your O2O Partner ANNUAL REPORT 2019 your O2O Partner We are a fully-fledged Online to Offline trading and service provider that propels brands and retailers into the Chinese virtual and bricks and mortar shelves with a unique one-stop solution New Retail Online to Offline www.eCargo.com e C a r g o A N N U A L R E P O R T 2 0 1 9 For personal use only About ECG eCargo Holdings Limited (ASX: ECG) [ECG] is a fully-fledged Online to Offline trading and service provider that propels brands and retailers into the Chinese virtual and bricks and mortar shelves with a unique one-stop solution. It comprises a specialist execution group of companies, with operating companies in China and Australia trading under the brand names of eCargo, Metcash Asia, Jessica’s Suitcase and Amblique, providing on-demand digital commerce strategy, China trading strategy, technology development and the related execution services for retailers and brands. eCargo acts as a “one-stop” enabling partner for designer fashion, branded apparel and retail companies seeking to sell their products online in China by providing integrated online and offline technology and supply chain solutions. Metcash wholesales and distributes to a number of supermarkets and retail groups in China and operates cross-border eCommerce stores through key platforms such as Alibaba’s Tmall Global and JD Worldwide. Jessica’s Suitcase, headquartered in Sydney, operates an online store on Alibaba’s Tmall Global, offering quality Australia and New Zealand groceries and foodstuff products to Chinese consumers through the cross-border online channel. Amblique is a leading digital commerce consultancy, providing retail strategy, eCommerce platform implementation and optimisation services in Australia and New Zealand. your O2O Par tner “ECG is well-positioned as an enterprise with diversified business in distribution, wholesale, logistics, eCommerce operations and digital consultancy services.” Mr. John Lau, Executive Chairman For personal use only Contents 2 4 8 2019 Highlights Chairman Statement Board of Directors and Executive Team 14 Corporate Governance Report 30 Directors’ Report 36 45 50 Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements 128 ASX Additional Information 132 Corporate Directory For personal use only Highlights 2019 • • • • Revenue up 32% to HK$177.4 million EBITDA* loss down 34% to HK$6.7 million Statutory net loss down 45% to HK$74.6 million Record year on EBITDA for eCommerce-enabling and Amblique • Consolidation of online and office (O2O) FMCG offerings • Successful expansion into South East Asian countries through the establishment of joint venture, ABG Group • Cross-Border eCommerce (CBEC) Growth Program launched as an incubation initiative for FMCG brand your O2O Par tner * EBITDA is defined as earnings before non-cash items such as finance income, finance expense, tax, depreciation of property, plant and equipment, depreciation of right-of-use assets, amortization of intangible assets, impact of foreign exchange, ECG’s share of results from an associate and a joint venture, provision for impairment of interest in an associate, gain or loss on fair value of acquisition and financial derivatives and provision for impairment of goodwill. Highlights 2019For personal use only Revenue HK $[177.4] Million EBITDA loss down [34]% Statutory net loss down [45]% Highlights 2019For personal use only Well-positioned as an enterprise with O2O offerings Dear Shareholders, On behalf of the Board of Directors (the “Board”), I am pleased to present the Annual Report of eCargo Holdings Limited (the “Company”) and its subsidiaries, collectively “ECG” of the “Group” for the year ended December 31, 2019. “ 2019 is the first financial year that has fully consolidated the results of our Fast-moving consumer goods (“FMCG”) business units Metcash Export Services Pty Ltd and Jessica’s Suitcase Pty Ltd acquired in the recent years. Following our strategy of business transformation and these acquisitions, ECG is well-positioned as an enterprise with full-fledged capabilities on Online to Offline (“O2O”) distribution in FMCG. I am also pleased to report that both of our traditional business, eCommerce-enabling business and Amblique’s digital consultancy business, continued the strong momentum from last year and recorded the highest EBTIDA margin in our history. Financial performance ECG reported a consolidated statutory net loss for the year of HK$74.6 million with an EBITDA loss of HK$6.7 million. Excluding the results of FMCG, statutory net loss of the other business units combined would be HK$63.2 million, reduced by 53% compared to 2018 reflecting (i) decreased amortisation charge by HK$10.8 million; (ii) absence of 2018 impairment on investment in MM- E-Commerce Limited of HK$72.5 million; (iii) absence of the loss on disposal of interest in an associate of HK$39.0 million in 2018; (iv) absence of fair value gain on financial assets of HK$13.9 million this year; and (v) an impairment charge of HK$49.3 million on FMCG recorded in this year. Accordingly, EBITDA of non-FMCG business ECG has transformed itself into a business with end-to- end capabilities on both B2B wholesale and distribution and B2C services to end customers ” units would be HK$4.4 million, an improvement of 144% over the HK$10.1 million loss of the previous year. Consolidated revenue of the year was HK$177.4 million (2018: HK$134.5 million) of which HK$18.1 million (2018: HK$32.5 million) was attributable to eCommerce-enabling business, HK$85.9 million (2018: HK$97.1 million) was contributed by Amblique and HK$71.0 million (2018: HK$2.5 million) was contributed by the FMCG business unit. The remaining was licensing revenue of HK$2.4 million attributed to the corporate segment same as the previous year. eCommerce-enabling is our primary business unit providing online store operation and fulfilment services for foreign fashion and cosmetics brands selling in China. Despite this segment revenue decreased by 43% year-on-year, gross profit margin increased by 11% and achieved a positive EBITDA for the first time because of discontinuing certain non-profitable customers and non- core service offerings. 4 eCargo Annual Report 2019 Chairman StatementFor personal use only “ Cross-Border eCommerce Growth Program successfully launched in August 2019 ” Amblique, our SaaS-based eCommerce technology and digital consulting solutions business based in Australia, recorded an encouraging result in 2019. Revenue decreased slightly however, EBITDA increased significantly by 82% mainly attributable to client services offering to the existing customers at higher margin and savings in overhead. FMCG became a major revenue driver for ECG following the acquisition of Metcash’s China business in February 2019. It has accounted for 40% of ECG’s revenue this year and is expected to continue and increase in the future. During the year, several new initiatives were undertaken which expanded our service offerings, these include: • the CBEC Growth Program introduced in August 2019 which aims to incubate FMCG brands on existing eCargo online flagship stores. The program targets foreign brands aiming to enter into China and provides a full-service, cost-conscious entry option to brand owners; eCargo Annual Report 2019 5 Chairman StatementFor personal use only Chairman Statement Looking forward The coronavirus (COVID-19) outbreak has become a pandemic as pronounced by the World Health Organization. It is impacting the economy and business activities as well as social life on a global scale at the moment I am writing this report. The Group’s overall business has not seen a significant impact • • expanded ECG’s O2O distribution network and our supplier base, diversifying from Australian based suppliers to UK, Europe and South Africa; and established a joint venture (ABG Group) in September 2019, which has provided a scalable professional sourcing and distribution network for brands looking to enter and grow in the South East Asian (“SEA”) markets. This joint venture achieved A$6 million sales for three months in 2019 and contributed HK$0.5 million to the ECG’ s results accordingly. The Company did not propose any dividend distribution or buy back during the year. Evolving our strategy ECG has transformed itself into a business with end-to-end capabilities on both B2B wholesale and distribution and B2C services to end customers. As a newly combined business we continue to leverage our strong relationships in China and SEA to increase our distribution network and product offerings. Our investment in the ABG Group joint venture has performed extremely well and we will continue to invest appropriately in the right channels to ensure ROI is adequate and provides a right level of diversification to our portfolio of businesses. 6 eCargo Annual Report 2019 For personal use only currently due to our exposure to the online business. As of the date of this report, the management was not aware of any material adverse effects on the financial statements as a result of the outbreak but are closely monitoring its development and evaluating its impact on the financial position and operating results. A series of precautionary and control measures have been implemented. We shall remain vigilant and cautious so that to ensure ourselves to respond swiftly should the situation worsen. On behalf of ECG, I would like to thank the Board of Directors, the management and every member of our committed staff for their dedication and hard work over the past year, and our Shareholders and Stakeholders for their continued confidence and support. I look forward to meeting you at our upcoming Annual General Meeting. Mr. John Lau Executive Chairman eCargo Annual Report 2019 7 Chairman StatementFor personal use only Board of Directors and Executive Team The Board of Directors (the “Board”) currently consists of five Directors, comprising one Executive Director, one Non-Executive Director and three Independent Non-Executive Directors. The Board has broad experience in the retail supply chain, eCommerce, logistics, finance and retail management. The Board is well-positioned to develop and implement ECG’s strategic objectives. In accordance with ASX Listing Rules 14.4, a Director of an entity must not hold office (without re-election) past the third Annual General Meeting following the Director’s appointment or 3 years, whichever is longer and a Director of an entity is appointed to fill a casual vacancy or as an addition to the Board, must not hold office (without re-election) past the next Annual General Meeting. Mr. Christopher Lau, Mr. Rupert Myer AO and Mr. Yuming Zou shall retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. Name Position Independence Re-appointment date Mr. John Lau Executive Chairman, Executive Director Non-independent May 14, 2019 Mr. Christopher Lau Non-Executive Director Non-independent June 20, 2018 Mr. Rupert Myer AO Non-Executive Director Independent June 20, 2018 Mr. Heath Zarin Non-Executive Director Independent May 14, 2019 Mr. Yuming Zou Non-Executive Director Independent N/A 8 eCargo Annual Report 2019 Board of Directors and Executive TeamFor personal use only Board of Directors Mr. John Lau Executive Chairman and Executive Director Mr. John Lau is the Executive Chairman, founder and Executive Director of ECG. He is Chairman and founder of ECG’s largest shareholder, JL Enterprises Holdings Limited (“JL Enterprises”). He is Group Managing Director and founder of ECG’s strategic investor, CS Logistics Holdings Limited (“CS Logistic”). He is the Managing Director and founder of Cargo Services Far East Limited (“Cargo Services”), a principal operating subsidiary of the CS Logistics group of companies and Managing Director and founder of Xin Hai Hua Enterprises. John brings more than 40 years of experience in trading, shipping and logistics in China. His pursuit for excellence in providing professional services is well known and acknowledged by many major retailers and brands worldwide. John founded Cargo Services in 1990 as an ocean freight non-vessel operating cargo carrier. He has led the growth of Cargo Services in becoming a leader in international logistics. Today, Cargo Services is the largest privately owned integrated logistics service provider and freight forwarder in China and Hong Kong. John founded Midstream Holdings Limited (“MHL”) in 1995. He was Managing Director of MHL from 1995 to 1997. MHL was acquired by Hutchison Port Holdings in 1997. John founded Wide Shine Terminals Limited (“WST”) in 1990. He was Managing Director and founder of WST from 1990 to 1995. WST was subsequently acquired by MHL in 1995. John founded Hoi Kong Terminals Limited (“Hoi Kong”) in 1986. He was the Managing Director from 1986 to 1990. Hoi Kong was acquired by Jardines Shipping Services Limited in 1990. John holds Bachelor of Social Sciences from the University of Hong Kong, and joined Dodwell & Co. in their Hong Kong buying office working with many international retailers and trading companies sourcing from China. He quickly rose to become a director at Dodwell & Co. He left Dodwell & Co. in 1983 to start his own businesses in shipping and international logistics. John was appointed as a committee member of the Chinese People’s Political Consultative Conference Nanjing Committees in the tenth and eleventh elections. John served as Independent Non-executive Director of Golden Eagle Retail Group Limited (SEHK: 3308) from 1999 to 2011 and Nanjing Sample Technology Company Limited (SEHK: 1708) from 2003 to 2011. eCargo Annual Report 2019 9 Board of Directors and Executive TeamFor personal use only Mr. Christopher Lau Non-Executive Director Mr. Christopher Lau is a co-founder of ECG and was CEO and Executive Director of ECG from inception until March 14, 2018 when he was re-designated to Non-Executive Director. In April 2018, Christopher rejoined Cargo Services Group as Group Assistant Managing Director and is currently Head of Greater China for the Group. He possesses more than 7 years of experience in international retail supply chain and logistics management having worked closely with many major retailers in Australia and the United Kingdom in the development of their global supply chains including the setup of eCommerce operations in China, sourcing offices and QC facilities. Christopher was Group Assistant Managing Director and Executive Director at Cargo Services from 2006 to 2012. At Cargo Services, he founded the GAM business division in 2007 and was Head of GAM until 2012. He was instrumental in the transformation of Cargo Services to become the leading integrated retail supply chain solutions service provider in Hong Kong, contributed significantly in the development and implementation of the LIMA® platforms for many retail brands and supported in the acquisition of Allport Limited together with HSBC’s strategic investment in CS Logistics in 2010. He was an Executive Director of CS Logistics from 2010 to 2012. Christopher holds a Bachelor of Science in Accounting and Finance from the Leonard Stern School of Business at New York University. He spent several years with Ernst and Young LLP and Deutsche Bank in New York working in audit, structured products and fixed income. He was appointed as a member of the 14th Nanjing Political Consultative Conference in 2018, an Honorary Member of the Court at the Hong Kong Baptist University since 2012 and is a Vice-Chairman of the Fundraising Committee of the Dragon Foundation, a non-profit organisation in Hong Kong. Mr. Rupert Myer AO Independent Non-Executive Director Mr. Rupert Myer AO is a Director of Amcil Limited. He serves as Chairman of Nuco Pty Ltd and as a director of The Myer Family Investments Pty Ltd and Mutual Trust Pty Ltd. Since 1986, Rupert has served as a Non-Executive Board member on a diverse range of organizations including listed and unlisted public companies, private companies, community sector organisations, State and Commonwealth Government Boards and philanthropic foundations. Industries and sectors have included retailing, funds management, financial services, visual and performing arts, indigenous affairs, philanthropy and youth employment. Rupert’s experience as a Director has included IPO listings, rights issues, special purchase plans, dividend re-investment plans and major re-financings. He has served both as Chair and as a member of Audit and Finance Committees, Remuneration and Nominations Committees and Strategy Committees. Rupert holds a Master of Arts from Cambridge University and a Bachelor of Commerce with Honours from the Melbourne University. He is a fellow of the Australian Institute of Company Directors. 10 eCargo Annual Report 2019 Board of Directors and Executive TeamFor personal use only Mr. Heath Zarin Independent Non-Executive Director Mr. Heath Zarin is CEO and Managing Director of EmergeVest, a Hong Kong based private equity firm with more than USD500 million of assets under management, and also Chairman and CEO of EV Cargo, a leading logistics and technology business. Heath was previously Managing Director and Head of Principal Investments, Asia-Pacific, for HSBC, with responsibility for Asian proprietary private investment activities. Previously, he founded and ran Emergent Investment Group (“EIG”), a Hong Kong-based private investment firm. Prior to founding EIG, he held a series of senior executive roles at Credit Suisse, including forming and managing its Asian private equity business. Heath practiced corporate law with Schulte Roth & Zabel LLP in New York, where he formed and advised hedge funds and private equity funds. His current and previous board service includes companies across Asia, Europe and North America, in diverse manufacturing and service industries. Heath holds a Juris Doctor from the Fordham University School of Law and graduated from the State University of New York at Binghamton. He is CFA, CMT and CAIA charterholder and has completed Certificate programs at Harvard Business School. Mr. Yuming Zou Independent Non-Executive Director Mr. Yuming Zou serves as Senior Vice-President of Corporate Development at Jianke. In this role, he manages Jianke’s finance team, with responsibility for accounting & controls, financial planning & analysis, liquidity management, corporate finance, and evaluation/due diligence of M&A targets. He also partners with various business units across the company, with a focus on market development opportunities and strategic partnerships. Prior to joining Jianke, Yuming spent 15 years at J.P.Morgan’s Investment Banking Division, most recently as Executive Director in J.P.Morgan’s Hong Kong Corporate Derivatives Trading team, where he focused on origination, execution, and risk management for listed equity margin loans/collars, and structured equity financing transactions. He joined J.P.Morgan in 2003 as part of the Asia M&A/ Corporate Finance team (based in Hong Kong), and was involved with a number of high profile M&A and Equity Capital Markets projects in the Greater China region across the Technology, Oil & Gas, and Transportation sectors. After several years in Asia, he moved to New York as part of J.P.Morgan’s Hedge Fund Derivatives Group, structuring and executing transactions with alternative investment managers. In 2011, he relocated to J.P.Morgan’s Shanghai office, leading strategy and business development efforts across J.P.Morgan’s China Joint-Ventures. Yuming was born in Beijing, China, and grew up in the United States. He holds a Bachelor of Arts degree in Economics magna cum laude and a Master of Arts degree in Statistics from Harvard University, and is also a CFA charterholder. eCargo Annual Report 2019 11 Board of Directors and Executive TeamFor personal use only Executive Team Mr. Will Zhao Chief Executive Officer Mr. Will Zhao joined ECG in February 2019. Based in Shanghai, he leads a team of staff driving strategic and commercial decisions for ECG’s businesses in China and Australia. Will has been a regularly speaker on China market entry for brands, opportunities and pitfalls of e-Commerce and trade in China. This includes speaking to Australian C-suite delegations through Australian Chamber of Commerce in China, Australian Trade Commission and International E-Commerce Conventions. Prior to joining ECG, Will spent 4 years with Metcash China. During this time, he established Metcash’s offline distribution network and expanded Metcash’s online offering across various platforms. He also spent 7 years with the Goodman Group in Australia, New Zealand, Hong Kong and China specialising in Risk Management. He also held roles with Deloitte, UBS and Moores Rowland in risk and strategic consulting, wealth management, tax and accounting. Will holds a Bachelor of Commerce from Macquarie University and is a certified internal audit and risk management professional. Mr. Garnok Cheung Chief Financial Officer Mr. Garnok Cheung has over two decades of experience in public accounting, auditing, corporate accounting and compliance. He has extensive business exposure across industry sectors in real estates, hotel hospitality, ports, property development, FMCG (fast-moving consumer goods), fashion retailing, eCommerce, digital marketing and logistics. Prior to joining ECG, Garnok was the Chief Financial Officer at ITC Corporation Limited (renamed as PT International Development Corporation Limited), a company listed on the Main Board of the Hong Kong Stock Exchange (stock code: 372). He started his career at the Hong Kong office of Deloitte Touche Tohmatsu and continued in the public accounting field at the Hong Kong and the New York offices of PricewaterhouseCoopers, and at KPMG in Hong Kong, accumulating 8 years of experience in public accounting and auditing. He is currently an independent non-executive director of Solis Holdings Limited, a company listed on the Main Board of the Hong Kong Stock Exchange (Stock code: 2227). Garnok received his Bachelor degree in Finance from the University of Hong Kong. He is a Certified Public Accountant recognized by the Washington State, U.S.A, and is a general member of the American Institute of Certified Public Accountants. He is also a Chartered Global Management Accountant and has completed the Blockchain Strategy Programme at the University of Oxford, England, United Kingdom. 12 eCargo Annual Report 2019 Board of Directors and Executive TeamFor personal use only Ms. Hai Yun Chen Chief Product Officer Ms. Hai Yun Chen is the Chief Product Officer of ECG based in Sydney. She oversees brands, products and supply chain strategies from Australia, New Zealand and other leading export countries, and develops new direct export sales channels for ECG’s business in China and South East Asia. Prior to joining ECG, Hai Yun spent 3 years with Metcash Asia based in the Metcash head office in Sydney. During this time, she was instrumental to the overall success of Metcash Asia in China, by partnering with brands, securing supply chain, developing and managing various export channels from Australia to China. Prior to joining Metcash, she has spent 8 years in establishing and running private label food sourcing for Woolworths based out of Woolworths’ Global Sourcing office in Shanghai. She also has buying experiences previously with Australian retailers BigW and ADRT. Hai Yun holds a Master of Finance degree and Bachelor of Commerce degree major in International Business and Marketing from University of New South Wales. eCargo Annual Report 2019 13 Board of Directors and Executive TeamFor personal use only Corporate Governance Report The Board is pleased to present this corporate governance report for the year ended December 31, 2019. Corporate Governance Practices The Company is committed to conduct its business consistent with the highest standards of corporate governance practices and procedure. The Company recognises that sound corporate governance practices are fundamental to the effective and transparent operation of the Company and it is vital to its ability to protect the rights of its Shareholders and enhance Shareholders’ value. The Company adopted the following policies and charters. Each of these policies and charters are set out in the Corporate Governance Plan adopted by the Board on September 18, 2014. The Corporate Governance Plan is incorporated by reference into this annual report and is prepared to fully address the principles and provision set out in the ASX Corporate Governance Council, Corporate Governance Principles and Recommendations, 3rd Edition (“ASX Corporate Governance Principles and Recommendations”). The 2019 corporate governance report was approved by the Board on March 26, 2020. A copy of each of the below policies and charters are available on the Company’s website at www.eCargo.com. The Board Charter This charter sets out the principles for the operation of the Board and the functions and responsibilities of the Board and management of the Company. The Board Charter contains the Board skills matrix. Code of Conduct This policy sets out the standards of ethical behaviour that the Company expects from its Directors, officers and employees. 14 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Securities Trading Policy This policy is designed to maintain investor confidence in the integrity of the Company’s internal controls and procedures and to provide guidance on avoiding any breach of the insider trading laws in Australia. Audit and Risk Management Committee Charter This charter sets out the principles for the operation of the Audit and Risk Management Committee. Nomination and Remuneration Committee Charter This charter sets out the principles for the operation of the Nomination and Remuneration Committee. Continuous Disclosure Policy and Communications Strategy The Company strictly complies with the continuous disclosure requirements of the Listing Rules and the Companies Ordinance to ensure the Company discloses to ASX any information concerning the Company which is not generally available and which a reasonable person would expect to have a material effect on the price or value of the CDIs. This policy sets out certain procedures and measures which are designed to ensure that the Company complies with its continuous disclosure obligations. This policy also sets out practices which the Company will implement to ensure effective communication with its Shareholders. Diversity Policy This policy sets out practices which the Company is committed to workplace diversity. Due to the relative small size of the Company, the Board had not set any objectives on gender diversity during the year ended December 31, 2019. The Board recognized the benefit arise from achieving various forms of diversity and will continues to evaluate the setting of objectives on workplace diversity. eCargo Annual Report 2019 15 Corporate Governance ReportFor personal use only The table below shows the proportion of male and female representation across ECG, the senior management and at the Board level during the year ended December 31, 2019. Job level Board of Directors Management All employees * Management represent General Manager grade or above Board of Directors Male Female 83% 66% 23% 17% 34% 77% The Board is responsible for the overall corporate governance of the Company. Issues of substance affecting the Company are considered by the Board, with advice from external advisors as required. The Board’s role in risk oversight includes reviewing reports from management and the Audit and Risk Management Committee on a regular basis regarding material risks faced by the Company and applicable mitigation strategies and activities. The reports detail the effectiveness of the risk management program and identify and address material business risks such as technological, strategic, business, operational, financial, human resources and legal/regulatory risks. The Board and its committees consider these reports, discuss matters with the management and identify and evaluate any potential strategic or operational risks, and appropriate activity to address those risks. The responsibilities of the Board are set down in the Company’s Board Charter, which has been prepared having regard to ASX Corporate Governance Principles and Recommendations. Composition of the Board, number of the Board meetings and Directors Attendance The Company’s Memorandum and Articles of Association and the Hong Kong Companies Ordinance provides that the minimum number of Directors is two and that this minimum may only be changed by a majority vote of the Shareholders. The Company currently has five Directors serving on the Board, including one Executive Director (“ED”), one Non-Executive Director (“NED”) and three Independent Non-Executive Directors (“INED”). The biographies details of each Director are included in the “Board of Directors and Executive Team” section of this Annual Report. The following is the attendance record of the Directors at the Board and Committee meetings, and at the Shareholder meeting held during the year. 16 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Brand Building eCargo Annual Report 2019 17 Corporate Governance ReportFor personal use only Omni-Channel Solutions 18 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Board of Directors Audit and Risk Management Committee Nomination and Remuneration Committee Annual General Meeting 3/3 3/3 3/3 3/3 3/3 1/3 0/3 N/A N/A N/A 3/3 3/3 2/3 0/3 N/A N/A N/A 2/2 2/2 1/2 0/2 1/1 1/1 1/1 1/1 1/1 1/1 0/1 Name Position Mr. John Lau Mr. Christopher Lau Ms. Jessica Rudd Mr. Rupert Myer AO Mr. Heath Zarin Mr. Dennis Lin Mr. Yuming Zou ED NED NED1 INED INED INED2 INED3 1 2 3 Resigned on January 22, 2020 Resigned on October 31, 2019 Appointed on January 22, 2020 Practices and Conduct of Meetings Notice of the Board and Committee meetings is given to all the Directors at least 7 days in advance. Annual meeting schedules and the draft agenda of each meeting are normally made available to the Directors in advance. Arrangements are in place to allow the Directors to include items in the agenda, and final agenda together with the Board papers are sent to the Directors within reasonable time. Each Director also has separate and independent access to the senior management where necessary. Minutes of the Board meetings are kept by the Company Secretary. Draft minutes are circulated to the Directors for comment within a reasonable time after each meeting. Each Director must bring an independent view and judgment to the Board and must declare all conflicts of interest including confirmation of Director’s interests in securities and declaration of any trading activities. Any issue concerning a Director must be brought to the attention of the Board as soon as practicable, and unless a resolution has been passed by the non-interested Directors allowing the interested Director to remain in the meeting and participate in discussions, Directors may not participate in discussions or resolutions pertaining to any matter in which the Director has a material personal interest. Appointment and Re-election of Directors The Company uses a formal and transparent procedure for the appointment, election and removal of Directors, which is set out in the Company’s Articles of Associations and is conducted by the Nomination and Remuneration Committee, which will make recommendations on new Director appointment to the Board for approval. Each of the Director is engaged on services contract and subject to re-election. Further details of the appointment, election and removal of Director are set out in the “Board of Directors and Executive Team” section of this Annual Report. Induction and Ongoing Development Each of the newly appointed Director receives a formal, comprehensive and tailored induction to ensure his or her understanding of the business and operations of the Company and awareness of the Director’s responsibilities and obligations. The Company encourages all Directors participate in continuous professional development in order to develop and refresh their knowledge and skills. During the year, the Directors had updated on the development of statutory and regulatory regime and the business environment provided by the Company and external parties. eCargo Annual Report 2019 19 Corporate Governance ReportFor personal use only Board Committees The Board has established two standing committees to facilitate and assist the Board in fulfilling its responsibilities as set out below. The Board may also establish other committees from time to time. Each of these committees has the responsibilities described in the committee charters (which have been prepared having regard to the ASX Corporate Governance Principles and Recommendations) adopted by the Company. Member Mr. Rupert Myer AO (Chairman) Mr. Heath Zarin Mr. Dennis Lin (resigned on October 31, 2019) Mr. Yuming Zou (appointed on January 22, 2020) Mr. Heath Zarin (Chairman) Mr. Rupert Myer AO Mr. Dennis Lin (resigned on October 31, 2019) Mr. Yuming Zou (appointed on January 22, 2020) Committee Overview Audit and Risk Management Committee Nomination and Remuneration Committee Oversees the Company’s corporate accounting and financial reporting, including auditing of the Company’s financial statements, reviewing the performance of the Company’s internal audit function and the qualifications, independence, performance and terms of engagement of the Company’s external auditor. Manages the process of identification and management of risk. Remuneration: Establishes, amends, reviews and approves the compensation and benefit plans with respect to senior management and employees of the Company including determining individual elements of total compensation of the Chief Executive Officer and other members of senior management. The Nomination and Remuneration Committee is responsible for forming a view and making a recommendation to the Board on the most appropriate compensation for key employees. For instance, the Nomination and Remuneration Committee may determine that non-monetary compensation, such as employee options or employee shares, is an appropriate compensation as a way of: • recognising ongoing contributions by key employees to the achievement by the Company of long term strategic goals; • aligning the interests of participants with other holders of shares in the Company through the sharing of a personal interest in the future growth and development of the Company; and • providing a means of attracting and retaining skilled and experienced employees. The Nomination and Remuneration Committee is also responsible for reviewing the performance of the Company’s executive officers with respect to these elements of compensation. Nomination: The Nomination and Remuneration and Committee recommends the candidates nominated as a Director at each Annual General Meeting and ensures that the Audit and Risk Management, and Nomination and Remuneration Committees of the Board have the benefit of qualified and experienced independent Directors. 20 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only One-Stop O2O Solutions eCargo Annual Report 2019 21 Corporate Governance ReportFor personal use only ASX Corporate Governance Principles and Recommendations The Board has evaluated the current corporate governance policies and practices in light of the ASX Corporate Governance Principles and Recommendations. The Board considers that the Company generally complies with the ASX Corporate Governance Principles and Recommendations and, where the Company does not comply, this is primarily due to the current relative size of the Company and scale of its current operations. Comments on compliance and departures are set out below. Principles/recommendations Does the Company comply? Particulars of compliance & if not why not Principle 1 – Lay solid foundations for management and oversight Complied Recommendation 1.1: The Company should disclose: (a) the respective roles and responsibilities of its Board and management; and (b) those matters expressly reserved to the Board and those delegated to management. Complied Recommendation 1.2: The Company should: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a Director; and (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re- elect a Director. The Board’s responsibilities are contained in the Company’s Board Charter. The Company’s Board Charter is contained in the Corporate Governance Plan. The functions of the Board and Chairman are specifically set out in the Board Charter. The functions delegated to senior executives are contained in the Delegation of Authority Agreement, contained in the Corporate Governance Plan. The Board’s responsibilities in relation to Director appointments are contained in the Company’s Board Charter. The Company’s Board Charter is contained in the Corporate Governance Plan. Appropriate checks, including bankruptcy checks and police checks are part of the listing process. The requirement for the appropriate checks prior to appointment a Director or putting forward a candidate for election as a Director as well as the provision of all material information in the Board’s possession to Shareholders relevant to a decision on whether or not to elect or re-elect a Director is clearly mentioned in the Board Charter. All material information in relation whether to elect or re-elect a Director is contained in the Company’s notice of meeting and explanatory statement. Recommendation 1.3: The Company should have a written agreement with each Director and senior executive setting out the terms of their appointment. Recommendation 1.4: The Company Secretary of the Company should be accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. Complied The Company has entered into such agreements with each Director and senior executive. Complied The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. The accountability and details of the role of the Company Secretary are contained in the Company’s Board Charter. 22 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Recommendation 1.5: The Companies should: (a) have a diversity policy which includes requirements for the Board or a relevant committee of the Board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; disclose that policy or a summary of it; and (b) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the Board or a relevant committee of the Board in accordance with the entity’s diversity policy and its progress towards achieving them. Recommendation 1.6: The Company should: (a) have and disclose a process for periodically evaluating the performance of the Board, its Committees and individual Directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. Recommendation 1.7: The Company should: (a) have and disclose a process for periodically evaluating the performance of its senior executives; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. Partially Complied The Board has established a Diversity Policy. The Diversity Policy is contained in the Corporate Governance Plan. The Board considered the importance of talent and concluded when recruiting workforce, everyone should be provided with equal opportunity; and there should be no difference in gender, age, ethnicity, race, disability and cultural background. With the Company’s scale of operation is small, the Board had not set any objectives of gender diversity during the year ended December 31, 2019. However, the Board recognized the benefit arise from achieving various forms of diversity and will continue to evaluate the setting of objectives on workplace diversity. Complied The Board has established these processes. A summary of the processes are set out below. The Board and each Board Committee is responsible for the evaluating the performance of the Board and Board Committee on an annual basis by referring to the requirements of the Board Charter. The Chairman is responsible for the review of individual Directors. Each Director is met privately with the Chairman to discuss the assessment. In addition to the annual review, the Chairman regularly provides informal feedback to individual Directors. Complied The Board has established these processes. A summary of the processes are set out below. The Chairman is responsible for the review of the senior management assessment processes from time to time to ensure that they remain consistent with the Company’s overall objectives for the business. All senior executives undergo a performance and development review on an annual basis, each senior executive meets privately with the Chairman to discuss the assessment and is provided with feedback on their performance, when appropriate, a development plan is also agreed to support the ongoing contribution of the executive to the needs of business. eCargo Annual Report 2019 23 Corporate Governance ReportFor personal use only Principle 2 – Structure the Board to add value Partially Complied The Board has established a Nomination and Remuneration Committee. The function of the Nomination and Remuneration Committee is contained in the Nomination and Remuneration Committee Charter. The Company’s Nomination and Remuneration Committee Charter is contained in the Corporate Governance Plan. The Nomination and Remuneration Committee is chaired by Mr. Heath Zarin, an independent Director, and consists three non-executive Directors. Of these members, all are independent Non-Executive Directors, namely, Mr. Heath Zarin, Mr. Rupert Myer AO and Mr. Dennis Lin. Mr. Dennis Lin resigned as the Non-Executive Director on October 31, 2019 while Mr. Yuming Zou appointed as the Non-Executive Director on January 22, 2020. For the individual attendances, please refer to “Composition of the Board, number of the Board meetings and Directors Attendance” section of this report. Complied Complied The Board maintains a Board Skills Matrix of the current Directors of the Board. The Company’s Board Skills Matrix is contained in the Board Charter which is contained in the Corporate Governance Plan. Currently the Board consists of five members, of which three are independent Non-Executive Directors, namely, Mr. Rupert Myer AO, Mr. Heath Zarin and Mr. Yuming Zou. The Board has assessed, using the criteria set out in the ASX Corporate Governance Principles and Recommendations, the independence of Non-Executive Directors in light of their interests and relationships and considers them all to be independent. Recommendation 2.1: The Board should (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent Directors; and (2) is chaired by an independent Director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the Board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Recommendation 2.2: The Company should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership. Recommendation 2.3: The Companies should disclose: (a) the names of the Directors considered by the Board to be independent Directors; (b) if a Director has an interest, position, association or relationship of the type described in Box 2.3 (Factors relevant to assessing the independence of a Director) but the Board is of the opinion that it does not compromise the independence of the Director, the nature of the interest, position, association or relationship in question and an explanation of why the Board is of that opinion; and (c) the length of service of each Director. 24 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Recommendation 2.4: A majority of the Board of the Company should be independent Directors. Not Complied The Board determines the size and composition of the Board, subject to limits imposed by the Company’s Constitution. Of the six Directors, only three Non-Executive Directors namely, Mr. Rupert Myer AO, Mr. Heath Zarin and Mr. Dennis Lin are considered by the Board to be independent for the year ended December 31, 2019. The Board structure will continue to be reviewed at the appropriate stages of the Company’s development. Partially Compiled The current Chairman, Mr. John Lau, is an Executive Director and is not considered independent under the ASX Corporate Governance Principles. Recommendation 2.5: The chair of the Board of the Company should be an independent Director and, in particular, should not be the same person as the Chief Executive Officer of the Company. The Board considers that the Chairman, as a founder, is key for the business development and decision making in Hong Kong and the Company has adequate procedures to ensure the independence of the Chairman’s decisions. For example, the Chairman will deal with any conflicts that arise, address differences of opinion and ensure contrary votes are recorded at Board meetings and ensure Directors or the Chairman himself with material personal interests in a matter leave the meeting while the matter is discussed, unless a resolution has been passed by the non-interested Directors allowing the interested Director to remain in the meeting and participate in discussions. The Chairman is not the Chief Executive Officer of the Company. The Directors are expected to undertake an appropriate continuing professional development program or education for the purpose of developing and maintaining the skills and knowledge for normal discharge of their formal Director duties effectively. During the year, the Directors are continually updated on the development of statutory and regulatory regime and the business environment which provided by the Company and external parties. Complied Recommendation 2.6: The Company should have a program for inducting new Directors and providing appropriate professional development opportunities for Directors to develop and maintain the skills and knowledge needed to perform their role as Directors effectively. Principle 3 – Act ethically and responsibly Recommendation 3.1: The Company should: (a) have a code of conduct for its Directors, senior executives and employees; and (b) disclose that code or a summary of it. Complied The Board has established a Code of Conduct, which is contained in the Corporate Governance Plan. The Code of Conduct provides that the Directors will act with honesty and integrity, will avoid conflicts of interest, protect confidential and proprietary information and treat others equitably and with professionalism courtesy and respect. eCargo Annual Report 2019 25 Corporate Governance ReportFor personal use only Principle 4 — Safeguard integrity in corporate reporting Recommendation 4.1: The Board of the Company should (a) have an audit committee which: (1) has at least three members, all of whom are non- executive directors and a majority of whom are independent Directors; and (2) is chaired by an independent Director, who is not the chair of the Board, and disclose: (3) the charter of the committee; (4) the relevant qualifications and experience of the members of the committee; and (5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. Recommendation 4.2: The Board of the Company, before it approves the Company’s financial statements for a financial period, receive declarations from the Company’s Chief Executive Officer and Chief Financial Officer that in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3: The Company that has an Annual General Meeting should ensure that its external auditor attends it Annual General Meeting and is available to answer questions from security holders relevant to the audit. Partially Complied The Board has established an Audit and Risk Management Committee. The function of the Audit and Risk Management Committee is contained in the Audit and Risk Management Committee Charter. The Company’s Audit and Risk Management Committee Charter is contained in the Corporate Governance Plan. The Audit and Risk Management Committee is chaired by Mr. Rupert Myer AO, an independent Director who is not Chairman of the Board. The Audit and Risk Management Committee consists of three members namely, Mr. Rupert Myer AO, Mr. Heath Zarin and Mr. Dennis Lin. Of these members, all are independent Non-Executive Directors. Mr. Dennis Lin resigned as the Non-Executive Director on October 31, 2019 while Mr. Yuming Zou appointed as the Non-Executive Director on January 22, 2020. For the individual attendances, please refer to “Composition of the Board, number of the Board meetings and Directors Attendance” section of this report. Complied The Board has received the necessary declaration from the Chief Executive Officer, Mr. Will Zhao and the Chief Financial Officer, Mr. Garnok Cheung prior to approving the unaudited and audited financial statements. This process will continue for any future approval of the Company’s financial statements. Complied The Company’s external auditor had attended the Annual General Meeting held on May 14, 2019. The Company will invite external auditor to attend its forthcoming Annual General Meeting and any future Annual General Meeting to answer questions from security holders relevant to the audit. 26 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Principle 5 — Make timely and balanced disclosure Recommendation 5.1: The Company should: (a) have a written policy for complying with its continuous disclosure obligations under the ASX Listing Rules; and (b) disclose that policy or a summary of it. Complied The Board has adopted a Continuous Disclosure Policy and Communications Strategy which is set out in the Corporate Governance Plan. The Company respects the rights of its Shareholders and facilitates the exercise of those rights, the Company is committed to communicating effectively with Shareholders, providing Shareholders with ready access to balanced and understandable information about the Company and corporate proposals and making it easier for Shareholders to participate in general meetings of the Company. Principle 6 — Respect the rights of security holders Recommendation 6.1: The Company should provide information about itself and its governance to investors via its website. Complied The Board aims to ensure that the Shareholders are informed of all major developments affecting the Company’s state of affairs. Recommendation 6.2: The Company should design and implement an investor relations program to facilitate effective two- way communication with investors. Complied Recommendation 6.3: The Company should disclose the policies it has in place to facilitate and encourage participation at meetings of Shareholders. Complied Complied Recommendation 6.4: The Company should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. The Company has established on its website, www. eCargo.com where Shareholders can find information such as financial statements and major development of the Company as well as all relevant corporate governance material under the Media and News and corporate governance landing pages. Shareholders are encouraged to fully participate at the Annual General Meeting or other General Meeting to ensure effective two way communication. Shareholders are also able to direct any questions relating to the Company’s securities to the share registry, Link Market Services Limited. The communication strategy is contained in the Continuous Disclosure Policy and Communications Strategy is designed to ensure that Shareholders are informed of all relevant developments. Details of the information can be found on the Company’s website www.eCargo.com under the corporate governance landing page of the Investor Information section. The Company encourages full participation of Shareholders at the Annual General Meeting. The Chairman encourages Shareholders to ask reasonable questions at the Annual General Meeting. The Board makes itself available to all Shareholders both before and after the Annual General Meeting. All Shareholders have the right to access details of their holdings, provide email address contacts and make certain elections via the Company’s share registry, Link Market Services Limited by accessing the web site www.linkmarketservices.com.au. Shareholders have the right of option of receiving all or a selection of communication electronically. eCargo Annual Report 2019 27 Corporate Governance ReportFor personal use only Principle 7 — Recognise and manage risk Recommendation 7.1: The Board of the Company should: (a) have a committee or committees to oversee risk, each of which: (1) has at least three members, a majority of whom are independent Directors; and (2) is chaired by an independent Director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a risk committee or committees that satisfy above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework. Partially Complied The Board has established an Audit and Risk Management Committee. The function of the Audit and Risk Management Committee is contained in the Audit and Risk Management Committee Charter. The Company’s Audit and Risk Management Committee Charter is contained in the Corporate Governance Plan. The Audit and Risk Management Committee is chaired by Mr. Rupert Myer AO, an independent Director who is not Chairman of the Board. The Audit and Risk Management Committee consists of three members namely, Mr. Rupert Myer AO, Mr. Heath Zarin and Mr. Dennis Lin. Of these members, all are independent Non-Executive Directors. Mr. Dennis Lin resigned as the Non-Executive Director on October 31, 2019 while Mr. Yuming Zou appointed as the Non-Executive Director on January 22, 2020. For the individual attendances, please refer to “Composition of the Board, number of the Board meetings and Directors Attendance” section of this report. Recommendation 7.2: The Board or a committee of the Complied The Audit and Risk Management Committee has reviewed the Risk Management framework. Board should: (a) review the Company’s risk management framework at least annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such review has taken place. Recommendation 7.3: The Company should disclose; (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. Recommendation 7.4: The Company should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. Complied The Audit and Risk Management Committee will continue the process to review the risk management framework at least annually; and will disclose such review accordingly. The Company maintained an internal audit function to ensure the Company accomplish its objectives by bringing a systematic, disciplined approach to evaluating and continually improving the effectiveness of its risk management and internal control processes. The Board is ultimately responsible for maintaining a sound and effective system of internal control and risk management of the Company and considers that the identification and management of key risk associated with the business is vital. Complied The Company does not have any material exposure to economic, environmental and social sustainability risks. The material risks are disclosed at Directors’ Report of the Annual Report. 28 eCargo Annual Report 2019 Corporate Governance ReportFor personal use only Principle 8 — Remunerate fairly and responsibly Partially Complied The Board has established a Nomination and Remuneration Committee. The function of the Nomination and Remuneration Committee is contained in the Nomination and Remuneration Committee Charter contained in the Corporate Governance Plan. The Nomination and Remuneration Committee is chaired by Mr. Heath Zarin, an independent Director, and consists of three non-executive Directors. Of these members, all are independent, Non-Executive Directors, namely, Mr. Heath Zarin, Mr. Rupert Myer AO and Mr. Dennis Lin. Mr. Dennis Lin resigned as the Non-Executive Director on October 31, 2019 while Mr. Yuming Zou appointed as the Non-Executive Director on January 22, 2020. For the individual attendances, please refer to “Composition of the Board, number of the Board meetings and Directors Attendance” section of this report. Complied The remuneration structure for the non-executive Directors is not related to performance. Non- executive Directors receive fixed fees which reflect their skills, responsibilities and the time commitments required to discharge their duties. The remuneration structure for senior executives reflects the Company’s performance culture: there is a direct correlation between the executive’s reward and the Company’s performance so as to seek to ensure that the Company’s remuneration policy is aligned with its long term business objectives and the interests of Shareholders and other stakeholders. Not applicable The Company does not have an equity based remuneration scheme. Recommendation 8.1: The Board of the Company should: (a) have a remuneration committee which: (1) have at least 3 members, a majority of whom are independent Directors; and (2) is chaired by an independent director, and disclose (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings, or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. Recommendation 8.2: The Company should separately disclose its policies and practices regarding the remuneration of non-executive Directors and the remuneration of executive Directors and other senior executives. Recommendation 8.3: The Company which have equity- based remuneration scheme should (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it eCargo Annual Report 2019 29 Corporate Governance ReportFor personal use only DIRECTORS’ REPORT The Directors of eCargo Holdings Limited (the “Company”) submit their report together with the audited consolidated financial statements of the Company and its subsidiaries (collectively “ECG”) for the year ended 31 December 2019. The functional and presentation currency of the Company as of the reporting date is Hong Kong Dollars (“HK$”). Principal Activities The principal activities of ECG are the development and provision of eCommerce technologies, integrated offline and online supply chain operations, and provision of digital commerce solutions and services and trading of fast moving consumer goods (“FMCG”). Results and Appropriations The results of ECG for the year are set out in the consolidated statement of comprehensive income on page 45. The Directors do not recommend the payment of a dividend. Share Capital and Debentures Issued No shares and debentures were issued by the Company in the year ended 31 December 2019. Equity-linked Agreements No equity-linked agreements were entered into by the Company at any time during the year or subsisted at the end of the year. Directors (a) Directors of the Company (“Directors”, or individually a “Director”) The Directors during the year and up to the date of this report are: Executive Director Mr. John Lau Non-Executive Directors Ms. Jessica Rudd (resigned on January 22, 2020) Mr. Christopher Lau Independent Non-Executive Directors Mr. Rupert Myer AO Mr. Heath Zarin Mr. Dennis Lin (resigned on October 31, 2019) Mr. Yuming Zou (appointed on January 22, 2020) (collectively, the “Board of Directors”) 30 eCargo Annual Report 2019 Directors’ ReportFor personal use only Remuneration The remuneration of Directors and key management personnel are set out in [Note 9] to the consolidated financial statements. In accordance with Article 24 of the Company’s Articles of Association, Mr. Christopher Lau, Mr. Rupert Myer AO and Mr. Yuming Zou retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. (b) Directors of the Company’s subsidiaries During the year and up to the date of this report, Mr. John Lau, Mr. Christopher Lau and Ms. Jessica Rudd are also Directors in certain subsidiaries of the Company. Other Directors of the Company’s subsidiaries during the year and up to the date of this report are: Mr. Jason Byrne, Ms. Yip Sau Ling, Mr. Albert Tse Yeuk Kuk, Ms. Yip Hiu Ching, Mr. Gilbert Wong, Mr. William Zhao, Mr. Garnok Cheung and Ms. Hai Yun Chen. Financial and Operations Review Year ended/ As at 31 December 2019 Prior year HK$ Revenue from ordinary operations 177,406,615 134,458,649 Loss after income tax expense (74,565,854) (134,695,885) Percentage change % +32% –45% (76,671,848) (139,034,787) –45% Total comprehensive loss attributable to owners of the Company EBITDA loss excluding impact of foreign exchange, share of results from an associate and a joint venture, provision for impairment of interest in an associate, gain or loss on fair value of acquisition and financial derivatives and provision for impairment of goodwill Total assets 144,580,835 169,564,068 Net (liabilities)/assets (30,272,852) 46,398,996 (6,656,137) (10,090,670) –34% –15% –165% The Chief Operating Decision Makers (“CODM”) assesses and measures the operating performance of ECG based on the revenue and EBITDA (excluding impact of foreign exchange, share of results from an associate and a joint venture, provision for impairment of interest in an associate, gain or loss on fair value of acquisition and financial derivatives and provision for impairment of goodwill) as CODM believes that such information is the most relevant in evaluating the results of ECG. Consolidated revenue of the year was HK$177.4 million (2018: HK$134.5 million) of which HK$18.1 million (2018: HK$32.5 million) was attributable to eCommerce-enabling business, HK$85.9 million (2018: HK$97.1 million) was contributed by Amblique and HK$71.0 million (2018: HK$2.5 million) was contributed by FMCG business unit. The remaining was licensing revenue of HK$2.4 million attributed to the corporate segment same as the previous year. ECG reported an EBITDA loss excluding impact of foreign exchange, share of results from an associate and a joint venture, provision for impairment of interest in an associate, gain or loss on fair value of acquisition and financial derivatives and provision for impairment of goodwill of HK$6.7 million, 34% less than prior year. ECG incurred a loss per share of HK$12.12 cents for the year. The Company did not propose any dividend distribution or share buy-back during the year ended 31 December 2019. For a more detailed review of the performance of ECG, please refer to its 2019 full year financial results announcement released on February 27, 2020 and Chairman Statement in this Report. eCargo Annual Report 2019 31 Directors’ ReportFor personal use only Major Customers For the year ended 31 December 2019, the five largest customers of ECG accounted for approximately 29% of ECG’s total revenue. There are no single customers contributing 10% or more of ECG’s total revenue. Environmental policy and regulation ECG’s environmental management policy is to promote sustainable economic development in all business units, while, at the same time, endeavouring to measure the impact of activities on the environment and improve the results in terms of their environment-friendliness; lessen the consumption of natural resources by re-use, recycling or reduced use of materials, and using products that are recyclable or come from sustainable sources; and apply environment-friendly practices in all our offices and facilities. ECG is implementing several initiatives at its offices and facilities. Examples include using recycling paper, promoting double-page printing, promoting a paperless environment, installing energy-efficient lighting fixtures and sectioned lighting, and introducing energy-saving equipment. ECG does not carry out any activities that have a material influence on the environment. As such, the Directors are not aware of any material issues affecting ECG or its compliance with the relevant environment protection agencies or related regulatory authorities. Key risk factors The key risk factors are risks that the Directors and Management focus on when managing the businesses of ECG that may have the potential, if they occurred, to result in significant adverse consequences for ECG. Risks related to ECG’s businesses and risks related to the industry in which ECG operates. Risk Description of risk Risk mitigation strategies Risk that ECG’s strategy to recruit merchants and suppliers is not effective. ECG’s strategy to recruit merchants and suppliers is not successful. This resulted in ECG failing to meet revenue and profit targets and might materially and adversely impact the operating results. ECG has a clear business plan in place. The plan is being constantly reviewed and evaluated against operating and financial targets by senior management with the Executive Chairman. Risk that ECG does not have the necessary resources to fulfill its funding obligations. Inability to sustain enough liquidity to satisfy operating needs or pay suppliers. ECG is closely monitoring its working capital and cash flow with regular reporting to the Executive Chairman. A standby facility from the Executive Chairman is available. 32 eCargo Annual Report 2019 Directors’ ReportFor personal use only Risk that ECG’s intellectual property may be used without authorisation or stolen. ECG relies on a combination of copyright, nondisclosure agreements and other methods to protect its intellectual property rights. To protect its trade secrets and other proprietary information, employees, consultants, advisors and collaborators are required to enter into confidentiality agreements. These agreements might not provide meaningful protection for the trade secrets, know-how or other proprietary information in the event of any unauthorised use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Risk that ECG’s merchants’ online revenues are below expectations. There is a risk that ECG’s merchants do not achieve online revenues according to expectations driven by a number of factors including but not limited to the marketing strategy deployed, merchandise mix, product availability and pricing. This would result in ECG failing to meet revenue targets and have a material and adverse effect on the operating results of ECG. Risk that ECG’s FMCG revenues from its online stores on China platforms are impaired if the platforms cannot be functioned. ECG currently has online stores on two major platforms in China-Tmall and JD. ECG purchases FMCG products and sells to consumers on these online stores through a cross-border B2C model. ECG operates our online stores without any control on the functioning of the platforms. In recent years, wages particularly in PRC’s eCommerce has increased significantly. As a result, ECG’s gross margin and net profit may decline. Risk that increased in operating cost such as wages will increase cash flow pressure and impact profitability. ECG has only disclosed sensitive intellectual property or related information to particular employees, consultants, advisors, collaborators and Merchants on a “need-to-know-basis”. ECG requires all such employees, consultants, advisors, collaborators and merchants to enter into confidentiality agreements or through the confidentiality clauses in employment agreements to protect the confidentiality of such intellectual property or related information. Where necessary ECG will enforce its intellectual property rights through litigation or arbitration. In regards to all new merchants, ECG will ensure that robust intellectual property safeguards are contained in their respective Service Agreements. ECG mitigates this risk by redefining its target merchant pipeline and focusing marketing efforts on merchants who have a proven product and well-recognised brands and a willingness to invest in marketing activities, so that they are relatively more likely to succeed in generating online sales. ECG shall continue to monitor this closely and allocate appropriate resources in accordance with merchants’ online sales activity and potential. ECG mitigates this risk by closely communicating with the operation teams of these platforms. ECG pays employee at market rate to attract and retain the necessary talents. ECG will mitigate this risk by evaluating outsource options against in-house team, and also considering locations of lower cost without compromising the quality of the team. eCargo Annual Report 2019 33 Directors’ ReportFor personal use only Uncertainties with respect to the PRC legal system may have a material adverse effect on ECG. Risk that ECG’s management and key personnel may discontinue their services. Risk that the negative indicator(s) on intangible assets, mainly on goodwill exist and therefore impairment is required. ECG conducts some of its business through its subsidiaries established in PRC. Despite the legal system in PRC continues to evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit the legal protection available to ECG. ECG relies on the expertise and experience of its Board of Directors and its management team to ensure its future success. There is a risk that if one or more of ECG’s management or Directors were unable or unwilling to continue in their present position, ECG’s business may be affected. According to the Accounting Standards, intangible assets are subject to impairment assessment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to disposal and value in use. If ECG failed to achieve the budget or business plan, it will be an indicator for impairment which may adversely impact the bottom line of ECG. Uncertainties with respect to PRC’s legal system are beyond the control of ECG. ECG will engage PRC lawyers to mitigate such risk if necessary. In the event any key personnel were to leave ECG, the Nomination and Remuneration Committee would ensure a suitable replacement were found within the timeframes required and not at unreasonable cost to ECG. ECG had assessed the value of those intangible assets. ECG has made a provision for impairment of goodwill of HK$17.3 million prior to the integration of the operation of JS and MES. ECG has further made a provision for impairment of goodwill of HK$31.8 million in respect of the carrying amount of the goodwill exceeds the recoverable amount of the FMCG CGU which based on a value- in-use calculation. ECG’s external auditor had reviewed the impairment provision and no objection to management’s view. Risk that ECG’s inventories become obsolete ECG purchases FMCG inventories which could have expiry dates. Unsold inventories may be subject to write down. ECG mitigates this risk by closely managing the sourcing process to minimize excess inventories. 34 eCargo Annual Report 2019 Directors’ ReportFor personal use only Directors’ Interest in Shares/Chess Depository Interests (“CDIs”) As at the date of report, the Directors have the following interests in fully-paid shares/CDIs in the Company. Director Mr. Christopher Lau Mr. John Lau Mr. Rupert Myer AO Mr. Heath Zarin Mr. Yuming Zou Number of Shares and equivalent CDIs held directly Number of Shares and equivalent CDIs held indirectly 8,142,460 Nil Nil Nil Nil Nil 396,872,460 9,000,000 Nil Nil None of the Directors hold any partly-paid shares or options at the date of this report. Directors’ Material Interests in Transactions, Arrangements and Contracts that are Significant in Relation to ECG’s Business No transactions, arrangements and contracts of significance in relation to ECG’s business to which the specified undertaking of ECG was a party and in which a Director had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. Directors’ Interest in the Underlying Shares of the Company or Any Specified Undertaking of the Company At no time during the year was the Company, its subsidiaries, its fellow subsidiaries or its holding companies a party to any arrangements to enable the Directors to hold any interests or in the shares, or debentures, or underlying shares of the Company or its specified undertakings. Management Contracts No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year. Permitted Indemnity Provisions At no time during the financial year and up to the date of this Directors’ Report, there was or is, any permitted indemnity provision being in force for the benefit of any of the Directors (whether made by the Company or otherwise) or an associated company (if made by the Company). Auditor The financial statements have been audited by PricewaterhouseCoopers who retire and, being eligible, offer themselves for re-appointment. On behalf of the Board of Directors, Mr. John Lau Executive Chairman Hong Kong, March 26, 2020 eCargo Annual Report 2019 35 Directors’ ReportFor personal use only To the Members of eCargo Holdings Limited (incorporated in Hong Kong with limited liability) Opinion What we have audited The consolidated financial statements of eCargo Holdings Limited (the “Company”) and its subsidiaries (collectively “ECG” or the “Group”) set out on pages 45 to 127, which comprise: • the consolidated statement of financial position as at 31 December 2019; • the consolidated statement of comprehensive income for the year then ended; • the consolidated statement of changes in equity for the year then ended; • the consolidated statement of cash flows for the year then ended; and • the notes to the consolidated financial statements, which include a summary of significant accounting policies. Our opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2019, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the Hong Kong Companies Ordinance. 36 eCargo Annual Report 2019 Independent Auditor’s ReportFor personal use only Basis for Opinion We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. eCargo Annual Report 2019 37 Independent Auditor’s ReportFor personal use only Key audit matters identified in our audit are summarised as follows: • • Accounting for the transactions in respect of MES Group Goodwill impairment assessment Key Audit Matter How our audit addressed the Key Audit Matter Accounting for acquisition of MES Group Our procedures in relation to management’s Refer to note 30 to the consolidated financial judgements and estimates included: statements for the acquisition of MES Group from Metcash. • Assessing the judgement relating to the transfer of the risks and rewards of the On 25 February 2019, ECG acquired 85% remaining 15% equity interest of MES Group to equity interest in MES Group for an aggregate ECG with reference to the relevant terms of the consideration of HK$47 million. MES Group is transaction; principally engaged in the provision of China export business in Australia. • Assessing the competency, objectivity and independence of the external valuer engaged In connection with the acquisition, a call by ECG; option to purchase and a put option to sell the remaining 15% equity interest of MES Group • Assessing the appropriateness of the valuation were granted to ECG and Metcash respectively. methodologies and assumptions over pre-tax ECG considered the terms of the call-put discount rate and volatility used in determining option arrangement and concluded that such the fair value of the identifiable intangible arrangement has effectively transferred the assets and the call option with the assistance of risk and rewards of the remaining 15% equity our internal valuation expert; interest of MES Group to ECG. • Evaluating the appropriateness of the valuation methodologies used in determining the fair values of the identifiable intangible assets with reference to our industry knowledge and market practices; and 38 eCargo Annual Report 2019 Independent Auditor’s ReportFor personal use only Key Audit Matter How our audit addressed the Key Audit Matter The acquisition of MES Group was accounted • Assessing the reasonableness of the for as a business combination where ECG assumptions over revenue growth rate and recognised goodwill and identifiable intangible supplier attrition rate by comparing these assets of approximately HK$12.7 million and assumptions used in the valuation against HK$8.8 million respectively. The goodwill relevant market data and industry research. recognised relates to 100% equity interest in MES Group. The fair values of the identifiable We found that the management judgements and intangible assets were appraised by an estimations used to determine the methodologies external valuer. and key assumptions underlying the fair values of the identifiable intangible assets used in accounting We focused on this area due to the magnitude for the transactions in respect of MES Group to be of the transaction as well as the significant supportable by available evidence. management judgements and estimates involved to determine the methodologies and key assumptions underlying the fair values of the identifiable intangible assets used in accounting for the acquisition of MES Group. The key assumptions and estimations used in the valuations included revenue growth rate, supplier attrition rate, pre-tax discount rate, risk-free rate, remaining useful life and volatility. eCargo Annual Report 2019 39 Independent Auditor’s ReportFor personal use only Key Audit Matter How our audit addressed the Key Audit Matter Goodwill impairment assessment Our procedures in relation to management’s Refer to notes 4 and 15 to the consolidated judgements and estimates included: financial statements of ECG. As at 31 December 2019, ECG had goodwill the goodwill into cash-generating units with our of HK$18.6 million relating to the eCommerce knowledge of the business; • Identifying the appropriateness of allocating solutions services cash generating unit in Australia (“Australia CGU”) and the Fast • Assessing the appropriateness of valuation moving consumer goods cash generating methodologies adopted and the reasonableness unit (“FMCG CGU”). ECG recognised goodwill of assumptions over pre-tax discount rate and impairment loss of approximately HK$49.3 terminal growth rate used in the valuation with million during the year ended 31 December reference to available market data; 2019. • Evaluating the reasonableness of the Prior to the Metcash Export Services Pty assumptions over CAGR of revenue and EBITDA Limited (“MES”), ECG had goodwill of HK$44.3 margin with reference to historical performance million relating to the Jessica’s Suitcase (“JS”). of JS and Australia CGU and FMCG CGU and our Following the acquisition of MES Group, ECG knowledge of the business; integrated the operations of JS and MES in the and combined the businesses to form the Fast • For the Australia CGU and FMCG CGU, moving consumer goods cash generating unit comparing the current year actual revenue (“FMCG CGU”). growth and EBITDA margin with the projections ECG has reviewed the carrying value of JS assumptions that were overly optimistic; to consider if the projection included on a standalone basis prior to the integration based on a value-in-use calculation and recognised impairment loss of approximately HK$17.8 million. Significant management judgements and estimations were used to estimate the future cash flows and to determine the key assumptions, including the compound annual growth rate (“CAGR”) of revenue, EBITDA margin, pre-tax discount rate and terminal growth rate, underlying the value-in-use calculation. 40 eCargo Annual Report 2019 Independent Auditor’s ReportFor personal use only Key Audit Matter How our audit addressed the Key Audit Matter ECG performed annual impairment assessment • Testing source data, on a sample basis to in respect the goodwill of the Australia CGU supporting evidence, such as approved budgets, and the FMCG CGU as at 31 December 2019. service contracted and available market data, to In carrying out the impairment assessment, consider the reasonableness of management’s management calculates the value-in-use revenue growth and EBITDA margin estimates; of the Australia CGU and the FMCG CGU and to determine their respective recoverable amounts. Significant management judgements • Evaluating management’s sensitivity analysis and estimations are used to estimate the around the terminal growth rate and EBITDA future cash flows and to determine the key margin to consider the extent of changes in assumptions, including the compound annual those assumptions that would result in an growth rate (“CAGR”) of revenue, EBITDA impairment of goodwill. margin, pre-tax discount rate and terminal growth rate, underlying the value-in-use calculations. Based on the assessment, Management has concluded that no provision for impairment loss is necessary for Australia CGU and recognised impairment loss of approximately HK$31.8 million in respect of the FMCG CGU as at 31 December 2019. We focused on this area due to the significant management judgement to determine the key assumptions underlying management’s impairment assessment. eCargo Annual Report 2019 41 Independent Auditor’s ReportFor personal use only Other Information The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Directors for the Consolidated Financial Statements The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The Audit Committee is responsible for overseeing the Group’s financial reporting process. 42 eCargo Annual Report 2019 Independent Auditor’s ReportFor personal use only Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body, in accordance with Section 405 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. eCargo Annual Report 2019 43 Independent Auditor’s ReportFor personal use only • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Leung Chi Hang, Benson. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 26 March 2020 44 eCargo Annual Report 2019 Independent Auditor’s ReportFor personal use only Note 2019 HK$ 2018 HK$ 6 7 7 7 7 3.2 10 10 11 11 11 30 17 17 17 15 30 12 Revenue Cost of sales Gross profit Selling and distribution expenses Administrative expenses Research and development expenses Net impairment losses on financial assets and contract assets Other income Other losses – net Operating loss Finance income Finance expense Finance expense – net Fair value gain on financial assets at fair value through profit or loss Share of results from an associate Share of results from a joint venture Provision for impairment of interest in an associate Provision for impairment of goodwill Loss on disposal of interest in an associate Loss before income tax Income tax credit Loss for the year Loss for the year is attributable to: Owners of the Company Non-controlling interests Other comprehensive income Item that may be reclassified to profit or loss Currency translation differences Total comprehensive loss for the year Total comprehensive loss for the year is attributable to: Owners of the Company Non-controlling interests 177,406,615 (114,439,781) 62,966,834 (9,789,268) (78,960,202) (1,997,618) (573,719) 8,011,436 (482,938) (20,825,475) 38,178 (5,342,595) 134,458,649 (62,995,438) 71,463,211 (11,273,130) (89,007,217) (5,638,052) – – (1,203,385) (35,658,573) 46,358 (2,214,562) (5,304,417) (2,168,204) – – 477,699 – (49,276,724) – (74,928,917) 363,063 13,930,290 555,323 – (72,504,113) – (38,992,851) (134,838,128) 142,243 (74,565,854) (134,695,885) (74,565,854) – (134,401,793) (294,092) (74,565,854) (134,695,885) (2,105,994) (4,632,994) (76,671,848) (139,328,879) (76,671,848) – (139,034,787) (294,092) (76,671,848) (139,328,879) Loss per share for loss attributable to owners of the Company – Basic and diluted (HK cents per share) 13 (12.12) (22.03) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. eCargo Annual Report 2019 45 Consolidated Statement of Comprehensive IncomeFor the Year Ended 31 December 2019For personal use only Assets Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Interests in associates and a joint venture Deferred income tax assets Prepayment and deposits Current assets Inventories Trade receivables Contract assets Prepayments, deposits and other receivables Amounts due from related parties Cash and cash equivalents Total assets Equity and liabilities Equity attributable to owners of the Company Share capital Currency translation reserve Accumulated losses Total (deficit)/equity Note 14 14(b) 15 17 24 21 19 20 5 21 31 22 2019 HK$ 2018 HK$ 653,763 1,763,902 5,576,128 – 63,425,070 105,259,791 213,554 1,699,088 397,970 – 1,306,784 7,346,835 71,965,573 115,677,312 15,501,990 1,787,805 18,867,866 18,415,962 3,325,508 4,919,047 3,054,309 3,767,479 2,802,804 9,497,723 26,946,542 17,614,983 72,615,262 53,886,756 144,580,835 169,564,068 25 427,820,968 427,820,968 (2,936,793) (830,799) (455,157,027) (380,591,173) (30,272,852) 46,398,996 46 eCargo Annual Report 2019 Consolidated Statement of Financial PositionAs at 31 December 2019For personal use only Liabilities Non-current liabilities Deferred income tax liabilities Lease liabilities Other payables Borrowings Current liabilities Trade payables Contract liabilities Other payables and accruals Amounts due to related parties Put option liabilities Lease liabilities Income tax payable Total liabilities Total equity and liabilities Note 2019 HK$ 2018 HK$ 24 14(b) 23 27 23 5 23 31 14(b) 10,821,794 10,921,657 4,178,017 763,364 – – 85,603,517 58,420,349 101,366,692 69,342,006 22,729,634 11,088,473 2,155,757 2,386,262 12,493,779 17,155,766 25,884,280 21,371,406 7,653,888 1,745,834 – – 823,823 1,821,159 73,486,995 53,823,066 174,853,687 123,165,072 144,580,835 169,564,068 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. The financial statements on page 45 to 127 were approved by the Board of Directors on March 26, 2020 and were signed on its behalf by: Mr. John Lau Executive Chairman Mr. Christopher Lau Non-Executive Director eCargo Annual Report 2019 47 As at 31 December 2019Consolidated Statement of Financial PositionFor personal use only Attributable to owners of the Company Currency Non- translation Accumulated controlling Total equity/ Share capital reserve HK$ HK$ losses HK$ Total HK$ interests (deficit) HK$ HK$ Balance at 1 January 2018 329,401,285 3,802,195 (245,895,288) 87,308,192 – 87,308,192 Comprehensive loss Loss for the year Other comprehensive loss Currency translation differences Total comprehensive loss for the year – – – – (134,401,793) (134,401,793) (294,092) (134,695,885) (4,632,994) – (4,632,994) – (4,632,994) (4,632,994) (134,401,793) (139,034,787) (294,092) (139,328,879) Issue of shares (Note 25) 98,419,683 Transactions with non-controlling interests (Note 29) – – – – 98,419,683 – 98,419,683 (294,092) (294,092) 294,092 – Balance at 31 December 2018 427,820,968 (830,799) (380,591,173) 46,398,996 Balance at 1 January 2019 427,820,968 (830,799) (380,591,173) 46,398,996 Comprehensive loss Loss for the year Other comprehensive loss Currency translation differences Total comprehensive loss for the year – – – – (74,565,854) (74,565,854) (2,105,994) – (2,105,994) (2,105,994) (74,565,854) (76,671,848) Balance at 31 December 2019 427,820,968 (2,936,793) (455,157,027) (30,272,852) – – – – – – 46,398,996 46,398,996 (74,565,854) (2,105,994) (76,671,848) (30,272,852) The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 48 eCargo Annual Report 2019 Consolidated Statement of Changes in EquityFor the year ended 31 December 2019For personal use only Note 2019 HK$ 2018 HK$ Cash flows from operating activities Cash generated from operations Income tax (paid)/refunded Interest paid Net cash generated from operating activities Cash flows from investing activities Prepayment for the acquisition of a subsidiary Payment for acquisition of a subsidiary, net of cash acquired Purchase of property, plant and equipment Step acquisition from an associate to a subsidiary, net of cash acquired Interest received Distributions received Dividend from a joint venture Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings 26 31 30 30 14 30 11 10 17 31 31 14,944,506 3,905,514 (4,154,951) 742,168 (123,068) – 10,666,487 4,647,682 – (6,960,375) (28,662,459) – (213,675) (2,035,712) – 38,178 6,118,422 264,690 374,889 46,358 – – (22,454,844) (8,574,840) 35,343,319 9,500,000 (12,134,427) – – Principal elements of lease payment 26(d) (1,883,737) Net cash generated from financing activities 21,325,155 9,500,000 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange loss on cash and cash equivalents 9,536,798 5,572,842 17,614,983 12,702,478 (205,239) (660,337) Cash and cash equivalents at end of year 22 26,946,542 17,614,983 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. eCargo Annual Report 2019 49 Consolidated Statement of Cash FlowsFor the year ended 31 December 2019For personal use only 1 General information eCargo Holdings Limited (the “Company”) and its subsidiaries (collectively, the “ECG” or the “Group”) are principally engaged in the development and provision of eCommerce technologies, integrated offline and online supply chain operations, provision of digital commerce solutions and services and trading of fast moving consumer goods. The Company is a limited liability company incorporated in Hong Kong. The address of its registered office is 13103N, ATL Logistics Centre B, 3 Kwai Chung Container Terminals, New Territories, Hong Kong. These consolidated financial statements are presented in Hong Kong dollars (“HK$”), unless otherwise stated. 2 Basis of preparation and summary of significant accounting policies 2.1 Statement of compliance The consolidated financial statements of ECG have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards, which is a collective term for all individual Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (“Ints”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirement of the Hong Kong Companies Ordinance (Cap.622). 2.2 Basis of preparation of the financial statements The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements have been prepared under the historical cost convention. As at 31 December 2019, the Company had net current liabilities of HK$871,733 and net liabilities of HK$30,272,852. The financial statements have been prepared on a going concern basis as the Company’s ultimate holding company, JL Enterprises Holdings Limited has agreed to provide continuing financial support to the Group to enable it to meet its financial obligations as and when they fall due. The preparation of financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying ECG’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4 to the consolidated financial statements. 50 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.2 Basis of preparation of the financial statements (Continued) (a) The following new and amendments to standards are mandatory for the first time for the financial year beginning on 1 January 2019, but do not have significant financial impact to ECG. Amendments to annual Annual improvements 2015–2017 cycle improvement project Amendments to HKAS 19 Plan amendment, curtailment or settlement Amendments to HKFRS 9 Prepayment features with negative compensation Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures HK (IFRIC)-Int 23 Uncertainty over income tax treatments HKFRS 16 Leases ECG has initially applied HKFRS 16 with effect from 1 January 2019 and elected to adopt the new rules retrospectively but recognised the cumulative effect of initially applying the new standard on 1 January 2019. Most of the other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. As indicated in above, ECG has adopted HKFRS 16 Leases retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The new accounting policies are disclosed in Note 2.25. On adoption of HKFRS 16, ECG recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of HKAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 5.3%- 6%. eCargo Annual Report 2019 51 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.2 Basis of preparation of the financial statements (Continued) (a) The following new and amendments to standards are mandatory for the first time for the financial year beginning on 1 January 2019, but do not have significant financial impact to ECG. (Continued) (i) Practical expedients applied In applying HKFRS 16 for the first time, ECG has used the following practical expedients permitted by the standard: • applying a single discount rate to a portfolio of leases with reasonably similar characteristics • relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review — there were no onerous contracts as at 1 January 2019 • accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases • excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application, and • using hindsight in determining the lease term where the contract contains options to extend or terminate the lease. ECG has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, ECG relied on its assessment made applying HKAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease. 52 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.2 Basis of preparation of the financial statements (Continued) (a) The following new and amendments to standards are mandatory for the first time for the financial year beginning on 1 January 2019, but do not have significant financial impact to ECG. (Continued) (ii) Measurement of lease liabilities Operating lease commitments disclosed as at 31 December 2018 4,116,992 HK$ Discounted using the lessee’s incremental borrowing rate of at the date of initial application Less: short-term leases not recognised as a liabilities Add: adjustments as a result of a different treatment of extension and termination options Lease liability recognised as at 1 January 2019 Of which are: Current lease liabilities Non-current lease liabilities 3,910,724 (400,054) 2,037,275 5,547,945 1,086,905 4,461,040 5,547,945 (iii) Measurement of right-of-use assets Right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position as at 31 December 2018. eCargo Annual Report 2019 53 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.2 Basis of preparation of the financial statements (Continued) (a) The following new and amendments to standards are mandatory for the first time for the financial year beginning on 1 January 2019, but do not have significant financial impact to ECG. (Continued) (iv) Adjustment recognised in the consolidated statement of financial statement position on 1 January 2019 The following table gives a summary of the opening balance adjustments recognised for each line item in the consolidated statement of financial position that has been impacted by HKFRS 16 on 1 January 2019. As at 31 December 2018 HK$ HKFRS 16 HK$ As at 1 January 2019 HK$ – – – 5,547,945 5,547,945 4,461,040 4,461,040 1,086,905 1,086,905 Non-current assets Right-of-use assets Non-current liabilities Lease liabilities Current liabilities Lease liabilities (v) Lessor accounting ECG did not need to make any adjustments to the accounting for assets held as lessor under operating leases as a result of the adoption of HKFRS 16. 54 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.2 Basis of preparation of the financial statements (Continued) (b) The following new standards, amendments/revisions to standards and interpretation have been issued, but are not effective for the financial year beginning on 1 January 2019 and have not been early adopted by ECG. Effective for accounting periods beginning on or after Amendments to HKFRS 3 Definition of a business (amendments) 1 January 2020 (Revised) HKFRS 17 Insurance contracts (new standard) 1 January 2023 Conceptual Framework for Revised conceptual Framework for 1 January 2020 Financial Reporting 2018 Financial reporting Amendments to HKAS 1 Definition of material (amendments) 1 January 2020 and HKAS 8 Amendments to HKFRS 10 Sales or contribution of assets between To be determined and HKAS 28 an investor and its associate or joint venture (amendments) There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions eCargo Annual Report 2019 55 Notes to the Consolidated Financial StatementsFor personal use only 2.3 Principle of consolidation and equity accounting 2.3.1 Subsidiaries Subsidiaries are entities (including a structured entity) over which ECG has control. ECG controls an entity when ECG is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to ECG. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by ECG (Note 2.4). Intra-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by ECG. 2.3.2 Associates Associates are all entities over which ECG has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (Note 2.3.4), after initially being recognised at cost. 2.3.3 Joint arrangements Under HKFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Interest in joint ventures are accounted for using the equity method (Note 2.3.4), after initially being recognised at cost in the consolidated statement of financial position. 56 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.3 Principle of consolidation and equity accounting (Continued) 2.3.4 Equity method Under the equity method, the investment is initially recognised at cost and adjusted thereafter to recognise ECG’s share of the post-acquisition profits or losses of the investee in profit or loss, and ECG’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. Where ECG’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, ECG does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between ECG and its associates and joint ventures are eliminated to the extent of ECG’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by ECG. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in Note 2.10. eCargo Annual Report 2019 57 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.3 Principle of consolidation and equity accounting (Continued) 2.3.5 Changes in ownership interests ECG treats transactions with non-controlling interest that do not result in a loss of control as transactions with equity owners of ECG. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of the Company. When ECG ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if ECG had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRSs. If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. 2.4 Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • fair values of the assets transferred • liabilities incurred to the former owners of the acquired business • equity interests issued by ECG • fair value of any asset or liability resulting from a contingent consideration arrangement, and • fair value of any pre-existing equity interest in the subsidiary. 58 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.4 Business combinations (Continued) Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. ECG recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. 2.5 Separate financial statements Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable. Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the year the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill. eCargo Annual Report 2019 59 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.6 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers (“CODM”), who are responsible for allocating resources and assessing performance of the operating segments and making strategic decisions. The CODM are the key management personnel of ECG and may include directors. 2.7 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the entities of ECG are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”). The consolidated financial statements are presented in HK$ which is the Company’s functional and presentation currency and ECG’s presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised within administrative expenses in the consolidated statement of comprehensive income. Foreign exchange gains and losses that relate to cash and cash equivalents are presented in the consolidated statement of comprehensive income within “other losses — net”. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income. 60 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.7 Foreign currency translation (Continued) (c) Group companies The results and financial position of all ECG entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; (ii) income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (iii) all resulting currency translation differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. eCargo Annual Report 2019 61 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.8 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to ECG and that cost of the item can be measured reliably. The carrying amount of the replaced part is recognised. All other repairs and maintenance are expensed in the consolidated statement of comprehensive income during the financial year in which they are incurred. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows: Leasehold improvements over the shorter of remaining lease term and useful life Furniture and fixtures Office equipment Computer equipment 20% 20% 33.33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised within administrative expenses in the consolidated statement of comprehensive income. 62 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.9 Intangible assets (a) Goodwill Goodwill is measured as described in Note 2.4. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments (Note 5). (b) Brand name The brand name acquired in a business combination is recognised at fair value at the acquisition date. The brand has a finite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over its estimated useful life of 10 years. (c) Contractual customer relationships Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationships of 5 years. (d) Supplier relationships Supplier relationships acquired in a business combination are recognised at fair value at the acquisition date. The supplier relations have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationships of 5 to 10 years. eCargo Annual Report 2019 63 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.9 Intangible assets (Continued) (e) Software Costs associated with maintaining computer software programs are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by ECG are recognised as intangible assets when the following criteria are met: • It is technically feasible to complete the software product so that it will be available for use; • Management intends to complete the software product and use or sell it; • There is an ability to use or sell the software product; • It can be demonstrated how the software product will generate probable future economic benefits; • Adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and • The expenditure attributable to the software product during its development can be reliably measured. 64 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.9 Intangible assets (Continued) (e) Software (Continued) Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use. ECG amortised intangible assets with a limited useful life using the straight-line method over the following period. Brand name Contractual customer relationships Supplier relationships Software 10 years 5 years 5–10 years 5–10 years 2.10 Impairment of non-financial assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. eCargo Annual Report 2019 65 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.11 Investment and other financial assets (i) Classification ECG classifies its financial assets in the following measurement categories: • those to be measured subsequently at fair value (either through OCI or through profit or loss), and • those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether ECG has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). ECG reclassifies debt investments when and only when its business model for managing those assets changes. (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which ECG commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and ECG has transferred substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, ECG measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. 66 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.11 Investment and other financial assets (Continued) (iii) Measurement (Continued) Debt instruments Subsequent measurement of debt instruments depends on ECG’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which ECG classifies its debt instruments: • Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss. • FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other losses — net. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other losses — net and impairment expenses are presented as separate line item in the statement of profit or loss. • FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises. eCargo Annual Report 2019 67 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.11 Investment and other financial assets (Continued) (iii) Measurement (Continued) Equity instruments ECG subsequently measures all equity investments at fair value. Where ECG’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when ECG’s right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. (iv) Impairment ECG assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, ECG applies the simplified approach permitted by HKFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see Note 20 for further details. 2.12 Inventories Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on the basis of First-in-First-out. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 68 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.13 Trade and other receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. ECG holds the trade and other receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. See Note 20 for further information about ECG’s accounting for trade receivables and Note 3.2 for a description of ECG’s impairment policies. 2.14 Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 2.15 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax from the proceeds. 2.16 Trade and other payables These amounts represent liabilities for goods and serviced provided to ECG prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. 2.17 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless ECG has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. eCargo Annual Report 2019 69 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.18 Borrowing costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other borrowing costs are expenses in the period in which they are incurred. 2.19 Current and deferred income tax The tax expense for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (a) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of statement of financial position in the countries where ECG, its subsidiaries and its associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. (b) Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arises from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arise from initial recognition of an asset of liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. 70 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.19 Current and deferred income tax (Continued) (b) Deferred income tax (Continued) Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. 2.20 Employee benefits (a) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the consolidated statement of financial position. eCargo Annual Report 2019 71 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.20 Employee benefits (Continued) (b) Other long-term employee benefit obligation The liabilities for long service leave and annual leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the consolidated statement of financial position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. (c) Post-employment obligations Pension obligations ECG companies incorporated in Hong Kong operate a defined contribution plan, which is the Mandatory Provident Fund Scheme (“MPF Scheme”) established under and pursuant to the Mandatory Provident Fund Ordinance. The MPF Scheme is generally funded by the payments from employees and by ECG. Contributions to the scheme by ECG and employees are calculated as a percentage of employees’ basic salaries. ECG has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. ECG’s contributions to defined contribution plan are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions. The assets of the scheme are held in separate trustee-administered funds. 72 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.20 Employee benefits (Continued) (c) Post-employment obligations (Continued) Pension obligations (Continued) ECG companies incorporated in the PRC and Australia contribute based on certain percentage of the salaries of the employees to a defined contribution retirement benefit plan organised by relevant government authorities in the PRC and Australia on a monthly basis. The government authorities undertake to assume the retirement benefit obligations payable to all existing and future retired employees under these plans and ECG has no further obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are expensed as incurred. Assets of the plans are held and managed by government authorities and are separate from those of ECG. (d) Bonus plan The expected cost of bonus payment is recognised as a liability when ECG has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made. Liabilities for bonus plan are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. 2.21 Provisions Provisions are recognised when ECG has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. eCargo Annual Report 2019 73 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.22 Revenue recognition Revenue is measured when or as the control of the goods or services is transferred to a customer. Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time. Control of the goods and services is transferred over time if ECG’s performance: • provides all of the benefits received and consumed simultaneously by the customer; • creates and enhances an asset that the customer controls as ECG performs; or • does not create an asset with an alternative use to ECG and ECG has an enforceable right to payment for performance completed to date. If control of the goods and services transfers over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. ECG use the output methods to measure the progress towards, recognising revenue based on direct measurements of the value transferred to the customer. Otherwise, revenue is recognised at a point in time when the customer obtains control of the goods and services. Contracts with customers may include multiple performance obligations. For such arrangements, ECG allocates revenue to each performance obligation based on its relative standalone selling price. ECG generally determines standalone selling prices based on the prices charged to customers. If the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information. Assumptions and estimations have been made in estimating the relative selling price of each distinct performance obligation, and changes in judgements on these assumptions and estimates may impact the revenue recognition. When either party to a contract has performed, ECG presents the contract in the statement of financial position as a contract assets or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment. A contract asset is ECG’s right to consideration in exchange for goods and services that ECG has transferred to a customer. A receivable is recorded when ECG has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of the consideration is due. 74 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.22 Revenue recognition (Continued) If a customer pays consideration or ECG has a right to an amount of consideration that is unconditional, before ECG transfers a good or service to the customer, ECG presents the contract liability when the payment is made or a receivable is recorded (whichever is earlier). A contract liability is ECG’s obligation to transfer goods or services to a customer for which ECG has received consideration (or an amount of consideration is due from the customer). 2.23 Interest income Interest income on financial assets at amortised cost is calculated by using the effective interest method and is recognised in the consolidated statement of comprehensive income. Interest income is presented as finance income where it is earned from financial assets that are held for cash management purpose. Any other interest income is included in other income. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance). 2.24 Loss per share (i) Basic loss per share Basic earnings per share is calculated by dividing: • the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares • by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and • the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. eCargo Annual Report 2019 75 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.25 Leases As explained in Note 2.2(a) above, ECG has changed its accounting policy for leases where ECG is the lessee. The new policy is described below and the impact of the change in Note 2.2(a). Leases in which a significant portion of the risks and rewards of ownership were not transferred to ECG as lessee were classified as operating leases (Note 28). Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by ECG. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments (including in-substance fixed payments), less any lease incentives receivable • variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date • amounts expected to be payable by ECG under residual value guarantees • the exercise price of a purchase option if ECG is reasonably certain to exercise that option, and • payments of penalties for terminating the lease, if the lease term reflects ECG exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in ECG, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. To determine the incremental borrowing rate, ECG, where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received. 76 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 2 Basis of preparation and summary of significant accounting policies (Continued) 2.25 Leases (Continued) Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability • any lease payments made at or before the commencement date less any lease incentives received • any initial direct costs, and • restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset‘s useful life and the lease term on a straight-line basis. If ECG is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. 3 Financial risk management 3.1 Capital management ECG’s objectives when managing capital are to safeguard ECG’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. ECG actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of ECG and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. In order to maintain or adjust the capital structure, ECG may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. eCargo Annual Report 2019 77 Notes to the Consolidated Financial StatementsFor personal use only 3 Financial risk management (Continued) 3.2 Credit risk At the date of the consolidated statement of financial position, 55% (2018: 42%) of the total receivables was due from ECG’s largest five debtors. Accordingly, ECG’s consolidated results would be heavily affected by the financial capability of these debtors to fulfill their obligations with ECG. ECG’s credit risk monitoring activities relating to the debtors include review of the credit profile, business prospects, background and their financial capacity. Substantially all of the bank deposits and cash at banks are held in a major financial institution, which management believes are of high credit quality. ECG’s trade receivables and contract assets are subject to the expected credit loss model, while cash and cash equivalent are also subject to the impairment requirements of HKFRS 9, the identified impairment loss was immaterial. Trade receivables and contract assets ECG applies the HKFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. ECG has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. The expected loss rates are based on the payment profiles of sales over a period of 24 months before 31 December 2019 or 1 January 2019 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. ECG has identified the GDP and the unemployment rate of the countries in which it sells its goods and services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. 78 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 3 Financial risk management (Continued) 3.2 Credit risk (Continued) On that basis, the loss allowance as at 31 December 2019 and 2018 was determined as follows for both trade receivables and contract assets: As at 31 December 2019 Individual assessment Collective assessment Current Past due: 1 to 30 days 31 to 60 days 61 to 90 days Over 90 days As at 31 December 2018 Individual assessment Collective assessment Current Past due: 1 to 30 days 31 to 60 days 61 to 90 days Over 90 days Lifetime Gross Lifetime expected carrying expected Net carrying loss rate amount credit loss amount 100% 479,903 (479,903) – 0%-3.52% 12,583,003 (63,850) 12,519,153 0%-3.52% 7,103,708 (15,778) 7,087,930 0%-7.32% 1,503,108 (83,301) 1,419,807 0%-7.86% 0%-18.43% 350,955 962,236 (4,406) (142,301) 346,549 819,935 22,503,010 (309,636) 22,193,374 100% 221,800 (221,800) – 0.1% 0.1% 0.2% 0.5% 13,404,234 4,365,056 864,487 246,009 3,303,655 22,183,441 – – – – – – 13,404,234 4,365,056 864,487 246,009 3,303,655 22,183,441 eCargo Annual Report 2019 79 Notes to the Consolidated Financial StatementsFor personal use only 3 Financial risk management (Continued) 3.2 Credit risk (Continued) The loss allowances for trade receivables as at 31 December reconcile to the opening loss allowances as follows: Opening loss allowance at 1 January Increase in loss allowance recognised in profit or loss Receivables written off during the year as uncollectible Currency translation differences Trade receivables 2019 HK$ 221,800 573,719 2018 HK$ 255,824 – – (34,024) (5,980) – Closing loss allowance at 31 December 789,539 221,800 Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with ECG, and a failure to make contractual payments for a period of greater than 180 days past due. Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. 3.3 Liquidity risk ECG adopts prudent liquidity risk management and maintains sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The contractual undiscounted cash flows of ECG’s financial liabilities, which include trade and other payables, amounts due to related parties and lease liabilities, mature within one year from the date of consolidated statement of financial position, equal to their carrying balances as the impact of discounting is not significant. 80 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 3 Financial risk management (Continued) 3.3 Liquidity risk (Continued) The table below analyses ECG’s non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the date of consolidated statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Between 3 Less than 3 months and Between 1 Between 2 More than 5 months 1 year and 2 years and 5 years HK$ HK$ HK$ HK$ years HK$ Total HK$ At 31 December 2019 Trade payables Contract liabilities 22,729,634 2,155,757 Other payables and accruals 12,493,779 Amounts due to related parties 25,884,280 – – – – – – 763,364 – – – – – – – Put option liabilities Lease liabilities – 7,653,888 556,103 1,449,303 1,640,269 2,840,386 63,819,553 9,103,191 2,403,633 2,840,386 At 31 December 2018 Trade payables Contract liabilities 11,088,473 2,386,262 Other payables and accruals 17,155,766 Amounts due to related parties 21,371,406 52,001,907 – – – – – – – – – – – – – – – – – – – – – – – – – – – 22,729,634 2,155,757 13,257,143 25,884,280 7,653,888 6,486,061 78,166,763 11,088,473 2,386,262 17,155,766 21,371,406 52,001,907 3.4 Foreign exchange risk ECG mainly operates in Hong Kong, the PRC and Australia, and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Renminbi (“RMB”), Australian Dollars (“A$”), United States Dollars (“US$”) and New Zealand Dollars (“NZ$”). Foreign exchange risk arises mainly from future commercial transactions, recognised assets and liabilities. ECG manages its foreign exchange risks by performing regular review and monitoring its foreign exchange exposure. ECG currently does not have a foreign currency hedging policy. eCargo Annual Report 2019 81 Notes to the Consolidated Financial StatementsFor personal use only 3 Financial risk management (Continued) 3.4 Foreign exchange risk (Continued) At 31 December 2019, if HK$ had strengthened/weakened by 5% against the A$ with all other variables held constant, post-tax loss for the year would have been approximately HK$129,000 (2018: HK$389,000) higher/lower, mainly as a result of foreign exchange losses/gains on translation of trade receivables and other receivables, trade and other payables and bank deposits denominated in the A$. At 31 December 2019, if HK$ had strengthened/weakened by 5% against the RMB with all other variables held constant, post-tax loss for the year would have been approximately HK$338,000 (2018: HK$323,000) higher/lower, mainly as a result of foreign exchange losses/gains on translation of trade receivables and other receivables, trade and other payables and bank deposits denominated in the RMB. At 31 December 2019, if HK$ had strengthened/weakened by 5% against the NZ$ with all other variables held constant, post-tax loss for the year would change by approximately HK$56,000 (2018: HK$101,000) lower/higher, mainly as a result of foreign exchange losses/gains on translation of trade receivables, trade and other payables and bank deposits denominated in the NZ$. The foreign exchange exposure for the US$ is considered minimal as HK$ is pegged with the US$. 3.5 Cash flow and fair value interest rate risk ECG’s interest rate risk arises from borrowing, which is issued at variable rate exposes ECG to cash flow interest rate risk which is partially offset by cash held at variable rates. ECG currently does not hedge its exposure to cash flow and fair value interest rate risk. ECG analyses its interest rate exposure on a regular basis and will consider the interest rate exposure when enter into any financing, renewal of existing positions and alternative financing transactions. ECG’s practice is to manage its interest income/cost through monitoring and reviewing interest rate changes in the market and its impact to the ECG’s financial performance. During the year, ECG’s borrowing at variable rate was denominated in HK$. At 31 December 2019, if interest rate on borrowing held at variable rate had been 50 basis points higher/lower with all other variables held constant, post-tax loss for the year would have been approximately HK$357,000 (2018: HK$226,000) higher/lower, mainly as a result of higher/lower interest expense on floating rate borrowing. 82 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 3 Financial risk management (Continued) 3.6 Fair value estimation ECG’s financial instruments include “cash and cash equivalents”, “trade receivables”, “deposits and other receivables”, “contract assets”, “amounts due from related parties”, “trade and other payables”, “contract liabilities”, “amounts due to related parties”, “borrowing”, “put option liabilities” and “lease liabilities”. The carrying amounts less impairment of these balances are a reasonable approximation of their fair values due to their short term maturities. 4 Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectation of future events that are believed to be reasonable under the circumstances. ECG makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (a) Impairment assessment of long-lived assets At the end of each reporting period, ECG reviews internal and external sources of information to identify indications that the following classes of asset may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased: • Property, plant and equipment; • Intangible assets; and • Interest in associates If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment. An impairment loss is recognised in the consolidated statement of comprehensive income whenever the carrying amount of an asset exceeds its recoverable amount. The sources utilised to identify indications of impairment are often subjective in nature and ECG is required to use judgment in applying such information to its business. ECG’s interpretation of this information has a direct impact on whether an impairment assessment is performed as at the end of any given reporting period. eCargo Annual Report 2019 83 Notes to the Consolidated Financial StatementsFor personal use only 4 Critical accounting estimates and judgments (Continued) (a) Impairment assessment of long-lived assets (Continued) If an indication of impairment is identified, such information is further subject to an exercise that requires ECG to estimate the recoverable value, representing the greater of the asset’s fair value less cost to sell or its value in use. Depending on ECG’s assessment of the overall materiality of the asset under review and complexity of deriving reasonable estimates of the recoverable value, ECG may perform such assessments utilising internal resources or ECG may engage external advisors for counsel. Regardless of the resources utilised, ECG is required to make assumptions to make these assessments, including the utilisation of such asset, the cash flows to be generated, appropriate market discount rates and the projected market and regulatory conditions. Changes in any of these assumptions could result in a material change to future estimates of the recoverable value of any asset. (b) Valuation of fair value of identifiable assets acquired and liabilities assumed in respect of acquisitions The purchase price was allocated to the identifiable assets acquired and liabilities assumed based on management’s estimated of fair value. The valuation was based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results. In making the estimate, management judgments is required in assessing whether the appropriate key assumptions such as the growth rate and discount rates to be applied in the preparation of cash flow projections. Changing the assumptions could affect the fair value of identifiable assets acquired and liabilities assumed in the process of purchase price allocation and as a result affect the amounts of goodwill and intangible assets arising from acquisitions and the financial position of ECG. (c) Net realisable value of inventories Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. It could change significantly as a result of changes in customer taste and competitor actions in response to severe industry cycles. Management will reassess the estimations by the end of each reporting period. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-down of inventories in the period in which such estimate is changed. 84 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 5 Segment information Management have determined the operating segments based on the information reviewed by the Board of Directors for the purpose of allocating resources and assessing performance. The CODM considers the business from both geographic and services perspective and concluded the segments as eCommerce Business Services and Fast Moving Consumer Goods in Greater China (“Greater China”) and eCommerce Solution Services in Australia (“Australia”). The CODM assesses and measures the operating performance of ECG based on the revenue, gross profit and EBITDA (excluding net foreign exchange loss) as management believes that such information is the most relevant in evaluating the results of ECG’s segments. EBITDA loss excluding impact of foreign exchange represents loss before income tax, depreciation of property, plant and equipment, depreciation of right-of-use assets, amortisation of intangible assets, finance income, finance expense, ECG’s share of results from an associate and a joint venture, provision for impairment of interest in an associate, gain or loss on fair value of acquisition and financial derivatives and provision for impairment of goodwill. eCargo Annual Report 2019 85 Notes to the Consolidated Financial StatementsFor personal use only 5 Segment information (Continued) Information regarding ECG’s reportable segments as provided to ECG’s CODM is set out below: 2019 Unallocated corporate income/ Greater China Australia (expense) Consolidated HK$ HK$ HK$ HK$ Revenue from external customers 89,113,853 85,892,762 – 175,006,615 Revenue from related companies (Note 31) – – 2,400,000 2,400,000 89,113,853 85,892,762 2,400,000 177,406,615 Gross profit 13,018,035 47,548,799 2,400,000 62,966,834 EBITDA (loss)/gain – excluding impact of foreign exchange (9,318,117) 11,404,655 (8,742,675) (6,656,137) Net foreign exchange loss (133,710) (153,377) (195,851) (482,938) Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortisation of intangible assets Finance income Finance expense (521,827) (906,798) (220,311) (988,242) (570,140) (1,312,278) – (1,895,040) – – (4,159,754) (8,212,342) (12,372,096) 15,359 22,819 38,178 (118,637) (229,434) (4,994,524) (5,342,595) Provision for impairment of goodwill Share of profit from a joint venture Gain on fair value of contingent liabilities – 477,699 – – – – (49,276,724) (49,276,724) – 477,699 1,893,014 1,893,014 (Loss)/profit before income tax (10,521,390) 5,668,896 (70,076,423) (74,928,917) Income tax credit/(expense) 2,162,714 (1,799,651) – 363,063 (Loss)/profit for the year (8,358,676) 3,869,245 (70,076,423) (74,565,854) 86 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 5 Segment information (Continued) Information regarding ECG’s reportable segments as provided to ECG’s CODM is set out below: 2018 Unallocated corporate income/ Greater China Australia (expense) Consolidated HK$ HK$ HK$ HK$ Revenue from external customers 32,947,713 97,010,212 – 129,957,925 Revenue from related companies (Note 31) 2,100,724 – 2,400,000 4,500,724 35,048,437 97,010,212 2,400,000 134,458,649 Gross profit 16,246,429 52,816,782 2,400,000 71,463,211 EBITDA (loss)/gain – excluding impact of foreign exchange (4,281,014) 6,312,500 (12,122,156) (10,090,670) Net foreign exchange loss (723,727) (35,692) (443,966) (1,203,385) Depreciation of property, plant and equipment (382,451) (234,106) (561,585) (1,178,142) Amortisation of intangible assets – (1,835,145) (21,351,231) (23,186,376) Finance income Finance expense Share of profit from an associate Provision for impairment of interest in an associate Fair value gain on financial assets at fair value through profit or loss Loss on disposal of interest in an associate 5,381 38,043 2,934 46,358 – – – – – – – – – – (2,214,562) (2,214,562) 555,323 555,323 (72,504,113) (72,504,113) 13,930,290 13,930,290 (38,992,851) (38,992,851) (Loss)/profit before income tax (5,381,811) 4,245,600 (133,701,917) (134,838,128) Income tax (expense)/credit (25,969) (770,265) 938,477 142,243 (Loss)/profit for the year (5,407,780) 3,475,335 (132,763,440) (134,695,885) eCargo Annual Report 2019 87 Notes to the Consolidated Financial StatementsFor personal use only 5 Segment information (Continued) The segment assets as at 31 December 2019 and 2018 are as follows: Unallocated Corporate Assets/ Greater China Australia Liabilities Consolidated HK$ HK$ HK$ HK$ As at 31 December 2019 Segment assets 53,433,168 29,225,436 60,223,143 142,881,747 Deferred income tax assets 343,451 1,355,637 – 1,699,088 53,776,619 30,581,073 60,223,143 144,580,835 Segment liabilities (137,931,644) (18,066,201) (18,855,842) (174,853,687) As at 31 December 2018 Segment assets Interest in an associate Additions to non-current assets 1,779,160 256,552 33,281,776 35,561,430 98,685,150 167,528,356 – – – – – 2,035,712 Segment liabilities 31,352,046 24,779,599 67,033,427 123,165,072 35,060,936 35,817,982 98,685,150 169,564,068 Information about major customer For the year ended 31 December 2019, there were no single external customers contributing 10% or more of ECG’s total revenue. For the year ended 31 December 2018, there were two single external customers contributing 10% or more of ECG’s total revenue. 88 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 5 Segment information (Continued) ECG has recognised the following assets and liabilities related to contracts with customers: Contract assets Contract liabilities 2019 HK$ 2018 HK$ 3,325,508 3,767,479 2,155,757 2,386,262 Significant changes in contract assets and liabilities During the year ended 31 December 2019, the balances of contract assets have decreased since less unbilled amount. ECG also applied the simplified approach to provide for expected credit losses prescribed by HKFRS 9, which permits the use of the lifetime expected loss provision for contract assets. No impairment was made for contract assets as at 31 December 2019 and 2018. The balance of contract liabilities have decreased due to the decrease in overall contract activities in the year. Revenue recognised in relation to contract liabilities The following table shows how much of the revenue recognised in the current reporting period relates to carried-forward contract liabilities. Revenue recognised that was included in the contract liability balance at the beginning of the year Services income 2,386,262 2,324,144 2019 HK$ 2018 HK$ 6 Revenue Revenue recognised during the year was as follows: Revenue – Service income – Sales of goods 2019 HK$ 2018 HK$ 106,375,273 132,432,176 71,031,342 2,026,473 177,406,615 134,458,649 eCargo Annual Report 2019 89 Notes to the Consolidated Financial StatementsFor personal use only 7 Expenses by nature Outsourced services fulfilment expenses, included in cost of sales 8,551,061 13,369,784 Outsourced web development and IT consultation costs, 2019 HK$ 2018 HK$ included in cost of sales Subscription expense for software application, included in cost of sales Other direct costs, included in cost of sales Cost of inventories, included in cost of sales Written down of inventories Auditor’s remuneration Employee benefit expenses (Note 8) Outsourced labour costs Amortisation of intangible assets (Note 15) Depreciation of property, plant and equipment (Note 14) Depreciation of right of use assets (Note 14(b)) Legal and professional expenses Travel expenses Operating leases rental Advertising expenses IT expenses Marketing expenses Utilities and maintenance expenses Telecommunication expenses Insurance expenses Provision for impairment of trade receivables (Note 3.2) – 3,675,987 38,343,963 10,188,415 57,161,381 194,961 1,600,000 44,193,430 – 1,756,237 – 1,643,750 56,179,838 62,308,948 600,000 600,000 12,372,096 23,186,376 1,312,278 1,895,040 4,325,054 2,671,710 3,057,030 1,378,556 969,671 518,403 610,993 289,356 358,028 573,719 1,178,142 – 4,208,132 2,376,829 4,106,910 – 1,745,954 548,500 1,065,752 291,620 206,115 – Other expenses 2,609,035 2,451,371 8 Employee benefit expenses (including Directors’ emoluments) Wages and salaries Pension costs Other employee benefits and welfare 2019 HK$ 2018 HK$ 50,583,990 57,561,528 2,439,770 3,156,078 3,713,874 1,033,546 56,179,838 62,308,948 90 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 9 Benefits and interests of Directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622) and Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) (a) Directors’ emoluments The remuneration of each Director is set out below: For the year ended 31 December 2019: Emoluments paid or receivable in respect of a person’s services as a Director, whether of the Company undertaking: Emoluments paid or receivable in respect of Director’s other services Remunerations in connection paid or with the receivable management Employer’s in respect of the affairs of contribution to of accepting the Company or a retirement office as its subsidiary Mr. John Lau Mr. Christopher Lau Mr. Rupert Myer AO# Mr. Heath Zarin# Ms. Jessica Rudd1 Mr. Dennis Lin#2 Mr. Yuming Zou3 Fees HK$ – – 98,249 95,289 98,249 82,188 – 373,975 Salary HK$ Others* benefit scheme Director undertaking HK$ HK$ HK$ HK$ – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total HK$ – – 98,249 95,289 98,249 82,188 – 373,975 #: *: 1: 2: 3: Independent Non-Executive Directors Included discretionary bonuses, housing allowance and estimated money value of other benefits Resigned on 22 January 2020 Resigned on 31 October 2019 Appointed on 22 January 2020 eCargo Annual Report 2019 91 Notes to the Consolidated Financial StatementsFor personal use only 9 Benefits and interests of Directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622) and Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) (Continued) (a) Directors’ emoluments (Continued) For the year ended 31 December 2018: Emoluments paid or receivable in respect of a person’s services as a Director, whether of the Company undertaking: Emoluments paid or receivable in respect of Director’s other services Remunerations in connection paid or with the receivable management Employer’s in respect of the affairs of contribution to of accepting the Company or a retirement office as its subsidiary Mr. John Lau Mr. Christopher Lau1 Mr. Rupert Myer AO# Mr. Christopher Ryan#3 Mr. Heath Zarin# Ms. Jessica Rudd4 Mr. Dennis Lin#2 Fees HK$ – – 88,980 46,610 – 89,987 67,488 293,065 Salary HK$ Others* benefit scheme Director undertaking HK$ HK$ HK$ HK$ – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total HK$ – – 88,980 46,610 – 89,987 67,488 293,065 #: *: 1: 2: 3: 4: Independent Non-Executive Directors Included discretionary bonuses, housing allowance and estimated money value of other benefits Re-designated from executive director to non-executive director on 14 March 2018 Appointed on 9 April 2018 Resigned on 9 April 2018 Appointed on 24 January 2018 92 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 9 Benefits and interests of Directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622) and Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) (Continued) (b) Directors’ retirement benefits and termination benefits None of the Directors received or will receive any retirement benefits or termination benefits during the year (2018: Nil). (c) Consideration provided to third parties for making available Directors’ services The Company does not pay consideration to any third parties for making available Directors’ services during the year (2018: Nil). (d) Information about loans, quasi-loans and other dealings in favour of Directors, controlled bodies corporate by and connected entities with such Directors No loans, quasi-loans and other dealing were made in favour of Directors, controlled bodies corporate by and connected entities with such Directors at the end of the year or at any time during the year (2018: Nil). (e) Directors’ material interests in transactions, arrangements or contracts Other than those disclosed in Note 31 to the financial statements, no significant transactions, arrangements and contracts in relation to ECG’s business to which the Company was a party and in which a Director had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. 10 Other income Distributions received (Note 17) Fair value gain on contingent liabilities Other losses — net 2019 HK$ 6,118,422 1,893,014 8,011,436 2018 HK$ – – – 2019 HK$ 2018 HK$ Net foreign exchange loss (482,938) (1,203,385) eCargo Annual Report 2019 93 Notes to the Consolidated Financial StatementsFor personal use only 11 Finance expense — net 2019 HK$ 2018 HK$ Finance income: – Interest income on short-term bank deposits 38,178 46,358 Finance expense: – Interest and finance charge paid/payable for lease liabilities (Note 14(b)) (341,549) – – Interest expense on borrowings (Note 31(g)) (4,120,175) (2,214,562) – Interest expense on put option liabilities and contingent consideration Finance expense — net 12 Income tax credit Australian corporate tax – Current income tax PRC corporate tax – Current income tax Deferred income tax (Note 24) Income tax credit (880,871) – (5,342,595) (2,214,562) (5,304,417) (2,168,204) 2019 HK$ 2018 HK$ 1,861,408 1,920,285 – 25,969 (2,224,471) (2,088,497) (363,063) (142,243) Subsidiaries established in Hong Kong are subject to Hong Kong profits tax at a rate of 16.5% (2018:16.5%). For the year ended 31 December 2019, tax recession relates to tax reduction to tax payable under Two-Tiered Profits Rates Regime capped at HK$165,000 for one of the Hong Kong incorporated entities of the Group (2018: same). No provision for Hong Kong profits tax has been made as ECG had no assessable profit for the year ended 31 December 2019 in Hong Kong (2018: Nil). Subsidiaries established in Australia and the PRC are subject to 30% (2018: 30%) and 25% (2018: 25%) income tax rate during the year respectively. 94 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 12 Income tax credit (Continued) The tax on ECG’s loss before income tax differs from the theoretical amount that would arise using the domestic tax rates applicable to losses in the respectively of ECG companies as follows. 2019 HK$ 2018 HK$ Loss before income tax (74,928,917) (134,838,128) Tax calculated at a domestic tax rates applicable loss in the respective countries Tax effect of: – Associates’ results reported net of tax – Income not subject to tax – Expenses not deductible for tax purposes – Tax losses for which no deferred income tax assets (14,512,016) (21,997,602) (78,820) (91,628) (1,321,887) (2,917,077) 9,138,579 21,563,876 were recognised 6,411,081 3,798,759 – Utilization of previously unrecognised tax loss – (498,571) Income tax credit (363,063) (142,243) 13 Loss per share (a) Basic Basic loss per share is calculated by dividing the loss attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year. 2019 HK$ 2018 HK$ Loss attributable to owners of the Company 74,565,854 134,401,793 Weighted average number of ordinary shares in issue 615,250,000 610,193,151 Basic loss per share (HK$ cents per share) 12.12 22.03 (b) Diluted Diluted loss per share for the year ended 31 December 2019 and 2018 are equal to the basic loss per share as there are no potential dilutive ordinary shares outstanding during the year. eCargo Annual Report 2019 95 Notes to the Consolidated Financial StatementsFor personal use only 14 Property, plant and equipment Furniture and Computer Office Leasehold fixtures equipment equipment improvements HK$ HK$ HK$ HK$ Total HK$ Year ended 31 December 2019 Opening net book amount Acquisition of a subsidiary (Note 30) Additions Depreciation charge (Note 7) Currency translation differences 352,791 11,881 6,539 (56,096) (2,897) Closing net book amount 312,218 261,565 392,890 12,756 109,994 80,038 17,007 – 938,183 1,763,902 – 97,142 41,644 213,675 (247,506) (91,782) (916,894) (1,312,278) (6,569) 6,437 11,700 (50,151) (53,180) 68,280 653,763 As at 31 December 2019 Cost Accumulated depreciation and impairment Net book amount Year ended 31 December 2018 Opening net book amount Acquisition of a subsidiary (Note 30) Additions Disposals 693,528 2,528,772 1,230,429 4,564,923 9,017,652 (381,310) (2,267,207) (1,218,729) (4,496,643) (8,363,889) 312,218 261,565 11,700 68,280 653,763 400,301 – 59,257 565,130 23,257 528,489 744,843 1,620,051 3,330,325 – – 23,257 1,421,554 26,412 2,035,712 – (350,848) (1,972,552) – (2,323,400) Depreciation charge (Note 7) Currency translation differences (71,946) (34,821) (338,119) (109,683) (658,394) (1,178,142) (35,019) (4,124) (49,886) (123,850) Closing net book amount 352,791 392,890 80,038 938,183 1,763,902 As at 31 December 2018 Cost Accumulated depreciation and impairment Net book amount 661,434 2,267,593 622,561 4,448,982 8,000,570 (308,643) (1,874,703) (542,523) (3,510,799) (6,236,668) 352,791 392,890 80,038 938,183 1,763,902 96 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 14(b) Leases This note provides information for leases where ECG is a lessee. (i) Amounts recognised in the consolidated statement of financial position The consolidated statement of financial position shows the following amounts relating to leases: Right-of-use assets Buildings Lease liabilities Current Non-current 2019 HK$ 1 January 2019* HK$ 5,576,128 5,547,945 1,745,834 4,178,017 1,086,905 4,461,040 5,923,851 5,547,945 * In the previous year, ECG only recognised lease assets and lease liabilities in relation to leases that were classified as “finance leases” under HKAS 17 Leases. The assets were presented in property, plant and equipment and the liabilities as part of ECG’s borrowings. For adjustments recognised on adoption of HKFRS 16 on 1 January 2019, please refer to Note 2.2. Additions to the right-of-use assets during the 2019 financial year were HK$1,201,309. eCargo Annual Report 2019 97 Notes to the Consolidated Financial StatementsFor personal use only 14(b) Leases (Continued) (ii) Amounts recognised in the consolidated statement of comprehensive income The consolidated statement of comprehensive income show the following amounts relating to leases: Depreciation charge of right-of-use assets Buildings Interest expense (included in finance cost) Expenses relating to short-term leases (included in administrative expenses) Note 7 11 7 2019 HK$ 2018 HK$ 1,895,040 341,549 3,057,030 3,398,579 – – – – The total cash outflow for leases in 2019 was HK$1,883,737. (iii) ECG’s leasing activities and how these are accounted for ECG leases various offices and warehouses. Rental contracts are typically made for fixed periods of 12 months to 3 years, but may have extension options as described in (iv) below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. (iv) Extension and termination options Extension and termination options are included in a number of property leases across ECG. These are used to maximise operational flexibility in terms of managing the assets used in ECGs operations. The majority of extension and termination options held are exercisable only by ECG and not by the respective lessor. 98 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 15 Intangible assets Contractual customer Suppliers Goodwill relationship relationship Brand name Software HK$ HK$ HK$ HK$ HK$ Total HK$ Year ended 31 December 2019 Opening net book amount 56,241,091 1,448,446 16,447,883 24,436,020 6,686,351 105,259,791 Acquisition of a subsidiary (Note 30) 12,728,104 – 8,840,233 – – 21,568,337 Amortisation charge (Note 7) – (1,325,273) (4,093,137) (2,793,932) (4,159,754) (12,372,096) Impairment of goodwill (49,276,724) – – – – (49,276,724) Currency translation differences (1,116,946) (12,849) (325,934) (237,160) (61,349) (1,754,238) Closing net book value 18,575,525 110,324 20,869,045 21,404,928 2,465,248 63,425,070 As at 31 December 2019 Cost 67,800,865 6,619,456 25,523,158 27,910,185 112,244,432 240,098,096 Accumulated amortisation and impairment Net book value Year ended 31 December 2018 (49,225,340) (6,509,132) (4,654,113) (6,505,257) (109,779,184) (176,673,026) 18,575,525 110,324 20,869,045 21,404,928 2,465,248 63,425,070 Opening net book amount 13,572,170 3,081,840 – 6,857,475 27,366,191 50,877,676 Acquisition of a subsidiary (Note 30) 45,473,872 – 17,586,370 20,089,601 – 83,149,843 Amortisation charge (Note 7) – (1,430,464) (581,701) (1,268,415) (19,905,796) (23,186,376) Currency translation differences (2,804,951) (202,930) (556,786) (1,242,641) (774,044) (5,581,352) Closing net book value 56,241,091 1,448,446 16,447,883 24,436,020 6,686,351 105,259,791 As at 31 December 2018 Cost 56,241,091 6,685,130 17,015,051 28,187,109 117,830,467 225,958,848 Accumulated amortisation – (5,236,684) (567,168) (3,751,089) (111,144,116) (120,699,057) Net book value 56,241,091 1,448,446 16,447,883 24,436,020 6,686,351 105,259,791 eCargo Annual Report 2019 99 Notes to the Consolidated Financial StatementsFor personal use only 15 Intangible assets (Continued) Notes: (a) Goodwill of cash generating unit (“CGU”) Goodwill is attributable to the Australia CGU and FMCG CGU. The recoverable amount of Australia CGU and FMCG CGU are determined based on value in use calculation. The calculation uses pre-tax cash flow projections based on financial budget approved by management. Cash flows beyond the projection period are extrapolated using the terminal growth rate stated below. The terminal growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. (i) Australia CGU The key assumptions used for value in use calculation in 2019 and 2018 for Australia CGU is as follows: Compound annual growth rate (“CAGR”) of revenue for the five-year period Terminal growth rate Discount rate EBITDA margin 3.5% 3% 20% Between 8% to 11% Management determined budgeted EBITDA margin based on past performance and its expectations for market development. The discount rate used is pre-tax and reflect specific risks relating to the Australia CGU. For Australia CGU, the recoverable amount calculated based on value in use exceeded carrying value. As such, there was no indication of impairment arising from the review on goodwill as at 31 December 2019 and 2018. If the EBITDA margin was reduced by 10% and terminal growth rate was reduced by 1%, with all other variables held constant, the change of result would not result in impairment of the asset. (ii) FMCG CGU Following the acquisition of Metcash Export Services Pty Limited (“MES”) and its subsidiary, Metcash Asia Limited (“MAL”) (collectively, the “MES Group”) as disclosed in Note 30, ECG has been combining certain resources of Jessica’s Suitcase (“JS”) and MES Group to leverage their respective strengths and resources. ECG integrated the operations of JS and MES Group where they will be considered as a single cash generating unit (“CGU”) going forward. Accordingly, ECG has recalculated the recoverable amount of the goodwill and intangible assets of JS on a standalone basis prior to the combination of the CGUs based on a value-in-use calculation. An impairment loss of HK$17,506,013 was recognised for the goodwill of JS, reducing the carrying amount of the goodwill of JS to approximately HK$26,000,000. The recoverable amount of JS was determined based on a value-in-use calculation. The following table sets out the key assumptions for JS where the value-in-use calculation was updated as at 30 June 2019: CAGR of revenue for the five-year period Terminal growth rate Discount rate EBITDA margin 30 June 2019 19% 2% 21.04% Between 17% to 23% 100 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 15 Intangible assets (Continued) Notes: (Continued) (a) Goodwill of cash generating unit (“CGU”) (Continued) (ii) FMCG CGU (Continued) The recoverable amount of FMCG was determined based on a value-in-use calculation. The following table sets out the key assumptions for FMCG where the value-in-use calculation is as follows: CAGR of revenue for the seven-year period Terminal growth rate Discount rate EBITDA margin 15.73% 2% 21.49% Between 5%-11% An impairment loss of HK$31,770,711 was recognised for the goodwill of FMCG CGU, reducing the carrying amount of the goodwill to approximately HK$6,429,052. If the CARG of revenue for seven-year period was reduced by 2%, with all other variables held constant, ECG would have had to recognise a further impairment loss approximately of HK$8 million. (b) Impairment tests for intangible assets of CGUs The carrying value of intangible assets other than goodwill is primarily comprised of the following CGUs: Australia CGU (Note i) – Contractual customer relationship – Brand name – Software FMCG CGU (Note ii) – Contractual customer relationship – Brand name 2019 HK$ 2018 HK$ 110,324 4,404,292 2,465,248 6,979,864 20,869,044 17,000,637 37,869,681 1,448,446 5,323,006 6,686,351 13,457,803 – – – (i) (ii) Australia CGU Since no impairment indicator is identified for the Australia CGU for intangible assets other than goodwill, no further impairment assessment was performed. FMCG CGU Since no impairment indicator is identified for the FMCG CGU for intangible assets other than goodwill, no further impairment assessment was performed. Amortisation expense of HK$12,372,096 (2018: HK$23,186,376) has been charged to administrative expenses. eCargo Annual Report 2019 101 Notes to the Consolidated Financial StatementsFor personal use only 16 Subsidiaries As at 31 December 2019, the Company has direct and indirect interests in the following subsidiaries: Name eCargo Enterprise Limited eCargo Limited Place of incorporation/ establishment and kind of legal entity Hong Kong, limited liability United Kingdom, limited liability Principal activities and place of operation Provision of eCommerce technologies services in Hong Kong In the progress of being dissolved ECG Digital Holdings Limited British Virgin Islands Investment holdings in Jessica’s Suitcase Pty Limited (“BVI”), limited liability Australia, limited liability Hong Kong Operate an online store ECG Distribution Holding Limited BVI, limited liability Investment holdings in BVI ECG Asia Limited BVI, limited liability Investment holdings in ECG Australia Pty Limited Australia, limited liability Provision of corporate BVI ECG Digital Commerce Limited Hong Kong, limited liability eCargo (China) Holdings Limited BVI, limited liability Enrich Technologies Limited BVI, limited liability Amblique Pty Limited Australia, limited liability JLE (China) Limited Hong Kong, limited liability Jessica’s Suitcase Co. Limited Hong Kong, 深圳市嘉宏天成貿易發展有限公司 limited liability The PRC, limited liability 傑葉商貿(上海)有限公司 The PRC, limited liability Metcash Export Services Australia, limited liability Pty Limited Metcash Asia Limited The PRC, limited liability Note: services Provision of eMarketplace technology services in Hong Kong Investment holdings in BVI Dormant Provision of eCommerce solutions services in Australia Investment holdings in Hong Kong Dormant Provision of eCommerce business services in the PRC Provision of eCommerce support and marketing services in PRC Operate an online store and trading of FMCG Provision of eCommerce support and marketing services in PRC Equity interest held by the Company directly Equity interest held by the Company indirectly Particulars of issued share capital/ registered capital HK$10,000 ordinary share capital 1 ordinary share of GBP1 each 50,000 ordinary shares of US$1 each 2,116 ordinary shares of A$51,513 50,000 ordinary shares of US$1 each 50,000 ordinary share of US$1 each 1,000 ordinary shares of A$1 each – – – – – – – 100% HK$10,000 ordinary share capital 100% 1 ordinary share of US$1 each 100% 1 ordinary share of US$1 each 100% 134,410 ordinary shares of A$1 each 100% HK$100 ordinary share capital 100% HK$10,000 ordinary share capital 100% RMB13,000,000 registered share capital 100% US$10,000,000 registered share capital 85% (note) 100 ordinary shares of A$1 each 85% (note) RMB9,000,000 registered share capital 100% 100% 100% 100% 100% 100% 100% – – – – – – – – – – ECG acquired 85% interest in Metcash Export Services Pty Limited and Metcash Asia Limited. Management concluded that ECG has effectively control the remaining 15% equity interest of MES Group. As such, ECG has not recognised any non-controlling interest in respect of the remaining 15% equity interest legally held by MES and accounted for MES Group as 100% owned. For details, please refer to Note 30(b). 102 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 17 Interests in associates and a joint venture Interest in associates At beginning of the year Acquisition of interest in an associate (Note a) Share of results from an associate Step acquisition from an associate to a subsidiary (Note b) Provision for impairment of interest in an associate (Note c) At end of the year Interest in a joint venture At beginning of the year Investment in a joint venture (Note d) Share of results from a joint venture Dividend received from a joint venture At end of the year Interests in associate and a joint venture Notes: 2019 HK$ 2018 HK$ – – – – – – – 545 477,699 (264,690) 213,554 213,554 72,504,113 69,083,038 555,323 (69,638,361) (72,504,113) – – – – – – – (a) On 24 January 2018, ECG completed the acquisition of Jessica’s Suitcase Pty Limited (“Jessica’s Suitcase”) with 45% equity interest in Jessica’s Suitcase in consideration of issuance to the shareholders of Jessica’s Suitcase of such number of CHESS Depository Interest (“CDIs”) equal to 15% of the CDIs in ECG, namely 80,250,000 CDIs or equivalent to a purchase consideration of HK$98.4 million. Further details of the acquisition of interest in an associate is disclosed in Note 30 to the consolidated financial statements. (b) On 8 November 2018, ECG exercised a call option to acquire the remaining 55% equity of Jessica’s Suitcase. Upon the completion of acquisition, Jessica’s Suitcase became the wholly owned subsidiary of ECG. Details of the step acquisition is disclosed in Note 30 to the consolidated financial statements. (c) On 25 July 2016, ECG entered into a deed with Walton Brown E-commerce Limited (“Walton Brown”) for an investment of RMB60 million (equivalent to approximately HK$70.2 million) into MM E-commerce Limited (“MM”). On the same date, MM entered into a deed with Novel Colour Limited (“WHL”) for an investment of RMB150 million (equivalent to approximately HK$175.5 million) into WWE & company (BVI) Limited (“WWE”), an investment holding company that aims to launch a new social shopping mobile platform in China. ECG has an effective interest of 20% in WWE through its investment in MM. During the year ended 31 December 2018, the WWE business model and future funding requirements to continue the development of its business were reviewed by the shareholders of MM. Management has considered the fact that MM has ceased its operation since November 2018. Accordingly, the management has performed an impairment assessment and determined that a provision for impairment of HK$72.5 million is necessary to state the investment to its recoverable amount. During the year ended 31 December 2019, WWE winded up and distributed all of the residual assets to shareholder and ECG received cash of HK$6,118,422 as a result (Note 10). (d) In September 2019, ECG established Asean Business Group Pty Ltd (“ABG”) with two other independent third party shareholders in September 2019. ECG holds 33.33% equity interest in ABG. ABG is a limited liability company incorporated in Australia and is engaged in the trading of fast moving consumer goods in Vietnam and Cambodia. ECG jointly control ABG with the other shareholders as the key operating and financial decisions of ABG required unanimous consent from all the shareholders. eCargo Annual Report 2019 103 Notes to the Consolidated Financial StatementsFor personal use only 17 Interests in associates and a joint venture (Continued) Summarised unaudited financial information for a joint venture Set out below is the summarised unaudited financial information of the joint venture as at and for the year ended 31 December 2019 which are accounted for using the equity method. Current assets Current liabilities Profit after income tax ABG 2019 HK$ 3,645,019 3,005,993 1,458,437 The information above reflects the amounts presented in the financial statements of the joint venture not ECG’s share of those amounts. Reconciliation of summarised financial information Reconciliation of the summarised unaudited financial information presented to the carrying amount of ECG’s in ABG. Net assets Beginning of year Profit for the year Distribution to shareholders Currency translation difference End of year Percentage of ownership interest Interest in a joint venture ABG 2019 HK$ – 1,458,437 (817,890) 115 640,662 33.33% 213,554 104 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 18 Financial instruments by category Financial assets Financial assets at amortised cost Trade and other receivables (excluding prepayments) 22,778,328 20,712,421 2019 HK$ 2018 HK$ Contract assets Amounts due from related parties Cash and cash equivalents Financial liabilities Liabilities at amortised cost 3,325,508 3,054,309 3,767,479 9,497,723 26,946,542 17,614,983 56,104,687 51,592,606 Trade and other payables (excluding non-financial liabilities) 29,889,344 21,289,860 Contract liabilities Amounts due to related parties Borrowings Put option liabilities Lease liabilities 19 Inventories 2,155,757 2,386,262 25,884,280 21,371,406 85,603,517 58,420,349 7,653,888 5,923,851 – – 157,110,637 103,467,877 2019 HK$ 2018 HK$ Finished goods 15,501,990 1,787,805 The cost of inventories recognised as an expense and included in “cost of sales” amounted to HK$57,161,381 (2018: HK$1,756,237). Written down of inventories to net realisable value amounted to HK$194,961 (2018: Nil). These were recognised as an expense during the year ended 31 December 2019 and included in “cost of sales” in the consolidated statement of comprehensive income. eCargo Annual Report 2019 105 Notes to the Consolidated Financial StatementsFor personal use only 20 Trade receivables Trade receivables Less: provision for impairment 2019 HK$ 2018 HK$ 19,657,405 18,637,762 (789,539) (221,800) 18,867,866 18,415,962 The Directors considered the carrying amounts of trade receivables approximate their fair values. Credit terms granted to customers are normally 30 days. The aging analysis of the trade receivables based on invoice date is as follows: 1–30 days 31–60 days 61–90 days Over 90 days 2019 HK$ 2018 HK$ 12,532,579 10,727,427 3,039,972 3,139,667 110,750 807,313 3,184,565 3,741,555 18,867,866 18,415,962 ECG applies the HKFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. The loss allowance increased by a further HK$567,739 to HK$789,539 for trade receivables during the current reporting period. The individually impaired trade receivables relate to customers whose creditworthiness has materially deteriorated and it is assessed that these receivables are not expected to be recovered. ECG does not hold any collateral or other credit enhancements over these balances. Information about the impairment of trade receivables, ECG’s exposure to credit risk and foreign currency risk and details about the calculation of the allowance can be found in Note 3.2. 106 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 20 Trade receivables (Continued) The carrying amounts of ECG’s trade receivables are denominated in the following currencies: HK$ RMB A$ US$ Pound sterling (“GBP”) Singapore dollar (“SG$”) EURO (“EUR”) NZ$ 2019 HK$ 357,459 6,371,627 9,457,283 203,366 57,705 – 40,118 2018 HK$ 1,394,480 4,859,021 9,064,041 194,014 9,058 311,837 169,020 2,380,308 2,414,491 18,867,866 18,415,962 The maximum exposure to credit risk at the reporting date is the carrying value of trade receivables mentioned above. 21 Prepayments, deposits and other receivables Prepayments Rental and utilities deposits Other receivables 2019 HK$ 1,406,555 1,885,248 2,025,214 2018 HK$ 7,853,180 2,240,004 56,455 Prepayments, deposits and other receivables 5,317,017 10,149,639 Less: non-current portion Prepayment and deposits Current portion (397,970) (7,346,835) 4,919,047 2,802,804 Certain deposits have been pledged to secure rental deposits owned by the Company. Other receivables were neither past due nor impaired and they were interest-free and repayable on demand as at 31 December 2019 and 2018. Management considers that the carrying amounts of deposits and other receivables approximate their fair values. eCargo Annual Report 2019 107 Notes to the Consolidated Financial StatementsFor personal use only 21 Prepayments, deposits and other receivables (Continued) The carrying amounts of ECG’s deposits and other receivables are denominated in the following currencies: HK$ RMB A$ 2019 HK$ 422,375 650,054 2018 HK$ 373,191 418,870 2,838,033 1,504,398 3,910,462 2,296,459 22 Cash and cash equivalents Cash and cash equivalents are denominated in the following currencies: Cash on hand HK$ RMB A$ SG$ Cash at banks HK$ RMB A$ US$ GBP NZ$ EUR Canadian dollar (“CAD”) Total 2019 HK$ 63,204 21,704 – – 84,908 2018 HK$ 5,880 42,012 5,046 1,143 54,081 536,162 4,058,192 1,745,923 3,108,149 22,112,826 12,494,756 41,618 89,593 12,006 7,469 3,768 59,807 3,578 12,005 133,052 3,632 26,861,634 17,560,902 26,946,542 17,614,983 As at 31 December 2019, the amount of cash at banks represented ECG’s maximum exposure to credit risk. 108 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 23 Trade payables, other payables and accruals Trade payables Accrued expenses Accrued employee benefit expenses Other payables Contingent consideration Other payables and accruals Less: non-current portion Other payables 2019 HK$ 2018 HK$ 22,729,634 11,088,473 5,689,287 3,379,819 3,808,424 379,613 9,512,258 4,312,576 3,330,932 – 13,257,143 17,155,766 (763,364) – 12,493,779 17,155,766 35,223,413 28,244,239 The carrying amounts of ECG’s trade payables, other payables and accruals are denominated in the following currencies: HK$ RMB A$ NZ$ US$ EUR GBP 2019 HK$ 2018 HK$ 2,602,807 2,630,903 4,473,477 1,402,740 27,695,178 22,142,713 1,029,391 1,285,308 41,294 701,896 – 166,111 59,198 – 35,986,777 28,244,239 eCargo Annual Report 2019 109 Notes to the Consolidated Financial StatementsFor personal use only 24 Deferred income tax The analysis of deferred income tax assets and deferred income tax liabilities is as follows: Deferred income tax assets: – to be recovered within 12 months – to be recovered after more than 12 months Deferred income tax liabilities: – to be recovered within 12 months – to be recovered after more than 12 months Deferred income tax liabilities — net The movement on the deferred income tax account is as follows: At 1 January Acquisition of a subsidiary (Note 30) Credited to the consolidated statement of comprehensive income (Note 12) Currency translation differences At 31 December 2019 HK$ 2018 HK$ 310,003 1,389,085 919,734 387,050 (2,162,715) (2,000,287) (8,659,079) (8,921,370) (9,122,706) (9,614,873) 2019 HK$ 2018 HK$ (9,614,873) (2,725,239) (1,851,894) (9,418,992) 2,224,471 2,088,497 119,590 440,861 (9,122,706) (9,614,873) 110 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 24 Deferred income tax (Continued) The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Deferred income tax assets At 1 January Acquisition of a subsidiary (Note 30) Credited to the consolidated statement of comprehensive income Currency translation differences At 31 December Deferred income tax liabilities At 1 January Acquisition of a subsidiary (Note 30) Credited to the consolidated statement of comprehensive income Currency translation differences At 31 December 2019 HK$ 2018 HK$ 1,306,784 358,164 256,553 – 61,756 (27,616) 1,150,021 (99,790) 1,699,088 1,306,784 (10,921,657) (2,981,792) (2,210,058) (9,418,992) 2,162,715 147,206 938,476 540,651 (10,821,794) (10,921,657) Deferred income tax assets are recognised for tax loss carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. ECG did not recognise deferred income tax assets in respect of estimated tax losses amounting to HK$151,063,846 (2018: HK$140,901,395) arising in Hong Kong, HK$4,901,965 (2018: HK$ Nil) arising in Australia and HK$24,357,419 (2018: HK$11,302,669) arising in the PRC. The tax losses arising in Hong Kong and Australia can be carried forward indefinitely and the tax losses arising in the PRC will expire in five years. 25 Share capital Number of shares Share capital HK$ As at 1 January 2018 535,000,000 329,401,285 Issue of shares as consideration for the acquisition of an associate As at 31 December 2018 and 2019 80,250,000 98,419,683 615,250,000 427,820,968 eCargo Annual Report 2019 111 Notes to the Consolidated Financial StatementsFor personal use only 26 Notes to the consolidated statement of cash flows (a) Cash generated from operations for the year comprises: Loss before income tax Adjustments for: – Depreciation of property, plant and equipment (Note 14) – Depreciation of right-of-use assets (Note 14(b)) – Amortisation of intangible assets (Note 15) – Provision for impairment of interest in an associate (Note 17) – Net foreign exchange loss on operating activities (Note 10) – Provision for impairment of trade receivables (Note 3.2) – Finance income (Note 11) – Finance expense (Note 11) – Share of results from an associate (Note 17) – Share of results from a joint venture (Note 17) – Provision for impairment for goodwill (Note 15) – Fair value gain on financial assets at fair value through profit or loss – Loss on disposal of interest in an associate – Distributions received (Note 10) – Fair value gain on contingent liabilities (Note 10) – Written down of inventories (Note 19) Changes in working capital: – Inventories – Trade receivables – Contract assets – Prepayments, deposits and other receivables – Trade payables – Contract liabilities – Other payables and accruals – Balances with related parties 2019 HK$ 2018 HK$ (74,928,917) (134,838,128) 1,312,278 1,895,040 12,372,096 1,178,142 – 23,186,376 – 482,938 72,504,113 1,203,385 573,719 (38,178) 5,342,595 – (477,699) 49,276,724 – – (6,118,422) (1,893,014) 194,961 – (46,358) 2,214,562 (555,323) – – (13,930,290) 38,992,851 – – – (12,005,879) (10,090,670) 4,032,810 6,323,069 394,882 1,488,010 11,701,409 (209,943) (7,999,834) 11,219,982 843,743 13,855,780 (3,767,479) (451,548) (2,670,310) 2,386,262 39,567 3,760,169 Cash generate from operations 14,944,506 3,905,514 (b) During the year ended 31 December 2019, there is no equipment and computers were transferred to a related company through debiting amount due from related companies (2018: HK$2,323,400). 112 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 26 Notes to the consolidated statement of cash flows (Continued) (c) Non-cash investing and financing activities Acquisition of interest in an associate by issue of shares Acquisition of derivative financial instrument by issue of shares Issue of shares as consideration for the acquisition of an associate (Note 25) 2019 HK$ – – – 2018 HK$ 69,083,038 29,336,645 98,419,683 (d) Net debt reconciliation This section sets out an analysis of net debt and the movements in net debt for each of the periods presented. Net debt Cash and cash equivalents Borrowings Lease liabilities Net debt Cash and cash equivalents Gross debt — fixed interest rates 2019 HK$ 2018 HK$ 26,946,542 17,614,983 (85,603,517) (58,420,349) (5,923,851) – (64,580,826) (40,805,366) 26,946,542 17,614,983 (91,527,368) (58,420,349) (64,580,826) (40,805,366) eCargo Annual Report 2019 113 Notes to the Consolidated Financial StatementsFor personal use only 26 Notes to the consolidated statement of cash flows (Continued) (d) Net debt reconciliation (Continued) Cash and Leases cash Borrowings liabilities equivalents HK$ HK$ HK$ Total HK$ Net debt as at 1 January 2018 (44,412,560) Cash flows Acquisition of a subsidiary Other changes (9,500,000) (2,386,095) (2,214,562) Foreign exchange adjustments 92,868 Net debt as at 31 December 2018 (58,420,349) – – – – – – 12,702,478 (31,710,082) 4,912,505 (4,587,495) – – – (2,386,095) (2,214,562) 92,868 17,614,983 (40,805,366) Recognised on adoption of HKFRS 16 – (5,547,945) – (5,547,945) (58,420,349) (5,547,945) 17,614,983 (46,353,311) Cash flows (23,085,824) 1,883,737 9,331,559 (11,870,528) Acquisition of a subsidiary Acquisition — leases Other changes – – (1,076,503) (987,633) (4,120,175) (341,549) Foreign exchange adjustments 22,831 146,042 – – – – (1,076,503) (987,633) (4,461,724) 168,873 Net debt as at 31 December 2019 (85,603,517) (5,923,851) 26,946,542 (64,580,826) 27 Borrowings 2019 HK$ 2018 HK$ Loans from a shareholder 85,603,517 58,420,349 On 29 August 2016, ECG entered into an agreement with JL Enterprises Holdings Limited, ECG’s major shareholder and a company wholly owned by Mr. John Lau, the Executive Chairman of ECG, as to provide a loan facility in an aggregate amount of up to HK$50 million to support the ECG’s working capital requirements. On 15 March 2017, an addendum agreement was signed to amend the maximum outstanding amount of the loan facility to HK$70 million. On 14 February 2019, another addendum agreement was signed to amend the maximum outstanding amount of the loan facility to HK$100 million (Note 31). As at 31 December 2019, the carrying amount of the borrowing from JL Enterprises Holdings Limited is HK$85,603,517 (2018: HK$56,111,770). 114 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 27 Borrowings (Continued) On 17 July 2018, Jessica’s Suitcase entered into an agreement with JL Enterprises Holdings Limited as to provide a loan facility in an aggregate amount of up to A$0.5 million to support Jessica’s Suitcase working capital requirements. As at 8 November 2018, ECG entered into a deed of amendments to amend the terms in the original agreement to acquire Jessica’s Suitcase. The fair value of borrowing from JL Enterprises Holdings Limited assumed at the acquisition date is A$0.4 million (equivalent to HK$2,386,095 (Note 31)). ECG has settled the balance of A$0.4 million (equivalent to HK$2,308,579) during the year ended 31 December 2019. All loan facilities are unsecured and bear interest at prime rate quoted from the Hong Kong and Shanghai Banking Corporation Limited from time to time. All loan facilities can be utilised at ECG’s demand and are repayable in accordance with a separate agreement to be made between ECG and JL Enterprises Holdings Limited. The carrying amount of borrowings approximates to its fair value and is denominated in HK$ and A$. The borrowings bear average coupon rate of 5%-5.125% per annum as at 31 December 2019 (2018: 5%-5.125% per annum). 28 Operating lease commitments — as lessee ECG leases various offices and warehouses under non-cancellable operating leases expiring within 12 months to 3 years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. From 1 January 2019, ECG has recognised right-of-use assets for these leases, except for short-term and low-value leases, see Note 2.2 and Note 14(b) for further information. Minimum lease payments under non-cancellable operating leases not recognised in the financial statements are payable as follows: No later than one year Later than one year and no later than five years 2019 HK$ 2018 HK$ – – – 400,690 3,716,302 4,116,992 eCargo Annual Report 2019 115 Notes to the Consolidated Financial StatementsFor personal use only 29 Transactions with non-controlling interests On 8 November 2018, ECG exercised a call option to acquire the remaining 55% of the issued share capital of Jessica’s Suitcase. By acquiring Jessica’s Suitcase, ECG acquired the remaining effective interest of 14.85% in ECG Australia Pty Limited (“ECG AUS”). Immediately prior to the purchase, the carrying amount of the existing 14.85% non-controlling interest in ECG AUS was HK$294,092. ECG recognised a decrease in non-controlling interests of HK$294,092 and a decrease in equity attributable to owners of the ECG of HK$294,092. The effect on the equity attributable to the owners of ECG AUS during the year is summarised as follows: Carrying amount of non-controlling interests acquired Excess of consideration paid recognised in the transactions with non-controlling interests reserve within equity 2019 HK$ – – 2018 HK$ 294,092 294,092 30 Business combination (a) Step acquisition of Jessica’s Suitcase from an associate to a subsidiary of ECG On 24 January 2018, ECG completed the acquisition of Jessica’s Suitcase Pty Limited (“Jessica’s Suitcase”) with a 45% equity interest in Jessica’s Suitcase in consideration of issuance to the shareholders of Jessica’s Suitcase of such number of CHESS Depository Interests (“CDIs”) equal to 15% of the CDIs in ECG, namely 80,250,000 CDIs or equivalent to a purchase consideration of HK$98.4 million. Jessica’s Suitcase operates an eCommerce store on Alibaba’s Tmall Global Platform and a number of brand specific eCommerce Stores on various platforms in the PRC by offering quality Australia and New Zealand products to Chinese consumers through the cross-border online channel. ECG initially recorded the acquisition of interest in an associate, Jessica’s Suitcase, of HK$69.1 million (Note 17) (the “Initial Acquisition”). The following intangible assets and goodwill arising from the acquisition based on the provisional purchase price allocation: – Goodwill in the amount of HK$33.5 million attributable to the acquired buyer-specific synergies and pre-existing and well-position sales network expected from combining the operations of ECG and Jessica’s Suitcase, thereby allowing ECG to establish its leading presence in e-Commerce business provided by ECG. – Brand name and suppliers relationship in the amount of HK$36.3 million arising from the pre-existing network set up by Jessica’s Suitcase. 116 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 30 Business combination (Continued) (a) Step acquisition of Jessica’s Suitcase from an associate to a subsidiary of ECG (Continued) ECG also recognised the call option to purchase the remaining 55% equity of Jessica’s Suitcase initially at fair value of approximately HK$29.3 million as a derivative financial instrument on date of the acquisition. The fair value of assets has been determined on a provisional basis as the fair value of identifiable assets acquired may be adjusted upon the completion of initial accounting year which shall not exceed one year from the respective acquisition date. The fair value is being valued by Asset Appraisal Limited, an independent qualified professional valuer, not connected to ECG. On 8 November 2018, ECG entered into a deed of amendments to amend the terms in the original agreement to acquire Jessica’s Suitcase. Due to the modification of the terms, ECG derecognised the original call option and recognised call option under the revised terms at its fair value of HK$43.2 million. The difference in fair value of HK$13.9 million was recognised as gain in the consolidated statement of comprehensive income. On the same date, ECG exercised a call option to acquire the remaining 55% of the issued share capital of Jessica’s Suitcase. Upon the derecognition of interest in an associate, ECG has recognised the loss on disposal of HK$39.0 million from the 45% equity interest in Jessica’s Suitcase. The loss is included in the consolidated statement of comprehensive income for the year ended 31 December 2018. eCargo Annual Report 2019 117 Notes to the Consolidated Financial StatementsFor personal use only 30 Business combination (Continued) (a) Step acquisition of Jessica’s Suitcase from an associate to a subsidiary of ECG (Continued) The following tables summarises the consideration for the step acquisition (the “Step Acquisition”), and the fair value of the assets acquired and liabilities assumed at the acquisition date: Purchase consideration Fair value of call option Fair value of interest in Jessica’s Suitcase previously held by ECG Recognised amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents Property, plant and equipment Trade and other receivable Inventories Intangible asset — brand name Intangible asset — supplier relationship Trade and other payable Borrowings Deferred tax liabilities Total identifiable net assets Goodwill HK$ 43,266,935 30,645,511 73,912,446 374,889 23,257 1,298,196 2,662,950 20,089,601 17,586,370 (1,791,602) (2,386,095) (9,418,992) 28,438,574 45,473,872 73,912,446 There are no contingent liabilities relating to Step Acquisition. Acquisition related costs approximately HK$387,000 have been charged to administrative expenses in the consolidated statement of comprehensive income for the year ended 31 December 2018. 118 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 30 Business combination (Continued) (a) Step acquisition of Jessica’s Suitcase from an associate to a subsidiary of ECG (Continued) Inflow of cash to acquire business, net of cash Cash consideration Cash and cash equivalent of subsidiaries acquired HK$ – 374,889 374,889 None of the goodwill recognised is expected to be deductible for income tax purposes. The fair value of trade and other receivables is HK$1,298,196 and includes trade receivables with a fair value of HK$262,988. No trade receivables due is expected to be uncollectible. The acquired business contributed HK$2,562,346 to ECG’s total revenue and HK$171,601 loss to ECG’s loss before income tax for the period between the date of acquisition and end of the reporting period. Had the acquisition occurred on 1 January 2018, consolidated revenue and consolidated loss before income tax for the year ended 31 December 2018 would have been HK$11,025,111 and HK$1,141,645 respectively. (b) Acquisition of Metcash Export Services Pty Limited On 25 February 2019, ECG acquired 85% interest in MES Group. MES Group is principally engaged in the provision of China export business in Australia. The acquisition allows ECG to create a one-stop offering for businesses intent on capturing the attention of China’s growing consumer market. In connection with the acquisition, a call option to purchase and a put option to sell the remaining 15% equity interest in MES Group were granted to ECG and Metcash respectively. ECG may exercise the call option at any time from the adjustment date (being five business days after the completion accounts is finally agreed) up to the date that is 18 months after the completion date, while Metcash may exercise the put option at any time on and from the date that is 18 months after the completion date. eCargo Annual Report 2019 119 Notes to the Consolidated Financial StatementsFor personal use only 30 Business combination (Continued) (b) Acquisition of Metcash Export Services Pty Limited (Continued) Management has considered the terms of the aforementioned call-put option arrangement and concluded that such arrangement has effectively transferred the risks and rewards of the remaining 15% equity interest of MES Group to ECG. As such, ECG has not recognised any non-controlling interest in respect of the remaining 15% equity interest legally held by Metcash and accounted for MES Group as 100% owned as at 31 December 2019. The put option is treated as a liability for the acquisition of MES Group and was recognised as a financial liability in the statement of financial position at the present value of the amount payable by ECG when the option is exercised. The goodwill arising from the acquisition related to the 100% equity interest. At the date of acquisition, MES Group was accounted for as a wholly-owned subsidiary of ECG and the results, assets and liabilities of MES Group were consolidated in the consolidated financial information of ECG. The following tables summarises the consideration for the acquisition and the fair value of the assets acquired and liabilities assumed at the acquisition date based on the purchase price allocation: Purchase consideration Cash paid Deferred consideration Put option liability Total purchase consideration Recognised amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents Property, plant and equipment Right-of-use assets Trade and other receivable Inventories Intangible asset — supplier relationship Other payable Lease liabilities Deferred tax assets Deferred tax liabilities Total identifiable net assets Goodwill HK$ 38,039,719 2,021,742 7,194,821 47,256,282 2,416,885 41,644 1,076,503 11,141,067 18,662,350 8,840,233 (4,722,107) (1,076,503) 358,164 (2,210,058) 34,528,178 12,728,104 47,256,282 120 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 30 Business combination (Continued) (b) Acquisition of Metcash Export Services Pty Limited (Continued) Acquisition related costs of approximately HK$837,976 have been charged to administrative expenses in the interim condensed consolidated statement of comprehensive income for the year ended 31 December 2019. Inflow of cash to acquire business, net of cash Cash consideration paid in February 2019 Cash and cash equivalent of subsidiary acquired Prepayment made in November 2018 Acquisition of a subsidiary, net of cash acquired HK$ (38,039,719) 2,416,885 6,960,375 (28,662,459) None of the goodwill recognised is expected to be deductible for income tax purposes. The contingent consideration arrangement requires ECG to pay the former owners of MES Group 35% of the net profit after tax by annual instalment up to a maximum undiscounted amount of A$3.5 million. This will be terminated upon the exercise of call-put option arrangement. The potential undiscounted amount of all future payments that ECG could be required to make under this arrangement is between A$0 and A$3.5 million. The fair value of the contingent consideration arrangement has been estimated by calculating the present value of the future expected cash flows. The estimates are based on a discount rate of 20.2%. The fair value of trade and other receivables is HK$11,141,067 and includes trade receivables with a fair value of HK$7,483,852. No trade receivables due is expected to be uncollectible. The acquired business contributed revenue of HK$17,628,130 and loss before income tax of HK$4,854,950 to ECG for the period between the date of acquisition and end of the reporting period. eCargo Annual Report 2019 121 Notes to the Consolidated Financial StatementsFor personal use only 31 Related party transactions The Board of Directors are of the view that the following parties were considered related parties that had transactions or balances with ECG: Name of related party Relationship with ECG Mr. John Lau Mr. Christopher Lau Ms. Jessica Rudd Mr. Rupert Myer AO Mr. Dennis Lin Mr. Heath Zarin Mr. Yuming Zou Executive Director/Executive Chairman Non-Independent Non-executive Director Non-Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director JL Enterprises Holdings Limited Shareholder of the Company, controlled by Mr. John Lau CS China Logistics Limited Shareholder of the Company, controlled by Mr. John Lau Allport Cargo Services Limited Shareholder of the Company, controlled by Mr. John Lau Cargo Services Far East Limited Controlled by Mr. John Lau Cargo Tiancheng Technology Limited Controlled by Mr. John Lau CS Logistics Solutions Pty Limited Controlled by Mr. John Lau CN Logistics Limited Controlled by Mr. John Lau CN Logistics (Shanghai) Limited Controlled by Mr. John Lau Cargo Services (China) Limited Controlled by Mr. John Lau CS Packing (Hong Kong) Limited Controlled by Mr. John Lau EC-GO eCommerce Limited 深圳市一全通電子商務有限公司 深圳市看我商貿服務有限公司 深圳嘉宏互聯有限公司 WWE Group Limited Controlled by Mr. John Lau Controlled by Mr. John Lau Controlled by Mr. John Lau Controlled by Mr. John Lau Joint venture of an associate MyMM (Shanghai) Commerce Limited Subsidiary of joint venture of an associate Asean Business Group Pty Ltd Joint venture of an associate 122 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 31 Related party transactions (Continued) The following transactions were carried out with related parties: (a) Sales of services – note (i) Sales of software development services: – Cargo Services Far East Limited 2,400,000 2,400,000 2019 HK$ 2018 HK$ Sales of courier services: – MyMM (Shanghai) Commerce Limited Provision of marketing services: – WWE Group Limited Provision of management services: – 深圳市一全通電子商務有限公司 – 深圳市看我商貿服務有限公司 (b) Purchases of services – note (i) Purchase of outsourced labour services: – – – – 379,908 1,638,000 62,345 20,471 2,400,000 4,500,724 – Cargo Services Far East Limited 600,000 600,000 Purchases of outsourced import, storage, and courier fulfillment services: – Allport Cargo Services Limited – Cargo Service (China) Limited – CN Logistics Limited – CS China Logistics Limited – EC-GO eCommerce Limited 68,912 5,321,699 4,107,356 – 644,945 103,207 3,739,995 – 5,522,189 1,384,976 10,742,912 11,350,367 (c) Key Management compensation — note (ii) Details of the Key Management compensation are disclosed in Note 9 to this consolidated financial statements. eCargo Annual Report 2019 123 Notes to the Consolidated Financial StatementsFor personal use only 31 Related party transactions (Continued) The following transactions were carried out with related parties: (Continued) (d) Payment on behalf of ECG by related parties – Cargo Services Far East Limited – Cargo Service (China) Limited – 深圳市看我商貿服務有限公司 (e) Disposal of property, plant and equipment – 深圳市看我商貿服務有限公司 – 深圳嘉宏互聯有限公司 (f) Balances with related parties — note (iii) – Allport Cargo Services Limited – Cargo Services Far East Limited – MyMM (Shanghai) Commerce Limited – Cargo Tiancheng Technology Limited – 深圳市看我商貿服務有限公司 – 深圳市一全通電子商務有限公司 – Cargo Services Far East Limited – Cargo Services (China) Limited – CN Logistics Limited – CS China Logistics Limited – EC-GO eCommerce Limited 2019 HK$ 2018 HK$ 5,936 337,240 2,155,930 765,995 2,927,861 – – 337,240 – – – 2,319,336 4,064 2,323,400 As at 31 As at 31 December December 2019 HK$ 53,104 – – 42,492 2018 HK$ 50,574 7,014,300 149,826 29,074 2,957,599 2,191,604 1,114 62,345 3,054,309 9,497,723 (1,550,226) – (17,144,888) (15,431,146) (2,089,087) (1,473,448) (678,188) (689,866) (4,421,891) (3,776,946) (25,884,280) (21,371,406) 124 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 31 Related party transactions (Continued) The following transactions were carried out with related parties: (Continued) (g) Borrowings from a shareholder Greater Jessica’s China HK$ Suitcase Total HK$ At 1 January 2018 44,412,560 – 44,412,560 Acquisition of a subsidiary (Note 30) – 2,386,095 2,386,095 Loan advanced during the year Interest charged 9,500,000 2,199,210 – 9,500,000 15,352 2,214,562 Currency translation differences – (92,868) (92,868) At 31 December 2018 56,111,770 2,308,579 58,420,349 At 1 January 2019 56,111,770 2,308,579 58,420,349 Loan advanced during the year for acquisition of a subsidiary (Note 30) 35,343,319 – 35,343,319 Interest paid Repayment Interest charged – (123,068) (123,068) (9,882,882) (2,251,545) (12,134,427) 4,031,310 88,865 4,120,175 Currency translation differences – (22,831) (22,831) At 31 December 2019 85,603,517 – 85,603,517 Notes: (i) These transactions are carried out on terms agreed with the related parties. (ii) Key Management are deemed to be the Directors who have responsibility for planning, directing, and controlling the activities of the Company. (iii) Balances with related parties arise mainly from sale and purchase transactions and are due one month after the date of sale or purchase. The receivable balances and payable balances bear no interest and are denominated in HK$. eCargo Annual Report 2019 125 Notes to the Consolidated Financial StatementsFor personal use only 32 Statement of financial position and reserve movement of the Company Assets Non-current assets Property, plant and equipment Intangible assets Investment in subsidiaries Prepayment Current assets Amounts due from subsidiaries Cash and cash equivalents Total assets Equity Equity attributable to owners of the Company Share capital Accumulated losses Total equity Liabilities Non-current liability Loan from a shareholder Current liabilities Amounts due to subsidiaries Other payables and accruals Total liabilities Total equity and liabilities Note 2019 HK$ 2018 HK$ – – 36,741 – 64,121,262 98,808,967 – 6,960,375 64,121,262 105,806,083 – 232,490,445 15,549 200 15,549 232,490,645 64,136,811 338,296,728 427,820,968 427,820,968 a (449,920,555) (146,733,996) (22,099,587) 281,086,972 85,603,517 56,111,770 195,660 437,221 632,881 195,660 902,326 1,097,986 86,236,398 57,209,756 64,136,811 338,296,728 Approved by the Board of Director on March 26, 2020 and were signed on its behalf by: Mr. John Lau Executive Chairman Mr. Christopher Lau Non-Executive Director 126 eCargo Annual Report 2019 Notes to the Consolidated Financial StatementsFor personal use only 32 Statement of financial position and reserve movement of the Company (Continued) Note: (a) Reserve movement of the Company As at 1 January 2018 Loss for the year As at 31 December 2018 and 1 January 2019 Loss for the year As at 31 December 2019 33 Subsequent events Accumulated losses HK$ (123,544,994) (23,189,002) (146,733,996) (303,186,559) (449,920,555) After the outbreak of Coronavirus Disease 2019 (“COVID-19 outbreak”) in early 2020, a series of precautionary and control measures have been and continued to be implemented. If the situation continues for an extended period, ECG’s business operations and financial results may be affected for the year ending 31 December 2020. Management is yet to be able to estimate the overall impact to the financial performance and position of ECG. Nonetheless, ECG will pay close attention to the development of the COVID-19 outbreak and continuously manage relevant resources in a timely manner to mitigate the potential adverse impact. eCargo Annual Report 2019 127 Notes to the Consolidated Financial StatementsFor personal use only Issued Capital As at March 19, 2020, the Company has 615,250,000 ordinary fully paid shares on issue, of which 615,250,000 are held by Chess Depositary Nominees Pty Ltd (“CDN”). CDN has issued 615,250,000 CHESS Depositary Interests (“CDIs”) in relation to these shares. There is no shares/CDIs currently under trading restriction. CDN holds the legal title to shares on behalf of holders of CHESS Depositary Receipts. Pursuant to the ASX Settlement Operating Rules, CDI holders receive all of the economic benefits of actual ownership of the underlying shares. CDIs are traded in a manner similar to shares of Australian companies listed on ASX. CDIs will be held in uncertificated form and settled/transferred through CHESS. No share certificates will be issued to CDI holders. Shareholders cannot trade their Shares on ASX without first converting their Shares into CDIs. There is no on-market buyback currently in place. Substantial Shareholders The substantial holders of CDIs are the following CDI holders listed below who have notified the Company that they are a substantial holder under the Corporations Act 2001 in Australia. In general, under the Corporations Act (Australia), a person who holds a relevant interest in shares/CDIs of more than 5% of the Company’s issued share capital is a substantial holder. Holder No of Shares/ % of issued CDIs capital JL Enterprises Holdings Limited, CS China Logistics Limited and Mr. John Lau 396,872,460 64.51% SB International Investments Pty Limited, Ms. Jessica Rudd and Mr. Albert Tse 35,382,225 5.75% 128 eCargo Annual Report 2019 ASX additional informationFor personal use only Top 20 shares/CDI Holders as at March 19, 2020. Rank Name Total Units % Issued Capital 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 JL ENTERPRISES HOLDINGS LTD 372,937,640 60.62% SB INTERNATIONAL INVESTMENTS PTY LTD CS CHINA LOGISTICS LIMITED YIWEN ZHANG MUTUAL TRUST PTY LTD TYCOON SMART LIMITED XIAOQING YE TIGER WEALTH GLOBAL LIMITED INVESTORLINK CAPITAL PTY LTD CHRISTOPHER LAU CASTLE GIANT HOLDINGS LIMITED GLOBAL GOURMET HOLDINGS LIMITED WASHINGTON H SOUL PATTINSON & COMPANY LTD VENICS PTY LTD SUK KIU KIEAN LAU BNP PARIBAS NOMINEES PTY LTD EXCEL PAN VENTURES LIMITED INSPIRING FUTURE LIMITED VENSUP PTY LTD MR JASON CHRISTOPHER BYRNE 35,382,225 23,934,820 22,871,250 20,000,000 17,500,000 14,035,725 12,500,000 12,317,817 8,132,460 7,500,000 7,334,664 5,625,000 3,650,000 3,592,857 2,447,195 2,300,000 2,022,000 1,400,000 1,310,293 5.75% 3.89% 3.72% 3.25% 2.84% 2.28% 2.03% 2.00% 1.32% 1.22% 1.19% 0.91% 0.59% 0.58% 0.40% 0.37% 0.33% 0.23% 0.21% Total Top 20 Holders Total Remaining Holders Balance 576,793,946 38,456,054 93.75% 6.25% eCargo Annual Report 2019 129 ASX additional informationFor personal use only Distribution of Shareholders/CDI holders There were 797 shareholders/CDI holders at March 19, 2020. Each Shareholder/CDI holder is entitled to one vote for each security held. Range 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 Over 100,000 Totals Total Holders Units % of issued capital 37 225 122 314 99 797 7,640 748,921 1,052,618 11,519,280 601,921,541 615,250,000 0.00% 0.12% 0.17% 1.87% 97.84% 100% There are no CDI holders who hold less than a marketable parcel as at March 19, 2020. Voting Rights The voting rights are that each CDI holder is entitled to 1 vote per CDI at a meeting of members, provided that a CDI Holder undertakes the following steps. 1. Instructing CDN as the legal owner to vote the shares underlying in a particular manner. A voting instruction form will be sent to CDI holders with the notice of meeting and this must be completed and returned to the share registry prior to the meeting. 2. Informing the Company that they wish to nominate themselves or another person to be appointed as CDN’s proxy with respect to their shares underlying the CDIS for the purposes of attending and voting at the general meeting or; 3. Converting their CDIs into a holding of these shares and voting these shares at the meeting. Use of Cash Consistent with Business Objectives The Company confirms that, for the whole financial year ended December 31, 2019, it has used cash and other assets readily convertible to cash that it held at time of admission, in a way consistent with its business objectives. 130 eCargo Annual Report 2019 ASX additional informationFor personal use only The Company’s Place of Incorporation As the Company is incorporated in Hong Kong and not established in Australia, its corporate activities (apart from the offering of securities in Australia) are not regulated by the Corporations Act of the Commonwealth of Australia or by the Australian Securities and Investments Commission but instead are regulated by the Hong Kong Companies Ordinance and the Hong Kong Securities and Futures Commission. The Company is not subjected to Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 in Australia. The following information is provided on an annual basis to comply with the conditions on listing on ASX. Takeovers The Hong Kong Code on Takeovers and Mergers (the “Takeovers Code”) regulates takeovers and mergers in Hong Kong and applies to public companies in Hong Kong. The Takeovers Code provides that when a person, or two or more persons acting in concert collectively: • acquire 30% or more of the voting rights of a company; or • hold not less than 30% but not more than 50% of the voting rights of the company and acquires more than 2% of the voting rights of a company from the lowest percentage holding of that person or persons collectively within a 12 month period, then a general offer must be made to all other shareholders of the company. Compulsory Acquisition Part 13 of the Hong Kong Companies Ordinance sets out the right to buy out minority shareholders. If within four months of making an offer to buy shares, a company has acquired 90% in value of the shares, the acquiring company may give notice to the remaining shareholders that it desires to acquire their shares. Provided that notice is given within five months of the original offer, the acquiring company is entitled and bound to acquire those shares on the same terms as the offer. Substantial Share/CDI Holder notices Part XV of the Hong Kong Securities and Futures Ordinance requires the disclosure by substantial shareholders, directors, shadow directors and chief executives of a listed corporation (collectively “Corporate Insiders”) of their interests in the securities of a listed corporation when their interests reach the notifiable percentage level. The notifiable percentage level is an interest in shares of an aggregate nominal value of 5% or more of the relevant shares in the listed corporation. eCargo Annual Report 2019 131 ASX additional informationFor personal use only your O2O Par tner eCargo Holdings Limited ARBN: 601 083 069 Hong Kong Company Registration Number: 2088880 Registered Office — Australia C/O — Amblique Pty Limited Suite 2, Level 3, 104–112 Commonwealth Street, Surry Hills, NSW 2010 Phone: +61 (02) 8272 3800 Registered Office — Hong Kong 13103N ATL Logistics Centre B 3 Kwai Chung Container Terminals New Territories, Hong Kong Phone: +852 2481 8308 Share/CDI Registry Link Market Services Limited Level 12,680 George Street, Sydney, New South Wales 2000 Australia Phone: +61 (02) 8280 7100 Company Secretary Irene Yip Stock Exchange Listing eCargo Holdings Limited, CDIs are listed on the Australian Securities Exchange (ASX) 132 eCargo Annual Report 2019 Corporate DirectoryFor personal use only metcash.tmall.hk jessicassuitcase.tmall.hk Amblique is Australia’s industry leader in ecommerce and digital consulting, providing omnichannel strategies, retail practice and site optimisation services to help retailers and brand owners SELL MORE. amblique.com RETAIL STRATEGY DESIGN & CUSTOMER EXPERIENCE DIGITAL COMMERCE IMPLEMENTATION GROWTH & OPIMISATION SEARCH & ACQUISITION 24/7 SUPPORT SALESFORCE BIGCOMMERCE COMMERCIAL CLOUD For personal use only your O2O Partner We are a fully-fledged Online to Offline trading and service provider that propels brands and retailers into the Chinese virtual and bricks and mortar shelves with a unique one-stop solution your O2O Partner ANNUAL REPORT 2019 e C a r g o A N N U A L R E P O R T 2 0 1 9 New Retail Online to Offline www.eCargo.com For personal use only