CHYY Development Group Limited — Interim / Quarterly Report 2016

Aug 12, 2016

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8128)

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2016

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (THE “GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

Hong Kong Exchanges and Clearing Limited and the Stock Exchange take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

This announcement, for which the directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Company. The directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this announcement misleading.

• 1 -

HIGHLIGHTS

Revenue for the six months ended 30 June 2016 (the “Review Period”) amounted to approximately HK$189,343,000.

Net profit after tax of the Group for the Review Period amounted to approximately HK$2,178,000.

No dividend was declared for the Review Period.

FINANCIAL REVIEW

The following table provides a brief summary of the financial results of China Ground Source Energy Industry Group Limited (the “Company”) and its subsidiaries (collectively the “Group”). For more detailed information, please refer to the unaudited consolidated financial statements for the Review Period and for the six months ended 30 June 2015.

	Three months	Three months	ended	Six months ended	Six months ended	Six months ended
	30 June			30	June
	2016		2015	2016		2015
	HK$’000		HK$’000	HK$’000		HK$’000
	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
Revenue
– Shallow ground source energy	46,706		83,798	180,699		170,027
– Properties investment and development	4,969		5,931	8,644		9,359
Total revenue	51,675		89,729	189,343		179,386
(Loss) profit for the period	(258)		891	2,178		3,108
Profit attributable to owners of the Company	1,735		746	4,571		3,175

During the Review Period, the Group’s revenue amounted to approximately HK$180,699,000 which was contributed by shallow ground source energy utilisation business as compared with that of approximately HK$170,027,000 for the corresponding period last year. The revenue increased by approximately HK$9,957,000 as compared with that of corresponding period last year. The Group’s gross profit margin decreased from 38.1% in last corresponding period to 35.7% in the current period, it was mainly attributable to the fact that the Group built certain demonstration projects in various districts with low gross profit during this period. Although the number of projects and the revenue increased, the overall gross profit margin of the Group as compared with the corresponding period last year had decreased due to these low gross profit contracts.

• 2 -

Other income increased from approximately HK$17,421,000 in the corresponding period last year to approximately HK$40,509,000 for the six months ended 30 June 2016. The increase was mainly attributable to the one-off government incentives for development of the integration of heating and cooling emerging industry for the Review Period.

Selling and distribution expenses amounted to approximately HK$13,509,000 and HK$12,830,000 for the six months ended 30 June 2016 and 2015 respectively. The selling and distribution expenses in the Review Period increased as compared with the corresponding period last year due to the enhancement of the promotion and marketing activities by the Group during the Review Period.

During the Review Period, administrative expenses increased by approximately HK$6,596,000, or 12.8% as compared with that of six months ended 30 June 2015. Administrative expenses increased was mainly attributable to the increase in staff costs.

Finance costs amounted to HK$18,699,000 for the six months ended 30 June 2016 as compared with approximately HK$21,685,000 for last corresponding period. The finance costs was represented the interest expense on bank loans.

Profit for the Review Period (for the six months ended 30 June 2016) was approximately HK$2,178,000, whereas it was HK$3,108,000 for the corresponding period in last year.

Order Book

As at 30 June 2016, the Group has contracts on hand of approximately HK$276,971,000.

Investment Properties

The Group’s investment properties as at 30 June 2016 were valued at HK$385,128,000. As a result, a decrease in fair value of investment properties of approximately HK$5,845,000 (2015: increased of HK$26,018,000) was recognised directly in profit or loss for the Review Period.

Liquidity, Financial Resources and Capital Structure

Net current assets of the Group as at 30 June 2016 was approximately HK$59,901,000 (31 December 2015: approximately HK$153,640,000). As at 30 June 2016, the Group had cash and bank balances of approximately HK$125,193,000 (31 December 2015: approximately HK$144,818,000). Cash and bank balance shown on the statement of financial position include funds available for general corporate purposes.

During the six months ended 30 June 2016, 5,968,000 ordinary shares were repurchased and cancelled with the highest price of HK$0.36 and the lowest price of HK$0.34. In addition, 9,344,000 ordinary shares were cancelled during the Review Period (repurchased prior to 31 December 2015) with the highest price of HK$0.36 and the lowest price of HK$0.33.

• 3 -

Non-controlling interests amounted to approximately HK$20,894,000 which mainly represents the interests attributable to non-controlling shareholders of the Group’s subsidiaries in the PRC.

Charges on asset

As at 30 June 2016, no Group’s asset has been charged.

Gearing Ratio

The gearing ratio of the Group was maintained at 31.8% as at 30 June 2016 (31 December 2015: 32.3%).

Foreign Exchange Exposure

The Group continues to adopt a conservative treasury policy with all bank deposits being kept in either Hong Kong dollars, or in local currencies of the operating subsidiaries, keeping a minimum exposure to foreign exchange risks.

Contingent Liabilities

As at 30 June 2016, the Group had no material contingent liabilities (31 December 2015: Nil).

Employees

As at 30 June 2016, the Group has approximately 670 employees in total (31 December 2015: approximately 670). The remuneration package of the employees is determined with reference to their performance, experience and their positions, duties and responsibilities in the Group.

BUSINESS REVIEW AND OUTLOOK

The Group continues to be dedicated to scientific research, technology development and commercialization of its core technology in utilizing the shallow ground energy as a substitute energy to provide heating for buildings. It integrates its original technology with heat pump to enable the low-temperature shallow ground energy to outstand as a substitute energy for building heating. With the rapid commercialization of its core technology, the industrial escalation of conventional heating sector enters into a new era in an all-round way. A burgeoning industry featuring integrated heating and cooling provision for building with shallow ground energy gradually takes the place. The Group has grown into a service provider with the most optimal system solutions in achieving smart heating and cooling for buildings being combustion- and pollutionfree by using shallow ground energy.

• 4 -

In general, energies used for building heating has undergone three major stages of evolvement. The first stage has been mainly characterized by combustion of fossil energies or primary energies, complemented by electric power as a secondary energy. The second stage has seen the dominant role played by electric power assisted by some renewable energies such as solar or wind. The third one is led by the utilization of the renewable shallow-ground energy as the substitute heating energy for buildings, with the support of electric power. At the third stage, more than 60% energy consumed for building heating is taken up by renewable shallow ground energy. This has greatly uplifted efficiency of electric power consumption up to 300% (meaning by paying $1 for electricity which can achieve a heating effect that equals to or exceeds what $3 of electricity can produce by itself). As an indirect result, the efficiency of primary energies in power generation is also enhanced to 111%. Compared to combustion-based heating, the energy efficiency increased by more than 15%. The National Development and Reform Commission of the Chinese government, in its official directive (No. 2665[2015]), made clear instructions on promoting smart heating for buildings. The instruction reads: to promote the utilization of single-well collection technology for shallow ground energy to realize smart heating for buildings with no combustion, forcefully push forward the development of the emerging industry of integrated heating and cooling for buildings by utilizing shallow ground energy, effectively uplift the shares taken by renewable energies in the energy mix consumed by building heating, so as to radically eliminate pollutions caused by combustion-based heating and enhance people’s life quality in both urban and rural areas. This proves from certain perspective that the development goal pursued by the Group is accurate. Determination of the Chinese government in eradicating smog, especially the setout of electricity-for-coal project compulsively implemented in the Beijing, Tianjin and Hebei for the purpose of reducing combustion has brought about the real opportunity for the Group to achieve leapfrog development.

During the Review Period, the Group, in light of the economic situation, set up a market development strategy that prioritizes two ends and sustains the central. (By two ends, it refers to market promotion in two products, namely the Ground Energy Heating Device to replace conventional way of individual heating and the 50-900MW Distributed Ground Energy Heating/ Cooling Station to replace conventional district-based heating in cities or towns. The central means the Ground Energy Heat Pump Environmental System which is a perfect substitute for traditional central heating system.) Pilot programs promoting Ground Energy Heating Devices in rural of China has attained very positive results. Following the construction of a 900MW Distributed Ground Energy Heating/Cooling Station in Xiaoyaowan Business Zone, the Group has entered into another business contract with the Puwan New Zone in Dalian on building a 900MW Distributed Ground Energy Heating/Cooling Station in the Golden Bohai Coast Development Zone. Application for Regional Franchise or Exclusive Rights by the Group is in the process of being reviewed by government. The principal business of the Group is making headways in a constant manner. In the meantime, to implement the electricity-for-coal project, the Beijing government has recently launched its tendering process. The Group that boasts long record of good expertise and substantial experience in the sector will seize the opportunity to forcefully strive for bigger market shares and higher revenue and profits for the Company.

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FINANCIAL RESULTS

The Board of Directors (the “Board”) of China Ground Source Energy Industry Group Limited (the “Company”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the three months and six months ended 30 June 2016 together with the unaudited comparative figures for the corresponding periods in 2015 as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2016

Notes Revenue 3 Cost of sales Gross profit Other income Fair value changes on investment properties Selling and distribution expenses Administrative expenses Profit from operations Share of results of associates Share of result of a joint venture Share-based payments Finance costs Profit before tax Income tax expense 4 (Loss) profit for the period 5	Three months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 51,675 89,729 (16,052) (63,054) 35,623 26,675 21,054 3,386 (5,845) 26,018 (5,442) (6,026) (30,395) (24,868) 14,995 25,185 20 (217) (392) – – (2,905) (9,364) (10,977) 5,259 11,086 (5,517) (10,195) (258) 891	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 189,343 179,386 (121,803) (111,123) 67,540 68,263 40,509 17,421 (5,845) 26,018 (13,509) (12,830) (58,259) (51,663) 30,436 47,209 (649) (1,113) (976) – – (7,181) (18,699) (21,685) 10,112 17,230 (7,934) (14,122) 2,178 3,108

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Notes Other comprehensive (expense) income: Exchange differences arising on translation of foreign operations Fair value gains on available-for-sale investments Share of other comprehensive (expenses) income of an associate Share of other comprehensive expenses of a joint venture Total other comprehensive expense for the period Total comprehensive (expense) income for the period (Loss) Profit attributable to: Owners of the Company Non-controlling interests Total comprehensive (expense) income attributable to: Owners of the Company Non-controlling interests Earnings per share 7 Basic (HK cents) Diluted (HK cents)	Three months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) (24,449) (2,310) 3 1 (3) 3 (10) – (24,459) (2,306) (24,717) (1,415) 1,735 746 (1,993) 145 (258) 891 (27,829) (1,434) 3,112 19 (24,717) (1,415) 0.060 0.026 0.060 0.026	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) (16,126) (1,556) 1,123 366 (10) (4) (16) – (15,029) (1,194) (12,851) 1,914 4,571 3,175 (2,393) (67) 2,178 3,108 (15,675) 2,061 2,824 (147) (12,851) 1,914 0.160 0.110 0.160 0.109

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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2016

Notes Non-current Assets Property, plant and equipment 8 Investment properties 8 Deposit paid for acquisition of land use rights Goodwill Interests in associates Interests in a joint venture Available-for-sale investments Prepayments Deferred tax assets Current Assets Inventories Properties held for sales under development Deposit paid for acquisition of a subsidiary 9 Trade and retention receivables 10 Prepayments, deposits and other receivables Amounts due from customers for contract work Amount due from non-controlling interests Amount due from associates Amounts due from related companies Held-for-trading financial assets Available-for-sale investments Cash held at non-bank financial institutions Bank balances and cash	30 June 2016 HK$’000 (Unaudited) 338,685 385,128 126,292 465,760 35,293 5,982 104,956 10,552 26,890 1,499,538 89,420 116,297 75,975 234,842 119,580 307,152 9,277 29,551 2,651 58 – 7,452 117,741 1,109,996	31 December 2015 HK$’000 (Audited) 335,183 373,770 86,621 465,760 29,737 7,366 106,203 12,537 26,890
		1,444,067
		39,795 118,688 77,685 226,336 114,953 297,086 1,850 12,612 1,224 59 102,625 8,619 136,199
		1,137,731

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Notes Current Liabilities Trade payables 11 Accrued liabilities, deposits received and other payables Amounts due to customers for contract work Amounts due to associates Amount due to a joint venture Borrowings Tax payable Net Current Assets Total Assets less Current Liabilities Non-Current Liabilities Receipt in advance Deferred income Deferred tax liabilities Net Assets Capital and Reserves Share capital 12 Reserves Equity attributable to owners of the Company Non-controlling interests Total Equity	30 June 2016 HK$’000 (Unaudited) 179,469 206,865 10,075 41,035 883 466,822 144,946 1,050,095 59,901 1,559,439 4,101 7,913 60,589 72,603 1,486,836 223,990 1,241,952 1,465,942 20,894 1,486,836	31 December 2015 HK$’000 (Audited) 182,368 173,969 11,398 – – 477,326 139,030
		984,091
		153,640
		1,597,707
		5,615 8,091 63,550
		77,256
		1,520,451
		225,184 1,250,844
		1,476,028 44,423
		1,520,451

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2016

Attributable to owners of the Company

At 1 January 2015 (audited) Profit (loss) for the period Other comprehensive income (expense) for the period: Exchange differences arising on translation of foreign operations Fair value gains on available-for- sale investments Share of other comprehensive expenses of an associate Total other comprehensive income (expense) for the period Total comprehensive income (expense) for the period Repurchase and cancellation of ordinary shares Issue of shares upon exercise of share options Lapse of share options Recognition of share-based payment expenses At 30 June 2015 (unaudited)	Share capital HK$’000 226,170 – – – – – – (2,220) 4,279 – – 228,229	Share premium HK$’000 (Note a) 877,919 – – – – – – (8,150) 26,239 – – 896,008	Statutory reserve HK$’000 (Note b) 2,935 – – – – – – – – – – 2,935	Treasury shares HK$’000 (3,083) – – – – – – 3,083 – – – –	Assets revaluation reserve HK$’000 34,355 – – – – – – – – – – 34,355	Contributed surplus HK$’000 (Note c) 154,381 – – – – – – – – – – 154,381	Special reserve HK$’000 (Note d) (1,694) – – – – – – – – – – (1,694)	Capital reserve HK$’000 (Note e) 32,765 – – 366 – 366 366 – – – – 33,131	Share- based payment reserve HK$’000 68,804 – – – – – – – (5,955) (19,392) 7,181 50,638	Exchange translation reserve HK$’000 43,967 – (1,476) – (4) (1,480) (1,480) – – – – 42,487	Retained earnings HK$’000 132,080 3,175 – – – – 3,175 – – 19,392 – 154,647	Total HK$’000 1,568,599 3,175 (1,476) 366 (4) (1,114) 2,061 (7,287) 24,563 – 7,181 1,595,117	Non- controlling interests HK$’000 40,932 (67) (80) – – (80) (147) – – – – 40,785	Total equity HK$’000 1,609,531 3,108 (1,556) 366 (4)
														(1,194)
														1,914
														(7,287) 24,563 – 7,181
														1,635,902

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Attributable to owners of the Company

									Share-
					Assets				based	Exchange			Non-
	Share	Share	Statutory	Treasury	revaluation	Contributed	Special	Capital	payment	translation	Retained		controlling	Total
	capital	premium	reserve	shares	reserve	surplus	reserve	reserve	reserve	reserve	earnings	Total	interests	equity
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Note a)	(Note b)			(Note c)	(Note d)	(Note e)
At 1 January 2016 (audited)	225,184	885,718	2,935	(3,293)	26,217	154,381	(1,694)	32,903	51,142	(1,430)	**103,965 **	1,476,028	**44,423 **	1,520,451
Profit (loss) for the period	–	–	–	–	–	–	–	–	–	–	4,571	4,571	(2,393)	2,178
Other comprehensive income
(expense) for the period:
Exchange differences arising on
translation of foreign operation	–	–	–	–	–	–	–	–	–	(21,343)	–	(21,343)	5,217	(16,126)
Fair value gains on available-for –
sale investments	–	–	–	–	–	–	–	1,123	–	–	–	1,123	–	1,123
Share of other comprehensive
expense of associates	–	–	–	–	–	–	–	–	–	(10)	–	(10)	–	(10)
Share of other comprehensive
expense of a joint venture	–	–	–	–	–	–	–	–	–	(16)	–	(16)	–	(16)
Total other comprehensive income
(expenses) for the period	–	–	–	–	–	–	–	1,123	–	(21,369)	–	(20,246)	5,217	(15,029)
Total comprehensive income
(expenses) for the period	–	–	–	–	–	–	–	1,123	–	(21,369)	4,571	(15,675)	2,824	(12,851)
Acquisition of additional interest of a
subsidiary	–	–	–	–	–	–	7,719	–	–	–	–	7,719	(26,353)	(18,634)
Lapse of share options	–	–	–	–	–	–	–	–	(1,235)	–	1,235	–	–	–
Cancellation of repurchased ordinary
shares_(Note f)_	(1,194)	(4,229)	–	3,293	–	–	–	–	–	––	–	(2,130)	–	(2,130)
At 30 June 2016 (unaudited)	223,990	881,489	2,935	–	26,217	154,381	6,025	34,026	49,907	(22,799)	**109,771 **	1,465,942	**20,894 **	1,486,836

Notes:

• (a) The share premium of the Group includes (i) the excess of the issue price over the nominal value of the Company’s shares issued at a premium and (ii) the difference between the nominal value of the share capital of the subsidiaries acquired pursuant to the Group’s reorganisation scheme in preparation for the public listing of the Company’s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Reorganisation”) in 2001 over the nominal value of the share capital of the Company issued in exchange therefore.

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• (b) In accordance with the relevant People’s Republic of China (the “PRC”) regulations and joint venture agreements, the Sino-foreign joint ventures established in the PRC shall set aside a portion of their respective profit after tax, if any, to the statutory reserve. Such amount will be determined at the discretion of the board of directors of the respective entity.

• (c) Contributed surplus represents the cancellation of the paid-up capital and set off against the accumulated losses in prior year.

• (d) Special reserve represents the reserve arising from acquisition of additional interests of a subsidiary from non-controlling interests.

• (e) Capital reserve represents the deemed contribution from a substantial shareholder arising from the waiver of the convertible notes in prior year.

• (f) During the six months ended 30 June 2016, 5,968,000 ordinary shares were repurchased and cancelled with the highest price of HK$0.36 and the lowest price of HK$0.34. In addition, 9,344,000 ordinary shares were cancelled during the Review Period (repurchased prior to 31 December 2015) with the highest price of HK$0.36 and the lowest price of HK$0.33.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2016

	Six months ended 30 June	Six months ended 30 June
	2016	2015
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Net cash inflow (outflow) from operating activities	13,854	(68,237)
Net cash outflow from investing activities	(11,161)	(73,791)
Net cash (outflow) inflow from financing activities	(19,923)	6,511
Decrease in cash and cash equivalents	(17,230)	(135,517)
Effect of foreign exchange rates changes	(2,395)	(2,611)
Cash and cash equivalents at the beginning of the period	144,818	332,286
Cash and cash equivalents at the end of the period	125,193	194,158

• 12 -

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2016

1. BASIS OF PREPARATION

The condensed consolidated financial statements of the Group for the six months ended 30 June 2016 have been prepared in accordance with the applicable disclosure requirements of Chapter 18 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with Hong Kong Accounting Standard 34 (“HKAS 34”), Interim Financial Reporting, issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The condensed consolidated financial statements have not been audited by the Company’s auditor, but have been reviewed by the Company’s audit committee.

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated interim financial statements have been prepared on the historical costs basis expect for certain financial instruments and investment properties, which are measured at revalued amounts or fair values, as appropriate.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2015 except as described below.

In the current interim period, the Group has applied, for the first time, the following new standards, amendments and interpretation (“new HKFRSs”) issued by the HKICPA which are effective for the Group’s financial year beginning 1 January 2016.

Amendments to HKFRSs Annual Improvements to HKFRSs 2012-2014 Cycle 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 HKAS 27 Equity Method in Separate Financial Statements Amendments to HKFRS 10, Investment Entities: Applying the Consolidation Exception HKFRS 12 and HKAS 28 Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations

The application of the new HKFRSs in the current period has had no material effect on the Group’s financial performance and positions for the current and prior years and/or the disclosures set out in these condensed consolidated financial statements.

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3. REVENUE AND SEGMENT INFORMATION

The Group’s reportable and operating segments, based on information reported to the chief operating decision maker, being the chief executive officer of the Company, for the purpose of resource allocation and performance assessment are as follows:

• (a) Shallow ground source energy segment – provision, installation and maintenance of shallow ground source energy utilisation system;

• (b) Securities investments and trading segment – trading of investment securities; and

• (c) Properties investment and development segment– investment in properties for its potential rental income and sales;

No operating segment identified by the chief operating decision maker have been aggregated in arriving at the reportable segment of the Group.

(a) Segment revenue and results

The following is an analysis of the Group’s revenue and results by reportable and operating segment.

Revenue External customers Segment results Share of results of associates Share of results of a joint venture Unallocated other income Unallocated expenses Unallocated finance costs Profit before tax	Shallow ground source energy Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 180,699 170,027 41,653 27,501	Securities investment and trading Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) – – 31 (18)	Properties investment and development Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 8,644 9,359 2,210 33,767	Total Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 189,343 179,386 43,894 61,250 (649) (1,113) (976) – 7,415 4,395 (20,873) (25,617) (18,699) (21,685) 10,112 17,230	Total Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 189,343 179,386 43,894 61,250 (649) (1,113) (976) – 7,415 4,395 (20,873) (25,617) (18,699) (21,685) 10,112 17,230
					61,250 (1,113) – 4,395 (25,617) (21,685)
					17,230

Segment result represents profit earned by or loss from each segment without allocation of share of results of associates and a joint venture, interest income, certain other income, central administration costs, share-based payments and interest on borrowings. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment.

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the current period (2015: Nil).

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(b) Segment assets and liabilities

The following is an analysis of the Group’s assets and liabilities by reportable and operating segment:

Segment assets

Shallow ground source energy Securities investment and trading Properties investments and development Total segment assets Unallocated corporate assets Consolidated total assets Segment liabilities Shallow ground source energy Securities investment and trading Properties investments and development Total segment liabilities Unallocated corporate liabilities Consolidated total liabilities	30 June 2016 HK$’000 (Unaudited) 1,461,640 112,466 808,045 2,382,151 227,383 2,609,534 30 June 2016 HK$’000 (Unaudited) 353,886 939 53,599 408,424 714,274 1,122,698	31 December 2015 HK$’000 (Audited) 1,377,736 288,908 690,657 2,357,301 224,497 2,581,798 31 December 2015 HK$’000 (Audited) 331,427 3,429 46,585 381,441 679,906 1,061,347

For the purposes of monitoring segment performance and allocating resources between segments:

• all assets are allocated to operating segments other than certain other receivables, interests in associates, interest in a joint venture, deferred tax assets, amounts due from associates, amounts due from related companies, amount due from non-controlling interests, cash held at non-bank financial institutions, bank balances and cash; and

• all liabilities are allocated to operating segments other than amounts due to associates, amount due to a joint venture, borrowings, deferred tax liabilities and tax payable.

• 15 -

4. INCOME TAX EXPENSE

PRC enterprise income tax Deferred tax	Three months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 7,711 4,451 (2,194) 5,744 5,517 10,195	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 10,128 8,378 (2,194) 5,744 7,934 14,122	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 10,128 8,378 (2,194) 5,744 7,934 14,122
			14,122

Hong Kong profits tax has not been provided as the Group did not generate any assessable profits arising in Hong Kong during the six months ended 30 June 2016 (2015: Nil).

PRC enterprise income tax has been provided at the relevant tax rate of the net assessable profits attributable to the Group’s operations in the PRC during the six months ended 30 June 2016 and 2015.

5. (LOSS) PROFIT FOR THE PERIOD

(Loss) Profit for the period has been arrived at after charging:

	Three months ended	Three months ended	Six months ended	Six months ended
	30	June	30	June
	2016	2015	2016	2015
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Cost of inventories sold	16,052	63,054	121,803	111,123
Staff costs
(including directors’ emoluments)	18,209	15,871	40,576	34,916
Depreciation and amortisation	3,367	3,581	5,979	10,107
Minimum lease payments under operating
leases in respect of land and buildings	2,338	2,237	4,457	4,184

6. DIVIDENDS

No interim dividend was paid, declared or proposed during the six months ended 30 June 2016, nor has any dividend been proposed since the end of the interim reporting period (2015: Nil).

• 16 -

7. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

Earnings Earnings for the period attributable to owners of the Company and for the purpose of basic earnings and diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares: Share options_(note)_ Weighted average number of ordinary shares for the purpose of diluted earnings per share	Three months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,735 746 ’000 ’000 2,876,375 2,900,129 – 15,002 2,876,375 2,915,131	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 4,571 3,175 ’000 ’000 2,876,624 2,892,927 – 18,213 2,876,624 2,911,140	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) 4,571 3,175 ’000 ’000 2,876,624 2,892,927 – 18,213 2,876,624 2,911,140
			’000 2,892,927 18,213
			2,911,140

Note: The calculation of diluted earnings per share for the six months ended 30 June 2016 does not assume the exercise of share options because the exercise price of the Company’s outstanding share options was higher than the average market price of shares for the six months ended 30 June 2016.

8. PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTIES

During the six months ended 30 June 2016, the Group incurred approximately HK$13,473,000 (2015: HK$2,645,000) on acquisition of property, plant and equipment.

During the six months ended 30 June 2016, the land use right certificates in respect of the land auction deposit of approximately RMB2,310,000 (equivalent to approximately HK$2,696,000) had been obtained. These newly acquired land had been reclassified to investment properties.

The Group’s investment properties as at 30 June 2016 were fair valued by Peak Vision Appraisals Limited, an independent professionally qualified valuer not connected to the Group. The resulting decrease in fair value of investment properties of approximately HK$5,845,000 (2015: increased of HK$26,018,000) has been recognised directly in the profit or loss for the six months ended 30 June 2016.

• 17 -

9. DEPOSIT PAID FOR ACQUISITION OF A SUBSIDIARY

On 31 December 2014, an agreement was entered into between the Company’s indirect wholly-owned subsidiary, Hangzhou Ever Source Energy and Technology Ltd. (杭州恒有源能源科技有限公司) (“HYY Hangzhou”), a vendor, Hong Kong Goodway International Holdings Limited (香港嘉德威國際集團有 限公司) (“Goodway”) and a guarantor, Mr. Chen Zaixian who is a shareholder of Goodway, pursuant to which the Group has conditionally agreed to purchase and the vendor has conditionally agreed to sell 100% equity interest of 嘉德威（杭州）生物科技有限公司 Goodway (Hangzhou) Biotechnology Ltd. (“Hangzhou Goodway”), to indirectly acquire the land and buildings held by Hangzhou Goodway, for the consideration of RMB93,000,000 (equivalent to approximately HK$116,250,000), which shall be satisfied by cash. Up to 30 June 2016, the Group had paid the deposit of RMB65,100,000 (equivalent to approximately HK$75,975,000). The transaction has not yet been completed since the condition stated in agreement had not yet been fulfilled.

10. TRADE AND RETENTION RECEIVABLES

Trade receivables Less: allowance for doubtful debts Retention receivables	30 June 2016 HK$’000 (Unaudited) 235,705 (58,651) 177,054 57,788 234,842	31 December 2015 HK$’000 (Audited) 215,331 (58,651) 156,680 69,656 226,336

The Group generally grants credit period of 30 to 180 days to its customers. The Group may, on a case by case basis and after evaluation of the business relationship and creditworthiness, extend the credit period upon the customers’ request and normally within 365 days. The Group does not hold any collateral over these balances. The retention receivables credit period were usually one to two years from the completion and inspection of the construction projects, and different on case by case basis. The following aging analysis of trade receivables is presented based on the invoice date, at the end of the reporting period.

• 18 -

	30 June	31 December
	2016	2015
	HK$’000	HK$’000
	(Unaudited)	(Audited)
Within 90 days	47,270	48,485
91 to 180 days	7,290	52,347
181 to 365 days	67,277	11,140
Over 365 days	55,217	44,708
	177,054	156,680

11. TRADE PAYABLES

The following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period.

	30 June	31 December
	2016	2015
	HK$’000	HK$’000
	(Unaudited)	(Audited)
Within 90 days	49,973	38,658
91 to 180 days	1,763	17,517
181 to 365 days	25,892	36,412
Over 365 days	101,841	89,781
	179,469	182,368

• 19 -

12. SHARE CAPITAL

	Number of shares	Number of shares
	US$0.01 each		Share capital		Share capital
	30 June 31 December		30 June 31 December		30 June 31 December
	2016	2015	2016	2015	2016	2015
	’000	’000	US$’000	US$’000	HK$’000	HK$’000
	(Unaudited)	(Audited)	(Unaudited)	(Audited)	(Unaudited)	(Audited)
Ordinary shares
Issued and fully paid:
At the beginning of the period/year	2,891,687	2,904,327	28,916	29,043	225,184	226,170
Issue of shares under the Company’s
share option scheme	–	55,608	–	556	–	4,337
Shares repurchased and cancelled
during the period/year	(5,968)	(59,688)	(60)	(597)	(469)	(4,656)
Shares repurchased in previous year
and cancelled during the period/year	(9,344)	(8,560)	(93)	(86)	(725)	(667)
At the end of the period/year	2,876,375	2,891,687	28,763	28,916	223,990	225,184

13. COMMITMENTS

i) Operating lease

The Group as lessor

The Group sub-leases part of the building and leases the investment properties under operating lease arrangements, with leases negotiated for terms ranging from one to twenty years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. At the end of reporting period, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive Over five years	30 June 2016 HK$’000 (Unaudited) 9,420 49,000 167,501 225,921	31 December 2015 HK$’000 (Audited) 12,040 55,870 190,043
		257,953

• 20 -

The Group as lessee

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:

Within one year In the second to fifth years, inclusive Over five years	30 June 2016 HK$’000 (Unaudited) 3,752 3,529 1,097 8,378	31 December 2015 HK$’000 (Audited) 3,890 5,059 1,126
		10,075

Operating lease payments represent rentals payable by the Group for certain of its office properties and staff quarter. Leases are negotiated for an average term ranging from one to twelve years. No provision for contingent rent was established in the leases.

ii) Others

Commitments contracted for but not provided in the condensed consolidated financial statements in respect of: – Investment properties under construction – Acquisition of available-for-sale investment – Injection of capital into an associate – Acquisition of land use rights	30 June 2016 HK$’000 (Unaudited) 36,334 233 17,156 6,559 60,282	31 December 2015 HK$’000 (Audited) 24,185 239 23,389 –
		47,813

14. SHARE-BASED PAYMENT TRANSACTIONS

The Company has a share option scheme for eligible employees and business associates of the Group. Details of the share options outstanding during the Review Period are as follows:

Outstanding at 1 January 2016 Lapsed during the period Outstanding at 30 June 2016	Number of share options 386,384,000 (13,720,000)
	372,664,000

• 21 -

15. ACQUISITION OF ADDITIONAL INTERESTS OF A SUBSIDIARY

On 22 January 2016, Beijing Enterprises Ever Source Technology Development Co., Ltd (“Beijing Ever Source”, as Purchaser, an indirect wholly owned subsidiary of the Company) and Beijing Sibolian General Mechanical New Technology Company (“Sibolian”, as Seller), entered into the Share Transfer Agreement, pursuant to which, Beijing Ever Source agreed to purchase and Sibolian agreed to sell, the 5.387% equity interest in Ever Source Science and Technology Development Group Co., Ltd (“HYY”) at the consideration of RMB15,750,000 (equivalent to approximately HK$18,634,000).

On 2 February 2016, the acquisition has been completed. Thereafter, HYY becomes an indirect whollyowned subsidiary of the Group.

16. RELATED PARTY TRANSACTIONS

• (a) During the periods ended 30 June 2016 and 2015, the Group entered into the following transactions:

Operating lease payments paid to a non-controlling shareholder Rental income from an associate Purchase from an associate Sales to an associate Sales to related companies	Three months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) – 1,187 44 64 6,402 5,751 2 – – 709 6,448 7,711	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) – 2,374 87 127 42,213 18,120 19,069 – 241 9,309 61,610 29,930	Six months ended 30 June 2016 2015 HK$’000 HK$’000 (Unaudited) (Unaudited) – 2,374 87 127 42,213 18,120 19,069 – 241 9,309 61,610 29,930
			29,930

(b) Remuneration of key management personnel

The remuneration of directors and other members of key management during the periods ended 30 June 2016 and 2015 was as follows:

	Three months ended	Three months ended	Six months ended	Six months ended
	30	June	30	June
	2016	2015	2016	2015
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Short term benefits	2,687	2,175	5,373	4,491
Retirement benefits scheme
contributions	14	13	27	27
	2,701	2,188	5,400	4,518

• 22 -

17. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

Fair value of the Group’s financial assets that are measured at fair value on a recurring basis

Some of the Group’s financial assets 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 are determined (in particular, the valuation techniques and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset that are not based on observable market data (unobservable inputs).

				Valuation
			Fair value	technique(s) and
	Fair value as at		hierarchy	key input(s)
	30 June	31 December
	2016	2015
	HK$’000	HK$’000
Financial assets	(unaudited)	(audited)
Fund classified as available-for-sale	60,539	60,309	Level 1	Quoted bid prices in
investments				an active market
Held-for-trading non-derivative	58	59	Level 1	Quoted bid prices in
financial assets classified as held-				an active market
for-trading financial assets

• 23 -

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS OR SHORT POSITIONS IN THE SHARE CAPITAL OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at 30 June 2016, the interests or short positions of the directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which will be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short position which they are taken or deemed to have taken under such provisions of the SFO), or which will be required to be entered into the register kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, were as follows:

(a) Long Positions and Short Positions in Shares and Equity Derivatives

Name of director Ms. Chan Wai Kay Katherine_(Note 1) Mr. Xu Shengheng (Note 2) Mr. Jia Wenzeng(Note 3) Mr. Wu Desheng(Note 4)_

Number of issued ordinary shares of US$0.01 each in the Company held and the capacity Capacity Interests in shares Approximate percentage of interests in shares Interests under equity derivatives Aggregate interests Approximate percentage of the aggregate interests Beneficial owner 41,636,000 (L) 1.45% 24,500,000 (L) Interest of spouse 10,074,000 (L) 0.35% – 76,210,000 (L) 2.65% Beneficial owner 508,319,000 (L) 17.67% 22,584,000 (L) 531,605,000 (L) 18.48% Beneficial owner 508,300,000 (S) 17.67% – 508,300,000 (S) 17.67% Interest of spouse 702,000 (L) 0.02% – Beneficial owner – – 3,000,000 (L) 3,000,000 (L) 0.10% Beneficial owner – – 1,500,000 (L) 1,500,000 (L) 0.05%

(L): Long position, (S): Short position

• 24 -

Notes:

1. Ms. Chan Wai Kay Katherine (“Ms. Chan”) is interested in 41,636,000 shares and 24,500,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section and Mr. Chow Ming Joe Raymond (“Mr. Chow”), spouse of Ms. Chan, holds 10,074,000 Shares of the Company (“Shares”). Under the SFO, Ms. Chan is deemed to be interested in 10,074,000 Shares in which Mr. Chow is interested.

2. Mr. Xu Shengheng (“Mr. Xu”) is interested in 508,319,000 Shares and 22,584,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section. Ms. Luk Hoi Man (“Ms. Luk”), the spouse of Mr. Xu, holds 702,000 Shares. Therefore, under the SFO, Mr. Xu is deemed to be interested in 702,000 Shares in which Ms. Luk is interested.

3. Mr. Jia Wenzeng is interested in 3,000,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section.

4. Mr. Wu Desheng is interested in 1,500,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section.

5. 25 -

(b) Long Positions under Equity Derivatives

The Share Option Plan

On 28 July 2010, the Company, by a shareholders’ resolution, conditionally adopted a new share option scheme (the “Share Option Plan”) for a period of ten years from the date on which the Share Option Plan became unconditional. On 7 August 2010, the Share Option Plan became unconditional and effective. Pursuant to the Share Option Plan, the board of directors was authorised, at its absolute discretion, to grant options to eligible participants, including directors of the Company or any of its subsidiaries, as defined in accordance with the terms of the Share Option Plan, to subscribe for shares in the Company under the terms of the Share Option Plan. As at 30 June 2016, the following directors of the Company were interested in the following options under the Share Option Plan:

				Number of
				share options
			Exercise price	outstanding as at
Name of director	Date of grant	Exercise period	per share	30 June 2016
			HK$
Ms. Chan Wai Kay	9 September 2010	9 September 2010 to	0.426	17,000,000
Katherine		8 September 2020
	11 August 2014	11 August 2015 to	0.455	7,500,000
		10 August 2016
Mr. Xu Shengheng	9 September 2010	9 September 2010 to	0.426	11,600,000
		8 September 2020
	11 August 2014	11 August 2014 to	0.455	5,492,000
		10 August 2016
		11 August 2015 to	0.455	5,492,000
		10 August 2016
Mr. Jia Wenzeng	9 September 2010	9 September 2010 to	0.426	1,500,000
		8 September 2020
	11 August 2014	11 August 2014 to	0.455	750,000
		10 August 2016
		11 August 2015 to	0.455	750,000
		10 August 2016
Mr. Wu Desheng	11 August 2014	11 August 2014 to	0.455	750,000
		10 August 2016
		11 August 2015 to	0.455	750,000
		10 August 2016

• 26 -

Save as disclosed above, as at 30 June 2016, none of the directors, chief executive of the Company or their respective associates had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which will be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short position which they are taken or deemed to have taken under such provisions of the SFO), or which will be required to be entered into the register kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the minimum standards of dealing by directors of the Company as referred to in Rules 5.46 to 5.67 of the GEM Listing Rules.

INTERESTS DISCLOSEABLE UNDER SFO AND SUBSTANTIAL SHAREHOLDERS

So far as is known to the directors of the Company, as at 30 June 2016, persons (other than directors or chief executive of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required pursuant to Section 336 of the SFO, to be entered into the register referred to therein, were as follows:

Long Positions and Short Positions in Shares and Equity Derivatives

Name China Energy Conservation and Environmental Protection (Hong Kong) Investment Company Limited_(Note 1) China Energy Conservation and Environmental Protection Group(Note 1) Ms. Luk Hoi Man(Note 2)_	Name China Energy Conservation and Environmental Protection (Hong Kong) Investment Company Limited_(Note 1) China Energy Conservation and Environmental Protection Group(Note 1) Ms. Luk Hoi Man(Note 2)_	Number of issued ordinary shares of US$0.01 each in the Company held and capacity Capacity Interest in shares Percentage of interests in shares Interests under equity derivatives Aggregate interests Percentage of aggregate interests Beneficial owner 850,000,000 (L) 29.55% – 850,000,000 (L) 29.55% Interest of controlled corporation 850,000,000 (L) 29.55% – 850,000,000 (L) 29.55% Beneficial owner 702,000 (L) 0.02% – Interest of spouse 508,319,000 (L) 17.67% 22,584,000 (L) 531,605,000 (L) 18.48% Interest of spouse 508,300,000 (S) 17.67% – 508,300,000 (S) 17.67%
		Beneficial owner 702,000 (L) 0.02% – Interest of spouse 508,319,000 (L) 17.67% 22,584,000 (L) Interest of spouse 508,300,000 (S) 17.67% –

(L): Long position, (S): Short position

• 27 -

Notes:

1. China Energy Conservation and Environmental Protection (Hong Kong) Investment Company Limited is a wholly-owned subsidiary of China Energy Conservation and Environmental Protection Group (“CECEP”), therefore, under the SFO, CECEP is deemed to be interested in 850,000,000 Shares.

2. Ms. Luk Hoi Man (“Ms. Luk”), the spouse of Mr. Xu Shengheng (“Mr. Xu”), holds 702,000 Shares. Mr. Xu is interested in 508,319,000 Shares and 22,584,000 Shares issuable pursuant to exercise of share options of the Company. Therefore, under SFO, Ms. Luk is deemed to be interested in 508,319,000 Shares and 22,584,000 underlying shares issuable upon the exercise of the share options of the Company in which Mr. Xu is interested.

Save as disclosed above, as at 30 June 2016, the directors of the Company were not aware of any other person (other than directors or chief executive of the Company) who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required, pursuant to Section 336 of the SFO, to be entered into the register referred to therein.

• 28 -

OUTSTANDING SHARE OPTIONS

As at 30 June 2016, options to subscribe for an aggregate of 372,664,000 shares were outstanding (including the directors of the Company as disclosed above). Details of which as at 30 June 2016 were as follows:

Date of grant of share options 9 September 2010 9 September 2010 9 September 2010 9 September 2010 11 August 2014 11 August 2014	As at 1 January 2016 51,380,000 31,666,667 31,666,667 31,666,666 99,004,000 141,000,000 386,384,000	Granted during the period – – – – – – –	Exercised during the period – – – – – – –	Lapsed during the period 992,000 – – – 6,364,000 6,364,000 13,720,000	As at 30 June 2016 Vesting period of share options Exercise period of share options Exercise price per share HK$ 50,388,000 – 9 September 2010 to 8 September 2020 0.426 31,666,667 9 September 2010 to 8 September 2011 9 September 2011 to 8 September 2020 0.426 31,666,667 9 September 2010 to 8 September 2012 9 September 2012 to 8 September 2020 0.426 31,666,666 9 September 2010 to 8 September 2013 9 September 2013 to 8 September 2020 0.426 92,640,000 – 11 August 2014 to 10 August 2016 0.455 134,636,000 11 August 2014 to 10 August 2015 11 August 2015 to 10 August 2016 0.455 372,664,000

COMPETITION AND CONFLICT OF INTERESTS

None of the directors, the management shareholders or substantial shareholders of the Company or any of their respective associates has engaged in any business that competes or may compete with the business of the Group or has any other conflict of interests with the Group.

• 29 -

CORPORATE GOVERNANCE CODE

During the Review Period, the Company has complied with the code provisions of the Corporate Governance Code (the “Code”) set out in Appendix 15 of the GEM Listing Rules, except for the deviations as follows:

Under code provision A.2.1 of the Code requires that the roles of chairman and chief executive should be separate and should not be performed by the same individual.

During the Review Period, Mr. Liu Dajun is Joint Chairman of the Board and Chief Operating Officer and Mr. Xu Shengheng is Joint Chairman of the Board and Chief Executive Officer. Although the roles of chairman and chief executive officer were not separate, we considered that, to a certain extent, balance of power and authority can be achieved by the appointment of Mr. Liu Dajun and Mr. Xu Shengheng as Joint Chairman of the Board. We also considered that it has sufficient manpower to satisfy the needs of management of the Board and the day-to-day management of business.

However, for the purpose of better compliance with the Code, on 6 July 2016, Mr. Xu Shengheng has resigned as chief executive officer of the Company and, on 13 July 2016, Mr. Wang Manquan was appointed as chief executive officer of the Company. Since then, the Company has complied with the code provision A.2.1 of the Code to have the roles and responsibility of chairman and chief executive officer separated.

Under code provision A.6.7 of the Code requires that independent non-executive directors and other non-executive directors shall attend general meetings and develop a balanced understanding of the views of shareholders.

Under code provision E.1.2 of the Code requires that the chairman of the board should attend the annual general meeting. He should also invite the chairmen of the audit, remuneration, nomination and any other committees (as appropriate) to attend.

Mr. Jia Wenzeng, an independent non-executive Director and the chairman of the Audit Committee, and Mr. Wu Desheng, the independent non-executive Director, did not attend the annual general meeting and the extraordinary general meeting held on 30 May 2016 due to their engagement in other business.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference which deal clearly with its authority and duties. The audit committee’s primary duties are to review and to supervise the financial reporting process and internal control system of the Group and to provide advice and comments to the directors of the Company.

• 30 -

The audit committee currently comprises three independent non-executive Directors, namely, Mr. Jia Wenzeng, Mr. Zhang Honghai and Mr. Wu Desheng. Mr. Jia Wenzeng is the chairman of the audit committee. The audit committee has reviewed the Group’s unaudited results for the Review Period and has provided advice and comment thereon.

SECURITIES TRANSACTIONS BY DIRECTORS

The Company has not adopted its own code of conduct regarding securities transactions by directors, but having made specific enquiry of all directors and the Company was not aware of any noncompliance with the required standard of dealings as set out in Rules 5.48 to 5.67 of the GEM Listing Rules and its code of conduct regarding securities transactions by directors during the Review Period.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

During the Review Period, 5,968,000 shares of US$0.01 each were repurchased by the Company at prices ranging from HK$0.34 to HK$0.36 per share through the Stock Exchange.

As at the date of this announcement, the Board comprises Mr. Liu Dajun, Mr. Xu Shengheng, Ms. Chan Wai Kay, Katherine and Mr. Zang Yiran as executive Directors, Mr. Zhao Youmin and Mr. Daiqi as non-executive Directors, Mr. Jia Wenzeng, Mr. Wu Desheng and Mr. Zhang Honghai as independent non-executive Directors.

By Order of the Board of China Ground Source Energy Industry Group Limited Xu Shengheng Joint Chairman & Executive Director

Hong Kong, 12 August 2016

This announcement will remain on the GEM website with the domain name of www.hkgem.com on the “Latest Company Announcement” page for at least 7 days from the date of publication and on the website of the Company at www.cgsenergy.com.hk.

• 31 -