CHYY Development Group Limited - Annual Report 2020

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(Incorporated in the Cayman Islands with limited liability) Stock Code: 8128

TECHNOLOGY AND RESOURCES LINKS Annual Report 2020

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

GEM has been positioned as a market designed to accommodate small and mid-sized 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.

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This report, for which the directors of China Geothermal Industry Development Group Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the GEM (the “GEM Listing Rules”) of The Stock Exchange 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 report 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 report misleading.

This report 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 China Geothermal Industry Development Group Limited at www.cgsenergy.com.hk.

China Geothermal Industry Development Group Limited

Annual Report 2020

03 Corporate Information
04 Chairman’s Statement
06 Management Discussion and Analysis
13 Biography of Directors and Senior Management
17 Report of the Directors
29 Corporate Governance Report
37 Independent Auditor’s Report
42 Consolidated Statement of Profit or Loss
43 Consolidated Statement of Comprehensive Income
44 Consolidated Statement of Financial Position
46 Consolidated Statement of Changes in Equity
48 Consolidated Statement of Cash Flows
50 Notes to Financial Statements

147 Five-Year Financial Summary

148 List of Major Properties Held by the Group

Corporate Information

BOARD OF DIRECTORS Executive directors

Xu Shengheng (Chairman) Chan Wai Kay Katherine (Deputy Chairman) Wang Yan Wang Manquan (Chief Operating Officer) Hao Xia (Chief Financial Officer) Dai Qi

Non-executive directors

Yang Wei Liu Ening Zhang Yiying

Independent non-executive directors

Jia Wenzeng Wu Desheng Wu Qiang Guo Qingui Guan Chenghua

REMUNERATION COMMITTEE

Wu Desheng (Chairman) Wang Yan (Deputy Chairman) Xu Shengheng (Deputy Chairman) Jia Wenzeng Wu Qiang Guo Qingui Guan Chenghua

NOMINATION COMMITTEE

Xu Shengheng (Chairman) Wang Yan (Deputy Chairman) Jia Wenzeng Wu Desheng Wu Qiang Guo Qingui Guan Chenghua

PRINCIPAL BANKER

REGISTERED OFFICE

P.O. Box 31119 Grand Pavilion Hibiscus Way 802 West Bay Road Grand Cayman KY1-1205 Cayman Islands

HEAD OFFICE AND PRINCIPAL PLACE

OF BUSINESS IN HONG KONG

8/F., Chung Hing Commercial Building 62-63 Connaught Road Central Central Hong Kong

CHIEF EXECUTIVE OFFICER

Xue Jiangyun

AUTHORISED REPRESENTATIVES

Xu Shengheng Wong Lai Yuk

COMPLIANCE OFFICER

Xu Shengheng

COMPANY SECRETARY

Wong Lai Yuk

Bank of China (Hong Kong) Limited The Hongkong and Shanghai Banking Corporation Limited

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Suntera (Cayman) Limited Suite 3204, Unit 2A, Block 3, Building D, P.O. Box 1586, Gardenia Court, Camana Bay, Grand Cayman, KY1-1100 Cayman Islands

HONG KONG BRANCH SHARE

REGISTRAR AND TRANSFER OFFICE

Computershare Hong Kong Investor Services Limited Shops 1712-1716 17th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong

AUDITOR

Ernst & Young 22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

STOCK CODE

8128

AUDIT COMMITTEE

Jia Wenzeng (Chairman) Wu Desheng Wu Qiang Guo Qingui Guan Chenghua

COMPANY WEBSITE

www.cgsenergy.com.hk

China Geothermal Industry Development Group Limited Annual Report 2020

Chairman’s Statement

Dear Shareholders,

On behalf of the board of directors (the “Board”) of China Geothermal Industry Development Group Ltd. (the “Company”), I would like to report to the shareholders the final results of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2020 (the “Year”).

The Group’s revenue for the Year amounted to approximately HK$230,862,000, a decrease of approximately 33.2% as compared to the same period in 2019. The Group recorded a net loss of HK$243,440,000 for the Year, which substantially narrowed down by approximately 45.3% as compared to the loss posted in 2019. The reduction in net loss for the Year was primarily due to the impairment provision for the Year has significantly decreased as compared to that of last year as well as the Company has strengthened various cost controls to reduce its operating expenses.

In China, heating energy consumption accounted for about 10% of the country’s energy consumption a year. Using electrical energy to efficiently transport low-temperature heat as an alternative heating energy for clean heating, combined with electricity for provision of heating, can save two-thirds of the electrical energy. The clean heating method by using electrical energy efficiently transports low-temperature heat energy as an alternative energy source for heating that compared with heating solely by electricity can greatly reduce the carbon emissions generated in the electrical power production process. The Company focuses on shallow geothermal energy as an alternative energy source for northern heating, provides clean heating and develops the integrated heating and cooling emerging industries.

Carbon neutrality is achieved by the Company that no combustion and zero emissions in the heating area. Carbon emissions seems to be an environmental issue, but it in deed is a development issue. On 22 January 2016, the general manager of Ever Source Science and Technology Development Group Co., Ltd. (“HYY Group”) introduced and reported on the topic of “The basic principle and industrialization of smart heating by utilization of shallow geothermal energy without combustion to solving the problem of air pollution” at the third meeting of the “BeijingTianjin-Hebei Coordinated Development Expert Advisory Committee”.

The Group’s goal of carbon neutrality is realized by clean heating: using electrical energy to drive the compressor system to exchange heat, efficiently transport low-temperature heat energy as an alternative energy source for heating, and achieve clean heating with no combustion and zero emissions in the heating region.

With over 20 years of practice by HYY Group has proved that using electrical energy to efficiently transport low-temperature shallow geothermal energy in heating areas as an alternative energy source for heating and cooling; using electrical energy to efficiently transport low-temperature air energy and other low-temperature heat energy in non-heating areas, the heating and cooling effect is good. The cost is lower than that of traditional direct coal burning method and the technology is mature.

HYY Group has paid attention to uphold in practice:

Recognizing the energy grading and energy safety. In practice, it is learned by steps that “clean heating” is a revolution of the production and consumption of heating energy and the rural lifestyle.
Shallow geothermal energy that are huge and vast must be efficiently transported by electrical energy in accordance with local conditions to increase its power to be used as an alternative energy source for heating and to achieve clean heating. Shallow geothermal energy is a kind of energy that can directly be utilized and is not the traditional hydrothermal geothermal resources that belongs to the national mineral resources.
Fully corresponding to the traditional central heating and self-heating methods: clean heating for Haidian Foreign Language School which has been operating on scale for over 20 years, clean heating for the Hong Kong and Macau Center of the Central Party School that has been transformed and operating for many years, the National Federation of Industry and Commerce Building located on the side of the Second Ring Road, the central clean heating of Xiji Xiangshan residential area, the clean heating with rural self-heating projects in Xizha village, Lijiafen village in Haidian, Beijing, Liuminying village in Daxing and Yihebao village in Hebei Province.

Chairman’s Statement

Practice leads to true knowledge, and facts speak louder than words. Let theory and practice prove to the world that “electrical energy efficiently transports low-temperature heat energy as an alternative heating energy for clean heating” which is conformed with the path of clean heating that are successful in practice and suitable for Chinese characteristics.

I would like to take this opportunity to thank all staff and Directors for their contributions and efforts to the development of the Group in the past year, and sincerely thank all customers, business partners and Shareholders for their trust and support in the Group.

With best regards,

Xu Shengheng Chairman

China Geothermal Industry Development Group Limited Annual Report 2020

Management Discussion and Analysis

FINANCIAL HIGHLIGHTS

Income Allocation

	2020		2019
	*HK$’000*	%	HK$’000	%
1. Shallow geothermal energy utilisation system
Including: Planning and Design	122	0	2,101	1
Supply of renewable energy	3,741	2	21,146	6
Engineering construction	142,202	62	163,573	47
Operation and maintenance	25,963	10	37,155	11
Intelligent manufacturing	2,804	1	22,697	6
2. Air conditioning/shallow geothermal heat pump	47,897	21	92,485	27
3. Propertyinvestment and development	8,133	4	6,380	2
Total revenue	230,862	100	345,537	100

			2020	2019
			*HK$’000*	HK$’000
Revenue			230,862	345,537
Gross profit			46,134	83,978
Loss before tax			(240,248)	(406,844)
Loss for the year			(243,440)	(445,023)
Research and development costs
(included in the administrative expenses)			5,562	6,440
Impairment losses on trade and bills receivables, net			15,388	6,612
Impairment loss recognised in respect of prepayments, other receivables
and other assets, net			10,384	54,814
Impairment losses on uncertainty in respect of collectability of contract assets, net			8,958	23,505
Impairment on goodwill			–	263,879

As at 31 December 2020 & 2019

	2020	2019
	*HK$’000*	HK$’000
Current assets	1,083,854	574,672
Total assets	1,720,561	1,955,668
Net current liabilities	(22,599)	(624,790)
Total equity	477,174	664,105

Management Discussion and Analysis

FINANCIAL REVIEW

For the year ended 31 December 2020, the loss of the Group amounted to approximately HK$243,440,000 and revenue amounted to HK$230,862,000 as compared with the loss of the Group amounted to HK$445,023,000 and revenue amounted to approximately HK$345,537,000 for the year ended 31 December 2019. For more detailed information, please refer to the consolidated financial statements for the year ended 31 December 2020 and 2019.

OPERATIONAL RESULTS

Total revenue from operations for the year ended 31 December 2020 was approximately HK$230,862,000 as compared with HK$345,537,000 for the year ended 31 December 2019, representing a decrease of 33.2%. The decrease in revenue was mainly attributable to some projects as originally planned were lagging behind due to some contracts were not signed as expected and construction were not completed on schedule. On the other hand, the tight funding situation has reduced or postponed part of the originally planned BOO projects, resulting in a decrease in the number of funding advancement projects. During the year ended 31 December 2020, the Group recorded a net loss of approximately HK$243,440,000 (including impairment of trade receivables of HK$15,388,000 and impairment of contract assets amounted to approximately HK$8,958,000) as compared with a net loss of approximately HK$445,023,000 for the year ended 31 December 2019.

GROSS PROFIT MARGIN

Gross profit from the Group’s operations for the year ended 31 December 2020 was approximately HK$46,134,000, represented the gross profit margin of 20.0% (2019: approximately HK$83,978,000, represented the gross profit margin of 24.3%). The Group’s gross profit margin had decreased by 4.3%. The fall of gross profit margin is partly due to the revenue from coalto-electricity projects and sale of HYY Ground Source Heating Device with lower gross profit margin accounted for a higher proportion of the total revenue. Besides, preference on the customers with good payment ability will be given when signing the contracts in response to the outbreak of COVID-19 pandemic and tight funding of the Company which also resulted to lower the profit margin of some projects.

SELLING & DISTRIBUTION EXPENSES

Selling and distribution expenses for this year decreased by approximately HK$5,662,000 or 45.3% as compared with that of the year ended 31 December 2019. The selling and distribution expenses decreased mainly due to the decreases of the marketing, advertising and office costs resulted by the decrease in projects. On the other hand, in order to alleviate the impact of the outbreak of COVID-19 pandemic and tight funding situation, the Company has strengthened the cost control which reduced the expenditures.

ADMINISTRATIVE EXPENSES

Administrative expenses amounted to approximately HK$89,639,000 (decreased by 11.9%) and HK$101,696,000 for the years ended 31 December 2020 and 2019 respectively. The decrease in administrative expenses was mainly due to the effective cost control, the implementation of budget control and the strengthening of salary management by the Group.

OTHER EXPENSES

Other expenses amounted to approximately HK$166,722,000 (2019: HK$267,360,000). During the year, impairment losses recognized in respect of properties held for sale was HK$139,009,000.

SHARE-BASED PAYMENT EXPENSES

During the year ended 31 December 2019, the Group had not incurred any share-based payment expenses while in 2020 the share-based payment expenses amounted to approximately HK$4,620,000 which was the amortisation of relevant expenses arising from the granting of award shares to directors, officers, employees and business partners by the Group.

China Geothermal Industry Development Group Limited Annual Report 2020

Management Discussion and Analysis

ORDER BOOK

As at 31 December 2020, the Group had contracts on hand of approximately HK$211,219,000 (2019: approximately HK$173,935,000).

SEGMENTAL INFORMATION

The Group’s reportable and operating segment consists of shallow geothermal energy, air conditioning/shallow geothermal heat pump, property investment and development and securities investment and trading segments.

Shallow geothermal energy

The Group has always been committed to promote the development of non-combustion emerging industry of integrated heating and cooling with geothermal energy. It is the only enterprise in the country that possesses the business capabilities of design qualification, design capability, construction qualification, construction capability, operation and maintenance, main engine production and contract energy management. The Company is also the only patent holder of the original single-well circulation heat exchange energy collection technology and owns the largest number of patented technologies in the industry. Leveraging on existing resources and integrating industrial chain service capabilities, the Group features various professional sectors. Currently, the Group has formed five major segments of planning and design, supply of renewable energy, intelligent manufacturing, engineering construction and operation and maintenance.

Air conditioning/shallow geothermal heat pump

The Group continued the promotion of its air conditioning/shallow geothermal heat pump business this year and has expanded more than 3,275 devices in the district of Qingyuan, Longyao, Ningpu, Lixian in Hebei. In the future, the Group will continue to develop such products and enrich the product line constantly to meet the individual needs of the customers.

Properties investment and development

The Group continues to focus on its core businesses of shallow geothermal energy utilization system and continue to provide necessary funding to support the core business. During the year, the group had disposed properties in Beijing and Hangzhou to improve general liquidity. The Group will continue proper arrangement of its assets to secure sufficient resources for core business development.

Securities investment and trading

The Group invested the idle fund for trading of securities and other types of investments in order to increase the Group’s income. Further information regarding the Group’s operating segments may be referred to note 4 “Operating Segment Information” of this announcement.

FINANCIAL RESOURCES AND LIQUIDITY

Net current liabilities of the Group as at 31 December 2020 was approximately HK$22,599,000 (2019: HK$624,790,000).

As at 31 December 2020, the Group had cash and cash equivalents of approximately HK$63,172,000 (2019: approximately HK$56,871,000). Cash and cash equivalents on the consolidated statement of financial position include funds available for general corporate purposes.

In view of the net current liabilities position, the Directors have given careful consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern. In order to improve the Group’s liquidity and cash flows to sustain the Group as a going concern, the Group implemented or is in the process of implementing certain measures. Details of which could be referred to note 2.1 of the notes to the consolidated financial statements of this announcement.

Management Discussion and Analysis

CHARGES OF GROUP ASSETS

As at 31 December 2020, bank borrowings was secured by property with a carrying amount of approximately HK$9,743,000 and investments in equity interests of a subsidiary, with a total carrying amount of approximately HK$419,796,000.

EXPOSURE TO FLUCTUATION IN EXCHANGE RATES

The Company’s reporting currency is in Hong Kong dollars and most of the trading transactions and cost incurred by the Group are principally denominated in Hong Kong dollars and Renminbi. The Group continued to adopt a conservative treasury policy by keeping most of the bank deposits in either Hong Kong dollars or Renminbi to minimise exposure to foreign exchange risks.

As at 31 December 2020, the Group had no foreign exchange contracts.

GEARING RATIO

The gearing ratio of the Group, based on total net debt (including interest-bearing bank and other borrowings, lease liabilities, trade and bills payables, financial liabilities included in other payables and accruals, less cash and cash equivalents) to the equity (representing equity attributable to owners of the parent) plus net debt of the Group, was 57.5% as at 31 December 2020 (2019: 58.6%).

EMPLOYEES

As at 31 December 2020, the Group has approximately 480 employees (2019: approximately 580). The remuneration package of the employees is determined with reference to their performance, experience and their positions, duties and responsibilities in the Group. In addition, discretionary bonuses will be paid to staff based on individual and Group’s performance.

SHARE OPTION SCHEME

The Company has a share option scheme that provides for the issuance of options to its directors, officers and employees. The detailed disclosures relating to the Company’s share option scheme are set out in note 35 to the financial statements of the Company’s annual report.

At 31 December 2020, all the share options granted and remained outstanding under the Share Option Plan 2010 were lapsed.

SHARE AWARD SCHEME

On 15 January 2020 (“Adoption Date”), the Company has adopted a share award scheme (the “Share Award Scheme”) with the objective to attract, retain and incentivize key employees, executive officers, directors and consultants of the Company and its subsidiaries to retain them for the continual operations and development the Group. Pursuant to the Scheme Rules, the Board may, from time to time, at their absolute discretion select the eligible persons to participate in the Share Award Scheme and determine the number of shares to be awarded (“Award Shares”) to the selected participants. The Board shall have the power to impose any conditions on the rights of selected participants to the Award Shares when deemed appropriate. The detailed disclosures relating to the Company’s Share Award Scheme are set out in note 36 to the financial statements of the Company’s annual report.

CONTINGENT LIABILITIES

As at 31 December 2020, the Company did not have any contingent liabilities not provided in the financial statements (2019: Nil).

DIVIDEND

The Board does not recommend the payment of any final dividend for the year ended 31 December 2020 (2019: Nil).

China Geothermal Industry Development Group Limited Annual Report 2020

Management Discussion and Analysis

CAPITAL STRUCTURE

As at 31 December 2020, the authorised share capital of the Company was US$160,000,000 divided into 16,000,000,000 ordinary shares of US$0.01 each and the issued share capital was 4,526,925,163 ordinary shares of US$0.01 each.

EVENTS AFTER THE REPORTING PERIOD

On 26 March 2021, Ever Source Science and Technology Development Group Co., Ltd. (恒有源科技發展集團有限公司) entered into the Equity Transfer Agreement in relation to disposal of 100% equity interest in HYY Science and Technology Development Group Xinyi Co., Ltd. (恒有源科技發展集團新沂有限公司), a wholly owned subsidiary of the Company, at the consideration of approximately RMB25,831,000.

CAPITAL COMMITMENT AND SUBSTANTIAL INVESTMENTS

Details of capital commitments are set out in note 42 to the financial statements of the Company’s Annual Report.

FUTURE PLANS FOR SUBSTANTIAL INVESTMENTS OF CAPITAL ASSETS

The Group expects that it will make significant capital expenditures on some of the build-operate-transfer (“BOT”) business. BOT business is currently the most common heating business model in the PRC. The Group will promote this model in order to develop heating projects.

MAJOR ACQUISITIONS AND DISPOSALS

On 29 March 2020, Ever Source Science and Technology Development Group Ltd. (恒有源科技發展集團有限公司), an indirect wholly owned subsidiary of the Company, entered into property usage right transfer agreement (“Transfer Agreement”) to sell usage right of the investment properties in Beijing for a cash consideration of RMB114,407,000. At the extraordinary general meeting held on 6 October 2020, the Shareholders of the Company passed the ordinary resolution in respect of the Transfer Agreement. Details of the disposal contemplated under the Transfer Agreement can be referred to the announcement dated 29 March 2020 and the circular dated 27 August 2020 of the Company.

On 15 May 2020, HYY Investment Management Co., Ltd. (恒有源投資管理有限公司), an indirect wholly owned subsidiary of the Company, entered into equity transfer agreements (“Equity Transfer Agreement”) to sell 100% of the equity interest in Goodway (Hangzhou) Biotechnology Ltd (嘉德威（杭州）生物科技有限公司) for a cash consideration of RMB143,993,000. At the extraordinary general meeting held on 10 November 2020, the Shareholders of the Company passed the ordinary resolution in respect of the Equity Transfer Agreement. Details of the disposal contemplated under the Equity Transfer Agreement can be referred to the announcement dated 15 May 2020 and the circular dated 15 October 2020 of the Company.

On 13 November 2020, HYY Investment Management Co., Ltd. (恒有源投資管理有限公司), an indirect wholly owned subsidiary of the Company, entered into equity transfer agreement (“Share Transfer Agreement”), as supplemented by a supplemental agreement dated 23 December 2020, to sell approximately 4.99965% of equity interests in Beijing Life Insurance Co., Ltd. for a cash consideration of RMB237,000,000. At the extraordinary general meeting held on 19 February 2021, the Shareholders of the Company passed the ordinary resolution in respect of the Share Transfer Agreement. Details of the disposal contemplated under the Share Transfer Agreement can be referred to the announcement dated 13 November 2020 and the circular dated 26 January 2021 of the Company.

Save as disclosed above, there was no major acquisitions or disposal transactions during the year.

Management Discussion and Analysis

BUSINESS REVIEW

During the period under review, the Company recorded revenue of approximately HK$230,862,000 of which revenue from engineering construction accounted for 62% of total revenue, operation and maintenance accounted for 10% of total revenue, and equipment sales accounted for 21% of total revenue.

The overall income scale of the Group slowed down and decreased during the review period as compared to the same period last year. On the one hand, macroeconomic growth was slowed down due to the impact of the COVID-19 pandemic. Some projects as originally planned were lagging behind resulted by some contracts and construction were not completed on schedule. On the other hand, the funding constraint has reduced or postponed part of the originally planned investment-constructionoperation projects, resulting in a decrease in the number of funding advancement projects.

Year 2020 is the most challenging year for the Company. During the period under review, the Group has disposed of the usage right of Beijing Industrial Park, the 100% equity interests of Goodway (Hangzhou) Biotechnology Ltd. and 4.99965% equity interests of Beijing Life Insurance Co., Ltd. Most of the proceeds from the disposals were used for the repayment of bank loans which greatly reduced the Company’s financial expenses. As of the end of the period, a total of RMB325 million has been repaid for the loan of principal amount of RMB400 million guaranteed by China Energy Conservation and Environmental Protection Group and the outstanding balance of the loan is RMB75 million. Details of the relevant disposals can be referred to the Company’s circulars dated 27 August 2020, 15 October 2020 and 26 January 2021.

Facing the suddenly outbreak of COVID-19 pandemic in 2020, the local government adopted stringent epidemic prevention measures, and normal business activities could conditionally be allowed to carry out until the beginning of May. During the period in August, sporadic epidemics occurred successively in some regions which once again affected the Company’s business development. The impact has led to decline of the business to a certain extent. On the one hand, the Company is actively carrying out epidemic prevention and control measures, on the other hand, it has tried to speeding up the business development and adopting various measures to ensure the normal operation of the Company’s projects, finally achieving a staged victory of epidemic prevention and control work and ensuring smooth operation and maintenance work.

During the period under review, the Company carried out a number of representative projects, including Beijing Haidian Foreign Language Yuanxiang Campus Phase II, Caol-to-Electricity Project of Qingyuan District, Baoding, Coal-to-Electricity Project of Ningjin Area, Handan Citizen Service Center, Ground Source Heat Pump Transformation Project of Xingtai city, demonstration project of Zhongxin Village in Hejin City. Especially, the Ground Source Heat Pump Transformation Project of Xingtai city has been transforming the original system of double-well collection and heat exchange method to the Group’s unique Single-well Circulation Heat Exchange & Collection System, which provided basis for similar projects in the future and further proved the reliability and environmentally protection of the Single-well Circulation Heat Exchange & Collection System. The demonstration project of Zhongxin Village in Hejin City is a central heating demonstration project in villages and towns which is consistent with the strategy of comprehensive implementation of the rural revitalization proposed by our country during the 14th Five-Year Plan period. It also demonstrates the renewable energy to meet the heating demand in the countryside is of great significance.

During the period under review, the project of “Key Technology Research and Large-scale Application of Heat Pump Heating in Northern Areas” participated by Ever Source Science and Technology Development Group Ltd. (“HYY Group”) won the first prize of “2020 Huaxia Construction Science and Technology Award”. It has also organized the compilation of Beijing’s local standard “Evaluation of Technical Specifications for the Ground Source Heat Pump Systems” which was issued by the Beijing Municipal Market Supervision and Administration Bureau on 24 December 2020 and will be implemented on 1 April 2021.

With the successive completion of coal-to-electricity projects in Beijing and the Beijing-Tianjin-Hebei regions by the Group, resulting in a decrease on self-heating projects. At the next step, the Group will gradually adjust its strategic layout in response to changes in demand for shallow geothermal energy as an alternative energy source for heating in the new era. In addition to the vigorous promotion of central heating projects through a variety of business models, we are seeking to promote coalto-electricity self-heating projects in the other related rural areas, such as Shanxi, Inner Mongolia, Shandong, etc.

China Geothermal Industry Development Group Limited Annual Report 2020

Management Discussion and Analysis

In the future, in addition to the original market models, it will pay more attention to the cooperation with enterprises in the industry and companies in CECEP, further strengthening the industrial cooperation and making use of the complementary advantages of industrial synergy. It will jointly promote projects in Guiyang, Chengdu, Xiangtan, Taizhou, Qingdao and other places. Besides, a strategic cooperation agreement was signed with Beijing Zhonghuan Huanhui Company to carry out comprehensive cooperation in 34 cities within the scope of its franchise. At the same time, it actively promotes the application of heat pump products in the industry, and is promoting projects such as the utilization of waste heat from mine well water and wellbore heat insulation in the coal industry, promoting the utilization of heat pumps for heat pump flue-cured tobacco in the tobacco industry and utilization of heat pumps in the animal husbandry industry.

Although the Company had repaid bank loans during the period under review, it still encounters certain uncertainties in its operating activities in the following aspects:

I. Possibility of tight funding

Due to the loan repayments and the decline in financial results during the review period has led to funding constraint. While the Group will actively promote shallow geothermal energy as heating energy source and will be taking the following measures:

To strengthen the collection of receivables for projects by multiple channels and measures;
To dispose conditionally those assets that cannot generate obvious cash flow in the near future so as to improving the efficiency of capital usage;
To selectively commit the investment-construction-operation projects with high return in order to ensure continuous and stable cash flow in the future.
II. With the booming of shallow ground energy development and utilization market, the Company needs to further improve its technical level and expand the Company’s industrial chain. Enrichment and improvement of the core technologies and industrial chain of single well circulation heat exchange, ground energy heating devices, air source heat pump and geothermal heat pump owned by the Company with an aim to provide energy supply for buildings outside the core high-density areas of the city, especially clean heating in the northern regions, clean energy supply in rural areas (cooling, heating, domestic water), clean energy supply in the Yangtze River Economic Zone, and enhance the ability to provide a “zero-carbon” clean energy supply total solution.

Biography of Directors and Senior Management

EXECUTIVE DIRECTORS

Mr. Xu Shengheng (“Mr. Xu”) , aged 58, has been appointed as an executive Director since 6 February 2009. Mr. Xu is the chairman of the Group, an executive Director, the chairman of nomination committee, the deputy chairman of remuneration committee, the compliance officer and an authorised representative of the Company. Mr. Xu holds the title of Senior Engineer and a doctoral degree of Geological Engineering and a Master degree of Business Administration from the International EMBA from Hong Kong University of Science and Technology. Mr. Xu has long been engaged in the field of heating provision and is committed to the preferred shallow geothermal energy as an alternative energy source for northern heating. By physical change process to provide heating for buildings with heating area free of combustion and zero emissions. The original singlewell circulation heat exchange of renewable geothermal energy collection technology developed by Mr. Xu has realized the industrialization development and is one of the low-temperature heat (shallow geothermal energy) collection technology of the integrated heating/cooling emerging industry of the Group. Mr. Xu is also a director of certain subsidiaries of the Company.

Ms. Chan Wai Kay Katherine (“Ms. Chan”) , aged 61, has been appointed as an executive Director since 6 February 2009. Ms. Chan is the deputy chairman of the Board and executive Director of the Company. She holds a Bachelor degree of Business Administration from the University of Southern California, USA. Ms. Chan has more than 20 years of experience in financial services industry and previously held various key positions in listed companies. Ms. Chan has profound practicing knowledge in company’s strategic planning and corporate management of listed companies. Ms. Chan is also a director of certain subsidiaries of the Company.

Ms. Wang Yan (“Ms. Wang”), aged 48, has been appointed an executive Director, the deputy chairman of nomination committee and remuneration committee of the Company since 10 August 2018. Ms. Wang acted as joint Chairman of the Board during the period from 10 August 2018 to 4 February 2021. Ms. Wang holds a bachelor’s degree in accounting and a master’s degree in engineering and is a senior economist. Ms. Wang began working in August 1992. From August 1992 to February 1998, she worked in China Arts and Crafts Exhibition Company. From February 1998 to July 2018, she worked in China Energy Conservation Investment Company Limited (subsequently renamed as China Energy Conservation and Environmental Protection Group, the parent company of the substantial shareholder of the Company) and served the positions of office manager, deputy director and director of the Human Resources Department and employee supervisor of its group. From November 2014 to May 2020, she was a director of CECEP Valiant Co., Ltd. (a listed company in China with stock code: 002643.SZ).

Mr. Wang Manquan (“Mr. Wang”) , aged 58, a senior engineer, has been appointed as an executive Director since 29 December 2016. Mr. Wang graduated from Beijing Municipal Committee of the CPC Party School with a bachelor’s degree in Business Management in 2007. He joined in Ever Source Science and Technology Development Group Co., Limited, a subsidiary of the Company, in 2001. Previously, Mr. Wang served as the chief executive officer of the Company, the vice president of Ever Source Science and Technology Development Group Co., Ltd. and currently serves as the chief operating officer of the Company and general manager of Ever Source Science and Technology Development Group Co., Ltd. Prior to joining in the Group, Mr. Wang was the head of Beijing Haidian Sijiqing Heat Exchanger Factory. Mr. Wang has been engaged in leadership of project management for mechanical and electrical equipment installation for more than 20 years, and specializes in comprehensive application technology of geothermal energy heating system. He has extensive business management experience. Mr. Wang is also a director of certain subsidiaries of the Company.

Ms. Hao Xia (“Ms. Hao”) , aged 41, is a senior accountant. Ms. Hao has been appointed as an executive Director and the chief financial officer of the Company since 24 August 2020. In July 2002, Ms. Hao graduated with a bachelor’s degree in accounting from China University of Mining and Technology. She joined China Coal Research Institute in August 2002 and had been engaged in financial accounting for a long time. She had been the director of the Accounting Office of the Finance Center of China Coal Research Institute, the investment director of the Enterprise Management Department of China Coal Research Institute, the financial director of Zhejiang Coal Science Clean Energy Co., Ltd. and the deputy director (presiding) of the Asset Finance Department of Coal Science and Technology Research Institute Co., Ltd. Ms. Hao joined China Energy Conservation and Environmental Protection Group in January 2018 as the chief accountant of CECEP Building Energy Conservation Co., Ltd. (a fellow subsidiary of China Energy Conservation and Environmental Protection (Hong Kong) Investment Co., Ltd. which is a substantial shareholder of the Company). From April 2015 to May 2018, Ms. Hao acted as a supervisor of Shanghai Datun Energy Resources Co., Ltd. (a company listed in the PRC, stock code: 600508).

China Geothermal Industry Development Group Limited

Annual Report 2020

Biography of Directors and Senior Management

Mr. Dai Qi (“Mr. Dai”) , aged 38, was appointed as a non executive Director on 12 August 2013 and was redesignated to executive Director of the Company since 29 December 2016. Mr. Dai graduated from Southwest Jiaotong University with a master’s degree of management. Previously, he worked at Beijing Dongcheng Branch of Shenzhen Development Bank as a senior account executive and held positions with Strategic Management Department of CECIC and Strategic Management Department of China Energy Conservation and Environmental Protection Group. Besides, he acted as deputy general manager of Investment and Capital Operation Department of CECEP (HK). He has been acting as Administrative Director of the Company since September 2012. Mr. Dai is also currently the vice president of the Group and vice president of Ever Source Science and Technology Development Group Co., Ltd.

NON-EXECUTIVE DIRECTORS

Mr. Yang Wei (“Mr. Yang”) , aged 37, has been appointed as an non-executive Director of the Company since 10 August 2018. Mr. Yang graduated from Beijing Normal University majoring in physics in 2007. He graduated from the University of Hong Kong in 2008 with a master’s degree in economics, a economist. He began working in March 2009. He was the business manager of the Railway Construction Division of China Railway Materials Corporation, the secretary of the President Office of China Railway Materials Co., Ltd., and the secretary of the Office of China Energy Conservation and Environmental Protection Group. Since January 2015, he has been an assistant to the general manager of China Energy Conservation and Environmental Protection (Hong Kong) Investment Co., Ltd. Currently, he is the deputy general manager of China Energy Conservation and Environmental Protection (Hong Kong) Investment Co., Ltd., a substantial shareholder of the Company who holds 26.29% of the issued share capital of the Company, and concurrently serves as an executive director and the general manager of its associated company, China Energy Conservation Environmental Advisory Group Co., Ltd.

Mr. Wang Michael Zhiyu (“Mr. Wang”) , aged 42, had been appointed as an non-executive Director of the Company during the period from 15 August 2019 to 11 March 2021. Mr. Wang graduated from Camosun College in Canada with a bachelor’s degree in marketing in 2003. From 2004 to 2006, he worked as a sales and customer relations manager at DeltaLock Inc. in Canada. From 2006 to 2016, he worked as a marketing manager at Beijing Shuntian Green Slope Technology Co., Ltd. Since 2016, he has been the manager of the media operation department and deputy general manager at Beijing Tomorrow Sunshine Advertising Co., Ltd., responsible for media promotion and operation management. Mr. Wang has extensive experience in marketing and operations management and has extensive management and investment experience in the environmental friendly materials industry.

Ms. Liu Ening (“Ms. Liu”) , aged 41, has been appointed as an non-executive Director of the Company since 12 March 2021 and acted as an alternate Director to Mr. Mr. Wang Michael Zhiyu during the period from 14 November 2019 to 11 March 2021. Ms. Liu graduated from The RAFFLES-BICT International College in 2004 with a bachelor degree in business administration. From 2004 to 2010, she worked as an administrative manager in Beijing Shuntian Green Slope Technology Co., Ltd. Since 2010, she has been the deputy manager and manager of the media operation department in Beijing Tomorrow Sunshine Advertising Co., Ltd., responsible for media promotion and operation management. Ms. Liu has extensive experience in marketing and management, and she also has extensive investment experience in the education industry and environmental protection industry.

Mr. Zhang Yiying (“Mr. Zhang”) , aged 48, has been appointed as a non-executive Director of the Company since 16 January 2020. Mr. Zhang graduated from Capital University of Economics and Business, majoring in accounting. From 1994 to 2005, Mr. Zhang worked as the manager of credit department at Beijing Branch of China Construction Bank. From 2005 to 2009, he worked as assistant to the chairman and manager of the investment department at Neo-China Land Group (Holdings) Limited. From 2009 to 2019, he worked as a project manager and investment manager in Xi’an of Longisland Investment Group (HK) Limited. From 2019 till now, he has been a director and manager of Xi’an Baoshihua Regional Energy Technology Co., Limited. Mr. Zhang has extensive experience in real estate project development and engineering, as well as extensive management and investment experience.

Biography of Directors and Senior Management

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Jia Wenzeng (“Mr. Jia”) , aged 77, has been appointed as an independent non-executive Director of the Company since 25 March 2009. Mr. Jia is also the chairman of audit committee and members of nomination committee and remuneration committee. Mr. Jia had been working on financial management since 1963 with in-depth research and practice on corporate financial management. His dissertation was awarded a second prize in the National Examination Seminar for Economy Dissertation (全國經濟論文評選會) in 1992.

Mr. Wu Desheng (“Mr. Wu”) , aged 81, has been appointed as an independent non-executive Director of the Company since 21 March 2012. Mr. Wu is also the chairman of remuneration committee and members of nomination committee and audit committee. Mr. Wu is the executive director of the China Committee of Heating, Ventilation and Air-Conditioning of Architectural Society of China, executive director of China Association of Refrigeration, honorary director of the Civil Engineering & Architectural Society of Beijing, the Education Supervisor and Adjunct Professor of Tsinghua University, Beijing University of Civil Engineering and Architecture and Xi’an Jiaotong University. Mr. Wu graduated with a Bachelor’s degree from the Department of Civil Engineering of Tsinghua University in 1963.

Mr. Wu Qiang (“Mr. Wu”) , aged 61, has been appointed as an independent non-executive Director of the Company since 29 December 2016. Mr. Wu is also the members of remuneration committee, nomination committee and audit committee. Mr. Wu graduated from China University of Geosciences, Beijing in 1991 and obtained the doctoral degree in Engineering. Mr. Wu is currently a professor of China University of Mining & Technology, Beijing and the academician of China Academy of Engineering. Mr. Wu was honored with the “Li Siguang Geological Science Award” and received many honorable titles including the leader of Chang Jiang Scholars Program of the Ministry of Education, one of ten winners of the first “Outstanding Postdoctoral Award of China”, “National Outstanding Teacher” and the State-selected candidate of the first project of “Hundreds, Thousands, and Ten Thousands of Talents for the New Century” of the Ministry of Education. In addition, he is one of the recipients of special government allowance granted by the State Council. Mr. Wu is the deputy chairman of International Mine Water Association (IMWA), the president of national committee of IMWA China and one of the associate editor of Mine Water and the Environment, the SCI-indexed journal. He also serves as a member of China Association for Science and Technology, a member of Commission of Technology under Former State Administration of Work Safety and the head of “Expert Panel On Hydrogeology” under the State Administration of Coal Mine Safety.

Mr. Wu has published many books and over 300 academic articles. His works were honored with three Second Class Awards of National Science and Technology Progress Award, 10 first class awards of provincial award, while nearly 50 invention patens were granted by the United States, Hong Kong and China and 27 national software copyrights were granted. He worked as the chief editor for preparation of a number of reference books, such as national technology standards and manuals. The research team under his leadership was awarded Outstanding Innovation Team of the Ministry of Education and the “Team of Safety in Mines” of China Association for Science and Technology.

Mr. Guo Qingui (“Mr. Guo”) , aged 48, has been appointed as an independent non-executive Director of the Company since 29 December 2016. Mr. Guo is also the members of remuneration committee, nomination committee and audit committee. Mr. Guo graduated from the School of Law of Zhengzhou University. Mr. Guo obtained the Master Degree of Peking University Law School in 2005 and the Executive Master of Business Administration (EMBA) degree from Tsinghua University School of Economics and Management in 2015. He was admitted as a lawyer in China in 1995. As a practicing lawyer in China, he served in Grandall Law Firm (Beijing), Zhong Lun Law Firm (Beijing), King & Wood Mallesons in Beijing and Zhongxin Law Firm in Beijing. He currently serves as a partner and a lawyer of Beijing DeHeng Law offices. Mr. Guo has been appointed as an independent director of ChifengJilong Gold Mining Co., Ltd., an A-share listed company in China with stock code: 600988, from November 2018 and a director of Beijing Xingyeyuan Property Management Co., Ltd., a company listed on NEEQ in China with stock code: 833925, since 1 May 2020.

China Geothermal Industry Development Group Limited Annual Report 2020

Biography of Directors and Senior Management

Mr. Guan Chenghua (“Mr. Guan”) , aged 52, has been appointed as an independent non-executive Director of the Company since 28 March 2020. Mr. Guan is also the members of remuneration committee, nomination committee and audit committee. Mr. Guan graduated from Law School of Peking University in 2005 with a doctoral degree in law and holds an EMBA degree from Cheung Kong Graduate School of Business. He is currently the Dean, professor and doctoral supervisor of The Institute of Economics and Resource Management of Beijing Normal University. He had served as teaching assistant, lecturer, associate professor and Associate Dean of School of Marxism of Peking University, senior visiting scholar at Kennedy School and Law School of Harvard University, the Dean of Innovation and Entrepreneurship College of Xihua University, secretary of Beijing Changping District Committee of the Communist Party of China, and secretary of The Communist Youth League Beijing Municipal Committee. Mr. Guan is also currently the deputy director of The University Council of Beijing Normal University, the president of Capital Institute of Science and Technology Development Strategy, the director of United Nations Industrial Development Organization (UNIDO) Green Industry Platform (GIP) China Chapter, a committee member of Beijing Municipal Government Expert Advisory Board, the Dean of China Institute of Innovation and Development (CIID), Beijing Normal University, an independent director of Beijing Life Insurance Co., Ltd. etc. Mr. Guan has long been engaged in teaching and research at high-level universities, and has extensive local government work experience. He has also published a number of monographs covering different topics such as education and talent training, city innovation, green economy and development.

SENIOR MANAGEMENT

Mr. Xue Jiangyun (“Mr. Xue”) , aged 51, is a senior engineer. Mr. Xue is currently the chief executive officer of the Company and the chairman of Ever Source Science & Technology Development Group Co., Ltd., an indirect wholly-owned subsidiary of the Company. Mr. Xue graduated with a doctoral degree from the University of Science and Technology Beijing in June 1997, majoring in corrosion and protection. In July 1997, he commenced working in Beijing Guotou Energy Conservation Company. He had been the project manager of the Industrial Department of Beijing Guotou Energy Conservation Company, the director of Beijing Energy Conservation Information Center, and an assistant to general manager, deputy general manager and general manager of Beijing Hualixing Technology Development Co., Ltd. He joined China Energy Conservation and Environmental Protection Group in June 2014 and successively served as deputy general manager and the chairman of labor union of CECEP Industrial Energy Conservation Co., Ltd., an executive director and deputy general manager of CECEP Building Energy Conservation Co., Ltd.

Mr. Guan Xiuhu (“Mr. Guan”) , aged 57, is an executive vice president of the Company, executive vice president and general manager of Regional Development Department of Ever Source Science and Technology Development Group Co., Limited. Mr. Guan is a professor-level senior engineer. In 1983, he graduated from Beijing University of Science and Technology with a bachelor’s degree in metal physics. In 2013, he joined the Company and its subsidiary Ever Source Science and Technology Development Group Co., Limited. Prior to joining the Group, Mr. Guan served as the director of the Beijing Institute of Powder Metallurgy, Director of the National Powder Metallurgy Quality Supervision and Inspection Center, Executive Deputy General Manager of Beijing Nuosi Taige Precision Technology Co., Ltd., and Deputy General Manager of Beijing Huaqing Group. Mr. Guan has long been engaged in the development and application of electromechanical equipment and geothermal energy. He specializes in the comprehensive application technology of geothermal energy heating systems and has extensive business management experience.

Mr. Jing Fuzhi (“Mr. Jing”) , aged 62, is an executive vice president and chief investment officer of the Company and Ever Source Science and Technology Development Group Co., Limited. Mr. Jing holds a master’s degree in EMBA from Hong Kong University of Science and Technology. He joined the Company in 2014. Prior to joining, Mr. Jing served as Deputy Director of Planning and Investment Division of Beijing Economic Commission; Deputy General Manager of Beijing Industrial Investment Corporation; Director of Small and Medium Enterprises Division of Beijing Economic and Information Technology Committee; Mr. Jing has been engaged in investment work for 35 years and has participated in Beijing Hyundai Motor , SMIC, BOE and other major project investment and the establishment and management of the SME Pilot Fund in Beijing. He has extensive investment management experience.

Report of the Directors

The directors present their report and the audited financial statements of the Company and the Group for the year ended 31 December 2020.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. Details of the principal activities of its principal subsidiaries are set out in note 1 to the financial statements.

An analysis of the Group’s performance for the year ended 31 December 2020 by business segments are set out in note 4 to the financial statements.

RESULTS AND DIVIDENDS

The Group’s results for the year ended 31 December 2020 and the Group’s financial position at that date are set out in the consolidated financial statements on pages 42 to 146.

The directors do not recommend the payment of any dividend for the year ended 31 December 2020.

USE OF PROCEEDS FROM THE SUBSCRIPTIONS

On 9 July 2019, the Company completed the allotment and issue of 250,000,000 shares at a subscription price of HK$0.0785 per share to Ms. Liu Ening. On 9 December 2019, the Company completed the allotment and issue of 250,000,000 shares at a subscription price of HK$0.08 per share to Universal Zone Limited, a company wholly owned by Mr. Zhang Yiying. The estimated total proceeds and net proceeds (after deduction of all relevant expenses) from these two subscriptions were approximately HK$39,625,000 and HK$39,425,000 respectively. The Company intended to use the net proceeds from these two subscriptions as the general working capital of the Group. Up to 31 December 2020, net proceeds of approximately HK$39,425,000 was utilized for general working capital as intended with details as follows:

	Amount utilized up	Amount utilized up
	to 31 December	to 31 December
	2019	2020
Actual use of the net proceeds	HK$ million	HK$ million
Professional fee	2.48	2.81
Listing fee	0.15	0.15
Office rental	0.72	2.49
Renovation fee	–	0.61
Salaries and remuneration	6.73	18.94
Purchase of goods	11.90	11.90
General expenses	0.37	2.50
	22.35	39.4

BUSINESS REVIEW

A review of the business of the Group for the year ended 31 December 2020 and a discussion on the Group’s future business development are provided in the “Management Discussion and Analysis” on pages 6 to 12. A summary of the Group’s performance during the year ended 31 December 2020 is provided in the “Financial Highlights” and “Five-Year Financial Summary” set out on page 6 and 147 respectively of this annual report. In addition, the financial risk management objectives and policies of the Group can be referred in note 46 to the financial statements.

China Geothermal Industry Development Group Limited

Annual Report 2020

Report of the Directors

PROPERTY, PLANT AND EQUIPMENT

The Group’s land and buildings were revalued as at 31 December 2020. The revaluation resulted in a loss over book values amounting to approximately HK$3,316,000, which has been charged directly to the asset revaluation reserve.

Details of the movements during the year in the property, plant and equipment of the Group are set out in note 13 to the financial statements.

INVESTMENT PROPERTIES

The Group revalued all of its investment properties at the end of the year. The decrease in fair value of investment properties, which has been credited directly to profit or loss, amounted to approximately HK$32,570,000. Most of these investment properties will be developed as the Group’s self-built demonstration leasing project with the application of shallow geothermal energy.

PROPERTIES

Details of the major properties held by the Group as at 31 December 2020 are set out on page 148 of the annual report.

SIGNIFICANT INVESTMENTS HELD

During the year ended 31 December 2020, the Group held 4.99965% of equity interests in Beijing Life Insurance Co. Ltd., which is an equity investments irrevocably designated at fair value through other comprehensive income. The size of investment as compared to the Group’s total assets as at 31 December 2020 is 13.88%.

On 13 November 2020, HYY Investment Management Co., Ltd. (恒有源投資管理有限公司), an indirect wholly owned subsidiary of the Company, entered into equity transfer agreement to sell all equity interests in Beijing Life Insurance Co. Ltd. for a cash consideration of RMB237,000,000. At the extraordinary general meeting held on 19 February 2021, the Shareholders of the Company passed the ordinary resolution in respect of the equity transfer agreement. Details of the disposal can be referred to the Company’s circular dated 26 January 2021. The equity transfer has not been completed at the date of this annual report.

SHARE CAPITAL AND SHARE OPTIONS

Details of movements in the Company’s share capital, share options and award shares during the year, together with the reasons therefore, are set out in notes 34 to 36 respectively to the financial statements.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s articles of association or the laws of the Cayman Islands, being the jurisdiction in which the Company was incorporated, which would oblige the Company to offer new shares on a pro rata basis to existing shareholders.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information available to the Company and to the best knowledge of the directors of the Company, at least 25% of the Company’s total issued share capital were held by the public as at the date of this report.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

During the year ended 31 December 2020, neither the Company, nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities, except that the trustee of the Share Award Scheme, pursuant to the rules of the Share Award Scheme, purchased on the open market a total of 135,000,000 shares of the Company, representing approximately 2.98% of the issued share capital of the Company, at a consideration of approximately HK$7,676,000 during the year ended 31 December 2020.

Report of the Directors

CHARITY DONATIONS

During the year, the Group made charity donations of RMB40,000 (equivalents to approximately HK$47,528) (2019: RMB26,000).

OTHER RESERVES

Details of movements in the other reserves of the Company and the Group during the year are set out in note 48 to the financial statements and in the consolidated statement of changes in equity, respectively.

DISTRIBUTABLE RESERVES OF THE COMPANY

The Company’s share premium account is distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business. The share premium account may also be distributed in the form of fully paid bonus shares. As at 31 December 2020, the Company’s reserve available for distribution amounted to approximately HK$2,744,000 (2019: HK$78,023,000) after net off the accumulated losses of the Company.

ENVIRONMENTAL POLICY

We are committed to building an environmental-friendly corporation that pays close attention to conserving natural resources. The Group encourages environmental protection and promotes awareness towards environmental protection to the employees. The Group adheres to the principle of recycling and reducing so as to minimize the environmental impact from our operation. Besides, being a corporation engaging in the business of research, development and promotion of shallow geothermal energy as alternative energy to provide heating for buildings, we have installed our Ground Energy Heat Pump Environmental System and/or Ground Energy Heating Devices in most of our offices in China for providing heating and cooling which has achieved great saving in electricity and thereby reducing pollution to the environment.

The Group will review its environmental practices from time to time and will consider implementing further eco-friendly measures and practices in the operation of the Group’s businesses and enhance environmental sustainability.

COMPLIANCE WITH LAWS AND REGULATIONS

The Group recognises the importance of compliance with regulatory requirements and the risk of non-compliance with such requirements could lead to the termination of operating licences. The Group has been setting up system and allocating resources to ensure ongoing compliance with rules and regulations. The Group has complied, to the best of our knowledge, with the Securities and Futures Ordinance (the “SFO”), the GEM Listing Rules, the applicable employment ordinance both in China and Hong Kong, the local standards and regulations for our project works as well as other relevant rules and regulations during the year.

RELATIONSHIPS WITH EMPLOYEES, CUSTOMERS AND SUPPLIERS

Human resources are one of the greatest assets of the Group. The Group ensures all staff are reasonably remunerated and also continues to improve and regularly review and update its policies on remuneration and benefits, career development opportunities, training, occupational health and safety. The Group provides a healthy and safe workplace for all employees. No strikes and cases of fatality due to workplace accidents are found during the year.

The Group values views and opinions of all customers and collects them through various means and channels including making regular visits/phone calls/holding meetings. A 24 hours service hotline is set up to timely deal with customers’ enquiries and complaints so as to understand the customer needs and regularly analyze on customers’ feedback. The Group also conducts comprehensive tests and checks to ensure quality products and services are offered to the customers.

The Group encompasses working relationships with suppliers to meet our customers’ needs in an effective and efficient manner. The Group has set up a qualified suppliers database registering the suppliers which are met certain performance criteria and eligibility requirements to facilitate the procurement process. The Group’s requirements and standards are also well-communicated to suppliers before the commencement of a project.

China Geothermal Industry Development Group Limited

Annual Report 2020

Report of the Directors

MAJOR CUSTOMERS AND SUPPLIERS

During the year, sales to the Group’s five largest customers accounted for approximately 43% (2019: 50%) of the total sales for the year and sales to the largest customer included therein amounted to approximately 19% (2019: 26%). Purchases from the Group’s five largest suppliers accounted for approximately 34% (2019: 61%) of the total purchases for the year and purchases from the largest supplier included therein amounted to approximately 24% (2019: 49%).

To the best knowledge of the directors, neither the directors, their associates, nor any shareholders who own more than 5% of the Company’s issued share capital, had any beneficial interest in the Group’s five largest customers and/or its five largest suppliers during the year.

DIRECTORS

The directors of the Company during the year and up to the date of this report were/are:

Executive directors:

Mr. Xu Shengheng (Joint Chairman) (Elected as Chaiman on 4 February 2021)

Ms. Wang Yan (Joint Chairman) (Ceased to act as Joint Chairman on 4 February 2021)

Ms. Chan Wai Kay Katherine (Deputy Chairman)

Mr. Wang Manquan (Chief Operating Officer)

Ms. Hao Xia (Chief Financial Officer) (Appointed on 24 August 2020)

Mr. Dai Qi

Mr. Zang Yiran (Resigned on 24 August 2020)

Non-executive directors:

Mr. Yang Wei

Mr. Wang Michael Zhiyu (Resigned on 12 March 2021) Mr. Zhang Yiying (Appointed on 16 January 2020)

Ms. Liu Ening (Appointed on 12 March 2021)

Independent non-executive directors:

Mr. Jia Wenzeng Mr. Wu Desheng Mr. Wu Qiang Mr. Guo Qingui

Mr. Guan Chenghua (Appointed on 28 March 2020)

Alternate director:

Ms. Liu Ening (being an alternate director to Mr. Wang Michael Zhiyu and ceased to act on 12 March 2021)

Note : In accordance with article 84(3) and 85 of the Company’s articles of association, Mr. Xu Shengheng, Ms. Chan Wai Kay, Katherine, Ms. Liu Ening, Mr. Yang Wei and Mr. Jia Wenzeng will retire, and being eligible, offer themselves for re-election at the forthcoming annual general meeting.

The Company had received confirmation of independence from each of the independent non-executive director pursuant to Rule 5.09 of the GEM Listing Rules and the Company still considers that the independent non-executive directors to be independent.

BIOGRAPHY OF DIRECTORS AND SENIOR MANAGEMENT

Biographical details of the directors and senior management of the Company are set out on pages 13 to 16 of the annual report.

Report of the Directors

DIRECTORS’ SERVICE CONTRACTS

No director proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

Save as disclosed in notes 8 and 43 to the financial statements, no director had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party during the year.

PERMITTED INDEMNITY

Pursuant to the Articles of Association, subject to the applicable laws and regulations, every Director shall be indemnified and secured harmless out of the assets and profits of the Company against all actions, costs, charges, losses, damages and expenses which they or any of them may incur or sustain in or about the execution of their duty in their offices. Such permitted indemnity provision has been in force throughout the year. The Company has arranged appropriate directors’ and officers’ liability insurance coverage for the directors and officers of the Group.

UPDATE ON DIRECTORS’ INFORMATION

Pursuant to Rule 17.50A(1) of the GEM Listing Rules, the change in information of the Directors for the year ended 31 December 2020 is set out below:

Mr. Zhang Yiying was appointed as the non-executive Director of the Company with effect from 16 January 2020.
Mr. Guan Chenghua was appointed as an independent non-executive director, member of audit committee, remuneration committee and nomination committee of the Company with effect from 28 March 2020.
Ms. Hao Xia was appointed as an executive Director of the Company with effect from 24 August 2020.
Mr. Zang Yiran resigned as an executive Director of the Company with effect from 24 August 2020.
Ms. Wang Yan, the joint Chairman and executive Director, resigned as a director of CECEP Valiant Co., Ltd. (a listed company in China with stock code: 002643.SZ) on 12 May 2020.
Mr. Guo Qingui has been appointed as a director of Beijing Xingyeyuan Property Management Co., Ltd., a company listed on NEEQ in China with stock code: 833925, since 1 May 2020.

Save as disclosed above and elsewhere in this report, there is no other information required to be disclosed pursuant to Rule 17.50A(1) of the GEM Listing Rules for the year ended 31 December 2020.

NON-COMPLIANCE WITH RULE 5.05A OF THE GEM LISTING RULES DURING

THE YEAR

Upon the appointment of Mr. Zhang Yiying as a non-executive director on 16 January 2020, the Company failed to comply with the minimum number of independent non-executive directors as required under Rule 5.05A of the GEM Listing Rules.

On 27 March 2020, the Board has resolved to appoint Mr. Guan Chenghua as an independent non-executive Director effective from 28 March 2020. Upon the appointment of Mr. Guan as an independent non-executive director, the Company has recomplied with the requirement of the minimum number of independent non-executive directors prescribed under Rule 5.05A of the GEM Listing Rules.

China Geothermal Industry Development Group Limited

Annual Report 2020

Report of the Directors

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS OR SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED

CORPORATION

As at 31 December 2020, 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 in Shares and Underlying Shares

			Number of
			underlying
			Shares
			pursuant to	Percentage of
		Number of	share award	total issued
Name of Directors	Nature of interest	Shares	scheme	Shares(1)
Mr. Xu Shengheng	Beneficial owner	711,646,600	4,000,000	15.83%
	Interest of spouse	982,800
Ms. Chan Wai Kay Katherine	Beneficial owner	58,290,400	4,000,000	1.69%
	Interest of spouse	14,103,600
Mr. Wang Manquan	Beneficial owner	716,800	-	0.02%
Mr. Wang Michael Zhiyu(2)	Beneficial owner		2,000,000	5.57%
	Interest of spouse	250,000,000
Ms. Liu Ening(2)	Beneficial owner	250,000,000		5.57%
	Interest of spouse		2,000,000
Mr. Zhang Yiying	Beneficial owner	504,000	2,000,000	5.58%
	Interest of Controlled
	Corporation(3)	250,000,000
Mr. Jia Wenzeng	Beneficial owner		2,000,000	0.04%
Mr. Wu Desheng	Beneficial owner		2,000,000	0.04%
Mr. Wu Qiang	Beneficial owner		2,000,000	0.04%
Mr. Guo Qingui	Beneficial owner		2,000,000	0.04%
Mr. Guan Chenghua	Beneficial owner		2,000,000	0.04%

Notes:

(1) The calculation is based on (i) the aggregate number of Shares and, if any, underlying Shares pursuant to share awards; and (ii) the total number of 4,526,925,163 Shares in issue as at 31 December 2020.

(2) Mr. Wang Michael Zhiyu is the spouse of Ms. Liu Ening.
(3) Universal Zone Limited, which is wholly owned by Mr. Zhang Yiying, holds 250,000,000 Shares

Report of the Directors

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS OR SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED

CORPORATION (Continued)

(b) Long Positions under Equity Derivatives The Share Award Scheme

On 15 January 2020 (“Adoption Date”), the Company has adopted a share award scheme (the “Share Award Scheme”) for a term of ten years from its adoption date with the objective to attract, retain and incentivize key employees, executive officers, directors and consultants of the Company and its subsidiaries to retain them for the continual operations and development the Group. Pursuant to the Scheme Rules, the Board may, from time to time, at their absolute discretion select the eligible persons to participate in the Share Award Scheme and determine the number of shares to be awarded (“Award Shares”) to the selected participants. The Board shall have the power to impose any conditions on the rights of selected participants to the Award Shares when deemed appropriate. The detailed disclosures relating to the Company’s Share Award Scheme are set out in note 36 to the consolidated financial statements of the Company’s annual report. For the year ended 31 December 2020, the following directors of the Company were interested in the following award shares under the Share Award Scheme:

					Oustanding	Closing price
		Granted	Vested	Lapsed	as at 31	of the share
	As at 1	during the	during the	during the	December	at the date of
Name of director	January 2020	year	year	year	2020	grant
						HK$
Mr. Xu Shengheng	-	4,000,000	-	-	4,000,000	0.075
Ms. Chan Wai Kay
Katherine	-	4,000,000	-	-	4,000,000	0.075
Mr. Wang Manquan	-	10,000,000	-	10,000,000	-	0.075
Mr. Wang Michael Zhiyu	-	2,000,000	-	-	2,000,000	0.075
Mr. Zhang Yiying	-	2,000,000	-	-	2,000,000	0.075
Mr. Jia Wenzeng	-	2,000,000	-	-	2,000,000	0.075
Mr. Wu Desheng	-	2,000,000	-	-	2,000,000	0.075
Mr. Wu Qiang	-	2,000,000	-	-	2,000,000	0.075
Mr. Guo Qingui	-	2,000,000	-	-	2,000,000	0.075
Mr. Guan Chenghua	-	2,000,000	-	-	2,000,000	0.075

Save as disclosed above, as at 31 December 2020, none of the directors and chief executive of the Company or their associates had any interest or short position 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) which were required to be notified to the Company and the Stock Exchange pursuant to Division 7 and 8 of Part XV of the SFO (including interests and short position which they were taken or deemed to have taken under such provisions of the SFO), or which were 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.

China Geothermal Industry Development Group Limited Annual Report 2020

Report of the Directors

ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES

Save as disclosed in notes 35 and 36 to the financial statements in respect of the share option scheme and the share award scheme, 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 or their respective spouse or minor children, or were any such rights exercised by them; or was the Company or any of its subsidiaries a party to any arrangement that would enable the directors to acquire such rights in any other corporate body.

SHARE OPTION SCHEME

The detailed disclosures relating to the Company’s share option scheme are set out in note 35 to the financial statements.

SHARE AWARD SCHEME

The detailed disclosures relating to the Company’s share award scheme are set out in note 36 to the financial statements.

EQUITY-LINKED AGREEMENTS

Save for the share option scheme of the Company as disclosed in the sections headed “Share Option Scheme” and “Share Award Scheme”, no equity-linked agreements were entered into by the Group, or existed during the year.

INTERESTS OF SUBSTANTIAL SHAREHOLDERS DISCLOSEABLE UNDER SFO

So far as is notified to the directors of the Company, as at 31 December 2020, shareholders (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 provision 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 in shares and equity derivatives

			Number of
			underlying Shares
	Nature of	Number of	pursuant to share	Percentage of total
Name	interest	Shares	award scheme	issued Shares(1)
CECEP (HK)(2)	Beneficial interest	1,190,000,000		26.29%
CECEP(2)	Interest of controlled	1,190,000,000		26.29%
	corporation
Ms. Luk Hoi Man	Beneficial interest	982,800		15.83%
	Interest of spouse	711,646,600	4,000,000
Universal Zone Limited	Beneficial owner	250,000,000		5.52%

Notes:

The calculation is based on (i) the aggregate number of Shares and, if any, underlying Shares pursuant to share awards; and (ii) the total number of 4,526,925,163 Shares in issue as at 31 December 2020.
CECEP (HK), a wholly-owned subsidiary of CECEP, holds 1,190,000,000 Shares.

Save as disclosed above, as at 31 December 2020, 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.

Report of the Directors

CONNECTED TRANSACTIONS

(I) Continuing Connected Transactions not exempt from Independent Shareholders‘ Approval Requirements

The continuing connected transactions not exempt from independent shareholders’ approval requirements under Rule 20.34 of the GEM Listing Rules undertaken by the Group during the period under review are set out below:

Sale and purchase framework agreement

On 24 May 2019, the Company entered into the sale and purchase framework agreement with China Energy Conservation and Environmental Protection Group (“CECEP”), a substantial shareholder of the Company, whereby CECEP and its subsidiaries agreed to purchase and the Company and its subsidiaries agreed to supply of the products and provision of services. The term of the sale and purchase framework agreement is from the date of the Independent Shareholders’ approval of the sale and purchase framework agreement to 31 December 2021.

The above continuing connected transaction in relation to the sale and purchase framework agreement was approved by the independent shareholders of the Company at the extraordinary general meeting of the Company held on 16 September 2019.

The annual caps for the supply of the Products and provision of Services by the Company and its subsidiaries under the Sale and Purchase Framework Agreement for the period from 1 January 2020 to 31 December 2020 (the “Period”) was RMB60,000,000. No transaction was recorded for the supply of the Products and provision of Services by the Company and its subsidiaries to CECEP and its subsidiaries for the Period.

(II) Continuing Connected Transactions exempt from Independent Shareholders’ Approval Requirements

The continuing connected transactions exempt from independent shareholders’ approval requirements under Rule 20.99 of the GEM Listing Rules undertaken by the Group during the period under review are set out below:

On 26 June 2018, Ever Source Science & Technology Development Group Co., Ltd. (恒有源科技發展集團有限公司) (“HYY”), a wholly owned subsidiary of the Company, entered into the Sale and Purchase Framework Agreement with Sichuan Changhong Air Conditioning Co., Ltd. (四川長虹空調有限公司), (“Sichuan Changhong”) which held 49% equity interests of Hong Yuan Ground Source Heating Device Technology Co., Ltd. (宏源地能熱寶技術有限公司), a subsidiary of the Company, therefore Sichuan Changhong is a connected person of the Company at the subsidiary level (as defined under the GEM Listing Rules). As the Board has approved the transaction contemplated under the Sale and Purchase Framework Agreement; and the independent non-executive Directors have confirmed that the terms of the transaction contemplated under the Sale and Purchase Framework Agreement are fair and reasonable, and that such transaction is entered into on normal commercial terms, and is in the interests of the Company and its Shareholders as a whole. As such, the transaction contemplated under the Sale and Purchase Framework Agreement is subject to the reporting and announcement requirements, but is exempted from the circular, independent financial advice and Shareholders’ approval requirements under Rule 20.99 of the GEM Listing Rules.

China Geothermal Industry Development Group Limited

Annual Report 2020

Report of the Directors

Pursuant to the Sale and Purchase Framework Agreement, HYY and its associates intended to provide installation engineering services for air-conditioning home appliance products (“HYY Services”) to Sichuan Changhong and its associates, and Sichuan Changhong and its associates intended to sell air-conditioning home appliance products (“Changhong Products”) to HYY and its associates, for a term commencing from 26 June 2018, being the date of the Sale and Purchase Framework Agreement, to 31 December 2020.

The annual caps for the HYY Services provided by HYY or its associates to Sichuan Changhong or its associates under the Sale and Purchase Framework Agreement for the period from 1 January 2020 to 31 December 2020 (the “Period”) was RMB79,850,000. The actual amount recorded for HYY Services provided by HYY or its associates to Sichuan Changhong or its associates for the Period was approximately RMB6,184,000.

The annual caps for the Changhong Products sold by Sichuan Changhong or its associates to HYY or its associates under the Sale and Purchase Framework Agreement for the period from 1 January 2020 to 31 December 2020 (the “Period”) was RMB184,520,000. The actual amount recorded for Changhong Products sold by Sichuan Changhong or its associates to HYY or its associates for the Period was approximately RMB52,435,000.

The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “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 HKICPA. The auditor has issued an unqualified letter containing their findings and conclusions accordingly. The letter stated that (i) the above continuing connected transactions have been approved by the Board; (ii) the transactions involving the provision of goods or services by the Group were, in all material respects, in accordance with the pricing policies of the Group; (iii) the transactions were entered into, in all material respects, in accordance with the relevant agreements governing such transactions; and (iv) the above continuing connected transactions did not exceed their respective annual caps as set out in the Company’s circular dated 21 August 2019 and the Company’s announcement dated 26 June 2018.

The independent non-executive Directors have confirmed the above continuing connected transactions in accordance with Rule 20.53 of the GEM Listing Rules that the continuing connected transactions entered into by the Group were in the ordinary and usual course of its business, on normal commercial terms or better, and in accordance with the terms of the relevant agreements governing such transactions that are fair and reasonable and in the interests of the shareholders as a whole.

Report of the Directors

(III) Connected Transactions not exempt from Independent Shareholders’ Approval Requirements In September 2016, an entrusted loan of RMB400,000,000 was borrowed from a subsidiary of China Energy Conservation and Environmental Protection Group (“CECEP”) through a bank and guaranteed by CECEP. The loan was due on 13 September 2019, and due to the tight cash flows of the Group, CECEP repaid the loan on behalf of the Group by granting an unsecured shareholder’s loan of RMB400,000,000 to Ever Source Science & Technology Development Group Co, Ltd (“HYY”) on 12 September 2019, which is repayable on demand.

In order to refinance this loan, HYY intended to apply for a facility in the principal amount of RMB400,000,000 from a bank. Pursuant to the requirements of the bank, CECEP shall provide a guarantee in favour of the bank to secure the repayment obligations of HYY for the application of the facility. Therefore, on 16 December 2019, CECEP and HYY entered into the guarantee service agreement, pursuant to which, CECEP agreed to provide the guarantee service to the Group for securing a loan of RMB400,000,000. The Group shall pay to CECEP the guarantee fee at 1% per annum on any outstanding principal amount of the facility under the facility agreement. As requested by CECEP, on 16 December 2019, HYY entered into the counter guarantee agreement in favour of CECEP against all amounts which may be incurred by CECEP under the guarantee. HYY shall grant the counter guarantee to CECEP for the principal amount of the facility together with interests, penalty and other related fees and expenses which may be payable by CECEP under the guarantee to the bank. The receiving of financial assistance by way of the guarantee from CECEP, the entering into of the guarantee service agreement and the counter guarantee agreement constitute connected transactions of the Company under Chapter 20 of the GEM Listing Rules, and the relevant percentage ratio(s) of the Company exceeds 5% and therefore are subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules. At the extraordinary general meeting held on 13 March 2020, the independent shareholders of the Company passed the ordinary resolution in respect of the guarantee service agreement and the counter guarantee agreement and the transactions contemplated thereunder.

Details of other significant related party transactions of the Group during the year ended 31 December 2020 are set out in note 43 to the financial statements.

REMUNERATION POLICY

The remuneration policy of the Group for rewarding its employees is based on their performance, qualifications and competence.

The emoluments of the Directors of the Company are decided by the Board upon the recommendation by Remuneration Committee, having regard to the Company’s operating results, individual performance and comparable market statistics.

The Company has adopted a share award scheme as an incentive to the Directors and eligible employees in 2020. Details of the share award scheme are set out in note 36 to the financial statements of this report.

COMPETITION AND CONFLICT OF INTERESTS

None of the directors 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.

AUDIT COMMITTEE

The Company has an audit committee (the “Audit Committee”) established with written terms of reference in compliance with the GEM Listing Rules. The primary duties of the Audit Committee are to review and supervise the financial reporting process, risk management and internal controls systems of the Group and to provide advice to the directors of the Company.

The Audit Committee comprises five independent non-executive directors of the Company, namely Mr. Jia Wenzeng (the chairman of the Audit Committee), Mr. Wu Desheng, Mr. Wu Qiang, Mr. Guo Qingui and Mr. Guan Chenghua. The Audit Committee has reviewed the Group’s audited final results for the year ended 31 December 2020 and has provided advice and comments thereon. The Audit Committee held five meetings during the year.

China Geothermal Industry Development Group Limited

Annual Report 2020

Report of the Directors

CORPORATE GOVERNANCE

The Company’s Corporate Governance Report is set out on pages 29 to 36.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

The Environmental, Social and Governance Report of the Company prepared in accordance with Appendix 20 of the GEM Listing Rules will be published by end of May this year.

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, the Company reported that during the year, the directors have complied 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.

AUDITOR

There were no other changes in auditor of the Company during the past three years. The consolidated financial statements of the Company for the year ended 31 December 2020 were audited by Ernst & Young. A resolution will be proposed at the forthcoming AGM to authorise the Board to appoint the auditor of the Company and fix their remuneration.

For and on behalf of the Board

Xu Shengheng Chairman & Executive Director

Hong Kong, 29 March 2021

Corporate Governance Report

The board of Directors of the Company (the “Board”) is pleased to present the corporate governance report for the year ended 31 December 2020.

The Company is committed to maintaining high standards of corporate governance to protect the interests of the shareholders of the Company. The Company had complied with most of the code provisions set out in the Corporate Governance Code (the “Code”) contained in Appendix 15 of the GEM Listing Rules throughout the year ended 31 December 2020 (the “Reporting Period”). This report describes the corporate governance standards and practices used by the Company to direct and manage its business affairs. It also explains the applications of the Code and deviations, if any.

DIRECTORS’ SECURITIES TRANSACTIONS

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

BOARD OF DIRECTORS

As at 31 December 2020, the Board comprised of fourteen Directors including six executive Directors, namely Mr. Xu Shengheng, Ms. Chan Wai Kay Katherine, Ms. Wang Yan, Mr. Wang Manquan, Ms. Hao Xia and Mr. Dai Qi, three non-executive Directors namely Mr. Yang Wei , Mr. Zhang Yiying and Mr. Wang Michael Zhiyu (Ms. Liu Ening being his alternate) and five independent non-executive Directors, namely, Mr. Jia Wenzeng, Mr. Wu Desheng, Mr. Wu Qiang, Mr. Guo Qingui and Mr. Guan Chenghua.

The composition of the Board ensures a balance of expertise and experience appropriate to the requirements of the business of the Company and to the exercising of independent opinion. At least one of the independent non-executive Directors has appropriate professional qualifications, or accounting or related financial management expertise.

The Board of Directors is responsible for the overall strategic development of the Group. It also monitors the financial performance, internal control and risk management of the Group’s business operations. Executive Directors are responsible for running the Group and executing the strategies adopted by the Board. The Board delegates day-to-day activities to the management with department heads responsible for different aspects of the business. The Non-Executive Directors serve the relevant function of bringing independent judgement on the development, performance and risk management of the Group through their contributions in board meetings. They are also serving on Audit Committee, Remuneration Committee and Nomination Committee.

According to the Articles of Associations of the Company, at each annual general meeting, one third of the Directors for the time being, or their number is not three or a multiple of three, then the number nearest one-third, shall retire from office by rotation, provided that every Director shall be subject to retirement by rotation at least once every three years.

To the knowledge of the Directors, the Board members have no financial, business, family or other material/relevant relationships with each other.

The Board normally has four scheduled meetings a year at quarterly interval and meets as and when required to discuss the overall business, development strategy, operations and financial reporting of the Company. During the year ended 31 December 2020, a total of fifteen Board meetings were held.

Board minutes are kept by the secretary of the Company (the “Secretary”) and are open for inspection by the Directors of the Company. Each Director of the Company is entitled to have access to Board papers and related materials and has unrestricted access to the advice and services of the Secretary, and has the liberty to seek external professional advice if required.

China Geothermal Industry Development Group Limited

Annual Report 2020

Corporate Governance Report

During the year ended 31 December 2020, fifteen Board meetings were held. Details of the attendance of the Directors at the meetings of the Board and its respective committees, as well as the general meetings were as follows:

		Audit	Remuneration	Nomination
	Board	Committee	Committee	Committee	General
Name of Director	Meeting	Meeting	Meeting	Meeting	Meeting
Executive Directors
Mr. Xu Shengheng	15/15	N/A	4/4	3/3	5/5
Ms. Wang Yan	15/15	N/A	4/4	3/3	5/5
Ms. Chan Wai Kay Katherine	15/15	N/A	N/A	N/A	5/5
Mr. Wang Manquan	14/15	N/A	N/A	N/A	5/5
Ms. Hao Xia_(Appointed on 24 August 2020)_	7/7	N/A	N/A	N/A	2/2
Mr. Dai Qi	15/15	N/A	N/A	N/A	4/5
Mr. Zang Yiran_(Resigned on 24 August 2020)_	8/8	N/A	N/A	N/A	3/3
Non-executive Directors
Mr. Yang Wei	15/15	N/A	N/A	N/A	5/5
Mr. Wang Michael Zhiyu	5/15	N/A	N/A	N/A	0/5
Ms. Liu Ening_(being an alternative director to Mr._	9/15	N/A	N/A	N/A	3/5
Wang Michael Zhiyu)
Mr. Zhang Yiying_(Appointed on 16 January 2020)_	13/14	N/A	N/A	N/A	3/5
Independent non-executive Directors
Mr. Jia Wenzeng	13/15	4/5	4/4	3/3	2/5
Mr. Wu Desheng	13/15	5/5	4/4	3/3	5/5
Mr. Wu Qiang	12/15	4/5	4/4	3/3	4/5
Mr. Guo Qingui	14/15	4/5	4/4	3/3	5/5
Mr. Guan Chenghua_(Appointed on 28 March_	11/11	3/3	3/3	1/1	1/4
2020)

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.

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.

Due to their engagement in other business, Mr. Jia Wenzeng, an independent non-executive Director and the chairman of the Audit Committee, and Mr. Wang Michael Zhiyu and Mr. Zhang Yiying, both are non-executive, were unable to attend the annual general meeting held on 30 June 2020. Besides, two non-executive Directors and two independent non-executive Directors, namely Mr. Wang Michael Zhiyu, Mr. Zhang Yiying, Mr. Wu Qiang and Mr. Guan Chenghua did not attend the adjourned annual general meeting held on 7 July 2020. A non-executive Director and two independent non-executive Directors, namely Mr. Wang Michael Zhiyu, Mr. Jia Wenzeng and Mr. Guan Chenghua did not attend the extraordinary general meetings held on 6 October 2020 and 10 November 2020.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

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 Reporting Period, the role of chairman was jointly performed by Mr. Xu Shengheng and Ms. Wang Yan, both of them are joint chairman of the Board. Mr. Wang Manquan had been the chief executive officer during the period from 1 January 2020 to 23 August 2020 and Mr. Xue Jiangyun has been the chief executive officer since 24 August 2020.

NON-EXECUTIVE DIRECTORS

Under the Code Provision A.4.1, all the non-executive Directors should be appointed for a specific term, subject to re-election. Each of Mr. Yang Wei, Mr. Zhang Yiying and Mr. Wang Michael Zhiyu, the non-executive Directors, Mr. Jia Wenzeng, Mr. Wu Desheng, Mr. Wu Qiang, Mr. Guo Qingui and Mr. Guan Chenghua the independent non-executive Directors, have been appointed for a specific term, subject to re-election.

Corporate Governance Report

The Company has received, from each of the independent non-executive Directors, an annual confirmation of their independence pursuant to Rule 5.09 of the GEM Listing Rules. The Company considers that all of the independent non-executive Directors are independent.

DIRECTORS’ AND OFFICERS’ LIABILITIES

The Company has arranged for appropriate insurance covering the liabilities of the Directors that may arise out the corporate activities, which has been complied with Code Provision A.1.8. The insurance coverage will be reviewed on an annual basis.

CONTINUOUS PROFESSIONAL DEVELOPMENT

All Directors, including independent non-executive Directors, should keep abreast of their collective responsibilities as Directors and of the businesses and activities of the Group. The Group also provides briefings and other training to develop and refresh the Directors’ knowledge and skills, and updates all Directors on the latest developments regarding the GEM Listing Rules and other applicable regulatory requirements to ensure compliance and to enhance their awareness of good corporate governance practices. During the year ended 31 December 2020, the Directors have confirmed that they have received the training as follows:

	Reading journals,	Viewing the director
	written training	training webcast
	materials and/or	published by Stock	Receiving internal
Name of Directors	updates	Exchange	training
Mr. Xu Shengheng			
Ms. Chan Wai Kay Katherine			
Ms. Wang Yan			
Mr. Wang Manquan			
Ms. Hao Xia			
Mr. Dai Qi			
Mr. Yang Wei			
Mr. Zhang Yiying			
Mr. Wang Michael Zhiyu			
Ms. Liu Ening			
Mr. Jia Wenzeng			
Mr. Wu Desheng			
Mr. Wu Qiang			
Mr. Guo Qingui			
Mr. Guan Chenghua			

REMUNERATION COMMITTEE

A remuneration committee was formed in May 2006 with specific written terms of reference which deal clearly with its authority and duties in accordance with the requirements of the Code. The remuneration committee is responsible for reviewing and developing the remuneration polices of the Directors and senior management. The remuneration committee in designing the remuneration packages would consider factors such as salaries paid by comparable companies, time commitment and responsibilities of the Directors and senior management. The remuneration committee presently consists of five independent non-executive Directors, namely Mr. Wu Desheng (chairman of remuneration committee), Mr. Jia Wenzeng, Mr. Wu Qiang, Mr. Guo Qingui and Mr. Guan Chenghua and two executive Directors, namely Mr. Xu Shengheng and Ms. Wang Yan, both of them are the deputy chairman of remuneration committee. During the Reporting Period, four meetings were held by the remuneration committee, among other things, to review the remuneration of the Directors for year 2021 and the remuneration and assessment management measures for employees, determination of the remuneration and directors’ fee for newly appointed Directors and granting of the award shares to Directors, employees and consultants. In consideration of the directors’ remuneration, no director is involved in deciding his/her own remuneration.

China Geothermal Industry Development Group Limited Annual Report 2020

Corporate Governance Report

NOMINATION COMMITTEE

A nomination committee was formed by the Company on 21 March 2012 with specific written terms of reference which has been adopted by the Company are consistent with the requirements of the Code. The primary duties of the nomination committee are, among others, to review the structure, size and composition (including the skills, knowledge and experience) and to identify individuals suitably qualified to become Board members and select or make recommendations to the Board on the selection of individuals nominated for directorships. The nomination committee presently consists of two executive Directors, namely Mr. Xu Shengheng (the chairman of nomination committee) and Ms. Wang Yan (the deputy chairman of nomination committee) and five independent non-executive Directors, namely Mr. Jia Wenzeng, Mr. Wu Desheng, Mr. Wu Qiang, Mr. Guo Qingui and Mr. Guan Chenghua. During the Reporting Period, the nomination committee held three meetings, among other things, to consider and recommend the appointment of Directors in consideration of the board diversity policy of the Company, the composition of the Board and the background of the candidate and the nomination of senior management.

BOARD DIVERSITY POLICY

The Board adopted the board diversity policy (“Board Diversity Policy”) in accordance with the requirement set out in the Code. Such policy aims to set out the approach to achieve diversity on the Board. All Board appointments shall be based on meritocracy, and candidates shall be considered against objective criteria, having due regard for the benefits of diversity on the Board. Selection of candidates shall be based on a range of diversity perspectives, including but not limited to, gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The ultimate decision shall be based on merit and contribution that the selected candidates shall bring to the Board. The Nomination Committee monitors, from time to time, the implementation of the policy, and reviews, as appropriate, the policy to ensure the effectiveness of the policy. The Nomination Committee will continue to give adequate consideration to these measurable objectives when making recommendations of candidates for appointment to the Board.

NOMINATION POLICY

The Company adopted a nomination policy, which establishes written guidelines to the Nomination Committee to identify candidates suitably qualified to become Board members and make recommendations to the Board on the selection of individuals nominated for directorships with reference to the formulated criteria. The Board is ultimately responsible for selection and appointment of new Directors.

Nomination Process

identify candidates for directorship, including recommendations from Board members, management, shareholders and third party agency;
candidates for directorship will be selected in consideration of the Board Diversity Policy as well as the selection criteria;
candidates for directorship will be evaluated on the criteria through review of resume, personal interview, background checks and third party reference checks;
hold a meeting and/or by way of written resolutions to, if thought fit, approve the recommendation to the Board for appointment;
submit to the Board of its recommendations on candidates.

Corporate Governance Report

Selection Criteria

The Nomination Committee shall consider a variety of factors in assessing the suitability of a proposed candidate for directorship, including but not limited to the following selection criteria:

character and integrity;
qualifications including professional qualifications, skills, knowledge and experience and diversity aspects under the Board Diversity Policy that are relevant to the Company’s business and corporate strategy;
commitment for responsibilities of the Board in respect of available time and relevant interest;
potential contributions that the candidate can bring to the Board;
independence with reference to the independence guidelines set out in Rules 5.05(2) and 5.09 of the GEM Listing Rules if the candidate is nominated as an independent non-executive Director.

AUDITOR’S REMUNERATION

The audit works of the Group for the year ended 31 December 2020 were performed by Ernst & Young. The total fee paid/ payable in respect of the statutory audit and non-audit services provided by external auditor during the Reporting Period are set out below:

Services rendered Audit services Non-audit services Total audit fee payable for the Reporting Period	Fee paid/payable for the year ended 31 December 2020 HK$’000 3,265 85
	3,350

AUDIT COMMITTEE

The Company established an audit committee with written terms of reference in compliance with the GEM Listing Rules. The primary duties of the audit committee are, among others, to review and supervise the financial reporting processes, risk management and internal control systems of the Group, to make recommendations to the Board in relation to the appointment, re-appointment and removal of external auditor and to provide advice and comments to the Board accordingly.

The audit committee currently consists of five independent non-executive Directors, namely Mr. Jia Wenzeng (chairman of the audit committee), Mr. Wu Desheng, Mr. Wu Qiang, Mr. Guo Qingui and Mr. Guan Chenghua.

During the Reporting Period, five meetings were held to consider and review, among others, the following matters:

1) the quarterly, interim and annual reports of the Company before submission to the Board and the impact of the changes in accounting policies and practices and compliance of the relevant accounting standards, the GEM Listing Rules;
2) the re-appointment of external auditor and the proposed audit fee;
3) meeting with auditors to discuss the audit plan and scope of work before commencement of the audit work;
4) review and discuss with auditors regarding the audited results and audit findings, including the deficiencies in internal control that are identified during the audit; and
5) review the risk management and internal control systems of the Group.

China Geothermal Industry Development Group Limited

Annual Report 2020

Corporate Governance Report

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

The Directors acknowledged their responsibility for the preparation of the financial statements, which give a true and fair view of the financial position, financial performance and cash flows of the Group. The Auditor are responsible to form an independent opinion based on the audit, on the financial statements prepared by the Directors and report the opinion solely to the shareholders of the Company.

COMPANY SECRETARY

Ms. Wong Lai Yuk, the company secretary of the Group, is an associate member of The Hong Kong Institute of Chartered Secretaries in Hong Kong. Ms. Wong joined the Group in December 2001. During the Reporting Period, Ms. Wong (who is an employee of the Company) has duly complied with the relevant professional training requirement under Rule 5.15 of the GEM Listing Rules.

CORPORATE GOVERNANCE FUNCTIONS

The Board as a whole is responsible for performing the corporate governance duties including:

(a) to develop and review the Company’s policies and practices on corporate governance;
(b) to review and monitor the training and continuous professional development of Directors and senior management;
(c) to review and monitor the Company’s policies and practices in compliance with legal and regulatory requirements; and
(d) to review the Company’s compliance with the code and disclosure in the Corporate Governance Report.

INTERNAL CONTROLS AND RISK MANAGEMENT

It is the responsibility of the Board to ensure that a sound and effective risk management and internal control system is in place for safeguarding the interests of the Shareholders and oversee management in design, implementation and monitoring of the risk management and internal control systems. Such systems are designed to manage the Group’s risk rather than to eliminate the risk of failure to achieve business objectives of the Group, and can only provide reasonable assurance and not absolute assurance against material misstatement or loss.

The Group’s risk management and internal control structure include a management structure with clearly defined lines of responsibility and limits of authority. The Group has comprehensive policies and guidelines in governing and controlling the daily operational and business activities and transactions. The Group adopted a three-line risk management approach to identify, analyze, assess, mitigate and handle risks. The first line of defence is that our department staff/frontline employees who must understand that their roles and responsibilities to identify, assess and monitor risks associated with their scope of works and transactions and should strictly follow internal control measures in their day-to-day transactions. The Group will enhance the compliance of internal control procedures by providing training and guidelines to department staff/frontline employees. The second line of defence is the Group’s management that provides independent oversight of the internal control and risk management activities of the first line of defence. They are mainly responsible for ensuring and maintaining effective internal controls and for executing risk and control procedures, guiding the development and implementation of internal policies and procedures and ensuring that activities are consistent with goals and objectives of the Group and to better monitor and minimize the risks. As the final line of defence, the audit committee of the Company, with the advices and opinions from the external professional party (such as the external auditor) and review by the internal audit function, ensures that the first and second lines of defence are effective.

During the Reporting Period, the Company has put continuous effort in enhancing the control and management system and reinforcing the supervision efforts, so as to ensure that the Company can withstand changes in its operations and other external influences on its financial and operation.

Corporate Governance Report

Major works performed during the reporting period to enhance the internal control and risk management are as follow:

The Board has reviewed, analyzed and compared the overall results performance to the budget quarterly with specific financial indicators in order to monitor the execution of the business plan in terms of revenue, cost, profit, funding etc. and ensure the efficient use of business resources. A budget management committee was set up mainly comprised of financial personnel and senior management as well as some independent non-executive directors to closely review and monitor the business performance in accordance with the budgets.
Account receivables team continuously follow up long overdue payments and regular meetings were held to co-ordinate the different departments including sales persons to collect payments.
The management has further revised the internal control procedures in response to the daily operational needs and strengthened the financial reporting procedures.
The Group has emphasized the importance of work safety. Procedures for carrying site work is in place and proper training on work safety has been provided to workers and site inspection has been made regularly.
The internal audit team of the Group provided reports directly to the Audit Committee on a regular basis, for their work performed, audit results and observations of internal control and risk management systems.
Appropriate action was taken in response to the deficiencies in internal control as well as business and financial risks as identified and recommendations made by Directors.
In response to the outbreak of COVID-19 pandemic, the Company has implemented strict prevention and control measures to ensure the safety of the employees and business partners of the Company and in compliance with the national requirement and relevant rules that are in force. The Company has also formulated measures to ensure normal business operation can be maintained, particularly guidance for the site staff and for the staff who need to travel etc.

The management of the Group believes that risk management and internal control systems were effective and adequate and provided such confirmation to the audit committee of the Company for the year. Furthermore, the audit committee has also independently reviewed the risk management and internal control systems of the Group and provided comments thereon.

HANDLING AND DISSEMINATION OF INSIDE INFORMATION

The Company has maintained internal guidelines for ensuring that inside information is disseminated to the public in an equal and timely manner in accordance with the applicable laws and regulations. Senior executives of the legal, corporate affairs and financial control functions of the Group are delegated with responsibilities to control and monitor the proper procedures to be observed on the disclosure of inside information. Access to inside information is at all times confined to relevant senior executives and confined on “need-to-know” basis. Blackout period and securities dealing restrictions notification will be sent to the relevant directors. Reminders will be given to employees possessing of inside information for preservation of confidentiality and restriction of dealing of securities of the Company. Relevant personnel and other professional parties involved are reminded to preserve confidentiality of the inside information until it is publicly disclosed.

DIVIDEND POLICY

It is the policy of the Board, in considering the payment of dividends, to allow shareholders of the Company to participate in the Company’s profits whilst preserving the Company’s liquidity to capture future growth opportunities. In deciding whether to propose a dividend and in determining the dividend amount, the Board shall consider the following factors before declaring or recommending dividends:

(a) the Company’s actual and expected financial performance;
(b) retained earnings and distributable reserves of the Company and each of the members of the Group;
(c) the Group’s expected working capital requirements, capital expenditure requirements and future expansion plans;
(d) the Group’s liquidity position;
(e) general economic conditions, business cycle of the Group’s business and other internal or external factors that may have an impact on the business or financial performance and position of the Group; and
(f) other factors that the Board may consider relevant.

China Geothermal Industry Development Group Limited

Annual Report 2020

Corporate Governance Report

The payment of dividend by the Company is also subject to any restrictions under the Cayman Islands laws and the Company’s articles of association.

The Board will continually review the Dividend Policy from time to time and there can be no assurance that dividends will be paid in any particular amount for any given period. Even if the Board decides to recommend and pay dividends, the form, frequency and amount will depend upon the operations and earnings, capital requirements and surplus, general financial condition of the Group and other factors affecting the Group.

COMMUNICATIONS WITH SHAREHOLDERS AND INVESTORS

The Company considers that effective communication with shareholders is essential for enhancing investor relations and investor understanding of the Group’s business performance and strategies. The Company also recognizes the importance of transparency and timely disclosure of corporate information, which will enable shareholders and investors to make the best investment decisions.

The disclosure of the Group’s information in a reasonable and time manner by the Board is to facilitate the shareholders as well as the investors to have better understanding in relation to the business performance, operations and strategies of the Group. Through our website at www.cgsenergy.com.hk which allow the Company’s potential and existing investors as well as the public to assess and acquire the up-to-date company and financial information.

Shareholders are provided with contact details of the Company, such as fax number, email address and postal address, in order to enable them to make any query that they may have with respect to the Company. They can also send their enquiries to the Board through these means. The contact details of the Company are provided in the annual report and the Company’s website.

The Board welcomes views of shareholders and encourages them to attend general meetings to raise any concerns they might have with the Board or the management directly. Board members and appropriate senior staff of the Group are available at the meetings to answer any questions raised by shareholders.

PROCEDURES FOR SHAREHOLDERS TO CONVENE AN EXTRAORDINARY

GENERAL MEETING

To safeguard shareholders’ interests and rights, separate resolutions are proposed at shareholders’ meetings on each substantial issue, including the election of individual Directors, for shareholders’ consideration and voting. Besides, pursuant to the Articles of Association, any one or more Shareholder(s) holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the Secretary of the Company, to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition.

Shareholders may send written enquiries to the Company for putting forward any enquiries or proposals to the Board of the Company. Contact details are as follows:

Address: 8/F., Chung Hing Commercial Building, 62-63 Connaught Road Central, Central, Hong Kong Fax: 852-37539833 E-mail: [email protected]

For the avoidance of doubt, shareholder(s) must deposit and send the original duly signed written requisition, notice or statement, or enquiry (as the case may be) to the above address and provide their full name, contact details and identification in order to give effect thereto. Shareholders’ information may be disclosed as required by law.

CONSTITUTIONAL DOCUMENTS

During the Reporting Period, there were no changes in any of the Company’s constitutional documents.

Independent Auditor’s Report

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Ernst & Young 安永會計師事務所 Tel電話: +852 2846 9888 22/F, CITIC Tower 香港中環添美道1號 Fax傳真: +852 2868 4432 1 Tim Mei Avenue 中信大廈22樓 ey.com Central, Hong Kong

TO THE SHAREHOLDERS OF

CHINA GEOTHERMAL INDUSTRY DEVELOPMENT GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

OPINION

We have audited the consolidated financial statements of China Geothermal Industry Development Group Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 42 to 146, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the 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 31 December 2020, 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 judgement, 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. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

China Geothermal Industry Development Group Limited Annual Report 2020

Independent Auditor’s Report

KEY AUDIT MATTERS (Continued)

Key audit matter

How our audit addressed the key audit matter

Revenue recognition on shallow geothermal energy contracts

The Group recognises revenue from shallow geothermal energy contracts over time, using an input method in which revenue is recognised based on the proportion of actual costs incurred relative to the estimated total costs in fulfilling the relevant performance obligations. The input method involves the use of management’s significant judgements and estimates, including estimates of total contract revenues, total contract costs, remaining completion costs to be incurred and contract risks. In addition, revenue, cost of sales and gross profit realised on such contracts can vary from the Group’s original estimates because of changes in conditions.

The significant accounting judgements and estimates and disclosures of the revenue recognition on shallow geothermal energy contracts are included in notes 3 and 5 to the consolidated financial statements.

We obtained material shallow geothermal energy contracts to review the key contract terms. We assessed the contract costs incurred by sample testing supporting documents, such as payment vouchers, supporting suppliers’ invoices and contracts, and performing cut-off testing procedures.

We assessed the reliability of estimates made by management in the determination of estimated total contract costs by reviewing the preparation, examination and modification process, sample testing key cost elements to material contracts, reviewing the modification of material contracts for any update on estimated total contract costs and the accuracy of prior year’s budgets. We re-calculated the performance progress, based on accumulative actual costs incurred relative to the estimated total contract costs and the revenues recognised on a sampling basis.

In addition, we performed analytical review procedures on the gross margins of major contracts of the Group.

Impairment of trade receivables and contract assets

As at 31 December 2020, the Group had trade receivables and contract assets of HK$197,622,000 and HK$142,717,000, respectively.

The impairment allowance of trade receivables and contract assets for expected credit losses was recognised based on management’s assessment, which involved the use of significant judgements and accounting estimates including current situations of the customers, historical payment records, existence of disputes and future economic conditions.

We assessed management’s accounting estimates relevant to the impairment allowance of trade receivables and contract assets for expected credit losses by discussing with management the application of the simplified approach in calculating expected credit losses, evaluating customers’ financial position, especially for those with significant overdue balances and checking public available information, assessing the grouping of various customer segments and the historical observed loss rates, and checking the historical and post year end payment records.

The significant accounting judgements and estimates and disclosures of the impairment of trade receivables and contract assets are included in notes 3, 23 and 22 to the consolidated financial statements.

In addition, we assessed the adequacy of the disclosures on the trade receivables and contract assets in the consolidated financial statements.

Independent Auditor’s Report

KEY AUDIT MATTERS (Continued)

Key audit matter

How our audit addressed the key audit matter

Fair values of investment properties and leasehold land and buildings

As at 31 December 2020, the Group had significant amounts of investment properties and leasehold land and buildings that were measured at fair value using significant unobservable inputs (Level 3 in the fair value hierarchy). Management engaged an independent external valuer with relevant qualifications to perform the valuation of such properties.

The valuation depended on a range of estimates and assumptions, such as the analysis of the economic environment and future trend of the regions where the investment properties and leasehold land and buildings were located, future construction cost for properties under construction, anticipated rentals in the future and the discount rates. The changes in estimates and assumptions would result in changes in the fair values of the investment properties and leasehold land and buildings.

We assessed the objectivity, independence and competence of the independent external valuer engaged by management. We reviewed and assessed the valuation method, assumptions as well as the key valuation inputs applied, such as the lease term, current average rentals, anticipated rentals in the future, lease area, estimated construction costs and the discount rates, with the assistance from our internal valuation specialists.

Our procedures included, among others, discussions with management and the external valuer about anticipated rentals in the future, assessing the estimates by management in the determination of estimated construction costs, checking input data against the current signed rental contracts, and historical and market data and benchmarking the discount rates to companies in similar industries.

The significant accounting judgements and estimates and further details about the fair values of investment properties and leasehold land and buildings are included in notes 3, 14 and 13 to the consolidated financial statements.

We further reviewed the presentation and disclosures in the consolidated financial statements regarding the fair values of investment properties and leasehold land and buildings.

China Geothermal Industry Development Group Limited Annual Report 2020

Independent Auditor’s Report

OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT

The directors of the Company are responsible for the other information. The other information comprises the information included in the Annual Report, other than 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 THE DIRECTORS 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 of the Company 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 of the Company either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so.

The directors of the Company are assisted by the Audit Committee in discharging their responsibilities 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. Our report is made solely to you, as a body, 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 judgement and maintain professional scepticism 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.

Independent Auditor’s Report

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

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 the Audit Committee 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 the Audit Committee 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, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Audit Committee, 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 this independent auditor’s report is Yee Chung Man.

Ernst & Young Certified Public Accountants

Hong Kong 29 March 2021

China Geothermal Industry Development Group Limited Annual Report 2020

Consolidated Statement of Profit or Loss

Year ended 31 December 2020

		2020	2019
	Notes	*HK$’000*	HK$’000
REVENUE	5	230,862	345,537
Cost of sales		(184,728)	(261,559)
Gross profit		46,134	83,978
Other income and gains	5	78,992	14,017
Selling and distribution expenses		(6,843)	(12,505)
Administrative expenses		(89,639)	(101,696)
Impairment losses on trade and bills receivables, net	6	(15,388)	(6,612)
Impairment losses on prepayments, other receivables and other assets,
net	6	(10,384)	(54,814)
Impairment losses on contract assets, net	6	(8,958)	(23,505)
Finance costs	7	(24,343)	(39,309)
Fair value changes on investment properties	14	(32,570)	4,222
Other expenses		(166,722)	(267,360)
Share of profits and losses of:
A joint venture		–	(6,105)
Associates		(5,907)	2,845
Share-basedpayment expenses	36	(4,620)	–
LOSS BEFORE TAX	6	(240,248)	(406,844)
Income tax expense	10	(3,192)	(38,179)
LOSS FOR THE YEAR		(243,440)	(445,023)

Attributable to:
Owners of the parent		(242,399)	(441,039)
Non-controllinginterests		(1,041)	(3,984)
		(243,440)	(445,023)

LOSS PER SHARE ATTRIBUTABLE TO
ORDINARY EQUITY HOLDERS OF THE PARENT	12
Basic and diluted (expressed in HK cents)		(5.46)	(10.59)

Consolidated Statement of Comprehensive Income

Year ended 31 December 2020

		2020	2019
	Note	*HK$’000*	HK$’000
LOSS FOR THE YEAR		(243,440)	(445,023)

OTHER COMPREHENSIVE INCOME/(LOSS)

Other comprehensive income/(loss) that may be reclassified to profit
or loss in subsequent periods:
Exchange differences:
Exchange differences on translation of foreign operations		26,842	(16,630)
Share of other comprehensive loss of a joint venture		–	(57)
Share of other comprehensive income/(loss)of associates		3,037	(1,127)
Net other comprehensive income/(loss) that may be reclassified to
profit or loss in subsequentperiods		29,879	(17,814)
Other comprehensive income/(loss) that will not be reclassified to
profit or loss in subsequent periods:
Loss on property revaluation	13	(3,316)	(5,742)
Equity investments designated at fair value through other
comprehensive income:
Changes in fair value		44,590	5,712
Income tax effect		(11,588)	(1,285)
		33,002	4,427
Net other comprehensive income/(loss) that will not be reclassified to
profit or loss in subsequentperiods		29,686	(1,315)
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR,
NET OF TAX		59,565	(19,129)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR		(183,875)	(464,152)

Attributable to:
Owners of the parent		(184,582)	(459,531)
Non-controllinginterests		707	(4,621)
		(183,875)	(464,152)

China Geothermal Industry Development Group Limited Annual Report 2020

Consolidated Statement of Financial Position

31 December 2020

		2020	2019
	Notes	*HK$’000*	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment	13	213,359	301,502
Investment properties	14	134,743	677,933
Right-of-use assets	15(a)	1,050	2,579
Deposits paid for acquisitions of land use rights	16	17,823	27,221
Other intangible assets	17	293	–
Investments in associates	18	49,547	51,542
Equity investments designated at fair value through other
comprehensive income	19	60,577	239,406
Deferred tax assets	33	–	4,990
Contract assets	22	20,213	18,794
Trade receivables	23	139,102	57,029
Total non-current assets		636,707	1,380,996
CURRENT ASSETS
Inventories	20	24,733	28,996
Properties held for sale	21	342,652	88,796
Trade and bills receivables	23	58,743	53,401
Prepayments, other receivables and other assets	24	225,075	172,278
Contract assets	22	122,504	167,897
Amounts due from related companies	25	551	517
Equity investments designated at fair value through other
comprehensive income	19	238,831	–
Financial assets at fair value through profit or loss	27	34	48
Restricted cash	28	7,326	5,636
Time deposits	28	233	232
Cash and cash equivalents	28	63,172	56,871
Total current assets		1,083,854	574,672
CURRENT LIABILITIES
Trade and bills payables	29	279,912	309,476
Other payables and accruals	30	430,934	189,840
Contract liabilities	22	51,225	43,807
Amounts due to associates	26	17,891	21,293
Amounts due to related companies	25	30,341	479,184
Interest-bearing bank borrowings	31	100,998	6,140
Lease liabilities	15(b)	5,889	1,648
Taxpayable		189,263	148,074
Total current liabilities		1,106,453	1,199,462
NET CURRENT LIABILITIES		(22,599)	(624,790)
TOTAL ASSETS LESS CURRENT LIABILITIES		614,108	756,206

Consolidated Statement of Financial Position

31 December 2020

		2020	2019
	Notes	*HK$’000*	HK$’000
TOTAL ASSETS LESS CURRENT LIABILITIES		614,108	756,206
NON-CURRENT LIABILITIES
Other payables and accruals	30	–	8,542
Lease liabilities	15(b)	89,590	511
Deferred income	32	9,506	8,931
Deferred tax liabilities	33	37,838	74,117
Total non-current liabilities		136,934	92,101
Net assets		477,174	664,105

EQUITY
Equity attributable to owners of the parent
Share capital	34	353,043	353,043
Shares held for Share Award Scheme	36	(7,676)	–
Other reserves	37	103,061	283,023
		448,428	636,066
Non-controllinginterests		28,746	28,039
Total equity		477,174	664,105

Wang Manquan Director

Hao Xia Director

China Geothermal Industry Development Group Limited Annual Report 2020

Consolidated Statement of Changes in Equity

Year ended 31 December 2020

Notes	Attributable to owners of theparent Share capital Share premium Statutory reserve Asset revaluation reserve Contributed surplus Special reserve Capital reserve Share option reserve Exchange fluctuation reserve Accumulated losses Total Non- controlling interests Total 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
At 1 January 2019 Loss for the year Other comprehensive income/(loss) for the year: Changes in fair value of equity investments at fair value through other comprehensive income, net of tax Exchange differences related to foreign operations Loss on property revaluation 13 Share of other comprehensive loss of a joint venture Share of other comprehensive loss of associates	313,793 904,470 2,935 48,358 154,381 2,975 13,449 49,117 (25,570) (412,514) 1,051,394 33,468 1,084,862 – – – – – – – – – (441,039) (441,039) (3,984) (445,023) – – – – – – 4,427 – – – 4,427 – 4,427 – – – – – – – – (15,993) – (15,993) (637) (16,630) – – – (5,742) – – – – – – (5,742) – (5,742) – – – – – – – – (57) – (57) – (57) – – – – – – – – (1,127) – (1,127) – (1,127)
Total comprehensive income/(loss) for the year Issue of shares 34 Acquisition of a subsidiary Capital injection from non-controlling interests Acquisition of non-controllinginterests	– – – (5,742) – – 4,427 – (17,177) (441,039) (459,531) (4,621) (464,152) 39,250 375 – – – – – – – – 39,625 – 39,625 – – – – – – – – – – – 2,676 2,676 – – – – – – – – – – – 1,094 1,094 – – – – – 4,578 – – – – 4,578 (4,578) –
At 31 December 2019	353,043 904,845 2,935 42,616 154,381 7,553 17,876 49,117 (42,747) (853,553)* 636,066 28,039 664,105

Consolidated Statement of Changes in Equity

Year ended 31 December 2020

Notes	Attributable to owners of theparent Share capital Shares held for Share Award Scheme Share premium Statutory reserve Asset revaluation reserve Contributed surplus Special reserve Capital reserve Share option reserve/ share award reserve Exchange fluctuation reserve Accumulated losses Total Non- controlling interests Total 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*
At 1 January 2020 Loss for the year Other comprehensive income/(loss) for the year: Changes in fair value of equity investments at fair value through other comprehensive income, net of tax Exchange differences related to foreign operations Loss on property revaluation 13 Share of other comprehensive income of associates	353,043 – 904,845 2,935 42,616 154,381 7,553 17,876 49,117 (42,747) (853,553) 636,066 28,039 664,105 – – – – – – – – – – (242,399) (242,399) (1,041) (243,440) – – – – – – – 33,002 – – – 33,002 – 33,002 – – – – – – – – – 25,094 – 25,094 1,748 26,842 – – – – (3,316) – – – – – – (3,316) – (3,316) – – – – – – – – – 3,037 – 3,037 – 3,037
Total comprehensive income/(loss) for the year Equity-settled share option arrangements 36 Shares purchased for Share Award Scheme 36 Transfer of share option reserve upon the forfeiture or expiryof share options 35	– – – – (3,316) – – 33,002 – 28,131 (242,399) (184,582) 707 (183,875) – – – – – – – – 4,620 – – 4,620 – 4,620 – (7,676) – – – – – – – – – (7,676) – (7,676) – – – – – – – – (49,117) – 49,117 – – –
At 31 December 2020	353,043 (7,676) 904,845 2,935 39,300 154,381 7,553* 50,878 4,620 (14,616)* (1,046,835) 448,428 28,746* 477,174

These reserve accounts comprise the consolidated reserves of HK$103,061,000 (2019: HK$283,023,000) in the consolidated statement of financial position.

China Geothermal Industry Development Group Limited Annual Report 2020

Consolidated Statement of Cash Flows

Year ended 31 December 2020

		2020	2019
	Notes	*HK$’000*	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax		(240,248)	(406,844)
Adjustments for:
Finance costs	7	24,343	39,309
Interest income	5	(5,730)	(2,494)
Gain on disposal of investment properties	5	(42,635)	–
Gain on disposal of a subsidiary	5	(20,139)	–
Loss on disposal of items of property, plant and equipment	6	153	24
Dividend income from equity investments at fair value through
other comprehensive income	5	(3,097)	–
Depreciation of property, plant and equipment	6	15,018	16,172
Amortisation of other intangible assets	6	6	–
Gain on remeasurement of the investment in a joint venture	5	–	(926)
Fair value change on financial assets at fair value through profit
or loss	6	1,564	1,109
Loss on uncertainty in respect of collectability of contract assets,
net	6	8,958	23,505
Changes in fair value of investment properties	6	32,570	(4,222)
Depreciation of right-of-use assets	6	2,252	4,005
Impairment loss recognised in respect of trade and bills
receivables, net	6	15,388	6,612
Impairment loss recognised in respect of prepayments, other
receivables and other assets, net	6	10,384	54,814
Impairment loss recognised in respect of goodwill	6	–	263,879
Impairment loss recognised in respect of deposits paid for
acquisitions of land use rights	6	10,567	–
Impairment loss recognised in respect of properties held for sale	6	139,009	–
Share-based payment expenses	36	4,620	–
Share of profits and losses of associates		5,907	(2,845)
Share ofprofits and losses of ajoint venture		–	6,105
		(41,110)	(1,797)
Decrease in inventories		6,130	28,457
Decrease in trade and bills receivables		357	23,973
Decrease/(increase) in prepayments, other receivables and other
assets		20,397	(1,233)
Decrease in contract assets		48,012	69,742
Increase in restricted cash		(1,690)	(5,636)
(Increase)/decrease in pledged deposits		(1)	1,548
Decrease in trade and bills payables		(49,487)	(152,741)
(Decrease)/increase in other payables and accruals		(4,794)	14,456
(Decrease)/increase in amounts due to associates		(4,772)	12,710
Decrease in amounts due to related companies		–	(7,267)
Increase/(decrease)in contract liabilities		4,598	(11,440)
Cash used in operations		(22,360)	(29,228)
Income taxpaid		(1,366)	(3,634)
Net cash flows used in operating activities		(23,726)	(32,862)

Consolidated Statement of Cash Flows

Year ended 31 December 2020

		2020	2019
	Notes	*HK$’000*	HK$’000
Net cash flows used in operatingactivities		(23,726)	(32,862)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received		262	451
Dividend income from equity investments designated at fair value
through other comprehensive income		3,097	–
Purchases of items of property, plant and equipment		(659)	(530)
Additions to other intangible assets		(299)	–
Proceeds on disposal of items of property, plant and equipment		10	7
Disposal of investment properties		93,566	–
Development costs paid for investment properties under
construction or development		(1,275)	(1,036)
Disposal of a subsidiary	38	118,812	–
Disposal of equity investments designated at fair value through
other comprehensive income		–	56
Advance received from disposal of equity investments at fair value
through other comprehensive income		237,643	–
Acquisition of a subsidiary		–	514
Investment in an associate		(875)	–
Net cash flows from/(used in)investingactivities		450,282	(538)
CASH FLOWS FROM FINANCING ACTIVITIES
New bank and other borrowings	39	962,452	–
Proceeds from issue of shares	34	–	39,625
Principal portion of lease payments	39	(10,558)	(4,202)
Repurchase of shares for Share Award Scheme	36	(7,676)	–
Repayment of bank and other borrowings	39	(867,990)	–
Decrease in amounts due to related companies	39	(475,285)	–
Capital contribution by non-controlling interests		–	1,094
Interestpaid		(24,860)	(18,429)
Net cash flows(used in)/from financingactivities		(423,917)	18,088
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		2,639	(15,312)
Cash and cash equivalents at beginning of year		56,871	72,934
Effect of foreign exchange rate changes,net		3,662	(751)
CASH AND CASH EQUIVALENTS AT END OF YEAR		63,172	56,871

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances	28	61,299	53,448
Cash held at non-bank financial institutions	28	1,873	3,423
Cash and cash equivalents as stated in the consolidated statement
of financial position and consolidated statement of cash flows		63,172	56,871

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

1. CORPORATE AND GROUP INFORMATION

The Company was incorporated in the Cayman Islands as an exempted company with limited liability and its shares are listed on GEM of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section in the annual report.

During the year, the Group was involved in the following principal activities:

Provision, installation and maintenance of shallow geothermal energy utilisation systems
Trading of air conditioning/shallow geothermal heat pump products
Investment in properties for their potential rental income
Trading of securities and other types of investments

Information about subsidiaries

Particulars of the Company’s principal subsidiaries are as follows:

			Percentage	Percentage
	Place of	Issued	of	equity
	incorporation/	ordinary/	attributable
	registration	registered	to the	Company	Principal
Name	and business	share capital	Direct	Indirect	activities
CGSE Ever Source	British Virgin Islands	US dollars (“US$”)	100	–	Investment
Group Limited		166,667			holding and trading of
					securities
Ever Source Science & Technology	People’s Republic of	US$	–	100	Technical know-how holding
Co., Ltd.* (i)	China (“PRC”)	3,000,000
(“北京恒有源科技有限公司”)
Beijing Ever Source Geothermal	PRC	Renminbi (“RMB”)	–	100	Property management and
Technology Service Co., Ltd.* (ii)		3,000,000			technical support service
(“北京恒有源地能冷熱技術服務
有限公司”)
Ever Source Science & Technology	PRC	RMB	–	100	Production and sale of
Development Group Co., Ltd.* (i)		239,188,502			geothermal energy
(“恒有源科技發展集團					systems
有限公司”,“HYY”)
Beijing Ever Source Environmental	PRC	RMB	–	100	Installation of energy systems
System Installation Limited* (ii)		50,000,000
(“北京恒有源環境系統設備安裝工程
有限公司”)
Heng Run Feng Reality (Dalian)	PRC	US$	–	100	Property investment and
Company Ltd.* (i)		12,000,000			development
(“恒潤豐置業(大連)有限公司”)
Hong Yuan Ground Source Heating	PRC	RMB	–	51	Sale of air conditioning/
Device Technology Co., Ltd.* (ii)		50,000,000			shallow geothermal heat
(“宏源地能熱寶技術有限公司”)					pump products

Notes to Financial Statements

31 December 2020

1. CORPORATE AND GROUP INFORMATION (Continued) Information about subsidiaries (Continued)

The English names of the companies registered in the PRC represent the best efforts of the management of the Company in directly translating the Chinese names of the companies as no English names have been registered.
(i) The subsidiaries are wholly-foreign-owned enterprises established in the PRC.
(ii) The subsidiaries are registered as companies with limited liability under PRC law.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties, leasehold land and buildings classified as property, plant and equipment, and equity investments which have been measured at fair value. These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand except when otherwise indicated.

Going concern basis

During the year ended 31 December 2020, the Group incurred a consolidated net loss of HK$243,440,000 and had consolidated accumulated losses of HK$1,046,835,000. As at 31 December 2020, the Group had net current liabilities of HK$22,599,000.

In view of the net current liabilities position, the directors have given careful consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern. In order to improve the Group’s liquidity and cash flows to sustain the Group as a going concern, the Group implemented or is in the process of implementing the following measures:

On 7 March 2019, the Company entered into the financial services agreement with China Energy Finance Company Limited (“Finance Company”), whereby Finance Company agreed to provide the deposit services, the settlement services, the loan and guarantee services and the other financial services to the Group for the period from 7 March 2019 to 31 December 2021. Finance Company would provide the loan and guarantee services to the members of the Group in an aggregate amount of RMB1,000,000,000.

The directors have reviewed the Group’s cash flow forecast prepared by management which covers a period of twelve months from the end of the reporting period. They are of the opinion that, taking into account the above-mentioned plans and measures, the Group will have sufficient working capital to finance its operations and meet its financial obligations as and when they fall due in the foreseeable future. Accordingly, the directors are of the opinion that it is appropriate to prepare the consolidated financial statements of the Group for the year ended 31 December 2020 on a going concern basis.

Should the going concern assumption be inappropriate, adjustments may have to be made to reflect the situation that assets may need to be realised at amounts other than those they are currently recorded in the consolidated statement of financial position. In addition, the Group may have to provide for further liabilities that might arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.1 BASIS OF PREPARATION (Continued)

Basis of consolidation

The consolidated financial statements include the financial statements of the Group for the year ended 31 December 2020. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

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 described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

31 December 2020

Notes to Financial Statements

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the Conceptual Framework for Financial Reporting 2018 and the following revised HKFRSs for the first time for the current year’s financial statements.

Amendments to HKFRS 3 Amendments to HKFRS 9, HKAS 39 and HKFRS 7 Amendment to HKFRS 16 Amendments to HKAS 1 and HKAS 8

Definition of a Business Interest Rate Benchmark Reform Covid-19-Related Rent Concessions (early adopted) Definition of Material

The nature and the impact of the Conceptual Framework for Financial Reporting 2018 and the revised HKFRSs are described below:

(a) Conceptual Framework for Financial Reporting 2018 (the “Conceptual Framework”) sets out a comprehensive set of concepts for financial reporting and standard setting, and provides guidance for preparers of financial statements in developing consistent accounting policies and assistance to all parties to understand and interpret the standards. The Conceptual Framework includes new chapters on measurement and reporting financial performance, new guidance on the derecognition of assets and liabilities, and updated definitions and recognition criteria for assets and liabilities. It also clarifies the roles of stewardship, prudence and measurement uncertainty in financial reporting. The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The Conceptual Framework did not have any significant impact on the financial position and performance of the Group.
(b) Amendments to HKFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. The Group has applied the amendments prospectively to transactions or other events that occurred on or after 1 January 2020. The amendments did not have any impact on the financial position and performance of the Group.
(c) Amendments to HKFRS 9, HKAS 39 and HKFRS 7 address issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative risk-free rate (“RFR”). The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the introduction of the alternative RFR. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The amendments did not have any impact on the financial position and performance of the Group as the Group does not have any interest rate hedging relationships.

China Geothermal Industry Development Group Limited

Annual Report 2020

Notes to Financial Statements

31 December 2020

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Continued)

(d) Amendment to HKFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before 30 June 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective for annual periods beginning on or after 1 June 2020 with earlier application permitted and shall be applied retrospectively. The amendments did not have any impact on the financial position and performance of the Group.
(e) Amendments to HKAS 1 and HKAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information, or both. The amendments did not have any significant impact on the financial position and performance of the Group.

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING

STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 3 Reference to the Conceptual Framework[2] Amendments to HKFRS 9, HKAS 39 and Interest Rate Benchmark Reform - Phase 2[1] HKFRS 7, HKFRS 4 and HKFRS 16 Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and its HKAS 28 (2011) Associate or Joint Venture[4] HKFRS 17 Insurance Contracts[3] Amendments to HKFRS 17 Insurance Contracts[3,6] Amendments to HKAS 1 Classification of Liabilities as Current or Non-current[3,5] Amendments to HKAS 16 Property, Plant and Equipment: Proceeds before Intended Use[2] Amendments to HKAS 37 Onerous Contracts - Cost of Fulfilling a Contract[2] Annual Improvements to HKFRSs 2018-2020 Amendments to HKFRS 1, HKFRS 9, Illustrative Examples accompanying HKFRS 16, and HKAS 41[2]

1 Effective for annual periods beginning on or after 1 January 2021
2 Effective for annual periods beginning on or after 1 January 2022
3 Effective for annual periods beginning on or after 1 January 2023
4 No mandatory effective date yet determined but available for adoption
5 As a consequence of the amendments to HKAS 1, Hong Kong Interpretation 5 Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause was revised in October 2020 to align the corresponding wording with no change in conclusion
6 As a consequence of the amendments to HKFRS 17 issued in October 2020, HKFRS 4 was amended to extend the temporary exemption that permits insurers to apply HKAS 39 rather than HKFRS 9 for annual periods beginning before 1 January 2023

31 December 2020

Notes to Financial Statements

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING

STANDARDS (Continued)

Further information about those HKFRSs that are expected to be applicable to the Group is described below.

Amendments to HKFRS 3 are intended to replace a reference to the previous Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework for Financial Reporting issued in June 2018 without significantly changing its requirements. The amendments also add to HKFRS 3 an exception to its recognition principle for an entity to refer to the Conceptual Framework to determine what constitutes an asset or a liability. The exception specifies that, for liabilities and contingent liabilities that would be within the scope of HKAS 37 or HK(IFRIC)-Int 21 if they were incurred separately rather than assumed in a business combination, an entity applying HKFRS 3 should refer to HKAS 37 or HK(IFRIC)-Int 21 respectively instead of the Conceptual Framework. Furthermore, the amendments clarify that contingent assets do not qualify for recognition at the acquisition date. The Group expects to adopt the amendments prospectively from 1 January 2022. Since the amendments apply prospectively to business combinations for which the acquisition date is on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16 address issues not dealt with in the previous amendments which affect financial reporting when an existing interest rate benchmark is replaced with an alternative RFR. The Phase 2 amendments provide a practical expedient to allow the effective interest rate to be updated without adjusting the carrying amount when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, if the change is a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis immediately preceding the change. In addition, the amendments permit changes required by the interest rate benchmark reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued. Any gains or losses that could arise on transition are dealt with through the normal requirements of HKFRS 9 to measure and recognise hedge ineffectiveness. The amendments also provide a temporary relief to entities from having to meet the separately identifiable requirement when an RFR is designated as a risk component. The relief allows an entity, upon designation of the hedge, to assume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Furthermore, the amendments require an entity to disclose additional information to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. The amendments are effective for annual periods beginning on or after 1 January 2021 and shall be applied retrospectively, but entities are not required to restate the comparative information. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING

STANDARDS (Continued)

Amendments to HKAS 1 clarify the requirements for classifying liabilities as current or non-current. The amendments specify that if an entity’s right to defer settlement of a liability is subject to the entity complying with specified conditions, the entity has a right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date. Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability. The amendments also clarify the situations that are considered a settlement of a liability. The amendments are effective for annual periods beginning on or after 1 January 2023 and shall be applied retrospectively. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKAS 16 prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling any such items, and the cost of those items, in profit or loss. The amendments are effective for annual periods beginning on or after 1 January 2022 and shall be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKAS 37 clarify that for the purpose of assessing whether a contract is onerous under HKAS 37, the cost of fulfilling the contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract include both the incremental costs of fulfilling that contract (e.g., direct labour and materials) and an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or after 1 January 2022 and shall be applied to contracts for which an entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. Earlier application is permitted. Any cumulative effect of initially applying the amendments shall be recognised as an adjustment to the opening equity at the date of initial application without restating the comparative information. The amendments are not expected to have any significant impact on the Group’s financial statements.

Annual Improvements to HKFRSs 2018-2020 sets out amendments to HKFRS 1, HKFRS 9, Illustrative Examples accompanying HKFRS 16, and HKAS 41. Details of the amendments that are expected to be applicable to the Group are as follows:

HKFRS 9 Financial Instruments: clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual periods beginning on or after 1 January 2022. Earlier application is permitted. The amendment is not expected to have a significant impact on the Group’s financial statements.

31 December 2020

Notes to Financial Statements

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING

STANDARDS (Continued)

HKFRS 16 Leases: removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying HKFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying HKFRS 16.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in associates and a joint venture

An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise 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 type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s investments in associates and the joint venture are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The Group’s share of the post-acquisition results and other comprehensive income of associates and the joint venture is included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate or the joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates or the joint venture are eliminated to the extent of the Group’s investments in the associates or the joint venture, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates or the joint venture is included as part of the Group’s investments in associates or the joint venture.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

When an investment in an associate or a joint venture is classified as held for sale, it is accounted for in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations .

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed 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. For each business combination, the Group elects whether to measure the noncontrolling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

The Group determines that it has acquired a business when the acquired set of activities and assets includes an input and a substantive process that together significantly contribute to the ability to create outputs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

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

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cashgenerating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

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

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

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair value measurement

The Group measures its investment properties, leasehold land and buildings classified as property, plant and equipment, and equity investments at fair value at the end of each reporting period. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than investment properties, properties held for sale under development, inventories, contract assets, deferred tax assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount in which case the impairment loss is accounted for in accordance with the relevant accounting policy for the revalued asset.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of non-financial assets (Continued)

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies: (i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the statement of profit or loss. Any subsequent revaluation surplus is credited to the statement of profit or loss to the extent of the deficit previously charged. An annual transfer from the asset revaluation reserve to retained profits is made for the difference between the depreciation based on the revalued carrying amount of an asset and the depreciation based on the asset’s original cost. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Categories	Estimated useful lives
Leasehold land and buildings	50 years or over the lease terms, whichever is shorter
Leasehold improvements	5 years or over the lease terms, whichever is shorter
Plant and machinery	8 to 20 years
Computer equipment	4 to 8 years
Office equipment, furniture and fixtures	4 to 5 years
Motor vehicles	5 to 8 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents property, plant and equipment under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment properties

Investment properties are interests in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period.

Gains or losses arising from changes in the fair values of investment properties are included in the statement of profit or loss in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of profit or loss in the year of the retirement or disposal.

For a transfer from investment properties to owner-occupied properties or inventories, the deemed cost of a property for subsequent accounting is its fair value at the date of change in use. If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under “Property, plant and equipment and depreciation” for owned property and/or accounts for such property in accordance with the policy stated under “Right-of-use assets” for property held as a right-of-use asset up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is accounted for as a revaluation in accordance with the policy stated under “Property, plant and equipment and depreciation” above. For a transfer from inventories to investment properties, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the statement of profit or loss.

Intangible assets (other than goodwill)

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

Office software

Acquired office software is capitalised on the bases of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the straight-line basis over its estimated useful life of 10 years.

Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

(a) Right-of-use assets

Right-of-use assets are recognised at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:

Property 1 to 3 years

If ownership of the leased asset transfers to the Group by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

(b) Lease liabilities

Lease liabilities are recognised at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for termination of a lease, if the lease term reflects the Group exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.

(c) Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of equipment (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the recognition exemption for leases of low-value assets to leases of equipment that are considered to be of low value.

Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straightline basis over the lease term.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Leases (Continued)

Group as a lessor

When the Group acts as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. Rental income is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Leases that transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee are accounted for as finance leases.

When the Group is an intermediate lessor, a sublease is classified as a finance lease or operating lease with reference to the right-of-use asset arising from the head lease. If the head lease is a short-term lease to which the Group applies the on-balance sheet recognition exemption, the Group classifies the sublease as an operating lease.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. The cost of properties held for sale comprises specifically identified cost, including the acquisition cost of land, aggregate cost of development, materials and supplies, wages and other direct expenses capitalised. Net realisable value represents the estimated selling price, based on prevailing market conditions, less estimated costs of completion and costs to be incurred in selling the property.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income, and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under HKFRS 15 in accordance with the policies set out for “Revenue recognition” below.

In order for a financial asset to be classified and measured at amortised cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments and other financial assets (Continued)

Initial recognition and measurement (Continued)

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortised cost (debt instruments)

Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in the statement of profit or loss when the asset is derecognised, modified or impaired.

Financial assets designated at fair value through other comprehensive income (equity investments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under HKAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to the statement of profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments and other financial assets (Continued)

Subsequent measurement (Continued)

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

This category includes derivative instruments and equity investments which the Group had not irrevocably elected to classify at fair value through other comprehensive income. Dividends on equity investments classified as financial assets at fair value through profit or loss are also recognised as other income in the statement of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Notes to Financial Statements 31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets

The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Financial assets at amortised cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables and contract assets which apply the simplified approach as detailed below.

Stage 1 – Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs
Stage 2 – Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs
Stage 3 – Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets (Continued)

Simplified approach

For trade receivables and contract assets that do not contain a significant financing component or when the Group applies the practical expedient of not adjusting the effect of a significant financing component, the Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For trade receivables and contract assets that contain a significant financing component and lease receivables, the Group chooses as its accounting policy to adopt the simplified approach in calculating ECLs with policies as described above.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings, or payables, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and bills payables, other payables and accruals, amounts due to associates and related companies and interest-bearing bank borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at amortised cost (loans and borrowings)

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Treasury shares

Own equity instruments which are reacquired and held by the Company or the Group (treasury shares) are recognised directly in equity at cost. No gain or loss is recognised in the statement of profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.

The Group provides for warranties in relation to the sale of certain industrial products and the provision of construction services for general repairs of defects occurring during the warranty period. Provisions for these assurance-type warranties granted by the Group are recognised based on sales volume and past experience of the level of repairs and returns, discounted to their present values as appropriate.

A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of (i) the amount that would be recognised in accordance with the general policy for provisions above; and (ii) the amount initially recognised less, when appropriate, the amount of income recognised in accordance with the policy for revenue recognition.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

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

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

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and the joint venture, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and the joint venture, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

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

Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to the statement of profit or loss by way of a reduced depreciation charge.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of goods or services is transferred to the customers at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Group will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

When the contract contains a financing component which provides the customer with a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the Group and the customer at contract inception. When the contract contains a financing component which provides the Group with a significant financial benefit for more than one year, revenue recognised under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in HKFRS 15.

(a) Sale of industrial products

Revenue from the sale of industrial products is recognised at the point in time when control of the asset is transferred to the customer, generally on delivery of the industrial products.

Some contracts for the sale of industrial products provide customers with rights of return which gives rise to variable consideration.

(i) Rights of return

For contracts which provide a customer with a right to return the goods within a specified period, the expected value method is used to estimate the goods that will not be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. The requirements in HKFRS 15 on constraining estimates of variable consideration are applied in order to determine the amount of variable consideration that can be included in the transaction price. For goods that are expected to be returned, instead of revenue, a refund liability is recognised. A right-of-return asset (and the corresponding adjustment to cost of sales) is also recognised for the right to recover products from a customer.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition (Continued)

Revenue from contracts with customers (Continued)

(b) Construction services

Revenue from the provision of construction services is recognised over time, using an input method to measure progress towards complete satisfaction of the service, because the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. The input method recognises revenue based on the proportion of the actual costs incurred relative to the estimated total costs for satisfaction of the construction services.

Claims to customers are amounts that the Group seeks to collect from the customers as reimbursement of costs and margins for scope of works not included in the original construction contract. Claims are accounted for as variable consideration and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. The Group uses the expected value method to estimate the amounts of claims because this method best predicts the amount of variable consideration to which the Group will be entitled.

Revenue from other sources

Rental income is recognised on a time proportion basis over the lease terms. Variable lease payments that do not depend on an index or a rate are recognised as income in the accounting period in which they are incurred.

Other income

Interest income is recognised on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Dividend income is recognised when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. Contract assets are subject to impairment assessment, details of which are included in the accounting policies for impairment of financial assets.

Contract liabilities

A contract liability is recognised when a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs under the contract (i.e., transfers control of the related goods or services to the customer).

31 December 2020

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Contract costs

Other than the costs which are capitalised as inventories, property, plant and equipment and intangible assets, costs incurred to fulfil a contract with a customer are capitalised as an asset if all of the following criteria are met:

(a) The costs relate directly to a contract or to an anticipated contract that the entity can specifically identify.
(b) The costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
(c) The costs are expected to be recovered.

The capitalised contract costs are amortised and charged to the statement of profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Other contract costs are expensed as incurred.

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given in notes 35 and 36 to the financial statements.

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Share-based payments (Continued)

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Other employee benefits

Social pension plans

The Group has social pension plans for its employees arranged by local government labour and security authorities. The Group makes contributions on a monthly basis to the social pension plans. The contributions are charged to the statement of profit or loss as they become payable in accordance with the rules of the social pension plans. Under the plans, the Group has no further obligations beyond the contributions made.

Housing fund and other social insurances

The Group has participated in defined social security contribution schemes for its employees pursuant to the relevant laws and regulations of the PRC. These include housing fund, basic and supplementary medical insurance, unemployment insurance, injury insurance and maternity insurance. The Group makes monthly contributions to the housing fund and other social insurances. The contributions are charged to the statement of profit or loss on an accrual basis. The Group has no further obligations beyond the contributions made.

Apart from those described above, the Group does not have any other legal or constructive obligations over employee benefits.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when 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 capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting. Proposed final dividends are disclosed in the notes to the financial statements.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Notes to Financial Statements 31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a nonmonetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

In determining the exchange rate on initial recognition of the related asset, expense or income on the derecognition of a non-monetary asset or non-monetary liability relating to an advance consideration, the date of initial transaction is the date on which the Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of the advance consideration.

The functional currencies of certain overseas subsidiaries, joint ventures and associates are currencies other than the Hong Kong dollar. As at the end of the reporting period, the assets and liabilities of these entities are translated into Hong Kong dollars at the exchange rates prevailing at the end of the reporting period and their statements of profit or loss are translated into Hong Kong dollars at the weighted average exchange rates for the year.

The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Revenue from contracts with customers

The Group applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:

(i) Determining the method to estimate variable consideration and assessing the constraint for construction services

The Group seeks to collect claims from the customers as reimbursement of costs and margins for scope of works not included in the original construction contract, which give rise to variable consideration. The Group determined that the expected value method is the appropriate method to use in estimating the variable consideration for claims in construction services, given there is a wide range of possible outcomes which are subject to negotiations with third parties.

Before including any amount of variable consideration in the transaction price, the Group considers whether the amount of variable consideration is constrained. The Group determined that the estimates of variable consideration are not constrained based on its historical experience, current negotiations with customers, profitability of the head contracts of the customers and the current economic conditions.

(ii) Determining the timing of satisfaction of construction services

The Group concluded that revenue from construction services is recognised over time because the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.

The Group determined that the input method is the best method in measuring the progress of the construction services because there is a direct relationship between the Group’s effort (i.e., costs incurred) and the transfer of services to the customer. The Group recognises revenue on the basis of the costs incurred relative to the total expected costs to complete the services.

Property lease classification – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the commercial property and the present value of the minimum lease payments not amounting to substantially all the fair value of the commercial property, that it retains substantially all the significant risks and rewards incidental to ownership of these properties which are leased out and accounts for the contracts as operating leases.

31 December 2020

Notes to Financial Statements

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

Judgements (Continued)

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Estimation uncertainty

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 and liabilities within the next financial year, are described below.

Estimation of fair value of investment properties and leasehold land and buildings

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including:

(a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences;
(b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
(c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The carrying amounts of investment properties and leasehold land and buildings at 31 December 2020 were HK$134,743,000 (2019: HK$677,933,000) and HK$181,449,000 (2019: HK$262,946,000), respectively. Further details, including the key assumptions used for fair value measurement, are given in notes 14 and 13 to the financial statements.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are contained in note 33 to the financial statements.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued) Estimation uncertainty (Continued)

Impairment of non-financial assets (other than goodwill)

The Group assesses whether there are any indicators of impairment for all non-financial assets (including the right-of-use assets) at the end of each reporting period. The non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cashgenerating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Provision against obsolete inventories

The Management of the Group reviews an ageing analysis of inventories at the end of each reporting period, and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for sale. Management estimates the net realisable value for finished goods based primarily on the latest invoice prices and current market conditions. The Group carries out an inventory review on a product-by-product basis at the end of each reporting period and makes allowance for obsolete items. As at 31 December 2020, the carrying value of inventories was approximately HK$24,733,000 (2019: HK$28,996,000). No impairment losses were recognised for both years.

Fair value of unlisted equity investments

The unlisted equity investments have been valued based on a market-based valuation technique as detailed in note 45 to the financial statements. The valuation requires the Group to determine the comparable public companies (peers) and select the price multiple. In addition, the Group makes estimates about the discount for illiquidity and size differences. The Group classifies the fair value of these investments as Level 3. The fair value of the unlisted equity investments at 31 December 2020 was HK$238,831,000 (2019: HK$179,732,000). Further details are included in note 19 to the financial statements.

Provision for expected credit losses on trade receivables and contract assets

The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance).

The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates are adjusted. At each reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

The assessment of the correlation among historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of a customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables and contract assets is disclosed in note 23 and note 22 to the financial statements, respectively.

31 December 2020

Notes to Financial Statements

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued) Estimation uncertainty (Continued)

Leases – Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in a lease, and therefore, it uses an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when it needs to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).

4. OPERATING SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows:

(a) Shallow geothermal energy segment – provision, installation and maintenance of shallow geothermal energy utilisation systems;
(b) Air conditioning/shallow geothermal heat pump segment – trading of air conditioning/shallow geothermal heat pump products;
(c) Property investment and development segment – investments in properties for their potential rental income; and
(d) Securities investment and trading segment – trading of securities and other types of investment.

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/ loss, which is a measure of adjusted profit/loss before tax. The adjusted profit/loss before tax is measured consistently with the Group’s profit/loss before tax except that share of profits and losses of associates and a joint venture, interest income, certain other income, certain administration costs, share-based payment expenses and non-lease-related finance costs are excluded from such measurement.

Segment assets exclude certain investments in associates, deferred tax assets, time deposits, restricted cash and cash and cash equivalents as these assets are managed on a group basis.

Segment liabilities exclude certain amounts due to associates and related companies, interest-bearing bank borrowings, deferred tax liabilities and tax payable as these liabilities are managed on a group basis.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

China Geothermal Industry Development Group Limited

Annual Report 2020

Notes to Financial Statements 31 December 2020

4. OPERATING SEGMENT INFORMATION (Continued)

		Air
		conditioning/	Property	Securities
	Shallow	shallow	investment	investment
Year ended	geothermal	geothermal	and	and
31 December 2020	energy	heat pump	development	trading	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Segment revenue(note 5)
Sales to external customers	174,832	47,897	8,133	–	230,862
Intersegment sales	–	12,993	–	–	12,993
	174,832	60,890	8,133	–	243,855
Reconciliation:
Elimination of intersegment sales					(12,993)
Revenue					230,862

Segment results	(45,816)	(150)	(142,837)	(1,564)	(190,367)
Reconciliation:
Elimination of intersegment results					(980)
Share of profits and losses of
associates					(5,907)
Unallocated other income					6,963
Corporate and other unallocated
expenses					(29,179)
Finance costs (other than interest
on lease liabilities)					(20,778)
Loss before tax					(240,248)

Segment assets	788,265	52,225	588,438	300,152	1,729,080
Reconciliation:
Elimination of intersegment
receivables					(132,292)
Corporate and other unallocated
assets					123,773
Total assets					1,720,561

Segment liabilities	696,418	48,345	154,936	8,760	908,459
Reconciliation:
Elimination of intersegment
payables					(132,292)
Corporate and other unallocated
liabilities					467,220
Total liabilities					1,243,387

Notes to Financial Statements

31 December 2020

4. OPERATING SEGMENT INFORMATION (Continued)

		Air
		conditioning/	Property	Securities
	Shallow	shallow	investment	investment
Year ended	geothermal	geothermal	and	and
31 December 2020	energy	heat pump	development	trading	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Other segment information:
Amounts included in the measure
of segment profit or loss or
segment assets:
Depreciation of property, plant and
equipment	12,716	425	1,855	22	15,018
Depreciation of right-of-use assets	2,252	–	–	–	2,252
Amortisation of other
intangible assets	6	–	–	–	6
Impairment loss recognised
in respect of trade and bills
receivables, net	14,667	–	721	–	15,388
Impairment loss recognised in
respect of prepayments, other
receivables and other assets, net	6,654	–	3,730	–	10,384
Impairment loss recognised in
respect of contract assets, net	8,786	–	172	–	8,958
Impairment of properties held for
sale	–	–	139,009	–	139,009
Impairment of deposits paid for
acquisitions of land use rights	–	–	10,567	–	10,567
Changes in fair value of investment
properties	–	–	32,570	–	32,570
Capital expenditure*	942	16	1,275	–	2,233
Amounts regularly provided to the
chief operating decision maker
but not included in the measure
of segment profit or loss or
segment assets:
Investments in associates	49,547	–	–	–	49,547
Share of profits and losses of
associates	5,907	–	–	–	5,907

Capital expenditure consists of additions to property, plant and equipment, investment properties and other intangible assets.

China Geothermal Industry Development Group Limited

Annual Report 2020

Notes to Financial Statements

31 December 2020

4. OPERATING SEGMENT INFORMATION (Continued)

		Air
		conditioning/	Property	Securities
	Shallow	shallow	investment	investment
Year ended	geothermal	geothermal	and	and
31 December 2019	energy	heat pump	development	trading	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue(note 5)
Sales to external customers	246,672	92,485	6,380	–	345,537
Intersegment sales	–	19,922	–	–	19,922
	246,672	112,407	6,380	–	365,459
Reconciliation:
Elimination of intersegment sales					(19,922)
Revenue					345,537

Segment results	(332,837)	2,597	1,478	(1,109)	(329,871)
Reconciliation:
Elimination of intersegment results					(2,608)
Share of profits and losses of
associates					2,845
Share of profits and losses of a
joint venture					(6,105)
Unallocated other income					3,290
Corporate and other unallocated
expenses					(35,374)
Finance costs (other than interest
on lease liabilities)					(39,021)
Loss before tax					(406,844)
Segment assets	692,899	55,001	981,953	241,280	1,971,133
Reconciliation:
Elimination of intersegment
receivables					(138,887)
Corporate and other unallocated
assets					123,422
Total assets					1,955,668

Segment liabilities	475,034	56,875	156,381	11,542	699,832
Reconciliation:
Elimination of intersegment
payables					(138,887)
Corporate and other unallocated
liabilities					730,618
Total liabilities					1,291,563

Notes to Financial Statements

31 December 2020

4. OPERATING SEGMENT INFORMATION (Continued)

		Air
		conditioning/	Property	Securities
	Shallow	shallow	investment	investment
Year ended	geothermal	geothermal	and	and
31 December 2019	energy	heat pump	development	trading	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Other segment information:
Amounts included in the measure
of segment profit or loss or
segment assets:
Depreciation of property, plant and
equipment	13,672	625	1,853	22	16,172
Depreciation of right-of-use assets	4,005	–	–	–	4,005
Impairment loss recognised
in respect of trade and bills
receivables, net	6,456	(1)	157	–	6,612
Impairment loss recognised in
respect of prepayments, other
receivables and other assets, net	53,601	(41)	1,254	–	54,814
Impairment loss recognised in
respect of contract assets, net	23,217	–	288	–	23,505
Impairment of goodwill	263,879	–	–	–	263,879
Changes in fair value of investment
properties	–	–	(4,222)	–	(4,222)
Capital expenditure*	525	–	1,041	–	1,566
Amounts regularly provided to the
chief operating decision maker
but not included in the measure
of segment profit or loss or
segment assets:
Investments in associates	51,542	–	–	–	51,542
Share of profits and losses of
associates	(2,845)	–	–	–	(2,845)
Share of profits and losses of a
joint venture	6,105	–	–	–	6,105

Capital expenditure consists of additions to property, plant and equipment and investment properties.

Geographical information

The Group’s operations are mainly located in Mainland China. All of the Group’s revenue from external customers is based on the locations where the services were provided or the goods were delivered and all of the Group’s non-current assets are located in Mainland China.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements 31 December 2020

4. OPERATING SEGMENT INFORMATION (Continued)

Information about major customers

Information about revenue from major customers which individually accounted for 10% or more of the Group’s revenue is shown in the following table:

	2020	2019
	*HK$’000*	HK$’000
Customer A	43,785	90,373
Customer B	23,768	–
	67,553	90,373
Total revenue	230,862	345,537
Proportion of revenue	29.3%	26.2%

REVENUE, OTHER INCOME AND GAINS
An analysis of revenue is as follows:
	2020	2019
	*HK$’000*	HK$’000
Revenue from contracts with customers	222,729	339,157
Revenue from other sources
Gross rental income from investment property operating leases:
Other leasepayments,includingfixedpayments	8,133	6,380
	230,862	345,537

5. REVENUE, OTHER INCOME AND GAINS

31 December 2020

Notes to Financial Statements

5. REVENUE, OTHER INCOME AND GAINS (Continued) Revenue from contracts with customers

(a) Disaggregated revenue information

For the year ended 31 December 2020

		Air
		conditioning/
	Shallow	shallow
	geothermal	geothermal
Segments	energy	heat pump	Total
	*HK$’000*	*HK$’000*	*HK$’000*
Types of goods or services:
Sale of industrial products	–	47,897	47,897
Construction services	174,832	–	174,832
Total revenue from contracts with customers	174,832	47,897	222,729

Geographical market:
Mainland China	174,832	47,897	222,729

Timing of revenue recognition:
Goods transferred at a point in time	–	47,897	47,897
Services transferred over time	174,832	–	174,832
Total revenue from contracts with customers	174,832	47,897	222,729

For the year ended 31 December 2019

		Air
		conditioning/
	Shallow	shallow
	geothermal	geothermal
Segments	energy	heat pump	Total
	HK$’000	HK$’000	HK$’000
Types of goods or services:
Sale of industrial products	–	92,485	92,485
Construction services	246,672	–	246,672
Total revenue from contracts with customers	246,672	92,485	339,157

Geographical market:
Mainland China	246,672	92,485	339,157

Timing of revenue recognition:
Goods transferred at a point in time	–	92,485	92,485
Services transferred over time	246,672	–	246,672
Total revenue from contracts with customers	246,672	92,485	339,157

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

5. REVENUE, OTHER INCOME AND GAINS (Continued) Revenue from contracts with customers (Continued)

(a) Disaggregated revenue information (Continued)

Set out below is the reconciliation of the revenue from contracts with customers to the amounts disclosed in the segment information:

For the year ended 31 December 2020

		Air conditioning/
	Shallow	shallow
	geothermal	geothermal
Segments	energy	heat pump	Total
	*HK$’000*	*HK$’000*	*HK$’000*
Revenue from contracts with customers:
External customers	174,832	47,897	222,729
Intersegment sales	–	12,993	12,993
	174,832	60,890	235,722
Intersegment adjustments and eliminations	–	(12,993)	(12,993)
Total revenue from contracts with customers	174,832	47,897	222,729

For the year ended 31 December 2019

		Air conditioning/
	Shallow	shallow
	geothermal	geothermal
Segments	energy	heat pump	Total
	HK$’000	HK$’000	HK$’000
Revenue from contracts with customers:
External customers	246,672	92,485	339,157
Intersegment sales	–	19,922	19,922
	246,672	112,407	359,079
Intersegment adjustments and eliminations	–	(19,922)	(19,922)
Total revenue from contracts with customers	246,672	92,485	339,157

31 December 2020

Notes to Financial Statements

5. REVENUE, OTHER INCOME AND GAINS (Continued) Revenue from contracts with customers (Continued)

(a) Disaggregated revenue information (Continued)

The following table shows the amounts of revenue recognised in the current reporting period that were included in the contract liabilities at the beginning of the reporting period:

	2020	2019
	*HK$’000*	HK$’000
Revenue recognised that was included in contract liabilities at the
beginning of the reporting period:
Construction services	25,051	25,549

(b) Performance obligations

Information about the Group’s performance obligations is summarised below:

Sale of industrial products

The performance obligation is satisfied upon delivery of the industrial products and payment is generally due within 90 days from delivery. Some contracts provide customers with a right of return which give rise to variable consideration subject to constraint.

Construction services

The performance obligation is satisfied over time as services are rendered and payment is generally due within 90 days from the date of billing. A certain percentage of payment is retained by customers until the end of the retention period as the Group’s entitlement to the final payment is conditional on the satisfaction of the service quality by the customers over a certain period as stipulated in the contracts.

The amounts of transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at 31 December are as follows:

	2020	2019
	*HK$’000*	HK$’000
Amounts expected to be recognised as revenue:
Within one year	211,219	173,935

All the amounts of transaction prices allocated to the performance obligations are expected to be recognised as revenue within one year. The amounts disclosed above do not include variable consideration which is constrained.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

5. REVENUE, OTHER INCOME AND GAINS (Continued)

REVENUE, OTHER INCOME AND GAINS(Contin	ued)
	2020	2019
	*HK$’000*	HK$’000
Other income
Interest income	5,730	2,494
Sale of scrap materials	348	579
Government grants_(note)_	1,829	2,007
Dividend income from equity investments at fair value through other
comprehensive income	3,097	–
Income from exempted payables	3,981	7,216
Others	1,233	795
	1,233 795
	16,218	13,091
Gains
Gain on disposal of investment properties	42,635	–
Gain on disposal of a subsidiary_(note 38)_	20,139	–
Gain on remeasurement of the investment in ajoint venture	–	926
	62,774	926
	78,992	14,017

Note: Government grants have been received in respect of certain heating projects of the Group. There are no unfulfilled conditions or contingencies relating to these grants.

Notes to Financial Statements

31 December 2020

6. LOSS BEFORE TAX

The Group’s loss before tax is arrived at after charging/(crediting):

	Notes	2020	2019
		*HK$’000*	HK$’000
Cost of inventories sold		45,258	86,961
Cost of services provided		139,470	174,598
Depreciation of property, plant and equipment	13	15,018	16,172
Depreciation of right-of-use assets	15(a)	2,252	4,005
Research and development costs		5,562	6,440
Amortisation of other intangible assets	17	6	–
Impairment of goodwill*		–	263,879
Impairment of deposits paid for acquisitions of land use rights*	16	10,567	–
Impairment of properties held for sale*	21	139,009	–
Lease payments not included in the measurement of lease
liabilities	15(c)	1,065	4,227
Auditor’s remuneration		3,350	3,752
Employee benefit expense (including directors’ and chief
executives’ remuneration_(note 8)_):
Wages and salaries		54,377	57,013
Equity-settled share option expense		4,620	–
Pension scheme contributions		3,161	8,679
		62,158	65,692
Impairment loss recognised in respect of trade and bills
receivables, net	23	15,388	6,612
Impairment loss recognised in respect of prepayments, other
receivables and other assets, net	24	10,384	54,814
Loss on uncertainty in respect of collectability of contract
assets, net	22	8,958	23,505
Changes in fair value of investment properties	14	32,570	(4,222)
Fair value change on financial assets at fair value through
profit or loss		1,564	1,109
Dividend income from equity investments at fair value
through other comprehensive income		(3,097)	–
Gain on disposal of investment properties		(42,635)	–
Gain on disposal of a subsidiary	38	(20,139)	–
Gain on remeasurement of the investment in a joint venture		–	(926)
Interest income		(5,730)	(2,494)
Loss on disposal of items of property, plant and equipment*		153	24

Impairment losses recognised in respect of goodwill, deposits paid for acquisitions of land use rights, properties held for sale and loss on disposal of items of property, plant and equipment are included in “Other expenses” in the consolidated statement of profit or loss.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

7. FINANCE COSTS

An analysis of finance costs is as follows:

	2020	2019
	*HK$’000*	HK$’000
Interest on bank loans and other loans	19,049	32,200
Interest on lease liabilities_(note 15(b))_	3,565	288
Guarantee fee on bank and other borrowings	1,729	6,821
	24,343	39,309

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:

	Group
	2020	2019
	*HK$’000*	HK$’000
Fees	714	600
Other emoluments:
Salaries, allowances and benefits in kind	11,970	11,383
Equity-settled share option expense	1,650	–
Pension scheme contributions	54	71
	13,674	11,454
	14,388	12,054

During the year, certain directors were granted share options, in respect of their services to the Group, under the share option scheme and share award scheme of the Company, further details of which are set out in notes 35 and 36 to the financial statements. The fair value of such options, which has been recognised in the statement of profit or loss over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above directors’ and chief executive’s remuneration disclosures.

31 December 2020

Notes to Financial Statements

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION (Continued) (a) Independent non-executive directors

The fees paid to independent non-executive directors during the year were as follows:

		Equity-settled
		share option	Total
	Fees	expense	remuneration
	*HK$’000*	*HK$’000*	*HK$’000*
2020
Mr. Wu Qiang	150	150	300
Mr. Jia Wenzeng	150	150	300
Mr. Wu Desheng	150	150	300
Mr. Guo Qingui	150	150	300
Mr. Guan Chenghua_(note(6))_	114	150	264
	714	750	1,464

2019
Mr. Wu Qiang	150	–	150
Mr. Jia Wenzeng	150	–	150
Mr. Wu Desheng	150	–	150
Mr. GuoQingui	150	–	150
	600	–	600

There were no other emoluments payable to the independent non-executive directors during the year (2019: Nil).

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION (Continued) (b) Executive directors, non-executive directors and the chief executive

	Salaries,
	allowances	Equity-settled	Pension
	and benefits	share option	scheme	Total
	in kind	expense	contributions	remuneration
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
2020
Chief executives:
Mr. Wang Manquan_(note (8))_	1,080	–	12	1,092
Mr. XueJiangyun_(note(7))_	575	–	–	575
	1,655	–	12	1,667
Executive directors:
Ms. Chan Wai Kay, Katherine	1,920	300	18	2,238
Mr. Zang Yiran_(note (5))_	774	–	–	774
Mr. Xu Shengheng	3,800	300	18	4,118
Mr. Dai Qi	839	–	–	839
Ms. Wang Yan	2,016	–	–	2,016
Ms. Hao Xia_(note (1))_	426	–	–	426
Mr. WangManquan_(note(8))_	540	–	6	546
	10,315	600	42	10,957
Non-executive directors:
Mr. Wang Michael Zhiyu
(Ms. Liu Ening being his
alternate director)(note (2)/(3))	–	150	–	150
Mr. Yang Wei	–	–	–	–
Mr. ZhangYiying (note(4))	–	150	–	150
	–	300	–	300
	11,970	900	54	12,924

2019
Chief executive:
Mr. WangManquan_(note(8))_	1,620	–	35	1,655
	1,620	–	35	1,655
Executive directors:
Ms. Chan Wai Kay, Katherine	1,920	–	18	1,938
Mr. Zang Yiran_(note (5))_	1,200	–	–	1,200
Mr. Xu Shengheng	3,800	–	18	3,818
Mr. Dai Qi	827	–	–	827
Ms. WangYan	2,016	–	–	2,016
	9,763	–	36	9,799
Non-executive directors:
Mr. Wang Michael Zhiyu
(Ms. Liu Ening being his alternate
director)(note (2)/(3))	–	–	–	–
Mr. YangWei	–	–	–	–
	–	–	–	–
	11,383	–	71	11,454

Notes to Financial Statements

31 December 2020

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION (Continued) (b) Executive directors, non-executive directors and the chief executive (Continued)

Notes:
(1) Ms. Hao Xia was appointed as an executive director effective from 24 August 2020.
(2) Mr. Wang Michael Zhiyu was appointed as a non-executive director effective from 15 August 2019.
(3) Ms. Liu Ening (“Ms. Liu”) was appointed as an alternate director to Mr. Wang Michael Zhiyu (“Mr. Wang”), a nonexecutive director, with effect from 14 November 2019. The appointment shall remain effective until Mr. Wang ceases to be a non-executive director or the appointment of Ms. Liu has been revoked by Mr. Wang, whichever is earlier. There is no service agreement between Ms. Liu and the Company with respect to her appointment as an alternate director to Mr. Wang. Ms. Liu will not receive any remuneration in her capacity as an alternate director to Mr. Wang.
(4) Mr. Zhang Yiying was appointed as a non-executive director effective from 16 January 2020.
(5) Mr. Zang Yiran resigned as an executive director effective from 24 August 2020.
(6) Mr. Guan Chenghua was appointed as an independent non-executive director effective from 28 March 2020.
(7) Mr. Xue Jiangyun was appointed as the chief executive officer effective from 24 August 2020.
(8) Mr. Wang Manquan was re-designated from the chief executive officer to the chief operating officer effective from 24 August 2020.

There was no arrangement under which a director or the chief executive waived or agreed to waive any remuneration during the year.

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included four directors (2019: three directors and the chief executive), details of whose remuneration are set out in note 8 above. Details of the remuneration for the year of one (2019: one) highest paid employee who is neither a director nor chief executive of the Company are as follows:

	2020	2019
	*HK$’000*	HK$’000
Salaries, allowances and benefits in kind	318	1,200
Equity-settled share option expense	2,250	–
Pension scheme contributions	–	–
	2,568	1,200

The number of non-director and non-chief executive highest paid employees whose remuneration fell within the following bands is as follows:

		Number of employees
		2020	2019
HK$1,000,001	to HK$1,500,000	–	1
HK$2,500,001	to HK$3,000,000	1	–
		1	1

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

9. FIVE HIGHEST PAID EMPLOYEES (Continued)

During the year and in prior years, share options were granted to a non-director and non-chief executive highest paid employee in respect of his services to the Group, further details of which are included in the disclosures in notes 35 and 36 to the financial statements. The fair value of such options, which has been recognised in the statement of profit or loss over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above non-director and non-chief executive highest paid employees’ remuneration disclosures.

10. INCOME TAX EXPENSE

Pursuant to the laws and regulations of the Cayman Islands and the BVI, the Group was not subject to any income tax in the Cayman Islands and the BVI during both years.

No provision for Hong Kong profits tax has been made as the Group did not have any assessable profits subject to Hong Kong profits tax during both years.

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and the Implementation Regulation of the EIT Law, except as stated below, the tax rate of all the other PRC subsidiaries is 25% from 1 January 2008 onwards.

Pursuant to the income tax rules and regulations of the PRC, certain subsidiaries were recognised as high and new technology enterprises and the income tax rate applicable to these subsidiaries was 15% for the year ended 31 December 2020 (2019: 15%).

	2020	2019
	*HK$’000*	HK$’000
Current – Mainland China	31,369	2,121
Deferred (note 33)	(28,177)	36,058
Total tax charge for the year	3,192	38,179

31 December 2020

Notes to Financial Statements

10. INCOME TAX EXPENSE (Continued)

A reconciliation of the tax expense applicable to loss before tax at the statutory rate for the country in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate is as follows:

	2020	2019
	*HK$’000*	HK$’000
Loss before tax	(240,248)	(406,844)

Tax at statutory tax rate of 25%	(60,062)	(101,711)
Effect of differences in tax rates applicable to certain subsidiaries	–	1,137
Profits and losses attributable to a joint venture and associates	1,477	815
Tax losses utilised from previous periods	(7,371)	(8,972)
Income not subject to tax	(3,374)	–
Expenses not deductible for tax	11,855	9,486
Special deduction of research and development costs	(958)	–
Effect on opening deferred tax of increase in rates	3,916	–
Utilisation of deductible temporary differences previously not recognised	(1,792)	–
Tax losses and deductible temporary differences not recognised	42,326	102,310
Reversal of deferred tax assets recognised in prior years	–	35,114
Effect of disposal of a subsidiary	17,175	–
Tax charge at the Group’s effective rate	3,192	38,179

The share of tax attributable to a joint venture and associates amounting to negative HK$1,477,000 (2019: HK$1,526,000) and Nil (2019: negative HK$711,000), respectively, is included in “Share of profits and losses of a joint venture and associates” in the consolidated statement of profit or loss.

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

11. DIVIDENDS

During the years ended 31 December 2020 and 2019, no final dividend was declared and paid to the shareholders of the Company.

Subsequent to the end of the reporting period, no final dividend in respect of the year ended 31 December 2020 has been proposed by the directors of the Company.

12. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE

PARENT

The calculation of the basic loss per share amounts is based on the loss for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 4,439,460,000 (2019: 4,163,227,000) in issue during the year.

The computation of diluted loss per share does not assume the exercise of the Company’s share options because the exercise prices of those options were higher than the average market price of the Company’s shares for the year ended 31 December 2020.

No adjustment has been made to the basic loss per share amounts presented for the years ended 31 December 2020 and 2019 in respect of a dilution as the impact of the share options outstanding had an anti-dilutive effect on the basic loss per share amounts presented.

The calculations of basic and diluted loss per share are based on:

	2020	2019
	*HK$’000*	HK$’000
Loss
Loss attributable to ordinary equity holders of the parent	(242,399)	(441,039)

	Number of shares
	2020	2019
	*’000*	’000
Shares
Weighted average number of ordinary shares in issue during the year used
in the basic and diluted loss per share calculations	4,439,460	4,163,227

Notes to Financial Statements

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT

						Office
	Leasehold					equipment,
	land and		Leasehold	Plant and	Computer	furniture	Motor
	buildings	improvements		machinery	equipment	and fixtures	vehicles	Total
	*HK$’000*		*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
31 December 2020
At 1 January 2020:
Cost or valuation	262,946		3,354	91,791	3,224	13,325	9,619	384,259
Accumulated depreciation and impairment	–		(3,285)	(58,563)	(3,006)	(9,004)	(8,899)	(82,757)
Net carrying amount	262,946		69	33,228	218	4,321	720	301,502

At 1 January 2020, net of accumulated
depreciation and impairment	262,946		69	33,228	218	4,321	720	301,502
Additions	–		231	344	22	59	3	659
Disposals	–		–	(14)	–	(149)	–	(163)
Depreciation provided during the year	(5,395)		(106)	(8,569)	(13)	(685)	(250)	(15,018)
Deficit on revaluation	(3,316)		–	–	–	–	–	(3,316)
Transfer to properties held for sale	(89,710)		–	–	–	–	–	(89,710)
Exchange realignment	16,924		18	2,126	17	278	42	19,405
At 31 December 2020, net of accumulated
depreciation and impairment	181,449		212	27,115	244	3,824	515	213,359

At 31 December 2020:
Cost or valuation	181,449		3,695	98,532	3,432	14,033	9,944	311,085
Accumulated depreciation and impairment	–		(3,483)	(71,417)	(3,188)	(10,209)	(9,429)	(97,726)
Net carrying amount	181,449		212	27,115	244	3,824	515	213,359

China Geothermal Industry Development Group Limited

Annual Report 2020

Notes to Financial Statements

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

						Office
	Leasehold					equipment,
	land and		Leasehold	Plant and	Computer	furniture	Motor
	buildings	improvements		machinery	equipment	and fixtures	vehicles	Total
	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
31 December 2019
At 1 January 2019:
Cost or valuation	269,128		3,392	93,520	3,148	13,157	9,530	391,875
Accumulated depreciation and impairment	–		(3,254)	(49,885)	(3,048)	(8,297)	(8,801)	(73,285)
Net carrying amount	269,128		138	43,635	100	4,860	729	318,590

At 1 January 2019, net of accumulated
depreciation and impairment	269,128		138	43,635	100	4,860	729	318,590
Acquisition of a subsidiary	10,441		–	134	–	394	234	11,203
Additions	–		–	351	138	41	–	530
Disposals	–		–	–	–	–	(31)	(31)
Depreciation provided during the year	(5,085)		(62)	(9,943)	(15)	(869)	(198)	(16,172)
Deficit on revaluation	(5,742)		–	–	–	–	–	(5,742)
Exchange realignment	(5,796)		(7)	(949)	(5)	(105)	(14)	(6,876)
At 31 December 2019, net of accumulated
depreciation and impairment	262,946		69	33,228	218	4,321	720	301,502

At 31 December 2019:
Cost or valuation	262,946		3,354	91,791	3,224	13,325	9,619	384,259
Accumulated depreciation and impairment	–		(3,285)	(58,563)	(3,006)	(9,004)	(8,899)	(82,757)
Net carrying amount	262,946		69	33,228	218	4,321	720	301,502

The Group’s leasehold land and buildings were revalued individually at the end of the reporting period by Peak Vision Appraisals Limited, an independent professionally qualified valuer, at an aggregate open market value of HK$181,449,000 (2019: HK$262,946,000) based on their existing use. A revaluation deficit of HK$3,316,000 (2019: a revaluation deficit of HK$5,742,000), resulting from the above valuations, has been charged to other comprehensive income.

As at 31 December 2020, the Group was in the process of obtaining the ownership certificates for certain buildings of a carrying amount of approximately HK$171,386,000 (2019: HK$166,749,000). In the opinion of the directors of the Company, the absence of a formal title to these buildings does not impair their values to the Group as the Group has paid the full purchase consideration of these buildings and the probability of being evicted on the ground of the absence of a formal title is remote.

At 31 December 2020, certain of the Group’s buildings with a net carrying amount of approximately HK$9,743,000 (2019: HK$9,087,000) were pledged to secure a bank loan (note 31).

Notes to Financial Statements

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s leasehold land and buildings:

	Fair	value measurement as at 31 December 2020 using	value measurement as at 31 December 2020 using
	Quoted prices in	Significant	Significant
	active markets	observable inputs	unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
Recurring fair value measurement for:	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Office buildings in Beijing, the PRC	–	–	171,386	171,386
Office buildings in Hangzhou,the PRC	–	10,063	–	10,063
	–	10,063	171,386	181,449

		Fair value measurement as at 31 December 2019 using	Fair value measurement as at 31 December 2019 using
	Quoted prices in	Significant	Significant
	active markets	observable inputs	unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
Recurring fair value measurement for:	HK$’000	HK$’000	HK$’000	HK$’000
Office buildings in Dalian, the PRC	–	8,205	–	8,205
A club house in Dalian, the PRC	–	–	78,613	78,613
Office buildings in Beijing, the PRC	–	–	166,749	166,749
Office buildings in Hangzhou,the PRC	–	9,379	–	9,379
	–	17,584	245,362	262,946

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2019: Nil).

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

Fair value hierarchy (Continued)

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

	A club house	Office buildings
	in Dalian	in Beijing
	HK$’000	HK$’000
Carrying amount at 1 January 2019	79,114	181,477
Depreciation during the year	(1,470)	(3,372)
Exchange realignment	(1,729)	(3,967)
Net gain/(loss) from a fair value adjustment recognised in other
comprehensive income	2,698	(7,389)
Carrying amount at 31 December 2019 and 1 January 2020	78,613	166,749
Depreciation during the year	(1,590)	(3,372)
Exchange realignment	5,061	10,732
Transfer to properties held for sale	(81,606)	–
Net loss from a fair value adjustment recognised in other comprehensive
income	(478)	(2,723)
Carrying amount at 31 December 2020	–	171,386

Set out below is a summary of the valuation techniques used and the key inputs to the valuation of leasehold land and buildings:

At 31 December 2020

Carrying value of leasehold land Fair value Valuation Significant and buildings held by the Group hierarchy techniques unobservable inputs

Relationship of significant unobservable inputs to fair value

Office buildings in Beijing, the PRC Level 3 Income approach HK$171,386,000

Market unit rent of RMB4.43 per sq.m. per day

An increase in the market unit rent would result in an increase in fair value

Market yield of 6.00% An increase in the market yield would result in a decrease in fair value

Office buildings in Hangzhou, Level 2 Direct comparison N/A the PRC method

N/A

HK$10,063,000

100

Notes to Financial Statements

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

Fair value hierarchy (Continued)

At 31 December 2019

Carrying value of leasehold land	Fair value	Valuation	Significant	Relationship	of significant
and buildings held by the Group	hierarchy	techniques	unobservable inputs	unobservable inputs to fair value
A club house in Dalian, the PRC	Level 3	Depreciated	Rate of newness of	An increase in the rate of newness
		replacement cost	86% and unit rate	and unit rate of replacement
HK$78,613,000		approach	of replacement cost	cost would result in an increase
			of RMB6,210 per	in fair value
			sq.m.
Office buildings in Dalian, the PRC	Level 2	Direct comparison	N/A	N/A
		method
HK$8,205,000
Office buildings in Beijing, the PRC	Level 3	Income approach	Market unit rent of	An increase in the market unit
			RMB4.95 per sq.m.	rent would result in an increase
HK$166,749,000			per day	in fair value
			Market yield of 6.00%	An increase in the market yield
				would result in a decrease in
				fair value
Office buildings in Hangzhou, the	Level 2	Direct comparison	N/A	N/A
PRC		method
HK$9,379,000
INVESTMENT PROPERTIES
				2020	2019
				*HK$’000*	HK$’000
Carrying amount at 1 January				677,933	663,958
Exchange realignment				41,835	(14,589)
Development costs paid				1,275	12,339
Additions				–	12,003
Disposals				(248,621)	–
Net (loss)/gain from a fair value adjustment				(32,570)	4,222
Transfer toproperties held for sale(note 21)				(305,109)	–
Carrying amount at 31 December				134,743	677,933

14. INVESTMENT PROPERTIES

As at 31 December 2020, the Group was in the process of obtaining the ownership certificates for certain investment properties of a carrying amount of approximately HK$134,743,000 (2019: HK$428,241,000). In the opinion of the directors of the Company, the absence of a formal title to these properties does not cause the impairment of their values to the Group as the Group has paid the full purchase consideration of these properties and the probability of being evicted on the ground of the absence of a formal title is remote.

101

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

14. INVESTMENT PROPERTIES (Continued)

The Group’s investment properties consist of three classes of assets, i.e., industrial and ancillary properties, commercial property and residential property, based on the nature, characteristics and risks of each property. The Group’s investment properties were measured at fair value on 31 December 2020 based on valuations performed by Peak Vision Appraisals Limited, an independent professionally qualified valuer, at HK$134,743,000. Each year, the Group’s management and the chief financial officer decide, after approval from the audit committee, to appoint which external valuer to be responsible for the external valuations of the Group’s properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Group’s management and the chief financial officer have discussions with the valuer on the valuation assumptions and valuation results twice a year when the valuation is performed for interim and annual financial reporting.

Some investment properties are leased to third parties under operating leases, further summary details of which are included in note 15 to the financial statements.

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

Recurring fair value measurement for: Industrial and ancillary properties	Fair value measurement as at 31 December 2020 using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total *HK$’000* *HK$’000* *HK$’000* *HK$’000* – 134,743 – 134,743
Recurring fair value measurement for: Commercial property Residential property Industrial and ancillary properties	Fair value measurement as at 31 December 2019 using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total HK$’000 HK$’000 HK$’000 HK$’000 – – 25,553 25,553 – – 159,749 159,749 – 294,827 197,804 492,631
	– 294,827 383,106 677,933

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2019:Nil).

102

31 December 2020

Notes to Financial Statements

14. INVESTMENT PROPERTIES (Continued)

Fair value hierarchy (Continued)

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

	Industrial
	and ancillary	Residential	Commercial
	properties	property	property
	HK$’000	HK$’000	HK$’000
Carrying amount at 1 January 2019	186,897	170,053	26,934
Exchange realignment	(4,153)	(3,596)	(574)
Development costs paid	11,303	27	–
Net gain/(loss) from a fair value adjustment recognised
inprofit or loss	3,757	(6,735)	(807)
Carrying amount at 1 January 2020	197,804	159,749	25,553
Exchange realignment	12,961	8,201	1,512
Disposals	(80,845)	–	–
Net loss from a fair value adjustment recognised in
profit or loss	3,577	(33,682)	(2,421)
Transfer toproperties held for sale(note 21)	(133,497)	(134,268)	(24,644)
Carrying amount at 31 December 2020	–	–	–

Set out below is a summary of the valuation techniques used and the key inputs to the valuation of investment properties:

At 31 December 2020

Carrying value of investment	Fair value	Valuation	Significant	Relationship of significant
properties held by the Group	hierarchy	techniques	unobservable inputs	unobservable inputs to fair value
Industrial and ancillary property in	Level 2	Direct comparison	N/A	N/A
Mianyang, the PRC		method
HK$134,743,000

103

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

14. INVESTMENT PROPERTIES (Continued)

Fair value hierarchy (Continued)

At 31 December 2019
Carrying value of investment	Fair value	Valuation	Significant	Relationship of significant
properties held by the Group	hierarchy	techniques	unobservable inputs	unobservable inputs to fair value
Industrial and ancillary property in	Level 3	Income approach	Market unit rent of	An increase in the market unit rent
Beijing, the PRC			RMB3.48 per sq.m.	would result in an increase in fair
			per day	value
HK$75,955,000			Market yield of 8.00%	An increase in the market yield
				would result in a decrease in fair
				value
Industrial and ancillary property in	Level 3	Depreciated	Unit rate of	An increase in the unit rate of
Xinyi, the PRC		replacement cost	replacement cost of	replacement cost would result in
		approach	RMB860 per sq.m.	an increase in fair value
HK$13,597,000
Industrial and ancillary property in	Level 3	Depreciated	Unit rate of	An increase in the unit rate of
Pizhou, the PRC		replacement cost	replacement cost of	replacement cost would result in
		approach	RMB2,243 per sq.m.	an increase in fair value
HK$108,252,000
Residential property in Dalian, the	Level 3	Residual approach	Market unit sales	An increase in the market unit sales
PRC			rate ranging from	rate would result in an increase
			RMB3,750 per sq.m.	in fair value
HK$159,749,000			to RMB6,000 per
			sq.m.
			Estimated cost to	An increase in the estimated cost
			completion of	to completion would result in a
			RMB2,182 per sq.m.	decrease in fair value
Commercial property in Dalian, the	Level 3	Residual approach	Market unit sales	An increase in the market unit sales
PRC			rate ranging from	rate would result in an increase
			RMB3,750 per sq.m.	in fair value
HK$25,553,000			to RMB6,000 per
			sq.m.
			Estimated cost to	An increase in the estimated cost
			completion ranging	to completion would result in a
			from RMB1,187 per	decrease in fair value
			sq.m. to RMB2,361
			per sq.m.

104

Notes to Financial Statements

31 December 2020

14. INVESTMENT PROPERTIES (Continued)

Fair value hierarchy (Continued)

At 31 December 2019

Carrying value of investment	Fair value	Valuation	Significant	Relationship of significant
properties held by the Group	hierarchy	techniques	unobservable inputs	unobservable inputs to fair value
Industrial and ancillary property in	Level 2	Direct comparison	N/A	N/A
Mianyang, the PRC		method
HK$126,594,000
Industrial and ancillary property in	Level 2	Direct comparison	N/A	N/A
Hangzhou, the PRC		method
HK$156,847,000
Industrial and ancillary property in	Level 2	Direct comparison	N/A	N/A
Xinyi, the PRC		method
HK$11,386,000

15. LEASES

The Group as a lessee

The Group has lease contracts for various items of property and other equipment used in its operations. Leases of property generally have lease terms between 1 and 10 years. Other equipment generally has lease terms of 12 months or less or is individually of low value.

(a) Right-of-use assets

The carrying amounts of the Group’s right-of-use assets and the movements during the year are as follows:

	Property
	HK$’000
As at 1 January 2019	6,858
Cancellation of lease contracts	(140)
Change in rent	(103)
Depreciation charge	(4,005)
Exchange realignment	(31)
As at 31 December 2019 and 1 January 2020	2,579
Additions	93,205
Derecognised due to the effect of a sublease	(91,561)
Cancellation of lease contracts	(976)
Depreciation charge	(2,252)
Exchange realignment	55
As at 31 December 2020	1,050

105

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

15. LEASES (Continued)

The Group as a lessee (Continued)

(b) Lease liabilities

The carrying amounts of lease liabilities and the movements during the year are as follows:

	2020	2019
	*HK$’000*	HK$’000
Carrying amount at 1 January	2,159	6,344
New leases_(note)_	95,542	–
Cancellation of lease contracts	(1,010)	(143)
Change in rent	–	(103)
Accretion of interest recognised during the year	3,565	288
Payments	(10,558)	(4,202)
Exchange realignment	5,781	(25)
Carrying amount at 31 December	95,479	2,159

Analysed into:
Current portion	5,889	1,648
Non-current portion	89,590	511

The maturity analysis of lease liabilities is disclosed in note 46 to the financial statements.

Note: The Group enters into an arrangement to sublease a leased asset to a third party while the original lease contract is in effect, the Group is intermediate lessor, this sublease is classified as a finance lease. The Group derecognised the right-of-use asset on the head lease and recognised trade receivables at the sublease commencement date, continued to account for the original lease liabilty in accordance with the lessee accounting model. At the commencement date, the Group measured the lease liabilities at HK$93,898,000.

106

Notes to Financial Statements

31 December 2020

15. LEASES (Continued)

The Group as a lessee (Continued)

(c) The amounts recognised in profit or loss in relation to leases are as follows:

	2020	2019
	*HK$’000*	HK$’000
Interest on lease liabilities	3,565	288
Depreciation charge of right-of-use assets	2,252	4,005
Expense relating to short-term leases and other leases with remaining
lease terms ended on or before 31 December 2019 (included in
administrative expenses)	1,036	4,211
Expense relating to leases of low-value assets (included in
administrative expenses)	29	16
Total amount recognised in profit or loss	6,882	8,520

(d) The total cash outflow for leases is disclosed in note 39(c) to the financial statements.

The Group as a lessor

The Group leases its investment properties (note 14) consisting of three industrial properties in China under operating lease arrangements. The terms of the leases generally require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. Rental income recognised by the Group during the year was HK$8,133,000 (2019: HK$6,380,000), details of which are included in note 5 to the financial statements.

At 31 December 2019 and 2020, the undiscounted lease payments receivable by the Group in future periods under non-cancellable operating leases with its tenants are as follows:

	2020	2019
	*HK$’000*	HK$’000
Within one year	2,782	4,767
After one year but within two years	3,149	4,944
After two years but within three years	3,109	4,829
After three years but within four years	3,250	4,935
After four years but within five years	3,445	4,006
After fiveyears	13,369	19,313
	29,104	42,794

107

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

16. DEPOSITS PAID FOR ACQUISITIONS OF LAND USE RIGHTS

	2020	2019
	*HK$’000*	HK$’000
Carrying amount at 1 January	27,221	100,566
Transfer to other receivables_(note)_	–	(59,144)
Transfer to investment properties	–	(12,003)
Impairment during the year_(note 6)_	(10,567)	–
Exchange realignment	1,169	(2,198)
Carrying amount at 31 December	17,823	27,221

Note: In 2019, the Group decided not to acquire the land use rights located in Yancheng, Handan and Nanyang. Therefore, deposits of HK$59,144,000 were transferred out to other receivables and the Group is negotiating with the local government to collect the receivables. At 31 December 2019 and 2020, deposits paid were to acquire the land use rights located in Xinyi.

Up to the date of approval of the consolidated financial statements, the Group obtained the certificates of land use rights in Xinyi.

17. OTHER INTANGIBLE ASSETS

OTHER INTANGIBLE ASSETS
	Office software
	HK$’000
Cost at 1 January 2019, 31 December 2019 and 1 January 2020, net of accumulated amortisation	–
Additions	299
Amortisationprovided duringtheyear_(note 6)_	(6)
At 31 December 2020	293
At 31 December 2020:
Cost	299
Accumulated amortisation	(6)
Net carrying amount	293

108

Notes to Financial Statements

31 December 2020

18. INVESTMENTS IN ASSOCIATES

INVESTMENTS IN ASSOCIATES
	2020	2019
	*HK$’000*	HK$’000
Share of net assets	49,065	51,060
Goodwill on acquisition	482	482
	49,547	51,542

Particulars of the Group’s associates are as follows:

		Place of	Percentage of
		incorporation/	ownership interest
	Particulars of	registration	attributable	Principal
Name	issued shares	and business	to the Group	activities
Beijing Ever Hot Pumps Co., Ltd. *	Registered capital of	PRC/Mainland China	49	Production and sale
(“BEHP”, “北京永源熱泵有限責任公司”)	RMB52,556,871			of machines and
				shallow geothermal
				energy systems
Hongyuan Shallow Ground Heat Pump	Registered capital of	PRC/ Mainland China	49	Trading of the shallow
Technology Co., Ltd. *	RMB50,000,000			geothermal energy
(“宏源地能熱泵科技有限公司”)				systems
Beijing Digital Hengyuan Technology Co., Ltd. *	Registered capital of	PRC/ Mainland China	48.97	Computer system
(“北京數碼恒源科技有限公司”)	RMB2,430,000			service and software
				development
Nanjing Bailing Environmental Protection Energy	Registered capital of	PRC/ Mainland China	22.22	Energy technology
Partnership (Limited Partnership) *	RMB3,600,000			service
(“南京百靈環保新能源合夥企業（有限合夥）”)

The English names of the companies registered in the PRC represent the best efforts made by the management of the Company in directly translating the Chinese names of the companies as no English names have been registered.

109

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

18. INVESTMENTS IN ASSOCIATES (Continued)

BEHP, which is considered a material associate of the Group, is accounted for using the equity method.

The following table illustrates the summarised financial information in respect of BEHP adjusted for any differences in accounting policies and reconciled to the carrying amount in the consolidated financial statements:

	2020	2019
	*HK$’000*	HK$’000
Current assets	62,965	74,105
Non-current assets	4,224	4,493
Current liabilities	(11,582)	(20,086)
Net assets	55,607	58,512

Reconciliation to the Group’s interest in the associate:
Proportion of the Group’s ownership	49%	49%
Group’s share of net assets of the associate, excluding goodwill	27,247	28,671
Goodwill on acquisition (less cumulative impairment)	482	482
Carrying amount of the investment	27,729	29,153

Revenue	16,553	34,897
(Loss)/profit for the year	(6,324)	545
Other comprehensive income/(loss)	3,418	(1,304)
Total comprehensive loss for the year	(2,906)	(759)
Dividend received	–	–

The following table illustrates the aggregate financial information of the Group’s associates that are not individually material:

	2020	2019
	*HK$’000*	HK$’000
Share of the associates’ (loss)/profit for the year	(2,808)	2,578
Share of the associates’ other comprehensive income/(loss)	1,362	(488)
Share of the associates’ total comprehensive (loss)/income	(1,446)	2,090
Aggregate carrying amount of the Group’s investments in the associates	21,818	22,389

110

31 December 2020

Notes to Financial Statements

19. EQUITY INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

		2020		2019
		*HK$’000*		HK$’000
Equity investments designated at fair value through
other comprehensive income
Listed equity investments, at fair value
China Asset Management
– Ever Source overseas oriented asset management plan		59,236		58,019
BeijingHisign TechnologyCo.,Ltd.		1,341		1,655
		60,577		59,674
Unlisted equity investments, at fair value
BeijingLife Insurance Co.,Ltd.(note)		238,831		179,732
		299,408		239,406
Less: Non-currentportion		(60,577)		(239,406)
Current portion		238,831		–
Current portion	238,831		–
The above equity investments were irrevocably designated at fair value through other comprehensive income as the
Group considers these investments to be strategic in nature. During the year		ended 31 December 2020, the Group
received dividends in the amount of HK$3,097,000 (2019: Nil).

Note: On 13 November 2020, HYY Investment Management Co., Ltd. (恒有源投資管理有限公司), an indirect wholly owned subsidiary of the Company, entered into equity transfer agreements to sell approximately 4.99965% of equity interests in Beijing Life Insurance Co., Ltd. for a cash consideration of RMB237,000,000. At the extraordinary general meeting held on 19 February 2021, the Shareholders of the Company passed the ordinary resolution in respect of the equity transfer agreement. At 31 December 2020, the transaction was not completed, equity investments on Beijing Life Insurance Co., Ltd. were reclassified as current assets.

20. INVENTORIES

	2020	2019
	*HK$’000*	HK$’000
Raw materials	22,404	28,098
Finishedgoods	2,329	898
	24,733	28,996

111

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

21. PROPERTIES HELD FOR SALE

PROPERTIES HELD FOR SALE
		2020	2019
		*HK$’000*	HK$’000
At 1 January		88,796	90,780
Exchange realignment		(1,954)	(1,984)
Impairment during the year_(note 6)_		(139,009)	–
Transfer from property, plant and equipment_(note 13)_		89,710	–
Transfer from investmentproperties_(note 14)_		305,109	–
At 31 December		342,652	88,796

The above properties held for sale are situated in the PRC.
CONTRACT ASSETS AND CONTRACT LIABILITIES
	31 December	31 December	1 January
	2020	2019	2019
	*HK$’000*	HK$’000	HK$’000
Contract assets arising from:
Construction services	567,682	577,034	646,230
Impairment	(424,965)	(390,343)	(375,470)
	142,717	186,691	270,760

Less: Non-current portion	(20,213)	(18,794)	(18,825)
Current portion	122,504	167,897	251,935

Contract liabilities arising from:
Construction services	51,225	43,807	56,510

22. CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets are initially recognised for revenue earned from the provision of construction services as the receipt of consideration is conditional on successful completion of construction. Included in contract assets for construction services are retention receivables. Upon completion of construction and acceptance by the customer, the amounts recognised as contract assets are reclassified to trade receivables. The decrease in contract assets in 2020 and 2019 was a result of the decrease in the provision of construction services at the end of each of the years. During the year ended 31 December 2020, HK$8,958,000 (2019: HK$23,505,000) was recognised as an allowance for expected credit losses on contract assets. The Group’s trading terms and credit policy with customers are disclosed in note 23 to the financial statements.

The expected timing of recovery or settlement for contract assets as at 31 December is as follows:

	2020	2019
	*HK$’000*	HK$’000
Within one year	122,504	167,897
After oneyear	20,213	18,794
Total contract assets	142,717	186,691

112

Notes to Financial Statements

31 December 2020

22. CONTRACT ASSETS AND CONTRACT LIABILITIES (Continued)

The movements in the loss allowance for impairment of contract assets are as follows:

	2020	2019
	*HK$’000*	HK$’000
At beginning of year	390,343	375,470
Impairment losses, net_(note 6)_	8,958	23,505
Exchange realignment	25,664	(8,632)
At end of year	424,965	390,343

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates for the measurement of the expected credit losses of the contract assets are based on days past due for grouping of various customer segments with similar loss pattern. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

Set out below is the information about the credit risk exposure on the Group’s contract assets using a provision matrix:

As at 31 December 2020

	Less than
	1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	Over 5 years	Total
Expected credit
loss rate	5.00%	34.93%	58.24%	70.06%	91.53%	98.74%	74.86%
Gross carrying amount
(HK$’000)	80,652	48,176	22,475	51,360	74,722	290,297	567,682
Expected credit losses
(HK$’000)	4,033	16,828	13,089	35,983	68,393	286,639	424,965

As at 31 December 2019
	Less than
	1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	Over 5 years	Total
Expected credit
loss rate	5.00%	38.49%	54.95%	64.81%	89.99%	98.57%	67.65%
Gross carrying amount
(HK$’000)	85,113	71,370	66,989	78,190	3,536	271,836	577,034
Expected credit losses
(HK$’000)	4,256	27,470	36,811	50,675	3,182	267,949	390,343

Contract liabilities include short-term advances received to deliver construction services. The increase in contract liabilities in 2020 was mainly due to the increase in short-term advances received from customers in relation to the provision of construction services at the end of the year. The decrease in contract liabilities in 2019 was mainly due to the decrease in short-term advances received from customers in relation to the provision of construction services at the end of the year.

113

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

23. TRADE AND BILLS RECEIVABLES

TRADE AND BILLS RECEIVABLES
	2020	2019
	*HK$’000*	HK$’000
Trade receivables	321,087	210,947
Impairment	(123,465)	(100,740)
Trade receivables, net	197,622	110,207
Bills receivable	223	223
	197,845	110,430
Less: Non-currentportion	(139,102)	(57,029)
Current portion	58,743	53,401

The group enters into an arrangement to sublease a leased asset to a third party while the original lease contract is in effect, the Group is an intermediate lessor, this sublease is classified as a finance lease. The Group derecognised the right-of-use asset on the head lease and recognised trade receivables at the sublease commencement date, continued to account for the original lease liability in accordance with the lessee accounting model. At 31 December 2020, the current portion and non-current portion of the trade receives amounted to RMB8,022,000 (equivalent to approximately HK$9,532,000) and RMB71,272,000 (equivalent to approximately HK$84,656,000), respectively.

The Group’s trading terms with its customers are mainly on credit. The credit period is generally three months. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

An ageing analysis of the trade and bills receivables as at the end of the reporting period, based on the invoice date and net of loss allowance, is as follows:

	2020	2019
	*HK$’000*	HK$’000
Within 90 days	106,295	27,834
91 to 180 days	3,995	6,304
181 to 365 days	9,625	5,398
Over 365 days	77,930	70,894
	197,845	110,430

114

Notes to Financial Statements

31 December 2020

23. TRADE AND BILLS RECEIVABLES (Continued)

The movements in the loss allowance for impairment of trade receivables are as follows:

	2020	2019
	*HK$’000*	HK$’000
At beginning of year	100,740	96,356
Impairment losses, net_(note 6)_	15,388	6,612
Exchange realignment	7,337	(2,228)
At end of year	123,465	100,740

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix based on the grouping of various customer segments:

As at 31 December 2020

Group one: construction services

	Less than
	1 year	1 to 2 years	2 to 3 years	3 to 4 years		4 to 5 years	Over 5 years	Total
Expected credit
loss rate	15.86%	55.36%	73.88%	80.78%		87.27%	100.00%	54.25%
Gross carrying amount
(HK$’000)	102,893	17,458	11,561	15,624		8,269	65,950	221,755
Expected credit losses
(HK$’000)	16,319	9,665	8,541	12,621		7,216	65,950	120,312

*Group two: others*
	Less than
	1 year	1 to 2 years	2 to 3 years	3 to 4 years		4 to 5 years	Over 5 years	Total
Expected credit
loss rate	2.43%	25.65%	37.54%	54.30%		78.07%	100%	3.17%
Gross carrying amount
(HK$’000)	97,970	417	208		317	23	397	99,332
Expected credit losses
(HK$’000)	2,381	107	78		172	18	397	3,153

115

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

23. TRADE AND BILLS RECEIVABLES (Continued)

As at 31 December 2019

Group one: construction services

	Less than
	1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	Over 5 years	Total
Expected credit loss
rate	13.17%	51.18%	71.69%	76.81%	81.98%	100.00%	48.56%
Gross carrying amount
(HK$’000)	106,440	12,191	17,486	7,781	4,554	57,528	205,980
Expected credit losses
(HK$’000)	14,018	6,239	12,536	5,977	3,733	57,528	100,031

Group two: others

*Group two: others*
	Less than
	1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	Over 5 years	Total
Expected credit
loss rate	2.41%	25.62%	42.42%	69.06%	86.44%	100.00%	14.27%
Gross carrying amount
(HK$’000)	4,013	196	297	78	6	377	4,967
Expected credit losses
(HK$’000)	97	50	126	54	5	377	709

24. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS

	2020	2019
	*HK$’000*	HK$’000
Prepayment for rental	–	626
Prepayments for others	40,336	34,502
Deposits	19,903	19,675
Other receivables	245,676	184,339
Less: Impairment allowance	(80,840)	(66,864)
	225,075	172,278

116

31 December 2020

Notes to Financial Statements

24. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS (Continued)

The movements in the loss allowance for impairment of deposits and other receivables are as follows:

	2020	2019
	*HK$’000*	HK$’000
At beginning of year	66,864	13,317
Exchange realignment	3,592	(1,267)
Impairment losses,net_(note 6)_	10,384	54,814
At end of year	80,840	66,864

Deposits and other receivables mainly represent rental deposits, deposits with suppliers and receivables related to the disposal of investment property and a subsidiary (HK$58,692,000 and HK$52,272,000, respectively). An impairment analysis is performed at each reporting date, expected credit losses are estimated by applying a loss rate approach with reference to the historical loss record of the Group.

25. AMOUNTS DUE FROM/(TO) RELATED COMPANIES

As at 31 December 2020, the Group’s amounts due from related companies were HK$551,000 (2019: HK$517,000), which were construction receivables from CECEP’s subsidiaries.

As at 31 December 2020, the Group’s amounts due to related companies included a guarantee fee payable of RMB25,535,000 (equivalent to HK$30,341,000) provided by CECEP.

As at 31 December 2019, the Group’s amounts due to related companies included an interest-bearing loan of RMB400,000,000 (equivalent to HK$446,538,000) provided by CECEP with approximately RMB5,244,000 (equivalent to HK$5,854,000) of interest accrued with an interest rate of 4.35% according to the loan agreement, and included a guarantee fee payable of RMB24,000,000 (equivalent to HK$26,792,000) provided by CECEP.

26. AMOUNTS DUE TO ASSOCIATES

The amounts are unsecured, interest-free and repayable on demand.

27. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2020	2019
	*HK$’000*	HK$’000
Listed equity investments, at fair value	34	48

The above equity investments were classified as financial assets at fair value through profit or loss as they were held for trading.

117

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

28. CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND TIME DEPOSITS

	2020	2019
	*HK$’000*	HK$’000
Cash and bank balances	61,299	53,448
Cash held at non-bank financial institutions	1,873	3,423
Restricted cash	7,326	5,636
Time deposits	233	232
	70,731	62,739
Less: Time deposits with original maturity over three months	(233)	(232)
Restricted cash	(7,326)	(5,636)
Cash and cash equivalents	63,172	56,871

At the end of the reporting period, the cash and cash equivalents of the Group denominated in Renminbi (“RMB”) amounted to HK$59,728,000 (2019: HK$38,425,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

29. TRADE AND BILLS PAYABLES

An ageing analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:

	2020	2019
	*HK$’000*	HK$’000
Within 90 days	121,586	101,998
91 to 180 days	3,509	14,883
181 to 365 days	7,506	23,817
Over 365 days	147,311	168,778
	279,912	309,476

The trade and bills payables are non-interest-bearing and are normally settled on terms of six months.

118

Notes to Financial Statements

31 December 2020

30. OTHER PAYABLES AND ACCRUALS

OTHER PAYABLES AND ACCRUALS
	2020	2019
	*HK$’000*	HK$’000
Accruals	64,485	58,934
Advance from customers	–	10,243
Advance received for disposal of equity investments
at fair value through other comprehensive income	237,643	–
Otherpayables	128,806	129,205
	430,934	198,382
Less: Non-currentportion	–	(8,542)
	430,934	189,840

Other payables and accruals have no fixed terms of settlement.

31. INTEREST-BEARING BANK BORROWINGS

Current Bank loans – secured_(note 3) Bank loans – secured(note 1) Bank loans – secured(note 2) Bank loans – secured(note 3)_	2020 Effective interest rate (%) Maturity *HK$’000* – – – 4 2021 89,116 5.5 2021 5,347 5.98 2021 6,535	2019
		Effective interest rate (%) Maturity HK$’000 7 2020 6,140 – – – – – – – – –
	100,998	6,140

Note 1: A deemed substantial shareholder of the Company, CECEP, provided a guarantee for a loan, which was borrowed from a bank, and the Company agreed to pay a guarantee fee at the rate of 1% per annum on the amount of the remaining loan. The loan bore interest at 4% per annum.

Note 2: The bank loans are secured by mortgages over a non-controlling shareholders’ buildings.

Note 3: The bank loans are secured by mortgages over the Group’s buildings, which had an aggregate net carrying value at the end of the reporting period of approximately HK$9,743,000 (2019: HK$9,087,000).

	2020	2019
	*HK$’000*	HK$’000
Analysed into:
Bank loans repayable:
Within one year	100,998	6,140

119

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

32. DEFERRED INCOME

DEFERRED INCOME
	2020	2019
	*HK$’000*	HK$’000
At 1 January	8,931	10,021
Exchange realignment	575	(203)
Recognised inprofit or loss	–	(887)
At 31 December	9,506	8,931

As at 31 December 2020, government grants of approximately HK$9,506,000 (2019: HK$8,931,000) were designated for certain projects. The amount is stated as a non-current liability as at 31 December 2020 in the consolidated statement of financial position as the directors of the Company are of the opinion that certain conditions in respect of these grants will not be fulfilled within the next twelve months from 31 December 2020.

33. DEFERRED TAX

The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax liabilities

Deferred tax liabilities
			2020
			Fair value
			adjustments of
			financial assets
			at fair value
	Revaluation		through other
	of investment	Properties held	comprehensive	Lease
	properties	for sale	income	arrangement	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
At 1 January 2020	74,117	–	–	–	74,117
Deferred tax (credited)/charged
to the statement of profit or
loss during the year_(note 10)_	(13,563)	(14,738)	–	124	(28,177)
Deferred tax charged to capital
reserve	–	–	6,276	–	6,276
Disposal of a subsidiary_(note_
38)	(17,595)	–	–	–	(17,595)
Transfer	(46,332)	46,332	–	–	–
Exchange realignment	4,021	(811)	–	7	3,217
At 31 December 2020	648	30,783	6,276	131	37,838

120

31 December 2020

Notes to Financial Statements

33. DEFERRED TAX (Continued) Deferred tax assets

At 1 January 2020
Deferred tax charged to capital
reserve
Exchange realignment

2020
Fair value
adjustments of
financial assets
at fair value
through other
comprehensive
income
Losses available
for offsetting
against future
taxable profits
Impairment of
trade and other
receivables
Total
HK$’000
HK$’000
HK$’000
HK$’000
4,990
–
–
4,990
(5,312)
–
–
(5,312)
322
–
–
322
–
–
–
–

At 31 December 2020

121

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

33. DEFERRED TAX (Continued) Deferred tax liabilities

	2019
	Revaluation
	of investment
	properties
	HK$’000
At 1 January 2019	74,825
Deferred tax charged to the statement of profit or loss during the year_(note 10)_	944
Exchange realignment	(1,652)
At 31 December 2019	74,117

Deferred tax assets

At 1 January 2019 Deferred tax charged to the statement of profit or loss during the year_(note 10)_ Deferred tax charged to capital reserve Exchange realignment	2019
	Fair value adjustments of financial assets at fair value through other comprehensive income Losses available for offsetting against future taxable profits Impairment of trade and other receivables Total HK$’000 HK$’000 HK$’000 HK$’000 6,415 12,202 22,912 41,529 – (12,202) (22,912) (35,114) (1,285) – – (1,285) (140) – – (140)
At 31 December 2019	4,990 – – 4,990

Deferred tax assets have not been recognised in respect of the following items:

	2020	2019
	*HK$’000*	HK$’000
Tax losses	538,236	521,568
Deductible temporarydifferences	651,926	496,533
	1,190,162	1,018,101

122

31 December 2020

Notes to Financial Statements

33. DEFERRED TAX (Continued)

The above tax losses are available for a maximum of five years for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of the above items as it is not considered probable that taxable profits will be available against which the above items can be utilised.

At 31 December 2020, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Group’s subsidiaries and joint ventures established in Mainland China. In the opinion of the directors, it is not probable that these subsidiaries and joint ventures will distribute such earnings in the foreseeable future. The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures in Mainland China for which deferred tax liabilities have not been recognised totalled approximately HK$179,429,000 at 31 December 2020 (2019: HK$199,658,000).

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

34. SHARE CAPITAL

SHARE CAPITAL Shares
	2020	2019
	*HK$’000*	HK$’000
Issued and fully paid:
4,526,925,000 (2019: 4,526,925,000) ordinary shares of US$0.01 each	353,043	353,043

A summary of movements in the Company’s share capital is as follows:

	Number of	Share
	shares in issue	capital
	’000	HK$’000
At 1 January 2019	4,026,925	313,793
Issue of shares_(note)_	500,000	39,250
At 31 December 2019 and at 1January2020	4,526,925	353,043
At 31 December 2020	4,526,925	353,043

Note: On 26 June 2019, the Company entered into the subscription agreement with the subscriber, pursuant to which the Company has conditionally agreed to issue and the subscriber has conditionally agreed to subscribe 250,000,000 new shares at the subscription price of HK$0.0785 per subscription share, and the subscription was completed on 9 July 2019.

On 25 November 2019, the Company entered into the subscription agreement with the subscriber, pursuant to which the Company has conditionally agreed to issue and the subscriber has conditionally agreed to subscribe 250,000,000 new shares at the subscription price of HK$0.08 per subscription share, and the subscription was completed on 9 December 2019.

The total consideration was HK$39,625,000, of which HK$39,250,000 was recorded in share capital and HK$375,000 was recorded in share premium.

123

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

35. SHARE OPTION SCHEME

The principal purpose of the share option schemes of the Company is to recognise the significant contributions of the directors and employees of the Group to the growth of the Group, by rewarding them with opportunities to obtain an ownership interest in the Company and to further motivate and give incentives to these persons to encourage them to continue to contribute to the Group’s long term success and prosperity. The Company has a share option scheme adopted on 28 July 2010.

Share Option Plan 2010

Pursuant to the ordinary resolutions passed at the extraordinary general meeting of the Company on 28 July 2010, the Company terminated the Share Option Scheme 2001 and adopted a new share option scheme (the “Share Option Plan 2010”). The Share Option Plan 2010 will remain in force for a period of ten years commencing from the date of adoption.

Under the Share Option Plan 2010, the grantees may include (i) any full time or part time employee, director (including non-executive director and independent non-executive director) of the Company, and any of its subsidiaries and invested entity; (ii) any supplier of goods or services to any member of the Group or any invested entity; (iii) any customer of the Group or any invested entity; (iv) any consultant, adviser, manager, officer or entity that provides research, development or other technological support to the Group or any invested entity; and (v) any other person who, at the sole determination of the board of directors, has contributed to the Group based on certain assessment criteria.

The total number of shares which may be issued upon exercise of all options to be granted under the Share Option Plan 2010 and any other share option schemes of the Company must not in aggregate exceed 10% of the total number of shares in issue, unless the approval of shareholders in a general meeting has been obtained. In addition, the maximum number of shares issuable under the Share Option Plan 2010 to each eligible participant within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

The limit on the number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Plan 2010 and any other share option schemes must not exceed 30% of the total number of shares of the Company in issue from time to time.

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the board of directors, and commences on any date after the date of grant and ends on a date which is not later than ten years from the date of offer of the share options.

The exercise price of share options is determined by the board of directors, but may not be less than the highest of:

(i) the closing price of the Company’s shares on GEM of the Stock Exchange on the date of grant of the option;
(ii) the average of the closing prices of the Company’s shares on GEM of the Stock Exchange for the five trading days immediately preceding the date of grant of the option; and
(iii) the nominal value of the shares of the Company.

124

Notes to Financial Statements

31 December 2020

35. SHARE OPTION SCHEME (Continued)

Share Option Plan 2010 (Continued)

Details of the specific categories of options granted under the Share Option Plan 2010 are as follows:

					Exercise price
Batch		Date of grant	Vesting period	Exercise period	per share
Grant	1	9 September 2010	N/A*	9 September 2010 to	HK$0.379
				8 September 2020
			9 September 2010 to	9 September 2011 to
			8 September 2011	8 September 2020
			9 September 2010 to	9 September 2012 to
			8 September 2012	8 September 2020
			9 September 2010 to	9 September 2013 to
			8 September 2013	8 September 2020
Grant	2	6 February 2013	N/A*	6 February 2013 to	HK$0.426
				5 February 2015
			6 February 2013 to	6 February 2014 to
			5 February 2014	5 February 2015
Grant	3	11 August 2014	N/A*	11 August 2014 to	HK$0.455
				10 August 2016
			11 August 2014 to	11 August 2015 to
			10 August 2015	10 August 2016
Grant	4	8 December 2016	N/A*	8 December 2016 to	HK$0.267
				31 December 2020
			8 December 2016 to	8 December 2017 to
			7 December 2017	31 December 2020
			8 December 2016 to	8 December 2018 to
			7 December 2018	31 December 2020

The share options were vested immediately.

125

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

35. SHARE OPTION SCHEME (Continued)

Share Option Plan 2010 (Continued)

The following tables disclose movements of the Company’s share options held by employees (including directors of the Company) during the years:

Year ended 31 December 2020

Year ended 31 December 2020
	Outstanding at	Lapsed during	Outstanding at
Date of grant	1 January 2020	the year	31 December 2020
Directors
9 September 2010	33,795,445	(33,795,445)	–
8 December 2016	80,390,495	(80,390,495)	–
	114,185,940	(114,185,940)	–
Employees
9 September 2010	129,442,171	(129,442,171)	–
8 December 2016	242,554,740	(242,554,740)	–
	371,996,911	(371,996,911)	–
	486,182,851	(486,182,851)	–
Exercisable at the end ofyear			–
Weighted average exercise price	HK$0.305		–

126

Notes to Financial Statements

31 December 2020

35. SHARE OPTION SCHEME (Continued)

Share Option Plan 2010 (Continued)

Year ended 31 December 2019

	Outstanding at	Lapsed during	Outstanding at
Date of grant	1 January 2019	the year	31 December 2019
Directors
9 September 2010	33,795,445	–	33,795,445
8 December 2016	80,390,495	–	80,390,495
	114,185,940	–	114,185,940
Employees
9 September 2010	129,442,171	–	129,442,171
8 December 2016	242,554,740	–	242,554,740
	371,996,911	–	371,996,911
	486,182,851	–	486,182,851
Exercisable at the end ofyear			486,182,851
Weighted average exercise price	HK$0.305		HK$0.305

The Group did not recognise any share option expense for the year ended 31 December 2020 (2019: Nil) in relation to share options granted by the Company.

486,182,851 share options lapsed in 2020, at the end of the reporting period, the Company had no share options outstanding under the Share Option Plan 2010.

36. SHARE AWARD SCHEME

On 15 January 2020 (“Adoption Date”), the Board approved the adoption of a share award scheme (the “Share Award Scheme”) with the objective to attract, retain and incentivises key employees, executive officers, directors and consultants of the Company and its subsidiaries to retain them for the continual operations and development of the Group. Bank of Communications Trustee Limited (the “Trustee”) was designated to be the trustee under the Deed of trust executed on 1 April 2020.

The Board implements the Share Award Scheme in accordance with the terms of the Share Scheme Rules (“Scheme Rules”) including providing necessary funds to the Trustee to purchase or subscribe for shares up to 2.98% of the issued share capital of the Company from time to time.

Pursuant to the Scheme Rules, the Board may, from time to time, at their absolute discretion select the eligible persons to participate in the Share Award Scheme and determine the number of shares to be awarded (“Award Shares”) to the selected participants. The Board shall have the power to impose any conditions on the rights of selected participants to the Award Shares when deemed appropriate.

127

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

36. SHARE AWARD SCHEME (Continued)

The Trustee shall hold such Award Shares on trust for the selected participants until they are vested. When the relevant selected participants have satisfied all vesting conditions specified by the Board at the time of making the award and become entitled to the Award Shares, the Trustee shall transfer the relevant Award Shares to the grantees.

During the year ended 31 December 2020, based on the Company’s instructions, the Trustee has purchased a total of 135,000,000 ordinary shares of the Company on the Stock Exchange at prices ranging from HK$0.053 to HK$0.059 per share at a total consideration of HK$7,676,000.

Set out below is a summary of all the grants of Award Shares under the Share Award Scheme since the Adoption Date up to and including 31 December 2020:

Year ended 31 December 2020

			Granted		Outstanding at
	Outstanding at		during the	Lapsed during	31 December
Date of grant	1 January 2020		year	the year	2020
Directors
7July2020		–	32,000,000	(10,000,000)	22,000,000
Employees
7July2020		–	88,000,000	(54,000,000)	34,000,000
Others
16 September 2020		–	4,000,000	–	4,000,000
		–	124,000,000	(64,000,000)	60,000,000
Exercisable at the end of year					60,000,000
Weighted average exercise price		–	–	–	–

The exercise period of the share options granted is determinable by the directors, and commences after a vesting period from grant date to 31 December 2020.

The fair value of the shares granted was calculated based on the market prices of the Company’s shares at the respective grant dates. No dividend will be considered. The fair values of the shares granted on 7 July 2020 and 16 September 2020 were HK$0.075 and HK$0.105 per share, respectively. During 2020, the Group recognised a net expense relating to the Share Award Scheme of approximately HK$4,620,000 in the consolidated statement of profit or loss during the year (note 6).

During the year, 64,000,000 shares lapsed due to the unfulfillment of vesting conditions under the Share Award Scheme.

128

31 December 2020

Notes to Financial Statements

37. OTHER RESERVES

The amounts of the Group’s other reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity.

(a) Statutory reserve

In accordance with the relevant regulations in the PRC and joint venture agreements, each of the Sino-foreign joint ventures established in the PRC shall set aside a portion of its profit after tax, if any, to the statutory reserve. Such amount will be determined at the discretion of the board of directors of each entity.

(b) Contributed surplus

Contributed surplus represents the cancellation of the paid-up capital and the set-off against the accumulated losses in prior years.

(c) Special reserve

Special reserve represents the reserve arising from the acquisition of non-controlling interests.

(d) Capital reserve

Capital reserve represents the deemed contribution from a substantial shareholder arising from the waiver of the convertible notes and the fair value changes in equity investments designated at fair value through other comprehensive income.

129

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

38. DISPOSAL OF A SUBSIDIARY

On 15 May 2020, HYY Investment Management Co., Ltd., an indirect wholly owned subsidiary of the Company, disposed of 100% of the equity interest in Goodway (Hangzhou) Biotechnology Ltd. for a cash consideration of RMB143,993,000 (equivalent to HK$171,094,000).

	Notes	HK$’000
Net assets disposed of:
Investment properties		167,776
Cash and bank balances		10
Prepayments and other receivables		22
Other payables and accruals		(369)
Deferred tax liabilities	33	(17,595)
		149,844
Exchange fluctuation reserve		1,111
Gain on disposal of a subsidiary	5	20,139
Satisfied by:
Cash		171,094

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

	HK$’000
Cash consideration	171,094
Cash and bank balances disposed of	(10)
Cash consideration not received and included in prepayments, deposits and other receivables	(52,272)
Net inflow of cash and cash equivalents in respect of the disposal of a subsidiary	118,812

39. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Major non-cash transactions

During the year, the Group had non-cash additions to trade receivables and lease liabilities of HK$91,561,000 (2019: Nil) and HK$93,898,000 (2019: Nil), respectively, in respect of a sublease arrangement of property.

(b) Changes in liabilities arising from financing activities

		Interest-bearing
		bank and other	Amounts due to
2020	Lease liabilities	borrowings	related companies
	*HK$’000*	*HK$’000*	*HK$’000*
At 1 January 2020	2,159	6,140	442,404
Changes from financing cash flows	(10,558)	94,462	(475,285)
Accretion of interest recognised during the year	3,565	–	–
New leases	95,542	–	–
Cancellation of lease contracts	(1,010)	–	–
Exchange realignment	5,781	396	32,881
At 31 December 2020	95,479	100,998	–

130

31 December 2020

Notes to Financial Statements

39. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (b) Changes in liabilities arising from financing activities (Continued)

		Interest-bearing
		bank and other	Amounts due to
2019	Lease liabilities	borrowings	related companies
	HK$’000	HK$’000	HK$’000
At 1 January 2019	6,344	456,517	–
Repayment of other borrowings by CECEP
(note)	–	(442,404)	442,404
Acquisition of a subsidiary	–	6,089	–
Accretion of interest recognised during the year	288	–	–
Cancellation of lease contracts	(143)	–	–
Change in rent	(103)	–	–
Changes from financing cash flows	(4,202)	–	–
Exchange realignment	(25)	(14,062)	–
At 31 December 2019	2,159	6,140	442,404

Note: During the year ended 31 December 2019, the Group had non-cash reductions to interest-bearing other borrowings and additions to amounts due to a related company of RMB400,000,000 (equivalent to HK$442,404,000) and RMB400,000,000 (equivalent to HK$442,404,000), respectively. Details are given in notes 2.1 and 25.

(c) Total cash outflow for leases

The total cash outflow for leases included in the statement of cash flows is as follows:

	2020	2019
	*HK$’000*	HK$’000
Within operating activities	434	165
Within financingactivities	10,558	4,202
	10,992	4,367

40. CONTINGENT LIABILITIES

At 31 December 2020, the Group did not have any contingent liabilities not provided for in the financial statements (2019: Nil).

41. PLEDGE OF ASSETS

Details of the Group’s assets pledged for its operation as at 31 December 2020 and 2019 are included in note 13 to the financial statements.

131

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

42. COMMITMENTS

(a) The Group had the following capital commitments at the end of the reporting period:

	2020	2019
	*HK$’000*	HK$’000
Contracted, but not provided for:
Investment properties under construction	–	13,184
Capital contributionspayable to an associate	594	4,465
	594	17,649

43. RELATED PARTY TRANSACTIONS

(a) Amounts due from/to related companies and associates are included in the consolidated statement of financial position. Further details are given in notes 25 and 26 to the financial statements.
(b) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the year:

		2020	2019
	Notes	*HK$’000*	HK$’000
Associates:
Purchases of products	(i)	66,900	113,411
Rental income	(ii)	175	207
Patent right income	(iii)	2,422	–
Other related parties:
Provision of services*	(iv)	–	405
Deposit cash*	(v)	22	6
Rental expense*	(vi)	11	47
Guarantee fee*	(vii)	1,729	6,821
Interest expense*	(viii)	9,332	5,854
Loan*	(viii)	–	446,538

132

Notes to Financial Statements

31 December 2020

43. RELATED PARTY TRANSACTIONS (Continued)

(b) (Continued)

Notes:

(i) The Group purchased goods from associates.
(ii) The Group received rental income from an associate.
(iii) The Group received patent right income from an associate.
(iv) The Group provided services to a subsidiary of CECEP and CECEP.
(v) The Group entered into a financial service agreement with a subsidiary of CECEP and the outstanding deposit balance was HK$22,000 as at 31 December 2020 (2019: HK$6,000).
(vi) The Group paid a rental expense to a related party.
(vii) The Group had a guarantee fee payable to CECEP. Details are given in note 31 to the financial statements.
(viii) The other loan of the Group guaranteed by CECEP was due on 13 September 2019, and because of the tight cash flows of the Group, CECEP repaid this loan on behalf of the Group and the Group has committed to pay the principal and interest expense to CECEP. Details are given in note 25 to the financial statements.

The above related party transactions were conducted in accordance with the terms mutually agreed between the parties.

These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 20 of the GEM Listing Rules.

(c) Other transactions with related parties:

On 30 March 2020, a subsidiary of the Group entered into a two-year lease agreement ending 30 March 2022 with Beijing Elite Investments Limited, as lessor, a company held as to 50% equity interests by Ms. Chan Wai Kay, Katherine, Deputy Chairman and an executive Director of the Company. At 31 December 2020, the right-of-use assets and lease liabilities related to this lease arrangement were HK$892,000 and HK$949,000, respectively.

(d) Compensation of key management personnel of the Group:

	2020	2019
	*HK$’000*	HK$’000
Short term employee benefits	14,508	13,726
Post-employment benefits	54	113
Equity-settled share option expense	1,650	–
Total compensation paid to key management personnel	16,212	13,839

Further details of directors’ and the chief executive’s emoluments are included in note 8 to the financial statements.

133

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

44. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

2020

Financial assets

Equity investments designated
at fair value through other
comprehensive income
Financial assets included in
prepayments, other receivables
and other assets
Trade and bills receivables
Amounts due from related
companies
Financial assets at fair value through
profit or loss
Time deposits
Restricted cash
Cash and cash equivalents

Financial assets at
fair value through
profit or loss
Financial assets
at fair value
through other
comprehensive
income
Mandatorily
designated as
such
Equity
investments
Financial
assets at
amortised cost
Total
HK$’000
HK$’000
HK$’000
HK$’000
–
299,408
–
299,408
–
–
184,739
184,739
–
–
197,845
197,845
–
–
551
551

34
–
–
34
–
–
233
233
–
–
7,326
7,326
–
–
63,172
63,172

34
299,408
453,866
753,308

134

Notes to Financial Statements

31 December 2020

44. FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

2020

Financial liabilities

	Financial liabilities
	at amortised cost
	*HK$’000*
Trade and bills payables	279,912
Financial liabilities included in other payables and accruals	193,291
Amounts due to associates	17,891
Amounts due to related companies	30,341
Interest-bearing bank borrowings	100,998
Lease liabilities	95,479
	717,912

2019

Financial assets

		Financial assets
		at fair value
	Financial assets at	through other
	fair value through	comprehensive
	profit or loss	income
	Mandatorily	Equity	Financial assets at
	designated as such	investments	amortised cost	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Equity investments designated
at fair value through other
comprehensive income	–	239,406	–	239,406
Financial assets included in
prepayments, other receivables
and other assets	–	–	137,150	137,150
Trade and bills receivables	–	–	110,430	110,430
Amounts due from related
companies	–	–	517	517
Financial assets at fair value through
profit or loss	48	–	–	48
Time deposits	–	–	232	232
Restricted cash	–	–	5,636	5,636
Cash and cash equivalents	–	–	56,871	56,871
	48	239,406	310,836	550,290

135

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

44. FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

2019

Financial liabilities

Financial liabilities
	Financial liabilities at
	amortised cost
	HK$’000
Trade and bills payables	309,476
Financial liabilities included in other payables and accruals	188,139
Amounts due to associates	21,293
Amounts due to related companies	479,184
Interest-bearing bank borrowings	6,140
Lease liabilities	2,159
	1,006,391

45. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, are as follows:

Financial assets Trade receivables, non-current portion Equity investments designated at fair value through other comprehensive income Financial assets at fair value through profit or loss	Carrying amounts 2020 2019 *HK$’000* HK$’000 139,102 57,029 299,408 239,406 34 48	Fair values 2020 2019 *HK$’000* HK$’000 139,102 57,029 299,408 239,406 34 48
	438,544 296,483	438,544 296,483

Management has assessed that the fair values of cash and cash equivalents, the current portion of trade and bills receivables, trade and bills payables, financial assets included in prepayments, other receivables and other assets, financial liabilities included in other payables and accruals, and amounts due from/to related companies and associates approximate to their carrying amounts largely due to the short term maturities of these instruments.

The Group’s finance department headed by the finance manager is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The finance manager reports directly to the chief financial officer and the audit committee. At each reporting date, the finance department analyses the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process and results are discussed with the audit committee twice a year for interim and annual financial reporting.

136

31 December 2020

Notes to Financial Statements

45. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (Continued)

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

The fair values of the non-current portion of trade receivables have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The changes in fair value as a result of the Group’s own non-performance risk for interest-bearing bank borrowings as at 31 December 2020 were assessed to be insignificant.

The fair values of listed equity investments are based on quoted market prices. The fair values of unlisted equity investments designated at fair value through other comprehensive income have been estimated using a market-based valuation technique based on assumptions that are not supported by observable market prices or rates. The valuation requires the directors to determine comparable public companies (peers) based on industry, size, leverage and strategy, and to calculate an appropriate price multiple, such as price to book (“P/B”) multiple, for each comparable company identified. The multiple is calculated by dividing the enterprise value of the comparable company by a book measure. The trading multiple is then discounted for considerations such as illiquidity and size differences between the comparable companies based on company-specific facts and circumstances. The discounted multiple is applied to the corresponding book measure of the unlisted equity investments to measure the fair value. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the consolidated statement of financial position, and the related changes in fair values, which are recorded in other comprehensive income, are reasonable, and that they were the most appropriate values at the end of the reporting period.

Set out below is a summary of significant unobservable inputs to the valuation of financial instruments together with a quantitative sensitivity analysis as at 31 December 2020 and 2019:

	Value technique	Significant unobservable	Range	Sensitivity of fair value to
		input		the input
Unlisted equity	Valuation multiples	Average P/B multiple of peers	2020: 0.6 to 2.9	10% (2019: 10%) increase/
investments			(2019: 0.9 to 2.6)	decrease in multiple
				would result in increase/
				decrease in fair value by
				HK$23,898,000 (2019:
				HK$16,105,000)
		Discount for lack of	2020: 16% (2019:	10% (2019: 10%) increase/
		marketability and control	35%)	decrease in discount
				would result in decrease/
				increase in fair value by
				HK$4,552,000 (2019:
				HK$8,672,000)

The discount for lack of marketability and control represents the amounts of premiums and discounts determined by the Group that market participants would take into account when pricing the investments.

137

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

45. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (Continued) Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:

Assets measured at fair value:

As at 31 December 2020

Equity investments designated at fair value through other comprehensive income Financial assets at fair value through profit or loss	Fair value measurement using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total *HK$’000* *HK$’000* *HK$’000* *HK$’000* 60,577 – 238,831 299,408 34 – – 34
	60,611 – 238,831 299,442

As at 31 December 2019

Equity investments designated at fair value through other comprehensive income Financial assets at fair value through profit or loss	Fair value measurement using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total HK$’000 HK$’000 HK$’000 HK$’000 59,674 – 179,732 239,406 48 – – 48
	59,722 – 179,732 239,454

138

Notes to Financial Statements

31 December 2020

45. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (Continued)

Fair value hierarchy (Continued)

Liabilities measured at fair value:

The Group did not have any financial liabilities measured at fair value as at 31 December 2020 (2019: Nil).

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (2019: Nil).

The movements in fair value measurements within Level 3 during the year are as follows:

	2020	2019
	*HK$’000*	HK$’000
Equity investments designated at fair value through other comprehensive
income – unlisted
At 1 January	179,732	180,381
Total gains recognised in other comprehensive income	47,529	3,349
Disposal	–	(56)
Exchange realignment	11,570	(3,942)
At 31 December	238,831	179,732

Assets for which fair values are disclosed:

As at 31 December 2020

Trade receivables, non-current portion	Fair value measurement using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total *HK$’000* *HK$’000* *HK$’000* *HK$’000* – 139,102 – 139,102

As at 31 December 2019

Trade receivables, non-current portion	Fair value measurement using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total HK$’000 HK$’000 HK$’000 HK$’000 – 57,029 – 57,029

139

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank and other loans, equity investments at fair value through other comprehensive income and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk and equity price risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s long term debt obligations carry a fixed interest rate and the Group has no risk in respect of changes in interest rates.

Foreign currency risk

The Group’s PRC subsidiaries transact in RMB, and the Company and other subsidiaries mainly transact in HK$. Management considers the Group’s exposure to foreign currency risk is not significant.

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

Maximum exposure and year-end staging

The tables below shows the credit quality and the maximum exposure to credit risk based on the Group’s credit policy, which is mainly based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at 31 December. The amounts presented are gross carrying amounts for financial assets.

As at 31 December 2020

	12-month ECLs		Lifetime ECLs
				Simplified
	Stage 1	Stage 2	Stage 3	approach	Total
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Restricted cash
– Not yet past due	7,326	–	–	–	7,326
Time deposits
– Not yet past due	233	–	–	–	233
Contract assets*	–	–	–	567,682	567,682
Trade and bills receivables*	–	–	–	321,310	321,310
Cash and cash equivalents
– Not yet past due	63,172	–	–	–	63,172
Financial assets included in
prepayments,
other receivables
and other assets**
– Normal**	142,373	–	–	–	142,373
– Doubtful**	123,206	–	–	–	123,206
	336,310	–	–	888,992	1,225,302

140

Notes to Financial Statements

31 December 2020

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) Credit risk (Continued)

As at 31 December 2019
	12-month ECLs		Lifetime ECLs
				Simplified
	Stage 1	Stage 2	Stage 3	approach	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Restricted cash
– Not yet past due	5,636	–	–	–	5,636
Time deposits
– Not yet past due	232	–	–	–	232
Contract assets*	–	–	–	577,034	577,034
Trade and bills receivables*	–	–	–	211,170	211,170
Cash and cash equivalents
– Not yet past due	56,871	–	–	–	56,871
Financial assets included in
prepayments,
other receivables
and other assets**
– Normal**	84,572	–	–	–	84,572
– Doubtful**	119,442	–	–	–	119,442
	266,753	–	–	788,204	1,054,957

For trade and bills receivables and contract assets to which the Group applies the simplified approach for impairment, information based on the provision matrix is disclosed in notes 23 and 22 to the financial statements, respectively.
** The credit quality of the financial assets included in prepayments, other receivables and other assets is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition. Otherwise, the credit quality of the financial assets is considered to be “doubtful”.

141

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash flows from operations.

The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

Group Lease liabilities Interest-bearing bank borrowings Trade and bills payables Financial liabilities included in other payables and accruals Amounts due to related companies Amounts due to associates	2020 On demand Within one year One to five years Over five years Total *HK$’000* *HK$’000* *HK$’000* *HK$’000* *HK$’000* – 10,081 38,938 74,711 123,730 – 100,998 – – 100,998 – 279,912 – – 279,912 193,291 – – – 193,291 30,341 – – – 30,341 17,891 – – – 17,891	2020 On demand Within one year One to five years Over five years Total *HK$’000* *HK$’000* *HK$’000* *HK$’000* *HK$’000* – 10,081 38,938 74,711 123,730 – 100,998 – – 100,998 – 279,912 – – 279,912 193,291 – – – 193,291 30,341 – – – 30,341 17,891 – – – 17,891
		241,523 390,991 38,938 74,711 746,163 2019 On demand Within one year One to five years Total HK$’000 HK$’000 HK$’000 HK$’000 – 1,672 519 2,191 – 6,140 – 6,140 – 309,476 – 309,476 188,139 – – 188,139 479,184 – – 479,184 21,293 – – 21,293 688,616 317,288 519 1,006,423
Group Lease liabilities Interest-bearing bank and other borrowings Trade and bills payables Financial liabilities included in other payables and accruals Amounts due to related companies Amounts due to associates

142

Notes to Financial Statements

31 December 2020

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Equity price risk

Equity price risk is the risk that the fair values of equity securities decrease as a result of changes in the levels of equity indices and the value of individual securities. The Group is exposed to equity price risk arising from individual equity investments at fair value through other comprehensive income (note 19) and financial assets at fair value through profit or loss (note 27) as at 31 December 2020.

The following table demonstrates the sensitivity to every 5% change in the fair values of the equity investments, with all other variables held constant and before any impact on tax, based on their carrying amounts at the end of the reporting period. For the purpose of this analysis, for the equity investments at fair value through other comprehensive income, the impact is deemed to be on the capital reserve and no account is given for factors such as impairment which might impact the statement of profit or loss.

	Carrying amount of		Change in loss
2020	equity investments	Change in equity	before tax
	*HK$’000*	*HK$’000*	*HK$’000*
Unlisted investments at fair value:
– E quity investments at fair value through other
comprehensive income	238,831	11,942	–
Investments listed in:
Hong Kong- Equity investments at fair value
through profit or loss	34	–	2
Others- Equity investments at fair value through
other comprehensive income	60,577	3,029	–
	Carrying amount of		Change in loss
2019	equity investments	Change in equity	before tax
	HK$’000	HK$’000	HK$’000
Unlisted investments at fair value:
– Eq uity investments at fair value through other
comprehensive income	179,732	8,987	–
Investments listed in:
Hong Kong- Equity investments at fair value
through profit or loss	48	–	2
Others- Equity investments at fair value through
other comprehensive income	59,674	2,984	–

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2020 and 31 December 2019.

143

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) Capital management (Continued)

The Group monitors capital using a gearing ratio, which is net debt divided by the capital plus net debt. Net debt includes interest-bearing bank and other borrowings, lease liabilities, trade and bills payables, financial liabilities included in other payables and accruals, less cash and cash equivalents. Capital includes equity attributable to owners of the parent. The gearing ratios as at the end of the reporting periods were as follows:

	31 December	31 December
	2020	2019
	*HK$’000*	HK$’000
Interest-bearing bank and other borrowings (note)	100,998	458,532
Lease liabilities	95,479	2,159
Trade and bills payables	279,912	309,476
Financial liabilities included in other payables and accruals	193,291	188,139
Less: Cash and cash equivalents	(63,172)	(56,871)
Net debt	606,508	901,435
Equityattributable to owners of theparent	448,428	636,066
Capital and net debt	1,054,936	1,537,501

Gearing ratio	57.5%	58.6%

Note: The amount as at 31 December 2019 consisted of a bank loan of HK$6,140,000, and the principal and interest of the shareholder’s loan of HK$446,538,000 and HK$5,854,000, respectively, which were included in amounts due to related companies.

47. EVENTS AFTER THE REPORTING PERIOD

On 26 March 2021, HYY entered into the Equity Transfer Agreement in relation to disposal of 100% equity interest in HYY Science and Technology Development Group Xinyi Co., Ltd., a wholly owned subsidiary of the Company, at the consideration of approximately RMB25,831,000.

144

Notes to Financial Statements

31 December 2020

48. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Information about the statement of financial position of the Company at the end of the reporting period is as follows:

	2020	2019
	*HK$’000*	HK$’000
NON-CURRENT ASSETS
Investments in subsidiaries	–	112,110
Total non-current assets	–	112,110
CURRENT ASSETS
Amounts due from subsidiaries	538,892	542,961
Prepayments, other receivables and other assets	–	1,229
Restricted cash	275	–
Cash and cash equivalents	180	10,499
Total current assets	539,347	554,689
NET CURRENT ASSETS	539,347	554,689
TOTAL ASSETS	539,347	666,799
Net assets	539,347	666,799

EQUITY
Share capital	353,043	353,043
Shares held for Share Award Scheme	(7,676)	–
Other reserves_(note)_	193,980	313,756
Total equity	539,347	666,799

145

China Geothermal Industry Development Group Limited Annual Report 2020

Notes to Financial Statements

31 December 2020

48. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (Continued)

Note:

A summary of the Company’s other reserves is as follows:

			Share option
	Share	Contributed	reserve/share		Accumulated
	premium	surplus	award reserve	Capital reserve	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2019	893,850	154,381	49,117	32,235	(81,898)	1,047,685
Total comprehensive loss for
the year	–	–	–	–	(734,304)	(734,304)
Issue of shares	375	–	–	–	–	375
At 31 December 2019 and 1
January 2020	894,225	154,381	49,117	32,235	(816,202)	313,756
Total comprehensive loss for
the year	–	–	–	–	(124,396)	(124,396)
Equity-settled share option
arrangements	–	–	4,620	–	–	4,620
Transfer of share option reserve
upon the forfeiture or expiry
of share options	–	–	(49,117)	–	49,117	–
At 31 December 2020	894,225	154,381	4,620	32,235	(891,481)	193,980

The share option reserve/share award reserve comprise the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share-based payments in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to accumulated losses should the related options expire or be forfeited.

49. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 29 March 2021.

146

Five-Year Financial Summary

A summary of the published results and the assets, liabilities and non-controlling interests of the Group for the last five financial years, as extracted from the audited financial statements, are set out below.

CONSOLIDATED RESULTS

		For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2020	2019	2018	2017	2016
	*HK$’000*	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	230,862	345,537	396,793	778,153	619,053
Cost of sales and services	(184,728)	(261,559)	(379,670)	(614,244)	(508,454)
Gross profit	46,134	83,978	17,123	163,909	110,599
Gross profit margin	20%	24%	4%	21%	18%
(Loss)/profit before tax	(240,248)	(406,844)	(419,067)	16,023	(9,524)
Income tax (expense)/credit	(3,192)	(38,179)	556	(12,061)	(22,105)
(Loss)/profit for the year	(243,440)	(445,023)	(418,511)	3,962	(31,629)
Attributable to:
– Owners of the parent	(242,399)	(441,039)	(410,297)	10,533	(30,816)
– Non-controlling interests	(1,041)	(3,984)	(8,214)	(6,571)	(813)
(Loss)/earnings per share
– Basic (HK cents)	(5.46)	(10.59)	(10.19)	0.30	(1.07)
– Diluted (HK cents)	(5.46)	(10.59)	(10.19)	0.30	(1.07)

CONSOLIDATED ASSETS AND LIABILITIES

	2020	2019	2018	2017	2016
	*HK$’000*	HK$’000	HK$’000	HK$’000	HK$’000
Non-current assets	636,707	1,380,996	1,770,461	1,974,571	1,656,826
Current assets	1,083,854	574,672	723,203	1,125,694	874,243
Current liabilities	(1,106,453)	(1,199,462)	(1,313,484)	(837,135)	(566,443)
Net current (liabilities)/assets	(22,599)	(624,790)	(590,281)	288,559	307,800
Total assets less current liabilities	614,108	756,206	1,180,180	2,263,130	1,964,626
Non-current liabilities	(136,934)	(92,101)	(95,318)	(576,100)	(523,324)
Net assets	477,174	664,105	1,084,862	1,687,030	1,441,302
Total debt to equity ratio	2.61	1.94	1.30	0.84	0.76

147

China Geothermal Industry Development Group Limited Annual Report 2020

List of Major Properties Held by the Group

	Approximate
	gross	Group’s		Term	Stage of	Anticipated
Location	floor area	interest	Land use	of lease	completion	completion
	(square meter)
Building
No. 102 Xingshikou Road,	5,628.82	100%	Office and	Medium	Completed	–
Haidian District, Beijing, the PRC			industrial
Investment property
No. 6, Zhuantang Science and	32,798.00	100%	Office and	Medium	Completed	–
Technology Economic Zone,			industrial
Zhuantang Jiedao, Xihu District,
Hangzhou City, Zhejiang Province,
the PRC
Headquarter Block Nos. 026 and 027	19,610.06	100%	Office	Medium	Completed	–
office building, Jinjialin Village,
Chengjiao Township, Fucheng
District, Mianyang City, Sichuan
Province, the PRC
Investment property under
construction and development
Xianyuwan Village, Xianyuwan Town,	173,289.00	100%	Residential	Medium	Planning in	December
Wafangdian City, Dalian,					progress	2022
Liaoning Province, the PRC

148

AI assistant

CHYY Development Group Limited — Annual Report 2020

51284_rns_2021-03-31_ca1a0b30-6ed5-4f06-9ada-6812918d2b70.pdf

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

Contents

Corporate Information

BOARD OF DIRECTORS Executive directors

Non-executive directors

Independent non-executive directors

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

PRINCIPAL BANKER

REGISTERED OFFICE

HEAD OFFICE AND PRINCIPAL PLACE

OF BUSINESS IN HONG KONG

CHIEF EXECUTIVE OFFICER

AUTHORISED REPRESENTATIVES

COMPLIANCE OFFICER

COMPANY SECRETARY

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG BRANCH SHARE

REGISTRAR AND TRANSFER OFFICE

AUDITOR

STOCK CODE

AUDIT COMMITTEE

COMPANY WEBSITE

Chairman’s Statement

Chairman’s Statement

Management Discussion and Analysis

FINANCIAL HIGHLIGHTS

Income Allocation

As at 31 December 2020 & 2019

Management Discussion and Analysis

FINANCIAL REVIEW

OPERATIONAL RESULTS

GROSS PROFIT MARGIN

SELLING & DISTRIBUTION EXPENSES

ADMINISTRATIVE EXPENSES

OTHER EXPENSES

SHARE-BASED PAYMENT EXPENSES

Management Discussion and Analysis

ORDER BOOK

SEGMENTAL INFORMATION

Shallow geothermal energy

Air conditioning/shallow geothermal heat pump

Properties investment and development

Securities investment and trading

FINANCIAL RESOURCES AND LIQUIDITY

Management Discussion and Analysis

CHARGES OF GROUP ASSETS

EXPOSURE TO FLUCTUATION IN EXCHANGE RATES

GEARING RATIO

EMPLOYEES

SHARE OPTION SCHEME

SHARE AWARD SCHEME

CONTINGENT LIABILITIES

DIVIDEND

Management Discussion and Analysis

CAPITAL STRUCTURE

EVENTS AFTER THE REPORTING PERIOD

CAPITAL COMMITMENT AND SUBSTANTIAL INVESTMENTS

FUTURE PLANS FOR SUBSTANTIAL INVESTMENTS OF CAPITAL ASSETS

MAJOR ACQUISITIONS AND DISPOSALS

Management Discussion and Analysis

BUSINESS REVIEW

Management Discussion and Analysis

I. Possibility of tight funding

Biography of Directors and Senior Management

EXECUTIVE DIRECTORS

Biography of Directors and Senior Management

NON-EXECUTIVE DIRECTORS

Biography of Directors and Senior Management

INDEPENDENT NON-EXECUTIVE DIRECTORS

Biography of Directors and Senior Management

SENIOR MANAGEMENT

Report of the Directors

PRINCIPAL ACTIVITIES

RESULTS AND DIVIDENDS

USE OF PROCEEDS FROM THE SUBSCRIPTIONS

BUSINESS REVIEW

CHYY Development Group Limited Annual Report 2020