ChatDOC/OCRFlux-bench-single huggingface dataset:
# IX. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

# 1. Objective and policies of risk management (Continued)

# (2) Credit risk (Continued)

The Company places its liquid funds at banks with relatively higher credit ratings; therefore, the credit risk with respect to liquid funds is low.

Since the Company’s risk exposures are distributed among various contractual parties and various customers, the Group has no significant concentration risk. Top five account receivables in total: RMB341,388,578.27.

# (3) Liquidity risk

The liquidity risk is the Company’s impossibility to perform its financial obligations after the maturity date. In the management of the liquidity risk, the Company monitors and maintains a level of working capital deemed adequate by the management to perform the Company’s obligations, thus will not cause loss or damage to the reputation of the Company. Moreover, the Company analyses its debt structure and deadline regularly and maintain sufficient fund. The management monitors the utilization of bank borrowings and ensures compliance with loan covenants. In the meanwhile, the management conducts negotiation on financing issues with financial institutions to maintain enough credit limits and mitigate liquidity risk.

The Company’s main capital source is from bank borrowing. As at 31 December 2018, the unused credit facilities of bank borrowing of the Company was RMB3.270 billion (31 December 2017: RMB3.689 billion), including unused short-term bank borrowings facilities of the Company of RMB3.100 billion (31 December 2017: RMB3.257 billion), representing a significant change as compared to last year, mainly due to the issuance of bonds for financing in this period which results in more remaining credit of bank borrowings.
COVID-19 has also had a negative impact on project implementation and customer usage of OneConnect’s solutions as it has caused delays in project implementation and client interaction.

# Regulatory risk is hurting revenue growth in the near-term

OneConnect operates in an industry where customers face high regulatory risk, with the regulatory environment still evolving. This is especially the case for revenues relating to co-lending or facilitation of loans, which we think a sizeable number of small banks employ to help boost loan growth.

The revenue segment most at risk from stricter regulations is OneConnect’s business origination segment (13% of revenue in 1H21), in particular those relating to Internet marketing-related services. Some element of operation support (27% of revenues in 1H21), in particular those relating to asset monitoring services, are also impacted. Risk management revenues (11% of revenues in 1H21) are also at risk.

Specifically, OneConnect has flagged four regulations in Fig 25 that impact its business in two main areas - namely the use of personal data and limits to the geographical expansion of regional banks (namely city commercial banks and rural commercial banks).

For the use of personal data, the key regulations are Measures for the Administration of Credit Investigation Services (Draft for Comments)（征信业务管理办法 (征求意见稿)）and Measures for Cybersecurity Review (Revision Draft for Comments)（国家互联网信息办公室关于《网络安全审查办法(修订草案征求意见稿)》.

These state that Internet platforms need authorisation from individuals to collect personal data. This means that Internet platforms collecting personal data are now required to obtain explicit approval from users. As a result, banks have to adjust their way of approaching risk management to ensure compliance with the new regulations.

For geographical limitations on regional banks, the regulations are Notice on Regulating Personal Deposit Business by Commercial Banks through the Internet (关于规范商业银行通过互联网开展个人存款业务有关事项的通知) and Interim Measures for the Administration of Internet Loans of Commercial Banks(商业银行互联网贷款管理暂行办法).

Under these two regulations, regional banks are not allowed to carry out any activities beyond branch presence. Also, commercial banks cannot offer deposit products through third-party Internet platforms. This new rule affects new business development through online channels for these regional banks. OneConnect has stopped offering products that are not compliant with the new rules on its platform.

OneConnect quantified the revenue impact of these four regulations, stating at its 2Q21 results that revenue exposure to these regulations was more than Rmb500m in FY20. In 1H21, the actual negative impact to revenues from these regulations was Rmb170m, and stemmed from hits to Internet marketing-related services and asset monitoring services, in particular in 2Q21. OneConnect stated at its 2Q21 analyst briefing that risk management revenues would also be impacted in 2H21F.
# 21 TRADE RECEIVABLES

As at 31 December	As at
30 June
2017	2018	2019	2020
RMB’000	RMB’000	RMB’000	RMB’000
Trade receivables (Note (a))
– Related parties (Note 34(b)) 	97,848	254,914	349,303	475,419
– Third parties	115,474	143,819	248,693	618,158
213,322	398,733	597,996	1,093,577
Less: allowance for impairment of
trade receivables 	(5,220)	(6,130)	(11,740)	(17,440)
208,102	392,603	586,256	1,076,137

(a) Trade receivables mainly arise from property management services managed under lump sum basis and value-added services.

Property management services income under lump sum basis are received in accordance with the term of the relevant property service agreements. Service income from property management services is due for payment by the property owners upon rendering of services.

As at 31 December 2017, 2018 and 2019 and 30 June 2020, the ageing analysis of the trade receivables based on date of revenue recognition were as follows:

As at 31 December	As at
30 June
2017	2018	2019	2020
RMB’000	RMB’000	RMB’000	RMB’000
Within 1 year 	178,549	352,931	502,635	958,654
1 to 2 years 	22,646	27,823	43,024	91,581
2 to 3 years 	6,763	13,079	31,418	25,738
3 to 4 years 	2,970	2,409	16,841	12,506
4 to 5 years 	1,051	1,379	3,040	3,863
Over 5 years 	1,343	1,112	1,038	1,235
213,322	398,733	597,996	1,093,577

As at 31 December 2017, 2018 and 2019 and 30 June 2020, trade receivables were denominated in RMB, and the fair value of trade receivables approximated their carrying amounts due to short credit term.
The Group applies the simplified approach to provide for expected credit losses prescribed by HKFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Movements on the provision for impairment of trade receivables are shown in Note 3.1(b). For the years ended 31 December 2017, 2018 and 2019 and the six months ended 30 June 2020, a provision of RMB1,080,000, RMB910,000 and RMB2,199,000 and RMB5,248,000 was made against the gross amounts of trade receivables. For the year ended 31 December 2019, a provision of RMB3,411,000 was derived from the effect of combination of Chengdu Global Century. For the six months ended 30 June 2020, a provision of RMB452,000 was made against the originally impaired trade receivables from NCPM since the date of acquisition. The provision for impairment increased during the Track Record Period due to the increase of trade receivables.

# 22 PREPAYMENTS AND OTHER RECEIVABLES

As at 31 December	As at 30 June
2017	2018	2019	2020
RMB’000	RMB’000	RMB’000	RMB’000
Current	Non-
current	Current	Non-
current	Current	Non-
current	Current	Non-
current
Prepayments
– Utilities 	4,573	–	7,637	–	5,711	–	9,300	–
– Short-term rental
fees 	758	–	2,692	–	5,323	–	11,466	–
– Raw materials for
enigneering and
maintenance
services	–	–	817	–	1,992	–	5,451	–
– Deferred listing
expenses 	–	–	–	–	–	–	2,486	–
– Others	1,365	–	1,120	1,082	5,430	570	13,958	2,380
6,696	–	12,266	1,082	18,456	570	42,661	2,380
Other receivables
– Related parties
(Note 34 (b)) (c)  	3,222	–	69,612	–	282,262	–	81,188	56,667
– Loan to a related
party (b)
(Note 34 (b)) 	713,200	614,600	614,600	–	–	–	–	–
– Payments on
behalf of property
owners (a) 	12,547	–	18,113	–	36,995	–	49,606	–
– Emlpoyees in
advance	7,311	–	8,982	–	11,492	–	11,037	–
– Deposits 	5,488	–	6,781	–	10,148	–	35,069	5,863
– Others	5,263	–	3,766	–	2,185	–	2,935	–
747,031	614,600	721,854	–	343,082	–	179,835	62,530
Less: allowance for
impairment of other
receivables 	(803)	–	(1,428)	–	(2,095)	–	(5,756)	–
746,228	614,600	720,426	–	340,987	–	174,079	62,530
Total prepayments and
other receivables  	752,924	614,600	732,692	1,082	359,443	570	216,740	64,910
The following table presents the purchase price allocation among the assets acquired and liabilities assumed with respect to the NeoTract acquisition:

(Dollars in thousands)
Assets
Current assets	$ 32,887
Property, plant and equipment	6,980
Intangible assets	763,314
Goodwill	341,171
Other assets	184
Total assets acquired	1,144,536
Less:
Current liabilities	13,580
Deferred tax liabilities	155,806
Liabilities assumed	169,386
Net assets acquired	$ 975,150

The Company is continuing to evaluate the initial purchase price allocations in connection with its acquisition of NeoTract, and further adjustments may be necessary as a result of the Company's assessment of additional information related to the fair values of the assets acquired and liabilities assumed, primarily deferred tax liabilities, certain intangible assets and goodwill. The goodwill resulting from the NeoTract acquisition primarily reflects the benefit the Company expects to realize from the establishment of new customer relationships and the development of technology resulting from the operation of NeoTract's business. Goodwill arising from the NeoTract acquisition is not tax deductible.

The following table sets forth the components of identifiable intangible assets acquired and the ranges of the useful lives as of the date of the NeoTract acquisition:

Fair value	Useful life
(Dollars in thousands)	(Years)
Intellectual property	$ 492,118	15
Trade names	161,637	25
Customer relationships	109,559	15

# Tianjin Medis Medical Device Co. LTD

On September 15, 2017, the Company acquired certain assets from one of its contract manufacturers, Tianjin Medis Medical Co. LTD ("Tianjin Medis"), consisting of substantially all of the assets used by Tianjin Medis to manufacture a line of the Company's laryngeal masks. The aggregate consideration transferred for the assets was \$21.3 million, which included payments of \$16.0 million and \$5.3 million in estimated fair value of contingent consideration. The assets acquired include goodwill and finite­lived intangible assets (consisting of intellectual property, customer relationships and a non­compete agreement) of \$14.7 million and \$6.9 million, respectively. The goodwill resulting from the acquisition primarily reflects synergies currently expected to be realized from the integration of the acquired business and is not tax deductible.

# Pyng Medical Corp

On April 3, 2017, the Company completed the acquisition of Pyng Medical Corp ("Pyng"), a medical device company that developed and marketed sternal intraosseous infusion products, which complement the Company's anesthesia product portfolio. The Company acquired all of the issued and outstanding common shares of Pyng utilizing available cash. The aggregate consideration was \$17.9 million, net of cash acquired. The assets acquired include goodwill and finite­lived intangible assets (primarily intellectual property and customer relationships) of \$13.0 million and \$5.5 million, respectively. The goodwill resulting from the acquisition primarily reflects synergies currently expected to be realized from the integration of the acquired business and is not tax deductible.
# Revenue

The Group’s revenue from continuing operations increased by 46.8% quarter-on-quarter from HK\$7,000 million in the first quarter of 2020 to HK\$10,277 million in the second quarter of 2020. The following table illustrates the revenue in the second and first quarter of 2020 based on different business:

Three months ended
30 June 2020
(unaudited)	31 March 2020
(unaudited)
HK$’000	Proportion
in the total
revenue	HK$’000	Proportion
in the total
revenue
TCL brand TV business
– Overseas	6,053,196	58.9%	4,269,400	61.0%
– the PRC	2,504,517	24.4%	1,889,501	27.0%
Internet services
– the PRC	249,689	2.4%	146,885	2.1%
– Overseas	116,021	1.1%	8,463	0.1%
O#thers	1,353,988	13.2%	685,419	9.8%
Total revenue	10,277,411	100.0%	6,999,668	100.0%

\# Others mainly comprises revenue from smart home, smart commercial display and smart AV businesses

# TV Business

# Overseas

Revenue of TCL brand TV increased by 41.8% from HK\$4,269 million in the first quarter of 2020 to HK\$6,053 million in the second quarter. The sales volume of TCL brand TV grew by 35.1% from 3.11 million sets in the first quarter of 2020 to 4.20 million sets in the second quarter. The turnaround was attributable to the Group’s active response to the pandemic by swiftly adjusting market strategies and supply capacity which drove up the TV sales.

# The PRC

Revenue of TCL brand TV rose by 32.5% from HK\$1,890 million in the first quarter of 2020 to HK\$2,504 million in the second quarter. The sales volume of TCL brand TV increased by 38.2% from 1.16 million sets in the first quarter of 2020 to 1.61 million sets in the second quarter of 2020. The increase was driven by the Group’s active adjustment of distribution sales and introduction of live-streaming sales, offline channel promotion and other types of sales methods, which contributed to impressive online and offline sales performance.
The sales volume of TCL brand TV through online distribution channels in the PRC market increased by 70.6% from 510,000 sets in the first quarter of 2020 to 870,000 sets in the second quarter. The offline sales volume increased by 13.9% from 650,000 sets in the first quarter of 2020 to 740,000 sets in the second quarter of 2020. The growth was powered by the Group’s increased investment in marketing resources of online sales and maintenance of advantages of offline sales distribution channels.

# Internet Services

# The PRC

Revenue of the Internet business in the PRC (mainly relevant business of Falcon Network Technology) increased by 70.0% from HK\$147 million in the first quarter of 2020 to HK\$250 million in the second quarter. Among which, revenue from membership business, value-added business and advertising business of Falcon Network Technology rose by 12.0%, 363.8% and 23.4% over the previous quarter, respectively. The progress was mainly attributable to Falcon Network Technology’s constant enrichment of platform content and improvement of user experience, which contributed to continuous enhancement of user loyalty. Meanwhile, under the positive influence of homebound life due to the pandemic, more and more consumers chose large-screen TV as the entertainment terminal.

# Overseas

Revenue from overseas Internet business increased by 1,270.9% from HK\$8 million in the first quarter of 2020 to HK\$116 million in the second quarter, mainly due to the overseas Internet revenue of the first half in 2020 recognised in the second quarter.

# Gross Profit and Gross Profit Margin

Due to the Group’s efforts in catching up business in the second quarter of 2020, the overall gross profit of the Group increased by 53.2% from HK\$1,400 million in the first quarter of 2020 to HK\$2,144 million in the second quarter. Moreover, the gross profit margin in the second quarter of 2020 increased by 0.9 percentage point to 20.9% compared with the first quarter of 2020.

# TV Business

# Overseas

The gross profit margin of the Group’s TCL brand TV in the overseas markets decreased by 0.8 percentage point from 17.8% in the first quarter of 2020 to 17.0% in the second quarter. The change was mainly attributable to adjustment of regional structure. Rapid growth was seen in the European and emerging markets with high gross profit in the first quarter of 2020, while the business in North America with low gross profit (low expenses) grew fast in the second quarter.
# 28 Derivative financial instruments

Note	2020	2019
HK$’m	HK$’m
Derivative financial assets
Cross currency swaps	(a)	0.2	34.4
Interest rate swaps	(b)	1,493.0	–
Fuel price swaps	–	5.6
Foreign currency forward contracts	0.6	–
Put option	(c)	478.9	–
1,972.7	40.0
Represented by
Non-current assets	1,972.0	34.4
Current assets	0.7	5.6
1,972.7	40.0
Derivative financial liabilities
Cross currency swaps	(a)	(92.9)	–
Interest rate swaps	(3.6)	(15.3)
Fuel price swaps	(141.5)	(5.3)
Foreign currency forward contracts	(0.4)	(11.5)
(238.4)	(32.1)
Represented by
Non-current liabilities	(140.7)	(8.3)
Current liabilities	(97.7)	(23.8)
(238.4)	(32.1)

# (a) Cross currency swaps

As at 30 June 2020, the Group has certain cross currency swap contracts designated as cash flow hedges against its foreign currency risk in respect of cash flows from certain bond investments and bank loan with total notional amount of US\$122.9 million (2019: Nil) and HK\$1,005.7 million (2019: Nil), respectively, and with maturities ranging from 2020 to 2029. These cross currency swap contracts are entered with several counterparties over the counter. The Group seeks to hedge the foreign currency risk by the exchange of payments denominated in targeted currency, and applies a hedge ratio of 1:1. The existence of an economic relationship between the cross currency swap contracts and the highly probable forecast transactions/actual transaction is determined based on their currency amounts and the timing of their respective cash flows. The terms of the cross currency swap contracts have been negotiated to match the terms of the underlying bond investments and bank loan. The cash flow hedges were assessed to be highly effective and the related cumulative losses in the hedge reserve amounted to HK\$72.9 million (2019: Nil).
# 28 Derivative financial instruments (continued)

# (b) Interest rate swaps

As at 30 June 2020, the Group’s insurance business has certain forward starting swap contracts designated as cash flow hedges against its interest rate risk in respect of bonds to be purchased in the future. Under the contracts, the Group’s insurance business will be entitled to receive fixed rate of around 4% to 5% per annum, and required to pay floating rate of 3-month LIBOR, in USD published by the British Banker’s Association. The total notional amount was US\$450.0 million (2019: Nil).The cash flow hedge was assessed to be highly effective and the related cumulative gains in the hedge reserve amounted to HK\$477.9 million (2019: Nil).

The Group’s insurance business seeks to hedge the interest rate risk by the exchange of payments benchmarked against the targeted fixed interest rate. The Group’s insurance business applies an approximate hedge ratio of 1:1 and determines the existence of an economic relationship between the forward starting swap contracts and the debt security investments by matching their critical terms, including the reference interest rates and interest payments.

As at 30 June 2020, the Group’s insurance business received HK\$1,582.0 million (2019: Nil) cash and bank balance from counterparties (note 39) as collateral which are repayable on demand. Interest is calculated on overnight federal fund rate and payable to counterparties.

# (c) Put option

As at 30 June 2020, the Group’s insurance business holds a put option to sell or dispose of an equity investment held by the Group, which is classified as financial assets at FVOCI, at a specified price within a specified transaction period. As at 30 June 2020, the fair value of the underlying equity investment amounted to HK\$252.3 million (2019: Nil).

# 29 Other non-current assets

Note	2020	2019
HK$’m	HK$’m
Deposits paid for acquisition of a subsidiary	50(b)	–	3,120.0
Security deposits	400.7	852.2
Deferred tax assets	40	22.8	28.0
Policy loans	478.4	–
Others	296.8	3.3
1,198.7	4,003.5
NOTE
附註	2018
2018年	2017
2017年
HK$
港元	HK$
港元
Total comprehensive expense 應佔全面開支總額：
attributable to:
Owners of the Company 本公司擁有人	(37,303,735)	(15,360,658)
Non-controlling interests 非控股權益	(1,067,371)	(2,007,541)
(38,371,106)	(17,368,199)
From continuing and discontinued 自持續及終止經營業務
operations
Loss per share 每股虧損
Basic and diluted (HK Cents) 基本及攤薄（港仙）	16	(0.43)	(0.18)
From continuing operations 自持續經營業務
Loss per share 每股虧損
Basic and diluted (HK Cents) 基本及攤薄（港仙）	16	(0.43)	(0.25)
NOTES
附註	2018
2018年	2017
2017年
HK$
港元	HK$
港元
Non-current assets 非流動資產
Plant and equipment 器械及設備	17	2,675,374	1,440,279
Investment property 投資物業	18	–	12,900,000
Goodwill 商譽	19	1,399,146	–
Intangible assets 無形資產	20	330,000	–
Equity instruments at fair value 按公平值計入其他
through other comprehensive income 全面收益的股本工具	22	1,423,467	–
Deposit paid for acquisition 收購一間聯營公司的已付按金
of an associate	26	16,600,000	–
Rental deposits 租金按金	26	570,604	–
22,998,591	14,340,279
Current assets 流動資產
Financial assets at fair value 按公平值計入損益
through profit or loss 的金融資產	23	1,062,000	2,907,000
Amount due from a former 應收前股東款項
shareholder	24	–	2,510
Loan receivables 應收貸款	25	6,975,770	–
Trade and other receivables 貿易及其他應收款項	26	4,371,950	5,028,934
Tax recoverable 可收回稅項	–	657,372
Bank balances and cash 銀行結餘及現金	27	10,686,511	41,955,423
23,096,231	50,551,239
Current liabilities 流動負債
Trade and other payables 貿易及其他應付款項	28	7,575,844	6,253,027
Contract liabilities 合約負債	29	550,785	–
Other borrowing 其他借款	30	10,000,000	–
Tax payable 應付稅項	117,353	68,898
Amounts due to a non-controlling 應付一間附屬公司
shareholder of a subsidiary 非控股股東的款項	31	113,953	113,953
Bank overdrafts 銀行透支	27	2,894,173	–
21,252,108	6,435,878
Net current assets 流動資產淨值	1,844,123	44,115,361
Total assets less current liabilities 總資產減流動負債
and net assets 及資產淨值	24,842,714	58,455,640
17

# BOARD OF DIRECTORS (continued)

# Meetings of the Board and Directors’ Attendance Records

The regular meeting of the Board is scheduled four times a year at approximately quarterly intervals with notice given to the Directors at least 14 days in advance. For all other Board meetings, notice will be given in a reasonable time in advance. The Directors are allowed to include any matter in the agenda that is required for discussion and resolution at the meeting. To enable the Directors to be properly briefed on issues arising at each of the Board meetings and to make informed decisions, an agenda and the accompanying Board papers will be sent to all Directors at least three days before the intended date of the Board meeting, or such other period as agreed. The company secretary of the Company (the “Company Secretary”) is responsible for keeping all Board meetings’ minutes. Draft and final versions of the minutes will be circulated to the Directors for comments and record respectively within a reasonable time after each meeting and the final version is open for the Directors’ inspection.

The attendance record of each Director in respect of the meetings of the Board, Audit Committee, Remuneration Committee, Nomination Committee as well as the annual general meeting on 31 July 2020 (the “AGM”) is set out below:

Name of directors	Attendance/Number of Meetings
Board	Audit
Committee	Remuneration
Committee	Nomination
Committee	AGM
Executive Directors:
Mr. Kwong	4/4	N/A	N/A	1/1	1/1
Ms. Kwong	4/4	N/A	N/A	N/A	1/1
Mr. Lam	4/4	N/A	N/A	N/A	1/1
Independent Non-executive
Directors:
Mr. Lai	3/4	4/5	2/2	N/A	1/1
Dr. Cheng	4/4	5/5	2/2	1/1	1/1
Mr. Kwok	4/4	5/5	2/2	1/1	1/1

The Board held a meeting on 18 June 2021 and, amongst other matters, considered and approved the audited consolidated financial statements of the Group for the Year.

Apart from the Board meetings above, consents and/or approvals of the Board were also obtained by way of written resolutions on a number of matters.