Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 20-F/A

(Amendment No. 1)

 


 

(Mark One)

 

o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

OR

 

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018

 

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                       to                        

 

 

OR

 

 

o

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

 

Commission file number: 001-33853

 

CTRIP.COM INTERNATIONAL, LTD.

(Exact Name of Registrant as Specified in Its Charter)

 

N/A

(Translation of Registrant’s Name Into English)

 

Cayman Islands

(Jurisdiction of Incorporation or Organization)

 

968 Jin Zhong Road

Shanghai 200335

People’s Republic of China

(Address of Principal Executive Offices)

 

Jane Jie Sun, Chief Executive Officer

Telephone: +86 (21) 3406-4880

Facsimile: +86 (21) 5251-0000

968 Jin Zhong Road

Shanghai 200335

People’s Republic of China

(Name, Telephone, Email and/or Facsimile Number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

American depositary shares,
each representing 0.125 ordinary share, par value US$0.01 per share

 

CTRP

 

Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Ordinary shares, par value US$0.01 per share*

 

 

 

 

 


*                 Not for trading, but only in connection with the listing of American depositary shares on the Nasdaq Global Select Market.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

(Title of Class)

 


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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 69,122,824 ordinary shares, par value $0.01 per share, as of December 31, 2018.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x No  o

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  o No  x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x No  o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  x No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer x

 

Accelerated Filer                       o

Non-Accelerated Filer   o

 

Emerging Growth Company     o

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

o

 


         The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP x

 

International Financial Reporting Standards as issued
by the International Accounting Standards Board
o

 

Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  o  Item 18 o

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes  No x

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 

Yes  o  No o

 


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EXPLANATORY NOTE

 

This Amendment No. 1 on Form 20-F/A (the “Amendment”) is being filed by Ctrip.com International, Ltd. (the “Company,” “we,” “our,” or “us”) to amend the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2018, originally filed with the U.S. Securities Exchange Commission on March 15, 2019 (the “Original Filing”). This Amendment is being filed solely for the purpose of complying with Regulation S-X, Rule 3-09. Rule 3-09 requires, among other things, that separate financial statements for unconsolidated subsidiaries and investees accounted for by the equity method to be included in the Form 20-F when such entities are individually significant.

 

We have determined that our equity method investment in Tongcheng-Elong Holdings Limited (formerly known as “China E-dragon Holdings Limited,” hereinafter referred to as “Tongcheng-Elong”), which is not consolidated in our financial statements, was significant under the income test of Rule 1-02(w) of Regulation S-X in relation to our financial results for the year ended December 31, 2016.  This Amendment is therefore filed solely to supplement the Original Filing with the inclusion of the financial statements and related notes of Tongcheng-Elong as of and for the fiscal years ended December 31, 2016, 2017, and 2018 (the “Tongcheng-Elong Financial Statements”).

 

This Form 20-F/A consists solely of the cover page, this explanatory note, the Tongcheng-Elong Financial Statements, updated certifications of our chief executive officer and chief financial officer, and consent of the independent auditor of Tongcheng-Elong. This Amendment does not affect any other parts of, or exhibits to, the Original Filing, nor does it reflect events occurring after the date of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and with our filings with the U.S. Securities Exchange Commission subsequent to the Original Filing.

 


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TABLE OF CONTENTS

 

 

 

Page

PART III

 

 

ITEM 18.

FINANCIAL STATEMENTS

1

ITEM 19.

EXHIBITS

98

 

i


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PART III

 

Item 18. Financial Statements

 

The following financial statements are included in this Form 20-F/A:

 

Consolidated financial statements of Tongcheng-Elong Holdings Limited as of and for the fiscal years ended December 31, 2016, 2017, and 2018

 

1


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TONGCHENG-ELONG HOLDINGS LIMITED

(FORMERLY KNOWN AS “CHINA E-DRAGON HOLDINGS LIMITED”)

(Incorporated in Cayman Islands with limited liability)

 

ACCOUNTANT’S REPORT

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 AND 2018

 

2


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Report of Independent Auditor

 

To the Board of Directors of Tongcheng-Elong Holdings Limited

 

We have audited the accompanying consolidated financial statements of Tongcheng-Elong Holdings Limited and its subsidiaries, which comprise the consolidated statement of financial position as of December 31, 2016 and the related consolidated statements of comprehensive income, of changes in equity, and of cash flow for the year then ended.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation 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 the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our 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, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements 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 Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, 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 referred to above present fairly, in all material respects, the financial position of Tongcheng-Elong Holdings Limited and its subsidiaries as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

3


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Other Matter

 

The accompanying consolidated statement of financial position of Tongcheng-Elong Holdings Limited as of December 31, 2017 and 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flow for the years then ended are presented for purposes of complying with Rule 3-09 of SEC Regulation S-X; however, Rule 3-09 does not require the 2017 and 2018 financial statements to be audited and they are therefore not covered by this report.

 

PricewaterhouseCoopers Zhong Tian LLP

Shanghai, the People’s Republic of China

 

June 29, 2018

 

4


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TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

Year ended December 31,

 

 

 

 

 

 

 

2017

 

2018

 

 

 

Note

 

2016

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

5

 

2,204,565

 

2,518,591

 

5,255,639

 

Cost of revenue

 

6

 

(1,032,913

)

(811,781

)

(1,600,513

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

1,171,652

 

1,706,810

 

3,655,126

 

 

 

 

 

 

 

 

 

 

 

Service development expenses

 

6

 

(517,648

)

(522,018

)

(1,349,935

)

Selling and marketing expenses

 

6

 

(1,882,779

)

(1,094,977

)

(1,841,314

)

Administrative expenses

 

6

 

(898,337

)

(97,379

)

(934,925

)

Fair value changes on investments measured at fair value through profit or loss

 

17(d)

 

(4,031

)

863

 

78,572

 

Other income

 

9

 

10,547

 

12,805

 

33,396

 

Other gains, net

 

10

 

4,689

 

22,610

 

47,888

 

 

 

 

 

 

 

 

 

 

 

Operating (loss)/profit

 

 

 

(2,115,907

)

28,714

 

(311,192

)

 

 

 

 

 

 

 

 

 

 

Finance income

 

11

 

8,402

 

10,145

 

12,888

 

Finance costs

 

11

 

(4,114

)

(163

)

(3,336

)

Fair value change on redeemable convertible preferred shares measured at fair value through profit or loss

 

25

 

(36,781

)

97,576

 

907,734

 

Share of results of associates

 

15

 

(11,218

)

(2,251

)

(4,568

)

 

 

 

 

 

 

 

 

 

 

(Loss)/Profit before income tax

 

 

 

(2,159,618

)

134,021

 

601,526

 

 

 

 

 

 

 

 

 

 

 

Income tax (expense)/credit

 

12

 

(978

)

60,356

 

(66,987

)

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

 

 

 

(2,160,596

)

194,377

 

534,539

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) attributable to:

 

 

 

 

 

 

 

 

 

- Equity holders of the Company

 

 

 

(2,139,267

)

195,575

 

529,957

 

- Non-controlling interests

 

 

 

(21,329

)

(1,198

)

4,582

 

 

 

 

 

(2,160,596

)

194,377

 

534,539

 

 

 

 

 

 

 

 

 

 

 

Earnings/(loss) per share (expressed in RMB per share):

 

13

 

 

 

 

 

 

 

- Basic

 

 

 

(4.60

)

0.75

 

0.33

 

- Diluted

 

 

 

(4.60

)

0.11

 

(0.22

)

 

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TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

Year ended December 31,

 

 

 

 

 

 

 

2017

 

2018

 

 

 

Note

 

2016

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

(Loss)/Profit for the year

 

 

 

(2,160,596

)

194,377

 

534,539

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)/income

 

 

 

 

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

 

 

 

 

 

 

- Currency translation differences

 

 

 

 

 

(15,917

)

Items that will not be reclassified to profit or loss:

 

 

 

 

 

 

 

 

 

- Fair value change relating to preferred shares due to own credit risk

 

25

 

36,781

 

(46,592

)

932

 

Other comprehensive (loss)/income for the year, net of tax

 

 

 

36,781

 

(46,592

)

(14,985

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) for the year

 

 

 

(2,123,815

)

147,785

 

519,554

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) attributable to:

 

 

 

 

 

 

 

 

 

- Equity holders of the Company

 

 

 

(2,102,486

)

148,983

 

514,972

 

- Non-controlling interests

 

 

 

(21,329

)

(1,198

)

4,582

 

 

 

 

 

(2,123,815

)

147,785

 

519,554

 

 

6


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TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

As of December 31,

 

 

 

 

 

 

 

2017

 

2018

 

 

 

Note

 

2016

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

14

 

101,074

 

441,722

 

934,361

 

Investments accounted for using the equity method

 

15

 

39,869

 

37,618

 

48,731

 

Investments measured at fair value through profit or loss

 

17

 

45,685

 

25,239

 

52,442

 

Land use right

 

18

 

 

 

16,038

 

Intangible assets

 

19

 

347,904

 

308,831

 

7,961,640

 

Deferred income tax assets

 

20

 

 

61,877

 

249,781

 

Prepayment and other receivables

 

21

 

49,761

 

49,172

 

31,485

 

 

 

 

 

584,293

 

924,459

 

9,294,478

 

Current assets

 

 

 

 

 

 

 

 

 

Trade receivables

 

22

 

883,382

 

539,217

 

857,326

 

Prepayment and other receivables

 

21

 

274,188

 

195,938

 

523,470

 

Short-term investments measured at amortized cost

 

17

 

 

 

261,086

 

Short-term investments measured at fair value through profit or loss

 

17

 

71,041

 

236,107

 

2,570,170

 

Restricted cash

 

23

 

153,606

 

170,541

 

140,930

 

Cash and cash equivalents

 

23

 

339,299

 

701,748

 

3,143,883

 

 

 

 

 

1,721,516

 

1,843,551

 

7,496,865

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

2,305,809

 

2,768,010

 

16,791,343

 

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

 

Capital and reserves attributable to equity holders of the Company

 

 

 

 

 

 

 

 

 

Share capital

 

29

 

84

 

99

 

7,156

 

Share premium

 

29

 

1,514,310

 

1,514,310

 

17,311,220

 

Treasury stock

 

29

 

 

(15

)

(15

)

Other reserves

 

30

 

(3,275,866

)

(3,270,057

)

(2,722,834

)

Accumulated losses

 

 

 

(3,776,727

)

(3,581,152

)

(3,060,074

)

 

 

 

 

(5,538,199

)

(5,336,815

)

11,535,453

 

Non-controlling interests

 

 

 

6,079

 

4,881

 

(7,642

)

Total equity

 

 

 

(5,532,120

)

(5,331,934

)

11,527,811

 

 

7


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TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

As of December 31,

 

 

 

 

 

 

 

2017

 

2018

 

 

 

Note

 

2016

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Borrowings

 

24

 

 

172,305

 

152,613

 

Deferred income tax liabilities

 

20

 

4,283

 

201

 

570,054

 

Redeemable convertible preferred shares

 

25

 

6,398,631

 

6,347,647

 

 

Other payables and accruals

 

27

 

2,375

 

1,839

 

6,674

 

 

 

 

 

6,405,289

 

6,521,992

 

729,341

 

Current liabilities

 

 

 

 

 

 

 

 

 

Borrowings

 

24

 

 

19,692

 

19,692

 

Trade payables

 

26

 

921,633

 

1,114,917

 

2,569,092

 

Other payables and accruals

 

27

 

510,593

 

437,358

 

1,799,749

 

Contract liabilities

 

28

 

 

 

15,084

 

Current income taxes liabilities

 

 

 

414

 

5,985

 

130,574

 

 

 

 

 

1,432,640

 

1,577,952

 

4,534,191

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

7,837,929

 

8,099,944

 

5,263,532

 

 

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

 

 

2,305,809

 

2,768,010

 

16,791,343

 

 

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TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Attributable to equity holders of the Company

 

Non-

 

 

 

 

 

Share
capital

 

Share
premium

 

Treasury stock

 

Other reserves

 

Accumulated
losses

 

Sub-total

 

controlling
interests

 

Total
equity

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 1, 2016

 

 

 

 

2,658,337

 

(1,637,460

)

1,020,877

 

27,510

 

1,048,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

 

 

 

 

(2,139,267

)

(2,139,267

)

(21,329

)

(2,160,596

)

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value of the preferred shares — attributable to its credit risk

 

 

 

 

36,781

 

 

36,781

 

 

36,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

 

 

 

 

36,781

 

(2,139,267

)

(2,102,486

)

(21,329

)

(2,123,815

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensations (Note 8)

 

 

 

 

71,325

 

 

71,325

 

 

71,325

 

Exercise of stock options (Note 8)

 

 

 

 

1,719

 

 

1,719

 

 

1,719

 

Exchange of high-vote ordinary shares to preferred shares in connection with the Restructuring (Note 25)

 

 

 

 

(3,527,596

)

 

(3,527,596

)

 

(3,527,596

)

Re-designation of ordinary shares to preferred shares in connection with the Restructuring (Note 25)

 

 

 

 

(920,414

)

 

(920,414

)

 

(920,414

)

Purchase of vested Equity Awards (Note 8)

 

 

 

 

 

(81,624

)

 

(81,624

)

 

(81,624

)

Incorporation of the Company and consummation of the Restructuring

 

84

 

1,514,310

 

 

(1,514,394

)

 

 

 

 

Purchase of non-controlling interest

 

 

 

 

 

 

 

(102

)

(102

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions with owners recognized directly in equity

 

84

 

1,514,310

 

 

(5,970,984

)

 

(4,456,590

)

(102

)

(4,456,692

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

84

 

1,514,310

 

 

(3,275,866

)

(3,776,727

)

(5,538,199

)

6,079

 

(5,532,120

)

 

9


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Attributable to equity holders of the Company

 

Non-

 

 

 

 

 

Share capital

 

Share
premium

 

Treasury
stock

 

Other reserves

 

Accumulated
losses

 

Sub-total

 

controlling
interests

 

Total
equity

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 1, 2017(Unaudited)

 

84

 

1,514,310

 

 

(3,275,866

)

(3,776,727

)

(5,538,199

)

6,079

 

(5,532,120

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

 

 

 

 

 

195,575

 

195,575

 

(1,198

)

194,377

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value of the preferred shares — attributable to its credit risk

 

 

 

 

(46,592

)

 

(46,592

)

 

(46,592

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

(46,592

)

195,575

 

148,983

 

(1,198

)

147,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensations (Note 8)

 

 

 

 

56,783

 

 

56,783

 

 

56,783

 

Issuance of RSUs (Note 8)

 

15

 

 

(15

)

 

 

 

 

 

Purchase of vested Equity Awards (Note 8)

 

 

 

 

(4,382

)

 

(4,382

)

 

(4,382

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions with owners recognized directly in equity

 

15

 

 

(15

)

52,401

 

 

52,401

 

 

52,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017(Unaudited)

 

99

 

1,514,310

 

(15

)

(3,270,057

)

(3,581,152

)

(5,336,815

)

4,881

 

(5,331,934

)

 

10


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

Attributable to equity holders of the Company

 

 

 

 

 

 

 

Share capital

 

Share
premium

 

Treasury
stock

 

Other reserves

 

Accumulated
losses

 

Sub-total

 

Non-
controlling
interests

 

Total
equity

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 1, 2018(Unaudited)

 

99

 

1,514,310

 

(15

)

(3,270,057

)

(3,581,152

)

(5,336,815

)

4,881

 

(5,331,934

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

 

 

 

529,957

 

529,957

 

4,582

 

534,539

 

Other comprehensive income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit risk for preferred share

 

 

 

 

932

 

 

932

 

 

932

 

Reclassification of the accumulated fair value change of the Preferred Shares attributable to changes in credit risk to accumulated losses upon conversion (Note 25)

 

 

 

 

8,879

 

(8,879

)

 

 

 

Currency translation differences

 

 

 

 

(15,917

)

 

(15,917

)

 

(15,917

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

 

 

(6,106

)

521,078

 

514,972

 

4,582

 

519,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensations (Note 8)

 

 

 

 

572,191

 

 

572,191

 

 

572,191

 

Issuance of ordinary shares in connection with the Acquisition (Note 29(b))

 

307

 

8,689,960

 

 

 

 

8,690,267

 

 

8,690,267

 

Issuance of ordinary shares to Tencent (Note 29(c))

 

11

 

303,176

 

 

 

 

303,187

 

 

303,187

 

Purchase of non-controlling interest (Note 32)

 

 

 

 

(18,123

)

 

(18,123

)

(18,105

)

(36,228

)

Conversion of the preferred shares to ordinary shares (Note 25)

 

192

 

5,438,789

 

 

 

 

5,438,981

 

 

5,438,981

 

Capitalization issue (Note 29)

 

5,973

 

(5,973

)

 

 

 

 

 

 

Issuance of ordinary shares in connection with the Listing (Note 29)

 

574

 

1,436,609

 

 

 

 

1,437,183

 

 

1,437,183

 

Share issuance costs (Note 29)

 

 

(65,651

)

 

 

 

(65,651

)

 

(65,651

)

Contributions from minority shareholders

 

 

 

 

 

 

 

1,000

 

1,000

 

Purchase of vested Equity Awards

 

 

 

 

(739

)

 

(739

)

 

(739

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions with owners recognized directly in equity

 

7,057

 

15,796,910

 

 

553,329

 

 

16,357,296

 

(17,105

)

16,340,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018(Unaudited)

 

7,156

 

17,311,220

 

(15

)

(2,722,834

)

(3,060,074

)

11,535,453

 

(7,642

)

11,527,811

 

 

11


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TONGCHENG-ELONG HOLDINGS LIMITED

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

 

Year ended December 31,

 

 

 

 

 

 

 

2017

 

2018

 

 

 

Note

 

2016

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

RMB’000

 

RMB’000

 

RMB’000

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Cash generated from operations

 

34

 

(413,844

)

715,021

 

2,506,100

 

Interest received

 

 

 

6,700

 

4,310

 

14,895

 

Income tax (paid)/refund

 

 

 

(3,017

)

563

 

(160,042

)

Net cash flows generated from (used in) operating activities

 

 

 

(410,161

)

719,894

 

2,360,953

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Payments for investments accounted for using the equity method

 

 

 

 

 

(9,792

)

Payments for investments measured at fair value through profit or loss

 

 

 

 

 

(22,708

)

Purchases of property, plant and equipment

 

 

 

 

(392,134

)

(337,491

)

Purchases of intangible assets

 

 

 

(56,530

)

 

(40

)

Proceeds from disposal of property, plant and equipment and intangible assets

 

34(a)

 

108

 

62

 

7,485

 

Disposal of subsidiaries, net of cash disposed

 

 

 

 

 

(7,693

)

Payment for purchase of non-controlling interests

 

 

 

 

 

(20,688

)

Proceeds from disposal of long-term investments measured at fair value through profit or loss

 

 

 

 

20,000

 

 

Decrease/(Increase) in restricted cash

 

 

 

(7,126

)

(16,935

)

40,678

 

Payments for purchases of short-term investments

 

 

 

(475,075

)

(1,673,388

)

(10,204,640

)

Proceeds from redemption of short-term investments

 

 

 

656,023

 

1,520,440

 

8,213,211

 

Cash acquired from business combination

 

33

 

 

 

941,181

 

Net cash flows generated from (used in) investing activities

 

 

 

117,400

 

(541,955

)

(1,400,497

)

 

 

 

 

 

 

 

 

 

 

Cash from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuance of ordinary shares to Tencent

 

29(c)

 

 

 

190,088

 

Purchase of vested eLong Equity Awards

 

 

 

(81,624

)

(4,382

)

(739

)

Proceeds from bank borrowings

 

 

 

 

196,920

 

 

Repayments of bank borrowings

 

 

 

 

(6,663

)

(30,038

)

Proceeds from minority shareholder

 

 

 

 

 

2,300

 

Proceeds from issuance of ordinary shares in connection with the Listing

 

29

 

 

 

1,437,183

 

Interest income on the Listing subscription deposits

 

 

 

 

 

21

 

Exercise of stock options

 

 

 

1,719

 

 

 

Payment of share issuance cost in connection with the Listing

 

 

 

 

 

(117,954

)

Net cash flows generated from (used in) financing activities

 

 

 

(79,905

)

185,875

 

1,480,861

 

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents 

 

 

 

(372,666

)

363,814

 

2,441,317

 

Cash and cash equivalents at beginning of the year

 

23

 

710,403

 

339,299

 

701,748

 

Effect of exchange rate changes on cash and cash equivalents

 

 

 

1,562

 

(1,365

)

818

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of the year

 

23

 

339,299

 

701,748

 

3,143,883

 

 

12


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TONGCHENG-ELONG HOLDINGS LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                      General information, history of the Group, material acquisitions and basis of presentation

 

1.1                               General information

 

Tongcheng-Elong Holdings Limited (the “Company”, formerly known as China E-Dragon Holdings Limited) is an exempted company with limited liability incorporated under the laws of the Cayman Islands on January 14, 2016.

 

The Company’s shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited since November 26, 2018 (the “Listing”).

 

The Company is an investment holding company. The Company and its subsidiaries (together, the “Group”) are principally engaged in the provision of travel related services, including accommodation reservation services, transportation ticketing services, and online advertising services (the “Listing Business”) in the People’s Republic of China (the “PRC”).

 

The Financial Information is presented in Renminbi (“RMB”), unless otherwise stated.

 

1.2                               History of the Group, material acquisitions and group structure

 

History of the Group

 

eLong Inc. (“eLong”) and its subsidiaries (collectively, the “eLong Group”) was the group of companies operating the Listing Business since its incorporation. Prior to May 31, 2016, the ordinary shares of eLong were listed and traded on NASDAQ Global Select Market (“NASDAQ”) in the form of American Depositary Shares (“ADS”). eLong had a dual-class share structure with each ordinary share entitled to one vote and each high-vote ordinary share entitled to fifteen votes.

 

eLong used to be controlled by Expedia, Inc. (“Expedia”) with the majority ownership and voting rights of eLong held by Expedia. Another major shareholder of eLong at the time was TCH Sapphire Limited, a company wholly owned by Tencent Holdings Limited (“Tencent”). On May 22, 2015, Expedia sold all of its equity interest in eLong to several investors, including C-Travel International Limited, a wholly owned subsidiary of Ctrip.com International Ltd. (“Ctrip”), Keystone Lodging Holdings Limited (“Keystone”), Plateno Group Limited (“Plateno”), and Luxuriant Holdings Limited (“Luxuriant”) (the “Expedia Transaction”). In connection with the Expedia Transaction, the board of directors and certain management of eLong were changed. After the Expedia Transaction, eLong no longer has any controlling shareholder and its substantial shareholders include Ctrip and Tencent. On August 17, 2015, Keystone and Plateno transferred their respective shareholding in eLong to Ocean Imagination L.P. (“Ocean Imagination”).

 

On May 31, 2016, eLong consummated a restructuring pursuant to which eLong was acquired by the Company, with all of the then existing ordinary shares of eLong being exchanged with an equivalent number of ordinary shares or convertible and redeemable preferred shares (the “Preferred Shares”) of the Company (the “Restructuring”). In conjunction with the Restructuring, Tencent, Ocean Imagination and certain management members (collectively the “Buyers”) purchased all the ordinary shares of eLong that were not owned by Ctrip, Luxuriant and the Buyers. These ordinary shares purchased by the Buyers were exchanged to the same number of the Preferred Shares of the Company. Thereafter, the ADSs of eLong ceased to be listed on NASDAQ and eLong became a wholly owned subsidiary of the Company.

 

On March 27, 2018, the Company changed its name to Tongcheng-Elong Holdings Limited.

 

13


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                      General information, history of the Group, material acquisitions and basis of presentation (Continued)

 

1.2                               History of the Group, material acquisitions and group structure (Continued)

 

Material acquisitions

 

On December 28, 2017, the Company entered into an agreement with Tongcheng Network Technology Limited (“Tongcheng Network”) and its shareholders whereby the Company acquired Tongcheng Network’s Online Travel Agency Business (“Tongcheng Online Business”) by entering into a series of contractual arrangements with Tongcheng Network and its then shareholders, and the consideration was satisfied by issuing the Company’s 96,721,818 ordinary shares to the then shareholders of Tongcheng Network (the “Acquisition”). In conjunction with the Acquisition, Tencent, through one of its wholly owned subsidiaries, subscribed additional ordinary shares of the Company at a cash consideration of approximately US$30 million (Note 29(c)). The Acquisition was completed on March 9, 2018 and thereafter, Tongcheng Network became a company controlled by the Company under the contractual arrangements as further described below. The Acquisition was accounted for using the purchase method of accounting when it was consummated, thus the consolidated financial statements of the Group has consolidated the financial information of Tongcheng Online Business from the date of the Acquisition, March 9, 2018 (Note 33).

 

1.3                              Basis of presentation

 

Immediately prior to and after the Expedia Transaction and the Restructuring, the Listing Business was carried out by eLong Group. The Expedia Transaction, which was the transaction between shareholders of eLong, did not change the business substance of the Listing Business. Pursuant to the Restructuring, the Listing Business were effectively controlled by the Company through its acquisition of the entire equity interest in eLong. The Company had not been involved in any business prior to the Restructuring and its operations did not meet the definition of a business. Therefore, the Restructuring was merely a recapitalization of the Listing Business and did not change the business substance, management or controlling shareholders of the Listing Business.  Accordingly, the Group resulting from the Expedia Transaction and the Restructuring is regarded as a continuation of the Listing Business conducted by eLong Group.  For the purpose of this report, the consolidated financial statements of the Group has been prepared and presented using the carrying amounts of the Listing Business as recorded in the consolidated financial statements of eLong throughout the years presented.

 

For companies acquired from or disposed of to a third party, including those involved in the Acquisition, their financial information is included in or excluded from the consolidated financial statements of the Group from the respective dates of the acquisitions or disposals.

 

Inter-company transactions, balances and unrealized gains/losses on transactions between group companies are eliminated on consolidation.

 

2                                         Summary of significant accounting policies

 

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

 

14


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.1                               Basis of preparation

 

The consolidated financial statements of the Group has been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by International Accounting Standard Board (“IASB”). In preparing the consolidated financial statements, the Group has early adopted IFRS 9 Financial Instruments (“IFRS 9”) and IFRS 15 Revenue from Contracts with Customers (“IFRS 15”), which were effective for financial years commencing on or after January 1, 2018, and applied consistently throughout the years presented.

 

Except for IFRS 9 and IFRS 15 which have been early adopted by the Group, all other effective standards, amendments to standards and interpretations, which are mandatory for the financial year beginning on January 1, 2018, are applied to the Group from the year ended December 31, 2018. The Company assess the net impact on the financial performance of the Group is limited.

 

The consolidated financial statements has been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including redeemable convertible preferred shares) which are carried at fair value.

 

The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3 below.

 

(a)                                 New standards and interpretations not yet adopted

 

The following new standards, amendments and interpretations to existing standards, which are relevant to the Group have been issued and are effective for further reporting periods and have not been early adopted by the Group.

 

 

 

 

 

Effective for annual periods
beginning on or after

 

 

 

 

 

Amendments to IAS 19 (Note (i))

 

Plan Amendment, Curtailment or Settlement

 

January 1, 2019

Amendments to IFRS 9 (Note (i))

 

Prepayment features with negative compensation

 

January 1, 2019

IFRIC 23 (Note (i))

 

Uncertainty over income tax treatments

 

January 1, 2019

IFRS 16 (Note (ii))

 

Leases

 

January 1, 2019

Annual improvement 2015-2017 cycle relating to IFRS 3, IFRS 11, IAS 12 and IAS 23 (Note (i))

 

Business combination, Joint arrangements, Income taxes and Borrowing costs

 

January 1, 2019

Amendments to IAS 28 (Note (i))

 

Long-term interest in associate or joint ventures

 

January 1, 2019

IFRS 10 and IAS 28 (Amendments) (Note (i))

 

Sale or contribution of assets between an investor and its associate or joint venture

 

To be determined

 

15


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.1                               Basis of preparation (Continued)

 

(a)                                 New standards and interpretations not yet adopted (Continued)

 

Note:

 

(i)                                     The Group has already commenced an assessment of the impact of these new or revised standards, and amendments. According to the preliminary assessment made by the directors (“Directors”), no significant impact on the financial performance and positions of the Group is expected when they become effective.

 

(ii)                                  IFRS 16, “Leases”, address the definition of a lease, recognition and measurement of leased and established principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that almost all operating leases will be accounted for in the Consolidated Statement of Financial Position for lessees. The accounting for lessors will not significantly change.

 

The Group is a lessee of certain office spaces which are currently classified as operating leases. The Group’s current accounting policy for such leases, as set out in Note 2.24, is to record the rental expenses in profit or loss when such expenses were incurred, with the related operating lease commitments being separately disclosed (Note 37). IFRS 16 provides new provisions for the accounting treatment of leases which no longer allows lessees to recognize the leases outside of the Consolidated Statement of Financial Position. Instead, all non-current leases should be recognized in the form of assets (for the right of use) and financial liabilities (for the payment obligations) in the Consolidated Statement of Financial Position. Short-term leases of less than twelve months and leases of low-value assets are exempt from such reporting obligation. The new standard will therefore result in a derecognition of prepaid operating leases, increase in right-of-use assets and increase in lease liabilities in the Consolidated Statement of Financial Position. In the Consolidated Statement of Comprehensive Income, as a result, the annual rental and amortization expenses of prepaid operating lease under otherwise identical circumstances will decrease, while depreciation of right-of-use of assets and interest expense arising from the lease liabilities will increase. The new standard will impact the Consolidated Statement of Financial Position in terms of total assets and liabilities.

 

As at December 31, 2018, the Group has non-cancellable operating lease commitments of RMB45 million (Note 37). Of these commitments, approximately RMB32 million relate to short-term leases which will be recognised on a straight-line basis as expense in profit or loss.

 

The Company anticipates that the application of IFRS 16 in 2019 will result in an increase in financial assets and financial liabilities, however which is likely to have insignificant impact on the financial position and financial performance of the Group.

 

There are no other standards that are not yet effective and that would be expected to have a material impact on the Group’s financial performance and position.

 

16


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.2                               Subsidiaries

 

(a)                                 Consolidation

 

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

 

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

 

(i)                                    Subsidiaries controlled through contractual arrangements

 

The prevailing PRC rules and regulations restrict foreign ownership of companies that provide internet content, call center services, travel agency and transportation ticketing services, which represent the core activities of and services provided by the Group.  As a result of such restrictions, the Company does not have equity interests in certain of its PRC operating entities. However, pursuant to a series of contractual arrangements of the Group with each of Beijing E-dragon Information Technology Limited (北京艺龙信息技术有限公司) (“Beijing E-dragon”), Suzhou Chengyi International Technology Limited (苏州程艺网络科技有限公司) (“Suzhou Chengyi”), Tongcheng Network and their respective equity holders (“Beijing E-dragon Contractual Arrangement”, “Suzhou Chengyi Contractual Arrangement”, “Tongcheng Network Contractual Arrangement”, and collectively, the “Contractual Arrangements”), which enable the Company to:

 

·                      govern the financial and operating policies of Beijing E-dragon, Tongcheng Network and Suzhou Chengyi;

 

·                      exercise equity holders’ voting rights of Beijing E-dragon, Tongcheng Network and Suzhou Chengyi;

 

·                      receive substantially all of the economic interest returns generated by Beijing E-dragon, Tongcheng Network and Suzhou Chengyi, in consideration for the technical services and software license provided by wholly-owned subsidiaries of the Company;

 

·                      have the irrevocable and exclusive right, at any time when applicable PRC law permits foreign invested companies to operate an internet content provision business, to purchase from the equity holders of Beijing E-dragon, Tongcheng Network and Suzhou Chengyi for their respective equity interests in Beijing E-dragon, Tongcheng Network and Suzhou Chengyi. The exercise price of the option is equal to the actual paid-in registered capital (or pro rata portion thereof, as appropriate) unless otherwise specified under PRC law on the date of exercise. If the transfer price of the equity interest is greater than the loan amount, the shareholders are required to immediately return the proceeds from the transfer price in excess of the loan amount to the Company; and

 

·                      obtain a pledge over the entire ownership interests of Beijing E-dragon, Tongcheng Network and Suzhou Chengyi from their respective equity holders to secure the payment obligations of Beijing E-dragon, Tongcheng Network and Suzhou Chengyi under the Contractual Arrangements.

 

17


Table of Contents

 

TONGCHENG-ELONG HOLDINGS LIMITED

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.2                               Subsidiaries (Continued)

 

(a)                                 Consolidation (Continued)

 

(i)                                    Subsidiaries controlled through contractual arrangements (Continued)

 

As a result of the Contractual Arrangements, the Company has rights to exercise power over Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries, receive variable returns from its involvement with Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries, and has the ability to affect those returns through its power over Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries.  Therefore, the Company is considered to have the power to control Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries. Consequently, the Company regards Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries as structured entities and consolidates the financial positions and results of operations of these entities in the consolidated financial statements of the Group.

 

Nevertheless, the Contractual Arrangements may not be as effective as direct legal ownership in providing the Group with direct control over Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries and such uncertainties presented by the PRC legal system could impede the Group’s beneficiary rights of the results, assets and liabilities of Beijing E-dragon, Tongcheng Network and Suzhou Chengyi and their respective subsidiaries. The Directors, based on the advice of its legal counsel, consider that the Contractual Arrangements are in compliance with the relevant PRC laws and regulations and are legally binding and enforceable.

 

(ii)                                Business combination

 

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

 

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

 

Acquisition-related costs are expensed as incurred.

 

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

 

Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is a financial asset or liability is recognized in accordance with IFRS 9 in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.2                               Subsidiaries (Continued)

 

(a)                                 Consolidation (Continued)

 

(ii)                                Business combination (Continued)

 

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

 

(iii)                            Changes in ownership interests in subsidiaries without change of control

 

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

 

(iv)                              Disposal of subsidiaries

 

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

 

(b)                                 Separate financial statements

 

Investments in subsidiaries (including structured entities) are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

 

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

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.3                               Associates

 

An associate is an entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.

 

(a)                                 Investments in associates in the form of ordinary shares

 

Investments in associates in the form of ordinary shares are accounted for using the equity method of accounting in accordance with IAS 28. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investments in these associates include goodwill identified on acquisition, net of any accumulated impairment loss. Upon the acquisition of the ownership interest in an associate, any difference between the cost of the associate and the Group’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill.

 

If the ownership interest in an associate in the form of ordinary shares is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income or loss is reclassified to consolidated statement of comprehensive income or loss where appropriate.

 

The Group’s share of the associates’ post-acquisition profit or loss is recognized in the consolidated statement of comprehensive income or loss, and its share of post-acquisition movements in other comprehensive income or loss is recognized in other comprehensive income or loss. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

 

The Group determines at each reporting date whether there is any objective evidence that the investments in the associate are impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount adjacent to “share of profit of investments accounted for using equity method” in the consolidated statement of comprehensive income or loss.

 

Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognized in the Group’s consolidated financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Gain or losses on dilution of equity interest in associates are recognized in the consolidated statement of comprehensive income or loss.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.3                               Associates (Continued)

 

(b)                                 Investments in associates in the form of redeemable convertible preferred shares

 

Investments in associates in the form of redeemable convertible preferred shares or ordinary shares with preferential rights shares are accounted as financial assets measured at fair value through profit or loss.

 

2.4                               Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer, vice presidents and Directors of the Company that makes strategic decisions.

 

2.5                               Foreign currency translation

 

(a)                                 Functional and presentation currency

 

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Company’s shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited since November 26, 2018 and the Company receives Listing proceeds and settles various kinds of expenses in either Hong Kong Dollars (“HKD”) or United States Dollars (“USD”), thus the Company determined to change its functional currency from RMB to USD from December 1, 2018. The Company’s primary subsidiaries were incorporated in the PRC and these subsidiaries considered RMB as their functional currency. As the major operations of the Group are within the PRC, the Group determined to present its consolidated financial statements in RMB (unless otherwise stated).

 

(b)                                 Transactions and balances

 

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

 

Translation differences on non-monetary financial assets and liabilities such as instruments held at fair value through profit or loss are recognized in profit or loss as part of the fair value changes.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.5                               Foreign currency translation (Continued)

 

(c)                                  Group companies

 

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

 

·                      assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

 

·                      income and expenses for each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

 

·                      all resulting currency translation differences are recognized in other comprehensive income.

 

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognized in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

 

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

 

2.6                               Property, plant and equipment

 

All property, plant and equipment is stated at historical costs less accumulated depreciation and accumulated impairment charge. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the consolidated statement of comprehensive income or loss during the financial period in which they are incurred. Depreciation is calculated on the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

 

Building

 

20 to 50 years

Software

 

3 to 10 years

IT equipment

 

2 to 5 years

Leasehold improvements

 

Estimated useful lives or remaining lease terms, whichever is shorter

Furniture, fixtures and motor vehicle

 

4 to 5 years

 

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

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.6                               Property, plant and equipment (Continued)

 

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

 

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognized in “Other gains/(losses), net” in the consolidated statement of comprehensive income or loss.

 

Construction in progress represents office building and leasehold improvements under construction. Construction in progress is stated at cost less accumulated impairment losses, if any.

 

Cost includes the costs of construction and acquisition, and capitalized costs attributable to the construction during the period of construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for intended use. When the assets concerned are available for use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as set out above.

 

2.7                               Land use rights

 

Land use rights represent upfront payments made for the land use rights and are expensed in the statements of comprehensive income on a straight-line basis over the periods of the leases.

 

2.8                               Intangible assets

 

(a)                                 Goodwill

 

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interests in the acquiree.

 

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

 

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently reversed.

 

(b)                                 Intangible assets other than goodwill with indefinite useful life

 

Intangible assets other than goodwill that have indefinite useful life primarily include trade name acquired in business combination are recognised at fair values at the date of the acquisition. The Company evaluates indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, the asset is tested for impairment.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.8                               Intangible assets (Continued)

 

(c)                                  Other intangible assets with definite useful life

 

Other intangible assets with definite useful life mainly including trade names, business relationship, technology platform and business cooperation arrangements, are stated at cost less accumulated amortization and impairment losses, if any. Amortization is calculated using the straight-line method to allocate the costs of acquired intangible assets over the following estimated useful lives:

 

Trade names

 

5 years

Business relationship

 

12 years

Technology platform

 

6 years

Business cooperation arrangements

 

3-5 years

Customer lists

 

5 years

Internet domain names

 

5 years

 

(d)                                 Research and development expenditures

 

Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are capitalized as intangible assets when recognition criteria are fulfilled. These criteria include: (1) it is technically feasible to complete the software product so that it will be available for use; (2) management intends to complete the software product and use or sell it; (3) there is an ability to use or sell the software product; (4) it can be demonstrated how the software product will generate probable future economic benefits; (5) adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and (6) the expenditure attributable to the software product during its development can be reliably measured. Other development expenditures that do not meet those criteria are recognized as expenses as incurred.

 

Development costs previously recognized as expenses are not recognized as assets in subsequent periods. Capitalized development costs are amortized from the point at which the assets are ready for use on a straight-line basis over their useful lives.

 

All development costs incurred by the Group during the years ended December 31, 2016, 2017 and 2018 do not meet the capitalization criteria and hence are fully expensed off.

 

2.9                               Impairment of non-financial assets other than goodwill

 

Intangible assets other than goodwill that have an indefinite useful life or intangible assets not ready to use are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.10                        Financial assets

 

(a)                                 Classification

 

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

 

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

 

·                      those to be measured at amortized cost.

 

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

 

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

 

See Note 16 for details about each type of financial asset.

 

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

 

(b)                                 Measurement

 

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

 

Debt instruments

 

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

 

·                      Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.10                        Financial assets (Continued)

 

(b)                                 Measurement (Continued)

 

Debt instruments (Continued)

 

·                      Fair value through other comprehensive income (FVOCI): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through other comprehensive income (“OCI”), except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains/(losses), net. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses and impairment expenses are presented in other gains/(losses), net.

 

·                      Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in profit or loss within other gains/(losses), net in the period in which it arises.

 

Equity instruments

 

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

 

Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gain/ (losses) in profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

 

(c)                                  Impairment

 

The Group has types of financial assets subject to IFRS 9’s new expected credit loss model:

 

·                      trade receivables for sales of goods or provision of services; and

 

·                      other receivables

 

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at a amortized cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Note 4.1(b) details how the Group determines whether there has been a significant increase in credit risk.

 

For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables. The Group uses practical expedients when estimating life time expected credit losses on trade receivables, which is calculated using a provision matrix where a fixed provision rate applies depending on the number of days that a trade receivable is outstanding.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.10                        Financial assets (Continued)

 

(c)                                  Impairment (Continued)

 

Impairment on other receivables is measured as either 12-month expected credit losses or lifetime expected credit loss, depending on whether there has been a significant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, then impairment is measured as lifetime expected credit loss.

 

2.11                        Trade and other receivables

 

Trade receivables are amounts due from customers for services performed in the ordinary course of business.

 

Trade and other receivables are generally due for settlement within one year and therefore are all classified as current.

 

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

 

2.12                        Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

 

2.13                        Share capital

 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or share options are shown in equity as a deduction from the proceeds.

 

2.14                        Trade payables

 

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

 

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

 

2.15                        Borrowings

 

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of comprehensive income or loss over the period of the borrowings using the effective interest method.

 

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

 

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.16                        Redeemable convertible preferred shares

 

Redeemable convertible preferred shares issued by the Company are redeemable upon occurrence of certain future events and at the option of the holders. This instrument can be converted into ordinary shares of the Company at any time at the option of the holders or automatically converted into ordinary shares upon occurrence of an initial public offering of the Company or agreed by majority of the holders as detailed in Note 25.

 

The Group designated the redeemable convertible preferred shares as financial liabilities at fair value through profit or loss. They are initially recognized at fair value. Any directly attributable transaction costs are recognized as finance costs in the consolidated statements of comprehensive income.

 

Subsequent to initial recognition, the redeemable convertible preferred shares are carried at fair value with changes in fair value recognized in the consolidated statements of comprehensive income in the year in which they arise.

 

Redeemable convertible preferred shares are classified as non-current liabilities when the Group has unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

 

2.17                        Current and deferred income tax

 

The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated statement of comprehensive income or loss, except to the extent that it relates to items recognized in other comprehensive income or loss or directly in equity. In this case, the tax is also recognized in other comprehensive income or loss or directly in equity, respectively.

 

(a)                                 Current income tax

 

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of each reporting period in the countries/territories where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

(b)                                 Deferred income tax

 

Inside basis differences

 

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of each reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

 

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.17                        Current and deferred income tax (Continued)

 

(b)                                 Deferred income tax (Continued)

 

Outside basis differences

 

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognized.

 

Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries and associates only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized.

 

(c)                                  Offsetting

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

2.18                        Employee benefits

 

(a)                                 Defined contribution plans

 

The Group contributes on a monthly basis to various defined contribution plans organized by the relevant governmental authorities. The Group’s liability in respect of these plans is limited to the contributions payable in each period. Contributions to these plans are expensed as incurred. Assets of the plans are held and managed by government authorities.

 

(b)                                 Bonus plan

 

The expected cost of bonuses is recognized as a liability when the Group has a present legal or constructive obligation for payment of bonus as a result of services rendered by employees and a reliable estimate of the obligation can be made. Liabilities for bonus plans are expected to be settled within 1 year and are measured at the amounts expected to be paid when they are settled.

 

(c)                                  Employee leave entitlements

 

Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period. Employee entitlements to sick and maternity leave are not recognized until the time of leave.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.18                        Employee benefits (Continued)

 

(d)                                 Share-based compensation

 

Equity-settled share-based payment transactions

 

The Group operates share incentive plan, under which it receives services from employees as consideration for equity instruments (restricted shares units (“RSUs”) and options) of the Company. The fair value of the services received in exchange for the grant of the equity instruments (RSUs and options) is recognized as an expense in the consolidated statements of comprehensive income with a corresponding increase in equity.

 

In terms of the shares, RSUs and options awarded to employees, the total amount to be expensed is determined by reference to the fair value of equity instruments (RSUs and options) granted:

 

·                      Including any market performance conditions;

 

·                      Excluding the impact of any service and non-market performance vesting conditions; and

 

·                      Including the impact of any non-vesting conditions.

 

Non-marketing performance and service conditions are included in calculation of the number of RSUs and options that are expected to vest. The total amount expensed is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.

 

The Company grants its equity instruments to employees of its subsidiaries to exchange for their services related to the subsidiaries. Accordingly, the share-based compensation expenses, which are recognised in the financial statements, are treated as part of the “Investments in subsidiaries” in the Company’s statement of financial position.

 

At the end of each reporting period, the Group revises its estimates of the number of RSUs and options that are expected to vest based on the non-marketing performance and service conditions. It recognizes the impact of the revision to original estimates, if any, in the consolidated income statements, with a corresponding adjustment to equity.

 

When the share options are exercised, the Company issues new ordinary shares. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium. Where there is any modification of terms and conditions which increases the fair value of the equity instruments granted, the Group includes the incremental fair value granted in the measurement of the amount recognized for the services received over the remainder of the vesting period. The incremental fair value is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as of the date of the modification. An expense based on the incremental fair value is recognized over the period from the modification date to the date when the modified equity instruments vest in addition to any amount in respect of the original instrument, which should continue to be recognized over the remainder of the original vesting period.

 

Cash-settled share-based payment transactions

 

Share-based compensation awards which are settled in cash upon vesting are classified as liabilities in the consolidated balance sheets. Compensation expense is determined based on the current share price at the balance sheet dates, and the proportionate amount of the requisite service that has been rendered to such date. Changes in the fair value of the liability-classified awards, after the requisite service period has been completed and before the awards are vested, are recognized as compensation expenses in the period in which the change in fair value occurs.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.19                        Provisions

 

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for further operating losses.

 

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

 

2.20                        Revenue recognition

 

The Group offers a variety of travel related services, including accommodation reservation service, transportation ticketing service and, to a much lesser extent, online advertising service.

 

Revenues are recognized when or as the control of the goods or services is transferred to the customer. Depending the terms of the contract and the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time.

 

If contracts involve the sale of multiple services, the transaction price will be allocated to each performance obligation based on their relative stand-alone selling prices. If the stand-alone selling prices are not directly observable, they are estimated based on expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information.

 

(a)                                 Principal agent consideration

 

The Group determines the presentation of its revenue by assessing whether it acts as the principal of the services that are rendered. The Group presents its revenues on a net basis (that is, the amount billed to the users less the amount paid to the travel service suppliers) when the Group acts as an agent with no control over the underlying services and does not assume inventory risk. The Group presents its revenue on a gross basis (that is, the amount billed to the users) when the Group assumes inventory risk and acts as a principal by pre-purchasing the travel related products from the travel service suppliers. The purchase payments to the travel suppliers are recorded as “cost of revenue” in the consolidated statements of comprehensive income/(loss).

 

The Group presents majority of its revenue on net basis as the supplier is primarily responsible for providing the underlying travel services and the Group does not control the service provided by the supplier prior to its transfer to the user.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.20                        Revenue recognition (Continued)

 

(b)                                 Timing of revenue recognition

 

Accommodation reservation services

 

The Group generates revenue as a result of the booking of travel products and services on its websites and mobile apps and derives its revenue mainly from the commissions earned from intermediating services for facilitating reservations of hotel accommodations. Commissions from accommodation reservation services are recognized at a point in time when the accommodation reservations placed by users through the Group become non-cancellable.

 

Transportation ticketing services

 

Transportation ticketing services primarily consist of the reservation of air tickets and train tickets, sale of travel insurance and other transportation-related services. The commissions from such services are recognized at a point in time upon the issuance of the tickets or the travel insurance, net of estimated cancellations.

 

Other Services

 

Other revenues are primarily derived from technical development service and advertising business. The revenues are recognized over the service period.

 

(c)                                  Contract asset and contract liability

 

When either party to a contract has performed, the Group presents the contract in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the Group’s performance and the customer’s payment. A contract asset is the Group’s right to consideration in exchange for services that the Group has transferred to its customer. A contract liability is the Group’s obligation to transfer services to its customer for which the Group has received consideration from the customer. Incremental costs incurred to obtain a contract, if recoverable, are capitalized and presented as contract assets and subsequently amortized when the related revenue is recognized. The Group applies the practical expedient and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

 

(d)                                Users incentive programs

 

The Company provides various users incentive programs, where participating users are awarded incentives on current transactions or for free that can be redeemed for future reservations through the Company’s platforms. The estimated fair value of the incentives awarded on current transactions that are expected to be redeemed is recognized as a reduction of revenues at the time the incentives are granted. Incentives awarded for free to participating users are not considered as payment to customer but recorded as selling and marketing expenses instead.

 

2.21                        Service development expense

 

Service development expenses represents the expenses incurred to develop and diversify the travel products and services the Company’s sources from its travel service providers as well as the expenses in relation to the research and development of service providers assist system and the Company’s online platforms.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.                                      Summary of significant accounting policies (Continued)

 

2.22                        Interest income

 

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance). Interest income is presented as finance income where it is earned from financial assets that are held for cash management purposes. Any other interest income is included in “Other gains/(losses), net”.

 

2.23                        Government grants/subsidies

 

Grants/subsidies from government are recognized at their fair value where there is a reasonable assurance that the grants/subsidies will be received and the Group will comply with all attached conditions.

 

Under these circumstances, the grants/subsidies are recognized as income or matched with the associated costs which the grants/subsidies are intended to compensate.

 

2.24                        Leases

 

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income or loss on a straight-line basis over the period of the lease.

 

2.25                        Dividends distribution

 

Dividends distribution to the Company’s shareholders is recognized as a liability in the Group’s and the Company’s financial information in the period in which the dividends are approved by the Company’s shareholders or Directors, where appropriate.

 

3.                                      Critical accounting estimates and judgements

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Management of the Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Apart from the PRC operating entities under the Group’s control through the Contractual Arrangements being accounted for as subsidiaries as described in Note 2.2(a) above, the estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

 

(a)                                 Impairment of non-financial assets

 

The Group tests annually whether goodwill has suffered any impairment. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts have been determined based on value-in-use calculations or fair value less costs to sell. These calculations require the use of judgments and estimates.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

3.                                      Critical accounting estimates and judgements (Continued)

 

(a)                                 Impairment of non-financial assets (Continued)

 

Judgment is required to determine key assumptions adopted in the valuation models for impairment review purpose. Changing the assumptions selected by management in assessing impairment could materially affect the result of the impairment test and as a result affect the Group’s financial condition and results of operations. If there is a significant adverse change in the key assumptions applied, it may be necessary to take additional impairment charge to the consolidated statement of comprehensive income or loss.

 

(b)                                 Valuation of redeemable convertible preferred shares

 

The preferred shares issued by the Company are not traded in an active marker and the respective fair value is determined by using valuation techniques. The Group has used the discounted cash flow method to determine the underlying equity value of the Company and adopted equity allocation model to determine the fair value of the preferred shares. Key assumptions, such as discount rate, risk-free interest rate, lack of marketability discount and volatility are disclosed in Note 25.

 

(c)                                  Business combinations

 

Business combinations are accounted for under acquisition method. On March 9, 2018, the Group consummated the acquisition of Tongcheng Online Business by issuing 96,721,818 ordinary shares (the “Newly Issued Shares”) of the Company as the consideration. The determination of fair values to the Newly Issued Shares and the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are royalty rate for brand name, supplier turnover rate, revenue growth rate, gross margin rate, discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted life cycle and forecasted cash flows over that period. Although the Group believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.

 

(d)                                 Useful lives and amortization charges of intangible assets

 

The Group’s management determines the estimated useful lives and related amortization charges for the Group’s intangible assets with reference to the estimated periods that the Group intends to derive future economic benefits from the use of these assets. Management will revise the amortization charges where useful lives are different to that of previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. Actual economic lives may differ from estimated useful lives. Periodic review could result in a change in useful lives and therefore amortization expense in future periods.

 

(e)                                  Current and deferred income taxes

 

The Group is subject to income taxes in the PRC and other jurisdictions. Judgment is required in determining the provision for income taxes in each of these jurisdictions. There are transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made.

 

Deferred income tax assets relating to certain temporary differences and tax losses are recognized when management considers it is probable that future taxable profits will be available against which the temporary differences or tax losses can be utilized. When the expectation is different from the original estimate, such differences will impact the recognition of deferred income tax assets and taxation charges in the period in which such estimate is changed.

 

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3.                                      Critical accounting estimates and judgements (Continued)

 

(f