ZHEJIANG EXPRESSWAY CO., LTD.
Zhejiang Expressway Co., Ltd.
Corporate Vision
To be
"An international investment holdings company with a primary focus on
expressway infrastructure investment and operation"
Content
2 Definition of Terms 59 Report of the Directors
4 Company Profile 67 Report of the Supervisory
Committee
5 Corporate Structure of the Group 69 Connected Transactions
6 Review of Major Corporate Events 77 Independent Auditor's Report
7 Particulars of Major Road Projects 82 Consolidated Financial
Statements & Notes
10 Financial and Operating Highlights
12 Chairman's Statement 201 Independent Auditor's Report
(Issued by a third country auditor
registered with
the UK Financial Reporting
Council)
16 Management Discussion and
Analysis
32 Principal Risks and Uncertainties 207 Corporate Information
35 Corporate Governance Report 209 Location Map of Expressways in
Zhejiang Province
45 Directors, Supervisors and Senior
Management Profiles
Definition of Terms
ADR(s) American Depositary Receipt(s)
ADS(s) American Depositary Share(s)
Audit the audit committee of the Company
Committee
Board the board of directors of the Company
Company or Zhejiang Expressway Co., Ltd., a joint stock limited company
Zhejiang incorporated in the PRC with limited liability on March
Expressway 1, 1997
Communications Zhejiang Communications Investment Group Co., Ltd.
Group a wholly State-owned enterprise
established on December 29, 2001
Directors the directors of the Company
GDP gross domestic product
Group the Company and its subsidiaries
H Shares the overseas listed foreign shares of Rmb1.00 each in the share
capital of the Company which are primarily listed on the Hong
Kong Stock Exchange and traded in Hong Kong dollars since May
15, 1997
Hanghui Co Zhejiang Hanghui Expressway Co., Ltd.
, a 88.674% owned subsidiary of the Company
Huihang Co Zhejiang Huangshan Yangtze Huihang Expressway Co., Ltd, a
wholly-owned
subsidiary of the Company
Hong Kong The Stock Exchange of Hong Kong Limited
Stock Exchange
Jiaxing Co Zhejiang Jiaxing Expressway Co., Ltd, a 99.9995% owned
subsidiary of the Company
Jinhua Co Zhejiang Jinhua Yongjin Expressway Co., Ltd., a 100%
owned subsidiary of the Company
Listing Rules the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited
Period the period from January 1, 2016 to December 31, 2016
PRC the People's Republic of China
Rmb Renminbi, the lawful currency of the PRC
SFO Securities and Futures Ordinance (Chapter 571, Laws of
Hong Kong)
Shangsan Co Zhejiang Shangsan Expressway Co., Ltd., a 73.625% owned
subsidiary of the Company
Shareholders the shareholders of the Company
Shengxin Co Shengxin Expressway Co., Ltd., 50% owned joint venture of the
Company
Supervisory the supervisory committee of the Company
Committee
Yangtze Yangtze United Financial Leasing Co., Ltd.,
Financial a 13% owned associate of the Company
Leasing
Yuhang Co Zhejiang Yuhang Expressway Co., Ltd., a 51% owned subsidiary of
the Company
Zheshang Zheshang Securities Co., Ltd., a 70.83% owned subsidiary of
Securities the Shangsan Co
Zhejiang Zhejiang Communications Investment Group Finance Co., Ltd.,
Communications a 35% owned associate of the Company
Finance
Company Profile
Zhejiang Expressway is an infrastructure company principally engaged in
investing in, developing and operating of high-grade roads. The Company and its
subsidiaries are also engaged in the expressway related development and
operation, as well as securities business.
Major assets under management of the Group include the 248km
Shanghai-Hangzhou-Ningbo Expressway, the 142 km Shangsan Expressway, the 70 km
Jinhua section of Ningbo-Jinhua Expressway, the 122 km Hanghui Expressway and
the 82 km Huihang Expressway, ancillary facilities along the five expressways,
and Zheshang Securities. Among which, apart from Huihang Expressway which is
situated within Anhui Province in the PRC, the rest of the four expressways are
situated within Zhejiang Province in the PRC. As at December 31, 2016, total
assets of the Company and its subsidiaries amounted to Rmb73,761.43 million.
The Company was incorporated on March 1, 1997 as the main vehicle of the
Zhejiang Provincial Government for investing in, developing and operating
expressways and Class 1 roads in Zhejiang Province.
Incorporated on December 29, 2001, Communications Group, the controlling
shareholder of the Company, is a provincial-level communications company
which is wholly-owned by the State and established by the Zhejiang
Provincial Government. It mainly operates a diversity of businesses, such as
investment, operations, maintenance, toll collection and ancillary services of
expressways; construction and building of transportation project, ocean and
coastal transport; as well as real estates. As at December 31, 2016,
consolidated assets of Communications Group totaled Rmb280,025.13 million.
The H Shares of the Company, which represent approximately 33% of the issued
share capital of the Company, were listed on the Hong Kong Stock Exchange on
May 15, 1997, and the Company subsequently obtained a secondary listing on the
London Stock Exchange on May 5, 2000.
On February 14, 2002, a Level I American Depositary Receipt program sponsored
by the Company in respect of its H Shares, with the Bank of New York as the
depositary, was established in the United States and became effective.
With a solid foundation built on the Group's expressway business, the Company
will expand its main businesses scale, enhance its core competitiveness, and
grow its financial and securities business so as to increase its profit
contribution to the Group. Looking ahead, the Company will seize investment
opportunities to acquire new projects, and strive to develop the Company into
an international investment holdings company with a primary focus on expressway
infrastructure investment and operation.
For the corporate and business structure of the Group as at December 31, 2016:
http://photos.prnasia.com/prnk/20170331/8521701869-a
Review of Major Corporate Events
1. On March 4, 2016, the second meeting of the union member representative and
employee representative for the fifth session of the Company was held.
2. On March 17, 2016, the Company announced its 2015 annual results in Hong
Kong and thereafter conducted its annual results presentation in Hong Kong.
3. On May 6, 2016, the Company held its Annual General Meeting, among others,
to approve the resolutions regarding the payment of a final dividend of Rmb0.28
per share, the re- appointment of Deloitte Touche Tohmatsu Certified Public
Accountants Hong Kong as the international auditors of the Company, the
re-appointment of Pan-China Certified Public Accountants Ltd. as the PRC
auditors of the Company, and the issuance of super short-term commercial paper
of no more than Rmb1,500 million.
4. On May 18, 2016, the Company announced its 2016 first quarterly results.
5. On August 18, 2016, the Company announced its 2016 interim results in Hong
Kong and thereafter conducted its interim results presentation in Hong Kong.
6. On August 19, 2016, the Company and Huangshan Travel Group Co., Ltd.*
entered into an agreement in relation to the acquisition of 100% equity
interest in 82 km section of the Huihang Expressway at a consideration of
Rmb570 million.
7. On October 31, 2016, the Company announced its 2016 third quarterly results.
8. On December 12, 2016, the registered capital of Yangtze United Financial
Leasing Co., Ltd. was increased to Rmb2,000 million upon approval by CBRC
Shanghai Office and the shareholding percentage of the Company was accordingly
increased from 9% to 13%.
9. On December 28, 2016, the Company held its Extraordinary General Meeting,
among others, to approve the resolutions regarding the disposal of 100% equity
interest in Development Co to Zhejiang Communications Investment Group
Industrial Development Co., Ltd. at a consideration of approximately Rmb250
million, the payment of an interim dividend of Rmb0.06 per share, the election
of Ms. HE Meiyun as an independent supervisor of the Company, and the proposed
issuance of H share convertible bonds.
10. On December 30, 2016, the inauguration of Taiping Technology Insurance Co.,
Ltd.* which is held as to 15% by the Company and the first general meeting for
2016 of the Company was held in Hangzhou.
Particulars of Major Road Projects
Percentage Length Number Number Number Start Remaining
of in of of of of Years
Expressway Ownership Kilometers Lanes Toll Service Operation of
Stations Areas Operation
- Jiaxing 99.9995% 88.1 8 7 2 1998 12
Section
- Yuhang 51% 11.1 6 1 0 1995-1998 12
Section
- Hangzhou 100% 3.4 4 2 0 1995 12
Section
Hangzhou-Ningbo
Expressway
- Hangzhou to 100% 16.0 4 1 0 1992 11
Hongken section
- Hongken to 100% 124.0 8 9 2 1995 11
Duantang
section
- Duantang to 100% 5.0 4 1 0 1996 11
Dazhujia
section
Shangsan 73.625% 142.0 4 11 3 2000 14
Expressway
Ningbo-Jinhua
Expressway
- Jinhua 100% 69.7 4 7 1 2005 14
Section
Hanghui
Expressway
- Changyu 88.674% 36.7 4 5 1 2004 13
Section
- Changhang 88.674% 85.6 4 8 1 2006 15
Section
Huihang 100% 81.6 4 5 2 2004 17
Expressway
CURRENT TOLL RATES ON THE SHANGHAI-HANGZHOU-NINGBO EXPRESSWAY
1. Passenger vehicle classification and toll rates
Vehicle Classification Standard Entrance Mileage Fee Current
Fee
Class (Rmb/ (Rmb/ toll rates
vehicle) vehicle/km)
on the
Huihang
Expressway
Mileage fee
(No entrance
fee)
1 Passenger vehicle with up to 7 seats 5 0.45 0.45
Truck with tonnage of 2 tons or 5 0.45 0.45
below
2 Passenger vehicle with seats 8 to 19 5 0.45 0.80
Truck with tonnage of above 2 tons 10 0.80 0.80
and up to 5 tons
3 Passenger vehicle with seats 20 to 10 0.80 1.10
39
Truck with tonnage of above 5 tons 15 1.20 1.10
and up to 10 tons
4 Passenger vehicle with seats above 15 1.20 1.30
40
Truck with tonnage above 10 tons and 15 1.40 1.30
up to 15 tons
5 Truck with tonnage above 15 tons 20 1.60 1.50
Particulars of Major Road Projects
2. Toll rates on goods vehicles
Load Toll standards
Up to 5 tons Rmb0.09/ton per km
Above 5 tons and Rmb0.09/ton per km x 1.5 is reduced in a linear manner
up to 15 tons to Rmb0.09/ton per km
Above 15 tons Rmb0.09/ton per km is reduced in a linear manner to
Legally and up to 30 Rmb0.06/ton per km
loaded tons
Over 30 tons Based on 30 tons calculation
Overloaded below Calculation based on the basic fee standard for
10% legally loaded
Overloaded up to The overloaded portion over 10% is calculated based on
30% Rmb0.09/ton
per km x 1.2; the remaining portion is
calculated based on the fee standard of
"Overloaded below 10%"
The legally loaded portion and the overloaded portion
up to 30% is calculated based
Overloaded above on the fee standard of "Overloaded up to 30%";
the remaining portion is calculated
30% and up to based on Rmb0.09/ton per km x 2
50%
The legally loaded portion and the overloaded portion
up to 30% is calculated based
Overloaded Overloaded above on the fee standard of "Overloaded up to 30%";
the remaining portion is
vehicle 50% and up to calculated based on Rmb0.09/ton per km x 3
100%
The legally loaded portion and the overloaded portion
up to 30% is calculated
based on the fee standard of "Overloaded up to
30%"; the remaining portion is
Overloaded over calculated based on Rmb0.09/ton per km x 4
100%
The mileage fee for Class 1 vehicle on the Shangsan Expressway, Jinhua section
of Ningbo-Jinhua Expressway and Hanghui Expressway is Rmb0.40/vehicle/km. The
toll rates for other passenger vehicles and trucks are the same as those for
the Shanghai-Hangzhou-Ningbo Expressway.
3. Toll rates on goods vehicles on the Huihang Expressway
Load Toll standards
Up to 10 tons Rmb0.09/ton per km
Legally loaded Above 10 tons Rmb0.09/ton per km is reduced in a linear
manner to
and up to 40 tons Rmb0.05/ton per km
Over 40 tons Rmb0.05/ton per km
Overloaded up to Calculation based on the basic fee standard
30% for legally
loaded
Overloaded Overloaded above Calculation based on the fee standard X 3
vehicle 30% and
up to 100% is increased in a linear manner to fee
standard X 6
Overloaded over Calculation based on the fee standard X 6
100%
Financial and Operating Highlights
Results
Year ended December 31,
2012 2013 2014 2015 2016
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
(Restated) (Restated) (Restated) (Restated)
Continuing operations:
Revenue 5,214,019 6,055,104 7,171,810 10,724,781 9,735,347
Profit Before Tax 2,182,592 2,733,424 3,564,510 5,365,724 4,888,585
Income Tax Expense (599,088) (720,632) (882,625) (1,396,774) (1,161,570)
Profit for the year 1,583,504 2,012,792 2,681,885 3,968,950 3,727,015
from
continuing operations
Discontinued
operations:
Profit for the year 61,466 70,964 64,087 60,830 81,594
from discontinued
operations
Profit for the year
(from continuing and
discontinued
operations)
attributable to:
Owners of the Company 1,503,048 1,801,687 2,264,994 2,989,680 3,037,405
Non-controlling 141,922 282,069 480,978 1,040,100 771,204
interests
Earnings Per Share 34.61 41.48 52.15 68.84 cents 69.94 cents
(EPS) (From continuing cents cents cents
and discontinued
operations)
Return on Equity (ROE)
2012 2013 2014 2015 2016
ROE 9.26% 11.22% 13.32% 17.86% 16.58%
For Segmental Revenue (Year 2016), Segmental Net Profit (Year 2016) and other
Financial and
Operating Highlights graphs, please visit: http://photos.prnasia.com/prnk/
20170331/8521701869-b
Chairman's Statement
Dear Shareholders,
It is my pleasure to present the annual results of Zhejiang Expressway ("ZJE"
or "the Company", collectively referred to as "the Group" with subsidiaries)
for the year 2016 on behalf of the Board of Directors.
In 2016, China's economy continued to maintain medium-to-high speed growth, as
GDP rose 6.7% year-over-year, staying within a reasonable range. The quality
and benefit of economic growth both improved, a clear sign of the "new normal"
during the past year. During the year, Zhejiang Province took advantage of
various initiatives and opportunities to help drive economic development in the
region in response to the "new normal". Despite a slowdown in GDP growth within
the region to 7.5%, Zhejiang Province's ongoing economic transformation and
upgrade continued to progress. In the context of the new normal, the Company's
operating results in 2016 grew steadily and beat expectations to hit record
highs. In addition, the Company saw significant breakthroughs in key
undertakings and successfully accomplished all of its annual goals.
In 2016, the first year of the country's "13th Five-Year Plan", Zhejiang
Communications Investment Group Co., Ltd. ("Communications Group"), the
controlling shareholder of the Company, completed a merger and reorganization
that made it the province's largest state owned enterprise by total assets. In
this new stage of development, the Company took the opportunity to define its
strategic direction, namely to assume the "three platforms" of the
Communications Group: 1) an expressway management and operations platform, 2) a
market-oriented transport infrastructure investment and financing platform, and
(3) an asset securitization platform. On this basis, the Company established a
corporate vision that calls for it to be "an international investment holdings
company with a primary focus on expressway infrastructure investment and
operation". During the year, the Company adhered to this strategic path and
achieved initial results, setting a solid foundation for its future
development.
Chairman's Statement
In September 2016, the Group of Twenty (G20) held their first ever summit in
China in Hangzhou, Zhejiang. The Hangzhou Summit brought worldwide attention to
the Company's home province and allowed ZJE to accomplish excellent
achievements in the areas of image improvement and safe, smooth operation of
its service network. Through the relentless efforts of all of its staff, the
Company managed to assure safe and smooth traffic flow across all expressways
under management during the Summit, gaining widespread praise from all parties.
Management believes that the "post-G20 effect" will last for a period of time,
further stimulating tourism and trade development in Hangzhou and the
surrounding areas, all of which should help promote local economic development
over the long term.
With a strong presence in the industry, the Company continued to proactively
explore investment and merger and acquisition opportunities with the aim of
expanding and enhancing its core expressway business. During the past year, the
Company completed its acquisition of the Huihang Expressway, which extended its
expressway network outside of Zhejiang Province for the first time. Integration
of the expressway has been smooth since the acquisition. Currently, the Company
is looking to further optimize its operational efficiency and has been studying
the feasibility of installing automatic card dispensing machines and increasing
speed limit at certain sections, while boosting efforts to attract more traffic
onto expressways and induce further synergies between the Hanghui Expressway
and Huihang Expressway network. Additionally, the Company also sought to
improve its management quality and effectiveness through the implementation of
new IT- systems, such as mobile payment systems at toll stations along the
Shanghai-Hangzhou- Ningbo Expressway and the Shangsan Expressway. This new
technology greatly sped up toll-paying process, provided a better customer
experience, and improved the Company's internal management capabilities.
With regard to investments in the financial sector, the Company's previous
investments have yielded positive results. Yangtze United Financial Leasing
Co., Ltd., in which the Company has a minority stake, recorded solid results,
while Taiping Science and Technology Insurance Co., Ltd., another company in
which the Company holds a minority stake, was officially approved for
establishment during the year and is expected to launch soon. The Company will
continue to leverage the resources of Zheshang Securities and the Zhejiang
Zheshang Transformation Upgrade Parent Fund (under the management of Zheshang
Securities), which could help identify areas where the Company has advantages
in investment and financing and in directions that are in line with economic
development and nation-wide industrial policies.
Looking ahead to 2017, macroeconomic risks associated with Brexit, Federal
Reserve interest hikes, and various trade policy shake-ups in the US will bring
about even more uncertainties for domestic and overseas markets. As a result,
growth in China's economy is expected to further slow down. Under this
backdrop, the Company expects to face more difficulties in maintaining growth
in its core expressway business. However, new opportunities in investments and
mergers and acquisitions are likely to arise at the same time. The Group will
continue to cultivate its core competitiveness in the expressway business with
the aim of becoming "the leading operator in China and a top-notch operator
globally". In addition, the Group will accelerate the IPO process for Zheshang
Securities, continue to optimize its business structure, strengthen risk
management and control capabilities, expand into new and innovative areas,
enhance its brand image, and create synergies across different business
segments.
On behalf of the Board, I would like to express my gratitude to all of our
shareholders and stakeholders for their attention and support. I would also
like to thank our management team and all of our staff for their relentless
dedication and remarkable achievements. Looking to the future, we will continue
to work hard in the coming year and maximize value for all of our shareholders.
ZHAN Xiaozhang
Chairman
March 27, 2017
Guided by the 13th five-year plan, the
Company will closely adhere to the theme of "Reform and Innovation". The
Company looks to build an industry structure that focuses
on nurturing new businesses on the basis of both its core expressway business
as well as its financial and securities business.
BUSINESS REVIEW
In 2016, China's economy grew at a slower pace with a 6.7% increase in national
GDP during the Period compared with last year due to downward pressure caused
by sluggish global economic growth. During the year, Zhejiang Province's
economy benefited from the stable increase in fixed asset investment,
consumption, and trade demand. In 2016, Zhejiang Province's GDP growth recorded
at 7.5%, 0.8 percentage points higher than the national rate.
As Zhejiang Province's economy steadily improved during the Period, traffic
volume on the Group's expressways continued to maintain solid organic growth.
Revenue from the Group's overall operations decreased 9.2% year-on-year. Total
revenue reached Rmb9,735.35 million, of which Rmb5,279.35 million was generated
from the five major expressways operated by the Group, representing an increase
of 6.4% year-on-year and 54.2% of the total revenue, and Rmb4,175.24 million
was from the securities business, representing a decrease of 26.2% year-on-year
and 42.9% of the total revenue. A breakdown of the Group's revenue for the
Period is set out below:
2016 2015
Rmb'000 Rmb'000 % Change
(Restated)
Toll revenue
Shanghai-Hangzhou-Ningbo 3,342,577 3,148,502 6.2%
Expressway
Shangsan Expressway 1,112,297 1,019,916 9.1%
Jinhua section, Ningbo-Jinhua 335,090 344,999 -2.9%
Expressway
Hanghui Expressway 446,392 448,511 -0.5%
Huihang Expressway 42,992 - N/A
Securities business revenue
Commission 2,664,959 3,932,791 -32.2%
Interest income 1,510,281 1,727,837 -12.6%
Other operation revenue
Hotel operation 83,831 42,421 97.6%
Property sales 196,928 - N/A
Road maintenance - 59,804 -100.0%
Total revenue 9,735,347 10,724,781 -9.2%
Management
Discussion
and
Analysis
Director and
General Manager
LUO Jianhu
Toll Road Operations
Driven by Zhejiang Province's economic development momentum, during the Period,
traffic volume on the Group's expressways registered decent organic growth.
During the Period, the organic traffic volume growth rates for the Group's five
expressways, namely the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan
Expressway, the Jinhua Section of the Ningbo-Jinhua Expressway, the Hanghui
Expressway, and Huihang Expressway, were 8.6%,8.5%,8.7%,7.8% and 8.0%,
respectively, with the varied rates of growth due to the different regions
where the five expressways are located.
During the Period, the opening of the Hangzhou Xiaoshan Airport Expressway and
surrounding elevated highways in May 2016 caused certain traffic volume
diversion for the Qiantang River Second Bridge of the Hangzhou-Ningbo
Expressway operated by the Group. Starting from November 25, 2016, freight
vehicles were able to resume and use the Qiantang River Second Bridge,
resulting in a significant recovery in truck traffic volume of the section.
Additionally, during the G20 Hangzhou Summit in early September 2016, traffic
volume on expressways operated by the Company recorded varied rates of decline,
as affected by the expressway traffic restrictions policies across Zhejiang
Province, namely the "odd-even" license plate and truck traffic restrictions.
However, thanks to the "post-G20 effect", the Shanghai-Hangzhou-Ningbo
Expressway rebounded strongly afterwards in traffic volume and recorded steady
growth in toll revenue.
During the Period, due to the toll rate (2015) increase on the neighboring
Hangzhou Bay Bridge, some trucks opted to use the Shangsan Expressway instead.
As a result, truck traffic of the Shangsan Expressway grew rapidly, and the
overall traffic volume of the section maintained steady growth.
Management Discussion and Analysis
During the Period, the Hangzhou-Jinhua-Quzhou Expressway, which had been closed
for construction, reopened in late September 2015, leading to a significant
decline in traffic volume of the neighboring Jinhua Section of the
Ningbo-Jinhua Expressway. In addition, the Dongyang- Yongkang Expressway was
opened to traffic in July 2015 and caused a continuous diversion impact on
traffic volume from the Jinhua Section of the Ningbo-Jinhua Expressway. As a
result of these factors, there was a notable decrease in the overall traffic
volume on the Jinhua Section of the Ningbo-Jinhua Expressway during the Period.
During 2015, a section of the Hangzhou-Jinhua-Quzhou Expressway, which is not
operated by the Group but runs parallel to the Hanghui Expressway and the
Huihang Expressways, was reopened for traffic following construction, and
certain sections of expressways running from Jiangxi to Hangzhou cancelled
their truck height limits. As a result, a majority of long-distance trucks have
returned to their original routes or chose alternative local roads, causing a
significant decrease in the truck traffic volume on the Hanghui Expressway and
the Huihang Expressway. In addition, some neighboring expressways in Anhui
Province were opened to traffic and created a diversion impact on the traffic
volume of several sections to the east of Hangzhou. Despite these negative
impacts, during the Period, the Hanghui Expressway and the Huihang Expressway
recorded steady growth in overall traffic volume, bolstered by the strong
"post-G20 effect" as well as the increased tourism traffic volume due to fine
weather conditions in the second half of the year.
During the Period, the average daily traffic volume in full-trip equivalents
along the Group's Shanghai-Hangzhou-Ningbo Expressway was 50,611, representing
an increase of 5.7% year- on-year. In particular, the average daily traffic
volume in full trip equivalents along the Shanghai- Hangzhou section of the
Shanghai-Hangzhou-Ningbo Expressway was 50,785, representing an increase of
9.8% year-on-year, and that along the Hangzhou-Ningbo Section was 50,487,
representing an increase of 3.0% year-on-year. Average daily traffic volume in
full-trip equivalents along the Shangsan Expressway was 27,094, representing an
increase of 8.6% year-on-year. Average daily traffic volume in full-trip
equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was
17,932, representing a decrease of 4.6% year-on-year. Average daily traffic
volume in full-trip equivalents along the Hanghui Expressway was 16,177,
representing an increase of 5.1% year-on-year. Average daily traffic volume in
full-trip equivalents along the Huihang Expressway was 7,413, representing an
increase of 3.4% year-on-year.
During the Period, total toll revenue from the 248km Shanghai-Hangzhou-Ningbo
Expressway, the 142km Shangsan Expressway, the 70km Jinhua Section of the
Ningbo-Jinhua Expressway, the 122km Hanghui Expressway and the 82km Huihang
Expressway was Rmb5,279.35 million. Among which, toll revenue from the
Shanghai-Hangzhou-Ningbo Expressway was Rmb3,342.58 million, representing an
increase of 6.2% year-on-year; toll revenue from the Shangsan Expressway was
Rmb1,112.30 million, representing an increase of 9.1% year-on-year; toll
revenue from the Jinhua Section of the Ningbo-Jinhua Expressway was Rmb335.09
million, representing a decrease of 2.9% year-on-year; and toll revenue from
the Hanghui Expressway was Rmb446.39 million, representing an increase of 0.3%
year-on-year (on the same basis as last year). The Huihang Expressway, which
was acquired by the Group in September 2016, contributed toll revenue of
Rmb42.99 million to be consolidated into the Group.
Securities Business
During the Period, due to the volatility in domestic stock markets, trading
volume on the Shanghai and Shenzhen stock markets decreased 48.8% year-on-year
in total. Moreover, overall brokerage commission rate has been declining as
affected by the increasingly fierce market competition and growing popularity
of online trading platforms. As a result of these factors, during the Period,
though revenue from Zheshang Securities' investment banking business and asset
management business experienced growth, its other business segments recorded
varied levels of revenue decreases year-on-year.
During the Period, due to continued weak domestic market conditions, Zheshang
Securities recorded total revenue of Rmb4,175.24 million, a decrease of 26.2%
year-on-year. Of which, commission and fee income declined 32.2% year-on-year
to Rmb2,664.96 million, and interest income from the securities business was
Rmb1,510.28 million, representing a decrease of 12.6% year-on-year. In
addition, during the Period, securities investment gains of Zheshang Securities
included in the consolidated statement of profit or loss and other
comprehensive income of the Group was Rmb205.28 million (2015: gains of
Rmb571.50 million).
Meanwhile, the IPO application of Zheshang Securities was submitted to the
Shanghai Stock Exchange in May 2013 and is currently waiting on the China
Securities Regulatory Commission's review and approval.
Other Business Operations
Other business income was mainly derived from hotel operations and sales of
ancillary apartments, namely the Qiyu Apartments.
Grand New Century Hotel, owned by Zhejiang Yuhang Expressway Co., Ltd. (a 51%
owned subsidiary of the Company), realized revenue of Rmb83.83 million for the
Period.
Qiyu Apartments opened for sale on November 29, 2015, 410 flats were sold
during the Period and realized sales revenue of Rmb196.93 million.
Management Discussion and Analysis
Long-Term Investments
Zhejiang Shaoxing Shengxin Expressway Co., Ltd. ("Shengxin Co", a 50% owned
joint venture of the Company) operates the 73.4km Shaoxing Section of the
Ningbo- Jinhua Expressway. During the Period, the average daily traffic volume
in full- trip equivalents was 17,047, representing an increase of 13.4%
year-on-year. Toll revenue during the Period was Rmb364.52 million. During the
Period, the joint venture turned profitable for the first time and reported a
net profit of Rmb19.59 million.
During the Period, Zhejiang Communications Investment Group Finance Co., Ltd.
(a 35% owned associate company of the Company), derived income mainly from
interest, fees and commissions for providing financial services, including
arranging loans and receiving deposits, for the subsidiaries of Zhejiang
Communications Investment Group Co., Ltd., the controlling shareholder of the
Company. During the Period, this associate company realized a net profit of
Rmb122.57 million (2015: net profit of Rmb139.61 million).
During the Period, Yangtze United Financial Leasing Co., Ltd. (a 13% owned
associate company of the Company, the ownership increased from 9% on December
14, 2016), was involved in the finance leasing business, transferring and
receiving the transfer of financial leasing assets, fixed-income securities
investment businesses, and other businesses approved by China Securities
Regulatory Commission. During the Period, this associate company realized a net
profit of Rmb134.15 million (2015: net profit of Rmb4.73 million).
FINANCIAL ANALYSIS
The Group adopts a prudent financial policy with an aim to provide shareholders
of the Company with sound returns over the long term.
During the Period, profit attributable to owners of the Company was
approximately Rmb3,037.41 million, representing an increase of 1.6%
year-on-year, return on owners' equity was 16.6%, representing a decline of
7.3% year-on-year, while earnings per share from continuing and discontinued
operations for the Company was Rmb69.94 cents.
Investments and Acquisitions to Fuel the Expansion of Expressway Business
The Company completed the acquisition as well as the operational takeover of
Huihang Expressway in September 2016, which extended
its expressway network coverage outside of Zhejiang Province for the first
time.
In the future, the Company will continue to seize opportunities to explore new
models to further expand the expressway business scale.
Management Discussion and Analysis
Liquidity and financial resources
As at December 31, 2016, current assets of the Group amounted to Rmb52,158.22
million in aggregate (December 31, 2015: Rmb54,359.48 million), of which bank
balances and cash accounted for 14.1% (December 31, 2015: 9.7%), bank balances
held on behalf of customers accounted for 38.5% (December 31, 2015: 49.8%),
held for trading investments accounted for 15.6% (December 31, 2015: 6.9%) and
loans to customers arising from margin financing business accounted for 15.2%
(December 31, 2015: 19.4%). The current ratio (current assets over current
liabilities) of the Group as at December 31, 2016 was 1.2 (December 31, 2015:
1.3). Excluding the effect of the customer deposits arising from the securities
business, the resultant current ratio of the Group (current assets less bank
balances held on behalf of customers over current liabilities less balance of
accounts payable to customers arising from securities business) was 1.4
(December 31, 2015: 1.8).
The amount of held for trading investments of the Group as at December 31, 2016
was Rmb8,144.13 million (December 31, 2015: Rmb3,761.22 million), of which
83.4% was invested in bonds, 0.8% was invested in stocks, and the rest was
invested in open-end equity funds.
During the Period, net cash inflow generated from the Group's operating
activities amounted to Rmb4,719.24 million.
The Directors of the Company do not expect the Company to experience any
problems with liquidity and financial resources in the foreseeable future.
As at December 31,
2016 2015
Rmb'000 Rmb'000
Cash and cash equivalents
Rmb 7,148,479 4,935,103
US$ in Rmb equivalent 36,574 33,386
HK$ in Rmb equivalent 13,692 14,562
Time deposits - Rmb 165,000 270,000
Held for trading investments - Rmb 8,144,132 3,761,224
Available-for-sale investments - Rmb 1,342,920 1,032,750
Total 16,850,797 10,047,025
Rmb 16,800,531 9,999,077
US$ in Rmb equivalent 36,574 33,386
HK$ in Rmb equivalent 13,692 14,562
Borrowings and solvency
As at December 31, 2016, total liabilities of the Group amounted to
Rmb49,585.51 million (December 31, 2015: Rmb51,893.11 million), of which 4.3%
was bank and other borrowings, 9.7% was short-term financing note payable,
19.6% was bonds payable, 15.1% was financial assets sold under repurchase
agreements and 40.5% was accounts payable to customers arising from securities
business.
As at December 31, 2016, total interest-bearing borrowings of the Group
amounted to Rmb16,644.74 million, representing an increase of 14.1% compared to
that as at December 31, 2015. The borrowings comprised outstanding balances of
domestic commercial bank loans of Rmb2,101.40 million, borrowings from other
financial institution of Rmb15.00 million, subordinated bonds of Rmb5.50
billion, corporate bonds of Rmb3.40 billion, short-term financing note of
Rmb1.50 billion and beneficial certificates of Rmb4,128.34 million. Of the
interest-bearing borrowings, 40.3 % was not payable within one year.
As at December 31, 2016, the Group's loans from domestic commercial banks were
short-term loans, loans amounted to Rmb1,714.50 million with annual fixed
interest rates between 3.915% and 4.35%, and loans amounted Rmb386.90 million
with floating interest rate at 2.23%. The floating interest rate for borrowings
from other financial institutions was 3.915%. The annual interest rates for
short-term financing note were fixed at 2.62% and 2.78%. Beneficial
certificates amounted Rmb29.14 million with floating rate at 1.0%, and
beneficial certificates amounted Rmb4,099.20 million with fixed rates between
3.7% and 6.0%.The annual interest rates for subordinated bonds were fixed at
rates between 3.63% and 6.3%. The annual interest rates for corporate bonds
were fixed at 3.08% and 4.9%, while the annual interest rate for accounts
payable to customers arising from the securities business was fixed at 0.35%.
Management Discussion and Analysis
Maturity Profile
Gross Within 1 2-5 years Beyond 5
amount year inclusive years
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Floating rates
Domestic commercial bank 386,895 386,895 - -
loans
Borrowings from other 15,000 15,000 - -
domestic financial
institution
Beneficial certificates 29,140 29,140 - -
Fixed rates
Domestic commercial bank 1,714,500 1,714,500 - -
loans
Short-term loan notes 1,500,000 1,500,000 - -
Beneficial certificates 4,099,200 3,299,200 800,000 -
Subordinated bonds 5,500,000 3,000,000 2,500,000 -
Corporate bonds 3,400,000 - 3,400,000 -
Total as at December 16,644,735 9,944,735 6,700,000 -
31,2016
Total as at December 14,584,051 5,394,051 8,860,000 330,000
31,2015
Total interest expenses and profit before interest and tax from continuing and
discontinued operations for the Period amounted to Rmb671.39 million and
Rmb5,668.52 million, respectively. The interest cover ratio (profit before
interest and tax over interest expenses) stood at 8.4 (2015: 9.6) times.
2016 2015
Rmb'000 Rmb'000
Profit before tax and interest 5,668,523 6,079,147
Interest expenses 671,387 635,748
Interest cover ratio 8.4 9.6
Leading Market Position of Zheshang Securities
Brokerage business ranks top 20 in the industry in terms of market share.
Investment banking business achieved record-high results.
With a cautious approach, Zheshang Securities will continue to strengthen risk
management and control capabilities, closely monitor market conditions, and
prevent systematic and liquidity risks.
Management Discussion and Analysis
As at December 31, 2016, the asset-liability ratio (total liabilities over
total assets) of the Group was 67.2% (December 31, 2015: 70.2%). Excluding the
effect of customer deposits arising from the securities business, the resultant
asset-liability ratio (total liabilities less balance of accounts payable to
customers arising from securities business over total assets less bank balances
held on behalf of customers) of the Group was 55.0% (December 31, 2015: 53.2%).
Capital structure
As at December 31, 2016, the Group had Rmb24,175.93 million in total equity,
Rmb44,473.88 million in fixed-rate liabilities, Rmb431.04 million in
floating-rate liabilities, and Rmb4,680.59 million in interest-free
liabilities, representing 32.8%, 60.3%, 0.6% and 6.3% of the Group's total
capital, respectively. The gearing ratio, which is computed by dividing the
total liabilities less accounts payable to customers arising from the
securities business by total equity, was 122.1% as at December 31, 2016
(December 31, 2015: 113.1%).
As at December 31, 2016 As at December 31,
2015
Rmb'000 % Rmb'000 %
Total equity 24,175,927 32.8% 21,998,649 29.8%
Fixed rate liabilities 44,473,878 60.3% 45,859,072 62.1%
Floating rate liabilities 431,035 0.6% 1,320,000 1.8%
Interest-free liabilities 4,680,592 6.3% 4,714,042 6.3%
Total 73,761,432 100.0% 73,891,763 100.0%
Long-term interest-bearing 6,700,000 9.1% 9,190,000 12.4%
liabilities
Gearing ratio 1 (note) 122.1% 113.1%
Gearing ratio 2 (note) 27.7% 41.8%
Asset-liabilities ratio1 (note) 67.2% 70.2%
Asset-liabilities ratio 2 (note) 55.0% 53.2%
Note: Gearing ratio 1 represents the total liabilities less balance of accounts
payable to customers arising from securities business to the total equity;
Gearing ratio 2 represents the total amount of the long-term interest-bearing
liabilities to the total equity; Asset-liabilities ratio 1 represents total
liabilities to total assets; Asset-liabilities ratio 2 represents total
liabilities less balance of accounts payable to customers arising from
securities business to total assets less bank balances held on behalf of
customers.
Capital expenditure commitments and utilization
During the Period, capital expenditure of the Group totaled Rmb3,164.14
million. Amongst the total capital expenditure, Rmb570.00 million was incurred
for acquiring 100% equity interest in Huihang Co, Rmb1,600.00 million was
incurred for additional capital contribution in Huihang Co, Rmb656.90 million
was incurred for other equity investments, Rmb94.98 million was incurred for
acquisition and construction of properties, and Rmb242.26 million was incurred
for purchase and construction of equipment and facilities.
As at December 31, 2016, the capital expenditure committed by the Group totaled
Rmb554.55 million. Amongst the total capital expenditures committed by the
Group, Rmb242.40 million will be used for acquisition and construction of
properties and Rmb312.15 million for acquisition and construction of equipment
and facilities.
The Group will consider financing the above-mentioned capital expenditure
commitments with internally generated cash flow first and then will
comprehensively consider using debt financing and equity financing to meet any
shortfalls.
Contingent liabilities and pledge of assets
Pursuant to the board resolution of the Company dated November 16, 2012, the
Company and Shaoxing Communications Investment Group Co., Ltd. (the other joint
venture partner that holds 50% equity interest in Shengxin Co) provided
Shengxin Co with joint guarantee for its bank loans of Rmb2.2 billion, in
accordance with their proportionate equity interest in Shengxin Co. During the
Period, Rmb148.00 million of the bank loans had been repaid. As at December 31,
2016, the remaining bank loan balance is Rmb1,892.00 million.
Except for the above, as at December 31, 2016, the Group did not have any other
contingent liabilities, pledge of assets or guarantees.
Foreign exchange exposure
During the Period, save for (i) dividend payments to the holders of H shares in
Hong Kong dollars,
(ii) borrowing HK$432.53 million on June 8, 2016, and (iii) Zheshang
International Financial Holding Co., Limited. (a wholly owned subsidiary of
Zheshang Securities) operating in Hong Kong, the Group's principal operations
were transacted and booked in Renminbi. During the Period, the Group purchased
one-year HK dollar forwards of equivalent amount to hedge the foreign exchange
risk derived from the Hong Kong dollar borrowing. Except for the above, during
the Period, the Group has not used any other financial instruments for hedging
purpose. Therefore, the Group's exposure to exchange fluctuation is limited.
Although the Directors do not foresee any material foreign exchange risks for
the Group, there is no assurance that foreign exchange risks will not affect
the operating results of the Group in the future.
OUTLOOK
Looking ahead to 2017, though the global economy is still struggling to recover
and China's economy slowdown may raise further pressures, the Chinese
government is expected to carry on macroeconomic improvements on policies and
innovative regulatory measures for positive economic changes. As the economic
transformation and related effects are becoming more visible, Zhejiang Province
anticipates steady improvements in the overall economy, bringing solid
opportunities for the company's steady development. However, as China will
still face relatively intense economic pressure, the Group expects that organic
traffic volume growth in 2017 is likely to slow down, albeit with a steady
increase in overall traffic volume.
Management Discussion and Analysis
In addition, Kaihua-Jiande section of the Hangzhou-Xinanjiang-Jingdezhen
Expressway, which was opened for traffic in December 2016, is expected to cause
a slight diversion impact on the Hanghui Expressway and Huihang Expressway
operated by the Group. However, Jiufeng Road Toll Station along the Hanghui
Expressway, which will be put into operation in May 2017, is expected to
attract more vehicles to use this section and increase toll revenue. In
addition to the synergies provided by the ongoing measures, including
strengthening analysis of newly opened networks and attracting more traffic
with better road signage, the company will also seek to improve service quality
and efficiency through the implementation of new IT- systems, such as mobile
payments, to provide a better customer experience. The Group will continue to
enhance the quality of expressway operations and services to assure safe and
smooth traffic flow.
Though China's stock market remained sluggish and trading volume on the
Shanghai and Shenzhen stock markets continues to stay weak, the Chinese
government is actively promoting the healthy development of a multi-tiered
capital market, while the China Securities Regulatory Commission has also
rolled out major initiatives in terms of market supervision, which could bring
new opportunities to the Group's securities business. While strengthening cost
controls and risk management and actively accelerating its A-Share listing
application on the Shanghai Stock Exchange, Zheshang Securities will also look
to strengthen its capital base. Zheshang Securities will focus on growing its
key businesses where the Company holds advantages, while transforming and
upgrading its traditional businesses and developing additional innovative
businesses. In addition, Zheshang Securities will optimize and adjust business
mix, and enhance profitability and competitiveness to become more resilient to
challenges from the current market environment and intense industry
competition, in order to promote sustained and healthy development of all its
businesses.
As the macroeconomic downturn continues and the capital market is expected to
remain sluggish, the Company will keep its foothold upon its development
advantages and proactively explore investment and merger and acquisition
opportunities, with the aim of expanding and enhancing the core expressway
business. In addition, the Company will also strengthen its securities
business. The management will keep monitoring policy and external environment
to appropriately adjust the Company's operational strategy. With a focus on
effective risk control, the Company will explore suitable investment and
development project via different channels, thereby cultivating the management
capability of operating diversified businesses, in order to promote the
Company's overall and sustainable development over the long term.
Human Resources
During the Period, the Company actively revamped its human resource management,
enhanced its remuneration and performance policy, and prompted the increase in
overall payment of remuneration to be linked to the operating performance of
Company and the productivity of employees. As at December 31, 2016, there were
7,775 employees within the Group, amongst whom 1,754 worked in the managerial,
administrative and technical positions, while 6,021 worked in fields such as
toll collection, maintenance, service areas, securities and futures business
outlets.
Steady Development of Related Business
The Company will continue to leverage the resources of Zheshang Securities and
the Zhejiang Zheshang Transformation Upgrade Parent Fund (under the management
of Zheshang Securities) to identify areas where the Company has advantages in
investment and financing and in directions that are in line with economic
development and nation-wide industrial policies.
Principal Risks and Uncertainties
TOLL ROAD BUSINESS RISKS
Economic Environment
As the global economy continues to struggle for recovery, China's economy is
moving into a "new normal" as it downshifts from rapid growth to more moderate
levels of growth. The overall economy is still subject to downside pressure to
a certain extent. As the expressway toll road business is closely related to
the macroeconomy, it is subject to the macroeconomic performance. Growth in the
traffic volume and toll revenue of the Group's expressways is expected to
remain uncertain, creating uncertainties for the operations, financial
conditions and operating results of the Group.
Roads Competition
At present, since the commencement of service of Hangxinjing Expressway from
Kaihua section to Jiande section in December 2016, there will be a considerable
diversion impact on traffic volume of Hanghui Expressway and Huihang Expressway
of the Group. Accordingly, we cannot be assured as to whether traffic volume to
be generated on the Group's expressways will be maintained at the same levels
as before or will increase in the future, or whether or not the operating
results of the Group will be negatively affected.
Toll Policy
With the implementation of the toll waiver policy on small passenger vehicles
on key festivals and holidays by the PRC government on September 30, 2012, the
expressway operators who charge for toll are negatively affected. In addition,
due to the introduction of a special project by five ministries and commissions
for the rectification of the toll road policy in Zhejiang province, a number of
new policies focusing on adjusting the toll policy of expressways within the
province such as "Provisions on the Administration of the Running of Transport
Vehicles with Out-of-gauge Goods on the Road" were successively issued. At the
same time, as the consultation paper "Regulation on Administration of Toll
Roads" 2015 has not been officially promulgated at present, despite that we
expect the possibility of further significant changes in the policies of the
expressway industry in the near term is minimal, we cannot be assured that they
will not have any adverse effects on the toll revenue of the Group.
SECURITIES BUSINESS RISKS
Market Fluctuations
The securities business is highly susceptible to market fluctuations and may
experience periods of high volatility accompanied by reduced liquidity. It may
be materially affected by economic and other factors such as the global market
conditions; the availability and cost of capital; the liquidity of the global
markets; the level and volatility of stock prices, commodity prices and
interest rates; currency values and other market indices; inflation; natural
disasters; acts of war or terrorism; as well as investor sentiment and
confidence in the financial markets. There is no assurance as to whether our
securities business will be adversely affected by fluctuations in the market,
or whether our securities business will continue to contribute to our overall
profit margin.
Regulation of the Securities Business
We are subject to extensive regulations in the PRC that govern how we conduct
our securities business, and we are subject to risks of intervention by the PRC
regulatory authorities. We could be fined, prohibited from engaging in some of
our business activities or subject to limitations or conditions on our business
activities, among other things. Significant regulatory actions against us could
have material adverse impacts on our financial position, cause us significant
reputational harm, or harm our business prospects. New laws, regulations or
changes in the enforcement of existing laws or regulations applicable to our
clients may also adversely affect our business.
FINANCIAL RISKS
For financial risks and uncertainties of the Group, please see notes 4, 51 and
52 to the Consolidated Financial Statements.
Principal Risks and Uncertainties
STATEMENT OF RESPONSIBILITY FROM THE DIRECTORS WITH RESPECT TO THE ANNUAL
REPORT AND THE COMPANY'S ACCOUNTS
The Directors of the Company, whose names and functions are listed on pages 45
to 50, duly confirm that to the best of their knowledge:
- the consolidated financial statements prepared and subject to disclosure
under the Hong Kong Financial Reporting Standards issued by the Hong Kong
Institute of Certified Public Accountants give a true and fair view of the
assets, liabilities, financial position and profit of the Group, and cover the
enterprises that have been consolidated into the Company; and
- the "Management Discussion and Analysis" section included in this annual
report includes a fair review of the development and performance of the
business and the position of the Group, covers the enterprises that have been
consolidated into the Company and describes the principal risks and
uncertainties faced by the Group.
From the beginning of year 2016 up to now, there has been no occurrence of
significant events that would have a material impact on the normal operation of
the Group.
By Order of the Board
Tony ZHENG
Company Secretary
Hangzhou, Zhejiang Province, the PRC
March 27, 2017
Corporate Governance Report
CORPORATE GOVERNANCE PRACTICES
To govern the daily functioning of the Board of Directors of the Company, the
Company has adopted its own Guidelines on Corporate Governance that closely
followed the principles of good governance in Appendix 14 of the Listing Rules
(available at www.hkex.com.hk) ("CG Code").
During the Period, the Company has complied with all code provisions in the CG
Code and adopted the recommended best practices in the CG Code as and when
applicable.
DIRECTORS' SECURITIES TRANSACTIONS
The Company has adopted the Rules on Securities Dealings ("Rules on Securities
Dealings") for the Directors, supervisors, senior management personnel and
other employees of the Company on terms no less exacting than the required
standard set out in the Model Code for Securities Transactions by Directors of
Listed Issuers (the "Model Code") set out in Appendix 10 of the Listing Rules.
Upon specific inquiries to all the Directors, the Directors have confirmed
their respective compliance with the required standards for securities
transactions by Directors as set out in the Model Code and the Rules on
Securities Dealings during the Period.
BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD")
The executive directors of the Company during the Period were:
Mr. ZHAN Xiaozhang (Chairman)
Mr. CHENG Tao
Ms. LUO Jianhu (General Manager)
The non-executive directors of the Company during the Period were:
Mr. WANG Dongjie
Mr. DAI Benmeng
Mr. ZHOU Jianping
The independent non-executive directors of the Company during the Period were:
Mr. ZHOU Jun
Mr. PEI Ker-Wei
Ms. LEE Wai Tsang Rosa
Corporate Governance Report
During the Period, the Board held a total of eight meetings. Individual
attendances by the directors (as indicated by the numbers of meetings attended/
numbers of relevant meetings held) are as follows:
Attendance Attendance Attendance
in person by proxy through
communication
Mr. ZHAN Xiaozhang (Chairman) 5/8 1/8 2/8
Mr. CHENG Tao 6/8 2/8
Ms. LUO Jianhu (General Manager) 6/8 2/8
Mr. WANG Dongjie 3/8 3/8 2/8
Mr. DAI Benmeng 3/8 3/8 2/8
Mr. ZHOU Jianping 6/8 2/8
Mr. ZHOU Jun 6/8 2/8
Mr. PEI Ker-Wei 6/8 2/8
Ms. LEE Wai Tsang Rosa 6/8 2/8
During the Period, the Company held two general meetings of the shareholders.
The meetings were chaired by Chairman, and all executive directors were present
at the meetings.
The Board is charged with duties as well as given powers that are expressly
specified in the articles of association of the Company, the scope of which
includes, amongst others: to determine the business plans and investment
proposals of the Company; to prepare the financial budget and final accounts of
the Company; to determine the dividend policy of the Company; to appoint or
dismiss senior managerial officers of the Company as well as to determine their
remuneration; and to draw up proposals for any material acquisition or sale by
the Company.
To assist the Board to effectively discharge its duties, the Board has set up
the Audit Committee, the Nomination Committee, the Remuneration Committee, and
the Strategic Committee.
While the Board fully retains its power to decide on matters within its scope
of duties and powers, relevant preparation and drawing up of plans or proposals
were usually delegated to the management.
The Company has complied with the requirements under Rules 3.10(1) and (2) of
the Listing Rules regarding the appointment of independent non-executive
directors, with three independent non- executive directors appointed,
representing at least one-third of the Board and at least one of whom
possessing the appropriate professional qualification or accounting or related
financial management expertise.
Pursuant to Rule 3.13 of the Listing Rules, the Company had specifically
inquired with all three independent non-executive directors and received their
respective confirmation of independence during the Period. The three
independent non-executive directors have all confirmed their compliance with
requirements regarding independence under Rule 3.13 of the Listing Rules. The
Company still considers the independent non-executive directors to be
independent.
There were no financial, business, family or other material or relevant
relationships between members of the Board, including that between the Chairman
and the General Manager of the Company.
Each newly appointed director receives induction on the first occasion of his
or her appointment, so as to ensure that he or she has appropriate
understanding of the business and operations of the Company and that he or she
is fully aware of his or her responsibilities and obligations under the Listing
Rules and relevant regulatory requirements. Directors are also regularly
updated on the Group's business and industry environments where appropriate in
the management's monthly reports to the Board as well as briefings and
materials circulated to the Board before board meetings.
In addition, during the Period, the Company has arranged for all its executive
and non-executive directors to undergo continuous trainings designed to develop
and refresh their knowledge and skills so as to ensure that their contribution
to the Board remains informed and relevant. However, as the management
considers that the independent non-executive directors of the Company are very
experienced, knowledgeable and resourceful, the Company did not arrange any
professional briefings or training programs for its independent non-executive
directors and has decided to leave it to the independent non-executive
directors to undergo appropriate training as they see fit.
CHAIRMAN AND GENERAL MANAGER
During the Period, Mr. ZHAN Xiaozhang served as Chairman, and Ms. LUO Jianhu
served as General Manager of the Company, respectively. The roles of Chairman
and General Manager are fully segregated as expressly set out in the articles
of association of the Company.
NON-EXECUTIVE DIRECTORS
Terms for the non-executive directors of current session of the Board started
on July 1, 2015 and will expire on June 30, 2018.
Corporate Governance Report
SPECIAL COMMITTEES UNDER THE BOARD
The Board has set up the Audit Committee, the Nomination Committee, the
Remuneration Committee, and the Strategic Committee. Roles and responsibilities
for each committee are specified in its terms of reference, details of which
can be found under the "Corporate Governance" section in the Company's website.
The Audit Committee comprised of the three independent non-executive directors
and two non- executive directors, namely Mr. ZHOU Jun, Mr. PEI Ker-Wei, Ms. LEE
Wai Tsang Rosa, Mr. WANG Dongjie and Mr. ZHOU Jianping, of whom Mr. ZHOU Jun
serves as the Chairman of the Audit Committee.
The Nomination Committee comprised of the three independent non-executive
directors, one executive director and one non-executive director, namely Mr.
ZHAN Xiaozhang, Mr. ZHOU Jun, Mr. PEI Ker-Wei, Ms. LEE Wai Tsang Rosa and Mr.
DAI Benmeng, of whom Mr. ZHAN Xiaozhang serves as Chairman of the Nomination
Committee.
The Company believes that diversification of board members is a key element to
maintain the Company's competitive advantage, improve business performances,
and promoting the Company's continued development. When setting up the board
member composition, the Company takes into consideration a number of aspects
that determine board member diversification, including but not limited to
gender, age, culture, education background, professional experience, work and
living background, knowledge and skill, etc. The Company's Nomination Committee
is responsible for assessing the board's structure, number of members, as well
as a diversified composition, providing recommendation or suggestion on
candidates to serve as new directors of the Company to the board when needed.
The assessment as well as recommendation or suggestion above would have fully
taken into consideration any pros and cons to the diversification of board
members.
The Remuneration Committee comprised of the three independent non-executive
directors and two non-executive directors, namely, Mr. PEI Ker-Wei, Mr. ZHOU
Jun, Ms. LEE Wai Tsang Rosa, Mr. DAI Benmeng and Mr. ZHOU Jianping, of whom Mr.
PEI Ker-Wei, serves as Chairman of the Remuneration Committee.
The Strategic Committee comprised of the three executive directors, namely Mr.
ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu as well as Mr. ZHANG
Jingzhong, Mr. WANG Dehua, Mr. Tony ZHENG and several outside experts and
advisors, of whom Mr. ZHAN Xiaozhang serves as chairman of the Strategic
Committee.
During the Period, the Audit Committee held a total of four meetings.
Individual attendances by the members of the Audit Committee (as indicated by
the numbers of meetings attended/numbers of meetings held) are as follows:
Attendance Attendance
in person by proxy
Mr. ZHOU Jun 3/4 1/4
Mr. PEI Ker-Wei 4/4
Ms. LEE Wai Tsang Rosa 4/4
Mr. WANG Dongjie 1/4 3/4
Mr. ZHOU Jianping 4/4
In the meetings held during the Period, the Audit Committee conducted, amongst
others, review of financial statements for the quarterly, interim and annual
results, discussed the internal audit, the effectiveness of internal control
system, and total risk management of the Company, as well as recommendation on
the re-appointment of external auditors.
During the Period, the Nomination Committee held a total of one meeting.
Individual attendances by the members of the Nomination Committee (as indicated
by the numbers of meetings attended/ numbers of meetings held) are as follows:
Attendance
Through
communication
Mr. ZHAN Xiaozhang 1/1
Mr. ZHOU Jun 1/1
Mr. PEI Ker-Wei 1/1
Ms. LEE Wai Tsang Rosa 1/1
Mr. DAI Benmeng 1/1
During the Period, the Nomination Committee mainly discussed the candidates for
independent supervisors of the Company. Proposed candidates for independent
supervisors of the Company that were reviewed by the Nomination Committee were
later approved by the extraordinary general meeting of the Company.
During the Period, there were no changes to the remuneration policies of the
members of the Board or senior management of the Company; hence the
Remuneration Committee had not held any meetings.
During the Period, the Strategic Committee did not hold any meeting.
Corporate Governance Report
The Board is responsible for developing and reviewing the Company's corporate
governance policies and practices, monitoring the Company's compliance with the
Code and its disclosure within this report; the Board reviews and monitors the
training and continuous professional development of Directors and senior
management through the works of human resources department, and review and
monitor the Company's policies and practices on compliance with legal and
regulatory requirements through the works of legal and internal audit
department.
During the Period, the Directors have all confirmed their responsibility for
preparing the accounts, and that there were no events or conditions which would
have a material impact on the Company's ability to continue to operate as a
going concern basis.
AUDITORS' REMUNERATION
During the Period, the Company had paid approximately Rmb3.47 million and
Rmb0.89 million to Deloitte Touche Tohmatsu Certified Accountants (the Hong
Kong auditors) and Pan-China Certified Public Accountants Ltd. (the PRC
auditors), respectively, for audit services conducted in 2015. Besides, the
Company had paid Rmb0.19 million and Rmb0.44 million to Deloitte Touche
Tohmatsu Certified Public Accountants (the Hong Kong auditors) and Pan-China
Certified Public Accountants Ltd. (the PRC auditors), respectively, for other
assurance service provided.
SECRETARY TO THE BOARD
During the Period, the Secretary to the Board had complied with Rule 3.29 of
the Listing Rules regarding undergoing relevant professional trainings.
DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE'S INTERESTS IN SHARES AND UNDERLYING
SHARES OF THE COMPANY
As at December 31, 2016, none of the Directors, Supervisors and General Manager
had any interests or short positions in the shares, underlying shares or
debentures of the Company or any of its associated corporations (within the
meaning of Part XV of the SFO) as recorded in the register required to be kept
pursuant to Section 352 of the SFO, or as otherwise notified to the Company and
the Hong Kong Stock Exchange pursuant to the Model Code.
INTERESTS AND SHORT POSITIONS OF OTHER PERSONS IN SHARES AND UNDERLYING SHARES
As at December 31, 2016, the interests and short positions of other persons in
the shares and underlying shares of the Company according to the register
required to be kept by the Company pursuant to Section 336 of the SFO, or as
otherwise notified to the Company and the Hong Kong Stock Exchange are set out
below:
Percentage
of the
Total interests issued share
in number capital of
of ordinary the Company
shares of (domestic
Substantial shareholders Capacity the Company shares)
Communications Group Beneficial owner 2,909,260,000 100%
Percentage
of the
Total issued
interests share
in number capital of
of ordinary the
Company
shares of (domestic
Substantial Capacity the Company shares)
shareholders
JP Morgan Chase & Co. Beneficial owner, 141,027,621 9.83%
(L)
investment manager and 5,902,000 (S) 0.41%
custodian corporation/ 69,336,386 4.83%
(P)
approved lending agent
BlackRock, Inc. Interest of controlled 127,829,924 8.92%
corporations (L)
2,426,000 (S) 0.17%
The Bank of New York Interest of controlled 74,989,261 5.23%
Mellon corporations (L)
Corporation 69,658,505 4.86%
(P)
The letter "L" denotes a long position. The letter "S" denotes a short
position. The letter "P" denotes interest in a lending pool.
Save as disclosed above, as at December 31, 2016, no other persons had any
interests or short positions in the shares or underlying shares of the Company
that was required to be recorded pursuant to Section 336 of the SFO, or as
otherwise notified to the Company and the Hong Kong Stock Exchange.
Corporate Governance Report
SHAREHOLDERS' RIGHTS
Pursuant to the Articles of Association of the Company, two or more
Shareholders who in aggregate hold 10% or more of the voting rights of all the
shares of the Company having the right to vote may write to the Board to
request the convening of an extraordinary general meeting and specifying the
agenda of the meeting. Upon receipt of the request in writing, the Board shall
convene the extraordinary general meeting as soon as possible. Shareholders who
hold in aggregate 5% or more of the voting rights of all the shares of the
Company having the right to vote are entitled to propose additional motions in
annual general meeting, provided that such motions are served on the Company
within 30 days after the issue of the notice of annual general meeting.
Written requests, proposals and enquiries may be sent to the Company through
contact details listed on page 207 of this report.
INVESTOR RELATIONS
The Board is committed to ensuring that all shareholders and the investment
community have equal and timely access to information about the Company so as
to enable their accurate assessment of the Company's fair value. Such
information is available through channels including financial reports,
shareholder meetings, statutory announcements, the Hong Kong Stock Exchange
website (www.hkexnews.hk) and the Company's own website (www.zjec.com.cn).
Activities such as investor and analyst briefings, one-on-one meetings,
conference calls, roadshows, and press conferences are held regularly by senior
management of the Company, particularly after results announcements.
Great importance is also attached to maintaining clear and effective
communications channels with investors as part of the Company's bid to enhance
its transparency and to promote the understanding of its business in the
investment community. Any parties who wish to learn more about the Company may
do so via the contact details listed below:
Mr. Tony ZHENG
Company Secretary
5/F, #2 Mingzhu International Business Center,
199 Wuxing Road, Hangzhou, Zhejiang 310020 the PRC. Tel: 86-571-87987700
Fax: 86-571-87950329
E-mail: zhenghui@zjec.com.cn
During the Period, the last shareholders' meeting of the Company took place at
10:00 a.m. on Wednesday, December 28, 2016 at the headquarters of the Company.
Details of this extraordinary general meeting of the shareholders were set out
in the announcement dated December 28, 2016 on resolutions passed at the
extraordinary general meeting of the shareholders.
The next annual general meeting of the Company is expected to be held in May,
2017 with exact date and resolutions for review to be specified in notice of
annual general meeting when it is published.
The Company has an issued share capital of 4,343,114,500 shares comprised of
domestic shares and H shares. The domestic shares are held by Zhejiang
Communications Investment Group Co., Ltd. as to 2,909,260,000 shares,
representing approximately 67% of the total issued capital of the Company. The
remaining 1,433,854,500 shares are H shares, representing approximately 33% of
the total issued capital of the Company. As at the date of this report, and to
the best of the Directors' knowledge, 100% of the H shares of the Company are
held by the public.
There were some changes made to the articles of association of the Company
during the Period, which were set out in the announcement dated December 28,
2016 on resolutions passed at the extraordinary general meeting of the
shareholders.
INTERNAL CONTROLS AND RISK MANAGEMENT
The Company has set up an internal monitoring system that aims to protect
assets, preserve accounting and financial information, as well as to ensure the
accuracy of financial statements, including the establishment of departments
and units, setting out responsibilities, execution of management systems and
quality control mechanisms, and the management system on environment,
occupational health and safety. The system is capable of taking necessary steps
to react to possible changes in our businesses as well as external operating
environments. Throughout the operating process, the Company's various internal
control measures are being continuously enhanced, fulfilled and are deemed
effective.
The Company attaches great importance to risk management. The Company
established its risk management mechanism and relevant regulations, established
risk management strategy and took risk control measures in response to major
risks faced by the Company.
Corporate Governance Report
The Company's Audit Committee is charged with the duties of reviewing internal
controls, directing monitoring activities. Aside from reviewing the annual
reporting by external auditors, the committee also reviews the effectiveness of
internal control system and risk management mechanism through reviewing the
internal special audit report on the Company's various core businesses prepared
by internal audit department on a regular basis. During the Period, the Audit
Committee focused on implementation of annual budget of the Company, as well as
control of the major risk on the Company. The internal audit department carried
out specific audit into these compliance issues and monitored relevant
rectifications, ensuring the effectiveness of the Company's management systems.
The Company's risk management and internal control systems will be reviewed by
the Board on an annual basis, which covers the period from 1 January to 31
December each year. During the Period, the Directors of the Company had carried
out a view on the effectiveness of the Company's internal control system,
covering all material aspects of internal control, including financial control,
operational control, compliance control and risk management functions. There
were no major breaches in the internal control system that may have had an
impact to Shareholders' interests, and the internal control system was deemed
to be effective and sufficient. The risk management of the Company was deemed
to be effective and controllable.
MANAGEMENT FUNCTIONS
The management functions of the Board and the management are expressly
stipulated in the articles of association of the Company. Pursuant to the
articles of association of the Company, the management of the Company is
assigned the functions to be in charge of the production and business operation
of the Company and to organize the implementation of the resolutions of the
board of directors, to organize the implementation of the annual business plan
and investment program of the Company, to prepare plans for the establishment
of the internal management structure of the Company, to prepare the basic
management systems of the Company, and to formulate basic rules and regulations
of the Company, etc.
Directors, Supervisors and Senior Management Profiles
DIRECTORS
Executive Directors
Mr. ZHAN Xiaozhang
born in 1964, is a Senior Economist. He has been appointed as the Chairman of
the Company since June 2012. Mr. Zhan holds a bachelor's degree in law. He
further obtained a master's degree in public administration from the Business
Institute of Zhejiang University in 2005.
From 1985 to 1991, Mr. Zhan worked as an officer at Transport Administrative
Division under Waterway Transport Authority of Zhejiang Provincial Bureau of
Construction. From 1991 to 1998, he served as Deputy Secretary and Secretary of
the Communist Youth League Commission at Zhejiang Provincial Bureau of
Communications. From 1998 to 2002, he was Deputy Director of Waterway Transport
Authority under Zhejiang Provincial Bureau of Communications. From 2002 to
2003, he was Deputy Director of Human Resources Department at Zhejiang
Provincial Bureau of Communications. From 2003 to 2006, Mr. Zhan was Chairman
of Zhejiang Wenzhou Yongtaiwen Expressway Co., Ltd. From 2006 to 2008, he
became Chairman of Zhejiang Jinji Property Co., Ltd. Mr. Zhan has been Deputy
General Manager, Assistant to General Manager and Manager of Research and
Development Department at Zhejiang Communications Investment Group Co., Ltd
from 2006 to 2016.
He served as an Executive Director and the General Manager of the Company from
March 2009 to June 2012. Mr. ZHAN currently also serves as General Manager of
Zhejiang Communications Investment Group Co., Ltd.
Directors, Supervisors and Senior Management Profiles
Mr. CHENG Tao
born in 1964, is the party committee secretary of the Company. Mr. Cheng
graduated from Changsha University of Science & Technology with a bachelor's
degree in transportation engineering. He is a Senior Administration Engineer
and Senior Economist. Mr. Cheng has been appointed as an Executive Director of
the Company since July 2015.
Mr. Cheng began his career in September 1983 and held the positions of
Secretary of CYL Committee at Zhejiang Shipping and Technical School; Secretary
of CYL Committee at Zhejiang Road and Bridge Engineering Office; Secretary of
Party General branch at No.3 Company of Zhejiang Provincial
Transportation Engineering & Construction Group Co., Ltd.; Party Committee
Deputy Secretary of Zhejiang Provincial Transportation Engineering &
Construction Group Co., Ltd.; Vice Chairman, Party Committee Secretary and
Chairman of Zhejiang Provincial Transportation Engineering & Construction Group
Co., Ltd.
Ms. LUO Jianhu
born in 1971, graduated from the Department of Law at Hangzhou University with
a bachelor's degree in law, majoring in Economic Law. She is a lawyer and
Senior Economist. Ms. Luo has been appointed as an Executive Director and the
General Manager of the Company since June 2012.
Since she started her career in August 1994, Ms. Luo had held such positions as
the board secretary of Zhejiang Transportation Engineering Construction Group
Co., Ltd., the Deputy Director, Director of the Legal Affairs Department, the
Deputy Director, Director of the Secretarial Office to the Board, Board
Secretary and the Manager of the Investment and Development Department of
Zhejiang Communications Investment Group Co., Ltd.
Non-Executive Directors
Mr. WANG Dongjie
born in 1977, graduated from Southeast University majoring in Highway and
Railway Engineer ing wit h a mast er 's degr ee in engineering. He is a Senior
Engineer.
Since he started his career in March 2002, Mr. Wang had served as an Engineer
of the Executive Commission of Hangzhou Ring Road North Line Project, the
Deputy Executive Chief of the Executive Commission for the interflow renovation
of Hangzhou airport road, the Engineering Division Chief of Management Office
of Chun'an section of Hangqian Expressway and the Director and Deputy General
Manager of Hangzhou Transportation Road and Bridge Construction Company.
He joined Zhejiang Communications Investment Group Co., Ltd. in January 2007
and is currently the General Manager of the Strategic Development and Legal
Affairs Department.
Mr. DAI Benmeng
born in 1965, graduated from the Party School of the Zhejiang Committee of the
Communist Party of China with a bachelor's degree specialising in economics and
management and is a Senior Economist. He began working in February 1987 and has
been a director and the Deputy General Manager of Wenzhou Shipping Co., Ltd., a
Director and the General Manager of Zhejiang Wenzhou Yongtaiwen Expressway Co.,
Ltd., a Director and the General Manager of Zhejiang Jinji Property Co., Ltd.,
the person in charge of Zhejiang Province North Zhejiang Expressway Management
Co., Ltd., the Chairman of Zhejiang ShenSuZheWan Expressway Co., Ltd. , and the
General Manager of the Shanghai-Jiaxing-Huzhou-Hangzhou branch of the
Communications Group. Mr. Dai is currently the Department Head of Organization
Department of the Communications Group.
Directors, Supervisors and Senior Management Profiles
Mr. ZHOU Jianping
born in 1957, graduated from Xi'an Highway College with a bachelor's degree
specialising in vehicular transport and is a Senior Engineer at professor
level. He began working in September 1975 and has been the Deputy Supervisor of
the Business Management Office, Supervisor of the office, Assistant of the
General Manager, and Deputy General Manager of Zhejiang Province Vehicular
Transport General Company, the Deputy Head of Quzhou Municipal Communications
Bureau, Zhejiang Province, the manager of the Asset Management Department of
the Communications Group, and the person in charge of the Hangjinqu Branch of
the Communications Group.
Mr. Zhou is currently the Deputy Chief Economist of the Communications Group.
Independent Non-Executive Directors
Mr. ZHOU Jun
born in 1969, is the Executive Director and President of Shanghai Industrial
Investment (Holdings) Co. Ltd. ("SIIC"). Mr. Zhou graduated from Nanjing
University and Fudan University with a bachelor's degree of arts and a master's
degree of economics in international finance.
He also serves as the Chairman of S.I. Infrastructure Holdings Ltd. and seven
other companies, the Chairman of SIIC Environment Holdings Ltd. in Singapore
(SGX: BHK), Executive Director and CEO of Shanghai Industrial Holdings Ltd. (HK
Stock Code: 0363), Executive Director of Shanghai Industrial Urban Development
Group Ltd. (HK Stock Code: 0563). He worked for Guotai Securities Co., Ltd.
(now Guotai Junan Securities Co).
Before joining SIIC in April 1996, the management positions he had held within
the SIIC group of companies were Deputy General Manager of SIIC Real Estate
Holdings (Shanghai) Co., Ltd., Shanghai Pharmaceuticals Holding Co., Ltd. (SH
Stock Code: 601607 / HK Stock Code: 02607), Managing Director of Shanghai Cyber
Galaxy Investment Co., Ltd. and General Manager of the Strategic Investment
Department of SIIC. Mr. Zhou has about 20 years' professional experience in
general management, financial investment, real estate and project planning.
Mr. Zhou is a member of the Standing Committee of the CPC Shanghai Municipal
Committee and is currently the Chairman of Shanghai Shengtai Investment
Management Co., Ltd. of Shanghai Charity Foundation.
Directors, Supervisors and Senior Management Profiles
Mr. PEI Ker-Wei
born in 1957, is a full Professor of Accountancy at the School of Accountancy
at the W. P. Carey School of Business Arizona State University.
Mr. Pei received his Ph.D. degree in Accounting from University of North Texas
in 1986. He served as the chairman of the Globalization Committee of the
American Accounting Association in 1997 and as the president of the Chinese
Accounting Professors Association-North America in 1993 to 1994.
Mr. Pei currently also serves as an External Director of Baosteel Group and
China Merchant Group, and Independent Director of Want Want China Holdings (HK
Stock Code: 00151), Zhong An Real Estate (HK Stock Code: 00672) and MMG Limited
(HK Stock Code: 01208).
Ms. LEE Wai Tsang, Rosa
born in 1977, is the chairman and an executive director of Grand Investment
International Ltd. (a company listed on the Main Board of the Stock Exchange,
HK Stock Code: 1160) and oversees its day-to-day investment, operation and
administration.
Ms. Lee holds a bachelor degree from the University of Southern California, a
Master of Science in Finance from Boston College and a MBA from the University
of Chicago.
Ms. Lee is a licensed person for the regulated activities of dealing in
securities and futures under the SFO. Ms. Lee is a director of Grand Finance
Group Company Ltd. and Tianjin Yishang Friendship Holdings Co., Ltd. Ms. Lee
has extensive experience in management, investment, securities and auditing.
SUPERVISOR
Supervisor Representing Shareholders
Mr. YAO Huiliang
born in 1972, graduated from the Zhejiang University and is a senior
accountant.
Since he started his career in August 1990, Mr. YAO had served as Project
Management Manager at Zhejiang Zhetong Road Operation Co., Ltd., Finance
Manager of the Management Committee of the Ningbo Second Phase of Yongtaiwen
Expressway, Assistant to the General Manager and Finance Manager of the
Zhejiang Ningbo-Taizhou-Wenzhou Expressway Co., Limited and Deputy Manager of
the Finance Management Department, and Vice Manager of the Finance Center of
the Communications Group.
Mr. YAO currently serves as General Manager of the Finance Management Centre of
the Communications Group.
Directors, Supervisors and Senior Management Profiles
Independent Supervisors
Ms. HE Meiyun
born in 1964, is a senior economist. She graduated from the Zhejiang University
in 1986 and later received an Executive Master of Business
Admiration (EMBA) in Cheung Kong Graduate School of Business .
Ms. He had served as the Secretary of Youth League Committee at the Hangzhou
Business School and as a deputy general manager, general manager and vice
chairman at Baida Group Co., Ltd., a company listed on the Shanghai Stock
Exchange (stock code: 600865). Ms. He currently serves as a general manager of
Ping An Securities Company Limited, Zhejiang branch. She is also a vice
chairman of the Professional Committee of the Board Secretary of Listed Company
Association of Zhejiang.
Mr. WU Yongmin
born in 1963, is an Assistant Professor. Mr. Wu graduated from China University
of Political Science and Law with a master's degree.
He was the Deputy Dean of the Department of Law at Hangzhou University, Deputy
Dean of the Department of Law at Zhejiang University's Law School, and Director
of Zheda Law Firm. Mr. Wu studied at the Christian-Albrechts-Universitat zu
Kiel in 1996 as a visiting scholar. He is currently the Dean of the Department
of Law at the Law School of Zhejiang University, a Supervisor for master's
degree candidates in Business Law, a member of China Business Law Research
Council, Deputy Director of Zhejiang Tax Law Research Council, an Arbitrator of
Hangzhou Arbitration Committee, and a Lawyer at Zhejiang Zeda Law Firm.
Mr. Wu resigned from his position as an Independent Supervisor of the Company
with effect from August 18, 2016.
Mr. ZHANG Guohua
born in 1963, obtained a doctorate degree in human resources management. He is
a Senior Economist and the President of China Everbright Bank, Hangzhou Branch.
Mr. Zhang graduated from Hangzhou University in 1985 with a bachelor's degree
in education and then received a master's degree in educational psychology in
1988. In 2000, he was granted the Graduate Certificate of Completion in finance
by the School of Economics of Zhejiang University, and then obtained a
doctorate degree in psychology from the College of Science of Zhejiang
University in 2007.
Since 1988, Mr. Zhang had successively worked in the headquarters of Industrial
and Commercial Bank of China, Hangzhou Institute of Financial Managers,
Hangzhou Financial Urban Credit Cooperative and China Everbright Bank, Hangzhou
Branch and Wuxi Branch, and Ping An Bank, Hangzhou Branch. He had held the
positions of Deputy Director of the Office, Supervisor of the Credit Union,
Vice President and President, respectively.
Mr. Zhang resigned from his position as an Independent Supervisor of the
Company with effect from March 17, 2016.
Mr. SHI Ximin
born in 1960, obtained a doctorate degree in Accounting from the Central
University of Finance and Economics, and holds a doctorate degree in
Management.
Since he started his career in July 1983, Mr. Shi had served as Deputy Dean of
the Accounting Department, and Director of Graduate School of the Zhejiang
University of Finance & Economics, as well as Dean of the Zhejiang Business
College. Mr. Shi currently serves as a professor in the Accounting Department
of the Zhejiang University of Finance
& Economics, Deputy Chairman of the Zhejiang Association of CFO, and
independent director of Wolong Real Group Estate Co., Ltd. (SH: 600173) and
Zhejiang Jianfeng Group Co., Ltd. (SH: 600668) (both companies listed on the
Shanghai Stock Exchange).
Mr. Shi resigned from his position as an Independent Supervisor of the Company
with effect from October 21, 2016.
Directors, Supervisors and Senior Management Profiles
Supervisor Representing Employees
Mr. ZHAN Huagang
born in 1961, is the party committee member and labour union chairman of the
Company. He is a professor-level Senior Engineer. Mr. Zhan graduated from
Zhejiang University with a bachelor's degree of engineering in internal
combustion engine from the department of thermophysical engineering.
From July 1982 to June 1991, he worked at Zhejiang Province Vehicular Transport
Company, Zhejiang Office of Motor Vehicles and Zhejiang Highway Management
Bureau. From June 1991 to January
1996, he worked at Zhejiang Road and Bridge Engineering Office. From January
1996 to March 1997, he worked at the Operation Division and Maintenance
Division of the Zhejiang Provincial Expressway Executive Commission as Senior
Engineer.
Since March 1997, he has been working at Zhejiang Expressway Co., Ltd. as
Deputy Manager and Manager of the Operations Management Department, Manager of
the Investment Development Division, Manager of the Equipment Management
Department, Manager of the Engineering Management Department and Head of the
Maintenance Management Office. He is concurrently the Deputy General Manager of
Zhejiang Expressway Investment Development Co., Ltd. and Chairman and General
Manager of Zhejiang Expressway Advertising Co., Ltd.
Mr. LU Xinghai
born in 1967, graduated from the Department of Psychology of the Hangzhou
University with a doctorate degree in Management Psychology and is a Senior
Economist, the Supervisor Representing Employees of the Company.
Mr. Lu had served as Manager of the Human Resources Department of Hangzhou BC
Foods Co., Ltd., Deputy Manager of the Human Resources Department of the
Company.
He currently also serves as the Head of the Party-Staff Work Department and
Director of Labour Union Office of the Company.
Directors, Supervisors and Senior Management Profiles
OTHER MEMBERS OF SENIOR MANAGEMENT
Mr. FANG Zhexing
born in 1965, is a Senior Engineer, the Deputy General Manager of the Company.
Mr. Fang graduated from Zhejiang University where he received a master's degree
in engineering in 1991.
From 1986 to 1988 he was the Assistant Engineer in the Project Management
Office of the Electric Power and Water Conservancy Bureau in Taizhou, Zhejiang
Province. From 1991 until 1997, he was the Engineer in the Project Management
Office of Zhejiang Provincial Expressway Executive Commission, where he
participated in the project management of Shanghai-Hangzhou-Ningbo Expressway.
Since March 1997, he has served as the Deputy Manager and the Manager of the
Planning and Development Department, the Manager of the Project Development
Department, the Director of Quality Management Office, the Director of Internal
Audit Department of the Company, the Manager of the Human Resources Department
and the Secretary of Disciplinary Committee.
Mr. ZHU Yimin
born in 1961, is an Engineer, Mr. Zhu graduated from Chang'an University with
professional programme in Roads and Transportation Engineering in July 2007. He
joined the People's Liberation Army garrison 83026 from December 1978 to
January 1982. From January 1982 to December 1998, he worked in Anji County
Water Traffic Control Department, Huzhou Port and Water Traffic Administration
Department and Huzhou City Water Traffic Administration Department. From June
1994 to December 1998, he was the Director of Huzhou City Traffic Engineering
Department. From December 1998 to September 2000, he served as the Assistant to
Director of Huzhou City Water Traffic Control and Administration Department.
From January 2003 to August 2004, he was the Assistant Manager of Huzhou City
Transportation Investment and Development Corporation. From August 2004 to May
2015, Mr. Zhu has served in different positions including the Deputy General
Manager of Zhejiang Shenjiahuhang Expressway Co., Ltd, the Deputy General
Manager of Zhejiang Province North Zhejiang Expressway Management Co., Ltd.,
the Deputy General Manager of Zhejiang Shensuzhewan Expressway Co. Ltd., the
Deputy General Manager of Zhejiang Province West Zhejiang Expressway Co., Ltd.,
and Deputy General Manager of Zhejiang Hanghui Expressway Co. Ltd.
He has been the Deputy General Manager and party committee member of the
Company since July 1, 2015.
Mr. WANG Dehua
born in 1974, graduated with an undergraduate degree in Accounting from
Hangzhou Institute of Electronics Engineering in 1996. He worked in the Foreign
Funds Utilization Audit Department of Zhejiang Provincial Audit Office from
1996 to 2003. Mr. Wang worked at the Corporation Division of the Administrative
and Finance Department of Liaison Office of the Central Government in the Hong
Kong S.A.R. from 2003 to 2011, serving as its Deputy Director upon departure.
Mr. Wang studied at School of Economics and Finance of the Faculty of Business
and Economics of the University of Hong Kong from 2005 to 2007, and graduated
in 2007 with a master's degree in Economics. Mr. Wang has professional
accounting qualifications, including CPA, HKICPA, FCCA, etc. He worked at
Zhejiang Communications Investment Group Co., Ltd. from 2011 to 2014, serving
as its Deputy General Manager upon departure.
Mr. Wang Dehua has been appointed as the Chief Financial Officer of the Company
with effect from March 17, 2014.
Mr. Tony ZHENG
born in 1969, is the Deputy General Manager and Company Secretary of the
Company. Mr. Zheng graduated from University of California at Berkeley in 1995
with a BS degree in Civil Engineering. He joined the Company in June 1997, and
has served as Deputy Director of the Secretarial Office to the Board and
Assistant Company Secretary. Mr. Zheng continues to serve as Director of the
Secretarial Office to the Board, and Director of Hong Kong Representative
Office of the Company.
Directors, Supervisors and Senior Management Profiles
Ms. ZHANG Xiuhua
born in 1969, is a Senior Economist, the Deputy General Manager of the Company.
Ms. Zhang graduated from Chongqing Jiaotong University majoring in
transportation management with a bachelor's degree in science, and obtained a
master's degree in business administration from Zhejiang University in 2006.
From July 1991 to February 1997, she worked in the Operation Division of the
Zhejiang Provincial Expressway Executive Commission. She joined the Company
since March 1997, and had served as Assistant manager, Deputy Manager, Manager
of the Operation Department and Assistant to General Manager.
Report of the Directors
The Directors of the Company hereby present their report and the audited
financial statements of the Group for the year ended December 31, 2016.
PRINCIPAL ACTIVITIES
The principal activities of the Group comprise the operation, management of
high grade roads, as well as provision of security broking service and
proprietary securities trading.
SEGMENT INFORMATION
During the year, the entire revenue and segment profit of the Group were
derived from the People's Republic of China ("PRC"). Accordingly, no further
analysis of the revenue and segment profit by geographical area is presented.
An analysis of the Group's revenue and segment profit by principal activities
for the year ended December 31, 2016 is set out in note 5 to the financial
statements.
RESULTS AND DIVIDENDS
The Group's profit for the year ended December 31, 2016 and the state of
financial position at that date are set out in the financial statements on
pages 82 to 85.
An interim dividend of Rmb0.06 per share (approximately HK$0.067) was paid on
January 25, 2017. The Directors have recommended the payment of a final
dividend of Rmb0.295 (approximately HK$0.330) per share in respect of the year.
The final dividend is subject to shareholders' approval at the 2016 annual
general meeting of the Company and if approved by the shareholders, is expected
to be paid on or before June 26, 2017. This recommendation has been
incorporated in the financial statements as an allocation of retained earnings
within the capital and reserves section in the consolidated statement of
financial position. The dividend payout ratio reached 50.8% during the Period.
Further details of the dividends are set out in note 15 to the financial
statements.
Report of the Directors
FIVE YEAR SUMMARY FINANCIAL INFORMATION
The following is a summary of the published consolidated results, and of the
assets, liabilities and non-controlling interests of the Group prepared on the
basis set out in the notes below.
2016 2015 2014 2013 2012
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Results (Restated) (Restated) (Restated) (Restated)
Continuing
operations
Revenue 9,735,347 10,724,781 7,171,810 6,055,104 5,214,019
Operating costs (4,596,048) (5,278,650) (3,617,851) (3,137,004) (2,883,625)
Gross profit 5,139,299 5,446,131 3,553,959 2,918,100 2,330,394
Security investment 223,573 584,114 278,252 99,663 99,783
gains
Other income 289,390 191,887 144,016 171,295 242,885
Administrative (81,687) (88,421) (87,462) (81,754) (80,350)
expenses
Other expenses (85,099) (158,714) (83,098) (63,946) (51,555)
Share of profit 64,699 48,289 65,020 21,537 (4,513)
(loss) of
associates
Share of profit 9,797 (25,067) (33,277) (36,010) (3,516)
(loss) of a joint
venture
Finance costs (671,387) (632,495) (272,900) (295,461) (350,536)
Profit before tax 4,888,585 5,365,724 3,564,510 2,733,424 2,182,592
Income tax expense (1,161,570) (1,396,774) (882,625) (720,632) (599,088)
Profit for the year 3,727,015 3,968,950 2,681,885 2,012,792 1,583,504
from continuing
operations
Discontinued
operations
Profit for the year 81,594 60,830 64,087 70,964 61,466
from discontinued
operations
Profit for the year 3,808,609 4,029,780 2,745,972 2,083,756 1,644,970
Profit for the year
attributable to
Owners of the
Company
- Continuing 2,957,291 2,932,903 2,204,982 1,741,694 1,451,430
operations
- Discontinued 80,114 56,777 60,012 59,993 51,618
operations
Profit for the year
attributable to
non-controlling
interest
- Continuing 769,724 1,036,047 476,903 271,098 132,074
operations
- Discontinued 1,480 4,053 4,075 10,971 9,848
operations
Earnings per share
From continuing and
discontinued
operations
* basic and 69.94 cents 68.84 cents 52.15 cents 41.48 cents 34.61 cents
diluted
From
continuing
operations
* basic and 68.09 cents 67.53 cents 50.77 cents 40.10 cents 33.42 cents
diluted
As at December 31,
2016 2015 2014 2013 2012
Assets and Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
liabilities
Total assets 73,761,432 73,891,763 54,987,056 35,947,318 35,532,636
Total liabilities 49,585,505 51,893,114 33,858,586 16,175,239 15,676,614
Net assets 24,175,927 21,998,649 21,128,470 19,772,079 19,856,022
Notes:
1. The consolidated results of the Group for the four years ended December 31,
2015 have been restated in accordance with relevant Hong Kong Financial
Reporting Standard issued by Hong Kong Institute of Certified Public
Accountants, while those for the year ended December 31, 2016 were prepared
based on the consolidated statement of profit or loss and other comprehensive
income as set out on page 82 of the financial report.
2. The 2016 earnings per share (from continuing and discontinued operations) is
based on the profit attributable to owners of the Company for the year ended
December 31, 2016 of Rmb3,037,405,000 (2015: Rmb2,989,680,000) and the
4,343,114,500 (2015: 4,343,114,500) Ordinary shares in issue during the year.
3. Differences in Financial Statements prepared under PRC GAAP and HKFRSs
Profit for the year Net assets
ended December 31, as at December 31,
2016 2015 2016 2015
Rmb'000 Rmb'000 Rmb'000 Rmb'000
As reported in the statutory
financial statements of the 3,816,689 4,038,913 24,458,407 22,272,330
Group prepared in accordance
with PRC GAAP
HK GAAP adjustments:
(a) Goodwill - - (199,769) (199,769)
(b) Amortization provided,
net of deferred tax (1,952) (1,952) (169,012) (167,060)
(c) Assessment on impact of
appreciation, net of (3,658) (3,658) 49,133 52,791
deferred tax
(d) Others 719 (334) 7,666 7,666
(e) Non-controlling interests (3,189) (3,189) 29,502 32,691
As restated in the financial 3,808,609 4,029,780 24,175,927 21,998,649
statements
MAJOR CUSTOMERS AND SUPPLIERS
In the year under review, the five largest customers and suppliers of the Group
accounted for less than 30% of the total turnover and purchases, respectively.
None of the directors of the Company or any of their associates or any
shareholders (which, to the best knowledge of the directors, own more than 5%
of the Company's issued share capital) had any beneficial interest in the
Group's five largest customers.
Report of the Directors
RELATED PARTY TRANSACTIONS
During the year, details of the related party transactions that the Company has
entered into with its subsidiary and fellow subsidiary are set out in note to
the financial statements. The transactions including the deposit services
provided by Zhejiang Communications Investment Group Finance Co., Ltd, the
maintenance services provided by Zhejiang Expressway Maintenance Co., Ltd, and
the information system redevelopment services provided by Zhejiang Expressway
Information Technology Engineering Co., Ltd, constitute non-exempt continuing
connected transactions as defined in Chapter 14A of the Listing Rules. Please
refer to the section headed "Connected Transactions" below for further details
about such connected transactions. The Company has complied with the disclosure
requirements in respect of such connected transactions in accordance with
Chapter 14A of the Listing Rules.
DONATION
During the year, the total amount of donation made by the group is Rmb2,055,000
for charitable or other purposes.
PROPERTY, PLANT AND EQUIPMENT
Details of movements in property, plant and equipment of the Group during the
year are set out in note 17 to the financial statements.
CAPITAL COMMITMENTS
Details of the capital commitments of the Group as at December 31, 2016 are set
out in note 50 to the financial statements.
RESERVES
Details of movements in the reserves of the Group during the year are set out
in the consolidated statement of changes in equity on page 86 to the financial
statements.
DISTRIBUTABLE RESERVES
As at December 31, 2016, before the proposed final dividend, the Company's
reserves available for distribution by way of cash or in kind, as determined
based on the lower of the amount determined under PRC accounting standards and
the amount determined under HKGAAP, amounted to Rmb3,129,084,000. In addition,
in accordance with the Company Law of the PRC, the amount of approximately
Rmb3,645,726,000 standing to the credit of the Company's share premium account
as prepared in accordance with the PRC accounting standards was available for
distribution by way of capitalization issues.
TRUST DEPOSITS
As at December 31, 2016, other than the deposits placed with a non-bank
financial institution of Rmb867,892,000, the Group's deposits have been placed
with commercial banks in the PRC and the Group has not encountered any
difficulty in the withdrawal of funds.
PURCHASE, REDEMPTION OR SALE OF THE LISTED SECURITIES OF THE COMPANY
Neither the Company nor any of its subsidiaries purchased, redeemed or sold any
of the Company's listed securities during the year.
DIRECTORS
The Directors of the Company during the year and as at the date of this report
are:
EXECUTIVE DIRECTORS
Mr. ZHAN Xiaozhang (Chairman)
Mr. CHENG Tao
Ms. LUO Jianhu (General Manager)
NON-EXECUTIVE DIRECTOR
Mr. WANG Dongjie
Mr. DAI Benmeng
Mr. ZHOU Jianping
INDEPENDENT NON-EXECUTIVE DIRECTORS
Mr. ZHOU Jun
Mr. PEI Ker-Wei
Ms. LEE Wai Tsang Rosa
DIRECTORS' AND SENIOR MANAGEMENT'S BIOGRAPHIES
Biographical details of the Directors of the Company and the senior management
of the Group are set out on pages 45 to 58 in the Company's annual report.
DIRECTORS' SERVICE CONTRACTS
Each of the Directors of the Company has entered into a service agreement with
the Company, which effect from July 1, 2015 to June 30, 2018.
Save as disclosed above, none of the Directors and Supervisors has entered into
any service contract with the Company which is not terminable by the Company
within one year without payment of compensation, other than statutory
compensation.
DIRECTORS' AND SUPERVISORS' INTERESTS IN CONTRACTS
As at December 31, 2016 or during the year, none of the Directors or
Supervisors had a material interest, either directly or indirectly, in any
contract of significance to the business of the Group to which the Company, its
holding company, or any of its subsidiaries or fellow subsidiaries was a party.
DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE'S RIGHTS TO SUBSCRIBE FOR SHARES
OR DEBENTURES
At no time during the year were there rights to acquire benefits by means of
the acquisition of shares in or debentures of the Company granted to any
Director, Supervisor and chief executive or their respective spouse or minor
children, or were any such rights exercised by them; or was the Company, its
holding company, or any of its subsidiaries or fellow subsidiaries a party to
any arrangement to enable any such persons to acquire such rights in any other
body corporate.
SHARE CAPITAL
There were no movements in the Company's issued share capital during the year.
PRE-EMPTIVE RIGHTS
There is no provision for pre-emptive rights in the Company's Articles of
Association or the laws of the PRC which would require the Company to offer new
shares on a pro rata basis to existing shareholders.
TAXATION AND TAX RELIEF
According to a Notice issued jointly by PRC Ministry of Finance and State
Administration of Taxation regarding individual income tax policies (Caishuizi?
1994?No.020), the dividend incomes received by foreign individuals from a
foreign-invested enterprise are exempt from individual income tax.
As stipulated by a Notice issued by the PRC State Administration of Taxation in
relation to the withholding and payment of enterprise income tax by Chinese
resident enterprises for payment of dividend to H shareholders Who are overseas
non-resident enterprises (Guoshuihan? 2008 ?No.897), the Company as a Chinese
resident enterprises is required to withhold 10% enterprise income tax when it
distributes dividends for the year 2008 and thereafter to all non-resident
enterprise holders of H shares of the Company (including HKSCC Nominees
Limited, other nominees, trustees or other entities and organizations, who will
be deemed as non-resident enterprise holders of H shares) whose names appear on
the H share register of members of the Company on the record date.
Dividends payable to the Shareholders who are mainland individual investors or
corporate investors investing in the H Shares via the Shanghai-Hong Kong Stock
Connect or the Shenzhen-Hong Kong Stock Connect will be paid in Rmb by China
Securities Depository and Clearing Corporation Limited Shanghai Branch ("CSDC
Shanghai Branch") or Shenzhen Branch ("CSDC Shenzhen Branch") as entrusted by
the Company.
According to the requirements of the "Notice on Taxation Policies Concerning
the Shanghai-Hong Kong Stock Connect Pilot Program (Finance Tax?2014?No. 81)"
and "Notice on Taxation Policies Concerning the Shenzhen-Hong Kong Stock
Connect Pilot Program (Finance Tax?2016?No. 127) jointly published by the
Ministry of Finance, State Administration of Taxation and China Securities
Regulatory Commission, the Shanghai-Hong Kong Stock Connect and the
Shenzhen-Hong Kong Stock Connect tax arrangements are as follows: (i) for
Chinese Mainland individual investors who invest in the H Shares via the
Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect, the
Company will withhold individual income tax at the rate of 20% in the
distribution of final dividend. Individual investors may, by producing valid
tax payment proofs, apply to the competent tax authority of China Securities
Depository and Clearing Company Limited for tax credit relating to the
withholding tax already paid abroad; and (ii) for Chinese Mainland securities
investment funds that invest in the H Shares via the Shanghai-Hong Kong Stock
Connect or the Shenzhen-Hong Kong Stock Connect, the Company will withhold
individual income tax in the distribution of final dividend pursuant to the
foregoing provisions.
For Chinese mainland corporate investors that invest in the H Shares via the
Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect, the
Company will not withhold the income tax in the distribution of final dividend
and such investors shall file the tax returns on their own.
Under current practice of the Hong Kong Inland Revenue Department, no tax is
payable in Hong Kong in respect of dividends paid by the Company.
Shareholders of the Company are taxed and/or enjoy tax relief in accordance
with the aforementioned regulations.
SUFFICIENCY OF PUBLIC FLOAT
Based on the information that is publicly available to the Company and within
the knowledge of the Directors, as at the latest practicable date prior to the
issue of this annual report, the Company has maintained sufficient amount of
public float as required under the Listing Rules.
AUDITORS
Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, who has served
as the Company's Hong Kong auditors since 2005, will retire and a resolution
for their re-appointment as Hong Kong auditors of the Company will be proposed
at the forth coming Annual General Meeting of the shareholders.
By Order of the Board
ZHAN Xiaozhang
Chairman
Hangzhou, Zhejiang Province, the PRC
March 27, 2017
Report of the Supervisory Committee
During the Period, the Supervisory Committee duly performed its supervisory
responsibilities, and safe guarded the legitimate interests of the shareholders
and the Company in accordance with relevant rules and regulations under the
Company Law of the PRC, the Company 's Articles of Association and the Rules of
the Supervisory Committee.
Main tasks undertaken by the Supervisory Committee during the Period were to
assess and supervise lawfulness and appropriateness of the activities of the
Directors, General Manager and other senior management of the Company in their
business decision-making and daily management processes, through a combination
of activities including holding meetings of the Supervisory Committee and
attending general meetings of shareholders and meetings of the Board. The
Supervisory Committee has carefully examined the operating results and the
financial standing of the Company, discussed and reviewed the financial
statements to be submitted by the Board to the general meeting of shareholders.
During the Period, the Supervisory Committee held a total of two meetings of
its own, and attended eight meetings held by the Board and two general meetings
of shareholders. The Supervisory Committee considered that the Company took
active efforts and fully accomplished the targets set at the beginning of the
year by adhering to its strategic positioning, focusing on reform and
innovation, improving the management efficiency and benefits, building the
benchmark on main highway business and striving to strengthen the market
competitiveness on the profit-making business. The operating results of the
Company set a new record high alongside with expanding the highway business to
other province and trying to maintain steady development trend on profit-
making business. The effective implementation of reform measures in the areas
of toll service quality, road maintenance management, road traffic safety,
business acquisitions and integration, cost control and IT development
generated fruitful results.
The Supervisory Committee has reviewed the financial statements of the Company
for 2016 prepared by the Board for submission to the general meeting of
shareholders, and concluded that the financial statements accurately reflected
the financial position of the Company in 2016, and complied with the relevant
laws, regulations and the Company's Articles of Association. The Company
maintained a relatively stable dividend in recent years, providing satisfactory
return to its shareholders.
During the Period, the members of the Board, General Manager and other senior
management of the Company have complied with their fiduciary duties and have
acted in good faith and diligently while carrying out their responsibilities.
There was no incident of abuse of power or infringement of the interests of
shareholders or employees.
The Supervisory Committee is satisfied with the performances across various
lines of business achieved by the Board and the management of the Company.
By the order of the Supervisory Committee
YAO Huiliang
Chairman of the Supervisory Committee
Hangzhou, Zhejiang Province, the PRC
March 27, 2017
Connected Transactions
During the year ended December 31, 2016, the Company had the following
non-exempt connected transactions and continuing connected transactions.
Connected Transactions
1. Construction Services at the Shengzhou Service Station
On March 10, 2016, Shangsan Co and Zhejiang Expressway Maintenance Co., Ltd.
("Maintenance Co") entered into the Shengzhou Service Station Agreement,
pursuant to which Maintenance Co agreed to provide the certain construction
services to Shangsan Co at the consideration of Rmb19,756,666 (please refer to
the announcement of the Company dated March 10, 2016 on Connected Transaction
for details).
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. Maintenance Co
(being a subsidiary of Communications Group) is a connected person of the
Company. As such, under the Chapter 14A of the Listing Rules, the entering into
the Shengzhou Service Station Agreement constitutes a connected transaction for
the Company.
As the land requisition and relocation relating to the expansion of the
Shengzhou Service Station failed to complete, the Shengzhou Service Station
Agreement entered into between Shangsan Co and Maintenance Co was terminated
during the year under review.
2. Disposal of Maintenance Equipment
On September 8, 2016, the Company and its subsidiaries entered into four
disposal agreements (the "Disposal Agreements") with Maintenance Co, pursuant
to which the Company and its relevant subsidiaries agreed to dispose of certain
road maintenance equipment to Maintenance Co, at a consideration of
RMB35,532,756. After the disposal of the entire equity interest in Maintenance
Co by the Company in September 2015, certain maintenance equipment has become
redundant for the Company and it would be appropriate to dispose of such
equipment in return for cash. Please refer to the announcement of the Company
dated September 8, 2016 for details.
As Maintenance Co is a connected person of the Company as mentioned above, the
transactions under the Disposal Agreements constitute connected transactions
for the Company under Chapter 14A of the Listing Rules.
3. Capital Increase in Zhejiang Communications Finance
On October 14, 2016, the Company entered into a capital contribution agreement
(the "Capital Contribution Agreement") with Zhejiang Communications Finance and
its other existing shareholders, pursuant to which the Company agreed to
contribute an amount of RMB350,000,000 by way of cash, into the equity capital
of Zhejiang Communications Finance. The capital contribution is necessary for
the progressive development of Zhejiang Communications Finance and enables
Zhejiang Communications Finance to cope with the enhanced regulatory
requirements on capital sufficiency and capital management by non- bank
financial institutions imposed by regulators. Please refer to the announcement
of the Company dated October 14, 2016 for details.
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. As Communications
Group directly and indirectly holds 65% of the issued share capital of Zhejiang
Communications Finance, Zhejiang Communications Finance is a connected person
of the Company and as a result, the transaction under the Capital Contribution
Agreement constitutes a connected transaction for the Company under Chapter 14A
of the Listing Rules.
4. Disposal of 100% equity interest in Development Co
On October 17, 2016, the Company and Zhejiang Communications Investment Group
Industrial Development Co., Ltd. ("Zhejiang Communications Investment") entered
into a share purchase agreement (the "Share
Purchase Agreement") pursuant to which the Company agreed to sell and Zhejiang
Communications Investment agreed to purchase 100% equity interest in Zhejiang
Expressway Investment Development Co., Ltd. ("Development Co") at a cash
consideration of RMB249,660,000 (the "Disposal"). The Disposal allows the
Company to focus on the expressway operation business, and will streamline the
Company's business segments and operations, and sharpen the Company's strategic
focus on its core business. Please refer to the announcement of the Company
dated October 17, 2016 for details.
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. As Zhejiang
Communications Investment is a wholly-owned subsidiary of Communications Group,
it is a connected person of the Company and as a result, the Disposal
constitutes a connected transaction for the Company. On December 28, 2016, an
extraordinary general meeting was held at which independent shareholders of the
Company approved the resolutions in relation to the Disposal.
Continuing Connected Transactions
1. Petroleum Supply and the Service Stations Management
On October 12, 2015, the Company and Zhejiang Communications Investment entered
into a share purchase agreement, pursuant to which the Company agreed to sell
and Zhejiang Communications Investment agreed to purchase 50% of the equity
interest held by the Company in Zhejiang Expressway Petroleum Development
Co.,Ltd. ("Petroleum Co") at a cash consideration of RMB135,676,000.
On January 28, 2016, Development Co and Petroleum Co entered into (i) a
petroleum supply agreement in relation to the supply of petroleum to the
service stations owned by Development Co (the "Petroleum Supply Agreement");
and (ii) a service stations management agreement in relation to the day-to-day
management of the service stations (the "Service Stations Management
Agreement"), pursuant to which Petroleum Co agreed to supply petroleum and
provide management service to the service stations. The aforesaid agreements
had a term from January 28, 2016 to April 30, 2016, and the cap during the term
for the petroleum fees paid by Development Co to Petroleum Co is
Rmb380,000,000, and no fees are payable for the management services to be
provided by Petroleum Co under the Service Stations Management Agreement
(please refer to the announcement of the Company dated January 28, 2016 on
Completion of Major and Connected Transaction in relation to Disposal of 50%
Equity Interest in Petroleum Co and Continuing Connected Transactions for
details).
During the year under review, the petroleum supply fees paid by Development Co
to Petroleum Co under the Petroleum Supply Agreement amounted to
Rmb315,676,000.
Substantial completion of the above share purchase agreement took place by the
end of 2015. Upon completion, the Company has ceased to hold any interest in
Petroleum Co. Further, 50% of the equity interest in Petroleum Co is held by
Zhejiang Communications Investment, which is a wholly-owned subsidiary of
Communications Group, the controlling shareholder of the Company. Therefore,
Petroleum Co is an associate of Zhejiang Communications Investment and a
connected person of the Company, and the entering into of the Petroleum Supply
Agreement and the Service Stations Management Agreement constitutes a connected
transaction for the Company under Chapter 14A of the Listing Rules.
Petroleum Co had been supplying petroleum to Development Co and providing
management services to Development Co prior to Petroleum Co became a connected
person of the Company, the entering into of the Petroleum Supply Agreement and
the Service Stations Management Agreement enables Development Co to continue
purchasing petroleum and obtaining management services from Petroleum Co
pending the entering into of an agreement for the contracting out of the
operation of the service stations to Petroleum Co.
2. Daily Road Maintenance Services
On April 8, 2016, the Company and the relevant subsidiaries of the Company
entered into a number of road maintenance agreements with Maintenance Co,
pursuant to which Maintenance Co agreed to provide the daily maintenance
services to the Group's four expressways, namely: the Shanghai-Hangzhou-Ningbo
Expressway, the Shangsan Expressway, Jinhua section, Ningbo-Jinhua Expressway
and the Hanghui Expressway. Each of the Road Maintenance Agreements has a term
of three years from January 1, 2016 to December 31, 2018. The total service
fees payable by the Group to Maintenance Co in respect of the daily maintenance
services shall be Rmb182,307,362 and the aggregate annual service fees payable
by the Group to Maintenance Co in respect of the daily maintenance services
shall not exceed Rmb85 million (please refer to the announcement of the Company
dated April 8, 2016 on Continuing Connected Transactions for details).
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. Maintenance Co
(being a subsidiary of Communications Group) is a connected person of the
Company. As such, under the Chapter 14A of the Listing Rules, the provision of
daily maintenance services constitutes a continuing connected transaction for
the Company.
During the year under review, the total service fees paid by the Group to
Maintenance Co in respect of the daily maintenance services amounted to
Rmb47,404,000.
3. Contracting Out Operation of Petrol Stations
On May 27, 2016, Development Co and Petroleum Co entered into a series of lease
agreements, pursuant to which for a term expiring on December 31, 2018,
Development Co has agreed to (i) contract out the operation of the Target
Petrol Stations to Petroleum Co and (ii) lease the relevant buildings,
facilities and equipment in connection with the Target Petrol Stations to
Petroleum Co. As a consideration for the contracting out arrangement, Petroleum
Co has agreed to pay the rental to Development Co on an annual basis. During
the term of the Lease Agreement, the annual rental payable by Petroleum Co to
Development Co during 2016 to 2018 shall not exceed Rmb46.0 million, Rmb75.5
million and Rmb83.0 million, respectively (please refer to the announcement of
the Company dated May 27, 2016 on Continuing Connected Transactions in relation
to Contracting Out Operation of Petrol Stations).
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. Accordingly,
Petroleum Co (being a subsidiary of Zhejiang Communications Investment, a
wholly-owned subsidiary of Communications Group) is a connected person of the
Company. As such, under the Chapter 14A of the Listing Rules, contracting out
operation of petrol stations constitutes a connected transaction for the
Company.
During the year under review, the rental paid by Petroleum Co to Development Co
under a series of lease agreements amounted to Rmb33,357,000. On December 29,
2016, the Company sold 100% equity interest in Development Co to Zhejiang
Communications Investment, pursuant to which the aforesaid Lease Agreement
entered into between Development Co and Petroleum Co shall no longer constitute
a continuing connected transaction of the Company.
4. Specific Road Maintenance Services
On June 13, 2016, the Company and the relevant subsidiaries of the Company
entered into the Road Maintenance Agreement with Maintenance Co, pursuant to
which Maintenance Co agreed to provide the specific road maintenance services
to the Group's four expressways, namely: the Shanghai-Hangzhou-Ningbo
Expressway, the Shangsan Expressway, Jinhua section, Ningbo-Jinhua Expressway
and the Hanghui Expressway for a term from May 1, 2016 to November 30, 2016.
The service fees payable by the Group to Maintenance Co under the Specific Road
Maintenance Agreement shall not exceed Rmb275,420,000 (Please refer to the
announcement of the Company dated June 13, 2016 on Continuing Connected
Transaction in relation to Specific Road Maintenance Services).
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. Maintenance Co
(being a subsidiary of Communications Group) is a connected person of the
Company. As such, under the Chapter 14A of the Listing Rules, the provision of
specific road maintenance services constitutes a continuing connected
transaction for the Company.
During the year under review, Maintenance Co completed the specific road
maintenance services and the specific road maintenance service fees paid by the
Company and the relevant subsidiaries of the Company to Maintenance Co under
the Specific Road Maintenance Agreement amounted to Rmb241,486,000.
5. Information System Redevelopment
On September 13, 2016, the Company and the relevant subsidiaries of the Company
entered into the Information System Redevelopment Agreements with Zhejiang
Expressway Information Technology Engineering Co., Ltd. ("Zhejiang
IT Engineering Co"), pursuant to which Zhejiang IT Engineering Co agreed to
provide the Information System Redevelopment Services to the Target Expressways
for a period of 12 months ending September 12, 2017. The aggregate service fees
payable by the Group to Zhejiang IT Engineering Co under the Information System
Redevelopment Agreements shall be Rmb30,984,318.61 with a cap in respect of the
annual aggregate fees not exceeding Rmb30,984,318.61 (please refer to the
announcement of the Company dated September 13, 2016 on Continuing Connected
Transaction - Information System Redevelopment Agreements).
Communications Group, which holds approximately 67% of the issued share capital
of the Company, is a controlling shareholder of the Company. Zhejiang IT
Engineering Co (being a wholly-owned subsidiary of Communications Group) is a
connected person of the Company. As such, under the Chapter 14A of the Listing
Rules, the provision of Information System Redevelopment Services constitutes a
continuing connected transaction for the Company.
During the year under review, the service fees paid by the Company to Zhejiang
IT Engineering Co under the Information System Redevelopment Agreements
amounted to Rmb18,537,000.
6. Deposit Services with Zhejiang Communications Finance
Pursuant to the new financial services agreement (the "New Financial Services
Agreement") dated March 30, 2016 entered into between the Company and Zhejiang
Communications Finance, Zhejiang Communications Finance agreed to provide the
Company and its subsidiaries with a range of financial services including
certain deposit services (the "Deposit Services") for a term of three years
from the date of the New Financial Services Agreement subject to the terms and
conditions provided therein (please refer to the announcement of the Company
dated March 30, 2016 on Continuing Connected Transactions in relation to New
Financial Services Agreement with Zhejiang Communications Investment Group
Finance Co., Ltd.).
As the issued share capital of Zhejiang Communications Finance is owned as to
35%, 40%, 15.625% and 9.375% by the Company, Communications Group, Zhejiang
Ningbo Yongtaiwen Expressway Co., Ltd. ("Ningbo Expressway Co") and Zhejiang
Taizhou Yongtaiwen Expressway Co., Ltd.("Taizhou Expressway Co") respectively,
Zhejiang Communications Finance is a connected person of the Company. As such,
under the Chapter 14A of the Listing Rules, the provision of Deposit Services
constitutes a continuing connected transaction for the Company.
Pursuant to the New Financial Services Agreement, the Deposit Services to be
provided by Zhejiang Communications Finance to the Company and its subsidiaries
include the current deposit, time deposit, call deposit and agreement deposit
services. The Deposit Services will be provided under the New Financial
Services Agreement on a non-exclusive basis and the Company and its
subsidiaries are entitled to determine whether to accept the Deposit Services
provided by Zhejiang Communications Finance or decide to accept deposit
services provided by other financial institutions. The Company and its
subsidiaries are not obliged to accept any Deposit Services provided by
Zhejiang Communications Finance.
The interest rate to be paid by Zhejiang Communications Finance for the
deposits of the Company and its subsidiaries with Zhejiang Communications
Finance shall be determined based on the prevailing deposit interest rate
promulgated by the People's Bank of China for the same period and should not be
lower than the deposit interest rates offered by major commercial banks in the
PRC for comparable deposits of comparable periods. The maximum amount of the
daily deposit balance (including any interest accrued thereon) for the deposits
of the Company and its subsidiaries with Zhejiang Communications Finance shall
not be more than Rmb1,500,000,000 during the term of the New Financial Services
Agreement.
During the year under review, the maximum amount of the daily deposit balance
(including any interest accrued thereon) for the deposits of the Company and
its subsidiaries with Zhejiang Communications Finance under the New Financial
Services Agreement amounted to Rmb1,379,066,000.
The independent non-executive Directors have reviewed the continuing connected
transactions described above and confirmed that the continuing connected
transactions have been entered into:
(a) In the ordinary and usual course of business of the Company;
(b) On normal commercial terms or on terms no less favorable to the
Company than terms available to or from independent third parties; and
(c) In accordance with the relevant agreement governing them on terms
that are fair and reasonable and in the interests of the shareholders of the
Company as a whole.
The Company's auditor was engaged to report on the Group's continuing connected
transactions in accordance with Hong Kong Standard on Assurance Engagements
HKSAE3000 "Assurance Engagements Other Than Audits or Reviews of Historical
Financial Information" and with reference to Practice Note 740 "Auditor's
Letter on Continuing Connected Transactions under the Hong Kong Listing Rules"
issued by the Hong Kong Institute of Certified Public Accountants. The auditors
have issued their unqualified letter containing their findings and conclusions
in respect of the continuing connected transactions in accordance with the Rule
14A.56 of the Listing Rules. A copy of the auditor's letter has been provided
to the Hong Kong Stock Exchange.
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF ZHEJIANG EXPRESSWAY CO., LTD.
(Incorporated in the People's Republic of China with limited liability)
Opinion
We have audited the consolidated financial statements of Zhejiang Expressway
Co., Ltd. (the "Company") and its subsidiaries (collectively referred to as the
"Group") set out on pages 82 to 200, which comprise the consolidated statement
of financial position as at December 31, 2016, and the consolidated statement
of profit or loss and other comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements, including a summary
of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view
of the consolidated financial position of the Group as at December 31, 2016,
and of its consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with Hong Kong Financial Reporting
Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public
Accountants ("HKICPA") and have been properly prepared in compliance with the
disclosure requirements of the Hong Kong Companies Ordinance.
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing
("HKSAs") issued by the HKICPA. Our responsibilities under those standards are
further described in the Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the HKICPA's Code of Ethics for Professional
Accountants ("the Code"), and we have fulfilled our other ethical
responsibilities in accordance with the Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the consolidated financial statements of the
current period. These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter How our audit addressed the
key audit matter
Impairment of available-for-sale equity instruments measured at fair value
We identified the impairment of available-for-sale Our procedures in relation
equity instruments measured at fair value, which to the
include equity securities, funds, and other impairment assessment of
investments, as available-for-sale equity
a key audit matter as the Group applied significant instrument measured at fair
judgement in determining the impairment of value included:
available-for-sale equity instruments of measured
at fair value Rmb3,059,301,000 as at December 31, - Understanding the
2016. processes and controls in
determining impairment of
For those available-for-sale equity instruments available-for-sale equity
measured at fair value, the Group applied instruments measured at
significant judgement to assess whether there is fair value;
objective - Challenging and assessing
evidence of impairment. As disclosed in note 4, for the management
listed available-for-sale equity investments and judgement in determining
other equity related investments measured the criteria of
at fair value, a significant or prolonged decline impairment;
in fair value below cost is considered to be - Checking, on a sample
objective evidence of impairment. An impairment basis, the data used by
allowance of Rmb33,942,000 was recorded as at management, including
December 31, 2016 as disclosed in note 25. quoted market prices and
the duration for the
continued decline of the
fair
value below the cost,
against market data;
- Checking management's
calculations of the
impairment allowance for
available-for-sale
financial assets measured
at fair value.
Key audit matter How our audit addressed the
key audit matter
Determination of consolidation scope
We identified the determination of consolidation Our procedures in relation
scope to management's
as a key audit matter as the Group holds a number determination of
of interests in structured entities including consolidation scope
collective included:
asset management schemes and investment funds
where the Group is involved as investment manager - Understanding the process
and also as investor. The Group applied significant and controls of
judgement in determining whether such investments management in determining
fall within the consolidation scope under IFRS 10 the consolidation
"Consolidated Financial Statements". The effect of scope as set out in IFRS10
consolidation or not of these structured entities of interests in
will structured entities;
have significant impact on the consolidated
financial - Checking the information
statements of the Group. used by the management
in accessing the
As disclosed in note 4, for collective asset consolidation criteria of
management schemes and investment funds where significant
the Group involves as manager and also as investor, structured entities against
the Group assesses whether the combination of the related sales and
investments it holds together with its remuneration purchase agreements and
and other related service
credit enhancement creates exposure to variability agreements of investments
of returns from the activities of the collective in structured entities
asset newly acquired or with
management schemes and investment funds that is of changes in investment
such significance that it indicates that the Group holdings or terms during
is a the year.;
principal. The collective asset management schemes
and investment funds are consolidated if the Group - Challenging and assessing
acts in the role of principal. management
judgement in applying IFRS
Details of consolidated structured entities and 10 to each of the
unconsolidated structured entities are set out in significant structured
notes entities and the conclusion
44 and 58 to the consolidated financial statements about whether or not the
respectively. consolidation criteria are
met.
Other Information
The directors of the Company are responsible for the other information. The
other information comprises the information included in the annual report, but
does not include the consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of Directors and Those Charged with Governance for the
Consolidated Financial Statements
The directors of the Company are responsible for the preparation of the
consolidated financial statements that give a true and fair view in accordance
with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong
Kong Companies Ordinance, and for such internal control as the directors
determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, the directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's
financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion solely to you, as a body, in accordance with our
agreed terms of engagement, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the contents
of this report. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with HKSAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with HKSAs, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
* Identify and assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
* Obtain an understanding of internal control relevant to the audit in order
to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Group's internal control.
* Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
* Conclude on the appropriateness of the directors' use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the Group's ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
* Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
* Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in the independent auditor's
report is Ma Hing Fai.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
March 27, 2017
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2016
Year ended Year ended
NOTES 12/31/2016 12/31/2015
Rmb'000 Rmb'000
(Restated)
Continuing operations
Revenue 5 9,735,347 10,724,781
Operating costs (4,596,048) (5,278,650)
Gross profit 5,139,299 5,446,131
Securities investment gains 6 223,573 584,114
Other income 7 289,390 191,887
Administrative expenses (81,687) (88,421)
Other expenses (85,099) (158,714)
Share of profit of associates 64,699 48,289
Share of profit (loss) of a joint venture 9,797 (25,067)
Finance costs 8 (671,387) (632,495)
Profit before tax 9 4,888,585 5,365,724
Income tax expense 10 (1,161,570) (1,396,774)
Profit for the year from continuing operations 3,727,015 3,968,950
Discontinued operations
Profit for the year from discontinued operations 11 81,594 60,830
Profit for the year 3,808,609 4,029,780
Profit for the year attributable to Owners of
the Company
- Continuing operations 2,957,291 2,932,903
- Discontinued operations 80,114 56,777
3,037,405 2,989,680
Profit for the year attributable to
non-controlling interest
- Continuing operations 769,724 1,036,047
- Discontinued operations 1,480 4,053
771,204 1,040,100
Other comprehensive income 12
Items that may be reclassified subsequently to
profit or loss:
Available-for-sale financial assets:
- Fair value gain during the year 114,883 137,431
- Reclassification adjustments for cumulative
gain
included in profit or loss upon disposal (64,791) (65,826)
Share of other comprehensive income of an (205) -
associate
Share of differences arising on translation 511 367
Income tax relating to items that may be (12,523) (17,901)
reclassified subsequently
Other comprehensive income for the year, net of 37,875 54,071
income tax
Total comprehensive income for the year 3,846,484 4,083,851
Total comprehensive income attributable to:
Owners of the Company 3,057,158 3,017,800
Non-controlling interest 789,326 1,066,051
3,846,484 4,083,851
Earnings per share 16
From continuing and discontinued operations - Rmb69.94 Rmb68.84
basic and diluted cents cents
From continuing operations - basic and diluted Rmb68.09 Rmb67.53
cents cents
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT DECEMBER 31, 2016
Year ended Year ended
NOTES 12/31/2016 12/31/2015
Rmb'000 Rmb'000
NON-CURRENT ASSETS
Property, plant and equipment 17 3,066,571 3,178,494
Prepaid lease payments 18 52,522 57,745
Expressway operating rights 19 14,498,800 13,229,442
Goodwill 20 86,867 86,867
Other intangible assets 21 148,906 155,219
Interests in associates 23 1,310,486 583,537
Interest in a joint venture 24 285,397 275,600
Available-for-sale investments 25 1,790,978 1,635,858
Deferred tax assets 43 362,681 329,526
21,603,208 19,532,288
CURRENT ASSETS
Inventories 26 206,814 316,528
Trade receivables 27 275,318 151,083
Loans to customers arising from
margin
financing business 28 7,910,032 10,550,590
Other receivables and prepayments 29 2,855,099 1,231,799
Prepaid lease payments 18 1,639 1,939
Dividend receivable - 20,494
Derivative financial assets 42 10,931 2,288
Available-for-sale investments 25 1,342,920 1,032,750
Held for trading investments 30 8,144,132 3,761,224
Financial assets held under resale 31 3,965,329 4,959,155
agreements
Bank balances held on behalf of 32 20,082,265 27,078,574
customers
Bank balances and cash
- Time deposits with original
maturity
over three months 33 165,000 270,000
- Cash and cash equivalents 33 7,198,745 4,983,051
52,158,224 54,359,475
CURRENT LIABILITIES
Placements from other financial 34 700,000 200,000
institutions
Accounts payable to customers
arising from
securities business 35 20,073,435 27,009,641
Trade payables 36 784,300 908,616
Tax liabilities 455,249 641,606
Other taxes payable 76,631 88,022
Other payables and accruals 37 2,431,148 2,809,079
Dividends payable 261,046 333
Derivative financial liabilities 42 413 4,258
Bank and other borrowings 38 2,116,395 1,777,951
Short-term financing note payable 39 4,828,340 616,100
Bonds payable 41 3,000,000 3,000,000
Financial assets sold under 40 7,486,743 5,385,380
repurchase agreements
Financial liabilities at fair value 44 293,658 -
through profit or loss
42,507,358 42,440,986
NET CURRENT ASSETS 9,650,866 11,918,489
TOTAL ASSETS LESS CURRENT 31,254,074 31,450,777
LIABILITIES
NON-CURRENT LIABILITIES
Bank and other borrowings 38 - 1,590,000
Bonds payable 41 6,700,000 7,600,000
Deferred tax liabilities 43 378,147 262,128
7,078,147 9,452,128
24,175,927 21,998,649
CAPITAL AND RESERVES
Share capital 45 4,343,115 4,343,115
Reserves 13,974,042 12,393,543
Equity attributable to owners of 18,317,157 16,736,658
the Company
Non-controlling interests 46 5,858,770 5,261,991
24,175,927 21,998,649
The consolidated financial statements on pages 82 to 200 were approved and
authorised for issue by the board of directors on 27 March 2017 and are signed
on its behalf by:
______ ZHAN Xiaozhang __________ _______LUO
Jianhu________
DIRECTOR
DIRECTOR
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016
Attributable to owners of the Company
Share of
Investment differences Non-
Share Share Statutory Capital revaluation arising on Dividend Special Retained controlling
capital premium reserve reserve reserve translation reserve reserves profits Total interests Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
(Note i) (Note ii)
At January 1, 2015 4,343,115 3,645,726 3,907,055 1,712 28,403 - 1,150,925 1,599,088 2,324,873 17,000,897 4,127,573 21,128,470
Profit for the year - - - - - - - - 2,989,680 2,989,680 1,040,100 4,029,780
Other comprehensive
income for the year - - - - 27,929 191 - - - 28,120 25,951 54,071
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
Total comprehensive
income for the year - - - - 27,929 191 - - 2,989,680 3,017,800 1,066,051 4,083,851
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
Dividend paid to
non-controlling-interests - - - - - - - - - - (107,812) (107,812)
Arising from the
acquisition
of a subsidiary under
common control - (118,926) - - - - - (1,580,422) - (1,699,348) - (1,699,348)
Contribution by
non-controlling-interests - - - - - - - - - - 5,000 5,000
Acquisition of additional
interest of a
non-wholly owned - (171,179) - - - - - - - (171,179) 171,179 -
subsidiary (note iii)
2015 interim dividend - - - - - - - - (260,587) (260,587) - (260,587)
2014 final dividend - - - - - - (1,150,925) - - (1,150,925) - (1,150,925)
Proposed 2015 final - - - - - - 1,216,072 - (1,216,072) - - -
dividend
Transfer to reserves - - 598,718 - - - - - (598,718) - - -
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
At December 31, 2015 4,343,115 3,355,621 4,505,773 1,712 56,332 191 1,216,072 18,666 3,239,176 16,736,658 5,261,991 21,998,649
Profit for the year - - - - - - - - 3,037,405 3,037,405 771,204 3,808,609
Other comprehensive
income for the year - - - - 19,486 267 - - - 19,753 18,122 37,875
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
Total comprehensive
income for the year - - - - 19,486 267 - - 3,037,405 3,057,158 789,326 3,846,484
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
Dividend paid to
non-controlling-interests - - - - - - - - - - (178,816) (178,816)
Disposal of a subsidiary - - - - - - - - - - (8,731) (8,731)
Withdrawal of
non-controlling-interests - - - - - - - - - - (5,000) (5,000)
2016 interim dividend - - - - - - - - (260,587) (260,587) - (260,587)
2015 final dividend - - - - - - (1,216,072) - - (1,216,072) - (1,216,072)
Proposed 2016 final - - - - - - 1,281,219 - (1,281,219) - - -
dividend
Transfer to reserves - - 262,051 - - - - - (262,051) - - -
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
At December 31, 2016 4,343,115 3,355,621 4,767,824 1,712 75,818 458 1,281,219 18,666 4,472,724 18,317,157 5,858,770 24,175,927
_________ _________ _________ _________ _______ _________ ________ __________ _________ __________ __________ __________
Notes:
(i) Statutory reserves comprise:
(a) Statutory surplus reserve
In accordance with the Company Law of the people's Republic of China (the
"PRC") and the respective articles of association of the Company and its
subsidiaries (collectively the "Entities"), the Entities are required to
allocate 10% of the profit after tax, as determined in accordance with the PRC
accounting standards and regulations applicable to the Entities, to the
statutory surplus reserve until such reserve reaches 50% of the registered
capital of the respective Entities. Subject to certain restrictions set out in
the Company Law of the PRC and the respective articles of association of the
Entities, part of the statutory surplus reserve may be converted to increase
the respective Entities' capital.
(b) General risk reserve
In accordance with the Finance Regulation for Financial Enterprises, securities
companies are required to allocate 10% of the profit after tax, as determined
in accordance with the PRC accounting standards and regulations, to the general
risk reserve. This general risk reserve may be used to cover potential losses
on risk exposures.
(c) Transaction risk reserve
In accordance with the securities law of the PRC, securities companies are
required to allocate not less than 10% of the profit after tax, as determined
in accordance with the PRC accounting standards and regulations, to the
transaction risk reserve. This transaction risk reserve may be used to cover
potential losses on securities transactions.
(ii) Special reserves mainly comprise:
(a) Other reserve which was arising from the Group's acquisition of additional
interest in a subsidiary and the difference between the carrying value of net
assets attributable to the Group acquired and the payment consideration arising
from acquisition; and
(b) Merger reserve which was arising from the acquisition of subsidiaries under
common control using the merger accounting method. This includes the capital
of the combining entities at their existing book values since the first date
they were under common control and were reduced by the Group's payment of cash
consideration to the controlling party and the excess in payment for the
acquisition of additional interest to non-controlling interest of its carrying
amount to the controlling party.
(iii) It represented the effect in relation to an additional capital
contribution of Rmb1,500,000,000 unilaterally made by the Group to Zhejiang
Hanghui Expressway Co., Ltd. ("Hanghui Co"), a subsidiary of the Group, in
December 2015, which resulted in a debt of share premium amounting to
Rmb171,179,000.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Profit before tax 4,997,136 5,446,652
Adjustments for:
Finance costs 671,387 632,495
Interest income (31,281) (62,193)
Foreign exchange loss 20,156
Gain on additional investment in an associate (5,555) -
Share of profit of associates (64,699) (48,289)
Share of (profit) loss of a joint venture (9,797) 25,067
Depreciation of property, plant and equipment 264,267 243,599
Amortisation of expressway operating rights 1,034,202 991,800
Release of prepaid lease payments 1,939 2,004
Amortisation of other intangible assets 24,095 23,632
Impairment loss on (reversal of) available-for-sale 33,942 (58)
investments
Cumulative gain reclassified from equity on
disposal of
available-for-sale investments (64,791) (65,826)
Interest income from available-for-sale investments (57,290) (69,419)
Gain on disposal of part of expressway operating - (52,500)
rights
(Gain) loss on disposal of property, plant and (648) 6,746
equipment
Write-down of inventories 2,638 -
Loss on disposal of prepaid lease payment - 1,850
Allowance for trade receivables and other receivables 1,141 531
(Reversal of) allowance for advance to customers
arising from margin financing business (13,269) 36,182
(Reversal of) allowance for financial assets
held on the resale agreement (14,167) 44,836
Gain on disposal of subsidiaries (56,993) (879)
Gain on disposal of an associate - (916)
_________ _________
Operating cash flows before movements in working 6,732,413 7,155,314
capital
Decrease in inventories 87,421 91,612
Increase in trade receivables (126,158) (62,698)
Decrease (increase) in loans to customers arising 2,653,827 (2,040,859)
from margin financing business
Increase in other receivables and prepayments (1,860,076) (204,687)
Increase in held for trading investments (4,382,908) (1,636,484)
(Decrease) increase in financial assets held under 1,007,993 (2,279,393)
resale agreements
Decrease (increase) in bank balances held on behalf 6,996,309 (10,501,823)
of customers
(Increase) decrease in derivative financial (12,488) 1,970
instrument
Increase (decrease) in placements from other 500,000 (1,740,000)
financial institutions
(Decrease) increase in accounts payable to customers
arising from
securities business (6,936,206) 10,464,495
Increase (decrease) in trade payables 54,335 (86,008)
(Decrease) increase in other taxes payable (8,863) 17,001
(Decrease) increase in other payables and accruals (207,065) 753,661
Increase in financial liabilities at fair value 293,658 -
through profit or loss
Increase (decrease) in financial assets sold
under repurchase agreement 2,101,363 (913,677)
_________ _________
Cash generated from (used in) from operations 6,893,555 (981,576)
Income taxes paid (1,427,772) (1,372,120)
Interest paid (746,547) (322,638)
_________ _________
NET CASH (USED IN) FROM OPERATING ACTIVITIES 4,719,236 (2,676,334)
Year ended Year ended
Notes 12/31/2016 12/31/2015
Rmb'000 Rmb'000
INVESTING ACTIVITIES
Interest received 62,104 70,522
Investment in associates (656,900) (102,100)
Proceeds from disposal of an associate 42,018 100,000
Proceeds from disposal of subsidiaries 49 111,373 18,741
Acquisition of a subsidiary 48 (541,264) -
Proceeds from disposal of part of expressway - 53,891
operating rights
Proceeds from disposal of prepaid lease payment - 4,618
Refundable deposit received for the disposal an - 62,100
associate
Dividends received from an associate 20,494 33,122
Proceeds on disposal of property, plant and 3,210 2,313
equipment
Entrusted loans to a related party (540,000) (550,000)
Settlement of financial products investment - 17,000
Purchases of property, plant and equipment (480,906) (326,517)
Purchases of intangible assets (17,889) (23,261)
Purchase of available-for-sale investments (397,949) (2,901,830)
Proceeds on disposal of available-for-sale 70,890 1,231,383
investments
Decrease (increase) in time deposits 105,000 491,320
Repayment of entrusted loans from a related party 720,000 450,000
_________ _________
Net cash USED IN INVESTING activities (1,499,819) (1,368,698)
_________ _________
FINANCING ACTIVITIES
Dividends paid (1,216,072) (1,411,512)
Dividends paid to non-controlling shareholders (178,690) (183,618)
Payment for the acquisition of a subsidiary under - (1,699,348)
common control
New bank and other borrowings raised 2,916,239 2,597,951
Repayment of bank and other borrowings (5,832,951) (2,880,000)
New issue of bonds payable 4,700,000 9,400,000
Repayment of bonds payable (5,600,000) -
Issue of short-term financing note payable 7,928,340 3,833,560
Repayment of short-term financing note payable (3,716,100) (4,101,030)
Interest paid - (3,253)
Capital contribution by non-controlling interests - 5,000
Capital reduction by non-controlling-interests (5,000) -
Contribution from limited partnership in a - 113,403
subsidiary
_________ _________
NET CASH (USED IN) FROM FINANCING ACTIVITIES (1,004,234) 5,671,153
_________ _________
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,215,183 1,626,121
Cash and cash equivalents at JANUARY 1 4,983,051 3,356,563
_________ _________
Effect of foreign exchange rate changes 511 367
CASH AND CASH EQUIVALENTS AT
DECEMBER 31 33 7,198,745 4,983,051
_________ _________
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
1. CORPORATE INFORMATION
Zhejiang Expressway Co., Ltd. (the "Company") was established in the People's
Republic of China (the "PRC") with limited liability on March 1, 1997. The H
shares of the Company ("H Shares") were subsequently listed on The Stock
Exchange of Hong Kong Limited (the "Stock Exchange") on May 15, 1997.
All of the H Shares of the Company were admitted to the Official List of the
United Kingdom Listing Authority (the "Official List"). Dealings in the H
Shares on the London Stock Exchange commenced on May 5, 2000.
On July 18, 2000, with the approval of the Ministry of Foreign Trade and
Economic Co-operation of the PRC, the Company changed its business registration
into a Sino-foreign joint stock limited company.
On February 14, 2002, the United States Securities and Exchange Commission,
following the approval by the Board of Directors and the China Securities
Regulatory Commission, declared the registration statement in respect of the
American Depositary Shares ("ADSs") evidenced by the American Depositary
Receipts ("ADRs") representing the deposited H Shares of the Company effective.
In the opinion of the directors, the immediate and ultimate holding company of
the Company is Zhejiang Communications Investment Group Co., Ltd. (the
"Communications Group"), a state-owned enterprise established in the PRC.
The addresses of the registered office and principal place of business of the
Company are disclosed in the corporate information section of the annual
report.
The consolidated financial statements are presented in Renminbi ("Rmb"), which
is also the functional currency of the Company.
The Company is an investment holding company. The Company and its subsidiaries
(collectively referred to as the "Group") are involved in the following
principal activities:
(a) the operation, maintenance and management of high grade roads;
(b) the provision of securities broking services, margin financing and
securities lending services, securities underwriting and sponsorship services,
asset management, advisory services and proprietary trading;
(c) the operation of hotel, the provision of catering service and sales of
properties.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs")
Amendments to HKFRSs that are mandatorily effective for the current year
The Group has applied the following amendments to HKFRSs issued by the Hong
Kong Institute of Certified Public Accountants ("HKICPA") for the first time in
the current year.
Amendments to HKFRS 11 Accounting for Acquisitions of Interest in Joint
Operations
Amendments to HKAS 1 Disclosure Initiative
Amendments to HKAS 16 Clarification of Acceptable Methods of Depreciation and
and
HKAS 38 Amortisation
Amendments to HKAS 16 Agriculture: Bearer Plants
and
HKAS 41
Amendments to HKFRS 10 Investment Entities: Applying the Consolidation
Exception
HKFRS 12 and HKAS 28
Amendments to HKFRSs Annual Improvements to HKFRSs 2012 - 2014 Cycle
The application of the amendments to HKFRSs in the current year has had no
material impact on the Group's financial performance and positions for the
current and prior years and/or on the disclosures set out in these consolidated
financial statements.
New and revised HKFRSs in issue but not yet effective
The Group has not early applied the following new and amendments to HKFRSs that
have been issued but are not yet effective:
HKFRS 9 Financial Instruments1
HKFRS 15 Revenue from Contracts with Customers and the
related Amendments1
HKFRS 16 Leases2
Amendments to HKFRS 2 Classification and Measurement of
Share-based Payment Transactions1
Amendments to HKFRS 4 Applying HKFRS 9 Financial Instruments
with HKFRS 4 Insurance Contracts1
Amendments to HKFRS 10 and Sale or Contribution of Assets between an
HKAS 28
Investor and its Associate or Joint Venture3
Amendments to HKAS 7 Disclosure Initiative4
Amendments to HKAS 12 Recognition of Deferred Tax Assets for
Unrealised Losses4
Amendments to HKFRSs Annual Improvement to HKFRSs 2014-2016 Cycle5
1 Effective for annual periods beginning on or after January 1, 2018.
2 Effective for annual periods beginning on or after January 1, 2019.
3 Effective for annual periods beginning on or after a date to be determined.
4 Effective for annual periods beginning on or after January 1, 2017.
5 Effective for annual periods beginning on or after January 1, 2017 or January
1, 2018, as appropriate.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") - continued
HKFRS 9 Financial Instruments
HKFRS 9 introduces new requirements for the classification and measurement of
financial assets, financial liabilities, general hedge accounting and
impairment requirements for financial assets.
Key requirements of HKFRS 9:
* all recognised financial assets that are within the scope of HKFRS 9 are
required to be subsequently measured at amortised cost or fair value.
Specifically, debt investments that are held within a business model whose
objective is to collect the contractual cash flows, and that have
contractual cash flows that are solely payments of principal and interest
on the principal outstanding are generally measured at amortised cost at
the end of subsequent accounting periods. Debt instruments that are held
within a business model whose objective is achieved both by collecting
contractual cash flows and selling financial assets, and that have
contractual terms that give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount
outstanding, are generally measured at fair value through other
comprehensive income ("FVTOCI"). All other debt investments and equity
investments are measured at their fair value at the end of subsequent
accounting periods. In addition, under HKFRS 9, entities may make an
irrevocable election to present subsequent changes in the fair value of an
equity investment (that is not held for trading) in other comprehensive
income, with only dividend income generally recognised in profit or loss.
* with regard to the measurement of financial liabilities designated as at
fair value through profit or loss, HKFRS 9 requires that the amount of
change in the fair value of the financial liability that is attributable to
changes in the credit risk of that liability is presented in other
comprehensive income, unless the recognition of the effects of changes in
the liability's credit risk in other comprehensive income would create or
enlarge an accounting mismatch in profit or loss. Changes in fair value
attributable to a financial liability's credit risk are not subsequently
reclassified to profit or loss. Under HKAS 39, the entire amount of the
change in the fair value of the financial liability designated as fair
value through profit or loss is presented in profit or loss.
* in relation to the impairment of financial assets, HKFRS 9 requires an
expected credit loss model, as opposed to an incurred credit loss model
under HKAS 39. The expected credit loss model requires an entity to account
for expected credit losses and changes in those expected credit losses at
each reporting date to reflect changes in credit risk since initial
recognition. In other words, it is no longer necessary for a credit event
to have occurred before credit losses are recognised.
* the new general hedge accounting requirements retain the three types of
hedge accounting mechanisms currently available in HKAS 39. Under HKFRS 9,
greater flexibility has been introduced to the types of transactions
eligible for hedge accounting, specifically broadening the types of
instruments that qualify for hedging instruments and the types of risk
components of non-financial items that are eligible for hedge accounting.
In addition, the retrospective quantitative effectiveness test has been
removed. Enhanced disclosure requirements about an entity's risk management
activities have also been introduced.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") - continued
HKFRS 9 Financial Instruments - continued
Based on the Group's financial instruments and risk management policies as at
December 31, 2016, application of HKFRS 9 in the future may have a material
impact on the classification and measurement of the Group's financial assets.
The Group's available-for-sale investments, including those currently stated at
cost less impairment, will either be measured as fair value through profit or
loss or be designated as FVTOCI (subject to fulfillment of the designation
criteria). However, it is not practicable to provide a reasonable estimate of
the effect of HKFRS 9 until the Group performs a detailed review.
HKFRS 15 Revenue from Contracts with Customers
HKFRS 15 was issued which establishes a single comprehensive model for entities
to use in accounting for revenue arising from contracts with customers. HKFRS
15 will supersede the current revenue recognition guidance including HKAS 18
Revenue, HKAS 11 Construction Contracts and the related Interpretations when it
becomes effective.
The core principle of HKFRS 15 is that an entity should recognise revenue to
depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Specifically, the Standard introduces a
5-step approach to revenue recognition:
* Step 1: Identify the contract(s) with a customer
* Step 2: Identify the performance obligations in the contract
* Step 3: Determine the transaction price
* Step 4: Allocate the transaction price to the performance obligations in
the contract
* Step 5: Recognise revenue when (or as) the entity satisfies a performance
obligation
Under HKFRS 15, an entity recognises revenue when (or as) a performance
obligation is satisfied, i.e. when 'control' of the goods or services
underlying the particular performance obligation is transferred to the
customer. Far more prescriptive guidance has been added in HKFRS 15 to deal
with specific scenarios. Furthermore, extensive disclosures are required by
HKFRS 15.
In 2016, the HKICPA issued Clarification to HKFRS15 in relation to the
identification of performance obligations, principal versus agent
considerations, as well as licensing application guidance.
The directors of the Company anticipate that the application of HKFRS 15 in the
future may have an impact on the amounts reported as the timing of revenue
recognition may be affected and the amounts of revenue recognised are subject
to variable consideration constraints. However, it is not practicable to
provide a reasonable estimate of the effect of HKFRS 15 until the Group
performs a detailed review. In addition, the application of HKFRS 15 in the
future may result in more disclosures in the consolidated financial statements.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") - continued
HKFRS 16 Leases
HKFRS 16 introduces a comprehensive model for the identification of lease
arrangements and accounting treatments for both lessors and lessees. HKFRS 16
will supersede HKAS 17 Leases and the related interpretations when it becomes
effective.
HKFRS 16 distinguishes lease and service contracts on the basis of whether an
identified asset is controlled by a customer. Distinctions of operating leases
and finance leases are removed for lessee accounting, and is replaced by a
model where a right-for-use asset and a corresponding liability have to be
recognised for all leases by lessees, except for short-term leases and leases
of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured
at cost (subject to certain exceptions) less accumulated depreciation and
impairment losses, adjusted for any remeasurement of the lease liability. The
lease liability is initially measured at the present value of the lease
payments that are not paid at that date. Subsequently, the lease liability is
adjusted for interest and lease payments, as well as the impact of lease
modifications, amongst others. For the classification of cash flows, the Group
currently presents upfront prepaid lease payments as investing cash flows in
relation to leasehold lands for owned use and those classified as investment
properties while other operating lease payments are presented as operating cash
flows. Under the HKFRS 16, lease payments in relation to lease liability will
be allocated into a principal and an interest portion which will be presented
as financing flows.
Under HKAS 17, the Group has already recognised an asset for prepaid lease
payments for leasehold lands where the Group is a lessee. The application of
HKFRS 16 may result in potential changes in classification of these assets
depending on whether the Group presents right-of-use assets separately or
within the same line item at which the corresponding underlying assets would be
presented if they were owned.
In contrast to lessee accounting, HKFRS 16 substantially carries forward the
lessor accounting requirements in HKAS 17, and continues to require a lessor to
classify a lease either as an operating lease or a finance lease.
Furthermore, extensive disclosures are required by HKFRS 16.
As at December 31, 2016, the Group has non-cancellable operating lease
commitments of Rmb105,005,000 as disclosed in note 53. A preliminary assessment
indicates that these arrangements will meet the definition of a lease under
HKFRS 16, and hence the Group will recognise a right-of-use asset and a
corresponding liability in respect of all these leases unless they qualify for
low value or short-term leases upon the application of HKFRS 16. In addition,
the application of new requirements may result changes in measurement,
presentation and disclosure as indicated above. However, it is not practicable
to provide a reasonable estimate of the financial effect until the directors
complete a detailed review.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
("HKFRSs") - continued
Amendments to HKAS 7 Disclosure Initiative
The amendments require an entity to provide disclosures that enable users of
financial statements to evaluate changes in liabilities arising from financing
activities including both changes arising from cash flows and non-cash changes.
Specially, the amendments require the following changes in liabilities arising
from financing activities to be disclosed: (i) changes from financing cash
flows; (ii) changes arising from obtaining or losing control of subsidiaries or
other businesses; (iii) the effect of changes in foreign exchange rates; (iv)
changes in fair values; and (v) other changes.
The amendments apply prospectively for annual periods beginning on or after
January 1, 2017 with earlier application permitted. The application of the
amendments will result in additional disclosures on the Group's financing
activities, specifically reconciliation between the opening and closing
balances in the consolidated statement of financial position for liabilities
arising from financing activities will be provided on application.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the
consolidated financial statements include applicable disclosures required by
the Rules Governing the Listing of Securities on the Stock Exchange of Hong
Kong Limited ("Listing Rules") and by the Hong Kong Companies Ordinance ("CO").
The consolidated financial statements have been prepared on the historical cost
basis except for certain financial instruments that are measured at fair values
at the end of each reporting period, as explained in the accounting policies
below.
Historical cost is generally based on the fair value of the consideration given
in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, regardless of whether that price is directly observable
or estimated using another valuation technique. In estimating the fair value of
an asset or a liability, the Group takes into account the characteristics of
the asset or liability if market participants would take those characteristics
into account when pricing the asset or liability at the measurement date. Fair
value for measurement and/or disclosure purposes in these consolidated
financial statements is determined on such a basis, except leasing transactions
that are within the scope of HKAS 17, and measurements that have some
similarities to fair value but are not fair value, such as net realisable value
in HKAS 2 or value in use in HKAS 36.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
In addition, for financial reporting purposes, fair value measurements are
categorised into Level 1, 2 or 3 based on the degree to which the inputs to the
fair value measurements are observable and the significance of the inputs to
the fair value measurement in its entirety, which are described as follows:
* Level 1 inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
* Level 2 inputs are inputs, other than quoted prices included within Level
1, that are observable for the asset or liability, either directly or
indirectly; and
* Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company and its subsidiaries.
Control is achieved when the Company:
* has power over the investee;
* is exposed, or has rights, to variable returns from its involvement with
the investee; and
* has the ability to use its power to affect its returns
The Group reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above.
Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary.
Specifically, income and expenses of a subsidiary acquired or disposed of
during the year are included in the consolidated statement of profit or loss
and other comprehensive income from the date the Group gains control until the
date when the Group ceases to control the subsidiary.
Profit or loss and each item of other comprehensive income are attributed to
the owners of the Company and to the non-controlling interests. Total
comprehensive income of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies in line with the Group's
accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are eliminated in full on
consolidation.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of consolidation - continued
Change in the Group's ownership interests in existing subsidiaries
Changes in the Group's ownership interests in existing subsidiaries that do not
result in the Group losing control over the subsidiaries are accounted for as
equity transactions. The carrying amounts of the Group's relevant components of
equity including reserves and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling interests are
adjusted after re-attribution of the relevant equity component, and the fair
value of the consideration paid or received is recognised directly in equity
and attributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is recognised in
the profit or loss and is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the fair value of
any retained interest and (ii) the carrying amount of assets (including
goodwill), and liabilities of the subsidiary attributable to the owners of the
Company. All amounts previously recognised in other comprehensive income in
related to that subsidiary are accounted for as if the Group had directly
disposed of the related assets or liabilities of the subsidiary (i.e.,
reclassified to profit or loss or transferred to another category of equity as
specified/ permitted by applicable HKFRSs). The fair value of any investment
retained in the former subsidiary at the date when the control is lost is
regarded as the fair value on initial recognition for subsequent accounting
under HKAS 39, when applicable, the cost on initial recognition of an
investment in an associate of a joint venture.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value,
which is calculated as the sum of the acquisition-date fair values of the
assets transferred by the Group, liabilities incurred by the Group to the
former owners of the acquiree and the equity interests issued by the Group in
exchange for control of the acquiree. Acquisition-related costs are generally
recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities
assumed are recognised at their fair value, except that:
* deferred tax assets or liabilities, and assets or liabilities related to
employee benefit arrangements are recognised and measured in accordance
with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively;
* liabilities or equity instruments related to share-based payment
arrangements of the acquiree or share-based payment arrangements of the
Group entered into to replace share-based payment arrangements of the
acquiree are measured in accordance with HKFRS 2 Share-based Payment at the
acquisition date (see the accounting policy below); and
* assets (or disposal groups) that are classified as held for sale in
accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued
Operations are measured in accordance with that standard.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Business combinations - continued
Goodwill is measured as the excess of the sum of the consideration transferred,
the amount of any non-controlling interests in the acquiree, and the fair value
of the acquirer's previously held equity interest in the acquiree (if any) over
the net of the acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
Non-controlling interests that are present ownership interests and entitle
their holders to a proportionate share of the relevant subsidiary's net assets
in the event of liquidation may be initially measured either at fair value or
at the non-controlling interests' proportionate share of the recognised amounts
of the acquiree's identifiable net assets. The choice of measurement basis is
made on a transaction-by-transaction basis.
Allocation of total comprehensive income to non-controlling interests
Total comprehensive income and expense of a subsidiary is attributed to the
owners of the Company and to the non-controlling interests even if this results
in the non-controlling interests having a deficit balance.
Merger accounting for business combination involving entities under common
control
The consolidated financial statements incorporate the financial statements
items of the combining entities or businesses in which the common control
combination occurs as if they had been combined from the date when the
combining entities or businesses first came under the control of the
controlling party.
The net assets of the combining businesses are consolidated using the existing
book values from the controlling party's perspective. No amount is recognised
in respect of goodwill or bargain purchase gain at the time of common control
combination.
The consolidated statement of profit or loss and other comprehensive income
includes the results of each of the combining entities or businesses from the
earliest date presented or since the date when the combining businesses first
came under the common control, where this is a shorter period.
The comparative amounts in the consolidated financial statements are presented
as if the businesses had been combined at the end of the previous reporting
period or when they first came under common control, whichever is shorter.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Goodwill
Goodwill arising on an acquisition of a business is carried at cost as
established at the date of acquisition of the business less accumulated
impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the
Group's cash-generating units (or groups of cash-generating units) that is
expected to benefit from the synergies of the combination, which represent the
lowest level at which the goodwill is monitored for internal management purpose
and not larger than an operating segment.
A cash-generating unit (or group of cash-generating units) to which goodwill
has been allocated is tested for impairment annually or more frequently when
there is indication that the unit may be impaired. For goodwill arising on an
acquisition in a reporting period, the cash-generating unit (or group of
cash-generating units) to which goodwill has been allocated is tested for
impairment before the end of that reporting period. If the recoverable amount
is less than its carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill and then to the other assets on a
pro-rata basis based on the carrying amount of each asset in the unit (or group
of cash-generating units).
On disposal of the relevant cash-generating unit, the attributable amount of
goodwill is included in the determination of the amount of the profit or loss
on disposal.
The Group's policy for goodwill arising on the acquisition of associates and
joint venture is described below.
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies.
A joint venture is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the joint
arrangement. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities
require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates and joint ventures are
incorporated in these consolidated financial statements using the equity method
of accounting. Under the equity method, an investment in an associate or a
joint venture is initially recognised in the consolidated statement of
financial position at cost and adjusted thereafter to recognise the Group's
share of the profit or loss and other comprehensive income of the associate or
joint venture. When the Group's share of losses of an associate or a joint
venture exceeds the Group's interest in that associate or joint venture (which
includes any long-term interests that, in substance, form part of the Group's
net investment in the associate or joint venture), the Group discontinues
recognising its share of further losses. Additional losses are recognised only
to the extent that the Group has incurred legal or constructive obligations or
made payments on behalf of the associate or joint venture.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Investments in associates and joint ventures - continued
An investment in an associate or a joint venture is accounted for using the
equity method from the date on which the investee becomes an associate or a
joint venture. On acquisition of the investment in an associate or a joint
venture, any excess of the cost of the investment over the Group's share of the
net fair value of the identifiable assets and liabilities of the investee is
recognised as goodwill, which is included within the carrying amount of the
investment. Any excess of the Group's share of the net fair value of the
identifiable assets and liabilities over the cost of the investment, after
reassessment, is recognised immediately in profit or loss in the period in
which the investment is acquired.
The requirements of HKAS 39 are applied to determine whether it is necessary to
recognise any impairment loss with respect to the Group's investment in an
associate or a joint venture. When necessary, the entire carrying amount of the
investment (including goodwill) is tested for impairment in accordance with
HKAS 36 Impairment of Assets as a single asset by comparing its recoverable
amount (higher of value in use and fair value less costs of disposal) with its
carrying amount. Any impairment loss recognised forms part of the carrying
amount of the investment. Any reversal of that impairment loss is recognised in
accordance with HKAS 36 to the extent that the recoverable amount of the
investment subsequently increases.
When the Group ceases to have significant influence over an associate or joint
control over a joint venture, it is accounted for as a disposal of the entire
interest in the investee with a resulting gain or loss being recognised in
profit or loss. When the Group retains an interest in the former associate or
joint venture and the retained interest is a financial asset within the scope
of HKAS 39, the Group measures the retained interest at fair value at that date
and the fair value is regarded as its fair value on initial recognition. The
difference between the carrying amount of the associate or joint venture at the
date the equity method was discontinued, and the fair value of any retained
interest and any proceeds from disposing of the relevant interest in the
associate or joint venture is included in the determination of the gain or loss
on disposal of the associate or joint venture. In addition, the Group accounts
for all amounts previously recognised in other comprehensive income in relation
to that associate or joint venture on the same basis as would be required if
that associate or joint venture had directly disposed of the related assets or
liabilities. Therefore, if a gain or loss previously recognised in other
comprehensive income by that associate or joint venture would be reclassified
to profit or loss on the disposal of the related assets or liabilities, the
Group reclassifies the gain or loss from equity to profit or loss (as a
reclassification adjustment) when the equity method is discontinued.
The Group continues to use the equity method when an investment in an associate
becomes an investment in a joint venture or an investment in a joint venture
becomes an investment in an associate. There is no remeasurement to fair value
upon such changes in ownership interests.
When the Group reduces its ownership interest in an associate or a joint
venture but the Group
continues to use the equity method, the Group reclassifies to profit or loss
the proportion of the gain or loss that had previously been recognised in other
comprehensive income relating to that reduction in ownership interest if that
gain or loss would be reclassified to profit or loss on the disposal of the
related assets or liabilities.
When a group entity transacts with an associate or a joint venture of the
Group, profits and losses resulting from the transactions with the associate or
joint venture is recognised in the Group's consolidated financial statements
only to the extent of interests in the associate or joint venture that are not
related to the Group.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable. Revenue is reduced for estimated customer returns, rebates and
other similar allowances.
Revenue is recognised when the amount of revenue can be reliably measured; when
it is probable that future economic benefits will flow to the Group and when
specific criteria have been met for each of the Group's activities, as
described below.
Revenue from the sale of goods is recognised when the goods are delivered and
titles have passed.
Revenue from sale of properties in the ordinary course of business is
recognised when the respective properties have been completed and delivered to
the buyers. Deposits and instalments received from purchasers prior to meeting
the above criteria for revenue recognition are included in the consolidated
statement of financial position under current liabilities.
Service income is recognised when services are provided.
Revenue from room rental, food and beverage sales and other ancillary service
in the hotel are recognised when the relevant service have been rendered.
Commission income from securities broking business is recognised on a trade
date basis.
Advisory and handling fee income are recognised when the relevant transactions
have been provided or the relevant services have been rendered.
Underwriting and sponsors fees are recognised as income in accordance with the
terms of the underwriting agreement or deal mandate when the relevant
significant acts have been completed.
Asset management fee income is recognised when management services are provided
in accordance with the management contracts.
Dividend income from investments is recognised when the shareholders' rights to
receive payment have been established (provided that it is probable that the
economic benefits will flow to the Group and the amount of revenue can be
measured reliably).
Interest income from a financial asset is recognised when it is probable that
the economic benefits will flow to the Group and the amount of income can be
measured reliably. Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate applicable, which
is the rate that exactly discounts the estimated future cash receipts through
the expected life of the financial asset to that asset's net carrying amount on
initial recognition.
The Group's accounting policy for recognition of revenue from operating leases
is described in the accounting policy for leasing below.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Property, plant and equipment
Property, plant and equipment including buildings, leasehold land (classified
as finance leases) held for use in the production or supply of goods or
services, or for administrative purposes (other than properties under
construction as described below), are stated in the consolidated statement of
financial position at cost, less subsequent accumulated depreciation and
subsequent accumulated impairment losses, if any.
Properties in the course of construction for production, supply or
administrative purposes are carried at cost, less any recognised impairment
loss. Costs include professional fees and, for qualifying assets, borrowing
costs capitalised in accordance with the Group's accounting policy. Such
properties are classified to the appropriate categories of property, plant and
equipment when completed and ready for intended use. Depreciation of these
assets, on the same basis as other property assets, commences when the assets
are ready for their intended use.
Depreciation is recognised so as to write off the cost of assets (other than
properties under construction) less their residual values over their useful
lives, using the straight-line method. The estimated useful lives, residual
values and depreciation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate accounted for on a
prospective basis.
Estimated Annual
useful life depreciation rate
Hotel buildings 30 years 3.2%
Leasehold land and buildings 20 - 50 years 1.9% - 4.9%
Ancillary facilities 10 - 30 years 3.2% - 9%
Communication and signaling equipment 5 years 19.4%
Motor vehicles 5 - 8 years 12.1% - 19.4%
Machinery and equipment 5 - 8 years 12.1% - 19.4%
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on the disposal or retirement of an item of
property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in profit or
loss.
Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are
carried at cost less
accumulated amortisation and any accumulated impairment losses. Amortisation
for intangible assets with finite useful lives is recognised on a straight-line
basis over their estimated useful lives. The estimated useful life and
amortisation method are reviewed at the end of each reporting period, with the
effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately are
carried at cost less any subsequent accumulated impairment losses (see the
accounting policy in respect of impairment losses on tangible and intangible
assets below).
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Intangible assets - continued
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are recognised separately
from goodwill are initially recognised at their fair value at the acquisition
date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business
combination with finite useful lives are reported at cost less accumulated
amortisation and any accumulated impairment losses, on the same basis as
intangible assets that are acquired separately.
Alternatively, intangible assets with indefinite useful lives are carried at
cost less subsequent accumulated impairment losses (see accounting policy in
respect of impairment losses on tangible and intangible assets below).
An intangible asset is derecognised on disposal, or when no future economic
benefits are expected from use or disposal. Gains and losses arising from
derecognition of an intangible assets are measured at the difference between
the net disposal proceeds and the carrying amount of the asset and are
recognised in profit or loss in the period when the asset is derecognised.
Expressway operating rights under service concession arrangements
When the Group has a right to charge for usage of concession infrastructure, it
recognises concession intangible assets based on fair value of the
consideration paid upon initial recognition. Subsequent costs incurred on
expressway widening projects and upgrading services are recognised as
additional costs of the expressway operating rights. The concession intangible
assets representing expressway operating rights are carried at cost less
accumulated amortisation and any accumulated impairment losses.
The concession intangible assets are amortised to write-off their cost over
their expected useful lives in the remaining concession period on a
straight-line basis.
Costs in relation to the day-to-day servicing, repairs and maintenance of the
expressway infrastructures are recognised as expenses in the periods in which
they are incurred.
Impairment on tangible and intangible assets other than goodwill (see the
accounting policy in respect of goodwill above)
At the end of each reporting period, the Group reviews the carrying amounts of
its tangible and intangible assets with finite useful lives to determine
whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
When it is not possible to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs. When a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent allocation basis
can be identified.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Intangible assets - continued
Intangible assets acquired in a business combination - continued
Impairment on tangible and intangible assets other than goodwill (see the
accounting policy in respect of goodwill above) - continued
Intangible assets with indefinite useful lives and intangible assets not yet
available for use are tested for impairment at least annually, and whenever
there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value
in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or a cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or the
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (or a cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in profit or loss.
Inventories
Inventories include properties held for sale, consumables and parts for toll
road operation, maintenance and hotel service and those commodities held for
sale arising from the securities business.
Inventories are stated at the lower of cost and net realisable value. Cost of
properties held for sale includes the costs of land, development expenditure
incurred and, where appropriate, borrowing costs capitalised. Costs of other
inventories are calculated using the weighted average method. Net realisable
value represents the estimated selling price for inventories less all estimated
costs of completion and costs necessary to make the sale.
Leasing
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in profit or loss on a
straight-line basis over the term of the relevant lease.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Leasing - continued
The Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis
over the lease term, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased
asset are consumed. Contingent rentals arising under operating leases are
recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases,
such incentives are recognised as a liability. The aggregate benefit of
incentives is recognised as a reduction of rental expense on a straight-line
basis, except where another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset are consumed.
Leasehold land and building
When a lease includes both land and building elements, the Group assesses the
classification of each element as a finance or an operating lease separately
based on the assessment as to whether substantially all the risks and rewards
incidental to ownership of each element have been transferred to the Group,
unless it is clear that both elements are operating leases in which case the
entire lease is classified as an operating lease. Specifically, the minimum
lease payments (including any lumpsum upfront payments) are allocated between
the land and the building elements in proportion to the relative fair values of
the leasehold interests in the land element and building element of the lease
at the inception of the lease.
To the extent the allocation of the lease payments can be made reliably,
interest in leasehold land that is accounted for as an operating lease is
presented as 'prepaid lease payments' in the consolidated statement of
financial position and is amortised over the lease term on a straight-line
basis. When the lease payments cannot be allocated reliably between the land
and building elements, the entire lease is generally classified as a finance
lease and accounted for as property, plant and equipment.
Foreign currencies
In preparing the financial statements of each individual group entity,
transactions in currencies other than the functional currency of that entity
(foreign currencies) are recognised at the rates of exchange prevailing at the
dates of the transactions. At the end of the reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at
that date. Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are recognised in profit or loss in the period
in which they arise.
For the purposes of presenting the consolidated financial statements, the
assets and liabilities of the Group's operations are translated into the
presentation currency of the Group (i.e., Rmb) using exchange rates prevailing
at the end of each reporting period. Income and expenses items are translated
at the average exchange rates for the period. Exchange differences arising, if
any, are recognised in other comprehensive income and accumulated in equity
under the heading of share of differences arising on translation (attributed to
non-controlling interests as appropriate).
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the borrowing
costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in
which they are incurred.
Government grants
Government grants are not recognised until there is reasonable assurance that
the Group will comply with the conditions attaching to them and that the grants
will be received.
Government grants are recognised in profit or loss on a systematic basis over
the periods in which the Group recognises as expenses the related costs for
which the grants are intended to compensate. Specifically, government grants
whose primary condition is that the Group should purchase, construct or
otherwise acquire non-current assets are recognised as deferred income in the
consolidated statement of financial position and transferred to profit or loss
on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses
already incurred or for the purpose of giving immediate financial support to
the Group with no future related costs are recognised in profit or loss in the
period in which they become receivable.
Retirement benefit costs
Payments to defined contribution retirement benefit plans are recognised as an
expense when employees have rendered services entitling them to the
contributions.
Short-term employee benefits
Short-term employee benefits are recognised at the undiscounted amount of the
benefits expected to be paid as and when employees rendered the services. All
short-term employee benefits are recognised as an expense unless another HKFRS
requires or permits the inclusion of the benefit in the cost of an asset.
A liability is recognised for benefits accruing to employees (such as wages and
salaries, annual leave and sick leave) after deducting any amount already paid.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred
tax.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Taxation - continued
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from 'profit before tax' as reported in the consolidated
statement of profit or loss and other comprehensive income because of items of
income or expense that are taxable or deductible in other years and items that
are never taxable or deductible. The Group's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities in the consolidated financial statements and
the corresponding tax bases used in the computation of taxable profit. Deferred
tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilised.
Such deferred tax assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit. In addition,
deferred tax liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences
associated with investments in subsidiaries and interests in associates and a
joint venture, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of the
reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period in which the liability is settled or the asset
is realised, based on tax rate (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities.
Current and deferred tax are recognised in profit or loss, except when they
relate to items that are recognised in other comprehensive income or directly
in equity, in which case, the current and deferred tax are also recognised in
other comprehensive income or directly in equity respectively.
Financial instruments
Financial assets and financial liabilities are recognised when a group entity
becomes a party to the contractual provisions of the instrument.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets or financial liabilities at fair value through profit or loss) are added
to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in
profit or loss.
Financial assets
Financial assets are classified into the following specified categories:
financial assets at fair value through profit or loss ("FVTPL"),
available-for-sale ("AFS") financial assets and loans and receivables. The
classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition. All regular way purchases or
sales of financial assets are recognised and derecognised on a trade date
basis. Regular way purchases or sales are purchases or sales of financial
assets that require delivery of assets within the time frame established by
regulation or convention in the marketplace.
Effective interest method
The effective interest method is a method of calculating the amortised cost of
a debt instrument and of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future
cash receipts (including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the debt instrument, or,
where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Interest income is recognised on an effective interest basis for debt
instruments other than those financial assets classified as at FVTPL, of which
interest income is included in net gains or losses.
Financial assets at FVTPL
Financial assets classified as at FVTPL include financial asset held for
trading.
A financial asset is classified as held for trading if:
* it has been acquired principally for the purpose of selling in the near
term; or
* on initial recognition it is part of a portfolio of identified financial
instruments that the Group manages together and has a recent actual pattern
of short-term profit-taking; or
* it is a derivative that is not designated and effective as a hedging
instrument.
Financial assets at FVTPL are stated at fair value, with any gains or losses
arising on remeasurement recognised in profit or loss. The net gain or loss
recognised in profit or loss excludes any dividend or interest earned on the
financial asset and is included in the 'securities investment gains' line
item. Fair value is determined in the manner described in Note 52(c).
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial assets - continued
AFS financial assets
AFS financial assets are non-derivatives that are not either designated or
classified as (a) loans and receivables, (b) held-to-maturity investments or
(c) financial assets at FVTPL.
Equity and debt securities held by the Group that are classified as AFS
financial assets and are traded in an active market are measured at fair value
at the end of each reporting period. Changes in the carrying amount of AFS
monetary financial assets relating to interest income calculated using the
effective interest method are recognised in profit or loss. Dividends on AFS
equity instruments are recognised in profit or loss when the Group's right to
receive the dividends is established. Other changes in the carrying amount of
AFS financial assets are recognised in other comprehensive income and
accumulated under the heading of investments revaluation reserve. When the
investment is disposed of or is determined to be impaired, the cumulative gain
or loss previously accumulated in the investments revaluation reserve is
reclassified to profit or loss (see the accounting policy in respect of
impairment loss on financial assets below).
Dividends on AFS equity instruments are recognised in profit or loss when the
Group's right to receive the dividends is established.
AFS equity investments that do not have a quoted market price in an active
market and whose fair value cannot be reliably measured and derivatives that
are linked to and must be settled by delivery of such unquoted equity
investments are measured at cost less any identified impairment losses at the
end of each reporting period (see the accounting policy in respect of
impairment loss on financial assets below).
Loan and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Loans and
receivables (including trade receivables, loans to customers arising from
margin financing business, other receivables and prepayments, financial assets
held under resale agreements, bank balances held on behalf of customers and
bank balances and cash) are measured at amortised cost using the effective
interest method, less any identified impairment losses (see accounting policy
on impairment losses on financial assets below).
Impairment loss on financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at the end of each reporting period. Financial assets are
considered to be impaired when there is objective evidence that, as a result of
one or more events that occurred after the initial recognition of the financial
asset, the estimated future cash flows of the financial assets have been
affected.
For an AFS equity investment, a significant or prolonged decline in the fair
value of the security below its cost is considered to be objective evidence of
impairment.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial assets - continued
Impairment of financial assets - continued
For all other financial assets, objective evidence of impairment could include:
* significant financial difficulty of the issuer or counterparty; or
* breach of contract, such as default or delinquency in interest or principal
payments; or
* it becoming probable that the borrower will enter bankruptcy or financial
re-organisation; or
* the disappearance of an active market for that financial asset because of
financial difficulties.
For financial assets carried at amortised cost, the amount of the impairment
loss recognised is the difference between the asset's carrying amount and the
present value of the estimated future cash flows, discounted at the financial
asset's original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is
measured as the difference between the asset's carrying amount and the present
value of the estimated future cash flows discounted at the current market rate
of return for a similar financial asset. Such impairment loss will not be
reversed in subsequent periods (see the accounting policy below).
The carrying amount of the financial asset is reduced by the impairment loss
directly for all financial assets with the exception of trade receivables and
loans to customers arising from margin financing business, where the carrying
amount is reduced through the use of an allowance account.
When trade receivables are considered uncollectible, they are written off
against the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in profit or loss.
For the loans to customers arising from margin financing business, the Group
reviews its advances to customers to assess impairment on a periodic basis. In
determining whether an impairment loss should be recognised in profit or loss,
the Group reviews the value of the securities collateral received from the
customers firstly on individual basis, then on collective basis in determining
the impairment. The methodology and assumptions used for estimating both the
amount and timing of future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience.
When an AFS financial asset is considered to be impaired, cumulative gains or
losses previously recognised in other comprehensive income are reclassified to
profit or loss in the period.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial assets - continued
Impairment of financial assets - continued
For financial assets measured at amortised cost, if, in a subsequent period,
the amount of impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment losses was recognised,
the previously recognised impairment loss is reversed through profit or loss to
the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortised cost would have been
had the impairment not been recognised.
In respect of AFS equity investments, impairment losses previously recognised
in profit or loss are not reversed through profit or loss. Any increase in fair
value subsequent to an impairment loss is recognised in other comprehensive
income and accumulated under the heading of investments revaluation reserve. In
respect of AFS debt investments, impairment losses are subsequently reversed
through profit or loss if an increase in the fair value of the investment can
be objectively related to an event occurring after the recognition of the
impairment loss.
Financial liabilities and equity instruments
Debt liabilities and equity instruments issued by a group entity are classified
according to the substance of the contractual arrangements entered into and the
definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities. Equity instruments
issued by the Group are recognised at the proceeds received, net of direct
issue costs.
Effective interest method
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs
and other premiums or discounts) through the expected life of the financial
liability, or, where appropriate, a shorter period, to the net carrying amount
on initial recognition. Interest expense is recognised on an effective interest
basis other than those financial liabilities classified as at FVTPL, of which
the interest expense is included in net gains or losses.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial liabilities and equity instruments - continued
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability
is (i) held for trading on (ii) it is designated as at FVTPL.
A financial liability is classified as held for trading if:
* it has been acquired principally for the purpose of repurchasing it in the
near term; or
* on initial recognition it is a part of a portfolio of identified financial
instruments that the Group manages together and has a recent actual pattern
of short-term profit-taking; or
* it is a derivative that is not designated and effective as a hedging
instrument.
A financial liability other than a financial liability held for trading may be
designated as at FVTPL upon initial recognition if:
* such designation eliminates or significantly reduces a measurement or
recognition inconsistency that would otherwise arise; or
* the financial liability forms part of a group of financial assets or
financial liabilities or both, which is managed and its performance is
evaluated on a fair value basis, in accordance with the Group's documented
risk management or investment strategy, and information about the grouping
is provided internally on that basis or
* it forms part of a contract containing one or more embedded derivatives,
and HKAS 39 permits the entire combined contract (asset or liability) to be
designated as at FVTPL.
Financial liabilities at amortised cost
Financial liabilities (including accounts payable to customers arising from
securities business, trade payables, other payables, dividends payable, bank
and other borrowings, placements from other financial institutions, short-term
financing note payable, financial assets sold under repurchase agreements and
bonds payable) are subsequently measured at amortised cost using the effective
interest method.
Derivative financial instruments
Derivatives are initially recognized at fair value at the date derivative
contracts are entered into and are subsequently remeasured to their fair value
at the end of each reporting period. The resulting gain or loss is recognized
in profit or loss immediately, unless the derivative is designated and
effective as a hedging instruments, in which event the timing of recognition in
profit or loss depends on the nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate
derivatives when they meet the definition of a derivative, their risks and
characteristics are not closely related to those of the host contracts and the
host contracts are not measured at FVTPL. Generally, multiple embedded
derivatives in a single instrument are treated as a single compound embedded
derivative unless those derivatives relate to different risk exposures and are
readily separable and independent of each other.
Financial assets held under resale agreements
Financial assets held under resale agreements where the Group acquires
financial assets which will be resold at a predetermined price at a future date
under resale agreements, the cash advanced by the Group is recognised as
secured loans and receivables and presented as amounts held under resale
agreements in the consolidated statement of financial position. The difference
between the purchase and resale consideration is amortised over the period of
the respective agreements using the effective interest method and is included
in interest income.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Financial instruments - continued
Financial assets sold under repurchase agreements
Financial assets sold subject to agreements with a commitment to repurchase at
a specific future date and price are not derecognised in the consolidated
statement of financial position. The proceeds from selling such assets are
presented under "financial assets sold under repurchase agreements" in the
consolidated statement of financial position. The difference between the
selling price and repurchasing price is recognised as interest expense during
the term of the agreement using the effective interest method.
Securities lending arrangement
The Group lends investment securities to clients and requires cash and/or
equity securities from customers held as collaterals under such securities
lending agreements. The cash collaterals arisen from these are included in
"accounts payable to customers arising from securities business". For those
securities held by the Group and lent to client that do not result in the
derecognition of financial assets, they are included in AFS investments.
Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make
specified payments to reimburse the holder for a loss it incurs because a
specified debtor fails to make payment when due in accordance with the terms of
a debt instrument. Financial guarantee contracts issued by the Group are
initially measured at their fair values and are subsequently measured at the
higher of:
(i) the amount of obligation under the contract, as determined in
accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent
Assets; and
(ii) the amount initially recognised less, where appropriate, cumulative
amortisation recognised over the guarantee period.
Derecognition
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to
another entity. If the Group neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred
asset, the Group continues to recognise the asset to the extent of its
continuing involvement and recognises an associated liability. If the Group
retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also
recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between
the asset's carrying amount and the sum of the consideration received and
receivable and the cumulative gain or loss that had been recognised in other
comprehensive income and accumulated in equity is recognised in profit or loss.
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or expire. The difference between the
carrying amount of the financial liability derecognised and the consideration
paid and payable is recognised in profit or loss.
3. SIGNIFICANT ACCOUNTING POLICIES - continued
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle the obligation, and a reliable estimate can be made of
the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the end of the reporting period,
taking into account the risks and uncertainties surrounding the obligation.
When 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 (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are
expected to be recovered from a third party, a receivable is recognised as an
asset if it is virtually certain that reimbursement will be received and the
amount of the receivable can be measured reliably.
4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical judgements in applying accounting policies
The followings are the critical judgements, apart from those involving
estimations (see below), that management has made in the process of applying
the Group's accounting policies and that have the most significant effect on
the amounts recognised in the consolidated financial statements.
Impairment of available-for-sale investments
The determination of whether an available-for-sale investment is impaired
requires significant judgment. For listed available-for-sale equity
investments, and other equity related investments measured at fair value, a
significant or prolonged decline in fair value below cost is considered to be
objective evidence of impairment. Judgment is required when determining whether
a decline in fair value has been significant or prolonged. In making this
judgment, the Group evaluates the duration and extent to which the fair value
of an investment is less than its cost. In assessing whether it is prolonged,
the decline is evaluated against the period in which the fair value of the
asset has been below its original cost at initial recognition. In assessing
whether it is significant, the decline in fair value is evaluated against the
original cost of the asset at initial recognition. The Group also takes into
account other factors, such as the historical data on market volatility and the
price of the specific investment, significant changes in technology, markets,
economics or the law, as well as industry and sector performance and the
consolidated financial statements regarding the investee that provides evidence
that the cost of the equity securities may not be recovered. Judgment is also
required to determine whether historical performance remains representative of
current and future economic conditions. For available-for-sale debt
instruments, the Group makes the judgments as to whether there is an objective
evidence of impairment which indicates a measurable decrease in the estimated
future cash flows of these debt instruments. For unlisted available-for-sale
equity instruments measured at cost, the Group makes the judgement as to
whether there is an objective evidence of impairment exists based on the
investee's financial conditions and business prospects, including industry
environment, as well as operating and financing cash flows. This requires a
significant level of management judgement which would affect the amount of
impairment losses in profit or loss. Details of the available-for-sale
investments are set out in Note 25.
4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY -
continued
Critical judgements in applying accounting policies - continued
Determination of consolidation scope
All facts and circumstances must be taken into consideration in the assessment
of whether the Group, as an investor, controls the investee. The principle of
control sets out the following three elements of control: (a) power over the
investee; (b) exposure, or rights, to variable returns from involvement with
the investee; and (c) the ability to use power over the investee to affect the
amount of the investor's returns.
The Group reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above.
For collective asset management schemes and investment funds where the Group
involves as manager and also as investor, the Group considers the scope of its
decision-making authority and assesses whether the combination of investments
it holds together with its remuneration and credit enhancements creates
exposure to variability of returns from the activities of the collective asset
management schemes and investment funds that is of such significance that it
indicates that the Group is a principal. The collective asset management
schemes and investment funds are consolidated if the Group acts in the role of
principal.
Key sources of estimation uncertainty
The followings are the key assumptions concerning the future, and other key
sources of estimation uncertainty at the end of the reporting period, that have
a significant risk of causing a material adjustment to the carrying amounts of
assets within the next financial year.
Estimated impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in
use of the cash-generating units to which goodwill has been allocated. The
value in use calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate in
order to calculate the present value. Where the actual future cash flows are
less than expected, a material impairment loss may arise. As at December 31,
2016, the carrying amount of goodwill is Rmb86,867,000 (without accumulated
impairment loss) (2015: Rmb86,867,000 (without accumulated impairment loss)).
Details of the impairment testing are disclosed in Note 22.
4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY -
continued
Key sources of estimation uncertainty - continued
Estimated impairment of intangible assets with indefinite useful lives
Determining whether intangible assets with indefinite useful lives are impaired
requires an estimation of the value in use of themselves or the cash-generating
unit to which they belong. The value in use calculation requires the Group to
estimate the future cash flows expected to arise from themselves or the
cash-generating unit to which they belong and a suitable discount rate in order
to calculate the present value. Where the actual future cash flows are less
than expected, a material impairment loss may arise. As at December 31, 2016,
the carrying amounts of intangible assets with indefinite useful lives were
Rmb66,563,000 (without accumulated impairment loss) (2015: Rmb66,563,000
(without accumulated impairment loss)). Details of the impairment testing are
disclosed in Note 22.
Impairment of loans to customers arising from margin financing business and
financial assets held under resale agreements
The Group reviews its loans to customers arising from margin financing business
and financial assets held under resale agreements to assess impairment on a
periodic basis. When there is objective evidence of impairment loss for loans
to customers arising from margin financing business and financial assets held
under resale agreements, the Group takes into consideration the estimation of
future cash flows. Specifically, the Group reviews the value of the cash and
securities collateral received from the customers firstly on an individual
basis, then on a collective basis in determining the impairment.
The policy for collective impairment allowances for loans to customers arising
from margin financing business and financial assets held under resale
agreements of the Group is based on the evaluation of probability of default,
loss given default and exposure at default of accounts and on management's
judgement. A considerable amount of judgement is required in assessing the
ultimate realisation of these loans to customers arising from margin financing
business and financial assets held under resale agreements, including the
current creditworthiness, and the past collection history. Details are set out
in Note 28 and 31.
Estimated impairment of interest in a joint venture and associates
The Group regularly reviews whether there are any indications of impairment and
recognises an impairment loss if the carrying amount of the Group's interest in
a joint venture or associates are lower than their respective recoverable
amount. The Group tests for impairment for the interest in a joint venture and
associate whenever there is an indication that the asset may be impaired. The
recoverable amounts have been determined based on the higher of the fair value
less costs of disposal and value in use calculations. These calculations
require the use of estimates, such as discount rates, future profitability and
growth rates. Where the actual future cash flows are less than expected, a
material impairment loss may arise. As at December 31, 2016, the carrying
amount of interest in a joint venture was Rmb285,397,000 (without accumulated
impairment loss) (2015: Rmb275,600,000 (without accumulated impairment loss)),
and the carrying amount of interest in associates was Rmb1,310,486,000 (without
accumulated impairment loss) (2015: Rmb583,537,000 (without accumulated
impairment loss)).
4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY -
continued
Key sources of estimation uncertainty - continued
Provision for financial guarantee contract
The directors of the Company based on its best estimate of the financial
position and credit rating of the guarantee to determine the probability of
incurring a claim by the counterparty to the Company to estimate fair value or
the respective obligation under the financial guarantee contract. Based on
expectations at the end of the reporting period, the Group considers that it is
more likely than not that no amount will be payable under the arrangement.
However, this estimate is subject to change depending on the probability of the
counterparty claiming under the guarantee which is a function of the likelihood
that the financial receivables held by the counterparty which are guaranteed
suffer credit losses. As at December 31, 2016 in respect of the financial
guarantee contract provided to a joint venture of the Group in the amount of
Rmb947,275,000 (2015: Rmb1,021,374,000), the directors of the Company
considered that the fair value of the financial guarantee obligation was
insignificant in both years.
Fair value measurements and valuation processes
Some of the Group's assets and liabilities are measured at fair value for
financial reporting purposes. The board of directors of the Group has set up a
valuation team, which is headed up by the Chief Financial Officer (''CFO'') of
the Group, to determine the appropriate valuation techniques and inputs for
fair value measurements.
In estimating the fair value of an asset or a liability, the Group uses
market-observable data to the extent it is available, Where Level 1 inputs are
not available, the Group engages qualified valuers to perform the valuation.
The CFO works closely with the qualified external valuers to establish the
appropriate valuation techniques and inputs to the model. The CFO reports the
valuation committee's findings to the board of directors of the Group at the
end of each reporting period to explain the cause of fluctuations in the fair
value of the assets and liabilities.
As at December 31, 2016, the fair value of the held-for-trading investment,
available-for-sale investments (excluding those unlisted equity securities
investments measured at cost), derivative financial assets and derivative
financial liabilities was estimated at an asset of Rmb8,144,132,000 (2015:
Rmb3,761,224,000), Rmb3,089,301,000 (2015: Rmb2,624,011,000), Rmb10,931,000
(2015: Rmb2,288,000) and Rmb413,000 (2015: Rmb4,258,000 ), respectively.
5. SEGMENT INFORMATION
Information reported to the General Manager of the Company, being the chief
operating decision maker, for the purposes of resource allocation and
assessment of segment performance focuses on types of goods or services
delivered or provided.
Specifically, the Group's reportable and operating segments under HKFRS 8 are
as follows:
(i) Toll operation - the operation and management of high grade roads
and the collection of the expressway tolls.
(ii) Securities operation - the securities broking, margin financing and
securities lending, securities underwriting and sponsorship, asset management,
advisory services and proprietary trading.
(iii) Other operation - properties development, hotel operation and
other ancillary services.
An operating segment regarding toll related operation was discontinued in the
current year along with the Group's disposal of Zhejiang Expressway Investment
Development Co., Ltd. ("Development Co"), who contributed substantially all the
revenue and profit of the operating segment. The segment information reported
below and on the next pages does not include any amounts for this discontinued
operation which are described in more detail in Note 11 and 49.
Segment revenue and results
The following is an analysis of the Group's revenue and results by reportable
and operating segment.
For the year ended December 31, 2016
Continuing operations
Toll Securities
operation operation Others Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Revenue - external sales 5,279,348 4,175,240 280,759 9,735,347
___________ ___________ ___________ ___________
Segment profit 2,477,506 1,247,877 1,632 3,727,015
___________ ___________ ___________ ___________
5. SEGMENT INFORMATION - continued
Segment revenue and results - continued
For the year ended December 31, 2015
Continuing operations
Toll Securities
operation operation Others Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
(Restated) (Restated)
Revenue - external sales 4,961,928 5,660,628 102,225 10,724,781
___________ ___________ ___________ ___________
Segment profit 2,105,911 1,851,706 11,333 3,968,950
___________ ___________ ___________ ___________
The accounting policies of the operating segments are the same as the Group's
accounting policies described in Note 3. Segment profit represents the profit
after tax of each operating segment. This is the measure reported to the chief
operating decision maker for the purposes of resource allocation and
performance assessment.
Segment assets and liabilities
The following is an analysis of the Group's assets and liabilities by
reportable and operating segment:
Segment assets Segment liabilities
12/31/2016 12/31/2015 12/31/2016 12/31/2015
Rmb'000 Rmb'000 Rmb'000 Rmb'000
(Restated) (Restated)
Continuing operations
Toll operation 17,883,833 16,112,291 (5,261,742) (4,806,764)
Securities operation 53,839,312 55,593,321 (44,172,118) (46,729,548)
Others 1,951,420 1,592,743 (151,645) (197,749)
___________ ___________ ___________ ___________
Total segment assets 73,674,565 73,298,355 (49,585,505) (51,734,061)
(liabilities)
Goodwill 86,867 86,867 - -
Assets (liabilities) relating
to discontinued operations - 506,541 - (159,053)
___________ ___________ ___________ ___________
Consolidated assets 73,761,432 73,891,763 (49,585,505) (51,893,114)
(liabilities)
___________ ___________ ___________ ___________
Segment assets and segment liabilities represent the assets and liabilities of
the subsidiaries operating in the respective reportable and operating segment.
5. SEGMENT INFORMATION - continued
Other segment information
Amounts included in the measure of segment profit/loss or segment assets:
For the year ended December 31, 2016
Continuing operations
Toll Securities
operation operation Others Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Income tax expense 761,688 399,882 - 1,161,570
Interest income 27,459 - 40 27,499
Interest expense 134,351 537,036 - 671,387
Interests in associates - 109,401 1,201,085 1,310,486
Interest in a joint venture 285,397 - - 285,397
Share of profit of associates - 5,397 59,302 64,699
Share of profit of a joint 9,797 - - 9,797
venture
Gain on fair value changes on
held for
trading investments 6,819 198,434 - 205,253
Additions to non-current assets 2,564,064 169,388 595,094 3,328,546
(Note)
Depreciation and amortisation 1,174,338 104,227 17,849 1,296,414
(Gain) loss on disposal of
property, plant
and equipment (2,414) (239) 2 (2,651)
___________ ___________ ___________ ___________
For the year ended December 31, 2015
Continuing operations
Toll Securities
operation operation Others Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
(Restated) (Restated)
Income tax expense 699,845 688,405 8,524 1,396,774
Interest income 53,529 1,813 156 55,498
Interest expense 182,406 448,621 1,468 632,495
Interests in associates - 42,309 541,228 583,537
Interest in a joint venture 275,600 - - 275,600
Share of (loss) profit of - (1,609) 49,898 48,289
associates
Share of loss of a joint (25,067) - - (25,067)
venture
Gain on fair value changes on
held for
trading investments 6,732 413,554 - 420,286
Additions to non-current assets 158,218 127,686 193,609 479,513
(Note)
Depreciation and amortisation 1,128,185 77,517 24,528 1,230,230
Loss on disposal of property,
plant
and equipment 2,371 251 2 2,624
___________ ___________ ___________ ___________
Note: Non-current assets excluded those relating to discontinued operations
and excluded financial instruments and deferred tax assets.
5. SEGMENT INFORMATION - continued
Revenue from major services
An analysis of the Group's revenue from continuing operations, net of discounts
and taxes, for the year is as follows:
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
(Restated)
Toll operation revenue 5,279,348 4,961,928
Commission and fee income from securities operation 2,664,959 3,932,791
Interest income from securities operation 1,510,281 1,727,837
Revenue from sales of properties 196,928 -
Hotel and catering revenue 83,831 42,421
Toll road maintenance service - 59,804
_________ _________
9,735,347 10,724,781
_________ _________
Geographical information
The Group's operations are located in the PRC. All non-current assets of the
Group are located in the PRC.
All of the Group's revenue from external customers is attributed to the group
entities' country of domicile (i.e., the PRC).
Information about major customers
During the years ended December 31, 2016 and 2015, there are no individual
customer with sales over 10% of the total sales of the Group.
6. SECURITIES INVESTMENT GAINS
Year Year
ended ended
12/31/ 12/31/
2016 2015
Rmb'000 Rmb'000
Continuing operations
Gain on fair value changes on held for trading investments 205,253 420,286
Cumulative gain reclassified from equity on disposal of
AFS investments 64,791 65,826
Interest income from AFS investments 57,290 69,419
(Loss) gain on fair value changes on derivatives financial (103,761) 28,583
instruments
_______ _______
223,573 584,114
_______ _______
7. OTHER INCOME
Year Year ended
ended
12/31/ 12/31/2015
2016
Rmb'000 Rmb'000
(Restated)
Continuing operations
Interest income on bank balances, entrusted loan
receivables
and financial products investment 27,499 55,498
Rental income (Note) 38,696 31,911
Handling fee income 2,449 2,398
Towing income 7,718 8,321
Gain on disposal of an associate - 916
Gain on disposal of a subsidiary - 879
Exchange loss, net (22,758) (3,330)
Gain (loss) on commodity trading, net 126,905 (17,973)
Gain on disposal of part of expressway operating rights - 52,500
Others 108,881 60,767
_______ _______
289,390 191,887
_______ _______
Note: Rental income included contingent rent of approximately Rmb27,109,000
(2015: Rmb30,475,000) during the year.
8. FINANCE COSTS
Year Year ended
ended
12/31/ 12/31/2015
2016
Rmb'000 Rmb'000
(Restated)
Continuing operations
Bank and other borrowings 121,860 187,127
Short-term loan note 69,284 64,390
Bonds payable 480,243 384,231
_______ _______
Total borrowing costs 671,387 635,748
Less: Amount capitalised in the cost of qualifying assets - (3,253)
(Note)
_______ _______
671,387 632,495
_______ _______
Note: Borrowing costs capitalised during the year ended 31 December
2015 includes all the
interest expenses, net of interest income, arising from the
specific borrowings to the
expenditure on qualifying assets.
9. PROFIT BEFORE TAX
The Group's profit before tax from continuing operations has been arrived at
after charging (crediting):
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
(Restated)
Depreciation of property, plant and equipment 236,493 213,109
Release of prepaid lease payments 1,639 1,704
Amortisation of expressway operating rights (included in
operating costs) 1,034,202 991,800
Amortisation of other intangible assets (included in
operating costs) 24,080 23,617
_________ _________
Total depreciation and amortisation 1,296,414 1,230,230
_________ _________
Staff costs (including directors and supervisors):
Wages, salaries and bonuses 1,216,231 1,735,077
Pension scheme contributions 128,127 93,744
_________ _________
1,344,358 1,828,821
_________ _________
Auditors' remuneration 9,081 7,686
(Reversal of) allowance for loans to customers arising
from margin financing business (13,269) 36,182
Allowance for trade receivables 253 201
Allowance for other receivables 975 152
(Reversal of) allowance for
financial assets held under resale agreements (14,167) 44,836
(Gain) loss on disposal of property, plant and equipment (2,651) 2,624
Loss on disposal of prepaid lease payment - 1,850
Gain on disposal of part of expressway operating rights - (52,500)
Impairment loss (reversal of impairment loss) on
available-for-sale investments 33,942 (58)
Allowance for write-down of inventories 2,638 -
_________ _________
10. INCOME TAX EXPENSE
Year Year ended
ended
12/31/ 12/31/2015
2016
Rmb'000 Rmb'000
(Restated)
Continuing operations
Current tax:
PRC Enterprise Income 1,216,487 1,529,980
Tax
Deferred tax (Note 43) (54,917) (133,206)
_________ _________
1,161,570 1,396,774
_________ _________
10. INCOME TAX EXPENSE - continued
Under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and
Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries
is 25%.
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable
profit. No Hong Kong Profits Tax has been provided as the Group has no
estimated assessable profit for both years.
The tax charge for the year can be reconciled to the profit before tax from
continuing operations per the consolidated statement of profit or loss and
other comprehensive income as follows:
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
(Restated)
Profit before tax 4,888,585 5,365,724
_________ _________
Tax at the PRC enterprise income tax rate of 25% (2015: 1,222,146 1,341,431
25%)
Tax effect of share of profit of associates (16,174) (12,072)
Tax effect of share of (profit) loss of a joint venture (2,449) 6,267
Utilisation of unused tax loss previously not recognised (24,045) (15,135)
Tax effect of expenses not deductible for tax purposes 13,143 65,456
Tax effect of income not subjected to tax purposes (31,051) -
Tax effect of realised gain on disposal of an associate
and a subsidiary - 10,827
_________ _________
Tax charge for the year 1,161,570 1,396,774
_________ _________
11. DISCONTINUED OPERATION
As set out in Note 49, during the year, the Company disposed of its 100% equity
interest in Development Co, which carried out substantially all of the Group's
toll related operation. The disposal was effected in order to allow the Company
to focus on the toll operation business. This disposal was completed on
December 29, 2016, on which date control of Development Co passed to the
acquirer.
The profit for the year from the discontinued toll related operation is set out
below. The comparative figures in the consolidated statement of profit or loss
and other comprehensive income have been restated to re-present the toll
related operation as a discontinued operation.
Year Year
ended ended
31/12/ 31/12/
2016 2015
Rmb'000 Rmb'000
Profit of toll related operation for the year 39,943 60,830
Gain on disposal of toll related operation (see Note 49) 56,993 -
Income tax from gain on disposal of toll related (15,342) -
operation
_________ _________
81,594 60,830
_________ _________
The results of the toll related operation for period from January 1, 2016 to
December 29, 2016, which have been included in the consolidated statement of
profit or loss and other comprehensive income, were as follows:
Period Year ended
ended
29/12/2016 31/12/2015
Rmb'000 Rmb'000
Revenue 654,227 1,773,414
Cost of sales (693,470) (1,771,905)
Other income 122,605 113,767
Administrative expenses (20,432) (20,206)
Other expenses (11,372) (14,142)
_________ _________
Profit before tax 51,558 80,928
Income tax expense (11,615) (20,098)
_________ _________
Profit for the period/year 39,943 60,830
_________ _________
Profit for the year from discontinued operating include
the following:
Loss on disposal of property, plant and equipment 2,003 4,122
Auditor's remuneration 144 124
_________ _________
During the year, Development Co contributed Rmb82,622,000 (2015: Rmb58,186,000)
to the Group's net operating cash inflows, received Rmb41,542,000 (2015: paid
Rmb41,348,000) in respect of investing activities, and paid Rmb28,716,000
(2015: Rmb1,800,000) in respect of financing activities.
The carrying amounts of the assets and liabilities of Development Co at the
date of disposal are disclosed in Note 49.
12. OTHER COMPREHENSIVE INCOME
Tax effect relating to other comprehensive income as follows:
Year ended 12/31/2016 Year ended 12/31/2015
Net-of- Net-of-
Before-tax Tax income-tax Before-tax Tax income-tax
amount impact amount amount impact amount
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Fair value gain
on
AFS financial
assets arising 114,883 (28,721) 86,162 137,431 (34,358) 103,073
during the year
Reclassification
adjustments
for the
cumulative gain
included in
profit or loss
upon disposal
of
AFS financial (64,791) 16,198 (48,593) (65,826) 16,457 (49,369)
assets
Other
comprehensive
income
arising from (205) - (205) - -
associates
Share of
exchange
differences
of a 511 - 511 367 - 367
subsidiary
_______ _______ _______ _______ _______ _______
Total 50,398 (12,523) 37,875 71,972 (17,901) 54,071
_______ _______ _______ _______ _______ _______
13. DIRECTORS', SUPERVISORS' AND SENIOR MANAGEMENTS' EMOLUMENTS
Zhan Cheng Luo Ding Wang Dai Zhou Zhou Pei Lee Yao Wu Zhang Shi Lu Fu Zhang He
Xiaozhang Tao @ Jianhu Huikang Dongjie Benmeng Jianping Jun* Ker-wei Wai Huiliang Yongming Guohua# Ximin# Xinghai Zhexiang Xiuhua# Meiyun' Total
@ @ @ ^ ^ ^ * Tsang* # # # #
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
(notes (note (note (note (note (note (note (note (note
i) vi) v) iv) ii) iii) vii) vii) viii)
2016
Salaries,allowances
and benefits in 225 469 469 - 3 3 6 1 210 214 7 - 2 4 - - - - 1,613
kind
Bonuses paid and 521 459 459 - - - - - - - - - - - - - - - 1,439
payable
Pension scheme 22 22 22 - - - - - - - - - - - - - - - 66
contributions
______ ______ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Total emoluments 768 950 950 - 3 3 6 1 210 214 7 - 2 4 - - - - 3,118
______ ______ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
2015
Salaries,allowances
and benefits in 197 474 478 227 7 6 7 3 201 6 5 6 5 5 5 5 5 - 1,642
kind
Bonuses paid and 711 54 326 - - - - - - - - - - - - - - - 1,091
payable
Pension scheme 20 20 20 10 - - - - - - - - - - - - - - 70
contributions
______ ______ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Total emoluments 928 548 824 237 7 6 7 3 201 6 5 6 5 5 5 5 5 - 2,803
______ ______ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
@ Executive directors. The emoluments shown above were for their services in
connection with the management of the affairs of the Company and the Group.
^ Non-executive directors. The emoluments shown above were for their services as
directors of the Company or its subsidiaries.
* Independent non-executive directors. The emoluments shown above were for their
services as directors of the Company.
# Supervisors. The emoluments shown above were for their services as supervisors
of the Company.
Notes:
(i) Mr. Cheng Tao is appointed executive director of the Company on July 1, 2015.
As Such, his emoluments for those services rendered by him as the senior
management in 2015 was included in the director's and supervisor's emoluments.
(ii) Resigned on March 17, 2016.
(iii) Resigned on October 21, 2016.
(iv) Resigned on August 18, 2016.
(v) Retired on June 30, 2015.
(vi) Ms. Luo Jianhu is also the General Manager of the Company and her emoluments
disclosed above include those services rendered by her as the General Manager.
(vii) Resigned on June 30, 2015
(viii) Appointed on December 28, 2016.
Bonuses paid to directors and supervisors are performance-rated and are
determined by the Remuneration Committee of the Company, which comprises three
independent non-executive directors. No directors or supervisors waived any
emoluments and no incentive was paid to any directors or supervisors as an
inducement to join the Company and no compensation for loss of office was paid
to any directors, supervisors, past directors or past supervisors during both
years.
13. DIRECTORS', SUPERVISORS' AND SENIOR MANAGEMENTS' EMOLUMENTS - continued
The emoluments paid or payable to each of the 8 (2015: 8) senior managements
are as follows:
Ding Zhang Fang Zhu Wang Zhan Zheng Zhang
Huikang Jingzhong Zhexing Yimin Dehua Huagang Hui Xiuhua Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
(notes (note ii)
i and
ii)
2016
Salaries,
allowances
and 60 74 445 445 445 445 445 445 2,804
benefits in
kind
Bonuses paid 306 337 342 301 337 337 337 337 2,634
and payable
Pension - 3 22 22 22 22 22 22 135
scheme
contributions
_____ _____ _____ _____ _____ _____ _____ _____ _____
Total 366 414 809 768 804 804 804 804 5,573
emoluments
_____ _____ _____ _____ _____ _____ _____ _____ _____
2015
Salaries,
allowances
and 223 445 445 223 445 445 445 445 3,116
benefits in
kind
Bonuses paid 218 218 218 - 188 218 215 58 1,333
and payable
Pension 10 20 20 10 20 20 20 20 140
scheme
contributions
_____ _____ _____ _____ _____ _____ _____ _____ _____
Total 451 683 683 233 653 683 680 523 4,589
emoluments
_____ _____ _____ _____ _____ _____ _____ _____ _____
Notes:
(i) Appointed on July 1, 2015.
(ii) Resigned on February 18, 2016.
The emoluments of each of the senior managements were below HK$1,000,000
(equivalent to Rmb894,510 (2015: Rmb837,800)) in both years. Bonuses paid to
senior managements are performance-rated and are determined by the board of
directors of the Company.
No senior management waived any emoluments and no incentive was paid to any
senior management as an inducement to join the Company and no compensation for
loss of office was paid to any senior management, past senior management during
both years. Bonuses are determined by reference to the individual performance
of the senior managements.
14. EMPLOYEES' EMOLUMENTS
The emoluments of the five highest paid individuals in the Group are as
follows:
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Salaries, allowances and benefits in kind 4,329 3,040
Bonuses paid and payable (Note) 33,404 14,815
Pension scheme contributions 165 116
_______ _______
37,898 17,971
_______ _______
Note:
The bonuses paid and payable are determined by reference to the performance of
the
relevant business of the Group for the years ended December 31, 2016 and 2015.
14. EMPLOYEES' EMOLUMENTS - continued
No emoluments nor incentive was waived as an inducement to join the Company and
no compensation for loss of office was paid to any five highest paid
individuals in the Group during both years. Bonuses are determined by
reference to the individual performance of the five highest paid individuals in
the Group.
The five individuals with the highest emoluments in the Group during the year
included five (2015: five) non-director employees.
Their emoluments are within the following bands:
No. of individuals
Year ended Year ended
12/31/2016 12/31/2015
HK$3,000,001 to HK$3,500,000
(equivalent to Rmb2,683,531 (2015: Rmb2,513,401 ) to
Rmb3,130,785 (2015: Rmb2,932,300 )) 1
HK$3,500,001 to HK$4,000,000
(equivalent to Rmb3,130,786(2015: Rmb2,932,301 ) to
Rmb3,578,040 (2015: Rmb3,351,200 )) 2
HK$4,500,001 to HK$5,000,000
(equivalent to Rmb4,025,296 (2015: Rmb3,770,101 ) to
Rmb4,472,550 (2015: Rmb4,189,000 )) 1
HK$5,500,001 to HK$6,000,000
(equivalent to Rmb4,919,806 (2015: Rmb4,607,901 ) to
Rmb5,367,060 (2015: Rmb5,026,800 )) 1
HK$6,000,001 to HK$6,500,000
(equivalent to Rmb5,367,061 (2015: Rmb5,026,801) to
Rmb5,814,315 (2015: Rmb5,445,700)) 2
HK$7,000,001 to HK$7,500,000
(equivalent to Rmb6,261,571 (2015: Rmb5,864,601) to
Rmb6,708,825 (2015: Rmb6,283,500)) 1
HK$10,500,001 to HK$11,000,000
(equivalent to Rmb9,392,356 (2015: Rmb8,796,901) to
Rmb9,839,610 (2015: Rmb9,215,800)) 1
HK$12,000,001 to HK$12,500,000
(equivalent to Rmb10,734,121 (2015: Rmb10,053,601) to
Rmb11,181,375 (2015: Rmb10,472,500)) 1
_______ _______
15. DIVIDENDS
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Dividends recognised as distribution during the year:
2016 Interim - Rmb6 cents
(2015: 2015 interim Rmb6 cents) per share 260,587 260,587
2015 Final - Rmb28 cents
(2015: 2014 Final Rmb26.5 cents) per share 1,216,072 1,150,925
_________ _________
1,476,659 1,411,512
_________ _________
The final dividend of Rmb29.5 cents per share in respect of the year ended
December 31, 2016 (2015: final dividend of Rmb28 cents per share in respect of
the year ended December 31, 2015) in the total amount of Rmb1,281,219,000
(2015: Rmb1,216,072,000) has been proposed by the directors and is subject to
approval by the shareholders in the annual general meeting.
16. EARNINGS PER SHARE
The calculation of the basic earnings per share from continuing operations is
based on profit for the year attributable to owners of the Company from
continuing operations of Rmb2,957,291,000 (2015 (Restated): Rmb2,932,903,000)
and the 4,343,114,500 (2015:4,343,114,500) ordinary shares in issue during the
year.
The calculation of the basic earnings per share from continuing and
discontinued operations is based on profit for the year attributable to owners
of the Company from continuing and discontinued operations of Rmb3,037,405,000
(2015: Rmb2,989,680,000) and the 4,343,114,500 (2015:4,343,114,500) ordinary
shares in issue during the year.
Basic earnings per share for the discontinued operations is Rmb1.85 cents per
share (2015: Rmb1.31 cents per share), based on profit for the year
attributable to owners of the Company from the discontinued operations of
Rmb80,114,000 (2015 (Restated): Rmb56,777,000) and the denominators detailed
above.
Diluted earnings per share presented is the same as basic earnings per share as
there were no potential ordinary shares outstanding for the years ended
December 31, 2016 and 2015.
17. PROPERTY, PLANT AND EQUIPMENT
Leasehold Communication Machinery
land and Ancillary and signaling Motor and Construction
buildings Hotel facilities equipment vehicles equipment in progress Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Cost
At January 892,958 - 1,108,291 392,950 253,071 746,363 1,534,283 4,927,916
1, 2015
Additions 17,125 - 35,629 29,952 22,502 42,914 250,107 398,229
Transfer 681,227 549,543 89,901 40,603 - 78,798 (1,440,072) -
Transfer to - - - - - - (242,149) (242,149)
inventory
Disposals - - (1,729) (49,971) (44,927) (37,086) - (133,713)
Disposal of - - - (94) (3,517) (12,431) - (16,042)
a subsidiary
(Note 49)
________ _______ _________ _______ _______ _______ _________ _________
At December 1,591,310 549,543 1,232,092 413,440 227,129 818,558 102,169 4,934,241
31, 2015
Additions 8,334 - 5,639 19,670 11,364 48,117 231,220 324,344
Acquired on 467 - 26,740 4,506 309 484 1,326 33,832
acquisition
of a
subsidiary
Transfer 7,643 - 49,155 362,338 - (172,236) (246,900) -
Transfer 15,470 - - - - - - 15,470
from
inventory
Disposals (6,300) - (8,810) (48,601) (40,808) (137,623) - (242,142)
Disposal of (4,311) - (307,571) (27,178) (13,907) (48,268) (829) (402,064)
a subsidiary
(Note 49)
________ _______ _________ _______ _______ _______ _________ _________
At December 1,612,613 549,543 997,245 724,175 184,087 509,032 86,986 4,663,681
31, 2016
________ _______ _________ _______ _______ _______ _________ _________
DEPRECIATION
At January 246,078 - 356,838 285,217 182,625 568,111 - 1,638,869
1, 2015
Provided for 62,541 10,365 70,460 36,384 15,783 48,066 - 243,599
the year
Disposals (115) - (1,657) (45,008) (42,854) (35,020) - (124,654)
Disposal of - - - (39) (573) (1,455) - (2,067)
a subsidiary
(Note 49)
________ _______ _________ _______ _______ _______ _________ _________
At December 308,504 10,365 425,641 276,554 154,981 579,702 - 1,755,747
31, 2015
Provided for 64,701 17,769 64,816 50,878 14,864 51,239 - 264,267
the year
Transfer 1,040 - (4,558) 142,130 - (138,612) -
Disposals (6,300) (7,920) (44,077) (32,715) (114,097) - (205,109)
Disposal of (1,966) - (146,778) (21,210) (8,939) (38,902) - (217,795)
a subsidiary
(Note 49)
________ _______ _________ _______ _______ _______ _________ _________
At December 365,979 28,134 331,201 404,275 128,191 339,330 - 1,597,110
31, 2016
________ _______ _________ _______ _______ _______ _________ _________
CARRYING
VALUES
At December 1,246,634 521,409 666,044 319,900 55,896 169,702 86,986 3,066,571
31, 2016
________ _______ _________ _______ _______ _______ _________ _________
At December 1,282,806 539,178 806,451 136,886 72,148 238,856 102,169 3,178,494
31, 2015
________ _______ _________ _______ _______ _______ _________ _________
The property, plant and equipment are located in the PRC.
18. PREPAID LEASE PAYMENTS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Analysed for reporting purposes as:
Current assets 1,639 1,939
Non-current assets 52,522 57,745
_________ _________
54,161 59,684
_________ _________
The amount represents prepayment of rentals under operating leases for "land
use rights" of land situated in the PRC.
19. EXPRESSWAY OPERATING RIGHTS
Rmb'000
Cost
At January 1, 2015 24,009,469
Disposal (3,653)
Adjustment due to completion of settlement (42,754)
__________
At December 31, 2015 23,963,062
__________
Acquired on acquisition of a subsidiary (Note 48) 2,303,560
__________
At December 31, 2016 26,266,622
__________
Amortisation
At January 1, 2015 9,744,082
Charge for the year 991,800
Disposal (2,262)
__________
At December 31, 2015 10,733,620
Charge for the year 1,034,202
__________
At December 31, 2016 11,767,822
__________
Carrying values
At December 31, 2016 14,498,800
__________
At December 31, 2015 13,229,442
__________
19. EXPRESSWAY OPERATING RIGHTS - continued
The above expressway operating rights were granted by the Zhejiang Provincial
Government and Anhui Provincial Government for a period ranging from 25 to 30
years. During the expressway concessionary period, the Group has the rights of
operations and management of Shanghai-Hangzhou-Ningbo Expressway, Shangsan
Expressway, Jinhua Section of the Ningbo-Jinhua Expressway, Hanghui Expressway
and Huihang Expressway and the toll-collection rights thereof. The Group is
required to manage and operate the expressways in accordance with the
regulations promulgated by the Ministry of Communication and relevant
government authorities. Upon the end of the respective concession service
periods, the toll expressways and their toll station facilities without
residual value, will be returned to the grantors at nil consideration.
As at December 31, 2015, the expressway operating rights in respect of Jinhua
Section of the Ningbo-Jinhua Expressway and Hanghui Expressway has been pledged
as collaterals to secure general banking facilities granted to the Group.
Details of which were set out in Note 54.
During the year ended December 31, 2015, a portion of land where the Yuhang
section of Shanghai-Hangzhou expressway occupied was requisitioned by the
government, with the consideration of Rmb53,891,000, leading to the decrease in
expressway operating right with carrying amount of Rmb1,391,000 and recognition
of a gain in other income with amount of Rmb52,500,000.
20. GOODWILL
Rmb'000
Cost and carrying VALUES
At January 1, 2015, December 31, 2015 and December 31, 2016 86,867
_______
Particulars regarding impairment testing on goodwill are disclosed in Note 22.
21. OTHER INTANGIBLE ASSETS
Securities
/
Customer futures Trading
bases firm seats Software Total
licenses
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Cost
At January 1, 2015 101,147 63,083 3,480 102,430 270,140
Additions - - - 23,261 23,261
_______ _______ _______ _______ _______
At December 31, 2015 101,147 63,083 3,480 125,691 293,401
Additions - - - 17,889 17,889
Disposal of a subsidiary - - - (154) (154)
(Note 49)
_______ _______ _______ _______ _______
At December 31, 2016 101,147 63,083 3,480 143,426 311,136
_______ _______ _______ _______ _______
Amortisation
At January 1, 2015 60,413 - - 54,137 114,550
Charge for the year 6,266 - - 17,366 23,632
_______ _______ _______ _______ _______
At December 31, 2015 66,679 - - 71,503 138,182
Charge for the year 6,266 - - 17,829 24,095
Disposal of a subsidiary - - - (47) (47)
(Note 49)
_______ _______ _______ _______ _______
At December 31, 2016 72,945 - - 89,285 162,230
_______ _______ _______ _______ _______
CARRYING VALUES
At December 31, 2016 28,202 63,083 3,480 54,141 148,906
_______ _______ _______ _______ _______
At December 31, 2015 34,468 63,083 3,480 54,188 155,219
_______ _______ _______ _______ _______
The customer bases of Zheshang Securities Co., Ltd. ("Zheshang Securities") and
Zheshang Futures Broker Co., Ltd. ("Zheshang Futures") are amortised on a
straight-line basis over fifteen years and three years, respectively.
The securities/futures firm licenses of the securities operation are considered
by the management of the Group to have indefinite useful lives because they can
be renewed at minimal cost even though the current licenses are effective for
three years.
The trading seats of the securities operation is considered by the management
of the Group to have an indefinite useful life because there is no economic or
regulatory limit to their useful life.
Software are amortised on a straight-line basis over three to five years.
Particulars of the impairment testing on intangible assets with indefinite
useful lives are disclosed in Note 22.
22. IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL
LIVES
For the purposes of impairment testing, goodwill and other intangible assets
with indefinite useful lives set out in Notes 20 and 21 have been allocated to
four individual cash generating units ("CGUs"), comprising two subsidiaries in
toll operation segment and two subsidiaries in securities operation segment.
The carrying amounts of goodwill and other intangible assets (net of
accumulated impairment losses) as at December 31, 2016 and 2015 allocated to
these units are as follows:
Securities/ Trading
futures
Goodwill firm licenses seats
12/31/ 12/31/ 12/31/ 12/31/ 12/31/ 12/31/
2016 2015 2016 2015 2016 2015
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
Toll operation
- Zhejiang Jiaxing 75,137 75,137 - - - -
Expressway Co., Ltd.
("Jiaxing Co")
- Zhejiang Shangsan
Expressway Co., Ltd.
("Shangsan Co") 10,335 10,335 - - - -
Securities operation
- Zheshang Securities - 51,783 51,783 2,080 2,080
- Zheshang Futures 1,395 1,395 11,300 11,300 1,400 1,400
_______ _______ _______ _______ _______ _______
86,867 86,867 63,083 63,083 3,480 3,480
_______ _______ _______ _______ _______ _______
During the years ended December 31, 2016 and 2015, management of the Group
determines that there are no impairment of any of its CGUs containing goodwill
and other intangible assets with indefinite useful lives.
The basis of the recoverable amounts of the above CGUs and their major
underlying assumptions are summarised below:
Jiaxing Co and Shangsan Co
The recoverable amounts of Jiaxing Co and Shangsan Co are determined based on
value in use calculations. The key assumptions for the value in use
calculations relate to discount rates, growth rates, and expected changes in
toll revenue and direct costs during the forecast period. Those calculations
use cash flow projections based on financial budgets approved by management
covering a five-year period and a discount rate the management considered
appropriate. No growth rate has been assumed beyond the five-year period up to
the remaining toll road operating rights which are 12 years (2015: 13 years)
and 14 years (2015: 15 years) for Jiaxing Co. and Shangsan Co., respectively.
Management believes that any reasonably possible change in any of these
assumptions would not cause the aggregate carrying amount of Jiaxing Co's and
Shangsan Co's goodwill to exceed their aggregate recoverable amounts.
Zheshang Securities & Zheshang Futures
The recoverable amounts of Zheshang Securities & Zheshang Futures are
determined based on value in use calculations. The key assumptions for the
value in use calculations relate to the discount rate, growth rates and profit
margin during the forecast period. Those calculations use cash flow
projections based on financial budgets approved by management covering a
five-year period with discount rates management believe appropriate. Growth
rate beyond the five-year period is assumed to be zero. Management believes
that any reasonably possible change in any of these assumptions would not cause
the carrying amount of Zheshang Securities & Zheshang Futures' other intangible
assets to exceed its aggregate recoverable amounts.
23. INTERESTS IN ASSOCIATES
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Unlisted investments in associates,
at cost less impairment 1,139,649 482,749
Share of post-acquisition profit,
net of dividends received 170,837 100,788
_________ _________
1,310,486 583,537
_________ ________
At December 31, 2016 and 2015, the Group had interests in the following
associates:
Form of Place of Percentage of
equity
business registration interest
and attributable
to
Name of entity structure operation the Group Principal
activities
12/31/ 12/31/
2016 2015
% %
Zhejiang Concord Corporate The PRC 45 45 Investment and
Property Investment
Co., Ltd. ("Zhejiang real estate
Concord Property") development
Zhejiang Corporate The PRC 35 35 Finance and
Communications investment
Investment Group
Finance Co., Ltd.
("Zhejiang
Communications
Finance")
Zheshang Fund Corporate The PRC 25 25 Asset fund
Management management
Co., Ltd. ("Zheshang
Fund") (Note i)
Yangtze United Corporate The PRC 13 9 Provision of
Financial Leasing Co., financial
Ltd.
("Yangtze United leasing services
Financial Leasing")
(Note ii)
Zhejiang Zheshang Corporate The PRC 40 40 Investment
Innovation Capital management and
Management Co., Ltd. consulting
("Zheshang Innovation
Capital Management")
Zhejiang Big Data Corporate The PRC 19.8 - Big data asset
Exchange Center Co., transaction
Ltd. (''Zhejiang Big
Data'') (Note iv)
Ningbo Equity Exchange Corporate The PRC 40 - Listing,
Co., Ltd. registration,
custody,
(''Ningbo Equity settlement
Exchange) (Note v) service for equity
product
Taiping Science and Corporate The PRC 15 - Science and
Technology Insurance teachnology
Co., Ltd.
("Taiping related
Insurance") (Note iii) insurance
Hangzhou Partnership The PRC 5.05 - Investment
XingYuanJuJing management
Investment
Management LP
(''XingYuan
Investment')' (Note
vi)
All of the above associates are accounted for using the equity method in these
consolidated financial statements.
Notes:
(i) The Group is able to exercise significant influence over Zheshang Fund
because it has the power to appoint one out of four directors of that company
under the provisions stated in the Articles of Association of that company.
On August 14, 2014, Zheshang Securities, together with one of the shareholders
of Zheshang Fund, Yangshengtang Co., Ltd., auctioned off their respective 25%
equity interest (totalling 50%) in Zheshang Fund. The hammer price reached at
Rmb414,000,000 offered by Tonglian Capital Management Co., Ltd. ("Tonglian
Capital"), another shareholder of Zheshang Fund which is independent to the
Group, and Zheshang Securities will receive a consideration of Rmb207,000,000
accordingly.
23. INTERESTS IN ASSOCIATES - continued
Notes: - continued
(i) - continued
As at December 2016, the disposal transaction has not been completed and
Zheshang Securities received a refundable deposit of Rmb165,600,000 in respect
of such transfer, of which was included in other payables in Note 37.
The directors of the Company consider the disposal required approval by China
Securities Regulatory Commission and equity transfer registration, which was a
lengthy process and they are not able to estimate the timing when and whether
such approval would be granted. The amount of deposit received would be
refundable to Tonglian Capital if the transfer eventually cannot be completed.
(ii) The Group is able to exercise significant influence over Yangtze United
Financial Leasing because it has the power to appoint one out of eight
directors of that company under the provisions stated in the Articles of
Association of that company. The equity interest held by the Group was
increased from 9% to 13% in 2016 after the Company made an additional capital
contribution to Yangtze United Financial Leasing.
(iii) The Company contributed capital of Rmb75,000,000 for 15% shareholding of
Taiping Insurance on December 30, 2016. The Group is able to exercise
significant influence over Taiping Insurance because it has the power to
appoint one out of eleven directors of that company under the provisions stated
in the Articles of Association of that company.
(iv) Zhejiang Big Data was established on May 18, 2016. Zheshang Captial
Management Co., Ltd. (''Zheshang Capital Management''), a subsidiary of Group,
contributed capital of Rmb19,800,000 for 19.8% shareholding. The Group is able
to exercise significant influence over Zhejiang Big Data because it has the
power to appoint one out of five directors of that company under the provisions
stated in the Articles of Association of that company.
(v) On April 7, 2016, Zheshang Capital Management acquired 40% shareholding of
Ningbo Equity Exchange with Rmb20,000,000. The Group is able to exercise
significant influence over Ningbo Equity Exchange.
(vi) XingYuan Investment was established on January 7, 2016 as a limited
partnership. Dong Fang Ju Jin (as defined in Note 57) is the general partner
who holds 0.05% partnership shares and Zheshang Capital Management is one of
its limited partners who holds 5% partnership shares. The Group is able to
exercise significant influence over XingYuan Investment because it has a voting
right in the investment committee of XingYuan Investment in which a resolution
can only be approved if no member in the investment committee votes against it.
The summarised financial information in respect of the Group's material
associates at the end of the reporting period is set out below. This
represents amounts shown in the associate's financial statements prepared in
accordance with HKFRSs:
Zhejiang Communications Finance
12/31/2016 12/31/
2015
Rmb'000 Rmb'000
Current assets 12,102,365 3,168,911
_________ _________
Non-current assets 6,307,941 3,101,430
_________ _________
Current liabilities 16,144,368 5,126,968
_________ _________
For the For the
year ended year
ended
12/31/2016 12/31/
2015
Rmb'000 Rmb'000
Revenue 315,685 258,851
_________ _________
Profit for the year 122,565 139,608
_________ _________
Dividends received from
the associate during the year - 13,121
_________ _________
Reconciliation of the above summarised financial information to the
carrying amount of the
interest in Zhejiang Communications Finance recognised in the
consolidated financial statements:
12/31/2016 12/31/
2015
Rmb'000 Rmb'000
Net asset of the associate 2,265,938 1,143,373
Proportion of the Group's ownership interest
in
Zhejiang Communications Finance 35% 35%
_________ _________
Carrying amount of the Group's interest in
Zhejiang Communications Finance 793,079 400,181
_________ _________
Yangtze United Financial Leasing
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Current assets 1,049,557 63,564
_________ _________
Non-current assets 14,794,597 5,826,108
_________ _________
Current liabilities 13,605,278 4,884,944
_________ _________
Non-current liabilities 100,000 -
_________ _________
For the
period
For the from the
date of
year ended acquisition
to
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Revenue 775,746 84,461
_________ _________
Profit for the year 4,728
134,147
_________ _________
Dividends received from
the associate during the year - -
_________ _________
Reconciliation of the above summarised financial information to the carrying
amount of the
interest in Zhejiang Communications Finance recognised in the consolidated
financial statements:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Net asset of the associate 2,138,876 1,004,728
Proportion of the Group's ownership interest in
Yangtze United Financial Leasing 13% 9%
_________ _________
278,054 90,426
_________ ________
Aggregate information of associates that are not individually
material
12/31/2016 12/31/2015
Rmb'000 Rmb'000
The Group's share of profit (loss) from continuing 9,728 (999)
operations
_________ _________
The Group's share of other comprehensive income (205) -
_________ _________
The Group's share of total comprehensive income 9,523 (999)
_________ _________
Aggregate carrying amount of the Group's
interests in these associates 239,353 92,930
_________ _________
24. INTEREST IN A JOINT VENTURE
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Unlisted investment in a joint venture,
at cost less impairment 373,470 373,470
Share of post-acquisition loss (88,073) (97,870)
_________ _________
285,397 275,600
_________ _________
At December 31, 2016 and 2015, the Group had interest in the following joint
venture:
Form of Place of Percentage of
equity
business registration interest
and attributable to
Name of entity structure operation the Group Principal
activities
12/31/ 12/31/
2016 2015
% %
Zhejiang Shaoxing Corporate The PRC 50 50 Management of
Shengxin the
Expressway Co., Ltd. Shaoxing
("Shengxin Co") section of the
Ningbo-Jinhua
Expressway
INTEREST IN A JOINT VENTURE - continued
The summarised financial information in respect of the Group's interest in
Shengxin Co which is accounted for using the equity method at the end of the
reporting period is set out below. This represents amounts shown in the joint
venture's financial statements prepared in accordance with HKFRSs:
In 2014, the year Tongji SEM gained EQUIS accreditation?
Shengxin Co
12/31/ 12/31/
2016 2015
Rmb'000 Rmb'000
Current assets 65,467 41,371
_________ _________
Non-current assets 2,500,949 2,672,775
_________ _________
Current liabilities 41,127 55,988
_________ _________
Non-current liabilities 1,954,495 2,106,959
_________ _________
The above amounts of assets and liabilities include the
following:
Cash and cash equivalents 58,221 37,152
_________ _________
Non-current financial liabilities (excluding trade and
other
payables and provisions) 1,892,000 2,040,000
_________ _________
For the For the
year year
ended ended
12/31/ 12/31/
2016 2015
Rmb'000 Rmb'000
Revenue 364,515 319,882
_________ _________
Profit(Loss) for the year 19,594 (50,135)
_________ _________
Dividend received from the joint venture - -
_________ _________
The above loss for the year includes the following:
Depreciation and amortisation (180,977) (175,837)
_________ _________
Interest income 810 838
_________ _________
Interest expense (88,376) (111,978)
_________ _________
Income tax expense (4,464) (4,464)
_________ _________
24. INTEREST IN A JOINT VENTURE - continued
The summarised financial information in respect of the Group's interest in
Shengxin Co which is accounted for using the equity method at the end of the
reporting period is set out below. This represents amounts shown in the joint
venture's financial statements prepared in accordance with HKFRSs: - continued
Shengxin Co - continued
Reconciliation of the above summarised financial information to the carrying
amount of the interest in Shengxin Co recognised in the consolidated financial
statements:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Net asset of the joint venture 570,794 551,199
Proportion of the Group's ownership interest in
the joint venture 50% 50%
_________ _________
Carrying amount of the Group's interest in
Shengxin Co 285,397 275,600
_________ _________
25. AVAILABLE-FOR-SALE INVESTMENTS
AFS investments comprise:
12/31/ 12/31/
2016 2015
Rmb'000 Rmb'000
Non-current assets:
Unlisted equity securities investments, at cost (Note i) 48,594 48,594
Listed equity securities investments, at fair value (Note 315,878 202,441
ii)
Other Investment (Note iii) 1,430,503 1,388,820
Less: provision for impairment loss (3,997) (3,997)
_________ ________
1,790,978 1,635,858
_________ ________
Current assets:
Equity securities 297,492 237,260
Funds 92,804 55,982
Corporate bonds 36,500 56,500
Other investments (Note iii) 956.567 689,508
Less: provision for impairment loss (40,443) (6,500)
_________ ________
1,342,920 1,032,750
_________ ________
3,133,898 2,668,608
_________ ________
As at December 31, 2016, the Group has entered into securities lending
arrangement with clients that resulted in the transfer of listed AFS
investments with total fair value of Rmb1,958,000 (2015: Rmb173,000) to
external clients, which did not result in derecognition of the financial
assets. Details of the collaterals were set out in Note 31.
25. AVAILABLE-FOR-SALE INVESTMENTS - continued
Notes:
(i) Unlisted equity securities investments represent investments in unlisted
equity securities issued by private entities established in the PRC. They are
measured at cost less impairment at the end of the reporting period because the
range of reasonable fair value estimated is so significant that the directors
of the Company are of the opinion that their fair values cannot be measured
reliably.
(ii) Listed equity securities investments represent stocks listed in PRC with
lock-up period for 3 years since the subscription. The financial instrument was
measured at fair value based on a valuation taking into account the quote stock
prices with adjustment of restriction factors.
(iii) Except for the investment described below, othfers comprise of financial
products and trust prroducts where funds are mainly invested in listed
securities or open-ended funds and the Group's return of investment is tied to
the results of such investments.
As at December 31, 2016, balance of available-for-sale financial assets
included the unlisted equity investment mainly represents investment in a
special account managed by China Securities Finance Corporation Limited (the
"CSFCL"). Pursuant to the agreement the Company entered into with the CSFCL,
the Company contributed to a special account managed by the CSFCL in 2015. The
Company is entitled to the profit or loss derived from the special account in
proportion to the funding portion contributed. As at December 31, 2016 and
2015, the Company determined the total fair value of the investment according
to the Evaluation Report provided by the CSFCL.
26. INVENTORIES
As at December 31, 2016, the inventories of the Group include residential
properties held for sales with carrying amount of Rmb48,797,000 (2015:
Rmb272,933,000), which have been transferred from construction in progress in
2015 when the management of the Group decided to sell and obtained the property
sales permit.
27. TRADE RECEIVABLES
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Trade receivables comprise:
Fellow subsidiaries 8,068 10,331
Third parties 268,656 142,044
_________ _________
Total trade receivables 276,724 152,375
Less: Allowance for doubtful debts (1,406) (1,292)
_________ _________
275,318 151,083
_________ _________
27. TRADE RECEIVABLES - continued
The Group has no credit period granted to its trade customers of toll operation
and service area businesses. The Group's trade receivable balance for toll
operation is toll receivables from the respect expressway fee settlement centre
of Zhejiang Province and Anhui Province, which are normally settled within 3
months. All of these trade receivables were neither past due nor impaired in
both years.
In respect of the Group's asset management service, security commission and
financial advisory service operated by Zheshang Securities, trading limits are
set for customers. The Group seeks to maintain tight control over its
outstanding accounts receivable in order to minimise credit risk. Overdue
balances are regularly monitored by management.
The following is an aged analysis of trade receivables net of allowance for
doubtful debts presented based on the invoice date at the end of the reporting
period, which approximated the respective revenue recognition dates:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Within 3 months 263,822 80,949
3 months to 1 year 9,409 64,493
1 to 2 years 1,484 4,679
Over 2 years 603 962
_________ ________
275,318 151,083
_________ ________
Movement of allowance for doubtful debts
12/31/2016 12/31/2015
Rmb'000 Rmb'000
At the beginning of the year 1,292 952
Impairment recognised for the year 449 340
Amount reversed during the year (244) -
Disposal of a subsidiary (91) -
_________ ________
At the end of the year 1,406 1,292
_________ ________
The Group determines the allowance for impaired debts based on the evaluation
of collectability and aged analysis of accounts and on management's judgement
including the assessment of change in credit quality and the past collection
history of each client. The directors consider the credit risk of the balance
to be minimal.
28. LOANS TO CUSTOMERS ARISING FROM MARGIN FINANCING BUSINESS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Loans to margin clients 7,952,333 10,606,160
Less: Allowance for doubtful debts (42,301) (55,570)
_________ _________
7,910,032 10,550,590
_________ _________
The Group has provided customers with margin financing and security lending for
securities transactions, the credit facility limits to margin clients are
determined by the discounted market value of the pledged securities accepted by
the Group or the market value of cash collateral.
All of the loans to margin clients which are secured by the underlying pledged
securities are interest bearing. The Group maintains a list of approved stocks
for margin lending at a specified loan to collateral ratio. Any excess in the
lending ratio will trigger a margin call which the customers have to make good
of the shortfall. The Group has the right to process forced liquidation if the
customer fails to make good of the shortfall within a short period of time.
As at December 31, 2016, loans to customers under the margin financing and
securities lending activities carried out in the PRC were secured by the
customers' stock securities and cash collaterals. The undiscounted market value
of the stock security collaterals was amounted to Rmb27,105,442,000 (2015:
Rmb31,224,317,000). Cash collateral of Rmb1,298,722,000 (2015:
Rmb1,061,658,000) received from clients was included in accounts payable to
customers arising from securities business in Note 35. As of December 31, 2016
and 2015, no individual customer with fair value of pledged securities fell
below the carry amount of margin loan.
No aged analysis is disclosed as in the opinion of the directors, the aged
analysis does not give additional value in view of the nature of business of
securities margin financing.
Movement in the allowance for doubtful debts
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Allowance for doubtful debts at the beginning of the year 55,570 19,388
Impairment recognised for the year - 36,182
Amount reversed during the year (13,269) -
_______ _______
At end of the year 42,301 55,570
_______ _______
The Group determines the allowance for impaired debts based on the evaluation
of collectability and aged analysis of accounts and on management's judgement
including the assessment of change in credit quality, collateral and the past
collection history of each client. As at December 31, 2016, the balance of
allowance for doubtful debts include individual assessment of Rmb2,552,000
(2015: Rmb2,552,000) and collective assessment of Rmb39,749,000 (2015:
Rmb53,018,000) The concentration of credit risk is limited due to the customer
base being large and unrelated.
29. OTHER RECEIVABLES AND PREPAYMENTS
12/31/ 12/31/
2016 2015
Rmb'000 Rmb'000
Entrusted loan and interest receivable
from a related party (Note 56(ii)) 423,613 634,436
Interest receivables 298,741 269,080
Prepayments 77,563 41,977
Bond and listed equity subscription deposit - 176,377
Consideration receivable in relation to the disposal
to Communications Group of an associate
and a subsidiary - 44,759
Advances in relation to
asset management plans (Note) 1,973,221 -
Receivables from Zhejiang Expressway Maintenance Co.,
("Maintenance Co")
in relation to disposal of
maintenance equipment (Note 56(i)) 34,471 -
Others 47,490 65,170
_________ ________
2,855,099 1,231,799
________ ________
Note: The amount represents short-term advance provided to certain
unconsolidated asset management plans run by Asset Management (as defined in
Note 57). The directors are of the view that there is no impairment indication
as the credit risk of the invested products is limited. As at the date of this
report, Rmb1,744,521,000 has already been collected.
30. HELD FOR TRADING INVESTMENTS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Held for trading investments include:
Listed securities in the PRC, at fair value:
Equity securities 68,996 221,699
Open-end equity funds 1,279,339 191,967
Bonds in the PRC, at fair value:
Listed in Shanghai/ Shenzhen Stock Exchange with fixed
interest ranging from 0.2% to 11.8%
(2015: 0.2% to 8.5%) per annum 4,686,320 1,170,952
Unlisted with fixed interest ranging
from 2.6% to 8.6% (2015: 3.18% to 8.70%) per annum 2,109,477 2,176,606
_________ _________
8,144,132 3,761,224
_________ _________
31. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Analysed by collateral type:
Bonds 1,865,992 1,921,876
Stock securities 2,099,337 3,037,279
__________ _________
3,965,329 4,959,155
__________ _________
Analysed by market:
Inter bank market 1,340,492 1,521,876
Shanghai/ Shenzhen Stock Exchange 2,624,837 3,437,279
__________ _________
3,965,329 4,959,155
_________ _________
The collaterals include both equity and debt securities listed in the PRC. As
at December 31, 2016, the fair value of equity securities and debt securities
held as collaterals was Rmb6,394,960,000 (2015: Rmb6,394,246,000) and
Rmb1,871,182,000 (2015: Rmb1,947,197,000 ), respectively.
32. BANK BALANCES HELD ON BEHALF OF CUSTOMERS
For the Group's securities operation carried out by Zheshang Securities, the
Group receives and holds money deposited by customers (including other
institution). These customers' money is maintained in one or more segregated
bank accounts. The Group has recognised the corresponding accounts payable to
respective customers and other institution.
Bank balances held on behalf of customers carry interest at market rates which
range from 1.55% to 2.37% (2015: 1.62% to 2.12%) per annum.
Bank balances held on behalf of customers that are denominated in currencies
other than the functional currency of the respective group entities are set out
below:
HKD USD
Rmb'000 Rmb'000
As at December 31, 2016 20,669 108,693
As at December 31, 2015 22,226 125,058
_______ _______
33. BANK BALANCES AND CASH
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Time deposits with original maturity
over three months 165,000 270,000
_________ _________
Unrestricted bank balances and cash 7,160,804 4,207,862
Time deposits with original maturity of
less than three months 37,941 775,189
_________ _________
Cash and cash equivalents 7,198,745 4,983,051
_________ _________
7,363,745 5,253,051
_________ _________
Bank balances carry interest at the average market rate of 0.35% (2015: 0.35%)
per annum. Time deposits carry interest at fixed rates ranging from 0.20% to
2.25% (2015: 1.35% to 6.50%) per annum.
Bank balances and cash that are denominated in currencies other than the
functional currency of the respective group entities are set out below:
HKD USD
Rmb'000 Rmb'000
As at December 31, 2016 13,692 36,574
As at December 31, 2015 14,562 33,387
_______ _______
34. PLACEMENTS FROM OTHER FINANCIAL INSTITUTIONS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
CSFCL (secured) 700,000 200,000
_________ _________
The placements with interest rate of 3.00% (2015: 6.30%) per annum are
repayable within 1 year from the end of the reporting period.
The placements were secured by a cash deposit of Rmb51,494,000 (2015:
Rmb86,704,000) and debt and equity securities with total fair value of
Rmb123,219,000 (2015: Rmb184,400,000) as at December 31, 2016.
35. ACCOUNTS PAYABLE TO CUSTOMERS ARISING FROM SECURITIES BUSINESS
The amounts mainly represent money held on behalf of clients at the banks and
at the clearing houses by the Group.
The amounts also include payables for securities/futures business as well as
cash collateral from customers for securities lending and/or margin financing
arrangement.
The majority of the accounts payable balance is repayable on demand except
where certain accounts payable to brokerage clients represent margin deposits
received from clients for their trading activities under normal course of
business. No aged analysis is disclosed as in the opinion of the directors an
aged analysis does not give any additional value in view of the nature of the
business.
As at December 31, 2016, Rmb1,298,722,000 (2015: Rmb1,971,098,000 ) cash
collateral have been received from clients for securities lending or margin
financing arrangement, of which under normal course of business. Only the
excess amounts over the required margin deposits stipulated are repayable on
demand.
Accounts payable to customers arising from securities business that are
denominated in currencies other than the functional currency of the respective
group entities are set out below:
HKD USD
Rmb'000 Rmb'000
As at December 31, 2016 20,669 108,693
As at December 31, 2015 22,226 125,058
_______ _______
36. TRADE PAYABLES
Trade payables mainly represent the construction payables for the improvement
projects of toll expressways. The following is an aged analysis of trade
payables presented based on the invoice date:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Within 3 months 339,391 422,424
3 months to 1 year 117,706 230,650
1 to 2 years 190,561 117,341
2 to 3 years 38,879 35,425
Over 3 years 97,763 102,776
_________ ________
784,300 908,616
_________ ________
37. OTHER PAYABLES AND ACCRUALS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Other liabilities:
Accrued payroll and welfare 1,454,992 1,609,626
Advance from rental and
advertising customers 33,079 62,151
Toll collected on behalf of other toll roads 9,149 2,758
Retention payable 77,746 123,917
Deposit received for disposal
of an associate (Note 23(i)) 165,600 165,600
Deposits of equity return swaps (Note) - 77,000
Payables to limited partnership in subsidiaries 178,180 133,088
Others 237,141 287,673
_________ ________
2,155,887 2,461,813
Other accruals 275,261 347,266
_________ ________
2,431,148 2,809,079
_________ ________
Note: Equity return swaps contain non-closely related embedded derivatives as
their returns are linked to the fluctuation of specific stock price. The
embedded derivatives are accounted for under Note 42 after being bifurcated
from their respective host contracts.
38. BANK AND OTHER BORROWINGS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Bank loans 2,101,395 2,297,951
Loan from related parties
(Note 56(i), 56(ii)) 15,000 1,070,000
_________ ________
2,116,395 3,367,951
_________ ________
Secured (Note) - 630,000
Unsecured 2,116,395 2,737,951
_________ ________
2,116,395 3,367,951
_________ ________
Carrying amount repayable:
Within one year 2,116,395 1,777,951
More than one year, but not exceeding
two years - 400,000
More than two years but not more than
five years - 860,000
More than five years - 330,000
_________ ________
2,116,395 3,367,951
Less: Amounts due within one year (2,116,395) (1,777,951)
_________ ________
Amounts shown under non-current liabilities - 1,590,000
_________ ________
38. BANK AND OTHER BORROWINGS - continued
12/31/2016 12/31/2015
Rmb'000 Rmb'000
The bank and other borrowings comprise:
Fixed-rate borrowings 1,714,500 2,047,951
Variable-rate borrowings 401,895 1,320,000
_________ ________
2,116,395 3,367,951
_________ ________
The range of effective interest rates (which are also agreed to contracted
interest rates) on the
Group's borrowings are as follows:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Effective interest rate:
Fixed-rate borrowings 3.92%-4.35% 4.13%-5.10%
Variable-rate borrowings 2.23%-3.92% 4.275%-5.90%
__________ __________
Note: Details of the securities pledged for the grant of borrowings to the
Group were set out in Note 54.
Except that the Group's borrowings of $432,527,000 were dominated in Hong Kong
Dollars as at December 31, 2016, the Group's other borrowings were all
dominated in the functional currency of the group entities as at December 31,
2016 and 2015.
39. SHORT-TERM FINANCING NOTE PAYABLE
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Unsecured
Short-term loan note (Note i) 1,500,000 600,000
Beneficial certificates (Note ii) 3,328,340 16,100
_________ _________
4,828,340 616,100
_________ _________
Notes:
(i) During the year ended December 31, 2016, the Company issued short-term loan
notes at the principle amount of Rmb700,000,000 and Rmb800,000,000, which bear
fixed interest rate of 2.62% and 2.78% per annum, respectively. As at December
31, 2016, the amounts were repayable upon maturity.
During the year ended December 31, 2015, Zheshang Securities issued a
short-term loan note at the principal amount of Rmb1,100,000,000, which was
interest bearing at of from 2.93% to 3.20% per annum, out of which
Rmb500,000,000 was matured and repaid. As at December 31, 2015,the remaining
Rmb600,000,000 was repayable upon maturity.
(ii) During the year ended December 31, 2016, there were Rmb5,428,340,000
(2015: Rmb2,733,560,000) principals received from investors for subscription of
beneficial certificates issued by Zheshang Securities, which bear interest
rates ranging from 1.0% to 6.0% (2015: 0.7% to 6.47%) per annum, out of which
Rmb2,116,100,000 (2015: Rmb2,717,460,000) was matured and repaid. As at
December 31, 2016, the remaining beneficial certificates and its interests are
repayable upon maturity.
40. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Analysed as collateral type:
Bonds 5,186,743 3,485,380
Other rights and interests in debt instruments 2,300,000 1,900,000
_________ _________
7,486,743 5,385,380
_________ _________
Analysed by market:
Shanghai/Shenzhen Stock Exchange 3,119,475 350,000
Inter-bank market 2,067,268 3,135,380
Other financial institutions 2,300,000 1,900,000
_________ _________
7,486,743 5,385,380
_________ _________
As of December 31, 2016, the above financial assets sold under repurchase
agreements include those repurchase agreements entered into with qualified
investors, which amounted to Rmb7,486,743,000 (December 31, 2015: 5,385,380,000
), with maturities within 1 year.
Sales and repurchase agreements are transactions in which the Group sells a
security and simultaneously agrees to repurchase it (or an asset that is
substantially the same) at a fixed price on a future date. Since the repurchase
prices are fixed, the Group is still exposed to substantially
all the credit risks and market risks and rewards of those securities sold.
These securities are not derecognised from the financial statements but
regarded as "collateral" for the liabilities because the Group retains
substantially all the risks and rewards of these securities. The cash proceed
received is recognised as financial liability.
As at December 31, 2016, the Group enters into repurchase agreements with
certain counterparties. The proceeds from selling such securities are presented
as financial assets sold under repurchase agreements. Because the Group sells
the contractual rights to the cash flows of the securities, it does not have
the ability to use the transferred securities during the term of the
arrangement.
The following tables provides a summary of carrying amounts and fair values
related to transferred financial assets that are not derecognised in their
entirety and the associated liabilities as at December 31, 2016:
Financial Loans to
Held for assets held customers
arising
trading under resale from margin
investments agreements financing Total
business
Rmb'000 Rmb'000 Rmb'000
Rmb'000
Carrying amount of
transferred assets 4,382,376 918,296 2,495,669 7,796,341
Carrying amount of
associated (4,294,522) (892,221) (2,300,000) (7,486,743)
liabilities
__________ _________ _________ _________
Net position 87,854 26,075 195,669 309,598
_________ _________ __________ _________
41. BONDS PAYABLE
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Subordinated bonds (Note) 8,900,000 8,700,000
Long term beneficial certificates 800,000 1,900,000
_________ _________
9,700,000 10,600,000
_________ _________
Less: subordinated bonds due within 1 year 3,000,000 3,000,000
_________ _________
Amounts shown under non-current liabilities 6,700,000 7,600,000
_________ _________
Notes:
On September 22, 2014, Zheshang Securities issued a four-year subordinated bond
in the principal amount of Rmb1,000,000,000, with a redemption option
exercisable at par value plus the unpaid interests at the second anniversary
since the date of issue, out of which a principal amount of Rmb300,000,000 was
subscribed by the Company. The annual interest rate in first two years is
6.30%, and which will be 9.30% for the remaining two years if the issuer does
not exercise the option of redemption. The subordinated bond was early redeemed
in current year.
On March 17, 2015, Zheshang Securities issued a four-year subordinated bond in
the principal amount of Rmb1,500,000,000, with a redemption option exercisable
at par value plus the unpaid interests at the second anniversary since the date
of issue. The annual interest rate in first two years is 5.80%, and which will
be 8.80% for the remaining two years if the issuer does not exercise the option
of redemption. The subordinated bond was early redeemed in March 2017.
On February 3, 2015, Zheshang Securities issued a five-year unsecured corporate
bond at the principal amount of Rmb1,500,000,000, with the redemption option
exercisable by the bondholders at the third anniversary of the date of issue.
The corporate bond bears fixed interest rate of 4.9% per annum with interest to
be paid annually in arrears for the first three years. At the third
anniversary of the date of issue, the bondholders has the right to require
Zheshang Securities to redeem the outstanding corporate bond at an amount
equals to its principal amount. If the redemption option is not exercised, the
interest rate would be re-priced for the remaining period of two years till
maturity at that time.
On October 31, 2016, Zheshang Securities issued a five-year subordinated bond
in the principal amount of Rmb1,000,000,000, with a redemption option
exercisable at par value plus the unpaid interests at the third anniversary
since the date of issue. The annual interest rate in first three years is
3.63%, and which will be 6.63% for the remaining two years if the issuer does
not exercise the option of redemption.
Other subordinated bonds without redemption option bear fixed interest rates.
42. DERIVATIVE FINANCIAL ASSETS/LIABILITIES
Derivative financial assets of Rmb10,931,000 and derivative financial
liabilities of Rmb413,000 has been recognized for the fair values of those
foreign exchange forward transaction and commodity options as at December 31,
2016.
The Group entered into numbers of equity return swaps contracts with its
customers of securities business in 2015. Derivative financial assets of
Rmb2,288,000 and derivative financial liabilities of Rmb4,258,000 has been
recognized for the fair values of those embedded derivatives as at December 31,
2015.
43. DEFERRED TAXATION
For the purpose of presentation in the consolidated statement of financial
position, certain deferred tax assets and liabilities have been offset. The
following is the analysis of the deferred tax balances for financial reporting
purposes:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Deferred tax assets 362,681 329,526
Deferred tax liabilities (378,147) (262,128)
_________ _________
(15,466) 67,398
The following are the major deferred tax liabilities and assets recognised and
movements thereon during the current and prior years:
Difference
in
tax and
accounting
Changes in depreciation Temporary
fair value of property differences
of
held for plant and Fair value of accrued
trading
and equipment adjustment expenses
available- and of and
for-sale expressway long term impairment
investments operating assets losses Total
rights
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
At December 31, 2015 83,550 23,350 95,595 (269,893) (67,398)
Acquired on - - 125,258 - 125,258
acquisition of a
subsidiary
Charge (credit) to (3,846) (18,744) (9,784) (23,867) (56,241)
profit or loss
Charge to other 12,523 - - - 12,523
comprehensive income
Disposal of a - - - 1,324 1,324
subsidiary
_______ _______ _______ _______ _______
At December 31, 2016 92,227 4,606 211,069 (292,436) 15,466
_______ _______ _______ _______ _______
As at December 31, 2016, the Group had unused tax losses of approximately
Rmb321,689,000 (2015: Rmb430,964,000). No deferred taxation asset has been
recognised due to the unpredictability of future profit streams. Such
unrecognised tax losses will expire within 2021.
44. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
12/31/ 12/31/
2016 2015
Rmb'000 Rmb'000
Financial liabilities held for trading
- Bonds borrowing 196,363 -
Financial liabilities designated at fair value through
profit or loss
Financial liabilities arising from consolidation of 97,295 -
structured entities (Note)
_________ _________
293,658 -
_________ _________
Note:
Financial liabilities arising from consolidation of structured entities
represents third party unit holders' interests in the consolidated structure
schemes and funds which are reflected as a liability since they can be put back
to the Group for cash.
The Group has designated these liabilities as FVTPL, as in the opinion of the
management, such designation eliminates or significantly reduces a measurement
or recognition inconsistency that would otherwise arise.
45. SHARE CAPITAL
Number of shares Share capital
12/31/2015 and 2016 12/31/2015 and 2016
'000 Rmb'000
Registered, issued and fully paid:
Domestic shares of Rmb1 each 2,909,260 2,909,260
H Shares of Rmb1 each 1,433,855 1,433,855
__________ _________
4,343,115 4,343,115
__________ _________
The domestic shares are not currently listed on any stock exchange.
The H Shares have been listed on the Stock Exchange since May 15, 1997. The H
Shares were admitted to the Official List on May 5, 2000 and their dealings on
the London Stock Exchange commenced on the same day.
On February 14, 2002, the United States Securities and Exchange Commission,
following the approval by the Board of Directors and the China Securities
Regulatory Commission, declared the registration statement in respect of the
ADSs evidenced by ADRs representing the deposited H Shares of the Company
effective.
All the domestic shares and H Shares rank pari passu with each other as to
dividends and voting rights.
46. NON-CONTROLLING INTERESTS
Rmb'000
Balance at January 1, 2015 4,127,573
Share of total comprehensive income 1,066,051
Contribution by non-controlling-interests 5,000
Acquisition of additional interest of
a non-wholly owned subsidiary (Note) 171,179
Dividend paid to non-controlling interests (107,812)
__________
At December 31, 2015 5,261,991
__________
Share of total comprehensive income 789,326
Disposal of a subsidiary (8,731)
Capital reduction by non-controlling interests (5,000)
Dividend paid to non-controlling interests (178,816)
__________
At December 31, 2016 5,858,770
__________
46. NON-CONTROLLING INTERESTS - continued
Notes:
In December 2015, the equity interest in Hanghui Co held by the group increased
from 80.614% to 88.674% as the company has made an additional capital
contribution to Hanghui Co. The acquisition of additional interest in the
subsidiary resulted in an increase of non-controlling interest by
Rmb171,179,000.
The summarised financial information in respect of the Group's subsidiary that
has material non-controlling interests, namely Shangsan Co and its subsidiaries
and Yuhang Co (as defined in Note 57) at the end of the reporting period are
set out below. The summarised financial information below represents amounts
before intragroup elimination.
Shangsan Co and its subsidiaries
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Current assets 51,271,695 52,844,339
_________ _________
Non-current assets 5,387,726 5,272,372
_________ _________
Current liabilities 36,070,840 39,320,773
_________ _________
Non-current liabilities 8,304,014 8,000,644
_________ _________
Equity attributable to owners of the Company 6,967,869 6,106,965
_________ _________
Non-controlling interests 5,316,698 4,688,329
_________ _________
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Revenue 5,287,538 6,680,544
_________ _________
Expenses (3,425,204) (4,342,360)
_________ _________
Profit for the year 1,862,334 2,338,184
Other comprehensive income 37,870 54,229
_________ _________
Total comprehensive income 1,900,204 2,392,413
_________ _________
Profit attributable to owner of the Company 1,106,203 1,329,195
Profit attributable to non-controlling interests 756,131 1,008,989
_________ _________
1,862,334 2,338,184
_________ _________
Total comprehensive income attributable
to owner of the Company 1,125,951 1,357,473
Total comprehensive income attributable to
non-controlling interests 774,253 1,034,940
_________ _________
1,900,204 2,392,413
_________ _________
46. NON-CONTROLLING INTERESTS - continued
Shangsan Co and its subsidiaries - continued
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Dividends paid to non-controlling shareholders (45,947) (94,950)
_________ _________
Net cash outflow from operating activities (1,238,549) (5,201,354)
_________ _________
Net cash outflow used in investing activities (901,876) (1,235,019)
_________ _________
Net cash inflow from financing activities 4,016,689 8,602,933
_________ _________
Net cash inflow 1,876,264 2,166,560
_________ _________
Yuhang Co
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Current assets 147,804 345,139
_________ _________
Non-current assets 853,514 881,847
_________ _________
Current liabilities 242,973 310,993
_________ _________
Non-current liabilities 7,679 158,035
_________ _________
Equity attributable to owners of the Company 382,840 386,558
_________ _________
Non-controlling interests 367,826 371,400
_________ _________
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Revenue 383,760 133,966
_________ _________
Expenses (372,246) (72,899)
_________ _________
Profit for the year 11,514 61,067
_________ _________
46. NON-CONTROLLING INTERESTS - continued
Yuhang Co - continued
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Profit and total comprehensive income
- attributable to owner of the Company 5,872 31,143
- attributable to non-controlling interests 5,642 29,924
_________ _________
11,514 61,067
_________ _________
Dividends paid to non-controlling shareholders (9,215) (11,058)
_________ _________
Net cash inflow from operating activities 234,319 30,456
_________ _________
Net cash outflow used in investing activities (47,629) (101,279)
_________ _________
Net cash (outflow) inflow from financing activities (180,434) 52,281
_________ _________
Net cash inflow (outflow) 6,256 (18,542)
_________ _________
47. RETIREMENT BENEFITs SCHEMES
The employees of the Group are members of the state-managed retirement benefits
scheme operated by the PRC government. To supplement this existing retirement
benefits scheme, the Group adopted a corporate annuity scheme in accordance
with relevant rules and regulations. The Group is required to contribute a
certain percentage of payroll costs to these retirement benefits schemes to
fund the benefits. The only obligation of the Group with respect to these
retirement benefits schemes is to make the specified contributions.
No forfeited contributions are available to reduce the contribution payable in
future years.
48. ACQUSITION OF A SUBSIDIARY
On September 14, 2016, the Group acquired 100% equity interest in Huangshan
Yangtse Huihang Expressway Co., Ltd. ("Huihang Co") for cash consideration of
Rmb570,000,000. This acquisition has been accounted for using aquisition
method. No goodwill was recognised as a result of the acquisition, as
consideration transferred equals net assets acquired. Huihang Co is engaged in
toll operation business. Huihang Co was acuqired so as to continue the
expansion of the Group's toll operations.
Acquisition-related costs amounting to Rmb584,000 have been excluded from the
consideration transferred and have been recognised as an expense in the current
year, within the administrative expenses line item in the consolidated
statement of profit or loss and other comprehensive income.
48. ACQUSITION OF A SUBSIDIARY - continued
Assets acquired and liabilities recognised at date of acquisition are as
follows:
Rmb'000
Property, plant and equipment 33,832
Expressway operating rights 2,303,560
Other receivables and prepayments 2,087
Inventories 31
Trade receivables 2,516
Bank balances and cash
- Cash and cash equivalents 236
Trade payable (10,756)
Other payable and accruals (490,604)
Other tax liabilities (644)
Bank borrowings (1,145,000)
Deferred tax liabilities (125,258)
__________
570,000
__________
The fair value of trade receivables and other receivables and the gross
contractual amounts of those trade receivables and other receivables acquired
at the date of acquisition amounted to Rmb4,024,000. The best estimate at
acquisition date of the contractual cash flows not expected to be collected
amounted to Rmb nil.
Net cash outflow arising on acquisition
Rmb'000
Consideration paid in cash 541,500
Less: Cash and cash equivalents acquired (236)
__________
541,264
__________
Included in the profit for the year is loss of Rmb29,189,000 attributable to
the additional business generated by Huihang Co. Revenue for the year includes
Rmb42,992,000 generated from Huihang Co.
Had the acquisition been completed on January 1, 2016, total group revenue for
the year would have been Rmb9,829,566,000, and the amount of the profit for
year 2016 would have been Rmb3,765,880,000. The pro-forma information is for
illustrative purposes only and is not necessarily an indication of revenue and
results of operations of the Group that actually would have been achieved had
the acquisition been completed on January 1, 2016, nor is it intended to be a
projection of future results.
In determining the "pro-forma" revenue and profit of the Group had Huihang Co
been acquired at the beginning of the current year, the directors have
calculated amortisation of expressway operating rights acquired on the basis of
the fair values arising in the initial accounting for the business combination
rather than the carrying amounts recognised in the pre-acquisition financial
statement.
49. DISPOSAL OF SUBSIDIARIES
For the year ended December 31, 2016
On October 17, 2016, the Company entered into an agreement with Zhejiang
Communications Investment Co., Ltd. ("Zhejiang Communications Investment"), a
fellow subsidiary of the Communications Group, pursuant to which the Company
sold the 100% equity interest in Development Co to Zhejiang Communications
Investment at a cash consideration of Rmb249,660,000. The disposal was
completed on December 29, 2016.
Consideration received: Rmb'000
Cash received 249,660
_________
29/12/2016
Analysis of assets and liabilities over which control was lost: Rmb'000
Property, plant and equipment 184,269
Prepaid lease payment 3,584
Intangible assets 107
Deferred tax asset 1,324
Inventories 4,216
Trade receivables 3,805
Other receivables and prepayments 17,245
Bank balances and cash 141,028
Trade payables (14,522)
Tax liabilities (3,353)
Other tax payables (3,172)
Other payables and accruals (133,133)
_________
Net assets disposed of 201,398
_________
Gain on disposal of a subsidiary:
Consideration received 249,660
Net assets disposed of (201,398)
Non-controlling interest 8,731
_________
Gain on disposal 56,993
_________
Net cash inflow arising on disposal:
Cash received 249,660
Less: bank balances and cash disposed of (141,028)
_________
108,632
_________
49. DISPOSAL OF SUBSIDIARIES - continued
For the year ended December 31, 2015
On August 31, 2015, the Company entered into an agreement with Zhejiang
Communications Resources Investment Co., Ltd. ("Zhejiang Communications
Resources"), a fellow subsidiary of the Communications Group, pursuant to which
the Company sold the 100% equity interest in Maintenance Coto Zhejiang
Communications Resources at a cash consideration of Rmb41,084,000. The disposal
was completed on September 14, 2015.
Consideration received: Rmb'000
Cash received 38,343
Deferred cash consideration and received in 2016 2,741
_________
Total consideration 41,084
_________
9/14/2015
Analysis of assets and liabilities over which control was Rmb'000
lost:
Property, plant and equipment 13,975
Inventories 4,663
Trade receivables 47,433
Other receivables and prepayments 544
Bank balances and cash 19,602
Trade payables (27,646)
Other payables and accruals (18,366)
_________
Net assets disposed of 40,205
_________
Gain on disposal of a subsidiary:
Consideration received and receivable 41,084
Net assets disposed of (40,205)
_________
Gain on disposal 879
_________
Net cash inflow arising on disposal:
Cash received 38,343
Less: bank balances and cash disposed of (19,602)
_________
18,741
_________
50. COMMITMENTS
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Authorised but not contracted for:
- Purchase of machinery and equipment 312,150 312,220
- Renovation of service areas - 31,340
- Acquisition and construction of properties 242,400 317,630
- -
_________ _________
554,550 661,190
_________ _________
51. CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be able
to continue as a going concern while maximising the return to shareholders
through the optimisation of the debt and equity balance. The Group's overall
strategy remains unchanged from prior year.
The capital structure of the Group consists of net debt, which includes the
borrowings disclosed in Notes 38, 39, 40 and 41, net of cash and cash
equivalents and equity attributable to owners of the Company, comprising issued
share capital, reserves and retained profits.
The directors of the Company review the capital structure on a regular basis.
As part of this review, the directors consider the cost of capital and the
risks associated with each class of capital. Based on recommendations of the
directors, the Group will balance its overall capital structure through the
payment of dividends and new share issues as well as the issue of new debt or
the redemption of existing debt.
52. FINANCIAL INSTRUMENTS
(a) Categories of financial instruments
Financial assets
12/31/2016 12/31/2015
Rmb'000 Rmb'000
AFS investments
- at cost 44,597 44,597
- at fair value 3,089,301 2,624,011
Fair value through profit or loss
Held for trading investments 8,144,132 3,761,224
Derivative financial assets 10,931 2,288
Loans and receivables
(including cash and cash equivalents) 42,374,225 49,182,275
_________ _________
Financial liabilities
Fair value through profit or loss
Derivative financial liabilities 413 4,258
Financial liabilities at fair value
through profit or loss 293,658 -
Amortised cost 45,806,364 48,314,488
_________ _________
52. FINANCIAL INSTRUMENTS - continued
(b) Financial risk management objectives and policies
The Group's major financial instruments include available- for-sale
investments, held for trading investments, trade and other receivables, loans
to customers arising from margin financing business, financial assets held
under resale agreements, bank balances and cash, bank balances held on behalf
of customers, trade and other payables, placements from other financial
institutions, accounts payable to customers arising from securities business,
derivative financial assets, derivative financial liabilities, bank and other
borrowings, short-term financing note payable, financial assets sold under
repurchase agreements, financial liabilities at fair value through profit or
loss, bonds payable and financial guarantee. Details of the financial
instruments are disclosed in respective notes. The risks associated with these
financial instruments include market risk (interest rate risk, currency risk
and other price risk), credit risk and liquidity risk. The policies on how to
mitigate these risks are set out below. The management manages and monitors
these exposures to ensure appropriate measures are implemented on a timely and
effective manner.
Market risk
(i) Interest rate risk
The Group is exposed to fair value interest rate risk in relation to loans to
customers arising from margin financing business, fixed-rate entrusted loans,
financial assets held under resale agreements, fixed-rate time deposits,
placement from other financial institutions, fixed-rate bank and other
borrowings, short-term financing note payable, financial assets sold under
repurchase agreements, bonds payable and financial liabilities at fair value
through profit or loss(see notes 28, 29, 31, 33, 34, 38, 39, 40, 41 and 44 for
details).
The Group is also exposed to cash flow interest rate risk in relation to
variable-rate bank balances held on behalf of customers, bank balances and bank
and other borrowings (see Notes 32, 33 and 38 for details).
The Group currently does not have an interest rate risk hedging policy as the
management considers the Group is not exposed to significant interest rate
risk. The management will continue to monitor interest rate risk exposure and
consider hedging against it should the need arise.
The Group's exposures to interest rates on financial liabilities are detailed
in the liquidity risk management section of this note.
Sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to
interest rates for non-derivative instruments, comprising variable-rate bank
balances held on behalf of customers, bank balances and bank and other
borrowings at the end of the reporting period.
The analysis is prepared assuming the balances outstanding at the end of the
reporting period were outstanding for the whole year. A 30 basis points (2015:
30 basis points) increase or decrease represents management's assessment of the
reasonably possible change in interest rates.
52. FINANCIAL INSTRUMENTS - continued
(b) Financial risk management objectives and policies - continued
Market risk - continued
(i) Interest rate risk - continued
If interest rates had been 30 basis points (2015: 30 basis points) higher/lower
and all other variables were held constant, the Group's post-tax profit for the
year ended December 31, 2016 would have increased/decreased by Rmb60,478,000
(2015:Rmb69,169,000) This was mainly attributable to the Group's exposure to
interest rates on its variable-rate bank balances.
(ii) currency risk
Several subsidiaries of the Group have foreign currency denominated monetary
assets and liabilities, which expose the Group to foreign currency risk. The
Group is mainly exposed to HKD and USD relative to RMB.
The carrying amounts of the Group's foreign currency denominated monetary
assets and liabilities at the end of the reporting date are as follows:
Assets Liabilities
12/31/2016 12/31/2015 12/31/2016 12/31/2015
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Hong Kong dollar ("HKD") 34,361 36,788 407,564 22,226
United States dollar ("USD") 145,266 158,445 108,693 120,058
_______ _______ _______ _______
Sensitivity analysis
The Group did not maintain significant assets and liabilities denominated in
the currency other than the Group's functional currencies, the impact of the
change in foreign exchange rate would not have significant impact to the Group
and the sensitivity analysis on the increase and decease of the foreign
exchange rate is not presented, accordingly.
(iii) Other price risk
The Group is exposed to equity and debt security price risk in relation to its
held for trading and AFS listed investments.
The Group currently does not have a price risk hedging policy and the
management will continue to monitor price risk exposure and consider hedging
against it should the need arise.
Sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to
equity and debt security price risks at the reporting date.
52. FINANCIAL INSTRUMENTS - continued
(b) Financial risk management objectives and policies - continued
Market risk - continued
(iii) Other price risk - continued
Sensitivity analysis - continued
If the prices of the respective equity and debt instruments had been 5% (2015:
5%) higher/lower,
* post-tax profit for the year ended December 31, 2016 would have increased/
decreased by Rmb305,405,000 (2015: Rmb141,046,000) as a result of the
changes in fair value of held for trading investments.
* investment valuation reserve would have increased/decreased by
Rmb115,849,000 (2015: Rmb98,400,000) for the Group as a result of the
changes in fair value of AFS listed investments, or the investment
revaluation reserve would decrease by the same amount and the Group would
consider any potential impairment effect, if necessary.
* post-tax profit for the year ended December 31, 2016 would have net
increased/decreased by Rmb394,000 (2015: Rmb74,000) as a result of the
changes in fair value of derivative financial assets and liabilities.
* post-tax profit for the year ended December 31, 2016 would have net
decreased/increased by Rmb11,012,000 (2015: Nil) as a result of the changes
in fair value of financial liabilities at fair value through profit or
loss.
Credit risk
As at December 31, 2016, the Group's maximum exposure to credit risk which will
cause a financial loss to the Group due to failure to discharge an obligation
by the counterparties provided by the Group is arising from the carrying amount
of the respective recognised financial assets as stated in the consolidated
statement of financial position and the amount of contingent liability in
relation to financial guarantee issued by the Group as disclosed in Note 55.
The Group reviews the recoverable amount of each individual trade debt and
entrusted loan receivables at the end of the reporting period to ensure that
adequate impairment losses are made for irrecoverable amounts. In this regard,
the directors of the Company consider that the Group's credit risk is
significantly reduced.
The Group has no credit period granted to its trade customers of toll operation
businesses. All the Group's trade receivable balance for toll operation
business are toll receivables from the government-operated organisation.
The Group also provides clients with margin financing business, and have
financial assets held under resale agreements which are secured by clients'
securities or deposits held as collateral.
52. FINANCIAL INSTRUMENTS - continued
(b) Financial risk management objectives and policies - continued
Credit risk - continued
In respect of the margin financing and securities lending business of the
Group's securities operation, which was carried out by Zheshang Securities Co.,
Ltd. ("Zheshang Securities"), Zheshang Securities has appointed a group of
authorised persons who are charged with the responsibility of determination of
credit limits, credit approvals and other monitoring procedures to ensure that
follow-up action is taken to recover overdue debts. Each client has a maximum
credit limit based on the quality of collateral held and the financial
background of the client. In addition, Zheshang Securities reviews the
recoverable amount of each individual loan at the end of the reporting period
to ensure that adequate impairment losses are made for irrecoverable amounts.
Margin calls are made when the trades of margin clients exceed their respective
limits. Any such excess is required to be made good within the next trading
day. Failure to meet margin calls will result in the liquidation of the
customers' position. Zheshang Securities seeks to maintain strict control over
its outstanding receivables. It will also adhere to the Group's policies and
procedures to conduct periodic credit assessment and manage any concentration
in the following exposures and perform regular reporting to the management:
(iv) exposures to a particular client/counterparty or group of related
clients/counterparties; and
(v) exposures to a particular investment product.
The Investment Committee of Zheshang Securities is also responsible to the
credit risk arising from its proprietary trading operation, including the
investments in AFS investments and held for trading investments. The
Investment Committee assesses the financial performance of the issuers to
ensure that the issuers can satisfy the repayment of the principal and interest
as they fall due. It has set portfolio size limits and single issuer limits to
limit Zheshang Securities' exposure to the credit risk. Zheshang Securities
also monitors the credit rating and market news of the issuers for any
indication of potential credit deterioration.
The credit risk on liquid funds is limited because the counterparties are
state-owned banks or banks with high credit ratings assigned by international
credit-rating agencies.
As at December 31, 2016, other than the concentration of credit risk on trade
receivables, entrusted loan receivables and financial guarantee contract
amounting to Rmb275,318,000 (2015: Rmb151,083,000), Rmb423,613,000 (2015:
Rmb634,436,000), and Rmb947,275,000 (2015: Rmb1,021,374,000), respectively, of
which these balances were only limited and concentrated to a few
counterparties, the Group does not have any other significant concentration of
credit risk.
There are also no concentration risks on its margin financing business and
financial assets held under resale agreements as at December 31, 2016 and
December 31, 2015 respectively as the Group has a large number of clients who
are dispersed.
The Group's concentration of credit risk by geographical location is mainly in
the PRC.
52. FINANCIAL INSTRUMENTS - continued
(b) Financial risk management objectives and policies - continued
Liquidity risk
Most of the bank balances and cash at December 31, 2016 and 2015 were
denominated in RMB which is not a freely convertible currency in the
international market. The exchange rate of RMB is regulated by the PRC
government and the remittance of these RMB funds out of the PRC is subject to
foreign exchange controls imposed by the PRC government.
The Group closely monitors its cash position resulting from its operations and
maintains a level of cash and cash equivalents deemed adequate by the
management to enable the Group to meet in full its financial obligations as
they fall due for the foreseeable future.
The following table details the Group's remaining contractual maturity for its
non-derivative financial liabilities. The table has been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on
which the Group can be required to pay. The table includes both interest and
principal cash flows.
Liquidity tables
On demand Total Carrying
Weighted or undiscounted amount
average Less than 3 months 1 - 3 cash at
-
interest 3 months 1 year years 3 - 5 +5 flows 31/12/2016
rate years years
% Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
2016
Non-derivative
financial
Liabilities
Placements from other
3.00 710,675 - - - - 710,675 700,000
financial institutions
Accounts payable to
customers
arising from - 20,073,435 - - - - 20,073,435 20,073,435
securities business
Trade payables - 784,300 - - - - 784,300 784,300
Other payables - 117,151 - - - - 117,151 117,151
Bank and other
borrowings
-fixed rate 3.93 16,856 1,740,727 - - - 1,757,583 1,714,500
-variable rate 2.29 2,304 404,438 - - - 406,742 401,895
Short-term financing 4.51 1,390,932 3,572,430 - - - 4,963,362 4,828,340
note payable
Financial assets sold
under
repurchase 3.97 5,388,337 1,889,902 529,515 - - 7,807,754 7,486,743
agreements
Bonds payable 4.61 1,779,000 1,718,520 1,569,728 5,992,040 - 11,059,288 9,700,000
Financial guarantee - 947,275 - - - - 947,275 -
Financial liabilities
at fair value
through profit or - 206,387 87,271 - - - 293,658 293,658
loss
_________ _______ _________ _______ _______ _________ _________
31,416,652 9,413,288 2,099,243 5,992,040 - 48,921,223 46,100,022
_________ _______ _________ _______ _______ _________ _________
2015
Non-derivative
financial
Liabilities
Placements from other
6.30 200,414 - - - - 200,414 200,000
financial institutions
Accounts payable to
customers
arising from - 27,009,641 - - - - 27,009,641 27,009,641
securities business
Trade payables - 908,616 - - - - 908,616 908,616
Other payables - 176,800 50,000 - - - 226,800 226,800
Bank and other
borrowings
-fixed rate 4.40 21,664 1,537,881 611,780 - - 2,171,325 2,047,951
-variable rate 4.86 115,321 240,893 509,255 296,738 344,905 1,507,112 1,320,000
Short-term financing 3.13 620,739 - - - - 620,739 616,100
note payable
Financial assets sold
under
repurchase 4.11 4,421,097 510,106 536,649 - - 5,467,852 5,385,380
agreements
Bonds payable 5.51 145,500 3,399,945 5,229,723 3,098,022 - 11,873,190 10,600,000
Financial guarantee - 1,021,374 - - - - 1,021,374 -
_________ _______ _________ _______ _______ _________ _________
34,641,166 5,738,825 6,887,407 3,394,760 344,905 51,007,063 48,314,488
_________ _______ _________ _______ _______ _________ _________
52. FINANCIAL INSTRUMENTS - continued
(b) Financial risk management objectives and policies - continued
Liquidity risk - continued
Liquidity tables - continued
The amounts included above for financial guarantee contracts are the maximum
amounts the Group could be required to settle under the arrangement for the
full guaranteed amount if that amount is claimed by the counterparty to the
guarantee. Based on expectations at the end of the reporting period, the Group
considers that it is more likely than not that no amount will be payable under
the arrangement. However, this estimate is subject to change depending on the
probability of the counterparty claiming under the guarantee which is a
function of the likelihood that the financial receivables held by the
counterparty which are guaranteed suffer credit losses.
The amounts included above for variable interest rate instruments for
non-derivative financial liabilities are subject to change if changes in
variable interest rates differ to those estimates of the interest rates
determined at the end of the reporting period.
As at December 31, 2016 and 2015, the Group has not entered into any master
netting arrangements with counterparties. The collaterals of which, such as
financial assets held under resale agreement, held-for-trading investments,
loans to customers arising from margin financing business, placements from
other financial institutions and financial assets sold under repurchase
agreements, financial liabilities at fair value through profit or loss, etc.,
are disclosed in the corresponding notes, which are generally not on the net
basis in financial position. However, the risk exposure associated with
favourable contracts is significantly reduced by the collaterals received by
the Group which could be recovered to the extent if a default occurs, in
respect of the outstanding receivable amounts from the counterparty.
The analysis above does not include the cash flow of derivatives, which do not
have material impact on the cash flow of the group or the company.
(c) Fair value measurements of financial instruments
This note provides information about how the Group determines fair values of
various financial assets and financial liabilities.
Fair value measurements recognised in the statement of financial position that
are measured at fair value on a recurring basis
Some of the Group's financial assets and financial liabilities are measured at
fair value at the end of each reporting period. The following table gives
information about how the fair values of these financial assets and financial
liabilities are determined (in particular, the valuation technique(s) and
inputs used).
52. FINANCIAL INSTRUMENTS - continued
(c) Fair value measurements of financial instruments - continued
Financial Classified as Fair value as Fair value as at Fair Basis of fair Significant Relationship
Assets at 31/12/2015 value value unobservable of
31/12/2016 Rmb'000 hierarchy measurement / input(s) unobservable
Rmb'000 valuation inputs to
technique(s) fair
and value
key input(s)
1) Equity Held for trading Assets- 68,996 Assets- 221,699 Level 1 Quoted bid N/A N/A
Investments investments prices in an
listed in active market.
exchange
2) Equity Available-for-sale Assets- Assets- 237,260 Level 2 Recent N/A N/A
securities investments 272,392 transaction
listed prices.
in exchange
(inactive Assets-315,878 Assets-202,441 Level 3 Discounted Discounted for The higher
due to cash flow. The lack of the
low fair value is marketability. discount,
transaction determined the lower
volume) with reference the fair
to the quoted value.
market prices
with an
adjustment of
discount for
lack of
marketability.
3) Listed Held for trading Assets- Assets- 191,967 Level 1 Quoted bid N/A N/A
open-ended investments 1,279,339 prices in an
equity funds active market.
4) Fund Available-for-sale Assets - Assets -55,982 Level 1 Quoted bid N/A N/A
listed in investments 89,993 prices in an
exchange active market.
5) Debt Held for trading Assets - Assets - Level 1 Quoted bid N/A N/A
investments investments 4,597,320 1,170,952 prices in an
listed in active market.
exchange Available-for-sale N/A N/A
and debt investments
investment
in interbank Held for trading Assets- Assets- Level 2 Discounted N/A N/A
market investments 2,198,477 2,176,606 cash flow.
Future cash
flows are
estimated
based on
applying the
interest yield
curves of
different
types of bonds
as the key
parameter.
Available-for-sale Assets- 30,000 Assets-50,000 Level 2 Discounted N/A N/A
investments cash flow.
Future cash
flows are
estimated
based on
applying the
interest yield
curves of
different
types of bonds
as the key
parameter.
6) Available-for-sale Assets- Assets- 544,597 Level 2 Shares of the N/A N/A
Investments investments 857,148 net assets of
in the products,
structured determined
products with reference
to the net
asset value of
the products,
calculated by
observable
(quoted)
prices of
underlying
investment
portfolio and
adjustments of
related
expenses.
Assets- Assets-141,418 Level 3 Discounted Actual yield The higher
133,387 cash flow. of the the actual
Future cash underlying yield, the
flows are investment higher the
estimated portfolio and fair value
based on the discount
expected rate
applicable
yield of the
underlying
investment
portfolio and
adjustments of
related
expenses.
7) Available-for-sale Assets - Assets - 10,000 Level 3 Discounted Actual yield The higher
Investments investments 10,000 cash flow. of the the actual
in trust Future cash underlying yield, the
products flows are investment higher the
estimated portfolio and fair value
based on the discount
expected rate
applicable
yield of the
underlying
investment
portfolio and
adjustments of
related
expenses.
8) Unlisted Available-for-sale Assets- Assets-1,382,313 Level 2 Calculated N/A N/A
equity investments 1,380,503 based on the
investment fair value of
at fair the underlying
value investments
which are
listed equity
securities,
after making
adjustments of
related
expenses.
Financial Classified as Fair value Fair Basis of fair Significant Relationship
Liabilities as at value value unobservable of
31/12/2016 Fair value as at hierarchy measurement / input(s) unobservable
Rmb'000 31/12/2015 valuation inputs to
Rmb'000 technique(s) fair
and value
key input(s)
1) Fair value through Liabilities- N/A Level 2 Discounted N/A N/A
Investments profit or loss 196,363 cash flow.
in interbank Future cash
market flows are
estimated
based on
applying the
interest yield
curves of
different
types of bonds
as the key
parameter.
2) Fair value through Liabilities- N/A Level 2 Shares of the N/A N/A
Investments profit or loss 97,295 net assets of
in asset the products,
management determined
scheme with reference
to the net
asset value of
the products,
calculated by
observable
(quoted)
prices of
underlying
investment
portfolio and
adjustments of
related
expenses.
52. FINANCIAL INSTRUMENTS - continued
(c) Fair value measurements of financial instruments - continued
As at December 31, 2016
Level 1 Level 2 Level 3 Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Held for trading investments
- Equity securities
a. Manufacturing 40,680 - - 40,680
b. Financial services 8,991 - - 8,991
c. information technology service 4,718 - - 4,718
d. Transportation, storage and 2,227 - - 2,227
portal service
e. Energy and water services 7,075 - - 7,075
f. Real Estate 108 - - 108
g. Water conservancy, environment 59 - - 59
and public facilities management
h. Culture, sports and entertainment 58 - - 58
i. Wholesaling 5,076 - - 5,076
j. Others 4 - - 4
________ ________ ________ ________
68,996 - - 68,996
________ ________ ________ ________
- Open-ended fund 1,279,339 - - 1,279,339
________ ________ ________ ________
- Bonds 4,597,320 2,198,477 - 6,795,797
________ ________ ________ ________
Sub-total 5,945,655 2,198,477 - 8,144,132
________ ________ ________ ________
Available-for-sale investments
- Equity
a. Manufacturing - 118,619 - 118,619
b. Information technology service - 79,133 315,878 395,011
c. Financial services - 7,134 - 7,134
d. Transportation, storage and - 8,170 - 8,170
postal service
e. Construction - 8,693 - 8,693
f. Energy service - 2,554 - 2,554
g. Wholesaling - 20,428 - 20,428
h. Agriculture, forestry, fishing - 2,603 - 2,603
and Animal husbandry
i. Others - 1,405,561 - 1,405,561
________ ________ ________ ________
1,652,895 315,878 1,968,773
________ ________ ________
________
- Fund 89,993 - - 89,993
- Debt investments - 30,000 - 30,000
- Structured products - 857,148 133,387 990,535
- Trust products - - 10,000 10,000
________ ________ ________ ________
Sub-total 89,993 2,540,043 459,265 3,089,301
________ ________ ________ ________
Financial liabilities at fair value through profit or loss
- Bonds - 196,363 - 196,363
- Asset management scheme - 97,295 - 97,295
________ ________ ________ ________
Sub-total - 293,658 - 293,658
________ ________ ________ ________
52. FINANCIAL INSTRUMENTS - continued
(c) Fair value measurements of financial instruments - continued
As at December 31, 2015
Level 1 Level 2 Level 3 Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
Held for trading investments
- Equity securities
a. Manufacturing 99,732 - - 99,732
b. Financial services 45,814 - - 45,814
c. information technology service 21,284 - - 21,284
d. Transportation, storage and 54,869 - - 54,869
portal service
________ ________ ________ ________
221,699 - 221,699
________ ________ ________ ________
- Open-ended fund 191,967 - - 191,967
________ ________ ________ ________
- Bonds 1,170,952 2,176,606 - 3,347,558
________ ________ ________ ________
Sub-total 1,584,618 2,176,606 - 3,761,224
________ ________ ________ ________
Available-for-sale investments
- Equity
a. Manufacturing - 104,309 - 104,309
b. Information technology service - 58,688 202,441 261,129
c. Financial services - 3,919 - 3,919
d. Transportation, storage and - 2,305 - 2,305
postal service
e. Construction - 18,837 - 18,837
f. Energy service - 3,108 - 3,108
g. Wholesaling - 9,210 - 9,210
h. Agriculture, forestry, fishing - 6,706 - 6,706
and Animal husbandry
i. Others - 1,412,491 - 1,412,491
________ ________ ________ ________
- 1,619,573 202,441 1,822,014
________ ________ ________ ________
- Fund 55,982 - - 55,982
- Debt investments - 50,000 - 50,000
- Structured products - 544,597 141,418 686,015
- Trust products - - 10,000 10,000
________ ________ ________ ________
Sub-total 55,982 2,214,170 353,859 2,624,011
________ ________ ________ ________
52. FINANCIAL INSTRUMENTS - continued
(c) Fair value measurements of financial instruments - continued
The following table represents the changes in Level 3 available-for-sale
investments during the year ended December 31, 2016 and 2015.
For the year ended December 31, 2016
Structured Trust Restricted
products products shares Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
At beginning of the year 141,418 10,000 202,441 353,859
Addition 27,500 - - 27,500
Disposal (34,000) - - (34,000)
Total loss recognised in
other comprehensive income (1,531) - 113,437 111,906
Transfer out of Level 3 - - - -
________ ________ ________ ________
At end of the year 133,387 10,000 315,878 459,265
________ ________ ________ ________
For the year ended December 31, 2015
Structured Trust Restricted
products products shares Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000
At beginning of the year 251,191 89,515 - 340,706
Addition 20,080 20,000 200,000 240,080
Disposal (20,000) (93,000) - (113,000)
Total loss recognised in
other comprehensive income (21,337) (6,515) 2,441 (25,411)
Transfer out of Level 3 (88,516) - - (88,516)
________ ________ ________ ________
At end of the year 141,418 10,000 202,441 353,859
________ ________ ________ ________
53. OPERATING LEASES
The Group as lessee
Year ended Year ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Minimum lease payments 93,725 84,973
Contingent rental expenses 323 183
_______ _______
94,048 85,156
_______ _______
53. OPERATING LEASES - continued
The Group as lessee - continued
At the end of the reporting period, the Group had commitments for future
minimum lease payments under non-cancellable operating leases which fall due as
follows:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Within one year 51,256 73,567
In the second to fifth years inclusive 53,749 81,930
Over five years - 502
_______ _______
105,005 155,999
_______ _______
Operating lease payments mainly represent rentals payable by the Group for the
operating branches of Zheshang Securities and Zheshang Futures. They are
negotiated for an average term of three to ten years. The above commitment
represented the minimum lease payments payable to lessors only and do not
include any contingent rent elements.
The Group as lessor
The Group leased their service areas and communication ducts and part of spare
office premises under operating lease arrangements. Leases are negotiated for
terms ranging from 1 to 25 years and rentals are fixed annually.
At the end of the reporting period, the Group had contracted with tenants for
the following future minimum lease payments:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Within one year 30,247 114,063
In the second to fifth years inclusive 50,651 141,642
After five years 19,766 43,711
_________ _________
100,664 299,416
_________ _________
For certain of the Group's service areas, the rental income are variable and
being calculated at the higher of a pre-agreed percentage of revenue of the
relevant service areas made by the lessees or the minimum lease payments. The
above commitment represented the minimum lease payments from lessees only and
do not include any contingent rent elements.
54. PLEDGE OF ASSETS
At the end of reporting period, the Group had pledged the following assets to
banks as securities against general banking facilities granted to the Group:
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Expressway operating rights - 4,086,513
_________ _________
55. CONTINGENT LIABILITIES
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Guarantees given to bank, in respect of
a joint venture (Note) 947,275 1,021,374
_________ _________
Note: The Group provided a financial guarantee to Shengxin Co, a 50% owned
joint venture of the Group, in favour of a bank for 50% of its outstanding bank
borrowings and interest. As at December 31, 2016, the bank borrowings of
Shengxin Co and accrued interest amounted to Rmb1,892,000,000 (2015:
Rmb2,040,000,000 ) and Rmb2,549 ,000 (2015: Rmb2,749,000 ), respectively. The
directors of the Company consider that the fair value of the guarantee is
insignificant at initial recognition and default by the guaranteed party is not
probable as at December 31, 2016 and 2015.
56. RELATED PARTY TRANSACTIONS AND BALANCES
Other than disclosed elsewhere in the consolidated financial statements, during
the year, the Group also entered into the following significant transactions
with related parties:
(i) Transactions and balances with government related parties
The Group operates in an economic environment currently predominated by
entities directly or indirectly owned or controlled by the PRC government
("government-related entities"). In addition, the Group itself is part of a
larger group of companies under the Communications Group which is controlled by
the PRC government. However, due to the business nature, in respect of the
Group's toll road and securities business, the directors are of the opinion
that it is impracticable to ascertain the identity of counterparties and
accordingly whether the transactions are with other government-related entities
in the PRC. Details of other significant transactions with Communications Group
are summarised below:
Equity transaction
As disclosed in Note 49, on October 17, 2016, the Company entered into an
agreement with Zhejiang Communications Investment, pursuant to which the
Company sold the 100% equity interest in Development Co to Zhejiang
Communications Investment at a cash consideration of Rmb249,660,000.
56. RELATED PARTY TRANSACTIONS AND BALANCES - continued
(i) Transactions and balances with government related parties -
continued
Entrusted loans
Pursuant to the entrusted loan contracts entered into between Hanghui Co and
Communications Group on March 12, 2013, Communications Group agreed to provide
Hanghui Co with entrusted loans amounting to Rmb570,000,000 at a fixed interest
rate of 5.24% per annum, which have been renewed for another three years on
August 10, 2015, at a fixed interest rate of 4.55% per annum, with maturity
date of August 10, 2018. The entrusted loan was early repaid in full in current
year.
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Interest expenses incurred 16,353 26,982
_________ _________
Management and Administrative services
On July 1, 2015, the Company entered into agreements with the Communications
Group, pursuant to which, the Company would provide management and
administrative services to two toll roads of the Communications Group,
including Shenjiahuhang Expressway and Shensuzhewan Expressway. According to
the agreements, the Company would charge the Communications Group management
fee based on actual cost basis. During this year, a total management fee of
Rmb1,130,000 (2015: Rmb397,000) has been charged to the Communications Group.
Other transactions
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Toll road service area leasing income earned (Note i) 9,564 9,736
Toll road service area management fee paid (Note i) 3,100 2,600
Property leasing income earned 5,280 4,202
Road maintenance service expenses incurred 303,513 115,953
Gain from disposal of maintenance equipment (Note ii) 8,090 -
Information system redevelopment
services expenses incurred 18,537 -
Operation information services expenses incurred 9,267 -
Toll road related inspection services expense 10,561 6,788
incurred
Purchase of petroleum products (Note iii) 401,203 1,445,196
Petrol stations leasing income earned (Note iii) 33,357 -
_________ _________
56. RELATED PARTY TRANSACTIONS AND BALANCES - continued
(i) Transactions and balances with government related parties -
continued
Note:
(i) Pursuant to the leasing and operation agreement entered into
between Jinhua Co (as defined in Note 57) and Zhejiang Communications
Investment, Jinhua Co leased the toll road service area to Zhejiang
Communications Investment and Zhejiang Communications Investment managed the
operation of the service area and the advertising business in respect of the
toll road service area. Such business began from January 1, 2011 and will be
expired at the same time with the operating right in 2030.
Pursuant to the leasing and operation agreements entered into between Hanghui
Co and Zhejiang Communications Investment, Hanghui Co leased the toll road
service area to Zhejiang Communications Investment and Zhejiang Communications
Investment managed the operation of the service. Such business began from
January 1, 2011 and will be expired at the same time with the operating right
for respective expressway sections in 2029 to 2031.
(ii) Pursuant to the disposal agreements entered into between the
Company and Maintenance Co, the Group disposed certain maintenance equipments
with net book value of approximately Rmb26,537,000 to Maintenance Co at a cash
consideration of Rmb35,533,000. Disposal gain of Rmb8,090,000 was recorded
after deduction of relevant transaction costs and expenses.
(iii) Pursuant to the operation management agreement previously entered
into between Development Co and Zhejiang Expressway Petroleum Development Co.,
Ltd. ("Petroleum Co") in respect of the petrol stations in the service areas
along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways, Petroleum Co
assist Development Co in running their petrol stations along these roads. On
May 27, 2016, Development Co and Petroleum Co entered into a series of lease
agreements, pursuant to which Development Co contracted out the operation of
certain petrol stations and leased out the relevant buildings and equipment
facilities in the service areas along the Shanghai-Hangzhou-Ningbo and Shangsan
Expressways to Petroleum Co. The previous operation management agreement was
therefore terminated. Petroleum Co was an associate of the Company before the
Company sold the 50% equity interest in Petroleum Co to a wholly owned
subsidiary of Communications Group in the end of 2015. The equity interest in
Petroleum Co held by Communications Group was increased to 51% in 2016 and
Petroleum Co then became a subsidiary of Communications Group.
56. RELATED PARTY TRANSACTIONS AND BALANCES - continued
(i) Transactions and balances with government related parties -
continued
Others
The Group has entered into various significant transactions, including deposit
placements, borrowings and other general banking facilities, with certain banks
and financial institution which are government-related entities in its ordinary
course of business. In view of the nature of those banking transactions, the
directors are of the opinion that separate disclosure would not be meaningful.
(ii) Transactions and balances with associates and other non-government
related parties
Financial service provided by Zhejiang Communications Finance
The Group entered into a financial services agreement with Zhejiang
Communications Finance. Pursuant to the agreement, Zhejiang Communications
Finance agreed to provide the Group with the deposit services, the loan and
financial leasing services, the clearing services and other financial services.
Loan advanced from Zhejiang Communications Finance
In prior years, Zhejiang Communications Finance provided Hanghui Co with
several long-term loans with aggregated amount of Rmb450,000,000 at variable
interest rates ranging from 4.275% to 4.513% per annum, with maturities in 2016
and 2017. Also, Zhejiang Communications Finance provided Hanghui Co with
short-term loans amounted to Rmb50,000,000 and Rmb120,000,000, at fixed
interest rates of 5.10% and 3.915% per annum, in 2015 and 2016 respectively.
The short-term loan of Rmb50,000,000 due in 2015 was fully repaid in 2015, all
other loans were repaid or early repaid in current year.
During the year, Zhejiang Communications Finance provided Huihang Co with
short-term loan which bears variable interest rate amounted to Rmb15,000,000.
The interest rate is 3.915% per annum as at December 31, 2016.
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Outstanding loan payable balances:
repayable within one year 15,000 250,000
repayable over one year - 250,000
_________ _________
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Interest expenses incurred 12,463 26,290
_________ _________
56. RELATED PARTY TRANSACTIONS AND BALANCES - continued
(ii) Transactions and balances with associates and other non-government related
parties - continued
Deposits to Zhejiang Communications Finance
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Bank balances and cash
- Time deposits with original maturity over three - 65,000
months
- Cash and cash equivalents 867,892 480,471
_________ _________
867,892 545,471
_________ _________
For the For the
year year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Interest income earned 8,149 3,295
_________ _________
Short-term loan advanced to Zhejiang Concord Property Co. Ltd.
(ZheJiang Canal Concord")
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Outstanding loan receivable balances 420,000 600,000
Interest receivables 3,613 34,436
_________ _________
423,613 634,436
_________ _________
Analysed for reporting purpose as:
Current assets (Note 29) 423,613 634,436
_________ _________
For the year For the year
ended ended
12/31/2016 12/31/2015
Rmb'000 Rmb'000
Interest income earned 20,911 44,912
_________ _________
56. RELATED PARTY TRANSACTIONS AND BALANCES - continued
(ii) Transactions and balances with associates and other non-government
related parties- continued
During the year, the Group advanced additional entrusted loans to Zhejiang
Canal Concord, a subsidiary of Zhejiang Concord Property, totalling
Rmb540,000,000 (2015: Rmb100,000,000) and received settlement of loan
principals and interests amounting to Rmb720,000,000 (2015: Rmb450,000,000) and
Rmb54,317,000 (2015: Rmb53,215,000), respectively. The amounts were unsecured
and repayable in accordance with the terms of entrusted loan agreements entered
into between the Group and Zhejiang Concord Group. The amounts carried
interests at an effective interest rate from 3.915% to 8% (2015: 8%) per annum.
All entrusted loans in both years were guaranteed by Zhejiang World Trade
Property Development Co., Ltd., which is the controlling shareholder of
Zhejiang Concord Property, an independent third party of the Group, in full.
(iii) Key management emoluments
The remuneration of the directors, supervisors and key management personnel
during the year was Rmb8,691,000 (2015:Rmb7,392,000) including retirement
benefit scheme contribution of Rmb201,000 (2015: Rmb210,000) which is
determined by the performance of the individuals and the market trends.
57. PARTICULARS OF SUBSIDIARIES OF THE COMPANY
Date and Registered Percentage of
equity interest
place of and attributable to
the Company
Name of registration paid-in Principal
subsidiary capital activities
Rmb Direct Indirect
12/31/ 12/31/ 12/31 12/31
2016 2015 /2016 /2015
% % % %
Zhejiang Note 1 75,223,000 51 51 - - Management of the
Yuhang Yuhang Section of
Expressway the
Co., Ltd. Shanghai-Hangzhou
("Yuhang Co") Expressway
Jiaxing Co Note 2 1,859,200,000 99.999454 99.999454 - - Management of the
Jiaxing Section
of the
Shanghai-Hangzhou
Expressway
Shangsan Co Note 3 2,400,000,000 73.625 73.625 - - Management of the
Shangsan
Expressway
Development Note 4 120,000,000 - 100 - - Operation of
Co service areas
as well as
roadside
advertising along
the
expressways
operated
by the Group
Zhejiang Note 5 16,000,000 - - - *70 Provision of
Expressway advertising
Advertising Services
Co., Ltd.
("Advertising
Co")
Zhejiang Note 6 8,000,000 100 100 - - Provision of
Expressway vehicle
Vehicle towing, repair
Towing and and
Rescue emergency rescue
Services Co., services
Ltd.
("Towing Co")
Zheshang Note 7 3,000,000,000 - - ** ** Operation of
Securities 52.15 52.15 securities
business
Zheshang Note 8 500,000,000 - - *** *** Operation of
Futures 52.15 52.15 securities
business
Zheshang Note 9 170,000,000 - - *** *** Operation of
Capital 52.15 52.15 securities
Management business
Zheshang Note 10 500,000,000 - - *** *** Provision of
Securities 52.15 52.15 asset
Asset management
Management service
Co., Ltd.
("Asset
Management")
Ningbo Note 11 1,000,000 - - *** *** Provision of
Dongfang 52.15 52.15 investment
Jujin management and
Investment advisory
Management services
Co., Ltd
("Dongfang
Jujin")
Ningbo Note 12 29,150,000 - - *** *** Provision of
Dongfang 16.37 16.37 investment
Jujin Jiahua management and
Investment advisory and
Management private
Center equity
(Limited investments
Partnership)
("Dongfang
Jujin
Jiahua")
Zhejiang Note 13 200,000,000 - - *** *** Trading of future
Zheqi Co., 52.15 52.15
Ltd.
("Zhejiang
Zheqi")
Zhejiang Note 14 1,900,000,000 100 100 - - Management of the
Jinhua Jinhua
Yongjin Section of the
Expressway Ningbo-
Co., Ltd. Jinhua Expressway
("Jinhua Co")
Hanghui Co Note 15 1,812,280,000 88.674 88.674 - - Management of the
Zhejiang Section
of the
Hangzhou-Ruili
Expressway
Hangzhou Note 16 206,103,000 - - *** *** Provision of
Jujin Jiawei 23.48 23.48 investment
Investment management and
Management advisory
(Limited and private
Partnership) equity
("Jujin investments
Jiawei")
Zheshang Note 17 8,011,000 - - *** *** Trading of future
International 52.15 52.15
Financial
Holding Co.,
Limited
Huihang Co Note 18 1,950,000,000 100 - - - Management of the
Anhui Section of
the
Hangzhou-Ruili
Expressway
57. PARTICULARS OF SUBSIDIARIES OF THE COMPANY - continued
* The company is a subsidiary of Development Co and is accounted
for as a subsidiary by virtue of the Group's control over it before the
disposal of Development Co as disclosed in Note 49.
** The company is a subsidiary of Shangsan Co, a non-wholly-owned
subsidiary of the Company, and, accordingly, is accounted for as a subsidiary
by virtue of the Group's control over it.
*** These companies and partnership entities are subsidiaries of
Zheshang Securities, a non-wholly-owned subsidiary of Shangsan Co, and
accordingly, are accounted for as subsidiaries by virtue of the Group's control
over them.
Note 1: Yuhang Co was established on June 7, 1994 in the PRC as a joint stock
limited company and was subsequently restructured into a limited liability
company under its current name on November 28, 1996. The Company is able to
control over Yuhang Co because it has the power to appoint five out of nine
directors of that company and under the provisions stated in the Articles of
Association of that company, the passing of ordinary resolutions at the board
meetings required one-half of the directors attending the meetings.
Note 2: Jiaxing Co was established on June 30, 1994 in the PRC as a joint
stock limited company and was subsequently restructured into a limited
liability company under its current name on November 29, 1996.
Note 3: Shangsan Co was established on January 1, 1998 in the PRC as a
limited liability company.
Note 4: Development Co was established on May 28, 2003 in the PRC as a
limited liability company. As disclosed in Note 49, Development Co was disposed
during the year ended December 31, 2016.
Note 5: Advertising Co was established on June 1, 1998 in the PRC as a
limited liability company. Advertising Co was disposed during the year ended
December 31, 2016 along with the disposal of Development Co.
Note 6: Towing Co was established on July 31, 2003 in the PRC as a limited
liability company.
Note 7: Zheshang Securities was established on May 9, 2002 in the PRC as a
limited liability company. On November 16, 2013, the board of directors of the
Company announced that Zheshang Securities proposed to seek a separate listing
of its shares as A shares on the Shanghai Stock Exchange. This proposed
spin-off for separate listing has not yet been completed at the end of the
reporting period.
Note 8: Zheshang Futures was established on September 7, 1995 in the PRC as a
limited liability company.
Note 9: Zheshang Capital Management was established on February 9, 2012 in
the PRC as a limited liability company. The registered capital of Zheshang
Capital Management has been increased from Rmb100,000,000 to Rmb170,000,000
during the year ended December 31, 2016.
57. PARTICULARS OF SUBSIDIARIES OF THE COMPANY - continued
Note 10: Asset Management was established on July 22, 2013 in the PRC as a
limited liability Company.
Note 11: Dongfang Jujin was established on March 25, 2014 in the PRC as a
limited liability company.
Note 12: Dongfang Jujin Jiahua was established on April 11, 2014 in the PRC
as a limited partnership. Pursuant to the partnership agreement, Dongfang
Jujin is a general partner, while Zheshang Capital Management and other two
individuals are limited partners of the partnership. The directors of the
Company consider that the Group has the practical ability to direct the
relevant activities of Dongfang Jujin Jiahua unilaterally, and it is therefore
classified as a subsidiary of the Group.
Note 13: Zhejiang Zheqi was established on April 9, 2013 in in the PRC as a
limited liability Company, and its paid-in share capital was increased by
Rmb100,000,000 to Rmb200,000,000 during the year ended December 31, 2014.
Note 14: Jinhua Co was established in February 2002 in the PRC as a limited
liability Company. Jinhua Co became a wholly owned subsidiary and directly
held by the Company during the year ended December 31, 2013.
Note 15: Hanghui Co was established in December 2008 in the PRC as a limited
liability Company. During the year ended December 31, 2015, the Company
acquired the 80.614% equity interests in Hanghui Co from Communications Group,
and Hanghui Co then became a subsidiary and directly held by the Company as at
December 31, 2015. In December 2015, the equity interest held by the Group
increased to 88.674% as the Company has made a capital contribution to Hanghui
Co.
Note 16: Jujin Jiawei was established on April 15, 2015 in the PRC as a
limited partnership. Pursuant to the partnership agreement, Dongfang Jujin is
a general partner, while Zheshang Capital Management and other three
individuals are limited partners of the partnership. The directors of the
Company consider that the Group has the practical ability to direct the
relevant activities of Jujin Jiawei unilaterally, and it is therefore
classified as a subsidiary of the Group.
Note 17: Zheshang International Financial Holding Co., Limited (previously
known as Zheshang Futures (Hong Kong) Co., Limited) was established on April
23, 2015 in Hong Kong as a limited liability Company.
Note 18: Huihang Co was established in September 2000 in the PRC as a limited
liability Company. During the year ended December 31, 2016, the Company
acquired the 100% equity interests in Huihang Co from an independent third
party, and Hanghui Co then became a subsidiary and directly held by the Company
as at December 31, 2016.
Except that Zheshang International Financial Holding Co., Limited is operating
in Hong Kong, all of the Company's other subsidiaries are operating in Mainland
China. As at December 31, 2016, Zheshang Securities has issued subordinated
bonds, corporate bonds, short-term loan note and beneficial certificates at the
total principal amount of Rmb5,500,000,000, Rmb3,400,000,000, Rmb nil and
Rmb4,128,340,000 (2015: Rmb7,200,000,000, Rmb1,500,000,000, Rmb600,000,000 and
Rmb1,916,100,000), respectively.
58. INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES
The Group served as the investment manager of structured entities (including
collective asset management schemes and investment funds), therefore had power
over them during the year ended December 31, 2016 and 2015. Except for the
structured entities the Group has consolidated as disclosed in Note 44, in the
opinion of the directors of the Company, the variable returns the Group exposed
to over these collective asset management schemes and investment funds in which
the Group has interests are not significant. The Group therefore did not
consolidate these structured entities.
The total assets of unconsolidated funds and asset management schemes managed
by the Group amounted to Rmb138,379,856,000 and Rmb101,331,141,000 as at
December 31, 2016 and 2015, respectively. The Group classified the investments
in unconsolidated funds and asset management schemes as available-for-sale
financial investments and held for trading as appropriate. As at December 31,
2016 and 2015, the carrying amounts of the Group's interests in unconsolidated
fund and management schemes are Rmb2,597,101,000 and Rmb795,382,000,
respectively.
59. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY
12/31/2016 12/31/2015
Rmb'000 Rmb'000
NON-CURRENT ASSETS
Property, plant and equipment 532,374 502,595
Prepaid lease payments 1,405 1,500
Expressway operating rights 3,537,136 3,882,369
Other intangible assets 663 1,760
Investments in subsidiaries 11,835,357 9,809,369
Investments in associates 1,000,776 377,484
Investment in a joint venture 373,470 373,470
Bonds receivables - 305,230
_________ _________
17,281,181 15,253,777
_________ _________
CURRENT ASSETS
Inventories 750 1,597
Trade receivables 34,024 20,275
Other receivables 500,077 662,059
Prepaid lease payments 95 95
Available-for-sale investments - 19,994
held for trading investment 80,000 80,000
Amount due from subsidiaries 1,524,639 9,419
Dividend receivable 217,625 20,494
Derivative financial asset 10,562 -
bank balances and cash
- Time deposits with original
maturity over three months - 10,000
- Cash and cash equivalents 746,679 131,338
_________ _________
3,114,451 955,271
_________ _________
59. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY - continued
CURRENT LIABILITIES
Trade payables 72,253 91,662
Tax liabilities 122,437 119,337
Other taxes payable 7,797 7,715
Other payables and accruals 246,488 284,758
Amount due to subsidiaries 2,524,533 1,011,286
Bank borrowings 2,031,895 1,350,000
Dividend payable 260,587 -
Short-term financing note payable 1,500,000 -
_________ _________
6,765,990 2,864,758
_________ _________
NET CURRENT LIABILITIES (3,651,539) (1,909,487)
_________ _________
TOTAL ASSETS LESS
CURRENT LIABILITIES
13,629,642 13,344,290
_________ _________
NON-CURRENT LIABILITIES
Deferred tax liabilities 89,214 90,498
_________ _________
89,214 90,498
_________ _________
13,540,428 13,253,792
_________ _________
CAPITAL AND RESERVES
Share capital 4,343,115 4,343,115
Reserves 9,197,313 8,910,677
_________ _________
13,540,428 13,253,792
_________ _________
Investment
Share Share Statutory valuation Dividend Special Retained
capital premium reserves reserve reserves reserves profits Total
Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000 Rmb'000
At December 4,343,115 3,645,726 2,365,858 (5) 1,216,072 18,666 1,664,360 13,253,792
31, 2015
Total
comprehensive
income for - - - 5 - - 1,763,290 1,763,295
the year
Interim - - - - - - (260,587) (260,587)
dividend
Final - - - - (1,216,072) - - (1,216,072)
dividend
Proposed - - - - 1,281,219 - (1,281,219) -
final
dividend
Transfer to - - - - - - - -
reserves
_________ _________ _________ _______ _________ ________ _________ __________
At December 4,343,115 3,645,726 2,365,858 - 1,281,219 18,666 1,885,844 13,540,428
31, 2016
_________ _________ _________ _______ _________ ________ _________ __________
Independent AUDITOR'S report
(Issued by a Third Country Auditor registered with The UK Financial Reporting
Council)
TO THE MEMBERS OF ZHEJIANG EXPRESSWAY CO., LTD.
(Incorporated in the People's Republic of China with limited liability)
Opinion
We have audited the consolidated financial statements of Zhejiang Expressway
Co., Ltd. (the "Company") and its subsidiaries (collectively referred to as the
"Group") set out on pages [*] to [*], which comprise the consolidated statement
of financial position as at December 31, 2016, and the consolidated statement
of profit or loss and other comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements, including a summary
of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view
of the consolidated financial position of the Group as at December 31, 2016,
and of its consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with Hong Kong Financial Reporting
Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public
Accountants ("HKICPA") and have been properly prepared in compliance with the
disclosure requirements of the Hong Kong Companies Ordinance.
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing
("HKSAs") issued by the HKICPA. Our responsibilities under those standards are
further described in the Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the HKICPA's Code of Ethics for Professional
Accountants ("the Code"), and we have fulfilled our other ethical
responsibilities in accordance with the Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the consolidated financial statements of the
current period. These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter How our audit addressed the
key audit matter
Impairment of equity available-for-sale financial assets meansured at fair
value.
We identified the impairment of Our procedures in relation to
available-for-sale equity instruments measured the impairment assessment of
at fair value, which include equity securities, available-for-sale equity
funds, and other investments as a key audit instrument
matter as the Group applied significant measured at fair value
judgement in determining the impairment of included:
available-for-sale equity instruments measured
at fair value of Rmb3,059,301,000 as at December - Understanding the processes
31, 2016. and controls in determining
impairment of
For those available-for-sale equity instruments available-for-sale equity
measured at fair value, the Group applied instruments measured at fair
significant judgement to assess whether there is value;
objective evidence of impairment. As disclosed
in note 4, for listed available-for-sale equity - Challenging and assessing
investments and other equity related investments the management judgement in
measured at fair value, a significant or determining the criteria of
prolonged decline in fair value below cost is impairment;
considered to be objective evidence of
impairment. An impairment allowance of - Checking, on a sample basis,
Rmb33,942,000 was recorded as at December 31, the data used by management,
2016 as disclosed in note 25 including quoted market prices
and the duration for the
continued decline of the fair
value below the cost, against
market data;
- Checking management's
calculations of the impairment
allowance for
available-for-sale
financial assets measured at
fair value.
Key audit matter How our audit addressed the
key audit matter
Determination of consolidation scope
We identified the determination of consolidation Our procedures in relation to
scope as a key audit matter as the Group holds a management's determination of
number of interests in structured entities consolidation scope included:
including collective asset management schemes
and investment funds where the Group is involved - Understanding the process
as investment manager and also as investor. The and controls of management in
Group applied significant judgement in determining the consolidation
determining whether such investments fall within scope as set out in IFRS10 of
the consolidation scope under IFRS 10 interests in structured
"Consolidated Financial Statements". The effect entities;
of consolidation or not of these structured
entities will have significant impact on the - Checking the information
consolidated financial statements of the Group. used by the management in
accessing the consolidation
As disclosed in note 4, for collective asset criteria of significant
management schemes and investment funds where structured entities against
the Group involves as manager and also as the related sales and purchase
investor, agreements and other related
the Group assesses whether the combination of service agreements of
investments it holds together with its investments in
remuneration and credit enhancement creates structured entities newly
exposure to variability of returns from the acquired or with changes in
activities of the collective asset management investment holdings or terms
schemes and investment funds that is of such during the year;
significance that it indicates that the Group is
a principal. The collective asset management - Challenging and assessing
schemes and investment funds are consolidated if management judgement in
the Group acts in the role of principal. applying IFRS 10 to each of
the significant structured
Details of consolidated structured entities and entities and the conclusion
unconsolidated structured entities are set out about whether or not the
in notes consolidation criteria are
44 and 58 to the consolidated financial met.
statements
respectively.
Other Information
The directors of the Company are responsible for the other information. The
other information comprises the information included in the annual report, but
does not include the consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of Directors and Those Charged with Governance for the
Consolidated Financial Statements
The directors of the Company are responsible for the preparation of the
consolidated financial statements that give a true and fair view in accordance
with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong
Kong Companies Ordinance, and for such internal control as the directors
determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, the directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's
financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion solely to you, as a body, in accordance with our
agreed terms of engagement, and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the contents
of this report. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with HKSAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with HKSAs, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
* Identify and assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
* Obtain an understanding of internal control relevant to the audit in order
to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Group's internal control.
* Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
* Conclude on the appropriateness of the directors' use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the Group's ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
* Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
* Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in the independent auditor's
report is Ma Hing Fai.
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Certified Public Accountants
(Registered as a Third Country Auditor with the UK Financial Reporting Council)
Shanghai, China
March 27, 2017
Corporate Information
EXECUTIVE DIRECTORS STATUTORY ADDRESS
ZHAN Xiaozhang (Chairman) 12/F, Block A, Dragon Century Plaza
CHENG Tao 1 Hangda Road
LUO Jianhu (General Manager) Hangzhou City, Zhejiang Province
PRC 310007
NON-EXECUTIVE DIRECTORS Tel : 86-571-8798 5588
Fax: 86-571-8798 5599
WANG Dongjie
DAI Benmeng Principal Place of Business
ZHOU Jianping 5/F., No. 2, Mingzhu International
Business Center
199 Wuxing Road
INDEPENDENT NON-EXECUTIVE DIRECTORS Hangzhou City
Zhejiang Province
ZHOU Jun PRC 310020
PEI Ker-Wei Tel : 86-571-8798 5588
LEE Wai Tsang Rosa Fax: 86-571-8798 5599
SUPERVISORS LEGAL ADVISERS
ZHANG Guohua As to Hong Kong and US law:
(Resigned, with effect from March Herbert Smith Freehills
17, 2016)
WU Yongmin 23rd Floor, Gloucester Tower
(Resigned, with effect from August 15 Queen's Road Central
18, 2016)
SHI Ximin Hong Kong
(Resigned, with effect from October
21, 2016)
HE Meiyun As to English law:
(Appointed on December 28, 2016) Herbert Smith Freehills LLP
ZHAN Huagang Exchange House
(with effect from March 30, 2017) Primrose Street
YAO Huiliang London EC2A 2HS
LU Xinghai United Kingdom
COMPANY SECRETARY As to PRC law:
T & C Law Firm
Tony ZHENG 11/F, Block A, Dragon Century Plaza
1 Hangda Road
AUTHORIZED REPRESENTATIVES Hangzhou City, Zhejiang Province
PRC 310007
ZHAN Xiaozhang
LUO Jianhu
AUDITORS H SHARES LISTING INFORMATION
Deloitte Touche Tohmatsu The Stock Exchange of Hong Kong Limited
35/F, One Pacific Place Code: 0576
88 Queensway
Hong Kong LONDON STOCK EXCHANGE PLC
Code: ZHEH
INVESTOR RELATIONS CONSULTANT
ADRS INFORMATION
Christensen China Limited
16/F., Methodist House US Exchange: OTC
36 Hennessy Road, Wanchai Symbol: ZHEXY
Hong Kong CUSIP: 98951A100
Tel : 852-2117 0861 ADR: H Shares 1:10
Fax: 852-2117 0869
REPRESENTATIV E OFFICE IN HONG KONG
PRINCIPAL BANKERS
Room 2910
Industrial and Commercial Bank of 29/F, Bank of America Tower
China,
Jiefang Road Branch 12 Harcourt Road
Shanghai Pudong Development Bank, Hong Kong
Hangzhou Branch Tel : 852-2537 4295
Fax: 852-2537 4293
H SHARE REGISTRAR AND TRANSFER
OFFICE
WEBSITE
Hong Kong Registrars Limited
Room 1712-1716, 17/F, Hopewell www.zjec.com.cn
Centre
183 Queen's Road East
Hong Kong
For the Location Map of Expressways in Zhejiang Province, please visit:
http://photos.prnasia.com/prnk/20170331/8521701869-c
NOTE: To view the full set of company's 2016 Annual Report
Please visit http://www.zjec.com.cnZhejiang Expressway : Ld - 2016 Annual Report / Financial Statements
March 31, 2017 at 08:45 pm IST
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