Viva Biotech : MAJOR TRANSACTION IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SYNTHESIS MED CHEM (HONG KONG) LIMITED

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular or as to the action to be taken, you should consult your stockbroker, or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in VIVA BIOTECH HOLDINGS, you should at once hand this circular with the enclosed 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.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

VIVA BIOTECH HOLDINGS ၪԭ͛ي߅Ҧછٰණྠ

(Incorporated in the Cayman Islands as an exempted company with limited liability)

(Stock code: 1873)

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SYNTHESIS MED CHEM (HONG KONG) LIMITED

Capitalized terms used on this cover page shall have the same meanings as those defined in "Definitions" in this circular.

The letter from the Board is set out on pages 6 to 21 of this circular.

The Acquisition and the transactions contemplated thereunder have been approved by way of written Shareholders' approval pursuant to Rule 14.44 of the Listing Rules in lieu of a general meeting of the Company. This Circular is being despatched to the Shareholders for information only.

February 26, 2021

CONTENTS
Page
DEFINITIONS .............................................................	1
LETTER FROM THE BOARD ................................................	6

FINANCIAL INFORMATION OF THE GROUP ..................	I-1
MANAGEMENT DISCUSSION AND ANALYSIS ON	II-1
THE GROUP .............................................
APPENDIX III -	ACCOUNTANTS' REPORT OF THE TARGET GROUP ...........	III-1
MANAGEMENT DISCUSSION AND ANALYSIS ON	IV-1
THE TARGET GROUP .....................................
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF	V-1
THE ENLARGED GROUP ..................................
GENERAL INFORMATION ..................................	VI-1
-i-

APPENDIX I

APPENDIX II

- -

APPENDIX IV -

APPENDIX VAPPENDIX VI

-

-

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

"Acquisition"

the Company's acquisition of the entire equity interest of the Target Company from the Vendor

"Agreement"

the share transfer agreement on the Acquisition of the Target Company between the Vendor and the Company (as amended by an amendment agreement dated December 15, 2020, a second amendment agreement dated January 25, 2021 and a third amendment agreement dated February 22, 2021)

"Allied Group of

Shareholders"

being the group of Shareholders who approved the Acquisition by way of written Shareholders' approval with the respectively number of Shares held by them at that time, namely (i) Mr. Mao Chen Cheney (holder of 439,692,551 Shares for himself, Mao Investment Trust and The Chen Mao Charitable Remainder Trust); (ii) MZFT, LLC (holder of 21,674,984 Shares); (iii) Mr. Wu Ying (holder of 16,149,973 Shares); (iv) Mr. Hua Fengmao (holder of 2,194,555 Shares); (v) China Finance Strategies Investment DB Limited (holder of 123,857,056 Shares); (vi) Mr. Ren Delin (holder of 9,553,317 Shares); (vii) Mao and Sons Limited, Zhang and Sons Limited, JL and JSW Holding Limited, TIANL Holding Limited, MENGL Holding Limited and VVBI Limited (holder of 50,938,185 Shares, 159,433,021 Shares, 2,651,724 Shares, 2,651,724 Shares, 1,710,050 Shares and 6,529,246 Shares, respectively) and (viii) Fenghe Harvest Ltd, Wu and Sons Limited and Fenghe Canary Limited (holder of 154,821,323 Shares, 72,053,221 Shares and 6,917,548 Shares, respectively), each of the Allied Group of Shareholders were Directors, former Director and/or their respective holding vehicles as of the date of the Agreement and each of the Directors and former Directors have been Shareholders of our Group since at least 2009. Mr. Mao Chen Cheney is the brother of Ms. Mao Jun (who was interested in the Shares held by Mao and Sons Limited, Zhang and Sons Limited, JL and JSW Holding Limited, TIANL Holding Limited, MENGL Holding Limited and VVBI Limited), cousin of Mr. Wu Ying and cousin-in-law of Mr. John Wu Jiong (who was interested in the Shares held by Fenghe Harvest Ltd, Wu and Sons Limited and Fenghe Canary Limited)

"Audited CY2019 Net

Income"

An amount equal to (A) the Net Income for CY2019 based on the Target Company's consolidated financial statements for CY2019 audited by the Reviewing Accountant in accordance with the Agreement minus (B) income tax credit due to utilization of tax losses previously not recognized as deferred tax assets in prior years by the Chinese subsidiaries of the Target Company in CY2019

"Audited CY2020 Net

Income"

An amount equal to (A) the Net Income for CY2020 as calculated based on the Target Company's consolidated financial statements for CY2020 audited by the Reviewing Accountant in accordance with the Agreement minus (B) income tax credit due to utilization of tax losses previously not recognized as deferred tax assets in prior years by the Chinese subsidiaries of the Target Company in CY2020

"Audited CY2021 Net

Income"

An amount equal to (A) the Net Income for CY2021 as calculated based on the Target Company's consolidated financial statements for CY2021 audited by the Reviewing Accountant in accordance with the Agreement minus (B) income tax credit due to utilization of tax losses previously not recognized as deferred tax assets in prior years by the Chinese subsidiaries of the Target Company in CY2021

"Available Cash Amount"

the amount all cash and cash equivalents actually held by the Target Company and its subsidiaries on a consolidated basis in US dollars in all of the bank accounts of the Target Company and its subsidiaries as of the Closing (net of the total amount of any outstanding or uncleared checks or wires made to any person)

"Board"

the board of directors of the Company

"Bridging Loan Amount"

being the US$3.5 million loan that is, subject to the terms of the Bridging Loan Deed, to be offered to the Vendor pursuant to the Bridging Loan Deed

"Bridging Loan Deed"

the bridging loan deed entered into between the Vendor as borrower and the Company as lender on September 20, 2020 (and amended by an amendment and restatement deed dated January 16, 2021), in relation to the Bridging Loan Amount

"business day"

any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC, the Cayman Islands, the United States, Australia or Hong Kong

"Cash Payment"

the cash Consideration as formed by the First Tranche Cash Payment, Second Tranche Cash Payment and Third Tranche Cash Payment

"CDMO"

contract development and manufacturing organization(s), a CMO that, in addition to comprehensive drug manufacturing services, also provide process development and other drug development services in connection with its manufacturing services

"Closing"

completion of the Acquisition in accordance with the terms of the Agreement

DEFINITIONS
"Closing Date"	the date of Closing
"CMO"	contract manufacturing organization, which provides comprehensive
drug manufacturing services to companies in the pharmaceutical industry
"Company"	Viva Biotech Holdings, a company incorporated in the Cayman Islands
as an exempted company with limited liability, the issued Shares of
which are listed on the Main Board of the Stock Exchange (stock code:
1873)
"Consideration"	the consideration payable by the Company to the Vendor for acquiring
the entire equity interest in the Target Company pursuant to the
Agreement
"Consideration Shares"	The issue of Shares by the Company to the Vendor as part of the
Consideration pursuant to the Agreement
"CRO"	contract research organization(s)
"CY2019"	the year ended December 31, 2019
"CY2020"	the year ended December 31, 2020
"CY2021"	the year ended December 31, 2021
"Directors"	the director(s) of the Company
"Enlarged Group"	the enlarged Group immediately after Closing, comprising the Group,
and the Target Company and its subsidiaries
"First Repayment Date"	means (a) the fifteenth (15th) business day after the Longstop Date or (b)
if the conditions in Section 5 of the Agreement have not been satisfied
by the Longstop Date and the Agreement is duly terminated by the
parties thereto, except where such condition or conditions have not been
satisfied due to the Vendor's failure to comply with Section 2.3 of the
Agreement, the one (1) year anniversary of the Longstop Date
"First Tranche Cash	US$25 million payable in cash at the Closing Date subject to deduction
Payment"	of the outstanding Bridging Loan Amount of approximately US$3.2
million, for a total sum of approximately US$21.8 million
"General Mandate"	The general mandate granted to the Directors by the Shareholders at the
annual general meeting of the Company held on June 10, 2020 to allot,
issue or otherwise deal with the no more than 322,854,569 Shares, as
of the Latest Practicable Date, the Company may issue up to 9,433,176
Shares under such general mandate
-3-

DEFINITIONS
"Group"	the Company and its subsidiaries
"HK$"	Hong Kong dollar, the lawful currency of Hong Kong
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC
"IFRS"	the International Financial Reporting Standards
"Issue Price"	Approximately HK$8.955 per Consideration Share
"Langhua Pharmaceuticals"	Zhejiang Langhua Pharmaceutical Co., Ltd. ( एϪࣦശႡᖹϞࠢʮ̡ ),
a limited liability company established in the PRC
"Latest Practicable Date"	February 22 2021, being the latest practicable date of ascertaining certain
information contained in this circular prior to its publication
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock Exchange
"Longstop Date"	February 28, 2021
"Net Income"	with respect to a financial year, the Target Company's audited
consolidated profit after tax as defined under IFRS for such financial
year, but excluding any extraordinary, exceptional or non-recurring item,
determined in accordance with IFRS applied using the same accounting
methods, practices, principles, policies and procedures as well as
deducting an adjustment qualifier (in accordance with the Agreement)
in relation to revenue from the Vendor's group in the event that such
amount exceeds 30% of the Target Company's revenue for a relevant
period
"Net Working Capital"	the consolidated current assets less the consolidated current liabilities of
the Target Company
"PRC"	the People's Republic of China, which for the sole purpose of this
circular excludes Hong Kong, Macau Special Administrative Region and
Taiwan
"Pre-Closing Audit"	Audit of the Target Company's consolidated financial statements for the
three years ended 31 December 2017, 2018 and 2019, respectively, and
the eight months ended 31 August 2020 by the Reviewing Accountant
"Price Adjustments"	the price adjustment mechanism to the Consideration as further set out in
the paragraph headed "Price Adjustments" of this circular
"Prospectus"	the prospectus of the Company dated April 25, 2019
-4-

DEFINITIONS
"R&D"	research and development
"Reviewing Accountant"	Ernst & Young
"RMB"	Renminbi, the lawful currency of the PRC
"Second Tranche Cash	US$21 million (subject to the Price Adjustments) in cash within 30
Payment"	calendar days following the Statement Confirmation Date for the
CY2020
"SFO"	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
Kong)
"Share Charge"	the share charge executed by the Vendor (as the chargor) and the
Company (as the chargee) in relation to the Target Company's entire
issued share capital as security to the Bridging Loan Deed
"Share(s)"	ordinary shares in the share capital of the Company with a par value of
US$0.000025 each
"Shareholder(s)"	the holders of Shares
"Statement Confirmation	the date of the finalization of the Target Company's audit for each of
Date"	CY2020 or CY2021 (as the case may be)
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"Target Company"	SYNthesis med chem (Hong Kong) Limited, a company incorporated
under the laws of Hong Kong and a wholly owned subsidiary of the
Vendor
"Third Tranche Cash	US$14 million (subject to the Price Adjustments) in cash within 30
Payment"	calendar days following the Statement Confirmation Date for CY2021
"Track Record Period"	the three years ended December 31, 2019 and the eight months ended
August 31, 2020
"US$"	US dollar(s), the lawful currency of the United States of America
"Vendor"	SYNthesis med chem Pty Limited, a company limited by shares
incorporated under the laws of Australia
"%"	per cent

VIVA BIOTECH HOLDINGS ၪԭ͛ي߅Ҧછٰණྠ

(Incorporated in the Cayman Islands as an exempted company with limited liability)

(Stock code: 1873)

Executive Directors:
Mr. MAO Chen Cheney (Chairman of the Board)	PO Box 309
Mr. WU Ying	Ugland House
Mr. HUA Fengmao	Grand Cayman, KY1-1104
Mr. REN Delin	Cayman Islands
Non-executive Director:	Corporate Headquarters:
Ms. SUN Yanyan	334 Aidisheng Road
Zhangjiang High-Tech Park
Independent non-executive Directors:	Pudong New District
Mr. FU Lei	Shanghai, PRC
Ms. LI Xiangrong
Mr. WANG Haiguang	Principal place of business in Hong Kong:
Room 1901, 19/F
Lee Garden One
33 Hysan Avenue
Causeway Bay, Hong Kong
To the Shareholders:
Dear Sir/Madam,

Registered office:

February 26, 2021

MAJOR TRANSACTION

IN RELATION TO THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL IN SYNTHESIS MED CHEM (HONG KONG) LIMITED

I. INTRODUCTION

The Company refers to its announcements dated September 21, 2020, October 15, 2020, December 15, 2020, December 23, 2020, January 18, 2021 and January 25, 2021 in relation to, inter alia, the Acquisition.

On September 20, 2020, the Company entered into the Agreement with the Vendor pursuant to which the Company agreed to acquire, and the Vendor agreed to sell, the entire equity interest in the Target Company, at the Consideration of approximately US$80 million (equivalent to approximately HK$620 million). The Consideration is subject to the Price Adjustments but in any event will not exceed US$84 million (equivalent to approximately HK$651 million).

The purpose of this circular is to provide the Shareholders with, inter alia, (i) further details of the Acquisition; (ii) the management discussion and analysis on the Group; (iii) the accountants' report of the Target Company; (iv) the management discussion and analysis on the Target Company; (v) unaudited pro forma financial information of the Enlarged Group; and (vi) other information as required by the Listing Rules.

II. THE ACQUISITION

PRINCIPAL TERMS OF THE AGREEMENT

Date:	September 20, 2020 (as amended by an amendment agreement dated
December 15, 2020, a second amendment agreement dated January 25,
2021 and a third amendment agreement dated February 22, 2021)
Purchaser:	the Company
Vendor:	SYNthesis med chem Pty Limited
Target Company:	SYNthesis med chem (Hong Kong) Limited, a wholly-owned subsidiary
of the Vendor
Subject matter

Pursuant to the Agreement, the Vendor agreed to sell and the Company agreed to purchase, the entire equity interests in the Target Company, free from any encumbrance and together with all rights and advantages attaching to them as at Closing. Upon Closing, the Target Company will become a wholly owned subsidiary of the Company.

The Agreement sets out the terms and conditions of the Acquisition, which are determined after arm's length negotiations between the Vendor and the Company.

Consideration

Subject to the adjustments set out in the section headed "Price Adjustments" below, the Consideration payable by the Company to the Vendor for the entire equity interest in the Target Company shall be approximately US$80 million, which shall be paid as follows:

(a) US$60 million (subject to the Price Adjustments) in form of a Cash Payment will be paid in the following manner:

• i. US$25 million (subject to deduction of the approximately US$3.2 million outstanding Bridging Loan Amount and a total sum of approximately US$21.8 million) will be paid in cash on the Closing Date as the First Tranche Cash Payment. If the Acquisition proceeds to Closing, the outstanding Bridging Loan Amount will be applied towards the First Tranche Cash Payment;

• ii. US$21 million (subject to the Price Adjustments) will be paid in cash within 30 days following the Statement Confirmation Date for CY2020; and

iii. US$14 million (subject to the Price Adjustments) will be paid in cash within 30 days following the Statement Confirmation Date for CY2021;

• (b) US$10 million will be settled by the allotment and issue of 8,654,685 Consideration Shares by the Company to the Vendor at the Issue Price of approximately HK$8.955 per Consideration Share upon Closing, provided that the Company reserves the right to pay US$10 million in cash instead of issuing the Consideration Shares to the Vendor on the Closing Date; and

• (c) US$10 million-worth of in-kind service payment (subject to certain downward adjustment in the Agreement) will be provided by the Group to the Vendor (or designated subsidiaries of the Vendor) by providing drug discovery services over the course of five years following the Closing Date. The Group shall not be obliged to provide drug discovery services worth over US$2 million during any one-year period.

Determination of Consideration

The Consideration was determined after arm's length negotiations between the parties thereto after due diligence and financial analysis taking into account, among other things, (i) the recent financial position and historical financial performance of the Target Company, including the unaudited net profit of the Target Company for 2019 of approximately US$4.07 million; (ii) the valuation of the Target Company and the valuation of the Company as well as other comparable companies; (iii) the business prospects and potential growth of the Target Company; and (iv) the strategic fit and potential synergies available to the Company.

In determining the valuation of the Target Company (as reflected by the Consideration to be paid by the Company), the Company considered factors including the material revenue streams of the Target Company, the management and personnel of the Target Company and the existing market conditions related to the Target Company's operations and business.

For each of the two years ended December 31, 2019 and the August 31, 2020, the audited net asset of the Target Company were RMB73.4 million, RMB96.8 million and RMB103.6 million respectively. The Target Company's audited profit before tax for the periods were RMB18.7 million, RMB27.2 million and RMB20.1 million, respectively. The Target Company's audited profit after tax for the periods were RMB16.2 million, RMB22.9 million and RMB16.6 million, respectively.

The Company noted that the maximum Consideration represented a price-to-earnings ratio of approximately 21 times based on the unaudited net profit of the Target Company for 2019 and a price-to-earnings ratio of approximately 25 times based on the audited net profit of the Target Company for 2019 prepared in accordance with IFRS. The Company's price-to-earnings ratio was approximately 58 times (calculated based on the average closing price of HKD9.02 per Share for the three months prior to the date of the Agreement (i.e. between June 19, 2020 to September 17, 2020), the market capitalization of the Company of approximately HKD18.5 billion and the audited net profit of the Company for the year ended December 31, 2019 of approximately RMB265.9 million. The Company's Share prices had increased substantially after the announcement of its very substantial acquisition of a controlling interest in Langhua Pharmaceutical on August 9, 2020 and if the Company derived its price-to-earnings ratio from its Shares' average closing price of HK$7.99 for the three month prior to the Langhua Pharmaceutical acquisition announcement (i.e. between May 11, 2020 and August 7, 2020), the Company's price-to-earnings would be approximately 51 times. When assessing potential acquisition targets who are engaged in pharmaceutical contracting organizations, the Company typically approaches potential target companies with a price-to-earnings ratio that is at a substantial discount to that of the Company and the Company considers that the Target Company satisfies this criteria.

The Board had noted that the price-to-earnings ratio of the Target Company is at a significant discount to the Company's price-to-earnings ratio and considers this to be fair and reasonable and in the interests of the Shareholders as a whole, taking into account (i) the scale of the Target Company's operation and the scope of its service offerings as compared to that of the Company, (ii) the fact that the Company's securities are listed and publicly traded and (ii) the price adjustment mechanism which can lower the effective valuation of the Target Company if there is a downturn to its results of operation.

The Company has also further set out below details of the historic price-to-earnings ratio of 5 comparable companies identified by the Company which are listed on the Stock Exchange and primarily engaged in providing drug development services and form a sufficient, exhaustive, fair and reasonable list as of September 18, 2020 (being the last trading day prior to the date of the Agreement) given the lack of suitable "pure-play" CRO businesses of comparable scale to the Target Company which are listed on the Stock Exchange. It is noted that the Target Company's price-to-earnings ratio is lower than both the mean and the low end of the range of price-to-earnings ratio of the 5 identified comparable companies and the Company considers that this reflects disparity between the Target Company in terms of size and scale of business, integrated nature of service offerings as well as the publicly traded nature of the comparable companies' securities.

Company Name

WuXi Biologics (Cayman) Inc.

WuXi AppTec Co., Ltd.

Pharmaron Beijing Co., Ltd.

Hangzhou Tigermed Consulting Co., Ltd.

Frontage Holdings Corporation

High Low Mean Median

LETTER FROM THE BOARD
Market	Audited net	Price-to-earnings
profit for 2019	ratio
(HK$ million)	(times)
1,129	230
2,072	127
593	142
1,089	88
143	54
230
54
117
127

Stock code

Business description

capitalization (HK$ million)

2269.HKWuxi Biologics (Cayman) Inc. is a 259,552 global leading biologics services provider focusing on discovery, research and development, manufacturing and sales biologicals products.

2359.HK; 603259.SHWuxi AppTec Co., Ltd. is a leading 263,617 global integrated end-to-end new drug R&D services provider, focusing on providing the discovery, development and manufacturing spectrum for small molecule drugs.

3759.HK; 300759.SZPharmaron Beijing Co., Ltd. is a global 84,041 fully-integrated pharmaceutical

R&D services provider, focusing on drug discovery, early-stage clinical development, late-stage clinical development and commercial manufacturing.

3347.HK; 300347.SZHangzhou Tigermed Consulting 95,861 Co., Ltd. is a leading China-based provider of comprehensive biopharmaceutical R&D services.

1521.HKFrontage Holdings Corporation is a 7,726 fast-growing CRO providing drug metabolism and pharmacokinetics, safety and toxicology, chemistry, manufacturing and controls, drug discovery and development, bioequivalence and bioanalytical services.

Note:

The price-to-earnings ratios are calculated based on the market capitalization of the comparable companies as at September 18, 2020, being the last trading day in the Shares before the date of the Agreement, and their respective audited net profit 2019. For H share companies with A shares listed on a PRC stock exchange, the market capitalization is calculated based on the closing price of the respective shares.

The exchange rate used in the above calculations are RMB1:HK$1.11706 and US$1:HK$7.75.

Based on the above, the Board considers the valuation of the Target Company (as reflected by the Consideration to be paid by the Company in accordance with the price adjustment mechanism under the Agreement), and the terms of the Agreement are fair and reasonable and in the interests of the Shareholders as a whole.

The Company intends to fund the cash Consideration using proceeds from the Company's convertible bond issuance in February 2020.

Bridging Loan Arrangement

To facilitate the Acquisition and the settlement of, inter alia, certain external loans in relation to the Target Company, the Company (as the lender) entered into the Bridging Loan Deed with the Vendor (as the borrower) on September 20, 2020 (and amended by an amendment and restatement deed dated January 16, 2021).

Pursuant to the Bridging Loan Deed, the Company agreed to provide a US$3.5 million short term loan facility to the Vendor during the availability period of the loan, being a period commencing from the later of (i) the date when the Company clears the post-vetting comments from the Stock Exchange on this circular (if any) with respect to the execution of the Agreement and the transactions as contemplated thereby (including the transactions as contemplated by the Bridging Loan Deed) and (ii) the date falling five business days after the date of the Bridging Loan Deed and ending on the Longstop Date. As of the Latest Practicable Date, approximately RMB3.2 million of the Bridging Loan Amount had been drawn down and the drawing down process has been completed.

Repayment and Interest

The Bridging Loan Amount shall bear interest from the Longstop Date at a simple interest rate of five percent (5%) per annum, calculated on the principal amount of the Bridging Loan Amount then outstanding. In the event that the Closing takes place before the Longstop Date, the Bridging Loan Amount will bear no interest.

The Vendor shall, save as otherwise provided in the Bridging Loan Deed or as released by the Company as partial deduction of the First Tranche Cash Payment pursuant to the Agreement, repay the Bridging Loan Amount and the interests accrued thereon in full on the final repayment date, which if Closing did not take place prior to the Longstop Date for reasons other than the Vendor's failure to comply with the Agreement's Pre-closing Audit requirement, on the one year anniversary of the Longstop Date. Pursuant to the Agreement, the Company will release the Vendor from its obligation to repay the Bridging Loan Amount at Closing as partial consideration for the Acquisition.

Security and other Provisions

As security for the Bridging Loan Deed, the Vendor has agreed to charge all the shares held by the Vendor in the Target Company in favor of the Company (as the chargee) by way of first fixed charge after the security over the shares granted in favor of certain creditors of the Vendor is released. The Vendor may only draw down the first advance of the Bridging Loan Amount after delivery of the executed Share Charge and all ancillary documents to its legal counsel for it to hold in escrow and providing it with an instruction to release the same to the Company after drawdown of the first advance of the Bridging Loan Amount.

The Vendor may draw down further advance of the Bridging Loan Deed after the satisfaction of further conditions set forth in the Bridging Loan Deed, including the provision of letters and confirmation from certain creditors of the Target Company and the Vendor of the outstanding indebtedness.

Issuance of Consideration Shares

The Company plans to issue up to 8,654,685 Shares as Consideration Shares for the Acquisition, and the issuance of the Consideration Shares will not result in a change of control in the Company. The Company reserves the right, electable on or before the Closing Date, to (i) issue part of the 8,654,685 Consideration Shares and in lieu of issuing the remainder of the Consideration Shares, to pay an amount representing the value of the remaining Consideration Shares that the Company has elected to not issue or (ii) pay US$10 million in cash instead of issuing the Consideration Shares to the Vendor.

Issue Price

The Company and the Vendor has determined that the Issue Price of the Consideration Share (if any) shall be approximately HK$8.955 per Share, representing:

• (a) a discount of approximately 7.68% to the closing price of HK$9.700 per Share as quoted on the Stock Exchange's daily quotation sheet on September 18, 2020, being the most recent trading date prior to the date of the Agreement; or

• (b) a discount of approximately 0.48% to the average closing price of HK$8.998 per Share as quoted on the Stock Exchange's daily quotation sheet for the 5 trading days immediately preceding the date of the Agreement.

As at the Latest Practicable Date, the Company had 1,916,318,435 Shares in issue. The maximum amount of 8,654,685 Consideration Shares represent approximately 0.45% of the existing issued share capital of the Company and approximately 0.45% of the issued share capital of the Company as enlarged by the allotment and issuance of the Consideration Shares (assuming that there is no other change in the issued share capital of the Company from the Latest Practicable Date).

The Consideration Shares (if any) shall be allotted and issued pursuant to the General Mandate, and shall rank pari passu with the Shares in issue as at the date of allotment and issuance. The Company issued and allotted 130,000,000 Shares under the General Mandate on July 10, 2020, may issue and allot a further 186,519,893 Shares under the General Mandate pursuant to a US$280 million convertible bond issuance on December 30, 2020 and the General Mandate has not been otherwise utilized. As of the Latest Practicable Date, the Company may issue up to 9,433,176 Shares under its General Mandate, taking into account extension of the General Mandate to the 3,098,500 Shares repurchased by the Company and subsequently cancelled on February 17, 2021. Shareholders' approval will not be required for the allotment and issuance of the Consideration Shares. Application will be made by the Company to the Stock Exchange for the approval for the listing of, and permission to deal in, the Consideration Shares (if any).

Lock-up period

The Vendor has agreed that it will not during the period commencing on the issuance date of the Consideration Shares (if any) and ending after 12 months from such issuance date (i) lend, offer, pledge, hypothecate, hedge, sell, make any short sale of, loan, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Consideration Shares or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such Consideration Shares, whether any such transaction described in (i) or (ii) above is to be settled by delivery of any Consideration Share or such other securities, in cash or otherwise, provided that within the aforesaid 12 months lock-up period:

• (a) the Vendor may transfer such Consideration Shares to its subsidiaries so long as such transferees enter into the same lockup agreement; and

• (b) the Vendor has the right to at any time after six months of issuance date of the Consideration Shares sell up to 30% of the Consideration Shares on one occasion only, provided that the Vendor shall notify the Company of its plan to exercise such right in writing prior to sale of any Consideration Share during the aforesaid 12 months lock-up period.

Price Adjustments

The Consideration is subject to the Price Adjustments below but shall in any event not exceed US$84 million (equivalent to approximately HK$651 million) taking into account the earn-out provisions.

Initial Adjustments to the Consideration

The initial Consideration of approximately US$80 million is subject to a downward adjustment with reference to the Audited CY2019 Net Income and shall be adjusted to an amount that is 20 times the Audited CY2019 Net Income, provided that the initial Consideration shall in any event be no higher than US$80 million. On February 22, 2021, the parties had agreed that with reference to a mutually accepted exchange rate, the adjusted Consideration (without taking into account the in-kind service payment) will be approximately US$66.5 million after adjustment with reference to the Audited CY2019 Net Income of approximately US$3.3 million, the Second Tranche Cash Payment and Third Tranche Cash Payment will be downward adjusted to reflect the overall downward adjustment of the Consideration. It is expected that based on such initial adjustment, the Second Tranche Cash Payment and Third Tranche Cash Payment will be downward adjusted by approximately US$8.1 million and US$5.4 million to approximately US$12.9 million and US$8.6 million, respectively.

Adjustment of in-kind service payment, Second Tranche Cash Payment and Third Tranche Cash Payment

In the event that (i) the Audited CY2020 Net Income is equal to or greater than the Audited CY2019 Net Income, or (ii) the Audited CY2021 Net Income is equal to or greater than the Audited CY2019 Net Income, no adjustment shall be made to the Second Tranche Cash Payment or the Third Tranche Cash Payment (as the case may be).

In the event that the Audited CY2020 Net Income or the Audited CY2021 Net Income is less than the Audited CY2019 Net Income (as the case may be), the remaining amount of the in-kind service payment shall be adjusted downward by a sum determined in accordance with the following formula respectively:

X = (A - B) × 20

X is the amount of downward adjustment of remaining amount of the in-kind service payment, provided that if such adjustment would be less than 0, then it shall be deemed to be 0;

• A is the Audited CY2019 Net Income

• B is the Audited CY2020 Net Income (for adjustment made in relation to the in-kind service payment for CY2020 and the Second Tranche Cash Payment) or the Audited CY 2021 Net Income (for adjustment made in relation to the in-kind service payment for CY2021 and the Third Tranche Cash Payment)

In the event that the amount of in-kind service payment remaining outstanding for each of CY2020 or CY2021 (as the case may be) is less than the downward adjustment amount, the outstanding in-kind service payment shall be deemed to be 0 after such adjustment and any shortfall shall be further deducted from the Second Tranche Cash Payment or Third Tranche Cash Payment (as the case may be) by reducing the respective tranche of payment by the difference between the in-kind service payment remaining at the time and 20 times the shortfall of the CY2020 Net Income or CY2021 Net Income (as the case may be) against the CY2019 Net Income. In the event that the downward adjustment mechanism based on the CY2020 Net Income and/or the CY2021 Net Income is greater than the Second Tranche Cash Payment or the Third Tranche Cash Payment (as the case might be), the Company will not be obligated to make the relevant tranche of payment as a result of the adjustment mechanism. The Company considers that based on its financial and operational due diligence (including a review of its management accounts and management financial budget plans) and assessment of the Target Company's business prospect, the Company did not note any trends that may result in the Target Company's financial performance declining significantly in 2020 as compared to 2019 nor anything that may affect the Target Company's business viability once it becomes a subsidiary and comes under the Company's control after the Closing. In light of this, the Company considers that the downward price adjustment mechanism set forth herein which was incorporated to protect the Company's interest in the event that the Target Company's operation is negatively affected by any unforeseen event is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Earn-out

In the event that the Audited CY2021 Net Income is equal to or greater than (i) 120% or (ii) 135% of the Audited CY2019 Net Income, the Company shall pay the Vendor US$2 million or US$4 million in cash, respectively.

Working Capital Adjustment

After Closing, the Vendor will prepare and deliver to the Company a statement setting out the calculations for the Net Working Capital on a benchmark date as agreed between the Vendor and the Company. The Company may review and dispute such statement and negotiate with the Vendor to resolve the disputes. If the Company and the Vendor cannot reach a final resolution on the disputes relating to the statement and the Net Working Capital, they shall engage the Reviewing Accountant to resolve the dispute. The determination of the Reviewing Accountant shall be conclusive and binding upon the parties, absent fraud or manifest error, and shall be an arbitral award that is non-appealable.

If the final Net Working Capital is less than US$1.8 million, the Vendor shall pay an amount to the Company equal to such difference. If the final Net Working Capital is higher than US$1.8 million, the Company will issue a credit note in such difference to the Vendor which may use the credit note to pay for services provided by the Target Company during the five years following the issuance of such credit note. The parties have also agreed to a backward-looking tax related adjustment to the Consideration.

Conditions Precedent

Closing of the Acquisition is conditional upon the satisfaction of, among other things, the following conditions on or prior to the Longstop Date:

• (a) The Vendor has effected and completed certain internal and external loan settlement arrangement related to the Target Company and that upon Closing, the Available Cash Amount will equal or exceed US$1.8 million. Based on information from the Vendor, the Target Company's Available Cash Amount as of January 31, 2021 exceeds US$1.8 million;

• (b) The Pre-Closing Audit has been fully completed and the Reviewing Accountant has not expressed any qualified opinion, adverse opinion, or disclaimer of opinion in respect of the Target Company's consolidated financial statements; and

• (c) In the event that the Acquisition constitute a major transaction under Chapter 14 of the Listing Rules, the Company has published the circular as required by the Listing Rules.

As at the Latest Practicable Date, condition (a) is expected to be fulfilled upon Closing, condition (b) and condition (c) will be fulfilled upon publication of this circular.

Closing

Closing shall take place on the last business day of the month in which all the conditions precedent are satisfied or such other dates as the Vendor and the Company may mutually agree. Upon Closing, the Target Company will become a wholly owned subsidiary of the Company.

Termination

If the Vendor or the Company may reasonably anticipate that the conditions precedent will not be satisfied by the Longstop Date or agrees that the conditions precedent have become impossible to satisfy on or before the Longstop Date, the parties may discuss in good faith how to satisfy (or otherwise resolve or deal with) the outstanding conditions precedent, including the likely timing required to satisfy the outstanding conditions precedent and whether the Longstop Date should be extended.

The Agreement may be terminated by the Vendor or the Company if one or more of the conditions precedent to the Acquisition remains unsatisfied on the Longstop Date or it becomes impossible for Closing to take place on or before the Longstop Date due to the unfulfillment of any conditions. In such event the Vendor shall repay the Bridging Loan Amount to the Company in accordance with the Bridging Loan Deed.

III. EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

For illustrative purpose only, set out below is a summary of the shareholdings in the Company (i) as at the Latest Practicable Date; and (ii) immediately after allotment and issuance of the Consideration Shares (assuming there is no other change in the shareholding structure of the Company from the Latest Practicable Date):

Immediately after allotment
and issuance of the Consideration
Shares (assuming there is no
other change in the shareholding
As of the	structure of the Company from
Latest Practicable Date	the Latest Practicable Date)
Approximate %
No. of of total Shares	No. of of total Shares
Shares held in issue	Shares held in issue

Approximate %

Directors and substantial

Shareholders

Mao Chen Cheney (Note 1

and 3)	282,043,527	14.72%	282,043,527	14.65%
Mao Jun (Note 2 and 3)	213,654,900	11.15%	213,654,900	11.10%
Mao Investment Trust
(Note 3)	200,000,000	10.44%	200,000,000	10.39%
Wu John Jiong (Note 4)	233,762,092	12.20%	233,762,092	12.14%
Hua Fengmao (Note 5)	130,096,166	6.79%	130,096,166	6.76%
Wu Ying (Note 6)	20,664,627	1.08%	20,664,627	1.07%
Ren Delin (Note 7)	9,553,317	0.50%	9,553,317	0.50%
Other shareholders
Other Public	826,543,806	43.13%	826,543,806	42.94%
Vendor (Note 8)	-	-	8,654,685	0.45%
Total	1,916,318,435	1,924,973,120

Note 1: Mr. Mao Chen Cheney is the settlor and trustee of the Mao Investment Trust and is interested in the Shares held by him in his capacity as trustee of the Mao Investment Trust and his interest in Mao Investment Trust is reflected under a separate row below. Also Mr. Mao is the investment manager of the Min Zhou 2018 Family Trust and the manager of MZFT, LLC who exercises the voting rights of the Shares directly held by MZFT, LLC. Mr. Mao is also a beneficiary of Min Zhou 2018 Family Trust, CCMFT Trust Scheme and The Chen Mao Charitable Remainder Trust. Mr. Mao Chen Cheney is the spouse of Ms. Zhou Min. Under the Securities and Futures Ordinance (Cap. 571), they are deemed to be interested in the same number of Shares in which the other person is interested in. Mr. Mao Chen Cheney is also interested in the Shares that has been lent to J.P. Morgan Securities plc pursuant to a securities lending agreement dated December 17, 2020.

Note 2: Each of Mao and Sons Limited, and Zhang and Sons Limited is indirectly wholly-owned by Intertrust (Singapore)

Ltd. as the trustee of the Z&M Trust (whose interest is held through Z&M International Holdings Limited). Each of JL and JSW Holding Limited, TIANL Holding Limited and VVBI Limited is indirectly wholly-owned by Intertrust (Singapore) Ltd. as the trustee of the VVBI Trust (whose interest is held through VVBI Holdings Limited). Each of the Z&M Trust and the VVBI Trust is a revocable family trust set up by Ms. Mao Jun as settlor and protector. Ms. Mao Jun is also a beneficiary of the relevant family trusts. Therefore, Ms. Mao Jun is deemed to be interested in the Shares directly held by each of Mao and Sons Limited, Zhang and Sons Limited, JL and JSW Holding Limited, TIANL Holding Limited and VVBI Limited. Ms. Mao Jun is also a beneficiary of Mao Investment Trust and her interest in Mao Investment Trust is reflected under a separate row below.

Note 3: Mr. Mao Chen Cheney and Ms. Mao Jun are both also interested in the Shares held by Mao Investment Trust and such interest are reflected as a separate row to their other interest in the Shares, please refer to Note 1 and Note 2 above for details.

Note 4: Mr. John Wu Jiong holds 100.00% equity interest in each of Fenghe Harvest Ltd and Wu and Sons Limited. In addition, Mr. John Wu Jiong holds 45.00% equity interest in Fenghe Canary Limited. Therefore, Mr. John Wu Jiong is deemed to be interested in the Shares directly held by Fenghe Harvest Ltd, Wu and Sons Limited and Fenghe Canary Limited. Mr. John Wu Jiong is also interested in the Shares that has been lent to J.P. Morgan Securities plc pursuant to a securities lending agreement dated December 17, 2020.

Note 5:	Mr. Hua Fengmao holds 100.00% equity interest in China Finance Strategies Investment DB Limited. Therefore,
Mr. Hua Fengmao is deemed to be interested in the Shares directly held by China Finance Strategies Investment DB
Limited.
Note 6:	Mr. Wu Ying is the spouse of Ms. Zhao Huixin. Under the Securities and Futures Ordinance (Cap. 571), Mr. Wu
Ying is deemed to be interested in the same number of Shares in which Ms. Zhao Huixin is interested in.
Note 7:	Mr. Ren Delin is a beneficiary of Vivastar Trust Scheme.

Note 8: Representing the maximum amount of Consideration Shares that the Vendor will be entitled pursuant to the

Agreement, the Company may elect to issue part of the Consideration Shares or no Consideration Shares at all.

IV. INFORMATION OF THE TARGET COMPANY

The Target Company is a contract research organization for R&D of new preclinical small molecule drugs which mainly provides high-end pharmaceutical chemistry and synthetic chemistry services to its clients. The Target Company is headquartered in Hong Kong and has service platforms in Suzhou, Shanghai and Australia. It generates revenue mainly from customers in the United States, Australia and the United Kingdom, and has established branches in these regions for project management and business expansion. The Target Company's senior science management team comprises international and professional talents with extensive experience in drug development. As of December 31, 2019, the Target Company has over 200 employees and serves over 250 pharmaceutical and biopharmaceutical companies worldwide.

Financial information of the Target Company

For financial information of the Target Company, please refer to Appendix III and Appendix IV to this circular.

V. REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is an integrated drug discovery platform in the PRC and is principally engaged in providing structure-based drug discovery services to the biotechnology and pharmaceutical customers worldwide for their pre-clinical stage innovative drug development. The Company plans to invest in suitable acquisition targets to enhances its R&D capabilities and expand its base of global biotechnology and pharmaceutical customers. The Company believes that this will help its customers to further improve on their business efficiencies and will enhance the Group's market competitiveness.

Capture the potential growth of CRO market

According to Frost & Sullivan1, the markets for CRO and CMO services have significant market potentials, the size of both CRO and CMO markets in China are expected to double in 2022 as compared to 2017.

The Acquisition will enable the Group to acquire an established CRO platform focusing on synthetic and medicinal chemistry of small molecules with solid track record and reputation, while saving time and avoiding unexpected cost and uncertainty arising from developing its own platform. The Board considers that this is a good fit with the Group's present core expertise and presents a good opportunity to further expand and develop in the CRO market.

Potential synergy with and diversification of the Group's existing businesses

The Board considers that the Acquisition will enable the Group to further strengthen and diversify its drug research and development capabilities with additional quality talents and facilities. The Target Company has over 250 customers that are primarily from the United States of America, Australia and Europe, which is expected to further diversify the Group's customer base both in terms of quantity of customers as well as the geographical composition of such customers, reducing the Group's reliance on any particular customers or customers from a particular geographical region. The Board expects that the increase in the enlarged Group's customer base upon completion of the Acquisition will increase the business development competencies for the Group's various services.

The Board also expects the Target Company's businesses to create synergy and further supplement with the Group's existing businesses, enhancing the Group's capabilities to downstream business expansions. The Target Company's capabilities will also allow the Group to quickly strengthen and provide broadened and improved services to its existing and prospective clients, strengthening the Group's market competitiveness.

Having considered the above, the Directors believe that the Acquisition as well as the terms of the Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

1

As disclosed on page 86 of the Company's prospectus dated April 25, 2019.

Financial effect of the Acquisition

Following Closing, the Target Company will become a wholly-owned subsidiary of the Company and its financial results will be consolidated into the Group's consolidated financial statements.

As set out in Appendix V - Unaudited Pro Forma Financial Information of the Enlarged Group of this circular, the Group's net asset would decrease from approximately RMB1,940 million to RMB1,937 million for the six months ended June 30, 2020 had the Acquisition been completed on June 30, 2020.

The Target Company has recorded a revenue of RMB50.4 million, RMB72.6 million, RMB94.1 million and RMB67.1 million for each of the three years ended December 31, 2019 and the eight months ended August 31, 2020. It is expected that the Group's revenue will increase by the revenue recorded by the Target Company as its results will be consolidated into that of the Group.

VI. INFORMATION OF THE GROUP AND THE VENDOR

The Group

The Company is incorporated in the Cayman Islands with limited liability and its Shares are listed on the Main Board of the Stock Exchange. The Group is an integrated drug discovery platform in the PRC.

None of the Directors has any material interest in the Agreement and the transactions contemplated thereunder and therefore, none of them has abstained from voting on the Board resolution(s) which approved the Agreement and the transactions contemplated thereunder.

The Vendor

The Vendor is the parent company of the Target Company and owns 100% of the Target Company's equity interest as at the date of the Agreement. After Closing, the Target Company will cease to be part of the Vendor's group and the Vendor will retain certain drug discovery and development businesses.

To the best of the Directors' knowledge, as at the date of this circular, on a fully diluted basis, the shareholding structure of the Vendor is as follows: (i) 35.34% of the Vendor's shares are held by McFarlan Bewley Pty Ltd, which is ultimately controlled by Prof. Andrew F. Wilks (executive chairman of the Vendor); and (ii) 20.45% of the Vendor's shares are held by Dr. Xianyong Bu as trustee of the Bu Family Trust, which is ultimately controlled by Dr. Xianyong Bu (director of the Vendor and managing director of the Target Company). The remaining shareholding interest of the Vendor are held by 18 other shareholders each holding less than 5% of the Vendor's interest on a fully diluted basis.

To the best of the Directors' knowledge, information and belief having made all reasonable

enquiry, as at the date of this circular, each of the Vendor and its respectively ultimate beneficial

owners mentioned above is a third party independent of the Company and connected persons of the

Company.

VII. LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio (as defined under the Listing Rules) for the Acquisition exceeds 25% but all of the applicable percentage ratios are less than 100%, the Acquisition constitutes a major transaction of the Company under Chapter 14 of the Listing Rules, and is therefore subject to the reporting, announcement, circular and Shareholders' approval requirements under Chapter 14 of the Listing Rules.

As far as the Company is aware, having made all reasonable enquiries, no Shareholder has a material interest in, and would be required to abstain from voting on the resolution to approve the Acquisition if the Company were to convene a general meeting to approve of the Acquisition.

The Company has received written Shareholders' approval in respect of the Acquisition from the Allied Group of Shareholders which holds approximately 56.04% of the Shares as of the date of the Agreement in accordance with Rule 14.44 of the Listing Rules. Accordingly, no general meeting will be convened to approve the Acquisition.

VIII. MISCELLANEOUS

The English text of the circular shall prevail over the Chinese text for the purpose of interpretation.

Yours faithfully

By Order of the Board VIVA BIOTECH HOLDINGS

MAO Chen Cheney Chairman and Chief Executive Officer

FINANCIAL INFORMATION OF THE GROUP

The financial information and the management discussion and analysis on the Group for the years ended December 31, 2017 and December 31, 2018 is set out in the Prospectus. The financial information and the management discussion and analysis on the Group for the years ended December 31, 2019 is set out in the 2019 annual report of the Company. The financial information and the management discussion and analysis on the Group for the six months ended June 30, 2020 is set out in the 2020 interim report of the Company. The financial information and the management discussion and analysis on Langhua Pharmaceuticals, a non-wholly owned subsidiary of the Company that was acquired in November 2020 is set out in the Company circular dated October 16, 2020 (the "LH Circular") regarding such acquisition. Langhua Pharmaceutical is an integrated and comprehensive drug R&D and manufacturing company in Taizhou, Zhejiang Province which provides CDMO and commercialization services to its customers. For further details on the acquisition of Langhua Pharmaceutical, please refer to the LH Circular.

The hyperlinks to the Prospectus, the 2019 annual report of the Company and the 2020 interim results announcement are incorporated by reference into this circular. The aforementioned prospectus and annual reports of the Company are also available on the website of the Company (www.vivabiotech.com) and the website of Hong Kong Exchanges and Clearing Limited (http://www.hkexnews.hk).

• 1. Hyperlink to the Prospectus:https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0425/ltn20190425035.pdf

• 2. Hyperlink to the annual report of the Company for the year ended December 31, 2019:https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0428/2020042800774.pdf

• 3. Hyperlink to the interim report of the Company for the six months ended June 30, 2020:https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0928/2020092800585.pdf

• 4. Hyperlink to the LH Circular:https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1016/2020101601069.pdf

WORKING CAPITAL

As at the Latest Practicable Date, the Directors are of the opinion that taking into account the cash flows generated from operating activities, the financial resources available to the Enlarged Group including internally generated funds and existing uncommitted borrowing facilities from financial institutions, the working capital available to the Enlarged group is sufficient for the Enlarged Group's requirements for at least 12 months from the date of this circular.

STATEMENT OF INDEBTEDNESS

The following table sets out the breakdown of the financial indebtedness of the Enlarged Group at the date included:

As at
January 6, 2021
RMB'000
Non-current
Unsecured and guaranteed convertible bonds (a)	1,642,297
Secured and guaranteed bank loans (b)	1,306,000
Secured and unguaranteed bank loans (c)	786
Unsecured and unguaranteed lease liabilities	26,163
2,975,246
Current
Secured and guaranteed bank loans (b)	130,000
Secured and unguaranteed bank loans (c)	554
Unsecured and unguaranteed bank loans	25,000
Unsecured and unguaranteed lease liabilities	12,483
168,037
Total	3,143,283
Notes:

• (a) On February 11, 2020, Viva Incubator Investment Management Limited ("Viva Incubator HK"), an indirectly wholly-owned subsidiary of the Company, issued a five-year 2.5% convertible bonds with an aggregate principal amount of US$180 million. On December 30, 2020, Viva Biotech Investment Management Limited ("Viva Biotech Investment"), an indirectly wholly-owned subsidiary of the Company, issued a five-year 1% convertible bonds with an aggregate principal amount of US$280 million. Both of the convertible bonds are guaranteed by the Company. As at the closing of business on January 6, 2021, the debt components and embedded derivative components of the convertible bonds amounted to approximately RMB1,642 million.

• (b) As at January 6, 2021, the bank loans bear an interest rate of the one-year loan prime rate plus 50 base points, that is, at 4.35% per annum and is pledged by a certain deposit of the Enlarged Group as collateral and guaranteed by the Company.

• (c) As at January 6, 2021, the bank loans bear variable interest rate at 110% of the relevant benchmark interest rate published by the People's Bank of China, that is, at 5.39% per annum and is pledged by a certain property of the Enlarged Group as collateral.

Save as aforesaid, and apart from intra-group liabilities, as at the close of business on January 6, 2021, the Enlarged Group did not have any other outstanding mortgages, charges, debentures, loan capital, bank loans or overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance creditors, guarantees, or other material contingent liabilities.

MATERIAL ADVERSE CHANGE

Saved as disclosed in the Company's interim report for the six months ended June 30, 2020 dated September 28, 2020, there had been no material adverse change in the financial and trading position or outlook of the Company since December 31, 2019, being the date to which the latest published audited consolidated financial statements of the Company were made up, up to and including the Latest Practicable Date.

Set out below are the management discussion and analysis of the Group as extracted from the Prospectus for each of the two years ended December 31, 2017 and 2018, the annual reports (the "Annual Report") of the Company for the years ended December 31, 2019 and the interim results announcement for the six months ended June 30, 2020 (the "Management Discussion and Analysis"). Terms used below shall have the same meanings as those defined in the Management Discussion and Analysis.

FOR THE YEAR ENDED DECEMBER 31, 2017

Revenue

Our revenue increased by 53.6% from RMB96.5 million for the year ended December 31, 2016 to RMB148.2 million for the year ended December 31, 2017, primarily due to the growing demand for drug discovery outsourcing services from both established pharmaceutical and biotechnology companies and newly established biotechnology companies with limited in-house research and development capabilities. Leveraging our proprietary technology platforms and deep industry experience, we were able to win new projects from existing customers and attract new customers, in particular those headquartered in China. We provided drug discovery services to 117 customers in 2017, as compared to 107 customers in 2016.

For the year ended December 31, 2017, our revenue contributed by our FTE, FFS and SFE customers represented approximately 48.8%, 40.0% and 11.2% of our total revenue, respectively, as compared to 67.3%, 30.6% and 2.1%, respectively, of our total revenue for the year ended December 31, 2016.

Cost of Services

Our cost of services increased by 46.8% from RMB42.3 million for the year ended December 31, 2016 to RMB62.1 million for the year ended December 31, 2017, primarily due to the growing demand for drug discovery outsourcing services from our customers.

Our cost of raw materials increased by 14.8% from RMB14.9 million for the year ended December 31, 2016 to RMB17.1 million for the year ended December 31, 2017, primarily due to an increase in the demand for our services.

Our direct labor costs increased by 69.5% from RMB14.1 million for the year ended December 31, 2016 to RMB23.9 million for the year ended December 31, 2017, primarily because (i) the employee headcount of our business units increased as a result of an increase in the demand for our services, and (ii) the average salary and compensation package of our employees increased in 2017.

Our overhead increased by 59.5% from RMB11.6 million for the year ended December 31, 2016 to RMB18.5 million for the year ended December 31, 2017, primarily due to an increase in our rent payment and an increase in depreciation and amortization in connection with our lab equipment.

Gross Profit and Gross Profit Margin

Our gross profit increased by 59.3% from RMB54.1 million for the year ended December 31, 2016 to RMB86.2 million for the year ended December 31, 2017. Our gross profit margin increased from 56.1% for the year ended December 31, 2016 to 58.1% for the year ended December 31, 2017, primarily because we recognized RMB34.1 million in revenue in 2017 from a major customer which included a RMB14.0 million milestone bonus and led to higher margin.

Other Income

Our other income decreased by 9.9% from RMB7.1 million for the year ended December 31, 2016 to RMB6.4 million for the year ended December 31, 2017, primarily due to (i) a RMB0.9 million decrease in other interest income in connection with and a related party loan, the principal had been repaid in full in 2017, and (ii) a RMB0.2 million decrease in government grants received by us in 2017.

Other Gains and Losses

Our other gains and losses increased from RMB1.8 million for the year ended December 31, 2016 to RMB19.0 million for the year ended December 31, 2017, primarily attributable to a RMB20.4 million deemed disposal of interests in an associate for the year ended December 31, 2017 due to the deemed disposal of our equity interest in Shanghai Epican Gene Technology Co., Ltd., partially offset by a net foreign exchange losses of RMB1.2 million in 2017.

Research and Development Expenses

Our research and development expenses increased from RMB16.8 million in 2016 to RMB17.3 million in 2017, which reflected our continuous investment in the development of our proprietary drug discovery technologies.

Selling and Marketing Expenses

Our selling and marketing expenses increased by 42.9% from RMB1.4 million for the year ended December 31, 2016 to RMB2.0 million for the year ended December 31, 2017, primarily because we expanded our sales and marketing team, and actively participated in more conferences, trade exhibitions and other marketing activities in the United States in 2017.

Administrative Expenses

Our administrative expenses increased by 18.8% from RMB12.8 million for the year ended December 31, 2016 to RMB15.2 million for the year ended December 31, 2017, primarily due to an increase in our administrative staff costs. Our administrative staff costs increased by 24.6% from RMB5.7 million for the year ended December 31, 2016 to RMB7.1 million for the year ended December 31, 2017, primarily attributable to an increase in the headcount of our administrative personnel in light of the growth of our business.

Fair Value Gain on Financial Assets at FVTPL

Our fair value gain on financial assets at FVTPL increased from nil for the year ended December 31, 2016 to RMB14.7 million for the year ended December 31, 2017, primarily due to (i) a RMB5.4 million increase in fair value of the equity interest in Flash Therapeutics, LLC held by us and (ii) a RMB4.1 million increase in fair value of the equity interest in Arthrosi Therapeutics, Inc. held by us.

Share of loss of associates

Our share of loss of associates increased by 71.4% from RMB1.4 million for the year ended December 31, 2016 to RMB2.4 million for the year ended December 31, 2017. The increase in our share of loss of associates was primarily attributable to the increased losses as we acquired equity interest in, and shared the losses of, one additional associate in 2017.

Share of loss of joint ventures

Our share of loss of joint ventures decreased by 19.0% from RMB2.1 million for the year ended December 31, 2016 to RMB1.7 million for the year ended December 31, 2017. The decrease in our share of loss of joint ventures was primarily because our share of losses of one of our joint venture had exceeded our interest in such joint venture, and therefore we discontinue recognizing our share of its further losses in 2017.

Finance Cost

Our finance cost increased from RMB0.2 million for the year ended December 31, 2016 to RMB0.9 million for the year ended December 31, 2017, primarily due to the increased interest expense in connection with our related party loan for our equity investment in two of our incubation portfolio companies.

Income Tax Expense

Our income tax expense increased by 171.8% from RMB3.9 million for the year ended December 31, 2016 to RMB10.6 million for the year ended December 31, 2017, primarily due to an increase in PRC enterprise income tax. Our PRC enterprise income tax increased significantly from RMB4.4 million for the year ended December 31, 2016 to RMB10.7 million for the year ended December 31, 2017, primarily due to the growth of our business and the gains on deemed disposal of our equity interest in Shanghai Epican Gene Technology Co., Ltd. In addition, our effective income tax rate decreased from 13.9% for the year ended December 31, 2016 to 12.2% for the year ended December 31, 2017, primarily due to an increase in income not taxable for tax purpose in 2017.

Profit and Total Comprehensive Income for the Year and Net Profit Margin

As a result of the foregoing, our profit and total comprehensive income for the year increased significantly by 211.4% from RMB24.5 million for the year ended December 31, 2016 to RMB76.3 million for the year ended December 31, 2017. Our net profit margin increased from 25.4% for the year ended December 31, 2016 to 51.4% for the year ended December 31, 2017, primarily due to the fair value gains from our incubation portfolio companies and deemed disposal of interests in our associates and joint ventures.

FOR THE YEAR ENDED DECEMBER 31, 2018

Revenue

Our revenue increased by 41.7% from RMB148.2 million for the year ended December 31, 2017 to RMB210.0 million for the year ended December 31, 2018, primarily due to the growing demand for drug discovery outsourcing services from both pharmaceutical and biotechnology companies and newly established biotechnology companies with limited in-house research and development capabilities. For the year ended December 31, 2018, our revenue contributed by our FTE, FFS and SFE customers represented approximately 71.9%, 18.4% and 9.7% of our total revenue, respectively, as compared to 48.8%, 40.0% and 11.2%, respectively, of our total revenue for the year ended December 31, 2017. We expect our total revenue will continue to grow in the coming year and the revenue contributed by EFS customers as a percentage to our total revenue will increase as we gradually shift our focus to the EFS model.

Cost of Services

Our cost of services increased by 68.5% from RMB62.1 million for the year ended December 31, 2017 to RMB104.6 million for the for the year ended December 31, 2018, primarily due to overall expansion of our business.

Our cost of materials increased by 45.2% from RMB17.1 million for the year ended December 31, 2017 to RMB24.8 million for the year ended December 31, 2018, primarily due to the overall expansion of our business.

Our direct labor costs increased by 120.7% from RMB23.9 million for the year ended December 31, 2017 to RMB52.8 million for the year ended December 31, 2018, primarily due to the increased demand for our drug discovery services from our customers and increasing headcount and salary of our employees.

Our overhead increased by 7.6% from RMB18.5 million for the year ended December 31, 2017 to RMB19.9 million for the year ended December 31, 2018, primarily due to the increase in depreciation of our property, plant and equipment.

Gross Profit and Gross Profit Margin

Our gross profit increased by 22.4% from RMB86.2 million for the year ended December 31, 2017 to RMB105.5 million for the year ended December 31, 2018. Our gross profit margin decreased from 58.1% for the year ended December 31, 2017 to 50.2% for the year ended December 31, 2018, primarily because we significantly expanded our R&D team from 219 to 417 technicians, which increased our direct labor costs. In addition, we recognized RMB32.2 million in revenue in 2017 from the largest customer which included a RMB14.0 million milestone bonus, resulting in a higher margin.

Other Income

Our other income decreased by 26.6% from RMB6.4 million for the year ended December 31, 2017 to RMB4.7 million for the year ended December 31, 2018, primarily due to a decrease in our government grant income of RMB1.9 million received during the year ended December 31, 2018.

Other Gains and Losses

We recorded net other gains of RMB30.9 million for the year ended December 31, 2018, representing a 62.6% increase from RMB19.0 million for the year ended December 31, 2017, primarily due to a RMB14.6 million net foreign exchange gain recorded in 2018 as compared to a RMB1.2 million net foreign exchange loss recorded in 2017.

Research and Development Expenses

Our research and development expenses increased by 46.2% from RMB17.3 million for the year ended December 31, 2017 to RMB25.3 million for the year ended December 31, 2018, primarily due to a RMB7.0 million increase in the salary expenses for our R&D staffs.

Selling and Marketing Expenses

Our selling and marketing expenses increased by 95% from RMB2.0 million for the year ended December 31, 2017 to RMB3.9 million for the year ended December 31, 2018, primarily because we expanded our sales and marketing team in the second half of 2017, and actively participated in conferences, trade exhibitions and other marketing activities in the United States.

Administrative Expenses

Our administrative expenses increased by 68.4% from RMB15.2 million for the year ended December 31, 2017 to RMB25.6 million for the year ended December 31, 2018, primarily due to a RMB4.0 million increase in our share-based compensation expenses as well as a RMB1.5 million in salary expenses as our headcounts and salary level increased in 2018.

Fair Value Gain on Financial Assets at FVTPL

Our fair value gain on financial assets at FVTPL increased from RMB14.7 million for the year ended December 31, 2017 to RMB68.3 million for the year ended December 31, 2018, primarily due to (i) additional equity interests in nine incubation portfolio companies acquired by us in 2018 and (ii) increases in fair values of equity interests held by us in Anji pharmaceuticals Inc., Epican Technology Limited and Bonti Inc.

Share of loss of associates

Our share of loss of associates decreased by 29.2% from RMB2.4 million for the year ended December 31, 2017 to RMB1.7 million for the year ended December 31, 2018. The decrease in our share of loss of associates was primarily because we disposed half of the equity interest held by us in QureBio Limited in 2018, and therefore we shared less losses of such associate in 2018.

Share of loss of joint ventures

Our share of loss of joint ventures slightly decreased from RMB1.7 million for the year ended December 31, 2017 to RMB1.5 million for the year ended December 31, 2018. The accounting treatment of Weimou Biotech (Shanghai) Ltd., one of our joint ventures, changed from equity method to fair value through profit or loss in 2018 as we ceased to have significant influence over Weimou. As a result, we did not share the losses of Weimou for the year ended December 31, 2018. In addition, we disposed the equity interest held by us in Sichuan Good Doctor Biotech Ltd. in 2018, and therefore we shared less losses of such joint venture in 2018.

Finance Cost

Our finance cost slightly decreased from RMB0.9 million for the year ended December 31, 2017 to RMB0.6 million for the year ended December 31, 2018, primarily due to the decreased interest expense in connection with our repayment of our related party loan.

Fair Value Loss on Financial Liabilities at FVTPL

We recorded fair value loss on financial liabilities at FVTPL of RMB20.7 million in 2018, which represented changes in fair value of the series B convertible redeemable preferred shares issued by us in connection with our pre-IPO financing.

Income Tax Expense

Our income tax expense increased by 44.3% from RMB10.6 million for the year ended December 31, 2017 to RMB15.3 million for the year ended December 31, 2018, primarily due to our increased profit before tax. In addition, our effective income tax rate increased from 12.2% for the year ended December 31, 2017 to 14.5% for the year ended December 31, 2018, primarily due to an increase in expenses not deductible for tax purpose.

Profit and Total Comprehensive Income for the Year and Net Profit Margin

As a result of the foregoing, our profit and total comprehensive income for the year increased from RMB76.3 million for the year ended December 31, 2017 to RMB90.6 million for the year ended December 31, 2018. Our net profit margin decreased from 51.4% for the year ended December 31, 2017 to 43.1% for the year ended December 31, 2018, primarily due to a significant increase in our cost of sales in 2018 along with our rapid expansion, as well as the impact resulted from the share based compensation expenses in 2018.

FOR THE YEAR ENDED DECEMBER 31, 2019

Revenue

The Group's revenue in the Reporting Period was approximately RMB323.1 million, representing an increase of 53.9% as compared to approximately RMB210.0 million in the year ended December 31, 2018, primarily reflecting the Group's business growth.

During the Reporting Period, revenue generated from the Group's CFS and EFS models reflected revenue generated from services to our non-investee and investee customers, respectively. The following table sets forth a breakdown of the Group's revenue by respective charge models during the Reporting Period and the corresponding period last year.

Year ended December 31,

2019	2018
RMB'000	RMB'000
Revenue from services to non-investees (CFS model):
- Full-time-equivalent ("FTE")	181,009	117,358
- Fee-for-service ("FFS")	64,548	37,317
245,557	154,675
Revenue from services to investees (EFS model):
- FTE	31,902	33,593
- FFS	1,936	1,365
- Service-for-equity ("SFE")	43,662	20,400
77,500	55,358
323,057	210,033

While the Group's operation are located in China, it has a global customer base with a majority of our customers located in the USA. An analysis of the Group's revenue from customers, analyzed by their respective country/region of operation is detailed below:

Year ended December 31,

2019	2018
RMB'000	RMB'000
Revenue
- USA	243,592	160,723
- PRC	74,477	48,223
- Europe	1,802	676
- Rest of the world	3,186	411
323,057	210,033

The increase of revenue in the Reporting Period as compared to the corresponding period last year was primarily due to an increase in the revenue of the Group's customers headquartered in the USA and China. This was mainly due to increases in the number of customers as well as customer orders.

Cost of Services

Cost of services primarily consists of direct labor costs, cost of materials and overhead. Direct labor costs primarily consist of salaries, bonus, welfare, social security costs and share-based compensation for our R&D talents, excluding the costs allocated to research and development expenses, as well as those capitalized in contract costs. Cost of services in the Reporting Period was approximately RMB167.2 million, representing an increase of 59.8% as compared to approximately RMB104.6 million in the year ended December 31, 2018. The increase was in line with the Group's business growth.

Gross Profit and Gross Profit Margin

During the Reporting Period, the Group's gross profit was approximately RMB155.9 million, representing an increase of 47.8% as compared to approximately RMB105.5 million in the year ended December 31, 2018. The increase was in line with the Group's business growth. Gross margin was 48.3% for the Reporting Period, as compared to 50.2% for the year ended December 31, 2018. The minor decrease was primarily due to an increase in labor costs as a result of increase in the number of R&D personnel.

Other Income

Other income consists of interest income, government grant and subsidies. The Group's other income was approximately RMB20.9 million for the Reporting Period, representing an increase of 344.7% as compared to approximately RMB4.7 million in the year ended December 31, 2018. The increase was primarily due to an increase in interest income as a result of an increase in cash and cash equivalents.

Other Gains and Losses

Other gains and losses consist primarily of net foreign exchange gain or loss, gain or loss on disposal of property, plant and equipment, gain on deemed disposal of interests in associates, gain on deemed disposal of interests in a joint venture, gain on disposal of interests in an associate, gain on disposal of interest in a joint venture and others. During the Reporting Period, the Group recorded a gain of approximately RMB44.4 million in other gains and losses, representing an increase of 43.2% as compared to approximately RMB31.0 million in the year ended December 31, 2018. The increase was primarily due to an increase in foreign exchange gain.

Research and Development Expenses

Research and development expenses mainly consist of labor costs, cost of materials, overhead costs and fees paid to third parties that conduct certain research and development activities on our behalf. During the Reporting Period, the Group's research and development expenses were approximately RMB45.0 million, representing an increase of 77.9% as compared to approximately RMB25.3 million in the year ended December 31, 2018. The increase was primarily due to an increase in the number of R&D personnel.

Selling and Marketing Expenses

Selling and marketing expenses primarily consists of staff cost, travelling expenses and others. During the Reporting Period, the Group's selling and marketing expenses were approximately RMB3.6 million, representing a slight decrease of 7.7% as compared to approximately RMB3.9 million in the year ended December 31, 2018. The decrease was primarily due to a decrease in third-party consulting fee.

Administrative Expenses

Administrative expenses primarily consists of administrative staff costs, audit and consultancy fees, office administration expense, rental, depreciation, travelling and transportation expenses and others. During the Reporting Period, the Group's administrative expenses were approximately RMB51.2 million, representing an increase of 100.0% as compared to approximately RMB25.6 million in the year ended December 31, 2018. The increase primarily reflected expansion of the Group's incubation team and an increase in third party consultation fee to enhance operating efficiency.

Listing Expenses

Listing expenses reflected professional service fees related to the Global Offering and the listing of the Company. The Group recorded listing expenses of approximately RMB17.9 million for the Reporting Period, as compared to approximately RMB24.3 million for the year ended December 31, 2018.

Fair Value Gain on Financial Assets at Fair Value through Profit or Loss ("FVTPL")

The Group's EFS model features sharing of the upside of our customers' IP values, which is primarily reflected by the gains from the fair value change of the equity interest in the Group's incubation portfolio companies. Such fair value gains are recorded as FVTPL in the Group's financial statements. The Group has engaged Valuelink, an independent professional appraisal firm, to assess and determine the fair value of our financial assets as at December 31, 2018 and 2019.

The Group recorded gains arising from financial assets designated at FVTPL of approximately RMB217.6 million for the Reporting Period, mainly including (i) gain from investment in bank wealth management products of RMB4.9 million; (2) gain from fair value change of investment companies of RMB212.7 million, primarily reflecting the increase in the fair value of the Group's equity interest in three incubation portfolio companies, Proviva Therapeutics, Inc, Weimou Biotech (Shanghai) Ltd. and Liangzhun (Shanghai) Industrial Co., Ltd., as compared to approximately RMB68.3 million for the year ended December 31, 2018, primarily reflecting the increase in fair value of the Group's equity interest in three incubation portfolio companies, Epican Technology Limited, Anji Pharmaceuticals, Inc. and Bonti, Inc.

Impairment Losses under Expected Credit Model, Net of Reversal

Impairment losses under expected credit model, net of reversal reflects impairment loss on trade receivables. The Group recorded impairment losses of approximately RMB1.8 million for the Reporting Period, as compared to approximately RMB0.1 million of impairment losses for the year ended December 31, 2018.

Share of Loss of Associates

For the Reporting Period, the Group recorded share of loss of associates of approximately RMB34 thousand, as compared to approximately RMB1.7 million for the year ended December 31, 2018. The decrease primarily represented the Group's decreased share of loss in one of its incubation portfolio companies, QureBio Limited.

Share of Loss of Joint Ventures

For the Reporting Period, the Group recorded share of loss of joint ventures of approximately RMB1.9 million, as compared to approximately RMB1.5 million for the year ended December 31, 2018. The increase primarily represented the Group's increased share of loss in one of its incubation portfolio companies, Jiaxing Youbo Biotech Co., Ltd.

Finance Cost

Finance cost primarily consists of interest expenses on loans from banks and related parties. For the Reporting Period, the Group's finance cost was approximately RMB2.3 million, representing an increase of 283.3%, as compared to approximately RMB0.6 million for the year ended December 31, 2018. The increase was mainly due to an approximately RMB2.0 million increase in rental interest liabilities as the Group applied IFRS 16 for the first time during the Reporting Period.

Fair Value Loss on Financial Liabilities at FVTPL

Fair value loss on financial liabilities at FVTPL represents changes in fair value of the series B convertible redeemable preferred shares (the "Series B Preferred Shares") in connection with the Company's pre-IPO financing. For the Reporting Period, the Group recorded fair value loss on financial liabilities at FVTPL of approximately RMB34.2 million, as compared to approximately RMB20.7 million for the year ended December 31, 2018.

Income Tax Expense

The Group's income tax expense for the Reporting Period was approximately RMB15.1 million, representing a decrease of 1.3% from approximately RMB15.3 million for the year ended December 31, 2018. In addition, our effective income tax rate decreased from 14.4% for the year ended December 31, 2018 to 5.4% for the year ended December 31, 2019, primarily due to an increase in gain not subject to income tax.

Net Profit and Net Profit Margin

As a result of the foregoing, the Group's net profit for the Reporting Period was approximately RMB265.9 million, representing an increase of 193.5% as compared to RMB90.6 million for the year ended December 31, 2018. Our net profit margin increased from 43.1% for the year ended December 31, 2018 to 82.3% for the year ended December 31, 2019, primarily due to mutual contribution of CFS business and EFS business to achieve increased business volume and disposal of certain equity interests.

Liquidity, Financial Resources and Gearing Ratio

As at December 31, 2019, the Group's total cash and cash equivalents amounted to approximately RMB904.1 million, representing an increase of 481.0% as compared to approximately RMB155.6 million as at December 31, 2018. Such increase was primarily attributable to the proceeds from the Global Offering. The Group maintains a strong cash position to meet potential needs for business expansion and development.

As at December 31, 2019, the Group had approximately RMB1.9 million of secured and unguaranteed bank loans, of which the principal and interest are repaid monthly and the loan will be matured in April 2023. As at December 31, 2019, the Group did not have any unutilized banking facilities. The Group intends to finance the expansion, investments and business operations with proceeds from the Global Offering and internal resources. As at December 31, 2019, the gearing ratio, calculated as total liabilities over total assets, was 6.4%, as compared with 52.5% as at December 31, 2018.

Significant Investment, Material Acquisitions and Disposals

As part of our overall business model of driving our EFS business, we regularly review early-stage startup projects, enter into incubation and investment agreements and recruit such companies as our incubator portfolio company. As at December 31, 2019, our financial assets primarily consist of our incubation portfolio companies. Proviva, one of our incubation portfolio company constituted a significant investment of the Group. On June 28, 2019, the Group entered into an agreement to acquire 35% shareholding interest of the fully diluted equity of Proviva for approximately US$12,560,753 (in a combination of US$10,000,000 cash and US$2,560,753 equity-for-service business). On December 31, 2019, the Group disposed of 4% shareholding interest of its 35% shareholding interest in the fully diluted equity of Proviva for a consideration of US$4,000,000. As of the date of the Annual Report, the transaction was completed. As of December 31, 2019, the transaction was still on-going and was recorded as a financial asset at fair value through profit or loss of the Group of approximately RMB240,678,000 representing approximately 12.68% of the Group's total asset as of December 31, 2019. The Group recorded a gain on fair value change of approximately RMB157,329,000 on its investment in Proviva for the Reporting Period.

Proviva is a company with a focus on the research and development of a pro-cytokine (Zitokine) fusion protein platform, for the treatment of cancer and infectious diseases. The Company's decision on investment in Proviva is mainly based on the founder's years of experience in new drug research and development, the innovation of the platform, its indications and broad market prospects. Meanwhile, the technical services required for Proviva's early-stage research and development are highly synergistic with the Company's leading technology platform. The Company will continue to pay attention to and regularly follow up on its research and development progress and financing needs, provide timely technical services within our capabilities, bridge industrial resources and investors, etc., and assist it in advancing its progress for pre-clinical and clinical trials. Based on the progress of its financing, the Company will continue to evaluate and make reasonable arrangements on partial exit of our equity interest.

Saved as disclosed in the Annual Report and the Prospectus, the Group did not make any material acquisitions or disposals of subsidiaries, associated companies or joint ventures and significant investment during the Reporting Period.

Pledge of Assets

As at December 31, 2019, a building with a carrying amount of approximately RMB5.3 million was pledged to secure borrowings of the Group.

Capital Expenditure and Commitments

For the Reporting Period, the Group's capital expenditure amounted to approximately RMB56.0 million, which was mainly used for construction of facilities and equipment purchases, as compared to approximately RMB42.5 million for the year ended December 31, 2018. The Group funded its capital expenditure with cash flow generated from its operations and partial proceeds from the Global Offering.

As of December 31, 2019, the Group has a capital commitment of RMB355.0 million as compared to the capital commitment of RMB346.3 million for the year ended December 31, 2018. The capital commitment was primarily attributable to an investment agreement entered between the Group and the People's Government of Wenjiang District of Chengdu to acquire land for new laboratories and production facilities. The Group intend to fund such capital expenditure with cash flow generated from its operation and partial proceeds from the Global Offering.

Contingent Liabilities

The Group had no material contingent liabilities as at December 31, 2019.

Future Plan for Material Investment and Capital Assets

Save as disclosed in the Prospectus, the Annual Report and other announcements published by the Company up to the date of the Annual Report, the Group does not have other plans for material investments and capital assets for Reporting Period and up to the date of the Annual Report.

Currency Risk

Certain entities in our Group have foreign currency sales and purchases, which exposes us to foreign currency risk. In addition, certain entities in our Group also have other payables and receivables which are denominated in currencies other than their respective functional currencies. We recorded a net foreign exchange gain of approximately RMB32.7 million and approximately RMB14.6 million for the Reporting Period and the year ended December 31, 2018, respectively. We are exposed to the foreign currency of U.S. dollars as part of our revenue was generated from sales denominated in U.S. dollars as well as deposits denominated in U.S. dollars. We purchased various bank foreign exchange wealth management products to hedge against our exposure to currency risk during the Reporting Period and up to the date of the Annual Report. Our management will continue to evaluate the Group's foreign exchange risk and take actions as appropriate to minimize the Group's exposure whenever necessary.

FOR THE SIX MONTHS ENDED JUNE 30, 2020

Revenue

The Group's revenue in the Reporting Period was approximately RMB197.6 million, representing an increase of 38.9% as compared to approximately RMB142.3 million in the corresponding period last year, primarily reflecting the Group's business growth.

During the Reporting Period, revenue generated from the Group's CFS and EFS models reflected revenue generated from services to our non-investee and investee customers, respectively. The following table sets forth a breakdown of the Group's revenue by respective charge models during the Reporting Period and the corresponding period last year.

For the six months ended June 30,

2020	2019
RMB'000	RMB'000
(Unaudited)	(Unaudited)
Revenue from services to non-investees (CFS model):
- Full-time-equivalent ("FTE")	118,102	79,781
- Fee-for-service ("FFS")	35,908	25,620
154,010	105,401
Revenue from services to investees (EFS model):
- FTE	13,924	12,330
- FFS	867	270
- Service-for-equity ("SFE")	28,756	24,340
43,547	36,940
197,557	142,341

While the Group's operations are located in China, it has a global customer base with a majority of our customers located in the USA. An analysis of the Group's revenue from customers, analyzed by their respective country/region of operation, is detailed below:

For the six months ended June 30,

2020	2019
RMB'000	RMB'000
(Unaudited)	(Unaudited)
Revenue
- USA	164,636	119,545
- PRC	26,989	22,135
- Europe	2,281	391
- Other Countries and Regions	3,651	270
197,557	142,341

The increase of revenue in the Reporting Period as compared to the corresponding period last year was primarily due to an increase in the revenue of the Group's customers headquartered in the USA and China. This was mainly due to increases in the number of customers as well as customer orders.

Cost of Services

Cost of services primarily consists of direct labor costs, cost of materials and overhead. Direct labor costs primarily consist of salaries, bonus, welfare, social security costs and share-based compensation for our R&D talents, excluding the costs allocated to research and development expenses, as well as those capitalized in contract costs. Cost of services in the Reporting Period was approximately RMB97.4 million, representing an increase of 38.2% as compared to approximately RMB70.5 million in the corresponding period last year. The increase was in line with the Group's business growth.

Gross Profit and Gross Profit Margin

During the Reporting Period, the Group's gross profit was approximately RMB100.1 million, representing an increase of 39.2% as compared to approximately RMB71.9 million in the corresponding period last year. The increase was in line with the Group's business growth. Gross margin was 50.7% for the Reporting Period, as compared to 50.5% for the corresponding period last year.

Other Income and Gains

Other income and gains consist primarily of interest income, government grants and subsidies, net foreign exchange gain, gain on deemed disposal of interests in an associate, gain on repurchase of Convertible Bonds, and gain on derivative financial instrument. During the Reporting Period, the Group recorded a gain of approximately RMB27.2 million, representing a decrease of 20.5% as compared to approximately RMB34.2 million in the corresponding period last year. The decrease was primarily due to an approximately RMB9.9 million decrease in gain on deemed disposal of interests in an associate.

Selling and Marketing Expenses

Selling and marketing expenses primarily consist of staff cost, travelling expenses and others. During the Reporting Period, the Group's selling and marketing expenses were approximately RMB2.0 million, representing a slight increase of by 11.1% as compared to approximately RMB1.8 million in the corresponding period last year. The increase was primarily due to an increase in business development fee.

Administrative Expenses

Administrative expenses primarily consist of administrative staff costs, audit and consultancy fees, office administration expense, rental, depreciation, travelling and transportation expenses and others. During the Reporting Period, the Group's administrative expenses were approximately RMB37.0 million, representing an increase of 65.2% as compared to approximately RMB22.4 million in the corresponding period last year. The increase was primarily due to the expansion of the Group's incubation team, together with an approximately RMB5.1 million increase in Convertible Bonds transaction costs relating to the embedded derivative components.

Research and Development Expenses

R&D expenses mainly consist of labor costs, cost of materials, overhead costs and fees paid to third parties that conduct certain R&D activities on our behalf. During the Reporting Period, the Group's R&D expenses were approximately RMB22.3 million, representing an increase of 42.9% as compared to approximately RMB15.6 million in the corresponding period last year. The increase was primarily due to the introduction of new technology platform such as Cryo EM, Computational Chemistry and HDX MS.

Fair Value Gain on Financial Assets at Fair Value through Profit or Loss ("FVTPL")

Fair value gain on FVTPL mainly consists of fair value gains from financial products issued by banks and the gains from the fair value change of the equity interests in the Group's incubation portfolio companies.

The Group's EFS model features sharing of the upside of our customers' IP values, which is primarily reflected by the gains from the fair value change of the equity interest in the Group's incubation portfolio companies. Such fair value gains are recorded as fair value gain on financial assets at FVTPL in the Group's financial statements. Except for Proviva Therapeutics, Inc, no individual equity interest in the Group's incubation portfolio companies accounted for more than 5% of the Group's total assets.

The Group recorded gains arising from fair value change of the equity interests in the Group's incubation portfolio companies designated at FVTPL of approximately RMB54.7 million for the Reporting Period, primarily reflecting the increase in the fair value of the Group's equity interest in three incubation portfolio companies, VersaChem, Inc., Mediar Therapeutics, Inc. and Anji Pharmaceuticals, Inc., as compared to approximately RMB48.2 million for the corresponding period last year, primarily reflecting the increase in fair value of the Group's equity interest in three incubation portfolio companies, Anji Pharmaceuticals, Inc., Weimou Biotech (Shanghai) Ltd. and Liangzhun (Shanghai) Industrial Co., Ltd.

The Group recorded a fair value gain from financial products issued by banks of approximately RMB12.0 million, as compared to nil in the corresponding period last year.

Impairment losses on financial assets, net

Impairment losses under expected credit model, net of reversal reflects impairment loss on trade receivables. The Group recorded impairment losses of approximately RMB0.4 million for the Reporting Period, representing a decrease of 69.2% as compared to approximately RMB1.3 million of impairment losses reversed for the corresponding period last year.

Finance Cost

Finance cost primarily consists of interest on Convertible Bonds, interest on lease liabilities and interest expenses on loans from banks. For the Reporting Period, the Group's finance cost was approximately RMB38.6 million, representing an increase of 4,188.9%, as compared to approximately RMB0.9 million for the corresponding period last year. The increase was mainly due to an approximately RMB37.8 million increase in interest of the debt components of the Convertible Bonds.

Share of Loss of a Joint Venture

For the Reporting Period, the Group recorded share of loss of a joint venture of approximately RMB0.3 million, as compared to approximately RMB0.9 million for the corresponding period last year. The decrease primarily represented the Group's decreased share of loss in one of its incubation portfolio companies, Jiaxing Youbo Biotech Co., Ltd.

Fair Value Loss on Financial Liabilities at FVTPL

Fair value loss on financial liabilities at FVTPL represents changes in fair value of the embedded derivative components of the Convertible Bonds. For the Reporting Period, the Group recorded fair value loss on financial liabilities at FVTPL of approximately RMB615.5 million, as compared to approximately RMB34.2 million for the corresponding period last year, which represents changes in fair value of the series B convertible redeemable preferred shares (the "Series B Preferred Shares") in connection with the Company's pre-IPO financing.

Income Tax Expense

The Group's income tax expense was approximately RMB7.9 million, representing a decrease of 37.8% from approximately RMB12.7 million for the corresponding period last year, primarily due to a decrease in fair value gain which subject to tax.

Net Profit and Net Profit Margin

As a result of the foregoing, the Group's net loss for the Reporting Period was approximately RMB530.3 million, as compared to a net profit of RMB46.5 million for the corresponding period last year. The decrease was primarily due to increase in fair value loss of the embedded derivative components of the Convertible Bonds.

The adjusted non-IFRS net profit of the Group increased 25.5% to approximately RMB123.7 million for the Reporting Period from approximately RMB98.6 million for the corresponding period last year. The adjusted non-IFRS net profit margin of the Group for the Reporting Period was 62.6%, compared to 69.3% for the corresponding period last year. The lower adjusted Non-IFRS net profit margin of the Group for the Reporting Period was primarily due to the rapid growth in our revenue, and the increase in the administrative expenses.

Liquidity and Financial Resources

As at June 30, 2020, the Group's total cash and cash equivalents amounted to approximately RMB1,521.3 million, representing an increase of 68.3% as compared to approximately RMB904.1 million as at December 31, 2019. Such increase was primarily attributable to the proceeds from the Convertible Bonds. The Group maintains a strong cash position to meet potential needs for business expansion and development.

As at June 30, 2020, current assets of the Group amounted to approximately RMB2,174.1 million, including a cash and cash equivalents of approximately RMB1,521.3 million. Current liabilities of the Group amounted to approximately RMB134.2 million, including bank borrowings of approximately RMB15.9 million.

As at June 30, 2020, the gearing ratio, calculated as total liabilities over total assets, was 42.4%, as compared with 6.4% as at December 31, 2019. The higher ratio is due primarily to the liabilities of Convertible Bonds increased RMB1,224.7 million.

As at June 30, 2020, the Group had approximately RMB17.0 million of secured and unguaranteed bank loans. Of the total borrowing, approximately RMB15.9 million will be due within one year; approximately RMB1.1 million will be due in more than one year. As at June 30, 2020, the Group has HK$53.2 million (equivalent to RMB48.6 million) unutilized banking facilities. The Group intends to finance the expansion, investments and business operations with proceeds from the Global Offering, Convertible Bonds, bank loans and internal resources.

Significant Investment, Material Acquisitions and Disposals

In March 2020, Viva Biotech Shanghai, an indirect wholly-owned subsidiary of the Company, acquired 100% of equity interest of Shanghai Shenyu Wires Co., Ltd from its original shareholders, at a consideration of RMB120.0 million.

Save as disclosed this circular, the Group did not make any significant investments and did not have material acquisitions or disposals of subsidiaries, associates and joint ventures for the six months ended June 30, 2020.

Pledge of Assets

As at June 30, 2020, the building with a carrying amount of approximately RMB5.1 million was pledged to secure borrowings of the Group. As at June 30, 2020, a bank deposit of HK$70.0 million (or its equivalent in other foreign currencies) is placed with the bank to secure a bank facility of HK$70.0 million (or its equivalent in US$/CNY)

Capital Expenditure

For the Reporting Period, the Group's capital expenditure amounted to approximately RMB70.2 million, which was mainly used for construction of facilities and equipment purchases, as compared to approximately RMB15.1 million for the corresponding period last year. The Group funded its capital expenditure by using cash flow generated from its operations and financing.

Contingent Liabilities

The Group had no material contingent liabilities as at June 30, 2020.

Future Plan for Material Investment and Capital Assets

Save as disclosed in this circular, Prospectus and other announcement published by the Company up to the date of this circular, the Group does not have other plans for material investments and capital assets for Reporting Period and up to the date of this circular.

Currency Risk

Certain entities in our Group have foreign currency sales and purchases, which exposes us to foreign currency risk. In addition, certain entities in our Group also have other payables and receivables which are denominated in currencies other than their respective functional currencies. We recorded a net foreign exchange gain of approximately RMB8.7 million and approximately RMB15.6 million for the Reporting Period and the corresponding period last year, respectively. We are exposed to the foreign currency of U.S. dollars as part of our revenue was generated from sales denominated in U.S. dollars. We purchased various bank foreign exchange wealth management products to hedge against our exposure to currency risk during the Reporting Period. Management will continue to evaluate the Group's foreign exchange risk and take actions as appropriate to minimize the Group's exposure whenever necessary.

Employee and Incentive Schemes

As at June 30, 2020, the Group had a total of 798 employee and the total staff costs for the for the six months ended June 30, 2020 were RMB86.5 million. Remuneration of our employee is determined with reference to market conditions and individual employees' performance, qualification and experience. In line with the performance of the Group and individual employees, a competitive remuneration package is offered to retain employees, including salaries, discretionary bonuses and contributions to benefit plans (including pensions).

For further details of the share incentive schemes of the Company, please refer to the Company's interim report for the six months ended June 30, 2020.

The following is the text of a report received from the Target Company's reporting accountant, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

The Directors

Viva Biotech Holdings

Dear Sir,

We report on the historical financial information of SYNthesis med chem (Hong Kong) Limited (the "Target Company") and its subsidiaries (together, the "Target Group") set out on pages III-4 to III-61, which comprises the consolidated statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows, for each of the years ended December 31, 2017, 2018 and 2019 and the eight months ended August 31, 2020 (the "Relevant Periods") and the consolidated statements of financial position of the Target Group as at December 31, 2017, 2018 and 2019 and August 31, 2020 and a summary of significant accounting policies and other explanatory information (together, the "Historical Financial Information"). The Historical Financial Information set out on pages III-4 to III-61 forms an integral part of this report, which has been prepared for inclusion in the circular of Viva Biotech Holdings ("Viva" or the "Company") dated February 26, 2021 (the "Circular") in connection with the acquisition of 100% equity interest in the Target Company (the "Acquisition") by the Company.

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 presentation and the basis of preparation set out in Note 2.1 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.

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 presentation and the basis of preparation set out in Note 2.1 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 financial position of the Target Group and the Target Company as at December 31, 2017, 2018 and 2019 and August 31, 2020 and of the financial performance and cash flows of the Target Group for each of the Relevant Periods in accordance with the basis of presentation and the basis of preparation set out in Note 2.1 to the Historical Financial Information.

REVIEW OF INTERIM COMPARATIVE FINANCIAL INFORMATION

We have reviewed the interim comparative financial information of the Target Group which comprises the consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the eight months ended August 31, 2019 and other explanatory information (the "Interim Comparative Financial Information"). The directors of the Target Company are responsible for the preparation of the Interim Comparative Financial Information in accordance with the basis of presentation and the basis of preparation set out in Note 2.1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Interim Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Interim Comparative Financial Information, for the purposes of the accountants' report, is not prepared, in all material respects, in accordance with the basis of presentation and the basis of preparation set out in Note 2.1 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE 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 III-4 have been made.

DIVIDENDS

We refer to Note 10 to the Historical Financial Information which states that no dividend has been paid by the Target Company in respect of the Relevant Periods.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

February 26, 2021

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants' report.

The financial statements of the Target Group for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the "Underlying Financial Statements").

The Historical Financial Information is presented in Renminbi ("RMB") and all values are rounded to the nearest thousand (RMB'000) except when otherwise indicated.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Year ended December 31,

Eight months endedAugust 31,2017

2018

2019

2019

Notes

RMB'000

RMB'000

RMB'000

RMB'000 (Unaudited)

2020

RMB'000

REVENUE Cost of services

5 8

50,368 (27,598)

72,624 (38,013)

94,094 (51,085)

55,769

67,085

(30,863) (36,114)GROSS PROFIT Other income and gains Other expenses

Selling and distribution expenses Administrative expenses Research and development expense Impairment losses on financial assets, net Finance costs

PROFIT BEFORE

TAX

Income tax expense

PROFIT FOR THE

YEAR/PERIODOTHER

COMPREHENSIVE INCOME

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

Exchange differences on translation of foreign operations

TOTAL

COMPREHENSIVE INCOME FOR THE YEAR/PERIOD

6

22,770 1,306

(743)

34,611 1,060 (1,366)

(1,713) (8,399)

(1,703) (9,829)

(2,426)

(3,703)

34

(371)

7

-

-

8 9

• 10,829 18,699

(783)

10,046

(1,027)

9,019

(2,476)

16,223

881

17,104 - III-5 -

43,009 2,293

24,906 30,971 2,249 454

(189)

(23) (615)

(1,785) (10,035)

• (1,159) (1,201)

• (6,129) (5,563)

  (4,434)

• (2,945) (3,157)

(374) (1,277)

(65) 13 (858) (809)

27,208 15,976 20,093

(4,278)

(3,456) (3,460)

22,930

12,520 16,633

492

786 (74)

23,422

13,306 16,559

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at
August 31,
2017	2018	2019	2020
Notes	RMB'000	RMB'000	RMB'000	RMB'000
NON-CURRENT ASSETS
Property, plant and equipment	11	16,444	14,486	13,929	14,054
Right-of-use assets	12	-	-	25,827	24,411
Prepayments and rental deposits	50	385	331	537
Deferred tax assets	19	5,614	4,340	1,744	1,965
TOTAL NON-CURRENT ASSETS	22,108	19,211	41,831	40,967
CURRENT ASSETS
Amounts due from related parties	27	34,544	44,701	66,947	77,993
Trade receivables	13	4,955	9,248	19,770	8,711
Prepayments, other receivables and
other assets	14	832	526	443	356
Financial assets at fair value through
profit or loss ("FVTPL")	16	-	260	1,000	1,000
Cash and cash equivalents	15	9,118	17,557	15,854	26,727
TOTAL CURRENT ASSETS	49,449	72,292	104,014	114,787
CURRENT LIABILITIES
Trade payables	17	1,508	1,355	1,520	792
Other payables and accruals	18	10,058	11,917	14,690	17,562
Lease liabilities	12	-	-	1,632	1,684
Income tax payables	3,311	4,443	6,000	8,197
TOTAL CURRENT LIABILITIES	14,877	17,715	23,842	28,235
NET CURRENT ASSETS	34,572	54,577	80,172	86,552
TOTAL ASSETS LESS CURRENT
LIABILITIES	56,680	73,788	122,003	127,519
- III-6 -

As at December 31,

As at

August 31,
2017	2018	2019	2020
Notes	RMB'000	RMB'000	RMB'000	RMB'000
NON-CURRENT LIABILITIES
Other non-current liabilities	322	388	483	579
Lease liabilities	12	-	-	24,698	23,330
TOTAL NON-CURRENT
LIABILITIES	322	388	25,181	23,909
NET ASSETS	56,358	73,400	96,822	103,610
EQUITY
Share capital	20	46,308	46,308	46,308	46,308
Reserves	21	10,050	27,092	50,514	57,302
TOTAL EQUITY	56,358	73,400	96,822	103,610
- III-7 -

As at December 31,

Share	transaction	Other	Statutory
Capital	reserve	reserve	reserve
RMB'000	RMB'000	RMB'000	RMB'000
At January 1, 2017	46,308	(2,879)	15,101	300
Profit for the year	-	-	-	-
Exchange differences on translation
of foreign operations	-	(1,027)	-	-
Total comprehensive income
for the year	-	(1,027)	-	-
Transfer from retained profits	-	-	-	984
At December 31, 2017	46,308	(3,906)	15,101	1,284
Effect of adoption of IFRS 9 (Note i)	-	-	-	-
At January 1, 2018	46,308	(3,906)	15,101	1,284
Profit for the year	-	-	-	-
Exchange differences on translation
of foreign operations	-	881	-	-
Total comprehensive income
for the year	-	881	-	-
Transfer from retained profits	-	-	-	581
At December 31, 2018	46,308	(3,027)	15,101	1,865
Notes:

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Foreign	(Accumulated
currency	losses)/
retained
profits	Total
RMB'000	RMB'000
(11,491)	47,339
10,046	10,046
-	(1,027)
10,046	9,019
(984)	-
(2,429)	56,358
(62)	(62)
(2,491)	56,296
16,223	16,223
-	881
16,223	17,104
(581)	-
13,153	73,400

(i)Upon the adoption of IFRS 9 "Financial Instruments" on January 1, 2018, an accumulated impact of RMB62,000 was recorded as an adjustment to the retained earnings at January 1, 2018, which represented the impairment loss allowance, net of deferred tax impact. Details of the adjustment are set out in Note 2.2.

Foreign	(Accumulated
currency	losses)/
Share	transaction	Other	Statutory	retained
Capital	reserve	reserve	reserve	profits	Total
RMB'000	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Profit for the year	-	-	-	-	22,930	22,930
Exchange differences on translation
of foreign operations	-	492	-	-	-	492
Total comprehensive income
for the year	-	492	-	-	22,930	23,422
Transfer from retained profits	-	-	-	461	(461)	-
At December 31, 2019	46,308	(2,535)	15,101	2,326	35,622	96,822
At January 1, 2019	46,308	(3,027)	15,101	1,865	13,153	73,400
Profit for the period	-	-	-	-	12,520	12,520
Exchange differences on translation
of foreign operations	-	786	-	-	-	786
Total comprehensive income
for the period	-	786	-	-	12,520	13,306
At August 31, 2019	46,308	(2,241)	15,101	1,865	25,673	86,706
At January 1, 2020	46,308	(2,535)	15,101	2,326	35,622	96,822
Profit for the period	-	-	-	16,633	16,633	-
Exchange differences on translation
of foreign operations	-	(74)	-	-	-	(74)
Total comprehensive income
for the period	-	(74)	-	-	16,633	16,559
Acquisition of subsidiaries (Note ii)	-	-	(9,771)	-	-	(9,771)
At August 31, 2020	46,308	(2,609)	5,330	2,326	52,255	103,610
Notes:

(ii)It represents the consideration paid by the Target Group to acquire subsidiaries under common control as detailed in Note 2.1 to the Historical Financial Information.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,Eight months ended

August 31,2017

2018

2019

2019

2020

RMB'000

RMB'000

RMB'000

RMB'000 (Unaudited)

RMB'000

CASH FLOWS FROM OPERATING

ACTIVITIES

Profit before tax Adjustments for: Finance costs Interest income

Depreciation of property, plant and equipment

Depreciation of right-of-use assets Loss on disposal of property, plant and equipment

Impairment losses on financial assets, net

10,829

18,699

27,208 1,277

15,976 20,093

- (21)

- (26)

858 809

(48)

(22) (46)

4,717 - -

4,716 - - 371

5,072 2,123

3,294 3,439

1,416 1,416

185 374

23

-

(34)

65 (13)Operating cash flows before movement in working capital Decrease/(increase) in trade receivables

(including those trade amounts due from related parties) (Increase)/decrease in prepayments, other receivables and other assets Increase in rental deposits Increase/(decrease) in trade payables Increase/(decrease) in other payables and accruals

Increase in non-current liabilities

15,491

23,760

36,191

21,610 25,698

2,343

(4,266)

(16,396)

(10,911) 8,289

(320)

306 (195) (153)

83

(158) 87

- 842 319 52

-

-

-

165

4,504 (728)

1,859 66

2,773 95

(4,931) 2,872

52 96

Cash generated from operations Income tax paid

18,727

(19)

21,377

(82)

22,911

(117)

10,166

(101)

36,314 (1,460)Net cash flows from operating activities

18,708

21,295

22,794

10,065

34,854

Eight months endedNET INCREASE/ (DECREASE)

Cash and cash equivalents at beginning of year/period

CASH AND CASH EQUIVALENTSCASH FLOWS FROM

FINANCING ACTIVITIES Payment of lease liabilities

Net cash flows used in financing activities

2017	2018	2019	2020
RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
(Unaudited)
CASH FLOWS FROM
INVESTING ACTIVITIES
Interest received	21	26	39	16	40
Purchases of property, plant and
equipment	(2,629)	(2,898)	(4,700)	(1,310)	(3,764)
-	(760)	(740)	(740)	-
-	500	-	-	-
56	727	1,533	1,362	660
(9,145)	(10,451)	(17,795)	(15,191)	(18,792)
(11,697)	(12,856)	(21,663)	(15,863)	(21,856)
-	-	(2,834)	(2,125)	(2,125)
-	-	(2,834)	(2,125)	(2,125)
7,011	8,439	(1,703)	(7,923)	10,873
2,107	9,118	17,557	17,557	15,854
9,118	17,557	15,854	9,634	26,727

August 31, 2019

Purchase of financial assets at FVTPL Proceeds from disposal of financial assets at FVTPL

Repayments from related parties Advances to related parties

Net cash flows used from investing activities

IN CASH AND CASH EQUIVALENTS

AT END OF YEAR/PERIODYear ended December 31,

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. GENERAL INFORMATION

SYNthesis med chem (Hong Kong) Limited (the "Target Company") was incorporated in Hong Kong with limited liability on August 20, 2012. The registered office of the Target Company is located at Level 12, 28 Hennessy Road, Wanchai, Hong Kong.

In the opinion of the Target company's Directors, the immediate and ultimate holding company of the Target company is SYNthesis med chem Pty Limited ("SMC Holdco").

The Target Company and its subsidiaries (together, the "Target Group") is a contract research organisation for research and development of new preclinical small molecule drugs which mainly provided high-end pharmaceutical chemistry and synthetic chemistry services to its clients during the Relevant Periods.

As at the date of this report, the Target Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

Name of subsidiariesPlace and date of incorporation/ registration

Issued ordinary/ registered share capital

Percentage of equity attributable to the Target Company

Principal activities

Direct Indirect

Xinshi Bio Medicine (Shanghai)People's Republic ofUS$2,000,000.00

100%

Co., Ltd. ("Synthesis Shanghai")

China (the "PRC") October, 15, 2007

• - providing research services

  Suzhou Xiangshi Medical

  PRC

  US$5,583,889.52

  100%

  Development Co., Ltd. ("Synthesis Suzhou")

  April, 24, 2013

• - providing research services

  Synthesis med chem (Australia)Australia

  AUD1,000.00

  100%

  Pty Ltd. ("Synthesis Australia")

  October 16, 2013

• - Project management and bidding

  Synthesis Med Chem (UK) Limited

  United Kingdom

  GBP100.00

  100%

  ("Synthesis UK")

  May 6, 2011

• - Project management and bidding

Synkinase Pty Ltd

Australia

AUD10.00

-

• 100% Sale of compounds

  ("Synkinase Australia")

  August 31, 2010

  Synkinase USA, Inc.

  USA

  -

  -

• 100% Sale of compounds

("Synkinase USA")

June 5, 2009

On September 20, 2020, the sole shareholder of the Target Company SMC Holdco and Viva Biotech Holdings entered into the share purchase agreement in relation to the acquisition of 100% equity interests in the Target Company.

2.1 BASIS OF PREPARATION AND PRESENTATION

For the purpose of preparing the Historical Financial Information for the Relevant Periods, the Target Group has consistently applied International Accounting Standards ("IASs"), IFRSs, amendments and the related Interpretations ("IFRICs") (herein collectively referred to as the "IFRSs") (including IFRS 15 "Revenue from Contracts with Customers" which are effective for the accounting period beginning on January 1, 2020 throughout the Relevant Periods except that the Target Group adopted IFRS 9 "Financial Instruments" on January 1, 2018 and IFRS 16 "Leases" on January 1, 2019.

The accounting policies for financial instruments which conform with IFRS 9 that are applicable from January 1, 2018 onwards and with IAS39 "Financial Instruments" which are applicable for the year ended December 31, 2017 and the accounting policies for lease which conform with IFRS 16 that are applicable from January 1, 2019 onwards and with IAS 17 "Leases" are applicable for each of the two years ended December 31, 2018 are set out in Note 2.4 below. Further details of other the significant accounting policies adopted are set out in Note 2.4.

The Historical Financial Information has been prepared under the historical cost convention. The Historical Financial Information is presented in RMB. All values are rounded to the nearest thousand except when otherwise indicated.

The companies comprising the Target Group underwent a group reorganization as described below (the "Target Group Reorganisation").

The Target Company was incorporated in the Hong Kong on August 20, 2012.

Synthesis Shanghai was established in the PRC by SMC Holdco on October 15, 2007. The Target Company and SMC

Holdco entered into a share purchase agreement on October 15, 2012, pursuant to which SMC Holdco transferred 100% equity interests in Synthesis Shanghai to the Target Company for a cash consideration of US$100.00. The transfer of equity was completed on November 9, 2012.

Synthesis UK was established in the United Kingdom by SMC Holdco on May 6, 2011. The Target Company and SMC Holdco entered into a share purchase agreement on October 4, 2012, pursuant to which SMC Holdco transferred 100% equity interests in Synthesis UK to the Target Company. The transfer of equity was completed on October 4, 2012.

As part of the Target Group Reorganisation and pursuant to a share transfer agreement between Synthesis Australia and Synthesis Research Pty Ltd ("Synthesis Research" controlled by SMC Holdco as a fellow subsidiary of the Target Company) dated August 6, 2020, Synthesis Australia directly acquired 100% equity interests in Synkinase Australia and indirectly acquired 100% equity interests in Synkinase USA from Synthesis Research at a total cash consideration of AUD1,932,000.00.

As Synkinase Australia, Synkinase USA and the Target Company were under common control of SMC Holdco before and after the share transfer, the acquisition of Synkinase Australia and Synkinase USA was accounted for as business combination under common control by applying the principles of merger accounting.

Accordingly, the consolidated statements of financial position of the Target Group as at December 31, 2017, 2018 and 2019 have been prepared to present the assets and liabilities of the entities comprising the Target Group as if the current Target Group structure had been in existence throughout the Relevant Periods. The consolidated statements of profit or loss and other comprehensive income, statements of changes in equity and consolidated statements of cash flows of the Target Group for the years ended December 31, 2017, 2018 and 2019 include the results, changes in equity and cash flows of the entities comprising the Target

Group as if the current Target Group structure had been in existence throughout the Relevant Periods.

All intra-group transactions and balances have been eliminated on consolidation.

Basis of consolidation

The consolidated financial statements include the financial statements of the Target Group for the years ended December 31, 2017, 2018, 2019 and for the eight months ended August 31, 2020. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Target Company. Control is achieved when the Target Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Target Group the current ability to direct the relevant activities of the investee).

When the Target Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Target Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• (a) the contractual arrangement with the other vote holders of the investee;

• (b) rights arising from other contractual arrangements; and

• (c) the Target Group's voting rights and potential voting rights.

The results of subsidiaries are consolidated from the date on which the Target Group obtains control and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Target Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Target Group are eliminated in full on consolidation.

The Target Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Target Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Target Group's share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Target Group had directly disposed of the related assets or liabilities.

2.2

CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Target Group has adopted the following new and revised IFRSs for the first time for the financial statements of relevantperiods.

Amendments to IAS 7	Disclosure Initiative1
Amendments to IAS 12	Recognition of Deferred Tax Assets for Unrealised Losses1
Amendments to IFRS 12 included in	Disclosure of Interests in Other Entities: Clarification of the Scope of
Annual Improvements to IFRSs	IFRS 121
2014-2016 Cycle
Amendments to IFRS 2	Classification and Measurement of Share-based Payment Transactions2
Amendments to IFRS 4	Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts2
IFRS 9	Financial Instruments2
IFRS 15	Revenue from Contracts with Customers2
Amendments to IFRS 15	Clarifications to IFRS 15 Revenue from Contracts with Customers2
Amendments to IAS 40	Transfers of Investment Property2
IFRIC 22	Foreign Currency Transactions and Advance Consideration2
Annual Improvements IFRSs 2014-2016 Cycle	Amendments to IFRS 1 and IAS 282
Amendments to IFRS 9	Prepayment Features with Negative Compensation3
IFRS 16	Leases 3
Amendments to IAS 19	Plan Amendment, Curtailment or Settlement3
Amendments to IAS 28	Long-term Interests in Associates and Joint Ventures3
IFRIC 23	Uncertainty over Income Tax Treatments3
Annual Improvements to IFRSs	Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 233
2015-2017 Cycle
Amendments to IFRS 3	Definition of a Business4
Amendments to IFRS 9, IAS 39 and IFRS 7	Interest Rate Benchmark Reform4
Amendment to IFRS 16	Covid-19-Related Rent Concessions (early adopted)4
Amendments to IFRS 1 and IAS 8	Definition of Material4

• 1 Effective for annual periods beginning on January 1, 2017

• 2 Effective for annual periods beginning on January 1, 2018

• 3 Effective for annual periods beginning on January 1, 2019

• 4 Effective for annual periods beginning on January 1, 2020

Except as described below, the application of the new and amendments to IFRSs in the Relevant Periods had no material impact on the Target Group's financial positions and performance for the Relevant Periods and/or on the disclosures set out in these consolidated financial statements.

The following note explains the impact of (i) the adoption of IFRS 16 Leases, which has been applied from January 1, 2019; and (ii) the adoption of IFRS 9 Financial Instruments, which has been applied from January 1, 2018, where they are not applied or are different to those applied in prior periods. The Target Group has concluded not to restate the comparative figures based on the specific transitional provision in IFRS 9 and IFRS 16. The nature and the impact of the new and revised IFRSs are described below:

(i) IFRS 16 Leases

IFRS 16 Leases replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases - Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model to recognise and measure right-of-use assets and lease liabilities, except for certain recognition exemptions. Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors continue to classify leases as either operating or finance leases using similar principles as in IAS 17.

The Target Group adopted IFRS 16 using the modified retrospective approach of adoption, with the date of initial application of January 1, 2019. The Target Group elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at January 1, 2019. Instead, the Target Group applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.

New definition of a lease

Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. The Target Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after January 1, 2019.

The Target Group adopted IFRS 16 using the modified retrospective approach of adoption, with the date of initial application of January 1, 2019. The Target Group elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at January 1, 2019. Instead, the Target Group applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Target Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets).

As a lessee - Leases previously classified as operating leases

Nature of the effect of adoption of IFRS 16

The Target Group has lease contracts for various items of property. As a lessee, the Target Group previously classified leases as either finance leases or operating leases based on the assessment of whether the lease transferred substantially all the rewards and risks of ownership of assets to the Target Group. Under IFRS 16, the Target Group applies a single approach to recognise and measure right-of-use assets and lease liabilities for all leases, except for two elective exemptions for leases of low-value assets (elected on a lease-by-lease basis) and leases with a lease term of 12 months or less ("short-term leases"). Instead of recognising rental expenses under operating leases on a straight-line basis over the lease term commencing from January 1, 2019, the Target Group recognises depreciation (and impairment, if any) of the right-of-use assets and interest accrued on the outstanding lease liabilities (as finance costs).

Impact on transition

Lease liabilities at January 1, 2019 were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at January 1, 2019. The right-of-use assets were measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease recognised in the statement of financial position immediately before January 1, 2019.

All these assets were assessed for any impairment based on IAS 36 on that date. The Target Group elected to present the right-of-use assets separately in the statement of financial position.

The Target Group has used the following elective practical expedient when applying IFRS 16 at January 1, 2019:

•

Applying the short-term lease exemptions to leases with a lease term that ends within 12 months from the date of initial application.

Financial impact at January 1, 2019
The impact arising from the adoption of IFRS 16 at January 1, 2019 was as follows:
Increase/
(decrease)
RMB'000
Assets
Increase in right-of-use assets	27,950
Adjustments on rental deposits at January 1, 2019	(63)
Increase in total assets	27,887

There is no material impact on the consolidated statement of profit or loss, the consolidated statement of cash flows and other comprehensive income.

The lease liabilities as at January 1, 2019 reconciled to the operating lease commitments as at December 31, 2018 are as follows:

RMB'000
Operating lease commitments as at December 31, 2018	40,566
Lease liabilities resulting from lease modifications of existing leases	27,953
Less: Recognition exemption - short-term lease	(66)
Lease liabilities as at January 1, 2019	27,887
(ii)	IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after January 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting.

The Target Group has recognised the transition adjustment against the applicable opening balances in equity at January 1, 2018. Therefore, the comparative information was not restated and continues to be reported under IAS 39.

Classification and measurement

The following information sets out the impacts of adopting IFRS 9 on the statement of financial position, including the effect of replacing IAS 39's incurred credit loss calculations with IFRS 9's expected credit losses ("ECLs").

Financial impact at January 1, 2019

A reconciliation between the carrying amounts under IAS 39 and the balances reported under IFRS 9 at January 1, 2018 is as follows:

IAS 39 measurementReclassification

IFRS 9 measurementCategory

NoteAmount RMB'000

RMB'000

ECL RMB'000

Amount RMB'000

Category

Financial assets Trade receivables

13

L&R1

4,955

-

(76) 4,879

AC2

4,955

-

(76) 4,879

• 1 L&R: Loans and receivables

• 2 AC: Financial assets at amortised cost

Impairment

The following table reconciles the aggregate opening impairment allowances under IAS 39 to the ECL allowances under IFRS 9. Further details are disclosed in Note 13 to the financial statements.

Impairment

allowances under

IAS 39 at December 31, 2017

Re-measurementECL allowances under IFRS 9 at January 1, 2018

RMB'000

RMB'000

RMB'000

Trade receivables

54

76

130

Impact on reserves

The impact of transition to IFRS 9 on reserves is as follows:

RMB'000

Reserves as at December 31, 2017 under IAS 39 10,050 Recognition of expected credit losses for trade receivables under IFRS 9

(net of tax impacts) (62)

Reserves as at January 1, 2018 under IFRS 9 9,988

2.3

ISSUED BUT NOT YET EFFECTIVE IFRSS

The Target Group has not early applied the following new and amendments to IFRSs that have been issued but are not yet

effective:
Amendments to IFRS 3	Reference to the Conceptual Framework3
Amendments to IFRS 9, IAS 39, IFRS 7,	Interest Rate Benchmark Reform - Phase 22
IFRS 4 and IFRS 16
Amendments to IFRS 4	Extension of the Temporary Exemption from Applying IFRS 94
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture5
IFRS 17	Insurance Contracts4
Amendments to IFRS 17	Insurance Contracts4
Amendments to IAS 1	Classification of Liabilities as Current or Non-current4
Amendments to IFRS 16	Covid-19-Related Rent Concessions1
Amendments to IAS 16	Property, Plant and Equipment: Proceeds before Intended Use3
Amendments to IAS 37	Onerous Contracts - Cost of Fulfilling a contract3
Annual Improvements to IFRSs 2018-2020	Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 413

• 1 Effective for annual periods beginning on or after June 1, 2020

• 2 Effective for annual periods beginning on or after January 1, 2021

• 3 Effective for annual periods beginning on or after January 1, 2022

• 4 Effective for annual periods beginning on or after January 1, 2023

• 5 No mandatory effective date yet determined but available for adoptionThe Target Group considered that the application of the new and revised IFRSs will not have material impacts on the Target Group's financial results.

2.4

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business combinations of entities under common control

Business combinations of entities under common control are accounted for using the pooling of interests method with no restatement of financial information in the consolidated financial statements for periods prior to the completion of the combination under common control. Under the pooling of interests method, the assets and liabilities of the combining entities are reflected at their existing carrying values at the date of combination. No amount is recognised in respect of goodwill. The excess of the acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, which, instead, is recorded as part of equity.

Fair value measurement

The Target Group measures its derivative financial instruments at fair value at the end of each Relevant Periods. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Target Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Target Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 - based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

Level 3 - based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Target Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each Relevant Periods.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than deferred tax assets, financial assets), the asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or ash-generating unit's value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each of the Relevant Periods as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.

Related parties

A party is considered to be related to the Target Group if:

• (a) the party is a person or a close member of that person's family and that person

  • (i) has control or joint control over the 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 of a parent of the Target Group;

  or

• (b) the party is an entity where any of the following conditions applies:

  • (i) the entity and the Target Group are members of the same Target Group;

  • (ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

  • (iii) the entity and the Target Group are joint ventures of the same third party;

  • (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

  • (v) the entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group; (If the Target Group is itself such a plan) and the sponsoring employers of the post-employment benefit plan;

  • (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); and

  • (viii) the entity, or any member of a Target Group of which it is a part, provides key management personnel services to the Target Group or to the parent of the Target Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Target Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:Furniture, fixture and equipment Leasehold improvement

9% to 18% 16.67%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

Software

Software is stated at cost less any impairment losses and is amortised on the straight-line basis over its estimated useful life of 10 years.

Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

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.

Leases (applicable from January 1, 2019)

The Target Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Target Group as a lessee

The Target Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Target Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

(a) Right-of-use assets

Right-of-use assets are recognised at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:

Properties

3 to 20 yearsIf ownership of the leased asset transfers to the Target Group by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

(b) Lease liabilities

Lease liabilities are recognised at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Target Group and payments of penalties for termination of a lease, if the lease term reflects the Target Group exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Target Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.

(c) Short-term leases and leases of low-value assets

The Target Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the recognition exemption for leases of low-value assets to leases of office equipment and laptop computers that are considered to be of low value.

Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

Investments and other financial assets (policies under IFRS 9 applicable from January 1, 2018)

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income, and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Target Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Target Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Target Group initially measures a financial asset at its fair value plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Target Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for "Revenue recognition" below.

In order for a financial asset to be classified and measured at amortised cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

The Target Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Target Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortised cost (debt instruments)

Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in the statement of profit or loss when the asset is derecognised, modified or impaired.

Financial assets at fair value through other comprehensive income (debt instruments)

For debt investments at fair value through other comprehensive income, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in other comprehensive income. Upon derecognition, the cumulative fair value change recognised in other comprehensive income is recycled to the statement of profit or loss.

Financial assets designated at fair value through other comprehensive income (equity investments)

Upon initial recognition, the Target Group can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to the statement of profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Target Group and the amount of the dividend can be measured reliably, except when the Target Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

This category includes derivative instruments and equity investments which the Target Group had not irrevocably elected to classify at fair value through other comprehensive income. Dividends on equity investments classified as financial assets at fair value through profit or loss are also recognised as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Target Group and the amount of the dividend can be measured reliably.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.

Investments and other financial assets (policies under IAS 39 applicable before January 1, 2018)

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Target Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value presented as other income and gains and negative net changes in fair value presented as finance costs in the statement of profit or loss. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for "Revenue recognition" below.

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in IAS 39 are satisfied.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the statement of profit or loss and other comprehensive income. The loss arising from impairment is recognised in the statement of profit or loss and other comprehensive income in finance costs for loans and in other expenses for receivables.

Available-for-sale financial investments

Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in changes in fair value of available-for-sale investments until the investment is derecognised, at which time the cumulative gain or loss is recognised in the statement of profit or loss and other comprehensive income in other income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from changes in fair value of available-for-sale investments to the statement of profit or loss and other comprehensive income in other gains or losses. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognised in the statement of profit or loss and other comprehensive income as other income in accordance with the policies set out for "Revenue recognition" below.

When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.

The Target Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Target Group is unable to trade these financial assets due to inactive markets, the Target Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss and other comprehensive income.

Derecognition of financial assets (policies under IFRS 9 applicable from January 1, 2018 and policies under IAS 39 applicable before January 1, 2018)

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

•

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.

Impairment of financial assets (policies under IFRS 9 applicable from January 1, 2018)

The Target Group recognises an allowance for expected credit losses ("ECLs") for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Target Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Target Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Target Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

The Target Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Target Group may also consider a financial asset to be in default when internal or external information indicates that the Target Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Target Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Debt investments at fair value through other comprehensive income and financial assets at amortised cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables and contract assets which apply the simplified approach as detailed below.

Stage 1 -	Financial instruments for which credit risk has not increased significantly since initial recognition and
for which the loss allowance is measured at an amount equal to 12-month ECLs
Stage 2 -	Financial instruments for which credit risk has increased significantly since initial recognition but that
are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal
to lifetime ECLs
Stage 3 -	Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated
credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Simplified approach

For trade receivables and contract assets that do not contain a significant financing component or when the Target Group applies the practical expedient of not adjusting the effect of a significant financing component, the Target Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Target Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Target Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Impairment of financial assets (policies under IAS 39 applicable before January 1, 2018)

The Target Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the Target group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Target Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Target Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Target Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in the statement of profit or loss.

Available-for-sale financial investments

For available-for-sale financial investments, the Target Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the statement of profit or loss, is removed from other comprehensive income and recognised in the statement of profit or loss.

In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. "Significant" is evaluated against the original cost of the investment and "prolonged" against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss - is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through the statement of profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.

The determination of what is "significant" or "prolonged" requires judgement. In making this judgement, the Target Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost

Financial liabilities (policies under IFRS 9 applicable from January 1, 2018 and IAS 39 applicable before January 1, 2018)

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Target Group's financial liabilities include trade payables, other payables and accruals and lease liabilities.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at amortised cost (loans and borrowings)

After initial recognition, trade payables, other payables and accruals and lease liabilities are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss.

Derecognition of financial liabilities (policies under IFRS 9 applicable from January 1, 2018 and IAS 39 applicable before January 1, 2018)

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments (policies under IFRS 9 applicable from January 1, 2018 and IAS 39 applicable before January 1, 2018)

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Target Group's cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the Relevant Periods of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the Relevant Periods, taking into consideration interpretations and practices prevailing in the countries in which the Target Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the Relevant Periods between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

•

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•

in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

•

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•

in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each Relevant Periods and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each Relevant Periods and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the Relevant Periods.

Deferred tax assets and deferred tax liabilities are offset if and only if the Target Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to the statement of profit or loss by way of a reduced depreciation charge.

Revenue recognition

Revenue from contracts with customers

Under IFRS 15, the Target Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when "control" of the goods or services underlying the particular performance obligation is transferred to the customer. A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

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

•

the customer simultaneously receives and consumes the benefits provided by the Target Group's performance as the Target Group performs;

•

the Target Group's performance creates and enhances an asset that the customer controls as the Target Group performs; or

•

the Target Group's performance does not create an asset with an alternative use to the Target Group and the Target Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good.

For contracts that contain more than one performance obligations, the Target Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis.

The Target Group primarily earns revenue by providing high-end pharmaceutical chemistry and synthetic chemistry services to its customers under two charge methods: 1) Full-time-equivalent, or FTE method; 2) Fee-for-service, or FFS method.

Under the FTE method, the target Group provides its customer with a project team of employees dedicated to the customer's studies for a specific period of time and charges the customer at a fixed rate per employee. The customer therefore simultaneously receives and consumes benefits provided by the Target Group's performances. In addition, FTE contracts specify that the Target Group has an enforceable right to payment for the FTE billable amounts, which are calculated based on number of the Target Group's employees assigned to the project and the time that the Target Group's employees had worked under the project. Therefore, under the FTE method, the Target Group has a right to consideration from its customer in an amount that corresponds directly with the value to the customers of the Target Group's performance completed to date (i.e. FTE billable amounts). Under such arrangement, IFRS 15 provides a practical expedient whereby the Target Group may recognise revenue based on the amount it has a right to invoice to the customer. The Target Group elected to use the practical expedient and therefore recognised the FTE services revenue when it has right to invoice the customer, usually in the form of a monthly statement, and the customers confirmed the acceptance of the invoice or after the end of a confirmation period.

For the research services provided under FFS method, the contracts usually have single performance obligation, which are generally in the form of delivery of synthesis compounds, each with selling price specified within the contract. The Target Group recognises FFS revenue of customer contracts at the point in time upon delivery of the compounds.

Other income

Interest income is recognised on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Dividend income is recognised when the shareholders' right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Target Group and the amount of the dividend can be measured reliably.

Other employee benefits

Pension scheme

The employees of the Target Group's subsidiaries which operate in PRC are required to participate in a central pension scheme operated by the local municipal government. Each subsidiary operating in Mainland China is required to contribute a certain percentage of its payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.

The Target Group maintains a government mandated program to cover employees of its wholly owned subsidiaries in Australia for superannuation. The subsidiary operating in Australia is required to contribute a certain percentage of its payroll costs to the superannuation. The contributions are charged to profit or loss as they become payable in accordance with the rules of the superannuation.

Foreign currencies

These financial statements are presented in RMB, which is the functional currency of Viva Biotech Holdings. Each entity in the Target Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Target Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the Relevant Periods. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

In determining the exchange rate on initial recognition of the related asset, expense or income on the derecognition of a non-monetary asset or non-monetary liability relating to an advance consideration, the date of initial transaction is the date on which the Target Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Target Group determines the transaction date for each payment or receipt of the advance consideration.

The functional currency of certain overseas subsidiaries are currencies other than the RMB. As at the end of the Relevant Periods, the assets and liabilities of these entities are translated into RMB at the exchange rates prevailing at the end of the Relevant Periods and their statements of profit or loss are translated into RMB at the weighted average exchange rates for the year.

The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Target Group's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the Relevant Periods, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Provision for expected credit losses on trade receivables

Trade receivables with significant balances and credit-impaired are assessed for ECL individually. In addition, the Target Group uses provision matrix to calculate ECL for the trade receivables which are individually insignificant. The provision rates are based on internal credit ratings as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Target Group's historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.

The information about the ECLs on the Target Group's trade receivables is disclosed in Note 13 to the financial statements.

Useful lives and estimated impairment on property, plant and equipment

The Target Group determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. The Target Group will increase the depreciation charge where useful lives are less than previously estimated lives, or will write off or write down technically obsolete or non-strategic assets that have been abandoned or to be sold.

The Target Group regularly reviews whether there are any indications of impairment and recognises an impairment loss if the carrying amount of an asset is lower than its recoverable amount. The Target Group tests for impairment for property, plant and equipment whenever there is an indication that the asset may be impaired. The recoverable amounts have been determined based on the higher of the fair value less costs of disposal and value in use. These calculations require the use of estimates, such as discount rates, future profitability and growth rates.

Deferred tax assets

Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Impairment of non-financial assets (other than goodwill)

The Target Group assesses whether there are any indicators of impairment for all non-financial assets at the end of each reporting period. Other intangible assets with indefinite life are tested for impairment annually and at other times when such an indicator exists. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

4. OPERATING SEGMENT INFORMATION

Segment information

For management purposes, the Target Group had only one reportable operating segment, which was offering services as an external contract service provider to customers involved in pre-clinical drug discovery relating to synthetic and medicinal chemistry of small molecules during the Relevant Periods. Since this is the only reportable operating segment of the Target Group, no further operating segment analysis thereof is presented.

Geographical information

The geographical information about revenue is disclosed in Note 5(a).

The Target Group's non-current assets are substantially located in the PRC, and accordingly, no related geographical information of non-current assets is presented.

Information about major customers

Revenue derived from sales to customers which amounted to more than 10% of the Target Group's revenue for the years ended December 31, 2017, 2018, and 2019, and the eight months ended August 31, 2019 and 2020 is as follows:

Year ended
December 31,
2017	2018	2019	2020
RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
(Unaudited)
Customer A	19,066	27,988	36,960	24,220	21,702
Customer B	N/A*	10,640	11,088	7,375	7,865
Customer C	5,447	8,219	N/A*	N/A*	N/A*
Customer D	N/A*	N/A*	N/A*	N/A*	6,852
Customer E	N/A*	N/A*	9,744	N/A*	N/A*

Eight months ended

August 31, 2019

*	The corresponding revenue did not amount to over 10% of the total revenue of the Target Group for the
year/period concerned.
5.	REVENUE

An analysis of revenue is as follows:

Year ended December 31,

Eight months ended

August 31,2017

2018

2019

2019

2020

RMB'000

RMB'000

RMB'000

RMB'000 (Unaudited)

RMB'000

Revenue from contracts with customers

50,368

72,624

94,094

55,769

67,085

Revenue from contracts with customers

(a)Disaggregated revenue information

Year ended December 31,

Eight months ended

August 31,2017

2018

2019

2019

2020

RMB'000

RMB'000

RMB'000

RMB'000 (Unaudited)

RMB'000

Type of goods or services Full-time-equivalent ("FTE") Fee-for-service ("FFS")

45,287 5,081

65,969 6,655

83,981 10,113

50,088 60,248

5,681 6,837

Total

50,368

72,624

94,094

55,769 67,085

Year ended December 31,

Eight months ended

August 31,2017

2018

2019

2019

2020

RMB'000

RMB'000

RMB'000

RMB'000 (Unaudited)

RMB'000

Geographical markets

United States of America ("USA") Australia

United Kingdom ("UK") Mainland China

Other countries and regions

26,501

37,212

57,655

32,947 37,510

17,086

25,680

26,038

17,012 18,039

5,938

6,810

6,477

3,760 9,089

87

1

1,060

303 1,043

756

2,921

2,864

1,747 1,404

Total

50,368

72,624

94,094

55,769 67,085

Timing of revenue recognition Services transferred over time Services transferred at a point in time

45,287 5,081

65,969 6,655

83,981 10,113

50,088 60,248

5,681 6,837

Total

50,368

72,624

94,094

55,769 67,085

(b) Performance obligations

Information about the Target Group's performance obligations is summarised below:

For services under the FTE model, revenue is recognised over time at the amount to which the Group has the right to invoice for services performed. Therefore, under practical expedients allowed by IFRS 15, the Group does not disclose the value of unsatisfied performance obligations under the FTE model.

For services under the FFS model, revenue is recognised upon delivery of the compounds and payment is generally due within 30 to 90 days from delivery.

• 6. OTHER INCOME AND GAINS

  Year ended December 31,

  Eight months ended

  August 31,2017

  2018

  2019

  2019

  2020

  RMB'000

  RMB'000

  RMB'000

  RMB'000 (Unaudited)

  RMB'000

  Interest income: - banks - imputed interest income on rental deposits

  21 -

  26 -

  39 9

  16 40

  6 6

  Other gains:

  Government grants and subsidies related to - Income (i)

  Net foreign exchange gain

  Others

  233 - 1,052

  279 - 755

  389 1,176 680

  139 330

  1,600 488

  - 78

  Total

  1,306

  1,060

  2,293

  2,249

  454

  Note:

  (i)Government grants related to income that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Target Group with no future related costs are recognised in profit or loss in the period upon actual receipt.

• 7. FINANCE COSTS

Year ended

Eight months ended

December 31,

August 31,

Interest on - lease liabilities

2017	2019	2019	2020
RMB'000	RMB'000	RMB'000	RMB'000
(Unaudited)
-	1,277	858	809
- III-38 -

-

2018

RMB'000

• 8. PROFIT BEFORE TAX

  Profit before tax has been arrived at after charging:

  Year ended December 31,

  Eight months ended

  August 31,2017

  2018

  2019

  2019

  2020

  RMB'000

  RMB'000

  RMB'000

  RMB'000 (Unaudited)

  RMB'000

  Depreciation of property, plant and equipment

  Depreciation of right-of-use assets

  Staff cost (including directors' emoluments): - Salaries and other benefits - Retirement benefit scheme contributions Auditors' remuneration

  Lease payment in respect of short-term leases

  4,717 - 21,428 1,660 62 3,018

  4,716 - 27,169 2,435 135 20

  5,072 2,123 31,134 3,033 179 167

  3,294 3,439

  1,416 1,416

  19,667 18,748

  1,926 747

  87 78

  111 130

• 9. INCOME TAX EXPENSE

  The Target Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which members of the Target Group are domiciled and operate.

  Hong Kong

The Target Company incorporated in Hong Kong is subject to income tax at a rate of 16.5% on the estimated assessable profits arising in Hong Kong.

Mainland China

Under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of the EIT Law, the EIT rate of the PRC subsidiaries is 25% unless subject to tax exemption set out below.

Synthesis Shanghai and Synthesis Suzhou acquired "Advanced Technology Enterprise" qualification in 2016 and renewed it in 2019 to entitle the preferential tax rate of 15% during the Relevant Periods.

Australia

Under the Treasury Law Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 of Australia, corporate entity who qualified as a small business entity is eligible for the lower corporate tax rate at 27.5%. The subsidiaries incorporated in Australia are qualified as small business entities and are subject to income company tax rate at a rate of 27.5% on the estimated assessable profits.

USA

The subsidiary, incorporated in California, the United States, is subject to statutory United States federal corporate income tax at a rate of 21%. It is also subject to the state income tax in California at a rate of 8.84%.

UK

The subsidiary incorporated in UK is subject to income tax at a rate of 19% on the estimated assessable profits.

Year ended
December 31,
2017	2018	2019	2019	2020
RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
(Unaudited)
Current tax	1,691	1,213	1,677	1,548	3,501
Deferred tax	(908)	1,263	2,601	1,908	(41)
783	2,476	4,278	3,456	3,460

Eight months ended

Total tax charge for the year/period

August 31,

The tax charge for each of the Relevant Periods can be reconciled to the profit before tax per the consolidated statement of profit or loss and other comprehensive income as follows:

Year ended December 31,

Eight months ended

August 31,2017

2018

2019

2019

2020

RMB'000

RMB'000

RMB'000

RMB'000 (Unaudited)

RMB'000

Profit before tax

10,829

18,699

27,208

15,976 20,093

Tax at the applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose

Effect of research and development expenses that are additionally deducted Effect of tax concession

Effect of income that is exempt from taxation

Effect of different tax rates of entities operating in other jurisdictions Others

2,556

4,469

6,530

3,815 4,805

215

344

633

549 347

(303) (1,486)

(694) (1,679)

(831) (2,036)

-

-

(936) (1,637)

(88)

(62)

(5)

(10) (113)

(69) (41)

55 43

(30) 16

35 44

3 14

Income tax expense

783

2,476

4,278

3,456 3,460

10.

DIVIDENDS

No dividend was paid or declared by the Target Company during Relevant Periods. Subsequent to the end of RelevantPeriods, the board of the Target Company declared dividend of approximately HK$27,469,000 to SMC Holdco, the Target Company's sole shareholder, on January 29, 2021.

11.

PROPERTY, PLANT AND EQUIPMENT

Furniture, fixture	Leasehold
and equipment	improvement	Total
RMB'000	RMB'000	RMB'000
December 31, 2017
At January 1, 2017:
Cost	7,835	22,858	30,693
Accumulated depreciation	(3,298)	(8,863)	(12,161)
Net carrying amount	4,537	13,995	18,532
At January 1, 2017, net of accumulated depreciation	4,537	13,995	18,532
Additions	2,609	20	2,629
Depreciation provided during the year	(1,214)	(3,503)	(4,717)
At December 31, 2017, net of accumulated
depreciation	5,932	10,512	16,444
At December 31, 2017:
Cost	10,432	22,878	33,310
Accumulated depreciation	(4,500)	(12,366)	(16,866)
Net carrying amount	5,932	10,512	16,444
December 31, 2018
At January 1, 2018:
Cost	10,432	22,878	33,310
Accumulated depreciation	(4,500)	(12,366)	(16,866)
Net carrying amount	5,932	10,512	16,444
At January 1, 2018, net of accumulated depreciation	5,932	10,512	16,444
Additions	2,222	536	2,758
Depreciation provided during the year	(1,210)	(3,506)	(4,716)
At December 31, 2018, net of accumulated
depreciation	6,944	7,542	14,486
At December 31, 2018:
Cost	12,642	23,414	36,056
Accumulated depreciation	(5,698)	(15,872)	(21,570)
Net carrying amount	6,944	7,542	14,486

December 31, 2019

At January 1, 2019:

Cost

Accumulated depreciation

Net carrying amount

Furniture, fixture	Leasehold
and equipment	improvement	Total
RMB'000	RMB'000	RMB'000
12,642	23,414	36,056
(5,698)	(15,872)	(21,570)
6,944	7,542	14,486
At January 1, 2019, net of accumulated depreciation	6,944	7,542	14,486
Additions	4,664	36	4,700
Disposal	(185)	-	(185)
Depreciation provided during the year	(1,458)	(3,614)	(5,072)
At December 31, 2019, net of accumulated
depreciation	9,965	3,964	13,929
At December 31, 2019:
Cost	15,452	23,450	38,902
Accumulated depreciation	(5,487)	(19,486)	(24,973)
Net carrying amount	9,965	3,964	13,929
August 31, 2020
At January 1, 2020:
Cost	15,452	23,450	38,902
Accumulated depreciation	(5,487)	(19,486)	(24,973)
Net carrying amount	9,965	3,964	13,929
At January 1, 2020, net of accumulated depreciation	9,965	3,964	13,929
Additions	3,297	267	3,564
Depreciation provided during the period	(1,020)	(2,419)	(3,439)
At August 31, 2020, net of accumulated depreciation	12,242	1,812	14,054
At August 31, 2020:
Cost	18,516	23,717	42,233
Accumulated depreciation	(6,274)	(21,905)	(28,179)
Net carrying amount	12,242	1,812	14,054

12.

LEASES

The Target Group as a lessee

The Target Group has lease contracts for various items of properties which generally have lease terms between 1 and 20 years.

The Target Group also has certain leases with lease terms of 12 months or less. The Target Group applies the "short-term lease" recognition exemptions for these leases.

(a)Right-of-use assets

The carrying amounts of the Target Group's right-of-use assets and the movements during the year/period are asfollows:

Properties
RMB'000
As at January 1, 2019	27,950
Depreciation charge	(2,123)
As at December 31, 2019	25,827
As at January 1, 2020	25,827
Depreciation charge	(1,416)
As at August 31, 2020	24,411
(b)	Lease liabilities
The carrying amount of lease liabilities and the movements during the year/period are as follows:
For year ended

December 31, 2019
RMB'000
Carrying amount at January 1, 2019	27,887
Accretion of interest recognised during the year	1,277
Payments	(2,834)
Carrying amount at December 31, 2019	26,330
Analysed into:
Current portion	1,632
Non-current portion	24,698

For eight months

ended August 31,

2020

RMB'000

Carrying amount at January 1, 2020	26,330
New leases	-
Accretion of interest recognised during the period	809
Payments	(2,125)
Carrying amount at August 31, 2020	25,014
Analysed into:
Current portion	1,684
Non-current portion	23,330
(c)	The amounts recognised in profit or loss in relation to leases are as follows:
For eight months

For year ended

December 31, 2019

ended August 31, 2020

RMB'000

RMB'000

Interest on lease liabilities Interest income on rental deposits Depreciation charge of right-of-use assets

1,277 809

9 6

2,123 1,416

Expense relating to short-term leases and other leases with remaining lease terms ended on or before December 31, 2019

151 119

Expense relating to lease of low-value assets (included in administrative expenses)

16 11

Total amount recognised in profit or loss

3,576 2,361

13. TRADE RECEIVABLES

December 31, 2017

December 31, 2018

December 31, 2019

August 31, 2020

RMB'000

RMB'000

RMB'000

RMB'000

Third-party customers

5,009

Allowance for impairment loss/ECLs

(54)

9,489 (241)

20,439 9,340

(669) (629)

4,955

9,248

19,770 8,711

The Target Group allows a credit period ranging from 30 to 90 days to its customers. The credit period is generally one month, extending up to three months for major customers. Each customer has a maximum credit limit. The Target Group seeks to maintain strict control over its outstanding receivables. The Target Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

The ending balance included amount due from fellow subsidiaries of RMB65,000, RMB498,000, RMB6,482,000 and RMB9,167,000 as at 31 December 2017, 2018 and 2019 and August 31, 2020 (Note 27).

The following is an ageing analysis of trade receivables (allowance for impairment loss/ECLs) presented based on the invoice dates, at the end of each of the Relevant Periods:

December 31,	December 31,	December 31,	August 31,
2017	2018	2019	2020
RMB'000	RMB'000	RMB'000	RMB'000
Within 6 months	4,635	7,614	18,593	8,568
7 months to 12 months	320	1,587	827	69
13 months to 18 months	-	47	350	-
19 months to 2 years	-	-	-	59
Over 2 years	-	-	-	15
4,955	9,248	19,770	8,711
Allowance for ECLs under IFRS 9

From January 1, 2018, the Group has applied the simplified approach to provide impairment for ECLs prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with customer type and rating. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if past due for more than one year and are not subject to enforcement activity.

The effect of adoption of IFRS 9 in the loss allowance and movements in provision for the loss allowance under IFRS 9 for impairment of trade receivables are as follows:

RMB'000
At December 31, 2017	54
Effect of adoption of IFRS 9	76
At January 1, 2018	130
ECL	371
Amount written off as uncollectible	(260)
At December 31, 2018	241
ECL	374
Reversal of amount written off as uncollectible	54
At December 31, 2019	669
ECL	(13)
Amount written off as uncollectible	(27)
At August 31, 2020	629

Set out below is the information about the credit risk exposure on the Target Group's trade receivables and amounts due from related parties of trade nature using a provision matrix:

As at August 31, 2020

AgeingLess than 6 months

7 to 12 months

13 to 18 months

19 months to 2 years

Over 2 yearsTotal

Expected credit loss rate

Gross carrying amount (RMB'000) Expected credit losses (RMB'000)As at December 31, 2019

• 3.15% 10.39%

100.00%

80.66% 81.01% 6.73%

8,847 279

77 8

32 32

305 246

79 9,340

64 629

AgeingLess than 6 months

7 to 12 months

13 to 18 months

19 months to 2 years

Over 2 yearsTotal

Expected credit loss rate

Gross carrying amount (RMB'000) Expected credit losses (RMB'000)

As at December 31, 2018

18,833

1.27%

240

24.95% 1,102 275

23.08% 455 105

N/A - -

100.00% 3.27% 49 20,439 49 669

AgeingLess than 6 months

7 to 12 months

13 to 18 months

19 months to 2 years

Over 2 yearsTotal

Expected credit loss rate

Gross carrying amount (RMB'000) Expected credit losses (RMB'000)

2.22%

• 1.18% 48.91%

N/A - -

100.00% 2.54%

7,787

1,606 19

92 45

4 9,489

173

4 241

The movements in the loss allowance for impairment of trade receivables in 2017 under IAS 39 are as follows:

RMB'000

At January 1, 2017 88

Impairment losses recognised under IAS 39 (34)At December 31, 2017 54

Effect of adoption of IFRS 9 76

At January 1, 2018 130

14. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS

December 31,	December 31,	December 31,	August 31,
2017	2018	2019	2020
RMB'000	RMB'000	RMB'000	RMB'000
Prepayments	199	190	50	37
Value-added tax recoverable	8	29	14	15
Deposits and other receivables	625	307	379	304
832	526	443	356

None of the above assets is either past due or impaired. Deposits and other receivables of the Group were considered to be of low credit risk and thus the Group has assessed that the ECL for deposits and other receivables is immaterial under the 12-month expected loss method and no impairment provision is required.

15. CASH AND CASH EQUIVALENTS

December 31, 2017

December 31, 2018

December 31, 2019

August 31, 2020

RMB'000

RMB'000

RMB'000

RMB'000

Cash and bank balances

9,118

17,557

15,854

26,727

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

As at December 31, 2017, 2018 and 2019 and August 31, 2020, bank balances and cash that are denominated in currencies other than the functional currency of the respective group entities are set out below:

December 31, 2017

December 31, 2018

December 31, 2019

August 31, 2020

RMB'000

RMB'000

RMB'000

RMB'000

US$ HK$ AUD GBP

81

5,198

5,680

7,425

23

6

-

20

402

384

-

-

7

7

-

-

16. FINANCIAL ASSETS AT FVTPL

December 31,

2017

December 31, 2018

December 31, 2019

August 31, 2020

RMB'000

RMB'000

RMB'000

RMB'000

Financial products issued by commercial banks

-

260

1,000

1,000

• 17. TRADE PAYABLES

  An ageing analysis of the trade payables that based on the invoice date as at the end of the Relevant Periods is as follows:

  December 31, 2017

  December 31, 2018

  December 31, 2019

  August 31, 2020

  RMB'000

  RMB'000

  RMB'000

  RMB'000

  Within 3 months

  Over 3 months but within 1 year Over 1 year

  560 830 118

  324 126 905

  623

  650

  2

  -

  895 142

  1,508

  1,355

  The trade payables are non-interest-bearing and are normally settled on terms of 30 to 60 days.

• 18. OTHER PAYABLES AND ACCRUALS

  1,520 792

  December 31, 2017

  December 31, 2018

  December 31, 2019

  August 31, 2020

  RMB'000

  RMB'000

  RMB'000

  RMB'000

  Salary and bonus payables Other taxes payable Other payables

  3,547

  568

  5,943

  4,985 1,114 5,818

  7,090 7,500

  1,771 2,649

  5,829 7,413

  10,058

  11,917

  14,690 17,562

  Other payables are non-interest-bearing.

• 19. DEFERRED TAX ASSETS

December 31, 2017

December 31, 2018

December 31, 2019

August 31, 2020

RMB'000

RMB'000

RMB'000

RMB'000

Accrued payroll

Allowance for impairment loss/ECLs Tax losses

Unrealised foreign exchange

553

10

5,051

-

684

32

3,624

-

858 1,007

110 97

776 695

- 166

5,614

4,340

1,744 1,965

Accrued payroll RMB'000

Allowance for impairment loss/ECLs RMB'000

Tax losses RMB'000

Unrealised foreign exchange RMB'000

Total RMB'000

At January 1, 2017 Credited/(charged) to profit or loss

413 140

17 (7)

4,335 - 4,765

716 - 849

At December 31, 2017

Adoption of IFRS 9

553 -

10 14

5,051 - 5,614

-

14

Adjusted balance at January 1, 2018

Credited/(charged) to profit or loss

553 131

24 8

5,051 - 5,628

(1,427)

-

(1,288)At December 31, 2018 Credited/(charged) to profit or loss

684 174

32 78

3,624

-

4,340

(2,848) - (2,596)At December 31, 2019 Credited/(charged) to profit or loss

858 149

110 (13)

776 - 1,744

(81)

166 221

At August 31, 2020

1,007

97

695

166 1,965

• 20. SHARE CAPITAL

  December 31,

  2017

  December 31, 2018

  December 31, 2019

  August 31, 2020

  RMB'000

  RMB'000

  RMB'000

  RMB'000

  Share capital

  46,308

  46,308

  46,308

  46,308

• 21. RESERVES

  Details of the movements on the Target Group's reserves are as set out in the consolidated statements of changes in equity.

  (i) Other reserve

The other reserve as of January 1, 2017 represented contribution from SMC Holdco in prior years.

The decrease in other reserve for the eight months ended August 31, 2020 represented the consideration paid by the

Target Group to acquire subsidiaries under common control as detailed in Note 2.1 to the Historical Financial Information.

(ii) Statutory reserve

In accordance with the Company Law of the PRC and the articles of association of subsidiaries located in Mainland China, each of the subsidiaries located in Mainland China is required to allocate 10% of its profit after tax, as determined in accordance with the PRC generally accepted accounting principles, to the statutory reserve until this reserve reaches 50% of its registered capital. Part of the statutory reserve may be converted to increase the paid-up capital, provided that the remaining balance after the capitalisation is not less than 25% of the registered capital.

(iii) Foreign currency transaction reserve

The exchange fluctuation reserve is used to record exchange differences arising from the translation of the financial statements of subsidiaries located outside Mainland China.

22.

FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the Relevant Periods are as follows:

For the year ended December 31, 2017

Financial assets

Trade receivables

Amounts due from related parties

Financial assets included in prepayments, other receivables and other assets

Cash and cash equivalents

Financial liabilitiesTrade payables

Financial liabilities included in other payables and accruals

For the year ended December 31, 2018

Financial assets

Loans and receivables

RMB'000

4,955 34,544

625 9,118

49,242

Financial liabilities at amortised cost

RMB'000

1,508 5,943

7,451

Financial assets at	Financial assets at
FVTPL	amortised cost	Total
RMB'000	RMB'000	RMB'000
Trade receivables	-	9,248	9,248
Financial assets at FVTPL	260	-	260
Financial assets included in prepayments, other
receivables and other assets	-	307	307
Amount due from related parties	-	44,701	44,701
Cash and cash equivalents	-	17,557	17,557
260	71,813	72,073

Financial liabilitiesTrade payables

Financial liabilities included in other payables and accruals

For the year ended December 31, 2019

Financial assets

Financial liabilities at amortised cost

RMB'000

1,355 5,818

7,173

Financial assets at FVTPL

Financial assets at amortised cost

RMB'000

RMB'000

Total RMB'000

Trade receivables Financial assets at FVTPL

Financial assets included in prepayments, other receivables and other assets

Amount due from related parties Cash and cash equivalents

-

1,000

- - -

19,770 19,770

- 1,000

379 379

66,947 66,947

15,854 15,854

1,000

Financial liabilitiesTrade payables

Financial liabilities included in other payables and accruals Lease liabilities

102,950

103,950

Financial liabilities at amortised cost

RMB'000

1,520 5,829 26,330

33,679

For the eight months ended August 31, 2020

Financial assets

Financial assets at FVTPL

Financial assets at amortised cost

RMB'000

RMB'000

Total RMB'000

Trade receivables Financial assets at FVTPL

-

8,711 8,711

1,000

- 1,000

Financial assets included in prepayments, other receivables and other assets

Amounts due from related parties Cash and cash equivalents

- - -

304 304

77,993 77,993

26,727 26,727

1,000

113,735

114,735

Financial liabilities

Financial liabilities at amortised cost

RMB'000

Trade payables

Financial liabilities included in other payables and accruals Lease liabilities

792 7,413 25,014

33,219

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The directors of the Target Company consider that the carrying amounts of the Target Group's current financial assets and current financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values. The fair values of the financial assets and liabilities are included at the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

The fair values of cash and cash equivalents, trade receivable, trade, financial assets included in prepayments, other receivables and other assets, amounts due from related parties, amount due to related parties and accruals are approximate to their carrying amounts largely due to the short term maturities of these instruments.

The Target Group purchased financial products issued by commercial banks during the Relevant Periods. The financial products were unguaranteed with no fixed maturity period and no fixed expected return rate.

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Target Group's financial instruments:

Assets measured at fair value:

As at December 31, 2017

Fair value measurement usingQuoted prices in active markets (Level 1)

Significant Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3)

RMB'000

RMB'000

RMB'000

Total RMB'000

Financial products issued by commercial banks

As at December 31, 2018

-

-

Fair value measurement using

-

Quoted prices in active markets (Level 1)

-

Significant Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3)

RMB'000

RMB'000

RMB'000

Total RMB'000

Financial products issued by commercial banks

As at December 31, 2019

-

260

Fair value measurement using

-

Quoted prices in active markets (Level 1)

260

Significant Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3)

RMB'000

RMB'000

RMB'000

Total RMB'000

Financial products issued by commercial banks

As at August 31, 2020

-

1,000

Fair value measurement using

-

Quoted prices in active markets (Level 1)

1,000

Significant Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3)

RMB'000

RMB'000

RMB'000

Total RMB'000

Financial products issued by commercial banks

-

1,000

-

1,000

24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target Group's principal financial instruments comprise cash and cash equivalents. The main purpose of these financial instruments is to raise finance for the Target Group's operations. The Target Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Target Group's financial instruments are foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Foreign currency risk

The Target Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units' functional currencies.

The following table demonstrates the sensitivity at the end of the Relevant Periods to a reasonably possible change in foreign currency exchange rate, with all other variables held constant, of the Target Group's profit before tax and equity (due to changes in the fair value of monetary assets and liabilities).

Increase/	Increase/	(Decrease)/
(Decrease) in	(Decrease) in	Increase
US$/RMB	profit before tax	in equity
RMB'000	RMB'000
For the year ended December 31, 2017
If RMB weakens against the US$	5%	168	763
If RMB strengthens against the US$	(5%)	(168)	(763)
For the year ended December 31, 2018
If RMB weakens against the US$	5%	459	1,769
If RMB strengthens against the US$	(5%)	(459)	(1,769)
For the year ended December 31, 2019
If RMB weakens against the US$	5%	781	2,799
If RMB strengthens against the US$	(5%)	(781)	(2,799)
For the eight months ended August 31,
2020
If RMB weakens against the US$	5%	443	3,224
If RMB strengthens against the US$	(5%)	(443)	(3,224)
Credit risk

Since 1 January 2018, the Target Group has applied the general approach to provide for expected credit losses for non-trade other receivables under IFRS 9. For the amount due form related parties, the balance will be settled in reduction of capital subsequently and had no historical default. The Target Group considers the historical loss rate and adjusts for forward-looking macroeconomic data in calculating the expected credit loss rate. As at the end of the Relevant Periods, the Target Group estimated that the expected credit loss rate for the amount due from related parties was minimal.

The Target Group trades only with recognised and creditworthy third parties. It is the Target Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In order to minimise the credit risk, the Target Group reviews the recoverable amount of each individual trade receivable periodically and management also has monitoring procedures to ensure that follow-up action is taken to recover overdue receivables. In this regard, the directors of the Target Company consider that the Target Group's credit risk is significantly reduced.

As at December 31, 2017, 2018 and 2019 and August 31, 2020, the Target Group had certain concentrations of credit risk as 65%, 45%, 36% and 27%, of the Target Group's total gross trade receivables (including those amounts due from related parties of trade nature) were due from the Target Group's largest customer.

The carrying amounts of cash and cash equivalents, financial assets included in prepayments, other receivables and other assets in the consolidated statements of financial position represent the maximum exposure to credit risk in relation to its financial assets. The Target Group expect that there is no significant credit risk associated with cash deposits with bank since they are substantially deposited with state-owned banks and other medium or large-sized listed banks. The management does not expect that there will be any significant losses from non-performance by these counterparties.

Liquidity risk

The Target Group's liquidity remained strong as at the end of each Relevant Periods. During the year, the Target Group's primary source of funds was cash derived from operating activities. The directors consider that the Target Group's exposure to liquidity risk is not significant.

The maturity profile of the Target Group's financial liabilities as at the end of the Relevant Periods, based on the contractual undiscounted payments, is as follows.

Weighted average

interest rate	Less than 1 year	Over 1 year	Total
RMB'000	RMB'000	RMB'000
At December 31, 2017
Other payables and accruals	N/A	6,850	-	6,850
Trade payables	N/A	1,508	-	1,508
8,358	-	8,358
At December 31, 2018
Other payables and accruals	N/A	7,548	-	7,548
Trade payables	N/A	1,355	-	1,355
8,903	-	8,903
At December 31, 2019
Other payables and accruals	N/A	8,646	-	8,646
Trade payables	N/A	1,520	-	1,520
Lease liabilities	4.75%-4.90%	2,834	34,723	37,557
13,000	34,723	47,723
At August 31, 2020
Other payables and accruals	N/A	11,103	-	11,103
Trade payables	N/A	792	-	792
Lease liabilities	4.75%-4.90%	2,834	32,598	35,432
14,729	32,598	47,327
Capital management

The primary objectives of the Target Group's capital management are to safeguard the Target Group's abilities to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders' value. The Target Group funds its operations principally via its capital.

The Target Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Target Group may seek for new capital investment or new debts. No changes were made in the objectives, policies or processes for managing capital, during the Relevant Periods.