Chow Tai Fook Jewellery Group Limited

Stock Code : 1929

Annual Report 2013

Corporate Prole

Chow Tai Fook Jewellery Group Limited is a leading jeweller in the Mainland of China, Hong Kong and Macau. The Company was listed on the Main Board of The Stock Exchange of Hong Kong in December 2011 and has become the worlds largest pureplay jeweller by market capitalisation. Chow Tai Fook is now a constituent stock of the Hang Seng China 50 Index and Hang Seng Mainland 100 Index. Its principal products are mass luxury jewellery and high-end luxury jewellery products including gem-set jewellery, gold product and platinum and karat gold product; and watch. The Groups iconic brand Chow Tai Fook and long-standing history of over 80 years of operations represent key competitive advantages of its business. The Chow Tai Fook brand is recognised for its trustworthiness and authenticity and renowned for its product design, quality and value. The Group has an extensive retail network, with over 1,800 points of sale in more than 400 cities in Greater China, Singapore and Malaysia. It also has a growing presence in e-commerce. The Groups vertically integrated business model gives it an effective and tight control over the entire operation chain from raw material procurement, design, production, to marketing and sales through its extensive retail network. 201112 50100 K 80 1,800400

Contents

Financial Highlights Chairmans Statement Management Discussion & Analysis

02

06

12

Prospects and Strategies Major Events and Awards Corporate Social Responsibility Profile of Directors and Senior Management Corporate Governance Report Directors Report Independent Auditors Report Financial Statements Financial Summary Information for Investors Glossary

27

31

37

44

54

68

81

83

155

156

160

Financial Highlights

Revenue
HK$ million

Pro t attributable to shareholders of the Company

HK$ million

Earnings per share

HK cent

$57,433.9m

35,042.5

56,571.1 57,433.9

$5,505.3m

3,537.6

6,340.6 5,505.3

HK55.1 cents

39.5

68.5

55.1

22,933.6 18,410.9 1,896.7

2,138.6

21.2

23.9

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

For the year ended 31 March 331

Revenue Gross profit Operating profit
(1) (1)

2013 2013
HK$ million

2012 2012
HK$ million

2011 2011
HK$ million

2010 2010
HK$ million

2009 2009
HK$ million

57,433.9 16,283.1 7,316.7 5,678.4 5,505.3 173.1 55.1 6.0 16.0 22.0
(%)

56,571.1 16,447.9 8,440.1 6,570.9 6,340.6 230.3 68.5 n/a 10.0 n/a
(%)

35,042.5 9,927.6 4,651.7 3,672.5 3,537.6 134.9 39.5 n/a n/a n/a
(%)

22,933.6 6,555.0 2,703.6 2,206.8 2,138.6 68.2 23.9 n/a n/a n/a
(%)

18,410.9 5,326.0 2,292.0 1,914.4 1,896.7 17.7 21.2 n/a n/a n/a
(%)

Profit for the year Profit attributable to: Shareholders of the Company Non-controlling interests Earnings per share (HK cent) Dividend per share (HK cent) Interim Final Full year Gross profit margin Unrealised hedging loss/(gain) on gold loans and bullion forward contracts Adjusted gross profit margin(2) (2) Operating profit margin(3) (3) Unrealised hedging loss/(gain) on gold loans and bullion forward contracts Adjusted operating profit margin(2) (2) Net profit margin
(1)

28.4 (0.3) 28.1 12.7 (0.3) 12.4 9.9

29.1 (0.7) 28.4 14.9 (0.7) 14.2 11.6

28.3 1.2 29.5 13.3 1.2 14.5 10.5

28.6 (0.7) 27.9 11.8 (0.7) 11.1 9.6

28.9 0.2 29.1 12.4 0.2 12.6 10.4

(2)

(3) (1)

(2)

(3)

Earnings before net interest and taxation Adjusted gross/operating profit margin, a non-IFRS measure, eliminates the effect of unrealised hedging loss/(gain) on gold loans and bullion forward contracts, which the Company believes is useful in gaining a more complete understanding of its operational performance and of the underlying trends of its business Earnings before net interest and taxation, divided by revenue

02

Revenue by operation model

Revenue by product

Revenue by geography

12% 16%

15% 14%

5% 6%

23% 27%

47% 43%

53% 57%

84% 88%

53% 57%

2013

2012

2013

2012

2013

2012

Retail Wholesale

Gem-set jewellery Gold product Platinum/karat gold product /K Watch

The Mainland of China HK, Macau and other Asian markets

Note: The percentages calculated could include minor rounding differences.

As at 31 March 331

2013 2013
HK$ million

2012 2012
HK$ million

2011 2011
HK$ million

2010 2010
HK$ million

2009 2009
HK$ million

Current assets Current liabilities Net current assets Net assets Total assets Net gearing (%)(4) (%)(4)
(4)

39,777.0 8,412.8 31,364.2 33,860.7 43,218.6 n/a(5)

45,258.3 14,218.0 31,040.3 29,573.0 47,414.3 16.2

27,503.2 17,213.2 10,290.0 11,672.9 29,048.7 65.2

15,961.6 8,510.9 7,450.7 8,335.4 17,010.3 34.5

13,504.3 7,783.8 5,720.5 6,441.9 14,409.5 46.7

Aggregate of bank borrowings, gold loans, net amounts due to related companies, net of pledged bank deposits and bank balances and cash, divided by total equity (4)
(5) (5)

The Group had a net cash position as at 31 March 2013, and therefore the net gearing ratio is not applicable 2013331

Chow Tai Fook Annual Report 2013

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03

Chairmans Statement

Chairmans Statement

We are positive about our business outlook in the medium to long run despite short-term market volatilities.

06

We will further enhance our sales and marketing programmes to cater to customer demands that are largely driven by festive celebrations and special occasions.
Dear Shareholders, Chow Tai Fook Jewellery Group Limited is pleased with its performance over the financial year 2012/2013 (FY2013), a year full of uncertainties and challenges. In particular, the economic growth in the Mainland of China and the retail market across Greater China experienced a slowdown due to the sluggish global economy, which in turn impacted the luxury sector. Amid all the economic turbulences and market fluctuations, we continued to implement our business strategies successfully and maintained our leadership position in the market. The Group achieved record sales during the year, and opened a net 209 POS, consistent with our retail network development plan of reaching 2,000 POS by the end of FY2014. The Group recorded a revenue CAGR of 28.0% from FY2011 to FY2013, an indication that our business is on track for sustainable development. In FY2013, the Group registered total revenue of HK$57,433.9 million, representing a 1.5% modest growth year-on-year, after an extraordinarily high growth in FY2012. During the year under review, we continued to invest in organisational infrastructure, staff development, brand building, product innovation, production facilities, and our self-developed information technology system to further enhance our business operations, management system and corporate governance standards. Due to these investments and the expenditure on opening new POS, our profit attributable to shareholders of the Company declined 13.2% year-on-year to HK$5,505.3 million, yet, we saw a CAGR of 24.7% over the three years from FY2011 to FY2013. Earnings per share were HK55.1 cents (FY2012: HK68.5 cents). The Board recommends the payment of a final dividend of HK16.0 cents per share (FY2012: HK10.0 cents). Combined with the interim dividend of HK6.0 cents per share, the total annual dividend is HK22.0 cents per share, representing a dividend payout ratio of approximately 40.0%. At the end of March 2013, the number of our POS totalled 1,836, with an increase of 209 POS or 12.8% from the last financial year. Of the 1,836 POS, 94.3% are located in the Mainland of China. Our overall Same Store Sales (SSS) recorded a decrease of 3.3% from FY2012, when we recorded an increase of 40.3%. This years decrease was attributable to a number of reasons, including a slowdown in high-end luxury jewellery sales and the weak retail sentiment in the Mainland of China, especially during the National Day holidays last October. 2012/2013 2013 209 2014 2,000

2011 2013 28.0% 2012 2013 57,433.9 1.5% 13.2% 5,505.3 2011 2013 24.7%

55.1 2012 68.5 16.0 2012 10.0 6.0 22.0 40.0%

2013 3 1,836 209 12.8% 1,836 94.3% 2012 3.3% 2012 40.3% 10

Chow Tai Fook Annual Report 2013

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07

Chairmans Statement

Strategy
Both Same Store Sales Growth (SSSG) and POS growth will continue to be the key drivers supporting our medium to long term development. Growing sales in existing stores involves expanding retail floor area and optimising product offerings to capture different customer groups of varied purchasing power. SSSG also requires enhancing our sales and marketing programmes to cater to customer demands that are largely driven by festive celebrations and special occasions. We will also continue to strengthen our membership programme to grow a larger, more stable customer base that will generate repeat purchases and member referrals to friends and relatives. The Groups POS expansion plan will continue to focus on Tier III and lower tier cities in the Mainland of China where the people there have longed for modern shopping facilities and enhanced shopping experience in recent years, thanks to accelerated urbanisation and rising incomes. We will continue to strategically partner with department stores and take advantage of the growing popularity of shopping malls as the preferred shopping destinations across the country, particularly in Tier I and Tier II cities. We will review our POS opening plan from time to time in the light of changing macro-economic and local market trends. Our investment in various e-commerce tools and platforms will continue along with greater e-marketing efforts in order to capture the huge market potential attributable to the continual robust growth of online shopping, particularly among the young customers, as evidenced by an almost threefold growth in revenue year-on-year. The Group believes these investments will pay off, as we will enjoy not only online sales growth but also the online-to-offline synergy that brings shoppers to our bricks and mortar stores. We have also set up a Reform and Development Committee and a Risk Management Committee in furtherance of the Groups effort to monitor and manage business operations and performance, identify strategic opportunities and anticipated risks. The Committees have already made recommendations to the Board, including the improvement of management information system and production and logistics technology to further enhance product design and craftsmanship, shorten production lead-time and speed up delivery; as well as the enrichment of human resources development programme with enhanced staff training and employee incentive and reward schemes. Many effective measures are already in place and appropriate actions being taken.

Achievements
Chow Tai Fook is proud to have become a constituent stock of both the Hang Seng Mainland 100 Index and the Hang Seng China 50 Index since June and September 2012, respectively. Inclusion in these indices came shortly after the Group was listed on the Main Board of the Stock Exchange of Hong Kong in December 2011 and became the worlds largest pure-play jeweller by market capitalisation. In November 2012, Chow Tai Fook entered into a two-year strategic agreement with Alrosa of Russia, one of the worlds three largest diamond miners and producers, to further secure our huge advantage in the procurement of rough diamonds from direct, reliable sources.

2011 12 2012 6 9 100 50

2012 11 Alrosa

08

Achievements (Continued)
We successfully launched a brand new membership programme in September 2012 in Hong Kong and Macau. Our membership programme is a core part of our customer relations management for building customer loyalty, generating repeat purchases and attracting new customers. As at 31 March 2013, we have over 1 million members in Hong Kong, Macau and the Mainland of China. Last but not least, our exclusive auction dinners, namely Stars in the Starlight and Ombre di Milano held in April 2012 and May 2013, respectively, were well attended and greatly applauded by the prestigious members and guests who were invited. The success of these events helps differentiate ourselves as a world-class high-end luxury jeweller from local peers, by showcasing the Groups wealthy collection of rare precious gemstones, sophisticated design and exquisite craftsmanship.

2012 9 2013 3 31 1

2012 4 2013 5 Stars in the Starlight Ombre di Milano

Outlook
Looking ahead, we are positive about our business outlook in the medium to long run despite short-term market volatilities, such as the outbreak of H7N9 avian flu in Eastern China, the intensification of inter-Korean relations, and the gold rush in Hong Kong and the Mainland of China following a plunge of gold price recently. With our responsive market approach and prudent gold hedging policy, we are well-positioned to meet challenges and move forward smoothly. The Mainland of China remains our largest market. After its smooth transition of power in March 2013, the new government set a target of 7.5% GDP growth for calendar year 2013. As the Mainland of China continues to prosper, we are confident that the luxury market of the country is promising and Chow Tai Fook, being a market leader across the region and a preferred jewellery brand to many Mainland Chinese, will definitely benefit. We are also optimistic that jewellery demand in Hong Kong, from both locals and tourists, will rise as the city remains an international financial hub and a leading regional jewellery centre. Equipped with first-class logistics, infrastructures and retail services, Hong Kong will continue to enjoy a growing number of inbound tourists to sustain its retail and service industry development.

H7N9

2013 3 2013 7.5%

Appreciation
The Groups success is inseparable from the support and contribution of our staff, shareholders, customers, business partners and the communities in which we operate. On behalf of the Board, I would like to express our deepest gratitude. I would also like to extend my thanks to the fellow members of the Board for their inspiring leadership and active contribution to our business.

Dr. Cheng Kar-shun, Henry Chairman Hong Kong, 18 June 2013

2013 6 18

Chow Tai Fook Annual Report 2013

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09

Management Discussion and Analysis

Management Discussion and Analysis

Financial Review
Despite the fall in consumer sentiment in Greater China, the Group recorded a revenue of HK$57,433.9 million (FY2012: HK$56,571.1 million), representing a mild increase of 1.5% over last year. Such increase was attributable to the increase in retail revenue by HK$3,061.8 million or 6.5% over that of the previous year, which in turn was mainly fuelled by the expansion of the Groups retail network and the increasing demand for mass luxury jewellery. The growth of retail revenue was offset by the decrease in wholesale revenue by HK$2,199.0 million or 23.6% over that of the previous year. The business in the Mainland of China recorded a revenue of HK$30,308.4 million (FY2012: HK$32,016.4 million), representing a small decrease of 5.3% from FY2012. Hong Kong, Macau and other Asian markets recorded a revenue of HK$27,125.5 million (FY2012: HK$24,554.7 million), increased by 10.5% from FY2012. The Mainland of China market continued to represent our major source of revenue, accounting for 52.8% (FY2012: 56.6%) of our total revenue. Given the increasing number of Mainland tourists in Hong Kong and Macau and the concurrent steady rise in their disposable income per capita, the Group believed that Mainland tourists constituted the largest single customer group for our products in Hong Kong and Macau, as evidenced by the fact that 53.1% (FY2012: 48.3%) of our total revenue in Hong Kong and Macau was settled through China UnionPay or Renminbi. This implied that approximately 77.9% (FY2012: 77.6%) of our total revenue was originated from Mainland Chinese consumers. The Group recorded a decline in overall Same Store Sales of 3.3% in FY2013 (FY2012: an increase of 40.3%), of which Same Store Sales in the Mainland of China recorded a decline of 3.0% (FY2012: an increase of 32.0%) and Same Store Sales in Hong Kong, Macau and Taiwan recorded a decline of 3.7% (FY2012: an increase of 48.4%). Sales of our principal products, gem-set jewellery and gold product comprised about 22.9% (FY2012: 27.2%) and 57.4% (FY2012: 52.6%) of the total revenue respectively. Sales of gem-set jewellery decreased by 14.4% to HK$13,164.8 million (FY2012: HK$15,378.1 million), while sales of gold products increased by 10.8% to HK$32,954.6 million (FY2012: HK$29,742.1 million). The Group believed that the increase in gold product mix was attributable to the more conservative consumer sentiment.

57,433.9 2012 56,571.1 1.5% 3,061.8 6.5% 2,199.0 23.6%

30,308.4 2012 32,016.4 2012 5.3% 27,125.5 2012 24,554.7 2012 10.5% 52.8% 2012 56.6% 53.1% 2012 48.3% 77.9% 2012 77.6%

2013 3.3% 2012 40.3% 3.0% 2012 32.0% 3.7% 2012 48.4% 22.9% 2012 27.2% 57.4% 2012 52.6% 14.4% 13,164.8 2012 15,378.1 10.8% 32,954.6 2012 29,742.1 2012 16,447.9 1.0% 2013 16,283.1 28.4% 2012 29.1% 2013 3 31 2012 3 31 2013 28.1% 2012 28.4%

Our gross profit decreased by 1.0%, from HK$16,447.9 million in FY2012 to HK$16,283.1 million in FY2013, while the gross profit margin decreased slightly to 28.4% (FY2012: 29.1%). The effect of unrealised hedging gain on gold loans and bullion forward contracts was relatively immaterial to the gross profit margin as at 31 March 2013 and 31 March 2012. If such effect was excluded, the gross profit margin for FY2013 would be 28.1% (FY2012: 28.4%).

12

Financial Review (Continued)

The Groups selling and distribution costs and administrative expenses increased to HK$9,181.0 million in FY2013 (FY2012: HK$8,034.5 million), representing 16.0% (FY2012: 14.2%) of the total revenue. Advertising and promotional expenses increased to HK$797.2 million in FY2013 (FY2012: HK$448.3 million), representing 1.4% (FY2012: 0.8%) of the total revenue. The Groups advertising and promotional activities were strategically increased as the management believed such marketing efforts would help the Group to increase market share as the market recovers. Rental expenses also increased to HK$1,015.2 million in FY2013 (FY2012: HK$672.8 million), representing 1.8% (FY2012: 1.2%) of total revenue. The increase in rental expenses was mainly due to the opening of new POS in prime areas and the renewal of rental contracts in Hong Kong and Macau during FY2013. Such rental increment was generally in line with the market trend. However, rental cost as a percentage of total revenue remained at a relatively low level.

2013 9,181.0 2012 8,034.5 16.0% 2012 14.2% 2013 797.2 2012 448.3 1.4% 2012 0.8% 2013 1,015.2 2012 672.8 1.8% 2012 1.2% 2013 2012 6,570.9 13.6% 2013 5,678.4 2012 11.6% 2013 9.9% 5,505.3 2012 6,340.6 835.3 13.2% 2013 55.1 2012 68.5 16.0 2012 10.0 40.0%

Due to the above factors, our profit for the year decreased 13.6%, from HK$6,570.9 million in FY2012 to HK$5,678.4 million in FY2013. Our net profit margin declined from 11.6% in FY2012 to 9.9% in FY2013.

The profit attributable to shareholders of the Company amounted to HK$5,505.3 million (FY2012: HK$6,340.6 million), decreased by HK$835.3 million or 13.2% over that of the previous year. For FY2013, basic earnings per share were HK55.1 cents (FY2012: HK68.5 cents). The Board of Directors recommended the payment of a final dividend of HK16.0 cents per share (FY2012: HK10.0 cents). The dividend payout ratio is approximately 40.0% on a full year basis.

Business Review
Overview
Notwithstanding the continuing weakness in the global economy throughout FY2013, the Group achieved a modest sales growth of 1.5% over the same period last year. FY2013 was a year full of challenges and uncertainties for the jewellery industry. The nature of the jewellery business makes it particularly sensitive to changes in economic conditions and consumer confidence. The implementation of the Groups growth strategy was, to a certain extent, affected by the declining confidence of domestic consumers in Greater China, resulting in slower growth in sales and downward pressure on profitability. Nevertheless, building on its competitive advantages developed over time, the Group continued to maintain its leading position in Greater China jewellery markets.

2013 1.5% 2013

Chow Tai Fook Annual Report 2013

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Management Discussion and Analysis

Business Review (Continued)

The Groups over 80 year long brand heritage and reputation for delivering high quality and authentic jewellery products are key factors of its continued success and widespread brand recognition. The Group offers a wide range of products, ranging from mass luxury jewellery products that constitute the bulk of its sales, high-end luxury jewellery, to trendy products tailored to younger generations. The mass luxury jewellery segment is absolutely core to the Group and accounts for most of the Mainland of Chinas jewellery market, while the high-end luxury jewellery segment is created specifically for affluent and discerning customers. The Groups quality designs and craftsmanship strive to cater to Chinese customers increasing demand for sophisticated products. In addition, the Group has also launched products for the younger generation to capture their growing consumption power and demand for jewellery products. The wide variety of jewellery provided through these three product lines enables the Group to reach an extensive range of customers across different age groups. As planned, the Group continued to expand its retail network in Greater China to cover more inland and lower tier cities. As at 31 March 2013, the Group had a total of 1,836 POS (31 March 2012: 1,627). Among them, 1,743 were jewellery POS and 93 were watch POS, with a net of 209 new POS opened in FY2013. The Groups Same Store Sales recorded a decline of 3.3% in FY2013 (FY2012: an increase of 40.3%) due to the economic slowdown and uncertainty throughout the year and a high base of comparison from last year. As at 31 March 331 Jewellery POS The Mainland of China1 1 Tier I cities Tier II cities Tier III and other cities Hong Kong, Macau and other Asian markets2 3 2 3 Watch POS4 4 Total POS
Notes: (1) Included 15 and 0 POS that retailed both jewellery and watch products as at 31 March 2012 and 2013, respectively. Included 32 and 33 POS that retailed both jewellery and watch products as at 31 March 2012 and 2013, respectively. Included a total of 8 and 10 POS in Taiwan, Singapore and Malaysia as at 31 March 2012 and 2013, respectively. Included 84 and 91 POS in the Mainland of China and 2 and 2 in Hong Kong, Macau and other Asian markets as at 31 March 2012 and 2013, respectively.

80

2013331 1,836 2012 3 31 1,627 1,743 93 2013209 2013 3.3% 2012 40.3% 2013 2013 1,743 1,640 227 786 627 103 93 1,836

(1) 2012 2013 3 31 15 0 2012 2013 3 31 32 33 2012 2013 3 31 8 10 2012 2013 3 31 84 91 2 2

2012 2012 1,541 1,448 207 726 515 93 86 1,627

Net change 202 192 20 60 112 10 7 209

(2)

(2)

(3)

(3)

(4)

(4)

14

Business Review (Continued)

FY2013 2013 FY2012 2012

Same Store Sales Growth (%) (%) The Mainland of China Hong Kong, Macau and Taiwan Overall

(3.0) (3.7) (3.3)

32.0 48.4 40.3

The Mainland of China

The Mainland of China contributed 52.8% (FY2012: 56.6%) of the Groups total revenue in FY2013, amounting to HK$30,308.4 million (FY2012: HK$32,016.4 million). This represented a revenue decrease of 5.3% in FY2013 (FY2012: an increase of 64.4%). The drop in sales in the Mainland of China was mainly resulted from the weak consumer sentiment in retail business and slow wholesale business, especially in gem-set jewellery products. Highlighted by the worse-than-expected sales performance during the National Day holiday, the stagnant economy throughout FY2013 led to lower consumer confidence among the Groups retail customers as well as its franchisees. The conservative environment in the luxury markets was possibly influenced by new policy changes in the Mainland of China. In FY2013, revenue from self-operated stores amounted to HK$24,262.7 million (FY2012: HK$23,266.3 million), the increase was mainly driven by the opening of new POS. In FY2013, the Groups Same Store Sales in the Mainland of China recorded a decline of 3.0% (FY2012: an increase of 32.0%), primarily due to a high base last year and a decline in sales volume.

2013 52.8% 2012 56.6% 30,308.4 2012 32,016.4 2013 5.3% 2012 64.4% 2013

2013 24,262.7 2012 23,266.3 2013 3.0% 2012 32.0%

Chow Tai Fook Annual Report 2013

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Management Discussion and Analysis

Business Review (Continued)

The Mainland of China (Continued)
Despite the above, the Group expects the proportion of revenue generated from the Mainland of China to increase in the long run, attributable to the countrys continual urbanisation, the growing affluence of the Mainland Chinese in terms of increasing disposable income per capita and growing demand for luxury goods. In recent years, the Group has been focusing on POS expansion in Tier III and lower tier cities in order to achieve a faster and broader coverage. These cities which experience higher economic growth are in general more resilient to global economic fluctuation and have seen rapid expansion in their jewellery markets. At the same time, the Group continued to upgrade the positioning and branding of its POS in Tier I and II cities to cater to the sophisticated consumers in these cities. As at 31 March 331

Retail network
2013 Total: 1,731 POS 20131,731 2012 Total: 1,532 POS 20121,532

Operation model
2013 Total: 1,731 POS 20131,731 2012 Total: 1,532 POS 20121,532

Sales channel
2013 among 1,209 self-operated POS only 20131,209 2012 among 1,066 self-operated POS only 20121,066 12%

15% 15% 37% 35% 30% 30%

11%

50%

70% 48% 70%

89% 88%

2013

2012

2013

2012

2013

2012

Tier I Tier II Tier III & others

Self-operated Franchised

Concessionaire Counters Others

In line with the Groups strategy to continuously increase its market share, the Group opened a net of 192 new jewellery POS (FY2012: 242) in the Mainland of China in FY2013. Among the new jewellery POS in the Mainland of China, 58.3% (FY2012: 44.6%) are located in Tier III and lower tier cities, indicating the Groups determination to further penetrate into other lower tier inland cities. As at 31 March 2013, the Groups total number of jewellery POS in the Mainland of China increased to 1,640 (31 March 2012: 1,448), representing 94.1% of its total jewellery POS (31 March 2012: 94.0%).

2013 192 2012 242 58.3% 2012 44.6% 2013 3 31 1,640 2012 3 31 1,448 94.1% 2012 3 31 94.0%

16

Business Review (Continued)

The Mainland of China (Continued)
In FY2013, the Group opened a net of 7 new watch POS (FY2012: 16) in the Mainland of China. As at 31 March 2013, the Groups total number of watch POS in the Mainland of China increased to 91 (31 March 2012: 84), representing 97.8% of its total watch POS (31 March 2012: 97.7%).

2013 7 2012 16 2013 3 31 91 2012 3 31 84 97.8% 2012 3 31 97.7% 2013 3 31 1,209 2012 3 31 1,066 7030

The Groups POS network comprises both retail and wholesale channels through which it distributes its products. As at 31 March 2013, the Group had 1,209 self-operated POS (31 March 2012: 1,066) in the Mainland of China, and maintained a ratio of self-operated to franchised stores of approximately 70:30. The Groups concessionaire counters within department stores in the Mainland of China accounted for 88.2% (31 March 2012: 88.6%) of the self-operated POS in the Mainland of China. Most of these department store locations are in prime shopping districts with a lot of shoppers and pedestrian traffic. Concessionaire counters within department stores offer the added advantage of allowing the Group to leverage on the department stores broader marketing activities to acquire new customers.

88.2% 2012 3 31 88.6%

Hong Kong, Macau and other Asian markets

In FY2013, revenue contribution from Hong Kong, Macau and other Asian markets accounted for 47.2% (FY2012: 43.4%) of the Groups total revenue, amounting to HK$27,125.5 million (FY2012: HK$24,554.7 million). Despite the global economic slowdown which affected the consumer sentiment of luxury goods, especially in the high-end gem-set jewellery product category, as well as the high comparison base in FY2012, the Group still achieved a moderate sales growth of 10.5% in FY2013 (FY2012: 57.7%). The growth was contributed by a healthy growth in sales volume and new POS opening in Hong Kong and Macau. In FY2013, the Groups Same Store Sales in Hong Kong, Macau and other Asian markets recorded a decline of 3.7% (FY2012: an increase of 48.4%). Due to the recent economic slowdown, the Hong Kong and Macau markets inevitably faced considerable business challenges in FY2013. In general, consumer sentiment of both Hong Kong locals and Mainland Chinese visitors have weakened and consumers were more cautious in spending in view of the unfavourable economic environment. Therefore, consumers tended to purchase a higher ratio of jewellery items necessary for special events and festive celebrations, such as gold wedding jewellery. Their purchases also shifted from high-end luxury jewellery pieces to mass luxury jewellery products with an average selling price from HK$2,000 to HK$100,000. In FY2013, mass luxury gem-set jewellery products maintained a sustainable growth in sales. The increase in sales volume of mass luxury jewellery products was the main driver of revenue growth during FY2013.

2013 47.2% 2012 43.4% 27,125.5 2012 24,554.7 2012 2013 10.5% 2012 57.7% 2013 3.7% 2012 48.4% 2013 2 10 2013 2013

Chow Tai Fook Annual Report 2013

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Management Discussion and Analysis

Business Review (Continued)

Hong Kong, Macau and other Asian markets (Continued)
Meanwhile, the revenue settlement currencies indicated that Mainland Chinese visitors have outweighed local customers and became the major source of revenue in Hong Kong and Macau. The increase in proportion of sales from Mainland Chinese visitors in Hong Kong and Macau was largely driven by the rising number of high net worth individuals and a burgeoning middle class in the Mainland of China, a more diverse and complete product offerings in Hong Kong and Macau, lower prices due to the absence of consumer taxes in Hong Kong and Macau, and the continual appreciation of the Renminbi against the Hong Kong dollar. According to the Commerce and Economic Development Bureau of Hong Kong and the Macau Statistics and Census Service, the number of visitors to Hong Kong and Macau increased by 16.0% and 0.3% to 48.6 million and 28.1 million in 2012 respectively. In light of the increasing number of Mainland Chinese visitors, the Group maintains its strategy to secure locations for new POS in prime shopping districts, with convenient access to pedestrian traffic and shoppers. As at 31 March 2013, the Group had a retail network of 103 jewellery POS (31 March 2012: 93) with a net increase of 10 POS opened in Hong Kong, Macau and other Asian markets. In Hong Kong and Macau, a net of 6 POS were opened in prime tourist areas. The Group continued to consolidate its POS network in Hong Kong, expand the gross floor area of selected POS with great growth potential, and relocate some POS to areas with higher customer traffic so as to capture more sales opportunities and enhance POS performance and efficiency. As at 31 March 2013, the Group had 2 watch POS (31 March 2012: 2) in Hong Kong, Macau and other Asian markets, representing 2.2% of its total watch POS (31 March 2012: 2.3%). Tailored to the one-stop-shop culture in Hong Kong and Macau, the group had 33 POS that retailed both jewellery and watch products as at 31 March 2013 (31 March 2012: 32).

2012 16.0% 48.6 0.3% 28.1

2013 3 31 103 2012 3 31 93 10 6 2013 3 31 2 2012 3 31 2 2.2% 2012 3 31 2.3% 2013 3 31 33 2012 3 31 32

Product offerings
The Group offers a wide range of jewellery products, from mass luxury jewellery to high-end luxury jewellery, to fulfill different market segments. The Groups product designs range from classic designs, such as gold dowry for weddings, to contemporary designs, such as jewellery that incorporates diamonds and gemstones in platinum or 18-Karat gold setting. Such a broad product range fits the needs of the Groups customers at all stages of their life cycles, including birthdays, weddings and anniversaries, etc. The Group also has youth collections targeting the younger generation to expand its customer base and to cultivate its relationship with those who could become its most valuable customers in the future. The Groups diverse product offerings are conceived by its strong Research and Development (R&D) Department with over 150 professionals in Hong Kong and the Mainland of China. The R&D Department comprises jewellery designers and goldsmiths who work closely with the Groups production management and sales management departments to ensure that the product design direction is well aligned with market needs.

18K

150

18

Business Review (Continued)

Strong branding and marketing drive growth
The Groups success depends significantly on its strong and consistent brand perception across all regions, and its ability to adapt to customers changing demand for jewellery and consumption habits in the Mainland of China, Hong Kong and Macau. In recent years, the Group continues to see a growing demand for gem-set jewellery products and in particular, the demand for more stylish and contemporary designed jewellery pieces with exceptional craftsmanship is expected to experience further growth. In response to the gradual change in customer appetite, the Group has spearheaded the offer of a broader series of jewellery collections including gem-set, platinum and karat gold jewellery products. The Group also aims at strategically enhancing its brand awareness in Greater China by introducing one-of-a-kind high jewellery pieces through jewellery auctions for an exclusive group of customers, entrenching its position as a leading jeweller. Other than through traditional advertising channels, the Groups marketing and promotion efforts seek to reach a greater population of consumers, in particular the younger generation. For instance, the Group adopted the use of quick-response (QR) code for mobile marketing during the Mid-Autumn Festival promotion in the Mainland of China in September 2012 and received an overwhelming response from its existing members and their friends and relatives. The Group offers a series of jewellery collections for customers of its three product categories: mass luxury jewellery, high-end luxury jewellery and youth line.

2012 9 (QR code)

Mass luxury jewellery segment

Wedding Collections
The wedding market is booming and the Group strives to seize this valuable business opportunity by strengthening its marketing efforts to promote The Perfect One Wedding Collection. This collection, introduced in May 2012, was extensively promoted through a series of advertising channels including print and online media, TV commercial and outdoor billboard, etc. These promotions were highly effective and received encouraging customer response. The sales of wedding-related jewellery and diamond products contributed a significant share to the Groups total sales in FY2013. In addition, to further its aspiration to become the most trustworthy diamond specialist, the Group launched the innovative one-prong diamond setting The Entire One Collection in April 2013. In May 2013, the Group launched the Chow Tai Fook Wedding Planning iPhone and Android applications, providing customers with convenient access to various wedding information and useful tips for successful weddings.

20125 The Perfect One 2013 2013 4 The Entire One

2013 5 iPhone Android

Colourful Life Natural Gem Stone Exhibition

As a pioneer in the industry, the Group hosted the Colourful Life Natural Gem Stone Exhibition from 6 December 2012 to 6 January 2013 to display an exclusive collection of rare treasures, showing the classy, modern and charming sides of rare natural gem stone jewellery. This collection of extraordinary pieces is available in selected POS only.

2012 12 6 2013 1 6

Chow Tai Fook Annual Report 2013

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19

Management Discussion and Analysis

Business Review (Continued)

High-end luxury jewellery segment
Ombre di Milano Jewellery Auction and Preview
The Group first unveiled the Ombre di Milano Collection at a private jewellery appreciation party in January 2013. The collection was subsequently exhibited in a fashion and art event Fascination/Imagination at K11. In May 2013, the Group held the Ombre di Milano Jewellery Auction and Private Preview in Hong Kong where 15 sets of jewellery masterpieces were auctioned. This annual event was organised to promote Chow Tai Fooks prestigious image. Only selected Chow Tai Fook members and prestigious guests from the Mainland of China, Hong Kong and Macau were invited to this glittering auction experience.

Ombre di Milano
Ombre di Milano 2013 1 K11 Fascination Imagination 2013 5 Ombre di Milano 15

Lhistoire de Couleurs Fine Jewellery Private Preview

In August 2012, the Group held the Lhistoire de Couleurs Fine Jewellery Private Preview in Hong Kong to showcase the HK$3 billion private jewellery collection of the Groups Honourary Chairman, Dato Dr. Cheng Yu-Tung, GBM. It was an exclusive event for Chow Tai Fooks selected members and prestigious guests. The showcase of exceptionally valuable and rare rainbow diamonds was to further exemplify the Groups strength and leading position in Greater Chinas jewellery market.

Lhistoire de Couleurs
2012 8 Lhistoire de Couleurs GBM 30

Youth line
Bao Bao Family 10th Anniversary
To celebrate the 10th anniversary of the Groups popular in-house designed Bao Bao Family collection, the Group has launched 50 sets of a special edition collection designed with coloured diamonds and gemstones. One special edition collection set was donated to the 2012 BAZAAR Stars Charity Night in Beijing for charity auction and raised RMB800,000 for a charitable organisation in the Mainland of China.

10
10 50 2012 800,000

Chow Tai Fook Membership Programme

The Groups membership programme enhances its ability to understand consumers spending behaviour and preferences and gauge market trends. As at 31 March 2013, the Group had over 1,000,000 members in the Mainland of China, surging over 50% from approximately 700,000 members in 31 March 2012. In Hong Kong and Macau, the new membership programme had close to 100,000 members as at 31 March 2013.

2012 3 31 700,000 50% 2013 3 31 1,000,000 2013 3 31 100,000

The Groups membership programme is crucial in maintaining its Same Store Sales by encouraging repeat purchases and attracting new customers. In FY2013, sales contribution from Mainland members repeat purchases accounted for approximately 22.0% of the retail revenue in the Mainland of China, while repeat purchases from members in Hong Kong and Macau comprised approximately 15.0% of the retail revenue in Hong Kong and Macau. In order to build customer loyalty and to attract new customers, the Group launched a brand new membership programme on 10 September 2012 in Hong Kong and Macau. It introduced the unprecedented rebate coupons as a reward scheme, and delivers special privileges and concierge services to prestigious members so as to encourage repeat purchases. Aiming to offer a uniform shopper experience across the regions, the Group upgraded the membership programme in the Mainland of China in April 2013, offering enhanced features and benefits to its members.
20

2013 22.0% 15.0%

2012 9 10 2013 4

Business Review (Continued)

Chow Tai Fook Membership Programme (Continued)
Customers are entitled to join different tiers of the membership programme upon making qualified spendings. Members can enjoy benefits such as cash coupons. Members in the highest-tier are invited to special events such as jewellery auctions and overseas trips. For instance, in March 2013, the Group organised an honourable journey to Paris for selected members to take part in the K11 fashion and art event Fascination/Imagination and Paris Fashion Week. The related marketing and public relations campaign placed Chow Tai Fook in a whole new league within the high-end luxury jewellery market in the Mainland of China.

2013 3 K11 Fascination Imagination

E-commerce
The Groups e-commerce business grew rapidly during FY2013, as evidenced by a revenue growth of almost three times in comparison to FY2012. For FY2013, the average daily traffic of the Groups major e-commerce platforms including Chow Tai Fook eShop, Tmall and 360buy recorded over 81,000 hits, while the Groups official Sina Weibo, Tencent Weibo, and WeChat accounts had almost 750,000 followers in total as at 31 March 2013. Chow Tai Fook was continuously ranked as the Best Selling Jewellery Brand on Tmall, and was ranked no.1 in digital competence in the Mainland of China among watches and jewellery brands according to L2s Digital IQ Index conducted in conjunction with NYU Stern in February 2013.

2013 2012 3 2013 81,000 2013 3 31 750,000 L2 Stern 2013 2

The Group believes that its e-commerce channels will continue to extend its customer reach, especially to the younger customers, which will enable the Group to enjoy the online-to-offline synergy beneficial to its bricks and mortar POS business. The Group also targets to attract more online traffic by introducing certain special collections and products principally sold on its e-commerce platforms.

Vertically integrated business model

Over 80 years, the Group has gradually built a sophisticated vertically integrated business model which allows the Group to have an effective and tight control over the entire value chain, from raw material procurement, design, production and marketing to sales through its extensive retail network.

80

Procurement
In addition to the Groups long-term preferred business partners DTC and Rio Tinto, in November 2012, the Group entered into a strategic partnership with Alrosa of Russia, one of the worlds three largest diamond miners and producers, to secure further supplies of rough diamonds. The Group has been designated as a DTC sightholder since 1973 and a Rio Tinto Select Diamantaire since 2009. The Groups well-established relationships with DTC, Rio Tinto and Alrosa ensure a supply of quality products, and allow the Group to make its selection ahead of other peers from the available stock of a number of suppliers. These advantages are significant competitive differentiators. As at 31 March 2013, the Group had four diamond cutting and polishing factories. Two of such factories are located in South Africa, one of such is located in Shunde, PRC, and the fourth one was recently opened in Botswana. The Group takes a flexible approach in procuring diamonds, with reference to local market conditions.

DTC Rio Tinto 2012 11 Alrosa 1973 DTC 2009 Rio Tinto DTCRio Tinto Alrosa 2013331
Chow Tai Fook Annual Report 2013
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Management Discussion and Analysis

Business Review (Continued)

Production
As at 31 March 2013, the Group had approximately 4,800 employees in its jewellery factories. The Groups factory in Hong Kong produces gem-set jewellery products, while factories in Shenzhen produce gem-set jewellery, gold and karat gold products, and factories in Shunde produce gem-set jewellery, gold and platinum/karat gold products. The Group keeps a well-balanced portfolio of in-house production and outsourced production especially for mass luxury jewellery products. Since gem-set products require a higher level of skills and techniques, they are mainly produced by the Groups in-house craft masters. The Group also emphasises on quality control to ensure that its jewellery products meet all quality testing requirements undertaken in its precious metal testing laboratory in Shenzhen. To meet the needs of the changing and growing jewellery retail market and to support its future business growth, the Group has embarked on the development of Chow Tai Fook Jewellery Park (Jewellery Park) in Wuhan, Hubei, and a new headquarters building for the Mainland of China business in Yantian, Shenzhen. The groundbreaking ceremony of Chow Tai Fook Jewellery Park was held in August 2012. This integrated production and logistics centre will become a large-scale production base covering a production plant, a national distribution centre, a sales exhibition and visitor centre, a craft training centre and other supporting facilities. Upon completion of the first phase in 2016, the Jewellery Park will help enhance production efficiency and capacity and will further increase the proportion of self-produced jewellery. In order to provide on-the-job technical training to technicians and craftsmen in the Jewellery Park, a temporary production plant primarily to be used for training purposes is expected to be established by the end of 2013. The new headquarters building in Shenzhen in the Mainland of China is expected to be completed by the end of 2013.

2013 3 31 4,800 K K

2012 8 2016 2013

2013

Reform and Development Committee

In 2011, the Group launched the Reform and Development Committee as a long-term objective to further improve profitability through greater efficiencies in manufacturing, selling, general and administrative expenses and IT infrastructure. Comprised of senior executives of the Group, the Committee has been reviewing operations and has already made a number of recommendations to the Board with a view to enhance overall operating efficiencies of the Group.

2011 IT

Risk Management Committee

In 2012, the Group established the Risk Management Committee which is comprised of senior executives of the Group. The Committee is committed to establishing and maintaining a robust and practical risk management framework to manage operational, financial and compliance risks. The Committee aims to ensure that effective internal controls and continuous improvement measures are in place to mitigate risks with respect to the conduct of the Groups business.

2012

22

Human Resources Management

As at 31 March 2013, the Group had a total of approximately 31,700 employees (excluding staff of franchisees) (31 March 2012: approximately 29,600) in the Mainland of China, Hong Kong, Macau, Taiwan, South Africa, and Botswana. Human resources are the Groups greatest assets and the Group highly regards the personal development and well-being of its employees. As such, the Group aims to create a strong sense of community and a motivating environment for its employees, and to enhance staff development, employee loyalty and dedication. The Group strives to motivate its employees with a clear career path, which provides them with opportunities for advancement and improvements of their skills. Moreover, the Group provides tailored training programmes to its employees. For example, the Group offers management training to fresh graduates; sales staff are required to attend training programmes on customer service and product knowledge; technicians and craftsmen are provided with on-going technical training to ensure excellence in the quality of its products; and management personnel are invited to attend management courses to refine their business management skills. In FY2013, the Group offered about 3,000 staff training courses and the aggregate training hours attended during the year exceeded 1,000,000 hours. As at 31 March 2013, the Group had eight specialised jewellery training centres across the Mainland of China, Hong Kong and Macau.

2013 3 31 31,700 2012 3 31 29,600

2013 3,000 1,000,000 2013 3 31

Use of Proceeds from the Companys Initial Public Offering

The net proceeds from the initial public offering in December 2011, after the deduction of related issuance expenses, amounted to HK$15,387.3 million, of which HK$10,081.2 million have been utilised in FY2012. In FY2013, the Group used HK$4,084.6 million for the procurement of raw materials and inventory, and HK$903.7 million to finance the capital expenditures for the expansion and refurbishment of the Groups POS network, the purchase of production and research and development equipment, and the construction of the Groups new headquarters building in Shenzhen and Jewellery Park in Wuhan.

2011 12 15,387.3 2012 10,081.2 2013 4,084.6 903.7

Chow Tai Fook Annual Report 2013

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Management Discussion and Analysis

Liquidity, financial resources and capital structure

As at 31 March 2013, the Group had cash and cash equivalents of HK$8,330.5 million (31 March 2012: HK$10,004.8 million), mainly denominated in Hong Kong dollars, Renminbi and United States dollars. The Group has total borrowings of HK$6,186.8 million (31 March 2012: HK$15,207.5 million). Current portion of long-term borrowings, short-term borrowings, gold loans and amounts due to non-controlling shareholders of subsidiaries amounted to HK$6,186.8 million (31 March 2012: HK$11,781.1 million). The Group principally meets its working capital and other liquidity requirements through a combination of capital contributions, including cash flow from operations, bank borrowings and gold loans. Gold loans and bullion forward contracts are also used to hedge against the financial impact of the price fluctuations in the Groups gold inventories. The Groups operating cash flows before movements in working capital was HK$7,662.6 million for FY2013 (FY2012: HK$9,189.6 million). As at 31 March 2013, the Groups bank borrowings, gold loans and notional amount for bullion forward contracts amounted to HK$1,000.0 million (31 March 2012: HK$9,000.6 million), HK$4,835.7 million (31 March 2012: HK$5,806.6 million) and nil (31 March 2012: HK$1,896.2 million) respectively. Bank borrowings, gold loans and bullion forward contracts are denominated in Hong Kong dollars, Renminbi and United States dollars, and have maturity within 12 months as at 31 March 2013. The bank borrowings are carried at variable interest rate, while gold loans are carried at fixed interest rate. The Groups debts were primarily denominated in Hong Kong dollars, Renminbi, and United States dollars. The Groups income and expenditure were mostly denominated in Hong Kong dollars and Renminbi, while assets and liabilities mostly denominated in Hong Kong dollars, Renminbi and United States dollars. The Groups daily operation was mainly financed by operating cash flow, and relies on short-term borrowings to satisfy inventory financing needs during peak seasons, working capital for future expansion plans and unexpected needs. The Group has not experienced any difficulties in repaying its borrowings. The net gearing ratio, defined as the aggregate of bank borrowings, gold loans, net amounts due to related companies, net of pledged bank deposits and bank balances and cash, and then divided by total equity, was 16.2% as at 31 March 2012. The Group had a net cash position as at 31 March 2013. The Groups enhanced cash position was mainly due to a more conservative approach in inventories procurement during the year. As at 31 March 2013, total equity of the Group increased to HK$33,860.7 million, against HK$29,573.0 million as at 31 March 2012. The Groups working capital, being net current assets, was HK$31,364.2 million as at 31 March 2013 (31 March 2012: HK$31,040.3 million).

2013 3 31 8,330.5 2012 3 31 10,004.8 6,186.8 2012 3 31 15,207.5 6,186.8 201233111,781.1 2013 7,662.6 2012 9,189.6 2013 3 31 1,000.0 2012 3 31 9,000.6 4,835.7 2012 3 31 5,806.6 2012 3 31 1,896.2 2013 3 31 12

2012 3 31 16.2% 2013 3 31 2013 3 31 33,860.7 2012 3 31 29,573.0 2013 3 31 31,364.2 2012 3 31 31,040.3

24

Liquidity, financial resources and capital structure

(Continued)

2013 1,061.8 2012 749.2

Capital expenditure
The Groups capital expenditure incurred during FY2013 amounted to HK$1,061.8 million (FY2012: HK$749.2 million), and was primarily used for the expansion of our POS network and improvements at existing POS.

Charge on group assets

As at 31 March 2013, bank deposit amounted to HK$25.7 million (FY2012: HK$17.0 million) was pledged mainly to secure the payment of construction in progress that is expected to be completed in 2013.

2013 3 31 25.7 2013 2012 17.0

Contingent liabilities
The Group did not have any material contingent liabilities as at 31 March 2013 and 31 March 2012.

2013 3 31 2012 3 31

Capital commitments
Details of the Groups capital commitments as at 31 March 2013 and 31 March 2012 are set out in note 35 to the consolidated financial statements.

2013 3 31 2012 3 31 35

Chow Tai Fook Annual Report 2013

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Prospects and Strategies

Prospects and Strategies

26

Prospects and Strategies

Prospects
The short-term macro-economic environment is likely to remain uncertain in FY2014. Yet the management sees gradual signs of recovery and is confident to forge through the economic headwinds and maintains a positive view on the Groups business development in the medium to long run. The Mainland of China will see a continuation in economic growth attributable to the governments on-going supportive monetary and credit policies; and the accelerating urbanisation, rising disposable incomes and increasing luxury goods consumption in the country. The fast-growing middle class and high net worth population in the worlds largest retail market and second largest luxury market is an indicator of rising demand for jewellery and the upward trend of jewellery ownership. In particular, bridal jewellery will continue to be in demand as tens of millions of Mainland Chinese couples will get married in 2013 and the years ahead. The Group is poised to benefit from this huge bridal market which will continue to contribute a fair share to the Groups revenue. The Hong Kong retail market has seen signs of recovery. The steady increase of tourists, in particular from lower tier Mainland cities, has become a driving force of growth and development to the local retail market. Hong Kongs reputation as a shopping paradise and eminence as a luxury centre will bolster further since more and more international brands have flocked to the city to open their flagship stores. Hong Kong is exemplified as their showcase for promoting products and enhancing brand awareness to facilitate their expansion in the Mainland of China. Recently in mid-April, the slump in international gold price boosted the demand for gold products in the Mainland of China, Hong Kong and Macau during this non-peak season of a year. The Group achieved exceptional sales performance for April 2013 compared to the same period last year. The Group has generated a remarkable increase in SSSG in April and May 2013, with an increase in product mix in gold products when compared to the normal course of business. The management however believes that such gold buying spree would only be a short-term stimulation as people were drawn to buy gold products in advance.

2014

2013

4 20134 2013 4 5

Strategies
To pursue its long-term growth development plan, the Group adopts a holistic approach to capture new opportunities and tap the potentials of both existing and new markets through the following strategies:

1.

Enhance SSSG and further market penetration

To facilitate a sustainable development, the Group is keen to drive SSSG through broadening product offerings and expanding retail area in selected POS in prime locations to provide enhanced one-stop shopping convenience and extraordinary shopping experience to the increasingly discerning and demanding customers. Coupling with focused marketing strategies and a well-received customer loyalty programme, the Group believes these measures will be effective to meet the diverse demand for jewellery and generate repeat purchases, resulting in enhancing POS productivity and SSSG. The Group anticipates that SSSG in the Mainland of China, Hong Kong and Macau will gradually improve in FY2014.

1.

2014

Chow Tai Fook Annual Report 2013

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Prospects and Strategies

Strategies (Continued)
1. Enhance SSSG and further market penetration
(Continued) The Group will continue to eye on Tier III and lower tier cities with market potential in the Mainland of China to expand its retail network in support of its long term growth and expansion. The Group will also continue to strategically partner with department stores and optimise the opportunity in shopping malls in tandem with the deployment of various distribution channels such as standalone stores and online platforms to drive sales and revenue growth. Considering the shortterm economic volatility and changing market conditions, the Group will review the POS expansion plan timely and prudently while continuing the retail network expansion target of reaching a total of 2,000 POS by the end of FY2014.

1.
2014 2,000

2.

Uplift brand image and customer satisfaction

In an effort to uplift the Chow Tai Fook brand image and achieve higher customers satisfaction, the Group has stepped up endeavours to strive for excellence in product quality, design and craftsmanship; and increased investment in production and logistics technology to further enhance productivity and operational efficiency. Most importantly, the Group will continue to raise its brand awareness in high-end luxury jewellery market by introducing its one-of-a-kind high jewellery, not only to showcase Chow Tai Fooks sophisticated design and exceptional craftsmanship, but also to excel local peers in being a world-class leading jeweller in Greater China. With a persistent focus on mass luxury jewellery market, the Group targets both the wedding and fashion jewellery markets that are on a growing trend. The Group has broadened its gem-set jewellery offering and deepened its partnership with international brands, such as Rio Tinto, FOREVERMARK and Disney, to develop licensed products to cater to customers diversified needs.

2.

Rio Tinto FOREVERMARK

To further boost customer loyalty, the Group is also committed to upgrade member privileges such as exclusive events for top-tier members and a multitude of benefits including the newly introduced rebate coupons for repeat purchases. A customer service centre was also opened to provide members with added services. Furthermore, the Group believes its e-commerce business will continue to grow. Through e-marketing using QR code and interactive platforms such as Weibo and WeChat, the Group is able to extend a wider reach to the young customers. To attract and retain online visitors, the Group provides customised personal services such as online appointment for product viewing at physical stores, tailor-made delivery service and jewellery items exclusively available for online purchase. In the long run, the Group expects both e-commerce business and physical store sales will benefit from the online-to-offline synergy generated.

28

Strategies (Continued)
3. Strengthen vertically integrated business model
The Groups vertically integrated business model is one of the keys to its success and to stay competitive in todays ever-changing market. In the upstream, Chow Tai Fook is the first and only Chinese company that partners with the worlds three largest diamond miners, namely Alrosa, DTC and Rio Tinto, in order to secure further supplies of rough diamonds and deepen its procurement strength. Moreover, the Groups investment in building a new headquarters building in Shenzhen and the Chow Tai Fook Jewellery Park in Wuhan slated for completion at the end of 2013 and by phases starting 2016, respectively, will be advantageous to the Groups long-term, sustainable development. For the downstream, the Group will reinforce market research to analyse customers buying behaviour, identify market needs, thereby to anticipate demand and jewellery trends. The Group is keen to explore strategic partnerships, investments and expansion across all aspects of the vertically integrated business model aiming to further enhance production, operational and management efficiency and performance throughout the whole value chain in the long run.

3.
AlrosaDTC Rio Tinto 2013 2016

4.

Invest in talent development

The Group believes employees are the most valuable asset to a company, and thus its human resources policies are meticulously developed and executed to recruit, foster and retain talented employees. The Group is committed to devote resources to enhance employee development by offering tailored training programmes to equip them with enhanced job knowledge, practical techniques and soft skills. Moreover, to assist senior executives to further develop their leadership and management skills, the Group recommends them for admission to practical management courses and Executive Master of Business Administration programme at university or college. A performance measurement system was also introduced companywide to examine how well the staff perform and meet defined goals and objectives. Such performance measurement will be applied to appraise individual staff performance and assess departmental productivity and efficiency to align with the Groups growth strategy. As at 31 March 2013, the Group has eight specialised jewellery training centres across the Mainland of China, Hong Kong and Macau. It plans to expand the scale of these training centres in the next five years, so as to help employees prepare themselves for future development and advancement.

4.

2013 3 31

Chow Tai Fook Annual Report 2013

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29

Major Events and Awards

Major Events and Awards

30

Major Events and Awards

Major Events
Hong Kong Lhistoire de Couleurs Fine Jewellery Private Preview
In August 2012, Chow Tai Fook held the Lhistoire de Couleurs Fine Jewellery Private Preview in Hong Kong to showcase the approximately HK$3 billion worth of private collection of our Honourary Chairman, Dato Dr. Cheng Yu-Tung, GBM. The showcase of exceptionally valuable and rare rainbow diamonds was to further exemplify the Groups strength and leading position in Greater Chinas jewellery market.

Lhistoire de Couleurs
2012 8 Lhistoire de Couleurs GBM 30

Chow Tai Fook and Russias Diamond Producer ALROSA Signed Two-year Agreement
The Group, to further enhance the upstream operation of its vertically integrated business model, entered into a strategic partnership with Alrosa, one of the worlds top three largest diamond producers, by signing a two-year rough diamond supply agreement in November 2012 to secure further supplies of rough diamonds.

ALROSA
Alrosa 2012 11

Colourful Life Natural Gem Stone Exhibition

The Group hosted the Colourful Life Natural Gem Stone Exhibition at K11 Concept Store in Tsim Sha Tsui from 6 December 2012 to 6 January 2013, to showcase the collection of rare natural gem stones, including an emeralds and diamond ring valued at over HK$10 million. For the opening of the exhibition, the media was invited to the preview of our vibrant jewellery treasures.

2012 12 6 2013 1 6 K11

Chow Tai Fook Annual Report 2013

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Major Events and Awards

The Opening of Chow Tai Fook Member Service Centre

The Group opened Hong Kongs first Member Service Centre in January 2013, offering a range of meticulous services to our members, including business and leisure facilities and concierge service, such as conferencing service and Wifi internet access, luggage storage, hotel and transportation arrangement and travel planning.

2013 1

Ombre di Milano High Jewellery 2013 Collection Auction

The Group held the annual high jewellery auction on 18 May 2013, over 300 selected members and prestigious guests from the Mainland of China and Hong Kong were invited to this auction dinner to bid for the jewellery pieces. Ombre di Milano collection (meaning Shadows of Milan) boasted 15 sets of high jewellery, each stands as an artful masterpiece of unique design and exquisite craftsmanship, all of which were sold at a premium at the auction dinner and recorded a fruitful result.

2013 Ombre di Milano

2013 5 18 300 15 Ombre di Milano

The Mainland of China

Bao Bao Family 10th Anniversary
The Chow Tai Fook original collection of Bao Bao Family, comprised of seven well-wishing characters of health, happiness, peace, genuineness, harmony, wisdom and wealth, has been well received by the market ever since it was launched in September 2002 to mark the 10th anniversary of the Bao Bao Family collection, a massive pure gold Bao Bao figurine of 1.2 meters tall and 666 taels (approximately 24,928 grams) in weight was debuted at the opening ceremony of our Chongqing Langqing Flagship Store. The figurine was then exhibited in Beijing, Tianjin, Qingdao, Changsha, Wuhan and Guangzhou, etc. The Group also launched 50 sets of Bao Bao Family Diamond Travel Set Limited Edition, of which one set was donated to the 2012 BAZAAR Stars Charity Night in Beijing for charity auction and helped raise RMB800,000 for a charitable organisation in the Mainland of China.

2002 9 2012 10 1.2 666 24,928 50 2012 80

32

Groundbreaking Ceremony for Chow Tai Fook Jewellery Park

The groundbreaking ceremony of Chow Tai Fook Jewellery Park in Wuhan, Hubei was held in August 2012, and will become the largest production base of Chow Tai Fook, covering a production plant, a national distribution centre, a sales exhibition and visitor centre, a craft training centre and other supporting facilities. The first phase of the Jewellery Park is expected to complete in 2016, which will help further increase the proportion of selfproduced jewellery and enhance production efficiency and capacity.

2012 8 2016

Chongqing Langqing Flagship Store and Chengdu Chunxi Image Shop

In September 2012, Chow Tai Fook held the opening ceremony for its Chongqing Langqing Flagship Store and Chengdu Chunxi Image Shop in Western China. The Chongqing Langqing Flagship Store has a retail area of 1,100 square meters, while the Chengdu Chunxi Image Shop has an area of 600 square meters, providing an extensive range of products as well as attentive services to our local members and customers. Chongqing and Chengdu are second tier cities of the Mainland of China with strong growth potential. The opening of top-tier retail stores in such regions marks an important milestone of the Groups development in Western China.

2012 9 1,100 600

Awards and Honours

Hong Kong
Chow Tai Fook included in Hang Seng Mainland 100 Index and Hang Seng China 50 Index
Shortly after being listed in December 2011, Chow Tai Fook was selected as a constituent stock of the Hang Seng Mainland 100 Index and the Hang Seng China 50 Index, in June and September 2012, respectively, thereby affirming our strength and leading status. Chow Tai Fook is the first and only jeweller selected by the Hang Seng China 50 Index since it was launched in June 2008.

100 50
2011 12 2012 6 9 100 50 50 2008 6

Chow Tai Fook Annual Report 2013

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Major Events and Awards

Fei Cui Testing Centre accredited Professional Certification

The Groups Fei Cui Testing Centre was accredited by the Fei Cui (Jadeite Jade) Certification Label Scheme of The Gemmological Association of Hong Kong in June 2012, as well as the Hong Kong Accreditation Service in August 2012 under the Hong Kong Laboratory Accreditation Scheme with ISO/IEC 17025:2005. These are recognitions to the testing centre for achieving international competence of testing, calibration and management.

2012 6 8 (HOKLAS) ISO/IEC 170252005

The 3 Decades of Excellence and Brand of the Year JNA Awards

At the inaugural JNA Awards ceremony in September 2012, the Group was honoured to receive the 3 Decades of Excellence and Brand of the Year awards at the JNA Awards ceremony as recognition of the Groups leadership, creativity and exceptional product quality.

JNA
2012 9 JNA JNA

Best Company for Leadership Award

In February 2013, the Group was awarded the IAIR Corporate Award Best Company for Leadership by the overseas finance and investment magazine, International Alternative Investment Review (IAIR), in recognition of our outstanding performance in the industry. The IAIR Award winners were outstanding players from various industries selected from over ten thousand nominees, based on thousands of online questionnaire collected from its readers and international correspondents, and evaluated by a professional judge panel.

2013 2 International Alternative Investment Review (IAIR) IAIR Corporate Award Best Company for Leadership IAIR

Disneys Best Fashion Licensee Award

Since the launch of Disney-licensed jewellery products, the Group has received three awards from Disney. The two awards received in 2012 were the Best Fashion Licensee and Best Product Design. These are the recognitions from Disney to acknowledge the Groups distinguish marketing strategies and superior product designs.

2012

34

Yushunfu received Hong Kong Environmental Award

Foshan Yushunfu Jewellery & Diamond Company Limited, a subsidiary of the Group, entered into the One Factory-One Year-One Environmental Project (1-1-1 Programme) launched by Federation of Hong Kong Industries (FHKI), and was awarded the 2011/12 Hang Seng Pearl River Delta Environmental Bronze Award based on its 3 newly launched production optimisation projects and environmental facilities. The environmental award was introduced by FHKI and Hang Seng Bank under the 1-1-1 Programme in order to recognise and encourage sound environmental practices by manufacturing, transportation and logistics companies in Hong Kong and Pearl River Delta.

3 2011/12

Chow Tai Fook received numerous design awards

Our jewellery designers from the Research and Development Department were awarded the Best of Show Award in the Open Category as well as the Craftsmanship & Technology Award in the Hong Kong Jewellery Design Competition organised by Hong Kong International Jewellery Show. Two of our Hong Kong designers received the Silver Award in the ring category, and the Bronze Award in the necklace and pendant category, in the South Sea Pearl Jewellery Design Competition organised by the South Sea Pearl Consortium, where three of our Mainland Chinese Designers received the Gold Award in the earrings category, as well as the Silver Award in the necklace and pendant category and the bracelet category.

The Mainland of China

World Class Jeweller with highest Digital IQ Index
Chow Tai Fook was ranked among the top three brands on a list of 100 international luxury brands and the top watches and jewellery brand according to the Digital IQ Index: China report published by L2 in conjunction with the Stern School of Business at New York University, in December 2012. According to its another report Digital IQ Index: China Watches & Jewellery in February 2013, Chow Tai Fook was again ranked the top jeweller, outperforming its fellow players by a considerable margin.

L2 Stern 2012 12 100 2013 2

46th on the China Top 500 Most Valuable Brands

With a brand value at RMB25.568 billion, Chow Tai Fook was ranked the 46th on the China Top 500 Most Valuable Brands published by World Brand Lab, one of the top three brand valuers in the world in 2012. Chow Tai Fook is the only jewellery brand among the top 150 on the list, occupying the top rank among fellow jewellers for the ninth consecutive years. During the year, the Group was also ranked the 20th to the Hong Kongs 100 Most Influential Brands.

500 46
255.68 2012 500 46 150 100 20
Chow Tai Fook Annual Report 2013
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Corporate Social Responsibility

Corporate Social Responsibility

36

Corporate Social Responsibility

Over the years Chow Tai Fook has been devoted to corporate social responsibility. We always maintain the highest standard of industry and business practices in our business operation while rendering support to charities and contribution to the community by promoting and participating in various corporate social responsibility activities.

Business Practices
The Group adheres to its code of practice in procurement under which the polished diamonds it procures are produced from rough diamonds meeting the criteria of the Kimberley Process Certification Scheme, a process designed to certify the origin of rough diamonds free from funds generated by conflict diamond. Zlotowskis Diamond Cutting Works (Proprietary) Ltd. and Chow Tai Fook Jewellery Company Limited, both being subsidiaries of the Group, are Diamond Trading Company (DTC) sightholders. The subsidiaries strictly comply with DTCs code of best practice, which covers business, social and environmental responsibilities, together with mining standards. CTF Diamond Trading Company Limited, another subsidiary of the Group, has been a member of the Responsible Jewellery Council, an international non-profit organisation, since 2010, and is required to abide by the responsible business practices promoted by the council throughout the diamond and gold jewellery supply chain.

Zlotowskis Diamond Cutting Works (Proprietary) Ltd. Diamond Trading Company(DTC) DTC 2010 Responsible Jewellery Council

Environmental Protection
Chow Tai Fook is highly concerned about environmental protection and has implemented a number of environmental protection measures and policies over the years. Foshan Yushunfu Jewellery and Diamond Company Limited (Yushunfu) of the Group in Lun Jiao, Shunde is the first factory in the Pearl River Delta to participate in the Cleaner Production Partnership Programme launched in 2008 with the subsidies of the Environmental Protection Department of Hong Kong SAR in collaboration with the Economic and Information Commission of Guangdong Province. The programme aims at saving energy and minimising effluent discharge and air pollutant emissions through cleaner production. The factory has carried out a number of environment-friendly projects with notable outcomes, including installing energy saving T5 fluorescent tubes and establishing air-conditioning temperature guidelines to reduce power consumption, improving storage of organic compounds to minimise emissions and thereby improve air quality in production lines, and recycling packaging materials to reduce consumption of materials. Yushunfu participated in for the verification of improvement projects under the Cleaner Production Partnership Programme in FY2013 and was awarded appreciation certificates for three improvement projects, namely recycling gypsum effluent, neutralising and absorbing acid gas and replacing traditional gold melting method with high-frequency gold melting technology to reduce the emission of volatile organic compounds, to recognise Chow Tai Fooks contribution to environment-friendly production.

2008

T5

2013

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Corporate Social Responsibility

Environmental Protection (Continued)

In the meanwhile, Yushunfu also joined the Hang Seng Pan Pearl River Delta Environmental Awards organised by the Federation of Hong Kong Industries and won the 2011/2012 Bronze Award. The award-winning projects included: 1. Introducing steam dewaxing process to recycle resin wax. The recycled wax in FY2012 reached 1.5 tonnes, and in FY2013 even rose to 3.5 tonnes. This measure has greatly reduced waste gas emissions and pollution. Installing a solar-powered lighting system that can reserve power at the exit of the underground car-park in the factory area since January 2011 for automatic lighting in night-time, to reduce electricity consumption and save energy. Introducing the rotational furnace with higher energy efficiency to the casting process since June 2012. The device has increased the scope of heated surface, improving efficiency and lead-time significantly. The new device also effectively regulates heat loss, thereby reducing temperature in the production lines, improving the working environment and saving electricity consumption of air-conditioning by approximately 24,000 kWh annually.

2011/2012

1.

2012 1.5 2013 3.5 2011 1

2.

2.

3.

3.

2012 6 24,000 (kWh)

In addition, the Group also actively promotes the green office programme, encouraging employees to save paper, water and electricity, air-conditioning and toners. To promote a low-carbon living, we are installing LED or compact fluorescent lamps in phases to replace the original lightings . When the Group planned its new Mainland headquarters in Yantian District, Shenzhen and Chow Tai Fook Jewellery Park in Wuhan, it also emphasised the environmental protection and energy saving aspects in the design and systems of the buildings and factories, thereby achieving the goal of saving energy and reducing emissions as well as creating environment-friendly offices and manufacturing space through intelligent management.

LED

Caring for employees

Chow Tai Fook is people-oriented and treasures its employees as the most valuable assets. The Group cares about its employees in all aspects and are highly concerned about their all-rounded development. To help improve the capabilities and professional development of its employees, the Group actively creates a Chow Tai Fook learning culture. Training centres of the Groups human resources department in the Mainland of China and Hong Kong regularly organise various training programme on business-related product knowledge, gemmology as well as sales and management skills, according to employees development stages, to enhance their professional knowledge, skills and performance. Besides, the Group is also concerned about its employees personal development and frequently invites professionals to hold training programmes or talks on topics such as emotion and stress management, EQ enhancement and innovation stimulation.

EQ

38

Caring for employees (Continued)

The Group has a Mentor Scheme in the Mainland of China, designating experienced employees as mentors to guide newcomers on job related skills, work flows and company system, helping them to adapt promptly to the working environment during their probation period and to integrate into the corporate culture of Chow Tai Fook. In addition, the Group has introduced the Employee Assistance Programme since 2008, engaging counselling institutions with registered psychological counsellors in the Mainland of China to provide professional services to employees who may need psychological guidance and advice to cope with problems arising from their emotions, families and children. This allows employees to understand the importance of mental health and thus helps them to manage their stress and vent their emotions effectively. The Group also publishes internal publications including Chow Tai Fook News-in brief, Chow Tai Fook Family, Vision, Chow Tai Fook Manager and Unity to keep employees abreast of the Groups news and activities and enhance communications between employees and the Group. The Group also opens channels like Weibo and email for employees to express their opinions directly to the management and the management can thus also have a better understanding of its employees, enhancing transparency in their communication and achieving effective two-way dialogue. The Group also organises healthy activities for its employees such as Employees of the year Award Fun Day and other recreational and social events to foster better understanding and communications among employees from various departments and enhance morale and team spirit.

2008 Employee Assistance Programme

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Corporate Social Responsibility

Commitment to Charities
Chow Tai Fook maintains its firm belief of From the Community, For the Community and lends full support to charitable activities for the community. Since 2009, we have supported charity projects on Mainland education, poverty relief, elderly assistance, rehabilitation and disaster relief through donations to the China Charity Federation, a registered charity organisation in the Mainland of China, for five consecutive years. Subsequently, Dato Dr. Cheng Yu-Tung, our Honorary Chairman, and his family made further contribution for charity cause under the name of Chow Tai Fook Charity Foundation which formally became a registered charity organisation in Hong Kong in September 2012. To date, the foundation has financed charity works and research and development projects on educational development, poverty relief and education support, medical research and emergency aid, helping the needy both at home and abroad. To encourage employees to participate in volunteer services and contribute to the society, which helps strengthen communications among its employees, manifest self-enhancement and realise their potential, Chow Tai Fook set up the Chow Tai Fook Volunteer Team in the Mainland of China and Hong Kong in 2007 and 2009, respectively, and designated the third Saturday of September every year as the Chow Tai Fook National Volunteer Day () since 2011 to promote volunteer services across the country and build an altruistic and caring society. Chow Tai Fook has been granted the Caring Company logo by the Hong Kong Council of Social Service since 2008 in recognition of its continuous support and assistance to the disadvantaged and the needy. In FY2013, the Groups volunteer teams in the Mainland of China and Hong Kong, committed approximately a total of 1,000 headcount with an aggregate service time reaching 3,820 hours. At the same time, the Group also actively supports and participates in the charity activities and projects subsidised by the Chow Tai Fook Charity Foundation, through donations and volunteer services.

2009 5 2012 9

2007 2009 2011 9

2008 2013 1,000 3,820

40

Commitment to Charities (Continued)

Community and charity activities participated and projects sponsored by the Group in FY2013 included Oxfam Rice Charity Sale and Food Banks recycled food classification service to help the underprivileged, visiting singleton elderly and elderly homes, and caring childrens need and improving their livings through activities like the UNICEF Charity Run and China Childrens Week Little Artists Big Dreams Drawing Competition. Participation in donations to Wu Zhi Xing 2012 Charity Walk, The Chinese University of Hong Kong Walkathon, Hike for Hospice of the Society of the Promotion of Hospice Care also helped provide assistance for communities and people in need in Hong Kong and the Mainland of China. The Groups volunteers also participated actively in community care events such as caring for visiting autistic children and orphans in Zhaoqing and disabled elderly in the society, blood donation and the Global Handwashing Day.

2013 2012 2013

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Profile of Directors and Senior Management

Profile of Directors and Senior Management

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Profile of Directors and Senior Management

Chairman and Executive Director

Dr. Cheng Kar-Shun, Henry, GBS aged 66, joined the Group in 1971, was appointed as Chairman and an executive Director in July 2011 and is a member of the Nomination Committee and Remuneration Committee of the Company. Dr. Cheng is responsible for the strategic direction and overall performance of the Group. He is a director of certain subsidiaries of the Group. Dr. Cheng is also chairman and an executive director of NWD, chairman and managing director of New World China Land Limited, chairman and an executive director of NWS Holdings Limited and International Entertainment Corporation, chairman and a non-executive director of NWDS and Newton Resources Ltd, a non-executive director of Lifestyle International and an independent non-executive director of HKR International Limited, all of which are listed public companies in Hong Kong. In addition, Dr. Cheng is also a director of CYT Family Holdings, CYT Family Holdings II, CTF Capital and CTF Holding and CTFE. Dr. Cheng is chairman of the Advisory Council for The Better Hong Kong Foundation, chairman of the Advisory Panel of the Asian Management Institute, Richard Ivey School of Business at the University of Western Ontario and a Standing Committee Member of the Twelfth Chinese Peoples Political Consultative Conference. Dr. Cheng is the eldest son of Dato Dr. Cheng Yu-Tung, the father of Mr. Cheng Chi-Kong, Adrian, an uncle of Mr. Cheng Chi-Heng, Conroy, a cousin of Mr. Cheng KamBiu, Wilson and Mr. Cheng Sek-Hung, Timothy and a nephew of Mr. Cheng Yu-Wai.

(GBS) 66 1971 2011 7 CYT Family HoldingsCYT Family Holdings II CTF CapitalCTF Holding

Executive Directors
Mr. Wong Siu-Kee, Kent aged 57, joined the Group in 1977, was appointed as Managing Director in July 2011 and is a member of the Nomination Committee and Remuneration Committee of the Company. Mr. Wong is responsible for the overall management of the Group. Mr. Wong has diverse experience in both operations and management. He was responsible for developing the Groups market in the Mainland of China and in 2008 he was promoted to managing director of CTF HK. He is also a director of certain subsidiaries of the Group and a director of CTFE. Mr. Wong is a member of the Hong Kong Trade Development Council Watches and Clocks Advisory Committee, social director of the Hong Kong Jewellers & Goldsmiths Association Ltd., chairman of the supervising committee of the Hong Kong & Kowloon Jewellers & Goldsmiths Employees Association Ltd, vice chairman of the Gems and Jewellery Trade Association of China, vice-chairman of the Yantian District General Chamber of Commerce and a member of the Yantian District Committee of Chinese Peoples Political Consultative Conference.

57 1977 2011 7 2008

44

Executive Directors (Continued)

Mr. Cheng Chi-Kong, Adrian aged 33, joined the Group in 2007, was appointed as an executive Director in July 2011. Mr. Cheng is responsible for the marketing activities of the Group as well as customer relationship management, branding and e-commerce operations. Prior to joining the Group, Mr. Cheng worked at UBS AG from September 2003 to April 2006. He is also a director of certain subsidiaries of the Group, a director of CTF Holding and CTFE. Mr. Cheng is an executive director and Joint General Manager of NWD, an executive director of New World China Land Limited, NWDS and International Entertainment Corporation and a non-executive director of Giordano International Limited and Modern Media Holdings Limited (appointed on 1 April 2013), all of which are listed public companies in Hong Kong . Mr. Cheng is vice-chairman of the All-China Youth Federation, a member of the Tianjin Municipal Committee of The Chinese Peoples Political Consultative Conference, vice-chairman of the Youth Federation of State-owned Enterprises, chairman of the China Young Leaders Foundation and honorary chairman of Fundraising Committee, Wu Zhi Qiao (Bridge to China) Charitable Foundation. Mr. Cheng holds a Bachelor of Arts degree (cum laude) from Harvard University. Mr. Cheng is a grandson of Dato Dr. Cheng Yu-Tung, a son of Dr. Cheng Kar-Shun, Henry, a cousin of Mr. Cheng ChiHeng, Conroy, a nephew of Mr. Cheng Kam-Biu, Wilson and Mr. Cheng Sek-Hung, Timothy and a grandnephew of Mr. Cheng Yu-Wai. Mr. Cheng Chi-Heng, Conroy aged 35, joined the Group in 2007, was appointed as an executive Director in July 2011. Mr. Cheng is responsible for procurement of diamonds and gemstones as well as production management. Prior to joining the Group, Mr. Cheng had worked at Yu Ming Investment Management Limited from 1999 to 2000 as a corporate finance executive. Mr. Cheng is an executive director of NWD. Mr. Cheng is also a director of certain subsidiaries of the Group and a director of CTF Holding and CTFE. He holds a Bachelor of Arts degree in Economics from The University of Western Ontario. Mr. Cheng is a grandson of Dato Dr. Cheng Yu-Tung, a nephew of Dr. Cheng Kar-Shun, Henry, Mr. Cheng Kam-Biu, Wilson and Mr. Cheng Sek-Hung, Timothy, a cousin of Mr. Cheng Chi-Kong, Adrian and a grandnephew of Mr. Cheng Yu-Wai.

33 2007 2011 7 2003 9 2006 4 CTF Holding 2013 4 1

35 2007 2011 7 1999 2000 CTF Holding

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Profile of Directors and Senior Management

Executive Directors (Continued)

Mr. Chan Sai-Cheong aged 50, joined the Group in 1985, was appointed as an executive Director in July 2011. Mr. Chan is responsible for the Groups Mainland of China and overseas operations. Mr. Chan has been in the jewellery industry for 32 years. He is also a director of certain subsidiaries of the Group. Mr. Chan is a non-executive director of Giordano International Limited, which is a listed public company in Hong Kong. Mr. Chan is a member of the Hong Kong Trade Development Councils Jewellery Advisory Committee, an administrative director of the Gems and Jewellery Trade Association of China, an executive vice-chairman of the Guangdong Gold and Silver Jewellery Chamber of Commerce, a council member of the Shenzhen Gold Jewellery Association, a vice-chairman of the Guangdong Golden Jewellery and Jade Industrys Association and a director of the Gemmological Institute, China University of Geosciences (Wuhan). Mr. Chan Hiu-Sang, Albert aged 62, joined the Group in 1977, was appointed as an executive Director in July 2011. Mr. Chan is responsible for diamond procurement and operations of the Groups Diamond Department. He is also a director of certain subsidiaries of the Group. Mr. Chan holds a Bachelors degree in Business from Western Illinois University. Mr. Chan is a Graduate Gemologist of the Gemological Institute of America, a Fellow of The Gemmological Association of Great Britain and a Lifetime Member of the Gemological Institute of America, Alumni Association. Mr. Cheng Ping-Hei, Hamilton aged 38, joined the Group in 2004, was appointed as an executive Director in July 2011. Mr. Cheng is the Finance Director and Company Secretary of the Group and is responsible for the Groups financial management and company secretarial functions. He is also a director of certain subsidiaries of the Group. Mr. Cheng holds a Bachelor of Business Administration degree in Professional Accountancy from The Chinese University of Hong Kong. He is a member of Hong Kong Institute of Certified Public Accountants, a Fellow of The Association of Chartered Certified Accountants and a Chartered Financial Analyst. Mr. Suen Chi-Keung, Peter aged 48, joined the Group in 1985, was appointed as an executive Director in July 2011. Mr. Suen is a general manager who is responsible for the Groups Hong Kong and Macau operations. He is also a director of certain subsidiaries of the Group.

50 1985 2011 7 32

62 1977 2011 7

38 2004 2011 7

48 1985 2011 7

46

Non-executive Directors
Mr. Cheng Kam-Biu, Wilson aged 54, joined the Group in 1979, was appointed as a non-executive Director in July 2011. Mr. Cheng is responsible for the Groups bank and landlord relationship management. Mr. Cheng is also a director of certain subsidiaries of the Group and a director of CTFE. Mr. Cheng is currently an executive director of International Entertainment Corporation, which is a listed public company in Hong Kong. Mr. Cheng is vice-president of The Chinese Gold and Silver Exchange Society. Mr. Cheng holds a Bachelor of Arts degree in Economics from the University of Hawaii, Honolulu. Mr. Cheng is a nephew of Dato Dr. Cheng Yu-Tung, a cousin of Dr. Cheng Kar-Shun, Henry, an uncle of Mr. Cheng Chi-Kong, Adrian and Mr. Cheng Chi-Heng, Conroy, a cousin of Mr. Cheng Sek-Hung, Timothy and a nephew of Mr. Cheng Yu-Wai. Mr. Koo Tong-Fat aged 62, joined the Group in 1985, was appointed as a non-executive Director in July 2011. He is responsible for the procurement of raw materials coloured stones, jadeite and pearls of the Group. Mr. Koo has been in the jewellery industry for 37 years. He is also a director of a subsidiary of the Group. Mr. Koo holds a continuing education certificate in operations management from the City Polytechnic of Hong Kong and the Hong Kong Productivity Council and is also a full member of The Hong Kong Management Association. Mr. Koo is accounting director of Hong Kong Jewellers & Goldsmiths Association.

54 1979 2011 7

62 1985 2011 7 37

Independent Non-Executive Directors

Mr. Cheng Ming-Fun, Paul, JP aged 76, was appointed as an independent non-executive Director in September 2012 and is a member of the Audit Committee and Nomination Committee of the Company. Mr. Cheng holds a Bachelor of Arts degree from Lake Forest College (Illinois, United States) and a Masters degree in Business Administration from the Wharton Graduate School of Business at the University of Pennsylvania. He is deputy chairman and an independent non-executive director of Esprit Holdings Limited, a listed public company in Hong Kong; an independent non-executive director of Global Logistic Properties Limited, a company listed on the Singapore Stock Exchange; an independent non-executive chairman of Vietnam Infrastructure Limited and an independent non-executive director of Pacific Alliance China Land Limited, both are listed on the AIM Board of the London Stock Exchange. In addition, he is chairman of China High Growth Group. He was an independent non-executive director of Kingboard Chemical Holdings Limited and Pou Sheng International (Holdings) Limited, both are listed public companies in Hong Kong. He was a former member of the Hong Kong Legislative Council as well as chairman of Inchcape Pacific Limited, N M Rothschild & Sons (Hong Kong) Limited, The Link Management Limited and the Hong Kong General Chamber of Commerce.

(JP) 76 2012 9 (AIM Board)

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Profile of Directors and Senior Management

Independent Non-Executive Directors (Continued)

Dr. Fung Kwok-King, Victor, GBM, GBS, CBE aged 67, was appointed as an independent non-executive Director in November 2011 and is chairman of the Nomination Committee and a member of the Remuneration Committee of the Company. Dr. Fung holds Bachelors and Masters Degrees in Electrical Engineering from the Massachusetts Institute of Technology and a Doctorate in Business Economics from Harvard University. He is honorary chairman of the Fung Group (formerly known as Li & Fung Group), a Hong Kong based multinational which comprises major subsidiaries in trading, logistics, distribution and retailing. He is also honorary chairman and a non-executive director of Li & Fung Limited, chairman and a non-executive director of Convenience Retail Asia Limited and Trinity Limited, all of which are subsidiaries of the Fung Group publicly listed in Hong Kong. In addition, Dr. Fung is an independent non-executive director of BOC Hong Kong (Holdings) Limited (a company listed on the Hong Kong Stock Exchange), Koc Holding A.S. (a company listed on the Istanbul Stock Exchange), and China Petrochemical Corporation (PRC). He served on the Board of Baosteel Group Corporation (PRC) from 2005 until expiry of the term end in January 2013. Dr. Fung is founding chairman of the Fung Global Institute, an independent non-profit think-tank based in Hong Kong. He is also honorary chairman of the International Chamber of Commerce and a member of WTO Panel on Defining the Future of Trade (since April 2012), In public service, Dr. Fung is a member of Chinese Peoples Political Consultative Conference and a vice-chairman of China Centre for International Economic Exchanges. He has also been appointed as a member of the Economic Development Commission of the Hong Kong Government in January 2013. Dr. Fung was chairman of the Hong Kong Trade Development Council (19912000), the Hong Kong representative on the APEC Business Advisory Council (19962003). He was also chairman of the Hong Kong Airport Authority (19992008), chairman of the Council of The University of Hong Kong (20012009), chairman of the International Chamber of Commerce (20082010), chairman of the Hong Kong-Japan Business Cooperation Committee (20042010), chairman of the Greater Pearl River Delta Business Council (2004February 2013) and a member of the Commission on Strategic Development of the Hong Kong Government (2005-June 2012). The Government of Hong Kong awarded Dr. Fung the Gold Bauhinia Star in 2003 and the Grand Bauhinia Medal in 2010 for his distinguished service to the community in Hong Kong.

(GBM, GBS, CBE) 67 2011 11 Koc Holding A.S. 2005 2013 1 2012 4 2013 1 1991 2000 1996 2003 (APEC) 1999 2008 2001 2009 2008 2010 2004 2010 2004 2013 2 2005 2012 6 2003 2010

48

Independent Non-Executive Directors (Continued)

Mr. Kwong Che-Keung, Gordon aged 63, was appointed as an independent non-executive Director in November 2011 and is chairman of the Audit Committee and a member of the Remuneration Committee of the Company. Mr. Kwong is an independent supervisor of the supervisory committee of Beijing Capital International Airport Company Limited, an independent non-executive director of Agile Property Holdings Limited, China Chengtong Development Group Limited, China COSCO Holdings Company Limited, China Power International Development Limited, CITIC Telecom International Holdings Limited, Global Digital Creations Holdings Limited, Henderson Investment Limited, Henderson Land Development Company Limited, NWS Holdings Limited, and OP Financial Investments Limited, all of which are listed public companies in Hong Kong. He was also an independent non-executive director of Quam Limited until his retirement in September 2012. Mr. Kwong was a Partner of Price Waterhouse from 1984 to 1998, an independent member of the Council of the Hong Kong Stock Exchange from 1992 to 1997, during which, he had acted as convener of both the Compliance Committee and the Listing Committee. Mr. Lam Kin-Fung, Jeffrey, GBS, JP aged 61, was appointed as an independent non-executive Director in November 2011 and is a member of the Audit Committee and Nomination Committee of the Company. Mr. Lam is also an independent non-executive director of C C Land Holdings Limited, China Overseas Grand Oceans Group Limited, Hsin Chong Construction Group Limited, Sateri Holdings Limited and Wynn Macau, Limited, all of which are listed public companies in Hong Kong. Mr. Lam is a member of the National Committee of the Chinese Peoples Political Consultative Conference. He also holds a number of other public and community service positions including being a non-official member of the Executive Council and a member of the Legislative Council in Hong Kong, the chairman of the Assessment Committee of Mega Events Fund, a member of the board of Airport Authority Hong Kong, a member of the board of the West Kowloon Cultural District Authority, a council member of Hong Kong Trade Development Council, a general committee member of the Hong Kong General Chamber of Commerce and a member of the Fight Crime Committee. Mr. Or Ching-Fai, Raymond, SBS, JP aged 63, was appointed as an independent non-executive Director in November 2011 and is chairman of the Remuneration Committee and a member of the Audit Committee and Nomination Committee of the Company. Mr. Or is also chairman, chief executive officer and an executive director of China Strategic Holdings Limited, vice-chairman and an independent non-executive director of G-Resources Group Limited, chairman and an independent non-executive director of Esprit Holdings Limited, and an independent non-executive director of Industrial and Commercial Bank of China Limited and Television Broadcasts Limited (appointed on 6 December 2012), all of which are listed public companies in Hong Kong. Mr. Or was former vice-chairman of Hang Seng Bank Limited until his retirement in May 2009. Mr. Or is currently deputy chairman of the Council of City University of Hong Kong.

63 2011 11 2012 9 1984 1998 1992 1997

(GBS, JP) 61 2011 11

(SBS, JP) 63 2011 11 2012 12 6 2009 5

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Profile of Directors and Senior Management

Honorary Chairman
Dato Dr. Cheng Yu-Tung, GBM aged 87, joined the Group in 1947, was appointed as Companys Honorary Chairman and a non-executive Director in July 2011. He retired from the position of non-executive Director in December 2012 and remained the title as Honorary Chairman. Dr. Cheng is a director of CTFE, CYT Family Holdings, CYT Family Holdings II, CTF Capital and CTF Holding. Dr. Cheng is the father of Dr. Cheng Kar-Shun, Henry, the grandfather of Mr. Cheng Chi-Kong, Adrian and Mr. Cheng Chi-Heng, Conroy, an uncle of Mr. Cheng Kam-Biu, Wilson and Mr. Cheng Sek-Hung, Timothy and the elder brother of Mr. Cheng Yu Wai.

(GBM) 87 1947 2011 7 2012 12 CYT Family HoldingsCYT Family Holdings IICTF Capital CTF Holding

Honorary Advisers to the Board of Directors

Mr. Ho Pak-Tao aged 82, joined the Group in 1947, was appointed as an Honorary Adviser to the Board with effect from August 2011 and is responsible for advising on research and development. Mr. Ho is also a director of CTF Holding and CTFE. Mr. Wong Kwok-Ting aged 82, joined the Group in 1947, was appointed as an Honorary Adviser to the Board with effect from August 2011 and is responsible for advising on procurement. Mr. Wong is also a director of CTF Holding and CTFE. Mr. Cheng Yu-Wai aged 81, joined the Group in 1949, was appointed as an Honorary Adviser to the Board with effect from August 2011 and is responsible for advising on procurement. Mr. Cheng is also a director of CTF Holding and CTFE. Mr. Cheng is the younger brother of Dato Dr. Cheng Yu-Tung, uncle of Dr. Cheng Kar-Shun, Henry, a granduncle of Mr. Cheng Chi-Kong Adrian and Mr. Cheng Chi-Heng, Conroy, and an uncle of Mr. Cheng Kam-Biu, Wilson and Mr. Cheng Sek-Hung, Timothy. Mr. Cheng Sek-Hung, Timothy aged 62, joined the Group in 1994, was appointed as an Honorary Adviser to the Board with effect from August 2011. Mr. Cheng is a director of certain subsidiaries of the Group. Mr. Cheng is also a director of CTF Holding and CTFE. Mr. Cheng is a nephew of Dato Dr. Cheng Yu-Tung, a cousin of Dr. Cheng Kar-Shun, Henry, an uncle of Mr. Cheng Chi-Kong Adrian and Mr. Cheng Chi-Heng, Conroy, a cousin of Mr. Cheng Kam-Biu, Wilson and a nephew of Mr. Cheng Yu-Wai.

82 1947 2011 8 CTF Holding

82 1947 2011 8 CTF Holding 81 1949 2011 8 CTF Holding

62 1994 2011 8 CTF Holding

50

Senior Management
Dr. Tan Guet-Lan, Lauren aged 46, joined the Group in 2011, is General Counsel of the Group. She is responsible for overseeing the legal department of the Group. Dr. Tan is a lawyer with over 19 years of international legal experience in regional and global roles in Asia, North America and Europe providing legal advice and support to multinational and start-up companies at both operational and management level. Mr. Chan Yee-Pong, Alan aged 41, joined the Group as director of Branding Department in 2010. Mr. Chan is responsible for the branding and marketing activities of the Group. Mr. Chan has over 18 years of experience in luxury branding and marketing. Mr. Tsang Siu-Kwong aged 42, joined the Group in 1993, is senior manager of the Management Information System Department. Mr. Tsang is responsible for the information system of the Group. Mr. Tsang has over 20 years of experience in information technology. Mr. Wong Kim-Ming, Mark aged 52, joined the Group in 1986, is senior manager of the Diamond Department and is responsible for the operation of the Diamond Department of the Group. Mr. Wong has over 26 years of experience in the jewellery industry. Mr. Cheng Ming-Chi aged 41, joined the Group in 1994, is senior manager in the Procurement (Gemstones) Department. Mr. Cheng is responsible for managing and purchasing the Groups gemstones such as jadeite, colour stones and pearls. Mr. Cheng has over 18 years of experience in the jewellery industry. Mr. Tam Chun-Wah, Daniel aged 50, joined as Head of Production Management Centre of the Group in 2011. Mr. Tam is responsible for the Groups production management. He has over 20 years of experience in jewellery manufacturing and 6 years of experience in gold inventory management. Mr. Liu Chun-Wai, Bobby aged 39, joined the Group in 1999, is the general manager responsible for managing the Mainland of China Management Centre. Mr. Liu has over 11 years of experience in retail and administrative management.

46 2011 19

41 2010 18 42 1993 20

52 1986 26

41 1994 18

50 2011 20 6

39 1999 11

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Corporate Governance Report

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Corporate Governance Report

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Corporate Governance Report

Corporate Governance Practices

The Company is committed to maintaining a high standard of corporate governance practices and procedures. On 1 April 2012, the Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules was amended and revised as Corporate Governance Code (CG Code). The Company has adopted the CG Code when it became effective on 1 April 2012. For the year under review, the Company has complied with all the applicable code provisions of the CG Code. This report describes the Groups corporate governance practices and explains the applications of the principles of the CG Code. The Board will review and improve the corporate governance practices from time to time to ensure that the Group is under the leadership of an effective Board to optimise return for shareholders.

14 2012 4 1 2012 4 1

Board of Directors
The Board is committed to protect and enhance value of the Group. It is accountable to shareholders of the Company for its performance. The Board currently comprises a total of 15 Directors, with eight executive Directors, two non-executive Directors and five independent non-executive Directors. The biographies of the Directors are set out on pages 44 to 50 of this annual report. The Board oversees the management, businesses, strategic directions and financial performance of the Group. It also ensures that good corporate governance framework and practices are established within the Group. The corporate governance duties responsible by the Board include: (a) to develop and review the Companys policies and practices on corporate governance; to review and monitor the training and continuous professional development of directors and senior management; to review and monitor the Companys policies and practices on compliance with legal and regulatory requirements; to develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees and Directors and to review the Companys compliance with the CG Code and disclosure in the Corporate Governance Report.

15 44 50

(a)

(b)

(b)

(c)

(c)

(d)

(d)

(e)

(e)

54

Board of Directors (Continued)

The Board held four meetings during the year. In these Board meetings, the executive Directors made reports to the Board on various aspects, including business performance and prospects, financial performance, risk management and corporate governance. The Company also provides monthly updates to all Directors on the Groups performance and position to enable the Directors to make balanced assessment and informed decisions for the benefit of the Group. To ensure the operational efficiency of the Group, the Board delegates an Executive Committee to oversee the day-to-day management and operation. The Board also established the Audit Committee, Nomination Committee and Remuneration Committee which comprised a majority of independent non-executive Directors in accordance with the Listing Rules requirements. Each of these committees has its own terms of reference to set out its specific duties and authorities and reports to the Board.

Chairman and Managing Director

The Chairman, Dr. Cheng Kar-Shun, Henry, provides leadership for the Board and ensures that the Board works effectively and all important issues are discussed in a timely manner. The Managing Director, Mr. Wong Siu-Kee, Kent, takes the lead in the Groups operations and business development. The positions of the Chairman and the Managing Director are held by separate individuals to maintain an effective segregation of duties.

Executive Directors
The Board has delegated an Executive Committee comprising all executive Directors namely Dr. Cheng Kar-Shun, Henry, Mr. Wong Siu-Kee, Kent, Mr. Cheng Chi-Kong, Adrian, Mr. Cheng Chi-Heng, Conroy, Mr. Chan Sai-Cheong, Mr. Chan Hiu-Sang, Albert, Mr. Cheng Ping-Hei, Hamilton and Mr. Suen Chi-Keung, Peter, with authority and responsibility for handling the managerial and administrative functions and day-to-day operations of the Group. The Executive Committee meets on a regular basis and as when necessary.

Non-Executive Directors
Non-executive Directors (including the independent non-executive Directors) serve a significant role in the Board to bring independent judgment on the development, performance and risk management of the Group. They come from diverse business and professional backgrounds and share valuable views and experiences to the Board. The independent non-executive Directors also serve in the Board committees and make significant contribution of their skill and expertise. There are five independent non-executive Directors which represents one-third of the Board as required by Rule 3.10A of the Listing Rules.

3.10A

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Corporate Governance Report

Non-Executive Directors (Continued)

The Company has received annual confirmation of independence from all the independent non-executive Directors in accordance with Rule 3.13 of the Listing Rules. The Board is of the view that all the independent nonexecutive Directors are independent and at least one of them serving on the Audit Committee has appropriate professional qualifications or accounting or related financial management expertise in accordance with Rule 3.10 of the Listing Rules.

3.13 3.10

Remuneration of Directors and Senior Management

The remuneration of executive Directors and senior management comprises basic salary, pension and discretionary bonus. The discretionary bonus is incentive-based which links rewards to corporate performance and profitability. The Remuneration Committee is responsible for making recommendations to the Board on the Companys policy and structure for the remuneration of all the Directors and senior management and on the establishment of a formal and transparent procedure for developing remuneration policy for approval by the Board. The Remuneration Committee held two meetings during the year to review and approve the managements remuneration proposals with reference to the Boards corporate goals and objectives; and to determine, with delegated responsibility, the remuneration packages of individual executive Directors and senior management and to make recommendations to the Board about the remuneration of non-executive Directors. The Remuneration Committee currently consists of three independent non-executive Directors and two executive Directors. Current members of the Remuneration Committee are Mr. Or Ching-Fai, Raymond, Dr. Cheng Kar-Shun, Henry, Mr. Wong Siu-Kee, Kent, Dr. Fung Kwok-King, Victor and Mr. Kwong Che-Keung, Gordon. It is currently chaired by Mr. Or Ching-Fai, Raymond, an independent non-executive Director.

Nomination, Appointment and Re-election of Directors

All Directors (including non-executive Directors) have formal letters of appointment with the Company for a term of three years commencing from respective date of appointment, subject to retirement by rotation in accordance with the Articles. The Articles of the Company provides that at each annual general meeting, one-third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one-third) will retire from office by rotation, provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. Besides, any Director appointed by the Board to fill a casual vacancy or as an addition to the Board is subject to re-election at the next following general meeting or the next following annual general meeting of the Company respectively.

56

Nomination, Appointment and Re-election of Directors (Continued)

The Nomination Committee held two meetings during the year to review the structure, size and composition of the Board, assess the independence of the independent non-executive Directors and to make recommendations to the Board on the appointment and re-appointment of Directors. For nomination of a new Director, the Nomination Committee will consider the suitability of the candidate on the basis of qualification, experience and background. The Nomination Committee will also consider the composition of the Board in promoting diversified background, skills and perspectives. The Group emphasised the role of non-executive Directors to bring a wide range of business and professional experience to the Board, which contributes to the effective direction of the Group. The Nomination Committee currently consists of four independent nonexecutive Directors and two executive Directors. Current members of the Nomination Committee are Dr. Fung Kwok-King, Victor, Dr. Cheng KarShun, Henry, Mr. Wong Siu-Kee, Kent, Mr. Cheng Ming-Fun, Paul, Mr. Lam Kin-Fung, Jeffrey and Mr. Or Ching-Fai, Raymond. It is currently chaired by Dr. Fung Kwok-King, Victor, an independent non-executive Director.

Audit Committee
The Audit Committee is responsible for the engagement of external auditor and review of the Groups financial information, financial reporting system, internal control procedures and risk management system. The Audit Committee held three meetings during the year to, among other things: review the Groups financial statements and discuss with external auditors on the audit plan and on the report of financial reporting matters relating to the annual audit and interim review of the Groups financial statements; review reports on internal control system and internal audit of the Group, discuss with the management and the internal auditors on the overall risk assessment, internal control system, audit plan of and findings from the Groups internal audits; review the Groups continuing connected transactions; assess the independence of external auditors and recommend the re-appointment; and establish and monitor the Groups whistle-blowing system.

The Audit Committee reviewed the system of internal control and the financial statements for the year ended 31 March 2013 and made recommendation to the Board for approval. The Audit Committee currently consists of four independent non-executive Directors. Current members of the Audit Committee are Mr. Kwong Che-Keung, Gordon, Mr. Cheng Ming-Fun, Paul, Mr. Lam Kin-Fung, Jeffrey and Mr. Or Ching-Fai, Raymond. It is currently chaired by Mr. Kwong CheKeung, Gordon, an independent non-executive Director.

2013 3 31

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Corporate Governance Report

Attendance at Annual General Meeting, Meetings of the Board, the Audit Committee, the Remuneration Committee and Nomination Committee

Number of Meetings Attended/Eligible to attend for FY2013 2013 Annual General Meeting Dr. Cheng Kar-Shun, Henry Mr. Wong Siu-Kee, Kent Mr. Cheng Chi-Kong, Adrian Mr. Cheng Chi-Heng, Conroy Mr. Chan Sai-Cheong Mr. Chan Hiu-Sang, Albert Mr. Cheng Ping-Hei, Hamilton Mr. Suen Chi-Keung, Peter Dato Dr. Cheng Yu-Tung(1) Mr. Cheng Kam-Biu, Wilson Mr. Koo Tong-Fat Mr. Cheng Ming-Fun, Paul(2) Dr. Fung Kwok-King, Victor Mr. Kwong Che-Keung, Gordon Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond
Notes: (1) (2) Dato Cheng Yu-Tung retired from the Board on 1 December 2012. Mr. Cheng Ming-Fun, Paul was appointed to the Board on 19 September 2012.

Board Meeting 4/4 4/4 3/4 2/4 4/4 4/4 4/4 4/4 1/3 4/4 4/4 2/2 3/4 4/4 4/4 4/4

(1) (2)

Audit Committee 2/2 3/3 3/3 3/3

Remuneration Committee 2/2 2/2 1/2 2/2 2/2

Nomination Committee 1/2 2/2 2/2 2/2 2/2

(1) (2)

1/1 1/1 1/1 1/1 1/1 1/1 1/1 1/1 0/1 1/1 1/1 1/1 1/1 1/1 0/1

2012121 2012919

Directors who are considered having conflict of interests or material interests in proposed transactions or contemplated issues are required to abstain from voting on the relevant resolution.

58

Directors Induction and Continuing Professional Development

The Company will arrange orientation for a newly appointed Director to meet with other Board members and to have an overview of the Board proceedings and culture. The new director will receive a package of orientation materials which contains information on the Company, operation and business, roles and responsibilities of the Board and the committees, corporate policies and information relating to the duties and responsibilities of directors under statutory regulation and the Listing Rules. The Company will also arrange visits to the Groups management centres and factories for independent non-executive Directors to understand the management, operation and control systems within the Group and to have interactive discussion with the management on any recommendation for improvement. The Company Secretary updates directors on the latest developments and changes of the Listing Rules and the applicable legal and regulatory requirements in the discharge of their duties. These updates are communicated through internal meetings, presentation materials and seminars organised in collaboration with professional firms as part of the continuing professional development for directors. Each director has also attended seminars or workshops relevant to his profession and duties as directors. Directors training records during the year are summarised as follows:

Training on regulatory development, directors profession or duties, or other relevant topics Structured Unstructured Dr. Cheng Kar-Shun, Henry Mr. Wong Siu-Kee, Kent Mr. Cheng Chi-Kong, Adrian Mr. Cheng Chi-Heng, Conroy Mr. Chan Sai-Cheong Mr. Chan Hiu-Sang, Albert Mr. Cheng Ping-Hei, Hamilton Mr. Suen Chi-Keung, Peter Mr. Cheng Kam-Biu, Wilson Mr. Koo Tong-Fat Mr. Cheng Ming-Fun, Paul Dr. Fung Kwok-King, Victor Mr. Kwong Che-Keung, Gordon Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

3 3

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Corporate Governance Report

Auditors Remuneration
During FY2013, the total fee paid/payable in relation to audit related services of the Group amounted to HK$9.3 million, of which a sum of HK$5.6 million was paid/payable to the principal auditor Deloitte Touche Tohmatsu and the remaining was mainly paid/payable to other auditors performing audit work for the Companys subsidiaries in the Mainland of China which were subject to local statutory requirements. The remuneration paid to Deloitte Touche Tohmatsu and its affiliated firms for services rendered is listed as follows: Types of services

2013 9.3 5.6

FY2013 2013 HK$000 4,100 1,510 1,052 6,662

FY2012 2012 HK$000 3,500 9,900 160 390 13,950

Statutory audit Professional service as reporting accountant of the Companys initial public offering Other audit related services Non-audit services (Note)

Note: Non-audit services comprise primarily tax advisory services provided to the Group.

Directors Responsibility for the Financial Statements

The Board, supported by the finance department, is responsible for the preparation of the financial statements of the Company and the Group. The Board has prepared the financial statements in accordance with the International Financial Reporting Standards issued by the International Accounting Standard Board. Appropriate accounting policies have also been used and applied consistently. The Directors were not aware of any material uncertainties relating to events or conditions which may cast significant doubt upon the Groups ability to continue as a going concern. The statement by the auditors of the Company and the Group regarding their reporting responsibilities on the financial statements of the Company and the Group is set out in the Independent Auditors Report on pages 81 to 82 of this annual report.

81 82

60

Securities Transactions of Directors and Employees

The Company has adopted a code of conduct regarding directors securities transactions on terms no less exacting than the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (the Model Code). Having made specific enquiry of all Directors, the Directors confirmed that they had complied with the required standard as set out in the Model Code during FY2013. The Company has also established written guidelines as required under the CG Code in respect of the dealings in the securities of the Company by specified employees (Relevant Employees) who are likely to come across inside information because of their duties. Having made specific enquiry of all Relevant Employees, they confirmed that they had complied with the required standards as set out in the relevant written guidelines during FY2013. As and when appropriate, the Company will send formal notifications to the Directors and Relevant Employees reminding them of the black-out period as specified in the Model Code during which they are not allowed to deal in the securities of the Company. Moreover, all employees are bound by corporate policies of the Company to refrain from dealing in the Companys securities if they are in possession of any inside information of the Company.

10 2013

2013

Company Secretary
The Company Secretary is Mr. Cheng Ping Hei, Hamilton. He is also an executive Director and is employed by the Company on a full-time basis. Please refer to his biographical details are set out on page 46 of this annual report. All Directors have access to the Company Secretary to ensure that board procedures and all applicable law, rules and regulations, are followed. During the year, the Company Secretary has taken no less than 15 hours relevant professional training as required under rule 3.29 of the Listing Rules.

46 3.29 15

Communication with Shareholders

The Board and senior management maintain continuing communication with the Companys shareholders and investors and encourage them to communicate actively with the Company. During the year, a shareholders communication policy was adopted to promote effective communication with the Companys shareholders and other stakeholders and to encourage shareholders to engage actively with the Company. To ensure fair and equal access to material information, the Company makes use of various sources of communication including results announcements and presentations, annual and interim reports, press releases and its corporate website. Our corporate website contains corporate information, latest publications as well as the recent developments of the Group, enabling Shareholders to have timely access to the information of the Group. The Company also publishes voluntary announcements of operational updates to enhance shareholders understanding of the Groups business trends and its strategies in a timely manner. Moreover, the Companys annual general meeting encourages face-to-face communication with shareholders. The Chairman, Managing Director, chairmen of board committees (or respective designated member) and external auditors will attend the annual general meeting. The Directors will answer questions on the performance of the Group raised by the shareholders.

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Corporate Governance Report

Shareholders Rights
The Company endeavours to ensure that shareholders are treated fairly and are able to exercise their shareholders rights effectively. Shareholders are entitled by the Articles and are also encouraged to participate in the Companys general meetings or appoint proxies to attend and vote, Shareholder(s) holding not less than 10% of the Companys paid-up capital may request the Board to convene an extraordinary general meeting and put forward proposals. The objectives of the meeting must be stated in the related requisition signed and deposited to the Company Secretary at the Companys headquarters at 38/F, New World Tower, 16-18 Queens Road Central, Hong Kong. If a Shareholder wishes to nominate a person for election of director in a general meeting, the particulars of the candidate must be stated in a nomination notice signed and deposited together with a notice of willingness signed by the candidate to the Company Secretary at the Companys headquarters at 38/F, New World Tower, 16-18 Queens Road Central, Hong Kong or at the Registration Office (Tricor Investor Services Ltd., 26th Floor, Tesbury Centre, 28 Queens Road East, Hong Kong) of the Company. The notice should be given at least seven days prior to the date of such general meeting. Shareholders who intend to put forward their enquiries about the Company to the Board could email their enquiries to ir@chowtaifook.com.

10% 1618 38

1618 38 28 26

ir@chowtaifook.com

Investor Relations
The Company is committed to promoting open and constructive conversations with shareholders, analysts, media and potential investors. The investor relations team which comprises the executive Directors and senior management, hosts active dialogue with institutional shareholders and the public through investor conferences, non-deal roadshows, investor meetings, the Companys annual general meeting, as well as media interviews and press releases. In FY2013, the Company participated in 10 investor conferences, 26 non-deal roadshows and attended over 600 one-on-one and group meetings. The Company also maintains regular dialogue with a large number of analysts from the research institutions, and 27 of them publish reports of our Company regularly.

2013 10 26 600 27

8%

92%

One-on-one meetings Group meetings

62

Investor Relations (Continued)

Major investor conferences that the Company participated in FY2013 are set out below: FY2013 2013 July 2012 2012 7 Event

2013 Location Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Beijing Shanghai Boston Hong Kong Hong Kong

Credit Suisse China/HK Consumer Corporate Day BNP Paribas Consumer Corporate Day CLSA Investor Forum 2012 HSBC 2nd Annual China Consumption Conference Citi HK/China Mini Conference 2012 11th Annual dbAccess China Conference UBS Greater China Conference 2013 UBS 2nd Annual Global Consumer Conference Credit Suisse 16th Asian Investment Conference Goldman Sachs Global Luxury Goods Conference

September 2012 2012 9 October 2012 2012 10 December 2012 2012 12 January 2013 2013 1

March 2013 2013 3

The Company holds press and analysts conferences at least twice a year following the release of interim and full year results announcements at which the executive Directors and senior management of the Group are available to answer questions regarding the performance of the Group. The presentation and webcasts for these conferences are available on our corporate website. The corporate website contains an investor relations section to reach out to the investment community and public with latest information on the Company. To promote transparent and fair disclosure, the Company also makes voluntary announcements of operational updates on a quarterly basis. The Group also promotes proactive communication through the Companys email alerts and direct contact with the investor relations team via email at ir@chowtaifook.com.

ir@chowtaifook.com

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Corporate Governance Report

Internal Control and Risk Management

The Board is responsible for the internal control of the Group and for reviewing its effectiveness annually. The Group Internal Control Manual sets out procedures for safeguarding assets against unauthorised use or disposition, ensuring maintenance of proper accounting records for the provision of reliable financial information for internal use or for publication, and ensuring compliance of applicable laws, rules and regulations. These procedures provide reasonable but not absolute assurance against material errors or losses of fraud. In the year under review, the Board has reviewed, through the Audit Committee, the Groups internal control system and is not aware of any significant issues that would have an adverse impact on the effectiveness and adequacy of the internal control system. The review covers the areas of control environment, risk assessment, control activities, information and communication and monitoring within the Group. In addition, the Group engaged PricewaterhouseCoopers as its internal auditor to review the major operational, financial, compliance and risk management controls on a continual basis. The internal auditor schedules its works in a three-year audit plan, which is reviewed by the Audit Committee annually. The audit plan is derived from risk assessment basis and is aimed at covering each significant unit in which the Group involves in day-to-day management within a reasonable period. Internal audit reports are presented to the Audit Committee regularly. The management is responsible for ensuring appropriate actions are taken to rectify any control deficiencies highlighted in the audit reports and the Risk Management Committee follows up the implementation progress of those internal control recommendations to ensure that the issues raised by the internal auditor are properly resolved within a reasonable period subject to the priority of risks. During FY2013, the internal auditor did not raise any significant issues on the Groups internal control system. The Risk Management Committee is committed to establishing and maintaining a robust and practical risk management framework in order to provide reasonable assurance for the achievement of the Groups strategic directives. The Committee is led by senior executives of the Group and reports regularly to the Board. It aims to ensure that effective internal controls and continuous improvement measures are in place to mitigate risks of strategic or external environment, financial, operational and compliance nature with respect to the conduct of the Groups business. The Group identifies and assesses risks both at the Group level and the business unit level. The Committee monitors and updates the Groups risk profile and exposure and reviews the effectiveness of the Groups internal control system in mitigating risks. During FY2013, the Committee drove a Group level risk assessment with active participation of senior executives and compiled the Enterprise Risk Management Policy Manual. It laid down the rules for the determination of risk management strategy, designed the platform for continuous risk management process, and developed an enterprise-wide risk management structure from accountability at business unit level to leadership role at Board level. Moreover, the whistleblowing policy was adopted by the Audit Committee for staff members to raise concerns, in confidence, about possible improprieties in any matters related to the Group.

2013

2013

64

Procedures and Internal Controls for Handling and Dissemination of Inside Information
With the enactment of Part XIVA of the SFO, the duty of a listed issuer to disclose inside Information now becomes a statutory duty. Both the listed issuer and its officers are responsible for the compliance of this statutory duty. To comply with this statutory duty, the Group has a system in place to promptly identify and escalate inside information to the Board for actions. The Group requires all the operating units to fill in monthly questionnaires supplying data and information relating to the business and corporate developments and events which are the subject of disclosure under Chapters 13, 14 and 14A of the Listing Rules and Part XIVA of the SFO so that the Board is kept abreast of all information relating to the current performance of the Group allowing it to make informed judgment or assessments as to whether any significant changes has occurred in the operation and course of business of the Group. Attached to the form of the questionnaires are explanatory notes summarising the requirements of the Listing Rules and the SFO in relation to the disclosure duty of the Group. Most important of all, there is a reminder in the questionnaires stressing the importance of immediate disclosure of inside information to the Company Secretary when such information is identified or suspected between any reporting periods. Pursuant to Code Provision C.1.2, the Group also provides all directors (including independent non-executive directors) with monthly management accounts of the Group for them to assess whether any critical changes has occurred in the financial performance and prospects of the business of the Group which constitutes inside information and requires promptly disclosure by the Group. Corporate teams of the Group are charged with the responsibility of gauging and monitoring the fluctuation in share prices of the Group in the Stock Exchange and screening media speculation, market rumors and analysts reports. This exercise serves two purposes, firstly to monitor whether confidentiality of the Groups inside information has been leaked and therefore prompt disclosure is immediately required and secondly to assess whether inside information (if any) should be disclosed when media speculation, market rumors and analysts report reveal a significant discrepancy between the expectation of the market and any inside information in the possession of the Group. The Group has set down a policy that no unauthorised persons should disclose any information of the Group to outsiders or holds meetings or briefings or interviews with the media, analysts and investors. The formal dissemination channel for disclosure of inside information is via the electronic publication system operated by the Stock Exchange for equal, timely and effective access by the public to inside information disclosed. Only designated and trained personnel of the Investor Relations Department are allowed to hold meetings, briefings or interviews with media, analysts and investors and they are required to keep attendance notes and records for future reference. The Group has arranged internal seminars and trainings for Directors to familiarise them with the disclosure requirements under the Listing Rules and the SFO generally so as to enable the Directors to discharge their duties in an efficient and responsible manner.

XIVA 1314 14A XIVA

C.1.2

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Directors Report

Directors Report

66

Chow Tai Fook Annual Report 2013

2013

67

Directors Report

The Board is pleased to present the annual report of the Company together with the audited consolidated financial statements of the Group for FY2013.

2013

Principal Activities
The Company is an investment holding company. The Group is the worlds largest pure-play jeweller by market capitalisation with an extensive retail network. Its principal products are mass luxury jewellery and high-end luxury jewellery products including gem-set jewellery, gold product and platinum and karat gold product; and watch. The activities of the principal subsidiaries are set out in note 39 to the consolidated financial statements.

K 39

Results and Appropriation

The results of the Group for FY2013 are set out in the consolidated statement of comprehensive income on page 83. The Directors recommended the payment of a final dividend of HK16.0 cents per share (FY2012: HK10.0 cents per share), amounting to approximately HK$1,600.0 million (FY2012: HK$1,000.0 million). Such payment of dividends will be subject to the approval of shareholders at the forthcoming annual general meeting of the Company to be held on Monday, 2 September 2013 and are payable to shareholders whose names appear on the register of members of the Company at the close of business on Monday, 9 September 2013. Together with the interim dividend of HK6.0 cents per shares paid in January 2013, total distribution of dividend by the Company for FY2013 will be HK22.0 cents per share.

2013 83 16.0 2012 10.0 1,600.0 2012 1,000.0 2013 9 2 2013 9 9 2013 1 6.0 2013 22.0

Property, Plant and Equipment

Details of the movements in property, plant and equipment during the year are set out in note 17 to the consolidated financial statements.

17

Financial Summary
A summary of the results and the assets and liabilities of the Group is set out on page 155.

155

Share Capital
Details of movements in share capital are set out in note 32 to the consolidated financial statements. There is no movement in the share capital during the year.

32

Reserves
Movements in reserves during the year are set out in the consolidated statement of changes in equity on page 86. Distributable reserves of the Company at 31 March 2013 amounted to approximately HK$7,134.6 million (31 March 2012: HK$6,527.9 million).

86 2013 3 31 7,134.6 2012 3 31 6,527.9

Pre-emptive Rights
There is no provision for pre-emptive rights under the Articles or the laws of the Cayman Islands.

68

Purchase, Sale or Redemption of Listed Securities

The Company had not redeemed any of its listed securities during the year. Neither the Company nor any of its subsidiaries had purchased or sold any of the Companys listed securities during the year.

Directors
The Directors during the year and up to the date of this annual report are:

Executive Directors
Dr. Cheng Kar-Shun, Henry Mr. Wong Siu-Kee, Kent Mr. Cheng Chi-Kong, Adrian Mr. Cheng Chi-Heng, Conroy Mr. Chan Sai-Cheong Mr. Chan Hiu-Sang, Albert Mr. Cheng Ping-Hei, Hamilton Mr. Suen Chi-Keung, Peter

Non-Executive Directors
Dato Dr. Cheng Yu-Tung Mr. Cheng Kam-Biu, Wilson Mr. Koo Tong-Fat (retired from the Board on 1 December 2012)

2012 12 1

Independent Non-Executive Directors

Mr. Cheng Ming-Fun, Paul Dr. Fung Kwok-King, Victor Mr. Kwong Che-Keung, Gordon Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond (appointed on 19 September 2012)

2012 9 19

In accordance with Articles 83 and 84, Mr. Wong Siu-Kee, Kent , Mr. Cheng Chi-Heng, Conroy, Mr. Chan Hiu-Sang, Albert, Mr. Suen Chi-Keung, Peter, Mr. Cheng Ming-Fun, Paul and Mr. Lam Kin-Fung, Jeffrey will retire at the forthcoming annual general meeting and, being eligible, offer themselves for re-election. The Company has received from each of the independent non-executive Directors an annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules and the Company considers that all of the independent non-executive Directors are independent.

83 84

3.13

Directors Service Contracts

None of the Directors has a service contract with the Company or any of its subsidiaries which is not determinable within one year without payment of compensation, other than statutory compensation.

Directors Interests in Contracts

Save as disclosed in this annual report, no contracts of significance in relation to the Groups business to which the Company, its holding company and any of its subsidiaries was a party and in which any Director had a material interest, whether directly or indirectly, subsisted at the end of the financial year or at any time during the reporting year.

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Directors Report

Directors and Chief Executives Interests and Short Positions in the Shares, Underlying Shares and Debentures of the Company or Associated Corporation
As at 31 March 2013, the interests and short positions of the Directors and the chief executives of the Company and their associates in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which have been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or which were recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code set out in Appendix 10 to the Listing Rules were as follows:

2013 3 31 XV XV 7 8 352 10

Long position in shares

Number of shares Personal interests The Company (ordinary shares of HK$1.00 each) Dr. Cheng Kar-Shun, Henry Mr. Wong Siu-Kee, Kent Mr. Cheng Chi-Kong, Adrian Mr. Chan Sai-Cheong Mr. Chan Hiu-Sang, Albert Mr. Cheng Ping-Hei, Hamilton Mr. Suen Chi-Keung, Peter Mr. Koo Tong-Fat International Entertainment Corporation (ordinary shares of HK$1.00 each) Mr. Suen Chi-Keung, Peter Mr. Koo Tong-Fat
Note: (1) These shares are beneficially-owned by a company which is wholly-owned by Mr. Cheng Chi-Kong, Adrian.

Spouse interests

Corporate interests

Total

Approximate % of shareholding

1.00 1.00

1,900,000 12,000 20,000(1) 12,000 12,000 4,800 3,600 12,000

1,900,000 12,000 20,000 12,000 12,000 4,800 3,600 12,000

0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00

4,000 132,000

4,000 6,000

(1)

8,000 138,000

0.00 0.01

70

Substantial Shareholders Interests in Securities

As at 31 March 2013, the interests or short positions of substantial shareholders (as defined in the Listing Rules) in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO were as follows:

336 2013 3 31

Long position in shares

Number of shares Name Cheng Yu Tung Family (Holdings) Limited (1) Cheng Yu Tung Family (Holdings II) Limited Chow Tai Fook Capital Limited
(1) (1)

Beneficial interests

Corporate interests 8,933,937,400 8,933,937,400 8,933,937,400

Approximate % Total of shareholding 8,933,937,400 8,933,937,400 8,933,937,400 8,933,937,400 89.34 89.34 89.34 89.34

Chow Tai Fook (Holding) Limited

Note: (1)

(1)

8,933,937,400

CYT Family Holdings and CYT Family Holdings II each holds approximately 49.0% and 46.7% interest in CTF Capital, respectively, which in turn holds an approximately 74.1% interest in CTF Holding and accordingly each of CYT Family Holdings, CYT Family Holdings II and CTF Capital is respectively deemed to have an interest in the shares of the Company. CTF Holding holds the shares of the Company directly.

(1)

CYT Family Holdings CYT Family Holdings II CTF Capital 49.0% 46.7% CTF Capital CTF Holding 74.1% CYT Family HoldingsCYT Family Holdings II CTF Capital CTF Holding

Chow Tai Fook Annual Report 2013

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Directors Report

Share Option Scheme

A share option scheme (the Scheme) was adopted pursuant to a written resolution of all the then shareholders of the Company passed on 17 November 2011. The purpose of the Scheme is to attract skilled and experienced personnels, to incentivise them to remain with the Group and to motivate them to strive for the future development and expansion of the Group by providing them with the opportunity to acquire equity interests in the Company. The Board may, at its discretion, grant options pursuant to the Scheme to the Directors (including executive Directors, non-executive Directors and independent non-executive Directors), the directors of the Companys subsidiaries and employees of the Group and any other persons (including consultants or advisers) whom the Board considers, in its absolute discretion, have contributed or will contribute to the Group. Total number of shares in respect of which options may be granted pursuant to the Scheme and any other share option schemes of the Company shall not exceed 10% of the shares in issue on the Listing Date, being 1,000,000,000 shares (Scheme Mandate Limit), which represented 10% of the shares as at the date of annual report. The Company may renew the Scheme Mandate Limit with shareholders approval provided that each such renewal may not exceed 10% of the shares in the Company in issue as at the date of the shareholders approval. The maximum number of shares underlying all outstanding options which have been granted and have yet to be exercised pursuant to the Scheme and any other share option schemes of the Company shall not exceed 30% of the shares in issue from time to time. Unless approved by shareholders of the Company in the manner as set out in the Scheme, the maximum number of shares underlying the options granted to each eligible participant (including both exercised and outstanding options) in any 12-month period shall not exceed 1.0% of the shares in issue for the time being. The period during which an option may be exercised by a grantee (the Option Period) shall be the period to be determined and notified by the Board to the grantee at the time of making an offer, which shall not expire later than 10 years from the offer date.

2011 11 17

10% 1,000,000,000 10% 10%

30%

12 1.0%

10

72

Share Option Scheme (Continued)

Subject to any restrictions applicable under the Listing Rules, an option may be exercised in whole or in part by the grantee at any time during the Option Period in accordance with the terms of the Scheme and the terms on which the option was granted. No amount is payable by the grantee upon acceptance of an offer of an option. The exercise price shall be determined by the Board but in any event shall not be less than the higher of: (a) the closing price of the shares as stated in the daily quotations sheets issued by the Stock Exchange on the offer date, which must be a business day; (b) the average closing price of the shares as stated in the daily quotation sheets issued by the Stock Exchange for the five business days immediately preceding the offer date; or (c) the nominal value of the shares. The Scheme will remain in force for a period of 10 years after the date of conditional adoption, i.e. 17 November 2011. During the year, no options have been granted, exercised or cancelled.

(a) (b) (c)

2011 11 17 10

Arrangements to Purchase Shares or Debentures

Save as disclosed under the section headed Directors and Chief Executives Interests and Short Positions in the Shares, Underlying Shares and Debentures of the Company or Associated Corporation and Share Option Scheme, at no time during the year was the Company, any subsidiary or its holding company or any fellow subsidiary, a party to any arrangement to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

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.

Chow Tai Fook Annual Report 2013

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73

Directors Report

Donations
Charitable and other donations made by the Group during the year amounted to approximately HK$1.2 million (FY2012: HK$17.6 million).

1.2 2012 17.6

Remuneration Policy and Pension Scheme

Remuneration policy of the Group is reviewed regularly, making reference to legal framework, market conditions and performance of the Group and individual staff (including the Directors). The remuneration policy and remuneration packages of the executive Directors and member of the senior management of the Group are reviewed by the Remuneration Committee. Particulars of the Groups retirement benefit schemes are set out in note 36 to the consolidated financial statements.

36

Continuing Connected Transactions

The following transactions of the Group constituted non-exempt continuing connected transactions (Continuing Connected Transactions) for the Company during FY2013 under the Listing Rules:

2013

(a) NWDS Master Concessionaire Counter Agreement

On 22 March 2012, the Company entered into a master concessionaire counter agreement (the NWDS Master Concessionaire Counter Agreement) with NWDS from the relevant effective date up to 30 June 2014 (both days inclusive), pursuant to which NWDS agreed to, and to procure its subsidiaries to, provide floor space in the NWDS stores to members of the Group from time to time for exhibiting and selling jewellery during the term of the NWDS Master Concessionaire Counter Agreement. The annual cap approved for the aggregate fees payable and the actual aggregate fees paid by the Group under the continuing connected transactions contemplated under the NWDS Master Concessionaire Counter Agreement for FY2013 were approximately HK$245.0 million and HK$138.9 million, respectively.

(a)
2012 3 22 2014 6 30

2013 245.0 138.9

74

Continuing Connected Transactions (Continued)

(b) Lifestyle International Framework Agreement
On 29 November 2011, the Company entered into a framework agreement with Lifestyle International (the Lifestyle International Framework Agreement) with effect from the Listing Date to 31 March 2014, pursuant to which the Group has entered into various transactions with members of Lifestyle International in relation to concessionaire arrangements in respect of retailing counters for the sales of jewellery and watches at Lifestyle Internationals properties in Hong Kong and the Mainland of China by the Group; and leasing of premises at Lifestyle International groups property in Tianjin. The annual cap approved for the aggregate amount payable and the actual aggregate amount paid by the Group under the continuing connected transactions contemplated under the Lifestyle International Framework Agreement for FY2013 were approximately HK$68.0 million and HK$37.0 million, respectively.

(b)
2011 11 29 2014 3 31

2013 68.0 37.0

(c) NWD Tenancy Framework Agreement

On 28 November 2011, the Company entered into a tenancy framework agreement (the NWD Tenancy Framework Agreement) with NWD with effect from the Listing Date to 31 March 2014, pursuant to which the Group has entered into various tenancy arrangements with members of the NWD group to lease certain premises for the use of offices and retail shops. The annual cap approved for the aggregate rental amount payable and the actual aggregate rental amount paid by the Group under the continuing connected transactions contemplated under the NWD Tenancy Framework Agreement for FY2013 were approximately HK$125.0 million and HK$75.0 million, respectively.

(c)
2011 11 28 2014 3 31 2013 125.0 75.0

(d) CTFE Tenancy Framework Agreement

On 28 November 2011, the Company entered into a tenancy framework agreement (the CTFE Tenancy Framework Agreement) with CTFE with effect from the Listing Date to 31 March 2014, pursuant to which the Group has entered into various tenancy arrangements with members of the CTFE group to lease certain premises for the retail shops, residential, industrial and office use. The annual cap approved for the aggregate rental amount payable by and the actual rental amount paid by the Group under the continuing connected transactions contemplated under the CTFE Tenancy Framework Agreement for FY2013 were approximately HK$97.0 million and HK$93.3 million, respectively.

(d)
2011 11 28 2014 3 31 2013 97.0 93.3

Chow Tai Fook Annual Report 2013

2013

75

Directors Report

Continuing Connected Transactions (Continued)

(e) NWDS Master Sales Agreement
On 22 March 2012, the Company entered into a master sales agreement (the NWDS Master Sales Agreement) with NWDS and NWD effective from 22 March 2012 to 30 June 2014 (both days inclusive), pursuant to which NWDS group allowed the use of the shopping vouchers, the prepaid shopping cards, the joint name vouchers or other means acceptable to the NWDS group as payment of purchases of goods at the NWDS stores and the settlement of the relevant value represented by such shopping vouchers (with the shopping vouchers commissions and rebates), the prepaid shopping cards (with the discounts, where applicable), the joint name vouchers (with the joint name vouchers commissions) or by any other means acceptable to the NWDS group among relevant members of the NWDS group, the NWD group or the Group. The annual cap approved for the aggregate transaction amounts payable and the actual aggregate transaction amounts paid by the Group under the continuing connected transactions contemplated under the NWDS Master Sales Agreement for FY2013 were approximately HK$60.0 million and HK$38.7 million, respectively.

(e)
2012 3 22 2012 3 22 2014 6 30

2013 60.0 38.7

(f) NWCL Master Purchase Agreement

On 19 March 2013, the Company entered into a master purchase agreement (the NWCL Master Purchase Agreement) with NWCL effective from 19 March 2013 to 30 June 2015 (both days inclusive), pursuant to which members of NWCL group will purchase gold products or gift vouchers from the Group and the Group also allows the use of gift vouchers issued by NWCL by NWCLs customers as payment of purchase of goods at the Groups POS and the settlement of the relevant value represented by such NWCL gift vouchers (with the shopping vouchers rebates) among relevant members of the NWCL group and the Group.

(f)

2013 3 19 2013 3 19 2015 6 30 2013 35.8 5.7

The annual cap approved for the aggregate transaction amounts payable and the actual aggregate transaction amounts paid by the Group under the continuing connected transactions contemplated under the NWCL Master Purchase Agreement for FY2013 were approximately HK$35.8 million and HK$5.7 million, respectively.

76

Relationships between Connected Parties

CTF Holding is the holding company of CTFE and a substantial shareholder of the Company. CTFE and the Company are subsidiaries of CTF Holding and therefore CTFE is a connected person of the Company. CTFE is a substantial shareholder of NWD. NWD is a substantial shareholder of NWDS and NWCL and hence a connected person of NWDS. Each of NWD and NWDS is deemed to be an associate of CTF Holding and therefore a connected person of the Company. CTFE is the holding company of Go Create Limited. Go Create Limited is directly interested in 50% of the equity interest in Real Reward Limited, the direct controlling shareholder of Lifestyle International and is directly interested in 6.91% of the equity interest in Lifestyle International. By virtual of CTF Holdings indirect shareholding in Lifestyle International, Lifestyle International is an associate of CTF Holding under the Listing Rules. As CTF Holding is a connected person of the Company, Lifestyle International is therefore a connected person of the Company. Therefore, transactions under (a) to (f) above constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

CTF Holding CTF Holding CTF Holding Go Create Limited Go Create Limited Real Reward Limited 50% Real Reward Limited Go Create Limited 6.91% CTF Holding CTF Holding CTF Holding 14A (a) (f)

Annual Review of the Continuing Connected Transactions

All the Continuing Connected Transactions above have been reviewed by the independent non-executive Directors who have confirmed that for FY2013 the Continuing Connected Transactions have been entered into (i) in the ordinary and usual course of business of the Group; (ii) either on normal commercial terms or on terms no less favourable to the Group than terms available to (or from) independent third parties; and (iii) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. Pursuant to Rule 14A.38 of the Listing Rules, the Company has engaged the auditor of the Company to perform certain review procedures in respect of the Continuing Connected Transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information and with reference to Practice Note 740 Auditors Letter on Continuing Connected Transactions under the Hong Kong Listing Rules issued by the Hong Kong Institute of Certified Public Accountants.

2013 (i) (ii) (iii)

14A.38 3000 740

Chow Tai Fook Annual Report 2013

2013

77

Directors Report

Annual Review of the Continuing Connected Transactions (Continued)

The auditor has reported the review procedures to the Board and confirmed that the Continuing Connected Transactions for FY2013 (i) have received approval of the Board; (ii) are in accordance with the pricing policies of the Group, where applicable; (iii) have been entered into in accordance with the terms of the agreements governing the transactions; and (iv) have not exceeded the respective cap amounts for FY2013 as set out above in respect of each of the Continuing Connected Transactions. The Directors confirm that the Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules. Save as disclosed above, the significant related party transactions that did not constitute connected transactions under the Listing Rules made during the year were disclosed in note 38 to the consolidated financial statements.

2013 (i) (ii) (iii) (iv) 2013

14A 38

Major Customers and Suppliers

During the year, less than 30.0% of the Groups revenue were attributed by the Groups five largest customers and 73% of the Groups total purchases were attributed by the Groups five largest suppliers and 41% of the Groups total purchases were attributed by the Groups largest supplier. To the knowledge of the Directors, none of the Directors or any shareholders who owned 5.0% or more of the issued share capital of the Company as at 31 March 2013 or any of their respective associates held any interest in any of the five largest suppliers of the Group.

30.0% 73% 41% 2013 3 31 5.0%

Sufficiency of Public Float

Based on the information publicly available to the Company and within the knowledge of the Directors as at the date of this annual report, the Directors confirm that the Company has maintained the prescribed public float of 10.7%, which is a lower prescribed percentage of public float requirement accepted at the discretion of the Stock Exchange.

10.7%

78

Proposed amendments to the Articles

The Board proposed to make certain amendments to the Articles in order to bring the Articles in line with the revised requirements of the Listing Rules which came into effect on 1 January 2012 and on 1 April 2012. Accordingly, the Directors proposed to seek the approval of such amendments by the shareholders by way of special resolution at the annual general meeting to be held on 2 September 2013. The major proposed amendments are as follows: 1. to allow the chairman at a general meeting to put procedural and administrative matters to be voted on by a show of hands; to no longer permit a Director to disregard 5% interests in any other company when considering whether the Director has a material interest which would prevent him from forming part of the quorum or voting at Board meeting; and to require a physical Board meeting in lieu of written resolution where a Director or substantial shareholder has a conflict of interest in a matter to be considered by the Board which the Board has determined to be material.

2012 1 1 2012 4 1 2013 9 2

1. 5%

2.

2.

3.

3.

A circular containing, amongst other things, details of the proposed amendments to the Articles and the notice of the annual general meeting will be despatched to the shareholders of the Company on or about 5 July 2013.

2013 7 5

Auditor
The financial statements of the Company have been audited by Deloitte Touche Tohmatsu, who retire and, being eligible, offer themselves for re-appointment. On behalf of the Board

Dr. Cheng Kar-shun, Henry Chairman Hong Kong, 18 June 2013

2013 6 18

Chow Tai Fook Annual Report 2013

2013

79

Independent Auditors Report

Independent Auditors Report

TO THE MEMBERS OF Chow Tai Fook Jewellery Group Limited (incorporated in Cayman Islands with limited liability) We have audited the consolidated financial statements of Chow Tai Fook Jewellery Group Limited (the Company) and its subsidiaries (collectively referred to as the Group) set out on pages 83 to 154, which comprise the consolidated statement of financial position as at 31 March 2013, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

83 154 2013 3 31

Directors Responsibility for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards issued by International Accounting Standards Board and the disclosure requirements of 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.

Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

Chow Tai Fook Annual Report 2013

2013

81

Independent Auditors Report

Auditors Responsibility (Continued)

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation of consolidated financial statements that give a true and fair view 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 entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Group as at 31 March 2013 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

2013 3 31

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 18 June 2013

2013 6 18

82

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2013 2013 3 31

NOTES Revenue Cost of goods sold Gross profit Other income Other gains and losses Selling and distribution costs Administrative expenses Other expenses Finance costs Profit before taxation Taxation Profit for the year Other comprehensive income exchange differences arising on translation share of translation reserve of an associate 8

2013 2013 HK$ million 57,433.9 (41,150.8) 16,283.1 296.2 27.4 (7,444.8) (1,736.2) (1.2) (329.5) 7,095.0 (1,416.6) 5,678.4 59.1 59.1

2012 2012 HK$ million 56,571.1 (40,123.2) 16,447.9 227.2 17.4 (6,319.9) (1,714.6) (129.0) (363.1) 8,165.9 (1,595.0) 6,570.9 352.7 1.5 354.2 6,925.1

9 10

11 12 14

Total comprehensive income for the year Profit for the year attributable to: Shareholders of the Company Non-controlling interests

5,737.5

5,505.3 173.1 5,678.4

6,340.6 230.3 6,570.9

Total comprehensive income attributable to: Shareholders of the Company Non-controlling interests

5,561.9 175.6 5,737.5

6,678.4 246.7 6,925.1 HK68.5 cents

Earnings per share Basic

15

HK55.1 cents

Chow Tai Fook Annual Report 2013

2013

83

Consolidated Statement of Financial Position

At 31 March 2013 2013 3 31

NOTES Non-current assets Property, plant and equipment Prepaid lease payments Deposits paid for acquisition of property, plant and equipment Interest in an associate Interest in a jointly controlled entity Loan receivables Deferred tax assets

2013 2013 HK$ million

2012 2012 HK$ million

17 18

2,155.1 172.1 464.0 14.0 23.0 613.4 3,441.6

1,687.5 95.7 349.7 10.1 13.0 2,156.0

19 20 21 22

Current assets Inventories Trade and other receivables Loan receivables Convertible bonds Derivative financial instruments Pledged bank deposits Bank balances and cash

23 24 21 25 26 27 27

27,314.8 3,972.5 134.9 24.3 25.7 8,304.8 39,777.0

29,694.2 5,323.4 163.8 24.8 47.3 17.0 9,987.8 45,258.3

Current liabilities Trade and other payables Amounts due to non-controlling shareholders of subsidiaries Taxation payable Bank borrowings due within one year Gold loans

28 29 30 31

1,753.8 351.1 472.2 1,000.0 4,835.7 8,412.8

1,838.4 400.3 598.5 5,574.2 5,806.6 14,218.0 31,040.3 33,196.3

Net current assets Total assets less current liabilities Non-current liabilities Retirement benefit obligations Bank borrowings due after one year Deferred tax liabilities

31,364.2 34,805.8

36 30 22

251.3 693.8 945.1

196.9 3,426.4 3,623.3 29,573.0

Net assets

33,860.7

84

NOTE Share capital/paid-in capital Reserves Equity attributable to shareholders of the Company Non-controlling interests 32

2013 2013 HK$ million 10,000.0 22,925.5

2012 2012 HK$ million 10,000.0 18,978.3

32,925.5 935.2 33,860.7

28,978.3 594.7 29,573.0

The consolidated financial statements on pages 83 to 154 were approved and authorised for issue by the Board of Directors on 18 June 2013 and signed on its behalf by:

2013 6 18 83 154

Dr. Cheng Kar-Shun, Henry DIRECTOR

Mr. Wong Siu-Kee, Kent DIRECTOR

Chow Tai Fook Annual Report 2013

2013

85

Consolidated Statement of Changes in Equity

For the year ended 31 March 2013 2013 3 31
Attributable to shareholders of the Company HK$ million

Share capital/ paid-in Share capital premium HK$ million HK$ million (note 32) 32 At 1 April 2011 Exchange differences arising from translation Share of reserve of an associate Profit for the year Total comprehensive income for the year Acquisition of subsidiaries (Note 33) Arising from a group reorganisation Capitalisation issue Issue of shares Transaction costs attributable to issue of shares Capital contributions from non-controlling shareholders of subsidiaries Acquisition of additional interests in subsidiaries Net contributions from Macau jewellery business Transfers Dividends At 31 March 2012 Exchange differences arising from translation Profit for the year 2011 4 1 33 2012 3 31 700.1 (700.1) 8,950.0 1,050.0 10,000.0 10,000.0 (8,950.0) 14,700.0 (251.3) 5,498.7 5,498.7

Statutory Special surplus Translation reserve reserve reserve HK$ million HK$ million HK$ million (note a) (note b) a b 1,451.3 700.1 348.1 2,499.5 2,499.5 397.0 44.4 441.4 71.0 512.4 799.8 336.3 1.5 337.8 1,137.6 56.6 56.6 (5.9) 1,188.3

Retained profits HK$ million

Noncontrolling interests HK$ million

Total HK$ million

7,958.7 6,340.6 6,340.6 (1.1) (347.6) (44.4) (4,505.1) 9,401.1 5,505.3 5,505.3 (8.8) (71.0) (1,600.0) 13,226.6

11,306.9 336.3 1.5 6,340.6 6,678.4 15,750.0 (251.3) (1.1) 0.5 (4,505.1) 28,978.3 56.6 5,505.3 5,561.9 (8.8) (5.9) (1,600.0) 32,925.5

366.0 16.4 230.3 246.7 2.3 25.9 (1.0) (45.2) 594.7 2.5 173.1 175.6 196.9 (0.4) 43.8 41.4 (116.8) 935.2

11,672.9 352.7 1.5 6,570.9 6,925.1 2.3 15,750.0 (251.3) 25.9 (2.1) 0.5 (4,550.3) 29,573.0 59.1 5,678.4 5,737.5 196.9 (0.4) 35.0 41.4 (5.9) (1,716.8) 33,860.7

Total comprehensive income for the year Capital contributions from non-controlling shareholders of subsidiaries Acquisition of additional interests in a subsidiary Partial disposal of a subsidiary without a loss of control Acquisition of subsidiaries (Note 33) 33 Exchange difference released upon deregistration of an associate Transfers Dividends At 31 March 2013 2013 3 31

Notes: (a) Special reserve as at 1 April 2011 represents the accumulated contribution from the Macau jewellery business. Special reserve as at 31 March 2012 and 31 March 2013 represent (i) the accumulated contribution from the Macau jewellery business and (ii) the difference between the nominal value of the shares of various subsidiaries under common control, and cash consideration payable arising from acquisition of these subsidiaries under common control pursuant to the group reorganisation as more fully explained in the section headed History and Corporate Structure of the prospectus of the Company dated 5 December 2011 in connection with the initial listing of the shares of the Company on the Main Board of the Stock Exchange of Hong Kong Limited. As stipulated by the relevant laws and regulations for foreign investment enterprises in the Mainland of China, the Companys subsidiaries in the Mainland of China are required to maintain a statutory surplus reserve fund. Appropriation to such reserve is made out of net profit after taxation as reflected in the statutory financial statements of the subsidiaries in the Mainland of China in accordance with the relevant laws and regulations applicable to enterprises in the Mainland of China. The statutory surplus reserve fund can be used to make up prior year losses, if any, and can be applied in conversion into capital by means of capitalisation issue.

(a) 2011 4 1 2012 3 31 2013 3 31 (i) (ii) 2011 12 5

(b)

(b)

86

Consolidated Statement of Cash Flows

For the year ended 31 March 2013 2013 3 31

NOTE Operating activities Profit before taxation Adjustments for: Interest income Interest expenses Fair value change of gold loans Fair value change of derivative financial instruments Depreciation Amortisation of prepaid lease payments Loss on disposal of property, plant and equipment Goodwill written off Provision for defined benefit obligations Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease (increase) in trade and other receivables Decrease in trade and other payables Defined benefits paid

2013 2013 HK$ million

2012 2012 HK$ million

7,095.0 (107.8) 329.5 (272.3) 47.3 494.7 12.1 2.1 62.0

8,165.9 (88.9) 363.1 345.8 (47.3) 390.5 11.0 4.4 3.3 41.8

7,662.6 2,543.6 1,381.7 (131.0) (7.6) 11,449.3 45.2 (594.9) (869.3)

9,189.6 (12,071.6) (2,147.4) (284.7) (7.5) (5,321.6) 20.4 (436.4) (916.1)

Cash generated from (used in) operations Interest received Income tax paid Hong Kong Profits Tax Enterprise Income Tax in the Mainland of China Net cash from (used in) operating activities Investing activities Interest received Withdrawal of pledged bank deposits Placement of pledged bank deposits Repayment from related companies Purchase of property, plant and equipment Deposits paid for acquisition of property, plant and equipment Payment for acquisition of land use rights Proceeds from disposal of property, plant and equipment Investment in a jointly controlled entity Loan advanced by the Group Repayment of loan to the Group Investment in convertible bonds Net cash outflow from acquisition of subsidiaries Return of investment in an associate Net cash (used in) from investing activities

10,030.3

(6,653.7)

62.6 55.9 (64.6) (826.6) (257.2) (90.3) 19.2 (14.0) (19.0) 37.9 33 (26.5) 10.0

68.5 159.8 (16.8) 1,278.3 (644.6) (222.6) 13.5 (33.7) 8.2 (24.8) (145.4) 36.6

(1,112.6)

477.0
87

Chow Tai Fook Annual Report 2013

2013

Consolidated Statement of Cash Flows

For the year ended 31 March 2013 2013 3 31

2013 2013 HK$ million Financing activities Interest paid Bank borrowings raised Repayment of bank borrowings Advance from related companies Repayment to related companies Capital contribution from non-controlling shareholders of subsidiaries Acquisition of additional interest of subsidiaries Proceeds from partial disposal of subsidiaries without a loss of control Proceeds on issue of shares Transaction costs attributable to issue of shares Dividend paid Gold loans raised Repayment of gold loans Advance from non-controlling shareholders of subsidiaries Repayment to non-controlling shareholders of subsidiaries Net cash (used in) from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year, represented by bank balances and cash (10,622.6) (1,704.9) 8,304.8 9,987.8 21.9

2012 2012 HK$ million

(329.5) 6,161.9 (14,178.4) 196.9 (0.4) 35.0 (1,709.9) 8,360.5 (9,066.2) 131.6 (224.1)

(363.1) 17,156.5 (11,125.0) 4,654.7 (12,487.5) 25.9 (2.1) 15,750.0 (251.3) (4,543.2) 4,717.1 (3,254.5) 223.7 (4.2)

10,497.0

4,320.3

5,604.8 62.7

9,987.8

88

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

1. General
Chow Tai Fook Jewellery Group Limited (the Company) was incorporated as an exempted company in the Cayman Islands with limited liability under the Companies Law of the Cayman Islands on 20 July 2011. Its shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange) since 15 December 2011. Its immediate holding company is Chow Tai Fook (Holding) Limited (CTF Holding), and its ultimate holding company is Chow Tai Fook Capital Limited, both are incorporated in the British Virgin Islands. The Company acts as an investment holding company. The principal activities of the Companys principal subsidiaries are set out in note 39. The address of registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The address of principal place of business is 38/F, New World Tower, 16-18 Queens Road Central, Hong Kong. The consolidated financial statements are presented in Hong Kong dollars (HK$), which is the same as the functional currency of the Company.

1.

2011 7 20 2011 12 15 Chow Tai Fook (Holding) Limited CTF Holding Chow Tai Fook Capital Limited 39 Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands 1618 38

2. Group Reorganisation and Basis of Preparation of Consolidated Financial Statements

Through a group reorganisation to rationalise the structure of the Company and its subsidiaries (hereinafter collectively referred to as the Group) in preparation for the listing of the Companys shares on the Stock Exchange (the Group Reorganisation), the Company has become the holding company of the Group on 30 September 2011. As part of the Group Reorganisation, companies comprising the Group were restructured into four principal subsidiaries as below: (a) Majestic Project Limited (Majestic) all of the subsidiaries held directly or indirectly by Majestic are mainly involved in the procurement and manufacturing aspect of the business; Chow Tai Fook Jewellery Company Limited (CTF Jewellery) most of the subsidiaries held directly or indirectly by CTF Jewellery are involved in jewellery business in the Mainland of China, Hong Kong and Taiwan; CTF Watch Limited (CTF Watch) all of the subsidiaries held directly or indirectly by CTF Watch are involved in watch business; and Sincere Elite Limited (Sincere Elite) most of the subsidiaries held directly or indirectly by Sincere Elite are involved in jewellery business in the Mainland of China and Macau.

2.

2011 9 30

(a)

(b)

(b)

(c)

(c)

(d)

(d)

Chow Tai Fook Annual Report 2013

2013

89

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

2. Group Reorganisation and Basis of Preparation of Consolidated Financial Statements (Continued)

The Group resulting from the Group Reorganisation is regarded as a continuing entity. Accordingly, the consolidated statement of comprehensive income and the consolidated statement of cash flows which includes the results and cash flows of the companies now comprising the Group including its Macau jewellery business (the Macau Jewellery Business) (which was held by a fellow subsidiary that conducted jewellery business for the Group in Macau and other business in Macau which did not form part of, nor relevant to, the Groups jewellery business, and transferred to a subsidiary of the Company as mentioned below) have been prepared by applying the principles of merger accounting as if the current group structure had been in existence throughout the year ended 31 March 2012 or since their respective dates of incorporation/establishment/acquisition where this is a shorter period. The consolidated statement of financial position of the Group as at 31 March 2011 has been prepared to present the assets and liabilities of the companies now comprising the Group as if the current group structure had been in existence as at that date. On 27 September 2011, Chow Tai Fook Jewellery and Watch Company (Macau) Limited (formerly known as Forever Watch Limited, (CTF Macau)) took up the operations of the Macau Jewellery Business. Although the Macau Jewellery Business has not yet been formally transferred to the Group before 27 September 2011, it has been included in the consolidated financial statements as the directors of the Company consider that the historical financial statements of the Group should include all relevant activities that have been a part of the history of the Group. Accordingly, the consolidated financial statements reflect all of the Groups activities in jewellery business, including the Macau Jewellery Business for the period before 27 September 2011. The consolidated financial statements were prepared based on audited financial statements or management accounts of companies now comprising the Group, including financial information of Macau Jewellery Business which was prepared based on the items of assets, liabilities, income and expenses, other than certain insignificant central administrative expenses, that are related to and specifically identified for the Macau Jewellery Business. Also, the treasury and cash disbursement functions of the Macau Jewellery Business are centrally administrated by the above-mentioned fellow subsidiary. The change of the net assets of the Macau Jewellery Business is shown as movements in the special reserve. The directors of the Company believe that the method of segregation and allocation presents a reasonable basis of estimating what the operating results and financial position of the Macau Jewellery Business would have been on a standalone basis for the period up to 27 September 2011.

2.

2012 3 31 2011 3 31

2011 9 27 2011 9 27 2011 9 27

2011 9 27

90

3. Application of New and Revised International Financial Reporting Standards (Ifrss)

In the current year, the Group has applied the following new and revised IFRSs issued by the International Accounting Standards Board (IASB). Amendments to IAS 12 Deferred tax: Recovery of underlying asset Financial instruments: Disclosures Transfers of financial assets

3.

12 7

Amendments to IFRS 7

The application of the amendments to IFRSs in the current year has had no material impact on the Groups financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

New and revised IFRSs issued but not yet effective

The Group has not early applied the following new and revised IFRSs that have been issued but are not yet effective: Amendments to IFRSs Annual improvements to IFRSs 20092011 cycle1 Disclosures Offsetting financial assets and financial liabilities1 Mandatory effective date of IFRS 9 and transition disclosures3 Consolidated financial statements, joint arrangements and disclosure of interests in other entities: Transition guidance1 Investment entities2

2009 2011 1 7 1 7 9 9 3 10 11 12 1 10 12 27 9 10 11 12 13 19 2011 27 2011 28 2011 1 32 36 20 21
1 2 3 4

Amendments to IFRS 7 Amendments to IFRS 7 and IFRS 9 Amendments to IFRS 10, IFRS 11 and IFRS 12

Amendments to IFRS 10, IFRS 12 and IAS 27 IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 19 (as revised in 2011)

Financial instruments3 Consolidated financial statements1 Joint arrangements1 Disclosure of interests in other entities1 Fair value measurement1 Employee benefits1

3 1 1 1 1 1 1 1 4 2 2 1 2

IAS 27 (as revised in 2011) Separate financial statements1 IAS 28 (as revised in 2011) Investments in associates and joint ventures1 Amendments to IAS 1 Presentation of items of other comprehensive income4 Amendments to IAS 32 Offsetting financial assets and financial liabilities2 Amendments to IAS 36 Recoverable amount disclosures for non-financial assets2 IFRIC 20 Stripping costs in the production phase of a surface mine1 IFRIC 21 Levies2
3 4
1 2

Effective for annual periods beginning on or after 1 January 2013. Effective for annual periods beginning on or after 1 January 2014. Effective for annual periods beginning on or after 1 January 2015. Effective for annual periods beginning on or after 1 July 2012.

2013 1 1 2014 1 1 2015 1 1 2012 7 1

Chow Tai Fook Annual Report 2013

2013

91

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

3. Application of New and Revised International Financial Reporting Standards (Ifrss)

(Continued)

3.

IFRS 9 Financial instruments

IFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 amended in 2010 includes the requirements for the classification and measurement of financial liabilities and for derecognition. Key requirements of IFRS 9 are described as follows: IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 Financial instruments: Recognition and measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent reporting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss. With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liabilitys credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in profit or loss.

9
2009 9 2010 9 9 9 39 9

9 39

IFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted. The directors of the Company anticipate that the adoption of IFRS 9 in the future may have impact on amounts reported in respect of the Groups financial assets and financial liabilities. The directors of the Company are in the process of assessing the impact on application of IFRS 9.

9 2015 1 1 9 9

92

3. Application of New and Revised International Financial Reporting Standards (Ifrss)

(Continued)

3.

New and revised standards on consolidation, joint arrangements, associates and disclosures
In June 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27 (as revised in 2011) and IAS 28 (as revised in 2011).

2011 6 10 11 12 27 2011 28 2011 10 27 12 10 10 10 (a) (b) (c) 10 11 31 11 13 11 11 31 11 31 12 12 2012710 11 12 2013 1 1

Key requirements of these five standards are described below. IFRS 10 replaces the parts of IAS 27 Consolidated and separate financial statements that deal with consolidated financial statements. SIC 12 Consolidation Special purpose entities will be withdrawn upon the effective date of IFRS 10. Under IFRS 10, there is only one basis for consolidation, that is, control. In addition, IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investors returns. Extensive guidance has been added in IFRS 10 to deal with complex scenarios.

IFRS 11 replaces IAS 31 Interests in joint ventures. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. SIC 13 Jointly controlled entities Nonmonetary contributions by venturers will be withdrawn upon the effective date of IFRS 11. Under IFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under IAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations. In addition, joint ventures under IFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under IAS 31 can be accounted for using the equity method of accounting or proportionate consolidation.

IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than those in the current standards. In July 2012, the amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the application of these five IFRSs for the first time.

These five standards, together with the amendments relating to the transitional guidance, are effective for annual periods beginning on or after 1 January 2013 with earlier application permitted provided that all of these standards are applied at the same time. The directors of the Company anticipate that these standards will be adopted in the Groups consolidated financial statements for the annual period beginning 1 April 2013, and considered these standards have no significant impact to the Group except for IFRS 12 which will result in more extensive disclosures.

2013 4 1 12
Chow Tai Fook Annual Report 2013
2013

93

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

3. Application of New and Revised International Financial Reporting Standards (Ifrss)

(Continued)

3.

IFRS 13 Fair value measurement

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The scope of IFRS 13 is broad; it applies to both financial instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in IFRS 13 are more extensive than those in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only under IFRS 7 Financial instruments: Disclosures will be extended by IFRS 13 to cover all assets and liabilities within its scope. IFRS 13 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted. The directors of the Company anticipate that IFRS 13 will be adopted in the Groups consolidated financial statements for the annual period beginning 1 April 2013, and considered the application of IFRS 13 may result in more extensive disclosures.

13
13 13 13 7 13

13 2013 1 1 13 2013 4 1 13

Amendments to IAS 1 Presentation of items of other comprehensive income

The amendments to IAS 1 Presentation of items of other comprehensive income introduce new terminology for the statement of comprehensive income and income statement. Under the amendments to IAS 1, a statement of comprehensive income is renamed as a statement of profit or loss and other comprehensive income. The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis the amendments do not change the option to present items of other comprehensive income either before tax or net of tax. The amendments to IAS 1 are effective for annual periods beginning on or after 1 July 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in the future accounting periods.

1
1 1 1 1 (a) (b)

1 2012 7 1

94

3. Application of New and Revised International Financial Reporting Standards (Ifrss)

(Continued)

3.

IAS 19 (as revised in 2011) Employee benefits

The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the corridor approach permitted under the previous version of IAS 19. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. The amendments to IAS 19 are effective for annual periods beginning on or after 1 January 2013 and require retrospective application. The directors of the Company anticipate that the amendments to IAS 19 will be adopted in the Groups consolidated financial statements for the annual period beginning 1 April 2013 and that the application of the amendments to IAS 19 may have impact on amounts reported in respect of the Groups defined benefit plans. However, the directors of the Company have not yet performed a detailed analysis of the impact of the application of the amendments and hence have not yet quantified the extent of the impact. Except for the above disclosed, the directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group and the Company.

19 2011
19 19

19 2013 1 1 19 2013 4 1 19

4. Significant Accounting Policies

The consolidated financial statements have been prepared under the historical cost basis, except for certain financial instruments, which are measured at fair values, and in accordance with the IFRSs. In addition, the consolidated financial statements includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance. The principal accounting policies adopted are as follows:

4.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Chow Tai Fook Annual Report 2013

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95

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Basis of consolidation (Continued)
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests in subsidiaries are presented separately from the Groups equity therein.

4.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the shareholders of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Groups ownership interests in existing subsidiaries

Changes in the Groups ownership interest in existing subsidiaries that do not result in the Group losing control over the subsidiary are accounted for as equity transactions. The carrying amounts of the Groups interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to shareholders of the Company.

Business combination under common control

The consolidated financial statements incorporate the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book values from the controlling partys perspective. No amount is recognised in respect of goodwill or excess of acquirers interest in the net fair value of acquirees identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling partys interest. The consolidated statements of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities first came under the common control combination, where there is a shorter period, regardless of the date of the common control combination.

96

4. Significant Accounting Policies (Continued)

Interest in an associate
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of the associate are incorporated in these consolidated financial statements using the equity method of accounting. The financial statements of the associate used for equity accounting purposes are prepared using uniform accounting policies as those of the Group for like transactions and events in similar circumstances. Under the equity method, investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Groups share of the profit or loss and other comprehensive income of the associate. When the Groups share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interest that, in substance, form part of the Groups net investment in that associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate. Any excess of the Groups share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Groups investment in an associate. When necessary, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 Impairment of assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. Upon disposal of an associate that results in the Group losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with IAS 39. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that associate. Where a group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

4.

39 36 36

39

Chow Tai Fook Annual Report 2013
2013

97

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Jointly controlled entity
Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities. The results and assets and liabilities of a jointly controlled entity are incorporated in the consolidated financial statements using the equity method of accounting. The financial statements of jointly controlled entity used for equity accounting purposes are prepared using uniform accounting policies as those of the Group for like transactions and events in similar circumstances. Under the equity method, investment in a jointly controlled entity is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Groups share of the profit or loss and other comprehensive income of the jointly controlled entity. When the Groups share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any longterm interests that, in substance, form part of the Groups net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Groups investment in a jointly controlled entity. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with its jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Group consolidated financial statements only to the extent of interests in the jointly controlled entity that are not related to the Group.

4.

39 36 36

98

4. Significant Accounting Policies (Continued)

Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business and net of discounts. Sales of goods are recognised when goods are delivered and title has passed. Service income is recognised when services are provided. Sales of goods that result in award credits for customers, under the Groups customer loyalty program, are accounted for as multiple element revenue transactions and the fair value of the consideration received or receivable is allocated between the goods supplied and the award credits granted. The consideration allocated to the award credits is measured by reference to the fair value of the awards for which they could be redeemed. Such consideration is not recognised as revenue at the time of the initial sale transaction but is deferred and recognised as revenue when the award credits are redeemed and the Groups obligations have been fulfilled. Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount on initial recognition.

4.

Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction in progress) are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any. For land and buildings where the cost of land cannot be reliably allocated between the land and buildings elements, the cost of land and buildings are depreciated and amortised on a straight-line basis over the lease terms or 20 years, whichever is the shorter. Depreciation is recognised so as to write off the cost of other property, plant and equipment, other than construction in progress and land and buildings, less their residual values over their estimated useful lives, using the straight-line method, at the following rates per annum: Plant and machinery Furniture, fixtures and equipment Leasehold improvements Motor vehicles 10% 20%331/3% Over the lease term, or 20%, whichever is the shorter 25%

20

10% 20331/3% 20% 25%

Chow Tai Fook Annual Report 2013

2013

99

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Property, plant and equipment (Continued)
The estimated useful lives, residual values and depreciation method are reviewed at the end of the reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Construction in progress is carried at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Groups accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

4.

Prepaid lease payments

When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land elements and building element of the lease at the inception of the lease. To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as prepaid lease payments in the consolidated financial statements and is amortised over the lease term on a straight-line basis. Prepaid lease payments which are to be amortised in the next twelve months or less are classified as current assets. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment.

12

Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit and loss in the period in which they are incurred.
100

4. Significant Accounting Policies (Continued)

Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using specific identification basis for gem-set jewellery and watches; and weighted average for other inventories.

4.

Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets
The Groups financial assets are mainly loans and receivables and financial assets at fair value through profit or loss (FVTPL). The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial assets, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis for debt instruments. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, loan receivables, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment loss on financial assets.

Chow Tai Fook Annual Report 2013

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101

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Financial instruments (Continued)
Financial assets (Continued)
Financial assets at fair value through profit or loss A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

4.

39

Financial assets at FVTPL (including convertible bonds and derivative financial instruments) are measured at fair value, with changes in fair value arising from remeasurement recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets.

Impairment of financial assets

Loans and receivables are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the financial assets have been affected. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or breach of contract, such as default or delinquency in interest and principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Groups past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables.

102

4. Significant Accounting Policies (Continued)

Financial instruments (Continued)
Impairment of financial assets (Continued) For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the assets carrying amount and the present value of the estimated future cash flows discounted at the financial assets original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss. If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date of the impairment loss is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

4.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimate future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis.

Chow Tai Fook Annual Report 2013

2013

103

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Financial instruments (Continued)
Financial liabilities and equity instruments (Continued) Financial liabilities Financial liabilities including trade and other payables, amounts due to non-controlling shareholders of subsidiaries and bank borrowings are subsequently measured at amortised cost, using the effective interest method.
Financial liabilities at fair value through profit or loss including gold loans are measured at fair value, which changes in fair value arising on remeasurement are recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss excludes any interest paid on the financial liabilities. Derivative financial instruments Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately.

4.

Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset in its entirety, the difference between the assets carrying amount and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. The Group derecognises financial liabilities when, and only when, the Groups obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment
At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

104

4. Significant Accounting Policies (Continued)

Impairment (Continued)
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

4.

Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxation as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income or expense items that are never taxable or deductible. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Chow Tai Fook Annual Report 2013

2013

105

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Taxation (Continued)
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, an associate and a joint venture, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax are recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

4.

Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

106

4. Significant Accounting Policies (Continued)

Foreign currencies (Continued)
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Groups foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rate prevailing at the end of each reporting period. Income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under translation reserve (attributable to non-controlling interests as appropriate). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of. In relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to noncontrolling interests and are not recognised in profit or loss.

4.

Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognised as an expense on a straightline basis over the term. Contingent rentals and concessionaire fees arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis.

Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Chow Tai Fook Annual Report 2013

2013

107

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

4. Significant Accounting Policies (Continued)

Retirement benefits costs
Payments to retirement benefits plans and government-managed retirement benefits schemes are recognised as an expense when employees have rendered service entitling them to the contributions. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of the reporting period. All actuarial gains and losses of defined benefit plans are recognised immediately in profit or loss in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested. The retirement benefit obligation recognised in the consolidated statement of financial position represents the present value of the defined benefit obligation.

4.

5. Capital Risk Management

The Group manages its capital to ensure that the group entities will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of bank borrowings, gold loans and equity attributable to shareholders of the Company, comprising share capital, reserves and retained profits as disclosed in the consolidated financial statements. The management of the Group reviews the capital structure regularly. The Group considers the cost of capital and the risks associated with each class of capital, and will balance its overall capital structure through the payment of dividends, new share issues as well as the raising of bank borrowings and gold loans.

5.

6. Key Sources of Estimation Uncertainty

In the application of the Groups accounting policies, which are described in note 4, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

6.

108

6. Key Sources of Estimation Uncertainty (Continued)

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

6.

Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value of inventories is based on estimated selling prices less any estimation costs to be incurred to completion and disposal. These estimates are based on the current market condition and the historical experience in selling goods of similar nature. It could change significantly as a result of changes in market conditions. The Group will reassess the estimation at the end of each reporting period. As at 31 March 2013, the carrying amount of inventories is HK$27,314.8 million (2012: HK$29,694.2 million).

2013 3 31 27,314.8 2012 29,694.2

Useful lives, residual value and impairment of property, plant and equipment
The Groups management determines the estimated useful lives, residual value and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives and residual value of property, plant and equipment of similar nature and functions. Management will increase the depreciation charge where useful lives or residual value are expected to be shorter or lower than estimated, or it will write-off or write-down obsolete assets that have been abandoned or sold. Changes in these estimations may have a material impact on the results of the Group, which would be recognised in profit or loss in the year when such change occurs. As at 31 March 2013, the carrying amount of property, plant and equipment is HK$2,155.1 million (2012: HK$1,687.5 million).

2013 3 31 2,155.1 2012 1,687.5

Deferred taxation in respect of temporary differences attributable to the undistributed profits of subsidiaries in the Mainland of China
In prior years, deferred tax has not been provided for in the consolidated financial statements in respect of temporary differences attributable to retained profits of subsidiaries in the Mainland of China amounting to HK$10,651.9 million as the Group was able to control the timing of the reversal of the temporary differences and the management considered that it was probable that the temporary differences will not reverse in the foreseeable future. In the current year, the management has reassessed the Groups expansion plans and funding requirements and revised the dividend distribution plan of the subsidiaries in the Mainland of China. Based on the new dividend distribution plan, retained profits as at 31 March 2013 amounting to HK$6,513.8 million (2012: nil) will be distributed as dividend in the foreseeable future, while the remaining retained profits amounting to HK$6,513.8 million (2012: HK$10,651.9 million) has been set aside for reinvestment and will not be distributed in the foreseeable future. Future change in the dividend distribution plan may have a material impact on the amount of deferred taxation being recognised. As at 31 March 2013, deferred taxation relating to taxable temporary differences recognised and not recognised are HK$651.3 million (2012: nil) and HK$651.3 million (2012: HK$1,065.2 million) respectively.

10,651.9 2013 3 31 6,513.8 2012 6,513.8 2012 10,651.9 2013 3 31 651.3 2012 651.3 20121,065.2

Chow Tai Fook Annual Report 2013

2013

109

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

7. Financial Instruments
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial assets and financial liabilities are disclosed in note 3.

7.

Categories of financial instruments

2013 2013 HK$ million 2012 2012 HK$ million

Financial assets Loans and receivables (including cash and cash equivalents) Financial assets at fair value through profit or loss: Convertible bonds Derivative financial instruments

11,643.9

14,386.0

24.3 11,668.2

24.8 47.3 14,458.1

Financial liabilities Amortised cost Gold loans at fair value through profit or loss

1,796.4 4,835.7 6,632.1

9,971.0 5,806.6 15,777.6

Financial risk management objectives and policies

The Groups major financial instruments include trade and other receivables, loan receivables, convertible bonds, derivative financial instruments, pledged bank deposits, bank balances and cash, trade and other payables, amounts due to non-controlling shareholders of subsidiaries, bank borrowings and gold loans. Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include market risk (interest rate risk, currency risk and commodity price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

110

7. Financial Instruments (Continued)

Financial risk management objectives and policies
(Continued)

7.

Market risk
Interest rate risk The Group is exposed to fair value interest rate risk in relation to fixed-rate loan receivables and gold loans. The Group currently does not have any instruments to hedge against the fair value interest rate risk. Also, the Group is exposed to cash flow interest rate risk through the impact of rate changes on interest bearing financial assets and liabilities, mainly interest bearing pledged bank deposits, certain trade receivables, bank balances and bank borrowings at variable interest rates. The Group currently does not have an interest rate hedging policy. However, the management will consider hedging significant interest rate risk should the need arise. In the opinion of the directors of the Company, the cash flow interest rate risk is considered insignificant and therefore no sensitivity analysis is presented. Currency risk Certain group entities have foreign currency sales, which expose the Group to foreign currency risk. During the year ended 31 March 2013, about 0.7% (2012: 0.7%) of the Groups sales are denominated in currency other than the functional currency of the group entities. During the year ended 31 March 2013, about 1.4% (2012: 4.9%) of the Groups purchases, are denominated in currencies other than the functional currency of the group entities making the purchase. The carrying amounts of relevant group entities foreign currency denominated monetary assets and liabilities other than their functional currency are disclosed in respective notes. In addition, certain group entities also have intra-group advances which are denominated in currencies other than that respective functional currency. The Group mainly exposes to currency of United States dollars (US$) and Renminbi (RMB), which are arising from relevant group entities foreign currency denominated monetary assets and liabilities for the Groups operating activities. The Group currently does not have a foreign currency hedging policy to eliminate the currency exposures. However, the management monitors the related foreign currency exposure closely and will consider hedging significant foreign currency exposures should the need arise. No sensitivity analysis has been presented as the Groups exposure to currency risk is not significant.

2013 3 31 0.7% 2012 0.7% 2013 3 31 1.4% 2012 4.9%

Chow Tai Fook Annual Report 2013

2013

111

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

7. Financial Instruments (Continued)

Financial risk management objectives and policies
(Continued)

7.

Market risk (Continued) Commodity price risk The Group is engaged in the sales of jewellery includes gold products. The gold market is influenced by global as well as regional supply and demand conditions. A significant decline in prices of gold could adversely affect the Groups financial performance. In order to reduce the commodity price risk, the Group uses gold loans as well as derivative financial instruments, such as bullion forward contracts to reduce its exposure to fluctuations in the gold price on gold inventory. The derivative contracts are settled at maturity which usually in 3 months from date of inception and any fair value change is immediately recognised in profit or loss.
As at 31 March 2013, if the market price of gold had been higher or lower by 10%, the potential effect on gold loans (2012: gold loans and derivative financial instruments) and the resulting impact on profit after taxation for the year would decrease or increase approximately by HK$436.8 million (2012: HK$598.5 million).

2013 3 31 10% 2012 436.8 2012 598.5

Credit risk
The Groups maximum exposure to credit risk in the event of the counterparties failure to perform their obligations at the end of the reporting period in relation to each class of recognised financial assets is the carrying amount of those assets stated in the consolidated statements of financial position. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Groups credit risk is significantly reduced. The Group has no significant concentration of credit risk in trade receivables, with exposure spread over a number of counterparties. The Group, however, has concentration of credit risk in relation to loan receivables from one borrower amounted to HK$130.0 million at 31 March 2013 (2012: HK$130.0 million) which accounted for 82% (2012: 74%) of the Groups loan receivables. At 31 March 2013 and 31 March 2012, such loan receivables are secured over certain properties in Hong Kong and the directors of the Company consider that the market values of these properties are in excess of the carrying amount of respective loan receivables at the end of the reporting period. The Group has the right to collect the secured properties upon default by the borrower. In order to minimise the credit risk, the management has reviewed the recoverable amounts of the loan receivables regularly to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Groups credit risk on loan receivables is significantly reduced. The credit risk on pledged bank deposits and bank balances is minimal as such amounts are placed in banks with good reputation.

2013 3 31 130.0 2012 130.0 82% 2012 74% 2013 3 31 2012 3 31

112

7. Financial Instruments (Continued)

Financial risk management objectives and policies
(Continued)

7.

Liquidity risk
The management of the Group has built an appropriate liquidity risk management framework for the management of the Groups short and medium-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining banking facilities and by continuously monitoring forecasted and actual cash flows and the maturity profiles of its financial liabilities. The following table details the Groups remaining contractual maturity for its financial liabilities. The table has been drawn up to reflect the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.
Weighted average interest rate % On demand or less than 3 months 3 HK$ million

3 months to 1 year 31 HK$ million

1 to 2 years 12 HK$ million

Total undiscounted cash flows HK$ million

Carrying amount HK$ million

Financial liabilities At 31 March 2013 Trade and other payables Amounts due to non-controlling shareholders of subsidiaries Bank borrowings Gold loans

2013 3 31

1.1 2.0

445.3 351.1 1,001.6 2,236.1 4,034.1

2,642.0 2,642.0

445.3 351.1 1,001.6 4,878.1 6,676.1

445.3 351.1 1,000.0 4,835.7 6,632.1

Financial liabilities At 31 March 2012 Trade and other payables Amounts due to non-controlling shareholders of subsidiaries Bank borrowings Gold loans

2012 3 31

4.0 2.5

570.1 400.3 1,604.3 3,480.8 6,055.5

4,227.0 2,385.7 6,612.7

3,479.5 3,479.5

570.1 400.3 9,310.8 5,866.5 16,147.7

570.1 400.3 9,000.6 5,806.6 15,777.6

Notes: (i) The amounts included in above for variable rate bank borrowings are subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period. The amounts of gold loans are determined based on the gold price as at the end of the reporting period.

(i)

(ii)

(ii)

Chow Tai Fook Annual Report 2013

2013

113

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

7. Financial Instruments (Continued)

Fair value of financial instruments
The fair value of financial assets and financial liabilities are determined as follows: the fair value of financial liabilities with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market bid prices; and the fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

7.

The following table provides an analysis of convertible bonds, gold loans and bullion forward contracts that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1 1 HK$ million At 31 March 2013 Convertible bonds Gold loans 2013331

1 3

Level 2 2 HK$ million

Level 3 3 HK$ million

Total HK$ million

4,835.7

24.3

24.3 4,835.7

At 31 March 2012 2012331 Convertible bonds Derivative financial instruments Gold loans
Notes:

5,806.6

47.3

24.8

24.8 47.3 5,806.6

Level 1 fair value measurements are those derived from quoted prices in active market for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

1 2 1 3

The fair value of convertible bonds is determined based on Level 3 measurement. No significant movement of such convertible bonds since the date of inception.

114

8. Revenue and Segment Information

Revenue represents the net amounts received and receivable for goods sold less returns and net of trade discounts. Information reported to the chief operating decision maker (the CODM) which comprises executive directors of the Company, for the purposes of resource allocation and assessment of segment performance focuses on the locations of the operations. In addition, revenue from retail and wholesale markets are reviewed by CODM. This is also the basis upon which the Group is arranged and organised. The Groups operating and reportable segments under IFRS 8 are operations located in the Groups places of domicile in the Mainland of China, and Hong Kong, Macau and other Asian markets. The revenue generated by each of the operating segments is mainly derived from sales of jewellery products and watches. No operating segments identified by the CODM have been aggregated in arriving at the reportable segments of the Group.

8.

(a) An analysis of the Groups revenue and results by reportable segment

For the year ended 31 March 2013

(a)
2013 3 31

Hong Kong, The Macau and Mainland other Asian of China markets Subtotal Elimination Total HK$ million HK$ million HK$ million HK$ million HK$ million Revenue External sales Retail Wholesale# #

24,262.7 6,045.7 30,308.4 594.8 30,903.2

26,041.7 1,083.8 27,125.5 1,645.5 28,771.0 3,679.5

50,304.4 7,129.5 57,433.9 2,240.3 59,674.2 7,348.0

(2,240.3) (2,240.3) (31.3)

50,304.4 7,129.5 57,433.9 57,433.9 7,316.7 107.8 (329.5) 7,095.0

Inter-segment sales*

Segment profit Interest income Finance costs Profit before taxation

*
#

3,668.5

Inter-segment sales are charged at a price mutually agreed by both parties. Wholesale mainly represents sales to franchisees.

*
#

Chow Tai Fook Annual Report 2013

2013

115

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

8. Revenue and Segment Information (Continued)

(a) An analysis of the Groups revenue and results by reportable segment (Continued)
For the year ended 31 March 2012

8.

(a)
2012 3 31

Hong Kong, Macau and other Asian markets HK$ million HK$ million The Mainland of China Revenue External sales Retail Wholesale# #

Subtotal

Elimination

Total

HK$ million

HK$ million

HK$ million

23,266.3 8,750.1 32,016.4 240.1 32,256.5

23,976.3 578.4 24,554.7 4,398.3 28,953.0 3,851.8

47,242.6 9,328.5 56,571.1 4,638.4 61,209.5 8,456.8

(4,638.4) (4,638.4) (16.7)

47,242.6 9,328.5 56,571.1 56,571.1 8,440.1 88.9 (363.1) 8,165.9

Inter-segment sales*

Segment profit Interest income Finance costs Profit before taxation

4,605.0

The accounting policies of the reportable segments are the same as the Groups accounting policies described in note 4. Segment profit represents the profit generated from each segment without allocation of interest income and finance costs. This is the measure reported to the CODM for the purposes of resource allocation and performance assessment.
*
#

Inter-segment sales are charged at a price mutually agreed by both parties. Wholesale mainly represents sales to franchisees.

*
#

116

8. Revenue and Segment Information (Continued)

(b) Other segment information
Amounts included in the measure of segment profit or loss: For the year ended 31 March 2013

8.

(b)
2013 3 31 Hong Kong, Macau and other Asian markets HK$ million

The Mainland of China HK$ million Operating lease payments in respect of rented premises Concessionaire fees Staff costs For the year ended 31 March 2012 184.4 2,081.6 1,750.6

Total HK$ million

830.8 28.1 1,500.2 2012 3 31 Hong Kong, Macau and other Asian markets HK$ million

1,015.2 2,109.7 3,250.8

The Mainland of China HK$ million Operating lease payments in respect of rented premises Concessionaire fees Staff costs 125.8 2,171.3 1,758.1

Total HK$ million

547.0 22.6 1,372.7

672.8 2,193.9 3,130.8

Chow Tai Fook Annual Report 2013

2013

117

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

8. Revenue and Segment Information (Continued)

(c) Analysis of the Groups property, plant and equipment and inventories by geographical location:
At 31 March 2013

8.

(c)
2013 3 31 Hong Kong, Macau and other Asian markets HK$ million 299.3 15,521.3 2012 3 31 Hong Kong, Macau and other Asian markets HK$ million 178.4 16,676.5

The Mainland of China HK$ million Property, plant and equipment Inventories At 31 March 2012 1,855.8 11,793.5

Total HK$ million 2,155.1 27,314.8

The Mainland of China HK$ million Property, plant and equipment Inventories 1,509.1 13,017.7

Total HK$ million 1,687.5 29,694.2

Segment assets and liabilities

Except for the above, no other assets and liabilities are included in the measures of the Groups segment reporting that are reviewed by the CODM. Accordingly, no segment assets and liabilities are presented.

118

8. Revenue and Segment Information (Continued)

(d) An analysis of the Groups revenue by products is as follows:

8.

(d)
2013 2013 HK$ million 2012 2012 HK$ million

Sales of Gem-set jewellery Gold product Platinum/karat gold product Watch

13,164.8 32,954.6 8,339.0 2,975.5 57,433.9

15,378.1 29,742.1 7,813.4 3,637.5 56,571.1

No individual customer contributed over 10% of the total revenue of the Group in the respective years. The Groups non-current assets, excluding financial instruments, interest in an associate, interest in a jointly controlled entity and deferred tax assets, by geographical areas are as follows:

10% 2013 2013 HK$ million 2012 2012 HK$ million 1,954.5 178.4 2,132.9

The Mainland of China Hong Kong, Macau and other Asian markets

2,491.9 299.3 2,791.2

Chow Tai Fook Annual Report 2013

2013

119

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

9. Other Income

9.

2013 2013 HK$ million 2012 2012 HK$ million

Interest income from banks amounts due from related companies loan receivables trade receivables Franchise income Government grants Gain on scrap sales Others

58.0 4.6 45.2 102.8 17.9 46.5 21.2 296.2

37.7 24.9 5.9 20.4 64.1 13.4 54.6 6.2 227.2

10. Other Gains and Losses

10.
2013 2013 HK$ million 2012 2012 HK$ million

Loss on disposal of property, plant and equipment Net foreign exchange gain Others

(2.1) 35.8 (6.3) 27.4 (4.4) 23.7 (1.9) 17.4

11. Finance Costs

11.
2013 2013 HK$ million 2012 2012 HK$ million

Interest on borrowings wholly repayable within five years bank loans gold loans amounts due to related companies

173.6 155.9 329.5 247.9 107.3 7.9 363.1

120

12. Profit before Taxation

12.
2013 2013 HK$ million 2012 2012 HK$ million

Profit before taxation has been arrived at after charging (crediting):

Directors remuneration (note 13) 13 Staffs retirement benefits scheme contributions Staff costs

57.3 484.7 2,708.8 3,250.8

90.2 311.7 2,728.9 3,130.8 11.0 5.1 10.1 2,193.9 39,080.3 390.5 17.6

Amortisation of prepaid lease payments Auditors remuneration audit related services non-audit services Concessionaire fees Cost of inventories recognised as expenses Depreciation Donations (included in other expenses) Fair value (gain) loss on gold loans (included in cost of goods sold), including unrealised fair value gain of HK$230.4 million (2012: HK$0.7 million) Fair value (gain) loss on bullion forward contracts (included in cost of goods sold), including unrealised fair value gain of nil (2012: HK$47.3 million) Operating lease rentals in respect of rented premises Professional expenses attributable to issue of shares (included in other expenses)

230.4 2012 0.7 2012 47.3

12.1 9.3 1.1 2,109.7 40,722.1 494.7 1.2

(272.3)

345.8

(4.1) 1,015.2

174.8 672.8 111.4

13. Directors, Chief Executives and Employees Emoluments

13.
2013 2013 HK$ million 2012 2012 HK$ million 1.5 23.8 63.2 1.7 90.2

Directors fees Other emoluments to directors salaries and other benefits performance-based bonus retirement benefits scheme contributions

3.5 22.9 28.9 2.0 57.3

Chow Tai Fook Annual Report 2013

2013

121

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

13. Directors, Chief Executives and Employees Emoluments (Continued)

Details of emoluments paid by the Group to the directors and the chief executives of the Company are as follows:
2013 2013 Salaries and other benefits HK$ million Retirement benefit scheme contribution HK$ million

13.

2012 2012 Salaries and other benefits HK$ million Retirement benefit scheme contribution HK$ million

Directors fee HK$ million Honorary Chairman:

Performancebased bonus* * HK$ million

Total HK$ million

Directors fee HK$ million

Performancebased bonus* * HK$ million

Total HK$ million

Dato Dr. Cheng Yu-Tung (retired as non-executive director 2012 12 1 on 1 December 2012) Executive directors: Dr. Cheng Kar-Shun, Henry (Chairman) Mr. Wong Siu-Kee, Kent (Managing director) Mr. Cheng Chi-Kong, Adrian Mr. Cheng Chi-Heng, Conroy Mr. Chan Sai-Cheong Mr. Chan Hiu-Sang, Albert Mr. Cheng Ping-Hei, Hamilton Mr. Suen Chi-Keung, Peter Non-executive directors: Mr. Cheng Kam-Biu, Wilson Mr. Koo Tong-Fat Independent non-executive directors: Mr. Cheng Ming-Fun, Paul (appointed on 19 September 2012) Dr. Fung Kwok-King, Victor Mr. Kwong Che-Keung, Gordon Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond Total

0.1

1.1

1.9

0.1

3.2

0.1

2.7

0.8

0.1

3.7

0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

3.3 3.9 1.0 2.0 2.6 1.9 2.1 1.8

5.2 4.4 1.1 2.1 2.8 2.6 2.4 2.1

0.2 0.4 0.1 0.2 0.3 0.1 0.2 0.2

8.9 8.9 2.4 4.5 5.9 4.8 4.9 4.3

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

2.2 3.6 0.2 1.9 2.6 2.6 1.8 1.7

2.9 12.9 2.2 6.0 6.5 6.6 6.0 6.3

0.1 0.2 0.1 0.4 0.1 0.1 0.4 0.1

5.3 16.8 2.6 8.4 9.3 9.4 8.3 8.2

0.2 0.2 1.3 1.9 1.9 2.4 0.1 0.1 3.5 4.6 0.1 0.1 1.9 2.6 6.4 6.6 0.1 8.4 9.4

2012 9 19

0.2 0.3 0.3 0.3 0.3 3.5

22.9

28.9

2.0

0.2 0.3 0.3 0.3 0.3 57.3

0.1 0.1 0.1 0.1 1.5

23.8

63.2

1.7

0.1 0.1 0.1 0.1 90.2

Notes: * The performance-based bonus is discretionary based on the Groups financial results and directors performance decided by the management of the Group.

122

13. Directors, Chief Executives and Employees Emoluments (Continued)

The five highest paid individuals included four directors (2012: four) of the Company, details of whose emoluments are included above. The emoluments of the remaining highest paid individual during the year were as follows:

13.
2012

2013 2013 HK$ million Employee salaries and other benefits performance-based bonus retirement benefits scheme contributions

2012 2012 HK$ million

1.5 4.0 0.1 5.6

13.2 0.6 0.1 13.9

His emoluments were within the following bands:

2013 2013 HK$ million 2012 2012 HK$ million 1

HK$5,500,001 to HK$6,000,000 HK$13,500,001 to HK$14,000,000

5,500,0016,000,000 13,500,00114,000,000

During the year ended 31 March 2013 and 31 March 2012, no emoluments were paid by the Group to the directors and the chief executives of the Company or the five highest paid individuals (including directors, the chief executives and employees) as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors have waived any emoluments during the year ended 31 March 2013 and 31 March 2012.

2013 3 31 2012 3 31 2013 3 31 2012 3 31

Chow Tai Fook Annual Report 2013

2013

123

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

14. Taxation

14.
2013 2013 HK$ million 2012 2012 HK$ million

The taxation charge comprises: Current tax: Enterprise Income Tax (EIT) in the Mainland of China Hong Kong Profits Tax Macau complementary tax

749.5 463.4 85.3 1,298.2 976.2 563.0 111.7 1,650.9

Under(over) provision in prior years: EIT in the Mainland of China Hong Kong Profits Tax Macau complementary tax

14.1 4.6 18.7

10.7 (87.3) (0.7) (77.3)

Deferred tax (note 22) Withholding tax on license income from the Mainland of China

22

79.4

20.3 1,416.6

21.4 1,595.0

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years. Under the Enterprise Income Tax Law (the EIT Law) of the Peoples Republic of China (PRC) and Implementation Regulation of the EIT Law, the tax rate of the subsidiaries in the Mainland of China is 25% from 1 January 2008 onwards, while Chow Tai Fook Jewellery (Shenzhen) Company Limited (Shenzhen CTF) is under progressive tax rates from 18% to 25% over 5 years from 1 January 2008. Pursuant to relevant laws and regulations in the Mainland of China, Lida Noble Metal Technology and Development (Shenzhen) Company Limited (Shenzhen Lida) and Foshan Shunde Yuda Jewellery Manufacturing Company Limited (Shunde Yuda) were entitled to exemption from PRC income tax for two years commencing from the year ended 31 December 2007 and 31 December 2008, their first profit-making year, followed by a 50% reduction from the year ended 31 December 2009 and 31 December 2010 for three years respectively. Macau complementary tax is calculated at the maximum progressive rate of 12% on the estimated assessable profit for both years. No provision for taxation has been made for the operation in Taiwan as there was no assessable profit for the year.

16.5% 2008 1 1 25% 2008 1 1 5 18% 25% 2007 12 31 2008 12 31 2009 12 31 2010 12 31

12%

124

14. Taxation (Continued)

Taxation charge for the year can be reconciled to the profit before taxation per the consolidated statement of comprehensive income as follows:

14.

2013 2013 HK$ million Profit before taxation 7,095.0

2012 2012 HK$ million 8,165.9

Tax at the applicable income tax rate (the Mainland of China: 25%; Hong Kong: 16.5%; 25% Macau: 12%) 16.5%12% Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised Tax effect of tax exemptions granted to certain subsidiaries in the Mainland of China Tax effect of deductible temporary differences not recognised Tax effect of previous deductible temporary difference recognised in current year Withholding tax on undistributed profits of subsidiaries in the Mainland of China Under(over) provision in prior years Withholding tax on license income from the Mainland of China Others Taxation charge for the year

1,415.7 44.4 (78.6) 1.0 (0.2) (74.5) 20.0 (607.1) 651.3 18.7 20.3 5.6 1,416.6

1,628.3 26.8 (74.4) 1.7 (0.3) (213.9) 270.0 (77.3) 21.4 12.7 1,595.0

At 31 March 2013, the Group has tax losses of HK$33.7 million (2012: HK$29.7 million) not recognised as deferred tax assets. All of the unrecognised tax losses may be carried forward indefinitely, except for HK$17.0 million (2012: HK$11.5 million) which will be expired as follows:

2013 3 31 33.7 2012 29.7 17.0 2012 11.5 2013 2013 HK$ million 2012 2012 HK$ million

Tax losses expiring in 2016 2017 2018

2016 2017 2018

6.1 4.7 6.2 17.0

6.8 4.7 11.5

Chow Tai Fook Annual Report 2013

2013

125

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

14. Taxation (Continued)

Also, at 31 March 2013, the Group has deductible temporary differences of HK$70.5 million (2012: HK$2,681.3 million) of which deferred taxation has not been recognised. Tax effect of such deductible temporary differences as at 31 March 2013 was HK$11.6 million (2012: HK$619.3 million). Certain deductible temporary differences amounting to HK$607.1 million which were previously not recognised in prior years, were recognised during the year ended 31 March 2013, as the directors of the Company now expect that it is probable that they will be reversed in the foreseeable future. Under the EIT Law of the PRC, withholding tax is imposed on dividends declared in respect of profits earned by subsidiaries in the Mainland of China from 1 January 2008 onwards. In prior years, deferred tax has not been provided for in the consolidated financial statements in respect of temporary differences attributable to retained profits of subsidiaries in the Mainland of China amounting to HK$10,651.9 million as the Group was able to control the timing of the reversal of the temporary differences and the management considered that it was probable that the temporary differences will not reverse in the foreseeable future. In the current year, the management has reassessed the Groups expansion plans and funding requirements and revised the dividend distribution plan of the subsidiaries in the Mainland of China. Based on the new dividend distribution plan, retained profits as at 31 March 2013 amounting to HK$6,513.8 million (2012: nil) will be distributed as dividend in the foreseeable future, while the remaining retained profits amounting to HK$6,513.8 million (2012: HK$10,651.9 million) has been set aside for reinvestment and will not be distributed in the foreseeable future. Accordingly, deferred taxation relating to taxable temporary differences recognised and not recognised as at 31 March 2013 are HK$651.3 million (2012: nil) and HK$651.3 million (2012: HK$1,065.2 million) respectively.

14.
2013 3 31 70.5 2012 2,681.3 2013 3 31 11.6 2012 619.3 607.1 2013 3 31 2008 1 1 10,651.9 2013 3 31 6,513.8 2012 6,513.8 2012 10,651.9 2013 3 31 651.3 2012 651.3 2012 1,065.2

15. Earnings Per Share

The calculation of the basic earnings per share for the year is based on the consolidated profits attributable to shareholders of the Company for the year and on the number of 10,000,000,000 (2012: the weighted average number of 9,259,836,066) shares in issue during the year. No dilutive earnings per share is presented as there were no potential dilutive shares during both years.

15.
10,000,000,000 2012 9,259,836,066

126

16. Dividends

16.
2013 2013 HK$ million 2012 2012 HK$ million

Dividends recognised as distribution during the year: 2013 Interim HK6.0 cents (2012: nil) per share 2012 Final HK10.0 cents (2011: nil) per share Dividends to shareholders prior to the Group Reorganisation (Note)

2013 6.0 2012 2012 10.0 2011

600.0 1,000.0 1,600.0

4,550.3 4,550.3

Note: During the year ended 31 March 2012, the Group distributed interim dividends totally HK$4,550.3 million, of which HK$7.1 million was included in amounts due to non-controlling shareholders of subsidiaries, to their shareholders prior to the Group Reorganisation.

2012 3 31 4,550.3 7.1

Subsequent to the end of the reporting period, a final dividend of HK16.0 cents in respect of the year ended 31 March 2013 (2012: HK10.0 cents) per share has been proposed by the directors of the Company and is subject to approval by the shareholders in the forthcoming general meeting.

2013 3 31 16.0 2012 10.0

Chow Tai Fook Annual Report 2013

2013

127

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

17. Property, Plant and Equipment

Land and buildings HK$ million COST At 1 April 2011 Currency realignment Acquired on acquisition of subsidiaries (note 33) Additions Transfer Disposals At 31 March 2012 Currency realignment Acquired on acquisition of subsidiaries (note 33) Additions Transfer Disposals At 31 March 2013 DEPRECIATION At 1 April 2011 Currency realignment Provided for the year Eliminated on disposals At 31 March 2012 Currency realignment Provided for the year Eliminated on disposals At 31 March 2013 CARRYING VALUES At 31 March 2013 At 31 March 2012 2011 4 1 33 2012 3 31 33 2013 3 31 2011 4 1 2012 3 31 2013 3 31 2013 3 31 2012 3 31 Plant and machinery HK$ million

17.
Furniture fixtures and Leasehold equipment improvements HK$ million HK$ million Motor vehicles HK$ million Construction in progress HK$ million Total HK$ million

843.2 31.3 62.7 86.2 15.1 1,038.5 4.0 9.7 17.9 1,070.1

47.9 1.1 24.9 50.6 (10.0) 114.5 0.6 64.1 (11.5) 167.7

522.6 9.9 15.4 306.9 (25.3) 829.5 2.3 2.0 348.2 (44.9) 1,137.1

526.0 19.4 3.4 250.6 (3.4) 796.0 4.6 2.4 315.8 1,118.8

21.2 0.7 1.2 11.8 (3.0) 31.9 0.1 10.0 (1.3) 40.7

21.1 1.1 34.9 43.1 (15.1) 85.1 1.6 223.7 (17.9) 292.5

1,982.0 63.5 142.5 749.2 (41.7) 2,895.5 13.2 4.4 971.5 (57.7) 3,826.9

112.0 4.3 42.8 159.1 0.9 48.4 208.4

13.3 0.5 9.9 (1.9) 21.8 0.1 15.8 (3.4) 34.3

317.6 4.4 164.1 (16.1) 470.0 1.2 215.7 (31.9) 655.0

363.6 15.1 168.6 (3.4) 543.9 3.2 207.6 754.7

10.2 0.3 5.1 (2.4) 13.2 0.1 7.2 (1.1) 19.4

816.7 24.6 390.5 (23.8) 1,208.0 5.5 494.7 (36.4) 1,671.8

861.7 879.4

133.4 92.7

482.1 359.5

364.1 252.1

21.3 18.7

292.5 85.1

2,155.1 1,687.5

The carrying values of the Groups properties which are situated on land under medium-term leases is analysed as follows:

2013 2013 HK$ million 2012 2012 HK$ million 5.5 872.0 1.9 879.4

In Hong Kong In the Mainland of China In South Africa

5.2 854.7 1.8 861.7

128

18. Prepaid Lease Payments

18.
2013 2013 HK$ million 2012 2012 HK$ million

Carrying amount At 1 April Currency realignment Additions Arising from acquisition of subsidiaries (note 33) Charged to profit or loss during the year At 31 March Comprising land use rights held under medium-term leases situated in the Mainland of China Analysed for reporting purposes as: Current assets (included in trade and other receivables) Non-current assets

41 33 3 31

107.0 0.9 90.3 (12.1) 186.1

97.9 3.4 16.7 (11.0) 107.0

186.1

107.0

14.0 172.1 186.1

11.3 95.7 107.0

19. Interest in an Associate

19.
2013 2013 HK$ million 2012 2012 HK$ million 7.8

Cost of investment Share of post-acquisition profits and other comprehensive income, net of dividends received

2.3 10.1

Details of the associate are set out as below:

Place and date of establishment PRC 13 August 1993 1993 8 13 Issue and fully paid registered capital Registered capital RMB33,004,060 33,004,060

Attributable equity interest 2013 2012 2013 2012 25%

Name of company Wuhan Xinfu Jewellery Company Limited (Wuhan Xinfu)

Principal activity Inactive

The cost of investment in an associate represents the Groups contribution to 25% registered capital of Wuhan Xinfu which was established in the PRC and the associate was deregistered during the year ended 31 March 2013.

25% 2013 3 31
Chow Tai Fook Annual Report 2013
2013

129

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

19. Interest in an Associate (Continued)

The summarised financial information in respect of the Groups associate is set out below:

19.

2013 2013 HK$ million Total assets Total liabilities Net assets Groups share of an associates net assets Total revenue Total loss for the year Total other comprehensive income Groups share of results of an associate Groups share of other comprehensive income of an associate

2012 2012 HK$ million 40.3 40.3 10.1 6.0 1.5 1.5

20. Interest in a Jointly Controlled Entity

20.
2013 2013 HK$ million 2012 2012 HK$ million

Cost of investment

14.0
Proportion of ownership interest and voting power held by the Group 2013 2012 2013 50% 2012

Details of the jointly controlled entity are set out as below:

Name of company

Fook Ming Watch Limited *

Hong Kong

Place of incorporation and principal place of operation

HK$1,000,000 1,000,000

Issued and fully paid ordinary shares

Principal activity

Investment holding

The jointly controlled entity was incorporated during the year ended 31 March 2013.

2013 3 31

130

20. Interest in a Jointly Controlled Entity (Continued)

The summarised financial information in respect of the Groups interests in the jointly controlled entity is set out below:

20.

2013 2013 HK$ million Current assets Non-current assets Current liabilities Non-current liabilities Income recognised in profit or loss Expenses recognised in profit or loss Other comprehensive income 14.0

2012 2012 HK$ million

21. Loan Receivables

As at 31 March 2012, the balance included loans to certain customers of HK$30.3 million, which is secured by certain assets of the customers and bears fixed interest rates ranging from 9.1% to 10.1% per annum with a maturity period ranging from six to twelve months. The remaining balances of loan receivables are secured over certain properties in Hong Kong owned by the debtors with fixed interest rates ranging from 2.5% to 3.8% per annum. The Group is not permitted to sell or repledge the collateral in the absence of default by the debtors. These balances were fully repaid during the year ended 31 March 2013. Loan receivables are classified as current or non-current assets based on contractual terms or the timing of recovery as expected by the management. As at 31 March 2013, loan receivables under current assets with carrying amount of HK$130.0 million (2012: nil) are past due for which the Group has not provided for impairment loss, since such loans are secured by certain properties in Hong Kong. For the loan receivables that are secured over certain properties in Hong Kong, the directors of the Company consider that the market values of these properties are in excess of the carrying amount of loan receivables at the end of the reporting period. In determining the recoverability of the loan receivables, the Group regularly monitors the changes in credit quality of the loan receivables. The directors of the Company are of the opinion that no impairment is considered necessary in respect of such loan. All loan receivables are denominated in functional currency of the relevant group entity.

21.
2012 3 31 30.3 9.1% 10.1% 6 12 2.5% 3.8% 2013 3 31

2013 3 31 130.0 2012

Chow Tai Fook Annual Report 2013

2013

131

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

22. Deferred Taxation

The followings are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the current and prior years: Unrealised gain on fair value change of gold loans in the Mainland of China HK$ million At 1 April 2011 and 31 March 2012 Charge (credit) to profit or loss (note 14) Currency realignment At 31 March 2013 201141 2012331 14 2013331

22.

Withholding tax on undistributed profits of subsidiaries in the Mainland of China HK$ million

Unrealised profit on inventories

Total

HK$ million

HK$ million

38.1 0.2 38.3

651.3 4.2 655.5

(610.0) (3.4) (613.4)

79.4 1.0 80.4

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

2013 2013 HK$ million 2012 2012 HK$ million

Deferred tax assets Deferred tax liabilities

(613.4) 693.8 80.4

132

23. Inventories

23.
2013 2013 HK$ million 2012 2012 HK$ million

Raw materials for: Gem-set jewellery Gold product Platinum/karat gold product

4,861.6 2,241.4 216.8 7,319.8

7,387.5 896.9 589.6 8,874.0

Finished goods: Gem-set jewellery Gold product Platinum/karat gold product Watch

10,806.8 4,685.6 2,078.7 2,399.8 19,970.9

8,537.5 7,909.8 2,289.6 2,055.0 20,791.9 28.3 29,694.2

Packing material

24.1 27,314.8

24. Trade and Other Receivables

24.
2013 2013 HK$ million 2012 2012 HK$ million 4,035.8 471.6 192.9 11.3 443.2 168.6 5,323.4

Trade receivables Prepayments to suppliers Deposits Prepaid lease payments charged within one year Other tax recoverables Others

3,048.1 194.2 261.3 14.0 347.5 107.4 3,972.5

As at 31 March 2013, trade receivables of HK$152.5 million and HK$113.9 million (2012: HK$121.9 million and HK$71.6 million) are from entities in which certain directors of the Company have control and non-controlling shareholders of subsidiaries respectively. The Groups sales to retail customers are mainly on cash basis. Sales to certain customers are on credit with credit period up to 6 months. For sales through concessionaire counters in department stores, the Group usually allow 30 days credit period to the department stores.

2013 3 31 152.5 113.9 2012 121.9 71.6 6 30

Chow Tai Fook Annual Report 2013

2013

133

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

24. Trade and Other Receivables (Continued)

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

24.
2013 2013 HK$ million 2012 2012 HK$ million 2,558.8 1,439.0 24.8 13.2 4,035.8

0 to 30 days 31 to 90 days 91 to 180 days Over 180 days

030 3190 91180 180

2,329.1 481.7 134.9 102.4 3,048.1

In determining the recoverability of the trade receivables, the Group monitors change in the credit quality of the trade receivables since the credit was granted and up to the reporting date. The directors of the Company considered that the trade receivables that are neither past due nor impaired to be of a good credit quality. As at 31 March 2013, included in the trade receivable balances are receivables of HK$126.2 million (2012: HK$2,136.5 million) carrying a variable interest ranging from 9.6% to 10.0% (2012: 4.0% to 10.1%) per annum. Also, as at 31 March 2013, included in the trade receivable balances are trade receivables with aggregate carrying amount of HK$243.7 million (2012: HK$39.0 million) which are past due at the reporting date for which the Group has not provided for impairment loss as there has not been a significant change in the credit quality and amounts are still considered recoverable based on historical experience. The Group does not hold any collateral over these balances.

2013 3 31 126.2 2012 2,136.5 9.6% 10.0% 2012 4.0% 10.1% 2013 3 31 243.7 2012 39.0

Ageing of trade receivables, based on the invoice date, which are past due but not impaired

2013 2013 HK$ million 2012 2012 HK$ million 1.0 24.8 13.2 39.0

61 to 90 days 91 to 180 days Over 180 days

6190 91180 180

6.4 134.9 102.4 243.7

134

25. Convertible Bonds

During the year ended 31 March 2012, the Group invested in an unlisted convertible bonds with principal amount of AUS$3,000,000, bearing interest at 8.0% per annum and a maturity date of 31 December 2014 (the Maturity Date), issued by a private entity (the Issuer) which is principally engaged in agriculture and wholesale of pearls in Australia. The Group is entitled at any time after the date of issue up to the Maturity Date to redeem the convertible notes in cash or pearls or combination of both or convert the convertible notes into ordinary shares of the Issuer. The convertible notes comprised debt component and embedded derivatives being the conversion option and the Issuers early redemption option. Such convertible bonds are designated as at fair value through profit or loss and in the opinion of the directors of the Company, the fair value of the convertible notes on initial recognition and 31 March 2013 is substantially the same as the carrying amount.

25.
2012 3 31 3,000,000 8.0% 2014 12 31 2013 3 31

26. Derivative Financial Instruments

The Group used bullion forward contracts to reduce its exposure to fluctuations in the gold prices on gold inventory. The Group did not currently designate any hedging relationship on the bullion forward contracts for the purpose of hedge accounting. The bullion forward contracts are measured at fair value at the end of the reporting period. The fair values are determined based on the market prices for equivalent instruments from banks at the end of the reporting period. The total notional value of the outstanding bullion forward contracts as at 31 March 2012 amounted to HK$1,896.2 million which have maturity period up to 3 months since date of inception. As at 31 March 2012, the fair value of outstanding bullion forward contracts was HK$47.3 million. These contracts were fully settled during the year ended 31 March 2013.

26.

2012 3 31 1,896.2 3 2012 3 31 47.3 2013 3 31

27. Pledged Bank Deposits/Bank Balances and Cash

During the year ended 31 March 2013, the bank deposits carry interest at the prevailing market rate of about 0.01% to 3.8% (2012: 0.01% to 4.3%) per annum. As at 31 March 2013, the pledged bank deposits amounted to HK$25.7 million (2012: HK$17.0 million) mainly represent deposits pledged to a bank to secure the payment of construction in progress that is expected to be completed in 2013. As at 31 March 2013, the Groups cash and cash equivalents denominated in RMB were HK$4,923.3 million (2012: HK$3,317.7 million). The RMB is not freely convertible into other currencies, however, under the PRCs Foreign Exchange Control Regulations in the Mainland of China and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through authorised banks to conduct business in foreign currency.

27.
2013 3 31 0.01% 3.8% 2012 0.01% 4.3% 2013 3 31 25.7 2012 17.0 2013

2013 3 31 4,923.3 2012 3,317.7

Chow Tai Fook Annual Report 2013

2013

135

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

27. Pledged Bank Deposits/Bank Balances and Cash (Continued)

Included in bank balances and cash are the following amounts denominated in currencies other than the functional currency of the relevant group entities:

27.

2013 2013 HK$ million US$ 339.3

2012 2012 HK$ million 530.4

28. Trade and Other Payables

28.
2013 2013 HK$ million 2012 2012 HK$ million 444.9 871.2 39.3 104.1 253.7 125.2 1,838.4

Trade payables Deposits received from customers Other tax payables Accruals Accrued staff costs Others

249.4 722.3 129.9 146.4 309.9 195.9 1,753.8

The Group normally receives credit terms of 7 to 180 days from its suppliers. The following is an aged analysis of trade payables presented based on the invoice date at the end of each reporting period:

7 180

2013 2013 HK$ million 0 to 30 days 31 to 90 days 91 to 180 days Over 180 days 030 3190 91180 180 196.6 16.7 2.7 33.4 249.4

2012 2012 HK$ million 244.5 167.2 2.4 30.8 444.9

29. Amounts Due to Non-controlling Shareholders of Subsidiaries

The balances are unsecured, interest-free and repayable on demand.

29.

136

30. Bank Borrowings

30.
2013 2013 HK$ million 2012 2012 HK$ million 9,000.6 4,533.4 4,467.2 9,000.6

Bank loans Secured Unsecured

1,000.0 1,000.0 1,000.0

Carrying amount repayable within one year between one to two years

1,000.0 1,000.0

5,574.2 3,426.4 9,000.6 (5,574.2) 3,426.4

Less: Amount due within one year shown under current liabilities Amount due after one year

(1,000.0)

The bank borrowings carry variable interest rates at 0.8% over HIBOR per annum (2012: 1.0% to 1.6% over HIBOR per annum or 98% to 110% of The Peoples Bank of China Standard Loan Interest Rate per annum). As at 31 March 2013, the range of interest rates on the bank borrowings were 1.0% to 1.2% (2012: 1.4% to 7.2%) per annum. As at 31 March 2012, certain banking facilities were secured by personal guarantee from the Companys executive director, Dr. Cheng Kar-Shun, Henry, and by certain listed securities owned by Chow Tai Fook Enterprises Limited (CTF Enterprises). Such guarantee and securities were released during the year ended 31 March 2013. All bank borrowings are denominated in functional currency of relevant group entities.

0.8% 2012 1.0% 1.6% 98% 110%

2013 3 31 1.0% 1.2% 2012 1.4% 7.2% 2012 3 31 2013 3 31

31. Gold Loans

The amounts represent borrowings from banks and the amounts payable are pegged with gold prices. At 31 March 2013, the gold loans carry fixed interests rates of 1.3% to 3.1% (2012: 1.3% to 5.5%) per annum, with original maturity of 1 to 12 months from date of inception. Gold loans were borrowed to reduce the impact of fluctuations in gold prices on gold inventories. However, the criteria for hedge accounting were not fully met. Gold loans were designated as financial liabilities at fair value through profit or loss.

31.
2013 3 31 1.3% 3.1% 2012 1.3% 5.5% 1 12

Chow Tai Fook Annual Report 2013

2013

137

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

31. Gold Loans (Continued)

Included in gold loans are the following amounts denominated in currencies other than functional currency of the relevant group entities:

31.

2013 2013 HK$ million US$ 2,833.2

2012 2012 HK$ million 2,862.1

32. Share Capital/Paid-in Capital

The paid-in capital of the Group at 31 March 2011 represented the paid-in capital of CTF Jewellery, Gold Kind Investments Limited, East Concept Investments Limited, Texon Investments Limited, Aesthetics Workshop Limited, CTF Diamond Trading Company Limited, Techni Development Investment Limited, Shanghai Fulong Chow Tai Fook Jewellery Company Limited, Wuhan Hanfu Jewellery Company Limited, Foshan Shunde Chow Tai Fook Jewellery Company Limited, Chow Tai Fook Jewellery (Shenzhen) Company Limited, Fook Kwan Jewellery Manufacturing Limited, CTF Macau, Hong Ieng Investment Import and Export Company Limited and Chow Tai Fook Investment Company Limited. The share capital at 31 March 2013 and 2012 represented the share capital of the Company. Movement of share capital of the Company is as follows:

32.
2011 3 31

2013 2012 3 31 Authorised Number of shares Issued and fully paid Number of shares Amount HK$ million

Amount HK$ million

Ordinary shares of US$1.00 each Upon incorporation Repurchase of share Diminished by cancellation Ordinary shares of HK$1.00 each Increase authorised share capital Issue of shares upon Group Reorganisation Capitalisation issue Issue of shares At 31 March 2012 and 31 March 2013

1.00 1.00 2012331 2013331

50,000 (50,000)

0.4 (0.4)

1 (1)

50,000,000,000

50,000.0

780 8,949,999,220 1,050,000,000

8,950.0 1,050.0

50,000,000,000

50,000.0

10,000,000,000

10,000.0

138

32. Share Capital/Paid-in Capital (Continued)

The Company was incorporated and registered as an exempted company in the Cayman Islands on 20 July 2011 with an authorised share capital of US$50,000 divided into 50,000 shares of a nominal or par value of US$1.00 each. Upon incorporation of the Company, one share of US$1.00 was issued at US$1. Pursuant to the shareholders resolutions which were passed on 17 November 2011 and 29 November 2011 to approve the matters set out in the paragraph headed Resolutions in Writing of Our Shareholders Passed on 17 November 2011 and 29 November 2011 in Appendix V to the Companys prospectus dated 5 December 2011: (i) the authorised share capital of the Company was increased by HK$50,000,000,000 by the creation of an additional 50,000,000,000 shares with nominal value of HK$1.00 each. The Company allotted and issued 780 shares to CTF Holding for aggregate cash consideration of HK$780. The Company repurchased and cancelled the one issued share of US$1.00 in the capital of the Company in issue immediately prior to the issue of the new shares. The authorised but unissued share capital of the Company was diminished by the cancellation of all the 50,000 unissued shares with a nominal value US$1.00 each in the capital of the Company; and the share premium account was credited as a result of the allotment and issue of the offer shares pursuant to the global offering of the Company, the directors of the Company were authorised to capitalise an amount of HK$8,949,999,220 standing to the credit of the share premium account of the Company by applying such sum in paying up in full at par 8,949,999,220 shares for allotment and issue to the sole member of the Company whose name appeared in the register of members of the Company at close of business on 15 November 2011 (or as it may direct).

32.
2011 7 20 50,000 50,000 1.00 1 1.00 2011 11 17 2011 11 29 2011125 2011 11 17 2011 11 29 (i) 50,000,000,000 1.00 50,000,000,000 CTF Holding 780 780 1.00 50,000 1.00

(ii)

(ii)

8,949,999,220 8,949,999,220 2011 11 15

On 15 December 2011, 1,050,000,000 ordinary shares of HK$1.00 each of the Company were issued at HK$15.00 per share by way of public offering. On the same date, the Companys shares were listed on the Main Board of the Stock Exchange.

2011 12 15 15.00 1,050,000,000 1.00

Chow Tai Fook Annual Report 2013

2013

139

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

33. Acquisition of Subsidiaries

During year ended 31 March 2013, for the purpose of business expansion, the Group acquired the controlling equity interests of the following three entities, using the acquisition method: (a) 55% equity interests of Zhaoqing Tongfu Jewellery Company Limited (Zhaoqing Tongfu), a company incorporated in the PRC, for a consideration of HK$1.4 million, and is engaged in the sales of jewellery products; 51% equity interests of Zhangjiagang Baoshui Fuxiang Jewellery Company Limited (Fuxiang), a company incorporated in the PRC, for a consideration of HK$25.5 million, and is engaged in the sales of jewellery products; 51% equity interests of Zhangjiagang Baoshui Fuxiangyu Jewellery Company Limited (Fuxiangyu), a company incorporated in the PRC, for a consideration of HK$16.3 million, and is engaged in the sales of jewellery products.

33.
2013 3 31

(a)

1.4 55% 25.5 51% 16.3 51%

(b)

(b)

(c)

(c)

Also, in September 2011, for the purpose of enhancing the Groups vertical integration, the Group acquired the entire equity interests of the following three entities, using acquisition method: (a) American Overseas Investment Inc. (American Overseas), a company incorporated in Delaware, for a consideration of HK$14.5 million from a close family member of a director of the Company. American Overseas is an investment holding company and owns 84% equity interests of Zlotowskis Diamond Cutting Works (Proprietary) Limited, a company incorporated in South Africa and is engaged in diamond cutting and polishing;

2011 9 (a) American Overseas Investment Inc. American Overseas 14.5 American Overseas Zlotowski s Diamond Cutting Works (Proprietary) Limited 84% 150.0 24.4

(b)

Lun Jiao Industrial (Hong Kong) Limited (Lun Jiao), a company incorporated in Hong Kong, for a consideration of HK$150.0 million. Lun Jiao is an investment holding company and owns entire equity interests of Foshan Yushunfu Jewellery Company Limited (Yushunfu), a company established in the PRC and is engaged in manufacturing of jewellery products;

(b)

(c)

Bojuehang Jewellery Manufacturing (Shenzhen) Company Limited (Bojuehang), a company incorporated in the PRC, for a consideration of HK$24.4 million, from an entity with common director of the Company and is engaged in manufacturing of jewellery products.

(c)

140

33. Acquisition of Subsidiaries (Continued)

Details of consideration of each acquisition are as follows:
2013 2013 Zhaoqing Tongfu HK$ million Consideration satisfied by cash 1.4

33.

2012 2012 Fuxiangyu HK$ million 16.3 American Overseas HK$ million 14.5 Lun Jiao HK$ million 150.0 Bojuehang HK$ million 24.4

Fuxiang HK$ million 25.5

Assets acquired and liabilities recognised at the respective dates of acquisition are as follows:
2013 2013 Zhaoqing Tongfu HK$ million Fuxiang HK$ million

2012 2012 Fuxiangyu HK$ million American Overseas HK$ million Lun Jiao HK$ million Bojuehang HK$ million

Property, plant and equipment Prepaid lease payment Amount due from a related company Inventories Trade and other receivables Bank balances and cash Trade and other payables Taxation Amounts due to non-controlling interests Amount due to a group company

0.5 8.4 1.3 0.6 (4.3) (0.2) (3.6) 2.7

2.3 78.5 15.7 6.3 (28.5) 0.2 (24.5) 50.0

1.6 32.7 4.8 9.8 (9.3) (0.5) (7.2) 31.9

16.4 168.7 24.2 7.6 (3.7) (1.1) (197.9) 14.2

122.6 16.7 2.3 29.8 (21.2) (0.4) (0.5) 149.3

3.5 16.1 0.6 6.1 (1.7) (0.2) 24.4

Chow Tai Fook Annual Report 2013

2013

141

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

33. Acquisition of Subsidiaries (Continued)

In the opinion of the directors of the Company, the fair value of the receivables acquired (which principally comprised trade and other receivables and amount due from a related company) approximates to the gross contractual amounts, the best estimate at acquisition date of the contractual cash flows of the receivables are expected to be collected.
2013 2013 Zhaoqing Tongfu HK$ million

33.

2012 2012 Fuxiangyu HK$ million American Overseas HK$ million Lun Jiao HK$ million Bojuehang HK$ million

Fuxiang HK$ million

Consideration transferred Plus: Non-controlling interests (Note) Less: Fair values of identified net assets acquired Goodwill arising on acquisitions Net cash outflow on acquisition Cash and cash equivalent balances acquired Less: Cash considerations paid

1.4 1.3 (2.7)

25.5 24.5 (50.0)

16.3 15.6 (31.9)

14.5 2.3 (14.2) 2.6

150.0 (149.3) 0.7

24.4 (24.4)

0.6 (1.4) (0.8)

6.3 (25.5) (19.2)

9.8 (16.3) (6.5)

7.6 (14.5) (6.9)

29.8 (150.0) (120.2)

6.1 (24.4) (18.3)

Note: The non-controlling interests are measured at their proportionate share of the fair value of net assets acquired.

Profit and revenue attributable to the respective acquisitions during the year are as follows:
2013 2013 Zhaoqing Tongfu HK$ million Fuxiang HK$ million

2012 2012 Fuxiangyu HK$ million American Overseas HK$ million Lun Jiao HK$ million Bojuehang HK$ million

Profit (loss) Revenue

1.6 6.5

0.6 13.2

(0.2) 2.3

(2.8)

(7.1)

(1.0)

Had the above acquisitions completed on 1 April 2012, total group revenue and profit for the year ended 31 March 2013 would have been HK$57,504.1 million and HK$5,696.3 million (2012: HK$56,580.8 million and HK$6,586.7 million), respectively. The pro-forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the above acquisitions been completed on 1 April 2012, respectively, nor is it intended to be a projection of future results.

2012 4 1 2013 3 31 57,504.1 5,696.3 2012 56,580.8 6,586.7 2012 4 1

142

34. Operating Lease Commitments

The Group as lessee
At the end of each reporting period, the Group was committed to make the following future minimum lease payments which represent lease payments of its rented premises, under non-cancellable operating leases which fall due as follows:

34.

2013 2013 HK$ million Within one year In the second to fifth year inclusive Over five years 1,009.9 1,133.8 3.2 2,146.9 Included in above are commitments to entities in which certain directors of the Group have control:

2012 2012 HK$ million 620.5 663.7 7.8 1,292.0

2013 2013 HK$ million 2012 2012 HK$ million 121.3 98.5 219.8

Within one year In the second to fifth year inclusive

170.3 127.0 297.3

Majority of leases are negotiated and rentals are fixed for lease term ranging from 1 year to 4 years. There are certain lease arrangements for rented premises, according to which the Group are committed to pay either minimum guaranteed amounts or monthly payments equivalent to a prescribed percentage of monthly sales as rental, whichever the higher.

35. Capital Commitments

35.
2013 2013 HK$ million 2012 2012 HK$ million

Capital expenditure in respect of the acquisition of property, plant and equipment authorised but not contracted for Capital expenditure contracted for but not provided in the consolidated financial statements in respect of the acquisition of property, plant and equipment

210.0 101.7 75.9

143

308.3

Chow Tai Fook Annual Report 2013

2013

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

36. Retirement Benefits Scheme

Defined contribution scheme
The Group participates in defined contribution schemes which are registered under the Hong Kong Occupational Retirement Scheme Ordinance (the ORSO Scheme) and a Mandatory Provident Fund Scheme (the MPF Scheme) established under the Hong Kong Mandatory Provident Fund Ordinance in December 2000. The assets of the schemes are held separately from those of the Group, in funds under the control of independent trustees. Employees who were members of the ORSO Scheme prior to the establishment of the MPF Scheme were offered a choice of staying within the ORSO Scheme or switching to the MPF Scheme, whereas all new employees joining the Group on or after 1 December 2000 are required to join the MPF Scheme. The retirement benefit cost charged to the consolidated statement of comprehensive income represents contributions payable to the funds by the Group at rates specified in the rules of the schemes. Where there are employees who leave the ORSO Scheme prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions. For members of the MPF Scheme, the Group contributes 5% of relevant payroll costs to the MPF Scheme, which contribution is matched by the employee. The maximum monthly amount of contribution is limited to HK$1,000 per employee, which was revised to HK$1,250 with effect from 1 June 2012. The eligible employees of the Companys subsidiaries in the Mainland of China and Macau are members of pension schemes operated by local government of the Mainland of China and the Macau government, respectively. The subsidiaries in the Mainland of China are required to contribute a certain percentage of the relevant cost of the payroll of these employees to the pension schemes to fund the benefits. The subsidiary in Macau is required to pay a monthly fixed contribution to the retirement benefits schemes to fund the benefits. The only obligation of the Group with respect to the retirement benefit schemes is to make the required contribution under the schemes.

36.

2000 12 2000 12 1

5% 1,000 2012 6 1 1,250

Defined benefit scheme

Certain subsidiaries of the Company provide defined pension benefits to the employees, who joined to these subsidiaries before 1995. The amount payable is dependent on the employees final salary and years of services. The Group does not set aside any assets to fund such obligations. Under the scheme, the employees are entitled to a pension between 25% and 40% of final salary for each year of pensionable service at an age of 65. No other post-retirement benefits are provided. The most recent actuarial valuations of the present value of the defined benefit obligations were carried out in March 2013 by Roma Appraisals Limited (Roma), an independent qualified professional valuer, using the projected unit credit method. The principal place of business of Roma is Unit 3806, 38/F, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong. The assumptions which have the most significant effect on the results of the valuation are discount rate, retirement rate, turnover rate, mortality rate and the rate of increase in salaries.

1995

65 25% 40% 2013 3 26 38 3806

144

36. Retirement Benefits Scheme (Continued)

Defined benefit scheme (Continued)
The main actuarial assumptions used were as follows:

36.

2013 2013 2012 2012 1.5% 3.5% 0%

Discount rate Expected rate of salary increase Turnover rate

1.4% 3.5% 0%

Amounts recognised in profit or loss in respect of the defined benefit pension scheme are as follows:

2013 2013 HK$ million Current service cost Interest on obligation Actuarial loss 1.8 2.7 57.5 62.0 The charge for the year ended 31 March 2013 has been included as staff costs in consolidated statement of comprehensive income. The amount included in the consolidated statement of financial position arising from the Groups obligations in respect of its defined benefit obligations is as follows:

2012 2012 HK$ million 2.3 4.6 34.9 41.8

2013 3 31

2013 2013 HK$ million Present value of defined benefit obligations 251.3

2012 2012 HK$ million 196.9

Movements in the present value of the defined benefit contribution obligations are as follows:

2013 2013 HK$ million At 1 April Service costs Interest costs Actuarial loss Benefits paid At 31 March 41 331 196.9 1.8 2.7 57.5 (7.6) 251.3

2012 2012 HK$ million 162.6 2.3 4.6 34.9 (7.5) 196.9

Chow Tai Fook Annual Report 2013

2013

145

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

37. Share Option Scheme

Pursuant to a resolution which were passed on 17 November 2011, the Company adopted a share option scheme (the Share Option Scheme) for the purpose of attracting skilled and experienced personnel, to incentivise them to remain with the Group and to motivate them to strive for the future development and expansion of the Group by providing them with the opportunity to acquire equity interests in the Company. Under the Share Option Scheme, the directors of the Company may grant options to directors (including executive directors, non-executive directors and independent nonexecutive directors), the directors of the subsidiaries and the employees of the Group and any other persons (including consultants or advisers) who the directors of the Company consider, in its absolute discretion, have contributed or will contribute to the Group (the Participants). The Share Option Scheme shall be valid and effective for a period of 10 years commencing on 17 November 2011. An offer of the grant of an option shall be made to a Participant by a notice of grant requiring the Participant to undertake to hold the option on the terms on which it is to be granted (which may include a minimum period for which the option must be held before it can be exercised and a performance target that must be reached before the option can be exercised in whole or in part) and to be bound by the terms of the Share Option Scheme. An offer of the grant of an option is deemed to be accepted by the Participant (the Grantee) when the Company receives from the Grantee the duplicate notice of grant duly signed by the Grantee. An offer may be accepted or deemed to have been accepted in respect of less than the number of shares in respect of which it is offered, provided that it is accepted in respect of a board lot or an integral multiple thereof. No amount is payable by the Grantee upon acceptance of an offer of an option. The offer shall remain open for acceptance for such time to be determined by the directors of the Company, provided that no such offer shall be open for acceptance after the expiry of the Share Option Scheme or after the termination of the Share Option Scheme in accordance with its terms or after the Participant to whom the offer is made has ceased to be a Participant. To the extent that the offer is not accepted within the time period and in the manner specified in the offer, the offer will be deemed to have been irrevocably declined. The exercise price shall be determined by the directors of the Company, and shall not be less than the higher of (i) the closing price of the Companys shares on the date of grant, (ii) the average closing price of the shares for the five trading days immediately preceding the date of grant; and (iii) the nominal value of the Companys share on the date of grant. During the year ended 31 March 2013 and 2012, no share options were granted nor exercised by the Company.

37.
2011 11 17

10 2011 11 17

(i) (ii) (iii)

2013 2012 3 31

146

38. Related Party Transactions

(i) Other than the transactions and balances disclosed elsewhere in the consolidated financial statements, the Group had entered into the following related party transactions during the year:

38.
(i) 2013 2013 HK$ million 2012 2012 HK$ million

Continuing related party transactions: Advertising expenses paid to entities in which certain directors of the Company have control Concessionaire fees paid to entities in which certain directors of the Company have control Concessionaire fees paid to non-controlling shareholders of subsidiaries Engineering services fee paid to entities in which a close family member of certain directors of the Company has control Rental expenses paid to entities in which certain directors of the Company have control Sales of goods to non-controlling shareholders of subsidiaries Purchase of goods and commission paid to entities in which certain directors of the Company have control Sales of goods to entities in which certain directors of the Company have control

9.1 169.9 20.7 155.1 20.8 3.7

12.0

12.5

180.7 223.8

109.8 122.8

38.7 5.7

19.2

Discontinued related party transactions: Interest income received from CTF Enterprises and its fellow subsidiaries (collectively refer to as the CTF Enterprises Group) Entity in which a director of certain subsidiaries of the Company has control Sub-contracting fee paid to the companies in which the key management personnel of the Company has significant influence Purchase of raw materials from an entity in which certain close family members of certain directors of the Company have control Interest expense paid to CTF Enterprises Group Consideration paid for acquisition of a subsidiary to a close family member of a director of the Company Donation paid to charities in which certain directors of the Company have control

22.6 2.3

126.2

304.6 7.9

14.5 6.5

Chow Tai Fook Annual Report 2013

2013

147

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

38. Related Party Transactions (Continued)

(ii) Remuneration paid for key management personnel includes the directors and the chief executives of the Company as disclosed in note 13. The remuneration of the directors and the chief executives of the Company is determined by the remuneration committee having regard to the performance of individuals and market trends. As at 31 March 2012, certain banking facilities were secured by personal guarantee from the Companys executive director, Dr. Cheng Kar-Shun, Henry, and by certain listed securities owned by CTF Enterprises as disclosed in note 30.

38.
(ii) 13

(iii)

(ii)

302012331

39. Principal Subsidiaries of the Company

Details of the Companys principal subsidiaries at the end of the reporting period are set out below: Issue and fully paid share capital/ registered capital/ quota capital

39.

Name of subsidiaries

Place and date of incorporation/ establishment

Proportion of ownership interest held by the Company 2013 2012 2013 2012 100% 100%

Principal activities

CTF Watch Limited (CTF Watch)

British Virgin Islands (BVI) 13 December 2010 2010 12 13 BVI 20 June 2011 2011620 BVI 3 March 2011 201133 BVI 2 March 2011 201132

Share US$1 1

Investment holding

Highrise Achiever Limited* (Highrise)

Share US$1 1

100%

100%

Investment holding

Majestic Project Limited (Majestic)

Share US$1 1

100%

100%

Investment holding

Sincere Elite Limited (Sincere Elite)

Share US$1 1

100%

100%

Investment holding

148

39. Principal Subsidiaries of the Company (Continued)

Place and date of incorporation/ establishment Issue and fully paid share capital/ registered capital/ quota capital

39.
Proportion of ownership interest held by the Company 2013 2012 2013 2012 100% 100%

Name of subsidiaries

Principal activities

American Overseas Investment Inc. (American Overseas)

Delaware, the United States of America (the USA) 26 January 1973 1973126 Hong Kong 10 January 2008 2008110 Hong Kong 6 March 1961 196136

Shares US$10 10

Investment holding

Bentley Trading Limited (Bentley) Chow Tai Fook Jewellery Company Limited (CTF Jewellery) CTF Watch (HK) Limited (CTF Watch HK) Fook Kwan Jewellery Manufacturing Limited (Fook Kwan) Lun Jiao Industrial (Hong Kong) Limited (Lun Jiao) Solomon Watch & Jewellery Co., Limited (Solomon Watch)

Ordinary shares HK$10,000 10,000 Ordinary shares HK$350,000,000 350,000,000

100%

100%

Trading of diamond

100%

100%

Sales of jewellery products

Hong Kong 7 February 2011 201127 Hong Kong 23 February 1979 1979223

Ordinary share HK$1 1 Ordinary shares HK$500,000 500,000

100%

100%

Sales of watches

100%

100%

Manufacturing of jewellery products

Hong Kong 15 October 1971 19711015

Ordinary shares HK$200 200

100%

100%

Investment holding

Hong Kong 24 November 2004 20041124

Ordinary shares HK$100 100

100%

100%

Sales of watches and investment holding

Chow Tai Fook Annual Report 2013

2013

149

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

39. Principal Subsidiaries of the Company (Continued)

Place and date of incorporation/ establishment Issue and fully paid share capital/ registered capital/ quota capital

39.
Proportion of ownership interest held by the Company 2013 2012 2013 2012 100% 100%

Name of subsidiaries

Principal activities

Techni Development Investment Limited (Techni) Chow Tai Fook Jewellery and Watch Company (Macau) Limited (CTF Macau) Zlotowskis Diamond Cutting Works (Proprietary) Limited (Zlotowski)

Hong Kong 26 May 2005 2005526

Ordinary shares HK$5,000,000 5,000,000

Sales of jewellery products and investment holding Sales of jewellery products

Macau 17 March 2009 2009317

Quota capital MOP5,000,000 5,000,000

100%

100%

The Republic of Shares South Africa ZAR10,020,000 (the South Africa) 25 October 1951 10,020,000 1951 10 25 PRC^ 13 November 2006 ^ 20061113 Registered capital US$5,000,000 5,000,000

84%

84%

Diamond cutting and polishing

Beijing Chow Tai Fook Jewellery Company Limited (Beijing CTF) Bojuehang Jewellery Manufacturing (Shenzhen) Company Limited (Bojuehang) Chongqing Chow Tai Fook Watch Marketing Company Limited (Chongqing CTF Watch) Chongqing Flamingo Watch Company Limited (Chongqing Flamingo)

100%

100%

Sales of jewellery products

PRC^ 16 April 2003 ^ 2003416

Registered Capital HK$1,000,000 1,000,000

100%

100%

Manufacturing of jewellery products

PRC 25 December 2008 20081225

Registered capital RMB10,000,000 10,000,000

100%

100%

Sales of watches

PRC 25 December 2008 20081225

Registered capital RMB1,000,000 1,000,000

100%

70%

Sales of watches

150

39. Principal Subsidiaries of the Company (Continued)

Place and date of incorporation/ establishment Issue and fully paid share capital/ registered capital/ quota capital

39.
Proportion of ownership interest held by the Company 2013 2012 2013 2012 51% 51%

Name of subsidiaries

Principal activities

Chongqing Kaifu Jewellery Company Limited (Chongqing Kaifu) Chow Tai Fook Jewellery (Chongqing) Company Limited (CTF Chongqing) Chow Tai Fook Jewellery (Shenzhen) Company Limited (Shenzhen CTF) Chow Tai Fook Jewellery (Suzhou) Company Limited (CTF Suzhou) Chow Tai Fook Jewellery (Wuhan) Company Limited (CTF Wuhan) Chow Tai Fook Jewellery Zhangjiagang Baoshui Company Limited (CTF Zhangjiagang) Foshan Shunde Yuda Jewellery Manufacturing Company Limited (Shunde Yuda)

PRC+ 25 December 2008 + 20081225

Registered capital RMB5,000,000 5,000,000

Sales of jewellery products

PRC^ 23 December 2008 ^ 20081223

Registered capital US$2,000,000 2,000,000

100%

100%

Sales of jewellery products

PRC^ 2 April 2002 ^ 200242

Registered capital US$40,000,000 40,000,000

100%

100%

Manufacturing and sales of jewellery products

PRC^ 11 January 2006 ^ 2006 1 11

Registered capital US$30,000,000 30,000,000

100%

100%

Sales of jewellery products

PRC^ 29 January 2008 ^ 2008 1 29

Registered capital US$2,500,000 2,500,000

100%

100%

Sales of jewellery products

PRC^ 21 April 2010 ^ 2010 4 21

Registered capital US$5,000,000 5,000,000

100%

100%

Sales of jewellery products

PRC^ 14 March 2007 ^ 2007 3 14

Registered capital HK$5,000,000 5,000,000

100%

100%

Manufacturing of jewellery products

Chow Tai Fook Annual Report 2013

2013

151

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

39. Principal Subsidiaries of the Company (Continued)

Place and date of incorporation/ establishment Issue and fully paid share capital/ registered capital/ quota capital

39.
Proportion of ownership interest held by the Company 2013 2012 2013 2012 100% 100%

Name of subsidiaries

Principal activities

Foshan Yushunfu Jewellery and Diamond Company Limited (Yushunfu) Guangdong Chow Tai Fook Jewellery Company Limited (Guangdong CTF) Guangdong Zhaofu Jewellery Company Limited (Guangdong Zhaofu) Kunming Yinfu Jewellery Company Limited (Kunming Yinfu) Lida Noble Metal Technology and Development (Shenzhen) Company Limited (Shenzhen Lida) Shenzhen CTF Watch Company Limited (Shenzhen CTF Watch) Wuhan Hanfu Jewellery Company Limited (Wuhan Hanfu)

PRC^ 9 November 1988 ^ 1988 11 9

Registered capital US$14,430,000 14,430,000

Manufacturing of jewellery products

PRC^ 10 December 2007 ^ 2007 12 10

Registered capital US$5,000,000 5,000,000

100%

100%

Sales of jewellery products

PRC+ 28 February 2003 + 2003 2 28

Registered capital RMB10,000,000 10,000,000

50%#

50%#

Sales of jewellery products

PRC+ 20 January 2003 + 2003 1 20

Registered capital RMB5,000,000 5,000,000

70%

70%

Sales of jewellery products

PRC^ 31 March 2006 ^ 2006331

Registered capital HK$10,000,000 10,000,000

100%

100%

Manufacturing of jewellery products

PRC+ 27 June 2011 + 2011627

Registered capital HK$100,000,000 100,000,000

80%

100%

Sales of watches

PRC+ 26 November 2003 + 20031126

Registered capital RMB15,000,000 15,000,000

70%

70%

Sales of jewellery products

152

39. Principal Subsidiaries of the Company (Continued)

Place and date of incorporation/ establishment Issue and fully paid share capital/ registered capital/ quota capital

39.
Proportion of ownership interest held by the Company 2013 2012 2013 2012 50%# 50%#

Name of subsidiaries

Principal activities

Zhangjiagang Baoshui Dade Xinfu Jewellery Company Limited (Zhangjiagang Dade Xinfu) Zhangjiagang Baoshui Qifu Jewellery Trading Company Limited (Zhangjiagang Qifu)
*
#

PRC+ 3 December 2010 + 2010123

Registered capital RMB3,000,000 3,000,000

Sales of jewellery products

PRC+ 11 June 2007 + 2007611

Registered capital RMB20,000,000 20,000,000

51%

51%

Sales of jewellery products

Directly held by the Company. Pursuant to the relevant agreements entered into among shareholders of these entities, the Group has power to govern the operating and financing policies of these entities since their respective date of establishment/acquisition, and hence these entities are classified as subsidiaries of the Company. Being a cooperative joint venture establishment in the PRC. Being a wholly foreign owned enterprise. Being wholly owned by a PRC subsidiary.

*
#

Note: The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affect the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

Chow Tai Fook Annual Report 2013

2013

153

Notes to the Consolidated Financial Statements

For the year ended 31 March 2013 2013 3 31

40. Information About Statement of Financial Position of the Company

40.
2013 2013 HK$ million 2012 2012 HK$ million

Assets Investment in a subsidiary Amounts due from subsidiaries Other assets

19,051.5 3.0 19,054.5

20,752.6 318.3 21,070.9

Liabilities Gold loans Bank borrowings Other liabilities

1,219.4 700.0 0.5 1,919.9 17,134.6

4,533.4 9.6 4,543.0 16,527.9

Capital and reserves Share capital Reserves

10,000.0 7,134.6 17,134.6 Share capital HK$ million Share premium HK$ million Retained profits HK$ million

10,000.0 6,527.9 16,527.9

Total HK$ million

At 20 July 2012 (date of incorporation) Profit and total comprehensive income for the year Capitalisation issue Issue of shares Transaction costs attributable to issue of shares Dividends

2012 7 20

8,950.0 1,050.0 10,000.0 10,000.0

(8,950.0) 14,700.0 (251.3) 5,498.7 5,498.7

2,229.2 (1,200.0) 1,029.2 2,206.7 (1,600.0) 1,635.9

2,229.2 15,750.0 (251.3) (1,200.0) 16,527.9 2,206.7 (1,600.0) 17,134.6

At 31 March 2012 2012 3 31 Profit and total comprehensive income for the year Dividends At 31 March 2013 2013 3 31

154

Financial Summary

The following is a summary of the published results and assets and liabilities of the Group for the last five financial years. The financial information for FY2012 and FY2013 is extracted from the consolidated financial statements in this annual report while such for FY2009, FY2010 and FY2011 is extracted from the prospectus of the Company dated 5 December 2011.

2012 2013 20092010 2011 2011 12 5 For the year ended 31 March 331

2013 2013 HK$ million Revenue Gross profit Profit for the year 57,433.9 16,283.1 5,678.4

2012 2012 HK$ million 56,571.1 16,447.9 6,570.9

2011 2011 HK$ million 35,042.5 9,927.6 3,672.5 As at 31 March 331

2010 2010 HK$ million 22,933.6 6,555.0 2,206.8

2009 2009 HK$ million 18,410.9 5,326.0 1,914.4

2013 2013 HK$ million Total assets Total liabilities Net assets 43,218.6 9,357.9 33,860.7

2012 2012 HK$ million 47,414.3 17,841.3 29,573.0

2011 2011 HK$ million 29,048.7 17,375.8 11,672.9

2010 2010 HK$ million 17,010.3 8,674.9 8,335.4

2009 2009 HK$ million 14,409.5 7,967.6 6,441.9

Chow Tai Fook Annual Report 2013

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155

Information for Investors

Corporate Information
Honorary Chairman
Dato Dr. Cheng Yu-Tung

Board of Directors
Executive Directors
Dr. Cheng Kar-Shun, Henry(Chairman) Mr. Wong Siu-Kee, Kent(Managing Director) Mr. Cheng Chi-Kong, Adrian Mr. Cheng Chi-Heng, Conroy Mr. Chan Sai-Cheong Mr. Chan Hiu-Sang, Albert Mr. Cheng Ping-Hei, Hamilton Mr. Suen Chi-Keung, Peter

Non-Executive Directors
Mr. Cheng Kam-Biu, Wilson Mr. Koo Tong-Fat

Independent Non-Executive Directors

Mr. Cheng Ming-Fun, Paul Dr. Fung Kwok-King, Victor Mr. Kwong Che-Keung, Gordon Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond

Audit Committee
Mr. Kwong Che-Keung, Gordon(Committee Chairman) Mr. Cheng Ming-Fun, Paul Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond

Nomination Committee
Dr. Fung Kwok-King, Victor(Committee Chairman) Dr. Cheng Kar-Shun, Henry Mr. Wong Siu-Kee, Kent Mr. Cheng Ming-Fun, Paul Mr. Lam Kin-Fung, Jeffrey Mr. Or Ching-Fai, Raymond

Remuneration Committee
Mr. Or Ching-Fai, Raymond(Committee Chairman) Dr. Cheng Kar-Shun, Henry Mr. Wong Siu-Kee, Kent Dr. Fung Kwok-King, Victor Mr. Kwong Che-Keung, Gordon

Company Secretary
Mr. Cheng Ping-Hei, Hamilton

156

Principal Bankers
Agricultural Bank of China Bank of China China Construction Bank Hang Seng Bank The Hongkong and Shanghai Banking Corporation Industrial and Commercial Bank of China Standard Chartered Bank

Auditor
Deloitte Touche Tohmatsu

Compliance Adviser
Rothschild (Hong Kong) Limited

Legal Advisers
Freshfields Bruckhaus Deringer Conyers Dill & Pearman Commerce & Finance Law Offices

Conyers Dill & Pearman

Registered Office
Codan Trust Company (Cayman) Limited Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Codan Trust Company (Cayman) Limited Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY11111 Cayman Islands

Headquarters and Principal Place of Business in Hong Kong

38/F, New World Tower 1618 Queens Road Central, Hong Kong

1618 38

Listing Information
Company Name
Chow Tai Fook Jewellery Group Limited

Stock Code on the Hong Kong Stock Exchange

1929

1929

Listing Date
15 December 2011

2011 12 15

Chow Tai Fook Annual Report 2013

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157

Information for Investors

Index Constituent
Hang Seng Global Composite Index Hang Seng Composite Index Hang Seng Mainland 100 Index Hang Seng China 50 Index FTSE Asian Retail Index

100 50

Financial Calendar
Interim results announcement 29 November 2012 Payment of interim dividend 15 January 2013 Annual results announcement 18 June 2013

2012 11 29 2013 1 15 2013 6 18

For ascertaining shareholders right to attend and vote at the 2013 annual general meeting of the Company:
Closure of register of members (both days inclusive) 29 August to 2 September 2013 Latest time to lodge transfers 4:30 pm on 28 August 2013 Annual general meeting 2 September 2013

2013
2013 8 29 9 2 2013 8 28 4 30 2013 9 2

For ascertaining shareholders entitlement to proposed final dividend:

Closure of register of members (both days inclusive) 6 to 9 September 2013 Latest time to lodge transfers 4:30 pm on 5 September 2013 Payment of final dividend on or about 18 September 2013

2013 9 6 9 2013 9 5 4 30 2013 9 18

Share Information
Board Lot Size
200 shares

200

Issued Share Capital as at 31 March 2013

10,000,000,000 shares

2013 3 31
10,000,000,000

158

Investor Relations Contact

For more information about the Group, please contact the Investor Relations Department at: 38/F, New World Tower 1618 Queens Road Central, Hong Kong Tel: (852) 2524-3166 Fax: (852) 2526-9178 e-mail: ir@chowtaifook.com

1618 38 (852) 25243166 (852) 25269178 ir@chowtaifook.com

Company website
www.chowtaifook.com

www.chowtaifook.com

Registrar and Transfer Offices

Cayman Islands Principal Share Registrar
Codan Trust Company (Cayman) Limited Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Codan Trust Company (Cayman) Limited Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY11111 Cayman Islands

Hong Kong Branch Share Registrar

Tricor Investor Services Limited 26th Floor, Tesbury Centre 28 Queens Road East Wanchai, Hong Kong

28 26

Chow Tai Fook Annual Report 2013

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159

Glossary

Alrosa Articles

OJSC Alrosa the articles of association of the Company (as amended from time to time) the board of Directors of the Company compound annual growth rate a bankcard organisation based in the Mainland of China Chow Tai Fook Jewellery Group Limited (stock code: 1929) 1929 Self-operated POS with concessionaire agreement Chow Tai Fook Enterprises Limited, a subsidiary of CTF Holding CTF Holding Chow Tai Fook Capital Limited, a substantial shareholder of the Company Chow Tai Fook Capital Limited Chow Tai Fook Jewellery Company Limited, an indirect wholly-owned subsidiary of the Company Chow Tai Fook (Holding) Limited, a substantial shareholder of the Company Chow Tai Fook (Holding) Limited Cheng Yu Tung Family (Holdings) Limited, a substantial shareholder of the Company Cheng Yu Tung Family (Holdings) Limited Cheng Yu Tung Family (Holdings II) Limited, a substantial shareholder of the Company Cheng Yu Tung Family (Holdings II) Limited Directors of the Company Diamond Trading Company, the rough diamond distribution arm of the De Beers family of companies Diamond Trading CompanyDe Beers Fiscal year, 1 April to 31 March of the following year 41331

Board

CAGR

China UnionPay

Company/Chow Tai Fook Concessionaire Counter

CTFE

CTF Capital

CTF HK

CTF Holding

CYT Family Holdings

CYT Family Holdings II

Directors

DTC

FY

160

gemstones

colour stones, jadeite and pearls jewellery products made with diamonds and gemstones the Company and its subsidiaries jewellery products with a retail price of above HK$100,000 per piece 10 jewellery products made from gold alloy Lifestyle International Holdings Limited (stock code: 1212) 1212 15 December 2011, being the date on which the Companys shares were listed on the Main Board of the Stock Exchange 20111215 Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited jewellery products with a retail price ranging from HK$2,000 to HK$100,000 per piece 210 New World China Land Limited (stock code: 917) 917 New World Development Company Limited (stock code: 17) 17 New World Department Store China Limited (stock code: 825) 825 points of sale Rio Tinto Diamonds N.V. for FY2009, FY2010, FY2011, FY2012 and FY2013, the revenue from self-operated POS (including stand-alone stores, Concessionaire Counters and joint-venture POS) existing as at the end of the relevant fiscal year and which have been opened for at least 24 consecutive months immediately prior to the end of that fiscal year. Revenue from wholesale channel (i.e. franchisee sales) and other direct sales (such as sales from promotional events) are excluded 20092010201120122013 24

gem-set jewellery

Group

high-end luxury jewellery

karat gold K

Lifestyle International

Listing Date

Listing Rules

mass luxury jewellery

NWCL

NWD

NWDS

POS

Rio Tinto Same Store Sales

Chow Tai Fook Annual Report 2013

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161

Glossary

Same Store Sales Growth

a comparison between Same Store Sales of a particular year and sales from comparable POS in the previous year, measured at constant exchange rates the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) 571 The Stock Exchange of Hong Kong Limited

SFO

Stock Exchange

162

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