Rego Interactive Co., Ltd - Annual Report 2018

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

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(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1065)

ANNOUNCEMENT OF FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

§1 IMPORTANT

1.1 The board of directors (the “ Board ”), supervisory committee (the “ Supervisory Committee ”), directors (the “ Directors ”), supervisors (the “ Supervisors ”) and senior management of Tianjin Capital Environmental Protection Group Company Limited (the “ Company ”) confirm that the information in this report does not contain any false information, misleading statements or material omissions, and accept joint and several responsibility for the truthfulness, accuracy and completeness of its contents.
This results announcement is the summary of the 2018 annual report of the Company and its subsidiaries (the “ Group ”). For detailed information, please read the 2018 annual report of the Group carefully.
1.2 PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers have audited the 2018 financial reports of the Group and have issued standard unqualified audit reports.
1.3 Mr. Liu Yujun, the Company’s chairman, Ms. Peng Yilin, the officer in charge of the accounting function, and Mr. Liu Tao, the officer in charge of the accounting department (the accounting management officer), have declared that they are responsible for the truthfulness, accuracy and completeness of the financial reports contained in the 2018 annual report.

– 1 –

§2 COMPANY PROFILE

2.1 Basic information

Short name of the A shares Stock code of the A shares Stock exchange for listing of the A shares Short name of the H shares Stock code of the H shares Stock exchange for listing of the H shares

創業環保 600874 Shanghai Stock Exchange

Tianjin Capital 1065 The Stock Exchange of Hong Kong Limited

2.2 Contact person and method

Company Secretary Company Secretary Securities Affairs to the Board in Hong Kong Representative

Name Niu Bo Mona Y. Y. Cho Guo Fengxian Correspondence address TCEP Building, 76 22/F, Worldwide TCEP Building, 76 Weijin South Road, House, Central, Weijin South Road, Nankai District, Hong Kong Nankai District, Tianjin, The Tianjin, the PRC People’s Republic of China (the “ PRC ”) Telephone number 86-22-23930128 852-21629620 86-22-23930128 Facsimile number 86-22-23930126 852-25010028 86-22-23930126 Email address [email protected] [email protected] [email protected]

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§3 ACCOUNTING DATA AND FINANCIAL INDICATORS

3.1 Major accounting data

Unit: 0’000 Currency: RMB

			Increase/decrease
			for the period as
			compared to the
			same period
Major accounting data	2018	2017	last year (%)	2016
Operating income	244,751.5	214,834.1	13.93	195,866.6
Net profit attributable to the shareholders
of the Company	50,116.8	50,825.1	-1.39	44,316.8
Net profit after deduction of
extraordinary items attributable to the
shareholders of the Company	44,560.6	46,887.7	-4.96	40,683.3
Net cash flow from operating activities	69,264.6	91,205.2	-24.06	40,367.0
			Increase/decrease
			as at the end of
			the period as
			compared to the
	As at the	As at the	end of the	As at the
	end of	end of	same period	end of
	2018	2017	last year (%)	2016
Net assets attributable to the
shareholders of the Company	581,820.3	511,704.0	13.70	474,437.7
Total assets	1,568,744.8	1,245,289.0	25.97	1,064,089.7

– 3 –

Currency: RMB

3.2 Major financial indicators

			Increase/decrease
			for the period as
			compared to
			the same period
Major financial indicators	2018	2017	last year (%)	2016
Basic earnings per share (RMB/share)	0.35	0.36	-2.78	0.31
Diluted earnings per share (RMB/share)	0.35	0.36	-2.78	0.31
Basic earnings per share after deduction	0.31	0.33	-6.06	0.29
of extraordinary items (RMB/share)
Weighted average return on net	9.05	10.33	Decreased by 1.28	9.71
assets ratio (%)			percentage points
Weighted average return on net assets	8.05	9.53	Decreased by 1.48	8.91
ratio after deduction of			percentage points
extraordinary items (%)
Extraordinary items
			Unit: 0’000	Currency: RMB
		Amount in	Amount in	Amount in
Extraordinary items		2018	2017	2016
Profit/loss from disposal of
non-current assets		-90.0	-8.2	-68.1
Government grants recognized in
current profit and loss, except
for those closely related to normal
business operation, in compliance
with requirements of national policy
and settled in certain amount which
are constantly granted by government		7,848.1	5,343.3	4,336
Other non-operating income and
expenses except for the above items		-180.9	-72.6	773.6
Effect on non-controlling interests		-126.7	-9.5	-147.6
Income tax effect		-1,894.3	-1,315.6	-1,260.4
Total		5,556.2	3,937.4	3,633.5

3.3 Extraordinary items

– 4 –

§4 DIRECTORS’ REPORT

I. OPERATION DISCUSSION AND ANALYSIS

In 2018, under the leadership of the Board and in accordance with 2018 Operating Strategy and Business Plan of the Group, the management of the Company has continued to solidly promote the innovation and thorough implementation in basic management, technology R&D and market development and other operations, and steadily completed the following tasks with an aim of further consolidating and developing its core competitiveness:

1. Giving full play to operational and construction advantages to ensure the quality and profits of projects so as to meet the requirements for enhancement of water quality standards

With increasingly stringent requirements of water environment management, the Company made full use of its operational and technological advantages to deepen management of operation of all water projects and achieve precise operation. While ensuring operational quality and safety, the Company adopted initiatives of income growth and cost savings to strive to reduce operating costs. At the same time, the daily maintenance of project agreements was carried out, and the unit price of the sewage treatment services was adjusted duly to ensure the level of income from projects.

The Company strengthened the management of project construction to ensure the smooth implementation of project construction. Jingu Sewage Treatment Plant and Beicang Sewage Treatment Plant in the urban area of Tianjin achieved local standards compliance operation at the end of 2018.

– 5 –

2. Continuing to promote market development and expand the scale of water business, and meanwhile expanding the scope of the industrial chain and improving comprehensive capabilities in environmental treatment

During the reporting period, the Company successively obtained a number of water PPP projects with newly-added sewage treatment capacity of 304,650 tons per day. Two of these projects involved the construction and operation of rural sewage treatment and ancillary pipeline networks, tapping into the rural water treatment field. The Company has also participated in and won the bid for construction of sponge city in Jiefang South Road District, Tianjin and acquired the electric heating project of Tianjin Miyun Road Community, achieving breakthroughs in the comprehensive treatment of water environment and the electric heating business field.

3. Deepening management and innovation work. On the basis of establishing the management of the four business lines of market development, construction and management, operation and management and technological research and development, the Group set up regional companies, and combined its functional management authorization with business linear management to increase capabilities of regional comprehensive management and further enhance the Group’s overall management efficiency.

4. The successfully issuance of 3+2 years corporate bonds of RMB1.1 billion has ensured the funding requirements of the Group’s daily operations.

5. Continuing to promote R&D and striving to play the leading role in science and technology

Based on the existing projects, a R&D center will be built in the Jingu Sewage Treatment Plant to strengthen the scientific and technological R&D. During the reporting period, the Group carried out 28 scientific research projects and obtained 8 patents, including 3 invention patents and 5 utility model patents; there were 5 projects including 2 inventions and 3 utility models newly applied.

– 6 –

II. OPERATION SITUATION OF PRINCIPAL BUSINESS DURING THE REPORTING PERIOD

1. Analysis on the overall results of operations during the reporting period

In 2018, the Group recorded an operating revenue of RMB2,447.5150 million, representing an increase of 13.93% as compared to that of last year. The operating costs were RMB1,558.5560 million, representing an increase of 21.51% as compared to that of last year. Net profit attributable to the Company was RMB501.1680 million, representing a decrease of 1.39% over last year. The decrease in net profit was mainly due to the increase in operating costs resulted from the increased volume of water treatment and improved water quality standards, as well as the significant increase in financial expenses resulted from the increase in exchange losses and debt financing.

2. Analysis of the principal business

During the reporting period, the Group’s principal business segment did not change significantly compared with the previous year and are still engaged in the sewage treatment and construction of sewage treatment plant business, recycled water business, tap water supply, new energy heating and cooling supply business, toll collection business and transformation of achievements in technology research. It recorded operating income of RMB2,260.1320 million, representing an increase of 16.99% over the previous year.

3. Analysis of Other business

The Group’s other business mainly includes the sewage treatment entrusted operation business via the technical service model, as well as the technical and engineering consulting business. During the reporting period, it realised an income for other business of RMB187.3830 million, representing a decrease of 13.41% over the previous year.

– 7 –

(I) ANALYSIS OF PRINCIPAL BUSINESSES

Analysis on changes in income statement and cash flow statement

Unit: 0’000 Currency: RMB

		Amount
	Amount for	for the
	the current	same period	Percentage
Item	period	last year	change (%)
Operating revenue	244,751.5	214,834.1	13.93
Operating costs	155,855.6	128,269.9	21.51
Selling expenses	541.7	646.7	-16.24
Administrative expenses	12,909.6	13,974.9	-7.62
Research and development expenses	1,043.9	847.2	23.22
Financial expenses	16,198.6	10,033.9	61.44
Net cash flows from operating activities	69,264.6	91,205.2	-24.06
Net cash flows from investing activities	-242,270.2	-50,715.1	377.71
Net cash flows from financing activities	164,491.0	30,766.8	434.64
Investment gain	20.0	40.0	-50.00
Gains on disposals of assets	-37.3	0.0	-100.00
Non-operating income	688.4	387.0	77.88
Non-operating expenses	405.0	197.5	105.06
Profit or loss attributable to minority shareholders	2,561.2	1,094.4	134.03

Reason for change in operating revenue: It was mainly due to the increase in sewage treatment of existing projects and the commencement of operation of certain new sewage treatment projects and thus the income increased.
Reason for change in operating costs: It was mainly due to increased water volume and improved water quality standards which have resulted in significant increase in the cost per unit of the Group.
Reason for change in selling expenses: It was mainly due to the decrease in sales staff and thus staff expense decreased.
Reason for change in administrative expenses: It was mainly due to decreased expenses including expenses for secretary of the Board and audit fees.
Reason for change in research and development expenses: It was mainly due to increased expenditure based on the research and development plan of this year.

– 8 –

Reason for change in financial expenses: It was mainly because debt financing increased which resulted in the increase in interest expenses, and exchange loss increased as compared with last year.
Reason for change in net cash flows from operating activities: It was mainly due to the increase in cash outflows of the cost item arising from the enhanced water quality standards this year.
8 Reason for change in net cash flows from investing activities: It was due to the fact that investment expenses of various construction projects of the Company for this year were higher than those in the same period last year.
Reason for change in net cash flows from financing activities: It was mainly because the new debt financing for the current year is higher than that in the same period last year.
Reason for change in investment gain: It was mainly because the dividends received from Tianjin Beifang Rencaigang Company Limited (天津市北方人才港股份有限公司) this year was less that those received in the same period of last year.
Reason for change in gains on disposals of assets: It was mainly because of the asset losses arising from the disposals in this year, which was nil for the same period last year.
Reason for change in non-operating income: It was mainly due to special subsidies received by the Company which were higher than those for the same period last year.

– 9 –

Reason for change in non-operating expenses: It was mainly due to loss on disposals of assets and other expenses which were higher than those for the same period last year.
Reason for change in profit or loss attributable to minority shareholders: It was mainly due to increased in profit or loss attributable to minority shareholders calculated based on net profit of subsidiaries for this year after increasing minority interests.

1. Analysis of income and costs

During the reporting period, while striving for market expansion and increasing the scale of its main business, the Company continued to strengthen its project operation, on the one hand to improve the operation quality to meet increasingly stringent regulatory requirements, and strive for operating cost control through refined management; on the other hand to timely maintain project agreements and timely adjust the unit price of sewage treatment service fees for ensuring project income.

During the reporting period, the Group’s principal businesses realized a total revenue of RMB 2,260.132 million, representing an increase of 16.99% over the previous year, mainly due to additional water projects and upward adjustment to the unit price of sewage treatment service fees for some projects during the reporting period. Costs for principal businesses amounted to RMB1,413.986 million, representing an increase of 21.98% over the previous year. This was on one hand due to increased business costs resulted from the above-mentioned increase in income, and on the other hand to the increased operating costs for meeting water quality standards of the transitional stage during the upgrade and renovation period of the four sewage treatment plants in Tianjin.

– 10 –

(1). Major business breakdown by industry, product and region

Unit: 0,000 Currency: RMB

Major business by industry

				Increase/
				decrease in	Increase/
				operating	decrease in	Increase/decrease in
				revenue as	operating costs	gross profit margin
	Operating	Operating	Gross profit	compared to	as compared to	as compared
Industry	revenue	costs	margin (%)	last year (%)	last year (%)	to last year (%)
Sewage treatment and	162,638	104,667	35.64	15.14	21.59	Decreased by 3.42
construction of sewage						percentage points
treatment plants business
Recycled water business	34,986	21,972	37.20	16.27	20.80	Decreased by 2.35
						percentage points
Toll collection business	6,248	712	88.60	-0.29	—	Decreased by 0.04
						percentage point
Tap water supply business	9,326	6,238	33.11	38.37	27.31	Increased by 5.81
						percentage points
Cooling and heating supply	9,102	5,879	35.41	27.75	20.32	Increased by 3.99
business(Note 1)						percentage points
Transformation of	3,528	1,842	47.79	117.78	71.78	Increased by 13.96
achievements in						percentage points
technology research(Note 2)
Others(Note3)	186	89	52.15	80.58	7.23	Increased by 32.73
						percentage points

– 11 –

Major business by region

				Increase/
				decrease in	Increase/
				operating	decrease in	Increase/decrease in
				revenue	operating costs	gross profit margin
	Operating	Operating	Gross profit	as compared	as compared to	as compared to last
Region	revenue	costs	margin (%)	to last year (%)	last year (%)	year (%)
Beijing-Tianjin-Hebei	139,951	80,351	42.59	11.28	17.18	Decreased by 2.89
Region(Note 4)						percentage points
Southwest Region(Note 5)	16,680	10,930	34.47	45.97	10.26	Increased by 21.22
						percentage points
Northwest Region(Note 6)	19,756	15,805	20	39.6	51.85	Decreased by 6.46
						percentage points
Central China Region(Note 7)	15,592	10,292	33.99	35.31	54.79	Decreased by 8.31
						percentage points
Eastern China Region(Note 8)	30,242	21,179	29.97	11.9	11.28	Increased by 0.4
						percentage points
Northeast Region(Note 9)	3,792	2,842	25.05	15.01	29.59	Decreased 8.43
						percentage points

Note 1: The increase was because Tianjin Jiayuanbin Innovative Energy Technology Company Limited (“ Jiayuanbin ” ) and Tianjin Jiayuantian Innovative Energy Technology Company Limited (“ Jiayuantian ” ) have successively commenced operation.
Note 2: The increase was due to the increase in deodorization projects.
Note 3: The increase was because Tianjin Caring Technology Development Company Limited (“ Caring Company ”) has newly added technical consultation business for denitrification systems, and for Yanyue (禹越), Lingang Wetland and other projects.
Note 4: Beijing-Tianjin-Hebei Region includes the four sawage treatment plants in Dongjiao, Xianyang Road, Jingu and Beichen of Tianjin as well as Anguo Capital Water Company Limited (“ Anguo Company ”), Tianjin Jing Hai Capital Water Co., Ltd. (“ Jinghai Company ”), Tianjin Jinning Capital Water Co., Ltd. (“ Jinning Capital Company ”), Tianjin Water Recycling Company Limited (“ Water Recycling Company ”), Caring Company, Tianjin Jiayuanxing Innovative Energy Technology Company Limited (“ Jiayuanxing ”), etc., and the increase was due to the increase in business volume as compared with compared with the same period of last year.
Note 5: Southwest Region includes Guizhou Capital Water Company Limited (“ Guizhou Company ”) and Qujing Capital Water Company Limited (“ Qujing Company ”), and the increase was due to higher water prices.
Note 6: Northwest Region includes Xi’an Capital Water Co., Ltd. (“ Xi’an Company ”), Karamay Tianchuang Water Co., Ltd. (“ Karamay Company ”), Inner Mongolia Bayannur Capital Water Company Limited (“ Bayannur Company ”) and Linxia Capital Water Co., Ltd. (“ Linxia Company ”), and the increase was due to increased income and cost of sewage, recycled water and tap water after the newly added Bayannur Project.

– 12 –

Note 7: Central China Region includes Fuyang Capital Water Company Limited (“ Fuyang Company ”), Wuhan Tianchuang Capital Environmental Protection Company Limited (“ Wuhan Company ”), Yingshang Capital Water Company Limited (“ Yingshang Company ”), Changsha Tianchuang Capital Water Co., Ltd. (“ Changsha Tianchuang Water ”), Changsha Tianchuang Environmental Protection Co., Ltd. (“ Changsha Tianchuang Environmental Protection ”), Anhui Capital Water Company Limited (“ Anhui Company ”), Honghu Tianchuang Water Company Limited (洪湖市天創水務有限公司) (“ Honghu Tianchuang ”) and“Hefei Capital Water Company Limited (合肥創業水務有限公司) (“ Hefei Company ”). The increase was due to higher water price and commencement of operation of Changsha Tianchuang Environmental Protection.
Note 8: Eastern China Region includes Hangzhou Tianchuang Capital Water Company Limited (“ Hangzhou Company ”) and Baoying Capital Water Company Limited (“ Baoying Company ”).
Note 9: Northeast Region includes Dalian Chunliuhe Water Quality Purification Company Limited (“ Dalian Chunliuhe Company ”), Wendeng Capital Water Company Limited (“ Wendeng Company ”) and Shangdong Capital Environmental Protection Technology Development Company Limited (“ Shandong Company ”). The increase was because Dalian Chunliuhe Company has commenced trial operation.

Description of major business by industry, product and region

Not applicable

(2). Analysis of production and sales volume

Not applicable

– 13 –

(3). Cost analysis

Unit:0,000 Currency:RMB

By industry

						Percentage
						change
						in the amount
					Percentage	for the current
			Percentage	Amount	of total	period as
		Amount	of total costs	in the	costs for the	compared to the
		for the	for the current	same period	same period	same period
Industry	Cost item	current period	period (%)	last year	last year (%)	last year (%)	Explanation
Sewage treatment and	Labor	12,999	9.19	11,725	10.11	10.87	Nil.
construction of sewage
treatment plants
	Energy consumption	20,977	14.84	19,767	17.05	6.12	Nil.
	(electricity)
	Materials consumption	17,042	12.05	7,664	6.61	122.36	The material consumption
							has increased mainly
							due to the improvement
							in water quality and
							increase in the volume of
							sewage treatment after the
							upgrading and construction
							of sewage treatment plants.
	Depreciation and	31,068	21.97	27,093	23.37	14.67	Nil.
	amortization
	Other manufacturing	22,581	15.97	19,831	17.11	13.87	Nil.
	costs
	Subtotal	104,667	74.02	86,080	74.26	21.59	Nil.

– 14 –

						Percentage
						change
						in the amount
					Percentage	for the current
			Percentage	Amount	of total	period as
		Amount	of total costs	in the	costs for the	compared to the
		for the	for the current	same period	same period	same period
Industry	Cost item	current period	period (%)	last year	last year (%)	last year (%)	Explanation
Tap water	Labor	1,060	0.75	776	0.67	36.60	The labor costs have
							increased mainly due to
							the newly-added Bayannur
							Project in this year.
	Energy consumption	689	0.49	392	0.34	75.77	The electricity fee has
	(electricity)						increased mainly due to
							the newly-added Bayannur
							Project in this year and
							the increase in volume of
							water treatment of Qujing
							second tap water plants.
	Materials consumption	2,969	2.10	2,673	2.31	11.07	Nil.
	(including the water
	resource fees)
	Depreciation and	1,411	1.00	982	0.85	43.69	The depreciation and
	amortization						a m o r t i z a t i o n h a v e
							increased mainly due to
							the newly-added Bayannur
							Project in this year.
	Other manufacturing	109	0.08	77	0.07	41.56	The repair expenses have
	costs						increased mainly due to
							the newly-added Bayannur
							Project in this year.
	Subtotal	6,238	4.41	4,900	4.23	27.31	Nil.

– 15 –

						Percentage
						change
						in the amount
					Percentage	for the current
			Percentage	Amount	of total	period as
		Amount	of total costs	in the	costs for the	compared to the
		for the	for the current	same period	same period	same period
Industry	Cost item	current period	period (%)	last year	last year (%)	last year (%)	Explanation
Recycled water	Labor	1,829	1.29	1,548	1.34	18.15	Nil.
	Energy consumption	1,241	0.88	817	0.70	51.90	The electricity has
	(electricity)						increased mainly due to
							the newly-added Bayannur
							Project in this year.
	Materials consumption	895	0.63	595	0.51	50.42	The material consumption
							has increased mainly
							due to the increase in the
							water supply volume of
							Zhangguizhuang plant.
	Depreciation	3,023	2.14	3,742	3.23	-19.21	Nil.
	and amortization
	Other manufacturing	1,655	1.17	1,745	1.51	-5.16	Nil.
	costs
	Subtotal	8,643	6.11	8,447	7.29	2.32	Nil.
Recycled water pipe	Construction cost	13,329	9.43	9,741	8.40	36.84	Settlement of pipe
network connection							n e t w o r k s b u s i n e s s
							increased, and the cost
							increased.
	Subtotal	13,329	9.43	9,741	8.40	36.84	Nil.
Energy supply	Labor	930	0.66	827	0.71	12.45	Nil.
	Energy consumption	2,231	1.58	1,909	1.65	16.87	Nil.
	(electricity)
	Materials consumption	64	0.05	59	0.05	8.47	Nil.
	Depreciation and	1,833	1.30	1,502	1.30	22.04	Nil.
	amortization
	Other manufacturing	821	0.58	589	0.51	39.40	It is mainly due to the
	costs						increase in repair and
							maintenance expenses of
							equipment.
	Subtotal	5,879	4.16	4,886	4.21	20.32	Nil.

– 16 –

						Percentage
						change
						in the amount
					Percentage	for the current
			Percentage	Amount	of total	period as
		Amount	of total costs	in the	costs for the	compared to the
		for the	for the current	same period	same period	same period
Industry	Cost item	current period	period (%)	last year	last year (%)	last year (%)	Explanation
Toll collection	Collection management	712	0.50	712	0.61	0	Nil.
	fees
	Subtotal	712	0.50	712	0.61	0	Nil.
Transformation of achievements	Expenditure for materials	1,753	1.24	986	0.85	77.79	It is mainly due to the
in technology research	and facilities						increase in the sales of
							environmental protection
							equipment.
	Other manufacturing	89	0.06	86	0.07	3.49	It is mainly due to the
	costs						decrease in labor costs.
	Subtotal	1,842	1.30	1,072	0.92	71.83	Nil.
Others	Other manufacturing	89	0.06	84	0.07	5.95	Nil.
	costs
	Subtotal	89	0.06	84	0.07	5.95	Nil.
Total		141,399	100.00	115,922	100.00	21.98

Cost analysis and other explanation

Not applicable

(4). Major customers and major suppliers

Sales from the top five customers amounted to RMB1,424.743 million, accounting for 58% of total sales for the year; among which, sales from related parties was RMB66.320 million, accounting for 3% of total sales for the year.

Procurement from the top five suppliers amounted to RMB752.3113 million, accounting for 26.03% of total procurement for the year; among which, procurement from related parties was nil, accounting for 0% of total procurement for the year.

Other explanation

Nil.

– 17 –

2. Expenses

See the above analysis statement on relevant subjects changes in income statement and cash flow statement for details.

3. Research and development investment

	Unit:0,000 Currency:RMB
Expensed research and development investment during the year	1,043,90
Capitalized research and development investment during the year	57.78
Total research and development investment	1,101,68
Percentage of total research and development investment
over operating revenue (%)	0.45
Number of research and development personnel in the Company	92
Percentage of number of research and development personnel
over the total number of personnel of the Company (%)	5.29
Ratio of capitalized research and development investment (%)	5.24

Explanation

Not applicable

4. Cash flow

See the above analysis statement on relevant subjects changes in income statement and cash flow statement for details.

(II) MAJOR CHANGES IN PROFITS CAUSED BY NON-PRINCIPAL BUSINESSES

Not applicable

– 18 –

(III) ANALYSIS OF ASSETS AND LIABILITIES

1. Assets and liabilities

Unit: 0,000 Currency: RMB

						Unit: 0,000 Currency: RMB
					Percentage
				Percentage	change in
		Percentage		of the	amount as at
		of the		amount as at	the end of the
		amount as at		the end of	current period
		the end of the	Amount as at	the previous	as compared
	Amount as at	current period	the end of	period	to the end
	the end of the	to the total	the previous	to the total	of previous
Items	current period	assets (%)	period	assets (%)	period (%)	Explanation
Prepayments	2,353.1	0.15	12,477.0	1.00	-81.14	Mainly due to the transfer of prepayments of completed parts at
						the beginning of the year to retained profit upon recognition of
						the carry-over cost of sales of pipeline connection for recycled
						water using the percentage of completion method according to
						HKFRS 15 “Revenue from Contracts with Customers”
Other receivables	3,616.2	0.23	9,370.8	0.75	-61.41	Mainly due to the recovery of bid security for projects during the
						current year.
Non-current assets	2,278.9	0.15	－	－	100.00	Mainly due to the road toll fee collection due within one year.
due within one year
Other current assets	15,668.8	1.00	8,544.9	0.69	83.37	Mainly due to the increase in input tax for value-added tax to be
						credited arising from acquisition of assets by the Company.
Available for sale	0.0	－	200.0	0.02	-100.00	Mainly due to the transfer of equity instrument investment
financial assets						under available-for-sale financial assets to FVOCI according to
						HKFRS 9 “Financial Instruments”
Financial assets at	200.0	0.01	0.0	－	100.00	Mainly due to the transfer of equity instrument investment
fair value through						under available-for-sale financial assets to FVOCI according to
other comprehensive						HKFRS 9 “Financial Instruments”
income (FVOCI)
Long-term equity	19,500.0	1.24	0.0	－	100.00	Mainly due to the investment in the subsidiary, Tianjin Bihai
investments						Sponge City Co. Ltd, (天津碧海海綿城市有限公司) by the
						Company.
Construction	15,093.9	0.96	2,065.7	0.17	630.69	Mainly due to the increased investment in non-franchise projects
in progress						during the current year.
Intangible assets	1,029,883.3	65.65	690,641.8	55.46	49.12	Mainly due to the increased in the franchise projects in the
						current year.
Other non-current	18,517.5	1.18	59,843.3	4.81	-69.06	Mainly due to the transfer of the prepayment for the equity of
assets						the Bayannur Company.

– 19 –

					Percentage
				Percentage	change in
		Percentage		of the	amount as at
		of the		amount as at	the end of the
		amount as at		the end of	current period
		the end of the	Amount as at	the previous	as compared
	Amount as at	current period	the end of	period	to the end
	the end of the	to the total	the previous	to the total	of previous
Items	current period	assets (%)	period	assets (%)	period (%)	Explanation
Short-term	20,000.0	1.27	49,900.0	4.01	-59.92	Mainly due to the repayment of short-term borrowings due.
borrowings
Notes payable and	17,639.8	1.12	12,825.4	1.03	37.54	Mainly due to the payables for source water from subsidiaries.
trade payables
Advances from	0.0	－	93,088.8	7.48	-100.00	Mainly due to the reclassification of advances from related
customers						parties contracted to contract liabilities according to HKFRS15
						"Revenue from Contracts with Customers".
Contract liabilities	46,909.3	2.99	0.0	－	100.00	Mainly due to the reclassification of advances from related
						parties contracted to contract liabilities according to HKFRS15
						"Revenue from Contracts with Customers".
Other payables	145,804.5	9.29	62,912.1	5.05	131.76	Mainly due to the increased payables for construction projects.
Non-current liabilities	24,336.9	1.55	87,009.2	6.99	-72.03	Mainly due to the repayment of the medium-term notes due
due within one year						within one year during the current year.
Other current	9.2	0.00	782.7	0.06	-98.82	Mainly due to the offsetting of maintenance costs provided for
liabilities						previous years.
Long-term	205,195.3	13.08	58,151.7	4.67	252.86	Mainly due to the newly added long-term borrowings of the
borrowings						Company.
Debentures payable	179,636.3	11.45	69,798.4	5.60	157.36	Mainly due to the newly added corporate debentures during the
						current year.
Provisions	1,006.9	0.06	3,293.0	0.26	-69.42	Mainly due to the offsetting of maintenance costs provided for
						previous years.
Minority interests	79,676.4	5.08	29,673.6	2.38	168.51	Mainly due to the increase in the minority interests of Bayannur
						Company.

– 20 –

(IV) INDUSTRY ANALYSIS

With the revision of Water Pollution Prevention and Control Law of the PRC, the local governments have been increasing the demands for the enhancement and assurance of the water environment quality. On one hand, the existing sewage treatment plants have gradually begun to upgrade in order to meet the higher discharge standards. On the other hand, the comprehensive management of water environment will become the mainstream demand of the market.

“National Plan for Construction of Urban Sewage Treatment and Recycling Facilities under the 13th Five-Year Plan” suggests that by the end of 2020, full coverage of urban sewage treatment facilities shall be achieved, and the black and odorous water of urban built districts above the prefecture level shall be controlled within 10%, and the urban sludge harmless disposal rate shall reach 75%, and the utilization rate of recycled water in cities and counties shall be raised further.

The above industry policies give the enterprises in the water utilities industry a lot of room for the market development, but they also put forward a great challenge for operation, market expansion, capital operation, technological development and research and other comprehensive capabilities of the enterprises.

Water Utilities Industry Analysis

1. Capacity and operation situation during the reporting period

				Utilization rate
Section			Capacity	of capacity (%)
Supply of tap water	and industrial water		305,000 m³/day	47.2
Sewage treatment		3,560,000 m³/day		93.6
Recycled water			280,000 m³/day	44.6
		Scale of new	Planned
		production	capacity of	Estimated
		during the	projects under	production
District	Capacity	reporting period	construction	time
Beijing-Tianjin-	1,755,000 tons/day	0	350,000 tons/day	2019 to 2020
Hebei region
Central China	478,000 tons/day	0	376,650 tons/day	2019
Eastern China	650,000 tons/day	0	30,000 tons/day	2019 to 2020
Southwest	390,000 tons/day	0	0 tons/day	2019
Northwest	690,000 tons m³/day	0	135,000 tons/day	2019
Northeast	85,000 tons/day	0	120,000 tons/day	2019

– 21 –

2. Sales information

Unit: 0,000 Currency: RMB

	Sales		Gross	YoY
Section	revenue	Cost	margin (%)	Change (%)
Supply of tap water	9,326	6,238	33.11	5.81
Sewage treatment	162,638	104,667	35.64	-3.42
Recycled water	7,928	8,643	-9.02	28.98

(1). Section of supply of tap water

1.1 The average water price and pricing principle for each district, and adjustment during the reporting period

Unit: 0,000 Currency: RMB

District

Qujing

Adjustment during the Adjustment
Pricing principle reporting period mechanism (if any)
1.70 The price of water No price adjustment Price adjustment by the supply services is cost factor adjustment calculated with the method principle of covering the operation and maintenance costs of tap water supply projects with reasonable investment return.

Average water price

Bayannur 2.35 The price of water No price adjustment A c c o r d i n g t o t h e supply services is relevant provisions calculated with the of the Administrative principle of covering Measures on the Price the operation and of Water Supplied to maintenance costs Municipalities of tap water supply projects with reasonable investment return.

– 22 –

1.2 The average water price and pricing principle for each customer type, and adjustment during the reporting period

Unit: 0,000 Currency: RMB

Type of	Average	Pricing	Adjustment during	Adjustment mechanism
client	water price	principle	the reporting period	(if any)
Government	2.02	The price of water supply	No price adjustment	Price adjustment by the cost
		services is calculated with		factor adjustment method
		the principle of covering the
		operation and maintenance
		costs of tap water supply
		projects with reasonable
		investment return.

(2). Section of sewage treatment

2.1 The average water price and pricing principle for each district, and adjustment during the reporting period

Unit: 0,000 Currency: RMB

			Adjustment during	Adjustment mechanism
District	Average water price	Pricing principle	the reporting period	(if any)
Beijing-	1.88	The price of project supply	Nil	Price adjustment by the cost
Tianjin-		services is calculated with		factor adjustment method
Hebei region		the principle of covering the
		operation and maintenance
		costs of sewage treatment
		projects with reasonable
		investment return.
Northeast	1.14	The price of project	Nil	Price adjustment by the cost
		services is calculated with		factor adjustment method
		the principle of covering the
		operation and maintenance
		costs of sewage treatment
		projects with reasonable
		investment return.

– 23 –

			Adjustment during	Adjustment mechanism
District	Average water price	Pricing principle	the reporting period	(if any)
Eastern China	1.3	The price of project	Nil	Price adjustment by the cost
		services is calculated with		factor adjustment method
		the principle of covering the
		operation and maintenance
		costs of sewage treatment
		projects with reasonable
		investment return.
Central China	1.12	The price of project	Price of project in Chibi was	Price adjustment by the cost
		services is calculated with	adjusted from RMB1.07/m3	factor adjustment method
		the principle of covering the	to RMB1.15/m3.
		operation and maintenance
		costs of sewage treatment
		projects with reasonable
		investment return.
Northwest	1.29	The price of project	Nil	Price adjustment by the cost
		services is calculated with		factor adjustment method
		the principle of covering the
		operation and maintenance
		costs of sewage treatment
		projects with reasonable
		investment return.
Southwest	1.01	The price of project	Nil	Price adjustment by the cost
		services is calculated with		factor adjustment method
		the principle of covering the
		operation and maintenance
		costs of sewage treatment
		projects with reasonable
		investment return.

– 24 –

2.2 The average water price and pricing principle for each customer type, and adjustment during the reporting period

Unit: Yuan Currency: RMB

Average Adjustment during the Adjustment mechanism Type of client water price Pricing principle reporting period (if any) Government 1.24 The price of project Price of project in Chibi was Price adjustment by the cost services is calculated with adjusted from RMB1.07/m[3] factor adjustment method the principle of covering the to RMB1.15/m[3.] operation and maintenance costs of sewage treatment projects with reasonable investment return.

3. Water quality of water sources of major water collection points

During the reporting period, the warer sources of Qujing No. 1, No. 2, and No. 3 Water Plants of the Company are Xiaoxiang Reservoir, Xihe Reservoir and Shuicheng Reservoir. According to the inspection information of Qujing Zhizhen Environmental Testing Co., Ltd. (曲靖至臻環境檢測有限公司) in 2018, the water quality indicators of the three reservoirs met Class II surface water environmental quality standards (GB3838-2002). The supply project of tap water in Bayannur for Front Banner subsidies was Shengyuan Tap Water Plant. The water sources for the plant are Gongjiqu (公濟渠) underground water sources. According to the inspection information of the Institute of Water Resources for Bayannur (巴彥淖爾市水利科學研究所) in 2018, the water quality indicators of 10 water source wells met The Standards for Drinking Water Quality (GB5749-2006).

– 25 –

4. Supply of tap water

		Difference of			Impact on the
		production and	YoY		Company’s
Water supply	Sales volume	sales volume (%)	Change (%)	Reason	operation
45,780,000 tons	45,780,000 tons	0	8.7	Water used for	No material impact
				residents’ living
				and urban greening
				has increased
5,640,000 tons	5,640,000 tons	－	－	S u p p l y o f t h e	No material impact
				industrial water
				has increased.

5. Significant capital expenditure

Unit: 0,000 Currency: RMB

Total amount of
capital expenditure
plan during the
reporting period	Source of capital	Capital cost	Project status
326,974	Own funds and bank borrowings	4.45%	See the table below

– 26 –

Among which: Project status

Unit: 0,000 Currency: RMB

						If there is any
						significant
						change or
						significant
						difference in
						the project
			The amount	Accumulated		progress, the
			invested during	and actual		reasons shall
	Total project	Project	the investment	investment	Project	be stated
Project operation model	budget	Progress	period	amount	revenue	and disclosed
BOT Model (The Upgrading and	124,022.7	Completed	61,083.5	72,832.8	For details of	Nil.
Renovation Project of Tianjin Jingu					revenue of
Sewage Treatment Plant and Beicang					the projects
Sewage Treatment Plant, and Karamay					for Tianjin
Phase II Project)					Jingu Sewage
					Treatment Plant
					and Beicang
					Sewage
					Treatment
					Plant, please see
					below “Major
					non-equity
					investment”;
					Karamay Phase
					II is under
					construction
					and there is no
					income.
Hefei Taochong Sewage Water Treatment	58,590	Under	32,271	32,271	Under	Nil.
Plant PPP Project		construction			construction
					and no income
Bayannur Sewage Treatment and	106,760	The acquisition	68,760	106,760	Profit of	Nil.
wastewater Reuse and Water		is completed.			RMB1.26
Supply PPP Project					million in
					2018.

– 27 –

(V) ANALYSIS OF INVESTMENT

1. Overall analysis of equity investment

During the reporting period, the Company’s equity investment was distributed in water projects and hazardous waste business, and for the establishment of project companies or purchase of equity thereof. The total amount of equity investment in 2018 equals to RMB768.15 million.

(1) Major equity investment

(1) On 2 February 2018, the Board agreed to designate Jieshou Capital Water Company Limited (“ Jieshou Company* ”), an indirectly wholly-owned subsidiary of the Company, as the PPP project company for the investment, construction and exclusive operation of the existing and additional entrusted operation projects in Jieshou City. The total investment of the project is RMB279.9455 million, which would be financed by the Company by first increasing its capital contribution to Fuyang Company by RMB84 million, which would in turn increase the capital of Jieshou Company by the same amount, with the rest of the project funds to be provided by Jieshou Company with bank loans. Following the capital increase, the registered capital of Fuyang Company and Jieshou Company was RMB191.10 million and RMB89.00 million respectively, with their registered address and the scope of business remaining unchanged. The capital increase has been completed within the period.
(2) On 2 February 2018, the Board agreed to increase the capital of Baoying Company for the project capital of the Expansion of Xianhe Sewage Treatment Plant Project, with a total investment amount of RMB99.806 million. The capital increase was funded by the shareholders of Baoying Company in cash in proportion to their shareholdings. The Company contributed RMB21 million as it held 70% equity of Baoying Company, and Xianhe Sewage Treatment Plant of Baoying County contributed RMB9 million as it held 30% equity of Baoying Company. Following the capital increase, the registered capital of Baoying Company was increased from RMB53 million to RMB83 million. The capital increase has been completed within the period.
(3) On 24 May 2018, the Board agreed that Jiayuanxing should jointly establish Tianjin Jiayuanxin Innovative Energy Technology Company Limited (天津佳源鑫創新能源科技有限公司) (“ Jiayuanxin ”) with Tianjin Kangyuan Electricity Engineering Company Limited* (天津康源電力工程有限公司) for the implementation of the heat supply ancillary project on the land parcel located at Miyun Road developed and constructed by Xiqing District of Tianjin City. The total investment of the project was RMB48.10 million, of which RMB5 million was sourced from Jiayuanxin’s registered capital, with the remaining funds from the engineering supporting fees. Jiayuanxing held 60% equity of Jiayuanxin as it had contributed RMB3 million to its share capital, and Tianjin Kangyuan Electricity Engineering Company Limited held 40% equity of Jiayuanxin as it had contributed RMB2 million to its share capital. Jiayuanxin has been established within the period.

– 28 –

(4) On 8 June 2018, the Board agreed to jointly establish Honghu Tianchuang Water Co., Ltd. (洪湖市天創水務有限公司) (“ Honghu Tianchuang ”) with Tianjin Second Municipal Highway Engineering Co., Ltd.(“ Honghu Municipal ”) l Water Pollution Control Center* (洪湖市水污染治理中心) and Tianjin Second Municipal by means of cash contribution. Honghu Tianchuang will be responsible for the investment, construction, operation and maintenance of the PPP project for the construction, upgrading and ancillary pipe networking of the rural sewage treatment plants in Honghu City. The total investment of the project was RMB437,769,500, which was financed with the registered capital of Honghu Tianchuang of RMB131,330,800, to which the Company has contributed RMB111,631,200, accounting for 85% of its total equity, Honghu Municipal Water Pollution Control Center has contributed RMB13,133,100, accounting for 10% of its total equity, and Tianjin Second Municipal has contributed RMB6,566,500, accounting for 5% of its total equity. Honghu Tianchuang has been established within the period.
(5) On 10 July 2018, the Board agreed to establish Shibinggui Capital Water Co. Ltd. (“ Shibinggui “), which was responsible for the investment, financing, design, construction, operation, maintenance and transfer of the sewage treatment PPP projects in Shibing County and the townships under its jurisdiction, as well as the collection of sewage treatment service fees and pipeline network service fees. The total investment of the project was RMB99.5094 million, which was financed with the registered capital of Shibing Company of RMB29,852,800, to which Guizhou Company has contributed RMB28,564,300, accounting for 95.68% of its total capital, Guizhou Jiantianxia Construction Engineering Company Limited (貴州建天下建築工程有限公司) has contributed RMB288,500, accounting for 0.97% of its total equity, and Shibing County Water Investment and Development Company Limited (施秉縣水務投資開發有限公司), a representative of the government, has contributed RMB1,000,000, accounting for 3.35% of its total equity. The capital injection has been completed within the period.
(6) On 10 July 2018, the Board agreed to jointly establish a project company with Beijing OriginWater Technology Co., Ltd.(北京碧水源科技股份有限公司) (the lead investor), Beijing Jiuan Construction & Investment Group Co., Ltd.(北京久安建設投資集團有限公司) and Tianjin Haihe Construction Developing Investment Co., Ltd. (“ Haihe Company ”), a representative of the government. The project company will be responsible for the implementation of the PPP project for the construction of Sponge City in South Jiefang Road area in Tianjin. The total investment of the project was RMB2,521.13 million, which was financed with the registered capital of the project company of RMB650 million, to which Beijing OriginWater Technology Co., Ltd. has contributed RMB227.50 million accounting for 35% of its total equity, the Company has contributed RMB195.00 million, accounting for 30% of its total equity, Beijing Jiuan Construction Investment Group Co., Ltd. (北京久安建設投資集團有限公司) has contributed RMB32.50 million, accounting for 5% of its total equity and Haihe Company has contributed RMB195.00 million, accounting for 30% of its total equity. During the reporting period, the project company has been established under the name of Tianjin Bihai Sponge City Co. Ltd..

– 29 –

(7) On July 25, 2018, the Board agreed that Xi’an Company should invest RMB3.00 million to establish Xi’an Chuangye Intelligent Environment Testing Co., Ltd. (西安創業智慧環境檢測有限公司), which is to carry out the examination and testing business for its business partners, with prominent strategic significance in expanding the business scope of Xi’an Company and extending its industrial chain. The company has been established within the period.
(8) On 25 September 2018, the Board agreed to invest RMB205,956,800 to establish a wholly-owned subsidiary, Hefei Capital Water Co., Ltd.（合肥創業水務有限公司）(“ Hefei Company ”), for its investment in the construction of the PPP project for Taochong Sewage Treatment Plant in Hefei City. The estimated total investment of the project was approximately RMB585,895,000, which was financed with the registered capital of Hefei Company. Hefei Company has been established within the period.
(9) On 9 November 2018, the Board agreed to invest RMB62.00 million in the capital increase of a wholly-owned subsidiary of the Company, Wuhan Company for its capital increase in Chibi Capital Water Co,. Ltd. (“ Chibi Company ”), which would invest in the upgrade and expansion of the PPP project of the sewage treatment plant in Chibi. The estimated total investment is approximately RMB205.58 million. Following the capital increase, the registered capital of Wuhan Company will be increased to RMB201.9689 million. The capital increase has been completed within the reporting period.
(10) On 20 November 2018, the Board agreed to invest RMB54 million to jointly establish Deqing Capital Water Co., Ltd. (“ Deqing Company ”) ( together with Deqing Qianlong Construction Development Co., Ltd. (德清乾龍建設發展有限公司) for the acquisition of the PPP project of Qianyuan Sewage Treatment Plant in Deqing County. The total investment of the project was approximately RMB279,820,000, which was financed with the registered capital of Deqing Company of RMB60 million, to which the Company has contributed RMB54 million, accounting for 90% of its share capital, and Deqing Qianlong Construction Development Co., Ltd., a representative of the government, has contributed RMB6 million, accounting for 10% of its share capital. The capital injection has been completed within the period.

(2) Major non-equity investment

As at the end of 2018, Jingu and Beicang projects were substantially completed. During the “upgrading and reconstruction” period, effective measures will be taken to ensure that the daily operation of the original Jingu Sewage Treatment Plant and Beicang Sewage Treatment Plant will not be affected. Moreover, in accordance with the “Supplementary Agreement of the Licensed Operation Agreement”, during the “upgrading and reconstruction” period, sewage treatment service fees will be charged in accordance with “Licensed Operation Agreement”. Therefore, no significant impact has been caused on the operating results of the Company during the reporting period.

(3) Financial assets measured by fair value

Not applicable

– 30 –

(6) DISPOSAL OF MAJOR ASSETS AND EQUITY INTEREST

Not applicable

(7) ANALYSIS OF MAJOR COMPANIES IN WHICH THE COMPANY HAS INVESTED

Unit: 0’000 Currency: RMB

	Principal			Type of
	Place of	Major Products	Registered	Legal	Percentage
Subsidiary	Business	or Services	Capital	Person	of interest	Asset Size	Net Assets	Net Profits
Water Recycling	Tianjin	Production and sales of recycled	10,000	Limited	100%	127,097	43,141	9,191
Company		water; development and		Company
		construction of water recycling
		facilities; manufacturing,
		installation, debugging and
		operation of water recycling
		facilities etc.
Hangzhou	Hangzhou,	Operation and maintenance of	37,744.5	Limited	70%	110,983	68,243	5,999
Company	Zhejiang	sewage treatment and recycled		Company
		water usage facilities, and
		supporting services such as its
		technical services and technical
		training. And its technical services,
		technical training and other
		supporting services.
Xi’an Company	Xi’an,	Development, construction,	33,400	Limited	100%	61,432	40,257	2,755
	Shaanxi	operation and management of		Company
		municipal sewage treatment plants
		and tap water and its supporting
		facilities; research and promotion
		of environment protection
		technology.
Jiayuanxing	Tianjin	Development, consulting, service	19,195.05	Limited	100%	61,317	30,252	2,473
		and transfer of energy conservation		Company
		and energy technology; property
		management services.
Caring	Tianjin	Environmental engineering	3,333.33	Stock	60%	14,398	11,534	945
Company		management and technical advice		Limited
		etc.		Company
Bayannur	Bayannur,	Processing of sewage water,	106,757.79	Limited	70%	113,160	111,119	126
Company	Inner	production and sales of recycled		Company
	Mongolia	water and supply of tap water
Shandong	Shandong	Investment and construction of	19,200	Limited	55%	24,347	12,306	-362
Company		sewage treatment facilities		Company

– 31 –

Water Recycling Company recorded revenue from principal operations of RMB345.01 million and operating profit of RMB129.57 million in 2018.

Hangzhou Company recorded revenue from principal operations of RMB284.06 million and operating profit of RMB82.88 million in 2018.

(8) STRUCTURED ENTITIES CONTROLLED BY THE COMPANY

Not applicable

III. DISCUSSION AND ANALYSIS OF THE COMPANY’S FUTURE DEVELOPMENT

(I) STATUS AND TRENDS OF THE INDUSTRY

In 2019, the Party Central Committee determined the major policy fundamentals of achieving stability in terms of employment, finance, foreign trade, foreign investment and expectations, boosting market confidence and continuing to tackle the three major issues. In the meanwhile, in respect of macro-policy, the countercyclical adjustment shall be enhanced and proactive fiscal policy and prudent monetary policy shall be implemented continuously with appropriate pre-adjustment and fine-tuning to stabilize total demand. The effect of the proactive fiscal policy shall be improved by carrying out tax and fees reduction on a larger scale and increasing the local government special bonds scale substantially. The prudent monetary policy shall be flexible to keep a reasonable and sufficient liquidity. The transition mechanism of the monetary policy shall be improved and the proportion of direct financing shall be increased to solve the problem of difficulties in and high cost of financing faced by the Company. Under the above macro-economic situation, both corporate operation and business expansion shall be carried out in conjunction with above environmental and economic features to introduce timely measures and appropriate adjustments. In particular, the corporate funds security and investment risks in market expansion shall be addressed. However, the outlook of the environmental protection industry is positive in general under the requirements of environmental governance, while the higher level of environmental standards also put forward higher requirements for the Company’s comprehensive competitiveness.

After years of hard work, the Company’s water projects has a total water supply scale of approximately 5.65 million cubic meters per day, involving water supply, sewage treatment and recycling, it has accumulated rich experience and capabilities in water project’s market development and operation management, and it has become a domestic well-known water company. In recent years, the Company has also made achievements in fields such as sludge disposal, industrial wastewater treatment, hazardous waste disposal, new energy utilization, electric heating and sponge city. It has gradually built up comprehensive environmental service capabilities. In the future, the Company is capable and confident to participate in the competition in the key development areas of the environmental protection industry, creates revenue for shareholders, and contributes in building a Beautiful China.

– 32 –

(II) DEVELOPMENT STRATEGIES OF THE COMPANY

Positioning itself as a “comprehensive environmental service provider” and based on the development strategic objectives set out during the “13th Five-Year Plan” period, the Company will continue to promote the corporate development in all aspects. 2019 is the critical year in implementing the “13th Five-Year Plan”. The Company will continue to devote consistent efforts to realise new development and step across pedestals in the crucial stage of the “13th Five-Year Plan”. In respect of business development, the Company not only continues to consolidate its core business focusing on wastewater treatment, but also actively expands other promising environmental protection business. Through the optimization of its business structure, the Company is committed to build up its integrated environmental service capabilities supported by the whole industry chain. In 2019, the Company will focus on connecting fully with the market through the system by deepening reforms in order to facilitate the realization of strategic goals with improved comprehensive management. In addition, the Company will pay attention to risk control and technology research and development and always adhere to the development strategy of “technology-leading, capital-stimulating, moderate-scale and legal-protection”. On the one hand, it will enhance various risk controls in response to changes in external environment to ensure a stable and healthy corporate development. On the other hand, it will adhere to the technology-oriented concept and put more efforts into improving its independent innovative capability to achieve high quality development. The Company will continue to uphold the concept of openness and sharing, and contribute its own strength to the construction of a Beautiful China and green development.

(III) OPERATING PLANS

1. Progress of development strategy and operating plan of the Company during the reporting period

In 2018, the Group started to transform itself into a “comprehensive environmental service provider” and implemented the main business concepts of “technology-leading, capitalstimulating, moderate-scale and legal-protection”. Through comprehensive distribution, careful planning and solid progress, key progresses have been achieved in all aspects of work. With efforts of all employees, the operation strategy and operation plan formulated by the Board at the beginning of the year has basically been completed. The targets set on revenue, fees and costs have also been achieved successfully.

– 33 –

In 2019, the Company will use the “13th Five-Year” strategic plan as its guideline to consolidate staff’s efforts and further develop new strategic businesses. It will deepen organizational and structural reforms, improve research and development system, focuses on the refined management as the major task and strive to achieve the upgrading of “enterprise positioning, market position and comprehensive capabilities”, as a result, laying a solid foundation for the final realization of the “13th Five-Year” strategic objective of “China’s well-known comprehensive environmental service provider”. The business strategies in 2019 are as follows:

(1) Strengthen technology-leading and improve core competitiveness

The Company will build a technology-led and innovation-driven platform to guide technology research and business development and open up a new phase of corporate transformation and development led by technology. It will carry out technology research and accumulation based on market needs and make practical and good transformation of technology achievements to facilitate the improvement in quality and efficiency of main businesses and the development of strategic emerging business.

(2) Continue to promote traditional business expansion while realizing industrial chain extension

The Company will step up efforts in market development and expand the scale of water business. It will focus on the goals in three aspects, namely the optimization of industrial chains, expansion into new business areas and key technology and products, so as to realize the vertical development of industrial chain and business diversity.

(3) Further enhance the institutional framework and strengthen basic management

The Company will sort out and optimize the Group’s management interface and hierarchy, improve internal control system construction and further implement the matrix management system in order to increase management efficiency and effectively guarantee the smooth implementation of the Group’s strategic planning.

(4) Reform the remuneration system and optimize appraisal mechanism for plans

The Company will improve its remuneration system by benchmarking with the industry and the mechanism transition in order to build a market-driven remuneration system in line with the market situation, activate existing human resources, attract external talents and accelerate the overall improvement in professional ability of the staff team.

– 34 –

(5) Strengthen internal control supervision and enhance legal protection

The Company will also strengthen its internal control and supervision through internal controls and risks assessments, and strengthen the management of the Company’s legal matters to ensure the proper legal and compliance reviews of various works.

(6) Strengthen the leading of the Party to provide solid safeguard for the Company’s development

The Company will focus on the deep integration between the Party-building works and our major works, stick to the way of market-oriented reforms and give full play to the Party Committee’s guiding role of “defining direction, making overall planning and supporting implementation” so as to provide solid political, talent and organizational safeguard to the Group’s transformation and upgrading and escort our operation.

3. Income, expenses and cost plan

In 2019, it is expected that the main business of the Group will still mainly engage in sewage treatment business, and the annual sewage treatment will be not less than 1.2 billion cubic meters. With the higher discharge standards applicable to projects in Tianjin and other areas and the continuous increase in costs of various types of resources, energy and labor, the operation costs of projects increase. If there are no major changes in the prevailing national guidelines, policies and business environment, it is expected that amount of variation in revenue from and cost for sewage treatment service fee will not be higher than 20%.

4. Technology R&D investment plan

In 2019, the Group will invest not less than RMB18.00 million in technology research, development and technological reforms, and will continue to conduct research and development on the new technical processes and application technology in the areas of sewage water treatment and sludge treatment etc.

In 2019, the estimated capital expenditure is RMB3.3 billion, which will be mainly used for the upgrade of water projects, and the construction of new energy projects and hazardous waste projects.

In 2019, the capital required for the Group’s operation and investment will be satisfied by the Group’s existing credit, corporate bonds, equity financing, strategic cooperation and other channels.

– 35 –

(IV) POSSIBLE RISKS

(1) Risk of government credit

Given the characteristic of licensed operation in sewage treatment projects, the capital source of sewage treatment service fee comes mainly from the special sewage-treatment fee charged by the governments through the sales of tap water; the deficient amount will be supplemented by the local governments. The PPP packaging projects recently promoted usually include the investment and construction of infrastructure such as pipe networks. The investment of social capital is relatively huge, and the investment return relies mainly on the payment of sewage treatment service fee from the governments. Therefore, the singleness of capital source determines the importance and cruciality of the government credibility. Whether water utilities companies can recoup the investment as scheduled and obtain the expected rate of return depends on the level of government credibility. In case the risk related to government credibility occurs, the project companies will face cash flow problem, which may generate capital risks such as financial risks and financing risks.

(2) Risk of change in policy

Currently, the PRC is at the special phase of comprehensive in depth reform. For a long period in the future, there will be transformative changes in policies related to economy, finance, commodity prices, financial taxation and government functions, etc. The policy changes in commodity prices and taxation will directly influence the adjustment of water price. Various possible problems relating to PPP model may appear gradually in 3 to 5 years. During the exclusive license operation period lasting for 30 years, as a social investor, the Company needs to pay attention to the risk of changes in policy.

(3) Risk of operation and management

With the introduction of a series of energy-saving and emission reduction requirements under the national “13th Five-Year Plan”, the standards for environmental governance will become more stringent. In order to meet the new standards, the demands for upgrading sewage treatment plants will gradually increase. Under this circumstance, on one hand, sewage treatment plants will face the risk of facing restructuring and operational risk. On the other hand, enterprises will also face the risk of adjusting the original licensed operation agreement.

– 36 –

2. Risk control measures

(1) Protect the Company’s lawful interests by making full use of laws and regulations

Strengthening the concept of corporate governance in accordance with the laws by making full use of its overall legal advisory system and protecting lawful interests of the Company. Meanwhile, the Company calls for and supports the prompt establishment and perfection of “Licensed Operation Law” and “PPP Law” to further assure equality of the contracting parties, tighten up the performance assessment and profit distribution mechanisms, and provide for the government obligations to pay according to contracts and the rights for investors to get reasonable returns under the laws, so as to reduce the risk related to government credibility and the financial risk of the investors.

(2) Strengthen comprehensive risk management

Determine the target for comprehensive risk management; establish the institutional framework for comprehensive risk management to identify, analyse, assess and deal with possible hidden risks in different business links; improve the risk management system and establish a sound and comprehensive risk management system for the Company; improve its timing and efficiency of the comprehensive risk management of the Company; conduct the dynamic management and effective control over risks so as to reasonably ensure the achievement of the Company’s strategic targets.

(3) Continue to raise the standards of operating management

As a listed company in the environmental protection field, the Company has control over production and operation risks in a timely manner through standardized management in accordance with relevant changes in policies. Specifically, our risk control measures include staff training, strengthening the consciousness of laws on environmental protection and improving the management and control levels of technologies; strengthening the maintenance and protection of facilities for proper preservation of asset value and stable operation; perfecting the monitoring of quality, promoting control over the whole process to ensure the end products could meet the standards of discharge; developing water environment remedy plans and safe production plans, so as to ensure careful operation and the best environmental performance of the Company under force majeure conditions.

(V) OTHERS

Not applicable

– 37 –

IV. FAILURE TO DISCLOSE AS PER RULES DUE TO INAPPLICABILITY OR SPECIAL REASONS, SUCH AS STATE SECRETS AND BUSINESS SECRETS

Not applicable

V. THE PROPOSAL ON THE PROFIT APPROPRIATION OR TRANSFER OF CAPITAL RESERVE FUND TO SHARE CAPITAL FOR THE REPORTING PERIOD AS REVIEWED BY THE BOARD

As audited by PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers, the net profit attributable to the Company in 2018 amounted to RMB501.17 million. After deduction of the statutory common reserve of RMB37.20 million drawn in accordance with the relevant requirements of the Company Law of the PRC and the Articles of Association of the Company, adding the retained profit of RMB2,978.87 million at the beginning of the year, and less the distribution in 2018 of the 2017 cash dividend of RMB0 million, the actual profit distributable to the shareholders for this year amounted to RMB3,442.84 million.

In 2018, as the Company’s application for the non-public issuance of A shares has been approved by the China Securities Regulatory Commission, the Company is proceeding with the relevant fundraising work. According to the requirements of Article 18 of the Administrative Measures for Securities Issuance and Underwriting, where a listed company with a plan for issuance of securities has any plan for profit distribution or conversion of capital reserve into share capital which has not yet been submitted to its shareholders’ general meeting for voting, or it has been approved by the shareholders’ general meeting but has not been implemented yet, the issuance of securities shall be proceeded after such plan has been implemented. Considering the various factors such as the longterm development of the Company, shareholders’ interests and the validity period of the approval for the non-public issuance of A shares, the Company did not conduct profit distribution in 2017

Considering that the Company is still in the development stage and cooperating with the capital expenditure arrangement in 2019 of Company for external project development, the Company intends to distribute to all of its Shareholders in the form of every 10 share with cash dividends of RMB1.06 (gross tax) with a total amount of RMB151.29 million in 2018 according to the profit appropriation policy of the Company. The amount of cash dividends accounted for 30.19% of the Company’ s distributable profit realized in 2018. The capital reserve in 2018 will not be transferred to the share capital.

The distribution proposal is subject to the consideration and approval at the 2018 general meeting of the Company.

– 38 –

§5 FINANCIAL ACCOUNTING REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in Rmb thousand unless otherwise stated)

Note
Revenue from contracts with customers
3(a)
Tax expenses and surcharge
Cost of sales
Gross profit
Selling expenses
4
Administrative expenses
4
Other income
3(b)
Other gains /(losses) - net
5
Operating profit
Finance income
Finance costs
Finance costs - net
6
Profit before income tax
Income tax expense
7
Profit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Owners of the Company
Non-controlling interests
Earnings per share for profit attributable to the
equity holders of the Company (in RMB Yuan):
Basic earnings per share
8
Diluted earnings per share
8

Year ended 31 December
2018
2017
RMB’ 000
RMB’ 000
2,447,515
1,931,928
(49,688)
(57,464)
(1,568,995)
(1,167,688)
828,832
706,776
(5,417)
(6,467)
(142,069)
(151,447)
173,023
278,600
2,461
(8,335)
856,830
819,127
53,779
34,195
(215,765)
(134,534)
(161,986)
(100,339)
694,844
718,788
(168,064)
(199,593)
526,780
519,195
－
－
526,780
519,195
501,168
508,251
25,612
10,944
526,780
519,195
0.35
0.36
0.35
0.36

– 39 –

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2018

(All amounts in Rmb thousand unless otherwise stated)

Note ASSETS Non-current assets Land use rights Property, plant and equipment Intangible assets Investment properties Investments accounted for using the equity method Financial asset at fair value through other comprehensive income Available-for-sale financial assets Long-term receivables Other non-current assets Current assets Inventories Trade receivables 10 Prepayments Other current assets Other receivables Cash and cash equivalents Restricted cash Total assets	As at 31 December	As at 31 December
	2018 RMB’ 000 60,358 497,580 10,314,469 84,052 195,000 2,000 － 253,686 109,181 11,516,326 13,991 2,091,760 23,531 179,477 36,162 1,808,543 17,658 4,171,122 15,687,448	2017 RMB’ 000 36,717 404,488 6,869,701 86,820 －－ 2,000 294,956 598,433
		8,293,115
		18,112 1,932,058 124,770 85,449 93,708 1,893,689 11,989
		4,159,775
		12,452,890

– 40 –

		As at 31	December
	Note	2018	2017
		RMB’ 000	RMB’ 000
LIABILITIES
Non-current liabilities
Borrowings		4,114,683	1,543,388
Deferred revenue		2,101,085	2,129,064
Deferred income tax liabilities		138,812	120,259
Provisions for other liabilities and charges		10,069	32,930
Other non-current liabilities		38,000	40,000
		6,402,649	3,865,641
Current liabilities
Trade payables	11	176,398	128,254
Contract liabilities		469,185	－
Advances from customers		－	930,888
Wages payables		53,942	44,550
Income tax and other taxes payables		68,893	63,741
Dividend payable		1,912	1,912
Other payables		1,456,133	633,672
Borrowings		443,369	1,370,456
		2,669,832	3,173,473
Total liabilities		9,072,481	7,039,114
Net assets		6,614,967	5,413,776
EQUITY
Capital and reserves attributable to the
Company’s equity holders
Share capital		1,427,228	1,427,228
Other reserves		948,131	879,022
Retained earnings		3,442,844	2,810,790
		5,818,203	5,117,040
Non-controlling interests		796,764	296,736
Total equity		6,614,967	5,413,776

– 41 –

Notes to the condensed consolidated financial statement

For the year ended 31 December 2018

(All amounts in Rmb thousand unless otherwise stated)

1 Basis of preparation

(a) Compliance with HKFRS and HKCO

The consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards（‘HKFRS’ ）and disclosure requirements of the Hong Kong Companies Ordinance Cap. 622.

(b) Historical cost convention

The financial statements have been prepared on the historical cost basis.

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2018:

‧ HKFRS 9 Financial Instruments
‧ HKFRS 15 Revenues from Contracts with Customers

The Group had to change its accounting policies and apply simplified transition approach without restating comparative information following the adoption of HKFRS 9 and HKFRS 15.

(d) New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods and have not been early adopted by the Group. The Group’ s assessment of the impact of these new standards and interpretations is set out below:

HKFRS 16 Leases

HKFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

The standard will affect primarily the accounting for the Group’ s operating leases. As at the reporting date, the Group has no non-cancellable operating lease commitments, and the Group does not expect the new guidance to have a significant impact on the financial statements.

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

– 42 –

2 Change in accounting policies

This note explains the impact of the adoption of HKFRS 9 Financial Instruments and HKFRS 15 Revenue from Contracts with Customers on the Group’s financial statements.

(a) Impact on the financial statements

(i) HKFRS 9 and HKFRS 15 were generally adopted without restating comparative information. The reclassifications and the adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018.

The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided. The adjustments are explained in more detail by standard below.

				1 January
	31 December			2018
Balance sheet (extract)	2017	HKFRS 15	HKFRS 9	Restated
	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS
Non-current assets
Financial asset at fair value
through other
comprehensive income	－	－	2,000	2,000
Available-for-sale
financial assets	2,000	－	(2,000)	－
	8,293,115	－	－	8,293,115
Current assets
Contract assets	－	6,249	－	6,249
Inventories	18,112	(6,249)	－	11,863
Trade receivables	1,932,058	－	(2,658)	1,929,400
Prepayments	124,770	(91,230)	－	33,540
	4,159,775	(91,230)	(2,658)	4,065,887
Total assets	12,452,890	(91,230)	(2,658)	12,359,002

– 43 –

				1 January
	31 December			2018
Balance sheet (extract)	2017	HKFRS 15	HKFRS 9	Restated
	RMB’000	RMB’000	RMB’000	RMB’000
LIABILITIES
Non-current liabilities	3,865,641	－	－	3,865,641
Current liabilities
Trade payables	128,254	9,866	－	138,120
Contract liabilities	－	591,017	－	591,017
Advances from customers	930,888	(930,388)	－	－
Income tax and other
taxes payables	63,741	68,031	－	131,772
	3,173,473	(261,974)	－	2,911,499
Total liabilities	7,039,114	(261,974)	－	6,777,140
Net assets	5,413,776	170,744	(2,658)	5,581,862
EQUITY
Capital and reserves
attributable to the
Company’ s equity holders
Retained earnings	2,810,790	170,744	(2,658)	2,978,876
	5,117,040	170,744	(2,658)	5,285,126
Non-controlling interests	296,736	－	－	296,736
Total equity	5,413,776	170,744	(2,658)	5,581,862

– 44 –

(b) HKFRS 9 Financial Instruments

(i) Imapirment of financial assets

The Group has two types of financial assets that are subject to HKFRS 9’s new expected credit loss model:

‧ trade receivables
‧ other financial assets at amortised cost

The Group was required to revise its impairment methodology under HKFRS 9 for each of these classes of assets. The impact of the change in impairment methodology on the Group’ s retained earnings and equity is disclosed in the table in note 2(a) above.

While cash and cash equivalents are also subject to the impairment requirements of HKFRS 9, the identified impairment loss was immaterial.

Trade receivables

The Group applies the HKFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.

On that basis, the additional loss allowance on 1 January 2018 is RMB2,658,000.

Other financial assets at amortised cost

Other financial assets at amortised cost include other receivables and long-term receivables. Applying the expected credit risk model resulted in the recognition of no additional loss allowance on 1 January 2018 (previous loss allowance was nil) and a further increase in the allowance by RMB10,000 and RMB138,000 for other receivables and long-term receivables respectively in 2018.

The Group has adopted HKFRS 15 Revenue from Contracts with Customers from 1 January 2018 which resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in HKFRS 15, the Group has adopted the new rules prospectively and has not restated comparatives for the 2017 financial year.

The Group previously recognised revenue from the sales of pipeline connection for recycled water when the connection is finished.

The application of HKFRS 15 requires that revenue and cost are recognised by reference to the percentage of completion of the contract activity at the balance sheet date. The stage of completion is measured by reference to the actual outcomes achieved up to the end of the reporting period as a percentage of total contract amount.

– 45 –

To reflect this change in policy, the Group further recognised a revenue of RMB328,755,000 which resulted in the decrease in advances from customers of RMB339,871,000. And the Group recognised additional cost of RMB101,096,000, correspondingly the amount of prepayment decreased by RMB91,230,000 and the amount of trade payables increased by RMB9,866,000. The contract liability recognised on 1 January 2018 was RMB591,017,000, which was reclassified from advances from customers. Thus, income tax and other taxes payables increased by RMB68,031,000, including the increase of income tax of RMB56,915,000.

In summary, the following adjustments were made to the amounts recognised in the balance sheet at the date of initial application (1 January 2018):

	HKAS 18 /
	HKAS 11			HKFRS 15
	carrying			carrying
	amount	Reclassification	Remeasurements	amount
	31 December			1 January
	2017			2018
	RMB’000	RMB’000	RMB’000	RMB’000
Prepayments	124,770	－	(91,230)	33,540
Contract liabilities	－	591,017	－	591,017
Advances from customers	930,888	(591,017)	(339,871)	－
Trade payables	128,254	－	(9,866)	138,120
Income tax and other taxes payables	63,741	－	68,031	131,772

The impact on the Group’ s retained earnings as at 1 January 2018 is as follows:

Retained earnings - after HKFRS 9 restatement (Note 2(b)) Restatement of revenue and cost of sales for pipeline collection project Increase in income tax Adjustment to retained earnings from adoption of HKFRS 15 Opening retained earnings 1 January - HKFRS 9 and HKFRS 15	2018 RMB’000 2,808,132 227,659 (56,915)
	170,744
	2,978,876

– 46 –

The impact on the Group is respect of the application of HKFRS 15 for the year ended 31 December 2018:

	31 December		31 December
	2018 Result		2018 Result
	without		with
	adoption	HKFRS 15	adpotion
	RMB’000	RMB’000	RMB’000
Revenue from contracts with customers	2,446,200	1,315	2,447,515
Tax expenses and surcharge	(49,688)	－	(49,688)
Cost of sales	(1,567,030)	(1,965)	(1,568,995)
Gross profit	829,482	(650)	828,832
Selling expenses	(5,417)	－	(5,417)
Administrative expenses	(142,069)	－	(142,069)
Other income	173,023	－	173,023
Other gains /(losses) - net	2,461	－	2,461
Operating profit	857,480	(650)	856,830
Finance income	53,779	－	53,779
Finance cost	(215,765)	－	(215,765)
Finance cost- net	(161,986)	－	(161,986)
Profit before income tax	695,494	(650)	694,844
Income tax expense	(168,226)	162	(168,064)
Profit for the year	527,268	(488)	526,780
Profit is attributable to:
Owners of the Company	501,656	(488)	501,168
Non-controlling interests	25,612	－	25,612
	527,268	(488)	526,780

– 47 –

The impact on the Group is respect of the application of HKFRS 15 for the year ended 31 December 2018 (continued):

Balance sheet (extract) Non-current assets Land use rights Property, plant and equipment Intangible assets Investment properties Investments accounted for using the equity method Financial asset at fair value through other comprehensive income Available-for-sale financial assets Long-term receivables Other non-current assets Current assets Inventories Trade receivables Prepayments Other current assets Other receivables Cash and cash equivalents Restricted cash Total assets	31 December 2018 Result without adoption RMB’000 60,358 497,580 10,314,469 84,052 195,000 2,000 － 253,686 109,181 11,516,326 13,991 2,091,760 121,947 186,391 36,162 1,808,543 17,658 4,276,452 15,792,778	HKFRS 15 RMB’000 －－－－－－ - －－－－－ (98,416) (6,914) －－－ (105,330) (105,330)	31 December 2018 Result with adoption RMB’000 60,358 497,580 10,314,469 84,052 195,000 2,000 － 253,686 109,181 11,516,326 13,991 2,091,760 23,531 179,477 36,162 1,808,543 17,658 4,171,122 15,687,448

– 48 –

The impact on the Group is respect of the application of HKFRS 15 for the year ended 31 December 2018 (continued):

Balance sheet (extract) Non-current liabilities Borrowings Deferred revenue Deferred income tax liabilities Provisions for other liabilities and charges Other non-current liabilities Current liabilities Trade payables Contract liabilities Advances from customers Wages payables Income tax and other taxes payables Dividend payable Other payables and others Borrowings Total liabilities Net assets EQUITY Capital and reserves attributable to the Company’s equity holders Share capital Other reserves Retained earnings Non-controlling interests Total equity	31 December 2018 Result without adoption RMB’000 4,114,683 2,101,085 138,812 10,069 38,000 6,402,649 171,752 － 810,372 53,942 7,938 1,912 1,456,133 443,369 2,945,418 9,348,067 6,444,711 1,427,228 948,131 3,272,588 5,647,947 796,764 6,444,711	HKFRS 15 －－－－－－ 4,646 469,185 (810,372) － 60,955 －－－ (275,586) (275,586) 170,256 －－ 170,256 170,256 － 170,256	31 December 2018 Result with adoption RMB’000 4,114,683 2,101,085 138,812 10,069 38,000 6,402,649 176,398 469,185 － 53,942 68,893 1,912 1,456,133 443,369 2,669,832 9,072,481 6,614,967 1,427,228 948,131 3,442,844 5,818,203 796,764 6,614,967

– 49 –

3 Segment information

An analysis of revenue and contributions to operating profit for the year by principal activities is as follows:

(a) Analysis of the Group’ s revenue and other income

	2018	2017
	RMB’000	RMB’000
Revenue from contracts with customers	2,447,515	1,931,928
Other income	173,023	278,600
Total	2,620,538	2,210,528

(b) Analysis of other income

2018 Income Cost RMB’000 RMB’000 99,512 － 73,140 －－－－－－－－－ 371 － 173,023 －	2017	2017
Income RMB’000 99,512 73,140 －－－－ 371 173,023	Income RMB’000 134,540 50,730 147,706 56,802 － 7,695 4,610 402,083	Cost
		RMB’000 －－ (111,286) (5,491) － (4,266) (2,440)
		(123,483)

As adoption of HKFRS 15 Revenue from contracts with customers, management reviewed all kinds of income and expenses. Contract related revenue has been reclassified from other income to revenue from contracts with customers. Contract related cost has been reclassified from other incomet to cost of sales.

– 50 –

(c) Operating segment analysis

Management has determined the operating segments based on the reports reviewed by the Strategy Steering Committee at managers operating meeting held regularly that are used to make strategic decisions for the purpose of allocating resources and assessing performance.

The meeting considers the business from both service and geographical perspectives. From a service perspective, management assesses the performance of processing of sewage water and construction of related facilities, recycled water and pipeline connection, heating and cooling services, tap water operations and sale of environmental protection equipment. Processing of sewage water is further evaluated on a geographical basis (Tianjin plants, Hangzhou plant and other plants). The environmental protection equipment is mainly the achievement of technology research. The assets are allocated based on the operations of the segment and the physical location of assets. The liabilities are allocated based on the operations of the segment. Expenses indirectly attributable to each segment are allocated to the segments based on the proportion of each segment’s revenue.

Other services include contract operation services, lease of office building or apartments and provide technical services etc. These are not separately presented within the reportable operating segments, but included in the ‘all other segments’ column.

The Strategy Steering Committee assesses the performance of the operating segments based on a measure of profit before income tax, which is measured in the approach consistent with that in the financial statements.

– 51 –

The segment information provided to the managers operating meeting for the reportable segments for the year ended 31 December 2018 and 2017 respectively is as follows:

(i) For the year ended 31 December 2018

Sewage processing and facility construction services Tianjin plants Hangzhou plant Other plants RMB’000 RMB’000 RMB’000 858,211 284,062 484,102 －－－ 858,211 284,062 484,102 (607,310) (201,086) (376,977) 250,901 82,976 107,125 6,430,423 1,090,937 5,136,425 5,838,269 349,501 1,351,428 33,398 1,748 2,218 (145,836) (15,461) (31,211) (235) － (4,217) (131,095) (60,781) (114,353) (923,737) － (2,499,828)	Sewage processing and facility construction services Tianjin plants Hangzhou plant Other plants RMB’000 RMB’000 RMB’000 858,211 284,062 484,102 －－－ 858,211 284,062 484,102 (607,310) (201,086) (376,977) 250,901 82,976 107,125 6,430,423 1,090,937 5,136,425 5,838,269 349,501 1,351,428 33,398 1,748 2,218 (145,836) (15,461) (31,211) (235) － (4,217) (131,095) (60,781) (114,353) (923,737) － (2,499,828)	Group RMB’000 2,447,515 － 2,447,515 (1,752,671)
Tianjin plants RMB’000 858,211 － 858,211 (607,310) 250,901 6,430,423 5,838,269 33,398 (145,836) (235) (131,095) (923,737)	Hangzhou plant RMB’000 284,062 － 284,062 (201,086) 82,976 1,090,937 349,501 1,748 (15,461) － (60,781) －
		694,844
		694,844 (168,064)
		526,780
		15,492,448
		195,000
		15,687,448
		9,072,481
		53,779 (198,774) (44,830) (346,422) (3,968,172)

– 52 –

(ii) For the year ended 31 December 2017

Sewage processing and facility

construction services

							Sale of
				Recycled water	Heating		environmental
	Tianjin	Hangzhou	Other	and pipeline	and cooling	Tap water	protection	All other
	plants	plant	plants	connection	services	operations	equipment	segments	Group
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Segment revenue	798,592	252,000	361,897	300,897	71,250	67,401	16,200	63,691	1,931,928
Timing of revenue
recognition
At a point in time	798,592	252,000	361,897	300,897	71,250	67,401	16,200	63,691	1,931,928
Over time	－	－	－	－	－	－	－	－	－
Segment expense	(477,667)	(184,031)	(297,390)	(187,260)	(48,133)	(56,228)	(23,005)	60,574	(1,213,140)
Results before
share of profits
of an associate	320,925	67,969	64,507	113,637	23,117	11,173	(6,805)	124,265	718,788
Profit before
income tax									718,788
Income tax expense									(199,593)
Profit for the year									519,195
Segment assets	5,679,104	1,147,042	2,690,885	1,549,175	593,280	215,711	13,508	564,185	12,452,890
Total assets									12,452,890
Total liabilities	4,262,871	424,806	791,116	1,099,796	240,864	42,317	3,583	173,761	7,039,114
Other information
-Interest income	13,504	1,389	1,566	1,769	682	20	－	363	19,293
-Interest expenses	(77,589)	(18,458)	(26,997)	(194)	(2,785)	(3,345)	－	(2,064)	(131,432)
-Depreciation	(120)	－	(343)	(37,206)	(127)	－	(776)	(5,163)	(43,735)
-Amortization	(126,851)	(57,448)	(86,167)	(212)	(14,889)	(9,815)	－	(1,031)	(296,413)
-Capital
expenditures	(54,723)	(47,713)	(700,929)	(1,720)	(141,813)	－	－	(42,130)	(989,028)

– 53 –

4 Expenses by nature

Expenses included in cost of sales, selling expenses and administrative expenses are analysed as follows:

	2018	2017
	RMB’000	RMB’000
Amortisation of intangible assets and land use rights	346,422	296,413
Utilities	314,546	254,272
Employee benefit expenses	286,101	266,877
Raw materials and consumables used	190,667	80,659
Cost of recycling water pipeline connection service	152,892	84,528
Repair and maintenance expenses	105,194	91,088
Sewage mud processing fee	97,018	75,220
Depreciation of property, plant and equipment and investment properties	44,830	43,735
Factory environment, detection and fire prevention expenses	29,355	26,144
Construction cost of environmental equipment	18,613	2,762
Network maintenance costs	17,416	19,175
Consulting service expenses	15,274	12,434
Travel, meeting and business entertainment expenses	14,403	10,174
Provision of financial assets	12,973	11,698
Toll road management fee	7,120	7,120
Office expenses	7,054	6,458
Expenses of secretary of the board	4,475	5,227
Auditors’ remuneration - audit	3,300	4,200
Other taxes	2,464	2,021
Others	46,364	25,397
	1,716,481	1,325,602

– 54 –

5 Other gains/(losses) - net

Government grants Loss on disposal of property, plant and equipment Impairment of other current assets Others Finance costs- net Interest expenses of borrowings Less: Capitalised interest Net interest expenses Less: Interest income - long-term receivables - bank deposits Exchange loss/(gain) Others	2018 RMB’000 5,341 (900) － (1,980) 2,461 2018 RMB’000 233,574 (34,800) 198,774 (53,779)	2017 RMB’000 2,703 (82) (10,230) (726) (8,335) 2017 RMB’000 131,714 (282) 131,432 (19,293)
	(10,029) (43,750)	(10,511) (8,782)
	16,543 448 161,986	(14,902) 3,102 100,339

6 Finance costs- net

For the year ended 31 December 2018, the exchange loss on the long-term payables denominated in JPY and US dollar amounted to approximately RMB17 million (2017: exchange gain of RMB 15 million).

7 Income tax expense

Current income tax Increase/(Decrease) in deferred tax liabilities	2018 RMB’000 163,631 4,433 168,064	2017 RMB’000 205,442 (5,849) 199,593

– 55 –

8 Earnings per share

Basic earnings per share is calculated based on the profit attributable to owners of the Company of approximately RMB501 million (2017: RMB508 million) and weighted average number of ordinary shares of 1,427 million shares in issue during the year (2017: 1,427 million shares).

Diluted earnings per share is calculated by adjusting weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has no dilutive potential ordinary shares. Diluted earnings per share are calculated using the same bases as described above for calculating basic earnings per share.

Profit attributable to owners of the Company Weighted average number of ordinary shares in issue (million shares) Basic and diluted earnings per share (RMB yuan)	2018 RMB’000 501,168 1,427 0.35	2017 RMB’000 508,251
		1,427
		0.36

9 Dividends

There was no dividend paid in 2018 (2017: RMB 136 million, RMB 0.095 per share).

10 Trade receivables

Receivables from third parties -Trade receivables -Notes receivable Receivables from related parties Less: allowance for impairment of trade receivables (note(a))	31 December 2018 RMB’000 2,089,992 2,079,697 10,295 51,352 2,141,344 (49,584) 2,091,760	31 December 2017 RMB’000 1,897,344 1,895,444 1,900 68,815
		1,966,159 (34,101)
		1,932,058

– 56 –

(a) Impaired trade receivables

(i) The aging of trade receivables is analysed below:

	31 December	2018	31 December	2017
		% of total		% of total
	Amount	balance	Amount	balance
	RMB’000		RMB’000
Within 1 year	1,468,039	68	1,268,394	64
1 to 2 years	649,268	29	666,168	34
2 to 3 years	15,464	1	11,914	1
3 to 4 years	7,024	1	19,683	1
4 to 5 years	1,549	1	－	－
Total	2,141,344	100	1,966,159	100

(ii) As at 31 December 2018, provision for bad debts by individual is analyzed as below:

Tianjin Water Authority Bureau Qujing Sewage Company Hangzhou Municipal Facilities Supervision Center (杭州市市政設施監管中心) Hangzhou Sewage Company Guiyang Water Authority Bureau Xi’an Infrastructure Investment Group Tianjin Qudong Culture Media Co. LTD Total	Carrying amount Expected credit loss rate RMB’000 1,582,240 0.05% 140,296 24.49% 43,545 0.05% 18,198 0.05% 39,243 0.05% 16,608 0.05% 7,910 100.00% 1,848,040	Impairment Reasons RMB’000 (791) i) (34,357) ii) (21) i) (9) i) (2) i) (14) i) (7,910) iii) (43,104)

– 57 –

i) As these customers are provincial governments or their representatives, whose ability to meet their contractual cash flow obligations may not be weakened even if there are adverse changes in the economic and business situation over a long period, the receivables of the Group from Tianjin Water Authority Bureau, from Xi’an Urban Infrastructure Construction Investment Group Co., Ltd., from Hangzhou Sewage Company, from Hangzhou Municipal Facilities Supervision Center (杭州市市政設施監管中心) and from Guiyang Water Authority Bureau have a lower credit risk, based on the analysis of historical payment records and forwardlooking measurement. Therefore, the Company estimates that the lifetime expected credit loss rate of the receivables is 0.05%.
ii) Receivables from Qujing City Water General Company comprise regular sewage treatment fee, tap water fee and price compensation. As the receivables of regular sewage treatment fee and tap water fee have a longer collection period than ordinary government customers and they have higher credit risk, the Group estimates that the lifetime expected credit loss rate is 3%; Considering the debtor’s actual performance capacity, historical collection experience and the ageing of the receivables, the Group concludes that the receivables of price compensation have been defaulted and estimates that the lifetime expected credit loss rate is 100%.
iii) Receivables from Tianjin Qudong Culture Media Co., Ltd. has applied enforcement and got approval from people’ s court. Thus, the Company concludes that the receivables have been defaulted and estimates that the lifetime expected credit loss is 100%.
(iii) As at 31 December 2018, provision for bad debts by respective groupings is analysed as below:

Group - banker’s acceptance

As at 31 December 2018, the Group measures bad debt provision in accordance with the lifetime expected credit loss for the entire duration, and no provision is deemed necessary. The Group considers that there is no significant credit risk in banker’s acceptance and no major loss will be caused by bank default.

– 58 –

Group - Non-provincial government customers

		31 December 2018
	Carrying
	amount	Loss allowance
		Expected
		credit
	Amount	loss rate	Amount
	RMB’000		RMB’000
Undue	42,605	0.010%	(4)
1-90 days overdue	37,570	0.050%	(19)
90-180 days overdue	26,128	0.200%	(52)
＞180 days overdue	64,790	0.500%	(324)
	171,093		(399)

Group - others

Undue 1-30 days overdue 30-90 days overdue ＞90 days overdue	31 December 2018 Carrying amount Loss allowance Expected Amount credit loss rate Amount RMB’000 RMB’000 34,821 0.100% (35) 28,277 0.500% (141) 20,246 2.000% (405) 28,572 5.000% (5,500) 111,916 (6,081)	31 December 2018 Carrying amount Loss allowance Expected Amount credit loss rate Amount RMB’000 RMB’000 34,821 0.100% (35) 28,277 0.500% (141) 20,246 2.000% (405) 28,572 5.000% (5,500) 111,916 (6,081)
	Carrying amount Amount RMB’000 34,821 28,277 20,246 28,572 111,916
		Expected credit loss rate 0.100% 0.500% 2.000% 5.000%

– 59 –

(iv) The accured bad debt provision in this year is RMB 18,731 thousand, and the bad debts provision collected or reversed is RMB 5,096 thousand. The main reversed amounts are as follow:

Significant bad debt provision reversed or collected is illustrated below:

Reason for collected or reversed Basis and rationality of bad debts provision Tianjin Xinghe Paper Company Ltd. Trade receivables collected Long Aging Others Trade receivables collected Long Aging	Amount of collected or reversed Method of collected of reversed RMB’000 4,020 Collected by cash 1,886 Collected by cash 5,906

The bad debt provision of RMB4,020 thousand for receivables from Tianjin Xinghe Paper Co. Ltd is reversed in this year, the corresponding book value of trade receivables is RMB4,020,000.

11 Trade payables

As at 31 December 2018, the majority of trade payables are in connection with purchases of inventories, out of which trade payable of approximately RMB33 million (2017: RMB30million) are aged over one year. It is mainly the source water fee payable. As the Group has not recovered the relevant source water treatment fee, the payment has not been finally settled.

§6 SALE AND PURCHASE OR REDEMPTION OF SECURITIES OF THE COMPANY

During the reporting period, the Company or its subsidiaries did not purchase, sell and redeem any securities of the Company or its subsidiaries.

§7 CORPORATE GOVERNANCE CODE

None of the Directors is aware of any information that would reasonably indicate that the Company is not or was not, for any part of the year, in compliance with the Corporate Governance Code as set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

– 60 –

§8 MODEL CODE FOR SECURITIES TRANSACTIONS BY THE DIRECTORS

The Company has adopted a code of practice in respect of securities transactions conducted by the Directors with standards not lower than those prescribed in Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules. During the reporting period, all Directors have complied with the Model Code for securities transactions conducted by the Directors.

§9 PUBLIC FLOAT

As at the date of this announcement, the Company has maintained the prescribed public float under the Listing Rules, based on the information that is publicly available to the Company and within the knowledge of the Directors.

§10 PRE-EMPTIVE RIGHTS

There is no provision for pre-emptive rights under the Articles of Association of the Company and there is no restriction against such rights under the laws of the PRC.

§11 AUDIT COMMITTEE

On 31 July 2001, the Board approved the establishment of the audit committee (the “ Audit Committee ”) to review and supervise the financial reporting procedures and internal controls of the Company. The Audit Committee has reviewed the accounting principles and practices adopted by the Group and discussed internal controls and financial reporting matters including a review of the audited accounts for the year ended 31 December 2018 with the Directors.

– 61 –

§12 REVIEW OF PRELIMINARY ANNOUNCEMENT

The figures in this preliminary announcement of the Group’s results for the year ended 31 December 2018 have been agreed by the Group’s auditor, PricewaterhouseCoopers, to the amounts set out in the Group’s audited consolidated financial statements for the year. The work performed by PricewaterhouseCoopers in this respect did not constitute an engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagement issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by PricewaterhouseCoopers on this preliminary announcement.

By Order of the Board Liu Yujun Chairman

Tianjin, the PRC 27 March 2019

As at the date of this announcement, the Board comprises three executive Directors: Mr. Liu Yujun, Ms. Wang Jing and Mr. Niu Bo; three non-executive Directors: Mr. Yu Zhongpeng, Mr. Han Wei and Mr. Si Xiaolong; and three independent non-executive Directors: Mr. Di Xiaofeng, Mr. Guo Yongqing and Mr. Wang Xiangfei.

– 62 –

AI assistant

Rego Interactive Co., Ltd — Annual Report 2018

50588_rns_2019-03-28_0c6ef84a-1f86-4527-ae2c-76252218f354.pdf

ANNOUNCEMENT OF FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

§1 IMPORTANT

§2 COMPANY PROFILE

2.1 Basic information

2.2 Contact person and method

Company Secretary Company Secretary Securities Affairs to the Board in Hong Kong Representative

§3 ACCOUNTING DATA AND FINANCIAL INDICATORS

3.1 Major accounting data

3.2 Major financial indicators

3.3 Extraordinary items

§4 DIRECTORS’ REPORT

I. OPERATION DISCUSSION AND ANALYSIS

II. OPERATION SITUATION OF PRINCIPAL BUSINESS DURING THE REPORTING PERIOD

1. Analysis on the overall results of operations during the reporting period

2. Analysis of the principal business

3. Analysis of Other business

(I) ANALYSIS OF PRINCIPAL BUSINESSES

Analysis on changes in income statement and cash flow statement

1. Analysis of income and costs

(1). Major business breakdown by industry, product and region

Major business by industry

Major business by region

Description of major business by industry, product and region

(2). Analysis of production and sales volume

Unit:0,000 Currency:RMB

By industry

Cost analysis and other explanation

(4). Major customers and major suppliers

Other explanation

2. Expenses

3. Research and development investment

Explanation

4. Cash flow

(II) MAJOR CHANGES IN PROFITS CAUSED BY NON-PRINCIPAL BUSINESSES

(III) ANALYSIS OF ASSETS AND LIABILITIES

1. Assets and liabilities

(IV) INDUSTRY ANALYSIS

Water Utilities Industry Analysis

2. Sales information

(1). Section of supply of tap water

District

(2). Section of sewage treatment

3. Water quality of water sources of major water collection points

4. Supply of tap water

5. Significant capital expenditure

Among which: Project status

Unit: 0,000 Currency: RMB

(V) ANALYSIS OF INVESTMENT

1. Overall analysis of equity investment

(1) Major equity investment

(2) Major non-equity investment

(3) Financial assets measured by fair value

(6) DISPOSAL OF MAJOR ASSETS AND EQUITY INTEREST

(7) ANALYSIS OF MAJOR COMPANIES IN WHICH THE COMPANY HAS INVESTED

(8) STRUCTURED ENTITIES CONTROLLED BY THE COMPANY

III. DISCUSSION AND ANALYSIS OF THE COMPANY’S FUTURE DEVELOPMENT

(I) STATUS AND TRENDS OF THE INDUSTRY

(II) DEVELOPMENT STRATEGIES OF THE COMPANY

(III) OPERATING PLANS

(1) Strengthen technology-leading and improve core competitiveness

(2) Continue to promote traditional business expansion while realizing industrial chain extension

(3) Further enhance the institutional framework and strengthen basic management

(4) Reform the remuneration system and optimize appraisal mechanism for plans

(5) Strengthen internal control supervision and enhance legal protection

(6) Strengthen the leading of the Party to provide solid safeguard for the Company’s development

3. Income, expenses and cost plan

4. Technology R&D investment plan

(IV) POSSIBLE RISKS

(1) Risk of government credit

(2) Risk of change in policy

(3) Risk of operation and management

2. Risk control measures

(V) OTHERS

IV. FAILURE TO DISCLOSE AS PER RULES DUE TO INAPPLICABILITY OR SPECIAL REASONS, SUCH AS STATE SECRETS AND BUSINESS SECRETS

V. THE PROPOSAL ON THE PROFIT APPROPRIATION OR TRANSFER OF CAPITAL RESERVE FUND TO SHARE CAPITAL FOR THE REPORTING PERIOD AS REVIEWED BY THE BOARD

§5 FINANCIAL ACCOUNTING REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Rego Interactive Co., Ltd Annual Report 2018