and the related value-added businesses, such as warehousing, logistics, e-commerce and financial services in the PRC. The Group held approximately 949,224,000 shares in Zall Group, representing approximately 8.13% of its entire issued capital as at 31 December 2018 (31 December 2017: 8.16%). The carrying amount of the investment in Zall Group accounted for approximately 7% of the Group’s total assets as at 31 December 2018 (31 December 2017: 12%). The Group believes that Zall Group’s growth momentum in operation remains strong and expects the Group’s investment in Zall Group to generate a return for the Group.

– I-14 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) Other investments

During the Year 2018, apart from the above listed equity investments, the Group continued to monitor the portfolio performance and adjust the investment portfolio when necessary. The diversified investment portfolio is to implement the direction of expanding the sources of the Group’s investment income and stabilizing its long term investment strategies.

As the subsidiaries of the Group, Baoqiao Group, a group of companies acquired by the Group in 2016, offered a wide range of financial services to listed companies, high net-worth individuals and institutional & corporate clients, which include corporate finance, investment management, equity capital markets, money lending services and securities trading services.

During the Year 2018, this segment recorded a loss of approximately RMB3,220,116,000 (2017: profit of approximately RMB2,202,884,000). The loss before tax from the fair value changes in financial instruments for the Year 2018 of approximately RMB3,555,856,000 (2017: gain before tax of approximately RMB1,907,073,000) was mainly attributable to changes in share price of Zall Group. The loss from fair value changes after tax of the financial instruments at fair value through other comprehensive income and available-for-sale investments was approximately RMB189,523,000 (2017: RMB252,860,000). As at 31 December 2018, the total amount of financial assets at fair value through profit or loss, was approximately RMB7,352,513,000 (2017: RMB7,931,769,000), and the total amount of financial assets at fair value through other comprehensive income and available-for-sale investments held by the Group was approximately RMB4,904,854,000 (2017: RMB4,894,177,000).

(4) Healthcare and education business and others

During the Year 2018, the Group continued to identify appropriate investment opportunities to inject new impetus for the sustainable development of healthcare and education businesses. The revenue of healthcare and education segment was approximately RMB366,224,000 (2017: RMB560,825,000).

– I-15 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(5) New Energy Segment

New energy segment is principally engaged in research, design, development, manufacture and distribution of a broad range of mechanical transmission equipment that are used in wind power and a wide range of industrial applications. During the Year 2018, the segment has contributed revenue of approximately RMB8,509,022,000 (2017: RMB8,241,914,000) to the Group.

(a) Wind gear transmission equipment

The Group is a leading supplier of wind gear transmission equipment in the PRC. By leveraging its strong research, design and development capabilities, the Group has a range of products including 750KW, 1.5MW, 2MW and 3MW wind power transmission equipment which are provided to domestic and overseas customers in bulk. The product technology has reached an internationally advanced technical level and is well recognised by customers in general. In addition to the provision of diversified large wind power gear boxes to customers, the Group has also successfully developed and accumulated 5MW and 6MW wind power gear box with a technological level comparable to its international peers, thus enabling it to have the capability and technology to produce those products.

Currently, the Group maintains a strong customer portfolio. Customers of its wind power business include the major wind turbine manufacturers in the PRC, as well as renowned international wind turbine manufacturers such as GE Renewable Energy, Nordex, Senvion, Unison, Suzlon, Inox Wind, etc. With quality products and good services, the Group has also received a wide range of recognition and trust from customers at home and abroad. The Group has wholly-owned subsidiaries in the USA, Germany, Singapore, Canada and India to support the sustainable development strategy of the Group and strive to have closer communication and discussion with potential overseas customers with a view to providing further diversified services for global customers.

(b) Industrial gear transmission equipment

The Group’s traditional gear transmission equipment products are mainly supplied to customers in industries such as metallurgy, construction materials, traffic, transportation, petrochemical, aerospace and mining. The Group adjusted the development strategy for traditional industrial gear transmission equipment. Above all, with the focus on energy-saving and environmentally-friendly products, the Group self-developed standardized and modular products which are internationally competitive, in order to facilitate the change in sales strategies and explore new markets and new industries; at the same time, the Group strengthened its efforts to provide and sell parts and components of relevant products as well as system solutions to its customers, helping them enhance their current production efficiency without increasing capital expenditure, thereby maintaining the Company’s position as a major supplier in the traditional industrial transmission product market. In respect of transmission equipment for

– I-16 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

high-speed rails, metro lines, urban train and tram segments, the Group has obtained International Railway Industry Standard (IRIS) certificate for its rail transportation products, which has laid a solid foundation for the Group’s rail transportation products to expand into high-end international railway markets. Currently the products have been successfully applied to rail transportation transmission equipment in Beijing, Shanghai, Shenzhen, Nanjing, Qingdao, Dalian, Suzhou, Lanzhou, Nanchang, Shijiazhuang, Fuzhou, Jinan, Wenzhou, Xi’an, Wuhan, Hong Kong, Singapore, Brazil, India, Mexico, Tunisia and Australia. The Group will continue to actively extend the transmission equipment business into high-speed rails, metro lines, urban train and tram segments, and accelerate the research and development of rail transportation gear equipment products.

The metro gear box that is used in the metro of Shanghai, Hong Kong and Melbourne is PDM385 type two-stage metro gear box, which was developed by the Group on the basis of the assimilation of domestic and foreign standards and customer specifications and several years’ experience in design and manufacturing. PDM385 type two-stage metro gear box is characterized by its compacted structure, low noise, and easy maintenance, etc. With a 1.2 million km, or 10-year maintenance-free life span, the key components can endure for a period of 35 years.

During the Year 2018, the Group continued its strategy to divest the loss-making business to enhance its overall performance. On 23 November 2018, the Group entered into a bundle transaction with an independent third party to dispose of its entire equity interests of ten subsidiaries and four associates (the “Disposal Group”), of which some are engaging in manufacturing and sales of computer numerical controlled machine tool and diesel engine products. As at the date of this report(1), the disposal of the Disposal Group under the equity transfer agreement was still not completed and is expected to be completed in 2019.

Financial Review

Revenue

The revenue of the Group decreased by approximately RMB737,806,000, or 7%, from approximately RMB11,026,457,000 in Year 2017 to approximately RMB10,288,651,000 in Year 2018. The revenue in Year 2018 was derived from the properties segment, tourism segment, investment and financial services segment, healthcare, education and others segment and new energy segment of approximately RMB773,549,000, RMB628,930,000, RMB10,926,000, RMB366,224,000 and RMB8,509,022,000 respectively, and the revenue in

Note:

(1) The report mentioned refers to the 2018 annual report of the Company.

– I-17 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Year 2017 was derived from the properties segment, tourism segment, investment and financial services segment, healthcare, education and others segment and new energy segment of approximately RMB2,007,216,000, RMB167,453,000, RMB49,049,000, RMB560,825,000 and RMB8,241,914,000 respectively.

In Year 2018, the revenue of the properties segment decreased by approximately RMB1,233,667,000 or 61%, as compared to Year 2017. The properties segment includes investment, development and sales of properties and provision of construction related services. The decrease in revenue was mainly due to the decrease in sales of properties by approximately RMB1,222,305,000 from approximately RMB1,704,330,000 in Year 2017 to approximately RMB482,025,000 in Year 2018. Fewer properties were delivered because certain projects are still in construction stage and the Group delivered fewer property units among the completed projects in Year 2018.

The revenue of the tourism segment increased by approximately RMB461,477,000, or 276% as compared to Year 2017. The main reason was that in addition to the revenue derived from a hotel operated in Australia, the Group has made more efforts on tourism supply chain business to improve the overall revenue of tourism segment in Year 2018.

The revenue of the investment and financial services segment decreased by approximately RMB38,123,000, or 78% as compared to Year 2017. This was mainly because there were larger scales of financial service projects in Year 2017, while there was no such project of similar scale in Year 2018.

The revenue of the healthcare, education and others segment decreased by approximately RMB194,601,000, or 35% as compared to Year 2017, which was mainly due to the disposal of Shenzhen Anke High Technology Company Limited* (深圳安科高技術股份有限公司) and its subsidiaries (“Shenzhen Anke Group”) in December 2017. Shenzhen Anke Group is principally engaged in medical equipment assembly and sale. Excluding the effects resulted from the disposal of Shenzhen Anke Group, the revenue of childhood education project in Australia and the sales of other products showed a growth of approximately 73% as compared to Year 2017.

The revenue of the new energy segment slightly increased by approximately RMB267,108,000, or 3% as compared to Year 2017, which was mainly due to the increase in deliveries of wind and industrial gear transmission equipment.

– I-18 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Cost of sales

The cost of sales of the Group increased by approximately RMB254,254,000, or 3%, from approximately RMB8,066,730,000 in Year 2017 to approximately RMB8,320,984,000 in Year 2018. The costs of sales in Year 2018 derived from the properties segment, tourism segment, investment and financial services segment, healthcare, education and others segment and new energy segment were approximately RMB343,896,000, RMB618,689,000, RMB4,397,000, RMB323,064,000 and RMB7,030,938,000 respectively, whereas the cost of sales in Year 2017 derived from the properties segment, tourism segment, investment and financial services segment, healthcare, education and others segment and new energy segment were approximately RMB1,054,162,000, RMB179,237,000, RMB1,789,000, RMB446,695,000 and RMB6,384,847,000 respectively.

The cost of sales for the properties segment decreased by approximately RMB710,266,000, or 67% as compared to Year 2017, which was mainly due to the decrease in the properties projects delivered during Year 2018.

Cost of sales of the tourism segment increased by approximately RMB439,452,000, or 245% as compared to Year 2017, which was mainly resulted from the growth of tourism supply chain business during Year 2018.

The amount of cost of sales of the investment and financial services segment slightly increased by approximately RMB2,608,000, as compared to Year 2017.

Cost of sales of the healthcare, education and others segment decreased by approximately RMB123,631,000, or 28% as compared to Year 2017, which was mainly because of the disposal of Shenzhen Anke Group in December 2017.

The cost of sales of the new energy segment includes the impact of the accounting adjustment of approximately RMB96,572,000 (For Year 2017: RMB311,976,000) made on the premium over the cost of inventory and other non-current assets upon the acquisition of China High Speed Transmission Equipment Group Co. Ltd. (“CHS”) in late 2016. If this accounting adjustment was excluded, the cost of sales would be approximately RMB6,934,366,000 in Year 2018. The cost of sales after excluding such consolidated adjustment was approximately RMB6,072,871,000 in Year 2017. Therefore, the cost of sales increased by approximately RMB861,495,000, or 14% as compared to Year 2017. The increase was mainly due to the increase in prices of raw materials.

– I-19 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Gross profit and gross profit margin

The gross profit of the Group decreased by approximately RMB992,060,000, or 34%, from approximately RMB2,959,727,000 in Year 2017 to approximately RMB1,967,667,000 in Year 2018. The gross profit margin decreased from 27% in Year 2017 to 19% in Year 2018. The gross profit of the Group was mainly derived from properties segment and new energy segment. The gross profit and gross profit margin in Year 2018 derived from the properties segment and new energy segment were approximately RMB429,653,000 and 56%, and approximately RMB1,478,084,000 and 17% respectively. The gross profit and gross profit margin in Year 2017 derived from the properties segment and new energy segment were approximately RMB953,054,000 and 47%, and approximately RMB1,857,067,000 and 23% respectively. The decrease in gross profit of the properties segment was mainly due to the decrease in delivered properties as compared with that in Year 2017. However, the increase in rental income with a higher gross profit margin resulted in an increase in gross profit margin of properties segment. In addition, the decrease in the gross profit and gross profit margin of the new energy segment was due to the increase in cost of sales.

Selling and distribution expenses

Selling and distribution expenses of the Group decreased by approximately RMB126,369,000, or 23%, from approximately RMB544,894,000 in Year 2017 to approximately RMB418,525,000 in Year 2018, which was mainly due to the selling and distribution expenses of certain disposed subsidiaries in Year 2017 not being recorded in Year 2018. Moreover, the decline in sales revenue from properties segment in Year 2018 resulted in a corresponding decrease in the related selling expenses, such as promotion and commission expenses.

Administrative expenses and credit impairment losses on financial assets

Administrative expenses and credit impairment losses on financial assets of the Group decreased by approximately RMB73,747,000 or 6%, from approximately RMB1,282,631,000 in Year 2017 to approximately RMB1,208,884,000 in Year 2018. The administrative expenses in Year 2018 and Year 2017 mainly included salaries and staff welfare, depreciation and amortization of tangible and intangible assets, credit impairment losses on financial assets and professional fees. Decrease in administrative expenses in Year 2018 was mainly due to the decrease in salaries and staff welfare and credit impairment losses on financial assets.

– I-20 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Other income

Other income increased by approximately RMB299,129,000, or 59%, from approximately RMB510,589,000 in Year 2017 to approximately RMB809,718,000 in Year 2018. Other income in Year 2018 mainly included other interest income of approximately RMB390,576,000, bank interest income of approximately RMB151,896,000 and dividend income of approximately RMB146,919,000. Other income in Year 2017 mainly included other interest income of approximately RMB167,240,000, bank interest income of approximately RMB120,779,000 and dividend income of approximately RMB120,902,000.

Fair value change in financial instruments

The Group maintains its investment segment through possessing and investing in various investment and financial products for potential or strategic use purposes. The Group recorded a loss on change in fair value of financial instruments of approximately RMB3,555,856,000 in Year 2018, as compared to a gain on change in fair value of approximately RMB1,907,073,000 in Year 2017. The fair value change mainly derived from listed equity investments. The Group recorded a significant fair value loss in Year 2018 mainly due to the price decrease of 949,224,000 shares of Zall Group held by the Group. The Group will closely monitor its investment performance and will adjust its investment plan and portfolio when necessary.

Other gains – net

Net other gains of the Group comprises of miscellaneous non-recurring items, mainly the fair value change of investment properties, gains/losses of disposal of non-current assets, subsidiaries and associates, impairment loss of the non-current assets and foreign exchange differences. It decreased by approximately RMB234,077,000, or 58%, from approximately RMB402,341,000 in Year 2017 to approximately RMB168,264,000 in Year 2018. The decrease was mainly because there was a fair value gain of RMB416,137,000 derived from the Group’s transfer of certain parts of its shopping mall from properties held for sale to investment properties in Year 2017 while no such transfer happened in Year 2018. Such decrease was partly offset by the decrease in foreign exchange losses. Due to a relatively more stable foreign exchange rates in Year 2018 than in Year 2017, the exchange difference losses decreased significantly. In Year 2018, the net exchange difference losses was approximately RMB5,340,000 (Year 2017: approximately RMB110,831,000). During Year 2018, there were less gain/losses and impairment losses of those non-current assets and investments compared with Year 2017.

Share of result of joint ventures

The Group’s share of result from its joint ventures decreased from share of net profits of approximately RMB152,950,000 in Year 2017 to share of net loss of approximately RMB22,327,000 in Year 2018 which was mainly because (i) the Group shared losses of Fullshare Value Fund I L.P. (“Value Fund”) of approximately RMB50,477,000 in Year 2018. It is noted that more finance costs and exchange differences losses were recognised for Value

– I-21 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Fund. In Year 2017, the share of loss from Value Fund was approximately RMB1,529,000; (ii) the Group shared fewer profits of Five Season Cultural Tourism Development Limited* (五季文化旅遊發展有限公司)(“Five Seasons Culture”) from RMB80,319,000 in Year 2017 to RMB23,412,000 in Year 2018 because Five Seasons Culture was disposed of during Year 2018.

Finance costs

Finance costs of the Group increased by approximately RMB217,696,000, or 30%, from approximately RMB731,051,000 in Year 2017 to approximately RMB948,747,000 in Year 2018, which was mainly because the average borrowing amount and interest rate of the Group in Year 2018 is larger and higher than that in Year 2017.

Income tax expense

In Year 2018, the current income tax expense and the deferred tax credit of the Group amounted to approximately RMB162,036,000 and RMB641,607,000, respectively, and in Year 2017, the current income tax and the deferred tax expense amounted to approximately RMB690,423,000 and RMB286,004,000, respectively.

In Year 2018, the current income tax expense decreased by approximately RMB528,387,000 as compared to Year 2017, which was mainly due to less profit generated from the properties and new energy segments than in Year 2017.

The deferred tax credit in Year 2018 was mainly derived from the fair value losses in financial instruments of approximately RMB597,548,000 and reversal of deferred tax liabilities of approximately RMB46,653,000 recognised at the date of acquisition of CHS when the non-current assets were amortized and disposed of. The deferred tax expense in Year 2017 was mainly derived from the fair value gains in financial instruments of approximately RMB342,303,000 and fair value gains on investment properties of approximately RMB132,823,000; deferred tax credit from unpaid land appreciation tax provision of approximately RMB60,505,000 and reversal of deferred tax liabilities of approximately RMB119,464,000 recognised at the date of acquisition of CHS when the inventories were sold and non-current assets were amortized.

Loss/profit for the Year

In Year 2018, the Group recorded a loss after tax of approximately RMB3,062,457,000. Excluding the net gains on disposal of subsidiaries of approximately RMB95,476,000, gain on a bargain purchase recognised in acquisition of subsidiaries of approximately RMB7,667,000 and relevant tax expense of approximately RMB10,404,000, the net loss recorded by the Group in Year 2018 was approximately RMB3,155,196,000. In Year 2017, the Group recorded a profit of approximately RMB2,136,464,000. Excluding the net gains on disposal of subsidiaries of approximately RMB364,534,000, gain on bargain purchase recognised in acquisition of subsidiaries of approximately RMB38,038,000 and the relevant tax expenses of approximately

– I-22 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

RMB145,698,000 for the abovementioned gains, the Group recorded a net profit for approximately RMB1,879,590,000 for Year 2017. Compared with Year 2017, the change was mainly due to the decrease in net fair value after tax in financial instruments of approximately RMB4,559,311,000.

Liquidity, Financial Resources And Gearing Ratio

In Year 2018, the Group financed its operations and investments mainly by internally generated funds and debt financing.

Cash position

As at 31 December 2018, the Group had cash and cash equivalents of approximately RMB2,536,801,000 (31 December 2017: approximately RMB5,221,679,000) excluding pledged bank deposits, represented a decrease by approximately RMB2,684,878,000, or 51% as compared to 31 December 2017.

Bank and other borrowings

As at 31 December 2018, bank and other borrowings of the Group amounted to approximately RMB10,464,418,000 including bank loans of approximately RMB6,477,804,000 and other borrowings of approximately RMB3,986,614,000. Among the bank and other borrowings, approximately RMB7,020,106,000 are repayable within one year, approximately RMB1,152,269,000 are repayable over one year but not exceeding two years, RMB1,731,923,000 are repayable over two years but not exceeding five years and approximately RMB560,120,000 are repayable over five years.

The borrowings balance decreased by approximately RMB1,588,023,000 or 13%, from 31 December 2017 to 31 December 2018.

Corporate bonds

As at 31 December 2018, the corporate bonds of the Group amounted to approximately RMB2,420,085,000 (31 December 2017: RMB1,919,988,000). The interest rate was fixed, the balances of approximately RMB1,921,937,000 were repayable over one year but not exceeding two years and balances of approximately RMB498,148,000 were repayable over two years but not exceeding five years. The corporate bonds of approximately RMB2,411,465,000 and RMB8,620,000 were denominated in RMB and Hong Kong dollars respectively.

Leverage

As at 31 December 2018, total cash and cash equivalents of the Group amounted to approximately RMB2,536,801,000 (31 December 2017: RMB5,221,679,000), excluding pledged bank deposits. Total balances of bank and other borrowings and corporate bonds amounted to approximately RMB12,884,503,000 as at 31 December 2018 (31 December 2017:

– I-23 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

RMB13,972,429,000). The gearing ratio of the Group as at 31 December 2018, calculated as a ratio of the sum of bank and other borrowings and corporate bonds to total assets, was approximately 26% (31 December 2017: 26%). The net equity of the Group as at 31 December 2018 was approximately RMB23,900,537,000 (31 December 2017: approximately RMB27,203,699,000).

As at 31 December 2018, the Group recorded total current assets of approximately RMB27,966,791,000 (31 December 2017: RMB31,630,524,000) and total current liabilities of approximately RMB18,625,456,000 (31 December 2017: RMB19,731,019,000). The current ratio of the Group, calculated by dividing total current assets by total current liabilities, was about 1.5 as at 31 December 2018 (31 December 2017: 1.6).

Foreign Exchange Exposure

The assets, liabilities and transactions of the Group are mainly denominated in RMB, Hong Kong dollars, Australian dollars, US dollars, Euros and Singaporean dollars. The Group currently does not have a foreign currency hedging policy. In order to manage and reduce foreign exchange exposure, the management will evaluate the Group’s foreign exchange exposure from time to time and take actions as appropriate.

Treasury Policies

As at 31 December 2018, bank and other borrowings of approximately RMB7,280,882,000, RMB2,023,741,000, RMB647,237,000, RMB269,084,000 and RMB243,474,000 were denominated in RMB, US dollars, Hong Kong dollars, Euros and Australia dollars respectively (31 December 2017: RMB9,668,367,000, RMB1,409,557,000 RMB784,219,000, RMB190,298,000 and nil). Bank and other borrowings of approximately RMB9,179,425,000 (31 December 2017: RMB8,685,724,000) were at fixed interest rates, the remaining balances were either at variable rates or non-interest bearing. Cash and cash equivalents held by the Group were mainly denominated in RMB and Hong Kong dollars. The Group currently does not have foreign exchange and interest rate hedging policies. However, the management of the Group monitors the foreign exchange and interest rate exposure from time to time and will consider hedging significant foreign exchange and interest rate exposure if needed.

As at 31 December 2018, trade and bills receivables and trade and bills payables of the Group were approximately RMB6,000,069,000 and RMB6,519,944,000 (31 December 2017: RMB6,650,273,000 and RMB6,814,951,000), respectively. The Group has a policy in financial risk management to ensure settlement of all receivables and payables during the credit period.

– I-24 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Pledge of Assets

Details of the Group’s pledged assets as at 31 December 2018 are set out in note 52 to the consolidated financial statements attached to this annual report.(1)

Operating Segment Information

Details of the operating segment information of the Group in the Year 2018 are set out in note 6 to the consolidated financial statements attached to this annual report.(1)

Capital Commitments

Details of the capital commitments of the Group as at 31 December 2018 are set out in note 51 to the consolidated financial statements attached to this annual report.(1)

Contingent Liabilities

Details of contingent liabilities of the Group as at 31 December 2018 are set out in note 50 to the consolidated financial statements attached to this annual report.(1)

Material Acquisitions And Disposals

To expand the scale of operations and improve the quality of the assets of the Group, the Group conducted and completed the following material corporate acquisitions and disposals in the Year 2018:

1. On 9 February 2018, the Company, China Merchants Securities Asset Management Company Limited* (招商證券資產管理有限公司) and Ningbo Zhongbang Chanrong Holding Company Limited* (寧波眾邦產融控股有限公司) (collectively referred to as “Limited Partners”), both being limited partners of Ningbo Fengdong Investment Management Partnership Enterprise (Limited Partnership)* (寧波豐動投資管理合夥企業(有限合夥) (the “Fund”) and Ningbo Zhongxin Wanbang Asset Management Company Limited* (寧波眾信萬邦資產管理有限公司), being the general partner of the Fund entered into a forward sale and purchase agreement (the “Forward Purchase Agreement”), pursuant to which the Company has conditionally agreed to acquire from each of the Limited Partners their respective interests in the Fund at a maximum consideration of RMB3,342,506,567 which was determined with reference to the capital contributions made by the Limited Partners of an aggregate amount of approximately RMB2,633,000,000 and the expected return to be distributed by the Fund in accordance with the terms of the limited partner agreement on the relevant settlement date in accordance with the terms of the Forward Purchase Agreement. The maximum consideration for the acquisition is estimated to be approximately RMB3,342,507,000.

Note:

(1) The annual report mentioned refers to the 2018 annual report of the Company.

– I-25 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The object of the Fund is to invest in Shanghai Joyu Culture Communication Company Limited* (上海景域文化傳播股份有限公司)(“Shanghai Joyu”), or such other companies or businesses as may be agreed by the Limited Partners and the general partner. Shanghai Joyu is principally engaged in the tourism and vacation businesses and is a one-stop O2O service provider in the PRC tourism business. Its “Lvmama travel website”* (「驢媽媽旅遊網」) is a well-known online travel agency in the PRC. The Fund has completed the acquisition from the shareholders of Shanghai Joyu and capital injection in Shanghai Joyu and held approximately 26.33% interests in Shanghai Joyu as at 31 December 2018.

2. On 19 March 2018, Prosper Wealth International Limited (“Prosper Wealth”), a direct wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with Yi Yue (Hong Kong) Limited* (益悅(香港)有限公司)(“Yi Yue (Hong Kong)”), an indirect wholly-owned subsidiary ofC&DInternational Investment Group Limited (建發國際投資集團有限公司), a company listed on the Stock Exchange (stock code: 1908), pursuant to which, amongst others, Yi Yue (Hong Kong) agreed to purchase and Prosper Wealth agreed to sell 100% interests of Fullshare Healthcare Limited, an indirect wholly-owned subsidiary of the Company, at the cash consideration of RMB1,092,764.23. Yi Yue (Hong Kong) shall also provide fund to Fullshare Healthcare Limited to repay the shareholder’s loan in the amount of RMB168,957,149.55 previously advanced by the Company. Accordingly, the Company and Xiamen Yi Yue Property Company Limited* (廈門益悅置業有限公司) agreed to terminate the cooperation development agreement dated 8 December 2017 on 19 March 2018. Completion of the disposal has taken place on 25 March 2018.

3. On 30 October 2018, Nanjing Fullshare Dazu Technology Co., Ltd.* (南京豐盛大族科技股份有限公司)(“Fullshare Dazu”), an indirect wholly-owned subsidiary of the Company, entered into a joint development agreement with Changzhou Hengchen Enterprise Management Co., Ltd.* (常州恒宸企業管理有限公司)(“Changzhou Hengchen”) and Shengyu (BVI) Limited (盛譽(BVI)有限公司*) (“Shengyu”), pursuant to which, Fullshare Dazu shall invest RMB1.00 billion in Changzhou Jiangheng Real Estate Development Co., Ltd.* (常州江恒房地產開發有限公司) (“Changzhou Project Company”), of which RMB827.88 million was injected as registered capital and RMB172.12 million was included as capital reserves. Upon completion of the capital increase, the registered capital of Changzhou Project Company increased to RMB1,881.54 million, and Fullshare Dazu held 44% equity interests in Changzhou Project Company, in proportion to its contributions to the registered capital. Changzhou Project Company has obtained the construction land use right of the project land located in Changzhou, Jisangsu Province, the PRC (the “Changzhou Project Land”). In order to maximize value for all the parties, the Group entered into the joint development agreement to develop, manage and operate the Changzhou Project Land with Changzhou Hengchen and Shengyu.

– I-26 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

In the Year 2018, save as disclosed above, the Group did not have any material acquisition or disposal of subsidiaries or associates.

Employees

As at 31 December 2018, the Group had 6,652 employees (31 December 2017: 7,594 employees). The Group’s total staff costs (including executive directors’ remuneration) amounted to approximately RMB1,740,366,000 in the Year 2018 (Year 2017: approximately RMB1,771,370,000). Employees’ remunerations are determined according to the Group’s operating results, job requirements, market salary level and ability of individuals. The Group regularly reviews its remuneration policy and additional benefit programs and makes necessary adjustments to bring them in line with the industry level. In addition to basic salaries, the Group has established revenue sharing programs and performance appraisal plans to provide rewards according to the Group’s results and employees’ individual performance. The Group has also adopted a share option scheme and share award scheme to promote the implementation of enterprise culture of co-creation and co-sharing and procure the core employees of the Company to focus on long-term operation performance, as well as to attract, retain and impel core talents, details of which are set out in the sections headed “Share Option Scheme” and “Share Award Scheme” in the Report of the Directors.

For the year ended 31 December 2019

Business Review

The revenue of Fullshare Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) for the year ended 31 December 2019 (the “Year 2019”) was derived from property, tourism, investment and financial services, healthcare and education and new energy businesses.

(1) Property business

(a) Property sales

During the Year 2019, the Group had contracted sales of approximately Renminbi (“RMB”) 362,348,000, representing an increase of approximately 56% as compared with the year ended 31 December 2018 (the “Year 2018”). The Group made contracted sales for an aggregate gross floor area (“GFA”) of approximately 21,721 sq.m., representing an increase of approximately 110% as compared with the Year 2018. The contract sales in the Year 2019 were mainly contributed by Yuhua Salon Project and Kunshan Herong Project. As at 31 December 2019, the Group’s contracted sales for the contracts signed but properties not yet delivered were approximately RMB19,608,000 with a total GFA of 1,448 sq.m. The increase in contracted sales and GFA was mainly due to most of the projects have not yet fulfilled the conditions of pre-sale for the Year 2018. During the Year 2019, the average contracted selling price was approximately RMB16,682 per sq.m., representing a decrease of approximately 26% as compared with the Year 2018.

– I-27 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2019, a breakdown of the major properties held by the Group in the People’s Republic of China (the “PRC”) and their construction status was as follows:

Construction Expected Accumulated Interest progress of completion Site GFA GFA under contracted attributable Project name Address Project type the project date area completed construction sales GFA to the Group (sq.m.) (sq.m.) (sq.m.) (sq.m.)

Yuhua Salon No. 119 Ruanjian Office and Completed Completed 33,606 79,287 – 59,216 100% (雨花客廳)A1 Avenue, Yuhuatai commercial District, Nanjing, project Jiangsu Province, the PRC Yuhua Salon No. 119 Ruanjian Hotel and Under First 30,416 – 81,380 – 100% (雨花客廳)A2 Avenue, Yuhuatai office construction quarter District, Nanjing, project of 2020 Jiangsu Province, the PRC Yuhua Salon East to Ningdan Office and Completed Completed 42,639 133,832 – 70,621 100% (雨花客廳) C South Road, Yuhuatai commercial District, Nanjing, project Jiangsu Province, the PRC Yuhua Salon East to Ningdan Apartment Completed Completed 48,825 189,193 – 68,584 100% (雨花客廳) C North Road, Yuhuatai and District, Nanjing, commercial Jiangsu Province, project the PRC Kunshan Herong North to Chinese Residential Completed Completed 48,553 145,990 – 50,440 100% (昆山和融) Garden Road, project West to Huangshan Road, Development District, Kunshan, the PRC

204,039 548,302 81,380 248,861

– I-28 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) Investment properties

As at 31 December 2019, the investment properties of the Group mainly included Wonder City* (虹悅城), certain units of Yuhua Salon* (雨花客廳), Nantong Youshan Meidi Garden Project* (南通優山美地花園項目), Huitong Building Project* (匯通大廈項目), Zhenjiang Youshan Meidi Garden Project* (鎮江優山美地花園項目) and Weihai Project* (威海項目).

Interest Attributable Term of to the Address Existing use contract GFA Group (sq.m.)

Nanjing Wonder City No. 619 Yingtian Da Shopping mall Medium-term 100,605 100% (虹悅城) Jie, Yuhuatai covenant District, Nanjing, Jiangsu Province, the PRC Yuhua Salon No. 119 Ruanjian Office and Medium-term 79,691 100% (雨花客廳) Avenue, Yuhuatai shopping covenant (certain units District, Nanjing, mall Jiangsu Province, the PRC

Yuhua Salon No. 119 Ruanjian Car park Medium-term 2,811 100% (雨花客廳) Avenue, Yuhuatai covenant (certain units) District, Nanjing, Jiangsu Province, the PRC

Nantong Nantong Youshan Meidi No. 1888, Xinghu Commercial Medium-term 20,876 100% Garden Project Avenue, Nantong, covenant (南通優山美地花園項目) Jiangsu Province, the PRC

Huitong Building Project No. 20, Zhongxiu Commercial Medium-term 20,461 100% (匯通大廈項目) Street, Nantong, covenant Jiangsu Province, the PRC

– I-29 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Interest Attributable Term of to the Address Existing use contract GFA Group (sq.m.)

Zhenjiang Zhenjiang Youshan Meidi At the cross of Guyang Commercial Medium-term 10,085 100% Garden Project (鎮江優 North Road and covenant 山美地花園項目) Yushan North Road, Jingkou District, Zhenjiang, Jiangsu Province, the PRC

Weihai Weihai Project (威海項目) Block 1, No. 229, Commercial Medium-term 6,472 100% Rongshan Road, covenant Chengshan, Rongcheng City, Weihai, Shandong Province, the PRC

241,001

During the Year 2019, the Group engaged in provision of technical design and consulting services, green management services and entrusted construction services in the PRC. During the Year 2019, the revenue from both green building services and entrusted construction services was approximately RMB24,889,000 (2018: RMB70,228,000).

(2) Tourism business

During the Year 2019, the Group has gradually developed its tourism business, to build an industrial layout that combines investment activities and operation of businesses and integrates long-term and short-term initiatives. The tourism property projects currently invested and held by the Group include the Laguna project in Queensland, Australia, the Sheraton project in Australia, the Five Seasons Hotel project and the Hainan Wenchang Five Seasons Hotel project.

The Group has steadily promoted its tourism supply chain business during the Year 2019. By purchasing from upstream agents or centrally purchasing tourism resources, the Group helped the small and medium- sized travel agencies and certain online travel agency platforms (OTAs) to reduce the procurement costs effectively. Meanwhile, the Group also purchased and

– I-30 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP underwrote several tourism resources, and distributed air tickets, hotels, entrance tickets and traveling route products to downstream travel agencies or OTAs. The Group has established a strategic cooperation with Songtsam Culture Tourism (松贊文旅) to jointly customize traveling routes, build up Songtsam brand and promote Tibetan culture. The Group has cooperated with the Guoyi Tang Medical Center of Nanjing University of Chinese Medicine* (南京中醫藥大學國醫堂) to develop distinctive healthcare tourism routes, which integrate health services,health products and cultural tourism to bring users a different healthcare tourism experience. In addition to providing centralised procurement services and discounted traveling routes and products for upstream and downstream enterprises in the tourism supply chain, the Group has also developed an online platform that combines three major features of (i) tourism resources and product transactions, (ii) risk assessment and control and (iii) supply chain finance, in order to open up the upstream and downstream logistics chain, capital chain, business flow and information flow of tourism enterprises, and support our partners to enhance their competitiveness.

The Laguna project is located in Bloomsbury of Queensland in Australia as a large-scale comprehensive development project adjacent to the Great Barrier Reef with a land lot site area of approximately 29,821,920 sq.m. The land is currently held for future development.

The Sheraton project comprises the Sheraton Mirage Resort and the Golf Club project, which are located in Port Douglas of Queensland in Australia, a globally renowned tourist attraction. During the Year 2019, the hotel has been operating steadily with improving customer service quality and increasing operating revenue and profit. The Sheraton project comprises 295 guest rooms, 4 restaurants and bars and an 18-hole golf course, with a total land lot site area of approximately 1,108,297 sq.m., and a total GFA of approximately 62,328 sq.m.

Nanjing Five Seasons Hotel is located in the Software Valley, Nanjing, Jiangsu Province of the PRC, and covers a land lot site area of 30,416 sq.m., with a total GFA of 81,380 sq.m. The hotel is expected to open for business in mid-2020.

Wenchang Five Seasons Hotel project is located in the coastal area of Gaolong Bay, Qinglan, Wenchang City, Hainan Province of the PRC. It is planned to be built into a five-star healthcare resort with a land lot site area of 61,689.33 sq.m. The compilation of the detailed planning and design proposal for construction has been completed.

During the Year 2019, the revenue from tourism business was approximately RMB371,624,000 (2018: RMB628,930,000).

– I-31 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(3) Investment and financial services business

During the Year 2019, the Group’s investment and financial services business consists of holding and investing in various listed and unlisted equities and treasury products and provision of investment and financial related services.

(a) Listed equity investments held for trading

The portfolio of listed equity investments of the Group held for trading as at 31 December 2019 and 31 December 2018 is set out as below:

As at 31 December 2019

Unrealised holding Realised gain/(loss) gain/(loss) Dividend arising on arising from received/ Effective revaluation the disposal receivable Number of shareholding Acquisition Carrying for the Year for the Year for the Year Stock code Name shares held interest cost amount 2019 2019 2019 (Note 2) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

153.HK China Saite Group 190,120,000 6.29% 88,646 26,877 (35,505) 176 – (Note 1) Company Limited 1908.HK C&D International 17,984,000 1.98% 65,541 145,142 33,360 31,815 34,044 (Note 1) Investment Group Limited 2098.HK Zall Smart 949,224,000 8.06% 947,452 645,482 (2,890,173) – – (Note 1) Commerce Group Ltd. (“Zall Group”) 8307.HK Medicskin Holdings 80,000,000 16.47% 45,334 11,882 (5,376) – 2,818 (Note 1) Limited

829,383 (2,897,694) 31,991 36,862

Notes:

1. All of the above companies are companies listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

2. All of the shares held by the Group are ordinary shares of the relevant company.

– I-32 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2018

Unrealised holding Realised gain/(loss) gain/(loss) Dividend arising on arising from received/ Effective revaluation disposal for receivable Number of shareholding Acquisition Carrying for the Year the Year for the Year Stock code Name shares held interest cost amount 2018 2018 2018 (Note 3) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

153.HK China Saite Group 203,800,000 8.74% 95,024 66,219 (33,553) – – (Note 1) Company Limited

1908.HK C&D International 40,000,000 5.44% 145,777 234,646 (8,930) (16,126) 14,892 (Note 1) Investment Group Limited 2098.HK Zall Group 949,224,000 8.13% 947,452 3,542,707 (3,569,603) – 20,181 (Note 1) 8307.HK Medicskin Holdings 80,000,000 16.65% 45,334 16,861 (24,742) – 105 (Note 1) Limited 833581.NE CH-Auto – 0% – – – 9,367 – (Note 2) Technology Corporation Ltd

3,860,433 (3,636,828) (6,759) 35,178

Notes:

1. These companies are companies listed on the Stock Exchange.

2. The company is a company listed on the National Equities Exchange and Quotations in the PRC.

3. All of the shares held by the Group are ordinary shares of the relevant company.

The performance and prospect of the Group’s major listed securities investment during the Year 2019 are as follows:

Zall Group

The principal activities of Zall Group include developing and operating large-scale product-focused wholesale shopping malls which focus on sales of consumer goods and the related value-added businesses, such as warehousing, logistics, e-commerce and financial services in the PRC. The Group held approximately 949,224,000 shares in Zall Group, representing approximately 8.06% of its entire issued capital as at 31 December 2019 (31 December 2018: 8.13%). The carrying amount of the investment in Zall Group accounted for approximately 1% of the Group’s total assets as at 31 December 2019 (31 December 2018: 7%). Though the net profit of Zall Group dropped according to the announcement made by Zall Group on 2 March 2020, the Group believes that Zall Group’s growth momentum in operation remains strong and expects the Group’s investment in Zall

– I-33 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Group to generate a return for the Group. The Group is of the view that the unrealised holding loss derived from holding Zall Group is non-cash in nature and relates to the change in fair value of the Group’s investment in Zall Group that is volatile in nature. The unrealised holding loss will not adversely affect the Group’s operating financial positions. The Group will closely monitor the performance of its investment and adjust its investment plan and portfolio when necessary.

(b) Other investments

During the Year 2019, apart from the above listed equity investments, the Group continued to monitor the portfolio performance and adjust the investments portfolio when necessary. The diversified investment portfolio is to implement the direction of expanding the sources of the Group’s investment income and stabilizing its long term investment strategies.

The Group offers a wide range of financial services to listed companies, high net-worth individuals and institutional & corporate clients, which include corporate finance, investment management, equity capital markets and money lending services, via a well-developed group of subsidiaries (referred to as the “Baoqiao Group”).

During the Year 2019, this segment recorded a loss of approximately RMB3,222,296,000 (2018: RMB3,220,116,000). The change is mainly derived from the fair value changes in financial instruments which are relatively volatile in nature. The loss before tax from the fair value changes in financial instruments for the Year 2019 of approximately RMB2,824,876,000 (2018: RMB3,555,856,000) was mainly attributable to changes in share price of Zall Group. The loss from fair value change after tax of the financial instruments at fair value through other comprehensive income was approximately RMB1,505,000 (2018: RMB189,523,000). As at 31 December 2019, the total amount of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income held by the Group were approximately RMB2,128,787,000 and RMB6,323,866,000 (2018: RMB7,352,513,000 and RMB4,904,854,000) respectively.

(4) Healthcare and education business and others

During the Year 2019, the Group continued to identify appropriate investment opportunities to inject new impetus for the sustainable development of healthcare and education businesses. The revenue of healthcare and education segment was RMB350,514,000 (2018: RMB366,224,000).

– I-34 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(5) New Energy segment

New energy segment is principally engaged in research, design, development, manufacture and distribution of a broad range of mechanical transmission equipment that are used in wind power and a wide range of industrial applications. During the Year 2019, the segment has contributed revenue of approximately RMB9,869,788,000 (2018: RMB8,509,022,000) to the Group.

(a) Wind gear transmission equipment

The Group is a leading supplier of wind gear transmission equipment in the PRC. By leveraging its strong research, design and development capabilities, the Group has a range of products including 750kW, 1.5MW, 2MW, 3MW and 5MW wind power transmission equipment which have been provided to domestic and overseas customers in bulk. The product technology has reached an internationally advanced technical level and is well recognised by customers in general. In addition to the provision of diversified large wind power gear boxes to customers, the Group has also successfully developed and accumulated 6MW and 7MW wind power gear box with a technological level comparable to its international peers, thus enabling it to have the capability and technology to produce those products.

Currently, the Group maintains a strong customer portfolio. Customers of its wind power business include the major wind turbine manufacturers in the PRC, as well as renowned international wind turbine manufacturers such as GE Renewable Energy, Siemens Gamesa Renewable Energy and Vestas, etc. With our quality products and good services, the Group has received a wide range of recognition and trust from customers at home and abroad. The Group has wholly-owned subsidiaries in the United States of America, Germany, Singapore, Canada and India to support the sustainable development strategy of the Group and strive to have closer communication and discussion with potential overseas customers with a view to providing further diversified services for global customers.

(b) Industrial gear transmission equipment

In the past two years, the equipment industry of China has been affected by overcapacity, the Group adjusted the development strategy for traditional industrial gear transmission equipment. Above all, with the focus on energy-saving and environmentally- friendly products, the Group has upgraded the technology of the heavy products by the technology advantage, meanwhile, the Group has self- developed standardized, modular and intelligent products which are internationally competitive, facilitate the change in sales strategies and explore new markets and new industries by the products positioning with complete range, clear layers and precise subdivision. In particularly, the Group made the product development and research and market explore of the standard gearbox and

– I-35 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

planetary gearbox, etc. At the same time, the Group strengthened its efforts to provide and sell parts and components of relevant products as well as system solutions to its customers, helping them enhance their current production efficiency without increasing capital expenditure, thereby maintaining the Group’s position as a major supplier in the traditional industrial transmission product market.

In respect of transmission equipment for high-speed rails, metro lines, urban train and tram segments, the Group has obtained ISO/TS 22163 Certificate for the Quality Management System of International Railway Industry for its rail transportation products, which has laid a solid foundation for the Group’s rail transportation products to expand into high-end international railway markets. Currently the products have been successfully applied to rail transportation transmission equipment in Beijing, Shanghai, Shenzhen, Nanjing, Hong Kong and other cities in China and have also been successfully applied to rail transportation transmission equipment in multiple countries and regions such as Singapore, Brazil, Netherlands, India, Mexico, Tunisia, Australia and Canada. The Group will continue to actively extend the transmission equipment business into high-speed rails, metro lines, urban train and tram segments, and accelerate the research and development of rail transportation gear equipment products.

The metro gear boxes that are used in the metro of Shanghai, Hong Kong and Melbourne are PDM385 type two-stage metro gear box, which were developed by the Group on the basis of the assimilation of domestic and foreign standards and customer specifications and several years’ experience in design and manufacturing. PDM385 type two-stage metro gear box is characterized by its compact structure, low noise, and easy maintenance, etc. With a 1.2 million km, or 10-year maintenance-free life span, the key components have a lifetime of approximately 35 years.

Financial Review

Revenue

The revenue of the Group increased by approximately RMB874,452,000, or 8%, from approximately RMB10,288,651,000 for the Year 2018 to approximately RMB11,163,103,000 for the Year 2019. The revenue and the changes for the Year 2019 and Year 2018 derived from different segments are listed as below:

Segment Year 2019 Year 2018 Changes RMB’000 RMB’000 RMB’000 percentage

Properties 525,904 773,549 (247,645) (32%) Tourism 371,624 628,930 (257,306) (41%) Investment and financial services 45,273 10,926 34,347 314% Healthcare, education and others 350,514 366,224 (15,710) (4%) New energy 9,869,788 8,509,022 1,360,766 16%

Total Revenue 11,163,103 10,288,651 874,452 8%

– I-36 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The increment of the revenue of the Group mainly derived from the new energy segment which contributed the largest increment to the revenue of Group amounting to approximately RMB1,360,766,000. It was mainly due to the increase in market demands of wind gear transmission equipment which led to the increase in delivery.

The revenue from properties segment decreased by approximately RMB247,645,000 which was mainly because fewer property units were delivered and less construction services contracts were secured in the Year 2019.

The revenue from tourism segment also decreased by approximately RMB257,306,000 due to the Group experienced a transformation of business model for tourism supply chain business during Year 2019.

Cost of sales and services

The cost of sales and services of the Group increased by approximately RMB537,093,000, or 6%, from approximately RMB8,320,984,000 for the Year 2018 to approximately RMB8,858,077,000 for the Year 2019. The cost and changes for the Year 2019 and Year 2018 derived from different segments are listed as below:

Segment Year 2019 Year 2018 Changes RMB’000 RMB’000 RMB’000 percentage

Properties 255,259 343,896 (88,637) (26%) Tourism 353,310 618,689 (265,379) (43%) Investment and financial services 7,398 4,397 3,001 68% Healthcare, education and others 266,068 323,064 (56,996) (18%) New energy 7,976,042 7,030,938 945,104 13%

Total cost 8,858,077 8,320,984 537,093 6%

Gross profit and gross profit margin

The gross profit of the Group increased by approximately RMB337,359,000, or 17%, from approximately RMB1,967,667,000 in the Year 2018 to approximately RMB2,305,026,000 for the Year 2019. The gross profit margin increased from 19% in the Year 2018 to 21% for the Year 2019. The gross profit of the Group was mainly derived from properties segment and new energy segment. The gross profit and gross profit margin for the Year 2019 derived from the properties segment and new energy segment were approximately RMB270,645,000 and 51%, and RMB1,893,746,000 and 19% respectively. The gross profit and gross profit margin in the Year 2018 derived from the properties segment and new energy segment were RMB429,653,000 and 56%, and RMB1,478,084,000 and 17% respectively. The decrease in gross profit margin of the properties segment was mainly due to the gross profit margin of the

– I-37 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP properties projects that were delivered during the Year 2019 is lower than that delivered in the Year 2018. In addition, the increase in the gross profit and gross profit margin of the new energy segment was mainly due to the positive impact from economies of scale.

Selling and distribution expenses

Selling and distribution expenses of the Group increased by approximately RMB86,221,000, or 21%, from approximately RMB418,525,000 for the Year 2018 to approximately RMB504,746,000 for the Year 2019. The selling and distribution expenses mainly comprised of product packaging expenses, transportation expenses and staff costs. The increase in selling and distribution expenses in the Year 2019 was mainly in line with the increase in revenue from new energy segment.

Administrative expenses

Administrative expenses of the Group decreased by approximately RMB128,978,000, or 12%, from approximately RMB1,047,603,000 for the Year 2018 to approximately RMB918,625,000 for the Year 2019. The administrative expenses for the Year 2019 mainly included salaries and staff welfare, depreciation and amortisation of tangible and intangible assets. The decrease in administrative expenses in the Year 2019 was mainly due to the effort of the Group’s implementation of stricter cost control policy.

Research and development costs

Research and development costs of the Group increased by approximately RMB56,531,000, or 16%, from approximately RMB347,707,000 for the Year 2018 to approximately RMB404,238,000 for the Year 2019. The increase in research and development costs was mainly due to the increase in efforts put on research and development of new energy segment.

Net impairment losses on the financial assets

The net impairment loss on the financial assets of the Group in the Year 2019 increased by approximately RMB348,787,000 or 216%, from approximately RMB161,281,000 for the Year 2018 to approximately RMB510,068,000 for the Year 2019. Increase in credit impairment losses was mainly due to the increment of the expected loss rate of loans receivables in view of delayed repayments and worsening financial status of certain borrowers.

Other income

Other income of the Group decreased by approximately RMB136,078,000, or 17%, from approximately RMB809,718,000 for the Year 2018 to approximately RMB673,640,000 for the Year 2019. Other income for the Year 2019 mainly included other interest income of approximately RMB241,785,000, dividend income of approximately RMB154,236,000 and

– I-38 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP management fee income of RMB111,286,000. Other income for the Year 2018 mainly included other interest income of approximately RMB390,576,000, bank interest income of approximately RMB151,896,000 and dividend income of approximately RMB146,919,000.

Fair value change in financial instruments

The Group maintains its investment segment through possessing and investing in various investment and financial products for potential or strategic use purposes. The Group recorded a loss on change in fair value of financial instruments of approximately RMB2,824,876,000 for the Year 2019 (Year 2018: RMB3,555,856,000). The fair value change mainly derived from listed equity investments. The Group recorded a significant fair value loss in both Year 2019 and Year 2018 which was mainly due to the price decrease of 949,224,000 shares of Zall Group held by the Group. The Group will closely monitor its investment performance and will adjust its investment plan and portfolio when necessary.

Finance costs

Finance costs of the Group decreased by approximately RMB121,395,000, or 13%, from approximately RMB948,747,000 for the Year 2018 to approximately RMB827,352,000 for the Year 2019, which was mainly due to the lower average borrowing amount of the Group for the Year 2019 than for the Year 2018.

Share of result of joint ventures

The Group’s share of loss from its joint ventures increased from approximately RMB22,327,000 for the Year 2018 to approximately RMB252,047,000 for the Year 2019. It was mainly because of the significant loss recognised due to the disposal of investment made by Fullshare Value Fund I L.P..

Income tax expense/credit

For the Year 2019, the current tax expense and the deferred tax credit of the Group amounted to approximately RMB234,253,000 and RMB603,811,000 respectively, and for the Year 2018, the current tax expense and the deferred tax credit amounted to approximately RMB162,036,000 and RMB641,607,000, respectively.

The deferred tax credit for the Year 2019 was mainly derived from the fair value loss in financial instruments of approximately RMB455,353,000 and net impairment losses on financial assets of approximately RMB105,197,000. The deferred tax credit in the Year 2018 was mainly derived from the fair value losses in financial instruments of approximately RMB597,548,000 and reversal of deferred tax liabilities of approximately RMB46,653,000 recognised at the date of acquisition of China High Speed Transmission Equipment Group Co., Ltd. when the non-current assets were depreciated, amortised and disposed of.

– I-39 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Loss/profit for the Year 2019

For the Year 2019, the Group recorded a loss after tax of approximately RMB2,844,118,000 (2018: RMB3,062,457,000). The losses for both Year 2019 and Year 2018 was mainly due to the net fair value loss after tax in financial instruments and the net credit impairment losses recognised on financial assets.

Liquidity, Financial Resources And Gearing Ratio

For the Year 2019, the Group financed its operations and investments mainly by internally generated funds and debt financing.

Cash position

As at 31 December 2019, the Group had cash and cash equivalents (excluding the restricted cash) of approximately RMB2,797,003,000 (31 December 2018: RMB2,536,801,000), representing an increase by approximately RMB260,202,000 or 10% as compared to 31 December 2018. The Group’s cash and cash equivalents remain stable. The Group regularly and closely monitors its funding and treasury position to meet the funding requirements of the Group.

Bank and other borrowings and corporate bonds

As at 31 December 2019, the debt profile of the Group and the comparative figures for the previous year are as follows:

As at As at 31 December 31 December 2019 2018 RMB’000 RMB’000

Bank and other borrowings repayable: Within one year or on demand 5,199,030 7,020,106 Between one and two years 1,698,471 1,152,269 Between two to five years 451,100 1,731,923 Over five years 381,816 560,120

7,730,417 10,464,418

– I-40 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

As at As at 31 December 31 December 2019 2018 RMB’000 RMB’000

Corporate bonds repayable: Within one year or on demand 1,923,316 – Between one and two years 498,437 1,921,937 Between two to five years – 498,148

2,421,753 2,420,085

Total debts 10,152,170 12,884,503

As at 31 December 2019, the total debt of the Group decreased by approximately RMB2,732,333,000 or 21%, as compared with 31 December 2018.

Leverage

The gearing ratio of the Group as at 31 December 2019, calculated as a ratio of the sum of bank and other borrowings and corporate bonds to total assets, was approximately 23% (31 December 2018: 26%). The net equity of the Group as at 31 December 2019 was approximately RMB20,867,821,000 (31 December 2018: approximately RMB23,900,537,000).

As at 31 December 2019, the Group recorded total current assets of approximately RMB21,803,811,000 (31 December 2018: RMB27,966,791,000) and total current liabilities of approximately RMB18,010,483,000 (31 December 2018: RMB18,625,456,000). The current ratio of the Group, calculated by dividing total current assets by total current liabilities, was about 1.2 as at 31 December 2019 (31 December 2018: 1.5).

Foreign Exchange Exposure

– I-41 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Treasury Policies

As at 31 December 2019, bank and other borrowings of approximately RMB7,427,014,000, RMB6,976,000, RMBnil, RMBnil and RMB296,427,000 were denominated in RMB, US dollars, Hong Kong dollars, Euros and Australia dollars respectively (31 December 2018: RMB7,280,882,000, RMB2,023,741,000, RMB647,237,000, RMB269,084,000 and RMB243,474,000). As at 31 December 2019, corporate bonds of approximately RMB2,412,713,000 and RMB9,040,000 were denominated in RMB and Hong Kong dollars respectively (31 December 2018: RMB2,411,465,000 and RMB8,620,000). The debts in various currencies were mainly made to finance the operation of Group’s entities in different jurisdictions.

Bank and other borrowings and corporate bonds of approximately RMB9,877,218,000 (31 December 2018: RMB11,346,826,000) were at fixed interest rates, the remaining balances were either at variable rates or non- interest bearing. Cash and cash equivalents held by the Group were mainly denominated in RMB, Hong Kong dollars and Australian dollars. The Group currently does not have foreign exchange and interest rate hedging policies. However, the management of the Group monitors the foreign exchange and interest rate exposure from time to time and will consider hedging significant foreign exchange and interest rate exposure if needed.

Pledge of Assets

Details of the Group’s pledged assets as at 31 December 2019 are set out in note 53 to the consolidated financial statements in this report.(1)

Operating Segment Information

Details of the operating segment information of the Group for the Year 2019, are set out in note 6 to the consolidated financial statements in this report.(1)

Capital Commitments

Details of the capital commitments of the Group as at 31 December 2019 are set out in note 52 to the consolidated financial statements in this report.(1)

Contingent Liabilities

Details of contingent liabilities of the Group as at 31 December 2019 are set out in note 51 to the consolidated financial statements in this report.(1)

Note:

(1) The report mentioned refers to the 2019 annual report of the Company.

– I-42 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Material Acquisitions And Disposals

To expand the scale of operations and improve the quality of the assets of the Group, the Group conducted the following material acquisition in the Year 2019:

On 31 December 2019, Nanjing Fullshare Dazu Technology Co., Ltd.* (南京豐盛大族科技股份有限公司)(“Fullshare Dazu”), an indirectly wholly-owned subsidiary of the Company, entered into an equity transfer agreement with Nanjing Chuangrui Enterprise Management Co., Ltd.* (南京創睿企業管理有限公司)(“Nanjing Chuangrui”), pursuant to which, Fullshare Dazu agreed to acquire, and Nanjing Chuangrui agreed to sell 100% equity interests of Nanjing Zhonghui Heda Business Management Co., Ltd.* (南京眾慧合達商業管理有限公司) (the “Target Company”) for a consideration of RMB398 million (equivalent to approximately HK$443.06 million). The Target Company is principally engaged in holding two floors of a large shopping mall in Liuhe District, Nanjing, Jiangsu Province, the PRC. The acquisition of the Target Company was completed on 21 January 2020. Details of the acquisition were set out in the announcements of the Company dated 31 December 2019 and 17 January 2020 respectively.

In the Year 2019, save as disclosed above, the Group did not have any other material acquisition or disposal of subsidiaries, associates or joint ventures.

Employees

As at 31 December 2019, the Group had about 6,694 employees (31 December 2018: 6,652 employees). The Group’s total staff costs (including executive directors’ remuneration) amounted to approximately RMB1,807,414,000 in the Year 2019 (Year 2018: approximately RMB1,741,290,000). Employees’ remunerations are determined according to the Group’s operating results, job requirements, market salary level and ability of individuals. The Group regularly reviews its remuneration policy and additional benefit programs and makes necessary adjustments to bring them in line with the industry level. In addition to basic salaries, the Group has established revenue sharing programs and performance appraisal plans to provide rewards according to the Group’s results and employees’ individual performance. The Group has also adopted a share option scheme and a share award scheme to promote the implementation of enterprise culture of co-creation and co-sharing and procure the core employees of the Company to focus on long-term operation performance, as well as to attract, retain and impel core talents.

– I-43 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

For the year ended 31 December 2020

Business Review

The revenue of the Group for the Year 2020, was derived from property, tourism, investment and financial services, healthcare and education and new energy businesses.

(1) Property business

(a) Property sales

During the Year 2020, the Group had contracted sales of approximately Renminbi (“RMB”) 22,030,000, representing a decrease of approximately 94% as compared with the year ended 31 December 2019 (the “Year 2019”). The Group made contracted sales for an aggregate gross floor area (“GFA”) of approximately 1,166 sq.m., representing a decrease of approximately 95% as compared with the Year 2019. The contracted sales in the Year 2020 were mainly contributed by Yuhua Salon Project. As at 31 December 2020, the Group has delivered the properties for all signed sales contracts, while as at 31 December 2019, the Group’s contracted sales for the contracts signed but properties not yet delivered were approximately RMB19,608,000 with a total GFA of 1,448 sq.m.. The decrease in contracted sales and GFA was mainly due to most of the projects have been completed and disposed of in previous years. During the Year 2020, the average contracted selling price was approximately RMB18,887 per sq.m., representing an increase of approximately 13% as compared with the Year 2019.

As at 31 December 2020, a breakdown of the major properties held by the Group in the People’s Republic of China (the “PRC”) and their construction status was as follows:

Yuhua Salon No. 119 Ruanjian Office and Completed Completed 33,606 79,287 – 60,300 100% (雨花客廳)A1 Avenue, Yuhuatai commercial District, Nanjing, project Jiangsu Province, the PRC Yuhua Salon No. 119 Ruanjian Hotel and Completed Completed 30,416 81,380 – – 100% (雨花客廳)A2 Avenue, Yuhuatai office District, Nanjing, project Jiangsu Province, the PRC

– I-44 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Yuhua Salon East to Ningdan Office and Completed Completed 42,639 133,832 – 70,677 100% (雨花客廳) C South Road, Yuhuatai commercial District, Nanjing, project Jiangsu Province, the PRC Yuhua Salon East to Ningdan Apartment Completed Completed 48,825 189,193 – 68,611 100% (雨花客廳) C North Road, Yuhuatai and District, Nanjing, commercial Jiangsu Province, project the PRC Lianyungang Shunfeng No. 8 Xinguang Commercial Completed Completed – 7,571 – – 100% Project (連雲港順豐 Road, 項目)# Lianyungang economics development zone, Nanjing, Jiangsu Province, the PRC

155,486 491,263 – 199,588

# It represents the vacant shops acquired by the Group during the Year 2020.

– I-45 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(b) Investment properties

As at 31 December 2020, the investment properties of the Group mainly included Wonder City* (虹悅城), certain units of Yuhua Salon* (雨花客廳), Liuhe Happy Plaza Project* (六合歡樂廣場項目), Nantong Youshan Meidi Garden Project* (南通優山美地花園項目), Huitong Building Project* (匯通大廈項目), Zhenjiang Youshan Meidi Garden Project* (鎮江優山美地花園項目) and Weihai Project* (威海項目).

Interest attributable Term of to the Address Existing use contract GFA Group (sq.m.)

Nanjing Wonder City No. 619 Yingtian Da Shopping mall Medium-term 100,605 100% (虹悅城) Jie, Yuhuatai covenant District, Nanjing, Jiangsu Province, the PRC Yuhua Salon (雨花客廳) No. 119 Ruanjian Office and Medium-term 79,621 100% (certain units) Avenue, Yuhuatai shopping covenant District, Nanjing, mall Jiangsu Province, the PRC Yuhua Salon (雨花客廳) No. 119 Ruanjian Car park Medium-term 2,704 100% (certain units) Avenue, Yuhuatai covenant District, Nanjing, Jiangsu Province, the PRC Liuhe Happy Plaza Project* No. 52-71 Longjinlu Shopping mall Medium-term 18,529 100% (六合歡樂廣場項目) Liuhe District, covenant (two floors) Nanjing, Jiangsu Province, the PRC Liuhe Happy Plaza Project* No. 52-71 Longjinlu Car park Medium-term 1,628 100% (六合歡樂廣場項目) Liuhe District, covenant (certain units) Nanjing, Jiangsu Province, the PRC

– I-46 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Interest attributable Term of to the Address Existing use contract GFA Group (sq.m.)

Nantong Nantong Youshan Meidi No. 1888, Xinghu Commercial Medium-term 20,876 100% Garden Project (南通優山 Avenue, Nantong, covenant 美地花園項目) Jiangsu Province, the PRC Huitong Building Project No. 20, Zhongxiu Commercial Medium-term 20,461 100% (匯通大廈項目) Street, Nantong, covenant Jiangsu Province, the PRC Zhenjiang Zhenjiang Youshan Meidi At the cross of Commercial Medium-term 10,085 100% Garden Project Guyang North covenant (鎮江優山美地花園項目) Road and Yushan North Road, Jingkou District, Zhenjiang, Jiangsu Province, the PRC

Weihai Weihai Project (威海項目) Block 1, No. 229, Commercial Medium-term 6,472 100% Rongshan Road, covenant Chengshan, Rongcheng City, Weihai, Shandong Province, the PRC

260,981

– I-47 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

During the Year 2020, the Group engaged in provision of technical design and consulting services, green management services and entrusted construction services in the PRC. During the Year 2020, the revenue from both green building services and entrusted construction services was approximately RMB11,052,000 (2019: RMB24,889,000).

(2) Tourism business

During the Year 2020, the Group has gradually developed its tourism business, with an industrial layout that combines investment and businesses and an integration of long-term and short-term initiatives. The tourism property projects currently invested and held by the Group include the Laguna project in Queensland, Australia, the Sheraton project in Australia and Nanjing Five Seasons Hotel project.

The Laguna project is located in Bloomsbury, Queensland, Australia as a large-scale comprehensive development project adjacent to the Great Barrier Reef with a land lot site area of approximately 29,821,920 sq.m.. The land is currently held for future development.

The Sheraton project is located in Port Douglas, Queensland, Australia, a globally renowned tourist resort. The Sheraton project comprises the Sheraton Mirage Resort and the Golf Club and has a total of 295 guest rooms, 4 restaurants and bars, and an 18-hole golf course, with a total land lot site area of approximately 1,108,297 sq.m., and a total GFA of approximately 62,328 sq.m.. During the Year 2020, there was a sharp decrease in the number of overseas customers as Australia has imposed entry restrictions since March 2020 due to the outbreak of the COVID-19 pandemic. The local travel restrictions in Queensland led to a further decrease in the revenue of the hotel.

Nanjing Five Seasons Hotel is located in the Software Valley, Nanjing City, Jiangsu Province, the PRC, with a land lot site area of 30,416 sq.m. and a total GFA of 81,380 sq.m.. As of 31 December 2020, the restaurants and a small number of guest rooms in the hotel have been put into trial operation.

(3) Investment and financial services business

During the Year 2020, the Group’s investment and financial services business consists of holding and investing in various listed and unlisted equities and treasury products and provision of investment and financial related services.

– I-48 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(a) Listed equity investments held for trading

The portfolios of listed equity investments of the Group held for trading as at 31 December 2020 and 31 December 2019 are set out as follows:

As at 31 December 2020

Unrealised holding Realised gain/(loss) gain/(loss) Dividend arising on arising from received/ Number Effective revaluation the disposal receivable of shares shareholding Acquisition Carrying for the Year for the Year for the Year Stock code Name held interest cost amount 2020 2020 2020 (Note 2) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

153.HK China Saite Group 190,120,000 6.29% 88,646 16,661 (9,233) – – (Note 1) Company Limited 1908.HK C&D International – 0% – – – 31,234 – (Note 1) Investment Group Limited 2098.HK Zall Smart 587,453,000 4.99% 573,252 351,453 (21,502) 7,639 – (Note 1) Commerce Group Ltd (“Zall Group”) 8307.HK Medicskin Holdings – 0% – – – (2,959) – (Note 1) Limited 1708.HK Nanjing Sample 631,000 0.08% 918 1,212 394 110 – (Note 1) Technology Company Limited

369,326 (30,341) 36,024 –

Notes:

1. All of the above companies are companies listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

2. All of the shares held by the Group are ordinary shares of the relevant company.

– I-49 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2019

Unrealised holding Realised gain/(loss) gain/(loss) Dividend arising on arising from received/ Effective revaluation disposal for receivable Number of shareholding Acquisition Carrying for the Year the Year for the Year Stock code Name shares held interest cost amount 2019 2019 2019 (Note 2) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

153.HK China Saite Group 190,120,000 6.29% 88,646 26,877 (35,505) 176 – (Note 1) Company Limited 1908.HK C&D International 17,984,000 1.98% 65,541 145,142 33,360 31,815 34,044 (Note 1) Investment Group Limited 2098.HK Zall Smart 949,224,000 8.06% 947,452 645,482 (2,890,173) – – (Note 1) Commerce Group Ltd 8307.HK Medicskin Holdings 80,000,000 16.47% 45,334 11,882 (5,376) – 2,818 (Note 1) Limited

829,383 (2,897,694) 31,991 36,862

Notes:

1. All of the above companies are companies listed on the Stock Exchange.

2. All of the shares held by the Group are ordinary shares of the relevant company.

As at 31 December 2020 and 2019, the Group did not hold any significant investment with a value greater than 5% of the Group’s total assets. The performance and prospect of the Group’s major listed securities investment during the Year 2020 are as follows:

Zall Group

Based on information available publicly on the website of the Stock Exchange, the principal activities of Zall Group include developing and operating large-scale product focused wholesale shopping malls which focus on sales of consumer goods and the related value- added businesses, such as warehousing, logistics, e-commerce and financial services in the PRC. The Group held approximately 587,453,000 (31 December 2019: 949,224,000) shares in Zall Group, representing approximately 4.99% of its entire issued capital as at 31 December 2020 (31 December 2019: 8.06%). The carrying amount of Zall Group accounted for approximately 1% of the Group’s total assets as at 31 December 2020 (31 December 2019: 1%). The Group is of the view that the unrealized holding loss derived from holding Zall Group is

– I-50 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

non-cash in nature and relates to the change in fair value of the Group’s investment in Zall Group that is volatile in nature. The unrealised holding loss will not adversely affect the Group’s operating financial positions.

In order to adjust the investment portfolio and focus on pursuing development opportunities in the future, on 5 June 2020, the Group entered into a placing agreement with a placing agent to dispose up to 422,000,000 shares of Zall Group (the “Zall Group Shares”), which represent approximately 3.58% of the then total issued share capital of Zall Group (the “Placing”). The Placing was made in multiple tranches and the final completion took place on 31 July 2020. An aggregate of 422,000,000 Zall Group Shares were successfully placed at the placing price of HK$0.78 per Zall Group Share. Following the completion and as at the date of this report(1), the Group holds 587,453,000 Zall Group Shares, representing approximately 4.99% of the total issued share capital of Zall Group. Further details of the Placing were set out in the announcements of the Company dated 5 June 2020 and 31 July 2020 respectively.

According to the 2020 interim report of Zall Group, Zall Group will continue to maintain its existing advantages in property development, expand industrial parks, logistics parks and warehouse facilities, and increase the market value of supply chain infrastructure and continuously enhance the service capability of the modern supply chain by developing and optimizing platform services such as logistics, finance, supply chain and cross-border transactions. The Group will closely monitor the performance of its investment and adjust its investment plan and portfolio when necessary.

(b) Other investments

During the Year 2020, apart from the above listed equity investments, the Group continued to monitor the portfolio performance and adjust the investments portfolio when necessary. The diversified investment portfolio is to implement the direction of expanding the sources of the Group’s investment income and stabilizing its long term investment strategies.

Note:

(1) The report mentioned refers to the 2020 annual report of the Company.

– I-51 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

During the Year 2020, this segment recorded a loss of approximately RMB1,081,265,000 (2019: RMB3,222,296,000). The significant change is mainly derived from the fair value changes in financial instruments which are relatively volatile in nature and the impairment losses recognised for certain financial assets. The gain before tax from the fair value changes in financial instruments for the Year 2020 was approximately RMB56,152,000 (2019: loss of RMB2,824,876,000). The significant fair value loss for Year 2019 was mainly attributable to share price of Zall Group dropped in a larger extent in Year 2019. The net impairment losses recognised for loan receivables for Year 2020 was approximately RMB924,338,000 (2019: RMB497,263,000) The gain from fair value change after tax of the financial instruments at fair value through other comprehensive income was approximately RMB103,632,000 (2019: loss of RMB1,505,000). As at 31 December 2020, the total amount of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income held by the Group were approximately RMB1,694,092,000 and RMB6,570,269,000 (31 December 2019: RMB2,128,787,000 and RMB6,323,866,000) respectively.

(4) Healthcare and education business and others

During the Year 2020, the Group continued to identify appropriate investment opportunities to inject new impetus for the sustainable development of healthcare and education businesses. The revenue of healthcare and education segment for the Year 2020 was RMB407,585,000 (2019: RMB350,514,000).

(5) New Energy segment

(a) Wind gear transmission equipment

The Group is a leading supplier of wind gear transmission equipment in the PRC. By leveraging on its strong research, design and development capabilities, the Group has a range of products including 1.5MW, 2MW, 3MW, 4MW, 5MW and 6MW wind power transmission equipment whose technology have reached an internationally advanced technical level and which have been provided to domestic and overseas customers in bulk and are well recognised by customers in general. In addition to the provision of diversified large wind power gear boxes to customers, the Group has also successfully developed and accumulated 7MW and above wind power gear box with a technological level comparable to the international level. With the product platform NGC StanGearTM and our core technology platform, we continue to upgrade product design and computation analysis technology, process manufacturing technology, heat treatment and control technology and the processing technology of precise tooth profiles for the reserve of solid technology foundation for the manufacturing of equipment in MW. In light of market development trend, the Group is actively developing gear boxes in MW and introducing technologies of status monitoring, big data analysis and mobile terminal technology so as to establish an integrated product and service system of intelligent gear boxes.

– I-52 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Currently, the Group maintains a strong customer portfolio. Customers of its wind power business include the major wind turbine manufacturers in the PRC, as well as the renowned international wind turbine manufacturers such as GE Renewable Energy, Siemens Gamesa Renewable Energy, Vestas and Suzlon. With our quality products and good services, the Group has received a wide range of recognition and trust from customers at home and abroad. The Group has subsidiaries in the United States, Germany, Singapore, Canada and India to support the sustainable development strategy of the Group and to have closer communication and discussion with potential overseas customers with a view to providing further diversified services for global customers.

(b) Industrial gear transmission equipment

The Group’s industrial gear transmission equipment products are mainly supplied to customers in industries such as metallurgy, construction materials, rubber and plastic, petrochemical, aerospace and mining.

In recent years, the Group insisted on the strategy for green development of the industrial gear transmission equipment business. Above all, with technology as its competitive advantage, the Group has upgraded the technology of the heavy products with a focus on energy-saving and environmentally-friendly products and explored in-depth the heavy-duty transmission field. Meanwhile, the Group has developed modular, serialized and intelligent products which are internationally competitive. Through the characteristics of “complete range, clear layers and precise subdivision” as our products positioning and market positioning, the Group would be able to facilitate its change in sales strategies and to explore new markets and industries. In particular, the Group aims to focus on the research and development of the standard gearbox and planetary gearbox segment and to explore new markets of the same segment. At the same time, the Group strengthened its efforts to provide and sell parts and components of relevant products as well as comprehensive system solutions to its customers, helping them to enhance their current production efficiency without increasing capital expenditure and satisfying the diverse and differentiated needs of customers, thereby maintaining the Group’s position as a major supplier in the industrial gear transmission equipment market.

The Group’s rail transportation gear transmission equipment is widely used in the rail transportation fields such as high-speed rails, metro lines, urban train and tram. The Company has established long-term cooperative relationships with many well-known domestic and foreign companies in the industry. The Group has obtained ISO/TS 22163 Certificate for the Quality Management System of International Railway Industry for its rail transportation gear transmission equipment products, which has laid a solid foundation for further expansion of the international rail transportation market. Currently the products have been successfully applied to rail transportation transmission equipment in Beijing, Shanghai, Shenzhen, Nanjing, Hong Kong and other cities in China and have also been successfully applied to rail transportation transmission equipment in multiple

– I-53 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

countries and regions such as Singapore, Brazil, Netherlands, India, Mexico, Tunisia, Australia and Canada. With optimized gearbox design technology, excellent sealing technology and effective control of the production process, NGC rail transportation gearboxes are more environmentally friendly, and the products are well received by users.

(d) Trading business

The trading business of the Group mainly focuses on bulk commodity and steel industry chain. The bulk commodity trading business mainly involves the procurement and wholesale of refined oil and electrolytic copper. During the Year 2020, the bulk commodity trading business accounted for approximately 60% in the trading business. The trading business in steel industry chain mainly involves the procurement and wholesale of coal and coke (the raw material of steel), and the procurement and wholesale of steel. During the Year 2020, the trading business in steel industry chain accounted for approximately 40% in the trading business. The Group’s trading business in steel industry chain takes core resources of its trade system as a key point in expanding its system. At present, the Group has completed the preliminary resource integration of the steel industry from the upstream raw material to special steel, which promotes the development of the trading business.

Financial Review

Revenue

The revenue of the Group increased by approximately RMB5,008,274,000 or 45%, from approximately RMB11,163,103,000 for the Year 2019 to approximately RMB16,171,377,000 for the Year 2020. The revenue and the changes for the Year 2020 and Year 2019 derived from different segments are listed as below:

Segment Year 2020 Year 2019 Changes RMB’000 RMB’000 RMB’000 percentage

Properties 261,754 525,904 (264,150) (50)% Tourism 114,385 371,624 (257,239) (69)% Investment and financial services 19,142 45,273 (26,131) (58)% Healthcare, education and others 407,585 350,514 57,071 16% New Energy 15,368,511 9,869,788 5,498,723 56%

Total Revenue 16,171,377 11,163,103 5,008,274 45%

The increment of the revenue of the Group mainly derived from the new energy segment which contributed the largest increment to the revenue of Group amounting to approximately RMB5,498,723,000. It was mainly due to the increase in market demands of wind gear transmission equipment which led to the increase in delivery.

– I-54 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The revenue from education segment increased slightly by approximately RMB57,071,000 because of more early learning centres acquired in the second half of the Year 2019. Though the revenue from education segment increased, its growth was adversely affected by the outbreak of COVID-19 pandemic in Year 2020. The average revenue for each early learning centre decreased due to the short-term policy implemented by Australian government which set a cap on the fee charged by the early learning centre for a few months during the year. However, the demand for early learning centre services in the second half of the Year 2020 improved gradually with the effective control of the spread of COVID-19 pandemic by the Australian government.

The revenue from properties segment decreased by approximately RMB264,150,000 which was mainly because fewer property units were delivered and less construction services contracts were secured in the Year 2020.

The revenue from tourism segment also decreased by approximately RMB257,239,000, which was attributed to the slump in the demands of travelers under the travel restrictions imposed by different countries due to the outbreak of COVID-19 pandemic during the Year 2020.

Cost of sales and services

The cost of sales and services of the Group increased by approximately RMB3,878,324,000, or 44%, from approximately RMB8,858,077,000 for the Year 2019 to approximately RMB12,736,401,000 for the Year 2020. The cost and changes for the Year 2020 and Year 2019 derived from different segments are listed as below:

Segment Year 2020 Year 2019 Changes RMB’000 RMB’000 RMB’000 percentage

Properties 147,169 255,259 (108,090) (42)% Tourism 109,787 353,310 (243,523) (69)% Investment and financial services 6,587 7,398 (811) (11)% Healthcare, education and others 289,449 266,068 23,381 9% New energy 12,183,409 7,976,042 4,207,367 53%

Total cost 12,736,401 8,858,077 3,878,324 44%

– I-55 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Gross profit and gross profit margin

The gross profit of the Group increased by approximately RMB1,129,950,000, or 49%, from approximately RMB2,305,026,000 in the Year 2019 to approximately RMB3,434,976,000 for the Year 2020. The gross profit margin maintained at 21% for both the Year 2020 and Year 2019. The gross profit of the Group was mainly derived from new energy segment. The gross profit and gross profit margin for the Year 2020 derived from new energy segment was approximately RMB3,185,102,000 and 21% respectively. The gross profit and gross profit margin in the Year 2019 derived from new energy segment were RMB1,893,746,000 and 19% respectively. The increase in gross profit of new energy segment was mainly due to the increase in the market demand of wind gear transmission equipment.

Selling and distribution expenses

Selling and distribution expenses of the Group decreased slightly by approximately RMB31,446,000, or 6%, from approximately RMB504,746,000 in the Year 2019 to approximately RMB473,300,000 for the Year 2020. The selling and distribution expenses mainly comprised of product packaging expenses, transportation expenses and staff costs. The decrease in selling and distribution expenses in the Year 2020 was mainly in line with the decrease in property sales from properties segment.

Administrative expenses

Administrative expenses of the Group increased slightly by approximately RMB23,825,000, or 3%, from approximately RMB918,625,000 in the Year 2019 to approximately RMB942,450,000 for the Year 2020. The administrative expenses for the Year 2020 mainly included salaries and staff welfare, depreciation and amortization of tangible and intangible assets. The increase in administrative expenses in the Year 2020 was mainly due to the increase in staff costs.

Research and development costs

Research and development costs of the Group increased by approximately RMB113,511,000, or 28%, from approximately RMB404,238,000 in the Year 2019 to approximately RMB517,749,000 for the Year 2020. The increase in research and development costs mainly due to increase in efforts put on research and development of new products in new energy segment.

– I-56 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Net impairment losses on the financial assets

The net impairment loss on the financial assets of the Group in the Year 2020 increased by approximately RMB555,782,000 or 109%, from approximately RMB510,068,000 for the Year 2019 to approximately RMB1,065,850,000 for the Year 2020. A significant net impairment losses recognised was due to the increment of the expected loss rate of loans and other receivables in view of delayed repayments and continuous worsening financial status of certain borrowers or debtors.

Other income

Other income decreased by approximately RMB211,746,000, or 31%, from approximately RMB673,640,000 in the Year 2019 to approximately RMB461,894,000 for the Year 2020. Other income for the Year 2020 mainly included other interest income of approximately RMB64,019,000 and government grants of approximately RMB185,644,000. Other income in the Year 2019 mainly included other interest income of approximately RMB241,785,000, dividend income of approximately RMB154,236,000 and management fee income of RMB111,286,000.

Net fair value change in financial instruments

The Group maintains its investment segment through possessing and investing in various investment and financial products for potential or strategic use purposes. The Group recorded a gain on change in fair value of financial instruments of approximately RMB56,152,000 for the Year 2020 as compared to the loss on change in fair value of approximately RMB2,824,876,000 in the Year 2019. The fair value change mainly derived from listed equity investments. The Group recorded a significant fair value loss in Year 2019 was mainly due to the price decrease of 949,224,000 shares of Zall Group held by the Group. In Year 2020, the share price is relatively stable. The Group will closely monitor its investment performance and will adjust its investment plan and portfolio when necessary.

Other losses/gain – net

During the Year 2020, other losses included impairment losses of property, plant and equipment and goodwill amounting to RMB258,892,000 and RMB181,669,000 respectively. The impairment mainly related to hotel and land used for development of resort and the goodwill from education segment, both located in Australia. Due to the outbreak of COVID-19 pandemic, the tourism industry has been massively affected by the spread of coronavirus, as many countries have introduced travel restrictions in an attempt to contain its spread. Also, at the peak of the outbreak of COVID-19 pandemic, the job crisis arose from the suspension of economic activities started to put a challenge on the early learning industry, though there were subsidies from the government. In view of the negative impact brought by the coronavirus, the management considered there may be an indicator of impairment. Therefore the management reassessed the recoverable amounts of the relevant assets during the Year 2020, and found that they were lower than their carrying values. Accordingly, impairment losses were recognised.

– I-57 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Finance costs

Finance costs of the Group decreased by approximately RMB222,349,000, or 27%, from approximately RMB827,352,000 in the Year 2019 to approximately RMB605,003,000 for the Year 2020, which was mainly due to the lower average borrowing amount of the Group for the Year 2020 than in the Year 2019.

Share of result of joint ventures

The Group’s share of result of its joint ventures changed from share of loss of approximately RMB252,047,000 in the Year 2019 to share of profit of approximately RMB6,513,000 for the Year 2020. It is mainly because of the impairment loss recognised for the investee of Fullshare Value Fund I L.P (“Value Fund”), a joint venture, in Year 2019 and no such item was noted during the Year 2020.

Income tax expense/credit

For the Year 2020, the current tax expense and the deferred tax credit of the Group amounted to approximately RMB447,569,000 and RMB46,721,000 respectively, and for the Year 2019, the current tax expense and the deferred tax credit amounted to approximately RMB234,253,000 and RMB603,811,000, respectively. The increase in current tax expense was mainly due to more profits made by new energy segment.

The deferred tax credit in the Year 2019 was mainly derived from the fair value loss in financial instruments and net impairment losses on financial assets. There was no such significant charge in fair value in financial instruments in Year 2020.

Loss for the Year 2020

For the Year 2020, the Group recorded a loss after tax of approximately RMB698,280,000 (2019: RMB2,844,118,000). The performance for Year 2020 improved was mainly due to the decrease in net fair value loss after tax in financial instruments and the significant increase in operating profits from new energy segment.

Liquidity, Financial Resources And Gearing Ratio

For the Year 2020, the Group financed its operations and investments mainly by internally generated funds and debt financing.

– I-58 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Cash position

As at 31 December 2020, the Group had cash and cash equivalents (excluding the restricted cash) of approximately RMB2,490,570,000 (31 December 2019: RMB2,797,003,000), representing a decrease by approximately RMB306,433,000 or 11% as compared to 31 December 2019. The Group’s cash and cash equivalents remain stable. The Group regularly and closely monitors its funding and treasury position to meet the funding requirements of the Group.

Bank and other borrowings and corporate bonds

As at 31 December 2020, the debt profile of the Group was analysed as follows:

As at As at 31 December 31 December 2020 2019 RMB’000 RMB’000

Bank and other borrowings repayable: Within one year or on demand 5,019,531 5,199,030 Between one and two years 700,166 1,698,471 Between two to five years 1,319,302 451,100 Over five years 178,133 381,816

7,217,132 7,730,417

Corporate bonds repayable: Within one year or on demand – 1,923,316 Between one and two years – 498,437

– 2,421,753

Total debts 7,217,132 10,152,170

As at 31 December 2020, the total debt of the Group decreased by approximately 2,935,038,000 or 29%, as compared with 31 December 2019.

– I-59 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Leverage

The gearing ratio of the Group as at 31 December 2020, calculated as a ratio of the sum of bank and other borrowings and corporate bonds to total assets, was approximately 17% (31 December 2019: 23%). The net equity of the Group as at 31 December 2020 was approximately RMB20,796,980,000 (31 December 2019: approximately RMB20,867,821,000).

As at 31 December 2020, the Group recorded total current assets of approximately RMB22,016,575,000 (31 December 2019 : RMB21,803,811,000) and total current liabilities of approximately RMB18,422,573,000 (31 December 2019: RMB18,010,483,000). The current ratio of the Group, calculated by dividing total current assets by total current liabilities, was about 1.2 as at 31 December 2020 (31 December 2019: 1.2).

Foreign Exchange Exposure

Treasury Policies

As at 31 December 2020, bank and other borrowings of approximately RMB5,853,810,000, RMB888,499,000, RMB202,330,000 and RMB272,493,000 were denominated in RMB, US dollars, Hong Kong dollars and Australia dollars respectively (31 December 2019: RMB5,837,502,000, RMB917,971,000, RMB678,517,000 and RMB296,427,000). As at 31 December 2019, corporate bonds of approximately RMB2,412,713,000 and RMB9,040,000 were denominated in RMB and Hong Kong dollars respectively. The debts in various currencies were mainly made to finance the operation of Group’s entities in different jurisdictions.

Bank and other borrowings and corporate bonds of approximately RMB5,649,084,000 (31 December 2019: RMB9,877,218,000) were at fixed interest rates, the remaining balances were either at variable rates or non-interest bearing. Cash and cash equivalents held by the Group were mainly denominated in RMB, Hong Kong and Australia dollars. The Group currently does not have foreign exchange and interest rate hedging policies. However, the management of the Group monitors the foreign exchange and interest rate exposure from time to time and will consider hedging significant foreign exchange and interest rate exposure if needed.

– I-60 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Pledge of Assets

Details of the Group’s pledged assets as at 31 December 2020 are set out in note 20 to the consolidated financial information in this report.(1)

Operating Segment Information

Details of the operating segment information of the Group for the Year 2020, are set out in note 4 to the consolidated financial information in this report.(1)

Capital Commitments

Details of the capital commitments of the Group as at 31 December 2020 are set out in note 19 to the consolidated financial information in this report.(1)

Contingent Liabilities

Details of contingent liabilities of the Group as at 31 December 2020 are set out in note 18 to the consolidated financial information in this report.(1)

Material Acquisitions and Disposals

To expand the scale of operations and improve the quality of the assets of the Group, the Group conducted the following material acquisitions and disposal in the Year 2020:

(i) On 31 December 2019, Nanjing Fullshare Dazu Technology Co., Ltd.* (南京豐盛大族科技股份有限公司)(“Fullshare Dazu”), an indirect wholly-owned subsidiary of the Company, entered into an equity transfer agreement with Nanjing Chuangrui Enterprise Management Co., Ltd.* (南京創睿企業管理有限公司)(“Nanjing Chuangrui”), pursuant to which, Fullshare Dazu agreed to acquire, and Nanjing Chuangrui agreed to sell 100% equity interest of Nanjing Zhonghui Heda Business Management Co., Ltd.* (南京眾慧合達商業管理有限公司)(“Zhonghui Heda”) for a consideration of RMB398,000,000 (equivalent to approximately HK$443,060,000). Zhonghui Heda is principally engaged in holding two floors of a large shopping mall in Liuhe District, Nanjing, Jiangsu Province, the PRC. The acquisition of Zhonghui Heda was completed on 21 January 2020. Following completion of the acquisition, the financial results of Zhonghui Heda have been consolidated into the financial results of the Group. Details of the acquisition were set out in the announcements of the Company dated 31 December 2019 and 17 January 2020 respectively.

Note:

(1) The report mentioned refers to the 2020 annual report of the Company.

– I-61 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(ii) On 15 January 2020, Fullshare Dazu entered into a limited partnership agreement (the “Partnership Agreement”) with Sumin Kaiyuan Wuxi Investment Co., Ltd.* (蘇民開源無鍚投資有限公司)(“Sumin Kaiyuan”) and Sumin Capital Co., Ltd.* (蘇民資本有限公司)(“Sumin Capital”) to establish Wuxi Sumin Fullshare Entrepreneur Investment Partnership Enterprise (Limited Partnership)* (無錫蘇民豐盛創業投資合夥企業(有限合夥)) (the “Partnership”), pursuant to which, the total amount of capital commitments of the Partnership is RMB600,000,000, of which Sumin Kaiyuan (as general partner) has agreed to contribute RMB1,000,000 while Fullshare Dazu and Sumin Capital (as limited partners) have agreed to contribute RMB300,000,000 and RMB299,000,000 respectively. Sumin Kaiyuan and Sumin Capital are direct wholly-owned subsidiaries of Jiangsuminying Investment Holding Limited* (江蘇民營投資控股有限公司), a company in which Fullshare Dazu has approximately 10% interests as at the date of the Partnership Agreement. The purpose of the Partnership is to invest in projects relating to property development and investment business. The Partnership has been established on 21 January 2020 and Fullshare Dazu owns 50% equity interest in the Partnership as at the date of this report(1). Details of the Partnership were set out in the announcements of the Company dated 15 January 2020 and 3 February 2020 respectively.

(iii) On 16 January 2020, Fullshare Dazu (as purchaser) entered into a sale and purchase agreement with (a) New World (Qingdao) Real Estate Co., Ltd* (新世界(青島)置地有限公司) and Top Sky Investments Limited (頂佳投資有限公司) (as vendors), (b) World Trade Plaza (Shenyang) Real Estate Co., Ltd.* (世貿廣場(瀋陽)置業有限公司) (as target company) (“World Trade Plaza”), and (c) Mr. Qi Hongbo (漆洪波) (as guarantor), pursuant to which Fullshare Dazu conditionally agreed to acquire and the vendors conditionally agreed to sell 100% equity interest of World Trade Plaza for a consideration of RMB700,000,000. The proposed acquisition was subsequently terminated on 27 April 2020. Details of the proposed acquisition and its termination were set out in the announcements of the Company dated 16 January 2020 and 27 April 2020 respectively.

(iv) On 4 December 2020, Shanghai Shifu Enterprise Management LLP* (上海釃福企業管理合夥企業(有限合夥)) (the “Employee Partnership Enterprise”) entered into a capital increase agreement (the “Capital Increase Agreement”) with Nanjing Gear Enterprise Management Co., Ltd.* (南京高齒企業管理有限公司)(“Nanjing Gear”, being an indirect wholly-owned subsidiary of China High Speed Transmission Equipment Group Co., Ltd. (中國高速傳動設備集團有限公司*) (“CHS”, a company listed on the Main Board of the Stock Exchange under stock code of 658), which in turn is an indirect non-wholly owned subsidiary of the Company) and Nanjing High Speed Gear Manufacturing Co., Ltd.* (南京高速齒輪製造有限公司)(“Nanjing High Speed”, a direct wholly-owned subsidiary of NanjingGear as at the date of the Capital Increase Agreement), pursuant to which the Employee Partnership

Note:

(1) The report mentioned refers to the 2020 annual report of the Company.

– I-62 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Enterprise agreed to make the capital contribution in an aggregate amount of RMB150,000,000 in cash to the registered capital of Nanjing High Speed (the “Capital Increase”). The Capital Increase has been completed on 24 December 2020 and Nanjing High Speed remains an indirect non-wholly owned subsidiary of the Company and its financial results continue to be consolidated with the financial results of the Group. Immediately upon completion of the Capital Increase, the Employee Partnership Enterprise owns as to approximately 6.98% of the equity interest in Nanjing High Speed, while the equity interest of Nanjing Gear in Nanjing High Speed was reduced from 100% to approximately 93.02%. The Capital Increase contemplated under the Capital Increase Agreement therefore constituted a deemed disposal (the “Deemed Disposal”) under Rule 14.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) for the Company. The purpose and objectives of the Capital Increase are to recognise the contribution by the designated employees of CHS and its subsidiaries (the “CHS Group”) and to provide them with incentives in order to align their interests with the CHS Group and to retain them for the continual operation and development of the CHS Group. Details of the Capital Increase and Deemed Disposal were set out in the joint announcement of the Company and CHS dated 4 December 2020 and the announcement and circular of CHS dated 23 December 2020 and 24 December 2020, respectively.

In the Year 2020, save as disclosed above, the Group did not have any other material acquisition or disposal of subsidiaries, associates or joint ventures.

Employees

As at 31 December 2020, the Group had 8,474 employees (31 December 2019: 7,926 employees). The Group’s total staff costs (including executive directors’ remuneration) amounted to approximately RMB2,452,995,000 in the Year 2020 (Year 2019: approximately RMB1,807,414,000). Employees’ remunerations are determined according to the Group’s operating results, job requirements, market salary level and ability of individuals. The Group regularly reviews its remuneration policy and additional benefit programs and makes necessary adjustments to bring them in line with the industry level. In addition to basic salaries, the Group has established revenue sharing programs and performance appraisal plans to provide rewards according to the Group’s results and employees’ individual performance. The Group has also adopted a share option scheme and a share award scheme to promote the implementation of enterprise culture of co-creation and co-sharing and procure the core employees of the Company to focus on long-term operation performance, as well as to attract, retain and impel core talents.

– I-63 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD (Incorporated in the People’s Republic of China with limited liability)

To the Board of Directors of Fullshare Holdings Limited

INTRODUCTION

We report on the historical financial information of Nanjing High Speed Gear Manufacturing Co., Ltd (the “Target Company”) and its subsidiaries (together, the “Target Group”), which comprised the consolidated statements of financial position of the Target Group as at 31 December 2018, 2019 and 2020, and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the years ended 31 December 2018, 2019 and 2020, and a summary of significant accounting policies and other explanatory information (together referred to as the “Historical Financial Information”). The Historical Financial Information set out on pages II-3 to II-79 forms an integral part of this report, which has been prepared for inclusion in the circular of Fullshare Holdings Limited dated 26 May 2021 (the “Circular”) in connection with the proposed disposal of 43% equity interests in the Target Company and the grant of put option (the “Proposed Transaction”).

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of the Target Company are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information, and for such internal control as the directors determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 “Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

– II-1 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information, in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

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

OPINION

In our opinion, the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the consolidated financial position of the Target Group as at 31 December 2018, 2019 and 2020 and of its consolidated financial performances and its consolidated cash flows of the Target Group for each of the years ended 31 December 2018, 2019 and 2020 in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “LISTING RULES”) AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the underlying financial statements as defined on page II-10 have been made.

Dividends

We refer to Note 12 to the Historical Financial Information for the dividends paid by the Target Company in respect of each of the years ended 31 December 2018, 2019 and 2020.

Baker Tilly Hong Kong Limited Certified Public Accountants Hong Kong, 26 May 2021 Gao Yajun Practising certificate number P06391

– II-2 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2018, 2019 AND 2020

Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Revenue from contracts with customers 5 13,181,084 9,420,303 8,018,085 Cost of sales (10,119,323) (7,615,346) (6,532,838)

Gross profit 3,061,761 1,804,957 1,485,247

Selling and distribution expenses (364,568) (347,556) (280,657) Administrative expenses (444,179) (445,934) (465,425) Research and development costs (494,384) (382,660) (329,607) Share-based payment expenses 9(a) (547,674) – – Net impairment losses recognised on financial assets 3.1(b) (59,050) (8,144) (43,620) Other income 6 273,039 107,695 82,078 Other (losses)/gains – net 7 (167,437) 58,092 204,669

Operating profit 1,257,508 786,450 652,685

Finance income 10 56,685 72,549 111,306 Finance costs 10 (286,002) (512,450) (641,044)

Finance costs – net (229,317) (439,901) (529,738) Share of result of a joint venture accounted for using the equity method 17 – (1,469) –

Profit before income tax 1,028,191 345,080 122,947

Income tax expenses 11 (225,716) (137,529) (34,016)

Profit for the year 802,475 207,551 88,931

Profit/(loss) attributable to: – Owners of the Target Company 796,447 211,501 99,688 – Non-controlling interests 6,028 (3,950) (10,757)

802,475 207,551 88,931

The accompanying notes are an integral part of the Historical Financial Information.

– II-3 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2018, 2019 AND 2020

Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Profit for the year 802,475 207,551 88,931

Other comprehensive income/(loss) for the year: Items that may be reclassified to profit or loss – Changes in the fair value of debt investments at fair value through other comprehensive income 5,749 (8,959) (16,429) – Currency translation differences (21,206) (7,036) (5,394) – Income tax relating to these items 33 1,908 (378) 629

(13,549) (16,373) (21,194)

Items that will not be reclassified to profit or loss – Changes in the fair value of equity investments at fair value through other comprehensive income 48,503 – – – Income tax relating to these items 33 (7,275) – –

41,228 – –

Other comprehensive income/(loss) for the year, net of tax 27,679 (16,373) (21,194)

Total comprehensive income for the year 830,154 191,178 67,737

Total comprehensive income/(loss) for the year attributable to: – Owners of the Target Company 824,115 195,139 78,494 – Non-controlling interests 6,039 (3,961) (10,757)

830,154 191,178 67,737

The accompanying notes are an integral part of the Historical Financial Information.

– II-4 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2018, 2019 AND 2020

Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Non-current assets Property, plant and equipment 13 3,537,828 3,679,241 3,517,224 Right-of-use assets 14 669,117 681,129 567,075 Goodwill 15 26,142 26,142 – Intangible assets 16 – – 14,825 Investment in a joint venture accounted for using the equity method 17 – – 85,249 Financial assets at fair value through other comprehensive income 20 148,503 221 221 Deposits for land leases 21 5,890 11,361 46,800 Deferred tax assets 33 238,933 153,374 103,043

4,626,413 4,551,468 4,334,437

Current assets Inventories 22 3,578,665 2,433,635 2,189,513 Trade receivables 23 2,389,257 2,219,077 4,311,692 Other receivables 23 823,507 7,218,360 7,574,899 Other financial assets at amortised cost 19 – 33,675 – Prepayments 24 78,429 142,988 244,915 Financial assets at fair value through other comprehensive income 20 3,322,723 2,775,321 1,365,791 Financial assets at fair value through profit or loss 25 330,339 241,820 1,498,206 Income tax prepaid 353 22,477 82,362 Pledged bank deposits 26 1,640,286 2,642,560 2,918,913 Cash and cash equivalents 26 1,788,260 2,463,284 1,978,403

13,951,819 20,193,197 22,164,694

– II-5 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Current liabilities Trade payables 29 2,861,619 1,965,126 1,441,160 Bills payable 29 3,229,373 3,884,766 4,525,783 Other payables 29 1,533,226 3,574,647 3,153,888 Borrowings 30 2,178,970 2,824,000 4,960,387 Corporate bonds 30 – 1,914,275 – Contract liabilities 35 2,185,564 526,499 298,123 Deferred income 31 19,654 17,124 17,196 Income tax payable 135,803 119,115 16,051 Warranty provision 32 578,086 216,457 90,299

12,722,295 15,042,009 14,502,887

Net current assets 1,229,524 5,151,188 7,661,807

Total assets less current liabilities 5,855,937 9,702,656 11,996,244

Non-current liabilities Borrowings 30 – 736 1,105 Corporate bonds 30 – 498,437 2,411,465 Deferred income 31 177,551 180,273 54,283 Warranty provision 32 372,480 97,164 72,528 Deferred tax liabilities 33 30,898 24,870 12,296

580,929 801,480 2,551,677

Net assets 5,275,008 8,901,176 9,444,567

Capital and reserves Share capital 27 2,150,000 2,000,000 2,000,000 Reserves 28 3,094,716 6,869,085 7,408,515

Equity attributable to owners of the Target Company 5,244,716 8,869,085 9,408,515

Non-controlling interests 30,292 32,091 36,052

Total equity 5,275,008 8,901,176 9,444,567

The accompanying notes are an integral part of the Historical Financial Information.

– II-6 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2018, 2019 AND 2020

Attributable to owners of the Target Company Non- Share Other Retained controlling capital reserves earnings Total interests Total equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 28)

At 1 January 2018 2,000,000 1,975,273 5,642,905 9,618,178 46,809 9,664,987

Profit/(loss) for the year – – 99,688 99,688 (10,757) 88,931 Other comprehensive loss for the year – (21,194) – (21,194) – (21,194)

Total comprehensive income/(loss) for the year – (21,194) 99,688 78,494 (10,757) 67,737

Dividends recognised as distribution (Note 12) – – (700,000) (700,000) – (700,000) Acquisition of subsidiaries – 411,843 – 411,843 – 411,843 Appropriation to statutory reserve – 41,900 (41,900) – – –

At 31 December 2018 2,000,000 2,407,822 5,000,693 9,408,515 36,052 9,444,567

At 1 January 2019 2,000,000 2,407,822 5,000,693 9,408,515 36,052 9,444,567

Profit/(loss) for the year – – 211,501 211,501 (3,950) 207,551 Other comprehensive loss for the year – (16,362) – (16,362) (11) (16,373)

Total comprehensive income/(loss) for the year – (16,362) 211,501 195,139 (3,961) 191,178

Acquisition of subsidiaries – (734,569) – (734,569) – (734,569) Appropriation to statutory reserve – 4,105 (4,105) – – –

At 31 December 2019 2,000,000 1,660,996 5,208,089 8,869,085 32,091 8,901,176

– II-7 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

At 1 January 2020 2,000,000 1,660,996 5,208,089 8,869,085 32,091 8,901,176

Profit for the year – – 796,447 796,447 6,028 802,475 Other comprehensive income for the year – 27,668 – 27,668 11 27,679

Total comprehensive income for the year – 27,668 796,447 824,115 6,039 830,154

Dividends recognised as distribution (Note 12) – – (3,850,000) (3,850,000) – (3,850,000) Business combination under common control – (451,982) (836,414) (1,288,396) – (1,288,396) New issues of shares 150,000 – – 150,000 – 150,000 Transactions with non-controlling interests (Note 41) – (7,762) – (7,762) (7,838) (15,600) Share-based payment expenses (Note 9(a)) – 547,674 – 547,674 – 547,674 Appropriation to statutory reserve – 51,054 (51,054) – – –

At 31 December 2020 2,150,000 1,827,648 1,267,068 5,244,716 30,292 5,275,008

– II-8 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2018, 2019 AND 2020

Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Cash flows from operating activities Cash generated from operations 34 2,967,258 2,579,499 952,957 Income tax paid (205,711) (26,512) (147,031)

Net cash generated from operating activities 2,761,481 2,552,987 805,926

Cash flows from investing activities Placements of pledged bank deposits (4,278,544) (5,947,923) (9,464,934) Withdrawal of pledged bank deposits 5,280,818 6,224,276 9,427,658 Investment in structured bank deposits (363,000) (150,000) (933,000) Redemption of structured bank deposits 208,861 960,246 100,000 Purchase of financial assets at fair value through other comprehensive income (100,000) – – Purchases of other financial assets at amortised cost – (33,675) – Redemption of other financial assets at amortised cost 33,675 – – Purchases of property, plant and equipment (453,607) (517,694) (434,521) Payments for right-of-use assets (3,642) (46,950) – Proceeds from disposal of property, plant and equipment 33,982 42,263 30,238 Proceeds from disposal of joint ventures – 76,101 – Net cash inflow on acquisition of a subsidiary – 1,386 – Receipt/(paid) from the Company except the Target Company 558,942 (26,494) 75,754 Interests received 71,256 73,479 89,119 Receipt of government grants 26,997 143,041 – Receipt of loans receivable and other receivables 149,950 – –

Net cash generated from/(used in) investing activities 1,231,715 814,152 (1,115,121)

– II-9 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Cash flows from financing activities Proceeds from borrowings 3,323,970 4,229,197 7,205,561 Repayment of borrowings (3,962,499) (6,366,716) (7,443,380) Redemption of corporate bonds (2,420,000) – – Acquisition of interest in a non-wholly-owned subsidiary (15,600) – – Contributions from non-controlling interests 150,000 – – Interest paid (364,111) (539,077) (641,045) Dividends paid to owners of the Target Company (1,331,300) – (700,000)

Net cash used in financing activities (4,916,490) (2,676,596) (1,578,864)

Net decrease/(increase) in cash and cash equivalents (692,319) 490,543 (1,888,059) Cash and cash equivalents at the beginning of the year 2,463,284 1,978,403 3,845,251 Exchange gains/(losses) on cash and cash equivalents 17,295 (5,662) 21,211

Cash and cash equivalents at the end of the year 26 1,788,260 2,463,284 1,978,403

– II-10 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

NANJING HIGH SPEED GEAR MANUFACTURING CO., LTD NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1 GENERAL INFORMATION

Nanjing High Speed Gear Manufacturing Co., Ltd (the “Target Company”) is a limited liability company incorporated and domiciled in the People’s Republic of China. The address of its registered office is located at No. 30 Houjiao Road, Jiangning District, Nanjing.

The Target Company and its subsidiaries (together referred to as the “Target Group”) are principally engaged in research, design, development, manufacture and distribution of a broad range of mechanical transmission equipment that is used in wind power and a wind range of industrial appliances.

This Historical Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these Historical Financial Information are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The Historical Financial Information of the Target Group have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”). The Historical Financial Information have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities which are carried at fair value.

The statutory audited financial statements of the Target Group for the years ended 31 December 2018, 2019 and 2020 (collectively referred to as “Underlying Financial Statements”) have been prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC and were audited by Baker Tilly International Certified Public Accountants (Special General Partnership), a certified public accountant registered in the PRC.

The preparation of Historical Financial Information in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Target Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed in Note 4.

(a) New and amended standards adopted by the Target Group

All IFRSs effective for the annual accounting period commencing from 1 January 2018, together with the relevant transitional provisions, have been early adopted by the Target Group in the preparation of the historical financial information throughout all the periods as presented above.

(b) New standards and interpretations not yet adopted

Certain new accounting standards and amendments listed below have been published but are not mandatory to be adopted for the year ended 31 December 2020 and have not been early adopted by the Target Group. These standards and amendments are either currently not relevant to the Target Group or had no material impact on the Target Group’s Historical Financial Information.

• Amendments to IFRS 16, ‘COVID-19 Related Rent Concessions’, effective for the accounting period beginning on or after 30 June 2020

• Amendments to IFRS 3, ‘Reference to the Conceptual Framework’, effective for the accounting period beginning on or after 1 January 2022

– II-11 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

• Amendments to IAS 16, ‘Property, Plant and Equipment: Proceeds before Intended Use’, effective for the accounting period beginning on or after 1 January 2022

• Amendments to IAS 37, ‘Onerous Contracts – Cost of Fulfilling a Contract’, effective for the accounting period beginning on or after 1 January 2022

• Annual Improvements to IFRSs 2018-2020 Cycle, effective for the accounting period beginning on or after 1 January 2022

• Amendments to IAS 1, ‘Classification of Liabilities as Current or Non-current’, effective for the accounting period beginning on or after 1 January 2023

• IFRS 17, ‘Insurance Contract and the related Amendments’, effective for the accounting period beginning on or after 1 January 2023

2.2 Subsidiaries

2.2.1 Consolidation

A subsidiary is an entity (including a structured entity) over which the Target Group has control. The Target Group controls an entity when the Target Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Target Group. They are deconsolidated from the date that control ceases.

(a) Business combinations

The Target Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Target Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Target Group recognises any non-controlling interest in the acquiree on an acquisition-by- acquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by IFRSs.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Target Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If the total consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net identifiable assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

– II-12 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Target Group’s accounting policies.

(b) Business combination under common control

In May 2020, the Target Group entered into equity transfer agreements to acquire equity interest in ten companies from two companies under common control, the ten companies include Nanjing High Speed & Accurate Gear (Group) Co., Ltd., Nanjing Nanchuan Intelligent Technology Co., Ltd., NGC Transmission Equipment (America) Inc, NGC North America Transmission Equipment Group, NGC Transmission Europe GmbH, NGC Transmission Asia Pacific Pte Ltd., Nanjing Ningkai Mechanical Co., Ltd., Henan Zhongchuan Equipment Co., Ltd., Zhongchuan Kegong Gaojing Equipment Co., Ltd.and NGC (Baotou) Transmission Equipment Co., Ltd. The Acquisition was completed in May 2020 and thus the ten companies have become subsidiaries of the Target Group (the “Ten companies”).

In May 2020, the Target Group entered into transfer agreements with Nanjing High Accurate Drive Equipment Manufacturing Group Co., Ltd. (“Nanjing Drive”) and China Transmission Holdings Limited to acquire operating business.

As the Target Group, Nanjing Drive, China Transmission Holdings Limited and the Ten companies are controlled by the Parent, the Acquisition has been accounted for based on the principles of merger accounting.

The consolidated financial statements of the Target Group have been prepared using the merger basis of accounting as if the current group structure has been in existence throughout the years presented. The opening balance at 1 January 2018 has been restated, with consequential adjustments to comparatives for the year ended 31 December 2018 and 2019. The details of the restated balances have been disclosed in Note 44 to the Historical Financial Information.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners of the subsidiary in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(d) Disposal of subsidiaries

When the Target Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest as an associate, joint arrangement or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Target Group had directly disposed of the related assets or liabilities. It means the amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified by applicable IFRSs.

2.2.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Target Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the Historical Financial Information of the investee’s net assets including goodwill.

Investments in joint arrangements and associates are accounted for using the equity method of accounting.

– II-13 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

2.3 Joint arrangements

The Target Group has applied IFRS 11 to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. The Target Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.

Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Target Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. Dividends received or receivable from joint arrangements are recognised as a reduction in the carrying amount of the investment. The Target Group’s investments in joint ventures include goodwill identified on acquisition. Upon the acquisition of the ownership interest in a joint venture, any difference between the cost of the joint venture and the Target Group’s share of the net fair value of the joint venture’s identifiable assets and liabilities is accounted for as goodwill. When the Target Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures, including any other unsecured receivables, the Target Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

The Target Group determines at each reporting date whether there is any objective evidence that the investment in the joint arrangement is impaired. If this is the case, the Target Group calculates the amount of impairment as the difference between the recoverable amount of the joint arrangement and its carrying value and recognises the amount adjacent to share of net profit of joint arrangement accounted for using the equity method in profit or loss.

Unrealised gains or losses on transactions between the Target Group and its joint ventures are eliminated to the extent of the Target Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Target Group.

2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.

2.5 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Target Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Historical Financial Information are presented in RMB, which is the Target Company’s functional and the Target Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the consolidated income statement within “Finance income or finance costs”. All other foreign exchange gains and losses are presented in the consolidated income statements within “Other (losses)/gains – net”.

Translation differences on non-monetary financial assets and liabilities in a foreign currency, such as equities classified as financial assets at fair value through profit or loss (“FVPL”), are recognised in profit or loss as part of the fair value gains or losses. Translation differences on non-monetary financial assets in a foreign currency, such as equities classified as financial assets at fair value through other comprehensive income (“FVOCI”), are included in other comprehensive income.

The results and financial position of all of the Target Group’s entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities for each statement of financial position item presented are translated at the closing rate at that statement of financial position date;

– II-14 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

• Income and expenses for each income statement item are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses items are translated at the dates of the transactions); and

• All resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign operation and translated at the closing rate. Exchange differences are recognised in other comprehensive income.

(d) Disposal of foreign operation and partial disposal

On disposal of a foreign operation (that is, a disposal of the Target Group’s entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign operation, or a disposal involving loss of joint control over a joint arrangement that includes a foreign operation), all of the currency translation differences accumulated in equity in respect of that operation attributable to the owners of the Target Company are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Target Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated currency translation differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (that is, reductions in the Target Group’s ownership interest in joint arrangements that do not result in the Target Group losing joint control), the proportionate share of the accumulated exchange differences are reclassified to profit or loss.

2.6 Property, plant and equipment

Property, plant and equipment, other than construction in progress, is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Freehold lands Nil Buildings 30-35 years Leasehold improvements Over the shorter of the lease term or 3 years Machinery and equipment 5-10 years Furniture and fixtures 5 years Transportation equipment 5 years

Freehold lands are stated at cost less any impairment losses and are not depreciated.

Construction in progress represents buildings, various machinery and equipment under construction and pending installation, and is stated at cost less impairment losses and is not depreciated. Cost includes the costs of construction and acquisition and capitalised borrowing costs. When the assets concerned are ready for use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within “Other (losses)/gains – net” in the consolidated income statements.

– II-15 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

2.7 Goodwill

Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired.

Goodwill is not amortised but it is reviewed and tested for impairment annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value-in-use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

2.8 Impairment of non-financial assets

Goodwill and intangible assets and freehold lands that have an indefinite useful life are not subject to amortisation or depreciation, and are tested annually for impairment or more frequently when impairment indicator exists. Other assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.

2.9 Investments and other financial assets

2.9.1 Classification

The Target Group classifies its financial assets in the following measurement categories:

• Those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss), and

• Those to be measured at amortised cost.

The classification depends on the Target Group’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Target Group has made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI.

The Target Group reclassifies debt instruments when and only when its business model for managing those assets changes.

2.9.2 Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Target Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Target Group has transferred substantially all the risks and rewards of ownership.

– II-16 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

2.9.3 Measurement

At initial recognition, the Target Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

Debt instruments

Subsequent measurement of debt instruments depends on the Target Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Target Group classifies its debt instruments:

• Amortised cost: Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in other income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in “Other (losses)/gains – net”, together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated income statements.

• FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through other comprehensive income (“OCI”), except for the recognition of impairment losses, interest income and foreign exchange gains and losses, which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in “Finance costs”. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in “Other (losses)/gains – net”, and impairment losses are presented as separate line item in the consolidated income statements.

• FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt instrument that is subsequently measured at FVPL is recognised in profit or loss and presented net within “Other (losses)/gains – net” in the period in which it arises.

Equity instruments

The Target Group subsequently measures all equity investments at fair value. Where the Target Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Target Group’s right to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in “Other (losses)/gains – net” in the consolidated income statements as applicable. Impairment losses and reversal of impairment losses on equity investments measured at FVOCI are not reported separately from other changes in fair value.

2.9.4 Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Target Group’s consolidated statement of financial position) when:

• The rights to receive cash flows from the asset have expired; or

– II-17 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

• The Target Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Target Group has transferred substantially all the risks and rewards of the asset, or (b) the Target Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Target Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Target Group continues to recognise the transferred asset to the extent of the Target Group’s continuing involvement. In that case, the Target Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Target Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Target Group could be required to repay.

2.9.5 Impairment

The Target Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

Other financial assets measured at fair value, including units in bond funds, equity and debt securities measured at FVPL, equity securities designated at FVOCI (non-recycling) and derivative financial assets, are not subject to the ECL assessment.

For financial instruments that have low risk of default at the end of the reporting period, except for receivables related to revenue, the Target Group assumes that there is no significant increase in credit risk since the initial recognition, on first stage, and measures the loss allowance at an amount equal to 12-month expected credit losses. If there has been a significant increase in credit risk or credit impairment has occurred since the initial recognition of a financial instrument, on second stage, the Target Group recognises a loss allowance at an amount equal to lifetime expected credit losses. If credit impairment has occurred since the initial recognition of a financial instrument, on third stage, the Target Group recognises a loss allowance at an amount equal to lifetime expected credit losses.

For trade receivables, the Target Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see Note 3.1(b) for further details.

2.10 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

2.11 Derivative financial instruments

Derivative financial instruments of the Target Group are separate derivative derived from the investment of financial assets, which are not designated as hedges.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each of the reporting period.

– II-18 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Fair values are obtained from quoted market prices in active markets, including recent market transactions, and through the use of valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e., the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Target Group recognises profit or loss on that day.

2.12 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

2.13 Trade receivables, bills receivable and other receivables

Trade receivables, bills receivable and other receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade receivables, bills receivable and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables and other receivables is unconditional unless they contain significant financing components when they are recognised at fair value. The Target Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less allowance for impairment. See Note 2.9 for further information about the Target Group’s accounting for receivables and for a description of the Target Group’s impairment policies.

2.14 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

2.15 Restricted cash

Restricted cash represents guarantee deposits held in a separate reserve account that is pledged to the bank for issuance of trade facilities such as bills payable and bankers’ guarantee and as security deposits under bank borrowing agreements. Such restricted cash will be released when the Target Group repays the related trade facilities or bank loans.

2.16 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.17 Trade payables, bills payable and other payables

Trade payables, bills payable and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables, bills payable and other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

– II-19 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Trade payables, bills payable and other payables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest method.

2.18 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are classified as current liabilities unless the Target Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

2.19 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are expensed in the period in which they are incurred.

Borrowing costs include interest expense, finance charges in respect of exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. The exchange gains and losses that are an adjustment to interest costs include the interest rate differential between borrowing costs that would be incurred if the entity had borrowed funds in its functional currency, and the borrowing costs actually incurred on foreign currency borrowings.

2.20 Current and deferred income tax

The income tax expense for the period comprises current and deferred tax. Current and deferred income tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the current and deferred income tax is also recognised in other comprehensive income or directly in equity, respectively.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Target Company, its subsidiaries and joint arrangements operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Inside basis differences

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Historical Financial Information. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill, or if it arises from initial recognition of an asset or liability in a transaction other than a

– II-20 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply at the time when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Target Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Target Group is unable to control the reversal of the temporary difference for associates or joint arrangements. Only when there is an agreement in place that gives the Target Group the ability to control the reversal of the temporary difference in the foreseeable future, would the deferred tax liability in relation to taxable temporary differences arising from the joint arrangement’s undistributed profits is recognised.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.21 Employee benefits

(a) Short-term obligations

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the consolidated statements of financial position.

(b) Pension obligations

The People’s Republic of China (the“PRC”) employees of the Target Group are covered by various PRC government-sponsored defined-contribution pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these employees when they retire. The Target Group contributes on a monthly basis to these pension plans for the employees which are determined at a certain percentage of their salaries. Under these plans, the Target Group has no obligation for post-retirement benefits beyond the contribution made. Contributions to these plans are expensed as incurred and contributions paid to the defined contribution pension plans for a staff are not available to reduce the Target Group’s future obligations to such defined-contribution pension plans. The non-PRC employees are covered by other defined-contribution pension plans sponsored by the government of their respective country of residence. The Target Group also operates a Mandatory Provident Fund Scheme (the “MPF Scheme”) for all employees in Hong Kong. The assets of the scheme are held separately from those of the Target Group, in funds under the control of trustees. These subsidiaries are required to contribute certain fixed percentages of their payroll costs to the central pension scheme or the MPF Scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme and the MPF Scheme.

– II-21 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Termination benefits are payable when employment is terminated by the Target Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Target Group recognises termination benefits at the earlier of the following dates: when Target Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

(d) Share-based payment expenses

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. For shares that vest immediately at the date of grant, the fair value of the shares granted is expensed immediately to profit or loss, and the capital reserve is increased accordingly.

2.22 Provisions and contingent liabilities

Provisions

Provisions are recognised when the Target Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

Provisions for product warranties granted by the Target Group on certain products are recognised based on sales volume and past experience of the level of repairs and returns, discounted to their present values as appropriate.

Contingent liabilities

When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligations is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

2.23 Revenue recognition

(i) Sales of mechanical transmission equipment

The Target Group manufactures and sells a broad range of mechanical transmission equipment. Sales are recognised when the control of the products has been transferred to the buyer, provided that the Target Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, which is usually at the date when the Target Group has delivered products to the customer, the customer has accepted the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products.

Revenue excludes value added tax and is after deduction of any trade discounts.

– II-22 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(ii) Rental income

Rental income is recognised in the consolidated income statement on a straight-line basis over the term of the lease. See Note 2.27 for further details.

2.24 Interest income

Interest income from financial assets at FVPL is included in “Other Income”, see Note 6 below.

Interest income on financial assets at amortised cost and financial assets at FVOCI calculated using the effective interest method is recognised in the consolidated income statements as part of “Other income”, see Note 6 below.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that are subsequently become credit-impaired. For credit-impaired financial assets, the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowances).

Interest income is presented as “Finance income” where it is earned from financial assets that are held for cash management purposes, see Note 10 below.

2.25 Dividend income

Dividend income is recognised when the right to receive payment is established.

2.26 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Target Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants that become receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to company within the Target Group with no future related costs are recognised as income of the period in which they become receivable.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are recognised in profit or loss on a straight-line basis over the expected lives of the related assets.

2.27 Leases

A lease is recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Target Group.

Contracts may contain both lease and non-lease components. The Target Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the Target Group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• Fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• Variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

• Amounts expected to be payable by the Target Group under residual value guarantees;

– II-23 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

• The exercise price of a purchase option if the Target Group is reasonably certain to exercise that option; and

• Payments of penalties for terminating the lease, if the lease term reflects the Target Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Target Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Target Group:

• Where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;

• Uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Target Group, which does not have recent third party financing; and

• Makes adjustments specific to the lease, e.g., term, country, currency and security.

The Target Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

• The amount of the initial measurement of lease liability;

• Any lease payments made at or before the commencement date less any lease incentives received;

• Any initial direct costs, and

• Restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Target Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

Lease income from operating leases where the Target Group is a lessor is recognised in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the consolidated statement of financial position based on their nature.

2.28 Dividend distribution

Dividend distribution to the Target Company’s shareholders is recognised as a liability in the Target Group’s Historical Financial Information in the period in which the dividends are approved by the Target Company’s shareholders.

2.29 Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

– II-24 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Target Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding five years, commencing from the date when the products are put into commercial production.

2.30 Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Financial guarantee contract liabilities are measured initially at their fair values. It is subsequently measured at the higher of:

• the amount of the loss allowances determined in accordance with IFRS 9; and

• the amount initially recognised less, where appropriate, cumulative amortisation recognised over the guarantee period.

Where guarantees in relation to loans or other payables of associates or joint arrangements are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

2.31 Contract liabilities

A contract liability is recognised when a payment is received or a payment is due (whichever is earlier) from a customer before the Target Group transfers the related goods. Contract liabilities are recognised as revenue when the Target Group performs under the contract (i.e., transfers control of the related goods to the customer).

2.32 Related parties

(a) A person, or a close member of that person’s family, is related to the Target Group if that person:

(i) has control or joint control over the Target Group;

(ii) has significant influence over the Target Group; or

(iii) is a member of the key management personnel of the Target Group or the Target Group’s parent.

(b) An entity is related to the Target Group if any of the following conditions applies:

(i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a Target Group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group.

(vi) The entity is controlled or jointly controlled by a person identified in (a).

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

– II-25 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Target Group or to the parent of the Target Group.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Target Group’s activities exposed it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest rate risk and equity price risk), credit risk and liquidity risk. The Target Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Target Group’s financial performance.

(a) Market risk

(i) Foreign exchange risk

The Target Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollars (“USD”), Euros (“EUR”), and Hong Kong dollars (“HKD”). Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities and net investments in foreign operations. Approximately 35%, 31% and 19% of the Target Group’s sales were denominated in currencies other than the functional currencies of the operating units making the sale, whilst approximately 2%, 3% and 2% of costs were not denominated in the functional currency for the years ended 31 December 2018, 2019 and 2020 respectively. The Target Group’s finance department is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk. The Target Group currently did not enter into any hedge under the Target Group’s foreign currency risk strategy as the Target Group considers the risk of movements in exchange rates between the above currencies and RMB to be insignificant.

The carrying amounts of the Target Group’s monetary assets and monetary liabilities denominated in foreign currencies including financial assets at FVOCI, trade and other receivables, cash and cash equivalents and trade and other payables at the end of the reporting period are as follows:

2020 2019 2018 RMB’000 RMB’000 RMB’000

Assets USD 1,028,052 979,993 1,009,104 EUR 204,688 254,603 237,116 HKD 18,744 2,572 2,198

Liabilities USD 196,767 54,874 48,909 EUR 1,339 11,319 1,300 HKD – – –

– II-26 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the RMB exchange rates, with all other variables held constant, of the Target Group’s profit after income tax (due to changes in the fair value of monetary assets and liabilities). Differences resulting from the translation of the financial statements of foreign operations into the Target Group’s presentation currency are excluded from the analysis.

Increase/ Increase/ (decrease) Increase/ (decrease) in profit after (decrease) in RMB rate income tax in equity* % RMB’000 RMB’000

For the year ended 31 December 2020

If the USD weakens against the RMB 5% (34,894) – If the USD strengthens against the RMB (5%) 34,894 – If the EUR weakens against the RMB 5% (8,539) – If the EUR strengthens against the RMB (5%) 8,539 – If the HKD weakens against the RMB 5% (772) – If the HKD strengthens against the RMB (5%) 772 –

For the year ended 31 December 2019

If the USD weakens against the RMB 5% (38,455) – If the USD strengthens against the RMB (5%) 38,455 – If the EUR weakens against the RMB 5% (10,099) – If the EUR strengthens against the RMB (5%) 10,099 – If the HKD weakens against the RMB 5% (107) – If the HKD strengthens against the RMB (5%) 107 –

For the year ended 31 December 2018

If the USD weakens against the RMB 5% (39,654) – If the USD strengthens against the RMB (5%) 39,654 – If the EUR weakens against the RMB 5% (9,802) – If the EUR strengthens against the RMB (5%) 9,802 – If the HKD weakens against the RMB 5% (92) – If the HKD strengthens against the RMB (5%) 92 –

* Excluding retained earnings

(ii) Cash flow and fair value interest rate risk

The Target Group’s interest rate risk arises from short-term and long-term interest-bearing borrowings and certain financial assets at amortised cost, FVOCI and FVPL. Borrowings and certain financial assets at amortised cost, FVOCI and FVPL obtained at variable rates expose the Target Group to cash flow interest rate risk. Borrowings and certain financial assets at amortised cost, FVOCI and FVPL obtained at fixed rates expose the Target Group to fair value interest rate risk. The Target Group determines the relative proportions of its fixed rate and floating rate contracts depending on the prevailing market conditions. As at 31 December 2018 and 2019 the Target Group has RMB1,476,160 thousands and RMB90,000 thousands short-term and long-term interest-bearing borrowings and financial assets at amortised cost and FVPL at floating rate in net. As at 31 December 2020, the Target Group has no short-term and long-term interest-bearing borrowings and financial assets at amortised cost and FVPL at floating rate.

– II-27 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The Target Group’s finance department continuously monitors the interest rate position of the Target Group. Increase in interest rates will increase the cost of new borrowing and the interest expenses with respect to the Target Group’s outstanding floating rate borrowings, together to increase the interest income and fair values of the respective financial assets at amortised cost and FVPL and therefore could have a material adverse effect on the Target Group’s consolidated statements of financial position. The Target Group makes adjustments timely with reference to the latest market conditions and may enter into interest rate swap agreements to mitigate its exposure to interest rate risk. For the year ended 31 December 2018, 2019 and 2020, the Target Group did not enter into any interest rate swap agreements.

As at 31 December 2018, 2019 and 2020, if interest rates on the floating rate borrowings and certain financial assets at amortised cost, FVOCI and FVPL had risen/fallen by 50 basis points while all other variables had been held constant, the Target Group’s profit after income tax would have decreased/increased by approximately RMB5,512 thousands, RMB383 thousands and RMBNil as above respectively.

(iii) Equity price risk

The Target Group is exposed to equity price risk through its investment in listed equity securities. The Target Group’s equity price risk is mainly concentrated on an equity instrument quoted in the Shanghai Stock Exchange. The Target Group closely monitors the price risk and will consider hedging the risk exposure should the need arise.

The sensitivity analyses below have been determined based on the exposure to equity price risk at the end of the reporting period. If the price of the listed equity instrument had been 10% higher/lower, the total comprehensive income for the year ended 31 December 2020 would have increased/decreased by approximately RMB14,850 thousands excluding any tax effect as above as a result of the changes in fair value of the listed equity instrument.

(b) Credit risk

(i) Risk management

Credit risk is managed on group basis. It mainly arises from cash and cash equivalents, pledged bank deposits, trade receivables, other receivables, other financial assets at amortised cost, bills receivables carried at FVOCI and financial guarantee contracts, etc.

The Target Group has policies to limit the credit exposure on these aforesaid financial assets. The Target Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial positions, the availability of guarantees from third parties, their credit histories and other factors such as current market conditions. Management of the Target Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. The credit history of the customers is regularly monitored by the Target Group. In respect of customers with a poor credit history, the Target Group will use written payment reminders, or shorten or cancel their credit periods, to ensure the overall credit risk of the Target Group is limited to a controllable extent. The Target Group does not obtain collateral from customers or counterparties in respect of trade and bills receivables.

The Target Group has concentration of credit risk in respect of bank balances and pledged bank deposits. As at 31 December 2018, 2019 and 2020, approximately 77%, 74% and 73% of the total bank balances and pledged bank deposits were deposited at 7.5, 5 banks respectively, with deposits at each bank with a balance exceeding 9%, 10% and 7% of total bank balances and pledged bank deposits respectively.

Other than concentration of the credit risk on liquid funds which are deposited with several banks with high credit ratings, the Target Group also has concentration of credit risks with exposure limited to certain counterparties and customers. As at 31 December 2018, 2019 and 2020, trade receivables from top five customers accounted for approximately 47%, 25% and 27% of the Target Group’s trade receivables respectively. Apart from delegating a team for determining the credit limits, credit approval and other monitoring procedures on customers, the Target Group had also explored new markets and new customers in order to minimise the concentration of credit risk. Other than the above, there is no other concentration of credit risk on the Target Group’s trade and bills receivables.

– II-28 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

For other receivables and other financial assets at amortised cost, management makes periodic and collective assessment as well as individual assessment on the recoverability of other receivables and other financial assets at amortised cost based on historical settlement records, past experience, and also quantitative and qualitative forward-looking information that is reasonable and supportive.

(ii) Impairment of financial assets under expected credit loss model

The Target Group has five types of financial assets that are subject to the expected credit loss model:

• Bank balances and pledged bank deposits;

• Trade receivables for sales of goods;

• Other receivables and other financial assets carried at amortised cost;

• Bills receivables carried at FVOCI; and

• Financial guarantee contracts.

Bank balances and pledged bank deposits

The credit risks on liquid funds is limited because the majority of counterparties are banks with high credit ratings assigned by international credit-rating agencies or stated-owned banks with good reputation.

Trade receivables

The Target Group applies the simplified approach under IFRS 9 to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected credit loss rates are determined based on historical credit losses experienced from the past 48 months and are adjusted to reflect current and forward-looking information such as macroeconomic factors affecting the ability of the customers to settle the receivables. The Target Group has identified the Gross Domestic Product (“GDP”), Producer Price Index (“PPI”) and Industry Value-added (“IVA”) in which it sells its goods to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors.

Trade receivables relating to customers with known financial difficulties or significant doubt on collection of receivables are assessed individually for loss allowances.

On that basis, the loss allowances as at 31 December 2020, 2019 and 2018 were determined as follows for trade receivables:

Less than Between Between Between 1 year 1 and 2 years 2 and 3 years 3 and 4 years Over 4 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 31 December 2020 Expected credit loss rate 3% 41% 63% 87% 100% 14% Gross carrying amount – Trade receivables assessed under provisional matrix 2,369,257 87,564 55,952 53,664 202,067 2,768,504

Loss allowances under provision matrix 59,396 35,731 35,507 46,546 202,067 379,247 100% specifically provided – 11,429 49,908 108,964 17,151 187,512

Loss allowances 59,396 47,160 85,475 155,510 219,218 566,759

– II-29 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Less than Between Between Between 1 year 1 and 2 years 2 and 3 years 3 and 4 years Over 4 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 31 December 2019 Expected credit loss rate 3% 23% 45% 85% 100% 16% Gross carrying amount – Trade receivables assessed under provision matrix 2,057,962 177,228 151,645 49,092 221,156 2,657,083

Loss allowances under provision matrix 66,771 40,283 67,966 41,830 221,156 438,006 100% specifically provided 1,872 24,861 56,320 6,652 951 90,656

Loss allowances 68,643 65,144 124,286 48,482 222,107 528,662

Less than Between Between Between 1 year 1 and 2 years 2 and 3 years 3 and 4 years Over 4 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 31 December 2018 Expected credit loss rate 2% 16% 24% 77% 100% 9% Gross carrying amount – Trade receivables assessed under provision matrix 3,900,813 391,590 183,972 59,803 217,059 4,753,237

Loss allowances under under provision matrix 70,821 62,662 44,668 46,335 217,059 441,545 100% specifically provided 26,734 56,462 6,510 269 681 90,656

Loss allowances 97,555 119,124 51,178 46,604 217,740 532,201

The loss allowances for trade receivables as at 31 December reconcile to the opening loss allowances are as follows:

2020 2019 2018 RMB’000 RMB’000 RMB’000

As at 1 January 528,662 532,201 509,233 Loss allowances recognised in profit or loss 59,685 15,540 30,750 Amounts written off as uncollectible (21,560) (19,079) (7,782) Currency translation differences (28) – –

As at 31 December 566,759 528,662 532,201

The provision for loss allowances were recognised in profit or loss in net impairment losses on financial assets within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

– II-30 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

During the years ended 31 December 2018, 2019 and 2020, two debtors of the same group are in the process of liquidation due to their financial difficulties, which at the opinion of the directors of the Group, the recovery of these debts are in doubt and therefore a specific provision of RMB90,656 thousands and RMB187,512 thousands are made respectively.

The following table shows the movement in lifetime ECL that has been recognised for trade receivables under the simplified approach.

Lifetime ECL Lifetime ECL (non-credit (credit impaired) impaired) Total RMB’000 RMB’000 RMB’000

Trade receivables As at 31 December 2017 and 1 January 2018 425,748 83,485 509,233 Changes due to financial instruments recognised as at 1 January 2018:

– Impairment losses recognised 23,579 7,171 30,750 – Receivables written off during the year as uncollectible (7,782) – (7,782)

As at 31 December 2018 and 1 January 2019 441,545 90,656 532,201 Changes due to financial instruments recognised as at 1 January 2019:

– Impairment losses recognised 15,540 – 15,540 – Receivables written off during the year as uncollectible (19,079) – (19,079)

As at 31 December 2019 and 1 January 2020 438,006 90,656 528,662

As at 31 December 2019 and 1 January 2020 438,006 90,656 528,662 Changes due to financial instruments recognised as at 1 January 2020:

– Transfer to credit-impaired (12,353) 12,353 – – Impairment losses (reversed)/recognised (24,818) 84,503 59,685 – Receivables written off during the year as uncollectible (21,560) – (21,560) – Currency translation differences (28) – (28)

As at 31 December 2020 379,247 187,512 566,759

– II-31 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Other receivables and other financial assets carried at amortised cost

The Target Group uses three-stage model for other receivables and other financial assets carried at amortised cost which reflect their credit risk and how the expected credit loss provision is determined for each of those categories. The Target Group accounts for its credit risk by providing for lifetime expected credit losses on a timely basis. In calculating the expected credit loss rates, the Target Group considers both historical loss rates and forward-looking macroeconomic data. A summary of the assumptions underpinning the Target Group’s expected credit loss model is as follow:

Basis for recognition Expected Group definition of expected credit credit Category of category loss provision loss rate

Stage one Debtors have a low risk of 12 month expected credit 0% – 20% default and a strong losses. Where the capacity to meet expected lifetime of an contractual cash flows, or asset is less than debtors frequently repay 12 months, losses are after due dates but usually measured at its expected settle in full lifetime

Stage two There have been significant Lifetime expected credit 20% – 50% increases in credit risk losses since initial recognition through information developed internally or external sources

Stage three There is evidence indicating Lifetime expected credit 50% – 100% the receivable is credit losses impaired

The loss allowances for other receivables and other financial assets carried at amortised cost as at 31 December reconcile to the opening loss allowances are as follows:

2020 2019 2018 RMB’000 RMB’000 RMB’000

As at 1 January 7,021 14,417 9,202 Loss allowance (reversed)/ recognised in profit or loss (635) (7,396) 12,870 Amounts written off as uncollectible (41) – (7,655)

As at 31 December 6,345 7,021 14,417

– II-32 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The following table shows reconciliation of loss allowances that has been recognised for other receivables and other financial assets at amortised cost.

Lifetime ECL Lifetime ECL 12-months (non-credit (credit ECL impaired) impaired) Total RMB’000 RMB’000 RMB’000 RMB’000

Other receivables and other financial assets at amortised cost As at 31 December 2018 7,515 6,902 – 14,417 Changes due to financial instruments recognised as at 1 January 2019: – Transfer to credit-impaired (41) – 41 – – Impairment losses (reversed)/recognised (7,268) (6,902) 5,808 (8,362) – Receivables written off during the year as uncollectible – – – – New financial assets originated or purchased 179 787 – 966

As at 31 December 2019 385 787 5,849 7,021 Changes due to financial instruments recognised as at 1 January 2020: – Transfer to credit-impaired (23) – 23 – – Impairment losses (reversed)/recognised (245) (787) 288 (744) – Receivables written off during the year as uncollectible – – (41) (41) New financial assets originated or purchased 109 – – 109

As at 31 December 2020 226 – 6,119 6,345

Bills receivables carried at FVOCI

The Target Group expects that there is no significant credit risk associated with bills receivable since they are held with state-owned banks and other medium or large size listed banks. Management does not expect that there will be any significant losses from non-performance by these counterparties.

Financial guarantee contracts

Management considered the internal credit risk of financial guarantee contracts were performing as they have a low risk of default and the counterparties have a strong capacity to meet its contractual payment obligations in the near term, and thus the impairment provision recognised during the period was limited to 12 months expected losses. For the years ended 31 December 2018, 2019 and 2020, no provision for loss allowance were recognised in profit or loss in net impairment losses on financial assets in relation to the financial guarantee contracts.

– II-33 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Net impairment losses on financial assets recognised in profit or loss

For the years ended 31 December 2018, 2019 and 2020, the summary of the net impairment loss recognised in profit or loss is as follows:

Years ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Impairment losses for trade receivables 59,685 15,540 30,750 (Reversal of)/Impairment losses for other receivables and other financial assets at amortised cost (635) (7,396) 12,870

Net impairment losses on financial assets 59,050 8,144 43,620

(iii) Financial assets at FVPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVOCI or designated as FVOCI are measured at FVPL.

As at 31 December 2018, 2019 and 2020, the Target Group is also exposed to credit risk in relation to debt investments that are measured at FVPL. The debt investments which are unrated or credit rating below the pre-set levels have to be approved by the investment committee. The Credit Risk Management Committee regularly reviews and monitors the portfolio of debt securities.

The maximum exposure as at 31 December 2018, 2019 and 2020 is the carrying amount of these investments, which is RMB1,498,206 thousands, RMB241,820 thousands and RMB330,339 thousands respectively.

Cash flow forecast is performed by the operating entities of the Target Group and aggregated by the Target Group’s finance team. The Target Group’s finance team monitors rolling forecasts of the Target Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities from major financial institutions so that the Target Group does not breach borrowing limits or covenants on any of its borrowing facilities to meet the short-term and long-term liquidity requirements.

The liquidity of the Target Group is primarily dependent on its ability to maintain adequate cash inflows from operations, the renewal of its short-term bank loans and its ability to obtain adequate external financing to support its working capital and meet its debt obligations when they become due.

As at 31 December 2018, 2019 and 2020, the Target Group held cash and cash equivalents of RMB1,978,403 thousands, RMB2,463,284 thousands and RMB1,788,260 thousands (Note 26) and trade receivables of RMB4,311,692 thousands, RMB2,219,077 thousands and RMB2,708,255 thousands (Note 23) respectively that are expected to readily generate cash inflows for managing liquidity risk.

– II-34 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The table below analyses the Target Group’s financial liabilities into relevant maturity groupings based on the remaining period at the date of the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. The table includes both interest and principal cash flows. To the extent that interest flows are floating rates, the undiscounted amount is derived from interest rate curve at the end of the reporting period.

Contractual maturities of Less than Between Between Over financial liabilities 1 year 1 and 2 years 2 and 5 years 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2018 Non-derivatives Borrowings 5,251,410 165,260 2,673,117 – 8,089,787 Trade payables 1,441,160–––1,441,160 Bills payable 4,525,783–––4,525,783 Other payables 2,749,370–––2,749,370

13,967,723 165,260 2,673,117 – 16,806,100

Contractual maturities of Less than Between Between Over financial liabilities 1 year 1 and 2 years 2 and 5 years 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2019 Non-derivatives Borrowings 4,930,844 538,236 – – 5,469,080 Trade payables 1,965,126–––1,965,126 Bills payable 3,884,766–––3,884,766 Other payables 3,227,232–––3,227,232 Financial guarantee contracts 6,637 14,722 – – 21,359

14,014,605 552,958 – – 14,567,563

Contractual maturities of Less than Between Between Over financial liabilities 1 year 1 and 2 years 2 and 5 years 5 years Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2020 Non-derivatives Borrowings 2,223,313–––2,223,313 Trade payables 2,861,619–––2,861,619 Bills payable 3,229,373–––3,229,373 Other payables 1,262,349–––1,262,349 Financial guarantee contracts 14,763–––14,763

9,591,417–––9,591,417

The amounts included above for variable interest rate instruments for non-derivative financial liabilities are subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of each reporting period.

– II-35 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

3.2 Capital management

The Target Group’s objectives when managing capital are to safeguard the Target Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Target Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or debts, redeem the existing debts, or sell assets to reduce debt.

Consistent with others in the industry, the Target Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total liabilities divided by total assets.

The gearing ratios as at 31 December 2018, 2019 and 2020 are as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Total assets 18,575,464 24,744,665 26,499,131 Total liabilities 13,309,056 15,843,489 17,054,564 Gearing ratio 71.6% 64.0% 64.4%

3.3 Fair value estimation

The table below analyses the Target Group’s financial instruments carried at fair value as at 31 December 2018, 2019 and 2020 by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a fair value hierarchy as follows:

• The fair value of financial instruments traded in active markets (such as publicly traded derivatives and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Target Group is the current bid price. These instruments are included in level 1.

• The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

• If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.

– II-36 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The following tables set out the Target Group’s financial assets that were measured at fair value as at 31 December 2018, 2019 and 2020:

Recurring fair value measurements Level 1 Level 2 Level 3 Total RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2018 Financial assets Financial assets at FVPL – – 1,498,206 1,498,206 Financial assets at FVOCI – – 1,366,012 1,366,012

– – 2,864,218 2,864,218

At 31 December 2019 Financial assets Financial assets at FVPL – – 241,820 241,820 Financial assets at FVOCI – – 2,775,542 2,775,542

– – 3,017,362 3,017,362

At 31 December 2020 Financial assets Financial assets at FVPL – – 330,339 330,339 Financial assets at FVOCI 148,503 – 3,322,723 3,471,226

148,503 – 3,653,062 3,801,565

The management uses discounted cash flow analysis to determine the fair values of financial instruments. The fair values of these financial instruments may be based on unobservable inputs which may have significant impact on the valuation of these financial instruments, and therefore have been classified by the Target Group as level 3. The unobservable input which may have impact on the valuation is weighted average cost of capital.

There were no transfers among levels during the years ended 31 December 2018, 2019 and 2020.

– II-37 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(i) Fair value measurements using significant unobservable inputs (Level 3)

The following table presents the changes in level 3 items for the years ended 31 December 2018, 2019 and 2020:

Financial assets Financial assets Financial at FVPL at FVOCI assets Structured Unlisted Trade bank equity Bills receivables deposits investments receivable Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 – 100,000 221 2,823,950 2,924,171 Acquisitions 558,299 833,000 – – 1,391,299 Disposals – – – (1,474,588) (1,474,588) (Losses)/gains recognised in profit or loss (7,244) 14,151 – – 6,907 Gains recognised in other comprehensive income – – – 16,429 16,429

At 31 December 2018 551,055 947,151 221 1,365,791 2,864,218

At 1 January 2019 551,055 947,151 221 1,365,791 2,864,218 Acquisitions – 165,000 – 1,400,571 1,565,571 Disposals (464,052) (975,245) – – (1,439,297) (Losses)/gains recognised in profit or loss (664) 18,575 – – 17,911 Gains recognised in other comprehensive income – – – 8,959 8,959

At 31 December 2019 86,339 155,481 221 2,775,321 3,017,362

At 1 January 2020 86,339 155,481 221 2,775,321 3,017,362 Acquisitions – 388,000 – 553,151 941,151 Disposals (75,125) 233,861 (221) – (309,207) (Losses/gains) recognised in profit or loss (920) 10,425 – – 9,505 Losses recognised in other comprehensive income – – – (5,749) (5,749)

At 31 December 2020 10,294 320,045 – 3,322,723 3,653,062

– II-38 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(ii) Valuation inputs and relationships to fair value

Significant Relationship of Financial Fair value Valuation techniques unobservable unobservable instruments hierarchy and key inputs inputs inputs to fair value

Financial assets at FVPL – Trade Level 3 Discounted cash flow Expected future The higher the receivables with future cash cash flow; future cash flow, flows that are expected recovery the higher the fair – Structured estimated based on date; discounted value; the earlier bank expected recoverable rates that the recovery date, deposits amounts, discounted correspond to the the higher the fair at rates that reflect expected risk value; the lower management’s best level the discount rate, estimation of the the higher the fair expected risk level value

Financial assets at FVOCI – Unlisted Level 3 Discounted cash flow Expected future The higher the equity with future cash cash flow; future cash flow, Investment flows that are expected recovery the higher the fair estimated based on date; discounted value; the earlier – Bills expected recoverable rates that the recovery date, receivables amounts, discounted correspond to the the higher the fair at rates that reflect expected risk value; the lower management’s best level the discount rate, estimation of the the higher the fair expected risk level value

(iii) Sensitivity analysis

The sensitivity analysis has been determined based on the change of rate of return in isolation used in the expected future cash flow that reflect the expected risk level of the financial assets at the end of the reporting period. If the respective rate of return of the respective financial assets had been 10% higher/lower, the total comprehensive income (net of tax), for the years ended 31 December 2018, 2019 and 2020 would have increased/decreased by approximately RMB812 thousands, RMB1,311 thousands and RMB5,132 thousands respectively as a result of the changes in fair value of the financial assets.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Target Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Estimation of the fair value of certain financial assets

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Target Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.

– II-39 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(b) Expected credit loss for receivables

The impairment provision for trade receivables, bills receivables and other receivables are based on assumptions about the expected loss rates. The Target Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Target Group’s past history, existing market conditions as well as forward-looking estimates at the end of each of the reporting period. For details of the key assumptions and inputs used, see Note 2.9 and Note 3.1(b). Changes in these assumptions and estimates could materially affect the result of the assessment and may be necessary to make additional credit loss to the consolidated income statements.

The NRV is determined based on the estimated selling prices less the estimated costs to completion, if relevant, other costs necessary to make the sale, and the related taxes. Determination of estimated selling prices requires significant management judgement, taking into consideration of historical selling prices and future market trend. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than the estimate.

(d) Impairments for non-financial assets

In determining the value-in-use, expected cash flows generated by the non-financial assets or the cash-generating unit are discounted to their present value. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of operating costs.

(e) Useful life and residual value of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Target Group’s historical experience with similar assets, taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

(f) Estimation of provision for warranty claims

The Target Group generally offers 36-66 months warranties for its mechanical transmission equipment. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. The assumptions made in relation to the current period are consistent with those in the prior year. Factors that could impact the estimated claim information include the success of the Target Group’s productivity and quality initiatives, as well as parts and labour costs. As at 31 December 2018, 2019 and 2020, this particular provision had a carrying amount of RMB162,827 thousands, RMB313,621 thousands and RMB950,566 thousands respectively.

(g) Current and deferred income taxes

The Target Group is subject to income taxes in a number of jurisdictions. Significant judgement is required in determining the provision for income taxes in various jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Target Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

5 OPERATING SEGMENT INFORMATION

The Target Group is organised in one business division only. The Target Group’s chief operating decision maker (the “CODM”), being the Target Company’s Board of Directors, make decisions according to the revenue and operating results of each geographical area by location of customers and the related reports on the ageing analysis of trade and bills receivables for the purposes of resource allocation and performance assessment. Accordingly, the Target Group’s operating segments are based on geographical location of customers.

– II-40 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

No information of liabilities is provided to CODM for the assessment of performance of different geographical area. Therefore, only segment revenue and segment assets are presented.

PRC, the United States of America (the “USA”) and Europe are three major operating segments reviewed by the CODM while the remaining market locations are grouped together to report to CODM for analysis.

Inter-segment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

The accounting policies of the reportable segments are the same as the Target Group’s accounting policies described in Note 2.4. Segment results represent the gross profit (including depreciation of production plants), government grants, sales of scraps and materials, and selling and distribution expenses earned/incurred by each segment. The remaining items in the profit or loss are unallocated.

Only trade receivables and bills receivable of each segment are reported to the CODM for the purposes of resources allocation and performance assessment. Hence, total segment assets represent the trade and bills receivables of the Target Group while the unallocated assets represent the assets of the Target Group excluding trade and bills receivables. The related impairment loss on trade and bills receivables is not reported to the CODM as part of segment results.

(a) Segment information

For the year ended 31 December 2018 Other PRC USA Europe countries Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue Total segment revenue 11,810,646 1,866,388 459,020 536,670 14,672,724 Inter segment revenue (6,595,942) (58,697) – – (6,654,639)

Revenue from external customers 5,214,704 1,807,691 459,020 536,670 8,018,085

Timing of revenue recognition At a point in time 5,214,704 1,807,691 459,020 536,670 8,018,085

Segment results 795,939 318,768 78,585 91,608 1,284,900 Unallocated other income 1,768 Other gains – net 204,669 Impairment losses on financial assets (43,620) Finance costs – net (529,738) Share of results of joint ventures – Corporation and other unallocated expenses (795,032)

Profit before income tax 122,947

Other segment information Reversal of write-down of inventories (1,566) – – – (1,566) Reversal of impairment losses on financial assets, net 43,757 (126) (2) (9) 43,620 Impairment losses on prepayments (9,163) – – – (9,163) Depreciation and amortisation 426,896 17,195 2,436 616 447,143 Capital expenditure 662,439 24,345 1,985 249 689,018

Segment assets 5,632,506 35,773 511 8,693 5,677,483 Corporate and other unallocated assets 20,821,648

Total assets 26,499,131

– II-41 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

For the year ended 31 December 2019 Other PRC USA Europe countries Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue Total segment revenue 13,860,078 2,108,333 616,165 318,496 16,903,072 Inter segment revenue (7,316,053) (64,338) (94,940) (7,438) (7,482,769)

Revenue from external customers 6,544,025 2,043,995 521,225 311,058 9,420,303

Timing of revenue recognition At a point in time 6,544,025 2,043,995 521,225 311,058 9,420,303

Segment results 1,040,661 375,000 88,575 53,959 1,558,195 Unallocated other income 8,370 Other gains – net 56,623 Impairment losses on financial assets (8,144) Finance costs – net (439,901) Share of results of a joint venture (1,469) Corporation and other unallocated expenses (828,594)

Profit before income tax 345,080

Other segment information Reversal of write-down of inventories (2,493) – – – (2,493) Impairment losses on financial assets, net 8,029 89 19 7 8,144 Impairment losses on property, plant and equipment 8,003–––8,003 Impairment losses on prepayments 11,832–––11,832 Depreciation and amortisation 437,844 15,458 2,400 505 456,207 Capital expenditure 521,923 1,551 468 42,804 566,746

Segment assets 4,940,322 48,317 2,211 3,548 4,994,398 Corporate and other unallocated assets 19,750,267

Total assets 24,744,665

– II-42 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

For the year ended 31 December 2020 Other PRC USA Europe countries Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue Total segment revenue 15,415,050 1,696,999 364,982 732,688 18,209,719 Inter segment revenue (4,701,539) (91,481) (114,225) (121,390) (5,028,635)

Revenue from external customers 10,713,511 1,605,518 250,757 611,298 13,181,084

Timing of revenue recognition At a point in time 10,713,511 1,605,518 250,757 611,298 13,181,084

Segment results 2,396,435 362,123 53,284 139,532 2,951,374 Unallocated other income 18,858 Other losses – net (167,437) Impairment losses on financial assets (59,050) Finance costs – net (229,317) Share of results of joint ventures – Corporation and other unallocated expenses (1,486,237)

Profit before income tax 1,028,191

Other segment information Write-down of inventories 38,710–––38,710 Impairment losses on financial assets, net 58,768 (35) (9) 326 59,050 Impairment losses on property, plant and equipment 65,074–––65,074 Impairment losses on prepayments 20,937–––20,937 Depreciation and amortisation 395,077 14,645 2,178 452 412,352 Capital expenditure 338,870 5,811 5,962 34,224 378,867

Segment assets 5,681,619 16,899 11,798 1,664 5,711,980 Corporate and other unallocated assets 12,866,252

Total assets 18,578,232

– II-43 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(b) Other geographical information

Non-current assets by the locations of the assets and excludes financial assets at FVOCI and deferred income tax assets are detailed below:

2020 2019 2018 RMB’000 RMB’000 RMB’000

PRC 4,050,685 4,209,254 4,067,182 USA 139,754 154,472 159,088 Europe 6,390 7,558 3,306 Other countries 42,148 26,589 1,597

4,238,977 4,397,873 4,231,173

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Wind gear transmission equipment 11,651,603 8,158,483 6,896,966 Industrial gear transmission equipment 1,526,091 1,261,820 1,086,408 Other products and services 3,390 – 34,711

13,181,084 9,420,303 8,018,085

(d) Information about major customers

Revenue from customers of the corresponding year individually amounted to over 10% of the total revenue of the Target Group is as follows:

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Customer A (Note (i)) 2,363,793 2,980,529 3,001,454 Customer B (Note (ii)) 1,562,929 1,224,934 1,051,823

Notes:

(i) Revenue from sale of wind and industrial gear transmission equipment in the segments of PRC, USA, Europe and other countries.

(ii) Revenue from sale of wind gear transmission equipment in the PRC segment.

– II-44 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

6 OTHER INCOME

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Interest income from financial assets at FVPL 8,201 930 – Government grants (Note) – Deferred income recognised (Note 31) 19,505 17,124 19,248 – Other government subsidies 159,879 46,917 16,187 Sale of scraps and materials 69,847 30,982 44,876 Gross fixed rental income 5,665 4,477 2,038 Others 9,942 7,265 (271)

273,039 107,695 82,078

Note: Government grants mainly represented grants from the PRC’s local authority to support local companies. The recognition of government grants to profit or loss is set out in the accounting policy in Note 2.26.

7 OTHER (LOSSES)/GAINS – NET

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Losses on disposal of property, plant and equipment, net (5,454) (25,658) (1,360) Gains on disposal of a subsidiary – – 69,362 Foreign exchange (losses)/gains, net (106,414) 72,373 128,221 Net fair value gains on financial assets at FVPL (Note 25(ii)) 9,505 17,911 6,907 Impairment losses on property, plant and equipment (65,074) (8,003) – Gain on disposal of joint venture – 1,469 – Others – – 1,539

(167,437) 58,092 204,669

8 EXPENSES BY NATURE

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Cost of inventories sold 8,732,737 6,275,858 5,718,862 Employee benefit expenses (Note 9) 1,854,254 1,291,040 797,913 Depreciation of property, plant and equipment 396,715 419,579 409,361 Depreciation of right-of-use assets 15,637 13,795 12,445 Amortisation of intangible assets – 14,825 15,965 Auditors’ remuneration 6,192 7,019 6,289 Write-down/(reversal of write-down) of inventories (Note 22) 38,710 (2,493) (1,566) Other expenses 925,883 771,873 649,258

Total cost of sales, selling and distribution expenses, administrative expenses, research and development costs and share-based payment expenses 11,970,128 8,791,496 7,608,527

– II-45 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

9 EMPLOYEE BENEFIT EXPENSES

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Wages and salaries 959,927 922,763 598,935 Pension scheme contributions 76,389 97,757 157,419 Share-based payment expenses (Note (a)) 547,674 – – Other benefits 270,264 270,520 41,559

Total employee benefit expenses 1,854,254 1,291,040 797,913

(a) Share-based payment expenses

On 4 December 2020, an employee partnership enterprise, namely Shanghai Shifu Enterprise Management LLP (“Shanghai Shifu”), which was established to incentivise the core employees of the Target Group and on behalf of certain designated employees of the Target Group, entered into the capital increase agreement with Nanjing Gear Enterprise Management Co., Ltd. (“Nanjing Gear”), the parent company of the Target Group, and Target Company, pursuant to which Shanghai Shifu agreed to make the capital contribution in an aggregate amount of RMB150 million (the “Capital Increase”) in cash to the registered capital of the Target Company in return for 6.98% equity interest in Target Company.

The Capital Increase was completed on 26 December 2020. The fair value of 100% equity interest of Target Company at the date of Capital Increase is assessed as RMB10,000,000 thousands with reference to the consideration of RMB4.3 billion for the sale of 43% equity interest of Target Company to an independent third party on 30 March 2021. The difference between the fair value of the 6.98% equity interest in Target Company and the Capital Increase amount, being RMB547,674 thousands, is recognised in profit or loss as share-based payment expenses.

10 FINANCE INCOME AND COSTS

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Finance income Bank interest income 56,685 72,549 111,306

Finance costs Interest expenses (286,002) (510,440) (628,231) Net foreign exchange losses – (2,010) (12,813)

(286,002) (512,450) (641,044)

Finance costs – net (229,317) (439,901) (529,738)

– II-46 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

11 INCOME TAX EXPENSES

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Current income tax – charge for the year – PRC 295,389 164,538 48,710 – Hong Kong 18,425 23,454 16,051 – Others 206 669 591

Current income tax – (over)/under provision in respect of prior years (3,406) 801 (39,279)

310,614 189,462 26,073

Deferred tax (84,898) (51,933) 7,943

Income tax expenses 225,716 137,529 34,016

A reconciliation between income tax expense and accounting profit at applicable tax rates is as follows:

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Profit before income tax 1,028,191 345,080 122,947

Tax calculated at statutory tax rate of 25% 257,048 86,270 30,737 Tax effect of: – Lower tax rate enacted by local authority or different tax rates of subsidiaries in other jurisdictions (136,924) (13,778) (53,042) – Share of results of joint ventures accounted for using the equity method – 367 – – Non-deductible expenses 140,759 10,576 10,992 – Utilisation of previously unrecognised tax losses (94,749) (6,539) (8,976) – Tax losses for which no deferred income tax assets was recognised 38,799 (83,767) 85,198 – Temporary differences for which no deferred income tax assets was recognised 58,207 2,094 32,362 – Additional deductions on research and development expenses (34,018) (26,029) (23,976) – (Over)/under provision in respect of prior years (3,406) 801 (39,279)

225,716 137,529 34,016

– II-47 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(a) PRC corporate income tax

PRC corporate income tax has been provided at the rate of 25% (2019: 25%) on the taxable profits of the Group’s PRC subsidiaries for the years ended 31 December 2018, 2019 and 2020.

The following subsidiaries are approved as high technology development enterprises and thus entitled to a preferential tax rate of 15% up to 31 December 2022:

Year ended during which Year ending during which Name of company approval was obtained approval will expire

Target Company 31 December 2020 31 December 2022

Nanjing High Speed & Accurate Gear 31 December 2020 31 December 2022 (Group) Co., Ltd. (“Nanjing High Accurate”)

(b) Hong Kong profits tax

Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%; 2018: 16.5%) on the estimated assessable profits arising in Hong Kong for the years ended 31 December 2018, 2019 and 2020.

Other corporate income tax has been provided at the applicable rate of 8.5% to 18.5% on the estimated assessable profits arising from the jurisdictions at which the entities are operated for the years ended 31 December 2018, 2019 and 2020.

12 DIVIDENDS

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Dividends recognised as distribution during the year 3,850,000 – 700,000

13 Property, plant and equipment

Freehold Machinery land and Leasehold and Furniture Transportation Construction buildings improvements equipment and fixtures equipment in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 Cost 1,340,503 14,445 4,242,030 224,957 218,563 784,530 6,825,028 Accumulated depreciation (238,533) (1,422) (2,722,648) (153,740) (167,035) – (3,283,378) Impairment losses – – – – – (12,174) (12,174)

Net book amount 1,101,970 13,023 1,519,382 71,217 51,528 772,356 3,529,476

– II-48 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

For the year ended 31 December 2018 Opening net book amount 1,101,970 13,023 1,519,382 71,217 51,528 772,356 3,529,476 Transferred from construction in progress – – 322,515 19,074 50,970 (392,559) – Other additions – – 14,130 8,974 – 481,904 505,008 Depreciation (42,159) (4,465) (346,148) (13,262) (12,699) – (418,733) Disposals (76,734) – (21,488) (38) (614) – (98,874) Currency translation differences – – – 354 (7) – 347

Closing net book amount 983,077 8,558 1,488,391 86,319 89,178 861,701 3,517,224

At 31 December 2018 Cost 1,263,769 14,445 4,557,187 253,321 268,912 873,875 7,231,509 Accumulated depreciation (280,692) (5,887) (3,068,796) (167,002) (179,734) – (3,702,111) Impairment losses – – – – – (12,174) (12,174)

Net book amount 983,077 8,558 1,488,391 86,319 89,178 861,701 3,517,224

At 1 January 2019 Cost 1,263,769 14,445 4,557,187 253,321 268,912 873,875 7,231,509 Accumulated depreciation (280,692) (5,887) (3,068,796) (167,002) (179,734) – (3,702,111) Impairment losses – – – – – (12,174) (12,174)

Net book amount 983,077 8,558 1,488,391 86,319 89,178 861,701 3,517,224

For the year ended 31 December 2019 Opening net book amount 983,077 8,558 1,488,391 86,319 89,178 861,701 3,517,224 Transferred from construction in progress 152,644 6,820 542,589 15,654 35,906 (753,613) – Other additions 275 4,222 1,322 839 83 477,617 484,358 Acquisition of a subsidiary (Note 39) 80,966 – 88,885 69 599 5,698 176,217 Depreciation (43,525) (5,568) (348,556) (13,738) (16,200) – (427,587) Disposals (7,379) – (48,399) (3,135) (6,773) – (65,686) Impairment losses provided for the year (Note 7) – – – – – (8,003) (8,003) Currency translation differences 1,879 – 371 463 8 (3) 2,718

Closing net book amount 1,167,937 14,032 1,724,603 86,471 102,801 583,397 3,679,241

– II-49 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

At 31 December 2019 Cost 1,527,120 25,487 5,105,408 249,728 284,576 603,574 7,795,893 Accumulated depreciation (359,183) (11,455) (3,380,805) (163,257) (181,775) – (4,096,475) Impairment losses – – – – – (20,177) (20,177)

Net book amount 1,167,937 14,032 1,724,603 86,471 102,801 583,397 3,679,241

At 1 January 2020 Cost 1,527,120 25,487 5,105,408 249,728 284,576 603,574 7,795,893 Accumulated depreciation (359,183) (11,455) (3,380,805) (163,257) (181,775) – (4,096,475) Impairment losses – – – – – (20,177) (20,177)

Net book amount 1,167,937 14,032 1,720,603 86,471 102,801 583,397 3,679,241

For the year ended 31 December 2020 Opening net book amount 1,167,937 14,032 1,720,603 86,471 102,801 583,397 3,679,241 Transferred from construction in progress 19,986 – 336,424 21,047 20,919 (398,376) – Other additions 2,755 8,360 32,405 1,219 621 324,394 369,754 Depreciation (48,928) (6,579) (300,066) (20,958) (20,184) – (396,715) Disposals (3,853) (3,352) (25,015) (3,191) (3,941) – (39,352) Impairment losses provided for the year (Note 7) – – (8,603) (312) – (56,159) (65,074) Currency translation differences 11,607 – (831) (20,789) (13) – (10,026)

Closing net book amount 1,149,504 12,461 1,758,917 63,487 100,203 453,256 3,537,828

At 31 December 2020 Cost 1,549,726 30,495 5,292,457 225,626 294,768 529,592 7,922,664 Accumulated depreciation (400,222) (18,034) (3,524,937) (161,827) (194,565) – (4,299,585) Impairment losses – – (8,603) (312) – (76,336) (85,251)

Net book amount 1,149,504 12,461 1,758,917 63,487 100,203 453,256 3,537,828

The Target Group is in the process of obtaining property certificates for the buildings above with a carrying amount of RMB740,308 thousands, RMB603,365 thousands and RMB537,980 thousands as at 31 December 2018, 2019 and 2020 respectively.

The freehold lands are located in the USA.

– II-50 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

14 RIGHT-OF-USE ASSETS

Land use rights RMB’000

At 1 January 2018 Cost 515,757 Accumulated amortisation (53,255)

Net book amount 462,502

For the year ended 31 December 2018 Opening net book amount 462,502 Additions 184,010 Disposals (66,992) Charge for the year (12,445)

Closing net book amount 567,075

At 31 December 2018 Cost 632,775 Accumulated amortisation (65,700)

Net book amount 567,075

At 1 January 2019 Cost 632,775 Accumulated amortisation (65,700)

Net book amount 567,075

For the year ended 31 December 2019 Opening net book amount 567,075 Transferred from deposits for land leases (Note 21) 40,910 Additions 41,479 Acquisition of a subsidiary (Note 39) 45,460 Charge for the year (13,795)

Closing net book amount 681,129

At 31 December 2019 Cost 765,892 Accumulated amortisation (84,763)

Net book amount 681,129

– II-51 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Land use rights RMB’000

At 1 January 2020 Cost 765,892 Accumulated amortisation (84,763)

Net book amount 681,129

For the year ended 31 December 2020 Opening net book amount 681,129 Transferred from deposits for land leases (Note 21) 5,471 Additions 3,642 Disposals (4,610) Charge for the year (15,637) Exchange differences (878)

Closing net book amount 669,117

At 31 December 2020 Cost 767,798 Accumulated amortisation (98,681)

Net book amount 669,117

The land use rights are located in the PRC. Lump sum payments were made up front to acquire these property interests. At 31 December 2018, 2019 and 2020, the Target Group is in the process of obtaining certain land use rights certificates with a carrying amount of RMB286,355 thousands, RMB234,728 thousands and RMB141,360 thousands respectively.

15 GOODWILL

RMB’000

Net carrying amount at 1 January 2018, 31 December 2018 and 1 January 2019 – Addition from acquisition of a subsidiary (Note 39) 26,142

Net carrying amount at 31 December 2019, 1 January 2020 and 31 December 2020 26,142

At 31 December 2019, 1 January 2020 and 31 December 2020 Cost 26,142 Accumulated impairment –

26,142

Impairment testing of goodwill

Goodwill acquired through business combinations is allocated to the CGUs as below for impairment testing.

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Wind Gear Transmission Equipment CGU 26,142 26,142 –

– II-52 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The recoverable amount of the wind gear transmission equipment CGU was determined based on a value-in-use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to the cash flow projections was 16% (2019: 16%;) and cash flows beyond the five-year period were extrapolated using a growth rate of 3% (2019: 3%), which was the same as the long term average growth rate of the gear products industry.

Assumptions were used in the value-in-use calculation of the light engineering and wind gear transmission equipment CGU as at 31 December 2019 and 2020. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

• Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budget year, increased for expected efficiency improvements, and expected market development.

• Discount rate – The discount rate used is before tax and reflects specific risks relating to the unit.

Based on the assessments, no goodwill as at 31 December 2019 and 2020 was impaired.

16 INTANGIBLE ASSETS

Research and development costs RMB’000

At 1 January 2018 Cost 650,522 Accumulated amortisation (621,271)

Net book amount 29,251

For the year ended 31 December 2018 Net book amount at 1 January 2018 29,251 Amortisation (15,965) Reversal of impairment losses 1,539

Net book amount at 31 December 2018 14,825

At 31 December 2018 Cost 650,522 Accumulated amortisation (637,236) Impairment losses 1,539

Net book amount 14,825

For the year ended 31 December 2019 Net book amount at 1 January 2019 14,825 Amortisation (14,825)

Net book amount at 31 December 2019, 1 January 2020 and 31 December 2020 –

At 31 December 2019, 1 January 2020 and 31 December 2020 Cost 650,522 Accumulated amortisation (652,061) Impairment losses 1,539

Net book amount –

– II-53 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

17 INVESTMENTS IN A JOINT VENTURE ACCOUNTED FOR USING THE EQUITY METHOD

2020 2019 2018 RMB’000 RMB’000 RMB’000

As at 1 January – 85,249 – Additions – – 85,249 Share of result for the year – (1,469) – Impairment losses provided for during the year – – – Disposal – (83,780) –

As at 31 December – – 85,249

Note: In May 2019, the Group entered into an agreement with an independent third party to dispose of its 30% equity interest in Jiangsu An Rhonda Health Industry Development Co., Ltd, at a total cash consideration of RMB85,249 thousands, and resulted in a gain of RMB1,469 thousands.

Principal activities of a joint venture as at 31 December 2018, 2019 and 2020 are as follows:

Place of business/ Percentage of country of ownership interest Principal Measurement Name of entity incorporation 2020 2019 2018 activities method

Jiangsu An Rhonda Health PRC – – 30 Business Equity Industry Development services Co., Ltd

18 FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The Target Group holds the following financial instruments:

As at 31 December Note 2020 2019 2018 RMB’000 RMB’000 RMB’000

Financial assets Financial assets at amortised cost – Trade receivables 23 2,389,257 2,219,077 4,311,692 – Other receivables 23 743,385 7,105,484 7,561,761 – Other financial assets at amortised cost 19 – 33,675 – – Pledged bank deposits 26 1,640,286 2,642,560 2,918,913 – Cash and cash equivalents 26 1,788,260 2,463,284 1,978,403 Financial assets at FVOCI 20 3,471,226 2,775,542 1,366,012 Financial assets at FVPL 25 330,339 241,820 1,498,206

10,362,753 17,481,442 19,634,987

Financial liabilities Liabilities at amortised cost: – Trade and other payables 29 7,353,341 9,077,124 8,716,313 – Borrowings and corporate bonds 30 2,178,970 5,237,448 7,372,957

9,532,311 14,314,572 16,089,270

– II-54 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The Target Group’s exposure to various risks associated with the financial instruments is discussed in Note 3.1. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above.

19 OTHER FINANCIAL ASSETS AT AMORTISED COST

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Corporate bonds (Note) – 33,675 –

– 33,675 –

Note: In 2019, the Target Group acquired a corporate bond from an independent third party with the amount of approximately RMB33,675 thousands.

All of the corporate bonds were settled during the year ended 31 December 2020.

20 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

(i) Classification of financial assets at FVOCI

Financial assets measured at FVOCI include the following:

• Equity securities which are not held for trading, and which the Target Group has irrevocably elected at initial recognition to recognise in this category. These are strategic investments and the Target Group considers this classification to be more relevant.

• Debt securities where the contractual cash flows are solely principal and interest and the objective of the Target Group’s business model is achieved both by collecting contractual cash flows and selling financial assets.

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Non-current assets Listed equity investment (Note (ii)) 148,503 – – Unlisted equity investments – 221 221

148,503 221 221

Current asset Debt investments (Note (iii)) 3,322,723 2,775,321 1,365,791

3,471,226 2,775,542 1,366,012

– II-55 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(ii) Listed equity investments

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Riyue Heavy Industry Co., Ltd. 148,503 – –

148,503 – –

The balance as at 31 December represent the fair value of equity shares of Shanghai listed securities based on the closing price of the securities quoted on the stock exchanges of Shanghai on that date. The directors of the Target Company consider that the closing price of the securities is the fair value of the investment.

(iii) Debt investments

Debt investments at FVOCI represents bills receivables that are held for collection of contractual cash flows and for selling purpose.

For the years ended 31 December 2018, 2019 and 2020, fair value loss of RMB16,429 thousands, RMB8,959 thousands and RMB5,749 thousands for bills receivables measured at FVOCI are recognised in OCI.

(iv) Transfers of financial assets

The following were the Group’s bills receivable accepted by banks in the PRC (the “Endorsed Bills”) that were endorsed to certain of the Group’s suppliers in order to settle the trade payables due to such suppliers (the “Endorsement”). In the opinion of the directors, the Group has retained the substantial risks and rewards, which include default risks relating to such Endorsed Bills, and accordingly, it continued to recognise the full carrying amounts of the Endorsed Bills and the associated trade payables settled.

Bills receivable endorsed to suppliers with full recourse are as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 232,768 195,385 27,489 Carrying amount of associated liabilities (232,768) (195,385) (27,489)

(v) Amounts recognised in profit or loss and other comprehensive income

During the year ended 31 December 2018, 2019 and 2020, the following gains/(losses) were recognised in profit or loss and other comprehensive income:

Year ended at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Gains/(losses) recognised in other comprehensive income 54,252 (8,959) (16,429) Dividends from equity investments held at FVOCI recognised in profit or loss in other income – – –

– II-56 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(vi) Current assets pledged as security

Refer to Note 37 for information on current assets pledged as security by the Target Group.

(vii) Fair value, impairment and risk exposure

Information about the Target Group’s exposure to equity price risk is provided in Note 3.1(a)(iii).

Information about the methods and assumptions used in determining fair value is provided in Note 3.3.

Information about the loss allowance measured on bills receivables classified as debt investments at FVOCI is provided in Note 3.1(b).

21 DEPOSITS FOR LAND LEASES

The amount represents deposits for land leases paid partly in relation to the acquisition of land use rights and the transfer is subject to the approval of the local government. During the years ended 31 December 2018, 2019 and 2020, deposits for land lease amounted to RMBNil, RMB40,910 thousands and RMB5,471 thousands has been transferred to right-of-use assets respectively.

22 INVENTORIES

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Raw materials 549,867 421,555 399,389 Work in progress 1,793,516 1,099,232 935,732 Finished goods 1,235,282 912,848 854,392

3,578,665 2,433,635 2,189,513

During the years ended 31 December 2018, 2019 and 2020, the cost of inventories recognised as expense amounted to RMB6,534,404 thousands, RMB7,617,839 thousands and RMB10,080,613 thousands which was included in “cost of sales” respectively.

During the years ended 31 December 2018, 2019 and 2020, reversal of write-down of inventories to net realisable value amounted to RMB1,566 thousands and RMB2,493 thousands respectively were recognised and included in “cost of sales” in profit or loss.

During the year ended 31 December 2020, write-down of inventories amounted to RMB38,710 thousands were recognised and included in “cost of sales” in profit or loss.

– II-57 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

23 TRADE AND OTHER RECEIVABLES

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Trade receivables – Amounts due from third parties 2,634,256 2,747,739 4,843,893 – Amount due from a fellow subsidiary 321,760 – –

2,956,016 2,747,739 4,843,893

Less: Loss allowances (566,759) (528,662) (532,201)

2,389,257 2,219,077 4,311,692

Other receivables – Amounts due from third parties 81,390 229,602 393,486 – Amounts due from fellow subsidiaries 668,340 6,882,903 7,182,692

749,730 7,112,505 7,576,178

Less: Loss allowances (6,345) (7,021) (14,417)

743,385 7,105,484 7,561,761

Value-added tax recoverable 80,122 112,876 13,138

823,507 7,218,360 7,574,899

3,212,764 9,437,437 11,886,591

The Target Group generally allows a credit period of 180 days (2019 and 2018: 180 days) to its trade customers. The Target Group seeks to maintain strict control over its outstanding receivables and has set up a credit control department to actively monitor the status of its outstanding receivables and take proper actions in order to minimise credit risk. Overdue balances are reviewed regularly by senior management. The Target Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

– II-58 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

All of the amounts due from the Target Group’s fellow subsidiaries are unsecured, interest-free and repayable on credit terms similar to those offered to the major customers of the Target Group.

(i) Fair values of trade and other receivables

Due to the short-term nature of the current trade and other receivables, their carrying amount is considered to be the same as their fair value.

(ii) Impairment and risk exposure

The Target Group applies the simplified approach under IFRS 9 to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Note 3.1(b) provides details about the calculation of the loss allowance.

Information about the Target Group’s exposure to financial risk factors of trade and other receivables are disclosed in Note 3.1.

The ageing analysis of trade receivables as at the end of the reporting period, based on the invoice date and net of loss allowances provision, is as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Less than 90 days 2,379,548 1,705,377 2,530,870 90 to 180 days 167,354 80,714 734,467 181 to 365 days 81,957 204,983 944,096 1 to 2 years 51,833 137,574 28,021 Over 2 years 27,563 90,429 74,238

2,389,257 2,219,077 4,311,692

24 PREPAYMENTS

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Prepayments – Amounts due from third parties 125,013 168,635 258,730

Less: Impairment provision (46,584) (25,647) (13,815)

78,429 142,988 244,915

– II-59 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The movements in loss allowances of prepayments are as follows:

2020 2019 2018 RMB’000 RMB’000 RMB’000

As at 1 January 25,647 13,815 22,978 Impairment losses recognised/(reversal of impairment losses) during the year, net 20,937 11,832 (9,163)

As at 31 December 46,584 25,647 13,815

25 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

(i) Classification of financial assets at FVPL

The Target Group classifies debt investments that do not qualify for measurement at either amortised cost (Note 19) or FVOCI (Note 20) as FVPL

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Current assets Structured bank deposits (Note (a)) 320,045 155,481 947,151 Trade receivables measured at FVPL (Note (b)) 10,294 86,339 551,055

330,339 241,820 1,498,206

Notes:

(a) Structured bank deposits

As at 31 December 2018, 2019 and 2020, structured bank deposits of RMB947,151 thousands, RMB155,481 thousands and RMB320,045 thousands represented financial instruments placed by the Target Group to one, two and three banks in the PRC for a term within one year respectively. The contract guarantees principal and proceeds are related to the performance of exchange rate, interest rate or stock index on the market. All of the structured bank deposits amounted to RMB320,045 thousands were redeemed subsequent to the end of the reporting period.

(b) Trade receivables measured at FVPL

In 2018 and 2020, the Group entered into several agreements with two banks to sell all of its eligible trade receivables under certain customers and all right, title, interest and benefit the Target Group has in each such eligible trade receivables on a non-recourse basis without the need for any further action or documentation on the part of the Group or the bank, at a discount calculated based on the base rate and number of days for early payment as specified in the agreements.

As at 31 December 2018, 2019 and 2020, such trade receivables held solely for selling purpose amounting to RMB551,055 thousands, RMB86,339 thousands and RMB10,294 thousands were classified as financial assets at FVPL respectively. For the years ended 31 December 2018, 2019 and 2020, fair value change of RMB7,244 thousands, RMB664 thousands and RMB920 thousands for trade receivables measured at FVPL are recognised in “Other (losses)/gains – net” respectively.

– II-60 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

(ii) Amounts recognised in profit or loss

For the years ended 31 December 2018, 2019 and 2020 the following gains were recognised in profit or loss:

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Fair value gains on debt investments at FVPL recognised in other gains – net (Note 7) 9,505 17,911 6,907

(iii) Risk exposure and fair value measurements

Information about the fair value measurement is set out in Note 3.3.

26 CASH AND CASH EQUIVALENTS AND PLEDGED BANK DEPOSITS

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Cash at banks and on hand 3,428,546 5,105,844 4,897,316 Less: Pledged bank deposits (1,640,286) (2,642,560) (2,918,913)

Cash and cash equivalents 1,788,260 2,463,284 1,978,403

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits are made for varying periods between one day and three months, depending on the immediate cash requirements of the Target Group, and earn interest at the respective short-term time deposit rates. The bank balances and pledged deposits are deposited in credit-worthy banks with no recent history of default.

27 SHARE CAPITAL

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Paid-in capital

Carrying amount at beginning of the year 2,000,000 2,000,000 2,000,000 Capital injection 150,000 – –

Carrying amount at end of the year 2,150,000 2,000,000 2,000,000

– II-61 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

28 RESERVES

Deemed capital Statutory Total contribution surplus Capital FVOCI Exchange in other Retained reserve reserve reserve reserve reserve reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2018 1,061,956 834,868 83,488 – (5,039) 1,975,273 5,642,905 7,618,178

Profit for the year ––––––99,688 99,688 Other comprehensive loss for the year – Change in fair value of financial assets at FVOCI, net of tax – – – (15,800) – (15,800) – (15,800) – Currency translation differences ––––(5,394) (5,394) – (5,394)

Total comprehensive income for the year – – – (15,800) (5,394) (21,194) 99,688 78,494

Dividends recognised as distribution during the year (Note 12) ––––––(700,000) (700,000) Acquisition of subsidiaries 411,843––––411,843 – 411,843 Appropriation to statutory reserve – 41,900–––41,900 (41,900) –

Balance at 31 December 2018 1,473,799 876,768 83,488 (15,800) (10,433) 2,407,822 5,000,693 7,408,515

Balance at 1 January 2019 1,473,799 876,768 83,488 (15,800) (10,433) 2,407,822 5,000,693 7,408,515

Profit for the year ––––––211,501 211,501 Other comprehensive loss for the year – Change in fair value of financial assets at FVOCI, net of tax – – – (9,326) – (9,326) – (9,326) – Currency translation differences ––––(7,036) (7,036) – (7,036)

Total comprehensive income for the year – – – (9,326) (7,036) (16,362) 211,501 195,139

Acquisition of subsidiaries (734,569) ––––(734,569) – (734,569) Appropriation to statutory reserve – 4,105–––4,105 (4,105) –

Balance at 31 December 2019 739,230 880,873 83,488 (25,126) (17,469) 1,660,996 5,208,089 6,869,085

– II-62 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Deemed Share- capital Statutory based Total contribution surplus Capital FVOCI payment Exchange in other Retained reserve reserve reserve reserve reserve reserve reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2020 739,230 880,873 83,488 (25,126) – (17,469) 1,660,996 5,208,089 6,869,085

Profit for the year –––––––796,447 796,447 Other comprehensive income/(loss) for the year: – – Change in fair value of financial assets at FVOCI, net of tax – – – 48,874 – – 48,874 – 48,874 – Currency translation differences –––––(21,206) (21,206) – (21,206)

Total comprehensive income for the year – – – 48,874 – (21,206) 27,668 796,447 824,115

Dividends recognised as distribution (Note 12) –––––––(3,850,000) (3,850,000) Transactions with non-controlling interests (7,762) –––––(7,762) – (7,762) Business combination under common control (51,935) (316,561) (83,488) – – – (451,982) (836,414) (1,288,396) Share-based payment expenses (Note 9(a)) ––––547,674 – 547,674 – 547,674 Appropriation to statutory reserve – 51,054 ––––51,054 (51,054) –

Balance at 31 December 2020 679,535 615,366 – 23,748 547,674 (38,675) 1,827,648 1,267,068 3,094,716

The amounts of the Target Group’s reserves and the movements therein for the current and prior year are presented in the consolidated statement of changes in equity on pages II-7 to II-8 of the Historical Financial Information.

(a) Deemed capital contribution reserve

The deemed capital contribution reserve arose from a deemed capital contribution from shareholders in 2006.

(b) Statutory surplus reserve

In accordance with the PRC Company Law and the PRC subsidiaries’ Articles of Association, a subsidiary registered in the PRC as a domestic company is required to appropriate 10% of its annual statutory net profit as determined in accordance with relevant statutory rules and regulations applicable to enterprises established in the PRC (after offsetting any prior years’ losses) to the statutory surplus reserve. When the balance of such reserve fund reaches 50% of the entity’s capital, any further appropriation is optional. The statutory surplus reserve can be utilised to offset prior years’ losses or to increase capital. However, such balance of the statutory surplus reserve must be maintained at a minimum of 25% of the capital after such usages.

The capital reserve represents the difference between the consideration given and the decrease in net assets of subsidiaries attributable to non-controlling interests upon acquisition of additional interests in subsidiaries.

(d) FVOCI reserve

The Target Group has elected to recognise changes in the fair value of certain investments in equity securities in OCI, as explained in Note 2.9. These changes are accumulated in the FVOCI reserve within equity. The Target Group transfers amounts from this reserve to retained earnings when the relevant equity securities are derecognised.

– II-63 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The Target Group also has certain debt investments measured at FVOCI, as explained in Note 20. For these investments, changes in fair value are accumulated in the FVOCI reserve within equity. The accumulated changes in fair value are transferred to profit or loss when the investment is derecognised or impaired.

(e) Exchange reserve

Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in Note 2.5 and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of.

29 TRADE, BILLS AND OTHER PAYABLES

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Trade payables – Amounts due to third parties 2,861,619 1,965,126 1,441,160

Bills payable 3,229,373 3,884,766 4,525,783

6,090,992 5,849,892 5,966,943

Other payables – Accruals 65,632 139,333 257,418 – Other tax payables 23,258 60,051 16,421 – Purchase of property, plant and equipment 83,384 158,607 260,347 – Payroll and welfare payables 181,987 148,031 130,679 – Amounts due to third parties 336,169 443,108 288,146 – Amounts due to fellow subsidiaries 842,796 2,625,517 2,200,877

1,533,226 3,574,647 3,153,888

7,629,218 9,424,539 9,120,831

An ageing analysis of the trade and bills payable as at the end of the reporting period, based on the invoice date and the date of issuance of the bills, is as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

0 to 30 days 2,874,610 2,084,059 1,081,767 31 to 60 days 538,494 402,349 769,629 61 to 180 days 836,351 917,985 2,020,928 181 to 365 days 1,418,866 2,298,618 2,015,580 Over 365 days 422,671 146,881 79,039

6,090,992 5,849,892 5,966,943

Trade payables are non-interest-bearing and are normally settled on credit terms of 90 to 180 days (2019 and 2018: 180 days).

All of the amounts due to the Target Group’s joint ventures and fellow subsidiaries are unsecured, interest-free and repayable within 180 days (2019 and 2018: 180 days).

– II-64 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

30 BORROWINGS AND CORPORATE BONDS

As at 31 December 2020 2019 2018 Effective Effective Effective interest interest interest rate rate rate % RMB’000 % RMB’000 % RMB’000

Current Bank loans – Unsecured 3.45-5.44 1,628,970 4.35-5.92 1,927,500 1.05-5.66 3,190,367 Bank loans – Secured 3.69-5.22 550,000 3.69-5.92 896,500 3.91-5.10 1,270,020 Medium-term notes – Unsecured – – 8.5 500,000

2,178,970 2,824,000 4,960,387

Corporate bonds – Unsecured (Note) – 6.59-6.62 1,914,275 –

2,178,970 4,738,275 4,960,387

Non-current Bank loans – Secured – 8.00 736 8.00 1,105 Corporate bonds – Unsecured (Note) – 7.62 498,437 6.47-7.50 2,411,465

– 499,173 2,412,570

2,178,970 5,237,448 7,372,957

Note: In March 2017, July 2017 and January 2018, Nanjing High Accurate Drive Equipment Manufacturing Group Co., Ltd (“Nanjing Drive”) issued three tranches of corporate bonds with principal amounts of RMB900,000 thousands, RMB1,020,000 thousands and RMB500,000 thousands which carries interest rates of 6.47%, 6.50% and 7.50% per annum respectively. All corporate bonds have a period of 5 years, attached with the option of adjusting the nominal interest rate for issuer and the option of redemption for investors at the end of the third year. During the year ended 31 December 2020, Nanjing Drive have paid in an aggregate amount of RMB2,420,000 thousands for the full redemption of the three tranches of bonds. All of the bonds have been cancelled subsequently.

– II-65 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The maturity of borrowings and corporate bonds is as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Analysed into: Bank loans repayable: – On demand or within 1 year 2,178,970 2,824,000 4,460,387 – Between 1 and 2 years – 736 – – Between 2 and 5 years – – 1,105

2,178,970 2,824,736 4,461,492

Other borrowing repayable: – On demand or within 1 year – 1,914,275 500,000 – Between 1 and 2 years – 498,437 1,913,317 – Between 2 and 5 years – – 498,148

– 2,412,712 2,911,465

2,178,970 5,237,448 7,372,957

The exposure of the Target Group’s fixed-rate borrowings and the contractual maturity dates (or reset dates) are as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Fixed-rate borrowings: – Within one year 2,178,970 4,648,275 3,484,227 – More than one year – 499,173 2,412,570

2,178,970 5,147,448 5,896,797

In addition, the Target Group has no variable-rate borrowings at 31 December 2020 (2019: RMB90,000 thousands; 2018: RMB1,476,160 thousands) which carry interest rates based on the prescribed rate of People’s Bank of China or the London Interbank Offered Rate.

The ranges of effective interest rates (which are also equal to contracted interest rates) on the Target Group’s borrowings are as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Effective interest rates: – Fixed-rate borrowings 3.45%-5.44% 3.69%-8.00% 1.05%-8.50% – Variable-rate borrowings – 4.57%-4.70% 3.91%-5.22%

As at 31 December 2020 and 2019, all borrowings are denominated in RMB. (2018: the Group’s borrowings denominated in currencies other than RMB amounted to USD63,009 thousands (equivalent to RMB423,443 thousands) and EUR34,290 thousands (equivalent to RMB269,084 thousands))

The secured borrowings at the end of the reporting period were secured by pledge of assets, details of which are set out in Note 37.

– II-66 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

31 DEFERRED INCOME

2020 2019 2018 RMB’000 RMB’000 RMB’000

At 1 January 197,397 71,479 90,727 Government grants received during the year 19,313 143,042 – Recognised in profit or loss (Note 6) (19,505) (17,124) (19,248)

At 31 December 197,205 197,397 71,479

Represented – Current portion 19,654 17,124 17,196 – Non-current portion 177,551 180,273 54,283

197,205 197,397 71,479

As at the end of each of the reporting period, the amount represented the grants received from the PRC government for the Target Group’s acquisition of assets for technology development, and such amount will be released to income over the useful lives of the relevant assets.

32 WARRANTY PROVISION

2020 2019 2018 RMB’000 RMB’000 RMB’000

At 1 January 313,621 162,827 119,971 Additional provisions recognised during the year 922,708 357,646 150,501 Amounts utilised during the year (285,763) (206,852) (107,645)

At 31 December 950,566 313,621 162,827

Represented – Current portion 578,086 216,457 90,299 – Non-current portion 372,480 97,164 72,528

950,566 313,621 162,827

At the end of the reporting period, the amount represents the directors’ best estimate of the expected cost that will be required under the Target Group’s obligations for warranties under sale of goods. The estimate has been made on the basis of historical warranty trends and may vary as a result of new materials, altered manufacturing processes or other events affecting product quality.

The increase in warranty provision in 2020 was mainly due to the increase in sales volume and special one-off warranty provision was made for certain customers in 2020.

– II-67 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

33 DEFERRED INCOME TAX

Write- Deferred income Impairment down of Deferred tax assets of receivables inventories Provisions income Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 11,642 53,017 17,996 22,638 5,809 111,102 Recognised in profit or loss (7,019) (1,854) 4,331 (4,768) 622 (8,688) Recognised in other comprehensive income – – – – 629 629

At 31 December 2018 and 1 January 2019 4,623 51,163 22,327 17,870 7,060 103,043 Recognised in profit or loss 3,349 (5,407) 23,065 26,662 3,040 50,709 Recognised in other comprehensive income – – – – (378) (378)

At 31 December 2019 and 1 January 2020 7,972 45,756 45,392 44,532 9,722 153,374 Recognised in profit or loss 1,406 (11,092) 93,273 (5,316) 5,380 83,651 Recognised in other comprehensive income – – – – 1,908 1,908

At 31 December 2020 9,378 34,664 138,665 39,216 17,010 238,933

Change in fair value of Fair value identified change on assets upon financial assets acquisition of of FVOCI and Deferred income tax liabilities subsidiaries FVPL Total RMB’000 RMB’000 RMB’000

At 1 January 2018 (13,041) – (13,041) Recognised in profit or loss 745 – 745

At 31 December 2018 and 1 January 2019 (12,296) – (12,296) Recognised in profit or loss 1,224 – 1,224 Acquisition of a subsidiary (Note 39) (13,798) – (13,798)

At 31 December 2019 and 1 January 2020 (24,870) – (24,870) Recognised in profit or loss 1,247 – 1,247 Recognised in other comprehensive income – (7,275) (7,275)

At 31 December 2020 (23,623) (7,275) (30,898)

– II-68 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Deferred tax assets not recognised

As at 31 December 2020, the Target Group has unused tax losses of RMB929,465 thousands (2019: RMB1,109,521 thousands; 2018: RMB730,118 thousands) available for offset against future profits. No deferred tax asset has been recognised in respect of such loss due to the unpredictability of future profit streams. The unused tax losses can be carried forward up to five years from the year in which the loss was originated to offset future taxable profits. During the year ended 31 December 2020, the other temporary differences not recognised are RMB854,989 thousands (2019: RMB919,017 thousands; 2018: RMB760,567 thousands).

34 CASH GENERATED FROM OPERATIONS

Reconciliation of profit before income tax to cash generated from operations:

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Profit before income tax – From continuing operations 1,028,191 345,080 122,947 Adjustments for: – Finance costs 286,002 512,450 641,044 – Finance income (56,685) (72,549) (111,306) – Interest income from other financial assets at amortised cost (8,201) (930) – – Share of result of a joint ventures – 1,469 – – Losses on disposal of property, plant and equipment 5,454 25,658 1,360 – Gain on disposal of a joint venture – (1,469) – Gain on disposal of a subsidiary – – (69,362) – Net fair value gains on financial assets at FVPL (Note 7) (9,505) (17,911) (6,907) – Depreciation of property, plant and equipment 396,715 427,587 418,733 – Depreciation of right-of-use assets 15,637 13,795 12,445 – Amortisation of intangible assets – 14,825 15,965 – Impairment losses of property, plant and equipment 65,074 8,003 – – Reversal of impairment losses of intangible assets – – (1,539) – Write-down/(reversal of write-down) of inventories 38,710 (2,493) (1,566) – Impairment loss of trade receivable 59,685 15,540 30,750 – (Reversal/Impairment loss of other receivables (635) (7,396) 12,870 – Impairment loss/(reversal of impairment loss) of prepayments 20,937 11,832 (9,163) – Unrealised exchange gains, net (17,295) 5,662 (21,211) – Share-based payment expenses 547,674 – – – Release of deferred income (19,505) (17,124) (19,248)

Operating profit before changes in working capital 2,352,253 1,262,029 1,015,812

– II-69 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Year ended 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Changes in working capital: – Increase in inventories (1,183,740) (200,382) (177,676) – (Increase)/decrease in trade and bills receivable (706,694) 1,122,745 (115,037) – Decrease/(increase) in other receivables 24,603 74,667 45,993 – Decrease/(increase) in prepayments 49,093 129,668 (2,571) – Decrease/(increase) in trade and bills payables 241,099 (147,986) (314,224) – Increase in contract liabilities 1,659,065 228,376 33,109 – (Decrease)/increase in other payables and accruals (105,366) (240,411) 424,696 – Increase in warranty provision 636,945 150,793 42,855

Cash generated from operations 2,967,258 2,379,499 952,957

(a) Net debt reconciliation

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Cash and cash equivalents 1,788,260 2,463,284 1,978,403 Borrowings – repayable within one year (2,178,970) (4,738,275) (4,960,387) Borrowings – repayable after one year – (499,173) (2,412,570)

Net debt (390,710) (2,774,164) (5,394,554)

Cash and cash equivalents 1,788,260 2,463,284 1,978,403 Gross debt – fixed interest rates (2,178,970) (5,147,448) (5,896,797) Gross debt – variable interest rates – (90,000) (1,476,160)

Net debt (390,710) (2,774,164) (5,394,554)

Liabilities from financing Other assets activities Borrowings Borrowings due within due after Cash 1 year 1 year Total RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2018 3,845,251 (4,870,608) (2,740,168) (3,765,526) Cash flows (1,888,058) (89,779) 327,598 (1,650,239) Foreign exchange adjustments 21,211 – – 21,211

At 31 December 2018 and 1 January 2019 1,978,403 (4,960,387) (2,412,570) (5,394,554) Cash flows 490,543 2,137,150 369 2,628,062 Reclassification – (1,913,028) 1,913,028 – Foreign exchange adjustments (5,662) (2,010) – (7,672)

At 31 December 2019 and 1 January 2020 2,463,284 (4,738,275) (499,173) (2,774,164) Cash flows (692,320) 2,559,305 499,173 2,366,159 Foreign exchange adjustments 17,295 – – 17,295

At 31 December 2020 1,788,260 (2,178,970) – (390,710)

– II-70 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

35 CONTRACT LIABILITIES

It represented deposits received in advance for made-to-order manufacturing arrangement on acceptance of manufacturing orders. The sum of deposits received are based on negotiation on a case by case basis with customers. The increase in contract liabilities in 2020 was mainly due to the increase in advances from customers in relation to the sale of wind gear transmission equipment.

36 CONTINGENT LIABILITIES

(i) Financial guarantees

As at 31 December 2018, 2019 and 2020, the Target Group issued financial guarantees to a bank in respect of bank loans of RMB410,000 thousands, RMB410,000 thousands and RMB410,000 thousands granted to one independent third party respectively. This amount represented the balance that the Target Group could be required to be paid if the guarantees were called upon in its entirety.

(ii) Outstanding litigation

(i) On 12 November 2015, Nanjing High Speed and NGC Transmission Europe GmbH (collectively referred to as “NGC Parties”) jointly entered into a strategic cooperation agreement (the “Cooperation Agreement”) with Sustainable Energy Technologies GmbH (“SET”) on the development and sale of certain electromechanical differential gearboxes for the use in industrial plants and wind mills, including its production and marketing (the “Project”). The Cooperation Agreement was terminated prematurely by SET on 23 February 2018.

In 2019, NGC Transmission Europe GmbH received a claim (the “Claim”) filed by SET with a total amount of EUR11,773 thousands (equivalent to RMB92,012 thousands) (the “Claimed Amount”) against NGC Parties for breaches of contractual obligations under the Cooperation Agreement relating to the Project.

Upon the date of the approval of these Historical Financial Information, the Claim was still awaiting for trial. The independent lawyers engaged by the Target Group believe that there are solid arguments to rebut the Claim on the merits whilst also see a certain settlement value to this case which would be substantially below 50% of the total Claimed Amount. As at 31 December 2019 and 2020, based on the assessment of the independent lawyers, a provision amounting to RMB8,066 thousands and RMB8,066 thousands was accrued by management respectively.

(ii) Jiangsu Guoyuan Power Equipment Co., Ltd. (“Jiangsu Guoyuan”) is the gearing supplier to the Target Company (the “Borrower”). On 15 June 2018, the Borrower obtained a short-term loan with RMB130,000 thousands (the “Loan”) from a bank (the “Lender”) to settle the procurement payables with Jiangsu Guoyuan. The Loan was in the form of entrusted payment which was released to Jiangsu Guoyuan’s designated bank account (mutually controlled by the Borrower and Jiangsu Guoyuan) directly by the Lender on the date of draw-down. However, Jiangsu Guoyuan did not properly use the Loan to settle the payables with the Borrower, but transferred all RMB130,000 thousands out, without notification to or authorisation from the Borrower, on the day upon receipt of the Loan. On 22 June 2018, the Borrower filed a claim against Jiangsu Guoyuan on this embezzlement to Nanjing Intermediate People’s Court and RMB130,000 thousands was under frozen as at 31 December 2018. As at 31 December 2018, this case was awaiting trial and based on the opinion of the external legal counsel of the Borrower, it was highly probable that the Borrower to win this lawsuit with RMB130,000 thousands to be fully recovered, as such, the directors believed that there was no loss allowance to be provided nor significant implication on the consolidated financial statements of the Target Group. Up to 31 December 2020, the loan has been recovered.

– II-71 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

37 CAPITAL COMMITMENTS

The Target Group had the following capital commitments at the end of the reporting period:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Contracted, but not provided for: Plant and machinery 426,519 231,162 237,046

38 ASSETS PLEDGED AS SECURITIES

At the end of the reporting period, certain assets of the Target Group were pledged to secure certain banking and other facilities granted to the Target Group as follows:

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Bills receivable 1,202,626 1,179,231 905,550 Property, plant and equipment 600,754 757,984 245,784 Land use rights 146,068 176,107 50,205 Pledged bank deposits 1,640,286 2,642,560 2,918,913

3,589,734 4,755,882 4,120,452

39 BUSINESS COMBINATION

(i) Summary of acquisition in 2019

In February 2019, the Target Group acquired 100% equity interest in NGC (Baotou) Transmission Equipment Co., Ltd. from an independent third party with a total purchase consideration of RMB10,010 thousands.

The assets and liabilities recognised as a result of the acquisition are as follows:

Fair value RMB’000

Cash and cash equivalents 1,386 Trade receivables 4,436 Other receivables 1,104 Prepayment 52,668 Inventories 41,247 Property, plant and equipment 176,217 Right-of-use assets 45,460 Trade payables (30,935) Other payables (293,917) Deferred tax liabilities (13,798)

Net identifiable liabilities acquired (16,132) Add: Goodwill 26,142

Consideration 10,010

– II-72 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

Purchase consideration – cash inflow

Year ended 31 December 2019 RMB’000

Inflow of cash to acquire subsidiary, net of cash acquired Cash consideration 10,010 Less: Prepayment in prior year (10,010) Add: Cash and cash equivalents acquired 1,386

Net inflow of cash – investing activities 1,386

The goodwill is attributable to the synergies expected to arise in the business of wind gear transmission equipment after the Target Group’s acquisition of the new subsidiary. It has been allocated to the CGU of wind gear transmission equipment. None of the goodwill is expected to be deductible for tax purposes. Please refer to Note 15 for the changes in goodwill as a result of the acquisition.

According to the finalised valuation report, deferred tax liabilities of RMB13,798 thousands has been provided in relation to the fair value adjustments as to the acquired inventories, property, plant and equipment and right-of-use assets with a total amount of RMB55,190 thousands.

40 DISPOSAL OF A SUBSIDIARY IN 2018

On 28 September 2017, Nanjing High Accurate entered into an agreement with Nanjing Fullshare Dazu Technology Company Limited (“Fullshare Dazu”), a subsidiary of Fullshare Holdings, and a third party Jiangsu Lipu Health Technology Co., Ltd. (“Jiangsu Lipu”) to dispose of its 40% equity interest in Jiangsu An Rhonda Health Industry Development Co., Ltd (“An Rhonda”) to Fullshare Dazu and 30% equity interest to Jiangsu Lipu at a total cash consideration of RMB177,506 thousands.

In December 2018, Nanjing High Accurate completed the transferring of land use right and buildings and properties to An Rhonda. The disposal of An Rhonda was completed and An Rhonda became a joint venture of the Target Group after the transaction.

The aggregated assets and liabilities at the date of disposal and the resulting gain or loss on disposal recognised were as follows:

An Rhonda RMB’000

Property, plant and equipment 112,096 Land lease prepayments 81,296

Net assets disposed 193,392

Total consideration for the disposal 177,506 Net assets disposed (193,392) Interest reclassified as a joint venture 85,248

Gain from disposal of a subsidiary 69,362

– II-73 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

RMB’000

Total consideration 177,506 Less: Cash consideration receivable (163,506) Less: Deposits received in previous period (14,000) Less: Cash and cash equivalents in the subsidiary disposed –

Net cash inflows from the disposal –

41 TRANSACTION WITH NON-CONTROLLING INTERESTS

Acquisition of interest in a non-wholly-owned subsidiary

On 31 October 2020, the Target Group purchased an additional 14.17% equity interests in Nanjing NingKai by RMB15,600 thousands. At the date of the purchase, the proportionate share of 14.17% interests in Nanjing NingKai by non-controlling interests was RMB7,639 thousands. The effect on the equity attributable to the owners of the Target Company during the year is summarised as follows:

As at 31 December 2020 RMB’000

Decrease in non-controlling interests (7,639) Consideration paid to non-controlling interests 15,600

Excess of consideration recognised in the transactions with non-controlling interests reserve within equity 7,961

42 RELATED PARTY TRANSACTIONS

Compensation of key management personnel of the Target Group:

Other than the emolument paid to the directors of the Target Company, who are also considered as the key management of the Target Group as below, the Target Group did not have any other significant compensation to key management personnel.

As at 31 December 2020 2019 2018 RMB’000 RMB’000 RMB’000

Salaries, allowances and other benefits 16,132 16,132 18,529 Share-based payment expenses 161,564 – – Pension scheme contributions 318 318 371

178,014 16,450 18,900

– II-74 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

43 BUSINESS COMBINATION UNDER COMMON CONTROL

As mentioned in Note 2.2.1, the acquisitions of the ten companies and the acquisitions of operating business have been accounted for based on merger accounting. Accordingly, the assets and liabilities of the companies acquired by the Target Group have been accounted for at historical cost and the Historical Financial Information of the Target Group for year prior to the combination have been restated to include the financial position and results of operation of the ten companies on a combined basis. The details of the restated balances are stated as below.

The reconciliation of the effect arising from the common control combination on the consolidated statements of financial position as at 31 December 2018 and 2019 are as follows:

As at 31 December 2018

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Non-current assets Property, plant and equipment 2,263,223 1,252,611 1,390 – 3,517,224 Right-of-use assets 272,255 294,820 – – 567,075 Goodwill – – – – – Intangible assets 14,825 – – – 14,825 Investments in joint ventures accounted for using the equity method – 85,249 – – 85,249 Financial assets at fair value through other comprehensive income – 221 – – 221 Deposits for land leases 46,800 – – – 46,800 Deferred tax assets 100,159 – – 2,884 103,043

2,697,262 1,632,901 1,390 2,884 4,334,437

Current assets Inventories 1,630,053 570,996 – (11,536) 2,189,513 Trade receivables 412,714 177,318 3,721,660 – 4,311,692 Other receivables 7,364,262 197,577 49,545 – 7,611,384 Amount due from fellow subsidiaries 190,818 314,699 – (505,517) – Other financial assets at amortised cost – – – – – Prepayments 212,962 29,462 2,491 – 244,915 Financial assets at fair value through other comprehensive income 503,592 37,556 824,643 – 1,365,791 Financial assets at fair value through profit or loss 163,518 – 1,334,688 – 1,498,206 Income tax prepaid – – 45,877 – 45,877 Pledged bank deposits 928,265 41,242 1,949,406 – 2,918,913 Cash and cash equivalents 1,331,418 262,401 384,584 – 1,978,403

12,737,602 1,631,251 8,312,894 (517,053) 22,164,694

Current liabilities Trade payables 1,128,289 312,669 202 – 1,441,160 Bills payable 1,251,900 – 3,273,883 – 4,525,783 Other payables 1,470,531 1,550,021 133,336 – 3,153,888 Amounts due to fellow subsidiaries 125,412 380,376 – (505,788) – Borrowings 3,027,087 7,100 1,926,200 – 4,960,387 Corporate bonds – – – – – Contract liabilities 79,542 107,105 111,476 – 298,123 Deferred income 17,196 – – – 17,196

– II-75 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Income tax payable – – 16,051 – 16,051 Warranty provision 76,317 13,982 – – 90,299

7,176,274 2,371,253 5,461,148 (505,788) 14,502,887

Net current assets 5,561,328 (740,002) 2,851,746 (11,265) 7,661,807

Total assets less current liabilities 8,258,590 892,899 2,853,136 (8,381) 11,996,244

Non-current liabilities Borrowings 1,105 – – – 1,105 Corporate bonds – – 2,411,465 – 2,411,465 Deferred income 54,283 – – – 54,283 Warranty provision 72,528 – – – 72,528 Deferred tax liabilities 78 12,218 – – 12,296

127,994 12,218 2,411,465 – 2,551,677

Net assets 8,130,596 880,681 441,671 (8,381) 9,444,567

Capital and reserves Share capital 2,000,000 1,242,135 – (1,242,135) 2,000,000 Reserves 6,130,596 (361,454) 441,671 1,197,702 7,408,515

Equity attributable to owners of the Target Company 8,130,596 880,681 441,671 (44,433) 9,408,515 Non-controlling interests – – – 36,052 36,052

Total equity 8,130,596 880,681 441,671 (8,381) 9,444,567

As at 31 December 2019

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Non-current assets Property, plant and equipment 2,054,685 1,618,859 5,697 – 3,679,241 Right-of-use assets 308,183 372,946 – – 681,129 Goodwill – 26,142 – – 26,142 Intangible assets – – – – – Investments in joint ventures accounted for using the equity method – – – – – Financial assets at fair value through other comprehensive income – 221 – – 221 Deposits for land leases 5,890 5,471 – – 11,361

– II-76 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Deferred tax assets 124,156 23,421 – 5,797 153,374

2,492,914 2,047,060 5,697 5,797 4,551,468

Current assets Inventories 1,527,131 929,690 – (23,186) 2,433,635 Trade receivables 461,196 214,964 1,542,917 – 2,219,077 Other receivables 7,040,653 142,288 35,419 – 7,218,360 Amount due from fellow subsidiaries 759,796 467,575 – (1,227,371) – Other financial assets at amortised cost – 33,675 – – 33,675 Prepayments 116,402 26,586 – – 142,988 Financial assets at fair value through other comprehensive income 309,513 129,736 2,336,072 – 2,775,321 Financial assets at fair value through profit or loss – – 241,820 – 241,820 Income tax prepaid – – 22,477 – 22,477 Pledged bank deposits 469,431 24,080 2,149,049 – 2,642,560 Cash and cash equivalents 1,261,508 499,161 702,615 – 2,463,284

11,945,630 2,467,755 7,030,369 (1,250,557) 20,193,197

Current liabilities Trade payables 1,522,248 427,951 14,927 – 1,965,126 Bills payable 608,936 3,364 3,272,466 – 3,884,766 Other payables 1,258,904 2,184,167 131,576 – 3,574,647 Amounts due to fellow subsidiaries 237,851 989,490 – (1,227,341) – Borrowings 2,149,000 – 675,000 – 2,824,000 Corporate bonds – – 1,914,275 – 1,914,275 Contract liabilities 69,494 181,726 275,279 – 526,499 Deferred income 17,124 – – – 17,124 Income tax payable 11,264 19,349 88,502 – 119,115 Warranty provision 205,451 11,006 – – 216,457

6,080,272 3,817,053 6,372,025 (1,227,341) 15,042,009

Net current assets 5,865,358 (1,349,298) 658,344 (23,216) 5,151,188

Total assets less current liabilities 8,358,272 697,762 664,041 (17,419) 9,702,656

Non-current liabilities Borrowings 736 – – – 736 Corporate bonds – – 498,437 – 498,437 Deferred income 86,588 93,685 – – 180,273 Warranty provision 97,164 – – – 97,164 Deferred tax liabilities – 11,585 – 13,285 24,870

184,488 105,270 498,437 13,285 801,480

Net assets 8,173,784 592,492 165,604 (30,704) 8,901,176

Capital and reserves Share capital 2,000,000 1,523,029 – (1,523,029) 2,000,000

– II-77 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Reserves 6,173,784 (1,002,543) 165,604 1,532,240 6,869,085

Equity attributable to owners of the Target Company 8,173,784 520,486 165,604 9,211 8,869,085 Non-controlling interests – – – 32,091 32,091

Total equity 8,173,784 520,486 165,604 41,302 8,901,176

The reconciliation of the effect, arising from the common control combination on the consolidated statements of profit or loss for the year ended 31 December 2018 and 2019 are as follows:

For the year ended 31 December 2018

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Revenue from contracts with customers 6,399,548 1,681,841 6,576,905 (6,640,209) 8,018,085 Cost of sales (5,320,753) (1,564,658) (6,182,365) 6,534,938 (6,532,838)

Gross profit 1,078,795 117,183 394,540 (105,271) 1,485,247 Selling and distribution expenses (152,627) (123,915) (4,115) – (280,657) Administrative expenses (152,621) (138,153) (185,870) 11,219 (465,425) Research and development costs (315,357) (92,814) – 78,564 (329,607) Share-based payment expenses – – – – – Net impairment losses recognised on financial assets 31,795 (9,637) (65,778) – (43,620) Other income 64,660 66,399 1,352 (50,333) 82,078 Other (losses)/gains – net 101,329 (4,712) 25,877 82,175 204,669

Operating profit 655,974 (185,649) 166,006 16,354 652,685 Finance income 38,372 1,026 71,908 – 111,306 Finance costs (257,196) (18,961) (352,074) (12,813) (641,044)

Finance costs – net (218,824) (17,935) (280,166) (12,813) (529,738) Share of results of joint ventures accounted for using the equity method – – – – –

Profit before income tax 437,150 (203,584) (114,160) 3,541 122,947 Income tax expenses (18,149) (439) (16,051) 623 (34,016)

Profit for the year 419,001 (204,023) (130,211) 4,164 88,931

Profit/(loss) attributable to: – Owners of the Target Company 419,001 (204,023) (130,211) 14,921 99,688 – Non-controlling interests – – – (10,757) (10,757)

419,001 (204,023) (130,211) 4,164 88,931

– II-78 – APPENDIX II ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF NANJING HIGH SPEED

For the year ended 31 December 2019

The Target Group Excluding the ten companies and businesses The ten Businesses merge companies merge Adjustments Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Revenue from contracts with customers 7,319,437 1,737,185 7,863,019 (7,499,338) 9,420,303 Cost of sales (6,509,497) (1,528,663) (6,988,166) 7,410,980 (7,615,346)

Gross profit 809,940 208,522 874,853 (88,358) 1,804,957 Selling and distribution expenses (134,763) (150,510) (78,957) 16,674 (347,556) Administrative expenses (168,744) (178,036) (118,502) 19,348 (445,934) Research and development costs (322,371) (88,295) – 28,006 (382,660) Share-based payment expenses – – – – – Net impairment losses recognised on financial assets (23,832) (9,558) 13,413 11,833 (8,144) Other income 83,048 38,295 9,664 (21,842) 109,164 Other (losses)/gains – net 39,421 (13,280) 30,482 – 56,623

Operating profit 282,699 (192,862) 730,953 34,340 786,450 Finance income 16,032 3,851 52,666 – 72,549 Finance costs (224,637) (13,003) (274,810) – (512,450)

Finance costs – net (208,605) (9,152) (222,144) – (439,901) Share of results of joint ventures accounted for using the equity method – (1,469) – – (1,469)

Profit before income tax 74,094 (203,483) 508,809 (34,340) 345,080 Income tax expenses (33,045) 4,048 (111,955) 3,423 (137,529)

Profit for the year 41,049 (199,435) 396,854 (30,917) 207,551

Profit/(loss) attributable to: – Owners of the Target Company 41,049 (199,435) 396,854 (26,967) 211,501 – Non-controlling interests – – – (3,950) (3,950)

41,049 (199,435) 396,854 (30,917) 207,551

44 EVENTS AFTER REPORTING PERIOD

Save as disclosed elsewhere in this Historical Financial Information, there was no significant event which happened after the end of the reporting period.

45 SUBSEQUENT FINANCIAL STATEMENTS

No audited consolidated financial statements have been prepared by the Target Group in respect of any period subsequent to 31 December 2020.

– II-79 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

Set out below is the reproduction of the management discussion and analysis of Nanjing High Speed for each of the three years ended 31 December 2018, 2019 and 2020 contained in Appendix III to the CHS Circular.

For the year ended 31 December 2018

Business review

Nanjing High Speed and its subsidiaries are principally engaged in research, design, development, manufacturing and distribution of a broad range of mechanical transmission equipment that are used in wind power and a wide range of industrial applications.

During the year ended 31 December 2018, Nanjing High Speed recorded revenue from contracts with customers of approximately RMB8,018,085,000. The gross profit margin was approximately 18.5%. Profit attributable to owners of Nanjing High Speed was approximately RMB99,688,000.

Financial review

Revenue

During the year ended 31 December 2018, Nanjing High Speed’s revenue from contracts with customers was approximately RMB8,018,085,000.

Gross profit margin and gross profit

During the year ended 31 December 2018, Nanjing High Speed’s gross profit margin was approximately 18.5%. Gross profit for the year ended 31 December 2018 amounted to approximately RMB1,485,247,000.

Financial resources and liquidity

The equity attributable to owners of Nanjing High Speed for the year ended 31 December 2018 amounted to approximately RMB9,408,515,000. Nanjing High Speed had total assets of approximately RMB26,499,131,000 as at 31 December 2018. Total current assets were approximately RMB22,164,694,000. Total non-current assets were approximately RMB4,334,437,000.

Total liabilities of Nanjing High Speed as at 31 December 2018 were approximately RMB17,054,564,000. Total current liabilities were approximately RMB14,502,887,000. Total non-current liabilities were approximately RMB2,551,677,000.

As at 31 December 2018, the net current asset of Nanjing High Speed was approximately RMB7,661,807,000.

– III-1 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

As at 31 December 2018, total cash and cash equivalents amounted to approximately RMB1,978,403,000.

As at 31 December 2018, Nanjing High Speed had total borrowings (including corporate bonds) of approximately RMB7,372,957,000, of which borrowings within one year were RMB4,960,387,000, accounting for approximately 67.3% of the total borrowings. The fixed or floating interest rates of Nanjing High Speed’s borrowings as at 31 December 2018 ranged from 1.05% to 8.50% per annum.

Taking into account of the internal financial resources of and the banking facilities available to Nanjing High Speed, and the net current asset of approximately RMB7,661,807,000, as at 31 December 2018, the directors of Nanjing High Speed believe that Nanjing High Speed will have sufficient capital to meet its working capital requirements and foreseeable capital expenditure.

Gearing ratio

Nanjing High Speed’s gearing ratio (defined as total liabilities as a percentage of total assets) was 64.4% as at 31 December 2018.

Capital structure

Nanjing High Speed’s operations were financed mainly by shareholders’ equity, banking and other facilities available to Nanjing High Speed and internal resources. Nanjing High Speed will continue to adopt its treasury policy of placing its cash and cash equivalents as interest bearing deposits.

Nanjing High Speed’s cash and cash equivalents were mainly denominated in RMB and USD as at 31 December 2018.

As at 31 December 2018, Nanjing High Speed’s borrowings denominated in currencies other than RMB amounted to USD63,009,000 (equivalent to RMB423,443,000) and EUR34,290,000 (equivalent to RMB269,084,000).

As at 31 December 2018, Nanjing High Speed’s borrowings with fixed interest rates was approximately RMB5,896,797,000.

During the year ended 31 December 2018, Nanjing High Speed distributed dividend of RMB700,000,000.

Significant investment held

During the year ended 31 December 2018, Nanjing High Speed has not made or held any significant investments.

– III-2 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

Significant acquisition and disposal

Nanjing High Speed did not conduct significant acquisition or disposal of subsidiaries and associates during the year ended 31 December 2018.

Contingent liabilities

As at 31 December 2018, Nanjing High Speed issued financial guarantees to a bank in respect of bank loans of RMB410,000,000 granted to an independent third party.

Jiangsu Guoyuan Power Equipment Co., Ltd. (“Jiangsu Guoyuan”) is the gearing supplier to Nanjing High Speed (the “Borrower”). On 15 June 2018, the Borrower obtained a short-term loan of RMB130,000 thousands (the “Loan”) from a bank (the “Lender”) to settle the procurement payables with Jiangsu Guoyuan. The Loan was in the form of entrusted payment which was released to Jiangsu Guoyuan’s designated bank account (mutually controlled by the Borrower and Jiangsu Guoyuan) directly by the Lender on the date of draw-down. However, Jiangsu Guoyuan did not properly use the Loan to settle the payables with the Borrower, but transferred all RMB130,000 thousands out, without notification to or authorization from the Borrower, on the day upon receipt of the Loan. On 22 June 2018, the Borrower filed a claim against Jiangsu Guoyuan on this embezzlement to Nanjing Intermediate People’s Court and RMB130,000 thousands was under frozen as at 31 December 2018. As at 31 December 2018, this case was awaiting trial and based on the opinion of the external legal counsel of the Borrower, it was highly probable that the Borrower to win this lawsuit with RMB130,000 thousands to be fully recovered. As such, the CHS Directors believed that there was no loss allowance to be provided nor significant implication on the consolidated financial statements of the CHS Group.

Commitments

As at 31 December 2018, Nanjing High Speed had capital commitments contracted for but not provided in the financial statements in respect of plant and machinery of approximately RMB237,046,000.

Foreign exchange risk

Nanjing High Speed operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollars (“USD”), Euros (“EUR”), and Hong Kong dollars (“HKD”). Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities and net investments in foreign operations. Approximately 35% of Nanjing High Speed’s sales were denominated in currencies other than the functional currencies of the operating units making the sale, whilst approximately 2% of costs were not denominated in the functional currency. Nanjing High Speed’s finance department is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk. Nanjing High Speed currently did not enter into any hedge under Nanjing High Speed’s foreign currency risk strategy as Nanjing High Speed considers the risk of movements in exchange rates between the above currencies and RMB to be insignificant.

– III-3 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

The carrying amounts of Nanjing High Speed’s monetary assets and monetary liabilities denominated in foreign currencies including financial assets at FVOCI, trade and other receivables, cash and cash equivalents and trade and other payables as at 31 December 2018 are as follows:

RMB’000

Assets USD 1,009,104 EUR 237,116 HKD 2,198

Liabilities USD 48,909 EUR 1,300 HKD –

Employees

As at 31 December 2018, Nanjing High Speed employed approximately 5,222 employees in continuing operations. Employee benefit expenses of Nanjing High Speed for the year ended 31 December 2018 approximated to RMB797,913,000. The expenses included wages and salaries, pension scheme contributions, share-based payment expenses and other benefits.

Pledge of assets

As at 31 December 2018, certain assets of Nanjing High Speed and its subsidiaries were pledged to secure certain banking and other facilities granted to them as follows:

As at 31 December 2018 RMB’000

Bills receivable 905,550 Property, plant and equipment 245,784 Land use rights 50,205 Pledged bank deposits 2,918,913

4,120,452

– III-4 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

For the year ended 31 December 2019

Business review

Nanjing High Speed and its subsidiaries are principally engaged in research, design, development, manufacture and distribution of a broad range of mechanical transmission equipment that are used in wind power and a wide range of industrial applications.

During the year ended 31 December 2019, Nanjing High Speed recorded revenue from contracts with customers of approximately RMB9,420,303,000. The gross profit margin was approximately 19.2%. Profit attributable to owners of Nanjing High Speed from continuing operations was approximately RMB211,501,000.

Financial review

Revenue

During the year ended 31 December 2019, Nanjing High Speed’s revenue from contracts with customers was approximately RMB9,420,303,000.

Gross profit margin and gross profit

During the year ended 31 December 2019, Nanjing High Speed’s gross profit margin was approximately 19.2%. Gross profit for the year ended 31 December 2019 amounted to approximately RMB1,804,957,000.

Financial resources and liquidity

The equity attributable to owners of Nanjing High Speed for the year ended 31 December 2019 amounted to approximately RMB8,869,085,000. Nanjing High Speed had total assets of approximately RMB24,744,665,000 as at 31 December 2019. Total current assets were approximately RMB20,193,197,000. Total non-current assets were approximately RMB4,551,468,000.

Total liabilities of Nanjing High Speed as at 31 December 2019 were approximately RMB15,843,489,000. Total current liabilities were approximately RMB15,042,009,000. Total non-current liabilities were approximately RMB801,480,000.

As at 31 December 2019, the net current assets of Nanjing High Speed were approximately RMB5,151,188,000.

As at 31 December 2019, total cash and cash equivalents of Nanjing High Speed were approximately RMB2,463,284,000.

– III-5 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

As at 31 December 2019, Nanjing High Speed had total borrowings (including corporate bonds) of approximately RMB5,237,448,000, of which borrowings within one year were RMB4,738,275,000, accounting for approximately 90.5% of the total borrowings. The fixed or floating interest rates of Nanjing High Speed’s borrowings as at 31 December 2019 ranged from 3.69 % to 8.00% per annum.

Taking into account of the internal financial resources of and the banking facilities available to Nanjing High Speed, and the net current assets of RMB5,151,188,000, as at 31 December 2019, the directors of Nanjing High Speed believe that Nanjing High Speed will have sufficient capital to meet its working capital requirements and foreseeable capital expenditure.

Gearing ratio

Nanjing High Speed’s gearing ratio (defined as total liabilities as a percentage of total assets) was 64.0 % as at 31 December 2019.

Capital Structure

Nanjing High Speed’s operations were financed mainly by shareholders’ equity, banking and other credits available to Nanjing High Speed and internal resources. Nanjing High Speed will continue to adopt its treasury policy of placing its cash and cash equivalents as interest-bearing deposits.

Nanjing High Speed’s cash and cash equivalents were mainly denominated in RMB and USD as at 31 December 2019.

As at 31 December 2019, all borrowings were denominated in RMB.

As at 31 December 2019, Nanjing High Speed’s borrowings with fixed interest rates amounted to approximately RMB5,147,448,000.

During the year ended 31 December 2019, Nanjing High Speed did not distribute any dividend.

Significant investment held

During the year ended 31 December 2019, Nanjing High Speed has not made or held any significant investments.

Significant acquisition and disposal

Nanjing High Speed did not conduct significant acquisition or disposal of subsidiaries and associates during the year ended 31 December 2019.

– III-6 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

Contingent liabilities

As at 31 December 2019, Nanjing High Speed issued financial guarantees to a bank in respect of bank loans of RMB410,000,000 granted to an independent third party.

On 12 November 2015, Nanjing High Speed and NGC Transmission Europe GmbH (collectively referred to as “NGC Parties”) jointly entered into a strategic cooperation agreement (the “Cooperation Agreement”) with Sustainable Energy Technologies GmbH (“SET”) on the development and sale of certain electromechanical differential gearboxes for the use in industrial plants and wind mills, including its production and marketing (the “Project”). The Cooperation Agreement was terminated prematurely by SET on 23 February 2018. In 2019, NGC Transmission Europe GmbH received a claim (the “Claim”) filed by SET with a total amount of EUR11,773 thousands (equivalent to RMB92,012 thousands) (the “Claimed Amount”) against NGC Parties for breaches of contractual obligations under the Cooperation Agreement relating to the Project. Upon the date of the approval of these consolidated financial statements, the Claim was still awaiting for trial. As at 31 December 2019, based on the assessment of the independent lawyers, a provision amounting to RMB8,066 thousands was accrued by management of the Group.

Commitments

As at 31 December 2019, Nanjing High Speed had capital commitments contracted for but not provided in the financial statements in respect of plant and machinery of approximately RMB231,162,000.

Foreign exchange risk

Nanjing High Speed operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD, EUR and HKD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities and net investments in foreign operations. Approximately 31% of Nanjing High Speed’s sales were denominated in currencies other than the functional currencies of the operating units making the sale, whilst approximately 3% of costs were not denominated in the functional currency. Nanjing High Speed’s finance department is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk. Nanjing High Speed currently did not enter into any hedge under Nanjing High Speed’s foreign currency risk strategy as Nanjing High Speed considers the risk of movements in exchange rates between the above currencies and RMB to be insignificant.

– III-7 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

RMB’000

Assets USD 979,993 EUR 254,603 HKD 2,572

Liabilities USD 54,874 EUR 11,319 HKD –

Employees

As at 31 December 2019, Nanjing High Speed employed approximately 5,721 employees in continuing operations. Employee benefit expenses of Nanjing High Speed for the year ended 31 December 2019 approximated to RMB1,291,040,000. The expenses included wages and salaries, pension scheme contributions, share-based payment expenses and other benefits.

Pledge of assets

As at 31 December 2019, certain assets of Nanjing High Speed and its subsidiaries were pledged to secure certain banking and other facilities granted to them as follows:

As at 31 December 2019 RMB’000

Bills receivable 1,179,231 Property, plant and equipment 757,984 Land use rights 176,107 Pledged bank deposits 2,642,560

4,755,882

– III-8 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

For the year ended 31 December 2020

Business review

During the year ended 31 December 2020, Nanjing High Speed recorded revenue from contracts with customers of approximately RMB13,181,084,000. The gross profit margin was approximately 23.2%. Profit attributable to owners of Nanjing High Speed was approximately RMB796,447,000.

Financial review

Revenue

During the year ended 31 December 2020, Nanjing High Speed’s revenue from contracts with customers was approximately RMB13,181,084,000.

Gross profit margin and gross profit

During the year ended 31 December 2020, Nanjing High Speed’s gross profit margin was approximately 23.2%. Gross profit for the year ended 31 December 2020 amounted to approximately RMB3,061,761,000.

Financial resources and liquidity

The equity attributable to owners of Nanjing High Speed for the year ended 31 December 2020 amounted to approximately RMB5,244,716,000. Nanjing High Speed had total assets of approximately RMB18,578,232,000 as at 31 December 2020. Total current assets were approximately RMB13,951,819,000. Total non-current assets were approximately RMB4,626,413,000.

Total liabilities of Nanjing High Speed as at 31 December 2020 were approximately RMB13,303,224,000. Total current liabilities were approximately RMB12,722,295,000. Total non-current liabilities were approximately RMB580,929,000.

As at 31 December 2020, the net current assets of Nanjing High Speed were approximately RMB1,229,524,000.

As at 31 December 2020, total cash and cash equivalents of Nanjing High Speed were approximately RMB1,788,260,000.

– III-9 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

As at 31 December 2020, Nanjing High Speed had total borrowings (including corporate bonds) of approximately RMB2,178,970,000, of which borrowings within one year were RMB2,178,970,000, accounting for 100.0% of the total borrowings. The fixed or floating interest rates of Nanjing High Speed’s borrowings as at 31 December 2020 ranged from 3.45% to 5.44% per annum.

Taking into account of the internal financial resources of and the banking facilities available to Nanjing High Speed, and the net current assets of approximately RMB1,229,524,000, as at 31 December 2020, the directors of Nanjing High Speed believe that Nanjing High Speed will have sufficient capital to meet its working capital requirements and foreseeable capital expenditure.

Gearing ratio

Nanjing High Speed’s gearing ratio (defined as total liabilities as a percentage of total assets) was 71.6% as at 31 December 2020.

Capital Structure

Nanjing High Speed’s cash and cash equivalents were mainly denominated in RMB and USD as at 31 December 2020.

As at 31 December 2020, all borrowings were denominated in RMB.

As at 31 December 2020, Nanjing High Speed’s borrowings with fixed interest rates was approximately RMB2,178,970,000.

As at 31 December 2020, Nanjing High Speed had no variable-rate borrowings.

During the year ended 31 December 2020, Nanjing High Speed recognised dividends as distribution of RMB3,850,000,000.

Significant investment held

During the year ended 31 December 2020, Nanjing High Speed has not made or held any significant investments.

– III-10 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

Significant acquisition and disposal

Nanjing High Speed did not conduct significant acquisition or disposal of subsidiaries and associates during the year ended 31 December 2020.

Contingent liabilities

As at 31 December 2020, Nanjing High Speed issued financial guarantees to a bank in respect of bank loans of RMB410,000,000 granted to an independent third party.

On 12 November 2015, Nanjing High Speed and NGC Transmission Europe GmbH (collectively referred to as “NGC Parties”) jointly entered into a strategic cooperation agreement (the “Cooperation Agreement”) with Sustainable Energy Technologies GmbH (“SET”) on the development and sale of certain electromechanical differential gearboxes for the use in industrial plants and wind mills, including its production and marketing (the “Project”). The Cooperation Agreement was terminated prematurely by SET on 23 February 2018. In 2019, NGC Transmission Europe GmbH received a claim (the “Claim”) filed by SET with a total amount of EUR11,773 thousands (equivalent to RMB92,012 thousands) (the “Claimed Amount”) against NGC Parties for breaches of contractual obligations under the Cooperation Agreement relating to the Project. Upon the date of the approval of the Historical Financial Information, the Claim was still awaiting for trial. As at 31 December 2020, based on the assessment of the independent lawyers, a provision amounting to RMB8,066 thousands was accrued by management of the Group.

Commitments

As at 31 December 2020, Nanjing High Speed had capital commitments contracted for but not provided in the financial statements in respect of plant and machinery of approximately RMB426,519,000.

Foreign exchange risk

Nanjing High Speed operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD, EUR and HKD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities and net investments in foreign operations. Approximately 19% of Nanjing High Speed’s sales were denominated in currencies other than the functional currencies of the operating units making the sale, whilst approximately 2% of costs were not denominated in the functional currency. Nanjing High Speed’s finance department is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk. Nanjing High Speed currently did not enter into any hedge under Nanjing High Speed’s foreign currency risk strategy as Nanjing High Speed considers the risk of movements in exchange rates between the above currencies and RMB to be insignificant.

– III-11 – APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF NANJING HIGH SPEED

RMB’000

Assets USD 1,028,052 EUR 204,688 HKD 18,744

Liabilities USD 196,767 EUR 1,339 HKD –

Employees

As at 31 December 2020, Nanjing High Speed employed approximately 5,778 employees in continuing operations. Employee benefit expenses of Nanjing High Speed for the year ended 31 December 2020 approximated to RMB1,854,254,000. The expenses included wages and salaries, pension scheme contributions, share-based payment expenses and other benefits.

Pledge of assets

As at 31 December 2020, certain assets of Nanjing High Speed and its subsidiaries were pledged to secure certain banking and other facilities granted to them as follows:

As at 31 December 2020 RMB’000

Bills receivable 1,202,626 Property, plant and equipment 600,754 Land use rights 146,068 Pledged bank deposits 1,640,286

3,589,734

Future plans relating to material investment or capital assets

As at the Latest Practicable Date, Nanjing High Speed did not enter into any agreement in respect of any proposed acquisitions and did not have any other future plans relating to material investment or capital asset.

– III-12 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

A. INTRODUCTION

The Unaudited Pro Forma Financial Information presented below is prepared to illustrate (i) the financial position of the Group as at 31 December 2020 as if the proposed disposal of 43% equity interest in Nanjing High Speed Gear Manufacturing Co., Ltd (the “Target Company”) (the “Disposal”) and the exercise of the Put Option had been completed on 31 December 2020; and (ii) the results and cash flows of the Group for the year ended 31 December 2020 as if the Disposal and the exercise of Put Option had been completed on 1 January 2020. The Unaudited Pro Forma Financial Information is prepared based on the Group’s consolidated financial position, consolidated profit or loss and other comprehensive income and consolidated statement of cash flows set out in the published annual report of the Group for the year ended 31 December 2020, after giving effect to the pro forma adjustments which are directly attributable to the Disposal and the exercise of Put Option and factually supportable, as described in the notes thereto to demonstrate how the Subscription and the exercise of Put Option might have affected the historical financial information in respect of the Group.

The Unaudited Pro Forma Financial Information is prepared by the Directors of the Company in accordance with Paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of illustrating the effect of the Disposal only and is based on a number of assumptions, estimates, uncertainties and currently available information. Because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not reflect the true picture of the consolidated financial positions, results and cashflows of the Group would have been if the Disposal and the exercise of Put Option had been completed on 31 December 2020 and 1 January 2020 respectively or at any future date.

The Unaudited Pro Forma Financial Information should be read in conjunction with the historical financial information of the Group as set out in the published annual report of the Company for the year ended 31 December 2020, and other financial information included elsewhere in this Circular.

– IV-1 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

B. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF THE GROUP AS AT 31 DECEMBER 2020

The Group as After exercise of at 31 December Pro forma After the Pro forma the Put Option 2020 adjustments disposal adjustments by the investor Audited Unaudited Unaudited Unaudited Unaudited RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note (1) Non-current assets Property, plant and equipment 5,535,884 – 5,535,884 – 5,535,884 Investment properties 4,958,399 – 4,958,399 – 4,958,399 Right-of-use assets 1,397,256 – 1,397,256 – 1,397,256 Goodwill 1,913,158 – 1,913,158 – 1,913,158 Other intangible assets 430,014 – 430,014 – 430,014 Investments in joint ventures 398,865 – 398,865 – 398,865 Investments in associates 1,707,076 – 1,707,076 – 1,707,076 Financial assets at fair value through other comprehensive income 3,066,069 – 3,066,069 – 3,066,069 Financial assets at fair value through profit or loss 380,179 – 380,179 – 380,179 Other financial assets at amortised cost 1,045,689 – 1,045,689 – 1,045,689 Other receivables 2,815 – 2,815 – 2,815 Prepayments 49,349 – 49,349 – 49,349 Deferred tax assets 663,144 – 663,144 – 663,144

21,547,897 – 21,547,897 – 21,547,897

Current assets Inventories 3,707,244 – 3,707,244 – 3,707,244 Trade receivables 3,161,080 – 3,161,080 – 3,161,080 3,800,000 (3,800,000) Consideration receivables 129,896 Note (3) 3,929,896 Note (6) 129,896 Loan receivables 1,658,704 – 1,658,704 – 1,658,704 Prepayments 1,366,453 – 1,366,453 – 1,366,453 Other receivables 1,876,325 – 1,876,325 – 1,876,325 Income tax prepaid 2,403 – 2,403 – 2,403 Financial assets at fair value through other comprehensive income 3,504,200 – 3,504,200 – 3,504,200 Financial assets at fair value through profit or loss 1,313,913 – 1,313,913 – 1,313,913 Properties under development 696,681 – 696,681 – 696,681 Properties held for sale 438,770 – 438,770 – 438,770 Restricted cash 1,670,336 – 1,670,336 – 1,670,336 500,000 (500,000) Cash and cash equivalents 2,490,570 Note (3) 2,990,570 Note (6) 2,490,570

22,016,575 – 26,316,575 – 22,016,575

– IV-2 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The Group as After exercise of at 31 December Pro forma After the Pro forma the Put Option 2020 adjustments disposal adjustments by the investor Audited Unaudited Unaudited Unaudited Unaudited RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note (1) Current liabilities 4,300,000 (4,300,000) Put option liability – Note (3) 4,300,000 Note (6) – Trade and bills payables 6,797,908 – 6,797,908 – 6,797,908 8,409 1,075 Other payables and accruals 2,779,029 Note (4) 2,787,438 Note (7) 2,788,513 Contract liabilities 2,238,334 – 2,238,334 – 2,238,334 Lease liabilities 45,611 – 45,611 – 45,611 Bank and other borrowings 5,019,531 – 5,019,531 – 5,019,531 838,796 Income tax payable 937,787 Note (4) 1,776,583 – 1,776,583 Warranty provision 578,595 – 578,595 – 578,595 Deferred income 25,778 – 25,778 – 25,778

18,422,573 – 23,569,778 – 19,270,853

Net current assets 3,594,002 – 2,746,797 – 2,745,722

Total assets less current liabilities 25,141,899 – 24,294,694 – 24,293,619

Non-current liabilities Bank and other borrowings 2,197,601 – 2,197,601 – 2,197,601 Derivative financial instruments 43,362 – 43,362 – 43,362 Deferred income 177,551 – 177,551 – 177,551 Lease liabilities 371,802 – 371,802 – 371,802 Warranty provision 372,480 – 372,480 – 372,480 Deferred tax liabilities 1,182,123 – 1,182,123 – 1,182,123

4,344,919 – 4,344,919 – 4,344,919

Net assets 20,796,980 – 19,949,775 – 19,948,700

Capital and reserves Share capital 160,872 – 160,872 – 160,872 3,044,755 (3,893,035) Notes (5) Reserves 17,014,829 Note (4) 13,121,794 and (7) 16,166,549

Equity attributable to equity shareholders of the Company 17,175,701 – 13,282,666 – 16,327,421 3,045,830 (3,045,830) Non-controlling interests 3,621,279 Note (4) 6,667,109 Note (5) 3,621,279

Total equity 20,796,980 – 19,949,775 – 19,948,700

– IV-3 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

C. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

The Group for the year ended After exercise of 31 December Pro forma After the Pro forma the Put Option 2020 adjustments disposal adjustments by the investor Audited Unaudited Unaudited Unaudited Unaudited RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note (1) Revenue 16,171,377 – 16,171,377 – 16,171,377 Cost of sales and services (12,736,401) – (12,736,401) – (12,736,401)

Gross profit 3,434,976 – 3,434,976 – 3,434,976

Selling and distribution expenses (473,300) – (473,300) – (473,300) (8,409) (1,075) Administrative expenses (942,450) Note (4) (950,859) Note (7) (951,934) Research and development costs (517,749) – (517,749) – (517,749) Share-based payment expenses (547,674) – (547,674) – (547,674) Net impairment losses on financial assets and financial guarantee contracts (1,077,850) – (1,077,850) – (1,077,850) Other income 461,894 – 461,894 – 461,894 Net fair value changes in financial instruments 56,152 – 56,152 – 56,152 Other losses – net (65,846) – (65,846) – (65,846)

Operating profit 328,153 – 319,744 – 318,669

Finance costs (605,003) – (605,003) – (605,003) Share of results of joint ventures 6,513 – 6,513 – 6,513 Share of results of associates (27,095) – (27,095) – (27,095)

Loss before tax (297,432) – (305,841) – (306,916)

(326,589) Income tax expenses (400,848) Note (4) (727,437) – (400,848)

Loss for the year (698,280) – (1,033,278) – (707,764)

Other comprehensive income/(loss) for the year Items that may be reclassified to profit or loss: – Exchange differences on translation of foreign operations (5,249) – (5,249) – (5,249) – Changes in fair value of debt instruments at fair value 5,161 – 5,161 – 5,161

– IV-4 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The Group for the year ended After exercise of 31 December Pro forma After the Pro forma the Put Option 2020 adjustments disposal adjustments by the investor Audited Unaudited Unaudited Unaudited Unaudited RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Note (1) – Share of other comprehensive income/(loss) of associates 1,839 – 1,839 – 1,839 – Income tax relating to these items (3,661) – (3,661) – (3,661) Items that will not be reclassified to profit or loss: – Changes in fair value of equity instruments at fair value through other comprehensive income 144,214 – 144,214 – 144,214 – Income tax relating to these items (42,082) – (42,082) – (42,082)

Other comprehensive income for the year, net of tax 100,222 – 100,222 – 100,222

Total comprehensive loss for the year (598,058) – (933,056) – (607,542)

(Loss)/profit for the year attributable to: (797,362) 787,878 – Equity shareholders of the Notes (4) Notes (5) Company (894,305) and (8) (1,691,667) and (7) (903,789) 463,364 (463,364) – Non-controlling interests 196,025 Note (8) 659,389 Note (7) 196,025

(698,280) – (1,033,278) – (707,764) Total comprehensive (loss)/income for the year attributable to: (814,459) 804,975 – Equity shareholders of the Notes (4) Notes (5) Company (831,658) and (8) (1,646,117) and (7) (841,142) 479,461 (479,461) – Non-controlling interests 233,600 Note (8) 713,061 Note (7) 233,600

Total equity (598,058) – (933,056) – (607,542)

– IV-5 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

D. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities

Cash generated from operations 1,170,283 1,170,283 1,170,283 Income taxes paid (303,072) (303,072) (303,072)

Net cash generated from operating activities 867,211 867,211 867,211

Cash flows from investing activities Interest received 85,713 85,713 85,713 Placement of pledged bank deposits (4,349,603) (4,349,603) (4,349,603) Withdrawals of pledged bank deposits 5,416,943 5,416,943 5,416,943 Investments in structured bank deposits (388,000) (388,000) (388,000) Redemption of structured bank deposits 235,960 235,960 235,960 Proceeds from disposal of financial assets at fair value through other comprehensive income 638,009 638,009 638,009 Purchases of financial assets at fair value through other comprehensive income (100,000) (100,000) (100,000) Purchases of financial assets at fair value through profit or loss (378,243) (378,243) (378,243) Proceeds from disposal of financial assets at fair value through profit or loss 907,726 907,726 907,726 Purchases of items of property, plant and equipment (571,228) (571,228) (571,228) Proceeds from disposal of items of property, plant and equipment 75,460 75,560 75,560

– IV-6 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Payments for right-of-use assets (10,583) (10,583) (10,583) Proceeds from disposal of investment properties 22,947 22,947 22,947 Purchases of other intangible assets (2,340) (2,340) (2,340) Acquisition of assets through acquisition of subsidiaries (394,235) (394,235) (394,235) Deemed disposal of a subsidiary (40) (40) (40) Disposal of subsidiaries 46,128 46,128 46,128 Receipt of considerations receivables 179,546 179,546 179,546 Investments in joint ventures (7,500) (7,500) (7,500) Proceeds from disposal of associates 38,160 38,160 38,160 Other investment income received 24,668 24,668 24,668 Proceeds from disposal of other financial assets at amortised cost 254,050 254,050 254,050 Receipt of government grants 26,999 26,999 26,999 Loans and other receivables granted (410,820) (410,820) (410,820) Proceeds from partial 500,000 (500,000) disposal of a subsidiary – Note (3) 500,000 Note (6) – Receipt of loans and other receivables 1,052,381 1,052,381 1,052,381

Net cash generated from investing activities 2,392,098 2,892,098 2,392,098

Cash flows from financing activities Consideration received from non-controlling shareholders of a subsidiary 4,700 4,700 4,700 Capital contribution by non- controlling shareholders of a subsidiary 150,000 150,000 150,000

– IV-7 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Payment for acquisition of additional interests in a subsidiary (15,600) (15,600) (15,600) Redemption of corporate bonds (2,428,799) (2,428,799) (2,428,799) New bank and other borrowings 5,569,780 5,569,780 5,569,780 Repayments of bank and other borrowings (6,057,601) (6,057,601) (6,057,601) Capital element of lease rental paid (39,362) (39,362) (39,362) Interest element of lease rental paid (23,643) (23,643) (23,643) Dividends paid (76,629) (76,629) (76,629) Interest paid (600,967) (600,967) (600,967)

Net cash used in financing activities (3,518,121) (3,518,121) (3,518,121)

Net (decrease)/increase in cash and cash equivalents (258,812) 241,188 (258,812) Cash and cash equivalents at beginning of period 2,797,003 2,797,003 2,797,003 Effect of foreign exchange rate changes (47,621) (47,621) (47,621)

Cash and cash equivalents at end of year 2,490,570 2,990,570 2,490,570

– IV-8 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

E. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Notes:

1. The amounts are extracted from the audited consolidated statement of financial position and audited consolidated statement of profit or loss and other comprehensive income of the Group as at 31 December 2020 and year ended 31 December 2020 respectively which are included in the published annual report of the Group for the year ended 31 December 2020.

2. The amounts are extracted from the audited consolidated statement of cash flows of the Group as at 31 December 2020 which are included in the published annual report of the Group for the year ended 31 December 2020.

3. Pursuant to the Equity Transfer Agreement, the aggregate Consideration for the Disposals is RMB4,300,000,000. For more details of consideration, please refer to “Basis of Consideration” set out in the joint announcement of the Company published on 30 March 2021. For the purpose of preparation of the Unaudited Pro Forma Financial Information, it is assumed that the Equity Transfer Agreement is signed at 31 December 2020.

The Consideration will be settled by three instalments. For the purpose of preparation of the unaudited pro forma consolidated statement of financial position of the Group as at 31 December 2020, the Directors assumed the Conditions Precedent to the Disposal are fulfilled as at 31 December 2020, the earnest money of RMB500,000,000 upon signing the Equity Transfer Agreement is received on 31 December 2020 and offset with the partial payments of first instalment payments by the investor and the balance of remaining consideration of RMB3,800,000,000 is accounted for as consideration receivable and included in “Consideration receivables”.

The adjustment of RMB4,300,000,000 in put option liability represented the recognition of the liability in relation to the granting of the Put Option (“Put Option Liability”). Pursuant to the Equity Transfer Agreement, the Investor can request the Target Company to repurchase all of the 43% shares purchased by the investor at its discretion under certain conditions at an exercise price of RMB4,300,000,000 plus 6% interest per annum. The recognised Put Option Liability of RMB4,300,000,000 is estimated based on the present value of the exercise price of RMB4,300,000,000 plus 6% interest per annum, and on the assumption that the Put Option will be redeemable after 3 years from the Completion Date.

4. Since the Group did not lose control over the Target Company upon disposal of 43% equity interest of the Target Company, the disposal is accounted for as equity transaction. The effect on the equity attributable to the owners of the Company is summarised as follows:

RMB’000

Total consideration for the Disposal 4,300,000 Less: Estimated professional costs directly attributable to the Disposal (7,334) Estimated stamp tax in relation to the Disposal (1,075) Estimated income tax recognised in other reserves (512,207) Less: 43% of net assets of the Target Company as at 31 December 2020 as set out in the accountants’ report in Appendix III, calculated at effective interest to the Group (3,045,830)

Excess recognised in reserves of the Group 733,554 Add: Initial recognition of Put Option liability (4,300,000)

Total impact in other reserves (3,566,446) Add: Estimated income tax recognised in profit or loss (326,589)

Total impact on equity attributable to the owners of the Company (3,893,035)

The amount of professional fees is subject to change upon the actual completion of the Disposal.

– IV-9 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

5. The adjustment represents reinstatement of non-controlling interests upon the exercise of the Put Option by the investor which is assumed to have taken place on 31 December 2020 for the purpose of the preparation of unaudited pro forma consolidated statement of financial position and 1 January 2020 for the purpose of the preparation of unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma condensed consolidated statement of cash flows.

6. The adjustment represents cash to be repaid to the Transferee to re-acquire the 43% equity interest of the Target Company held by the Transferee upon its exercise of the Put Option which is assumed to have taken place on 31 December 2020. For the purpose of preparation of the Unaudited Pro Forma Financial Information, RMB500,000,000 is to be repaid to the investor with reference to Note 3 above.

7. The adjustment represents the stamp duty to be paid by the Group upon exercise of Put Option by the investor to repurchase of 43% equity interest of the Target Company. No other adjustment has been made for professional costs directly attributable to the exercise of Put Option as the directors of the Group determined that these costs are insignificant.

8. The adjustment represents sharing of profit and total comprehensive income for the year by non-controlling interests of the Target Group with reference to the accountants’ report for the year ended 31 December 2020 in Appendix III, calculated at its’ effective interest to the Group, which assumed that the Disposal has taken place on 1 January 2020.

9. Apart from notes above, no other adjustment has been made to reflect any result or other transactions of the Group entered into subsequent to 31 December 2020 or 1 January 2020 for the purpose of preparation of the Unaudited Pro Forma Financial Information.

10. The above adjustments are not expected to have a continuing effect on the Unaudited Pro Forma Financial Information of the Group.

– IV-10 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

F. INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the sole purpose of inclusion in this Circular, received from the independent reporting accountants of the Company, Baker Tilly Hong Kong Limited, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information of the Group as set out in Sections B to D of Appendix IV to this Circular.

2nd Floor 625 King’s Road North Point Hong Kong

To the directors of Fullshare Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Fullshare Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 31 December 2020, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated statement of cash flows for the year ended 31 December 2020 and related notes as set out on pages IV-9 to IV-10 of the circular dated 26 May 2021 (the “Circular”) issued by the Company (the “Unaudited Pro Forma Financial Information”). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described in Appendix IV of the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the proposed disposal of 43% equity interest in Nanjing High Speed Gear Manufacturing Co., Ltd (the “Target Company”) (the “Disposal”) and the exercise of Put Option on the Group’s financial position as at 31 December 2020 and the Group’s financial performance and cash flows for the year ended 31 December 2020 as if the Disposal and the exercise of Put Option had taken place at 31 December 2020 for the purpose of preparation of unaudited pro forma consolidated financial position and 1 January 2020 for the purpose of preparation of unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows respectively. As part of this process, information about the Group’s consolidated financial position as at 31 December 2020 and the Group’s consolidated financial performance and cash flows for the year ended 31 December 2020 have been extracted by the Directors from the annual report of the Group for the year ended 31 December 2020.

– IV-11 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firms That Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements” issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

– IV-12 – APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The purpose of Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of a significant event or transaction on the unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the events or transactions as at 31 December 2020 or 1 January 2020 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain 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 those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

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

Opinion

In our opinion:

(a) The Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;

(b) Such basis is consistent with the accounting policies of the Group; and

(c) The adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Baker Tilly Hong Kong Limited Certified Public Accountants Hong Kong

26 May 2021

– IV-13 – APPENDIX V VALUATION REPORT

Set out below is the reproduction of the valuation report on Nanjing High Speed contained in Appendix V to the CHS Circular.

The following is the valuation report prepared for the purpose of inclusion in this circular by AVISTA Valuation Advisory Limited, an independent valuer, on its valuation of the entire equity interest in Nanjing High Speed Gear Manufacturing Co., Ltd. (南京高速齒輪製造有限公司) as at 31 December 2020 in connection with the disposal of 43% equity interest in Nanjing High Speed Gear Manufacturing Co., Ltd. (南京高速齒輪製造有限公司) by China High Speed Transmission Equipment Group Co., Ltd..

26 May 2021

The Board of Directors China High Speed Transmission Equipment Group Co., Ltd. Room 1302, 13th Floor, COFCO Tower No. 262 Gloucester Road Causeway Bay Hong Kong

Dear Sirs/Madams,

Re: Valuation of 100% Equity Interest of Nanjing High Speed Gear Manufacturing Co., Ltd.

In accordance with your instructions, AVISTA Valuation Advisory Limited (“AVISTA”or “we”) has conducted a fair value valuation in connection with the fair value of the 100% equity interest of Nanjing High Speed Gear Manufacturing Co., Ltd. (“Nanjing High Speed”orthe “Target”), an indirect non-wholly owned subsidiary of China High Speed Transmission Equipment Group Co., Ltd. (the “Company”, “CHS”or“you”), as of 31 December 2020 (the “Valuation Date”). We understand that the Company intends to enter into an equity transfer agreement to dispose 43% equity interest of the Target to Shanghai Wensheng Asset Management Co. Ltd. (the “Proposed Transaction”).

It is our understanding that this appraisal is strictly addressed to the directors of the Company (the “Directors”) and used for the Proposed Transaction solely for your internal reference purpose. This report (the “Report”) does not constitute an opinion on the commercial merits and structure of the Proposed Transaction. We are not responsible for unauthorized use of the Report.

– V-1 – APPENDIX V VALUATION REPORT

We accept no responsibility for the realisation and completeness of any estimated data, or estimates furnished by or sourced from any third parties which we have used in connection with this Report. We assumed that financial and other information provided to us are accurate and complete.

This Report presents the summary of the business appraised, describes the basis of analysis and assumptions and explains the analysis methodology adopted in this appraisal process to calculate the value.

BASIS OF ANALYSIS

We have appraised the fair value of 100% equity interest of the Target.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

COMPANY BACKGROUND

CHS is principally engaged in the research, design, development, manufacture and distribution of various types of mechanical transmission equipment for a broad range of applications in wind power generation and industrial use in the People’s Republic of China (the “PRC”).

Nanjing High Speed is an indirect non-wholly owned subsidiary of CHS. The Target is principally engaged in manufacturing and sale of gear, gearbox and fittings.

We understand that the Company intends to enter into an equity transfer agreement with Shanghai Wensheng Asset Management Co., Ltd. (the “Purchaser”) to sell 43% equity interest of the Target to the Purchaser.

The Proposed Transaction constitutes a major transaction for the Company and is, therefore, subject to the reporting, announcement, circular and shareholders’ approval requirements under Chapter 14 of the rules governing the listing of securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

As such, the Company engaged us as an independent valuer to assess the fair value of the 100% equity interest of the Target as of the Valuation Date.

– V-2 – APPENDIX V VALUATION REPORT

SCOPE OF WORK

In conducting this valuation exercise, we have

• Co-ordinated with the Company’s representatives to obtain the required information and documents for our valuation;

• Gathered the relevant information of the Target, including the legal documents, financial statements, etc. made available to us;

• Discussed with the Company and the Target to understand the history, business model, operations, business development plan, etc. of the Target for valuation purpose;

• Carried out researches in the sector concerned and collected relevant market data from reliable sources for analysis;

• Studied the information of the Target made available to us and considered the bases and assumptions of our conclusion of value;

• Selected an appropriate valuation method to analyze the market data and derived the estimated fair value of the Target; and

• Compiled this Report on the valuation, which outlines our findings, valuation methodologies and assumptions, and conclusion of value.

When performing our valuation, all relevant information, documents, and other pertinent data concerning the assets, liabilities and contingent liabilities should have been provided to us. We relied on such data, records and documents in arriving at our opinion of values and had no reason to doubt the truth and accuracy of the information provided to us by the Company, the Target and their authorized representatives.

ECONOMIC OVERVIEW

Overview of the PRC economy

China has been showing signs of recovery from the virus-induced recession while the European countries and the U.S are still struggling to contain the spread of the Coronavirus Disease 2019 (the “COVID-19”). In the domestic market, the monetary and fiscal stimulus effectively boosted the investment and retail sales in the second half of 2020. For external demand, the repeated lockdowns in Europe and the US disrupted the factory operations, which created a booming demand for China-manufactured personal protective equipment (“PPE”) and electronic products.

– V-3 – APPENDIX V VALUATION REPORT

The real GDP growth of China accelerated by 6.5% year-on-year (“y-o-y”) in Q4 2020, reversing the economy to the growth path with 2.3% y-o-y for the whole year from the virus-induced contraction in early 2020. According to the National Bureau of Statistics of China (“NBS”), the fixed asset investment increased by 2.9% year-to-date (“YTD”) y-o-y in December 2020, of which the investment in infrastructure rose by 0.9% YTD y-o-y. Meanwhile, the retail sales increased by 4.6% y-o-y in December 2020 with a growth trend for 5 consecutive months and decreased by 3.9% over 2020, of which the online sales accounted for 24.9%. According to China’s General Administration of Customs (the “Customs”), the exports surged by 18.1% y-o-y in December 2020 and increased by 3.6% y-o-y for the full year of 2020, primarily driven by the rising overseas demand for PPE and electronic products as mentioned.

Despite improving data of investment and retail sales, the inflation environment facing the consumers and producers remained muted in the final month of 2020. The NBS reported that the consumer price index (“CPI”) rose by 0.2% y-o-y in December 2020. The core CPI, which excludes volatile food and energy prices, increased by 0.8% y-o-y in 2020 as a whole. In addition, it has been in deflation for the producer price index (“PPI”) since February 2020, with -0.4% y-o-y in December 2020 and -1.8% y-o-y in the whole year of 2020 reported by the NBS. Therefore, the monetary and fiscal stimulus would still play a role in sustaining the economic recovery at a steady pace.

To tackle the economic challenges from the COVID-19 outbreak in early 2020, China rolled out numerous monetary measures to stimulate the economy in crisis. Specifically, the People’s Bank of China (the “PBoC”) announced cuts on the rates of one-year medium-term lending facility (“MLF”) loans to financial institutions. The rates were reduced by 10bps to 3.15% in February 2020 and by another 20bps to 2.95% in April 2020. Meanwhile, the growth of money supply (“M2”) also advanced in the first half of 2020, significantly outpacing the growth level in 2019. In the period between April 2020 and November 2020, the y-o-y increase of China’s money supply remained solidly at around 11%, higher than the y-o-y growth of 8.7% in December 2019. The reductions of the key rate lower financing cost and facilitate the easing monetary environment for economic recovery.

Looking ahead, despite better control of the spread of COVID-19 in China, the ongoing virus containment measures in the western countries will weigh on the recovery of global demand. According to the World Bank, global growth is expected to be 4% and 3.8% in 2021 and 2022, respectively. With the Chinese government promoting the dual-circulation strategy, domestic demand is expected to be the key driver for the recovery path of China’s economy. According to International Monetary Fund (“IMF”), China’s GDP per capita is forecasted to reach USD16,242 in 2025, which drives the domestic demand with expanding middle-class as “internal circulation” for the long-term growth of China’s economy.

– V-4 – APPENDIX V VALUATION REPORT

Fixed Asset Investment and Retail Sales Y-o-Y Growth of the PRC

8.0% 10.0% 4.3% 5.0% 4.6% 3.3% 0.0% 0.0% 0.5% -1.1% -2.8% -1.8% 0% 5.4% 2.6% 2.9% 0.8%1.8% 0.0% -7.5% -0.3% -1.6% -15.8% -3.1% -10% -6.3% -10.3% -16.1% -20%

-24.5% -30%

Jan-2020 Jul-2020 Dec-2019 Feb-2020Mar-2020Apr-2020May-2020Jun-2020 Aug-2020Sep-2020Oct-2020Nov-2020Dec-2020 Fixed Asset Investment (YTD Y-o-Y, %) Retail Sales (Y-o-Y, %)

(Source: NBS)

Money Supply (M2), Y-o-Y, and 1-Year MLF Interest Rate of the PRC

12% 3.4% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 11.1% 10.9% 11% 3.2% 10.7% 10.7% 3.3% 3.2% 11.1% 11.1% 10% 10.4% 10.5% 3.2% 10.1% 9% 3.1% 8.8% 3.0% 3.0% 3.0% 3.0% 8.5% 8.7% 8.6% 8.4% 3.0% 3.0% 3.0% 3.0% 8% 8.4% 8.1% 3.0% 8.5% 8.2% 8.4% 8.0% 8.5% 8.2% 8.4% 7% 2.9%

6% 2.8% Jul-2019 Jul-2020 Jan-2020 Jan-2019 Jun-2020 Jun-2019 Oct-2020 Oct-2019 Feb-2019 Feb-2020 Sep-2020 Sep-2019 Apr-2019 Apr-2020 Dec-2019 Mar-2019 Mar-2020 Nov-2019 Aug-2019 Aug-2020 Nov-2020 May-2019 May-2020

Left: Money Supply - M2 (Y-o-Y, %) Right: MLF Interest Rate - 1 Year

(Source: NBS, PBoC, Bloomberg)

– V-5 – APPENDIX V VALUATION REPORT

GDP per capita of the PRC

USD 18,000 16,242 16,000 14,982 13,799 14,000 12,707 11,713 12,000 10,28710,582 9,920 10,000 8,823 8,085 8,120 8,000

6,000 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

(Source: World Economic Outlook, IMF, October 2020)

INDUSTRY OVERVIEW

Overview of the PRC power generation market

As a result of the economic uptrend of the PRC in previous years, the PRC has been establishing an increasingly diversified energy portfolio and has been shifting the centric of energy sources to clean and renewable energy. Total annual power generation in the PRC has increased from 3,618.7 million tonne-coal-equivalent (“Tce”) in 2014 to 3,970.0 million Tce in 2019, representing a compound annual growth rate (“CAGR”) of 1.9% across the period. Among the national composition, percentage of fired power to the total power generation has decreased from 86.7% in 2014 to 81.2% in 2019. Annual nuclear energy and renewable energy generation in total have increased from 481.3 Tce in 2014 to 746.4 Tce in 2019 with a CAGR of 9.2%. The PRC government is keen to drive the development in renewable energy via principle policies such as the 13th Five-year Plan of the Development Energy issued by the National Development and Reform Commission. Practical measures, including but not limited to subsidies to related corporations, efficient market regulations and public investment in critical infrastructure, have been put in place.

Further expansion of renewable energy generation, in particular hydropower, wind power and solar power, is expected in shed of the enlarged installed capacity. According to NBS, newly installed capacity of hydropower has increased by 16.9% from 304.9 gigawatt (“GW”) in 2014 to 356.4 GW in 2019; that of wind power has increased by 117.5% from 96.6 GW in 2014 to 210.1 GW in 2019; and that of solar power has increased by 722.1% from 24.9 GW in 2014 to 204.7 GW in 2019. Total capacity of national renewable generation is growing more rapidly due to technology advancement and advantageous commercial environment for the related industry. The PRC government has issued the Notice on Building and Improving the System of Ensuring the Renewable Energy Consumption in May 2019 and the Action Plan of Clean Energy Consumption (2018-2020) in October to support the completion and maintenance of public power grid and thus to signal a more promising and reliable income stream for the renewable power plant operators. Lower cost of efficient power generators and solar panels shall further enhance the profitability of the industry.

– V-6 – APPENDIX V VALUATION REPORT

Power Generation by Different Energy Sources in the PRC (in million Tce)

4,000 3,500 746.4 481.3 524.1 679.3 581.3 623.8 3,000 170.1 173.5 207.3 226.3 304.0 307.3 179.9 193.6 270.5 273.9 2,500 283.8 272.5 2,000

1,500 2,723.4 2,663.3 2,609.9 2,415.3 2,495.2 2,612.9 1,000 500 0 2014 2015 2016 2017 2018 2019

Coal-fired Power Oil-fired Power Gas-fired Power Nuclear and Renewable Energy

(Source: National Bureau of Statistics of China)

Newly Installed Capacity of Power Generation in the PRC (in GW)

0.2 0.2 2,100 0.1 48.7 0.1 204.7 0.1 174.6 44.7 129.4 35.8 210.1 0.2 76.3 33.6 184.3 42.2 27.2 147.5 163.3 1,400 24.9 130.8 356.4 96.6 20.1 343.6 352.3 319.5 332.1 304.9

700 1,105.0 1,143.7 1,190.6 932.3 1,005.5 1,060.9

0 2014 2015 2016 2017 2018 2019

Fired Power Hydropower Wind Power Solar Power Nuclear Power Others

(Source: National Bureau of Statistics of China, National Energy Administration of the PRC)

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 are not intended to confer any benefit on, any person (including without limitation the respective shareholders of the Company and the Target).

– V-7 – APPENDIX V VALUATION REPORT

The Report does not constitute an opinion on the commercial merits and structure of the Proposed Transaction. The Report does not purport to contain all the information that may be necessary or desirable to fully evaluate the Proposed Transaction. We are not required to and have not conducted a comprehensive review of the business, technical, operational, strategic or other commercial risks and merits of the Proposed Transaction and such remain the sole responsibility of the Directors and the management of the Company (the “Management”).

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 or relied upon by us in the Report, especially for the historical financial information of the Target from FY2018 up to 31 October 2020, 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.

Moreover, our valuation has also relied upon other information obtained from public sources which we believe to be reliable. We accept no responsibility for accuracy and reliability of any information obtained from public sources.

The outbreak of COVID-19, as declared by the World Health Organization as a global pandemic on 11 March 2020, has been adversely affecting the global economy as well as the financial markets. As such, the subsequent impact due to COVID-19 has imposed an unprecedented set of circumstances on which to base a valuation judgement as of the Valuation Date. In particular, the increased volatilities in political, legal, fiscal, economic conditions and/or other market situations as a result of COVID-19 would bring higher uncertainties to the underlying assumptions. Consequently, higher degree of caution should be attached to our valuation than would normally be the case.

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 region operated by the Target and specific competitive environments affecting the industry;

• the business risks of the Target;

• the comparable companies are engaging in business operations similar to the Target;

• the experience of the management team of the Target and support from its shareholders; and

• the legal and regulatory issues of the industry in general.

– V-8 – APPENDIX V VALUATION REPORT

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, fiscal or economic conditions, which might adversely affect the business of the Target;

• There was no material change in terms of business operation and financial position of the Target between 31 October 2020 and the Valuation Date; and

• We have assumed that there are no hidden or unexpected conditions associated with the assets valued that might adversely affect the reported values. Further, we assume no responsibility for changes in market conditions after the Valuation Date.

VALUATION APPROACH

General Valuation Approaches

There are three generally accepted approaches to appraise the fair value of the equity value of the Target, namely Income Approach, Cost Approach and Market Approach. All three of them have been considered regarding the valuation of the Target:

Income Approach The income approach provides an indication of value based on the principle that an informed buyer would pay no more than the present value of anticipated future economic benefits generated by the subject asset.

The fundamental method for income approach is the discounted cash flow (“DCF”) method. Under the DCF method, the value depends on the present value of future economic benefits to be derived from ownership of the enterprise. Thus, an indication of the equity value is calculated as the present value of the future free cash flow of a company less outstanding interest-bearing debt, if any. The future cash flow is discounted at the market-derived rate of return appropriate for the risks and hazards of investing in a similar business.

Cost Approach The cost approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets, with allowance for accrued depreciation arising from condition, utility, age, wear and tear, or obsolescence (physical, functional or economical) present, taking into consideration past and present maintenance policy and rebuilding history.

– V-9 – APPENDIX V VALUATION REPORT

Market Approach The market approach provides an indication of value by comparing the subject asset to similar assets that have been sold in the market, with appropriate adjustments for the differences between the subject asset and the assets that are considered to be comparable to the subject asset.

Under the market approach, the comparable company method computes a price multiple for publicly listed companies that are considered to be comparable to the subject asset and then applies the result to a base of the subject asset. The comparable transaction method computes a price multiple using recent sales and purchase transactions of assets that are considered to be comparable to the subject asset and then applies the result to a base of the subject asset.

Selected Valuation Approach

Each of the abovementioned approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the most commonly adopted practice in valuing business entities that are similar in nature. In this appraisal regarding the fair value of the equity value of the Target, we applied the Market Approach due to the following reasons:

• Cost Approach is not appropriate in current appraisal as it assumed the assets and liabilities of the Target are separable and can be sold separately. This methodology is more appropriate for the industry that their assets are highly liquid, like property development and financial institution. Thus, Cost Approach is not adopted in this valuation.

• Income Approach is also considered inappropriate as plenty of assumptions were involved in formulating the financial projection of the Target, and the assumptions might not be able to reflect the uncertainties in the future performance of the Target. While the COVID-19 outbreak has significant impact on the global economy in general and there is no widely accepted consensus on potential influence in the future available, the Management considers that they cannot provide a precise and concrete financial projection on the business due to the evolving uncertainties of market environment. Given that improper assumptions will impose significant impact on the fair value, Income Approach is not adopted in this valuation.

• Fair value arrived from Market Approach reflects the market expectations over the corresponding industry as the price multiples of the comparable companies were arrived from market consensus. Since there are sufficient public companies in similar nature and business to that of the Target, their market values are good indicators of the industry. Therefore, Market Approach has been adopted in this valuation.

– V-10 – APPENDIX V VALUATION REPORT

There are two methods commonly used in performing market approach, namely comparable transactions and comparable companies.

The comparable transactions are selected with reference to the following selection criteria:

• The primary industry of the acquiree is being in industry of electrical equipment or industrial conglomerates, or sub-industry of industrial machinery, under Global Industry Classification Standard, as extracted from S&P Capital IQ;

• The principal business of the acquiree is provision of the manufacturing and sales of energy generation equipment;

• The principal business activities of the acquiree are mainly conducted in the PRC;

• The transaction was announced between January 2020 and December 2020; and

• The financial information of the companies is available to the public.

Based on the above selection criteria, there was no available comparable transaction with the acquiree engaging in similar businesses in the PRC as the Target during the selected period. Given the fact that no recent comparable transaction can be identified, we consider that the comparable transactions method is not appropriated for this valuation.

Comparable company method is therefore selected as the primary method for this valuation. By adopting comparable company method, we have to select the appropriate comparable public companies. The selection of the comparable companies was based on the comparability of the overall industry sector. Although no two companies are ever exactly alike, behind the differences there are certain business universals such as required capital investment and overall perceived risks and uncertainties that guided the market in reaching the expected returns for companies with certain similar attributes.

The comparable public companies are selected with reference to the following selection criteria:

• The primary industry of the companies is being in industry of electrical equipment or industrial conglomerates, or sub-industry of industrial machinery, under Global Industry Classification Standard, as extracted from S&P Capital IQ;

• The principal business of the companies is provision of the manufacturing and sales of energy generation equipment;

• The principal business activities of the companies are mainly conducted in the PRC;

• The companies are listed in all major exchange markets in the United States of America (“US”) or Hong Kong (“HK”);

• The companies are profit-making in the trailing 12-months (“LTM”) as of the Valuation Date; and

• The financial information of the companies is available to the public.

– V-11 – APPENDIX V VALUATION REPORT

During our research process, as obtained on the best effort basis, we have identified an exhaustive list of seven comparable companies that engaged in the provision of the manufacturing and sales of energy generation equipment. As mentioned above, since no two companies are ever exactly alike, the differences should not overshadow the similarities of the business nature of the companies. We consider these companies are comparable to Nanjing High Speed.

Details of the selected comparable companies are listed as follows:

Stock Listing Revenue Contribution from # Company Name Code Location Business Description Business Segment(s)(1)

(1) China High Speed SEHK: HK China High Speed Transmission Equipment Group Relevant to the Transmission Equipment 658 Co., Ltd., together with its subsidiaries, engages in the Target’s business: Group Co., Ltd. research, design, development, manufacture, and distribution Wind Gear Transmission of a range of mechanical transmission equipment in the Equipment (84.12%) People’s Republic of China. It offers wind gear transmission equipment; industrial gear transmission equipment for the metallurgy, construction materials, traffic, transportation, petrochemical, aerospace, and mining industries; and rail transportation gear equipment products. The company provides gears, gear boxes, and fittings. It also engages in the provision of financial leasing services; and engineering processing and manufacturing, and trading businesses. The company also exports products to the United States, India, Brazil, and Europe.

(2) China Nature Energy SEHK: HK China Nature Energy Technology Holdings Limited, an Relevant to the Technology Holdings 1597 investment holding company, manufactures and sells pitch Target’s business: Limited (“Nature control systems and related components in the People’s Pitch Control System Related Energy”) Republic of China. The company operates through Sales of Integration, Manufacturing Pitch Control Systems and Related Components; Sales of and Sales (80.95%); Wind Wind Power; Wind Farm Operation and Maintenance Farm Operation and Business; and Provision of Wind Energy Related Maintenance (8.86%) Consultancy Services segments. It offers high-voltage pitch control systems for wind turbines. The company also generates and sells wind power through 13 wind turbines with total installed capacity of 19.5 MW. In addition, it provides wind farm operation and maintenance, upgrade, and modification services, as well as wind energy related consultancy services; and sells wind farm consumables.

– V-12 – APPENDIX V VALUATION REPORT

Stock Listing Revenue Contribution from # Company Name Code Location Business Description Business Segment(s)(1)

(3) Xinjiang Goldwind SEHK: HK Xinjiang Goldwind Science & Technology Co., Ltd., Relevant to the Science & Technology 2208 together with its subsidiaries, provides wind power Target’s business: Co., Ltd. (“Goldwind”) solutions in China and internationally. It operates through Wind Turbine Generator four segments: Wind Turbine Generator Manufacturing, Manufacturing and Sales Wind Power Services, Wind Farm Investment and (76.18%); Wind Farm Development, and Others. The company engages in the Development (11.24%) research and development, manufacture, and sale of wind turbine generators and wind power components; development, construction, maintenance, operation, and sale of wind farms; and provision of wind power related consultancy and maintenance services. It is also involved in the manufacture and sale of wind power equipment and accessories; development and operation of water treatment plants; provision of finance leasing services, which comprise direct finance leasing and sale-lease back; and development and operation of solar power generation projects.

(4) Dongfang Electric SEHK: HK Dongfang Electric Corporation Limited engages in the Relevant to the Corporation Limited 1072 energy equipment manufacturing in China and Target’s business: (“Dongfang Electric”) internationally. It operates through five segments: Clean and High Efficiency and Clean Efficient Energy Equipment, Renewable Energy Sources Energy Equipment Equipment, Engineering and Trade, Modern Manufacturing (47.23%)(2); Renewable Services, and Emerging Growth Industries. The company Energy Equipment also offers engineering contracting and services. It produced (18.03%)(2); Construction power generation equipment with a total capacity of 18.83 and Services (13.49%)(2); million kilowatt; 4,124 MW hydro-generating unit; 13,960 New Energy (9.44%)(2); MW steam turbine generators; 1,003 MW wind power units; 15,272 MW power station steam turbines; and 15,051 MW power station boilers. The company was formerly known as Dongfang Electric Machinery Co., Ltd. and changed its name to Dongfang Electric Corporation Limited in October 2007. The company was founded in 1993 and is based in Chengdu, the People’s Republic of China. Dongfang Electric Corporation Limited is a subsidiary of Dongfang Electric Corporation.

– V-13 – APPENDIX V VALUATION REPORT

Stock Listing Revenue Contribution from # Company Name Code Location Business Description Business Segment(s)(1)

(5) Harbin Electric SEHK: HK Harbin Electric Company Limited, together with its Relevant to the Company Limited 1133 subsidiaries, manufactures and sells power plant equipment Target’s business: (“Harbin Electric”) in the People’s Republic of China. It provides thermal Main Thermal Power power main equipment, including boilers, steam turbines, Equipment (36.65%); and steam turbine generators; hydropower main equipment, Engineering Services for such as hydropower generators units; nuclear power main Power Stations (23.94%); equipment comprising nuclear island and conventional AC/DC Motors and Others island equipment; and a set of steam power equipment, (15.61%); Main Hydro including 9F/9H class gas turbine, and combined gas and Power Equipment (11.78%); steam cycle sets. The company also engages in the research Nuclear Power (5.66%); and development, and production of clean energy products Ancillary Equipment for comprising solar energy, tidal power, and desalination Power Stations (5.22%) products; and ancillary equipment for power stations, industrial boilers, industrial steam turbines, control devices, and AC/DC motors, as well as valves for power stations, pressure vessels, axial compressors, etc. In addition, it is involved in the construction of power station projects; servicing of thermal and hydropower equipment; import and export of equipment for power stations; provision of after sales service for power station equipment products; research and development of engineering technology for power equipment and its ancillary products; and provision of environmental protection engineering services, such as desulfurization, denitrification, and dust removal. The company also exports its products to Asia, South America, and Africa. Harbin Electric Company Limited is a subsidiary of Harbin Electric Corporation Co., Ltd.

– V-14 – APPENDIX V VALUATION REPORT

Stock Listing Revenue Contribution from # Company Name Code Location Business Description Business Segment(s)(1)

(6) Chongqing Machinery & SEHK: HK Chongqing Machinery & Electric Co., Ltd., together with Relevant to the Electric Co., Ltd. 2722 its subsidiaries, designs, manufactures, and sells clean Target’s business: (“Chongqing M&E”) energy equipment and high-end smart manufacturing Power Equipment (36.99%); equipment. It manufactures and sells engines, hydroelectric General Machinery (23.64%) generation equipment, electrical wires and cables, general machinery, machinery tools, high-voltage transformers, and other products. The company also designs, manufactures, and sells vehicle parts and components; industrial robots, intelligent equipment, etc.; processes electronic products; develops, produces, and leases laser, machinery, and testing equipment; turbines, governors, and auxiliary devices; gear processing machine tools and lathes; automation, intelligent equipment, and accessories; provides cotton picking services and maintains cotton machinery and spare parts; cutting tool; casting and forging of non-ferrous metal smelting and special metal smelting; electrical porcelain; agricultural machinery and accessories, special machine tools, spare parts, and special tooling; precision screw; multi-purpose CNC machine tools, roll grinders, and deep hole boring machines. In addition, it leases properties; engages in turbo mechanical product testing, equipment, and system maintenance and transformation; sewage collection, treatment, and operation management BOT business; other trade business; trades in machinery and raw materials; fan coolers; evaporative cooling, water-cooled, and air-cooled chillers; manufactures wind-power equipment, PPR\PPC tubular product, and gas compressors and components; sells network, environmental, and gas products; design and manufactures industrial pumps and parts, and pressure vessels; mechanical and electrical equipment technology; and sells steel, as well as provides loans. Chongqing Machinery & Electric Co., Ltd. is a subsidiary of Chongqing Machinery and Electronics Holding (Group) Co., Ltd.

– V-15 – APPENDIX V VALUATION REPORT

Stock Listing Revenue Contribution from # Company Name Code Location Business Description Business Segment(s)(1)

(7) Shanghai Electric Group SEHK: HK Shanghai Electric Group Company Limited, an equipment Relevant to the Company Limited 2727 manufacturing conglomerate, provides clean energy, new Target’s business: (“Shanghai Electric”) energy and environmental protection, and industrial Energy Equipment (32.93%); equipment, and modern services in the People’s Republic of Integrated Services (31.62%) China. The company offers coal-fired power generation and corollary, gas-fired power generation, wind power, nuclear power, and energy storage equipment, as well as vessels for chemical industry. It provides elevators, escalators, electric motors and ramps, and industrial basic parts; intelligent manufacturing, traffic signal system, and construction industrialization equipment; blades, precision bearings, and fasteners; EPC project package services; and power grid and industrial intelligent power supply system solutions. The company offers energy, and environmental protection and automation engineering; industrial internet; financing leases and insurance brokerage; international trade; and property services. It provides turbine generators, gas turbines, and spare parts; power station and industry boilers; civil nuclear bearing, electrical and mechanical, and desulphurisation equipment; printing and packing machinery, artificial boards, air conditioners, welding materials, and engineering machinery; electrical switchgear and relevant services; turbines and auxiliary engines; building automation, management, and safety systems; technical consulting services; power transmission, distribution, and controlling equipment; electronic products; aircraft assembly lines equipment; blowers and transformer parts; diesel engine fuel pumps and components; wire and cable electrical equipment; and wire and cables. The company engages in the investment and asset management activities; real estate development and property management activities; and imports and exports of goods. Shanghai Electric Group Company Limited is a subsidiary of Shanghai Electric (Group) Corporation.

Source: S&P Capital IQ and Bloomberg

(1) Based on FY2019 financial data from Bloomberg.

(2) Based on Dongfang Electric FY2019 annual report.

– V-16 – APPENDIX V VALUATION REPORT

We consider CHS is comparable to Nanjing High Speed given that (i) the majority of revenue was generated from provision of the manufacturing and sales of energy generation equipment which is analogous to Nanjing High Speed; and (ii) the business is mainly conducted in the PRC. Since it is common to consider a comprehensive set of comparable companies that engaged in similar businesses, CHS should be selected as one of the comparable companies given that its shares are listed and publicly traded and its substantial business is similar to the Target.

We consider each of Nature Energy, Goldwind, Dongfang Electric and Harbin Electric is comparable to Nanjing High Speed given that (i) the majority of revenue was generated from provision of the manufacturing and sales of energy generation equipment which is analogous to Nanjing High Speed; and (ii) the business is mainly conducted in the PRC.

We consider Chongqing M&E is comparable to Nanjing High Speed given that (i) the general machinery segment is part of its clean energy equipment business according to its annual report of the financial year of 2019 which means that, together with the power equipment segment, the majority of revenue was generated from provision of the manufacturing and sales of energy generation equipment which is analogous to Nanjing High Speed; and (ii) the business is mainly conducted in the PRC.

Although Shanghai Electric derives less than 50% of its revenue from its energy equipment segment, we consider it is comparable to Nanjing High Speed given that (i) the revenue generated from the integrated services segment is considered as an extension to the provision of manufacturing and sales of energy generation equipment, which is analogous to Nanjing High Speed, which involves in the provision of energy engineering and services including but not limited to taking part in gas turbine combined cycle power plant projects and the provision of environmental protection engineering and services including but not limited to the provision of waste-to-energy power generation equipment and taking part in energy- generation-related waste treatment projects; and (ii) the business is mainly conducted in the PRC.

As over 50% of revenue of the above comparable companies are generated from manufacturing and sales of energy generation equipment, these comparable companies, together with the Target, are considered to be similarly subject to fluctuations in the economy and performance of the energy generation equipment manufacturing and sales industry, among other factors. Thus, we consider they are confronted with similar industry risks and rewards.

– V-17 – APPENDIX V VALUATION REPORT

After selecting the abovementioned comparable companies, we have to determine the appropriate valuation multiples for the valuation of the Target, in which we have considered price-to-earnings (“P/E”), price-to-book (“P/B”), price-to-sales (“P/S”), enterprise value/sales (“EV/S”), enterprise value/earnings before interests and taxes (“EV/EBIT”) and enterprise value/earnings before interests, taxes, depreciation and amortization (“EV/EBITDA”) multiples.

P/B multiple is considered not appropriate for this valuation because book value captures only the tangible assets of a company which, if a company creates any added market value (as reflected by a P/B ratio of larger than one), should have its own intangible competencies and advantages. These intangible company-specific competencies and advantages are not captured in the P/B ratio and so in general, the equity’s book value has little bearing with its fair value. Thus, the P/B multiple is not a good measurement of the fair value of a company.

P/S and EV/S multiples are considered not appropriate for this valuation because they do not consider the profitability of the Target nor the comparable companies. As both P/S and EV/S multiples only focus on the sales amounts but not the margins, the result will be easily distorted if the cost structure is not being taken into account. Thus, P/S and EV/S multiples are not adopted in this valuation.

EV/S, EV/EBITDA and EV/EBIT multiples use the market capitalization of a company as the starting point, considering the inclusion of the value of debt, minority interest, preferred shares and the exclusion of any cash and cash equivalents to represent enterprise value, which is then divided by sales, EBIT and EBITDA amount, respectively. Enterprise value generally requires normalized adjustments on debts and/or non-operating assets/liabilities of the Target which may be subjective. Thus, EV-related multiples are not adopted in this valuation.

P/E multiple is one of the most commonly used valuation multiples. It relates the market value of the equity interest of the Target to its earnings, an important driver of shareholders’ value. We consider that it is fair and reasonable to use the P/E multiple for assessing the value of the Target because net income is a more direct economic measurement of earning attributable to the Target’s equity value. In addition, the Target has been profit making for at least two years since FY2018. Hence, the P/E multiple is adopted in the valuation of the Target.

– V-18 – APPENDIX V VALUATION REPORT

The P/E multiples of comparable companies are as follows:

Market P/E Multiple Capitalization Before as of P/E Multiple LOMD Reporting 31 December LTM Net Before (excluding No. Company Name Currency 2020 Profit(1) LOMD(1) outliers)(2) (in million)

1 CHS RMB 10,462 493 21.20 21.20 2 Nature Energy RMB 280 48 5.86 5.86 3 Goldwind RMB 59,330 804 73.75 N/A 4 Dongfang Electric RMB 29,337 1,661 17.67 17.67 5 Harbin Electric RMB 3,189 838 3.81 3.81 6 Chongqing M&E RMB 1,427 155 9.19 9.19 7 Shanghai Electric RMB 72,046 4,446 16.20 16.20 Maximum 21.20 Minimum 3.81 Mean(2) 12.32 Lack of Marketability Discount (“LOMD”)(3) 20.6%

Notes:

(1) Data sourced from Bloomberg and the financial statements of the comparable companies. The equity values of the comparable companies are computed based on the market capitalization of the companies as of 31 December 2020. LTM net profit data are adjusted by non-recurring items as defined in Bloomberg database, based on the latest financial data of the comparable companies available as of the Valuation Date.

(2) To avoid distortion of selected multiples by abnormal data, companies with P/E multiples of more than one standard deviation below/above the average multiple are considered as outlier and have been excluded for analysis purpose. As the outlier of the P/E multiple is excluded after the standard deviation adjustment, we consider taking average of the available multiples is a fair and reasonable estimate of the P/E multiple for this valuation.

(3) LOMD reflects the fact that there is no ready market for shares in a closely held company. Ownership interests in closely held companies are typically not readily marketable compared to similar interests in publicly listed companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly listed company.

The P/E multiple adopted in the valuation was calculated from public listed companies, which represents marketable ownership interest. Fair value calculated using such P/E multiple, therefore, represents the marketable interest. Thus, LOMD was adopted to adjust such marketable interest fair value to non-marketable interest fair value.

The report “Stout Restricted Stock Study Companion Guide (2020 edition)” by Stout Risius Ross, LLC, a reputable research company, suggested an average marketability discount of 20.6% which is based on 759 private placement transactions of unregistered common shares issued by publicly traded companies from July 1980 through December 2019. A marketability discount of 20.6% is considered appropriate and suitable for this valuation as we understand that the Target is a group of privately held companies.

The value of non-marketable interest can be calculated from marketable interest using the following formula:

Fair Value of Non – Marketable Interest = Fair Value of Marketable Interest x (1– LOMD)

– V-19 – APPENDIX V VALUATION REPORT

Valuation Result

RMB’000

Adjusted Net Profit attributable to the Owners of the Target from November 2019 to October 2020(1)(2)(3) 1,013,551 Adjusted Mean of P/E Multiple 12.32x LOMD 20.60% Estimated 100% Equity Value of the Target (rounded)(4) 9,916,000

Notes:

(1) The net profit data is based on the consolidated financial statements of the Target provided by the Company for the year ended 31 December 2019 and the 10-month periods ended 31 October 2019 and 31 October 2020.

(2) As of the Valuation Date, the best available LTM consolidated financial information of the Target covered up to 31 October 2020 according to the Management. This has therefore been adopted for the valuation. The net profit attributable to the owners of Nanjing High Speed for the 12 months ended 31 October 2021 of RMB1,037,838k was adjusted by one-off foreign exchange losses arisen from intercompany balances of RMB12,507k and other one-off gain of RMB36,795k (including net impairment losses on financial assets of RMB59,758k, government subsidies of RMB105,721k, impairment losses on property, plant & equipment of RMB8,962k, fair value gain of RMB9,894k, investment gain of RMB9,094k, losses on disposal of assets of RMB8,078k and net tax impact arisen from other one-off losses of RMB11,117k). Foreign exchange losses arising from intercompany balances would affect the real and fair evaluation of the Target’s current operating results and profitability regardless of whether they are relevant to the production and operation, so they are considered as one-off in nature. Government subsidies arising from the land resumption by the government authority are remote to the production and operation of Nanjing High Speed and hence regarded as one-off in nature. The remaining items are considered as abnormal or extraordinary in Bloomberg so they are considered as one-off in nature. Based on the abovementioned nature, the adjustments on the net profit attributable to the owners of the Target from November 2019 to October 2020 are considered to be fair and reasonable.

(3) Given the Directors reviewed the consolidated financial statements of the Target for the year ended 31 December 2019 and the ten months ended 31 October 2019 and 31 October 2020, respectively, and the auditors of CHS, Baker Tilly Hong Kong Limited (“Baker Tilly”), reviewed the accounting policies and calculations of the adjusted net profit attributable to the owners of the Target from November 2019 to October 2020 and is of the view that it has been presented on a basis consistent in all material respects with the accounting policies normally adopted by CHS, and in addition to our discussion with the Management on the basis of derivation of the adjusted net profit attributable to the owners of the Target from November 2019 to October 2020, we consider that the basis adopted for this valuation is fair and reasonable.

(4) According to the Management, the Target intends to declare and distribute a dividend of RMB1,280 million to its existing shareholders prior to the completion of the Proposed Transaction. Such amount shall be excluded from the implied 100% equity value of the Target before adjustment for lack of marketability of the Target. After adjustment for lack of marketability of 20.6%, the estimated proforma 100% equity value of the Target after dividend distribution shall amount to approximately RMB8,900 million as of the Valuation Date. As of the Latest Practicable Date, the Target has made a dividend distribution of RMB650 million to its existing shareholders.

– V-20 – APPENDIX V VALUATION REPORT

CONCLUSION OF VALUE

Based on our investigation and analysis method employed, it is our opinion that the fair value of the 100% equity interest of the Target as of the Valuation Date is RMB9,916 million.

The conclusion of the fair value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We hereby certify that we have neither present nor prospective interests in China High Speed Transmission Equipment Group Co., Ltd. nor the value reported.

Yours faithfully, For and on behalf of AVISTA Valuation Advisory Limited

Vincent C B Pang CFA, FCPA(HK), FCPA (Aus.), MRICS Managing Director

Analysed and Reported by: Ivan K K Lui CFA, FCPA(HK), LL.M., MRICS Director

HugoTHWong FRM Assistant Manager

Mankry Y L Cheung Analyst

Note: Mr. Vincent Pang is a member of CFA Institute and CPAAustralia, a fellow member of the Hong Kong Institute of Certified Public Accountants, a member of Royal Institution of Chartered Surveyors (RICS) and a registered valuer of RICS. Vincent has over 20-year experience in financial valuation and business consulting in Hong Kong and the PRC.

– V-21 – APPENDIX V VALUATION REPORT

APPENDIX – GENERAL LIMITATIONS AND CONDITIONS

This Report was prepared based on the following general assumptions and limiting conditions:

• All data, including historical financial data, which we relied upon in reaching opinions and conclusions or set forth in the Report are true and accurate to our best knowledge. Whilst reasonable care has been taken to ensure that the information contained in the Report is accurate, we cannot guarantee its accuracy and we assume no liability for the truth or accuracy of any data, opinions, or estimates furnished by or 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. In particular, we have not carried out any investigation on the title of or any encumbrances or any interest claimed or claimable against the property appraised. Unless otherwise stated in the Report, we have assumed that the owner’s interest is valid, the titles are good and marketable, and there are no encumbrances that cannot be 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 the preparation of this Report, unless otherwise stated in this Report. Any information regarding areas, sizes, dimensions, and descriptions of property mentioned in this Report are for identification purposes only, and no one should use such information in any conveyance or other legal document. Any plans or graphical illustrations presented in this Report are intended only for facilitating the visualization of the property and its surroundings and such plans or graphical illustrations should not be regarded as a survey or a scale for size.

• The value opinion presented in this Report is based on the prevailing or then prevailing economic conditions and on the purchasing power of the currency stated in the Report as of the date of analysis. The date of value on which the conclusions and opinions expressed apply is stated in this Report.

• This Report has been prepared solely for the use or uses stated. Except for extraction of or reference to the Report by the Company, its financial advisor and/or its independent financial advisor for their respective work in relation to the Proposed Transaction, it is not intended for any other use or purpose or use by any third parties. We hereby disclaim that we are not liable for any damages and/or loss arisen in connection with any such unintended use.

• Prior written consent must be obtained from AVISTA Valuation Advisory Limited for publication of this Report. Except for disclosure in the Circular in relation to the Proposed Transaction, no part of this Report (including without limitation any conclusion, the identity of any individuals signing or associated with this Report or

– V-22 – APPENDIX V VALUATION REPORT

the firms/companies with which they are connected, or any reference to the professional associations or organisations with which they are affiliated or the designations awarded by those organisations) shall be disclosed, disseminated or divulged 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 this Report. We assume all applicable laws and governmental regulations are being complied with unless otherwise stated in this Report. We have also assumed responsible ownership and that all necessary licenses, consents, or other approval from the relevant authority or private organisations have been or to be obtained or renewed 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 Report excludes the impact of presence of any harmful substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials or of structural damage or environmental contamination. For purposes of evaluating potential structural and/or environmental defects, where their existence could have a material impact on value of the property, we would recommend that advices from the relevant experts, such as a qualified structural engineer and/or industrial hygienist, should be sought.

– V-23 – APPENDIX VI GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executives of the Company in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “SFO”)) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which were taken or deemed to have under such provisions of the SFO); or (ii) were required to be recorded in the register required to be kept by the Company under Section 352 of the SFO; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules, were as follows:

(i) Long positions in the Shares of underlying Shares

Number of Approximate issued Shares percentage of held/underlying the total Shares held issued share under equity capital of the Name of Director Nature of interests derivatives Company(3)

Mr. Ji Changqun Beneficial owner and 8,534,292,954 43.31% (“Mr. Ji”) interest in controlled corporation(1) Ms. Du Wei Beneficial owner 2,008,920(2) 0.01%

Notes:

(1) As at the Latest Practicable Date, 909,510,000 Shares are held by Mr. Ji directly as the beneficial owner. In addition, by virtue of the SFO, Mr. Ji is deemed to be interested in 7,624,782,954 Shares held by Magnolia Wealth International Limited (“Magnolia Wealth”), a company incorporated in the British Virgin Islands (the “BVI”) which is wholly-owned by Mr. Ji. Accordingly, Mr. Ji is interested in 8,534,292,954 Shares in total.

– VI-1 – APPENDIX VI GENERAL INFORMATION

(2) These interests represent 2,008,920 share options granted to Ms. Du Wei which were subject to certain vesting conditions pursuant to the share option scheme of the Company adopted on 17 August 2018.

(3) The percentage has been calculated based on 19,705,391,731 Shares in issue as at the Latest Practicable Date.

(ii) Long positions in the shares of the Company’s associated corporations

Approximate percentage of Number of shareholding in Name of Name of associated Capacity/ Nature of issued ordinary the associated Director corporation interest share(s) held corporation

Mr. Ji Magnolia Wealth Beneficial owner 1 100% Mr. Ji CHS Interest in controlled 1,226,467,693(1) 74.99%(2) corporation(1) Mr. Ji Hin Sang Group Interest in controlled 250,000,000(3) 22.90%(4) (International) corporation(3) Holding Co. Ltd. (“Hin Sang Group”)

Notes:

(1) 1,226,467,693 ordinary shares of CHS comprise the following:

(i) 17,890,000 shares are directly held by Glorious Time Holdings Limited (“Glorious Time”), a company incorporated in the BVI which is wholly-owned by Mr. Ji. By virtue of the SFO, Mr. Ji is deemed to be interested in 17,890,000 shares held by Glorious Time.

(ii) 1,208,577,693 shares are directly held by Five Seasons, which is incorporated in the BVI and a wholly-owned subsidiary of the Company, which in turn is owned as to approximately 38.69% by Magnolia Wealth. Magnolia Wealth is the controlling shareholder of the Company, which is wholly-owned by Mr. Ji. By virtue of the SFO, Mr. Ji is deemed to be interested in 1,208,577,693 shares held by Five Seasons.

(2) This percentage has been calculated based on 1,635,291,556 shares of CHS in issue as at the Latest Practicable Date.

(3) 250,000,000 ordinary shares of Hin Sang Group are directly held by Viewforth Limited (“Viewforth”), which is incorporated in the BVI and a wholly-owned subsidiary of the Company, which in turn is owned as to approximately 38.69% by Magnolia Wealth. Magnolia Wealth is the controlling shareholder of the Company, which is wholly-owned by Mr. Ji. By virtue of the SFO, Mr. Ji is deemed to be interested in 250,000,000 shares held by Viewforth.

(4) This percentage has been calculated based on 1,091,796,000 shares of Hin Sang Group in issue as at the Latest Practicable Date.

Save as disclosed above, none of the Directors or chief executives of the Company had any interests or short positions in any Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or required to be recorded in the register kept by the Company pursuant to Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code as at the Latest Practicable Date.

– VI-2 – APPENDIX VI GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

So far as is known to the Directors and the chief executives of the Company, as at the Latest Practicable Date, the following persons (other than a Director or chief executive of the Company) had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO as recorded in the register required to be kept under Section 336 of the SFO:

Approximate percentage of the total issued Name of issued share capital of Name of Shareholder Nature of interest Shares held the Company

Magnolia Wealth Beneficial owner(1) 7,624,782,954 (L) 38.69% Superb Colour Limited Beneficial owner(2) 967,178,496 (L) 4.91% (“Superb Colour”) Interest of controlled 982,442,195 (S) 4.99% corporation(2) 715,263,699 (L) 3.63% Huarong Huaqiao Asset Interest of controlled 1,682,442,195 (L) 8.54% Management Co., Ltd. corporation(2) 982,442,195 (S) 4.99% (華融華僑資產管理股份有限公司) (“Huarong Huaqiao”) China Huarong Asset Management Interest of controlled 1,682,442,195 (L) 8.54% Co., Ltd. (中國華融資產管理股份 corporation(2) 982,442,195 (S) 4.99% 有限公司) (“China Huarong Asset”) China Citic Bank Corporation Person having a 4,902,000,000 (L) 24.88% Limited (中信銀行股份有限公司) security interest in shares(3) China Great Wall Asset Person having a 1,520,000,000 (L) 7.71% Management Co., Ltd. security interest in (中國長城資產管理股份有限公司) shares(4) World Investments Limited Agent(5) 1,175,222,500 (L) 5.96% (“World Investments”) Goldway Financial Corp. Interest of controlled 1,175,222,500 (L) 5.96% (“Goldway”) corporation(5) Bank of China Group Investment Interest of controlled 1,175,222,500 (L) 5.96% Limited (中銀集團投資有限公司) corporation(5) (“BOC Group Investment”)

– VI-3 – APPENDIX VI GENERAL INFORMATION

Approximate percentage of the total issued Name of issued share capital of Name of Shareholder Nature of interest Shares held the Company

Bank of China Limited Beneficial owner(5) 1,175,222,500 (L) 5.96% (中國銀行股份有限公司) (“BOC”) Central Huijin Investment Ltd. Interest of controlled 1,175,222,500 (L) 5.96% (中央匯金投資有限責任公司) corporation(5) (“Central Huijin”)

Notes:

(1) The entire issued share capital of Magnolia Wealth is beneficially owned by Mr. Ji.

(2) References were made to the disclosures of interests made by Huarong Huaqiao and China Huarong Asset on the Stock Exchange’s website on 5 March 2020 respectively. Superb Colour has long position in 1,682,442,195 Shares (directly interested in 967,178,496 Shares and indirectly interested in 715,263,699 Shares through a 100% controlled corporation, namely Shanghai Asset Management LP) and short position in 982,442,195 Shares.

Superb Colour is a company incorporated in the BVI which is a wholly-owned subsidiary of Pure Virtue Enterprises Limited (“Pure Virtue”). Pure Virtue is a company incorporated in the BVI which is wholly-owned by China Huarong Overseas Investment Holdings Co., Limited (“China Huarong Overseas”). China Huarong Overseas is a company incorporated in Hong Kong and is a wholly-owned subsidiary of Huarong Huaqiao. Therefore, Huarong Huaqiao is deemed to be interested in the said Shares held by Superb Colour under the SFO.

Huarong Huaqiao is a company incorporated in the PRC and is beneficially owned as to 91% by Huarong Zhiyuan Investment & Management Co., Ltd. (“Huarong Zhiyuan”). Huarong Zhiyuan is wholly-owned by China Huarong Asset. As such, China Huarong Asset is deemed to be interested in the said Shares held by Superb Colour under the SFO.

(3) China Citic Bank Corporation Limited (中信銀行股份有限公司) held 4,902,000,000 Shares as holder of security interest.

(4) China Great Wall Asset Management Co., Ltd. (中國長城資產管理股份有限公司) held 1,520,000,000 Shares as holder of security interest.

(5) References were made to disclosures of interests made by World Investments, Goldway, BOC Group Investment, BOC and Central Huijin respectively on the Stock Exchange’s website on 2 January 2020. BOC has long position in 1,175,222,500 Shares. BOC, a company incorporated in China, is beneficially owned as to 64.02% by Central Huijin. Therefore, Central Huijin is deemed to be interested in the said 1,175,222,500 Shares under the SFO.

World Investments, in the capacity of an agent acting on behalf of BOC, is deemed to be interested in 1,175,222,500 Shares held by BOC under the SFO. World Investments is a company incorporated in Hong Kong and is a wholly-owned subsidiary of Goldway. Goldway is a company incorporated in the BVI which is wholly-owned by BOC Group Investment. As such, each of Goldway and BOC Group Investment is also deemed to be interested in the said 1,175,222,500 Shares under the SFO.

(6) The letter “L” denotes long position in the Shares; and the letter “S” denotes short position in the Shares.

(7) The percentage has been calculated based on 19,705,391,731 Shares in issue as at the Latest Practicable Date.

– VI-4 – APPENDIX VI GENERAL INFORMATION

Save as disclosed above, the Company has not been notified of any other person (other than the Directors or chief executives of the Company) who had any interests or short positions in the Shares or underlying Shares as recorded in the register required to be kept under Section 336 of the SFO as at the Latest Practicable Date.

4. DIRECTORS’ SERVICE CONTRACTS

None of the Directors has a service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

5. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

(a) none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 December 2020, being the date to which the latest published audited consolidated financial statements of the Group were made up and up to the Latest Practicable Date, acquired or disposed of by, or leased to any member of the Group, or are proposed to be acquired or disposed of by, or leased to, any member of the Group; and

(b) other than that disclosed below, none of the Directors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which is significant in relation to the business of the Group:

On 18 December 2020, the Company (as service provider) entered into a renewal agreement with each of Fullshare Group Pte. Ltd.* (豐盛集團私人有限公司) (“Fullshare Singapore”, together with its subsidiaries as “Fullshare Singapore Group”) (the “Fullshare Singapore Service Agreement”) and Nanjing Construction Group (Australia) Whisper Bay Pty Ltd ATF Nanjing Construction Group (Australia) Unit Trust (“NCGA”, together with its subsidiaries as “NCGA Group”) (the “NCGA Service Agreement”), to regulate and provide the framework for the provision of the operation, administration and management services to be provided by the Group to the Fullshare Singapore Group and the NCGA Group, for a term of three years to 31 December 2023. The annual cap for the continuing connected transactions contemplated under each of the Fullshare Singapore Service Agreement and the NCGA Service Agreement for each year is RMB1,250,000 and RMB2,000,000 respectively.

Mr. Ji Changqun (“Mr. Ji”) is the chairman of the Board, the chief executive officer, an executive Director and a controlling shareholder of the Company, therefore Mr. Ji is a connected person of the Company under Chapter 14A of the Listing Rules. Fullshare Singapore and NCGA are associates of Mr. Ji under Chapter 14A of the Listing Rules. For further details please refer to the continuing connected transaction announcement of the Company dated 18 December 2020.

– VI-5 – APPENDIX VI GENERAL INFORMATION

6. COMPETING INTERESTS

Reference is made to the circular of the Company dated 28 October 2013 relating to, amongst other things, the very substantial acquisition in relation to the acquisition of 南京豐盛資產管理有限公司 (Nanjing Fullshare Asset Management Limited*), a limited liability company incorporated in the PRC on 19 July 2002, which as at the Latest Practicable Date, is wholly owned by the Company and reverse takeover involving a new listing application (the “RTO Circular”). As disclosed in the RTO Circular, pursuant to the non-competition undertaking dated 25 October 2013 entered into between Mr. Ji and Magnolia Wealth (the “Controlling Shareholders”) and the Company (the “Non-competition Undertaking”), save for continuing their engagements in the Excluded Projects (as defined in the RTO Circular) and certain exceptions relating to their holding of and/or being interested in shares and other securities in any member of the Group and any other company listed on a recognised stock exchange engaging in the restricted business (please refer to the RTO Circular for details) set out in the Non-competition Undertaking, the Controlling Shareholders will not be allowed to engage in any residential property (including villas) and mixed-use property (as defined in the section headed “Glossary of Technical Terms” of the RTO Circular) development business in the PRC (the “Restricted Business”), and they will only be involved in the commercial property development business.

As at the Latest Practicable Date, the Controlling Shareholders and any of their respective associates (other than the members of the Group) did not, directly or indirectly, whether on their own or jointly with another person or company, own, invest in, participate in, develop, operate or engage in any business or company which directly or indirectly competes or may compete with the Restricted Business. Save for the Non-competition Undertaking, as at the Latest Practicable Date, the Controlling Shareholders did not give any other non-competition undertaking to the Company.

As at the Latest Practicable Date, save as disclosed above, none of the Directors nor his close associates (as defined in the Listing Rules) was interested in any business apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with that of the Group.

7. LITIGATION

Save as disclosed in the paragraph headed “2. Statement of Indebtedness” in Appendix I to this circular, as far as the Directors are aware, none of the members of the Group was at present engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

– VI-6 – APPENDIX VI GENERAL INFORMATION

8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years immediately preceding the date of this circular and are or may be material:

(a) the deed of guarantee dated 30 August 2019 entered into between the Company and Cavansite Holdings Limited in relation to the provision of guarantee by the Company to Cavansite Holdings Limited for the due and punctual performance and observance by Fullshare Value Fund I (A) L.P. of its obligations under the sale and purchase agreement dated 30 August 2019 and subject to a maximum liability of up to SGD169,821,710;

(b) the letter of authority dated 30 August 2019 entered into between the Company and Five Seasons XXII Pte. Ltd (“Five Seasons XXII”), pursuant to which, Five Seasons XXII authorised the Company to appoint a person to represent Five Seasons XXII in respect of the authorised matters (for details, please refer to the Company’s announcement dated 30 August 2019) and the Company agreed to (i) engage professional parties and bear all costs incurred thereto; and (ii) put Five Seasons XXII in funds for any monies which Five Seasons XXII is liable to pay, in relation to the aforesaid authorised matters, subject to a maximum aggregate amount of up to SGD1,000,000;

(c) the equity transfer agreement dated 31 December 2019 entered into between Nanjing Fullshare Dazu Technology Co., Ltd.* (南京豐盛大族科技股份有限公司)(“Dazu”) (as purchaser), an indirectly wholly-owned subsidiary of the Company, and Nanjing Chuangrui Enterprise Management Co., Ltd.* (南京創睿企業管理有限公司) (“Nanjing Chuangrui”), pursuant to which Dazu agreed to acquire, and Nanjing Chuangrui agreed to sell 100% equity interests of Nanjing Zhonghui Heda Business Management Co., Ltd.* (南京眾慧合達商業管理有限公司) for a consideration of RMB398 million;

(d) the limited partnership agreement dated 15 January 2020 entered into between Dazu, Sumin Kaiyuan Wuxi Investment Co., Ltd.* (蘇民開源無錫投資有限公司) and Sumin Capital Co., Ltd.* (蘇民資本有限公司) in respect of the establishment of Wuxi Sumin Fullshare Entrepreneur Investment Partnership Enterprise (Limited Partnership)* (無錫蘇民豐盛創業投資合夥企業(有限合夥)) in the PRC;

– VI-7 – APPENDIX VI GENERAL INFORMATION

(e) the sale and purchase agreement dated 16 January 2020 entered into between Dazu (as purchaser), New World (Qingdao) Real Estate Co., Ltd*(新世界(青島)置地有限公司 and Top Sky Investments Limited (頂佳投資有限公司) (as vendors) (collectively, the “Vendors of WTP(SY)”), World Trade Plaza (Shenyang) Real Estate Co., Ltd* (世貿廣場(瀋陽)置業有限公司) (the “WTP(SY)”) and Mr. Qi Hongbo (漆洪波) (as guarantor), pursuant to which Dazu has conditionally agreed to acquire and the Vendors of WTP(SY) have conditionally agreed to sell 100% equity interests of WTP(SY) for a consideration of RMB700,000,000 (the “WTP(SY) Acquisition”). The WTP(SY) Acquisition was terminated pursuant to a termination agreement dated 27 April 2020 entered into among Dazu, the Vendors of WTP(SY), WTP(SY) and Mr. Qi Hongbo (漆洪波);

(f) the placing agreement dated 5 June 2020 entered into between Rich Unicorn Holdings Limited (a then direct wholly-owned subsidiary of the Company) and BaoQiao Partners Securities (HK) Limited in respect of the placing of the shares of Zall Smart Commerce Group Ltd. (卓爾智聯集團有限公司);

(g) the capital increase agreement dated 4 December 2020 entered into between Nanjing Gear, Nanjing High Speed and the Employee Partnership Enterprise pursuant to which Nanjing High Speed shall increase its registered capital from RMB2 billion to RMB2.15 billion and the Employee Partnership Enterprise shall pay the increased registered capital of RMB150 million of Nanjing High Speed for a consideration of RMB150 million; and

(h) the Equity Transfer Agreement.

9. EXPERTS’ QUALIFICATIONS AND CONSENTS

The following are the qualification of the experts who have given opinion or, advice contained in this circular:

Name Qualification

AVISTA Valuation Advisory Limited Independent valuer

Baker Tilly Hong Kong Limited Certified Public Accountants

(collectively, the “Experts”)

As at the Latest Practicable Date, each of the Experts had no direct or indirect interest in any member of the Group nor any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

– VI-8 – APPENDIX VI GENERAL INFORMATION

As at the Latest Practicable Date, each of the Experts had no interest, direct or indirect, in any assets which had been, since 31 December 2020, being the date of the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by, or leased to, any member of the Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Group.

Each of the Experts has given and has not withdrawn its written consent as to the issue of this circular with the inclusion herein of its reports and/or letters and reference to its names in the form and context in which they respectively appear.

10. MISCELLANEOUS

(a) The company secretary of the Company is Ms. Seto Ying, who is a fellow member of the Association of Chartered Certified Accountants, a member of the Hong Kong Institute of Certified Public Accountants, the Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute.

(b) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The head office and principal place of business of the Company is located at Unit 2805, Level 28, Admiralty Centre Tower 1, 18 Harcourt Road, Admiralty, Hong Kong.

(c) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Standard Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

(d) In the event of any inconsistency, the English texts of the circular and the accompanying form of proxy shall prevail over their respective Chinese texts.

(e) It is expected that there will be no variation to the aggregate of the remuneration payable to and benefits in kind receivable by the directors of Nanjing High Speed as a consequence of the Repurchase.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company’s principal place of business in Hong Kong at Unit 2805, Level 28, Admiralty Centre Tower 1, 18 Harcourt Road, Admiralty, Hong Kong during normal business hours (except for Saturdays, Sundays and public holidays) from the date of this circular up to and including the date which is 14 days from the date of this circular:

(a) the memorandum and the articles of association of the Company;

(b) annual reports of the Group for the financial years ended 31 December 2018, 2019 and 2020;

– VI-9 – APPENDIX VI GENERAL INFORMATION

(c) the accountants’ report on the historical financial information of Nanjing High Speed issued by Baker Tilly, the text of which is set out in Appendix II to this circular;

(d) the assurance report on the compilation of pro forma financial information of the Group issued by Baker Tilly, the text of which is set out in Appendix IV to this circular;

(e) the valuation report of Nanjing High Speed issued by AVISTA, the text of which is set out in Appendix V to this circular;

(f) the material contracts referred to in the section headed “8. Material Contracts” in this appendix;

(g) the written consents referred to in the section headed “9. Experts’ Qualifications and Consents” in this appendix; and

(h) this circular.

* for identification purposes only

– VI-10 – NOTICE OF EGM

Fullshare Holdings Limited 豐盛控股有限公司 (Incorporated in the Cayman Islands with limited liability) (Stock Code: 607)

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the “EGM”) of Fullshare Holdings Limited (the “Company”) will be held at VIP Meeting Room 1, Grand Wuji Hotel – the Unbound Collection By Hyatt, No. 119 Software Avenue, Nanjing City, Jiangsu Province, China on Wednesday, 16 June 2021 at 2:00 p.m. for the purpose of considering and, if thought fit, passing the following resolution:

ORDINARY RESOLUTION

1. “THAT:

(a) the equity transfer agreement (the “Equity Transfer Agreement”) dated 30 March 2021 entered into among Nanjing Gear Enterprise Management Co., Ltd.* (南京高齒企業管理有限公司) (the “Vendor”, a non-wholly owned subsidiary of the Company), being vendor, Shanghai Wensheng Asset Management Co., Ltd. (上海文盛資產管理股份有限公司) (the “Purchaser”), being purchaser, and Nanjing High Speed Gear Manufacturing Co., Ltd.* (南京高速齒輪製造有限公司)(“Nanjing High Speed”, a non-wholly owned subsidiary of the Company) (a copy of which has been produced to the EGM and marked “A” and initialed by the chairman of the EGM for the purpose of identification), in relation to:

(i) the disposal of 43% of the equity interest in Nanjing High Speed (the “Sale Interest”) by the Vendor to Shanghai Qiwo Enterprise Management Partnership (Limited Partnership)* (上海其沃企業管理合夥企業(有限合夥)) (the “Transferee”) at a consideration of RMB4.3 billion and the transactions contemplated thereunder (the “Disposal”), be and are hereby approved, ratified and confirmed; and

(ii) grant of put option by the Vendor to the Transferee, pursuant to which the Transferee is entitled to, upon the occurrence of certain specified events, request the Vendor to repurchase all the equity interest of Nanjing High Speed acquired by the Transferee pursuant to the Disposal (the “Put Option”), be and is hereby approved, ratified and confirmed; and

– EGM-1 – NOTICE OF EGM

(b) any one or more of the directors of the Company (the “Directors”) be and is/are hereby authorised to do all such acts and things and execute all such other or further documents which he/she/they consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the Disposal, the Put Option and the terms of, or the transactions contemplated under the Equity Transfer Agreement and to agree to such variation, amendments or waiver or matters relating thereto as are, in the opinion of the Directors, in the interest of the Company and its shareholders as a whole.”

By Order of the Board Fullshare Holdings Limited Ji Changqun Chairman

Hong Kong, 26 May 2021

Principal place of business in Hong Kong: Unit 2805, Level 28 Admiralty Centre Tower 1 18 Harcourt Road Admiralty, Hong Kong

– EGM-2 – NOTICE OF EGM

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Notes:

1. A member entitled to attend and vote at the EGM convened by the above notice shall be entitled to appoint another person as his proxy to attend and, subject to the provisions of the articles of association of the Company, vote instead of him. A proxy need not be a member of the Company.

2. Whether or not you are able to attend the EGM, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof in person should you so wish. In the event that you attend the EGM after having lodged the form of proxy, it will be deemed to have been revoked.

3. Where there are joint holders of any share of the Company (the “Share”), any one of such joint holders may vote, either in person or by proxy, in respect of such Share as if he were solely entitled thereto, but if more than one of such joint holders be present at the EGM, the vote of the joint holder whose name stands first on the register of members of the Company in respect of the joint holding who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders.

4. In order to be valid, the form of proxy for use at the EGM must be deposited together with a power of attorney or other authority, if any, under which it is signed or a certified copy of such power or authority, at the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

5. The register of members of the Company will be closed from Thursday, 10 June 2021 to Wednesday, 16 June 2021 (both dates inclusive), during which period no transfer of shares in the Company will be registered. In order to be eligible to attend and vote at the EGM, all transfer forms accompanied by the relevant share certificates must be lodged with the branch share registrar and transfer office of the Company in Hong Kong, Tricor Standard Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration no later than 4:30 p.m. on Wednesday, 9 June 2021.

6. As at the date of this notice, the executive Directors are Mr. Ji Changqun, Ms. Du Wei and Mr. Shen Chen and the independent non-executive Directors are Mr. Lau Chi Keung, Mr. Chow Siu Lui and Mr. Tsang Sai Chung.

7. The EGM is expected to be concluded within a day. Shareholders (in person or by proxy) attending the EGM are responsible for their own transportation and accommodation expenses. Shareholders or their proxies attending the EGM shall produce their identity documents.

* for identification purposes only

– EGM-3 –