UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 20-F/A

(Amendment No.1)

 

 

 

(Mark One)

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

 

OR

 

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

 

For the fiscal year ended December 31, 2017.

 

OR

 

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

OR

 

  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: 001-33768

 

FANHUA INC.

 

(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)

 

27/F, Pearl River Tower

No. 15 West Zhujiang Road

Guangzhou, Guangdong 510623

People’s Republic of China

 

(Address of principal executive offices)

 

Peng Ge, Chief Financial Officer

Tel: +86 20 83883033

E-mail: gepeng@fanhuaholdings.com

Fax: +86 20 83883181

27/F, Pearl River Tower

No. 15 West Zhujiang Road

Guangzhou, Guangdong 510623

People’s Republic of China

 

(Name, Telephone, E-mail 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

 

Name of Each Exchange on Which Registered

Ordinary shares, par value US$0.001 per share*

American depositary shares, each representing 20 ordinary shares

 

The NASDAQ Stock Market LLC

(The NASDAQ Global Select Market)

 

* Not for trading, but only in connection with the listing on The NASDAQ Global Select Market of American depositary shares, each representing 20 ordinary shares.

 

 

 

 

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

 

None

 

(Title of Class)

 

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.

 

1,300,191,084 ordinary shares, par value US$0.001 per share as of December 31, 2017

 

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

Yes ☒  No ☐

 

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 ☐  No  ☒

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ☒  No ☐

 

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 definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer Accelerated filer
Non-accelerated filer   Emerging growth company    

 

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.  ☐

 

† 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  ☒ International Financial Reporting Standards as issued
by the International Accounting Standards Board  ☐
Other  ☐

 

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 ☐  Item 18 ☐

 

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).

Yes ☐  No ☒

 

(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 ☐  No ☐

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 20-F/A (this “Amendment”) is being filed by Fanhua Inc, (the “Company”, “we,” “our,” or “us”) to amend the Company’s Annual Report on Form 20-F for the year ended December 31, 2017, originally filed with the U.S. Securities Exchange Commission (the “Commission”) on April 20, 2018 (the “Original Filing”). This Amendment is being filed for the purpose of complying with Regulation S-X, Rule 3-09 (“Rule 3-09”), which requires, among other things, that separate financial statements for unconsolidated subsidiaries and investees accounted for using the equity method be included in the Form 20-F when such entities are individually significant.

 

We determined that our equity method investment in Sincere Fame International Limited (“Sincere Fame”), which is not consolidated in our financial statements, was significant under Rule 3-09 in relation to our financial results for the year ended December 31, 2016. Therefore, the consolidated financial statements of Sincere Fame for the years ended December 31, 2015 and 2016 were filed with our Annual Report on Form 20-F for the year ended December 31, 2016 and the 2016 financial statements were audited. This Amendment is filed solely to supplement the Original Filing with the inclusion of the consolidated financial statements of Sincere Fame for the year ended December 31, 2017 (the “2017 Financial Statements”). We determined that our equity method investment in Sincere Fame was not significant under Rule 3-09 in relation to our financial results for the year ended December 31, 2017, and therefore the 2017 Financial Statements are not audited.

 

This Form 20-F/A consists solely of the cover page, this explanatory note, the 2017 Financial Statements, and updated certifications of our chief executive officer and chief financial officer. 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.

 

 

 

 

TABLE OF CONTENTS

 

PART III 1
   
Item 17.   Financial Statements 1
   
Item 18.   Financial Statements 1
   
Item 19.   Exhibits 1

 

i

 

 

PART III

 

Item 17.Financial Statements

 

We have elected to provide financial statements pursuant to Item 18.

 

Item 18.Financial Statements

 

Consolidated financial statements of Sincere Fame International Limited and its subsidiaries as of and for the year ended December 31, 2017, are hereby incorporated by reference to Exhibit 15.4 hereto. 

 

Item 19.Exhibits

 

Item 19 of our Annual Report on Form 20-F for the year ended December 31, 2017, filed on April 20, 2018, is amended by the addition of the following exhibits:

 

12.1* CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
12.2* CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
13.1** CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
13.2** CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
15.4* Financial information of Sincere Fame International Limited for the years ended December 31, 2016 and 2017, prepared in accordance with International Financial Reporting Standards:

 

  (i) Consolidated Statements of Financial Position as of December 31, 2016 and 2017;
  (ii) Consolidated Statements of Profit or Loss and Other Comprehensive Income for the Years Ended December 31, 2016 and 2017;
  (iii) Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2016 and 2017;
  (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2017; and
  (v) Notes to the Consolidated Financial Statements.

  

 

*Filed with this Amendment No. 1 on Form 20-F/A.
**Furnished with this Amendment No. 1 on Form 20-F/A.

 

1

 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

  FANHUA INC.
   
  By: /s/ Chunlin Wang
  Name: Chunlin Wang
  Title: Chief Executive Officer

 

Date: June 25, 2018

 

 

2

 

 

EXHIBIT 12.1

 

Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Chunlin Wang, certify that:

 

1.        I have reviewed this annual report on Form 20-F/A of Fanhua Inc. (the “Company”);

 

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4.        The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.        The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: June 25, 2018  
     
By: /s/ Chunlin Wang  
Name: Chunlin Wang  
Title: Chairman and Chief Executive Officer  

 

EXHIBIT 12.2

 

Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Peng Ge, certify that:

 

1.        I have reviewed this annual report on Form 20-F/A of Fanhua Inc. (the “Company”);

 

2.        Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.        Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4.        The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.        The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: June 25, 2018  
     
By: /s/Peng Ge  
Name: Peng Ge  
Title: Chief Financial Officer  

 

EXHIBIT 13.1

 

Certification by the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of Fanhua Inc. (the “Company”) on Form 20-F/A for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chunlin Wang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.    

 

Date: June 25, 2018  
     
By: /s/ Chunlin Wang  
Name: Chunlin Wang  
Title: Chairman and Chief Executive Officer  

EXHIBIT 13.2

 

Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of Fanhua Inc. (the “Company”) on Form 20-F/A for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peng Ge, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.    

 

Date: June 25, 2018  
     
By: /s/ Peng Ge  
Name: Peng Ge  
Title: Chief Financial Officer  

 

 

EXHIBIT 15.4 

 

 

 

 

 

 

 

Sincere Fame International Limited


 

 

 

 


Unaudited Consolidated Financial Statements
for the Year ended December 31, 2017

 

 

 

 

 

 

FINANCIAL STATEMENTS
FOR THE YEAR FROM 1 JANUARY 2017 TO 31 DECEMBER 2017  

 

 

 

 

 

 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of financial position as at December 31

(Expressed in Renminbi unless otherwise stated)

 

   Note  2017   2016 
      unaudited     
            
Assets           
            
Property, plant and equipment  11   22,467,900    18,680,463 
Intangible assets and goodwill  12   3,342,463    2,999,817 
Interest in associate  14   -    - 
Available-for-sale financial assets  15   400,197,885    132,685,781 
Loans and advances to customers  16   16,253,192,572    7,142,529,218 
Deferred tax assets  17(b)   112,529,947    55,613,958 
Trade and other receivables  18   232,427,738    215,471,052 
Cash and cash equivalents  19   1,190,360,385    233,138,588 
Total assets      18,214,518,890    7,801,118,877 
          
Equity             
              
Share capital  20(a)   80,973,634    80,973,634 
Reserves  20   1,750,951,779    1,038,389,405 
Total equity      1,831,925,413    1,119,363,039 
              
Liabilities             
              
Interest-bearing borrowings  21   4,055,960,917    1,094,585,401 
Accruals and other payables  22   11,942,403,723    5,487,974,708 
Current taxation  17(a)   383,451,866    96,578,805 
Deferred tax liabilities  17(b)   776,971    2,616,924 
Total liabilities      16,382,593,477    6,681,755,838 
Total liabilities and equity      18,214,518,890    7,801,118,877 

 

The notes on pages 8 to 74 form part of these financial statements.

 

 1 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of profit or loss and other comprehensive income for the year ended December 31

(Expressed in Renminbi unless otherwise stated)

 

   Note  2017   2016 
      unaudited     
            
Interest income      3,410,447,769    1,243,545,829 
Interest expense      (1,409,905,685)   (442,661,324)
Net interest income  4   2,000,542,084    800,884,505 
              
Asset management (disposal loss)/income      (18,081,390)   75,615,448 
Asset management expense      -    (3,887,977)
Net asset management (disposal loss)/income  5   (18,081,390)   71,727,471 
              
Mortgage agency service income      8,395,774    12,373,044 
Mortgage agency service expense      -    - 
Net mortgage agency income      8,395,774    12,373,044 
              
Other revenue and net income  6   

22,137,428

    15,104,820 
Operating income      2,012,993,896    900,089,840 
              
Operating expenses  7   (897,573,320)   (441,697,929)
Operating profit before impairment      1,115,420,576    458,391,911 
Impairment losses on             
- Loans and advances to customers      (292,056,944)   (106,035,336)
- Available-for-sale financial assets      -    (37,962,696)
- Trade and other receivables      (14,696,007)   (5,326,708)
- Goodwill      -    (20,279,026)
Impairment losses  8   (306,752,951)   (169,603,766)
              
Share of profits of associates  14   -    47,122 
              
Profit before taxation      808,667,625    288,835,267 
Income tax expense  9   (275,994,868)   (52,716,807)
Profit for the year      532,672,757    236,118,460 

 

The notes on pages 8 to 74 form part of these financial statements.

 

 2 

 

  

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of profit or loss and other comprehensive income for the year ended December 31 (continued)

(Expressed in Renminbi unless otherwise stated)

 

   Note  2017   2016 
      unaudited     
            
Profit for the year      532,672,757    236,118,460 
              
Other comprehensive income for the year             
              
Items that may be reclassified subsequently to profit or loss             
Fair value reserve (available-for-sale financial assets)             
- Change in fair value  10   (2,601,355)   (194,680,052)
              
Exchange differences on translation of financial statements of entities outside the People’s Republic of China (“PRC”)  10   (198,794)   (778,538)
Total comprehensive income for the year      529,872,608    40,659,870 

 

The notes on pages 8 to 74 form part of these financial statements.

 

 3 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of changes in equity for the year ended December 31

(Expressed in Renminbi unless otherwise stated)

 

  

Share

capital

   Capital reserve   Surplus
reserve
  

Regulatory

reserve

   Fair value reserve   Exchange reserve   Equity-settled share-based payment   Retained earnings  

 

Total

equity

 
   20(a)   20(b)   20(c)   20(d)   20(e)   20(f)   20(g)         
                                     
Balance at January 1, 2016   80,973,634    289,025,865    66,837,012    47,742,964    197,384,821    (3,595,526)   16,435,975    383,898,424    1,078,703,169 
Profit for the year   -    -    -    -    -    -    -    236,118,460    236,118,460 
Other comprehensive income   -    -    -    -    (194,680,052)   (778,538)   -    -    (195,458,590)
                                              
Total comprehensive income   -    -    -    -    (194,680,052)   (778,538)   -    236,118,460    40,659,870 
                                              
Surplus reserve appropriation   -    -    22,403,237    -    -    -    -    (22,403,237)   - 
Regulatory reserve appropriation   -    -    -    65,654,300    -    -    -    (65,654,300)   - 
                                              
Balance at December 31, 2016   80,973,634    289,025,865    89,240,249    113,397,264    2,704,769    (4,374,064)   16,435,975    531,959,347    1,119,363,039 
                                              
Balance at January 1, 2017   80,973,634    289,025,865    89,240,249    113,397,264    2,704,769    (4,374,064)   16,435,975    531,959,347    1,119,363,039 
Profit for the year   -    -    -    -    -    -    -    532,672,757    532,672,757 
Other comprehensive income   -    -    -    -    (2,601,355)   (198,794)   -    -    (2,800,149)
                                              
Total comprehensive income   -    -    -    -    (2,601,355)   (198,794)   -    532,672,757    529,872,608 
                                              
Surplus reserve appropriation   -    -    (26,115,938)   -    -    -    -    26,115,938    - 
Regulatory reserve appropriation   -    -    -    145,256,788    -    -    182,689,766    (145,256,788)   182,689,766 
                                              
Balance at December 31, 2017   80,973,634    289,025,865    63,124,311    258,654,052    103,414    (4,572,858)   199,125,741    945,491,254    1,831,925,413 

  

The notes on pages 8 to 74 form part of these financial statements.

 

 4 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of cash flows for the year ended December 31

(Expressed in Renminbi unless otherwise stated)

 

   Note  2017   2016 
      unaudited     
            
Operating activities           
            
Profit before tax      808,667,625    288,835,267 
              
Adjustment for:             
Depreciation  11   10,778,542    5,603,024 
Amortization  12   26,313    992,452 
Impairment losses on loans and advances to customers  8   292,056,944    106,035,336 
Net interest income  4   (2,000,542,084)   (800,884,505)
Impairment losses on trade and other receivables  8   14,696,007    5,326,708 
Impairment losses on available-for-sale financial assets  8   -    37,962,696 
Impairment loss on goodwill  8   -    20,279,026 
Net loss on disposal of property, plant and equipment  6   261,875    61,085 
Share of profit from associates  14   -    (47,122)
Foreign exchange loss/(gain)  6   2,274,438    (2,717,820)
Equity-settled share-based transaction      182,689,766    - 
              
Changes in working capital:             
              
Increase in loans and advances to customers      (9,392,914,802)   (4,880,550,484)
Increase in other operating assets      (375,692,100)   (48,048,149)
Increase/(decrease) in other operating liabilities      281,923,152    (90,929,455)
              
Cash used in operating activities      (10,175,774,324)   (5,358,081,941)
              
Interest received      3,503,335,034    1,194,584,697 
Interest paid      (1,283,728,410)   (416,084,616)
PRC income tax paid  17(a)   (47,010,630)   (25,672,356)
              
Net cash used in operating activities      (8,003,178,330)   (4,605,254,216)

 

The notes on pages 8 to 74 form part of these financial statements.

 

 5 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of cash flows for the year ended December 31 (continued)

(Expressed in Renminbi unless otherwise stated)

 

   Note  2017   2016 
      unaudited     
            
Investing activities           
            
Investment income from asset management service     9,747,033    63,628,908 
Proceeds from disposal of available-for-sale financial assets      17,393,576    349,651,127 
Proceeds from liquidation of associate      -    3,266,969 
Proceeds from disposal of property, plant and equipment and intangible assets      890,219    17,215 
Payment on investing in available-for-sale financial assets      (360,050,000)   (116,618,373)
Payment on acquisition of property, plant and equipment and intangible assets      (19,763,521)   (15,223,321)
Proceeds from disposal of subsidiaries      57,717,953    - 
              
Net cash (used in)/generated from investing activities      (294,064,740)   284,722,525 

  

The notes on pages 8 to 74 form part of these financial statements.

 

 6 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Consolidated statement of cash flows for the year ended December 31 (continued)

(Expressed in Renminbi unless otherwise stated)

 

   Note  2017   2016 
      unaudited     
            
Financing activities           
            
Borrowings from third parties      3,710,459,966    770,910,461 
Proceeds from payables to interest holders of consolidated structured entities      11,313,685,733    5,133,370,000 
Repayment to third parties      (788,475,303)   (390,453,000)
Repayment to payables to interest holders of consolidated structured entities      (4,978,930,133)   (1,222,740,000)
              
Net cash generated from financing activities      9,256,740,263    4,291,087,461 
Net increase/(decrease) in cash and
cash equivalents
      959,497,193    (29,444,230)
              
Cash and cash equivalents at January 1      233,138,588    260,081,796 
              
Effect of exchange rate change on cash and cash equivalents      (2,275,396)   2,501,022 
              
Cash and cash equivalents at December 31  19   1,190,360,385    233,138,588 

  

The notes on pages 8 to 74 form part of these financial statements.

 

 7 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

Notes to the consolidated financial statements

(Expressed in Renminbi unless otherwise stated)

 

1 Reporting entity

 

Sincere Fame International Limited (the ‘Company’) is a company domiciled in the British Virgin Islands and has its principal place of business in the People’s Republic of China (“PRC”). The Company’s registered office is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the ‘Group’). The Group is primarily involved in providing micro credit services for individuals, loan lending agency and asset management services.

 

The Company was incorporated in the British Virgin Islands on October 6, 2006, and issued initially 100,000 shares on November 15, 2006. On July 15, 2009, shares were transferred within shareholders of the Company. Upon completion of such shareholding changes, the issued shares of the Company remained the same.

 

On November 1, 2009, CISG Holdings Limited and Gold Source Co., Ltd. subscribed for 27,143 and 4,762 ordinary shares respectively in the Company. Upon completion of this, the issued shares of the Company was 131,905.

 

On January 1, 2010, 17,562 ordinary shares were allotted and issued by the Company to Day Joy Holdings Limited. Upon completion of such share issuance, the issued shares of the Company was 149,467.

 

On July 15, 2010, new shares were allotted and issued by the Company to its existing shareholders. Upon completion of such share issuance, the issued shares of the Company was 218,535.

 

On January 24, 2011, the Company divided the existing issued shares, a total of 218,535 ordinary shares of US$0.10 each into 2,185,350 ordinary shares of US$0.01 each. On the same day, the Company allotted and issued new shares to its existing shareholders in accordance with the ratio of 1:637. Upon completion of such share allotment, the issued shares of the Company was 1,394,253,300.

 

On August 1, 2011, the Company repurchased and cancelled all the shares held by Day Joy Holdings Limited due to outstanding payment of the consideration for the subscription of such shares. Upon completion of such share subscriptions and share repurchase, the issued shares of the Company was 1,230,434,040 of US$0.01 each.

 

On March 27,2018, the Group completed the reorganization that CNFinance Holdings Limited (CNFinance), a company incorporated in the Cayman Islands, became the Group’s holding company through share exchanges with the shareholders of Sincere Fame International Limited.

 

 8 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

2 Basis of accounting

 

(a) Statement of compliance

 

The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes International Accounting Standards (“IASs”) and related interpretations, issued by the International Accounting Standards Board (“IASB”). A summary of the significant accounting policies adopted by the Group is set out below.

 

(b) Basis of measurement

 

The consolidated financial statements have been prepared on the historical cost basis except for available-for-sale financial assets, which are measured at fair value.

 

(c) Functional and presentation currency

 

Items included in consolidated financial statements of each of the Group’s entities are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the entity (’‘functional currency’’). These consolidated financial statements are presented in Renminbi (’‘RMB’’).

 

(d) Use of estimates and judgements

 

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

 

Information about estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements are described in Note 29.

 

 9 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3 Significant accounting policies

 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

 

(a) Changes in accounting policies

 

The IASB has issued a number of amendments to IFRSs that are first effective for the current accounting period of the Group. None of these developments have had a material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented.

 

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

 

(b) Basis of consolidation

 

(i) Subsidiaries

 

Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

 

(ii) Non-controlling interests (“NCI”)

 

NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

 

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

 

(iii) Transactions eliminated on consolidation

 

Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

 10 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(c)Associates

 

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

 

An investment in an associate is accounted for in the financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see Note 3(h)). Any acquisition-date excess over cost, the Group’s share of the post-acquisition, post-tax results of the investees and any impairment loss for the year are recognized in the consolidated statement of profit or loss, whereas the Group’s share of the post-acquisition, post-tax items of the investees’ other comprehensive income is recognized in the consolidated statement of profit or loss and other comprehensive income.

 

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate.

 

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognized immediately in profit or loss.

 

In all other cases, when the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 3(i)).

 

 11 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(d)Goodwill

 

Goodwill represents the excess of

 

(i)The aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

 

(ii)The net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

 

When (ii) is greater than (i), then this excess is recognized immediately in profit or loss as a gain on a bargain purchase.

 

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, which is expected to benefit from the synergies of the combination and is tested annually for impairment (see Note 3(h)).

 

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

 

(e)Property, plant and equipment

 

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see Note 3(h)).

 

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labor, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs.

 

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in profit or loss on the date of retirement or disposal.

 

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

 

  - Office and other equipment 1 - 5 years

 

  - Leasehold improvements 1 - 6 years

 

  - Motor vehicles 3 - 8 years

 

 12 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

 

(f)Intangible assets (other than goodwill)

 

Expenditure on research activities is recognized as an expense in the period in which it is incurred. Expenditure on development activities is capitalized if the product or process is technically and commercially feasible and the Group has sufficient resources and the intention to complete development. The expenditure capitalized includes the costs of materials, direct labor, and an appropriate proportion of overheads and borrowing costs, where applicable (see Note 3(r)). Capitalized development costs are stated at cost less accumulated amortization and impairment losses (see Note 3(h)). Other development expenditure is recognized as an expense in the period in which it is incurred.

 

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortization (where the estimated useful life is finite) and impairment losses (see Note 3(h)).

 

Amortization of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortized from the date they are available for use and their estimated useful lives are as follows:

 

  - Software 1 - 5 years

 

  - Cooperation agreements 5 years

 

  - Trademarks Indefinite

 

Both the period and method of amortization are reviewed annually.

 

Intangible assets are not amortized while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortization of intangible assets with finite lives as set out above.

 

 13 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(g)Leased assets

 

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

 

(i)Classification of assets leased to the Group

 

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

 

(ii)Operating lease charges

 

Where the Group has the use of assets held under operating lease, payments made under the lease are charged to profit or loss in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

 

(h)Impairment losses on non-financial assets

 

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognized no longer exists or may have decreased:

 

  - Property, plant and equipment

 

  - Intangible assets and goodwill

 

  - Investments in subsidiaries and associates in the Group’s statement of financial position.

 

 14 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

 

  - Calculation of recoverable amount

 

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

 

  - Recognition of impairment losses

 

An impairment loss is recognized in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) to sell, or value in use, (if determinable).

 

  - Reversals of impairment losses

 

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

 

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.

 

 15 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(i)Financial Instruments

 

(i)Recognition and measurement of financial assets and financial liabilities

 

A financial asset or financial liability is recognized in the statement of financial position when the Group becomes a party to the contractual provisions of a financial instrument.

 

The Group classifies financial assets and liabilities into different categories at initial recognition : receivables and available-for-sale financial assets and other financial liabilities.

 

Financial assets and financial liabilities are measured initially at fair value, any attributable transaction costs are included in their initial costs.

 

Financial assets and financial liabilities are categorised as follows:

 

  Loans and receivables

 

Loans and receivables are non-derivative assets held for trading held by the Group with fixed or determinable recoverable amounts that are not quoted in an active market, other than

 

  - Those that the Group intends to sell immediately or in the near-term, which will be classified as held for trading;

 

  - Those designated at fair value through profit or loss upon initiation recognition or as available-for-sale; or

 

  - Those where the Group may not recover substantially all of its initial investment, other than because of credit deterioration, which will be classified as available-for-sale.

 

Loans and receivables mainly comprise loans and advances to customers and financial assets classified as receivables. Subsequent to initial recognition, loans and receivables are stated at amortised cost using the effective interest method.

 

  Available-for-sale financial assets

 

Available-for-sale financial assets include non-derivative assets held for trading that are designated upon initial recognition as available-for-sale and other financial assets which do not fall into any of the above categories.

 

An investment in equity instrument which does not have a quoted market price in an active market and whose fair value cannot be reliably measured is measured at cost subsequent to initial recognition.

 

 16 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3 Significant accounting policies (continued)

 

Other than investments in equity instruments whose fair value cannot be measured reliably as described above, subsequent to initial recognition, other available-for-sale financial assets are measured at fair value and changes therein, except for impairment losses and foreign exchange gains and losses from monetary financial assets which are recognized directly in profit or loss, are recognized in capital reserve through other comprehensive income. When an investment is derecognized, the cumulative gain or loss in equity is removed from equity and recognized in profit or loss. Dividend income from these equity instruments is recognized in profit or loss when the investee declares the dividends. Interest on available-for-sale financial assets calculated using the effective interest method is recognized in profit or loss (see Note 3(p)).

 

  Other financial liabilities

 

Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other financial liabilities.

 

Subsequent to initial recognition, other financial liabilities are measured at amortised cost using the effective interest method.

 

(ii)Fair value measurement

 

If there is an active market for financial instruments, the fair value of financial instruments is based on quoted market prices. If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models.

 

The Group calibrates the valuation technique and tests it for validity periodically.

 

(iii)Impairment losses on financial assets

 

The carrying amounts of financial assets other than those at fair value through profit or loss are reviewed by the Group at the end of the years to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided. Objective evidence of impairment in the financial asset represents events that occur after the initial recognition of the financial assets and have impact on the estimated future cash flows of the asset, which can be estimated reliably.

 

 17 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3 Significant accounting policies (continued)

 

Objective evidence that financial assets are impaired includes, but not limited to:

 

  - Significant financial difficulty of the borrower or issuer;

 

  - A breach of contract, such as a default or delinquency in interest or principal payments;

 

  - Becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

 

  - Disappearance of an active market for financial assets because of financial difficulties;

 

  - Significant changes in the technological, market, economic or legal environment that have an adverse effect on the issuer of an equity instrument; or

 

  - A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

 

  Loans and receivables

 

The Group uses two methods of assessing impairment losses: those assessed individually and those assessed on a collective basis.

 

Individual assessment

 

Loans and receivables, which are considered individually significant, are assessed individually for impairment. If there is objective evidence of impairment of loans and receivables, the amount of loss is measured as the excess of its carrying amount over the present value of the estimated future cash flows discounted at the original effective interest rate. The impairment losses are recognized in profit or loss.

 

The calculation of the present value of the estimated future cash flows of a collateralised loan or receivable reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, regardless of whether the collateral would be withdrawn.

 

 18 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3 Significant accounting policies (continued)

 

Collective assessment

 

Loans and receivables which are assessed collectively for impairment include homogeneous groups of loans and receivables which are not considered individually significant and not assessed individually. Loans and receivables are grouped for similar credit risk characteristics for collective assessment. The objective evidence of impairment mainly includes that, though it is unable to identify the decrease of cash flow of each individual asset, after collective assessment based on observable data, there is observable evidence indicating that there is a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets.

 

For homogeneous groups of loans and receivables that are not considered individually significant, the Group adopts a flow rate methodology to collectively assess impairment losses. This methodology utilises a statistical analysis of historical trends of probability of default and amount of consequential loss, as well as an adjustment of observable data that reflects the current economic conditions and judgement based on management’s historical experience.

 

The collective impairment loss is assessed after taking into account: (i) historical loss experience in portfolios of similar credit risk characteristics; (ii) the emergence period between a loss occurring and that loss being identified; and (iii) the current economic and credit environments and judgement on inherent loss based on management’s historical experience.

 

The emergence period between a loss occurring and its identification is determined by management based on the historical experience of the markets where the Group operates. Impairment losses recognized on a collective basis represent an interim step pending the identification of impairment losses on individual assets (which are subject to individual assessment) in the pool of financial assets that are collectively assessed for impairment.

 

Collective assessment covers those loans and receivables that were impaired at the end of the years but which will not be individually identified as such until sometime in the future. As soon as information is available that specifically identifies objective evidence of impairment on individual assets in a portfolio, those assets are removed from the portfolio of financial assets.

 

 19 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3 Significant accounting policies (continued)

 

Impairment reversal and loan write-off

 

If, in a subsequent period, the amount of the impairment losses on loans and receivables decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. The amount of the reversal is recognized in the profit or loss. The reversal shall not result in a carrying amount of the financial asset that exceeds the amortised cost at the date of the reversal had the impairment not been recognized.

 

When the Group determines that a loan has no reasonable prospect of recovery after the Group has completed all the necessary legal or other proceedings, the loan is written off against its allowance for impairment losses. If in a subsequent period the loan written off is recovered, the amount recovered will be recognized in the profit or loss through impairment losses.

 

Rescheduled loans

 

Rescheduled loans are loans that have been restructured due to deterioration in the borrower’s financial position to the extent that the borrower is unable to repay according to the original terms and where the Group has made concessions that it would not otherwise consider under normal circumstances. Rescheduled loans are assessed individually and classified as impaired loans upon restructuring. Rescheduled loans are subject to ongoing monitoring. Once a rescheduled loan has met specific conditions by the end of the observation period of normally 6 months, with the approval from management, they would no longer be considered as impaired.

 

  Available-for-sale financial assets

 

For available-for-sale financial asset, the cumulative loss that has been recognised in the fair value reserve is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

 

Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised in other comprehensive income.

 

Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss.

 

 20 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(iv)Offsetting

 

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position when the Group has a legally enforceable right to set off the recognized amounts and the transactions are intended to be settled on a net basis, or by realizing the asset and settling the liability simultaneously.

 

(j)Interest-bearing borrowings

 

Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognized and redemption value being recognized in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

 

(k)Cash and cash equivalents

 

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.

 

(l)Employee benefits

 

Salaries, annual bonuses, paid annual leave and contributions to retirement scheme and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

 

Pursuant to the relevant laws and regulations of the PRC, the Group’s subsidiaries in the PRC have joined defined contributions for the employees, such as basic pension scheme, housing fund, basic medical insurance, unemployment insurance, injury insurance and maternity insurance. The Group makes contributions to the above mentioned schemes at the applicable rates based on the amounts stipulated by the government organization. The contributions are capitalised as part of the cost of assets or charged to profit or loss on an accrual basis.

 

 21 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(m)Share-based payment

 

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using the binomial lattice model, taking into accounts the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest.

 

During the vesting period, the number of share options that is expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognised in prior years is charged / credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Group’s shares. The equity amount is recognised in the capital reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).

 

(n)Income tax

 

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to business combinations, items recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity, respectively.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of reporting period, and any adjustment to tax payable in respect of previous years.

 

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognized. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

 

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

 

The amount of deferred tax recognized is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of reporting period. Deferred tax assets and liabilities are not discounted.

 

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

 

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

 

  - In the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

 

  - In the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

 

  - The same taxable entity; or

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3 Significant accounting policies (continued)

 

  - Different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

 

(o)Provisions and contingent liabilities

 

Provisions are recognized for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

 

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

 

(p)Revenue recognition

 

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in profit or loss as follows:

 

(i)Interest income

 

Interest income for financial assets is recognized in profit or loss based on effective interest method. Interest income includes the amortization of any discount or premium or differences between the initial carrying amount of an interest-bearing asset and its amount at maturity calculated using the effective interest basis.

 

The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating the interest income over the years. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract, transaction costs and all other premiums or discounts that are an integral part of the effective interest rate.

 

Interest on the impaired assets is recognized using the rate of interest used to discount future cash flows.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(ii)Asset management income and mortgage agency service income

 

Asset management income and mortgage agency service income are recognized on an accrual basis in accordance with the terms of the relevant agreements.

 

(iii)Rendering of services

 

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue from the rendering of services is recognised by reference to the stage of completion of the transaction based on the services performed to date as a percentage of the total services to be performed.

 

When the outcome of a transaction involving the rendering of services cannot be estimated reliably, revenue is recognised only to the extent of the costs incurred that it is probable be recoverable.

 

(iv)Dividends

 

Dividend income from unlisted investments is recognized when the shareholder’s right to receive payment is established.

 

(v)Other income

Other income is recognised on an accrual basis.

 

(q)Translation of foreign currencies

 

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognized in profit or loss.

 

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.

 

(r)Borrowing costs

 

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

 

 25 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

3Significant accounting policies (continued)

 

(s)Fiduciary activities

 

The Group acts in a fiduciary activity as a manager, a custodian, or an agent for customers. Assets held by the Group and the related undertakings to return such assets to customers are recorded as off-balance sheet items as the risks and rewards of the assets reside with customers.

 

The Group enters into entrusted loan agreements with customers, whereby the customers provide funding (“entrusted funds”) to the Group, and the Group grants loans to third parties (“entrusted loans”) under instructions of the customers. As the Group does not assume the risks and rewards of the entrusted loans and the corresponding entrusted funds, the entrusted loans and funds are recorded as off-balance sheet items at their principal amount. No provision for impairment loss is made for entrusted loans.

 

(t) Related parties

 

  (a) A person, or a close member of that person’s family, is related to the Group if that person:

 

  (i) Has control or joint control over the Group;

 

  (ii) Has significant influence over the Group; or

 

  (iii) Is a member of the key management personnel of the Group or the Group’s parent.

 

  (b) An entity is related to the Group if any of the following conditions applies:

 

  (i) The entity and the Group are members of the same Group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

 

  (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of the Group of which the other entity is a member).

 

  (iii) Both entities are joint ventures of the same third entity.

 

  (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third party.

 

  (v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

 

  (vi) The entity is controlled or jointly controlled by a person identified in (a).

 

  (vii) A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

 

 26 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

  

3Significant accounting policies (continued)

 

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

 

(u)Segment reporting

 

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial statements provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

 

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

 

 27 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

4Net interest income

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Interest income arising from:        
  - Cash at bank   4,337,177    1,417,305 
  - Loans and advances to customers   3,406,110,592    1,242,128,524 
             
  Total interest income   3,410,447,769    1,243,545,829 
             
  Interest expense arising from:          
  - Payables to interest holders of consolidated structured entities   (1,059,502,176)   (368,843,788)
  - Interest-bearing borrowings   (350,403,509)   (73,817,536)
             
  Total interest expense   (1,409,905,685)   (442,661,324)
  Net interest income   2,000,542,084    800,884,505 

 

5Net asset management (disposal loss)/income

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Asset management (disposal loss)/income:        
  Asset management service fees   1,316,186    9,628,621 
  Net (loss)/gain arising from investment securities   (19,397,576)   65,986,827 
             
  Total asset management (disposal loss)/income   (18,081,390)   75,615,448 
             
  Asset management expense:          
  Asset management expense   -    (3,887,977)
             
  Total asset management expense   -    (3,887,977)
             
  Net asset management (disposal loss)/income   (18,081,390)   71,727,471 

 

 28 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

6Other revenue and net income

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Net gain on disposal of subsidiaries   6,060,758    - 
  Labour outsourcing services income   7,857,461    12,035,445 
  Foreign exchange (loss)/ gain   (2,274,438)   2,717,820 
  Register services income   183,010    238,500 
  Net loss on disposal of property, plant and equipment   (261,875)   (61,085)
  Others   

10,572,512

    174,140 
             
  Total   

22,137,428

    15,104,820 

 

7Operating expenses

 

     Note  2017   2016 
       RMB   RMB 
        unaudited     
              
  Staff cost      728,646,014    287,473,913 
  Cost for labour outsourcing services      -    11,751,906 
  Business tax and surcharges      7,490,678    26,336,151 
  Non-deductible input value-added tax      31,345,255    21,081,339 
  Rental and property management expenses      47,896,817    24,404,690 
  Advertising and promotion expenses      15,028,164    16,383,290 
  Office expense      18,769,477    14,453,830 
  Entertainment and travelling expenses      14,506,006    11,767,688 
  Research and development expenses      4,794,998    8,507,265 
  Consulting fees      9,282,890    5,736,437 
  Depreciation of property, plant and equipment  11   10,778,542    5,603,024 
  Amortization of intangible assets  12(a)   26,313    992,452 
  Communication expenses      2,598,250    2,530,162 
  Others      6,409,916    4,675,782 
                
  Total      897,573,320    441,697,929 

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

8Impairment losses

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
              
  Loans and advances to customers  16(a)   292,056,944    106,035,336 
  Available-for-sale financial assets  15(a)   -    37,962,696 
  Goodwill  12(b)   -    20,279,026 
  Trade and other receivables  18(b)   14,696,007    5,326,708 
                
  Total      306,752,951    169,603,766 

 

9Income tax expense in the consolidated statement of profit or loss

 

(a)Taxation in the consolidated statement of profit or loss

 

     2017   2016 
     RMB   RMB 
     unaudited     
  Current tax          
  Provision for PRC income tax for the year   333,883,691    86,186,945 
             
  Deferred tax          
  Origination and reversal of temporary differences   (57,888,823)   (33,470,138)
             
  Total   275,994,868    52,716,807 

 

 30 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

9Income tax expense in the consolidated statement of profit or loss (continued)

 

(b)Reconciliation between tax expense and accounting profit at applicable tax rates

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Profit before taxation   808,667,625    288,835,267 
             
  National tax on profit before taxation, calculated at the rates applicable in the jurisdictions concerned   202,166,906    92,176,701 
  Effect of tax concessions   (36,435,031)   (61,421,155)
  Effect of unrecognized tax losses and temporary differences   6,078,536    15,781,513 
  Effect of non-deductible expenses   558,307    666,186 
  Effect of non-deductible impairment loss   -    5,069,756 
  Effect of tax filing differences   207,029    471,536 
  Effect of share-based compensation expense in foreign country with zero tax rate   47,887,341    - 
  Effect of disposal of subsidiary   52,836,151    - 
  Others   2,695,629    (27,730)
             
  Income tax expense   275,994,868    52,716,807 

 

(i)Pursuant to the rules and regulations of the British Virgin Islands, the Group is not subject to any income tax in the British Virgin Islands.

 

(ii)No provision for Hong Kong Profits Tax has been made for the subsidiary located in Hong Kong as the subsidiary has not derived any income subject to Hong Kong Profits Tax during the years.

 

(iii)According to the PRC Corporate Income Tax (“CIT”) Law that was effective from January 1, 2008, the Group’s PRC subsidiaries are subject to PRC income tax at the statutory tax rate of 25%, unless otherwise specified.

 

(iv)Guangzhou Heze Information Technology Co., Ltd. (“Heze”) was qualified as an eligible software enterprise, which entitled it to a tax holiday of a two-year full exemption followed by a three-year 50% exemption since 2012. The income tax rate for Heze is 25% for the year ended December 31, 2017 (2016: 12.5%). Another subsidiary Shenzhen Taotaojin Internet Financial Services Company Limited (“Taotaojin”) was qualified as an eligible software enterprise, which entitled it to a tax holiday of a two-year full exemption followed by a three-year 50% exemption since 2015. The income tax rate for Taotaojin is 12.5% for the year ended December 31, 2017 (2016: 0%).

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

10Other comprehensive income

 

Tax effects relating to each component of other comprehensive income

 

     2017 (unaudited)   2016 
     Before tax amount  

Tax

benefit

   Net of tax amount   Before tax amount  

Tax

benefit

   Net of tax amount 
     RMB   RMB   RMB   RMB   RMB   RMB 
                           
  Exchange differences on translation of financial statements of entities outside the PRC   (198,794)   -    (198,794)   (778,538)   -    (778,538)
                                 
  Available-for-sale securities:                              
  Net movement in fair value reserve   (3,468,473)   867,118    (2,601,355)   (259,573,403)   64,893,351    (194,680,052)
                                 
  Other comprehensive income   (3,667,267)   867,118    (2,800,149)   (260,351,941)   64,893,351    (195,458,590)

  

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

11Property, plant and equipment

 

     Office and other equipment   Leasehold improvements   Motor vehicles   Total 
     RMB   RMB   RMB   RMB 
                   
  Cost:                
  As at January 1, 2016   12,124,845    8,961,313    2,149,003    23,235,161 
  Additions   6,931,788    8,278,403    6,150    15,216,341 
  Disposals   (374,208)   (240,361)   (81,103)   (695,672)
                       
  As at December 31, 2016   18,682,425    16,999,355    2,074,050    37,755,830 
                       
  As at January 1, 2017   18,682,425    16,999,355    2,074,050    37,755,830 
  Additions   7,841,096    11,530,134    -    19,371,230 
  Disposals   (6,526,249)   (7,381,976)   (356,393)   (14,264,618)
                       
  As at December 31, 2017 (unaudited)   19,997,272    21,147,513    1,717,657    42,862,442 
                       
  Accumulated depreciation:                    
  As at January 1, 2016   (7,858,578)   (5,111,089)   (1,120,048)   (14,089,715)
  Charge for the year   (2,427,730)   (2,843,973)   (331,321)   (5,603,024)
  Written back on disposals   341,081    223,321    52,970    617,372 
                       
  As at December 31, 2016   (9,945,227)   (7,731,741)   (1,398,399)   (19,075,367)
  As at January 1, 2017   (9,945,227)   (7,731,741)   (1,398,399)   (19,075,367)
  Charge for the year   (4,643,414)   (5,820,999)   (314,129)   (10,778,542)
  Written back on disposals   4,287,012    4,819,323    353,032    9,459,367 
                       
  As at December 31, 2017 (unaudited)   (10,301,629)   (8,733,417)   (1,359,496)   (20,394,542)
  Net book value:                    
  As at December 31, 2016   8,737,198    9,267,614    675,651    18,680,463 
                       
  As at December 31, 2017 (unaudited)   9,695,643    12,414,096    358,161    22,467,900 

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

12Intangible assets and goodwill

 

     Note  2017   2016 
        RMB   RMB 
        unaudited    
              
  Intangible assets  (a)   3,342,463    2,999,817 
  Goodwill  (b)   -    - 
                
  Total      3,342,463    2,999,817 

 

(a)Intangible assets

 

     Software   Cooperation agreements   Trademarks   Total 
     RMB   RMB   RMB   RMB 
  Cost:                
                   
  As at January 1, 2016   7,279,618    5,030,000    2,970,000    15,279,618 
  Additions   6,980    -    -    6,980 
                       
  As at December 31, 2016   7,286,598    5,030,000    2,970,000    15,286,598 
                       
  As at January 1, 2017   7,286,598    5,030,000    2,970,000    15,286,598 
  Additions   392,292    -    -    392,292 
  Disposals   (131,450)   -    -    (131,450)
                       
  As at December 31, 2017 (unaudited)   7,547,440    5,030,000    2,970,000    15,547,440 
  Accumulated amortization:                    
                       
  As at January 1, 2016   (6,264,329)   (5,030,000)   -    (11,294,329)
  Charge for the year   (992,452)   -    -    (992,452)
                       
  As at December 31, 2016   (7,256,781)   (5,030,000)   -    (12,286,781)
                       
  As at January 1, 2017   (7,256,781)   (5,030,000)   -    (12,286,781)
  Charge for the year   (26,313)   -    -    (26,313)
  Written back on disposals   108,117    -    -    108,117 
                       
  As at December 31, 2017 (unaudited)   (7,174,977)   (5,030,000)   -    (12,204,977)
                       
  Net book value:                    
  As at December 31, 2016   29,817    -    2,970,000    2,999,817 
                       
  As at December 31, 2017 (unaudited)   372,463    -    2,970,000    3,342,463 

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

12Intangible assets and goodwill (continued)

 

(b)Goodwill

 

     2017   2016 
     RMB   RMB 
     unaudited     
  Cost:        
  Balance at the beginning and the end of the year   79,495,583    79,495,583 
  Impairment losses:          
  Balance at the beginning of the year   (79,495,583)   (59,216,557)
  Charge for the year   -    (20,279,026)
             
  Balance at the end of the year   

(79,495,583

)   (79,495,583)
  Carrying amounts:          
  At the end of the year   -    - 
             
  At the beginning of the year   -    20,279,026 

 

On August 31, 2006, the Group acquired a 55% stake in Guangzhou Anyu Mortgage Consulting Co., Limited (“Guangzhou Anyu”). On the acquisition date, the fair value of Guangzhou Anyu’s identifiable net assets was RMB42.36 million, 55% of which the Group accounted for was RMB23.3 million. An amount of RMB20.28 million was recognized as goodwill, representing the excess of the consideration transferred over the Group’s proportionate share of the fair value of identifiable net assets. On May 25, 2009, the Group acquired the remaining 45% shares in Guangzhou Anyu for RMB27.47 million. Guangzhou Anyu was incorporated in the PRC in 2003 and was primarily engaged in the business of providing mortgage agency services and loans at the time of acquisition.

 

Impairment tests for cash-generating units containing goodwill

 

The recoverable amount of the CGU is calculated using Dividend Discount Model (DDM). The projected cash flow for the next year is based on financial budgets approved by management. Cash flows beyond next year are estimated using a weighted average growth rate of 3%, which is consistent with the forecasts in industry research reports. The growth rate does not exceed the long-term average growth rates for the business in which the CGU operates. The projected cash flows are then discounted using a discount rate of 21% as of December 31, 2016. The discount rate is pre-tax and reflects specific risks relating to the relevant segments.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

12Intangible assets and goodwill (continued)

 

In 2016, the key management of Guangzhou Anyu has left the company. Guangzhou Anyu’s business model has changed from providing loans to referring micro credit business to other entities of the Group, resulting in an expected reduction in the operating profits and cash flows in the future. Therefore, the Group recognized a goodwill impairment loss of RMB20,279,026 in 2016. The goodwill was fully impaired as of December 31, 2016. 

 

13Investment in subsidiaries

 

  Name of company (i) 

Place and date of

incorporation/

establishment

  Registered capital 

Issued

and fully

paid up capital

  Percentage of equity attributable to
the Company
   Principal activities
              Direct   Indirect    
                       
  China Financial Services Group Limited 泛华金融服务集团有限公司  Hong Kong
August 28, 2000
  HKD100,000,000  HKD100,000,000   100%   -   Investment Holding
                         
  Fanhua Chuang Li Information Technology (Shenzhen)Co., Ltd. 泛华创利信息技术 (深圳)
有限公司
  the PRC
December 21,
1999
  HKD400,000,000  HKD400,000,000   -    100%  Investment Holding
                         
  Shenzhen Fanhua United Investment Group Co., Ltd.
深圳泛华联合投资集团
有限公司
  the PRC
August 9,
2006
  RMB250,000,000  RMB250,000,000   -    100%  Investment Holding
                         
  Guangzhou Anyu Mortgage Consulting Co., Ltd.
广州安宇按揭咨询有限公司
  the PRC
January 23, 2003
   RMB2,220,000   RMB2,220,000   -    100%  Micro credit
and mortgage
agency
services
                         
  Zhengzhou Lirui Financial Advisory Co., Ltd.
郑州利瑞财务咨询有限公司
  the PRC
December 17,
2009
  RMB500,000  RMB500,000   -    100%  Financial
consultancy
                         
  Chongqing Fengjie Financial Advisory Co., Ltd.
重庆丰捷财务咨询有限公司
 

the PRC
June 13,

2010

  RMB500,000  RMB500,000   -    100%  Financial consultancy
                         
  Guangzhou Chengze Information
Technology Co., Ltd.
广州诚泽信息科技有限公司
  the PRC
December 11,
2006
   RMB3,000,000   RMB3,000,000   --    100%  Software development and maintenance
                         
  Qidong Fanhua Financial Management Co., Ltd.
启东泛华财务管理有限公司
  the PRC
December 11,
2006
  RMB300,000  RMB300,000   -    100%  Asset Management

 

 

 36 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

13Investment in subsidiaries (continued)

 

  Name of company (i) 

Place and date of

incorporation/

establishment

  Registered capital 

Issued

and fully

paid up capital

  Percentage of equity attributable to
the Company
   Principal activities
              Direct   Indirect    
                       
  Chongqing Liangjiang New Area Fanhua Micro-credit Co., Ltd.
重庆市两江新区泛华小额贷款
有限公司
  the PRC
December 26,
2011
  USD30,000,000  USD30,000,000   -    100%  Micro credit
and mortgage
agency services
                         
  Shenzhen Fanhua Micro-credit Co., Ltd.
深圳泛华小额贷款有限公司
  the PRC
March 15, 2012
  RMB100,000,000  RMB100,000,000   -    100%  Micro credit
and mortgage
agency services
                         
  Shenzhen Fanhua Fund Management Services Co., Ltd. 深圳泛华基金管理服务
有限公司
  the PRC
June 8,
2012
   RMB5,000,000   RMB5,000,000   -    100%  Company register service
                         
  Beijing Fanhua Micro-credit Company Limited
北京泛华小额贷款有限公司
  the PRC
August 10, 2012
  RMB100,000,000  RMB100,000,000   -    100%  Micro credit
and mortgage
agency services
                         
  Guangzhou Heze Information Technology Co., Ltd.
广州和泽信息科技有限公司
  the PRC
September 16,
2010
   RMB3,000,000   RMB3,000,000   -    100%  Software development and maintenance
                         
  Beijing Lianxin Chuanghui Information Technology Co., Ltd. 北京联鑫创辉信息技术
有限公司
  the PRC
February 2, 2012
  HKD10,000,000  HKD10,000,000   -    100%  Software development and maintenance
                         
  Shenzhen Fanlian Investment Co., Ltd.
深圳泛联投资有限公司
  the PRC
November 26,
2012
  RMB30,000,000  RMB30,000,000   -    100%  Investment Holding
                         
  Fanhua Financial Leasing (Shenzhen) Co., Ltd.
泛华融资租赁 (深圳)
有限公司
  the PRC
September 4,
2012
  USD10,000,000  USD10,000,000   -    100%  Financial leasing
                         
  Shenzhen Fanhua Chengyu Finance Service Co., Ltd.
深圳泛华诚誉金融配套服务
有限公司
  the PRC
March 15, 2012
  RMB10,000,000  RMB10,000,000   -    100%  Labour outsourcing services
                         
  Hangzhou Shenzhen Fanlian
Investment Co., Ltd.
杭州深泛联投资管理有限公司
  the PRC
December 14,
2015
  RMB1,000,000  -   -    100%  Asset Management
                         
  Beijing Fanhua Qilin Capital Management Co., Ltd.
北京泛华麒麟资本管理
有限公司
  the PRC
December 26,
2016
  RMB100,000,000  -   -    100%  Asset Management
                         
  Shijiazhuang Fanhua Financial Advisory Co., Ltd.
石家庄泛华财务咨询
有限公司
  the PRC
July 27,
2017
  RMB2,000,000  -   -    100%  Financial Consultancy

 

 37 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

13Investment in subsidiaries (continued)

 

  Name of company (i) 

Place and date of

incorporation/

establishment

  Registered capital 

Issued

and fully

paid up capital

  Percentage of equity attributable to the Company   Principal activities
              Direct   Indirect    
                       
  Taizhou Fanhua Financial Advisory Co., Ltd.
泰州泛华财务咨询服务有限公司
  the PRC
September 28, 2017
  RMB500,000  -   -    100%  Financial Consultancy
                         
  Xuzhou Shenfanlian Enterprise Management Co., Ltd.
徐州深泛联企业管理
有限公司
  the PRC
December 7,
2017
  RMB10,000,000  -   -    100%  Enterprise Management
                         
  Zhenjiang Fanhua Business Service Advisory Co., Ltd.
镇江泛华商务服务咨询有限公司
  the PRC
October 16,
2017
  RMB500,000  -   -    100%  Business
Advisory
                         
  Nantong Shenfanlian Enterprise Management Co., Ltd.
南通深泛联企业管理
有限公司
  the PRC
September 8,
2017
  RMB5,000,000  -   -    100%  Enterprise Management
                         
  Jinghua Structure Fund 5
菁华5号信托计划 (ii)
  the PRC
December 19,
2014
  RMB12,890,615,318  RMB12,890,615,318   -    22%  Micro credit
                         
  Jinghua Structure Fund 6
菁华6号信托计划 (ii)
  the PRC
September 9,
2014
  RMB44,540,000  RMB44,540,000   -    100%  Micro credit
                         
  Bohai Trust Shenfanlian Micro Finance Structure Fund
渤海信托深泛联小微金融集合资金信托计划(ii)
  the PRC
September 12, 2016
  RMB108,500,000  RMB108,500,000   -    49%  Micro credit
                         
  Bohai Huihe SME Structure Fund  the PRC                   
  渤海汇和中小微企业经营贷集合资金信托计划(ii)  September 29, 2017  RMB495,480,000  RMB495,480,000   -    15%  Micro credit
                         
  Zhongyuan Wealth Anhui Structure Fund 1                     
  中原财富-安惠1期(ii)  the PRC January 20,
2017
  RMB500,000,000  RMB500,000,000   -    30%  Micro credit
                         
  Zhongyuan Wealth Anhui Structure Fund 2  the PRC                   
  中原财富-安惠2期(ii)  August 30,
2017
  RMB844,041,442  RMB844,041,442   -    20%  Micro credit

 

(i)The official names of those companies are in Chinese. The English translation is for reference only.

 

(ii)Capital of all the six structure funds are used for granting loans to customers, which are managed by the Group. The Group is general partner of the funds, promising the expected returns for limited partners, and provide guarantee on the loans to customers under the fund. Therefore, the Group is exposed, 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. Therefore, the entity is regarded as a subsidiary of the Group.

 

 38 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

14Interest in associate

 

The Group had interests in an associate named Fujian Jianyin Channel Equity Investment Management Co., Ltd. (福建建银海峡股权投资管理有限公司). The Group owned 30% of the equity interests; and determined that it has significant influence because it has representation on the board of the investee. The associate was liquidated in 2016.

 

The following table analyses, in aggregate, the carrying amount and share of profit of the associate.

 

     2017   2016 
     RMB   RMB 
     unaudited     
  Carrying amount of interests in the associate        -    - 
             
  Share of:          
  - Profit from continuing operations   -    47,122 

 

15Available-for-sale financial assets

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
  Carrying amount:           
  Investment management products managed by securities companies      -    112,865,781 
  Wealth management products      360,187,885    - 
  Equity investments      40,010,000    71,090,001 
                
  Subtotal      400,197,885    183,955,782 
                
  Less: Impairment losses  (a)   -    (51,270,001)
                
  Total      400,197,885    132,685,781 

 

(a)Movement of impairment losses

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Balance at January 1   51,270,001    13,307,305 
  Charge for the year   -    37,962,696 
  Write-offs   (51,270,001)   - 
             
  Balance at December 31   -    51,270,001 

 

 39 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

16Loans and advances to customers

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
              
  Gross loans and advances to customers      16,673,957,543    7,281,885,329 
  Less: Impairment losses             
  - Individually assessed      (98,736,343)   (55,180,661)
  - Collectively assessed      (322,028,628)   (84,175,450)
                
  Subtotal  (a)   (420,764,971)   (139,356,111)
  Net loans and advances to customers      16,253,192,572    7,142,529,218 

 

(a)Movements of impairment losses

 

        2017 (unaudited) 
     Note  Allowances for loans and advances which are collectively assessed   Allowances for impaired loans and advances which are individually assessed   Total 
        RMB   RMB   RMB 
                  
  As at January 1      84,175,450    55,180,661    139,356,111 
  Charge for the year  8   242,267,022    71,381,594    313,648,616 
  Reversal      (4,413,844)   (17,177,828)   (21,591,672)
  Write-offs      -    (10,648,084)   (10,648,084)
                     
  As at December 31      322,028,628    98,736,343    420,764,971 

 

 40 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

16Loans and advances to customers (continued)

 

        2016 
     Note  Allowances for loans and advances which are collectively assessed   Allowances for impaired loans and advances which are individually assessed   Total 
        RMB   RMB   RMB 
                  
  As at January 1      12,516,300    20,804,475    33,320,775 
  Charge for the year  8   75,813,844    47,123,053    122,936,897 
  Reversal      (4,154,694)   (12,746,867)   (16,901,561)
                     
  As at December 31      84,175,450    55,180,661    139,356,111 

 

17Income tax expense in the consolidated statement of financial position

 

(a)Current tax liabilities

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
              
  At the beginning of the year      96,578,805    36,064,216 
  Provision for PRC income tax for the year  9(a)   333,883,691    86,186,945 
  PRC income tax paid      (47,010,630)   (25,672,356)
                
  At the end of the year      383,451,866    96,578,805 

  

 41 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

17Income tax expense in the consolidated statement of financial position (continued)

 

(b)Deferred tax assets and liabilities recognized

 

(i)The components of deferred tax assets/ (liabilities) recognized in the consolidated statement of financial position and the movements during the years are as follows:

 

   Impairment provision   Amortisation of intangible assets   Depreciation of property, plant and equipment   Accrued payroll   Other accrued expenses   Fair value change in available-for-sale financial assets   Total deferred tax assets   Amortisation of intangible assets   Fair value change in available-for- sale financial assets   Total deferred tax liabilities 
   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB 
                                         
At January 1, 2016   12,800,613    1,829,138    476,347    5,529,789    535,099    3,077,386    24,248,372    (742,500)   (68,872,326)   (69,614,826)
Recognized in profit or loss   37,269,525    (152,964)   1,546,827    (5,529,789)   336,539    -    33,470,138    -    -    - 
Recognized in reserve   -    -    -    -    -    (2,104,552)   (2,104,552)   -    66,997,902    66,997,902 
                                                   
At December 31, 2016   50,070,138    1,676,174    2,023,174    -    871,638    972,834    55,613,958    (742,500)   (1,874,424)   (2,616,924)
                                                   
At January 1, 2017   50,070,138    1,676,174    2,023,174    -    871,638    972,834    55,613,958    (742,500)   (1,874,424)   (2,616,924)
Recognized in profit or loss   60,594,655    (439,471)   (1,394,723)   -    (871,638)   -    57,888,823    -    -    - 
Recognized in reserve   -    -    -    -    -    (972,834)   (972,834)   -    1,839,953    1,839,953 
                                                   
At December 31, 2017 (unaudited)   110,664,793    1,236,703    628,451    -    -    -    112,529,947    (742,500)   (34,471)   (776,971)

 

 42 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

17Income tax expense in the consolidated statement of financial position (continued)

 

(ii)Reconciliation to the consolidated statement of financial position

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Deferred tax assets recognized on the consolidated statement of financial position   112,529,947    55,613,958 
             
  Deferred tax liabilities recognized on the consolidated statement of financial position   (776,971)   (2,616,924)

 

(c)Deferred tax assets not recognized

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
              
  Tax losses  (i)   50,443,524    86,140,716 
  Goodwill impairment loss  (ii)   20,279,026    20,279,026 
                
  Total      70,722,550    106,419,742 

 

(i)Tax losses

 

In accordance with the accounting policy set out in Note 3(n), the Group has not recognized deferred tax assets in respect of unused tax losses of RMB50,443,524 at December 31, 2017 (2016: RMB86,140,716) as it is not probable that those losses and temporary difference can be utilized in the foreseeable future. According to current tax law, the Group can use these deductible losses for tax deduction if the Group gets enough taxable income in the next five years.

 

(ii)Goodwill impairment loss

 

In accordance with the accounting policy set out in Note 3(n), the Group has not recognized deferred tax assets in respect of goodwill impairment loss of RMB20,279,026 as at December 31, 2017 (2016: RMB20,279,026). The goodwill was recognized initially on the acquisition of Guangzhou Anyu. As it is not probable that the Group will dispose of the company, this loss cannot be utilized in the foreseeable future.

 

 43 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

18Trade and other receivables

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
              
  Interest receivables      27,546,500    120,433,765 
  Other trade receivables      5,339,549    10,258,654 
  Less: Impairment losses  (b)   (21,894,200)   (15,470,310)
                
  Trade receivables      10,991,849    115,222,109 
  Deposits      150,325,225    51,592,458 
  Receivables from disposal of subsidiaries      29,658,807    - 
  Amounts due from employees      10,027,597    16,306,520 
  Receivables for release of loans      10,504,570    10,868,038 
  Prepayments      13,053,454    5,007,153 
  Other receivables      7,866,236    16,474,774 
                
  Total      232,427,738    215,471,052 

 

(a)Aging analysis

 

The aging analysis of trade receivables, based on the invoice date and net of impairment losses of the Group is as follows:

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Within 1 month   2,986,469    113,690,745 
  Over 1 month but less than 3 months   6,880,727    2,314,632 
  Over 3 months but less than 1 year   15,388,884    2,597,568 
  More than 1 year   7,629,969    12,089,474 
             
  Total   32,886,049    130,692,419 

 

 44 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

18Trade and other receivables (continued)

 

(b)Movements of impairment losses

 

The movement in the impairment losses on trade receivables during the years is as follows:

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  At the beginning of the year   15,470,310    10,390,242 
  Charge for the year   14,991,164    5,332,042 
  Reversal   (295,157)   (5,334)
  Write-offs   (8,272,117)   (246,640)
             
  At the end of the year   21,894,200    15,470,310 

 

19Cash and cash equivalents

 

     2017   2016 
     RMB   RMB 
     unaudited     
  Demand deposits and term deposits with banks with original maturity less than three months   1,190,242,333    232,391,435 
  Cash on hand   118,052    747,153 
             
  Cash and bank deposits in the consolidated statement of financial position   1,190,360,385    233,138,588 

 

 45 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

19Cash and cash equivalents (continued)

 

Reconciliation of liabilities arising from financing activities

 

  

Payables to interest

holders of consolidated

structured entities

   Interest-bearing borrowings   Total 
   RMB   RMB   RMB 
             
At January 1, 2017   5,230,936,829    1,094,585,401    6,325,522,230 
Changes from financing cash flows:               
Proceeds from payables to interest holders of consolidated structured entities   11,313,685,733    -    11,313,685,733 
Repayment of  payables to interest holders of consolidated structured entities   (4,978,930,133)   -    (4,978,930,133)
Proceeds from interest-bearing borrowings   -    3,710,459,966    3,710,459,966 
Repayment of interest-bearing borrowings   -    (788,475,303)   (788,475,303)
                
Total changes from financing cash flows   6,334,755,600    2,921,984,663    9,256,740,263 
                
Other changes:               
Net interest income   1,059,502,176    350,403,509    1,409,905,685 
Interest paid   (973,219,344)   (310,509,066)   (1,283,728,410)
Others   -    (503,590)   (503,590)
                
Total other changes   86,282,832    39,390,853    125,673,685 
                
At December 31,2017   11,651,975,261    4,055,960,917    15,707,936,178 

 

 46 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

20Share capital and reserves

 

(a)Share capital

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Ordinary shares, issued and fully paid:        
  In issue at January 1   80,973,634    80,973,634 
             
  In issue at December 31   80,973,634    80,973,634 

 

As set out in Note 1, the Company was incorporated in the British Virgin Islands on October 6, 2006. Upon completion of ordinary shares issuance, allotment and repurchase, the issued shares of the Company was 1,230,434,040 of US$0.01 each as at August 1, 2011. No change has been made to the issued shares since August 1, 2011.

 

(b)Capital reserve

 

The capital reserve represents (1) the difference between the nominal value of share capital and the paid-up capital of the Company; (2) the difference between the purchase price and the proportionate share of the identifiable net assets of Guangzhou Anyu when the Group acquired its remaining shares to take full ownership.

 

(c)Surplus reserve

 

In accordance with the Company’s PRC subsidiaries’ articles of associate, the subsidiaries are required to appropriate 10% of their net profits, upon approval by board of directors.

 

(d)Regulatory reserve

 

With effect from July 1, 2012, pursuant to the “Administrative Measures on Accrual of Provisions by Financial Institutions” issued by the MOF in March 2012, the Group is required, in principle, to set aside a general reserve not lower than 1.5% of the ending balance of its gross risk-bearing assets.

 

(e)Fair value reserve

 

The fair value reserve comprises the cumulative net change in the fair value of available-for sale securities held at the end of the reporting period and are dealt with in accordance with the accounting policies in Note 3(i).

 

 47 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

20Share capital and reserves (continued)

 

(f)Exchange reserve

 

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations with functional currency other than RMB. The reserve is dealt with in accordance with the accounting policies set out in Note 3(q).

 

(g)Equity-settled share-based payment arrangements

 

(i)Description of equity-settled share-based payment arrangements

 

On November 1, 2009, the Group adopted a share incentive plan, or the 2009 Share Incentive Plan, granting options to its directors and employees to purchase up to 25,678 ordinary shares of the Group. Pursuant to the option agreements entered into between the Group and the option grantees, the options shall vest over a five-year period from 2010 to 2014. The number of options that the grantees are entitled to in each year will be calculated based on the key performance indicator scores of the grantees in the respective prior year and continued employment is not regarded as vesting condition. Accordingly, 60%, 10%, 10%, 10% and 10% of the award options shall vest on January 1, each of the years 2010 to 2014, respectively.

 

On January 24, 2011, the Group divided the existing issued shares, USD0.10 each share into USD0.01 each share. On the same day, the Group allotted and issued new shares to its existing shareholders in accordance with the ratio of 1:637. Upon completion of such share split and share allotment, the number of such share options was adjusted from 25,678 to 163,825,640. Accordingly, the exercise price was adjusted from RMB3,190 to RMB0.5. The expiration date of such options was December 31, 2016 and as of December 31, 2016, no option has been excised.

 

On January 3, 2017, the Group adopted a new share incentive plan, or the 2017 Share Incentive Plan. Options to purchase 187,933,730 ordinary shares pursuant to the 2017 Share Incentive Plan were issued to certain management and employees. Accordingly, 60%, 20% and 20% of the award options shall vest on December 31, each of the years 2017 to 2019, respectively. Unless terminated earlier, the 2017 Share Incentive Plan will terminate automatically in 2022.

 

Share-based payment transactions with employees, such as share options are measured based on the grant date fair value of the equity instrument. The Group recognizes the compensation costs net of estimated forfeitures over the applicable vesting period. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. There was no market conditions associated with the share option grants.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

20Share capital and reserves (continued)

 

(ii)Fair value of share options and assumptions

 

The fair value of options granted to employees is determined based on a number of factors including valuations. In determining the fair value of our equity instruments, the Group referred to valuation reports prepared by an independent third-party appraisal firm, based on data the Group provided. The valuation reports provided the Group with guidelines in determining the fair value of the equity instruments, but the Group are ultimately responsible for the determination of all amounts related to share-based compensation recorded in the financial statements.

 

Excluding the options containing service vesting conditions, the Group calculated the estimated fair value of the options on the respective grant dates using a binomial option pricing model with assistance from independent valuation firms, with the following assumptions:

 

    

Share awards
granted on November 1,
2009

  

Share awards
granted on
January 3, 2017

 
           
  Expected volatility   71%   40%
  Expected dividends   -    - 
  Risk-free interest rate   3.50%   3.10%
  Expected term (in years)   5    5 
  Expected life (in years)   7.17    6 

 

The contractual life of the share option is used as an input into the binomial option pricing model. Exercise multiple and post-vesting forfeit are incorporated into the model. Since the Group’s shares did not have been publicly traded at the time the options were issued and its shares were rarely traded privately, expected volatility is estimated based on the average historical volatility of comparable entities with publicly traded shares for the period before the date of grant with length commensurate to contractual life of the options. The risk-free rate for the expected term of the option is based on the yield to maturity of China 6-year government bond at the date of grant. The Group has not declared or paid any cash dividends on its capital stock, and does not anticipate any dividend payments on its ordinary shares in the foreseeable future.

 

If any of the assumptions used in the binomial option pricing model changes significantly, share-based compensation expense for future awards may differ materially compared with the awards granted previously.

 

 49 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

21Interest-bearing borrowings

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
  Borrowings from           
  - Asset management partnerships  (ii)   75,000,000    450,000,000 
  - The investors of internet funding platforms  (iii)   1,589,374,982    602,850,285 
  - Trust Company  (iv)   110,000,000    - 
  - Private investment funds  (v)   2,042,700,000    - 
  - Senior tranche of asset management product which invests in the Group’s loans portfolio  (vi)   25,992,786    - 
  - Senior tranche of trust plan which invests in the Group’s loans portfolio  (vii)   131,263,590    - 
                
  Interest payable to             
  - Related parties  (i)   -    32,494,914 
  - Asset management partnerships  (ii)   9,860,151    3,889,315 
  - The investors of internet funding platforms  (iii)   52,905,837    5,350,887 
  - Trust Company  (iv)   4,854,255    - 
  - Private investment funds  (v)   13,440,641    - 
  - Senior tranche of asset management product which invests in the Group’s loans portfolio  (vi)   117,284    - 
  - Senior tranche of trust plan which invests in the Group’s loans portfolio  (vii)   451,391    - 
                
  Total      4,055,960,917    1,094,585,401 

 

(i)The Group’s related parties, Fanhua Inc. and its subsidiaries, agreed to grant a revolving loan with a maximum amount of US$50,000,000 (equivalent to RMB317,990,000 as per the agreement) to the Group. The amounts are unsecured and bear interest at 7.3% and are repayable on demand. As of December 31, 2017, the amount of interest payable due to Fanhua Inc. and its subsidiaries are nil (2016: RMB32,494,914).

 

(ii)As of December 31, 2017, the borrowings from asset management partnerships are from Beijing Shanzheng Longhua Capital Management Partnership (Limited Partnership) with principal RMB75 million, bearing interest at 11% per year.

 

(iii)It represents the borrowings from third parties investors on internet funding platforms, interest rate range is from 9.7% to 14% per year.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

21Interest-bearing borrowings (continued)

 

(iv)Borrowings from trust company is from Shanxi Trust Limited Company with principal RMB110 million, bearing interest at 10.89% per year.

 

(v)Borrowings from private investment funds represent capitals raised from the funds established by Shenzhen Baoying Asset Management Company with total principal RMB2.04 billion, bearing interest at 16%-18% per year.

 

(vi)Borrowings from senior tranche of asset management product which invests in the Group’s loans portfolio are the capitals from senior tranche holders of Zhaoqian Jinjiao Fanhua Asset Management Product with the principal RMB25.99 million, bearing interest at 8.5% per year.

 

(vii)Borrowings from senior tranche of trust plan which invests in the Group’s loans portfolio are the capitals from senior tranche holders of No.1 Wukuang Trust Yangguang Fanhua Plan with principal RMB131.26 million, bearing interest at 10.24% per year.

 

(viii)Repurchase agreements are transactions in which the Group transfers its rights to earnings in the consolidated structured funds or rights to earnings in loans and advances to customers, and simultaneously agrees to repurchase them at a fixed price on a future date. The Group continues to recognize the loans and advances to customers in their entirety in the statement of financial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognized as a financial asset and a financial liability, is recognized for the obligation to pay the repurchase price. As of December 31, 2017, the amounts of financial liabilities related to repurchase agreements are reflected in borrowings from the investors of internet financial platforms and borrowings from private investment funds, amounting to RMB 1,405,217,000(2016: RMB 140,672,000) and RMB 2,042,700,000(2016:nil), respectively.

 

Pledged assets

 

The Group pledges certain assets to secure borrowings under agreements to repurchase and other borrowings. The table provides the total carrying amounts of pledged assets by asset types.

 

     2017   2016 
     RMB   RMB 
     unaudited     
             
  Rights to earnings in the consolidated structured funds   4,173,931,373    - 
  Rights to earnings in loans and advances to customers   493,413,547    161,440,243 
             
  Total   4,667,344,920    161,440,243 

 

Amounts presented above include carrying value of RMB 4,409,898,351 and RMB 161,440,243 in collateral for repurchase agreements as of December 31, 2017 and 2016, respectively.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

22Accruals and other payables

 

     Note  2017   2016 
        RMB   RMB 
        unaudited     
              
  Payables to interest holders of consolidated structured entities  (i)   11,504,125,600    5,169,370,000 
  Interest payable      147,849,661    61,566,829 
  Customer pledged deposits      106,006,039    77,807,696 
  Accrued employee benefits      68,827,798    51,329,948 
  Other tax payables      75,915,052    51,236,294 
  Amounts due to third parties      7,004,154    23,848,850 
  Payable to banks as mortgage agency  (ii)   6,468,682    15,173,806 
  Receipt in advance      6,979,476    1,077,372 
  Others      19,227,261    36,563,913 
                
  Total      11,942,403,723    5,487,974,708 

 

(i)The financial liabilities arising from the consolidated structured entities with underlying investments in loans and advances to customers are classified as other payables and accruals in these consolidated financial statements. It is because, the Group has an obligation to pay other investors upon maturity dates of the structured entities based on the net book value and related terms of those consolidated structured funds.

 

(ii)The amount mainly represents payable to the original bank for settling the loan and releasing collateral on behalf of customers of mortgage agency services.

 

(iii)All of other trade and other payables (including interest payable to related parties) are expected to be settled or recognized as income within one year or are repayable on demand.

 

23Segment reporting

 

The principal activity of the Group is micro credit business. The Group has similar economic characteristic and is similar in respect of the business nature, products, customer type and services. Therefore the Group does not disclose segmental report based on the information used internally by the chief operating decision maker for purpose of assessing performance and making resource allocation decisions.

 

 52 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments

 

(i)Capital management

 

The Group’s primary objective when managing capital is to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for equity shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

 

The Group actively and regularly reviews and manages its capital structure, to maintain a balance between the higher shareholders returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

 

There were no changes in the Group’s approach to capital management during the years.

 

Particularly for credit loan operation, the Group monitors regularly the residual balance of outstanding credit loans for single customers and multiples of the total credit loans in relation to share capital of companies in the Group credit loan business, so as to keep the capital risk within an acceptable limit. The decision to manage the share capital of companies in the Group to meet the needs of developing credit loan business rests with the directors.

 

(ii)Exposure to risk

 

Exposure to credit, market and liquidity risks arises in the normal course of the Group’s business. The Group is also exposed to equity price risk arising from its equity investments in other entities. The Group’s exposure to these risks and the financial risk management policies and practice used by the Group to manage these risks are described below.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments (continued)

 

(a)Credit risk

 

Credit risk arises from a customer’s inability or unwillingness to meet its financial obligations to make timely payments under loans the Group provided. Credit risk is primarily attributable to the loan business of the Group, loans and advances to customers and trade and other receivables.

 

The maximum exposure to credit risk is represented by the net carrying amount of each type of financial assets as at the end of the reporting periods.

 

Credit risk arising from loans and advances to customers

 

To identify, evaluate, monitor and manage credit risk, the Group designs the risk management structure, credit policies and processes required for effective credit risk management which have been implemented across the Group upon approval of the Board. The Board is responsible for formulating the credit policies, management framework and marketing strategies from time to time, analysing the development of micro credit and mortgage agency services businesses and the level of risk management, and approving loans with amounts exceeding the authorized limit of the senior management in accordance with relevant rules, regulations and monetary policies in the PRC and the Group’s business strategy.

 

The Group carries out pre-approval, review and credit approval of loans by professionals for credit risk arising from micro credit business. During the post-transaction monitoring process, the Group conducts a visit of customers regularly after disbursement of loans, and conducts on-site inspection when the Group considers it is necessary. The review focuses on the status of the collateral.

 

The Group has established relevant mechanisms to apply tiered management of credit risks, and set limits to acceptable risks for different industries and geographical regions. The Group monitors the risk status of these customers regularly.

 

The Group adopts a loan risk classification approach to manage the loan portfolio risk. Loans are classified as non-impaired and impaired based on the different risk level. When one or more event demonstrates there is objective evidence of impairment and causes losses, corresponding loans are considered to be classified as impaired. The allowance for impairment losses on impaired loans are collectively or individually assessed as appropriate.

 

The Group applies a series of criteria in determining the classification of loans. The loan classification criteria focuses on a number of factors, including (i) the borrower’s ability to repay the loan; (ii) the borrower’s repayment history; (iii) the borrower’s willingness to repay; (iv) the net realizable value of any collateral; and (v) the prospect for the support from any financially responsible guarantor. The Group also takes into account the length of time for which payments of principal and interest on a loan are overdue.

 

 54 

 

 

Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments (continued)

 

In accordance with accounting policies and regulations, if there is objective evidence that indicates the cash flow for a particular loan is expected to decrease, and the amount can be estimated, the loan is recorded as an impaired loan and the impairment loss is recognized in the income statement.

 

(i)Breakdown of total credit extended by the Group by type of collateral

 

     2017   2016 
     RMB   RMB 
     unaudited     
           
  Collateralised loans   16,673,957,543    7,281,459,545 
  Unsecured loans   -    425,784 
             
  Gross loans and advances to customers   16,673,957,543    7,281,885,329 
  Less: Impairment losses          
  Individually assessed   (98,736,343)   (55,180,661)
  Collectively assessed   (322,028,628)   (84,175,450)
             
  Subtotal   (420,764,971)   (139,356,111)
  Net loans and advances to customers   16,253,192,572    7,142,529,218 

 

(ii)The credit quality of loans and advances to customers

 

     2017   2016 
     RMB   RMB 
     unaudited     
  Gross loans and advances to customers        
  Neither overdue nor impaired   15,477,867,781    6,955,872,213 
  Overdue but not impaired   919,692,944    222,969,993 
  Impaired   276,396,818    103,043,123 
             
  Less: Impairment losses          
  Neither overdue nor impaired   (120,904,511)   (56,434,034)
  Overdue but not impaired   (201,124,117)   (27,741,416)
  Impaired   (98,736,343)   (55,180,661)
             
  Net balance          
  Neither overdue nor impaired   15,356,963,270    6,899,438,179 
  Overdue but not impaired   718,568,827    195,228,577 
  Impaired   177,660,475    47,862,462 
             
  Net loans and advances to customers   16,253,192,572    7,142,529,218 

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments (continued)

 

(iii)Analysed by geographical sector

 

   December 31, 2017 (unaudited) 
   Loan balance   Loan balance 
   RMB     
         
Pearl River Delta   4,846,885,102    29%
Yangtze River Delta   4,670,455,794    28%
Bohai Rim   3,934,403,971    24%
Others   3,222,212,676    19%
           
Total   16,673,957,543      
Less: Impairment losses          
Individually assessed   (98,736,343)     
Collectively assessed   (322,028,628)     
           
Total   (420,764,971)     
Net loans and advances to customers   16,253,192,572      

 

   December 31, 2016 
   Loan balance   Percentage 
   RMB     
         
Pearl River Delta   2,072,300,414    28%
Yangtze River Delta   2,719,591,352    37%
Bohai Rim   1,598,296,773    22%
Others   891,696,790    13%
           
Total   7,281,885,329      
Less: Impairment losses          
Individually assessed   (55,180,661)     
Collectively assessed   (84,175,450)     
           
Total   (139,356,111)     
Net loans and advances to customers   7,142,529,218      

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments (continued)

 

(iv)Overdue loans analyzed by type of collateral and overdue period

 

     December 31, 2017 (unaudited) 
     Overdue within three months   Overdue between three months and one year   Overdue between one year and three years   Overdue more than three years   Total 
     RMB   RMB   RMB   RMB   RMB 
                       
  Loans secured by tangible other than monetary assets   919,692,944    203,867,914    60,748,703    11,780,201    1,196,089,762 
  Unsecured loans   -    -    -    -    - 
                            
  Total   919,692,944    203,867,914    60,748,703    11,780,201    1,196,089,762 

 

     December 31, 2016 
     Overdue within three months   Overdue between three months and one year   Overdue between one year and three years   Overdue more than three years   Total 
     RMB   RMB   RMB   RMB   RMB 
                            
  Loans secured by tangible other than monetary assets   222,969,993    43,432,017    52,629,523    6,555,799    325,587,332 
  Unsecured loans   -    -    -    425,784    425,784 
                            
  Total   222,969,993    43,432,017    52,629,523    6,981,583    326,013,116 

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments (continued)

 

(v)Fair value of collateral and other credit enhancement held against financial assets

 

     2017   2016 
     RMB   RMB 
     unaudited     
  Fair value of collateral held against financial assets that are:          
  Neither overdue nor impaired   49,990,795,540    24,303,909,300 
  Overdue but not impaired   2,452,260,300    696,857,840 
  Impaired   765,856,700    402,539,900 
             
  Total   53,208,912,540    25,403,307,040 

 

Other credit risks

 

In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluation focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Normally, the Group does not obtain collateral from customers.

 

Further quantitative disclosure in respect of the Group’s exposure to credit risk arising from loans and advances to customers and trade and other receivables are set out in Note 16 and Note 18, respectively.

 

(b)Market risk

 

Market risk arises when the adverse changes in market prices (interest rates, exchange rates, as well as equity prices and other prices) lead to losses from the Group’s on-balance sheet and off-balance sheet businesses. The Group’s market risk mainly arises from currency risk and interest rate risk.

 

(i)Currency risk

 

The Group’s businesses are principally conducted in RMB, and the recognised assets or liabilities are mainly denominated in the functional currency of the Group entity to which they relate at the end of the reporting period. Accordingly, the directors considered the Group’s exposure to foreign currency risk is not significant during the year.

 

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Sincere Fame International Limited

Financial statements for the year ended December 31, 2017

 

24Financial risk management and fair values of financial instruments (continued)