Exhibit 99.2

Lufax Holding Ltd

INDEX TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

		Page(s)
Unaudited Interim Consolidated Statements of Comprehensive Income for the nine months ended September 30, 2021 and 2022			F-2
Unaudited Interim Consolidated Statements of Financial Position as of December 31, 2021 and September 30, 2022			F-4
Unaudited Interim Consolidated Statements of Changes in Equity for the nine months ended September 30, 2021 and 2022			F-6
Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2022			F-8
Notes to the Unaudited Interim Consolidated Financial Statements			F-9

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

						Nine months ended September 30,
		Note				2021				2022
						RMB’000				RMB’000
Technology platform-based income			6				29,458,153				23,344,095
Net interest income			7				9,940,117				14,611,906
Guarantee income							2,735,404				5,701,766
Other income			8				3,106,310				1,107,077
Investment income			9				792,887				1,031,031
Share of net profit/(loss) of investments accounted for using the equity method							(29,418	)			1,515
Total income							46,003,453				45,797,390
Sales and marketing expenses			10				(13,158,261	)			(12,050,538	)
General and administrative expenses			10				(2,588,459	)			(2,079,697	)
Operation and servicing expenses			10				(4,657,930	)			(4,770,562	)
Technology and analytics expenses			10				(1,487,347	)			(1,414,885	)
Credit impairment losses			11				(4,110,742	)			(10,291,935	)
Asset impairment losses			24,26				(411,596	)			(420,007	)
Finance costs			12				(728,156	)			(737,950	)
Other gains/(losses)—net			13				199,572				(415,322	)
Total expenses							(26,942,919	)			(32,180,896	)
Profit before income tax expenses							19,060,534				13,616,494
Less: Income tax expenses			14				(5,247,768	)			(4,035,520	)
Net profit for the period							13,812,766				9,580,974
Net profit attributable to:
Owners of the Company							13,898,293				9,514,661
Non-controlling interests							(85,527	)			66,313
						13,812,766				9,580,974

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-2

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(CONTINUED)

 

						Nine months ended September 30,
		Note				2021				2022
						RMB’000				RMB’000
Other comprehensive income/(loss), net of tax:
Items that will not be reclassified to profit or loss
-Exchange differences on translation of foreign operations							(33,760	)			(1,447,515	)
Total comprehensive income for the period							13,779,006				8,133,459
Total comprehensive income attributable to:
Owners of the Company							13,864,577				8,066,291
Non-controlling interests							(85,571	)			67,168
							13,779,006				8,133,459
Earnings per share (expressed in RMB per share)
-Basic earnings per share			15				11.69				8.31
-Diluted earnings per share			15				10.91				7.97
-Basic earnings per ADS			15				5.85				4.16
-Diluted earnings per ADS			15				5.46				3.99

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-3

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

						As of December 31, 2021				As of September 30, 2022
		Note				RMB’000				RMB’000
ASSETS
Cash at bank			16				34,743,188				45,802,911
Restricted cash			16				30,453,539				27,021,836
Financial assets at fair value through profit or loss			17				31,023,211				25,564,173
Financial assets at amortized cost			18				3,784,613				4,749,482
Financial assets purchased under reverse repurchase agreements			19				5,527,177				—
Accounts and other receivables and contract assets			20				22,344,773				18,477,641
Loans to customers			21				214,972,110				232,229,739
Deferred tax assets			22				4,873,370				3,978,163
Property and equipment			23				380,081				314,618
Investments accounted for using the equity method							459,496				41,005
Intangible assets			24				899,406				892,068
Right-of-use assets			25				804,990				764,247
Goodwill			26				8,918,108				8,918,108
Other assets			27				1,249,424				1,915,345
Total assets							360,433,486				370,669,336
LIABILITIES
Payable to platform investors			28				2,747,891				1,987,045
Borrowings			29				25,927,417				35,780,452
Bond payable			30				—				2,150,793
Current income tax liabilities							8,222,684				1,149,341
Accounts and other payables and contract liabilities			31				8,814,255				11,638,679
Payable to investors of consolidated structured entities			32				195,446,140				193,610,897
Financing guarantee liabilities			33				2,697,109				4,510,096
Deferred tax liabilities			22				833,694				944,792
Lease liabilities			25				794,544				764,049
Convertible promissory note payable			34				10,669,498				12,618,789
Optionally convertible promissory notes			35				7,405,103				8,162,603
Other liabilities			36				2,315,948				2,254,533
Total liabilities							265,874,283				275,572,069

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-4

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

 

						As of December 31, 2021				As of September 30, 2022
		Note				RMB’000				RMB’000
EQUITY
Share capital			37				75				75
Share premium			37				33,365,786				25,857,702
Treasury shares			38				(5,560,104	)			(5,642,769	)
Other reserves			39				9,304,995				7,836,643
Retained earnings			40				55,942,943				65,457,604
Total equity attributable to owners’ of the Company							93,053,695				93,509,255
Non-controlling interests							1,505,508				1,588,012
Total equity							94,559,203				95,097,267
Total liabilities and equity							360,433,486				370,669,336

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-5

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

		Note				Attributable to owners of the Group
						Share capital				Share premium				Treasury shares				Other reserves				Retained earnings				Total				Non-controlling interests				Total Equity
						RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000
As of January 1, 2021							77				33,213,426				(2	)			7,418,710				40,927,597				81,559,808				1,591,513				83,151,321
Net profit for the period							—				—				—				—				13,898,293				13,898,293				(85,527	)			13,812,766
Other comprehensive income							—				—				—				(33,716	)			—				(33,716	)			(44	)			(33,760	)
Total comprehensive income for the period							—				—				—				(33,716	)			13,898,293				13,864,577				(85,571	)			13,779,006
Transactions with owners
Repurchase of ordinary shares			38				—				—				(3,747,348	)			—				—				(3,747,348	)			—				(3,747,348	)
Retirement of ordinary shares			37, 38				(2	)			—				2				—				—				—				—				—
Issuance of ordinary shares for share-based payment			37, 38				—				—				—				—				—				—				—				—
Exercise of share-based payment			37, 39				—				69,740				—				(28,453	)			—				41,287				—				41,287
Contributions from non-controlling interests							—				—				—				—				—				—				689				689
Share-based payment			43				—				—				—				100,597				—				100,597				1,050				101,647
As of September 30, 2021							75				33,283,166				(3,747,348	)			7,457,138				54,825,890				91,818,921				1,507,681				93,326,602

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-6

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

 

 

		Note				Attributable to owners of the Group
						Share capital				Share premium				Treasury shares				Other reserves				Retained earnings				Total				Non-controlling interests				Total Equity
						RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000
As of January 1, 2022							75				33,365,786				(5,560,104	)			9,304,995				55,942,943				93,053,695				1,505,508				94,559,203
Net profit for the period							—				—				—				—				9,514,661				9,514,661				66,313				9,580,974
Other comprehensive income							—				—				—				(1,448,370	)							(1,448,370	)			855				(1,447,515	)
Total comprehensive income for the period							—				—				—				(1,448,370	)			9,514,661				8,066,291				67,168				8,133,459
Transactions with owners
Repurchase of ordinary shares			38				—				—				(82,665	)			—				—				(82,665	)			—				(82,665	)
Capital reduction from non-controlling interests			37,38				—				—				—				—				—				—				(1,118	)			(1,118	)
Exercise of share-based payment			37,39				—				120,250				—				(61,520	)			—				58,730				—				58,730
Contributions from non-controlling interests							—				—				—				—				—				—				15,938				15,938
Dividend declared			37				—				(7,628,334	)			—				—				—				(7,628,334	)			—				(7,628,334	)
Share-based payment			43				—				—				—				41,538				—				41,538				516				42,054
As of September 30, 2022							75				25,857,702				(5,642,769	)			7,836,643				65,457,604				93,509,255				1,588,012				95,097,267

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-7

LUFAX HOLDING LTD

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 

						Nine months ended September 30,
		Note				2021				2022
						RMB’000				RMB’000
Cash flows from operating activities
Cash generated from operating activities			42	(a)			11,663,140				9,358,889
Income tax paid							(6,046,107	)			(9,727,222	)
Net cash generated from/(used in) operating activities							5,617,033				(368,333	)
Cash flows from investing activities
Proceeds from sale of investment assets							102,281,587				77,795,567
Proceeds from sale of property and equipment							4				18,694
Interest received on investment assets							959,545				1,289,966
Payment for acquisition of investment assets							(101,210,344	)			(77,164,166	)
Securities purchases under agreements to resell, net							(4,599,853	)			5,527,177
Payment for property and equipment and other long-term assets							(66,578	)			(83,095	)
Payment for acquisition of subsidiary, net of cash acquired							—				—
Net cash generated from/(used in) investing activities							(2,635,639	)			7,384,143
Cash flows from financing activities
Proceeds from issuance of shares and other equity securities							689				15,938
Including: Proceeds from capital contribution from the non-controlling shareholder of subsidiaries							689				15,938
Proceeds from exercise of share-based payment							26,147				94,140
Proceeds from borrowings							5,931,900				8,836,338
Repayment of borrowings							(1,251,652	)			(5,423,932	)
Payment for lease liabilities							(484,575	)			(455,939	)
Payment for interest expenses							(513,644	)			(966,226	)
Payment for dividend declared							—				(4,943,882	)
Payment for repurchase of ordinary shares							(4,525,190	)			—
Net cash generated from/(used in) financing activities							(816,325	)			(2,843,563	)
Effect of exchange rate changes on cash and cash equivalents							(44,253	)			205,976
Net increase/(decrease) in cash and cash equivalents							2,120,816				4,378,223
Add: Cash and cash equivalents at the beginning of the period							23,785,651				26,496,310
Cash and cash equivalents at the end of the period			42	(c)			25,906,467				30,874,533

The accompanying notes are an integral part of the unaudited interim consolidated financial statements.

 

F-8

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

1	General information

Lufax Holding Ltd (the “Company”) was incorporated in the Cayman Islands on December 2, 2014 as an exempted company with limited liability under the Companies Law (Revised) of the Cayman Islands. The address of its registered office is Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

The Company is an investment holding company and with its consolidated subsidiaries and consolidated structured entities that are controlled through contractual arrangements (“Consolidated Affiliated Entities”, or “OPCO”) (collectively referred to as the “Group”) are principally engaged in core retail credit and enablement business to both borrowers and institutional (the “Listing Business”) in the People’s Republic of China (the “PRC”).

 

2	History and reorganization of the Group

The Group subscribed RMB3.5 billion or 70% of the equity interest of Ping An Consumer Finance while Ping An Group subscribed RMB1.5 billion or 30%. Ping An Consumer Finance obtained approval from China Banking and Insurance Regulatory Commission (“CBIRC”) in March, 2020 for commencement of operation and started the consumer finance business from April, 2020.

On November 29, 2018 and January 31, 2019, the Group completed two batches of C-round investment with a series of independent third-party investors and issued 44,256,290 and 2,693,435 shares of Class C ordinary shares at the price of USD30.07 per share, for cash consideration of USD1,331 million (equivalent of approximately RMB9,230 million) and USD81 million (equivalent of approximately RMB542 million), respectively.

 

F-9

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

On September 30, 2020, the Company issued automatically convertible promissory notes and optionally convertible promissory notes (collectively, “Convertible Notes”) in a total principal amount of USD1,362 million to certain holders of the Class C ordinary shares, in exchange for a total of 45,287,111 Class C ordinary shares held by them (collectively, the “C-round restructuring”). The automatically convertible promissory notes were converted into ordinary shares automatically upon the closing of the Company’s IPO. The optionally convertible promissory notes can be converted into an aggregate of 38,493,660 ordinary shares, without giving effect to any anti-dilutive adjustments, during the period between the completion of the IPO and September 29, 2023. The Company pays 6% annual interest to the holders of Convertible Notes until the notes are fully repaid or converted. As a result of this transaction, the Company recorded an one-time expense of USD195 million (equivalent to RMB1,326 million (refer to Note 12)) mainly due to the higher aggregate fair value of approximately Convertible Notes compared to the Class C ordinary shares.

On October 30, 2020, the Company’s American depositary shares (“ADSs”) commenced trading on the New York Stock Exchange under the ticker symbol “LU”. On December 1, 2020, the underwriters partially exercised their over-allotment option to purchase additional ADSs. As a result, the Company issued and sold an aggregate of 199,155,128 ADSs in its IPO (including 24,155,128 ADSs sold upon the underwriters’ partial exercise of their over-allotment option), each two ADSs representing one ordinary share, for a total of 99,577,564 ordinary shares, at the price of USD13.5 per ADS, which raised total net proceeds of USD2,581 million (equivalent to approximately RMB17,305 million) after deducting underwriting commissions and the offering expenses payable by the Company, including USD314 million sold upon the underwriters’ partial exercise of their over-allotment options. Immediately prior to the completion of the IPO, all of the Company’s issued and outstanding Class B ordinary shares and Class C ordinary shares were automatically converted into 136,859,460 Class A ordinary shares on a one-for-one basis while all of then issued and outstanding Class A ordinary shares were re-designated and re-classified into ordinary shares on a one-for-one basis. Upon the completion of the IPO, all of the outstanding automatically convertible promissory notes were automatically converted into 7,566,665 ordinary shares at the IPO price of USD13.50 per ADS (or USD27.00 per ordinary share). As of December 31, 2020, the Company has 1,231,150,560 ordinary shares issued and outstanding (including 35,644,803 ordinary shares issued to Tun Kung Company Limited reserved for use under the Company’s share incentive plans (refer to Note 43)).

During 2021, the board of directors of the Company authorized share repurchase programs under which the Company could repurchase up to an aggregate of USD1 billion of its ADSs during a specific period of time. As of September 30, 2022, the Company had repurchased approximately 110 million ADSs (or 55 million ordinary shares) for approximately USD877 million under share repurchase programs.

 

F-10

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

(a)	As of September 30, 2022, the Company had direct or indirect interests in the principal subsidiaries and the principal consolidated affiliated entities as below.

 

Company Name		Country/place and date of incorporation		Attributable equity interest/economic interest to the Group
Controlled through direct equity holding:
Gem Blazing Limited		Cayman/May 28, 2015			100	%
Wincon Hong Kong Investment Company Limited		Hong Kong/December 29, 2014			100	%
Weikun (Shanghai) Technology Service Co., Ltd. (“Weikun Technology”)		Shanghai/February 28, 2015			100	%
Jinjiong (Shenzhen) Technology Service Company Ltd.		Shenzhen/October 16, 2017			100	%
Lufax Holding (Shenzhen) Technology Service Co., Ltd.		Shenzhen/September 25, 2018			100	%
Gem Alliance Limited		Cayman/May 26, 2015			100	%
Harmonious Splendor Limited		Hong Kong/June 1, 2015			100	%
Ping An Puhui Financing Guarantee Co., Ltd.		Nanjing/December 25, 2007			100	%
Ping An Puhui Enterprises Management Co., Ltd.		Shenzhen/July 7, 2015			100	%
Ping An Puhui Investment & Consulting Co., Ltd.		Shenzhen/September 5, 2005			100	%
Shenzhen Ping An Puhui Microloan Co., Ltd.		Shenzhen/September 19, 2010			100	%
Ping An Puhui Information Services Co., Ltd.		Harbin/July 18, 2016			100	%
Ping An Consumer Finance Co., Ltd.		Shanghai/April 9, 2020			70	%
Controlled through Contractual Agreements:
Shanghai Xiongguo Enterprise Management Co., Ltd. (“Xiongguo”)		Shanghai/December 10, 2014			100	%
Shanghai Lufax Information Technology Co., Ltd.		Shanghai/September 29, 2011			100	%
Shenzhen Lufax Holding Enterprise Management Co., Ltd.		Shenzhen/May 23, 2018			100	%

The English names of certain subsidiaries of the Group represent the best effort by the Company’s management to translate their Chinese names, as these subsidiaries do not have official English names.

 

F-11

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

(b)	The following table sets forth the major consolidated structured entities other than Consolidated Affiliated Entities of the Group as of September 30, 2022.

 

Name		Amount of investment by the Group				Remaining unpaid principal of structured entities (i)
		RMB’000				RMB’000
Trust A			4,020,000				4,020,000
Trust B			2,590,000				2,590,000
Trust C			2,430,000				2,430,000
Trust D			1,960,000				1,960,000
Trust E			1,600,000				1,600,000
Trust F			1,540,000				1,540,000
Trust G			1,501,000				1,501,000
Trust H			18,000				1,200,000
Trust I			21,090				1,135,750
Trust J			1,110,000				1,110,000

As of September 30, 2022, the remaining unpaid principal held by Ping An Group accounted for less than 15% of all consolidated structured entities. Meanwhile, Ping An Group also provides certain services to certain consolidated structure entities.

 

(i)	The remaining unpaid principal is the amount not yet paid to the investors.

 

(c)

PRC laws and regulations prohibit or restrict foreign ownership of companies that conduct certain internet-based business, which include activities and services provided by the Group. The Group operates part of its business in the PRC through a series of contractual arrangements (collectively, “Contractual Arrangements”) entered into among wholly-owned subsidiaries of the Company (“WFOE”), Consolidated Affiliated Entities and the shareholders of Consolidated Affiliated Entities (“Onshore Shareholders”) that are authorized by the Group. The Contractual Arrangements include Exclusive Equity Interest Option Agreements, Exclusive Business Cooperation Arrangements, Exclusive Asset Option Agreements, Share Pledge Agreements and Voting Trust Agreements.

Under the Contractual Arrangements, the Company has the power to control the management, financial and operating policies of the Consolidated Affiliated Entities, has exposure or rights to variable returns from its involvement with the Consolidated Affiliated Entities, and has ability to use its power over the Consolidated Affiliated Entities to affect the amount of the returns. As a result, all of these Consolidated Affiliated Entities are accounted for as consolidated structured entities of the Company and their financial statements have also been consolidated by the Company. The table below sets forth the principal Consolidated Affiliated Entities of the Group as of September 30, 2022:

 

		Contract Date		WFOE		OPCO
		March 23, 2015		Weikun Technology		Xiongguo
		March 23, 2015		Weikun Technology		Shanghai Lufax Information Technology Co., Ltd
		November 21, 2018		Lufax (Shenzhen) Technology Service Co., Ltd		Shenzhen Lufax Holding Enterprise Management Co., Ltd

 

F-12

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

The principal terms of the Contractual Arrangements are further described below:

 

•	Exclusive Equity Interest Option Agreement

Each Onshore Shareholder (which, collectively, legally own 100% of the shares of OPCO) have irrevocably and unconditionally granted WFOE an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “Designee”) to purchase the equity interests in OPCO. WFOE shall be entitled to absolute discretion over the time, manner and times to exercise the option. Except for WFOE and the Designee(s), no other person shall be entitled to the Equity Interest Purchase Option or other rights with respect to the equity interests of OPCO held by any Onshore Shareholder. OPCO agreed to the grant by each Onshore Shareholder of the Equity Interest Purchase Option to WFOE.

 

•	Exclusive Business Cooperation Agreement

OPCO appointed WFOE as OPCO’s exclusive services provider to provide OPCO with complete business support and technical and consulting services during the term of the Agreement. OPCO agreed to accept all the consultations and services provided by WFOE exclusively unless with written consent of the WFOE and to accept the consultations and services by a third party appointed by WFOE. WFOE shall provide financial support for OPCO to maintain an ordinary business.

 

•	Exclusive Asset Option Agreement

OPCO irrevocably and unconditionally granted WFOE an irrevocable and exclusive right to purchase, or designate one or more persons (each, a “Designee”) to purchase the assets then held by OPCO once or at multiple times at any time in part or in whole at WFOE’s sole and absolute discretion. WFOE is entitled to absolute discretion over the time, manner and times to exercise the Option. Except for WFOE and the Designee(s), no other person shall be entitled to the Assets Purchase Option or other rights with respect to the assets of OPCO. Each Onshore Shareholder agreed to the grant by OPCO of the Assets Option to WFOE.

 

•	Share Pledge Agreement

As collateral security for the prompt and complete performance of any and all obligations of each Onshore Shareholder (legally owns 100% of the shares of OPCO) under the Cooperation Agreements (collectively, the “Secured Obligations”), Onshore Shareholder pledged to WFOE a first security interest in its share of the equity interest of OPCO.

 

•	Voting trust Agreement

Each Onshore Shareholder exclusively entrusted and authorized WFOE to exercise voting, management, and other shareholder rights of OPCO on its behalf. The powers and rights of WFOE granted under the said exclusive entrustment include but not limited to the following: propose, convene and attend shareholders’ meetings of OPCO; exercise all the shareholder’s rights and shareholder’s voting rights that each Onshore Shareholder is entitled to under the laws of the PRC and OPCO’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of Shares in part or in whole, and participate in dividend distributions or any other type of distribution of OPCO.

 

F-13

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

(d)	Risks in relation to the Consolidated Affiliated Entities

In the opinion of the Company’s management, the Contractual Arrangements discussed above have resulted in the Company and WFOE having the power to direct activities that most significantly impact the Consolidated Affiliated Entities, including appointing key management, setting up operating policies, exerting financial controls and transferring profit or assets out of the Consolidated Affiliated Entities at its discretion. The Company has the power to direct activities of the Consolidated Affiliated Entities and can have assets transferred out of the Consolidated Affiliated Entities under its control. Currently there is no contractual arrangement that could require the Company to provide additional financial support to the Consolidated Affiliated Entities. As the Company is conducting its Internet-related conduct mainly through the Consolidated Affiliated Entities, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss. As the Consolidated Affiliated Entities organized in the PRC were established as limited liability companies under PRC law, their creditors do not have recourse to the general credit of WFOE for the liabilities of the Consolidated Affiliated Entities, and WFOE does not have the obligation to assume the liabilities of these Consolidated Affiliated Entities.

The Company determined that the Contractual Arrangements are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Group’s ability to enforce the Contractual Arrangements.

On March 15, 2019, the Foreign Investment Law was formally passed by the thirteenth National People’s Congress and it has taken effect on January 1, 2020. The Foreign Investment Law has replaced the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Cooperative Joint Ventures and the Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC.

The Foreign Investment Law stipulates certain forms of foreign investment. However, the Foreign Investment Law does not explicitly stipulate contractual arrangements such as those the Company relies on as a form of foreign investment. Notwithstanding the above, the Foreign Investment Law stipulates that foreign investment includes “foreign investors investing through any other methods under laws, administrative regulations or provisions prescribed by the State Council.” Future laws, administrative regulations or provisions prescribed by the State Council may possibly regard Contractual Arrangements as a form of foreign investment. If this happens, it is uncertain whether the Contractual Arrangements with the Consolidated Affiliated Entities, its subsidiaries and its shareholders would be recognized as foreign investment, or whether the Contractual Arrangements would be deemed to be in violation of the foreign investment access requirements. As well as the uncertainty on how the Contractual Arrangements will be handled, there is substantial uncertainty regarding the interpretation and the implementation of the Foreign Investment Law. The relevant government authorities have broad discretion in interpreting the law. Therefore, there is no guarantee that the Contractual Arrangements, the business of the Consolidated Affiliated Entities and financial conditions of the Company will not be materially and adversely affected.

 

F-14

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

(d)	Risks in relation to the Consolidated Affiliated Entities (Continued)

The Company’s ability to control Consolidated Affiliated Entities also depends on rights provided to WFOEs under the Voting trust Agreement, to vote on all matters requiring shareholder approval. As noted above, the Company believes the Voting trust Agreement is legally enforceable, but they may not be as effective as direct equity ownership. In addition, if the corporate structure of the Group or the contractual arrangements among WFOEs, the Consolidated Affiliated Entities and their respective shareholders were found to be in violation of any existing PRC laws and regulations, the relevant PRC regulatory authorities could:

 

•

revoke Consolidated Affiliated Entities’ business and operating licenses;

 

•

require Consolidated Affiliated Entities to discontinue or restrict its operations;

 

•

restrict Consolidated Affiliated Entities’ right to collect revenues;

 

•

block Consolidated Affiliated Entities’ websites;

 

•

require the Group to restructure the operations, re-apply for the necessary licenses or relocate its business, staff and assets;

 

•

impose additional conditions or requirements with the Group may not be able to comply; or

 

•

take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.

 

(e)	The following are major unaudited interim financial information of the Group’s Consolidated Affiliated Entities and their consolidated subsidiaries as of December 31, 2021 and September 30, 2022 and for the nine months ended September 30, 2021 and 2022.

 

		As of December 31, 2021				As of September 30, 2022
		RMB’000				RMB’000
Assets arising from inter-company transactions			3,911				12,894
Amount due from Group companies			535,200				1,840,507
Total assets			21,721,834				13,333,917
Amount due to Group companies			19,827,134				13,465,695
Total liabilities			24,101,238				16,043,501

 

F-15

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

(e)	The following are major unaudited interim financial information of the Group’s Consolidated Affiliated Entities and their consolidated subsidiaries as of December 31, 2021 and September 30, 2022 and for the nine months ended September 30, 2021 and 2022. (Continued)

 

		Nine months ended September 30,
		2021				2022
		RMB’000				RMB’000
Inter-company revenues			257				124,648
Total income			1,077,261				790,855
Inter-company expenses			1,048,833				446,703
Total expense			(1,485,179	)			(1,111,118	)
Net loss			(407,918	)			(320,263	)
Inter-company cash flow			3,173,077				(1,524,171	)
Reclassification (i)			—				1,894,243
Other operating activities			(119,894	)			(1,543,999	)
Net cash generated from/(used in) operating activities			3,053,183				(1,173,927	)
Inter-company cash flow			(858,430	)			561,372
Reclassification (i)			—				(1,894,243	)
Payment for advances to consolidated entities			(500,000	)			—
Receipts of repayment of the advances from consolidated entities			1,064,669				158
Proceeds from sale of investment assets			16,400,181				12,745,078
Payment for acquisition of investment assets			(8,737,354	)			(8,648,831	)
Other investing activities			(4,599,849	)			4,722,257
Net cash generated from/(used in) investing activities			2,769,217				7,485,791
Repayment for advances to consolidated entities			(9,753,080	)			(8,619,250	)
Receipts of advances from consolidated entities			4,794,001				3,277,000
Proceeds from borrowings			572,000				—
Repayment of interest expenses and borrowings			(660,661	)			(568,919	)
Other financing activities			—				85,166
Net cash generated from/(used in) financing activities			(5,047,740	)			(5,826,003	)
Effect of exchange rate changes on cash and cash equivalents			(10	)			26
Net increase/(decrease) in cash			774,650				485,887
Cash at the beginning of the period			1,426,058				904,360
Cash at the end of the period			2,200,708				1,390,247

 

(i)	This represents the reclassification of certain cash flows that were considered as investing activities in the financial statements of consolidated affiliated entities and consolidated affiliated entities’ subsidiaries and as operating activities in the consolidated financial statements.

 

F-16

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

2	History and reorganization of the group (Continued)

 

As of December 31, 2021 and September 30, 2022, the total assets of Group’s Consolidated Affiliated Entities were mainly consisting of cash at bank, restricted cash, financial assets at fair value through profit or loss, financial assets at amortized cost, accounts and other receivables, deferred tax assets and other assets. The total liabilities were mainly consisting of payable to platform users, borrowings, accounts and other payables, payables to investors of consolidated structured entities and other liabilities.

 

3	Summary of significant accounting policies

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

 

3.1	Basis of preparation

The accompanying unaudited interim consolidated financial statments of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The unaudited interim consolidated financail statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss, which are carried at fair value.

The preparation of the unaudited interim consolidated financial statments in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the unaudited interim consolidated financial statments are disclosed in Note 5 below.

New and amended standards and interpretations adopted by the Group

The Group has applied the following standards and amendments for the first time for its unaudited interim consolidated financial statments period commencing January 1, 2022:

 

•

Onerous Contracts—Cost of Fulfilling a Contract—Amendments to IAS 16

 

•

Reference to the Conceptual Framework—Amendments to IFRS 3

 

•

Property, Plant and Equipment: Proceeds before intended use—Amendments to IAS 16

 

•

IFRS 9 Financial Instruments, IFRS 16 Leases, IFRS 1 First-time Adoption of International Financial Reporting Standards, IAS 41 Agriculture—Annual Improvements to IFRS Standards 2018—2020

 

•

Amendment to IFRS 16, ‘Leases’—Covid-19 related rent concessions Extension of the practical expedient (effective 1 April 2021)

 

•

IFRIC Agenda decision—Lessor forgiveness of lease payments (IFRS 9 and IFRS 16)

The adoption of standards and amendments listed above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods.

 

F-17

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.1	Basis of preparation (Continued)

New and amended standards and interpretations not yet adopted by the Group

Certain new accounting standards and interpretations have been published that are not mandatory for the nine months ended September 30, 2022 reporting periods and have not been early adopted by the Group.

 

						Effective for the annual periods beginning on or after
		IFRS 17		Insurance contracts		January 1, 2023
		Amendments to IAS 1		Classification of Liabilities as Current or Non-current		January 1, 2023
		Amendments to IAS 1 and IFRS Practice Statement 2		Disclosure of Accounting Policies		January 1, 2023
		Amendments to IAS 8		Definition of Accounting Estimates		January 1, 2023
		Amendments to IAS 12		Deferred Tax related to Assets and Liabilities arising from a Single Transaction		January 1, 2023
		Amendment to IFRS 16		Leases on sale and leaseback		January 1, 2023
		Amendments to IFRS 10 and IAS 28		Sale or contribution of assets between an investor and its associate or joint venture		To be determined.

The Group does not expect the adoption of these standards and interpretations will have a significant impact on the Group’s financial position or performance.

 

F-18

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.2	Principles of consolidation and equity accounting

 

3.2.1

Subsidiaries

Subsidiaries are all entities (including consolidated structured entities as stated in Note 2 above) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Investments in subsidiaries are accounted for using the equity method of accounting.

The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 3.4).

Intra-group transactions, balances and unreleased gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred assets. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statements of comprehensive income, consolidated statement of changes in equity and consolidated balance sheet, respectively.

 

3.2.2

Associates

An associate is an entity over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence could be demonstrated for an investment of less than 20%, for example, by representation on the board of directors or equivalent governing body of the investee.

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

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

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

 

F-19

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.2	Principles of consolidation and equity accounting (Continued)

 

3.2.2

Associates (Continued)

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

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

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

 

3.3	Structured entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directly by means of contractual or related arrangements.

The Group determines whether it is an agent or principal in relation to those structured entities in which the Group acts as an asset manager based on management’s judgment. If an asset manager is an agent, it acts primarily on behalf of others and so does not control the structured entity. It may be the principal if it acts primarily for itself, and therefore controls the structured entity.

With respect to the Consolidated Affiliated Entities, the Group acts as a principal and the determination of the consolidation of the Consolidated Affiliated Entities is set out in Note 2. The unconsolidated structured entities to which the Group has exposure is set out in Note 4.3.

 

F-20

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.4	Business combination

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

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

Acquisition-related costs are expensed as incurred.

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

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

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

 

F-21

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.5	Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocation of resources and assessing performance of the operating segments and make strategic decisions. The Group’s chief operating decision makers have been identified as the executive directors of the Company, who review the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group as a whole.

For the purpose of internal reporting and management’s operation review, the chief operating decision makers and management personnel operate a retail credit and enablement business and a wealth management business. Due to materiality, the Group has only one reporting segment. In addition, the Group does not distinguish between markets or segments for the purpose of internal reporting. As the Group’s assets and liabilities are substantially all located in the PRC, substantially all revenues are earned and substantially all expenses are incurred in the PRC, and accordingly, no geographical segments are presented.

 

3.6	Foreign currency translation

 

(i)	Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of the Company is the United States dollar (“USD”). The RMB is the functional currency of the subsidiaries in the PRC. As the major operations of the Group are within the PRC, the Group determined to present its consolidated financial statement in RMB (unless otherwise stated).

 

(ii)	Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are generally recognized in consolidated statements of comprehensive income.

 

F-22

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.6	Foreign currency translation (Continued)

 

(ii)	Transactions and balances (Continued)

Foreign exchange gains and losses that relate to borrowings are presented in the consolidated statements of comprehensive income, within finance costs. All other foreign exchange gains and losses are presented in the consolidated statements of comprehensive income on a net basis within other gains/ (losses).

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss, and translation differences on non-monetary assets such as equities classified as fair value through other comprehensive income are recognized in other comprehensive income.

 

(iii)

Group companies

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

 

•

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

 

•

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

 

•

all resulting exchange differences are recognized in other comprehensive income.

 

3.7	Cash and cash equivalents

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

3.8	Financial assets

 

(i)	Recognition

The Group recognizes a financial asset or a financial liability in its statement of financial position when, and only when, it becomes a party to the contractual provisions of the instrument.

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

 

F-23

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.8	Financial assets (Continued)

 

(ii)	Classification and Measurement

The Group classifies its financial assets in the following measurement categories, which depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows:

 

•

those to be measured at amortized cost (“AC”);

 

•

those to be measured at fair value through other comprehensive income (“FVOCI”); or

 

•

those to be measured at fair value through profit or loss (“FVPL”).

The Group determines the classification of debt investments according to its business model and the contractual cash flow characteristics of the financial assets. The investments are classified as FVPL if the cash flows cannot pass solely payments of principal and interest on the principal amount testing. Otherwise, the classification depends on the business model. For investments in equity instruments, investments are classified as FVPL in general, except those designated as the equity investment at FVOCI. As of December 31, 2021 and September 30, 2022, the Group did not hold any financial assets measured as FVOCI.

Debt instruments

Debt instruments are those instruments that meet the definition of a financial liability from the issuer’s perspective, such as loans, government and corporate bonds. Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:

 

•

Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest and that are not designated at FVPL are measured at amortized cost. Interest income from these financial assets is included in interest income using the effective interest rate method. Any gain or loss arising from derecognition or impairment is recognized directly in profit or loss. Such assets held by the Group mainly include cash at bank, accounts and other receivables and contract assets, financial assets at amortized cost, financial assets purchased under reverse repurchase agreements, and loans to customers. Purchased or originated credit-impaired financial assets (“POCI”) are those financial assets that are credit-impaired on initial recognition whose interest income is calculated by applying the effective interest rate to the net carrying amount of the financial asset.

 

•

FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, and that are not designated as FVPL are measured at FVOCI. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss on the instrument’s amortized cost previously recognized in other comprehensive income is reclassified from equity to profit or loss. Interest income from these financial assets is included in interest income using the effective interest rate method.

 

•

FVPL: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVPL. The gains or losses arising from fair value changes on the debt investments measured at FVPL are recognized in profit or loss.

 

F-24

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.8	Financial assets (Continued)

 

(ii)	Classification and Measurement (Continued)

Equity instruments

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

Financing guarantee contracts

After initial recognition, an issuer of such a contract shall subsequently measure it at the higher of:

 

•

the amount of the loss allowance determined in accordance with Section 3.8(iii) and

 

•

the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15.

 

(iii)

Impairment

Expected credit loss (“ECL”) refers to the weighted average amount of credit loss of financial instruments based on the probability of default. Credit loss refers to the difference between all contractual cash flows receivable and all cash flows that the entity expects to receive, discounted at the original effective interest rate.

The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost, with the exposure arising from loan commitments and financing guarantee contracts that are not in the scope of “Insurance Contracts”. A number of significant judgments are also required in applying the accounting requirements for measuring ECL, such as:

 

•

Choosing appropriate models and assumptions for the measurement of ECL including exposure at default (EAD), probability of default (PD), loss given default (LGD), etc.

 

•

Determining criteria for significant increase in credit risk;

 

•

Establishing the number and relative weightings of forward-looking scenarios for the associated ECL.

For the financial instruments subject to ECL measurement, the Group assesses the significant increase in credit risk since initial recognition or whether an asset is considered to be credit impaired, “Three-stage” expected credit loss models are established and staging definition are set for each of these financial assets class. Incorporating forward-looking information, expected credit losses for financial assets are recognized in different stages.

Stage 1: A financial instrument that is not credit-impaired on initial recognition is classified in “Stage 1”and has its credit risk continuously monitored by the Group. The impairment provision is measured at an amount equal to the 12-month expected credit losses for the financial assets which are not considered to have significantly increased in credit risk since initial recognition.

 

F-25

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.8	Financial assets (Continued)

 

(iii)

Impairment (Continued)

Stage 2: If a significant increase in credit risk (“SICR”) since initial recognition is identified, the financial instrument is moved to “Stage 2” but is not yet deemed to be credit-impaired. The impairment provision is measured based on expected credit losses on a lifetime basis.

Stage 3: If the financial instrument is credit-impaired, the financial instrument is then moved to “Stage 3”. The impairment provision is measured based on expected credit losses on a lifetime basis.

For the financial instruments in Stage 1 and Stage 2, the Group calculates the interest income based on its gross carrying amount (i.e. amortized cost) before adjusting for impairment provision using the effective interest method. For the financial instruments in Stage 3, the interest income is calculated based on the carrying amount of the asset, net of the impairment provision, using the effective interest method. Financial assets that are originated or purchased credit impaired are financial assets that are impaired at the time of initial recognition, and the impairment provision for these assets is the expected credit loss for the entire lifetime.

The Group recognizes or reverses the loss allowance through profit or loss. For debt instruments measured at FVOCI, impairment gains or losses are included in the net impairment losses on financial assets and corresponding by reducing the accumulated changes in fair value included in the OCI reserve of equity.

For account receivables, the Group refers to historical experience of credit loss, combined with current situation and forward-looking information, to formulate the lifetime expected credit loss of the financial assets.

 

(iv)	Derecognition

Financial assets are derecognized if one of the following criteria are met:

 

•

the contractual rights to receive the cash flows from the financial assets have expired;

 

•

they have been transferred and the Group transfers substantially all the risks and rewards of ownership;

 

•

they have been transferred and the Group neither transfers nor retains substantially all the risks and rewards of ownership and the Group has not retained control.

When the equity financial assets measured at FVOCI are derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity directly to retained earnings. When the other financial assets are derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss.

Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans to customers and receivables arising from default guarantee payments are secured, the write-off is generally after receipt of any proceeds from the realization of collateral. In circumstances where there is no credit enhancement, loans to customers, accounts receivables related to retail credit and enablement business and the related allowance are written off when they are delinquent for 180 days or more.

 

F-26

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.9	Financial liabilities

At initial recognition, the Group classifies a financial liability as fair value through profit or loss or other financial liabilities. The Group measures a financial liability at its fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or issue of the financial liability. Transaction costs of financial liabilities carried at FVPL are expensed in profit or loss.

When all or part of the current obligations of a financial liability have been discharged, the Group derecognizes the portion of the financial liability or obligation that has been discharged. The difference between the carrying amount of the derecognized liability and the consideration is recognized in profit or loss.

 

(i)	Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and other financial liabilities designated as such at initial recognition. Financial liabilities held for trading are the financial liabilities that:

 

•

are incurred principally for the purpose of repurchasing it in the near term;

 

•

on initial recognition are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

 

•

are derivatives (except for a derivative that is a designated and effective hedging instrument or a financing guarantee contract).

Such financial liabilities held for trading are subsequently measured at fair value. All the related realized and unrealized gains/(losses) are recognized in profit/(loss) in the current period.

The Group may, at initial recognition, designate a financial liability as measured at fair value through profit or loss when one of the following criteria is met:

 

•

it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases; or

 

•

a group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key management personnel; or

 

•

a contract contains one or more embedded derivatives, with the host being not an asset within the scope of IFRS 9, and the embedded derivative(s) do(es) significantly modify the cash flows.

 

F-27

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.9	Financial liabilities (Continued)

 

(i)	Financial liabilities at fair value through profit or loss (Continued)

Once designated as of fair value through profit or loss at initial recognition, the financial liabilities may not be reclassified to other financial liabilities in subsequent periods. Financial liabilities designated at FVPL are subsequently measured at fair value. Any changes in fair value are recognized in profit or loss, except for changes in fair value arising from changes in the Group’s own credit risk which are recognized in the OCI. Changes in fair value due to changes in the Group’s own credit risk are not subsequently reclassified to profit or loss upon derecognition of the liabilities.

As of December 31, 2021, and September 30, 2022, the Group did not hold any financial liabilities measured at FVPL other than derivative liabilities (refer to Note 36).

 

3.10	Determination of fair value

The fair value of a financial instrument that is traded in an active market is determined by reference to quoted market bid prices for assets and offer prices for liabilities, at the close of business at the end of the reporting period. If quoted market prices are not available, reference can also be made to broker or dealer price quotations.

For financial instruments where there is no active market, the fair value is determined by using valuation techniques. Such techniques should be appropriate in the circumstances for which sufficient data is available, and the inputs should be consistent with the objective of estimating the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions, and maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

Such techniques include using recent prices in arm’s length transactions, reference to the current market value of another instrument which is substantially the same, discounted cash flow analysis and/or option pricing models. For discounted cash flow techniques, estimated future cash flows are based on management’s best estimates and the discount rate used is a market related rate for similar instruments. Certain financial instruments, including derivative financial instruments, are valued using pricing models that consider, among other factors, contractual and market prices, correlation, time value of money, credit risk, yield curve volatility factors and/or prepayment rates of the underlying positions. The use of different pricing models and assumptions could produce materially different estimates of fair values.

Determining whether to classify financial instruments into level 3 of the fair value hierarchy is generally based on the significance of the unobservable factors involved in valuation methodologies.

 

3.11	Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statements of financial position when there is an unconditional and legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the assets and settle the liabilities simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

 

F-28

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.12	Intangible assets

 

(i)	Trademarks and licenses

Trademarks and licenses acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as of the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortized on the straight-line basis over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

Trademarks and licenses with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

 

(ii)	Computer software

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:

 

•

it is technically feasible to complete the software so that it will be available for use;

 

•

management intends to complete the software and use or sell it;

 

•

there is an ability to use or sell the software;

 

•

it can be demonstrated how the software will generate probable future economic benefits;

 

•

adequate technical, financial and other resources to complete the development and to use or sell the software are available; and

 

•

the expenditure attributable to the software during its development can be reliably measured.

Directly attributable costs that are capitalized as part of the software include employee costs and an appropriate portion of relevant overheads.

Research expenditure and development expenditure that do not meet the criteria above are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Capitalized development costs are recorded as intangible assets and amortized from the point at which the asset is ready for use.

 

(iii)

Amortization methods and periods

The Group amortizes intangible assets with a limited useful life using the straight-line method over the following periods:

 

		Expected useful life
• Trademarks and licenses			6 years
• Computer software			3-10 years

 

F-29

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.13

Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as of year ended. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash- generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed in these circumstances is measured based on the relative value of the disposed operation and the portion of the cash-generating unit retained.

 

3.14	Property and equipment

The Group’s property and equipment mainly comprise buildings, leasehold improvements, office furniture and equipment, computer and electronic equipment, motor vehicles, and construction in progress.

The assets purchased or constructed are initially measured at acquisition cost.

Subsequent expenditures incurred for the property and equipment are included in the cost of the property and equipment if it is probable that economic benefits associated with the asset will flow to the Group and the subsequent expenditures can be measured reliably. Meanwhile the carrying amount of the replaced part is derecognized. Other subsequent expenditures are recognized in profit or loss in the period in which they are incurred.

Depreciation is calculated on the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each financial reporting date.

 

F-30

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.14	Property and equipment (Continued)

Land and buildings comprise primarily office premises. The estimated useful lives, depreciation rate and estimated residual value rate of buildings, leasehold improvements, office furniture and equipment, computer and electronic equipment and motor vehicles are as follows:

 

Category		Expected useful life		Estimated residual value rate		Annual depreciation rate
Buildings		30 years		5%		3%
Office furniture and equipment		3-5 years		0%-5%		19%-33%
Computer and electronic equipment		2-5 years		0%-5%		19%-50%
Motor vehicles		3-5 years		5%-10%		18%-32%
Leasehold improvements		shorter of expected useful life or the lease term.		0%		20%-33%

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Construction in progress is measured at its actual costs. The actual costs include various construction expenditures during the construction period and other relevant costs. Construction in progress is not depreciated. Construction in progress is transferred to a property and equipment when it is ready for intended use.

 

3.15	Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that a non-financial asset other than deferred tax assets may be impaired. If any such indication exists, or when annual impairment testing for a non-financial asset is required, the Group makes an estimate of the asset’s recoverable amount. A non-financial asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where the carrying amount of a non-financial asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. In determining fair value less costs to disposal, an appropriate valuation model is used. These calculations are corroborated by quoted share prices or other available fair value indicators.

 

F-31

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.15	Impairment of non-financial assets (Continued)

For non-financial assets other than goodwill (refer to Note 3.13), an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the Group makes an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such a reversal is recognized in the statement of comprehensive income.

Intangible assets with indefinite useful lives are tested for impairment at least annually at each year end if triggering events are not identified, either individually or at the cash-generating unit level, as appropriate.

 

3.16	Current and deferred income tax

Income tax comprises current and deferred tax. Income tax is recognized in the consolidated income statement or in other comprehensive income if it relates to items that are recognized directly in other comprehensive income.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

 

(a)

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

(b)

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly controlled entities, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

F-32

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.16	Current and deferred income tax (Continued)

Deferred tax assets are recognized for all deductible temporary differences, the carry-forward of unused tax credits and any unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilized, except:

 

(a)

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

(b)

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in jointly controlled entities, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Conversely, previously unrecognized deferred tax assets are reassessed by the end of each reporting period and are recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

 

F-33

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.17	Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

 

3.18	Share capital, share premium and treasury shares

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Ordinary shares have a par value of USD0.00001. Initial capital injection over par value per share are accounted for as share premium.

Where any group company purchases the Company’s equity instruments, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners’ of the Company as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners’ of the Company.

The Group accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account in the consolidated balance sheets. At retirement, the ordinary shares account is charged only for the aggregate par value of the shares retired. The excess of the acquisition cost of treasury shares over the aggregate par value is recorded as deduction of share premium.

 

3.19	Accounts and other payables

Accounts and other payables mainly include payable to investors of consolidated structured entities, payable to platform investors, employment benefits payables, payable to external suppliers, tax and other statutory liabilities, and deposit payables, among other things.

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

 

F-34

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.20	Compound financial instruments

Compound financial instruments contain both a liability and an equity component. The compound financial instruments issued by the Group include convertible promissory notes (refer to Note 34) and optionally convertible promissory notes (refer to Note 35).

The liability component, representing the obligation to make fixed payments of compound financial instruments may be converted to ordinary shares at the option of the holders, and the number of shares to be issued is based on an initial fixed conversion price subject to anti-dilutive adjustments. Principal and interest are classified as liability and initially recognized at the fair value, calculated using the market interest rate of a similar liability that does not have an equity conversion option, and are subsequently measured at amortized cost using the effective interest method. The equity component, representing an embedded option to convert the liability into ordinary shares, is initially recognized in other reserves as the difference between the proceeds received from the compound financial instruments as a whole and the amount of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to the allocation of proceeds.

On conversion of the compound financial instruments into shares, the amount transferred to share capital is calculated as the par value of the shares multiplied by the number of shares converted. The difference between the carrying value of the related component of the converted notes and the amount transferred to share capital is recognized in share premium.

 

3.21	Employee benefits

(a) Pension obligations

The employees of the Group are mainly covered by various defined contribution pension plans. The Group makes and accrues contributions on a monthly basis to the pension plans, which are mainly sponsored by the related government authorities that are responsible for the pension liability to retired employees. Under such plans, the Group has no other significant legal or constructive obligations for retirement benefits beyond the said contributions, which are expensed as incurred.

(b) Housing benefits

The employees of the Group are entitled to participate in various government-sponsored housing funds. The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the employees. The Group’s liability in respect of these funds is limited to the contributions payable in each period.

(c) Medical benefits

The Group makes monthly contributions for medical benefits to the local authorities in accordance with the relevant local regulations for the employees. The Group’s liability in respect of employee medical benefits is limited to the contributions payable in each period.

 

F-35

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.22	Share-based payment

The Group operates certain equity-settled, share incentive plans including share options and performance share units (PSUs), under which the Group receives services from employees as consideration for equity instruments.

The total amount to be expensed is determined by reference to the fair value of the shares underlying the grants, which includes the impact of market performance conditions (for example, an entity’s share price) but excludes the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining as an employee of the entity over a specified time period) and includes the impact of any non-vesting conditions (for example, the requirement for employees to save or holding shares for a specified period of time). The Group also estimates the number of total shares expected to vest taking into consideration service and non-market performance conditions.

Total expense based on fair value of the shares underlying the grants and number of shares expected to vest is recognized over the vesting period.

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

 

3.23	Revenue recognition

Revenue represents the amount of consideration the Group is entitled to upon the transfer of promised goods or services in the ordinary course of the Group’s activities and is recorded net of value-added tax (“VAT”). Revenues are recognized when or as control of the asset or service is transferred to the customer. Depending on the terms of the contract, control of the goods and services may be transferred over time or at a point in time. Services is provided over time if the Group’s performance:

 

•

provides all of the benefit received and consumed simultaneously by the customer;

 

•

creates and enhances an asset that the customer controls as the Group performs; and

 

•

does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

If control of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the goods and services.

The progress towards complete satisfaction of the performance obligation is measured based on one of the following methods that best depicts the Group’s performance in satisfying the performance obligation:

 

•

direct measurements of the value transferred by the Group to the customer; or

 

•

the Group’s efforts or inputs to the satisfaction of the performance obligation.

 

F-36

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.23	Revenue recognition (Continued)

When either party to a contract has performed, the Group presents the contract in the statement of financial position as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment.

A contract asset is the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer. If the value related to the services rendered by the Group exceed the payment, a contract asset is recognized. Judgment is required in determining whether a right to consideration is unconditional and thus qualifies as a receivable.

A receivable is recorded when the Group has an unconditional right to consideration on the date the payment is due even if it has not yet performed under the contract.

A contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer, which is recognized as revenue upon transfer of control to the customers.

The specific accounting policies for the Group’s main types of revenue are as below:

 

3.23.1

Technology platform-based income

The Group engages primarily in operating a platform for facilitating borrowers and institutional funding partners or individual investors. For the loans originated by banks for which the Group determines that it is not the legal lender in the loan origination and repayment process or trust plans that the Group does not need to consolidate, the Group does not record loans to customers and payables arising from such transactions.

The Group determines that both borrower and institutional funding partners or individual investors are its customers. In accordance with a series of contracts entered into among the borrowers, institutional funding partners or individual investors and the Group, the Group provides loan enablement and post origination services to its customers and its obligation to repay in the event of default. The loan enablement services primarily include credit assessment and financing advisory services. The post origination services primarily include repayment processing and loan collection services. The Group determines loan enablement and post origination as two performance obligations. The obligation of the potential repayment due to that the Group provides guarantee services and take partial credit risks of borrowers in respect of off-balance sheet loans through the relevant guarantee arrangements. Account management service provided to credit enhancement partners are considered a separate service outside of these two performance obligations.

The Group generally collects guarantee fees and one combined service fees covering both loan enablement and post origination services from the borrowers on a monthly instalment basis. The total consideration including service fees and guarantee fees are first allocated to the guarantee liability at its fair value upon inception of the loan contracts and the residual consideration is then allocated to loan enablement and post origination services based on their estimated standalone selling price. When estimating total consideration, the Group considers early termination scenarios, as the Group does not receive the full contractual service fees amount under early termination, given that the service fees is collected on a monthly basis prior to loan termination.

The Group does not have an observable standalone selling price for the loan enablement services or post origination services because it does not provide loan enablement services or post origination services on a standalone basis in similar circumstances to similar customers. There is no direct observable standalone selling price for similar services in the market that is reasonably available to the Group.

 

F-37

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.23	Revenue recognition (Continued)

 

3.23.1

Technology platform-based income (Continued)

As a result, the estimation of standalone selling price involves significant judgment. The Group uses an expected cost plus margin approach to estimate the standalone selling prices of loan enablement services and post origination services as the basis of revenue allocation. When estimating the selling prices, the Group considers the cost related to such services and profit margin.

The transaction price allocated to loan enablement is recognized as revenue upon execution of loan agreements between funding partners and borrowers; the consideration allocated to post-facilitation services is recognized over the period of the loan on a systematic basis, which approximates the pattern of when the post origination services are performed.

As the loans facilitated by the Group are generally over 12 months, any incremental costs (i.e. fees paid to direct sales, channel partners and others) of obtaining such contracts are capitalized and amortized on a systematic basis consistent with the pattern of the transfer of the services provided to its customers during the term of underlying loans. The Group assesses the recoverability of the capitalized incremental costs of obtaining a contract in accordance with IFRS 15 at each balance sheet date. Any costs that are not expected to be recoverable are expensed as incurred.

Besides, the Group also receives service fees based on the principal of personal lending referred by the Group to the financial institutions which provide funding directly to borrowers. Such fee is recognized upon successful facilitation, which is the only performance obligation agreed in the contract and recorded as “referral income from platform service” in statement of comprehensive income.

The Group offers a full suite of wealth management products from third-party institutional investment product providers to the investors on its technology platform. Such products include asset management plans, bank products, mutual funds, private investment funds, trust plans and others. Other technology platform–based income consist primarily of fee collected from product providers for facilitation of investment products offered on its technology platform and fees collected from financial institutions, which is the only performance obligation agreed in the contract.

 

F-38

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.23	Revenue recognition (Continued)

 

3.23.2

Interest income

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance).

 

3.23.3

Other income

Other income mainly comprises income for the account management service fees. The Group provides reminder services to the credit enhancement partners for loans facilitated by the Group that are covered by their credit enhancement services. Account management service fees are recognized over time based on the number of accounts managed and the performance of the underlying loans.

 

3.24

Leases

The Group leases various properties. Rental contracts are typically made for fixed periods of 1 to 6 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The agreements do not impose any covenants, but leased assets may not be used as collateral for borrowing purposes.

Leases are recognized as a right-of-use asset and corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

 

•

fixed payments (including in-substance fixed payments), less any lease incentives receivable,

 

•

variable lease payments that are based on an index or a rate,

 

•

amounts expected to be payable by the lessee under residual value guarantees,

 

F-39

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

3	Summary of significant accounting policies (Continued)

 

3.24	Leases (Continued)

 

•

the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

 

•

payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group’s incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

 

•

the amount of the initial measured of lease liability,

 

•

any lease payments made at or before the commencement date less any lease incentives received,

 

•

any initial direct costs, and

 

•

restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight- line basis as an expense in profit or loss.

 

3.25	Provisions

Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the best estimate of most likely consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

 

3.26	Government grants

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

Government grants relating to costs are deferred and recognized in the consolidated statement of comprehensive income over the period necessary to match them with the costs that they are intended to compensate.

 

3.27

Dividends

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.

 

F-40

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

4	Financial instruments and risks

 

The Group’s activities expose it to a variety of market risks (comprising foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Risk management is carried out by the senior management of the Group.

 

4.1	Financial risk factors

 

4.1.1

Market risk

Market risk is the risk of changes in fair value of financial instruments and future cash flows from fluctuation of market prices, which includes two types of risks from volatility of foreign exchange rates (foreign currency risk), and market interest rates (interest rate risk).

 

(a)	Foreign currency risk

Foreign currency risk is the risk of loss resulting from changes in foreign currency exchange rates. Fluctuations in exchange rates between the RMB and other currencies in which the Group conducts business may affect its financial position and results of operations. The foreign currency risk assumed by the Group mainly comes from movements in the USD/RMB exchange rates.

The Company and major overseas intermediate holding companies’ functional currency is USD. They are mainly exposed to foreign exchange risk arising from their cash and cash equivalents and loans to subsidiaries denominated in RMB. The Group has entered into spot-forward USD/RMB currency swaps to manage its exposure to foreign currency risk arising from loans to subsidiaries dominated in RMB.

The subsidiaries of the Group are mainly operating in mainland China with most of the transactions denominated in RMB. The Group considers that business in mainland China is not exposed to any significant foreign exchange risk as there are no significant financial assets or liabilities of these subsidiaries denominated in the currencies other than RMB.

The table below illustrates the impact of an appreciation or depreciation of RMB spot and forward rates against USD by 5% on the Group’s profit before income tax expenses.

 

		As of December 31, 2021				As of September 30, 2022
		RMB’000				RMB’000
5% appreciation of RMB			699,049				(134,041	)
5% depreciation of RMB			(699,049	)			134,041

 

(b)	Interest rate risk

Interest rate risk is the risk that the fair value/future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Interest on floating rate instruments is repriced at intervals of less than one year. Interest on fixed interest rate instruments is priced at inception of the financial instruments and is fixed until maturity. Floating rate instruments expose the Group to cash flow interest rate risk, whereas fixed rate instruments expose the Group to fair value interest risk. The Group’s interest rate risk mainly arises from fixed rate instruments including cash at bank, accounts and other receivables and contract assets, loans to customers, accounts and other payables and contract liabilities,etc. The Group’s interest rate risk policy requires it to manage interest rate risk by managing the maturities of interest-bearing financial assets and interest-bearing financial liabilities.

 

F-41

LUFAX HOLDING LTD

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

 

4	Financial instruments and risks (Continued)

 

4.1	Financial risk factors (Continued)

 

4.1.1

Market risk (Continued)

 

(b)	Interest rate risk (Continued)

 

The following table sets out the Group’s financial assets and financial liabilities exposed to interest rate risk by repricing date, contractual maturity date or expected maturity date (whichever is the earlier):

 

		As of December 31, 2021
		Less than 3 months				3 months to 1 year				1-2 years				2-3 years				More than 3 years				Overdue				No interest				Total
		RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000				RMB’000
ASSETS
Cash at bank			29,263,128				70,579				363,691				1,538,551				3,507,239				—				—				34,743,188
Restricted cash			27,792,006				554,499				1,786,219				306,371				14,444				—				—				30,453,539
Financial assets at fair value through profit or loss			12,544,935				3,459,334				919,458				262,969				—				1,164,095				12,672,420				31,023,211
Financial assets at amortized cost			1,168,502				500,740				920,815				107,676				—				1,086,880				—				3,784,613
Financial assets purchased under reverse repurchase agreements			5,527,177				—				—				—				—				—				—				5,527,177
Accounts and other receivables and contract assets			—				—				—				—				—				—				22,344,773				22,344,773
Loans to customers			51,563,466				98,295,888				51,345,667				11,182,096				1,002				2,583,991				—				214,972,110
Total financial assets			127,859,214				102,881,040				55,335,850				13,397,663				3,522,685				4,834,966				35,017,193				342,848,611

 

F-42