INDUSTRY OVERVIEW SOURCES OF INFORMATION

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1 The information presented in this section is derived from the CIC Report, which is based on information sourced from CIC s database, publicly available information sources, industry reports, as well as data obtained from interviews and other sources. We believe that these information sources are appropriate and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading, or that any fact has been omitted that would render such information false or misleading. The information has not been independently verified by us, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], any of their respective directors, officers, representatives, employees, agents or professional advisers, or any other person or party (except CIC) involved in the [REDACTED], and no representation is given as to the completeness, accuracy, or fairness of such information. Accordingly, such information should not be unduly relied upon. SOURCES OF INFORMATION We commissioned CIC, an independent market research consulting firm, to conduct a detailed analysis of, and prepare a final report on Hong Kong s western casual dining restaurants market for the period from 2012 to We agreed to pay CIC a total fee of HK$360,000, which we believe reflects the market rate for similar services. CIC is an investment consulting company established in Hong Kong. Its services include industry consulting, commercial due diligence, and strategic consulting. Its professional team of consultants has been tracking the latest market trends in multiple industries and has extensive experience in, and insightful market knowledge of, the abovementioned industries. CIC undertook both primary and secondary research using a variety of resources. Primary research involved interviewing key industry experts and leading industry participants in western restaurant market in Hong Kong. Secondary research involved analysing data from various publicly available data sources, including government releases, company reports, independent research reports, and CIC s internal database. ASSUMPTIONS In compiling and preparing the report, CIC has adopted the following assumptions: (i) the overall social, economic, and political environment in Hong Kong is expected to remain stable during the forecast period; (ii) related key industry drivers are likely to propel continued growth in Hong Kong s restaurant industry throughout the forecast period, including increasing dining-out expenditure by consumers in Hong Kong as their income levels rise, opportunities of business expansion brought by the newly-developed areas in Hong Kong, the growing variety of cuisines that are able to attract consumers to increase dining-out expenditure; and (iii) there is no extreme force majeure or new set of industry regulations that will affect the market either dramatically or fundamentally. The CIC Report primarily focuses on the western casual dining restaurants market in Hong Kong, the main jurisdiction where our business operations are conducted. Our Directors confirm that after taking reasonable care, there has been no material adverse change in the market information included herein subsequent to the published dates for the relevant data contained in the CIC Report, changes which may qualify, contradict, or have an impact on the information presented in this section. Except as otherwise indicated, all data and forecasts contained in this section are derived from the CIC Report. The Forecast Period refers to the period from 2017 to

2 OVERVIEW OF THE RESTAURANT INDUSTRY IN HONG KONG Hong Kong has been an internationally important city serving tens of millions of visitors. The restaurant industry in Hong Kong is extremely well-developed in terms of industrial regulation, professional services and variety of high-quality cuisines. Major Segments of the Restaurant Industry in Hong Kong Based on the classification standards of Hong Kong Census and Statistics Department and CIC s analysis, the major segments of the restaurant industry in Hong Kong can be categorised as follows: Segment Descriptions Chinese Restaurants. Chinese restaurants refer to restaurants mostly offering various types of Chinese cuisines including, but not limited to, Cantonese, Beijing, Sichuan, Shanghai, Shandong, Fujian, Jiangsu, Zhejiang, Hunan and Anhui cuisines. Asian Restaurants. Asian Restaurants refer to restaurants offering various non- Chinese Asian cuisines including, but not limited to, Japanese, Korean and Thai cuisines. Western Restaurants. Western restaurants refer to restaurants mostly offering western cuisines including, but not limited to, French, Italian, British, American and Mexican cuisines. Fast Food Restaurants. Fast food restaurants refer to Asian and western restaurants where customers get the food and find their seats by themselves. This segment also includes cafeterias, snack shops and food stalls at food courts. Bars. Bars refer to establishments specialised in offering alcoholic beverages with a small number of carefully selected and prepared dishes or snacks. This segment includes clubs and pubs. Other Catering Establishments. Other catering establishments include coffee shops, beverage serving places, herbal tea shops, places providing event catering services and those establishments which are not described in previous sections. CIC Report 50

3 In the segments mentioned above, the Chinese, Asian and western restaurants can be divided into fine dining and casual dining segments. Up to the Latest Practicable Date, our Group is mainly involved in operating 11 western casual dining restaurants in Hong Kong. Comparison between western fine dining and casual dining restaurants in Hong Kong Fine dining Cuisines and dishes. Customers are served multiplecourse meals, ranging from appetisers and soups to main courses and desserts.. Comprehensive drinks are offered including alcoholic and non-alcoholic drinks. Service. A full table service is provided including seating arrangements, order taking, delivery of food to the table and payment processing. Casual dining. Simpler menus are provided with affordable prices. Hot dishes such as pasta, burgers andsouparethemostcommon offers for western casual dining restaurants.. Standard sets of meals are provided during lunch time, afternoon tea and dinner time.. Basic table service is provided. The extent of table service provided depends on target clientele and the overall operating budget of the restaurant. Average spending per guest. Spending per guest per meal is normally not lower than HK$400 to over HK$1,000 for dinner.. Spending per guest per meal is normally between HK$100 to HK$400 for dinner. Spending guest per meal is usually below HK$150 for a standard lunch meal. Other features. The major guests for western fine dining restaurants are guests who are looking for a supreme service.. Some guests choose western fine dining restaurants for some special occasions such as anniversaries or birthday gatherings.. The dining time for a typical guest is over 1.5 hours. The reservation is always required. The turnover rate is lower when compared to that of most western casual dining restaurants.. The major guests of western casual restaurants are young consumers aged between 25 and 40. These guests prefer a casual and relaxing atmosphere.. The dining time for a typical guests ranges from 1 to 1.5 hours so the turnover rate for western casual restaurants is relatively higher when compared with that of western fine dining restaurants.. Western casual dining restaurants are mostly located in popular shopping malls for strong and steady traffics.. Western fine dining restaurants are mostly located in high-end shopping malls in city centres and five-star hotels. CIC Report 51

4 Recent Development of the Restaurant Industry in Hong Kong The overall restaurant industry in Hong Kong is quite mature and saturated, and growth in this industry is mostly driven by the overall growth of the local economy. The following table presents the information and data about the overall development of Hong Kong s restaurant industry between 2012 and 2016: CAGR ( ) (Note 1) Total Receipts (HKD billion) % (Note 2) Total Purchases (HKD billion) % Number of Establishments 14,174 13,855 13,904 13,555 13, % Compensation of Employees (HKD billion) n/a n/a (Note 3) Operating Expenses (HKD billion) n/a n/a As percentage of total receipts 36.8% 38.9% 39.9% 39.8% n/a n/a Note: 1. Total receipts refer to the sales generated from the operation of restaurants. 2. Total purchases refer to the value of purchases of food, beverages, and other goods for sale. 3. Operating expenses refer to those including rental expenses, labour expenses, interest expenses, expenses on purchase of raw materials and ingredients, and other major expenses for operating a restaurant to 2016, Census and Statistic Department of the Government of Hong Kong Labor costs and rental fees are also expected to continue increasing in the future along with the development of Hong Kong s overall economy. Moreover, rental fees for properties in the New Territories will likely increase at a relatively faster rate compared to other well-developed areas. Thanks to the relatively stable economic growth in Hong Kong, the market size of restaurant industry in terms of total receipts grew from approximately HK$93.7 billion in 2012 to approximately HK$107.4 billion in 2016, representing a CAGR of 3.5%. The market size is expected to further grow to approximately HK$126.4 billion in 2021, representing a CAGR of 3.3% between 2016 and 2021, according to the CIC Report. 52

5 Market Size and Forecast of the Restaurant Industry by Segment in Terms of Total Receipts, Hong Kong, E HKD billion Chinese restaurant Fast food shop Western restaurant Asian restaurant Other eating and drinking place CAGR ( ) CAGR ( E) 1.2% 0.9% 5.4% 5.3% 5.0% 4.6% 5.7% 5.5% 6.4% 5.4% E 2018E 2019E 2020E 2021E CIC Report Among the major restaurant segments, the western restaurant segment was the third largest, having grown from approximately HK$14.3 billion in 2012 to approximately HK$17.4 billion in 2016, representing a CAGR of 5.0%. This segment is expected to reach approximately HK$21.8 billion by 2021, representing a CAGR of 4.6% between 2016 and This rapid growth is primarily due to the changing and diversification of consumer eating habits and the increasing number of western restaurants in Hong Kong. OVERVIEW OF THE WESTERN CASUAL DINING RESTAURANT MARKET IN HONG KONG The Growing Popularity of Casual Dining Activities in Hong Kong Hong Kong consumers have been growing increasingly fond of eating out in casual dining restaurants, as they have longer working hours, smaller families, and more social activities that are suitable in casual dining establishments. Western casual dining restaurants have greatly benefited from the growing popularity of the casual dining experience. According to CIC, the overall market size of western casual dining restaurants in terms of total receipts grew from approximately HK$14.3 billion in 2012 to approximately HK$17.4 billion in 2016, representing a CAGR of 5.1%. This growth momentum is also expected to sustain in the near future, with the market size expected to expand to approximately HK$21.8 billion in 2021 representing a CAGR of 4.6% between 2016 and

6 Market Size and Forecast of Western Restaurant Market by Segment in Terms of Total Receipts, Hong Kong, E HKD billion Western fine dining restaurant Western casual dining restaurant CAGR ( ) CAGR ( E) 4.8% 4.3% 5.1% 4.6% E 2018E 2019E 2020E 2021E CIC Report Drivers of the Western Casual Dining Restaurant Market in Hong Kong We believe the following factors will drive continued growth in the western casual dining restaurants market in Hong Kong:. Increasing per capita expenditures on dining out. With the recovery of the global economy andhongkong s economy restoring consumer confidence, consumption levels are expected to continue gaining strength in the near future. Expenditure on food is expected to continue increasing steadily alongside the increasing customer income. Per capita expenditure on dining out for Hong Kong residents increased from approximately HK$17,700 in 2012 to approximately HK$21,900 in 2016, representing a CAGR of 5.5% for this period. Per capita expenditure is expected to continue increasing to HK$26,500 by 2021, representing a CAGR of 4.3% between 2016 and Rebounding number of international tourist. The number of visitors to Hong Kong declined in both 2015 and 2016 as a result of an uncertain outlook for the global economy and antiparallel trading protests that led to the decrease of Mainland China tourists under the individual visit scheme, among other reasons. The number of visitors is expected to rebound to reach approximately 68.4 million by 2021 as the Hong Kong Government takes effective measures to rebuild the city s positive image as a hospitable travel destination to attract more international tourists.. New opportunities provided by new development areas ( NDA ). According to the 2016 Hong Kong Policy Address, a handful of development projects are currently progressing as scheduled in order address the housing shortage problems. These development projects include Kwun Tung North and Fanling North NDAs, Tung Chung New Town Extension, Hung Shui Kiu NDA, and Yuen Long South Development, and are expected to provide over 7.8 million square meters of new floor area for commercial and industrial use. With the continuous investment in developing commercial property, especially in terms of projects located in the north area and Lantau Island, the number of customers frequenting local businesses and the overall demand for catering services are expected to increase accordingly. 54

7 . Rising public demand for healthy and premium cuisines. There is a noticeable trend in Hong Kong that consumers are gaining a stronger preference for healthier cuisines which are normally higher priced. These new healthy and premium cuisines are normally introduced into the Hong Kong restaurant industry by numerous casual dining restaurant operators. For example, beef and seafood have gained a wider acceptance by Hong Kong consumers as healthier choices of meat due to their lower fat content and higher protein content comparatively to pork. As a result, western casual dining cuisines that offer these healthier ingredients have gained stronger preference among Hong Kong consumers in the past decade. Important Trends of the Restaurant Industry in Hong Kong The following are noticeable trends in the restaurant industry in Hong Kong:. Diversification of positioning. Restaurant groups in Hong Kong tend to develop and establish diverse brands of catering services to expand their businesses and capture a higher market share. In terms of target customers, restaurant groups launch different establishments to capture customers from both the high-end and mass markets. In terms of cuisine, restaurant groups are increasingly choosing to launch restaurants serving non-cantonese Chinese cuisines, Asian cuisines and western cuisines.. Integration of supply-chain management. With smaller restaurant operators being forced out of the market and larger players taking a larger share of the market, the supply chain for the consumer catering service has also become more concentrated and specialised. The ever more integrated supply chain for catering service groups will help lower the procurement costs by simplifying the management and increasing the efficiency of communication and delivery.. Growing importance of digital marketing. In order to attract consumer attention and gain more business traffic for restaurants, it is essential for the catering service providers to make full use of internet communication media and technology such as online advertising, mobile device application advertising (such as OpenRice), social media advertising, etc. Social media and mobile phone applications have become one of the primary sources of searching for and learning about restaurants, especially for the younger generation. Challenges for the development of Western Casual Dining Restaurant Market in Hong Kong Major challenges for the positive development of Hong Kong casual dining restaurant industry include the following:. Labour shortage. Few young people in Hong Kong are willing to work as service staff in the restaurant industry, with this kind of employment being of a high intensity and with relatively lower wages. Median working hours per week adds up to over 54 hours and the median hourly wage is HK$44.7, the latter of which is lower than most of other industries in Hong Kong.. Stable supply of key food ingredients. Given most of food ingredients consumed in Hong Kong must be imported, unexpected food safety incidents can suddenly and unexpectedly hit the supply of key food ingredients in the market. For example, because of quality issues with Brazilian beef in 2017, all Brazilian beef imported into Hong Kong had to be destroyed that year. Restaurant operators should have stable supplies of quality ingredients from reliable suppliers and importers in Hong Kong. 55

8 Consumer Price Index in Hong Kong The Consumer Price Indexes ( CPI ) of the important ingredients used by western restaurants in Hong Kong have been generally growing in tandem with the Composite Consumer Price Index, presented by the following chart: Consumer Price Indexes for major food ingredient, Hong Kong, Pork Beef Poultry Frozen meat Fresh vegetables Pork Beef Poultry Frozen meat Fresh vegetables CAGR( ) 3.4% 5.9% 7.8% 0.9% 5.5% 2012 to 2016, Census and Statistic Department of the Government of Hong Kong All the indexes above have steadily grown between 2012 and 2016 primarily due to the heavy reliance on imported ingredients. The rising prices of major ingredients will pressure restaurant groups if the price inflation of ingredients cannot be effectively transferred to consumers. The Costs of Labor and Rent for the Restaurant Industry in Hong Kong The following table briefly illustrates the costs of labor and rental expenses in Hong Kong: CAGR ( ) Number of Employees 237, , , , , % Median hourly wage in the restaurant industry (HKD per hour) % Rental index (1999=100) for private retail premises % 2012 to 2016, Census and Statistic Department of the Government of Hong Kong 56

9 Entry Barriers Major entry barriers for Hong Kong s western casual dining market include (but are not limited to) the following:. Large initial investment. A large initial capital investment is required to ensure that a restaurant can benefit from continued business expansion. Raising an adequate level of funds can therefore be a major challenge for new entrants. Establishing a western casual dining restaurant requires investments in rent for the venue, decorations, facilities, electric appliances, personnel recruitment, etc. New entrants that are not financially strong may find it difficult to operate a western casual dining restaurant at the scale required.. Experienced and qualified staff. The chef is one of the most important factors in terms of the core competitiveness of a given restaurant. This is also true for western casual dining restaurants in Hong Kong. Most premium steakhouse head chefs in Hong Kong are wellexperienced and most of them are from western countries. These chefs have a deeper understanding of cooking methods for western-style dishes. New participants therefore may find it difficult to provide dishes offering the same quality taste representative of current leading restaurants in the industry.. Complex licensing application procedures. There are multiple legal and administrative requirements in Hong Kong for opening a new restaurant, including, among other things, a general restaurant license, a liquor license and water pollution control licences. There are also hygiene and environmental requirements that a new entrant must first meet in order to get started. Multiple governmental departments, including Hong Kong s Food and Environmental Hygiene Department, Liquor Licensing Board, Environmental Protection Department, and other departments are all involved in the application process. Thus, the complex and timeconsuming application process creates yet another entry barrier for new participants in the restaurant industry. Key success factors Key success factors for Hong Kong s western casual dining market include (but are not limited to) the following:. Innovating variety of cuisines offered. In order to stand out amongst the intense business competition, restaurant groups in Hong Kong are becoming increasingly focused on providing innovative and signature dishes that incorporate new ingredients, flavours and cooking methods that are less commonly seen. These creative cuisines can greatly help to attract customers, arouse their interest and facilitate consumption.. Location. A well-selected location is one of the most important factors for the success of a restaurant, since the location always indicates the size of potential customer traffic. Restaurants located in the central commercial properties, transportation hubs and tourist areas will be better positioned to enjoy a stable flow of consumer traffic.. A well-experienced management team. An experienced and dedicated management team is a core asset for restaurant groups and helps them to build close relationships with key suppliers and customers, while their in-depth knowledge of the industry helps them to stay abreast of any industry developments and market trends. 57

10 COMPETITIVE LANDSCAPE OF THE WESTERN CASUAL DINING RESTAURANT MARKET IN HONG KONG The market for western casual dining restaurants in Hong Kong is highly competitive and fragmented. While the independent western casual dining restaurants are dominant in terms of total number, the leading restaurant groups within such a segment are normally those operating multi-brand or chain restaurants with a large number of outlets. The top five western casual dining restaurant groups in Hong Kong accounted for approximately 10.7% of the overall market in terms of revenue generated in FY2017. In FY2017, our Group ranked fourth in the overall western casual dining restaurant market in Hong Kong, achieving a market share of 1.6% in terms of total revenue from our restaurant outlets (excluding the Hana Japanese restaurant). Ranking of western casual dining restaurant groups in terms of revenue in FY2017 Rank Name of company Headquarters location Revenue from western casual restaurants in 2016 (HKD million) (%) Share of total market Description 1 Competitor A Hong Kong Comprehensive western casual restaurants including general western style restaurants and bars 2 Competitor B Hong Kong Comprehensive western casual restaurants including, not limited to, Italian, British, American, Mexican style restaurants and bars 3 Competitor C U.S Steak-featured restaurants 4 Our Group Hong Kong Comprehensive western casual restaurants including steak-featured restaurants, bars and general western restaurants 5 Competitor D Hong Kong American style western restaurants Others 12, Total 14, CIC Report 58