2020

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Important

I. 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 annual report contains no false information, misleading statements or material omissions, and accept joint and several responsibilities for the truthfulness, accuracy and completeness of its contents.
II. All Directors of the Company attended the Board meetings.
III. PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers have issued standard unqualified audit reports of the Company.
IV. Liu Yujun, the officer in charge of the Company, Peng Yilin, the officer in charge of the accounting function, and 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 2020 annual report.
V. The proposal on profit distribution 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 actual profit available for distribution to shareholders in this year was RMB4,114,041,385.40, which was calculated based on the net profit attributable to the Company of RMB570,040,574.29 in 2020, less the statutory surplus reserve fund of RMB60,804,977.56 drawn in accordance with the Company Law of the People’s Republic of China and relevant provisions of the Articles of Association, plus the undistributed profit at the beginning of the year of RMB3,757,519,230.68, and less the cash dividend of RMB152,713,442.01 already distributed in 2020 for 2019.

According to the profit distribution policy of the Company, considering that the Company is still in the development stage and that priority shall be given to the capital expenditure arrangement for the development of foreign projects in 2021, we plan to pay a cash dividend of RMB1.20 (tax inclusive) for every 10 shares to all shareholders in 2020, totaling RMB171,267,411.60, with the cash dividend amount accounting for 30.04% of the realizable profit attributable to the Company for distribution in 2020. In 2020, there was no conversion of reserve fund into additional capital stock.

This distribution plan is subject to the approval of the annual general meeting for 2020.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

Important

VI. Risk statements for the forward-looking statements

Not applicable

VII. Did the controlling shareholder of the Company and its connected parties misappropriate the Company’s funds for nonoperating purposes?

VIII. Did the Company provide external guarantees in violation of any specified decision-making procedures?

No

IX. Significant risks warning

Not applicable

X. Others

Unless indicated otherwise, financial figures in this annual report are denominated in RMB.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

Contents

1	Definitions	4
2	Company Profile and Major Financial Indicators	7
3	Company Business Overview	13
4	Management Discussion and Analysis	19
5	Major Events	44
6	Details of Changes in Ordinary Shares and Shareholders	79
7	Directors, Supervisors, Senior Management and Employees	85
8	Corporate Governance	97
9	Relevant Details of Corporate Bonds	109
10	Financial Report	113
11	Report of the Auditors	114
12	Financial Statements Prepared in accordance with PRC Accounting	120
	Standards for Business Enterprises
13	Independent Auditor’s Report	236
14	Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards	242
15	List of Documents Available for Inspection	340

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

1. Definitions

I. DEFINITIONS

In this report, unless the context requires otherwise, the following terms shall have the following meanings:

“Group”	Tianjin Capital Environmental Protection Group Company Limited and its
	subsidiaries
“Subsidiaries”	Subsidiaries of Tianjin Capital Environmental Protection Group Company
	Limited
“Company”	Tianjin Capital Environmental Protection Group Company Limited
“Tianjin Investment Group”	Tianjin City Infrastructure Construction and Investment Group Co., Ltd.
“TMICL”	Tianjin Municipal Investment Co., Ltd.
“Bohai Chemical”	Tianjin Bohai Chemical Industry (Group) Co., Ltd.
“Tianjin Haihe”	Tianjin Haihe Construction Development and Investment Co., Ltd.
“Jiayuanxing”	Tianjin Jiayuanxing Innovative Energy Technology Co., Ltd.
“Jiayuanxin”	Tianjin Jiayuanxin Innovative Energy Technology Co., Ltd.
“Jiayuanbin”	Tianjin Jiayuanbin Innovative Energy Technology Co., Ltd.
“Jiayuantian”	Tianjin Jiayuantian Innovative Energy Technology Co., Ltd.
“TLP”	Tianjin Lecheng Properties Co., Ltd.
“TYCOM”	Tianjin Yuanyicheng Commercial Operation Management Co., Ltd.
“Water Recycling Company”	Tianjin Water Recycling Co., Ltd.
“Guizhou Company”	Guizhou Capital Water Co., Ltd.
“Baoying Company”	Baoying Capital Water Co., Ltd.
“Qujing Company”	Qujing Capital Water Co., Ltd.
“Fuyang Company”	Fuyang Capital Water Co., Ltd.
“Hangzhou Company”	Hangzhou Tianchuang Capital Water Co., Ltd.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

1. Definitions

“Hong Kong Company” “Wendeng Company” “Jinghai Company” “Xi’an Company” “Caring Company” “Anguo Company” “Wuhan Company”

“Jinning Capital Company”

“Shandong Company” “Karamay Company” “Yingshang Company” “Changsha Tianchuang Water” “Changsha Tianchuang Environmental Protection” “Linxia Company” “Anhui Company” “Hefei Company”

“Dalian Chunliuhe Company” “Bayannur Company”

“Honghu Tianchuang”

Tianjin Capital Environmental Protection (Hong Kong) Co., Ltd. Wendeng Capital Water Co., Ltd. Tianjin Jinghai Capital Water Co., Ltd. Xi’an Capital Water Co., Ltd.

Tianjin Caring Technology Development Co., Ltd. Anguo Capital Water Co., Ltd.

Wuhan Tianchuang Capital Environmental Protection Co., Ltd. Tianjin Jinning Capital Water Co., Ltd.

Shandong Capital Environmental Protection Technology Co., Ltd. Karamay Tianchuang Capital Water Co., Ltd. Yingshang Capital Water Co., Ltd. Changsha Tianchuang Capital Water Co., Ltd. Changsha Tianchuang Environmental Protection Co., Ltd.

Linxia Capital Water Co., Ltd. Anhui Capital Water Co., Ltd. Hefei Capital Water Co., Ltd.

Dalian Oriental Chunliuhe Water Quality Purification Co., Ltd. Inner Mongolia Bayannur Capital Water Co., Ltd.

Honghu Tianchuang Water Co., Ltd.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

1. Definitions

“Qudong Company”

“CSRC”

“Jieshou Company” “Chibi Company”

“Shibing Company”

“Deqing Company”

“GJTC”

“Capital Materials Company”

“Hanshou Company”

“Jiuquan Company”

“Guokong Jincheng”

“Compro Company”

“Yonghui Company”

“Dongying Company”

“International Machinery Company”

“Sino Company”

“Hexi Court”

Tianjin Qudong Cultural Media Co., Ltd.

the China Securities Regulatory Commission

Jieshou Capital Water Co., Ltd.

Chibi Capital Water Co., Ltd.

Shibinggui Capital Water Co., Ltd.

Deqing Capital Water Co., Ltd.

Hebei Guojin Tianchuang Sewage Treatment Co., Ltd.* (河北國津天創污水處理有限責任公司)

Tianjin Capital New Materials Co., Ltd. (天津創業建材有限公司)

Hanshou Capital Water Co., Ltd. (漢壽天創水務有限公司)

Jiuquan Capital Water Co., Ltd. (酒泉創業水務有限公司)

Hebei Guokong Jincheng Environmental Control Co., Ltd.* (河北國控津城環境治理有限責任公司)

Gaoyou Compro Environmental Resources Co., Ltd.* (高郵康博環境資源有限公司)

Jiangsu Yonghui Resources Utilization Co., Ltd. (江蘇永輝資源利用有限公司)

Dongying Tianchi Environmental Technology Co., Ltd.* (東營天馳環保科技有限公司)

Tianjin International Machinery Co., Ltd.

Sino Legend Industries Limited

People’s Court of Hexi District, Tianjin City

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

2. Company Profile and Major Financial Indicators

I. INFORMATION OF THE COMPANY

天津創業環保集團股份有限公司

Chinese name of the Company Abbreviation of the Chinese name of the Company English name of the Company

創業環保

English name of the Company Tianjin Capital Environmental Protection Group Company Limited Abbreviation of the English name of the Company TCEPC Legal representative of the Company Liu Yujun

II. CONTACT PERSON AND METHOD

Company Secretary to the Board

Company Secretary in Hong Kong Securities Affairs Representative

Name Niu Bo Mona Y.Y. Cho Guo Fengxian Correspondence address TCEP Building 22/F, Worldwide House, TCEP Building 76 Weijin South Road Central, Hong Kong 76 Weijin South Road Nankai District, Tianjin Nankai District, Tianjin 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]

III. COMPANY PROFILE

Registered address 12/F, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC Postal code of the registered address 300381 Office address TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC Postal code of the office address 300381 Website http://www.tjcep.com Email address [email protected]

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

2. Company Profile and Major Financial Indicators

IV. PLACES WHERE INFORMATION IS DISCLOSED AND AVAILABLE FOR INSPECTION

Name of the media designated for the disclosure Shanghai Securities News of information Website designated by China Securities Regulatory www.sse.com.cn Committee (“ CSRC ”) for the disclosure of annual report Place where the annual report is available for inspection Office of Corporate Governance, 18/F, TCEP Building, 76 Weijin South Road, Nankai District, Tianjin, the PRC

V. PROFILE OF THE SHARES OF THE COMPANY

Stock Exchange for Stock short name Shares listing shares Stock short name Stock code before its change A Shares Shanghai Stock Exchange 創業環保 600874 渤海化工 (the “ SSE ”) H Shares The Stock Exchange of Tianjin Capital 01065 Tianjin Bohai Hong Kong Limited (the “ Stock Exchange”)

VI. OTHER RELEVANT INFORMATION

Certified public accountants engaged Name PricewaterhouseCoopers Zhong Tian LLP by the Company (PRC) Office address 11/F, PricewaterhouseCoopers Center, 2 Leading Enterprise Square, 202 Hu Bin Road, Huangpu District, Shanghai, the PRC Name of Signing Accountant Li Jun Wang Yan

Certified public accountants engaged Name Pricewaterhousecoppers by the Company (Hongkong, PRC) Office address 22/F, Prince’s Building, Central, Hong Kong Name of Signing Accountant Chong Heng Hon

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

2. Company Profile and Major Financial Indicators

VII. MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS FOR THE PREVIOUS THREE YEARS

(I) Major accounting data

Unit: 0’000 Currency: RMB

			Increase/Decrease
			for the period
			as compared to
			the same period
Major accounting data	2020	2019	last year (%)	2018
Operating revenue	336,387.4	285,145.3	17.97	244,751.5
Net profit attributable to the shareholders
of the Company	57,003.9	50,710.7	12.41	50,116.8
Net profit attributable to the shareholders of
the Company after deduction of extraordinary
profit and loss	49,316.0	38,445.2	28.28	44,560.6
Net cash flow from operating activities	52,397.9	83,928.6	-37.57	69,264.6
			Increase/Decrease
			as at the end
			of the period
			as compared to
			the end of the same
	As at the end of 2020 As at the end of 2019		period last year (%) As at the end of 2018
Net assets attributable to the shareholders of
the Company	659,135.1	617,402.5	6.76	581,820.3
Total assets	1,880,296.9	1,799,080.7	4.51	1,568,744.8

(II) Major financial indicators

Currency: RMB

			Increase/Decrease
			for the period
			as compared to
			the same period
Major financial indicators	2020	2019	last year (%)	2018
Basic earnings per share (RMB/share)	0.40	0.36	11.11	0.35
Diluted earnings per share (RMB/share)	0.40	0.36	11.11	0.35
Basic earnings per share after deduction of
extraordinary profit and loss (RMB/share)	0.35	0.27	29.63	0.31
Weighted average return on net assets ratio (%)	8.95	8.48	0.47	9.05
Weighted average return on net assets ratio after
deduction of extraordinary profit and loss (%)	7.74	6.43	1.31	8.05

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

2. Company Profile and Major Financial Indicators

VIII. DIFFERENCES IN ACCOUNTING DATA UNDER THE DOMESTIC AND OVERSEAS ACCOUNTING STANDARDS
(I) Differences between net profit and net assets attributable to the Company’s Shareholders as disclosed in the financial report in accordance with the international accounting standards and that in accordance with the accounting standards of the PRC simultaneously

Not applicable

(II) Differences between net profit and net assets attributable to the Company’s Shareholders as disclosed in the financial report in accordance with the overseas accounting standards and that in accordance with the accounting standards of the PRC simultaneously

Not applicable

(III) Explanation on differences in domestic and overseas accounting standards

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

2. Company Profile and Major Financial Indicators

IX. EXTRAORDINARY PROFIT AND LOSS ITEMS AND AMOUNTS

Extraordinary Profit and Loss Items Profit/loss from disposal of non-current assets Government grants recognized in current profit and loss, except for those closely related to normal business operation, in compliance with requirements of national policies, and settled in certain amount which are constantly granted by government Other non-operating income and expenses save for the above items Profit from disposal of other current assets Reversal of provision for impairment loss of account receivables subject to separate impairment testing Effect on minority interests Effect on income tax Total	Unit: 0’000 Currency: RMB Amount in 2020 Amount in 2019 Amount in 2018 2.1 70.4 –90.0 9,657.7 10,810.3 7,848.1 -470.2 -152.0 -180.9 0 4,870.3 0 43.7 0 0 5.2 -183.9 -126.7 -1,550.6 -3,149.6 -1,894.3 7,687.9 12,265.5 5,556.2	Unit: 0’000 Currency: RMB Amount in 2020 Amount in 2019 Amount in 2018 2.1 70.4 –90.0 9,657.7 10,810.3 7,848.1 -470.2 -152.0 -180.9 0 4,870.3 0 43.7 0 0 5.2 -183.9 -126.7 -1,550.6 -3,149.6 -1,894.3 7,687.9 12,265.5 5,556.2
		5,556.2

X. ITEMS MEASURED BY FAIR VALUE

Not applicable

XI. PREPARATION BASED ON HONG KONG FINANCIAL REPORTING STANDARDS

Results

Turnover Profit before taxation Taxation Profit after taxation Non-controlling interests Profit attributable to the shareholders of the Company Dividend	2020 336,387 71,818 (11,205) 60,614 (3,610) 57,004 15,271	Unit: 0’000 Currency: RMB For the year ended 31 December 2019 2018 2017 2016 285,145 244,752 193,193 177,381 62,955 69,484 71,879 62,223 (10,059) (16,806) (19,959) (15,432) 52,896 52,678 51,920 46,791 (2,185) (2,561) (1,094) (2,474) 50,711 50,117 50,825 44,317 15,129 – – 13,559	Unit: 0’000 Currency: RMB For the year ended 31 December 2019 2018 2017 2016 285,145 244,752 193,193 177,381 62,955 69,484 71,879 62,223 (10,059) (16,806) (19,959) (15,432) 52,896 52,678 51,920 46,791 (2,185) (2,561) (1,094) (2,474) 50,711 50,117 50,825 44,317 15,129 – – 13,559
			62,223
			(15,432)
			46,791 (2,474)
			44,317
			13,559

Note: The results for each of the five years ended 31 December 2020 have been extracted from the previous annual reports and the audited consolidated income statements as set out in this annual report.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

2. Company Profile and Major Financial Indicators

XI. PREPARATION BASED ON HONG KONG FINANCIAL REPORTING STANDARDS (Continued) Assets and Liabilities

Unit: 0’000 Currency: RMB

Property machinery and equipment, Investment properties and land use rights Right-of-use assets Intangible assets Associated company Financial asset at fair value through other comprehensive income Available-for-sale financial assets Long-term receivables Deferred income tax assets Other non-current assets Net current assets Non-controlling interests Long-term liabilities Net assets	2020 81,935 7,761 1,192,221 19,500 200 – 164,740 1,297 33,097 27,858 1,528,609 99,029 770,445 659,135	As at 31 December 2019 2018 2017 80,101 64,199 52,803 5,808 – – 1,170,136 1,031,447 686,970 19,500 19,500 – 200 200 – – – 200 23,645 25,369 29,496 421 – – 19,592 10,918 59,843 124,790 150,129 98,631 1,444,193 1,301,762 927,943 96,816 79,676 29,674 729,975 640,266 386,564 617,402 581,820 511,704	2016 53,046 – 621,900 – – 200 30,915 – 18,774 159,479
			884,314 25,944 383,932
			474,438

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

3. Company Business Overview

I. EXPLANATION OF THE PRINCIPAL BUSINESS OF THE COMPANY, ITS BUSINESS MODEL, AND THE INDUSTRY SITUATION DURING THE REPORTING PERIOD

(I) Principal Business of the Company and its Business Model

In line with its strategic objective of being a comprehensive environmental service provider, during the reporting period, the principal businesses of the Company include basic business and strategic new business. There was no material change in the business scope and business model of the Company’s principal businesses as compared with the previous year.

Basic business refers to the business of municipal sewage treatment, water supply and water recycling. The basic business is the main business of the Company, which is the main source of revenue and profit.

During the reporting period, the Company focused on strengthening and improving the operation quality of the existing water utilities projects, with no significant change in the business scale as compared with the beginning of the reporting period. As of the end of the reporting period, the total capacity of the equity-type water utilities business of the Company amounted to approximately 5.525 million m[3] per day, among which the sewage treatment capacity, water supply capacity (including tap water and industrial water supply capacity) and recycled water capacity under the PPP model was approximately 4.79 million m[3] per day, 315,000 m[3] per day and 420,000 m[3] per day, respectively, and the pipe network length under the integrated plant network was 1,007 km. The above projects are distributed in 15 provinces, municipalities and autonomous region and the sewage treatment capacity under the entrusted operation model was approximately 586,000 m[3] per day.

Based on BOT, TOT and PPP models in sewage treatment and water supply, the Company mainly obtained sales revenue from the production and sale of recycled water and the income from provision of recycled water pipeline connection services on recycled water business, which have not changed significantly compared with the previous year.

Strategic new business includes new energy heating and cooling, solid waste treatment, sludge treatment, photovoltaic power generation, transformation of achievements in technology research, etc. In respect of profitability, economic added value, and payback period, it can form a good complement with the basic business and optimize the overall business structure.
(1) The service areas of new energy cooling and heating supply business amounted to 2 million m[2] , which was mainly operated in Tianjin under BOT model, remaining unchanged as compared with that of previous year.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

3. Company Business Overview

(2) For hazardous wastes business, during the reporting period, the Company had an additional “comprehensive material ecology disposal center project” located in an agricultural high-tech industry demonstration zone in the Yellow River Delta with a total planned storage capacity of 600,000 m[3] , and two hazardous wastes disposal projects through acquisition in environmental protection industry park of Longqiu Township, Gaoyou City, Jiangsu Province with a total annual capacity of 60,000 tons/year. As of the end of the reporting period, the Company’s hazardous wastes business include four projects with the disposal capacity of 128,000 tons/year, and a storage and transit project with the capacity of 20,000 tons/year and a waste landfill project with the aggregate storage of 600,000 m[3] with the comprehensive waste utilization capacity of 73,000 tons/year, which were mainly distributed in Shandong Province and Jiangsu Province. Based on the premise of obtaining the hazardous waste operation permit, the Company chose waste-producing units to offer hazardous waste disposal services under the guide price of local governments and charged for hazardous waste disposal service by adopting a fully marketoriented operation mode.
(3) During the reporting period, the Company had an additional distributed photovoltaic power generation project with the planned annual electricity generation of 2.9216 million kWh which was mainly distributed in Tianjin and Dalian and managed by adopting a fully market-oriented operation mode.
(4) With respect to the sludge treatment business, during the reporting period, the Company mainly focused on improving the operation quality of existing projects. Its total capacity on sludge treatment was 1,560 tons/day, which remains unchanged as compared with that of previous year and mainly distributed in Tianjin and Jiuquan of Gansu. The Jiuquan Project is operated under BOT model while the sludge treatment project in Tianjin is operated under the entrusted operation model.
(5) The transformation of technical research achievements is mainly the commercialization of the Company’s patented “CYYF whole-process deodorant technology”, which is undertaken by Caring Company, a majority-controlled subsidiary of the Company. During the reporting period, the Company organized nearly 50 projects for technical cooperation such as program preparation, and signed 11 project contracts. By the end of the reporting period, the application of this technology has covered nearly two-thirds of the country, and more than 70 projects have been successfully applied and implemented, covering 18 provinces, municipalities and autonomous regions. In the process of business promotion, Caring Company closely followed the new trend brought about by the change of industrial policy, and enriched the diversity of the odour treatment technology in the urban sewage treatment industry. Based on its own technical advantages in strain screening and culture, the deodorization technology has been continuously upgraded to the “whole-process deodorization + technology”, further promoting the development of commercialization in the future.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

3. Company Business Overview

(II) Explanation of Industry Situation

Driven and guided by the national policies, the demand for the efficiency-oriented systematic governance of water environment has been increased, and the unleashing of market of systematic governance of water environment has been accelerated; the integrated plant network river, integrated water supply and drainage, integrated plant network and other comprehensive environmental governance projects has been increased gradually, so the Company will embrace opportunities in demand on the upgrades and expansion of drainage governance, pipe network market, and urban sewage treatment as well as the wastewater reclamation.

In February 2020, “Opinion on Doing a Better Job in the Key Work Concerning Agriculture, Rural Areas and Farmers to Achieve Moderate Prosperity in All Respects on Schedule” was issued by the State Council, pursuant to the spirit of which, environmental governance in rural area will be accelerated, which will release numerous market opportunities in water supply pipe network construction, water supply management informatization and testing in rural area, integrated urban-rural water supply and other related field in the future.

In January 2021, 10 government departments, including the National Development and Reform Commission, jointly announced the “Guiding opinions on promoting the utilization of wastewater resource”, which outlined the objective of “by 2025, the nationwide wastewater collection performance will be improved significantly. The sewage treatment capability of counties and urban areas will basically meet the needs of their local economic and social development. The sewage treatment capability in the water environmentally sensitive areas will basically undertake the upgrade of discharge standard. The utilization rate of recycled water in the cities with water shortage at prefecture-level or above will reach 25% or above, and those in BeijingTianjin-Hebei region will reach 35% or above”, and meanwhile pointed out that the key areas of wastewater resource utilization in China consist of urban domestic sewage, industrial sewage and agricultural and rural sewage. In this context, the wastewater reclamation market will be released rapidly, and meanwhile, industrial water recycling, distributed wastewater treatment, membrane treatment, wetland purification will bring new opportunities.

The demands on effect-oriented wastewater treatment and increasing emphasis on quality and efficiency improvement of wastewater projects: the PPP projects have been further standardized and the wholecycle performance management of projects has been strengthened; more efforts have been reinforced to environmental monitoring, and the quality and efficiency of water utilities projects are required to be improved, which pose an increasing challenges on integrated operation capacity on water utilities companies.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

3. Company Business Overview

II. EXPLANATION OF THE SIGNIFICANT CHANGES IN THE COMPANY’S MAJOR ASSETS DURING THE REPORTING PERIOD

Not applicable

III. ANALYSIS OF CORE COMPETITIVENESS DURING THE REPORTING PERIOD

After the development in 2020, the Company further consolidated its strengths and enhanced its overall competitiveness.

(1) Our ability to operate in a safe, stable, up-to-standard, and efficient manner

Since the construction and operation of Tianjin Jizhuangzi Sewage Treatment Plant, the Company has witnessed the entire process that the water quality standard raised from class II to class IV, mastered all major processes of municipal sewage treatment and their combinations, and possesses Grade A qualifications for “operating comprehensive environmental governance facilities” for municipal and industrial sewage and for “operating urban centralized sewage treatment facilities”. After the appraising of operation through comparison in the national water industry, many of the Company’s projects have been awarded the titles of “Top Ten Operating Units”, “National Top Ten Sewage Treatment Plants”, and “Advanced Unit of Energy Conservation and Emission Reduction”. The Company has operated 58 water utilities projects across 15 provinces, cities, and autonomous regions of the Country. The Company has devoted intensive efforts in the field of sewage treatment for many years and accumulated substantial experience in operation and management. It has cultivated a great number of professionals in sewage treatment, and explored and established the mechanism for operating and managing sewage treatment plants and the mechanism for nurturing plant directors, constantly trained persons in charge of operation for projects nationwide, and built an operation team in the local area, to form a sound echelon building system.

During the reporting period, leveraging upon the big data, cloud computing and other technologies, the Company established the big data operation platform to facilitate the launching of smart water utilities management system, striving to achieve the high-quality development in operation and management.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

3. Company Business Overview

(2) Our practical, leading, systematic, and sustainable research and development capabilities

The Company established an R&D center and a post-doctoral workstation as early as 2004, which is also an experimental base for the National Engineering Research Center for Urban Water and Wastewater. The mechanism for industry-university-research cooperation between the Company and a number of research institutes and universities has been established, which has incubated Caring Company, a platform company for the transformation of achievements in technology research, currently becoming a national high-tech subsidiary of the Company. To further highlight the leading role of science and technology, the Company rebuilds the R&D base and restructures the R&D center; promotes the extensive application of scientific and technological innovation in various business areas; the Company conducts research on the applied technologies of and provides technical support for improving the quality and efficiency of traditional municipal sewage treatment, solid waste treatment, new process and product development, turning garbage into resources, river and soil restoration, new energy utilization, smart water management, and sponge city.

During the reporting period, the Company further optimized scientific R&D system, strengthened R&D incentives and carried out various R&D activities. It obtained 13 new patents, including 1 invention patent obtained through change of ownership and 12 patents obtained through independent R&D (including 3 invention patents and 9 utility model patents), obtained 7 new software copyrights, carried on 4 national scientific research projects, 3 municipal scientific research projects, 59 corporate scientific research projects, organized the preparation and revision of 2 industrial standards on the Reuse of Urban Recycling Water – Water Quality Standard for Industrial Uses, further enhancing the Company’s scientific R&D capabilities.

(3) Our professional, dedicated, cooperative, and innovative staff team

During the reporting period, the Group had a total of 2,034 employees, among which 21 of them have a high professional title, 238 of them have a senior professional title, and 337 of them have a medium-grade professional title. The professional fields cover environmental engineering, water supply and drainage, electrical engineering, mechanical equipment, economics, and management.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

3. Company Business Overview

Based on the objectives of consolidating basic business while developing strategic new business, the Company implements linear management on operation, construction and market development, built professional teams for technology R&D, market development, engineering construction, and operation management, and nurtures and provides operational management personnel for new development projects nationwide by relying on the water plants of the Company in Tianjin. The subordinate companies implement regional management for the water utilities business, coordinate regional operation and construction and develop surrounding markets, and carry out professional management of strategic emerging businesses including hazardous waste, new energy, and transformation of achievements in technology research, in an effort to nurture professional management and operation teams, and help the teams grow stronger and better.

The Group emphasizes and encourages innovation. For many years, it has been conducting management innovation activities. In 2020, the Company has nearly 20 achievements in management innovation, two of which participated in the selection of Tianjin Innovation Achievements in Modernization.

(4) Our corporate reputation for being trustworthy, responsible, standardized, and reliable

In the past 20 years since listing, the Company has provided Tianjin and other parts of the country with safe, stable, up-to-standard, and efficient water operation services by drawing on its professional operation capabilities, and assuming social responsibilities as state-owned enterprise, and conducting standardized operations as listed company. Irrespective of the guarantee of daily operation or the cooperation with the construction department to complete emergency construction tasks, dealing of public emergencies, and the assistance to government regulators to solve municipal and livelihood issues, the Company will do everything within its capacity to shoulder its responsibilities, giving consideration to both economic and social benefits. The Company has been acknowledged and praised by relevant national ministries and commissions and local governments for many times.

Adhering to the development strategy of pursuing progress while ensuring stability, the Company continues to optimize the market development system and plan the market development layout as a whole. For years, the Company has maintained growth in the water utilities business and relevant environmental protection businesses. The Company has been awarded the title of “Top Ten Influential Enterprises in China’s Water Utilities Industry”, establishing a good image and brand reputation for 15 consecutive years since 2005.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

I. OPERATION DISCUSSION AND ANALYSIS

1. Analysis of the overall operation condition during the reporting period

In 2020, the sudden outbreak of COVID-19 pandemic posed a great impact on the social economy and people’s life, which also put enormous demands on the enterprises in the sewage treatment industry concerning people’s well-being. With a high sense of responsibility and mission, the Company made decisions decisively, deployed reasonably and organized orderly to push forward with and implemented epidemic prevention and control and economic work at the same time, and withstood downward pressures and developed innovative solutions constantly. The Company achieved good results in the difficult situation according to the operational plans and strategies for 2020 as formulated by the Board by improving economic efficiency as the core, strengthening the operation and the construction strength as the foundation, enhancing the operation management and maximizing efforts in market exploration and innovation on management.

(1) Optimize operation management to ensure the operational safety of projects during the pandemic while improving the quality of operation management

Confronted with the challenges brought by the pandemic, the Company conquered difficulties and discharged its social responsibilities by ensuring the normal operation of the sewage, water supply, recycled water, new energy cooling and heating supply projects while proactively implementing the pandemic prevention work deployment of the government. Meanwhile, on the scientific research and development front, the Company organized industry experts to systematically analyze the infection source, the transmission pathogenesis and the feature and pattern of viruses in sewage and put forward to the specific views on prevention measures and operation. On the operation emergency management front, the Company formulated the “Guide on Sewage Treatment Work in the Pandemic Prevention and Control” and the relevant proposals, timely adjusted the processing process to ensure the operational safety of projects.

Leveraging upon the big data, cloud computing and other technologies, the Company established the big data operation platform. The Company used information technology in achieving the online monitoring on the whole process of production and intelligent online analysis of production data for basic units, so as to offer command and dispatching platforms of the Group with real-time data, striving to realize the intelligent management and drive high-quality development in operation. As “TJCEP big data operating and dispatching management platform for Sewage Treatment Plant” was awarded the computer software copyright certificate by the National Copyright Administration of the PRC, the digital core business has achieved cost reduction and efficiency enhancement, which assured the condition of promotion.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

(2) Vigorously develop strategic new business while consolidating the basic business

In respect of basic business, the Company took consolidating existing water projects as the primary business and increased its business scale slightly. The Company organized upgrade and renovation of sewage treatment plants in Beishiqiao (北石橋) and Dengjia Village (鄧家村) by Xi’an Company, won the bid for newlybuilt and upgrade and supporting pipeline network (phase II) PPP project of Honghu township sewage water processing plant, and successfully completed the relocation and construction of Dongjiao Sewage Water Treatment Plant and Recycled Water Plant Project with an aggregate capacity of 600,000 tons/day, proactively acting in line with project agreements. On 31 July 2020, the Company executed the “Supplemental Agreement to the Licensed Operation of the Four Sewage Water Treatment Plants in Tianjin Central Area (III)”, and determined the new unit price of comprehensive service for sewage treatment to ensure the profitability of its projects. Leveraging upon the operation strengths, the Company took its existing water project as the support to develop the landfill leachate treatment, device commissioning and installation and other technical services related to water projects vigorously, striving to optimize the business structure.

In respect of new business expansion, the Company secured the distributed photovoltaic power generation projects and currently the photovoltaic power generation projects of Jingu Recycled Water Factory and Dalian Chunliu River Sewage Factory are at the stage of trial operation. The Tancheng Industrial Wastes Treatment Center Projects obtained the hazardous waste operation permit in April 2020 and entered into the full production and operation stage at the end of July 2020, whereby greatly promoting the ecological environment governance in Linyi and other urban areas within the province. Leveraging its second-generation deodorization technology, Caring Company entered into 10 project contracts with the sewage factories in Keriya, Xinjiang; and secured the “comprehensive material ecology disposal center project” located in an agricultural high-tech industry demonstration zone in the Yellow River Delta.

To improve the regional layout on hazardous waste business and build up full-industry chain and regional integrated service capacity, the Company, by way of merger and acquisition, acquired the entire equity interest of Compro Company and Yonghui Company, so as to improve the market competitiveness of hazardous waste business while enhancing business capacity through accumulating working experience for future business expansion by merger and acquisition.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

(3) Further deepen market-oriented reform and improve the incentive mechanism.

During the reporting period, following the completion of the construction of the professional manager management system, the Group completed the appointment on middle-level management and three-system reform of subsidiaries from the group level step by step, setting up the market-oriented remuneration and assessment system and creating diversified motivation methods within the Group.

To fully mobilize the enthusiasm, sense of responsibility and sense of mission of the senior management and other key personnel in the core technology of the Company, and effectively align the interests of Shareholders, the Company and individual operators, making all parties attend to and jointly strive for the long-term development of the Company. The Company implemented the share incentive scheme during the reporting period, which has been approved at shareholders’ meeting of the Company. There are 155 participants for the Scheme, including the directors, senior executives (excluding the independent directors, and external directors and supervisors), other members of the leadership team and core technology, management, business and skill backbones of the Company. The incentive method is to grant share options to the participants, and the source of shares in the Scheme is the A-share ordinary shares issued by the Company to the participants. The number of share options proposed to be granted to the participants under the scheme is 14,270,000 and the corresponding number of underlying shares is 14,270,000 A shares. The exercise price is RMB6.98 per share.

To fully mobilize the initiative and creativity of the key personnel in technology and operation, Caring Company, the controlling subsidiary of the Company, launched a project dividend distribution incentive scheme, whereby the project to be declared for dividend distribution shall be the scientific and technological achievements transformation project satisfying the requirements in industrialized mode, source and phase simultaneously. The participants consisted of the project R&D leaders, project R&D design backbones, project achievements transformation leaders and project achievements transformation backbones who will provide driving forces for the future scientific and technological achievements transformation.

(4) On 7 September 2020, the proposal to issue A shares to specific targets at the price of RMB5.56 per share was approved at the general meeting of the Company. The gross proceeds to be raised will be not more than RMB1.8 billion, which are proposed to be used in repayment of interest-bearing liabilities and supplement the working capital. The effectiveness of the issuance plan shall be subject to the approval of the CSRC.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

II. OPERATION SITUATION OF THE PRINCIPAL BUSINESS DURING THE REPORTING PERIOD

1. Analysis of the principal business

In 2020, the Group’s overall operation remained stable, with no significant fluctuations as compared to the previous year. The Group’s principal business segment did not change significantly as compared to the previous year, and the Group was still engaged in the sewage treatment business, recycled water business, tap water supply, new energy heating and cooling supply business, toll collection business, and transformation of achievements in technology research and hazardous waste business, which became the main sources of the Group’s earnings in 2020. In recent years, the hazardous waste business in the Company has developed rapidly, which began to record revenue from 2020. However, as all the projects were at their early stage of construction and operation, the contribution to the revenue of the Company was not clear. Although the revenue from technical services increased significantly as compared to the previous year due to business enlargement, it still accounted for a relatively low proportion to the overall revenue of the Group.

2. Analysis of the overall results of operations during the reporting period

In 2020, the Group recorded operating revenue of RMB3,363.874 million, representing an increase of 17.97% as compared to the previous year, which was mainly attributable to the increase in revenue from the sewage treatment business. The sewage treatment volume of existing projects and new operating projects of the Company increased approximately 10% as compared with the same period last year, and the new plants at Dongjiao of Tianjin under upgrading and expansion were put into operation in the second half of the year, in which a new unit price on sewage treatment service was executed. The hazardous waste business was started to be operated in the fourth quarter of 2019, which recorded a significant increase in revenue in 2020 as a result of growth in treatment volume as compared to the previous year; the operating cost was RMB2,233.128 million, representing an increase of 12.53% as compared to the previous year, mainly due to the increase of business volume and the improvement of effluent water quality standards; the net profit attributable to the Company was RMB570.039 million, representing an increase of 12.41% over last year, mainly due to the increase in operating profit as a result of growth in business volume of the Company.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

I ANALYSIS OF THE PRINCIPAL BUSINESS

Analysis of changes in relevant items in income statement and cash flow statement

Unit: 0’000 Currency: RMB

		Amount for the
	Amount for the	same period	Percentage
Item	current period	of last year	change (%)
Operating revenue	336,387.4	285,145.3	17.97%
Operating cost	-223,312.8	-198,453.7	12.53%
Distribution expenses	-1,587.9	-707.5	124.44%
Administrative expenses	-17,807.8	-16,866.1	5.58%
Impairment loss of financial assets	-8,833.2	-3,138.3	181.46%
Other(losses)/gains-net	-481.4	4,787.5	-110.06%
Finance costs-net	-23,910.0	-19,939.6	19.91%
Non-controlling interests	3,609.9	2,185.5	65.18%
Net cash flows from operating activities	52,397.9	83,928.6	-37.57%
Net cash flows from investing activities	-153,191.5	-195,348.8	-21.58%
Net cash flows from financing activities	59,429.2	137,196.0	-56.68%

Reasons for the change in operating revenue: mainly due to the increase in the volume of sewage treatment, recycled water and hazardous waste operations, resulting in a corresponding increase in revenue.
Reasons for the change in operating cost: mainly due to the increase of business volume and the improvement of effluent water quality standards, and the increase of operating costs.
Reasons for change in distribution expenses: the Company’s hazardous waste handling project was put into operation, and the selling expenses increased.
Reasons for changes in administrative expenses: mainly due to the increase of personnel costs and intermediary service fees compared with the same period last year.
Reasons for the change in impairment loss of financial assets: mainly due to the provision for credit impairment loss of accounts receivable.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

Reasons for other (losses)/gains-net: mainly due to the gains from disposal of other current assets in the last year and impairment allowance of the other current assets in this year.
Reasons for the change of finance costs-net: mainly due to the expensing of interest expense after the sewage project is put into operation, and the increase of financial expense.
Reasons for the change in non-controlling interests: mainly due to the increased net profit of the Company’s nonwholly-owned subsidiaries in the current period.
Reasons for the change in net cash flow generated from operating activities: the main reason is that the operating receivables such as sewage treatment service fees collected in the current period were lower than that of the same period last year.
Reasons for the change in net cash flow generated from investing activities: the main reason is that the investment expenditures of engineering projects of the Company in the current period were lower than that of the same period last year.
Reasons for the change in net cash flow generated from financing activities: the main reason is that the financing liabilities repaid by the Company in the current period were higher than that of the same period last year.

1. Analysis of income and costs

During the reporting period, the Company continued to strengthen project operation and management. On one hand, we improved the quality of operations to meet the increasingly stringent regulatory requirements, and controlled operating costs through fine management; on the other hand, we maintained the project agreement, and adjusted the unit price of sewage treatment service fee in a timely manner to ensure the project income.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

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

Unit: 0’000 Currency: RMB

Principal business by industry

				Increase/decrease in	Increase/decrease in
				operating revenue	operating cost	Increase/decrease in gross
				compared with	compared with	profit margin compared with
Industry	Operating revenue	Operating cost	Gross profit margin (%)	last year (%)	last year (%)	last year (%)
Sewage treatment	239,249	155,408	35.04	18.15	12.02	3.55
Recycled water business	31,711	22,652	28.57	11.73	7.17	3.05
Road toll business	6,260	712	88.63	0.48	0.00	0.06
Tap water supply business	9,930	8,075	18.68	-5.76	5.53	8.71
Cooling and heating business	10,061	6,710	33.31	-0.76	-4.32	2.49
Transformation of achievements
in technology research	4,323	1,483	65.70	-2.61	-23.44	9.34
Others (Note 1)	11,179	7,502	32.89	178.92	167.93	2.75

Principal business by region

				Increase/decrease in	Increase/decrease
				operating revenue	in operating cost	Increase/decrease in gross
				compared with	compared with	profit margin compared with
Region	Operating revenue	Operating cost	Gross profit margin (%)	last year (%)	last year (%)	last year (%)
Beijing-Tianjin-Hebei Region (Note 2)	179,312	111,541	37.80	11.60	8.25	1.93
Southwest Region (Note 3)	15,299	11,732	23.32	1.16	5.80	-3.35
Northwest Region (Note 4)	36,492	25,948	28.89	27.10	17.34	5.91
Central China Region (Note 5)	35,147	24,000	31.72	48.22	40.44	3.79
Eastern China Region (Note 6)	31,838	19,904	37.48	5.44	-7.62	8.83
Northeast Region (Note 7)	14,625	9,417	35.61	86.88	84.72	0.75

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

Note 1: The increase was due to the increased scale and treatment volume of the hazardous waste business this year.

Note 2: The Beijing-Tianjin-Hebei Region includes the four sewage treatment plants in Dongjiao, Xianyang Road, Jingu and Beicang of Tianjin, as well as Anguo Company, Jinghai Company, Jinning Capital Company, Water Recycling Company, Caring Company, Jiayuanxing and Capital Materials Company. The increase was due to the increased business volume as compared to the same period last year.

Note 3: The Southwest Region includes Guizhou Company and Qujing Company.

Note 4: The Northwest Region includes Xi’an Company, Karamay Company, Bayannur Company, Linxia Company and Jiuquan Company. Note 5: The Central China Region includes Fuyang Company, Wuhan Company, Yingshang Company, Changsha Tianchuang Water, Changsha Tianchuang Environmental Protection, Anhui Company, Honghu Tianchuang, Hefei Company and Hanshou Company, and the increase was due to commencement of operation of Jieshou, Hefei and Honghu Tianchuang Project this year. Note 6: The Eastern China Region includes Hangzhou Company, Baoying Company and Deqing Company. Note 7: The Northeast Region includes Dalian Chunliuhe Company, Wendeng Company and Shandong Company, and the increase was due to the increased scale and treatment volume of the hazardous waste business of Shandong Company this year.

(2). Analysis of production and sales volume

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

(3). Cost analysis

Unit: 0’ 000 Currency: RMB

By industry

						Percentage
						change in the
						amount for
					Percentage of	the current
			Percentage of		total cost	period as
			total cost for	Amount in the	for the the	compared to
		Amount for the	the current	same period	same period	the same period
Industry	Cost item	current period	period (%)	last year	last year (%)	last year(%)	Explanation
Sewage treatment business	Labor cost	15,373	7.59	14,532	8.07	5.79	Nil
	Energy consumption	26,618	13.14	24,874	13.82	7.01	Nil
	(electricity)
	Material consumption	32,300	15.95	26,159	14.53	23.48	Nil
	Depreciation and	44,428	21.94	43,081	23.94	3.13	Nil
	amortisation
	Other manufacturing	36,689	18.11	30,082	16.71	21.96	Nil
	expenses
	Subtotal	155,408	76.73	138,728	77.07	12.02	Nil
Tap water supply business	Labor cost	1,237	0.61	1,318	0.73	-6.15	Nil
	Energy consumption	1,069	0.53	936	0.52	14.21	Nil
	(electricity)
	Material consumption	3,233	1.60	3,179	1.77	1.70	Nil
	(including source water
	fee)
	Depreciation and	1,585	0.78	1,846	1.03	-14.14	Nil
	amortisation
	Other manufacturing	952	0.47	373	0.21	155.23	Increase in maintenance costs and
	expenses						other expenses for the current year
	Subtotal	8,076	3.99	7,652	4.26	5.54	Nil
Recycled water business	Labor cost	2,060	1.02	2,194	1.22	-6.11	Nil
	Energy consumption	1,157	0.57	1,261	0.70	-8.25	Nil
	(electricity)
	Material consumption	1,203	0.59	1,081	0.60	11.29	Nil
	Depreciation and	2,501	1.23	2,710	1.51	-7.71	Nil
	amortisation
	Other manufacturing	5,694	2.81	5,177	2.88	9.99	Nil
	expenses
	Subtotal	12,615	6.23	12,423	6.91	1.55	Nil
Recycled water pipe	Project construction cost	10,037	4.96	8,714	4.84	15.18	Nil
network connection
business
	Subtotal	10,037	4.96	8,714	4.84	15.18	Nil
Cooling and heating	Labor cost	1,150	0.57	1,203	0.67	-4.41	Nil
business
	Energy consumption	2,199	1.09	2,343	1.30	-6.15	Nil
	(electricity)
	Material consumption	43	0.02	74	0.04	-41.89	Decrease in water charge
	Depreciation and	2,562	1.26	2,348	1.30	9.11	Nil
	amortisation
	Other manufacturing	756	0.37	1,045	0.58	-27.66	Nil
	expenses
	Subtotal	6,710	3.31	7,013	3.89	-4.32	Nil

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

						Percentage
						change in the
						amount for
					Percentage of	the current
			Percentage of		total cost	period as
			total cost for	Amount in the	for the the	compared to
		Amount for the	the current	same period	same period	the same period
Industry	Cost item	current period	period (%)	last year	last year (%)	last year(%)	Explanation
Road toll business	Toll management fee	712	0.35	712	0.40	0.00	Nil
	Subtotal	712	0.35	712	0.40	0.00	Nil
Transformation of
achievements in	Material cost, equipment
technology research	cost	1,337	0.66	1,785	0.99	-25.10	Nil
	Other manufacturing
	expenses	146	0.07	152	0.08	-3.95	Nil
	Subtotal	1,483	0.73	1,937	1.07	-23.44	Nil
Others	Product sales	2,687	1.33	2,196	1.22	22.36	Nil
	Others manufacturing	4,814	2.38	604	0.34	697.02	The hazardous waste handling
	expenses						business was put into operation in
							the fourth quarter of 2019. The
							disposal volume increased this year
							and the cost increased significantly
	Subtotal	7,501	3.70	2,800	1.56	167.89
Total		202,542	100	179,979	100	12.54

Cost analysis and other explanation

Nil

(4). Major customers and major suppliers

Sales from the top five customers amounted to RMB1,853.97 million, accounting for 55% of the total sales for the year; among which, sales from related parties was RMB90.47 million, accounting for 3% of the total sales for the year.

Procurement from the top five suppliers amounted to RMB509.5 million, accounting for 12.66% of the total procurement for the year; among which, procurement from related parties was RMB0, accounting for 0% of the total procurement for the year.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

Other explanation

Nil

2. Expenses

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

3. Research and development investment

(1). Research and development investment

	Unit: 0’000 Currency: RMB
Expensed research and development investment for the current period	1,320.1
Capitalized research and development investment for the current period	486.74
Total research and development investment	1,806.84
Percentage of total research and development investment over operating revenue (%)	0.54
Number of research and development personnel in the Company	241
Percentage of the number of research and development personnel over the
total number of personnel of the Company (%)	11.8
Ratio of capitalized research and development investment (%)	26.94

(2). Explanation

The proportion of R&D investment and capitalization in the current period is less than that of last year, mainly because the restructuring of R&D base was carried out in 2019, and most of the corresponding fixed assets purchases were completed in 2019.

4. Cash flow

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

II MAJOR CHANGES IN PROFITS CAUSED BY THE NONPRINCIPAL BUSINESS

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

III ANALYSIS OF ASSETS AND LIABILITIES

Assets and liabilities

Unit: 0’000 Currency: RMB

					Percentage of
					change in
		Percentage of		Percentage of	amount as at
		the amount		the amount	the end of
		as of		as of	the current
		the end of		the end of	period as
	Amount as	the current	Amount as	the previous	compared with
	at the end of	period to the	at the end of	period to	the end of
	the current	total assets	the previous	the total	the previous
Items	period	(%)	period	assets (%)	period (%)	Explanation
Notes receivable	265.60	0.01%	1,613.10	0.09%	-83.53%	Mainly because some bank acceptance notes
(Note 1)						were due
Prepayments	2,622.00	0.14%	3,858.30	0.21%	-32.04%	Mainly because the advance payment for
						supporting projects for the current period was
						less than that of the same period last year
Other receivables	2,411.70	0.13%	6,515.60	0.36%	-62.99%	Mainly because the Company recovered some
						deposit and received VAT refund
Long-term receivables	164,740.20	8.76%	23,645.00	1.31%	596.72%	Mainly because accounts receivable with
						an estimated recovery time of more than
						12 months were reclassified to long-term
						receivables
Property, plant and	81,935.40	4.36%	80,100.70	4.45%	2.29%	Mainly due to the increased investment in non-
equipment						concession projects in the current period
Deferred income	1,296.50	0.07%	420.90	0.02%	208.03%	Mainly due to the recognition of the income
tax assets						tax effect of deductible temporary differences
Other non-current assets	33,097.10	1.76%	19,591.90	1.09%	68.93%	Mainly because the Company’s longterm VAT
						input tax to be deducted was increased
Borrowings-current	158,298.20	8.42%	105,986.90	5.89%	49.36%	Mainly because the bonds payable mature
						within 1 year were reclassified to non-current
						liabilities due within 1 year
Salaries and wages payables	8,562.00	0.46%	6,610.00	0.37%	29.53%	Mainly due to the provision for the 2020 year-
						end bonus
Taxes payable	5,684.10	0.30%	8,618.80	0.48%	-34.05%	Mainly due to the payment of the provision
						for the value-added tax in the previous year as
						a result of the water price adjustment, and the
						decrease in value-added tax accrued this year
						due to the adjustment of the value-added tax
						policy
Other payables	95,563.10	5.08%	153,284.20	8.52%	-37.66%	Mainly because the project costs payable and
						equipment payments are less than that of the
						same period last year
Borrowings-non-current	557,447.60	29.65%	506,679.70	28.16%	10.02%	Mainly due to the new long-term borrowings
						in the current period

Note 1: Notes receivable are listed in accounts receivable.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

IV ANALYSIS OF INDUSTRY OPERATIONAL INFORMATION

Through more than twenty years of development, the environmental industry has completed its upgrade from the era of single-sector treatment to comprehensive service. Starting from the late stage of the “13th Five-Year Plan”, the environmental industry is experiencing a new stage of development, which is, upgrading from comprehensive environmental services to systematized services. With the revision of the Water Pollution Prevention and Control Law (《水污染防治法》) becoming effective, the local governments have more clear demands for the enhancement and assurance of the water environment quality. On the one hand, the existing sewage treatment plants have gradually begun to be upgraded 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. The Group offered comprehensive solutions for sewage treatment and other relevant environmental treatments according to customer requirements and customer needs, and made profits based on operation and core technologies, striving to build technical system with core competitive advantages and continuous R&D capabilities and services, leading the whole industry chain of service with technology.

During the reporting period, the capacity of sewage treatment section was 4,637,250 m[3] /day, representing an utilization rate of capacity of approximately 82.71%; the capacity of supply section of tap water and industrial water was 315,000 m[3] /day, representing an utilization rate of capacity of approximately 50.95%; the capacity of recycled water section was 385,000 m[3] /day, representing an utilization rate of capacity of approximately 42.86%; the sewage treatment capacity of new plant was 72,000 m[3] /day, and the planed capacity of projects under construction was approximately 87,850 m[3] /day, which was expected to be put into operation in 2021.

The unit price of the sewage water treatment service fee of the Company was determined with reference to the industry norms and standards and according to the principle of covering the operation and maintenance costs of sewage treatment projects with reasonable investment return through the negotiation between the Company and the local government departments or entities designated by the government. During the reporting period, the unit price of sewage treatment service fee of Tianjin Jingu, Beichen, Xianyang Road and Dongjiao Sewage Treatment Plants was adjusted after negotiation with relevant departments of Tianjin Municipal Government, adopting the provisional price of sewage treatment service fee of RMB2.32/m[3] . In addition, the unit price of RMB2.32/m[3] was also applicable to the emergency project of sewage water treatment plant at Xianyang Road (old plant) which has a sewage treatment capacity of 150,000 tons/day after upgrade and operation.

During the reporting period, the supply projects of tap water and industrial water of the Group were mainly distributed in Qujing of Yunnan, Hanshou of Hunan and Bayannur of Inner Mongolia. The Company’s supply volume was approximately 59,171,400 tons, representing an increase of approximately 7.96% as compared to that in 2019, which was mainly due to the tap water project in Hanshou officially put into commercial operation in June 2019, approximately 5 months less as compared to the reporting period. The sales volume of tap water and industrial water was approximately 54,118,400 tons, representing a decrease of approximately 1.26% as compared with that in 2019, which was mainly due to the decrease in water consumption as compared with that in 2019 as a result of suspension of certain enterprises affected by the outbreak of COVID-19 during the reporting period.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

V ANALYSIS OF INVESTMENT

1. Overall analysis of equity investment

During the reporting period, the Company’s equity investment was distributed in the water utilities business and the hazardous waste business, which was used for the establishment of project companies or purchase of equity thereof. The total amount of equity investment in 2020 was at approximately RMB168.7426 million, representing a decrease of 69.56% as compared to the previous year.

(1) Major equity investment

(1) On 24 December 2019, the Board approved to establish Huize Capital Water Co., Ltd. (會澤創業水務有限公司) (“Huize Company”) for the purpose of investment, construction, operation and maintenance of PPP project of the construction of the urban sewage treatment facilities for towns in Huize County. The registered capital of Huize Company was RMB41.2368 million, of which RMB32.6595 million was contributed by the Company, representing 79.20% of the total investment, RMB329,900 was contributed by Yunan Huaxin Construction Engineering Co., Ltd. (雲南華鑫建工有限公司), representing 0.80% of the total investment, and RMB8.2474 million was contributed by the government on behalf of the Huize sewage treatment plant, representing 20% of the total investment. During the reporting period, the capital injection was completed.
(2) On 24 December 2019, the Board approved to establish Huoqiu Capital Water Co., Ltd. (霍邱創業水務有限公司) (“Huoqiu Company”) for the purpose of investment, construction, operation and maintenance of phase I of the PPP project of the second sewage treatment plant in the north of Huoqiu County. The registered capital of Huoqiu Company was RMB41.2830 million, of which RMB37.1547 million was contributed by the Company in cash, representing 90% of the total investment, and RMB4.1283 million was contributed by Huoqiu County Urban Construction Investment Co., Ltd. (霍邱縣城鎮建設投資有限公司) in cash, representing 10% of the total investment. During the reporting period, the capital injection was completed.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

(3) On 27 April 2020, the Board approved to make an additional investment to Changsha Tianchuang Water for the change in the work of the PPP project of the sewage treatment and recycled water reuse engineering within Ningxiang Economy and Technology Development Zone. The Company will recover and obtain a reasonable return from the additional investment of RMB10.5232 million through adjusting wastewater treatment service fee of project and signing a supplementary agreement. In accordance with the requirements of the “Licensed Operation Agreement”, the capital amount of the project shall be 20% of the additional investment, i.e. RMB2.1046 million, which was contributed proportionally by four shareholders of Changsha Tianchaung Water, of which RMB1.6837 million was contributed by the Company, representing 80% of the total investment, RMB63,100 was contributed by Tianjin Motianmo Technology Co., Ltd. (天津膜天膜科技股份有限公司), representing 3% of the total investment, RMB147,300 was contributed by Tianjin Second Municipal Road Engineering Co., Ltd. (天津第二市政公路工程有限公司), representing 7% of the total investment; and RMB210,500 was contributed by Changsha Shuntai Investment Management Co., Ltd.* (長沙順泰投資管理有限公司), representing 10% of the total investment. Upon completion of the capital increase, the registered capital of Changsha Tianchaung Capital Water increased from RMB19.1476 million to RMB21.2522 million, and it remains to be the controlling subsidiary of the Company. During the reporting period, the capital increase was completed.
(4) On 27 April 2020, the Board approved to make an additional investment by Jiayuanxing (a whollyowned subsidiary of the Company) to Jiayuanxin for implementing the distributed photovoltaic power generation project. The capital increase was contributed proportionally by both shareholders of Jiayuanxin according to their respective shareholding, of which Jiayuanxing contributed RMB2.49 million, representing 60% of the capital increase and Tianjin Kangyuan Power Engineering Co., Ltd.* (天津康源電力工程有限公司) contributed RMB1.66 million, representing 40% of the capital increase. Upon the capital increase, the registered capital of Jiayuanxin was increased from RMB5 million to RMB9.15 million and it remains to be the controlling subsidiary of Jiayuanxing. During the reporting period, the capital increase was completed.
(5) On 24 June 2020, the Board approved the Company to make an additional investment of RMB142.17 million to Xi’an Company for implementing the upgrade and renovation and covering and deodorization project of the two plants in Xi’an. Upon the capital increase, the registered capital of Xi’an Company was increased from RMB334 million to RMB476.17 million. During the reporting period, such capital increase was not yet completed.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

(6) On 7 August 2020, the Board approved to establish Dongying Company for the purpose of implementing the project of comprehensive material ecology disposal center in agricultural hightech industry demonstration zone in the Yellow River Delta in Shandong Province. The registered capital of Dongying Company was RMB136.30 million, of which RMB69.513 million was contributed by the Company in cash, representing 51% of the total investment, and RMB66.787 million was contributed by Shandong Wanli Real Estate Co., Ltd.* (山東萬里置業有限公司) in cash, representing 49% of the total investment. During the reporting period, Dongying Company was established and the capital injection has not been completed.
(7) On 24 December 2020, the Board approved to purchase the entire equity interest of Compro Company and Yonghui Company for the purpose of shoring up weaknesses of the Company’s hazardous wastes business, enhancing market competitiveness with regional layout and strengthened hazardous waste disposal capacity, and comprehensively building industrial chain and regional integrated service capability. The registered capital of Compro Company and Yonghui Company was RMB100 million and RMB50 million respectively. Based on the asset appraisal value filed with the Stateowned Assets Supervision and Administration Commission, after discussion with the shareholders of Compro Company and Yonghui Company, the actual consideration payable for the acquisition of Compro Company and Yonghui Company was RMB733 million in total, which was funded by the Company’s internal funds and merger and acquisition loans. During the reporting period, the change of industrial and business registration in relation to the transfer of equity interest has not been completed and the transfer price has not been fully paid.

(2) Major non-equity investment

Not applicable

(3) Financial assets measured by fair value

Not applicable

VI DISPOSAL OF MAJOR ASSETS AND EQUITY INTEREST

International Machinery Company is an invested company of Sino Company, a wholly-owned subsidiary of Hong Kong Company (a wholly-owned subsidiary of the Company). With the registered capital of RMB120 million, International Machinery Company was incorporated in June 2005, in which Sino Company and Tianjin BENEFO Machinery Equipment Group Co., Ltd.* (天津百利機械裝備集團有限公司) hold 27.5% and 72.5% equity interest respectively. To revitalize remnant assets, realize collection of funds and reduce the grade of enterprise as well as achieve equity withdrawal by way of equity transfer, Sino Company transferred its 27.5% equity interest in International Machinery Company through open tender in Tianjin Property Rights Exchange at a basic price of nominal quotation of RMB33.38357 million. During the reporting period, the transfer of equity interest has not been completed.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

VII ANALYSIS OF MAJOR COMPANIES IN WHICH THE COMPANY HAS INVESTED

Unit: 0’000 Currency: RMB

					Shareholding
	Principal Place of		Registered	Type of	of the
Subsidiary	Business	Major Products or Services	Capital	Legal Person	Company	Asset Size	Net Assets	Net Profits
Water	Tianjin	Production and sales of recycled	10,000	Limited	100%	118,108.03	28,998.00	9,049.16
Recycling		water; development and		company
Company		construction of water recycling
		facilities; and manufacturing,
		installation, debugging, and
		operation of water recycling
		facilities, etc.
Hangzhou	Hangzhou,	Operation and maintenance of	37,744.50	Limited	70%	89,176.83	70,729.22	7,937.66
Company	Zhejiang	facilities for sewage treatment		company
		and recycled water usage, and
		supporting services such as its
		technical services and technical
		training
Xi’an	Xi’an, Shaanxi	Development, construction,	33,400	Limited	100%	64,161.58	51,339.26	3,639.55
Company		operation, and management		company
		of municipal sewage treatment
		plants, and tap water and its
		supporting facilities; and R&D
		and promotion of environment
		protection technology
Jiayuanxing	Tianjin	Development, consulting,	19,195.052	Limited	100%	67,606.87	34,941.34	3,203.99
		service, and transfer of energy		company
		conservation and new energy
		technologies; and property
		management services
Caring	Tianjin	Environmental engineering	3,333.3333	Stock	60%	16,147.10	12,399.55	1,187.19
Company		management and technical advice		Limited
		etc.		Company
Bayannur	Bayannur, Inner	Processing of sewage water,	106,757.79	Limited	70%	113,426.12	111,068.78	-1,397.22
Company	Mongolia	production and sales of recycled		company
		water and supply of tap water
Shandong	Shandong	Solid waste and hazardous	19,200.00	Limited	55%	56,428.51	18,862.41	475.41
Company		materials handling and disposal		company
Fuyang	Fuyang, Anhui	Development, construction	38,990.85	Limited	100%	113,167.12	54,360.33	5,048.52
Company		and management of municipal		company
		sewage treatment plants, tap
		water and their supporting
		facilities and solid waste
		treatment facilities; Research
		and development and
		promotion of environmental
		protection technology

Water Recycling Company recorded a revenue of RMB293.7138 million from principal operations and an operating profit of RMB118.9367 million in 2020.

Hangzhou Company recorded a revenue of RMB259.5597 million from principal operations and an operating profit of RMB81.4895 million in 2020.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

VIII 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

2021 is the opening year of the “14th Five-Year Plan”, during which a series of changes will take place in environmental protection industry. The following four changes are of concern:

Elevate from water environment treatment to ecological management

With the rising demands on systematized environmental treatment and the slowdown in growth of the market size of water utilities industry, sewage treatment enterprises are gradually elevating from sewage treatment to water environmental treatment, and then to ecological management. During the elevation process from water environmental treatment to ecological management, enterprises often take their primary businesses as the starting point to expand business step by step through resources, markets or business relations. Some enterprises accomplish crossover development through acquisition. In the existing field of solid waste, hazardous waste treatment, co-processing and disposal for organic material (sludge, food waste, kitchen waste, livestock and poultry waste) have a great market demand, which have become the main venue for new business strategic transition of many water environmental enterprises. In addition, in the context of systematic treatment, enterprises focus more on the synergy among industrial chains and the excavating of added value to high-margin segments, therefore, the vertical expansion on high-end devices, technical services and other industrial chains has also become the direction for the strategic layout and optimization of water heavy asset enterprises.

Elevate from integrated control to systemic treatment

Through more than twenty years of development, the environmental industry has completed its elevation from the era of single-sector treatment to comprehensive service. Starting from the late stage of the “13th Five-Year Plan”, the environmental industry is experiencing a new stage of development, i.e. elevating from comprehensive environmental services to systematized services. The “Clean Water Action Plan” issued in 2015 is a start of comprehensive environmental treatment. A integrated treatment model has formed in the process of treatment of the black and odorous water (from source pollution control on river channel to water pollution control, expansion and upgrading of sewage plants, initial rainwater, etc.). During the “13th Five-Year Plan” period, comprehensive water environmental treatment projects with large investment and more treatment

36 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

sectors have been highlighted. The treatment on the black and odorous water in China has also made a great breakthrough under comprehensive water treatment. With strengthening on sector assessment during the “14th Five-Year Plan”, the systemic treatment with water bodies as the core has been accentuated, which focuses more on the systemic treatment effect as compared to the comprehensive treatment, for example, systemic water treatment is implemented by systematically combining the discharge and reuse of tailwater from sewage plants, maintenance of the pipe network and control of the influent concentration of sewage plants, treatment of initial rainwater, and pumping stations of mixed flow of rain and sewage water in river channels by region based on river section evaluation.

Elevate from scale driven to the era of high-quality service

Since the reform and opening-up, China’s infrastructure construction has entered the fast development stage, part of which takes a leading position in the world, lending strong support to the sustainable and healthy development of our economy and society, and meanwhile, the construction on infrastructure of the water utilities industry has been upgraded rapidly. But it should be noted that growth on scale of the water utilities industry has slowed down since the late stage of the “12th Five-Year Plan”, which would slow further during the “14th Five-Year Plan” period, indicating that water utilities industry has elevated from the era of capital-driven to effect-driven. In the scale-driven era, capital is the fundamental driving force for industry development, and enterprises gained market shares by investment and made profits and earnings from capital growth. Enterprises’ outbound expansion often depends on its control over assets. When the market turns mature, the pace of elevating to the effect-driven era will be quickened. Under the effect-oriented model, enterprise’s market share depends on its service satisfaction, and business expansion lies in the elevation of technology and service, as well as the sustainable assurance on services.

4. Elevate from heavy asset expansion to combined light-and-heavy asset model

As the slowdown in the growth on scale of the municipal water utilities industry and shrinking on space of business expansion, the leading enterprises in the industry are starting to layout the elevation from heavy asset expansion to combined light-and-heavy asset service model, but it should be noted that market expansion of heavy asset group continues to be dominated by the heavy asset investment model due to limitation on growth of revenue and profit, while the light asset service model is taken as supplements, whose rate in main operating revenue will rise gradually. Therefore, during the “14th Five-Year Plan” period, the enterprises’ operation capability and technical service will be the key factors restricting its development. The infusion of technology, such as upgrading of technique and assisting of intelligent control, will be the direction for enterprises upgrading their core competitiveness in the future, which will also be one of the important factors for driving stock assets market under the internal circulation in sewage treatment industry.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

(II) DEVELOPMENT STRATEGY OF THE COMPANY

Positioning itself as a “professional systematized environmental service provider”, the Company will, on one hand, take sewage treatment as the core to improve its control over the high value-added industrial chain sectors, and on the other hand, improve its operation efficiency on primary business by enhancing its technical and operation capability. Based on this, the Company will create comprehensive environmental management industry ecology, ranging from solid waste, water utilities to energy, to open up the industrial chain and provide systematic service. In 2021, in consideration of the evolution of the COVID-19, the potential risks still needs to be closely observed. The Company will continue to work for epidemic prevention and control and at the same time for production and operation, attaching equal importance to both. Specifically, keeping an eye on changes in external risks, the Company draws up plans for risk prevention and control, and pushes forward deep transformation and high-quality development of enterprises through business guidance, technology empowerment and capital guarantee, striving to make a good start of “14th Five-Year Plan”.

(III) OPERATING PLANS

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

In 2020, the Company used the “13th Five-Year” strategic plan as its guideline to consolidate staff’s efforts and adjust business structure. It deepened reforms continuously, facilitated talent cultivation and team establishment, vigorously pursued scientific and technological innovation and focused on the refined management as the major task. Through comprehensive distribution, careful planning and solid progress, the operation strategy and operation plan formulated by the Board at the beginning of the year has basically been completed.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

2021 is the first year of “14th Five-Year” strategic plan of the Group. The Company will combine the 14th five-year strategic plan and 3-year action plan to deepen reform continuously, enhance quality and efficiency to expand and strengthen the principal business. Based on the sewage treatment investment and operation, the Company will improve the industrial chain vertically, strengthen the internal control, group and subsidiaries management as well as risk control, fully exerting institutional advantage of state-owned listed company to continuously improve corporate governance capability. The Company will work hard to strengthen fund operation so as to ensure its safety and avoid the risks in fund management. The business strategies for 2021 are as follows:

(1) Adhere to the business promotion principle

Improve capacity on sewage treatment, recycled water producing and selling and water supply steadily, explore smart water utilities operation, business chain extension and new business models, continue to promote the expansion and development on environment businesses such as hazardous waste treatment, sludge treatment, kitchen waste disposal, industrial wastewater treatment, new energy heating and cooling, and environmental protection technology on the basis of the principle of expanding and strengthening principal business and optimizing the structure.

(2) Enhance technology leading concept

Create new pattern of promoting innovative development with technological means through upgrading the technology system, products and services as well as the guarantee mechanism. Integrate the internal and external resources with necessary support mechanisms and incentive measures to enhance the R&D efficiency on market-oriented product services by setting up technical innovation bases and professional research centers as well as R&D, transformation, communication platforms.

(3) Innovate in capital guarantee

Capital is the key driving force for enterprise development, thus, to facilitate the implementation of strategies, the Company will actively explore various financing channels and styles by combining the features and demands of various business services, business types and business modes. In addition, fortify the fund management and improve the capital utilization efficiency.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

(4) Strengthen the Party’s leadership

Always give top priority to enhancing the Party’s political building and give full play to the leading and directing role of the Party organization, so as to provide solid political, talent and organizational safeguard for the Company’s market-oriented operation and management and high-quality development. Deepen the application of evaluation results, facilitate the rectification and reform by evaluation, promote effectiveness by rectification and reform and escort our operation based on institutional development.

(5) Optimize internal control

Optimize group management and control, strengthen management objectives and evaluation, enhance management efficiency and promote strategic implementation by consolidating resources and delegating authority based on business needs. Attach importance to the building of the governance system of the subsidiaries and demonstrating its roles. Focus on key elements such as environment analysis, risk evaluation, information integration, activity control and internal supervision to further improve the internal risk control system.

(6) Build talents system

Adhering to the principle of management of cadres and talents by the Party, implement the mechanism that allows for “flexible in increase and decrease” and “flexible in entry and exit” according to the market demands, take improving the quality and ability of the talent team as the core to build talent team for enterprise. Enhance the talent reserve and training, build platform to promote mobility, and encourage to identify and cultivate talents and build talent team in a “learning in work” way.

Income, expenses, and cost plan:

In 2021, it is expected that the sewage treatment business will remain as the principal business of the Group, and the annual sewage treatment will be not less than 1.46149 billion m[3] . With the raising of discharge standards applicable to various water projects in Tianjin and other cities 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 the amount of variation in revenue from and cost for the sewage treatment service will not be higher than 20%.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

Plan for investment in technology R&D:

In 2021, the Group will invest not less than approximately RMB10.34 million in technology R&D plus development and technological reforms, and will continue to conduct research and development on the new technical processes and application technologies in the areas of sewage water treatment and sludge treatment, etc.

In 2021, the estimated capital expenditure is RMB5.5 billion, which will be mainly used for the upgrading of water projects and the construction of new energy projects and hazardous waste projects.

In 2021, 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.

(IV) POSSIBLE RISKS

1. 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. Most of the PPP package projects currently promoted included the investment and construction of infrastructures such as pipeline networks with huge investments from social capital sources, the investment return relies mainly on the payment of sewage treatment service fee from the governments. Therefore, the exclusiveness 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’s fiscal revenue and expenditure and 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.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

4. Management Discussion and Analysis

(2) Risk of change in policy

Currently, the PRC is at the special stage of comprehensive deepening of reform. For a long period in the future, there will be transformative changes in policies related to economy, finance, prices, financial taxation and government functions, etc. The policy changes in prices and taxes will directly influence the adjustment of water price. During the licensed operation period lasting for 30 years, as a social investor, one needs to focus on the risk of change in policy. In addition, continued access to concession would also pose potential risks at the end of the licensed operation period.

(3) Risk of operation and management

With the continuous escalation of the national environmental management requirement, the demands for upgrading sewage treatment plants gradually increase to meet the new standards. Under this circumstance, on one hand, sewage treatment plants will face the restructuring and operational risk. On the other hand, enterprises will also face the risk of adjusting the original licensed operation agreement. In addition, whether sludge disposal after sewage treatment can form a more perfect business model also ought to be brought to our attention.

2. Risk control measures

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

Strengthen the concept of corporate governance in accordance with the laws by making full use of its overall legal advisory system to protect lawful interests of the Company. Meanwhile, the Company calls for and supports the further assurance of equality of the contracting parties under the licensed operation and PPP projects, 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.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

4. Management Discussion and Analysis

(2) Strengthen comprehensive risk management

Determine the target for comprehensive risk management; establish the institutional framework for comprehensive risk management to identify, analyze, 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. Moreover, on a higher level, advancing structural transformation of enterprise is actually the basic strategies to reduce business risks.

(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 final 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. It is also important to maintain smooth contact and strengthen communications with local governments and regulatory authorities.

(V) OTHERS

Not applicable

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

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND

(I) Formulation, Execution, or Adjustment of Cash Dividend Policy

In order to establish a sustainable, clear, and transparent cash dividend policy and a scientific decision-making mechanism and to improve the quality of the Company’s information disclosure in the principle of the “Listed Companies Regulatory Guidance No. 3 – Cash Dividend Distribution of Listed Companies” issued by the CSRC, the Company revised the article related to profit distribution in its Articles of Association. The aforesaid revision to the Articles of Association was considered and approved by the Company at the 16th meeting of the seventh Board on 8 September 2016 and at the second extraordinary general meeting of 2016 held on 30 December 2016. Article 201 of the Articles of Association was amended as follows:

I. Basic principles for profit distribution of the Company:

(1) The Company shall take full account of the return to investors. The Company shall, after making up for the losses of previous years and contributing to the statutory reserve and discretionary reserve, distribute dividends to the shareholders per annum in proportion to distributable profit realized for the year concerned attributable to the parent company, which shall be determined by resolutions at the general meetings.
(2) The Company’s profit distribution policy shall maintain continuously and stably, for the long term interest of the Company, in the interest of all shareholders as a whole, and for sustainable development of the Company.
(3) The Company shall give priority to dividend distribution in cash.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)

II. Dividend distribution policies of the Company:

(1) Dividends shall be distributed in the following manner: the Company may distribute profits in cash, in shares, or in a combination of both cash and shares or by otherwise permitted by laws and regulations. If the conditions of cash dividends are met, priority shall be given to dividend in cash over dividend in shares.
(2) Interval of profit distribution: provided that the Company makes a profit and the distributable profit is a positive figure for the year, the Company shall distribute profit once a year. To the extent that the scale of profit and the capital position are appropriate for the relevant period, the Company may distribute interim dividend in cash.
(3) Conditions of cash dividend distribution of the Company:
the Company’s profit and aggregate undistributed profit realized for the year are positive with sufficient cash flow, and cash dividend distribution has no impact on the Company’s sustained operations;
the accounting firm issues a standard unqualified audit report on the Company’s financial report for that year;
the Company has no events such as material investment plan or significant cash expenditure, excluding investments projects using proceeds raised.

Material investment plans or significant cash expenditures refer to the proposed external investment, acquisition of assets or purchase of equipment by the Company in the coming twelve months with an accumulated expenditures amounting to or exceeding 30% of the latest audited net assets of the Company.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)

II. Dividend distribution policies of the Company: (Continued)

(4) Proportion of cash dividends:

Subject to the satisfaction of the above conditions, the profit to be distributed in cash per annum will not be less than 20% of the distributable profit realized for that year attributable to the parent company, and the Company’s aggregated profit distributable by way of cash for three consecutive years will not be less than 30% of the distributable profit attributable to the parent company realized within such three years. The specific dividend proportion of each year shall be determined by the Board according to the profit for the relevant year and utilization plan for future capital.

The Board shall take into full account of various factors such as features of the industries where the Company operates, the stage of development of the Company, its own business model, level of profitability, and whether there is significant capital expenditure arrangement, to distinguish the following situations and put forward a differentiated cash dividend policy in accordance with the procedures as required by this Articles of Association:

If the Company is at the mature stage of development and has no significant capital expenditure arrangement, the proportion of cash dividends in the profit distribution shall be at least 80% when the profit distribution is made;
If the Company is at the mature stage of development and has significant capital expenditure arrangement, the proportion of cash dividends in the profit distribution shall be at least 40% when the profit distribution is made;
If the Company is at the growing stage of development and has significant capital expenditure arrangement, the proportion of cash dividends in the profit distribution shall be at least 20% when the profit distribution is made;

If it is difficult to distinguish the stage of development of the Company and the Company has significant capital expenditure arrangement, the profit distribution may be dealt with pursuant to the preceding provisions.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)

II. Dividend distribution policies of the Company: (Continued)

(5) Conditions for distributing dividends in shares by the Company: where the Company’s business is in a sound condition, and the Board considers that the stock price of the Company does not reflect its share capital size and distributing dividend in shares will be favorable to all the shareholders of the Company as a whole, provided that the above conditions for cash dividend distribution are fully satisfied, the Company may propose dividend distribution in shares. Distributing profit by way of dividend in shares shall include true and reasonable factors such as growth of the Company and dilution of net assets per share.
(6) Profit distribution of the Company shall not exceed the cumulative distributable profit or damage the Company’s sustainable operation ability.
(7) In case any shareholder misappropriates the funds of the Company unlawfully, the Company will deduct cash dividends to be distributed to such shareholder for making up the amount misappropriated.

III. Decision making procedures and mechanism of the Company’s profit distribution:

(1) Formulation of profit distribution policy

The Company shall scientifically formulate the profit distribution policy of the Company after comprehensively taking into account factors such as the actual conditions of the Company’s operating development, the needs and requests of the Shareholders, social capital costs, external financing environment etc.

The profit distribution policy of the Company shall be considered and approved by more than two-thirds of voting shares held by the shareholders (including their proxies) present at the general meeting. The Board, the Supervisory Committee, and shareholders individually or jointly holding 3% or more of the Company’s shares, have the right to propose resolution(s) in respect of the profit distribution policy to the Company.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)
- III. Decision making procedures and mechanism of the Company’s profit distribution: (Continued)
  - (1) Formulation of profit distribution policy (Continued)

The Board shall specifically study and discuss matters relating to the returns for shareholders, set out a specific and clear plan on the returns for shareholders and explain the reasons for the formulation of the plan in details. Opinions of shareholders (especially minority shareholders), independent Directors, and Supervisors shall be fully heard and considered during the meeting of the Directors, the meeting of the Supervisors of the Company, and the general meeting in respect of the study, discussion, and decisionmaking process of the profit distribution policy of the Company.

The Board, independent Directors, and shareholders complying with certain conditions can collect the voting rights at general meeting from the shareholders of the Company.

(2) Formulation of specific proposal of profit distribution

The Company’s profit distribution plan for each year shall be proposed by the Company’s management after taking into account factors such as the requirements in the Company’s Articles of Association, production and operation position, cash flows, and future business development plan, and shall be submitted to the Board and the supervisory committee of the Company for consideration. If the supervisory committee has no objection to the profit distribution plan, the Board shall thoroughly discuss its rationality, taking into account the opinions from the independent Directors, and form a special proposal as well as an independent view expressed by independent Directors on profit distribution proposal for the consideration and approval by the shareholders at the general meeting.

The Board shall fully consider the capital needs of normal production and operation of the Company, arrangement of investment, actual profit status, cash flows and scale of share capital of the Company and the sustainability of development when formulating the specific proposal of cash dividend, and carefully study and discuss the timing, conditions and minimum proportion of cash dividend of the Company, conditions for adjustment and requirements for decision-making procedures. Independent Directors shall express specific views.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)
- III. Decision making procedures and mechanism of the Company’s profit distribution: (Continued)
  - (2) Formulation of specific proposal of profit distribution (Continued)

Independent Directors can collect views from minority shareholders to propose profit distribution proposal and directly propose to the Board for consideration.

Prior to consideration of the specific proposal of cash dividend at the general meeting, the Company shall actively communicate and exchange ideas with shareholders (especially minority shareholders) through various channels (including but not limited to telephone, facsimile, e-mail and interactive platforms), fully listen to the opinions and requests of medium and small shareholders and reply in a timely manner the questions from minority shareholders. When considering the profit distribution plan, the Company shall make internet voting accessible to the shareholders.

(3) If the Company makes a profit for the year, but the Board does not propose the profit distribution proposal by the way of cash, the Company shall explain the reason and the usage and plan of utilization for the capital which is not utilized as cash dividends and reserved in the Company, and independent Directors shall express independent views thereupon and timely disclose; it shall propose to the general meeting for consideration after consideration and approval by the Board. Meanwhile, the Company shall make internet voting for medium and small shareholders to vote at the general meeting.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)

IV. Adjustment to profit distribution policy:

The Company shall strictly implement the profit distribution policy stipulated in this Articles of Association and the specific proposal of profit distribution considered and approved at the general meeting.

In case of war, natural disasters and other force majeure, or changes to the Company’s external operational environment resulting in a material impact on its production and operation, or relatively significant changes to the Company’s operational position, or new policies on profit distribution published by competent authorities in which cases the profit distribution policy stipulated by this Articles of Association, in particular the cash dividend policy, is required to be adjusted, the Company may adjust its profit distribution policy. The Board shall thoroughly discuss the rationality of the adjustment to the profit distribution policy, and form a special proposal after an independent view is expressed by the independent Directors and submit the same for the consideration by the shareholders at the general meeting. The proposal shall be considered and approved by more than two-thirds of voting rights held by the shareholders (including their proxies) present at the general meeting.

The supervisory committee shall issue its review opinions on the adjustment to the profit distribution policy.

The adjusted profit distribution policy shall not contravene with the relevant requirements of the CSRC and the stock exchange on which shares of the Company are listed.

When the general meeting considers the adjustment to the profit distribution policy, the Company shall make internet voting accessible to the shareholders or collect voting rights of the shareholders.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)

V. Disclosures in regular reports:

The Company shall disclose in details the formulation and implementation of cash dividend policy in its annual reports, and specifically explain whether it is in compliance with the provisions of this Articles of Association or requirements of the resolutions of the general meeting, whether the criteria and proportion of dividend distribution is specific and clear, whether the relevant decision-making procedures and mechanism are complete, whether independent Directors duly perform their duties and play their due roles, whether medium and small shareholders have opportunities to fully express their opinions and requests, and whether the legitimate interests and interests of medium and small shareholders are fully protected.

Where the Company adjusts or changes its cash dividend distribution policy, it shall explain in details as to whether the conditions and procedures of such adjustments or changes are in compliance with relevant regulations and transparent.

If the Company is unable to determine the profit distribution proposal for the year according to the established cash dividend policy or the minimum cash dividend proportion under extraordinary circumstances, the Board shall explain in details the reason for not proposing cash profit distribution according to this Articles of Association, and the usage and plan of utilization for the capital which is not utilized as cash dividends and reserved in the Company, and the independent Directors shall express independent views thereupon and timely disclose.

VI. Supervision on profit distribution by the supervisory committee:

The supervisory committee shall supervise the Board and the management in respect of the formulation and implementation of the profit distribution policy and the status of returns for shareholders and the relevant decision-making procedures.

The supervisory committee shall give specific opinions and monitor the prompt rectification of the Board in the event of any of the following circumstances:

(1) the cash dividend policy and the plan on returns for shareholders are not strictly implemented;
(2) the relevant decision-making procedures in respect of the cash dividend distribution are not strictly implemented;
(3) the disclosure and implementation of the cash dividend policy are not true, accurate or complete.”

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

I. PROPOSAL ON ORDINARY SHARE PROFIT DISTRIBUTION OR TRANSFER OF CAPITAL RESERVE FUND (Continued)
(I) Formulation, Execution, or Adjustment of Cash Dividend Policy (Continued)

The Company has laid emphasis on reasonable returns to investors since its reorganization completed in December 2000. Other than no profit distribution in 2018 due to the preparation for the non-public issuance of A shares, the Company has made cash dividend distribution in other years.

(II) Plan or proposal of ordinary share profit distribution or transfer of capital reserve fund to share capital of the Company for the latest three years (including the reporting period):

Unit: 0’000 Currency: RMB

						Percentage of
					Net profit	the net profit
					attributable to	attributable to
					the ordinary	the ordinary
					shareholders of	shareholders of
		Amount of	Number of		the Company in	the Company in
	Number of	dividends	shares		the consolidated	the consolidated
	bonus shares	distributed per	transferred	Amount of	financial	financial
	per 10 shares	10 shares (Yuan)	per 10 shares	cash dividends	statements	statements
Year of dividends	(shares)	(inclusive of tax)	(shares)	(inclusive of tax)	for the year	(%)
2020	0	1.20	0	17,127	57,003.9	30.04
2019	0	1.07	0	15,271	50,710.7	30.11
2018	0	1.06	0	15,129	50,116.8	30.19

(III) Any inclusion of shares repurchased through cash in cash dividend

Not applicable

(IV) If the Company records profit and profit distributable to the ordinary shareholders of the Company for the reporting period is positive but there is no proposal for cash dividend, the Company shall disclose the reasons, the usage, and the utilization plan of the undistributed profits in detail

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

II. PERFORMANCE OF COMMITMENT

(I) Commitment of the Company’s Ultimate Controller, Shareholders, Related Parties, Purchaser, the Company, and Other Related Parties During or Subsisted in the Reporting Period

Not applicable

(II) Where the Company Has Profit Forecasts on Assets or Projects, and the Reporting Period Was Within the Term of Profit Forecasts, the Company Has to State Whether Such Profit Forecasts on Assets or Projects Are Fulfilled and the Reasons Therefor

Not applicable

III. FUNDS OCCUPIED AND REPAYMENT PROGRESS DURING THE REPORTING PERIOD

Not applicable

IV. EXPLANATION BY THE COMPANY ON “QUALIFIED AUDIT REPORT” PROVIDED BY THE ACCOUNTING FIRM

Not applicable

V. ANALYSIS AND EXPLANATION OF THE COMPANY ON THE REASONS AND EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES OR CORRECTION OF MATERIAL ACCOUNTING ERRORS
(I) Analysis and explanation of the Company on the reasons and effects of the changes in accounting policies and accounting estimates

Not applicable

(II) Analysis and explanation of the Company on the reasons and effects of correction of material accounting errors

Not applicable

(III) Communication with the former accounting firm

Not applicable

(IV) Other explanations

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

VI. APPOINTMENT AND REMOVAL OF ACCOUNTING FIRMS

Unit: 0’000 Currency: RMB

Present Appointment Name of the PRC accounting firm PricewaterhouseCoopers Zhong Tian LLP Remuneration of the PRC accounting firm 200 Service years of the PRC accounting firm 26 years Name of the Hong Kong accounting firm Pricewaterhousecoppers Remuneration of the Hong Kong accounting firm 130 Service years of the Hong Kong accounting firm 26 years Name Fees Accounting firm responsible for internal control audit PricewaterhouseCoopers Zhong Tian LLP RMB600,000

Explanations on the Appointment and Removal of Accounting Films

During the reporting period, the Company did not change its accounting firm. The PRC auditor and Hong Kong auditor of the Company are PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers, respectively. As at the end of the previous reporting period, the above two accounting firms have provided auditing services for the Company for 26 years.

VII. RISKS OF SUSPENSION OF LISTING

(I) Causes of Suspension of Listing

Not applicable

(II) Measures to be taken by the Company

Not applicable

VIII. SITUATION AND REASONS FOR TERMINATION OF LISTING

Not applicable

IX. MATTERS RELATING TO BANKRUPTCY AND RESTRUCTURING

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

X. MATTERS RELATING TO MATERIAL LITIGATION AND ARBITRATION

(I) Litigation and arbitration that were disclosed in the Company’s announcements without subsequent progress

Not applicable

(II) Litigation and arbitration that were not disclosed in the Company’s announcements or have subsequent progress

During the reporting period:

							Unit: Yuan Currency: RMB	Unit: Yuan Currency: RMB	Unit: Yuan Currency: RMB
						Any estimated
					Amount	liabilities
					involved in	incurred in		Ruling results	Enforcement of
			Type of	Particulars of	litigation	litigation	Progress of	of litigation	award of
Plaintiff		Party to bear	litigation	litigation	(arbitration)	(arbitration)	litigation	(or arbitration)	litigation
(Applicant)	Defendant (Respondent)	joint liability	or arbitration	(or arbitration)	(RMB0’000)	and the amount	(or arbitration)	and its effect	(or arbitration)
Jiayuanxing	Qudong Company	None	Litigation	Note (1)	12,030,003	None	Enforcement	Note (2)	Enforcement
									terminated
									Note (2)

Note (1): From 2012 to 2016, Jiayuanxing and Qudong Company signed the “Tianjin Non-residential Buildings Cold Supply Contract (天津市非居民住宅供用冷合同)” and “Tianjin Non-residential Buildings Heat Supply Contract (天津市非居民住宅供用熱合同)”, in which it is stipulated that Jiayuanxing would provide cold and heat supply services to the Tianjin Cultural Center Grand Theatre (天津文化中心大劇院) that was operated and managed by Qudong Company. Qudong Company did not pay cold and heat supply energy fees to Jiayuanxing on time and in full according to the contract. In order to safeguard the legal rights and interests of Jiayuanxing, on 3 November 2017, Jiayuanxing has filed a civil lawsuit with Hexi Court. On 3 April 2018, the Hexi Court made a first-instance judgment, ruling that Qudong Company shall pay Jiayuanxing cold and heat supply energy fees of RMB12,030,003 from 2012 to 2016 within ten days from the effective date of the first-instance judgment; and case acceptance fees and preservation fees totaling RMB98,980 were burdened by Qudong Company. Both parties refused to accept the first-instance judgment and appealed to the Secondary Intermediate People’s Court. On 25 September 2018, the Secondary Intermediate People’s Court made the final judgment, ruling to reject the appeal applications of both parties and maintained the original judgment.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

X. MATTERS RELATING TO MATERIAL LITIGATION AND ARBITRATION (Continued)

(II) Litigation and arbitration that were not disclosed in the Company’s announcements or have subsequent progress (Continued)

Note (2): On 22 October 2018, Jiayuanxing applied to the Hexi Court for enforcement. On 19 December 2018, under the direction of the Hexi Court, both parties reached a settlement agreement in implementation. Qudong Company shall pay in advance RMB3.16 million and the remaining amounts shall be repaid by four installments by 31 December 2020. If Qudong Company failed to perform any installment, the implementation based on the original legal documents would be resumed. On 11 January 2019, RMB3.1635 million repaid by Qudong Company in advance was in the account. On 21 January 2019, Jiayuanxing received an execution ruling from the Hexi Court. Upon execution, both parties reached a settlement agreement. As the agreement had not been completed for fulfillment, the court made a ruling to end the implementation of (2017) Jin 0103 Minchu No. 12411 civil judgment issued by Tianjin Hexi District People’s Court. Qudong Company repaid the first and second installments according to the settlement agreement before 31 December 2019. At present, Qudong Company has paid a total of RMB7.4013 million. It was scheduled that the third installment would be paid by 30 June 2020. However, due to the epidemic, the Company had no performance activities and no operating income in the first half of 2020, so it applied for an extension to Jiayuanxing. On 28 July 2020, Qudong Company provided a situation report, stating that it would act according to the schedule set out in the report, that is, to repay approximately RMB1.5 million by the end of 2021, approximately RMB2 million by the end of 2022, and approximately RMB1.1 million by June 2023. However, because Qudong Company has not been able to re-sign the relevant agreement with Jiayuanxing, Jiayuanxing has sent a letter to Qudong Company, asking Qudong Company to sign the relevant agreement as soon as possible. If the agreement could not be signed by 28 February 2021, Jiayuanxing would apply to the Hexi Court for resumption of enforcement. On 1 March 2021, Jiayuanxing received a reply from Qudong Company, which said that Qudong Company had filed for bankruptcy and could not sign the relevant agreement again. At present, Jiayuanxing is communicating and coordinating with the execution court.

(III) Other explanations

Not applicable

XI. PUNISHMENTS TO AND RECTIFICATION OF THE COMPANY AND ITS DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT, ULTIMATE CONTROLLERS, AND PURCHASERS

Not applicable

XII. EXPLANATION ON THE INTEGRITY OF THE COMPANY, ITS CONTROLLING SHAREHOLDERS, AND ULTIMATE CONTROLLERS DURING THE REPORTING PERIOD

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIII. THE COMPANY’S SHARE INCENTIVE SCHEME, EMPLOYEE STOCK OWNERSHIP PLAN, OR OTHER EMPLOYEE INCENTIVE SCHEME AND THEIR EFFECTS

Matters related to the 2020 A share option incentive scheme (“Share Option Incentive Scheme”) were considered and approved by the shareholders of the Company at 38th meeting of the 8th Board of the Company held on 27 November 2020 and the 2020 second extraordinary general meeting, 2020 second A shareholder’s class meeting and 2020 second H shareholder’s class meeting of the Company held on 23 December 2020. During the reporting period, the Company did not grant any stock options under the Share Option Incentive Scheme.

On 21 January 2021, the grant conditions under the Share Option Incentive Scheme were met. The Board approved the grant of an aggregate of 12,170,000 share options (the “First Grant”) to 155 participants (the “Participants”) who have fulfilled the grant conditions pursuant to the authorization by the Shareholders. On 29 January 2021, the Company completed the registration for the first grant of share options under the Share Option Incentive Scheme.

For details of the above Share Option Incentive Scheme, please refer to the relevant announcements and overseas regulatory announcements published on the website of Stock Exchange on 27 November 2020, 23 December 2020, 21 January 2021 and 29 January 2021, and the relevant circular published on the website of the Stock Exchange on 8 December 2020.

(1) Purpose of the Implementation of the Share Option Incentive Scheme

In order to further improve the corporate governance structure of the Company, promote the establishment and improvement of the incentive and constraints mechanism, fully mobilize the initiative, responsibility and sense of mission of the directors, senior management, other members of the leadership team, the core management staff, core technical personnel, and business backbone staff of the Company and its holding subsidiaries, effectively align the interests of shareholders, the Company and the operators, and attract common attention and joint efforts to the long-term development of the Company, the Share Option Incentive Scheme is formulated in accordance with the relevant provisions of the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Trial Measures on Implementation of Share Incentive Schemes by State-Owned Listed Companies (Domestic) (Guo Zi Fa Fen Pei [2006] No. 175) (《國有控股上市公司（境內）實施股權激勵試行辦法》(國資發分配[2006]175 號)), the Notice on Issues concerning Regulating the Implementation of the Share Incentive Schemes by State-Owned Listed Companies (Guo Zi Fa Fen Pei [2008] No. 171) (《關於規範國有控股上市公司實施股權激勵制度有關問題的通知》(國資發分配[2008]171 號)) and the Administrative Measures on Share Incentives of Listed Companies* (《上市公司股權激勵管理辦法》), and based on the current compensation system, performance appraisal system and other management systems implemented in the Company.

(2) Determination and Distribution on Participants under Share Option Incentive Scheme

There are no more than 155 Participants for the Share Option Incentive Scheme, including the directors, senior management (excluding the independent Directors, external Directors and supervisors), other members of the leadership team and core technology, management, business and skill backbones of the Company.

The Participants of the Share Option Incentive Scheme do not include supervisors, independent directors, and shareholders or actual controllers who hold more than 5% of the Company’s issued shares (including A Shares and H Shares) individually or in aggregate, as well as their spouses, parents and children.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIII. THE COMPANY’S SHARE INCENTIVE SCHEME, EMPLOYEE STOCK OWNERSHIP PLAN, OR OTHER EMPLOYEE INCENTIVE SCHEME AND THEIR EFFECTS (Continued)
(2) Determination and Distribution on Participants under Share Option Incentive Scheme (Continued)

The distribution details of the share options of each of the Participants are set out in the following table:

			Percentage to the
			total number of
			share options granted	Percentage to the
		Number of share	under the	total share capital
		options granted	Share Option	as at the end of
Name	Title	(In 10,000 options)	Incentive Scheme	reporting period
Liu Yujun	Executive Director, Chairman	30.00	2.10%	0.0210%
Tang Fusheng	General Manager	30.00	2.10%	0.0210%
Wang Jing	Executive Director	25.00	1.75%	0.0175%
Zhao Yi	Deputy General Manager	25.00	1.75%	0.0175%
Zhang Jian	Deputy General Manager	25.00	1.75%	0.0175%
Li Yang	Deputy General Manager	25.00	1.75%	0.0175%
Li Jinhe	Deputy General Manager, Chief Engineer	25.00	1.75%	0.0175%
Peng Yilin	Chief Accountant	25.00	1.75%	0.0175%
Niu Bo	Executive Director, Secretary to the Board	18.00	1.26%	0.0126%
Reserved options		210.00	14.72%	0.1472%
Other participants (no
more than 146 persons)		989.00	69.31%	0.6931%
Total		1,427.00	100.00%	1.0000%

Note: If there is any difference between the total number and the sum of the details in the above table, it is caused by rounding off the results.

(3) Number of Share Options Proposed to be Granted Under the Share Option Incentive Scheme

The number of share options proposed to be granted under the Share Option Incentive Scheme is 14,270,000 and the corresponding number of underlying shares is 14,270,000 A shares, representing not more than 1.0% of the Company’s total issued share capital of 1,427,228,430 shares as at the end of reporting period; where 12,170,000 options will be granted for the first time (the “Share Options Granted for the First Time”), representing approximately 0.85% of the total issued capital (1,427,228,430 Shares) of the Company as at the end of reporting period, and approximately 85.28% of the total number of the current share options granted; and 2,100,000 options will be reserved (the “Reserved Share Options”), representing approximately 0.15% of the total issued capital (1,427,228,430 Shares) of the Company as at the end of reporting period, and 14.72% of the total number of the current share options granted.

The nature of the underlying shares is A ordinary Shares in RMB. The source of the underlying shares is issuance of new shares by the Company to the Participants. The cumulative number of the underlying shares of the Company involved in the Share Option Incentive Scheme during the Validity Period shall not exceed 10.00% of the total issued share capital of the Company as at the end of reporting period and the date on which the Share Option Incentive Scheme is approved by the shareholders.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIII. THE COMPANY’S SHARE INCENTIVE SCHEME, EMPLOYEE STOCK OWNERSHIP PLAN, OR OTHER EMPLOYEE INCENTIVE SCHEME AND THEIR EFFECTS (Continued)
(4) Maximum number granted for each participant

None of the Participants of the Share Option Incentive Scheme shall be granted more than 1.00% of the total issued share capital of the Company as at the end of reporting period and the date on which the Share Option Incentive Scheme is approved by the shareholders through the Share Option Incentive Scheme during the Validity Period.

(5) Vesting Period

The Vesting Period is the interval between the date of grant and the first exercise date. The Vesting Period of the share options granted to the Participants under the Share Option Incentive Scheme is 24 months, and the exercise of options is not allowed during the Vesting Period.

(6) Exercise Period and Exercise Date

The participants of the Share Option Incentive Scheme shall not exercise the share options until the expiration of the Vesting Period. The exercise date must be a trading day within the Validity Period of the Share Option Incentive Scheme, provided that exercise is not allowed in the following periods:

(I) the period from the date of 30 days prior to the announcements of the periodic reports of the Company to 2 trading days after such announcement, provided that if the announcement date of the periodic report is delayed due to special reasons, it shall be calculated from 30 days prior to the pre-determined announcement date;
(II) the period from the date of 10 days prior to the announcement of the results forecast and preliminary results of the Company to 2 trading days after such announcement;
(III) the period from the date of the major transaction or major event decision process to 2 trading days after the announcement of the event;
(IV) the period from the date of occurrence of other material events that may affect the stock price to 2 trading days after the announcement.

The aforementioned “major transaction”, “major event” and “material events that may affect the stock price” are transaction or other major event that should be disclosed by the Company in accordance with the Listing Rules of the Shanghai Stock Exchange.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIII. THE COMPANY’S SHARE INCENTIVE SCHEME, EMPLOYEE STOCK OWNERSHIP PLAN, OR OTHER EMPLOYEE INCENTIVE SCHEME AND THEIR EFFECTS (Continued)
(6) Exercise Period and Exercise Date (Continued)

During the exercise period, if the exercise conditions stipulated in the Share Option Incentive Scheme are met, the Participants shall exercise the options in three phases in the next 36 months after the expiration of 24 months from the date of grant (including the Share Options Granted for the First Time and Reserved Share Options). The exercise arrangement is as follows:

Exercise period	Exercise time	Percentage of exercise
First exercise period	From the first trading day after 24 months has passed since the date	1/3
	of grant to the last trading day within 36 months from the date of
	grant
Second exercise period	From the first trading day after 36 months has passed since the date	1/3
	of grant to the last trading day within 48 months from the date of
	grant
Third exercise period	From the first trading day after 48 months has passed since the date	1/3
	of grant to the last trading day within 60 months from the date of
	grant

The Participants must exercise within the exercise period. Where the exercise conditions cannot be fulfilled, the current share options shall not be exercised. Where the exercise conditions are fulfilled, such part of the share options that are not fully exercised during the aforementioned exercise period will be cancelled by the Company.

(7) The Exercise Price and Determination Method

The exercise price of the share option granted under the Share Option Incentive Scheme is RMB6.98 per share, that is, each share option granted to the Participant carries the right to purchase one A Share of the Company at RMB6.98 per share during the Validity Period, subject to the fulfillment of the exercise conditions. The exercise price of Reserved Share Options is RMB6.98 per Share.

The exercise price of share options granted under the Share Option Incentive Scheme shall not be lower than the par value of A Share and shall not be lower than the higher of:

(I) The average trading price of the A shares of the Company on the trading day immediately before the date of the announcement on the Share Option Incentive Scheme on 27 November 2020, being approximately RMB6.98 per A share;
(II) The average trading price of the A shares of the Company for the 20 trading days immediately before the date of the announcement on the Share Option Incentive Scheme on 27 November 2020, being approximately RMB6.98 per A share.

60 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIII. THE COMPANY’S SHARE INCENTIVE SCHEME, EMPLOYEE STOCK OWNERSHIP PLAN, OR OTHER EMPLOYEE INCENTIVE SCHEME AND THEIR EFFECTS (Continued)
(7) The Exercise Price and Determination Method (Continued)

The method for determining the exercise price of Reserved Share Options is consistent with the method for determining the exercise price of the Share Options Granted for the First Time.

During the period from the date of the announcement on the Share Option Incentive Scheme on 27 November 2020 to the completion of the exercise of share options by the Participants, the exercise price of the share options shall be adjusted accordingly in the event of any capitalization issue, bonus issue, share subdivision or share consolidation, rights issue, issuance of new shares, dividend distribution, etc.

(8) Validity Period

The Validity Period of the Share Option Incentive Scheme shall commence from the date of grant of the share options, and end on the date on which all the share options granted under the Share Option Incentive Scheme have been exercised or cancelled, and shall not be longer than 60 months.

(9) Value and Relevant Accounting Policies of Share Options

1. Value of Share Options

The Company uses Black-Scholes Model (B-S Model) to calculate the fair value of the share options to be granted, and it is predicted that the value of each share option of the Company is RMB2.11 and the total value of share options granted are RMB30,109,700 by using this model. The valuation results of share options here are not used as the basis for accounting treatment. The fair value of share options used to calculate accounting costs will be re-estimated after the actual completion of the grant by collecting real-time market data at the date of grant. Relevant valuation inputs and results are set out in the below table:

Parameter inputs	Parameter values	Definition
Expected volatility	33.00%	Historic volatility in recent 4 years of the Company
Expected dividend rate	0.00%	The Share Option Incentive Scheme to adjust the grant of share options for
		ex-rights, ex-dividends, etc. on target shares
Risk-free interest rate	2.42%	On linear extrapolation, being the interest rate of the national debt with
		same expected period as the share options
Expected period	4 years	Expected period = 0.5 × (weighted expected period + total Validity Period)
Exercise price	6.98	Exercise price determined in accordance with the Share Option Incentive
		Scheme
Share market price	7.05	The closing price of the Company’s share on the valuation date
Valuation results	2.11	Share option per share granted based on the calculation of Black-Scholes
		valuation model

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIII. THE COMPANY’S SHARE INCENTIVE SCHEME, EMPLOYEE STOCK OWNERSHIP PLAN, OR OTHER EMPLOYEE INCENTIVE SCHEME AND THEIR EFFECTS (Continued)

2. Accounting policies in respect of the Share Options

Pursuant to the “Accounting Standards for Business Enterprises” and their application guidelines, the Company’s main accounting principles for granting share options to the Participants are as follows:

(i) if the equity-settled share-based payment is exchanged for the Participants to provide services, it shall be measured by the fair value of the equity instruments granted to the Participants;
(ii) for equity-settled share-based payment in exchange for Participants’ services after completing the services within the Vesting Period or meeting the prescribed performance conditions, on each balance sheet date within the Vesting Period, based on the best estimate of the number of feasible equity instruments, the services obtained in the current period are included in the relevant asset costs or current expenses according to the fair value of the equity instruments on the date of grant, which are charged in the recurring profit and loss and included in the capital reserve at the same time.

Accounting treatment on the date of grant: since share options cannot be exercised on the date of grant, there is no need to carry out relevant accounting treatment;

Accounting treatment during the Vesting Period: on each balance sheet date during the Vesting Period, based on the best estimate of the number of exercisable share options, according to the fair value of share options on the date of grant, the services obtained in the current period are included in the relevant asset costs or current expenses, and also included in the capital reserve;

Accounting treatment after the exercise date: the confirmed cost and total owner’s equity will not be adjusted. On each balance sheet date, the option cost that should be borne in the current period will be amortized;

Accounting treatment for the exercise: share capital and share premium shall be recognized with reference to the actual exercise of the share options, and carry forward the capital reserve confirmed during the Vesting Period.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS

(I) Connected Transactions in the Ordinary Course of Business

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation

  - a. On 20 January 2020, the Board considered and approved the agreement entered into between the Company and Tianjin Investment Group in respect of the entrustment of conducting the commissioning and trial operation for the Xianyang Road Sewage Water Treatment Plant Relocation and Upgrading Project to the Company by Tianjin Investment Group. The term for conducting the commissioning and trial operation is from the date of completion of relocation and upgrade project of Xianyang Road Sewage Water Treatment Plant to the date of environmental acceptance, totaling 3 months. The fee for conducting the commissioning and trial operation under the agreement is RMB4,697,422.82.

Connected relationship: Tianjin Investment Group is the ultimate controller of the Company.

b. On 26 March 2020, the Board considered and approved the finance lease agreement (the “Finance Lease Agreement”) entered into between Shandong Company (as the lessee), a subsidiary of the Company, and Tianjin City Investment Development and Leasing Co., Ltd. (“Tianjin City Investment Development”) (as the lessor), pursuant to which, Shandong Company agreed to sell the assets (excluding the land) for the expansion of the phase I project owned by Tianjin City Investment Development in the PAC in Tancheng, Shandong as the leased assets (“Leased Assets”) to Tianjin City Investment Development at a total consideration of not exceeding RMB20,000,000, and Tianjin City Investment Development agreed to leaseback the leased assets to Shandong Company during the 3-year lease period at the total rent of approximately RMB22,992,500, which comprises of (i) the amount of the lease principal in the sum of approximately RMB20,000,000; (ii) the lease interest of approximately RMB2,280,000, to be calculated at the lease rate of 3.8% per annum; (iii) one-off handling fee rate of 3.5625%, that is RMB712,500. Subject to the fulfillment of all the obligations under the Finance Lease Agreement by Shandong Company, upon the expiry of the lease, Shandong Company shall have the right to require Tianjin City Investment Development to sell the ownership of the leased assets back at the consideration of RMB100.

Connected relationship: Shandong Company is a non-wholly-owned subsidiary of the Company. Tianjin City Investment Development is a non-wholly-owned subsidiary of Tianjin Investment Group, the ultimate controller of the Company.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(I) Connected Transactions in the Ordinary Course of Business (Continued)

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation (Continued)

  - c. On 1 June 2020, Jiayuanxing, a wholly-owned subsidiary of the Company, entered into the Cold Supply Agreement with TLP for the provision of cold supply services to TLP at an unit price of RMB64.59 per m[2] . The total service area is 273,486.6 m[2] and the cold supply service fee amounts to RMB17,664,499.49. In addition, TLP applied to Jiayuanxing to suspend the cold supply service for an area of approximately 89,555.4 m[2] in 2020. Therefore, TLP is required to pay to Jiayuanxing the additional cold energy loss compensation fees in 2020. The amount of the cold energy loss compensation fees is RMB1,156,876.66, which is calculated by multiplying the above-mentioned suspended cold supply service area with the unit price of RMB64.59 per m[2] and 20%. The total amount of the service fee and the cold energy loss compensation fee under the Cold Supply Agreement is approximately RMB18,821,376.15.

Connected relationship: Jiayuanxing is a wholly-owned subsidiary of the Company; TLP is an indirect subsidiary of Tianjin Investment Group, the ultimate controller of the Company.

d. On 30 June 2020, the Company renewed the Zhangguizhuang Sewage Water Treatment Plant Entrusted Operation Agreement with Tianjin Investment Group, pursuant to which the Company shall continue to operate Zhangguizhuang Sewage Water Treatment Plant invested by Tianjin Investment Group for a service period from 1 July 2020 to 31 December 2021. The unit price of service fee is RMB0.98/m[3] and the total amount of service fees expected to be not more than RMB129,120,000.

Connected relationship: Tianjin Investment Group is the ultimate controller of the Company.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(I) Connected Transactions in the Ordinary Course of Business (Continued)

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation (Continued)

  - e. On 30 June 2020, the Company renewed the Zhangguizhuang Sewage Water Treatment Plant Sludge Disposal Centre Entrusted Operation Agreement with Tianjin Investment Group, pursuant to which the Company shall continue to operate and maintain the Zhangguizhuang Sewage Water Treatment Plant Sludge Disposal Centre for Tianjin Investment Group for a service period from 1 July 2020 to 31 December 2021. The service fees include (1) fees for processing the sludge in the sludge disposal centre of RMB156.64 per tonne (including electricity fee of RMB53.40 per tonne); (2) transportation fees of RMB48.00 per tonne; and (3) taxes. The total amount of service fees expected to be not more than RMB18,834,000.

Connected relationship: Tianjin Investment Group is the ultimate controller of the Company.

f. On 7 August 2020, the Board considered and approved the contract operation agreement on Zhangguizhuang Water Recycling Plant and its supporting water pipe-network assets entered into between Water Recycling Company and Tianjin Investment Group, pursuant to which, Tianjin Investment Group shall contract the operation of the Zhangguizhuang Water Recycling Plant and its supporting water pipe-network assets to Water Recycling Company, while Water Recycling Company shall be responsible for the contract operation of the Zhangguizhuang Water Recycling Plant Project constructed by Tianjin Investment Group, and shall be engaged in the production and sales of recycled water. The operating term of the agreement is effective from 7 August 2020 to 31 December 2021, and the contracting fees to be paid to Tianjin Investment Group are expected to be RMB9,050,000.

Connected relationship: Water Recycling Company is the wholly-owned subsidiary of the Company; Tianjin Investment Group is the ultimate controller of the Company.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(I) Connected Transactions in the Ordinary Course of Business (Continued)

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation (Continued)

  - g. On 10 December 2020, the Board considered and approved the agreement entered into between the Company and Tianjin Investment Group in respect of the entrustment of conducting the commissioning and trial operation for the Dongjiao Sewage Water Treatment Plant and recycling water plant relocation project to the Company by Tianjin Investment Group. The term for conducting the commissioning and trial operation is from the date of completion of relocation project of Dongjiao Sewage Water Treatment Plant and recycling water plant relocation project to the date of environmental acceptance. The fee for conducting the commissioning and trial operation under the agreement is RMB8,381,700.

Connected relationship: Tianjin Investment Group is the ultimate controller of the Company.

According to Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”), the above-mentioned items (d) and (e) are continuing connected transactions. The independent non-executive Directors of the Company have reviewed the above continuing connected transactions and confirmed that:

① the above continuing connected transactions were in the ordinary course of business of the Company;
② the above continuing connected transactions were conducted on normal commercial terms; and
③ the above continuing connected transactions were carried out in accordance with the terms of the agreements of the relevant transactions, which were fair and reasonable and in the interests of the Company and its shareholders as a whole.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(I) Connected Transactions in the Ordinary Course of Business (Continued)

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation (Continued)

The Board also confirmed that the auditors of the Company had confirmed the matters as set out in Rule 14A.56 of the Listing Rules regarding the above-mentioned continuing connected transactions occurred in 2020, namely items (d) and (e).

2. Connected transactions which have been disclosed in the Company’s announcements, with subsequent progress or changes to their implementation

Not applicable

3. Connected transactions which have not been disclosed in the Company’s announcements

Not applicable

(II) Connected Transactions as a result of Acquisition, Disposal of Assets or Equity

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation

Not applicable

2. Connected transactions which have been disclosed in the Company’s announcements, with subsequent progress or changes to their implementation

Not applicable

3. Connected transactions which have not been disclosed in the Company’s announcements

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(II) Connected Transactions as a result of Acquisition, Disposal of Assets or Equity (Continued)

4. Discloseable performance for the reporting period of connected transactions with agreed-upon performance targets

Not applicable

(III) Significant Connected Transactions in Joint External Investment

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation

Not applicable

2. Connected transactions which have been disclosed in the Company’s announcements, with subsequent progress or changes to their implementation

Not applicable

3. Connected transactions which have not been disclosed in the Company’s announcements

Not applicable

(IV) Creditor’s Rights and Debts with Related Parties

1. Connected transactions which have been disclosed in the Company’s announcements, but without subsequent progress or changes to their implementation

Not applicable

2. Connected transactions which have been disclosed in the Company’s announcements, with subsequent progress or changes to their implementation

Not applicable

3. Connected transactions which have not been disclosed in the Company’s announcements

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(V) Others

Connected transaction

On 13 July 2020, the Board has approved the proposed issuance of 323,741,007 new A shares (inclusive) to 3 specific target investors (i.e. TMICL, Yangtze Ecological Environmental Protection Group. Co., Ltd. (長江生態環保集團有限公司) (“ Yangtze Ecology ”) and Three Gorges Capital Holdings Co., Ltd. (三峽資本控股有限責任公司) (“ Three Gorges Capital ”)) (“ Non-public Issuance of A Shares ”). The issue price of Non-public Issuance of A Shares is RMB5.56/share (“ Issue Price ”). It is expected that the gross proceeds to be raised from the Nonpublic Issuance of A Shares will not exceed RMB1.8 billion (inclusive), which will be used to repay interest-bearing liabilities and supplement the Company’s working capital after deducting the offering expenses.

As part of the Non-public Issuance of A Shares, the Company entered into the subscription agreement with TMICL on 13 July 2020, pursuant to which TMICL conditionally agreed to contribute RMB200 million in cash to subscribe for 35,971,223 A shares to be issued based on the Non-public Issuance of A Shares according to the Issue Price, accounting for approximately 11.11% of the total number of A shares to be issued under the Non-public Issuance of A Shares (“ TMICL Subscription Agreement ”). Immediately after the completion of the Non-public Issuance of A Shares (assuming that (i) a total of 323,741,007 new A Shares will be issued to TMICL, Yangtze Ecology and Three Gorges Capital under the Non-public Issuance of A Shares, respectively and (ii) there is no other change to the shareholding structure of the Company since 13 July 2020 save for the issuance of the A Shares pursuant to the Non-public issuance of A Shares), TMICL will hold approximately 42.92% of the total issued shares of the Company.

On 28 August 2020, the State-owned Assets Supervision and Administration Commission of the Tianjin Municipal People’s Government agreed with the proposal of the Non-public Issuance of A Shares of the Company in 2020 in principle. On 7 September 2020, the resolutions relating to the Non-public issuance of A Shares were considered and approved by the 2020 first extraordinary general meeting, the 2020 first H shareholders’ class meeting and the 2020 first A shareholders’ class meeting of the Company. The Non-public Issuance of A Shares still remains subject to the approval from the China Securities Regulatory Commission.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XIV. MATERIAL CONNECTED TRANSACTIONS (Continued)

(V) Others (Continued)

Connected transactions (Continued)

On 30 March 2021, the Board considered and approved the relevant resolutions in relation to the adjustments to the proposed Non-public Issuance of A Shares and the adjustments to the Proposed Introduction of the Strategic Investor Subscription, pursuant to which, the Three Gorges Capital will no longer subscribe for the shares to be issued under the Non-public Issuance of A Shares. Therefore, the adjusted Non-public Issuance of A Shares is intended for 2 target subscribers: Yangtze Ecology and TMICL, and the gross proceeds to be raised by this adjusted Non-public Issuance of A Shares will not exceed RMB1.2 billion (inclusive). There is no amendment and adjustment to any terms and conditions under the TMICL Subscription Agreement. Immediately after the completion of the adjusted Non-public Issuance of A Shares (assuming that (i) a total of 215,827,338 new A Shares will be issued to TMICL and Yangtze Ecology under the Non-public Issuance of A Shares, respectively and (ii) there is no other change to the shareholding structure of the Company since 30 March 2021 save for the issuance of the A Shares pursuant to the adjusted Non-public issuance of A Shares), TMICL will hold approximately 45.74% of the total issued shares of the Company.

For details of the Non-public issuance of A Shares, please refer to the announcements and overseas regulatory announcements of the Company dated 13 July 2020, the circular dated 21 August 2020, the announcement on the resolutions passed at the 2020 first extraordinary general meeting, the 2020 first H shareholders’ class meeting and the 2020 first A shareholders’ class meeting dated 7 September 2020, the overseas regulatory announcements dated 28 August 2020, 29 September 2020, 30 October 2020, 17 November 2020 and 28 January 2021, and the inside information announcements and related overseas regulatory announcements dated 28 January 2021 and 30 March 2021.

Connected relationship: TMICL is the direct controlling shareholder of the Company.

Saved as disclosed above, there is no related party transaction or continuing related party transaction as set out in the Annual Report 2020 of the Company that falls under the definition of “connected transaction” or “continuing connected transaction” which requires disclosure in Chapter 14A of the Listing Rules. The Company confirms that it has complied with the relevant disclosure requirements in accordance with Chapter 14A of the Listing Rules.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XV. MATERIAL CONTRACTS AND THEIR IMPLEMENTATION

(I) Custody, Contracting and Leasing

1. Custody

Not applicable

2. Contracting

Not applicable

3. Leasing

Not applicable

(II) Guarantees

Unit: 0’ 000 Currency: RMB

Guarantees provided to external parties by the Company (excluding guarantees provided to subsidiaries)

Total amount of guarantees provided during the reporting period (excluding guarantees provided to
subsidiaries)	0
Total balance of guarantees as at the end of the reporting period (A) (excluding guarantees provided to
subsidiaries)	0
Guarantees provided to subsidiaries of the Company
Total amount of guarantees provided to subsidiaries during the reporting period	88,445.56
Total balance of guarantees provided to subsidiaries as at the end of the reporting period (B)	444,985.79
Total amount of guarantees provided by the Company (including guarantees provided to subsidiaries)
Total amount of guarantees (A+B)	444,985.79
Percentage of the total amount of guarantees to the net assets of the Company (%)	58.69
Of which:
Amount of guarantees provided to shareholders, ultimate controllers, and their connected parties (C)	0
Amount of guarantees provided directly or indirectly to guaranteed entities with a gearing ratio of over
70% (D)	78,602.37
Total amount of guarantees exceeding 50% of net assets (E)	65,903.64
Total of the above three classes of guarantees (C+D+E)	144,506.01
Explanation on contingent joint liability for undue guarantees	Not applicable
Explanation on guarantees	Nil

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XV. MATERIAL CONTRACTS AND THEIR IMPLEMENTATION (Continued)
(III) Cash Asset Management Entrusted to Others

1. Entrusted wealth management

Not applicable

2. Entrusted loans

Not applicable

3. Others

Not applicable

(IV) Other Material Contracts

Not applicable

XVI. DETAILS OF OTHER MAJOR EVENTS

(I) Sale and Purchase or Redemption of Shares of the Company

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

(II) 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 reporting period, in compliance with the Corporate Governance Code under the Listing Rules.

(III) Model Code for Securities Transactions by the Directors

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

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XVI. DETAILS OF OTHER MAJOR EVENTS (Continued)

(IV) Public Float

On the basis of published information and to the best knowledge of the Directors, the Company has maintained the

amount of public float as required under the Listing Rules as at the date of this annual report.

(V) Pre-emptive Rights

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

(VI) Tax Concession

Holders of listed securities of the Company were not granted any tax concession for holding securities of the Company.

(VII) Charge of Assets

For details about charge of assets of the Company, please refer to the financial reports as set out below.

(VIII) Audit Committee

On 31 July 2001, the Board approved the establishment of the Audit Committee which is responsible for reviewing and supervising the financial reporting process and internal control of the Company. The Audit Committee has reviewed the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including a review of the audited accounts for the year ended 31 December 2020 with the Directors.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XVII. ACTIVE PERFORMANCE OF SOCIAL RESPONSIBILITY

(I) Poverty Alleviation Work of the Company

1. Targeted Poverty Alleviation Plan

Not applicable

2. Summary of Annual Targeted Poverty Alleviation

(1) In accordance with the overall arrangement of Tianjin’s targeted poverty alleviation work, the total investment capital demand for the assistance projects for Nancaicun Town (南蔡村鎮) government and the projects of the maintenance of the main road and the dredging and renovation of ditches and ponds in Xixiaoliang Village (西小良村) of Nancaicun Town is RMB4.1671 million, which has been paid as scheduled by the Company at the end of reporting period. The assistance funds are subject to special account management and the “fixed sum for fixed purpose” policy, and are to be used in accordance with the principle of “special account accounting and special usage only”. Special income and expenditure account will be established individually, and the funds for each village will be accounted for separately. The resident assistance team sent out by Tianjin Investment Group will be responsible for supervising and verifying the usage of assistance funds.
(2) In accordance with “Implementation Plan for 2020 on Promoting Quality Collaboration in Poverty Alleviation and Support Between the Eastern and Western Regions for Accomplishing Poverty Elimination Tasks On Schedule of Tianjin”, the Company donated RMB500,000 to non-profit organizations to support the construction of the assistance regions in Xiqing District of Tianjin and won the appreciation of Red Cross Society of Xiqing District and Special Group for Social Mobilization.
(3) In response to the poverty alleviation requirements of the Xianning Government, Wuhan Company (the controlling subsidiary of the Company) Xianning Branch targeted poverty alleviation in Lushui Village, Gaotieling Town, Jiayu County, Xianning City in June 2020. It planned to donate RMB100,000 for road paving, ground leveling, and compensation for young crops so as to support the tourism industry in Lushui Village.
(4) To help fishermen get rid of poverty as soon as possible, more than 1,000 households of more than 2,800 Dahu fishermen in Honghu City moved ashore in different places. The fishermen encountered many difficulties in perspectives such as life, medical care, employment, and children’s education. Honghu Government advocated donations and assistance from all sectors of the society. Honghu Capital Water Co., Ltd. (洪湖市創業水務有限公司), the controlling subsidiary of the Company, responded actively and planned to donate RMB100,000 to the Honghu Charity Federation for the purpose of subsequent assistance to fishermen.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XVII. ACTIVE PERFORMANCE OF SOCIAL RESPONSIBILITY (Continued)

(I) Poverty Alleviation Work of the Company (Continued)

3. Achievements in Targeted Poverty Alleviation

Not applicable

4. Subsequent Targeted Poverty Alleviation Plan

Please refer to the above summary of targeted poverty alleviation.

(II) Social Responsibility Work

The Company has disclosed its social responsibility report. For details, please refer to the website of the Shanghai Stock Exchange (http://www.sse.com.cn) on 26 March 2021.

(III) Environment Information

1. Explanation on environmental protection of the company and its important subsidiaries classified as key pollutant discharging entities as published by environmental protection authorities

(1) Pollutant Discharging

The Company is mainly engaged in the sewage treatment business which is to collect and treat domestic and municipal sewage by removing the main pollutants therein to the extent that the treated sewage meets the discharge standards stipulated by the national or local government, and then discharge the treated sewage to rivers via sewage outfalls as designated after assessment. The advanced treatment of part of the tail water is further performed for reclaimed water supply. According to the aforesaid effluent water quality standards for sewage treatment plants stipulated by the national or local government, the effluent of sewage treatment plants is allowed to contain certain types and amounts of pollutants, mainly comprising chemical oxygen demand (COD), biochemical oxygen demand (BOD), suspended solids (SS), total nitrogen, ammonia nitrogen, total phosphorus, etc. Given the fact that most of sewage treatment projects have a designed capacity of exceeding 20,000 tonnes/day, they are classified as key pollutant discharging entities by local environmental protection authorities.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XVII. ACTIVE PERFORMANCE OF SOCIAL RESPONSIBILITY (Continued)

(III) Environment Information (Continued)

1. Explanation on environmental protection of the company and its important subsidiaries classified as key pollutant discharging entities as published by environmental protection authorities (Continued)

(1) Pollutant Discharging (Continued)

As at the end of the reporting period, the Company owned 41 sewage treatment projects, each of which has 1 or 2 effluent outfall(s) confirmed by industry competent authorities and experts upon examination and verification. According to the relevant agreements, currently the effluent water quality carried out by most sewage treatment plants is class A specified in the Pollutant Discharge Standards for Urban Wastewater Treatment Plants (DB12/599-2015) of Tianjin and First Grade A under the Pollutant Discharge Standards for Urban Wastewater Treatment Plants (GB18918-2002). The common pollutant indexes requiring basic control include COD, BOD, SS, total nitrogen, ammonia nitrogen, total phosphorus, etc. The following table sets out the maximum allowable discharge concentrations (daily average) of the pollutant indexes requiring basic control.

No.	Pollutant index requiring basic control	Pollutant index requiring basic control	National standard – first grade class A	Tianjin local standard – class A
1	COD		50	30
2	BOD		10	6
3	SS		10	5
4	Animal &plant oil		1	1
5	Petroleum		1	0.5
6	Anion surfactant		0.5	0.3
7	Total nitrogen (N)		15	10
8	Ammonia nitrogen (N)		5(8)	1.5(3)
9	Total phosphorus (P)	Constructed before 31 December 2005	1	0.3
		Constructed after 1 January2006	0.5	0.3
10	Chroma (dilution multiple)		30	15
11	PH		6~9
12	Number of fecal coliforms/L		1000	1000

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

5. Major Events

XVII. ACTIVE PERFORMANCE OF SOCIAL RESPONSIBILITY (Continued)

(III) Environment Information (Continued)

(1) Pollutant Discharging (Continued)

During the reporting period, the discharge concentrations of the major pollutant indexes requiring basic control of the Company’s sewage treatment business were all below the above standards. In aggregate, the COD, BOD, SS, total nitrogen, ammonia nitrogen, and total phosphorus discharged by the Company during the reporting period were approximately 22,600 tonnes, 9,200 tonnes, 5,500 tonnes, 11,700 tonnes, 2,200 tonnes, and 300 tonnes, respectively. In aggregate, environmental pollutants, namely, the COD, BOD, SS, total nitrogen, ammonia nitrogen, and total phosphorus, were eliminated by approximately 409,000 tonnes, 209,000 tonnes, 288,000 tonnes, 76,500 tonnes, 48,000 tonnes, and 9,000 tonnes, respectively, representing a significant contribution to water environmental governance.

(2) Construction and operation of pollution prevention facilities

During the reporting period, the sewage treatment projects operated by the subsidiaries of the Company strictly complied with the relevant emission standards with all the effluent water quality, odor, noise, and solid emission meeting the requirements. The projects’ operation was also in normal condition. The construction of the sewage treatment facilities followed the relevant construction procedures and quality standards and proceeded normally.

(3) Environmental Impact Assessment of Construction Projects and Other Administrative Permissions for Environmental Protection

All the Company’s sewage treatment projects in operation have gone through the relevant EIA procedures and obtained approvals and environmental acceptance upon construction completion from the competent environmental authorities.

(4) Emergency Plans for Sudden Environmental Incidents

During the reporting period, all key pollutant discharge entities of the Company’s sewage treatment business prepared the “Environmental Emergency Response Plan for Sewage Treatment Plants” with reference to the “Interim Measures for the Administration of Environmental Emergency Response Plan”, and the plan was approved by and filed with the local environmental protection bureau.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

5. Major Events

XVII. ACTIVE PERFORMANCE OF SOCIAL RESPONSIBILITY (Continued)

(III) Environment Information (Continued)

(5) Environmental Self-monitoring Program

During the reporting period, all key pollutant discharge entities of the Company’s sewage treatment business carried out environmental self-monitoring in accordance with the relevant requirements of the government. At the beginning of each year, each entity prepares the “Environmental Self-monitoring Program” for the year based on the actual situation. The monitoring program mainly specifies the monitoring items, monitoring points, monitoring methods, monitoring frequency, analysis methods, etc. The monitoring results are publicized on the local environmental information monitoring platform. Each entity will also file the self-monitoring program and adjustments and changes with the local environmental protection bureau in a timely manner.

(6) Other environmental information that should be disclosed

Not applicable

2. Description of environmental information of companies other than those classified as key pollutant discharge entities

Not applicable

3. Explanation of reasons for non-disclosure of environmental information of companies other than those classified as key pollutant discharge entities

Not applicable

4. Description of follow-up progress or changes in the disclosure of environmental information during the reporting period

In 2018, the Xiqing District Environmental Protection Bureau, Dongli District Environmental Protection Bureau and Beichen District Environmental Protection Bureau imposed penalty as Xiangyang Road sewage treatment plant, Dongjiao sewage treatment plant and Beicang sewage treatment plant did not meet the class A standard (see annual report 2019 of the Company). During the reporting period, the aforesaid penalties have been revoked after communicating with the relevant government departments.

(IV) Other explanations

Not applicable

XVIII. CONVERTIBLE BONDS

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

6. Details of Changes in Ordinary Shares and Shareholders

I. CHANGES IN ORDINARY SHARE CAPITAL

(I) Changes in Ordinary Shares

During the reporting period, there were no changes in the total number of ordinary shares and the structure of share capital of the Company.

(II) Changes in Restricted Shares

Not applicable

II. ISSUE AND LISTING OF SECURITIES

(I) Issue of Securities as at the End of the Reporting Period

Unit: Share Currency: RMB

					Authorized
					trading volume	Date of
Types of stock and		Issue price			in respect of	termination of
its derivative securities	Date of issue	(or interest rate)	Volume of issue	Listing date	the listing	trading
Convertible corporate bonds, bonds with warrants, debentures
Corporate bonds	25 October 2016	0.0313	7,000,000	–	–	25 October 2021
Corporate bonds	26 April 2018	0.0517	11,000,000	–	–	26 April 2023

Explanation on the issue of securities as at the end of the reporting period (for bonds with different interest rates during the terms, please specify separately):

For details, please refer to “9. Relevant Details of Corporate Bonds” in this annual report.

(II) Changes in the Total Number of Ordinary Shares of the Company and Shareholder Structure and the Company’s Assets and Liabilities Structure

Not applicable

(III) Existing Employee Shares

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

6. Details of Changes in Ordinary Shares and Shareholders

III. DETAILS OF SHAREHOLDERS AND ULTIMATE CONTROLLER

(I) Total number of shareholders

Total number of ordinary shareholders as at the end of the reporting period	68,658
Total number of ordinary shareholders as at the end of the previous month before
the disclosure date of the annual report	67,369
Total number of shareholders of preferred shares whose voting rights have been restored
as at the end of the reporting period	Not applicable
Total number of shareholders of preferred shares whose voting rights have been restored
at the end of last month prior to the date on which the annual report shall be disclosed	Not applicable

Note: The total numbers of shareholders above represent the sum of holders of A Shares and H Shares. The total number of ordinary shareholders as at the end of the reporting period is 68,658, among which 66 are holders of H Shares. The total number of ordinary shareholders as at the end of the previous month before the disclosure date of the annual report is 67,369, among which 64 are holders of H Shares.

(II) Shareholdings of the Top Ten Shareholders and the Top Ten Shareholders of Circulating Shares (or Shareholders of Non-Restricted Shares) at the End of the Reporting Period

Unit: Share

		Shareholdings of the top ten shareholders	Shareholdings of the top ten shareholders	Shareholdings of the top ten shareholders
	Increase/
	decrease	Number of
	during the	shares held		Number of
	reporting	at the end		restricted	Pledged or frozen
	period	of the period	Percentage	shares held		Number
Name of shareholder	(shares)	(shares)	(%)	(shares)	Status	(shares)	Nature of the Shareholder
TMICL	0	715,565,186	50.14	0	None	–	State-owned legal person
HKSCC Nominees Limited	18,000	337,892,810	23.67	0	Unknown	–	Others
Central Huijin Asset Management Co., Ltd.	0	14,169,800	0.99	0	None	–	State-owned legal person
Hong Kong Securities Clearing Company	3,795,368	8,705,956	0.61	0	None	–	Others
Limited
Zhejiang Jinxin Construction Engineering Co.,	2,809,300	6,209,800	0.44	0	None	–	Domestic non-state-owned
Ltd. (浙江錦鑫建設工程有限公司)							legal person
Hou Hongyan (侯紅燕)	1,750,000	1,750,000	0.12	0	None	–	Domestic natural person
Huang Yizhu (黃移珠)	1,540,332	1,540,332	0.11	0	None	–	Domestic natural person
Huang Qiangsheng (黃強勝)	1,507,100	1,507,100	0.11	0	None	–	Domestic natural person
Shenyang Railway Coal Group Co., Ltd.	0	1,500,000	0.11	0	None	–	State-owned legal person
(瀋陽鐵道煤炭集團有限公司)
Huang Liantu (黃聯土)	1,347,500	1,347,500	0.09	0	None	–	Domestic natural person

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

6. Details of Changes in Ordinary Shares and Shareholders

III. DETAILS OF SHAREHOLDERS AND ULTIMATE CONTROLLER (Continued)

(II) Shareholdings of the Top Ten Shareholders and the Top Ten Shareholders of Circulating Shares (or Shareholders of Non-Restricted Shares) at the End of the Reporting Period (Continued)

Shareholdings of the top ten shareholders of non-restricted circulating shares	Shareholdings of the top ten shareholders of non-restricted circulating shares	Shareholdings of the top ten shareholders of non-restricted circulating shares
	Number of
	non-restricted
	circulating	Type and number of shares
Name of shareholder	shares held	Type	Number
TMICL	715,565,186	Ordinary RMB Shares	715,565,186
HKSCC Nominees Limited	337,892,810	Overseas listed Foreign	337,892,810
		Shares
Central Huijin Asset Management Co., Ltd.	14,169,800	Ordinary RMB Shares	14,169,800
Hong Kong Securities Clearing Company Limited	8,705,956	Ordinary RMB Shares	8,705,956
Zhejiang Jinxin Construction
Engineering Co., Ltd. (浙江錦鑫建設工程有限公司)	6,209,800	Ordinary RMB Shares	6,209,800
Hou Hongyan (侯紅燕)	1,750,000	Ordinary RMB Shares	1,750,000
Huang Yizhu (黃移珠)	1,540,332	Ordinary RMB Shares	1,540,332
Huang Qiangsheng (黃強勝)	1,507,100	Ordinary RMB Shares	1,507,100
Shenyang Railway Coal Group Co., Ltd.	1,500,000	Ordinary RMB Shares	1,500,000
(瀋陽鐵道煤炭集團有限公司)
Huang Liantu (黃聯土)	1,347,500	Ordinary RMB Shares	1,347,500
Notes on the connected relationship or parties acting in	It is not certain whether there is any connected relationship among the
concert among the above shareholders	top 10 shareholders.

It is not certain whether there is any connected relationship between the top 10 shareholders of non-restricted circulating shares and the top 10 shareholders.

Notes: (1) According to the register of members as provided by HKSCC Nominees Limited, those H shares held by it were held on behalf of various clients. As at the end of reporting period, Ningbo BSLS Trade Co., Ltd.(寧波百思樂斯貿易有限公司) and its concert parties Ningbo Ningdian Investment Development Co., Ltd.( 寧波寧電投資發展有限公司 ) and LVNENG Investment & Development Co., Ltd. (Hong Kong) held a total of 93,798,000 H shares of the Company, representing 6.572% of the total share capital of the Company, and none of the shares were pledged.

(2) The top ten shareholders are not strategic investors of the Company.

(III) Strategic Investors or General Legal Persons Becoming the Top Ten Shareholders Due to Placing of New Shares

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

6. Details of Changes in Ordinary Shares and Shareholders

IV. CHANGES IN THE CONTROLLING SHAREHOLDER AND THE ULTIMATE CONTROLLER

(I) Controlling Shareholder
1 Legal person

Name

TMICL

Head of the entity or legal representative Gu Wenhui Date of incorporation 20 January 1998

Principal operations

Investment, operation and management of commerce, service industry, real estate industry, city infrastructure, road construction and auxiliary facilities with internal funds; property management; leasing of self-owned housing; corporation management and consultation (for the above business covering the industry license, operating with the license within the validity period; for specific projects and operations, in accordance with the State regulations) (projects subject to approval according to law may be operated upon the approval of relevant departments).

The shareholdings of other domestic and foreign Nil listed companies in which the company has controlling interests and has invested during the reporting period

Notes on other information Nil

2 Flowchart on the shareholding interests and relationship of control between the Company and its controlling shareholder

==> picture [251 x 120] intentionally omitted <==

----- Start of picture text -----

TMICL
The Company
----- End of picture text -----

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

6. Details of Changes in Ordinary Shares and Shareholders

IV. CHANGES IN THE CONTROLLING SHAREHOLDER AND THE ULTIMATE CONTROLLER (Continued)

(II) Details of Ultimate Controller

1 Legal person Name State-owned Assets Supervision and Administration Commission of the People’s Government of Tianjin

2 Flowchart on the equity interests and relationship of control between the Company and its ultimate controller

==> picture [252 x 272] intentionally omitted <==

----- Start of picture text -----

State-owned Assets Supervision and Administration Commission
of the People’s Government of Tianjin
Tianjin Investment Group
TMICL
The Company
----- End of picture text -----

V. OTHER LEGAL PERSON SHAREHOLDERS HOLDING MORE THAN 10% OF THE SHARES

As at the end of the reporting period, there were no other legal person shareholders holding more than 10% of the shares of the Company.

VI. DESCRIPTION OF RESTRICTION ON DECREASE OF SHAREHOLDINGS

Not applicable

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

6. Details of Changes in Ordinary Shares and Shareholders

VII. SUBSTANTIAL SHAREHOLDERS INTERESTS

(a) As at 31 December 2020, so far as is known to or can be ascertained after reasonable enquiries by the Directors, Supervisors or chief executive of the Company, the following entities (other than the Directors, Supervisors or chief executive of the Company) had an interest or short position in the shares or underlying shares (including options) of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (the “ SFO ”):

				Approximate
			Approximate	percentage of the
			percentage of	total issued
		Number and	the relevant class	share capital
Name of shareholder	Capacity	class of securities	of securities	of the Company
		(Note)
TMICL	Beneficial owner	715,565,186	65.82%	50.14%
		A Shares (L)
Ningbo Development	Interest of controlled	92,500,000	27.20%	6.48%
Investment Group Limited	corporation	H Shares (L)
Company*(寧波開發投資
集團有限公司)
Ningbo Thermal Power	Interest of controlled	92,500,000	27.20%	6.48%
Co., Ltd.*(寧波熱電股份	corporation	H Shares (L)
有限公司)
Ningbo Ningdian Investment	Beneficial owner	48,472,000	14.25%	3.40%
Development Co., Ltd.*(寧波		H Shares (L)
寧電投資發展有限公司)
Ningbo BSLS Trade	Beneficial owner	44,834,000	13.19%	3.14%
Co., Ltd.*(寧波百思樂斯		H Shares (L)
貿易有限公司)
ISIS Asset Management Plc	Investment manager	17,286,000	5.08%	1.21%
		H Shares (L)

Note: The letter “L” represents the person’s long position in the shares. The letter “S” represents the person’s short position in the shares.

(b) Save as disclosed above, there is no other person (other than the Directors, Supervisors or chief executive of the Company) so far as is known to the Directors, Supervisors or chief executives of the Company who, as at 31 December 2020, had an interest or short position in the shares or underlying shares (including options) of the Company which would fall to be notified to the Company under Divisions 2 and 3 of Part XV of the SFO, or had, directly or indirectly, interested in 5% or more of nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

7. Directors, Supervisors, Senior Management and Employees

I. CHANGES IN SHAREHOLDINGS AND THE REMUNERATION

(I) Changes in shareholdings and the remuneration of the existing and resigned Directors, Supervisors, and senior management during the reporting period

										Aggregate pre-
										tax remunerations	Whether
						No. of shares	No. of shares			received from the	remuneration
						held at the	held at the	Changes in		Company during	was received
						beginning	end of	number of		the reporting	from related
						of the year	the year	shares for	Reason for	period	parties of the
Name	Position held (note)	Gender	Age	Appointment date	Termination date	(shares)	(shares)	the year	changes	(RMB: 0’000)	Company
Liu Yujun	Executive Director,	M	55	13 March 2015	17 December 2021	0	0	0	No change	108.91	No
	Chairman
Wang Jing	Executive Director	F	50	18 December 2018	17 December 2021	0	0	0	No change	80.90	No
Niu Bo	Executive Director	M	44	18 December 2018	17 December 2021	0	0	0	No change	71.04	No
	Secretary of the Board			29 January 2016	17 December 2021
Gu Wenhui	Non-executive Director	M	44	13 May 2020	17 December 2021	0	0	0	No change	0	Yes
Si Xiaolong	Non-executive Director	M	44	18 December 2018	17 December 2021	0	0	0	No change	0	Yes
Wang Xiangfei	Independent non-	M	68	18 December 2015	17 December 2021	0	0	0	No change	22.00	No
	executive Director
Guo Yongqing	Independent non-	M	46	18 December 2015	17 December 2021	0	0	0	No change	22.00	No
	executive Director
Di Xiaofeng	Independent non-	M	59	18 December 2018	17 December 2021	0	0	0	No change	22.00	No
	executive Director
Lu Hongyan	Supervisor	F	51	17 May 2017	17 December 2021	0	0	0	No change	72.74	No
	Chairwoman of the			18 December 2018	17 December 2021
	Supervisory Committee
Wu Baolan	Supervisor	F	52	24 August 2011	17 December 2021	0	0	0	No change	50.55	No
Niu Jing	Supervisor	F	50	18 December 2015	17 December 2021	0	0	0	No change	49.58	No
Li Zongqiang	Supervisor	M	50	18 December 2012	17 December 2021	0	0	0	No change	0	Yes
Shen Yue	Supervisor	F	45	18 December 2018	17 December 2021	0	0	0	No change	48.99	No
Huang Lan	Supervisor	F	49	18 December 2018	17 December 2021	0	0	0	No change	39.98	No
Li Yang	General Manager	M	51	8 February 2021	17 December 2021	0	0	0	No change	93.92	No
	Former Deputy General			15 March 2017	8 February 2021
	Manager
Zhao Yi	Deputy General Manager	M	50	18 October 2010	17 December 2021	0	0	0	No change	82.22	No
Zhang Jian	Deputy General Manager	M	51	17 January 2012	17 December 2021	822	822	0	No change	81.69	No
Li Jinhe	Deputy General Manager	M	50	29 August 2017	17 December 2021	0	0	0	No change	81.80	No
	Chief engineer			1 January 2020	17 December 2021
Zhao Mingwei	Deputy General Manager	M	40	8 February 2021	17 December 2021	0	0	0	No change	0	No
Peng Yilin	Chief Accountant	F	40	29 January 2016	17 December 2021	0	0	0	No change	81.73	No
Yu Zhongpeng	Former Non-executive	M	41	15 May 2018	21 April 2020	0	0	0	No change	0	Yes
	Director
Han Wei	Former Non-executive	M	43	15 May 2018	27 August 2020	0	0	0	No change	0	Yes
	Director
Tang Fusheng	Former General Manager	M	47	26 January 2017	8 February 2021	0	0	0	No change	95.32	No
Fu Yana	Former Deputy General	F	50	18 December 2012	23 March 2020	0	0	0	No change	72.36	No
	Manager
Zhang Qiang	Former Deputy General	M	57	5 March 2009	11 September 2020	0	0	0	No change	71.89	No
	Manager
Qi Lipin	Former Chief Economist	F	43	29 October 2015	23 March 2020	0	0	0	No change	73.32	No
Total	/	/	/	/	/	822	822	0	/	1,322.94	/

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

7. Directors, Supervisors, Senior Management and Employees

Name Primary working experience

Liu Yujun Mr. Liu is now the investment director of Tianjin Investment Group and the chairman of the Company. Mr. Liu was the chief accountant of Tianjin No. 4 Municipal Engineering Company from December 1996 to August 2000; the chief accountant of Tianjin Metro General Company from August 2000 to October 2007; the deputy general manager and the chief accountant of Tianjin City Metro Group from October 2007 to November 2008; the deputy chief accountant of Tianjin Investment Group and the deputy general manager and the chief accountant of Tianjin City Metro Group from November 2008 to April 2011; the deputy chief accountant of Tianjin Investment Group, the deputy general manager and chief accountant of Tianjin City Metro Group and the secretary of the party branch, the chairman of the board, and the general manager of Tianjin Metro Resources Investment from April 2011 to April 2013. He has been the deputy chief accountant of Tianjin Investment Group from April 2013 to December 2019; the general manager, secretary of the party general branch, and director of Tianjin Haihe Jinan Investment Construction Development Co., Ltd. from January 2014 to March 2015; and the investment director of Tianjin Investment Group since December 2019. Mr. Liu has been a Director and the chairman of the Company since 13 March 2015. Wang Jing Ms. Wang is now a Director and the deputy secretary of the Communist Party Committee and chairwoman of the labour union of the Company. Ms. Wang served as the deputy director, director, and minister of the administration department of Tianjin Municipal Construction Group Co. Ltd. (天津市政建設集團) from June 2007 to December 2010; served as a party branch member, deputy secretary, secretary of the party general branch, chairwoman of the labour union, and director of Tianjin Ziya Circular Economy Industrial Investment and Development Co., Ltd. (天津子牙循環經濟產業投資發展有限公司) from December 2010 to July 2016; acted as a member of the management committee, deputy secretary, deputy director of Tianjin Ziya Circular Economy Industrial District (天津子牙循環經濟產業區) from September 2012 to July 2016; Ms. Wang has been serving as the deputy secretary of the Communist Party Committee and chairwoman of the labour union of the Company since August 2016. Ms. Wang served as the staff representative Supervisor and the chairwoman of the Supervisory Committee of the Company from 24 November 2016 to 17 December 2018. Ms. Wang has been serving as a Director of the Company since 18 December 2018. Niu Bo Mr. Niu is now a Director and the secretary of the Board of Directors of the Company, the director of the Office of Corporate Governance and the chairman of Hong Kong Company. Mr. Niu joined the Company in August 2004, and from then to December 2009, he acted as the project manager and deputy department manager of the market development department and the department manager of the strategic investment department of the Company. He was the deputy chief economist of the Company from December 2009 to December 2019. He has concurrently served as the chairman of Hong Kong Company since February 2015. Mr. Niu has been the secretary of the Board of the Company since 29 January 2016. Mr. Niu has been a Director of the Company since 18 December 2018. Gu Wenhui Mr. Gu is now a Director of the Company and the general manager of the enterprise management department of Tianjin Investment Group, and concurrently serves as the secretary of the party general branch, chairman and general manager of TMICL. From July 2003 to January 2010, Mr. Gu worked at the Company as the deputy director and director of the board secretariat, the manager of the enterprise planning department and the chief economist. Since January 2010, Mr. Gu has worked at Tianjin Investment Group and successively served as the deputy director of the financing and development department, the deputy director and director of the asset operation department, the director of the office of the board (enterprise planning department), the director of the enterprise management department (office of the board) and the general manager of the enterprise management department (director of the office of the board). Since November 2014, he has concurrently served as the director of Tianjin Investment Group. Since November 2016, he has concurrently served as the director of Tianjin Municipal Investment Property Investment and Development Co., Ltd. (天津城投置地投資發展有限公司). Since April 2020, he has concurrently served as the secretary of the party general branch, chairman and general manager of TMICL. Mr. Gu Wenhui has been a Director of the Company since 13 May 2020.

Si Xiaolong Mr. Si is now a Director of the Company, and the deputy general manager of the enterprise management department and the head of the office of the board of Tianjin Investment Group and concurrently serves as a director of Guokong Jincheng. Mr. Si graduated from the School of Management of Tianjin University with a master degree in business administration. He had worked for Tianjin Road Pipe Network Supporting Construction Investment Limited (天津道路管網配套建設投資有限公司). He joined Tianjin Investment Group in April 2009, engaging in asset management, corporate governance, and other work for a long term. He served as the deputy head of the office of the board of Tianjin Investment Group from July 2016 to December 2019 and acted as the deputy director of the enterprise management department of Tianjin Investment Group from March 2018 to December 2019. Mr. Si has been the deputy general manager of the enterprise management department and the deputy director of the office of the board of Tianjin Investment Group since December 2019, and he has been concurrently serving as a director of Guokong Jincheng from October 2018 and the head of the office of the board of Tianjin Investment Group since March 2021. Mr. Si Xiaolong has been a Director of the Company since 18 December 2018.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

7. Directors, Supervisors, Senior Management and Employees

Name Primary working experience Wang Xiangfei Mr. Wang is now an independent non-executive Director of the Company, the financial advisor of China Sonangol International Holding Limited, and an executive director of Nan Nan Resources Enterprise Limited. Mr. Wang is a senior accountant who graduated from Renmin University of China, majoring in finance and received a bachelor degree in economics. He also held the senior management position with several companies engaging in banking and other financial services. He was the independent non-executive director of China CITIC Bank Co., Ltd., SSEC Media Group Limited, Chongqing Iron and Steel Company Limited, and Shandong Chenming Paper Holdings Limited and an internal supervisor of Shenzhen Rural Commercial Bank Limited, and was the independent non-executive Director of the Company from April 2002 to April 2008. Mr. Wang Xiangfei has been an independent non-executive Director of the Company since 18 December 2015. Guo Yongqing Mr. Guo is a post-doctorate, professor in accounting, and certified public accountant in the PRC. Mr. Guo is now an independent non-executive Director of the Company and an accounting professor of the Shanghai National Accounting Institute, and concurrently serving as an independent director of Yango Group Co., Ltd.. Chongqing Porton Pharmacy Science & Technology Co., Ltd. and Ribo Fashion Group Co., Ltd. Mr. Guo has been the department head of Shanghai National Accounting Institute. Mr. Guo has been an independent non-executive Director of the Company since 18 December 2015. Di Xiaofeng Mr. Di is now a partner of the Commerce & Finance Law Offices in Beijing and an independent non-executive Director of the Company. Mr. Di received a bachelor degree of law from Peking University in 1983 and a master degree of law from the Chinese Academy of Social Sciences in 1986. From September 1986 to February 1988, he worked for the law department of the China Council for the Promotion of International Trade, specializing in legal affairs. From March 1988 to April 1992, he worked as a full-time lawyer for the China Legal Affairs Centre under the supervision of the Ministry of Justice of the PRC. Mr. Di was qualified as a solicitor in 1989. Mr. Di was the independent non-executive Director of the Company from April 2008 to April 2014 and has been the independent non-executive Director of the Company since 18 December 2018. Lu Hongyan Ms. Lu obtained a doctoral degree in laws from Nankai University. She is the chairwoman of the Supervisory Committee, the general counsel and the director of the enterprise management center of the Company. Ms. Lu served in Tianjin Winners Law Firm (天津金諾律師事務所) and Tianjin Hongyi Law Firm (天津泓毅律師事務所) consecutively from January 2001 to December 2009 as a lawyer. She joined the Company in January 2010 and served as a legal specialist, and has been the general counsel of the Company since January 2016. She is responsible for the legal affairs of the Company. Ms. Lu has rich legal experience in economic and corporate governance. Ms. Lu has been a Supervisor of the Company since 17 May 2017 and the Chairwoman of the Supervisory Committee of the Company since 18 December 2018.

Wu Baolan Ms. Wu is now a Supervisor of the Company and the head of the party-masses department of the Company. Ms. Wu joined the Company in December 2000 as the assistant to the general manager of the human resource department of the Company. Ms. Wu was the director of office of Rijiyuan Company under TMICL from December 2004 to December 2005. Ms. Wu joined the Company again in December 2005, and acted as the vice head of the party-masses department of the Company, the Chairwoman of the institutional labour union of the Company, and the head of the party-masses department of the Company. Ms. Wu has been elected as the Supervisor on behalf of the Company’s staff since 24 August 2011. Niu Jing Ms. Niu is now a Supervisor of the Company, the deputy director of the corporate governance center and an assistant accountant. Ms. Niu Jing graduated from Tianjin University of Finance and Economics in 1993, majoring in finance. She worked as an accountant in Tianjin Xianda Hotel (天津先達酒店) from 1993 to 1995; worked as the financial controller in Tianjin Shandong McDonald’s Food Co., Ltd. (天津山東麥當勞食品有限公司) from 1995 to 2002; and worked as the financial manager and internal control manager of Tianjin Jiafu Commercial Co., Ltd. (天津家福商業有限公司) from 2002 to 2009. She joined the Company since July 2009 and served as the manager of the legal and audit department of the Company since then. Ms. Niu has been a Supervisor of the Company since 18 December 2015.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

7. Directors, Supervisors, Senior Management and Employees

Name Primary working experience Li Zongqiang Mr. Li is now an accountant. Mr. Li now serves as the Supervisor of the Company, the director of the risk management department of TMICL, and concurrently serves as the Secretary of the party sub-branch and chairman of Tianjin Municipal Investment Construction and Engineering Management Consulting Co., Ltd. (天津城投建設工程管理諮詢有限公司) Mr. Li graduated from Tianjin University of Finance and Economics, majoring in accounting and received a bachelor degree in economics. He is a certified public accountant, a registered tax advisor, and a registered asset appraiser. He had worked for Tianjin Jinhua Accounting Firm (天津津華會計師事務所) and Tianjin Jiwei Accounting Firm (天津吉威會計師事務所). He joined TMICL in 2007, and successively served as the deputy manager of finance department, the chief accountant of Wanning Kaide Investment Company (萬寧凱德投資公司), the financial director of Yuanyicheng Business Operations Management Company (元易誠商業運營管理公司), and other positions, engaging in financial auditing and management for a long term. He has acted as the deputy director of the risk management department of TMICL since April 2017, the head of the risk management department of TMICL since January 2019. Mr. Li Zongqiang has been a Supervisor of the Company since 18 December 2018. Shen Yue Ms. Shen is now a senior economist and a Supervisor and the head of the organizational department under the Communist Party Committee of the Company. Ms. Shen graduated from Nankai University with a master degree in laws. She joined the Company in 2006, and worked in the party-mass work department. From January 2011 to May 2018, she successively served as the assistant to head and the deputy director of the party-mass work department of the Company, and also acted as the secretary of the first party general branch. Since January 2014, she has served as the deputy director of the party-mass work department of the Company and from November 2016, she was appointed as the deputy director of the party-mass work Department of the Company and was appointed as the head of the organizational department under the Communist Party Committee of the Company from October 2018. Ms. Shen has been a Supervisor of the Company since 18 December 2018. Huang Lan Ms. Huang is now a supervisor of the Company, and deputy director and deputy secretary of the party sub-branch of Beicang sewage treatment plant. Ms. Huang joined the preparatory office of the Haihe river basin wastewater treatment project of the Company in March 2002 and has been the director of the general office of the Xianyang Road sewage treatment plant of the Company since March 2005. She has successively served as the deputy director and the director of the general office of the Tianjin water business division of the Company since December 2009. She has been the director of the general office of the Company’s branch company for water services since January 2016 and has concurrently served as the secretary of the 4th institutional party branch of the Company since June 2016. She has been the deputy manager of the operation management department and the secretary of the 4th institutional party branch of the Company since April 2017. Since May 2020, she has been the deputy director and deputy secretary of the party sub-branch of Beicang sewage treatment plant. Ms. Huang has been the staff representative supervisor of Company since 18 December 2018. Li Yang Mr. Li is now the general manager of the Company, the general manager of the Northwest Region Branch and the East China Region Branch, and the chairman of Xi’an Company and Hangzhou Company. From November 2005 to April 2009, he was the general manager of Fuyang Company, the wholly-owned subsidiary of the Company. From April 2009 to December 2009, he was the general manager of the 2nd water operation branch of the Company. He was the general manager of the eastern region of Tianjin water business division from January 2010 to February 2011 and was the general manager of Xi’an Company since February 2011 to May 2017. Mr. Li was appointed as the assistant to general manager of the Company since January 2012, and as the Chairman of Xi’an Company since September 2015. Mr. Li Yang was a Supervisor of the Company from 8 September 2009 to 15 March 2017. Since 15 March 2017, Mr. Li has served as the deputy general manager of the Company and since September 2020, he has concurrently served as the chairman of Hangzhou Company. Mr. Li has been the general manager of the Company since February 2021.

Zhao Yi Mr. Zhao is now the deputy general manager of the Company. From August 2005 to March 2009, Mr. Zhao held the positions of the general manager of Qujing Company and Caring Company, subsidiaries of the Company. He was the deputy general manager of Tianjin Beiyangyuan Investment Development Co., Ltd. from April 2009 to October 2010. He concurrently acted as the chairman of eight controlling subsidiaries under the non-local business division from November 2010 to September 2015. At the same time, he concurrently served as the general manager of the non-local water business division of the Company from November 2010 to January 2016. Mr. Zhao has been the deputy general manager of the Company since 18 October 2010.

Zhang Jian Mr. Zhang is now the deputy general manager of the Company. From April 2006 to December 2009, Mr. Zhang was the administrative deputy general manager (presiding over the work) of Hangzhou Company. He has been the general manager of the non-local water business division of the Zhejiang region and the general manager of Hangzhou Company since December 2009. He has been the chairman of Hangzhou Company, and the director and chairman of Baoying Company since September 2015. He has been the deputy general manager of the Company since January 2012.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

7. Directors, Supervisors, Senior Management and Employees

Name Primary working experience

Li Jinhe Mr. Li is now the deputy general manager and the chief engineer of the Company and also the chairman of Caring Company and a senior engineer. He holds a master of engineering degree. Mr. Li graduated from the department of environmental engineering of Hebei University of Science and Technology in 1993 majoring in environmental engineering, and got a master degree from the department of civil engineering of Tianjin University in 1999 majoring in environmental engineering. Mr. Li has served in the 9th design institute of North China Municipal Engineering Design & Research Institute Co., Ltd. since March 1999 and acted successively as the technician, leader of the 2nd Process Group, deputy chief engineer, and chief engineer as well as the deputy chief engineer. Mr. Li has been engaged in municipal engineering design and research works for years and has extensive experience in such fields as water treatment facilities and designing, research and operation of process. Mr. Li has been the chief engineer of the Company since 29 August 2017 and the deputy general manager of the Company since 1 January 2020.

Zhao Mingwei Mr. Zhao is now the deputy general manager and senior engineer of the Company. He graduated from the College of Architecture and Civil Engineering of Beijing University of Technology with a master degree in architecture and civil engineering. Mr. Zhao worked as an engineer at the Beijing Design and Consulting Branch of China Northeast Municipal Engineering Design & Research Institute from August 2004 to August 2009. Mr. Zhao worked as the assistant to the president and the director of the Engineering Department at the Beijing Design and Consulting Branch of China Northeast Municipal Engineering Design & Research Institute from August 2009 to April 2013. Mr. Zhao served as the deputy director of the Environmental Design Institute of Beijing Architectural Engineering & Design Co., Ltd. from April 2013 to May 2014. Mr. Zhao served as the general manager of the review department of the technical center under Beijing Enterprises Water Group Limited from May 2014 to March 2017. Mr. Zhao served as the director of the North Region of Beijing Enterprises Water Group Limited from March 2017 to June 2020. Since June 2020, Mr. Zhao has served as the deputy general manager of the Tianjin-Hebei Business Region under the North Region of Beijing Enterprises Water Group Limited. Mr. Zhao has been the deputy general manager of the Company since February 2021.

Peng Yilin Ms. Peng is now the chief accountant and director of the financial management center of the Company. From March 2008 to September 2015, she successively acted as the assistant department head of the financing development department and the financial central manager, of Tianjin Investment Group. Ms. Peng has been the assistant general manager of the Company since 29 October 2015, the chief accountant of the Company since 29 January 2016, a Director of the Company from 16 March 2016 to 17 December 2018 and concurrently a director of TMICL since 28 December 2020.
Yu Zhongpeng Mr. Yu graduated from the School of Economics under Nankai University with a master degree in economics and served as a Director of the Company during the reporting period. From July 2004 to July 2007, Mr. Yu Zhongpeng worked for the development department of Tianjin Expressway Investment & Construction Development Corporation (天津高速公路投資建設發展公司). From July 2007 to August 2016, he worked for Tianjin Investment Group and successively served as the assistant to head, deputy head, and head of the Financing & Development Department and the deputy manager of the finance centre, during which he temporarily served as the assistant to the director of office of the Tianjin Municipal Infrastructure Project Financing Leading Group. From August 2016, he served as the secretary of party general branch, chairman, and general manager of TMICL. From January 2018, he temporarily served as the member and deputy secretary of the party leadership group of the fourteenth session of the Communist Youth League of Tianjin. Mr. Yu Zhongpeng has been concurrently a Director of Tianjin City Investment Development and Leasing Co., Ltd. since January 2016, and a member of the Investment Committee of Tianjin Juncheng Industrial-financial Equity Investment Fund Partnership (L.P.) since January 2018. He has been concurrently serving as the director and vice chairman of AECOM (Tianjin) Engineering Consultants Co., Ltd. (偉信（天津）工程諮詢有限公司) since August 2018, and a director of Tianjin Xiqing BOC Fullerton Community Bank Corp. (天津西青中銀富登村鎮銀行股份有限公司) since January 2020. Mr. Yu Zhongpeng acted as a Director of the Company from 14 May 2018 and resigned from the director’s position of the Company in April 2020.
Han Wei Mr. Han graduated from the Management School of Tianjin University with a doctorate degree in management science and served as a Director of the Company during the reporting period. From March 2009 to September 2015, Mr. Han Wei worked for Tianjin Financial City Development Co., Limited (天津金融城開發有限公司), and successively served as the deputy director of the asset management department, the head of the asset management department, and the deputy chief economist. From October 2015 to March 2018, he served as the deputy director of the asset management department of Tianjin Investment Group. From April 2018 to December 2019, he served as the deputy director (in charge of overall operation) of the investment and development department of Tianjin Investment Group and has been concurrently serving as a director of TMICL since September 2019. From December 2019, he served as the general manager of the investment and development department of Tianjin Investment Group. He became a Director of the Company on 14 May 2018 and resigned from the Director’s position of the Company in August 2020.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

7. Directors, Supervisors, Senior Management and Employees

Name Primary working experience Tang Fusheng Mr. Tang Fusheng was the general manager of the Company during the reporting period. Mr. Tang Fusheng served as the head of the development department, the deputy general manager, and the general manager of Water Recycling Company, a wholly-owned subsidiary of the Company from July 2001 to April 2009. He served as the assistant to the general manager of the Company, and at the same time served as the chairman and general manager of Water Recycling Company from April 2009 to February 2010. He served as the deputy general manager of the Company from March 2010 to February 2015. During his tenure as the deputy general manager of the Company, Mr. Tang concurrently served as the chairman of Water Recycling Company and the general manager of the Company’s energy and resources department. His role as the general manager of Water Recycling Company ceased in June 2014 as a result of work rearrangement. He has been serving as the chairman of Hong Kong Company, a wholly-owned subsidiary of the Company, since June 2011, and has been serving as an Executive Director of Jiayuanxing, a wholly-owned subsidiary of the Company, since June 2014. In February 2015, Mr. Tang resigned from all of the abovementioned positions as a result of work rearrangement and was transferred to Tianjin Urban Pipe Network Construction Investment Co., Ltd. (天津城市道路管網配套建設投資有限公司) and served as a director and general manager of that company. Mr. Tang has served as the general manager of the Company since 26 January 2017, the director of the Company from 14 March 2017 to 17 December 2018. Mr. Tang resigned from the general manager’s position of the Company in February 2021.
Fu Yana Ms. Fu is the assistant general manager of the Company and the director of the security center. She was appointed as the Director, the deputy general manager, and the secretary to the Board of the Company from December 2003, served as the manager of the human resources department from November 2010 to November 2018, and has concurrently served as the officer to the office of general manager since November 2015. She ceased to be the secretary of the Board of the Company from 28 January 2016, ceased to be the Director of the Company from 18 December 2018, and ceased to be the deputy general manager of the Company from March 2020.
Zhang Qiang Mr. Zhang is a professional chief engineer of the Company. From October 2007 to February 2009, Mr. Zhang Qiang was appointed as the chairman and general manager of Tianjin Seventh Municipal Highway Engineering Co., Ltd. in charge of the overall work. Mr. Zhang joined and served as the deputy general manager of the Company since 5 March 2009. During the period, he was also the general manager of the business department of the urban projects of the Company, and was the general manager of the 2nd engineering branch company from December 2010 to January 2016. Mr. Zhang ceased to be the deputy general manager of the Company from September 2020.
Qi Lipin Ms. Qi is the assistant general manager of the Company. Ms. Qi worked for Binhai Municipal Construction and Development Co., Ltd. from July 1999 to February 2001. She joined the Company in February 2001, acted successively as the officer of project development department, assistant to the manager of market development department, deputy manager of the department of assets management and corporate development and research, deputy manager of the planning department, and manager of the operation and management department. She was appointed as the deputy chief economist and the manager of the operation and management department of the Company since January 2010. She was appointed as the chief economist of the Company since October 2015. Ms. Qi was a Supervisor of the Company from June 2009 to October 2015. Ms. Qi ceased to be the chief economist of the Company from March 2020.

Each Director or Supervisor has not entered into any service contract which is not determinable by the Company within one year without payment of compensation (other than statutory compensation).

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

7. Directors, Supervisors, Senior Management and Employees

(II) Equity incentives granted to Directors and senior management during the reporting period

Not applicable

Directors’, Supervisors’ and the Company’s chief executives’ interests and/or short positions in the shares, underlying shares and debentures of the Company or its associated corporations

As at 31 December 2020, the interests and/or short positions of the Directors, Supervisors and chief executives of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO), which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, including interests and short positions which were taken as or deemed to have pursuant to the SFO, or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or otherwise, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in the Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

			Approximate
			percentage
			in the total issued
	Company/name		share capital of the
	of associated	Number and class	Company/associated
Name	corporations Capacity	of securities (Note)	corporations
Deputy general
manager
Zhang Jian	Company Beneficial owner	822 domestic shares	0.000058%
		(non-restricted circulating shares) (L)

Note: The letter “L” represents the person’s long positions in the shares, underlying shares and debentures of the Company or its associated corporations.

As at 31 December 2020, none of the directors, supervisors or chief executives of the Company or their spouses or children under 18 years of age were granted or had exercised any right to subscribe for any equity or debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

7. Directors, Supervisors, Senior Management and Employees

II. POSITIONS HELD BY THE EXISTING AND RESIGNED DIRECTORS, SUPERVISORS, AND SENIOR MANAGEMENT DURING THE REPORTING PERIOD
(I) Positions held at the shareholder’s entity

	Name of shareholder’s	Position held in
Name	entities	shareholder’s entities	Appointment date	Termination date
Gu Wenhui	TMICL	Secretary of the party	16 April 2020	–
		general branch,chairman,
		and general manager
Li Zongqiang	TMICL	Head of the risk	18 January 2019	–
		management department
Peng Yilin	TMICL	Director	28 December 2020	–
Description of positions	Nil
held at shareholders’
entities

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

7. Directors, Supervisors, Senior Management and Employees

II. POSITIONS HELD BY THE EXISTING AND RESIGNED DIRECTORS, SUPERVISORS, AND SENIOR MANAGEMENT DURING THE REPORTING PERIOD (Continued)

(II) Positions held at the other entities

	Name of other	Position held in
Name	entities	other entities	Appointment date	Termination date
Gu Wenhui	Tianjin Investment Group	Director	November 2014	23 September 2020
	Tianjin Investment Group	General Manager of the	March 2021	–
		Enterprise Management
		Department
	Tianjin Municipal	Director	November 2016	–
	Investment Property
	Investment and
	Development Co., Ltd.
	Tianjin City Investment	Director	15 May 2020	–
	Development and Leasing
	Co., Ltd.
	Aiyikang (Tianjin)	Deputy Chairman	24 April 2020	–
	Engineering Consultants
	Co., Ltd.
Si Xiaolong	Tianjin Investment Group	Director of the Board	March 2021	–
		Office, Deputy General
		Manager of the Enterprise
		Management Department
	Guokong Jincheng	Director	October 2018	–
Guo Yongqing	Shanghai National	Accounting Professor	May 2002	–
	Accounting Institute
	Chongqing Porton	Independent Director	22 March 2016	–
	Pharmacy Science &
	Technology Co., Ltd.
	Ribo Fashion Group	Independent Director	29 May 2019	–
	Co., Ltd.
	Yango Group Co., Ltd.	Independent Director	15 May 2020	–
	Ningbo Zhenghai Jianwu	Director	29 December 2018	–
	Asset Management
	Co., Ltd.
	Hwabao Securities Co. Ltd.	Director	9 August 2016	–
Di Xiaofeng	Commerce & Finance Law	Partner	16 May 1992	–
	Offices in Beijing
	Beijing Jingxi Culture and	Independent Director	27 May 2016	18 June 2021
	Tourism Co., Ltd.
Wang Xiangfei	Nan Nan Resources	Director	25 March 2008	–
	Enterprise Limited
	China Sonangol	Director	23 August 2016	–
	International Holding
	Limited
Positions held at	Nil
other entities

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

7. Directors, Supervisors, Senior Management and Employees

III. REMUNERATION OF DIRECTORS, SUPERVISORS, AND SENIOR MANAGEMENT

Procedures for determining the remuneration of the Directors, Supervisors, and senior management

Basis for determining the remuneration of the Directors, Supervisors, and senior management

Actual payment of the remuneration to the Directors, Supervisors, and senior management

The remuneration of the Directors and Supervisors will be determined in accordance with the remuneration standard for the Directors and Supervisors as approved at the general meetings of the Company. The remuneration of the senior management will be determined on the basis of the remuneration plan approved by the Board and the operation result of the Company, and an annual salary system and an performance pay system based on the completion of annual operating targets will be implemented. The Directors (other than the independent Directors) and Supervisors of the Company do not receive remuneration for acting as directors or supervisors.

The remuneration of the Company’s senior management will be distributed in accordance with their achievements in production and operation tasks and their routine management work. The performance pay will be distributed according to the achievement of annual operating targets and performance appraisal results.

The remuneration distributed by the Company to the Directors, Supervisors, and senior management is in line with the salaries and performance appraisal requirements of the Company and distributed according to the requirements.

Actual remuneration received by all Directors, RMB 13,229,400 Supervisors, and senior management as at the end of the reporting period (in total)

During the financial year, the Company did not pay any housing allowance, other allowance, and benefits in kind and bonus to the Directors, Supervisors and senior management, nor any payment to them as an inducement to join the Company or as compensation for loss of office of Directors, Supervisors or senior management. None of the Directors, Supervisors and senior management of the Company waived or agreed to waive any emoluments. The Company has not provided any loans or guarantees to the Directors, Supervisors or senior management. Except for remuneration, the Directors, Supervisors and senior management of the Company or such entities connected thereto have not derived other material interests, whether directly or indirectly, from other transactions, arrangements or contracts. The Company, during the reporting period, did not enter into any administration or management contracts for all or material parts of its business.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

7. Directors, Supervisors, Senior Management and Employees

IV. CHANGES IN DIRECTORS, SUPERVISORS, AND SENIOR MANAGEMENT OF THE COMPANY

Name Position held Changes Reason for changes Yu Zhongpeng Director Resignation Work engagement Han Wei Director Resignation Adjustment of work arrangement Gu Wenhui Director Appointment Elected at the general meeting of Company Tang Fusheng General Manager Resignation Work engagement Fu Yana Deputy General Manager Resignation Work engagement Qi Lipin Chief Economist Resignation Work engagement Li Yang General Manager Appointment Work engagement Zhao Mingwei Deputy General Manager Appointment Work engagement

V. PUNISHMENTS IMPOSED BY SECURITIES REGULATORY AUTHORITIES IN THE LATEST THREE YEARS

Not applicable

VI. EMPLOYEES OF THE COMPANY AND ITS MAJOR SUBSIDIARIES

(I) Employees

Number of on-duty employees of the Company	471
Number of on-duty employees of major subsidiaries	1,563
Total number of on-duty employees	2,034
Number of retired employees to whom the Company and its major
subsidiaries are required to pay charges	0
Composition by profession
Category of profession	Number
Production	1,023
Sales	92
Technical	441
Finance	112
Administration	186
Corporate management	180
Total	2,034
Education
Category of education	Number (persons)
Doctor	5
Master	130
Undergraduate	1,054
Tertiary	544
Secondary	165
Below secondary	136
Total	2,034

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

7. Directors, Supervisors, Senior Management and Employees

VI. EMPLOYEES OF THE COMPANY AND ITS MAJOR SUBSIDIARIES (Continued)

(II) Remuneration policy

In 2020, the Company established remuneration management and income distribution system focusing on performance based on the requirements of three system reforms of state-owned enterprises, To further improve the remuneration management system, the Company launched systems at two levels, i.e. remuneration management system for management members and remuneration management system for employees. The remuneration of the management is composed of basic annual salary, annual performance-related pay and tenure incentive; and the remuneration of the employee is composed of basic salary, performance-based salary, benefits and other remuneration. The performance-based annual pay and performance-based salary are provided and distributed based on the completion of the annual targets.

(III) Training programs

In 2020, the Company implemented an independent training policy under the control of training funds. With the principle of “strategy-prioritized, forward-looking, urgency first and pragmatic”, the Company formulated annual training plan, and determined the main contents from three aspects, including quality improvement, mandatory training and self-improvement, so as to ensure that the training courses are target-oriented and effective and the employees will grow with the enterprise.

(IV) Subcontracting labor

Not applicable

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY

(I) Corporate Governance of the Company

During the reporting period, the Company strictly complied with the requirements under the PRC Company Law, Code on Corporate Governance for Listed Companies, the Articles of Association of the Company and the requirements of the relevant laws and regulations of the CSRC, to continuously improve its corporate governance structure and regulate its daily operation.

According to the Articles of Association of the Company and the relevant regulations, the general meeting shall be the highest authority of the Company. The Company shall convene and hold general meetings in strict compliance with the Rules of Procedures for General Meetings in order to ensure shareholders can exercise their voting rights duly and successfully. Within the scope of authorization by the general meetings, the Board shall be responsible for the overall operation and management of the Company and convene the Board meetings in strict compliance with the Rules of Procedures for Board Meetings. All Directors shall duly discharge their duties in a diligent way, independently perform their duties and pay sufficient attention to the interests of all medium and small shareholders. Committees of the Board of the Company such as the Audit Committee, Remuneration and Assessment Committee, Nomination Committee and Strategy Committee shall perform their work independently according to their respective detailed working rules, and provide support for the scientific decisions of the Board in their respective disciplines. Managers of the Company shall, with the authorization, and leadership of the Board, be responsible for the daily operation and management of the Company according to the Rules of Procedures for General Manager’s Meeting. Within the scope of authorization by general meetings, the Supervisory Committee shall be responsible for supervision of the legality and compliance of the performance of duties by the Board and managers.

The Company is in compliance with the relevant requirements of regulatory authorities in respect of major governance aspects such as the controlling shareholder and the Company, the Directors and the Board, the Supervisors and the Supervisory Committee, performance appraisal and incentive control mechanism, stakeholders as well as information disclosure and transparency. There is no difference between the actual governance practices of the Company and the requirements of the Company Law and the relevant requirements of the CSRC.

In order to further improve the structure of the corporate governance of the Company and protect the interests of shareholders, the Company amended the Articles of Association and the Rules of Procedures for General Meetings during the reporting period according to the actual situation of the Company.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report

1. About Corporate Governance Practices

The Company has continuously amended its relevant codes on corporate governance with strict implementation pursuant to the revised corporate governance rules of regulatory bodies. During the reporting period, the Company complied with the Corporate Governance Code.

2. About Securities Transactions by the Directors

According to the Company’s Articles of Association and the “Management System for Inside Information” 《內幕信息管理制度》( ), the Company has formulated the “Management System for the Shareholding of Directors, Supervisors and Senior Management” (《董事、監事、高級管理人員持股管理制度》), which requires that the Directors, Supervisors, managers and other senior management shall during their terms of office make regular reports to the Company on the Company’s shares they held, shall not transfer more than a total of 25% of the shares of the Company they held for each year during their terms of office, and shall not transfer the Company’s shares they held within six months after their resignation, etc.

After making detailed enquiries by the Board, as at the end of the reporting period, save of Mr. Zhang Jian holding 822 domestic Shares of the Company, none of the Directors of the Company held any other share of the Company and they did not conduct any share transaction during the reporting period.

3. About the Board

According to the Articles of Association of the Company, the Board of the Company shall consist of nine Directors. Currently, the Board consists of eight Directors, including Mr. Liu Yujun (Chairman of the Board), Ms. Wang Jing and Mr. Niu Bo as executive Directors; Mr. Gu Wenhui and Mr. Si Xiaolong as non-executive Directors; Mr. Di Xiaofeng, Mr. Wang Xiangfei and Mr. Guo Yongqing as independent non-executive Directors. During the reporting period, the original non-executive Directors Mr. Yu Zhongpeng and Mr. Han Wei resigned from the positions as a result of work rearrangement. Upon approval by the Company’s general meeting, Mr. Gu Wenhui replaced Mr. Yu Zhongpeng as a non-executive Director of the company. Terms of the Directors of the eighth session of the Board were from 18 December 2018 to 17 December 2021, and the term of Mr. Gu Wenhui was from 14 May 2020 to 17 December 2021.

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report (Continued)

3. About the Board (Continued)

There was no relationship including financial, business, family or other material and relevant relationship between the members of the Board of the Company. All of the Board members possess immense qualifications and management experience. The qualifications and professional experiences of the independent Directors have fully complied with the requirements under the Listing Rules. The Board of the Company has accepted the declaration of independence for the year 2020 by each independent non-executive Director, and confirms that they comply with the relevant independence requirements as set out under Rule 3.13 of the Listing Rules of the Stock Exchange.

The Company held 18 Board meetings and 3 general meetings during the reporting period. For details of the attendance of Directors, please refer to “Attendance of Directors at the Board meetings and general meetings” in this section.

There is a clear demarcation on the duties of the Board and the managerial level in the Articles of Association of the Company and the “Rules of Procedures for Board Meetings”. The Rules of Procedures for Board Meetings and the Rules of Procedures for General Manager’s Meeting have made specific requirements on the decision making procedure and basis of decisions for the Board and the managerial level, so as to ensure the decisions of the Directors, the Board, the senior management and the managerial level to be scientific and legal. Within the scope of authorization by general meetings, all matters that are required to be disclosed shall be submitted to the Board of the Company for its decision and disclosed according to the requirements under the listing rules of the SSE and the Listing Rules, and matters which are not required to be disclosed are generally decided and implemented by the General Manager’s meeting of the Company.

Trainings for Directors in 2020

With the continuous growth of the Company’s business and the amendments of the Listing Rules from time to time, professional development on an on-going basis has become very important for the Directors. In order to ensure the Directors to constantly develop talents and knowledge necessary for their performance of duties, the Company has arranged some training for the Directors appropriately with proper training records kept at the Office of Corporate Governance of the Company.

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report (Continued)

4. About the Chairman and the Chief Executive Officer

In accordance with the Articles of Association of the Company, the main duties of the Chairman of the Board and the Chief Executive Officer (the Articles of Association refers the Chairman of the Board as “Chairman” and the Chief Executive Officer as “General Manager”, therefore hereinafter referred to as “Chairman” and “General Manager” respectively) are clearly separated. The Chairman is responsible for holding and presiding over the Board meetings, and the effective operation of the Board, while the General Manager of the Company is responsible for various operation activities of the Company, and is accountable to the Board. The appointment of the Chairman should be approved by more than a half of all the Directors while the General Manager should be nominated by the Chairman with his appointment to be approved by the Board.

During the reporting period, Mr. Tang Fusheng was the General Manager of the Company.

5. About Non-executive Director

On 17 December 2018, Mr. Si Xiaolong as the non-executive Director and Mr. Di Xiaofeng, Mr. Wang Xiangfei and Mr. Guo Yongqing as independent non-executive Directors of the eighth session of the Board of the Company were elected. Terms of all of these persons were from 18 December 2018 to 17 December 2021. The term of Mr. Gu Wenhui, as the non-executive Director elected by the 2019 Annual General Meeting, was from 14 May 2020 to 17 December 2021.

6. About Committees under the Board

(1) The Remuneration and Assessment Committee consists of three independent non-executive Directors, and the chairman of the eighth Remuneration and Assessment Committee is Mr. Di Xiaofeng. Its primary duties are to propose remuneration plan for the Directors and senior management of the Company to the Board and to assess and evaluate the performance of the Company, by adopting the second model under B.1.2(c) of Appendix 14 to the Listing Rules. For its written working scope, please refer to the Implementation Rules for the Remuneration and Assessment Committee of the Company which is available on the website of the Stock Exchange.

During the reporting period, the Company held 4 meetings of the Remuneration and Assessment Committee, at which the Company’s 2019 indicator completion and assessment, the remuneration management system of the management, the remuneration of Mr. Gu Wenhui, the 2020 assessment plan of the management, and the share incentive scheme were discussed. The members of the Remuneration and Assessment Committee attended all the meetings held during the reporting period.

100

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report (Continued)

6. About Committees under the Board (Continued)

(2) Members of the eighth Nomination Committee of the Company elected by the Board on 18 December 2018 comprised two executive Directors (being Mr. Liu Yujun, the Chairman, and Ms. Wang Jing, the executive Director) and three independent Directors with Mr. Di Xiaofeng as its chairman. The primary duties of the Nomination Committee are to study and propose candidates, selection criteria and procedures of Directors and senior management of the Company. For its written working scope, please refer to the Implementation Rules for the Nomination Committee of the Company which is available on the website of the Stock Exchange.

In respect of the nomination procedures as well as the selection and recommendation of candidates for the Director, the Articles of Association of the Company provides that, the Board of the Company and shareholders representing, in aggregate, more than 10% of the total shares of the Company may nominate candidates for the Director of the Company. The Nomination Committee under the Board of the Company shall make suggestions to the Board regarding the nomination, selection and recommendation of candidates of Directors pursuant to the Implementation Rules for the Nomination Committee of the Company. The appointment of executive Directors is determined by the general meetings. The nomination and appointment of the executive Directors and non-executive Directors have been carried out in accordance with the above-mentioned procedures of nomination, selection and recommendation. In addition, the qualifications for acting as independent non-executive Directors are subject to review and approval by SSE.

The Board of the Company has adopted a board diversity policy which sets out the approach to achieve diversity on the Board. Accordingly, selection of candidates to the Board is based on a range of measurable objectives, including but not limited to gender, age, cultural and educational background, professional experience and qualifications, skills, knowledge and length of service, having regard to the Company’s own business model and specific needs from time to time. Nomination Committee considers that the current members of directors are in conformity with the Implementation Rules for the Nomination Committee of the Board of the Company, board diversity policy as well as the present situation and future development plan of the Company in terms of gender, age, cultural and educational background, professional experience, skills.

During the reporting period, the Company held 1 meeting of the Nomination Committee which discussed matters in relation to the nomination of Mr. Gu Wenhui as a Director of the eighth session of the Board.

The members of the Nomination Committee attended all the meetings held during the reporting period.

101

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report (Continued)

6. About Committees under the Board (Continued)

(3) The Audit Committee of the Company comprised three independent Directors of the Company with Mr. Guo Yongqing as the chairman. The primary duties of the Audit Committee include reviewing of yearly, half-yearly and quarterly financial statements, reviewing and monitoring the financial management, internal control, risk management and corporate governance of the Company and making proposal for the appointment of external auditors. For details of its written working scope, please see the Implementation Rules for the Audit Committee of the Company which is available on the website of the Stock Exchange.

With respect to reviewing of the Company’s periodic reports, during the preparation of annual reports, half-yearly reports and quarterly reports, the Audit Committee hears the audit opinions of the external auditor and internal auditor, and reviews the results report at a separate meeting; With the assistance of the internal audit department of the Company, the Audit Committee reviews the effectiveness of the Company’s internal control system at the beginning of each year and reviews the annual internal control evaluation report of the Company and discloses it together with the annual results report.

With respect to corporate governance, the Company has established a relatively sound corporate governance structure according to the relevant laws and regulations and the actual situation of the Company. For details of the corporate governance, please refer to “(i) Corporate Governance” above. The Audit Committee reviews and assesses the internal control of the Company annually, including the evaluation of the corporate governance of the Company.

During the reporting period, the Company held 7 meetings of the Audit Committee which mainly discussed financial information in quarterly reports, half-yearly reports and annual reports, and reviewed the internal control of the Company, and made proposal for the appointment of external auditors, etc. The members of the Audit Committee have attended all the meetings during the reporting period.

(4) The eighth Strategy Committee of the Board of the Company consists of two executive Directors, two non-executive Directors and one independent Director of the Company with Mr. Liu Yujun, the Chairman, as its chairman. Its primary duties are to study and propose the medium and long-term development strategies and major investment decisions of the Company.

No Strategy Committee meeting was held during the reporting period.

102

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report (Continued)

7. About the Remuneration of Auditors

During the reporting period, the Company re-elected PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as the Company’s external auditors which were approved at the general meeting. The appointment agreement sets out the details of the audit content and remuneration of the auditors. For the remuneration of auditors, please see “Appointment and Removal of Accounting Firm” in this report.

During the reporting period, the auditors provided internal control audit services to the Company and issued an audit opinion on the internal control of the Company. The Company signed an appointment agreement with the auditors with respect to such non-auditing services, which sets out the scope of the audit contents and remuneration of the auditors.

8. About Company Secretary

On 18 December 2018, the eighth session of the Board of the Company appointed Ms. Cho Yee Yung, Mona of Li & Partners as company secretary and the authorised representative of the Company under Rule 3.05 of the Listing Rules. Ms. Cho Yee Yung, Mona attended not less than 15 hours of relevant professional trainings during financial year 2020 in accordance with Rule 3.29 of the Listing Rules. Ms. Cho Yee Yung, Mona generally contacts Mr. Niu Bo, the secretary to the Board of the Company.

9. About Shareholders’ Rights

In accordance with the relevant requirements of the Articles of Association and the Rules of Procedures for General Meetings of the Company, shareholders who severally or jointly hold 10% or more shares in the Company are entitled to request the Board or the Supervisory Committee to convene or convene by themselves an extraordinary general meeting. The conditions and procedures for the application for convening or convening by themselves such a general meeting shall be explicitly stated. For details of the regulations, please refer to the Articles of Association of the Company and the Rules of Procedures for General Meetings.

10. About Investor Relationship

During the reporting period, in order to further enhance corporate governance and protect the interests of investors, the Company organized the amendment to the Articles of Association of Tianjin Capital Environmental Protection Group Company Limited.

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8. Corporate Governance

I. DESCRIPTION OF CORPORATE GOVERNANCE OF THE COMPANY (Continued)

(II) Corporate Governance Report (Continued)

11. Risk Management and Internal Control

During the reporting period, the Company has established an appropriate internal control system. The internal control system is established and gradually improved with the orientation to possible risks exposed by the Company in various key business and management activities. The Enterprise Management Center of the Company is responsible for the building of the risk management and internal control system. The Office of Corporate Governance of the Company is responsible for reviewing the effectiveness of risk management and internal control.

The Audit Committee of the Board of the Company shall hear the report from the legal and audit department on annual conclusion and plans of the internal audit in due course every year and review the internal control and risk management of the Company.

Each year, the Board of the Company shall review the internal control monitoring system, and issue the Annual Self-Evaluation Report on Internal Control to investors.

12. About Other Specific Disclosures

The Directors are responsible for supervising the compilation of the accounts for each financial period, in order to ensure that those accounts reflect genuinely and fairly the business and results of the Company for the period. In compiling the accounts for the year ended 31 December 2020, the Directors have chosen and thoroughly applied the appropriate accounting policies with due and reasonable judgment and estimates having been made, and prepared the accounts on a going concern basis.

The Directors consider that there was no occurrence of material uncertainties or situations which may affect the ability of the Company as a going concern during the reporting period.

The Board of the Company has been much concerned about the internal control of the Company. At the forty-sixth meeting of the eighth Board held on 25 March 2021, the resolution in respect of the internal control of the Company in 2020 was solely considered and a self-evaluation report on internal control was issued. PricewaterhouseCoopers Zhong Tian LLP has audited the internal control of the Company during 2020, and has issued a standard unqualified audit opinion.

104 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

8. Corporate Governance

II. SHAREHOLDERS’ GENERAL MEETINGS

Inquiry index for the designated website Date of disclosure Session of meeting Date of meeting for publishing the voting results of the resolutions 2019 Annual General 13 May 2020 Website of the SSE at www.sse.com.cn; 14 May 2020 Meeting Website of the Stock Exchange at www.hkex.com.hk; Website of Merrill IFN at http://www.ifn.com.hk/ir/tjcep/ 2020 first extraordinary 7 September 2020 Website of the SSE at www.sse.com.cn; 8 September 2020 general meeting, 2020 Website of the Stock Exchange at www.hkex.com.hk; first A shareholders’ Website of Merrill IFN at http://www.ifn.com.hk/ir/tjcep/ class meeting, and 2020 first H shareholders’ class meeting 2020 second 23 December 2020 Website of the SSE at www.sse.com.cn; 24 December 2020 extraordinary general Website of the Stock Exchange at www.hkex.com.hk; meeting, 2020 second Website of Merrill IFN at http://www.ifn.com.hk/ir/tjcep/ A shareholders’ class meeting, and 2020 second H shareholders’ class meeting

III. PERFORMANCE OF DUTIES BY DIRECTORS

(I) Attendance of Directors at the Board meetings and general meetings

								Attendance at the
				Attendance at the	Board meetings			general meetings
		Number
		of Board
		meetings		Number of			Not attend in	Number of
		required to	Number of	attendance	Number of		person for	attendance
	Independent	attend during	attendance in	through	attendance	Number of	2 consecutive	at the general
Director Name	Director	the year	person	communication	by proxy	absences	meetings	meetings
Liu Yujun	No	19	19	15	0	0	No	2
Wang Jing	No	19	19	15	0	0	No	3
Niu Bo	No	19	19	15	0	0	No	3
Yu Zhongpeng	No	4	4	4	0	0	No	0
Han Wei	No	13	13	13	0	0	No	1
Gu Wenhui	No	14	13	12	1	0	No	2
Si Xiaolong	No	19	19	19	0	0	No	3
Wang Xiangfei	Yes	19	19	19	0	0	No	3
Guo Yongqing	Yes	19	19	18	0	0	No	3
Di Xiaofeng	Yes	19	19	18	0	0	No	3
Number of	Board meetings convened during the year							19
Among all: number of meetings held on site								0
Number of	meetings held through communication							15
Number of	meeting held on site combined with
communication								4

(II) Disagreement on the relevant matters of the Company by the independent non-executive Directors

Not applicable

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8. Corporate Governance

IV. IMPORTANT OPINIONS AND SUGGESTIONS RAISED BY SPECIAL COMMITTEES UNDER THE BOARD WHEN PERFORMING THEIR DUTIES DURING THE REPORTING PERIOD AND DISCLOSURE ON EVENTS INVOLVING OBJECTIONS AND DISSENTS

(1) Audit Committee

During the reporting period, the Company held 7 meetings of the Audit Committee, at which 4 periodic reports of the Company and reports on appointment of accounting firms and internal control evaluation were reviewed, and no disagreement was raised.

(2) Nomination Committee

During the reporting period, the Company held 1 meeting of the Nomination Committee, at which the nomination of Mr. Gu Wenhui as the non-executive Director of the Company was discussed and approved by the general meeting.

(3) Remuneration and Assessment Committee

During the reporting period, the Company held 4 meetings of the Remuneration and Assessment Committee, at which the Company put forward proposals and suggestions concerning the Company’s 2019 indicator completion and assessment, the remuneration management system of the management, the remuneration of Mr. Gu Wenhui, the 2020 assessment plan of the management, and the share incentive scheme, and the proposals and suggestions were approved by the Board.

(4) Strategy Committee

No meeting of the Strategy Committee was held during the reporting period.

V. DESCRIPTION OF RISKS IN THE COMPANY FOUND BY THE SUPERVISORY COMMITTEE

Not applicable

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8. Corporate Governance

VI. SITUATION OF NO GUARANTEE OF INDEPENDENCE AND INCAPABILITY ON SELFOPERATION BETWEEN THE COMPANY AND ITS CONTROLLING SHAREHOLDER WITH RESPECT TO THE MATTERS INCLUDING BUSINESS, STAFFS, ASSETS, ORGANIZATION, AND FINANCE

Not applicable

Measures, work progress, and subsequent work plans of the Company concerning non-competition issues

Not applicable

VII. ESTABLISHMENT AND IMPLEMENTATION OF THE ASSESSMENT MECHANISM AND INCENTIVE SYSTEM FOR SENIOR MANAGEMENT DURING THE REPORTING PERIOD

During the reporting period, the Company built professional manager team and put in place a corresponding salary and appraisal system. The annual salary of professional managers comprises of the basic annual salary and the annual performance-related pay, among which annual performance-related pay is tied to the annual appraisal plan approved by the Board and results of the completion of individual targets, as well as the accomplishments of the Group’s overall operation results. Meanwhile, the Company also sets three-year tenure incentive targets and incentive methods. The performance of the professional managers in 2020 was evaluated based on the above principle.

During the accounting period, the contributions made to the pension schemes of the five highest paid individuals by the Company are as follows:

Unit: Yuan Currency: RMB

Name	Contribution to pension schemes
Liu Yujun	35,118.72
Tang Fusheng	35,118.72
Li Yang	35,118.72
Zhao Yi	35,118.72
Li Jinhe	35,118.72

Among which, the part of paid basic pension for February-December 2020 from enterprise has been returned.

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8. Corporate Governance

VIII. DISCLOSURE OF THE SELFEVALUATION REPORT ON INTERNAL CONTROL

For details, please refer to “2020 Self-Evaluation Report on Internal Control” disclosed at the website of the SSE on 26 March 2021.

Descriptions of Material Defects Relating Internal Control during the Reporting Period

Not applicable

IX. EXPLANATION IN RESPECT OF THE INTERNAL CONTROL AUDIT REPORT

PricewaterhouseCoopers Zhong Tian LLP engaged by the Company has audited the effectiveness of internal control relating to the financial reporting of the Company and has issued an internal control audit report with standard unqualified opinions.

For details of the internal control audit report, please refer to the “2020 Internal Control Audit Report” disclosed on the website of the SSE on 26 March 2021.

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9. Relevant Details of Corporate Bonds

I. BASIC DETAILS OF CORPORATE BONDS

Unit: Yuan Currency: RMB

Name of Bond	Abbreviation	Code of Bond	Issue Date	Maturity date	Balance of Bond	Coupon (%)	Debt Service	Trading Place
Public Issue of Corporate Bonds of	16津創01	136801.SH	25 October 2016	25 October 2021	700,000,000	3.13	Interest shall be paid annually, while	SSE
Tianjin Capital Environmental							the principal shall be fully repaid upon
Protection Group Company Limited							maturity. Principal will be repaid upon
in 2016 (Phase I)							maturity together with interest payable
							for the last period.
Public Issue of Corporate Bonds of	18津創01	143609.SH	26 April 2018	26 April 2023	1,100,000,000	5.17	Interest shall be paid annually, while	SSE
Tianjin Capital Environmental							the principal shall be fully repaid upon
Protection Group Company Limited							maturity. Principal will be repaid upon
in 2018 (Phase I)							maturity together with interest payable
							for the last period.

Interests payment and bonds repayment of the Company

During the reporting period, the Company has completed the interest payment for “16 津創 01” and “18 津創 01” for the year 2020 as scheduled.

Explanation on other circumstances of corporate bond

“16 津創 01” has no issuer or investor option terms nor special terms such as exchangeable terms. Issuing targets of “16 津創 01” are eligible investors who satisfy requirements of laws and regulations.

“18 津創 01” contains terms which offer the issuer’s option to adjust the coupon rate and investors’ put option but does not have other special terms such as exchangeable terms. During the reporting period, both the issuer’s option to adjust the coupon rate and investors’ put option were not triggered for “18 津創 01”. Issuing targets of “18 津創 01” are eligible investors who satisfy requirements of laws and regulations.

II. CONTACT PERSON AND MEANS OF COMMUNICATION OF CORPORATE BOND TRUSTEE AND MEANS OF COMMUNICATION OF CREDIT RATING AGENCY

Bond trustee Credit rating agency

Name Ping An Securities Co., Ltd. Office address 16/F, North Tower, Financial Street Centre, 9 Financial Street, Xicheng District, Beijing Contact person Li Chuan (李川), Jia Xuan (賈軒) Contact number 010-56800258 Name United Credit Rating Co., Ltd. Office address 12th Floor, PICC Office Tower, No.2 Jianguomen Outer Street, Chaoyang District, Beijing

During the reporting period, the Company did not change the bond trustee and credit rating agency engaged.

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9. Relevant Details of Corporate Bonds

III. USE OF PROCEEDS FROM BOND OFFERING

The issue size of “16 津創 01” was RMB700,000,000.00, and the net proceeds after deducting the underwriting expenses was RMB697,200,000.00. As at the end of the reporting period, the net proceeds has been used in accordance with the intended use stated in the prospectus, and the balance is RMB0.

The issue size of “18 津創 01” was RMB1,100,000,000.00, and the net proceeds after deducting the underwriting expenses was RMB1,097,360,000.00. As at the end of the reporting period, RMB1,097,337,730.5 in the net proceeds has been used in accordance with the intended use stated in the prospectus, and the balance is RMB22,269.5.

During the reporting period, the proceeds account operated well.

The Company strictly followed its capital management system and the relevant laws and regulations, and performed relevant procedures for the use of proceeds. The use of proceeds was in line with the intended use, plan of use and other arrangements stated in the prospectus.

IV. CORPORATE BOND RATING

On 19 May 2020, United Credit Rating Co., Ltd. completed ongoing credit rating for the Company, “16 津創 01” and”18 津創 01”, maintaining long term credit of the Company as “AA+”, and the credit rating outlook as”stable”; maintaining the credit rating of the bond loans, “16 津創 01” and “18 津創 01” at “AA+”. Investors should be aware that United Credit Rating Co., Ltd. will perform updated ongoing credit rating for the Company for corporate bond within two months in a timely manner upon disclosure of the annual report and relevant disclosure will be made in the Shanghai Stock Exchange website (www.sse.com.cn).

V. CORPORATE BOND CREDIT ENHANCEMENT MECHANISM, DEBT REPAYMENT SCHEDULE, AND OTHER RELEVANT INFORMATION DURING THE REPORTING PERIOD

During the reporting period, both the repayment schedule and repayment protection mechanism of “16 津創 01” and”18 津創 01” were well executed and were in line with the arrangement and underlying undertakings as mentioned in the prospectus. There were no changes in that regard. The Company has set up a specialized repayment account for the said corporate bond and has completed withdrawal for such specialized repayment account in accordance with the undertakings as stated in the prospectus.

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9. Relevant Details of Corporate Bonds

VI. CONVENING OF MEETINGS OF BONDHOLDERS

Not applicable

VII. PERFORMANCE OF CORPORATE BOND TRUSTEE

During the terms of the corporate bonds, the corporate bond trustee strictly complies with the arrangement stated in the “Corporate Bond Trustee Agreement” and perform ongoing tracking on credit condition, management on use of proceed fund, and corporate bond interest payment of the Company. It has also ensured that the Company performs obligations as stipulated in the corporate bond prospectus. The corporate bond trustee actively performs its responsibilities and protects the legal rights of bondholders. Investors should be aware that corporate bond trustee shall issue its corporate bond trustee management report (2020) before 30 June 2021 and is expected to disclose on the Shanghai Stock Exchange website (www. sse.com.cn).

VIII. ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE COMPANY IN THE PREVIOUS TWO YEARS AS OF THE END OF THE REPORTING PERIOD

Unit: 0’000 Currency: RMB

			Increase/Decrease
			for the period as
			compared to the
			same period
Major Indicators	2020	2019	last year (%)	Reason for the change
Profit before EBITDA	156,343.50	135,301.40	15.55	Increase in total profits and interest expenses
Current ratio	1.08	1.35	-20.00	Significant decrease of monetary funds and
				account receivables compared with the previous
				period
Quick ratio	1.07	1.35	-20.74	Significant decrease of monetary funds and
				account receivables compared with the previous
				period
Assets liability ratio (%)	59.68	60.30	-1.03	Basically the same
Debt to EBITDA ratio	0.22	0.22	0.00	Basically the same
Interest protection multiples	3.64	3.94	-7.61	Increase in interest expenses in the current year
Cash interest protection	2.79	5.02	-44.42	Increase in interest expenses in the current year
multiples
EBITDA interest protection	5.75	6.32	-9.02	Increase in interest expenses in the current year
multiples
Debt service ratio (%)	100	100	0.00	Not applicable
Interest coverage rate (%)	100	100	0.00	Not applicable

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9. Relevant Details of Corporate Bonds

IX. BANK CREDIT OF THE COMPANY DURING THE REPORTING PERIOD

Not applicable

X. BANK CREDIT OF THE COMPANY DURING THE REPORTING PERIOD

As of the end of the reporting period, the Company has obtained, in aggregate, a credit facility of approximately RMB13.556 billion from various banks, of which approximately RMB4.019 billion was utilized with a remaining balance of approximately RMB9.537 billion. During the reporting period, the Company has repaid each bank loans as scheduled and there is no renewal or concession for such loans.

XI. PERFORMANCE OF RELEVANT AGREEMENT OR COMMITMENT OF THE CORPORATE BOND PROSPECTUS BY THE COMPANY DURING THE REPORTING PERIOD

During the reporting period, the Company strictly complied with the relevant agreements or commitments as set out in

the corporate bond prospectus. There was no significant impact on the interests of bond investors.

XII. MAJOR ISSUES OF THE COMPANY OCCURRED DURING THE REPORTING PERIOD AND ITS EFFECT ON THE OPERATION AND SOLVENCY OF THE COMPANY

Not applicable

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

10. Financial Report

For details, please refer to the accounting statements and report of the auditors for 2020 of the Company.

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11. Report of the Auditors

Auditor’s Report

PwC ZT Shen Zi (2021) No. 10031

(Page 1 of 6)

To the Shareholders of Tianjin Capital Environmental Protection Group Company Limited,

OPINION

What we have audited

We have audited the accompanying financial statements of Tianjin Capital Environmental Protection Group Company Limited (hereinafter the “Capital Environmental Protection”), which comprise:

the consolidated and company balance sheets as at 31 December 2020;
the consolidated and company income statements for the year then ended;
the consolidated and company cash flow statements for the year then ended;
the consolidated and company statements of changes in shareholders’ equity for the year then ended; and
notes to the financial statements.

Our opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and company’s financial position of Capital Environmental Protection as at 31 December 2020, and their financial performance and cash flows for the year then ended in accordance with the requirements of Accounting Standards for Business Enterprises (“CASs”).

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11. Report of the Auditors

PwC ZT Shen Zi (2021) No. 10031 (Page 2 of 6)

BASIS FOR OPINION

We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of Capital Environmental Protection in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our other ethical responsibilities in accordance with the CICPA Code.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter identified in our audit is summarised as follows：

Key Audit Matter

Assessment of expected credit losses for trade receivables

How our audit addressed the Key Audit Matter

We performed the following procedures to address the key audit matter:

Refer to Notes 4 (3) and Notes 4(8) to the financial statements

As at 31 December 2020, the Group’s gross trade receivables amounted to approximately RMB3,559,373,000 (including the portion of the trade receivables due from a government authority of approximately RMB1,431,761,000 as included in the Group’s longterm receivables (Note 4(8))), represented approximately 19% of the total assets of the Group, and a loss allowance of RMB169,312,000 (including a loss allowance of approximately RMB783,000 as included in the Group’s long-term receivables) was recognised on these trade receivables.

The balance of loss allowance for trade receivables represent the management’s best estimates on the expected credit losses (“ECL”) for these trade receivables as of the balance sheet date.

Management assessed the lifetime ECL of the trade receivables using simplified approach. Trade receivables have been grouped based on shared credit risk characteristics and ageing analysis to measure the expected credit losses. Significant management judgement is applied in determining the calculation model and selecting the inputs to calculate the expected credit loss rate, based on the Group’s historical aging profile of receivables, existing market conditions and economic indicators for forward-looking adjustments at the end of each reporting period.

Obtained an understanding of the key management’s internal control and process for the assessment of ECL for trade receivables and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity, changes and susceptibility to management bias or fraud.
Evaluated the outcome of prior period assessment of ECL for trade receivables to assess the effectiveness of management’s estimation process.
Evaluated the appropriateness of the methodology and model as adopted by management for the calculation of credit loss allowance by considering the nature and characteristics of trade debtors;
Assessed the reasonableness of management’s assessment of ECL by considering the reasonableness of grouping category of trade debtors, checking the accuracy of the aging analysis of trade receivables to invoices and related supporting documentation on a sample basis, and comparing the estimated default rate to existing market data. Evaluated the reasonableness of the economic growth data as selected by management for the forward-looking adjustments on the applied ECL rates by comparing with those as obtained from our research on the macroeconomic data as published in China.

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11. Report of the Auditors

PwC ZT Shen Zi (2021) No. 10031 (Page 3 of 6)

KEY AUDIT MATTERS (Continued)

Key Audit Matter (Continued)

How our audit addressed the Key Audit Matter (Continued)

Assessment of expected credit losses for trade receivables (Continued)

We focus on this area because of the magnitude of the balance of trade receivables and the assessment of expected credit losses for trade receivables is subject to high degree of estimation uncertainty. The inherent risk in relation to the assessment of expected credit losses for trade receivables is considered significant due to the subjectivity of significant assumptions and estimates used.

Checked the mathematical accuracy of the calculation of the provision for loss allowance.

Based on the above, we considered that the significant management’s judgements and estimates applied in the assessment of expected credit losses for trade receivables were supportable by the evidence obtained and procedures performed.

OTHER INFORMATION

Management of Capital Environmental Protection is responsible for the other information. The other information comprises all of the information included in 2020 annual report of Capital Environmental Protection other than the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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11. Report of the Auditors

PwC ZT Shen Zi (2021) No. 10031 (Page 4 of 6)

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS

Management of Capital Environmental Protection is responsible for the preparation and fair presentation of these financial statements in accordance with the CASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing these financial statements, management is responsible for assessing the ability of Capital Environmental Protection to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intend to liquidate Capital Environmental Protection or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing Capital Environmental Protection’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with CSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.

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11. Report of the Auditors

PwC ZT Shen Zi (2021) No. 10031

(Page 5 of 6)

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS (Continued)

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of Capital Environmental Protection to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in these financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Capital Environmental Protection to cease to continue as a going concern.
Evaluate the overall presentation (including the disclosures), structure and content of the financial statements and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within Capital Environmental Protection to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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11. Report of the Auditors

PwC ZT Shen Zi (2021) No. 10031 (Page 6 of 6)

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS (Continued)

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

PricewaterhouseCoopers Zhong Tian LLP

PricewaterhouseCoopers Zhong Tian LLP Signing CPA Li Jun Shanghai, the People’s Republic of China (Engagement Partner) 25 March 2021 Signing CPA Wang Yan

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12. Financial Statements Prepared in accordance with PRC Accounting Standards for Business Enterprises Consolidated and Company Balance Sheet

ASSETS Note Current assets Cash at bank and on hand 4(1) Notes receivable 4(2) Trade receivables 4(3)/14(1) Advances to suppliers 4(4) Other receivables 4(5)/14(2) Inventories 4(6) Current portion of non-current assets 4(8) Other current assets 4(7) Total current assets Non-current assets Long-term receivables 4(8) Long-term equity investments 4(9)/14(3) Other equity instruments investment 4(10) Fixed assets 4(11) Construction in progress 4(11) Intangible assets 4(12) Deferred income tax assets 4(19) Other non-current assets 4(7) Total non-current assets TOTAL ASSETS	31 December 2020 Consolidated 1,663,646 2,656 1,959,083 26,220 24,117 17,460 20,049 82,228 3,795,459 1,647,402 195,000 2,000 809,495 9,859 11,999,818 12,965 330,971 15,007,510 18,802,969	(All a 31 December 2019 Consolidated 2,079,613 16,131 2,492,764 38,583 65,156 14,805 17,224 72,504 4,796,780 236,450 195,000 2,000 641,793 159,214 11,759,442 4,209 195,919 13,194,027 17,990,807	As at 31 December 2020 mounts in RMB thousand unless otherwise stated) 31 December 2020 Company 31 December 2019 Company 623,111 741,257 – – 1,126,477 1,958,081 – 1,916 25,883 87,945 5,995 4,811 20,049 17,224 375,011 478,566 2,176,526 3,289,800 1,647,402 236,450 4,223,545 4,067,052 2,000 2,000 148,551 160,912 340 699 3,865,856 4,021,934 – – 40,832 115,332 9,928,526 8,604,379 12,105,052 11,894,179

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements Prepared in accordance with PRC Accounting Standards for Business Enterprises Consolidated and Company Balance Sheet

As at 31 December 2020 (All amounts in RMB thousand unless otherwise stated) LIABILITIES AND OWNERS’ EQUITY Note Current liabilities Short-term borrowings 4(16) Trade payables 4(14) Contract liabilities 4(14) Taxes payable 4(14) Other payables 4(14) Accrued payroll 4(15) Current portion of non-current liabilities 4(16) Other current liabilities 4(16) Total current liabilities Non-current liabilities Long-term borrowings 4(16) Debentures payable 4(16) Long-term payables 4(16) Provisions 4(17) Deferred income 4(18) Deferred tax liabilities 4(19) Other non-current liabilities 4(16) Total non-current liabilities Total liabilities Shareholder’s equity Share capital 4(20) Capital surplus 4(21)(a) Surplus reserve 4(21)(b) Undistributed profits 4(21)(c) Total equity attributable to equity owners of the parent Minority interests Total owners’ equity TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	31 December 2020 Consolidated – 294,973 527,410 56,841 955,773 85,620 1,596,263 – 3,516,880 4,227,894 1,098,848 247,734 13,737 1,981,434 100,799 34,000 7,704,446 11,221,326 1,427,228 431,024 619,054 4,114,045 6,591,351 990,292 7,581,643 18,802,969	31 December 2019 Consolidated 200,000 231,293 558,472 86,188 1,534,014 66,100 852,552 20,250 3,548,869 3,006,756 1,797,389 262,652 11,665 2,059,702 125,587 36,000 7,299,751 10,848,620 1,427,228 431,024 558,250 3,757,523 6,174,025 968,162 7,142,187 17,990,807	31 December 2020 Company – 43,558 4,950 4,688 230,454 43,202 1,536,886 70,000 1,933,738 1,396,472 1,098,848 239,134 11,665 1,524,402 36,085 380,000 4,686,606 6,620,344 1,427,228 380,788 619,054 3,057,638 5,484,708 – 5,484,708 12,105,052	31 December 2019 Company 200,000 65,904 4,950 31,101 417,707 30,463 582,872 – 1,332,997 1,135,632 1,797,389 262,652 11,665 1,593,830 60,642 670,000 5,531,810 6,864,807 1,427,228 380,788 558,250 2,663,106 5,029,372 – 5,029,372 11,894,179

The accompanying notes form an integral part of these financial statements.

Liu Yujun Company representative

Peng Yilin Person in charge of accounting function

Liu Tao

Person in charge of accounting department

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Consolidated and Company Income Statements

For the year ended 31 December 2020 (All amounts in RMB thousand unless otherwise stated)

Item Note 1. Revenue 4(22)/14(4) Less: Cost of sales 4(22)/14(4) Taxes and surcharges 4(23) Selling and distribution expenses 4(24) General and administrative expenses 4(24) Research and development expenses 4(25) Financial expenses-net 4(26) Including: interest expense interest income Add: Other income 4(28) Investment gains 14(5) Including: Share of profit of associates Assets impairment losses 4(29) Credit impairment losses 4(30) Gains on disposals of assets 4(31) 2. Operating profit Add: Non-operating income 4(32) Less: Non-operating expenses 4(33) 3. Total profit Less: Income tax expenses 4(34) 4. Net profit Classified by continuity of operations Net profit from continuing operations Net profit from discontinued operations Classified by ownership of the equity Minority interests Attributable to equity owners of the Company 5. Other comprehensive income after deduction of impact of income tax 6. Total comprehensive income Attributable to equity owners of the Company Attributable to minority shareholders Earnings per share (in RMB Yuan) Basic 4(35) Diluted 4(35)	2020 Consolidated 3,363,874 (2,185,119) (48,769) (15,879) (178,078) (13,201) (239,100) (272,030) 23,035 162,410 – – (34,808) (88,332) 67 723,065 1,807 (6,688) 718,184 (112,046) 606,138 606,138 – 36,099 570,039 – 606,138 570,039 36,099 0.40 0.40	2019 Consolidated 2,851,453 (1,939,804) (45,716) (7,075) (168,661) (17,925) (199,396) (213,982) 23,951 166,989 – – (26,808) (31,383) 49,997 631,671 2,469 (4,591) 629,549 (100,587) 528,962 528,962 – 21,855 507,107 – 528,962 507,107 21,855 0.36 0.36	2020 Company 1,488,207 (927,808) (22,170) – (99,280) (3,184) (181,111) (204,028) 12,527 119,292 356,503 – (12,250) (59,005) 13 659,207 142 (2,217) 657,132 (49,083) 608,049 608,049 – – 608,049 – 608,049 608,049 – – –	2019 Company 1,315,292 (853,193) (15,977) – (93,500) (5,911) (181,342) (184,965) 12,589 110,181 219,397 – (7,973) (35,968) 40 451,046 132 (2,476) 448,702 (37,279) 411,423 411,423 – – 411,423 – 411,423 411,423 – – –

The accompanying notes form an integral part of these financial statements.

Liu Yujun Company representative:

Peng Yilin Person in charge of accounting function:

Liu Tao Person in charge of accounting department:

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Consolidated and Company Cash Flow Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

Item Note 1. Cash flows from operating activities Cash received from sales of goods or rendering of services Refund of taxes and surcharges Cash received relating to other operating activities 4(36)(d) Sub-total of cash inflows Cash paid for goods and services Cash paid to and on behalf of employees Payments of taxes and surcharges Cash paid relating to other operating activities 4(36)(e) Sub-total of cash outflows Net cash flows from operating activities 4(36)(a) 2. Cash flows from investing activities Cash received from returns on investments Net cash received from disposal of fixed assets, intangible assets and other long-term assets 4(36)(f) Cash received from subsidiaries Cash received from restricted bank deposits Sub-total of cash inflows Cash paid to acquire fixed assets, intangible assets and other long-term assets Cash paid to acquire investments Cash paid for restricted bank deposits Cash paid to subsidiaries Sub-total of cash outflows Net cash flows from investing activities	2020 Consolidated 2,384,484 92,363 63,459 2,540,306 (1,329,602) (352,037) (265,157) (61,074) (2,007,870) 532,436 – 623 – 6,237 6,860 (1,543,318) – (3,914) – (1,547,232) 1,540,372	2019 Consolidated 2,876,833 37,583 93,598 3,008,014 (1,354,251) (337,860) (364,715) (66,255) (2,123,081) 884,933 – 55,136 – 19,791 74,927 (2,058,617) – (15,445) – (2,074,062) (1,999,135)	2020 Company 875,856 70,719 26,370 972,945 (702,473) (132,294) (145,162) (27,536) (1,007,465) (34,520) 358,323 147 781,389 – 1,139,859 (191,387) (168,743) (77) (583,894) (944,101) 195,758	2019 Company 1,226,904 14,519 10,837 1,252,260 (688,794) (135,146) (37,081) (35,841) (896,862) 355,398 217,577 40 1,643,041 14,171 1,874,829 (249,715) (554,320) (10,145) (1,251,155) (2,065,335) (190,506)

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Consolidated and Company Cash Flow Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

Item Note 3. Cash flows from financing activities Cash received from borrowings Cash received from capital contributions Including: Cash received from capital contributions by minority shareholders of subsidiaries Sub-total of cash inflows Cash repayments of borrowings Cash payments for distribution of interest expenses Payments for distribution of dividends or profits Including: Dividends and profits paid to minority shareholders by subsidiaries Sub-total of cash outflows Net cash flows from financing activities 4. Effect of foreign exchange rate changes on cash 5. Net (decrease)/increase in cash Add: Cash at beginning of year 6. Cash at end of year 4(36)(c)	2020 Consolidated 2,700,168 18,306 18,306 2,718,474 (1,689,129) (249,035) (186,018) (33,447) (2,124,182) 594,292 – (413,644) 2,066,301 1,652,657	2019 Consolidated 2,403,553 150,715 150,715 2,554,268 (831,072) (198,039) (153,197) – (1,182,308) 1,371,960 – 257,758 1,808,543 2,066,301	2020 Company 1,434,991 – – 1,434,991 (1,378,750) (183,130) (152,571) – (1,714,451) (279,460) – (118,222) 736,182 617,960	2019 Company 956,619 – – 956,619 (650,000) (169,020) (153,197) – (972,217) (15,598) – 149,294 586,888 736,182

The accompanying notes form an integral part of these financial statements.

Liu Yujun

Company representative

Peng Yilin Person in charge of accounting function

Liu Tao

Person in charge of accounting department

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Consolidated Statement of Changes in Owners’ Equity

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

Item Note Balance at 1 January 2019 Movements for the period ended 31 December 2019 Total comprehensive income Net profit Total comprehensive income for the year Capital contribution by shareholders Profit distribution Appropriation to surplus reserves Dividend distribution to shareholders Balance at 31 December 2019 Movements for the period ended 31 December 2020 Total comprehensive income Net profit Total comprehensive income for the year Capital contribution by shareholders Profit distribution Appropriation to surplus reserves Dividend distribution to shareholders 4(21)(c) Balance at 31 December 2020	Attributable to ow	Attributable to ow	ners of theparent Surplus reserve Undistributed profits 517,107 3,442,844 – 507,107 – 507,107 – – 41,143 (41,143) – (151,285) 558,250 3,757,523 – 570,039 – 570,039 – – 60,804 (60,804) – (152,713) 619,054 4,114,045	Minority interests 796,764 21,855 21,855 150,715 – (1,172) 968,162 36,099 36,099 18,306 – (32,275) 990,292	Total shareholders’ equity 6,614,967 528,962 528,962 150,715 – (152,457) 7,142,187 606,138 606,138 18,306 – (184,988) 7,581,643
	Share capital 1,427,228 – – – – – 1,427,228 – – – – – 1,427,228	Capital surplus 431,024 – – – – – 431,024 – – – – – 431,024	Surplus reserve 517,107 – – – 41,143 – 558,250 – – – 60,804 – 619,054

The accompanying notes form an integral part of these financial statements.

Liu Yujun Company representative

Peng Yilin Person in charge of accounting function

Liu Tao

Person in charge of accounting department

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Company Statement of Changes in Owners’ Equity

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

Item Balance at 1 January 2019 Movements for the period ended 31 December 2019 Total comprehensive income Net profit Total comprehensive income for the year Profit distribution Appropriation to surplus reserves Dividend distribution to shareholders Balance at 31 December 2019 Movements for the period ended 31 December 2020 Total comprehensive income Net profit Total comprehensive income for the year Profit distribution Appropriation to surplus reserves Dividend distribution to shareholders Balance at 31 December 2020	Share capital 1,427,228 – – – – 1,427,228 – – – – 1,427,228	Capital surplus 380,788 – – – – 380,788 – – – – 380,788	Surplus reserve 517,107 – – 41,143 – 558,250 – – 60,804 – 619,054	Undistributed profits 2,444,111 411,423 411,423 (41,143) (151,285) 2,663,106 608,049 608,049 (60,804) (152,713) 3,057,638	Total shareholders’ equity 4,769,234 411,423 411,423 – (151,285) 5,029,372 608,049 608,049 – (152,713) 5,484,708

The accompanying notes form an integral part of these financial statements.

Liu Yujun

Company representative

Peng Yilin Person in charge of accounting function

Liu Tao

Person in charge of accounting department

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

1 GENERAL INFORMATION

Tianjin Capital Environmental Protection Group Company Limited (the “Company”) was established on the basis of Tianjin Bohai chemical industry (Group) Co., Ltd. (“Bohai Chemical Industry”). Bohai Chemical Industry was established on 8 June 1993 in Tianjin, the People’s Republic of China (the “PRC”), listed in Hong Kong Stock Exchange (“H share”) in May 1994 and Shanghai Stock Exchange (“A share”) in June 1995. Bohai Chemical Industry appeared significant losses in 1998 and 1999. Approved by Tianjin Government, the Company had completed the equity and assets reorganization of Bohai Chemical Industry at the end of year 2000. The address of the Company’s registered office is No.45 Guizhou Road, Heping District, Tianjin. The parent company and ultimate holding company of the Company are Tianjin Municipal Investment Co., Ltd. (“Municipal Investment”) and Tianjin City Infrastructure Construction and Investment Group Co., Ltd. (“City Infrastructure Construction and Investment”), respectively. As at 31 December 2020, the Company’s total share capital is RMB1,427 million with a par value of RMB1 per share.

The principal activities of the Company and its subsidiaries (the “Group”) include processing of sewage water, supply of tap water and recycled water, supply of heating and cooling, hazardous waste treatment and construction and management of related facilities as described below:

(a) Processing of sewage water

Pursuant to relevant agreements (“Service concession right agreements”), the Group currently provides sewage water processing services via the following plants:

Location	Agreement date	Authorized by
Guiyang, Guizhou	16 September 2004	Guiyang City Administration Bureau
Baoying, Jiangsu	13 June 2005	Baoying Construction Bureau
Chibi, Hubei	15 July 2005	Chibi Construction Bureau
Fuyang, Anhui	18 December 2005	Fuyang Construction Committee
Qujing, Yunnan	25 December 2005	Qujing Construction Bureau
		(Renamed Qujing Housing and Urban Construction Bureau)
Honghu, Hubei	29 December 2005	Honghu Construction Bureau
Hangzhou,Zhejiang	20 November 2006	Hangzhou Sewage Company
		(Changed to Hangzhou Municipal Facilities Supervision Center)
Jinghai, Tianjin	12 September 2007	Tianjin Tianyu Science Technology Park
Wendeng, Shandong	19 December 2007	Wendeng Construction Bureau
Xi’an, Shaanxi	18 March 2008	Xi’an Infrastructure Investment Group
Xianning, Hubei	16 October 2008	Xianning Construction Committee
Yingdong, Anhui	10 August 2009	Fuyang Yingdong Construction Bureau
Ninghe, Tianjin	21 September 2010	Management Committee of Modern Industrial Zone of Ninghe
Qujing, Yunnan	16 August 2011	QuJing Housing and Urban Construction Bureau
Chaohu, Anhui	25 August 2011	Hanshan Housing and Urban Construction Bureau
Jingu, Tianjin	18 February 2014	Tianjin Urban-rural Construction Commission (“TUCC”) and
		Tianjin Water Authority Bureau (“TWAB”)
Xianyanglu, Tianjin	18 February 2014	TUCC and TWAB

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

1 GENERAL INFORMATION (Continued)

(a) Processing of sewage water (Continued)

Pursuant to relevant agreements (“Service concession right agreements”), the Group currently provides sewage water processing services via the following plants: (Continued)

Location	Agreement date	Authorized by
Dongjiao, Tianjin	18 February 2014	TUCC and TWAB
Beicang, Tianjin	18 February 2014	TUCC and TWAB
Yingshang, Anhui	16 June 2016	Yingshang Housing and Urban Construction Bureau
Karamay, Xinjiang	4 November 2016	Karamay Construction Bureau
Linxia, Gansu	13 May 2017	Linxia Housing and Urban Construction Bureau
Ningxiang, Changsha	5 June 2017	Ningxiang Economic and
		Technological Development Zone Management Committee
Hefei, Anhui	16 June 2017	Hefei Urban Construction Committee
Dalian, Liaoning	1 November 2017	Dalian Urban Construction Bureau
Bayannur, Inner Mongolia	12 December 2017	Bayannur Water Bureau and
		Bayannur Hetao Water Group Company, Ltd
Ningxiang, Changsha	27 April 2018	Ningxiang Economic and
		Technological Development Zone Management Committee
Honghu, Hubei	9 June 2018	Honghu Housing and Urban Construction Bureau
Shibing, Guizhou	12 July 2018	Shibing Water Bureau
Hefei, Anhui	28 November 2018	Hefei Urban Construction Committee
Deqing, Zhejiang	1 January 2019	Deqing Qianyuan Municipal Government
Gaocheng, Hebei	2 April 2019	Hebei Gaocheng Economic and
		Technological Development Zone Management Committee
Jiuquan, Gansu	22 June 2019	Jiuquan Suzhou Municipal Government
Yingdong, Fuyang	26 August 2019	Fuyang Urban-rural Construction Commission
Huoqiu, Anhui	2 January 2020	Huoqiu Housing and Urban Construction Bureau
Huize, Yunnan	24 February 2020	Huize Housing and Urban Construction Bureau

The Group provides sewage treatment services in accordance with the Concession Agreements and is entitled to charge for the service based on a pre-determined rate.

(b) Supply of tap water

Pursuant to relevant agreements, the Group provides tap water supply service initially at the pre-determined rate and the price as pre-determined may be revised subsequently taking into account various cost factors.

(c) Recycled water business

The Group’s recycled water business includes developing, constructing and operating of recycled water projects, production and sale of recycled water, and provision of related research and development and technical consultation services.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

1 GENERAL INFORMATION (Continued)

(d) Heating and cooling supply services

The heating and cooling supply services include design, construction, operations and transfer of centralized heating and cooling infrastructures, and provision of heating and cooling services.

(e) Hazardous waste treatment

Hazardous treatment include hazardous and solid waste treatment. Currently, the Group conducts the disposal by way of incineration, landfill, physicochemical and curing treatment. Adoption of treatment method tailored to the local help to realize the aim of harmless, resource and reduction.

(f) Subsidiaries included in the scope of consolidation for the year and newly consolidated subsidiaries are set out in Note 5 and Note 6.
(g) These financial statements were approved by the Company’s Board of Directors on 25 March 2021.

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

The Group determines the specific accounting policies and accounting estimates according to the production management characteristics, which are mainly reflected in the measurement of expected credit losses of receivables and contract assets (Note 2(8)), depreciation and amortization of fixed assets and intangible assets (Note 2(11) and (14)), timing of revenue recognition (Note 2(20)) and so on.

Key assumption adopted by the Group in determining significant accounting policies are set out in Note 2(25).

(1) Basis of preparation

The financial statements are prepared in accordance with the Accounting Standard for Business Enterprises – Basic Standard, and the specific accounting standards and other relevant regulations issued by the Ministry of Finance on 15 February 2006 and in subsequent periods (hereafter collectively referred to as “the Accounting Standards for Business Enterprises” or “CAS”) and Circular of the China Securities Regulatory Commission on the Issuing of the Rules for the Information Disclosure and Compilation of Companies Publicly Issuing Securities No. 15 – General Provisions on Financial Statements.

The financial statements are prepared on a going concern basis.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(2) Statement of compliance with Accounting Standard for Business Enterprise

The financial statements of the Company for the year ended 31 December 2020 are in compliance with the Accounting Standard for Business Enterprise and truly and completely present the consolidated and the Company’s financial position of the Company as of 31 December 2020 and of their financial performance, cash flows and other information for the year then ended.

(3) Accounting year

The Company’s accounting year starts on 1 January and ends on 31 December.

(4) Recording currency

The Company’s recording currency is Renminbi (RMB). The recording currency of the Company’s subsidiaries is determined based on the primary economic environment in which they operate, and except the recording currency of Tianjin Capital Environmental Protection (Hong Kong) Co., Ltd. which is HK dollar, the remaining subsidiary companies’ recording currency is RMB. The financial statements are presented in RMB.

(5) Preparation of consolidated financial statements

The consolidated financial statements comprise the financial statements of the Company and all its subsidiaries.

Subsidiaries are consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases.

In preparing the consolidated financial statements, the financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries. For subsidiaries acquired from business combinations not under common control, the financial statements are adjusted based on the fair value of the identifiable net assets at the acquisition date.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(5) Preparation of consolidated financial statements (Continued)

All significant intra-group balances, transactions and unrealized profits are eliminated in the consolidated financial statements. The portion of subsidiaries’ equity and the portion of a subsidiaries’ net profits and losses and comprehensive incomes for the period not attributable to Company are recognised as minority interests and presented separately in the consolidated financial statements under equity, net profits and total comprehensive income respectively. Unrealized profits and losses resulting from the sale of assets by the Company to its subsidiaries are fully eliminated against net profit attributable to owners of the parent. Unrealized profits and losses resulting from the sale of assets by a subsidiary to the Company are eliminated and allocated between net profit attributable to owners of the parent and minority interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealized profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to owners of the parent and minority interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealized profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to owners of the parent and minority interests in accordance with the allocation proportion of the parent in the subsidiary.

If the accounting treatment of a transaction which considers the Group as an accounting entity is different from that considers the Company or its subsidiaries as an accounting entity, it is adjusted from the perspective of the Group.

(6) Cash

Cash comprise cash on hand and deposits that can be readily drawn on demand.

(7) Foreign currency translation

(a) Foreign currency transactions

Foreign currency transactions are translated into recording currency using the exchange rates prevailing at the dates of the transactions.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(7) Foreign currency translation (Continued)
- (a) Foreign currency transactions (Continued)

At the balance sheet date, monetary items denominated in foreign currencies are translated into recording currency using the spot exchange rates on the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current year, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying assets, which are capitalized as part of the cost of those assets. Non-monetary items denominated in foreign currencies that are measured at historical costs are translated at the balance sheet date using the spot exchange rates at the date of the transactions. The effect of exchange rate changes on cash is presented separately in the cash flow statement.

(b) Translation of foreign currency financial statements

The asset and liability items in the balance sheets for overseas operations are translated at the spot exchange rates on the balance sheet date. Among the shareholders’ equity items, the items other than “undistributed profits” are translated at the spot exchange rates of the transaction dates. The income and expense items in the income statements of overseas operations are translated at the spot exchange rates of the transaction dates. The differences arising from the above translation are presented in other comprehensive income. The cash flows of overseas operations are translated at the spot exchange rates on the dates of the cash flows. The effect of exchange rate changes on cash is presented separately in the cash flow statement.

(8) Financial instruments

Financial instruments refer to the contracts that form one party’s financial assets and form other parties’ financial liabilities or equity instruments. The Group recognise financial assets or financial liabilities when become one party of the financial instruments contracts.

(a) Financial assets
(i) Classification and measurement

Based on the business model for financial asset management and the contractual cash flow characteristics of financial assets, the Group classifies the financial assets into: (1) financial assets measured at amortised cost; (2) financial assets measured at fair value and through other comprehensive income; (3) financial assets measured at fair value and through profit or loss.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(8) Financial instruments (Continued)
(a) Financial assets (Continued)
- (i) Classification and measurement (Continued)

Financial assets are initially recognised at fair value. For financial assets at fair value through profit and loss, the related transaction costs are directly recognised in profit or loss. For other financial assets, the related transaction costs are included in initially recognised amounts. Notes or trade receivables arising from sales of products or rendering of services (excluding or without regard to significant financing components) are initially recognised at the consideration that is entitled to be charged by the Group as expected.

Debt instruments

Debt instruments held by the Group are those meet the definition of a financial liability from the issuer’s perspective and are measured at the following methods:

Measured at amortised cost:

The Group’s business model for financial asset management aims to receive contractual cash flows. The contractual cash flow characteristics of such financial assets are consistent with basic loan arrangement, which means the cash flow generated at certain date is only the payment for the principal and the corresponding interest based on unpaid principal. The interest income of such financial assets is recognised using the effective interest method. The Group’s financial assets mainly include cash at bank and on hand, Notes receivable, trade receivables, other receivables, and long-term receivables long-term receivables with maturities no more than one year (inclusive) at the balance sheet date are included in the current portion of non-current assets.

Equity instruments

The Group designates non-traded investments in equity instrument as financial assets at FVOCI, and present as other investments in equity instrument. Relevant dividend income of these financial assets are recognised in profit or loss.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(8) Financial instruments (Continued)
- (a) Financial assets (Continued)
  - (ii) Impairment of financial assets

The Group recognises the loss provision based on expected credit losses (“ECL”) for financial assets and contract assets measured at amortised cost.

The Group calculates the probability weighted amount of the present value of differences between the cash flows receivable by the contract and the cash flows expected to be received, and recognises the ECL by considering the reasonable and well-founded information on past events, current conditions and forecasts of future economic conditions, taking the risk of default as a weight.

As at each balance sheet date, the Group measures the ECL of financial instruments at different stages respectively. Financial instrument that had no significant increase in credit risk since initial recognition belongs to “Stage 1”, and the Group makes loss provision based on the ECL in the following 12 months. Financial instrument that had a significant increase but with no credit impairment since initial recognition belongs to “Stage 2”, and the Group makes the loss provision based on the lifetime ECL. Financial instrument that suffered credit impairment since initial recognition belongs to “Stage 3”, and the Group makes the loss provision based on the lifetime ECL.

For the financial instrument with lower credit risk on the balance sheet date, the Group assumes that its credit risk had no significant increase since initial recognition, and makes the loss provision based on the ECL in the following 12 months.

For financial instruments belonging to “Stage 1”, “Stage 2” and those with lower credit risk, the interest income is calculated based on its carrying amount (including impairment provision) and effective interest rate. For the financial instrument belonging to “Stage 3”, the interest income is calculated based on the amortised cost (which is made after carrying amount less the impairment provision) and effective interest rate.

For notes receivable, trade receivables and contract assets, regardless of existence of the significant financing component, the Group makes the loss provision according to the lifetime ECL. For lease receivables, the Group makes the loss provision according to the lifetime ECL as well.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(8) Financial instruments (Continued)
(a) Financial assets (Continued)
- (ii) Impairment of financial assets (Continued)

When the expected credit loss cannot be assessed at a reasonable cost for an individual financial asset, the Group divides receivables into certain groupings based on credit risk characteristics, then pursuant to which, calculates the ECL. Basis for grouping is as follows:

Banker’s acceptance notes group Banker’s acceptance from bank under low risk Government clients group Government clients except those in provincial capitals and municipalities Other clients group Other clients Project deposit group Project deposits Others group Other receivables excluding VAT refund and project deposits

For trade receivables, lease receivables that are classified into above groupings and notes receivables arising from sale of goods or rendering of services,, the Group calculates ECL using exposure at default (“EAD”) and lifetime ECL rate with reference to historical credit loss experience, in combination with the current situation and forecasts of future economic conditions. Other types of notes receivables and other receivables that are classified into above groupings, the Group calculates ECL using EAD and lifetime ECL rate or ECL rate in the following 12 months with reference to historical loss experience, in combination with the current situation and forecasts of future economic conditions.

The Group included the provision for or reversal of loss provision into profit or loss.

(iii) Derecognition of financial assets

A financial asset is derecognised when any of the below criteria is met: (1) the contractual rights to receive the cash flows from the financial asset expire; (2) the financial asset has been transferred and the Group transfers substantially all the risks and rewards of ownership of the financial asset to the transferee; (3) the financial asset has been transferred and the Group has not retained control of the financial asset, although the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset.

135

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(8) Financial instruments (Continued)

(a) Financial assets (Continued)

(iii) Derecognition of financial assets (Continued)

On derecognition of other investments in equity instrument, the difference between the carrying amount and the sum of the consideration received and the cumulative changes in fair value that had been recognised directly in other comprehensive income, is recognised in retained earnings; on derecognition of other financial assets, the difference between the carrying amount and the sum of the consideration received and the cumulative changes in fair value that had been recognised directly in other comprehensive income, is recognised in profit or loss.

(b) Financial liabilities

Financial liabilities are classified into the following categories at initial recognition: financial liabilities measured at amortised cost and financial liabilities at fair value through profit or loss.

The Group’s financial liabilities mainly refer to financial liabilities measured at amortised cost, including trade payables, other payables, borrowings and debentures payable. Such financial liabilities are initially recognised at fair value, net of transaction costs incurred, and subsequently measured using effective interest method. Financial liabilities of which the period is within one year (inclusive) are classified as the current liabilities; the period is over one year while will be due within one year (inclusive) since the balance sheet date are classified as current portion of non-current liabilities; and the others are classified as non-current liabilities.

A financial liability is derecognised when all or part of the obligation is extinguished. The difference between the carrying amount of a financial liability extinguished and the consideration paid, shall be recognised in profit or loss.

136

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(8) Financial instruments (Continued)
- (c) Determination of fair value of financial instruments

The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument that is not traded in an active market is determined by using a valuation technique. In valuation, the Group adopts valuation techniques applicable in the current situation and supported by adequate available data and other information, selects inputs with the same characteristics as those of assets or liabilities considered in relevant transactions of assets or liabilities by market participants, and gives priority to the use of relevant observable inputs. When relevant observable inputs are not available or feasible, unobservable inputs are adopted.

(9) Inventories

(a) Classification

Inventories include raw materials, finished goods, spare parts and low cost consumables, and are measured at the lower of cost and net realizable value.

(b) Costing of inventories

Costs for raw materials, finished goods and low cost consumables are determined using the weighted average method. The cost of finished goods comprises raw materials, direct labor and systematically allocated production overhead based on the normal production capacity.

(c) Basis for determining net realizable values of inventories and method for making provision for decline in the value of inventories

Provision for decline in the value of inventories is determined at the excess amount of the carrying amounts of the inventories over their net realizable value. Net realizable value is determined based on the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.

137

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(9) Inventories (Continued)
- (d) The Group adopts the perpetual inventory system.
- (e) Spare parts and low cost consumables are expensed when used.

(10) Long-term equity investments

Long-term equity investments comprise the Company’s long-term equity investments in its subsidiaries, and the Group’s long-term equity investments in its joint ventures and associates.

Subsidiaries are the investees over which the Company is able to exercise control. Associate are the investee over which the Group has significant influence on their financial and operating policy decisions.

Investments in subsidiaries are presented in the Company’s financial statements using the cost method, and are adjusted to the equity method when preparing the consolidated financial statements. Investments in joint ventures and associates are accounted for using the equity method.

(a) Determination of investment cost

For long-term equity investment acquired from business combinations not under common control, the cost of the combination is the investment cost of the long-term equity investment.

For long-term equity investment acquired by payment in cash, the initial investment cost shall be the purchase price actually paid.

For the long-term equity investment obtained by means other than business combination, the long-term equity investment obtained by paying cash shall be regarded as the initial investment cost according to the purchase price actually paid; for the long-term equity investment obtained by issuing equity securities, it shall be recognized as the initial investment cost according to the fair value of issuing equity securities.

138

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(10) Long-term equity investments (Continued)
- (b) Subsequent measurement and recognition of related profit and loss

Long-term equity investments accounted for using the cost method, are measured at the initial investment costs. Cash dividends or profit distribution declared by the investees are recognised as investment income in profit or loss.

Long-term equity investments accounted for using the equity method, where the initial investment cost exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially measured at cost; where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current year and the cost of the long-term equity investment is adjusted upwards accordingly.

Under the equity method of accounting, the Group recognises the investment income according to its share of net profit or loss of the investee. The Group does not recognise further losses when the carrying amounts of the long-term equity investment together with any long-term interests that, in substance, form part of the Group’s net investment in investees are reduced to zero. However, if the Group has obligations for additional losses and the criteria with respect to recognition of provisions under the accounting standards on contingencies are satisfied, the Group continues recognising the investment losses and the provisions at the amount it expects to undertake. The Group’s share of the changes in investee’s owner’s equity other than those arising from the net profit or loss, other comprehensive income and profit distribution is recognised in capital surplus with a corresponding adjustment to the carrying amounts of the long-term equity investment. The carrying amount of the investment is reduced by the Group’s share of the profit distribution or cash dividends declared by the investees. Unrealised gains or losses on transactions between the Group and its investees are eliminated to the extent of the Group’s equity interest in the investees, based on which the investment income or losses are recognised. Any losses resulting from transactions between the Group and its investees, which are attributable to asset impairment losses are not eliminated.

139

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(10) Long-term equity investments (Continued)
(c) Basis for determination of control and significant influence over investees

Control is the right over the investee that entitles enjoy variable returns from their involvement in the investee and the ability to exert the right to affect those returns.

Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

(d) Impairment of long-term equity investments

The carrying amounts of long-term equity investments in subsidiaries, joint ventures and associates are reduced to the recoverable amounts when the recoverable amounts are below their carrying amounts (Note 2(16)).

(11) Fixed assets

(a) Recognition and initial measurement of fixed assets

Fixed assets comprise buildings and structures, machinery and equipment, motor vehicles and others.

Fixed assets are recognised when it is probable that the related economic benefits will flow to the Group and the costs can be reliably measured. Fixed assets purchased or constructed by the Group are initially measured at cost at the acquisition date.

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. The carrying amount of the replaced part is derecognised. All the other subsequent expenditures are recognised in profit or loss in the year in which they are incurred.

140

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(11) Fixed assets (Continued)
(b) Depreciation methods of fixed assets

Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets that have been provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.

The estimated useful lives, the estimated net residual values expressed as a percentage of cost and the annual depreciation rates of fixed assets are as follows:

			Annual
	Estimated	Estimated net	depreciation
	useful lives	residual values	rates
Buildings and structures	10-50 years	0%-5%	1.9%-10%
Machinery and equipment	10-20 years	0%-5%	4.8%-10%
Motor vehicles and others	5-10 years	0%-5%	9.5%-20%

Plants and pipelines network are included in buildings with estimated useful lives of 25 years.

The estimated useful life and the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted as appropriate at each year-end.

(c) The carrying amount of a fixed asset is reduced to the recoverable amount when the recoverable amount is below the carrying amount (Note 2(16)).
(d) Disposal of fixed assets

A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds from disposals on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current year.

141

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(12) Construction in progress

Construction in progress is measured at actual cost. Actual cost comprises construction costs, installation costs, borrowing costs that are eligible for capitalisation and other costs necessary to bring the fixed assets ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month. The carrying amount of construction in progress is reduced to the recoverable amount when the recoverable amount is below the carrying amount (Note 2(16)).

(13) Borrowing costs

The borrowing costs that are directly attributable to the acquisition and construction of an asset that needs a substantially long period of time for its intended use commence to be capitalized and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalisation of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use and the borrowing costs incurred thereafter are recognised in profit or loss for the current year. Capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed.

For the specific borrowings obtained for the acquisition or construction of an asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by deducting any interest income earned from depositing the unused specific borrowings in the banks or any investment income arising on the temporary investment of those borrowings during the capitalisation period.

For the general borrowings obtained for the acquisition or construction of an asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by applying the weighted average effective interest rate of general borrowings, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specific borrowings. The effective interest rate is the rate at which the estimated future cash flows during the period of expected duration of the borrowings or applicable shorter period are discounted to the initial amount of the borrowings.

142

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(14) Intangible assets

Intangible assets include land use rights, concession rights, technical know-how and software, and are measured at cost.

(a) Land use rights

Land use rights are amortized on the straight-line basis over their approved use period of 25-50 years. If the acquisition costs of the land use rights and the buildings and structures located thereon cannot be reasonably allocated between the land use rights and the buildings, all of the acquisition costs are recognised as fixed assets.

(b) Concession rights

As described in Note 1(a) and (d), the Group cooperates with government or its subsidiaries in the development, financing, operation and maintenance of facilities for public services (concession services) over a specified period of time (concession service period). The Group has access to operating the facilities and providing concession services in accordance with the terms specified in the arrangement, and transfers the facilities to the government at the end of the concession service period.

The Service concession right agreement sets out performance standards and price adjustment mechanism to clarify the scope of concession services of the Group. The concession service arrangement is within the scope of Interpretations of Accounting Standards for Business Enterprises No.2, such assets under the concession arrangement can be recognised as intangible assets or financial assets. The operator shall recognise an intangible asset to the extent that it receives a right (concession) to charge users of the public service and shall recognise a financial asset to the extent that it receives unconditional payments or guarantee for minimum charge from the approving authority. Rights in relation to concession services are recognised as intangible assets- concession rights by the Group, which are amortized on a straight-line basis over the terms of operation ranging from 20 to 30 years.

(c) Technical know-how and software

Separately acquired technical know-how and software are shown at historical cost. Technical know-how and software has a finite useful life and is carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of technical know-how and software over their useful lives.

143

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(14) Intangible assets (Continued)
- (d) Periodical review of useful life and amortisation method

For an intangible asset with a finite useful life, review of its useful life and amortisation method is performed at each year-end, with adjustment made as appropriate.

(e) Research and development

Expenditures for internal research and development projects are classified into research phase expenditures and development phase expenditures according to their nature and whether the intangible assets ultimately formed by research and development activities have greater uncertainty.

Expenditures for the planned investigation, evaluation and selection phases for the study of the production process are expenditures for the research phase, which are included in the current profit and loss when incurred; prior to mass production, expenditure in the relevant design and testing phases for the final application of the environmental protection equipment production process is capitalized during the development phase, while meeting the following conditions:

The development of the environmental protection equipment production has been fully demonstrated by the technical team;
Management has approved the budget for environmental protection equipment production development;
Research and analysis of previous market research indicates that the products produced by the environmental protection equipment production have marketing capabilities;
Adequate technical and financial support for the development of the environmental protection equipment production and subsequent mass production; and
Expenditure on environmental protection equipment production development can be reliably collected.

144

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(14) Intangible assets (Continued)

(e) Research and development (Continued)

Expenditure in the development phase that does not meet the above conditions is recognised in profit or loss in the period in which it is incurred. Development expenditures that have been charged to profit or loss in the previous period are not reconfirmed as assets in subsequent periods. Expenditures that have been capitalized during the development phase are listed as development expenditures on the balance sheet and are converted to intangible assets from the date the project reaches its intended use.

(f) Impairment of intangible assets

The carrying amount of intangible assets is reduced to the recoverable amount when the recoverable amount is below the carrying amount (Note 2(16)).

(15) Non-monetary asset exchange

Non-monetary asset exchange refers to the exchange of non-monetary assets, such as fixed assets, intangible assets, investment properties, and long-term equity investments. The exchange does not involve or only involves a small amount of monetary assets (i.e. premiums). The exchange of non-monetary assets without commercial substance shall be measured on the basis of book value. For the assets to be swapped in, the enterprise shall use the book value of the assets to be swapped out and the relevant taxes and fees payable as the initial measurement amount of the assets to be swapped in; for the swapped out assets, no profit or loss is recognized when the assets are derecognized. For non-monetary asset exchanges that are measured on the basis of book value, and multiple assets are exchanged in or out at the same time, for multiple assets that are exchanged at the same time, the assets will be exchanged in accordance with the relative proportion of the fair value of each asset being exchanged. The total book value (involving the premium, plus the book value of the premium paid or the fair value of the premium received) is apportioned to the assets transferred, plus the relevant taxes and fees payable, as the initial measurement amount of the asset swapped in. If the fair value of the assets to be exchanged cannot be measured reliably, the book value of the assets to be exchanged may be apportioned according to the relative proportion of the original book value of the assets to be exchanged or other reasonable proportions. For multiple assets that are swapped out at the same time, no profit or loss is recognized when the swapped out assets are derecognized.

145

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(16) Impairment of long-term assets

Fixed assets, construction in progress, intangible assets with finite useful lives, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that the assets may be impaired at the balance sheet date; intangible assets which are not available for their intended use are tested at least annually for impairment, irrespective of whether there is any indication that it may be impaired. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognised on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.

Once the above asset impairment loss is recognised, it will not be reversed for the value recovered in the subsequent periods.

(17) Employee benefits

Employee benefits refer to all forms of consideration or compensation given by the Group in exchange for service rendered by employees or for termination of employment relationship, which include short-term employee benefits and post-employment benefits.

(a) Short-term employee benefits

Short-term employee benefits include wages or salaries, bonus, allowances and subsidies, staff welfare, premiums or contributions on medical insurance, work injury insurance and maternity insurance, housing funds, union running costs and employee education costs, short-term paid absences. The Short-term employee benefit liabilities are recognised in the accounting period in which the service is rendered by the employees, with a corresponding charge to the profit or loss for the current year or the cost of relevant assets. Non-monetary benefits are measured at their fair value.

146

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(17) Employee benefits (Continued)
(b) Post-employment benefits

The Group classifies post-employment benefit plans as either defined contribution plans or defined benefit plans. Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into a separate fund and will have no obligation to pay further contributions; and defined benefit plans are post-employment benefit plans other than defined contribution plans. During the reporting period, the Group’s post-employment benefits mainly include basic pensions and unemployment insurance, both of which belong to the defined contribution plans.

Basic pensions

The Group’s employees participate in the basic pension plan set up and administered by local authorities of Ministry of Human Resource and Social Security. Monthly payments of premiums on the basic pensions are calculated according to the bases and percentage prescribed by the relevant local authorities. When employees retire, the relevant local authorities are obliged to pay the basic pensions to them. The amounts based on the above calculations are recognised as liabilities in the accounting period in which the service has been rendered by the employees, with a corresponding charge to the profit or loss for the current year or the cost of relevant assets.

(18) Dividends distribution

Cash dividends are recognised as liabilities for the period in which the dividends are approved by the shareholders’ meeting.

(19) Provisions

Provisions for maintenance of the sewage water processing facilities are recognised when the Group has a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably.

147

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(19) Provisions (Continued)

A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency, such as the risks, uncertainties and the time value of money, are taken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value of money is material, the best estimate is determined by discounting the related future cash outflows. The increase in the discounted amount of the provision arising from passage of time is recognised as interest expense.

The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate.

The provisions expected to be settled within one year since the balance sheet date are classified as other current liabilities.

(20) Revenue

The sales are recognised when control of the products or services has been transferred, and the amount is determined in accordance with the consideration received or receivables by authority. Revenue is stated net of discounts, rebates and returns.

(a) Processing of sewage water and heating and cooling supply services

Revenues from processing of sewage water and heating and cooling supply services are recognised when services are rendered. Sewage treatment service income and cooling and heating income are a series of single obligations with the same substance and transfer mode, which can be clearly distinguished. The group issues bills to customers according to the fixed unit price, sewage treatment capacity and cooling and heating area, and the income is recognized according to the amount of bills issued.

(b) Sales of tap water and recycled water

Revenues from sales of tap water and recycled water are recognised when services are rendered. Sales of tap water and recycled water are a series of single obligations with the same substance and transfer mode, which can be clearly distinguished. The group issues bills to customers according to the fixed unit price and water supply quantity, and the income is confirmed according to the amount of bill.

148

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(20) Revenue (Continued)
(c) Sales of pipeline connection for recycled water

The Group provides the pipeline connection for recycled water services, and recognises the income within a period of time according to the proportion of completed achievements to the total results agreed in the contract. On the balance sheet date, the Group reestimates the proportion of completed achievements to enable it to reflect changes in performance.

When the Group recognises its income in accordance with the progress of completing projects, the part of the Group’s obtained unconditional collection right is confirmed as receivables, the rest is confirmed as contract assets, and the impairment loss provision is confirmed on the basis of ECL for receivables and contract assets (Note 2(8)). If the amount received or receivable by the Group exceeds the amount of completed works, the excess shall be recognised as contract liabilities and the Group shall list the assets and liabilities under the same contract on a net basis.

Contract costs include the performance cost and acquisition cost. The cost of providing pipeline connection identified as the contract implementation costs and the cost is recognised as operating cost according to the completing schedule included in the carrying forward cost of labor when recognise income. The incremental cost incurred by the Group to obtain the contract for the connection of water pipes is recognised as the contract acquisition cost. For the cost obtained in the contract with the amortization period of less than one year, the cost obtained by the contract shall be recorded into the current profit and loss when it occurs; for the cost obtained in the contract with the amortization period of more than one year, the Group shall, in accordance with the relevant contract, recognise the same basic amortization as the income of the project connected to the recycled water pipeline into profit and loss. If the Book Value of the contract cost is higher than the residual consideration expected to be obtained by providing the project minus the estimated cost to be incurred, the Group shall prepare the impairment provision for the excess part and recognise it as the impairment loss of assets. On the balance sheet date, the Group shall list the inventory and other non-current assets respectively according to whether the amortization period of the contract performance cost exceeds one year when it is initially recognised, so as to reduce the net amount after the relevant asset impairment provision. For the contract acquisition cost whose amortization period is longer than one year when the initial recognition is made, the net amount after the relevant asset impairment provision is deducted and listed as other non-current assets.

149

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(20) Revenue (Continued)
(d) Sales of environmental protection equipment

If the stage of completion can be measured reliably, 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 contract costs incurred up to the end of the reporting period as a percentage of total estimated costs of each contract. Variations in contract work, claims and incentive payments are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured. The environmental protection equipment is mainly the achievement of technology research.

(e) Hazardous waste processing income

The Group provides hazardous and general solid waste treatment, of which the residence time of incineration treatment in the waste kiln is 30-120 minutes, and the disposal cycle of landfill treatment waste is within one week. The Group recognises the income when service is provided according to the actual processing amount of waste and the price agreed on the contract.

(f) Contract operation income

Revenue from contract operation is based on the service agreement. The revenue of a fixed total amount contract is recognized during the service period evenly. For contracts with agreed unit price of services, revenue shall be recognized during the period of service provision according to the quantity of services provided

(g) Technical services income

Technical service revenue shall be recognized within the service provision period specified in the contract according to the service unit price and the actual service quantity provided in the contract.

(21) Government grants

Government grants refer to the monetary assets obtained by the Group from the government, including tax return, financial subsidy and etc.

150 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)
(21) Government grants (Continued)

Government grants related to assets refer to government grants which are obtained by the Group for the purposes of purchase, construction or acquisition of the long-term assets. Government grants related to income refer to the government grants other than those related to assets.

The Group recognises government grants related to assets as deferred income and amortizes in profit or loss in a reasonable and systematic manner over the useful lives of related assets. Government grants related to income that compensate the future costs, expenses or losses are recorded as deferred income and recognised in profit or loss, or deducted against related costs, expenses or losses in reporting the related expenses; government grants related to income that compensate the incurred costs, expenses or losses are recognised in profit or loss, or deducted against related costs, expenses or losses directly in current year.

The Group applies the presentation method consistently to the similar government grants in the financial statements.

Government grants that are related to ordinary activities are included in operating profit, otherwise, they are recorded in non-operating income or expenses.

For the policy loans with favorable interest rates, the Group records the loans at the actual amounts and calculates the interests by loan principals and the favorable interest rates. The interest subsidies directly received from government are recorded as a reduction of interest expenses.

(22) Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred tax asset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled.

151

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(22) Deferred tax assets and deferred tax liabilities (Continued)

Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilized.

Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, associates and joint ventures will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilized, the corresponding deferred tax assets are recognised.

Deferred tax assets and liabilities are offset when:

The deferred taxes are related to the same tax payer within the Group and the same taxation authority; and,
That tax payer within the Group has a legally enforceable right to offset current tax assets against current tax liabilities.

(23) Leases

A lease is a contract whereby the lessor assigns the right to use the asset to the lessee for consideration within a certain period of time.

The Group Acts as a lessor

A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease.

(a) Operating leases

While the Group leases buildings and structures out, rental income under an operating lease is recognised on

a straight-line basis over the period of the lease. Variable rental income that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs.

152

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(24) Segment information

The Group identifies operating segments based on the internal organisation structure, management requirements and internal reporting system, and discloses segment information of reportable segments which is determined on the basis of operating segments.

An operating segment is a component of the Group that satisfies all of the following conditions: (1) the component is able to earn revenues and incur expenses from its ordinary activities; (2) whose operating results are regularly reviewed by the Group’s management to make decisions about resources to be allocated to the segment and to assess its performance, and (3) for which the information on financial position, operating results and cash flows is available to the Group. If two or more operating segments have similar economic characteristics and satisfy certain conditions, they are aggregated into one single operating segment.

(25) Critical accounting estimates and judgements

The Group continually evaluates the critical accounting estimates and key judgements applied based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Critical judgments in applying the accounting policies
(i) Judgment of non-monetary assets exchange not having commercial essence

The exchange of non-monetary assets that meets one of the following conditions has commercial essence: (1) the future cash flow of the assets received is significantly different from that of the assets exchanged out in terms of risk, time distribution or amount; (2) the present value of the expected future cash flow generated by the use of the assets received is different from that of the assets exchanged out, and the difference is significant compared with the fair value of the assets received and the assets exchanged out.

The relocation and non-monetary assets exchange arrangements of Xianyang Road sewage treatment plant and Dongjiao sewage treatment plant of the group are carried out in accordance with the instructions of Tianjin municipal government. The assets exchanged in and out are the same kind of assets, and the group’s risks and rewards did not change significantly, so the exchange of non-monetary assets has no commercial essence.

153

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(25) Critical accounting estimates and judgements (Continued)
(b) Critical accounting estimates and key assumptions

The critical accounting estimates and key judgement that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting year are outlined below:

(i) The measurement of ECL

The Group recognises the loss provision based on expected credit losses (“ECL”) and default exposure. ECL is determined by probability of default and loss rate of default. In determining the ECL, the Group uses internal historical credit loss experience, and adjusts the historical data in combination with the current situation and forward-looking information.

In considering forward-looking information, the Group considers different macroeconomic scenarios. For the year of 2020, the weighting for the “benchmark”, “adverse” and “favourable” economic scenarios is 50%, 25% and 25% respectively. The Group regularly monitors and reviews important macroeconomic assumptions and parameters relevant to the calculation of expected credit losses, including the risk of economic downturn, changes in gross domestic product, external market conditions and customer conditions. The Group regularly monitors and reviews assumptions relating to the calculation of expected credit losses. In 2020, the Group has taken into account the uncertainty caused by the COVID-19 outbreak and updated the relevant assumptions and parameters accordingly. The key macroeconomic parameters used in each scenario are listed below. The above estimation techniques and key assumptions have not changed significantly in 2020.

		The economic situation
	Benchmark	Adverse	Favourable
Estimated GDP in China	5.5%	4.5%	7.0%

154

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(25) Critical accounting estimates and judgements (Continued)
(b) Critical accounting estimates and key assumptions (Continued)
- (ii) Income tax and Deferred income tax

The Group is subject to income taxes in numerous jurisdictions. There are some transactions and events for which the ultimate tax determination is uncertain during the ordinary course of business. Significant judgment is required from the Group in determining the provision for income taxes in each of these jurisdictions. Where the final identified outcome of these tax matters is different from the initially-recorded amount, such difference will impact the income tax expenses and deferred income tax in the period in which such determination is finally made.

As mentioned in Note 3(2), some subsidiaries of the Group are high-tech enterprises. The qualification of high-tech enterprises are for an initial term of three years. After the termination of the qualification, it is necessary to submit a new application to the relevant government departments for the high-tech enterprises status renewal. According to historical status renewal experience and the actual situation of each subsidiaries in the past, the Group believes the subsidiaries can continue to obtain the approval for the renewal of the status of being high-tech enterprises. Hence, the Group calculates subsidiaries’ corresponding deferred income tax at the preferential rate of 15%. If some of the subsidiaries’ renewal application has not been approved after the expiry of the high-tech enterprises status, the income tax shall be calculated at the statutory tax rate of 25%. Deferred income tax assets, deferred income tax liabilities will be affected.

The Group recognizes the corresponding deferred income tax asset to the extent that it is likely to obtain the taxable income amount to offset the deductible loss in the future period. The taxable income obtained in future periods shall include the taxable income that can be realized by the Group through normal production and business activities, and the taxable income that will be increased when the taxable temporary differences arising from previous periods are reversed in future periods. The Group needs to use estimation and judgment when determining the time and amount of taxable income to be generated in the future period. Any discrepancy between the actual situation and the estimate may result in an adjustment to the carrying value of the deferred income tax assets.

155

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (Continued)

(25) Critical accounting estimates and judgements (Continued)
(b) Critical accounting estimates and key assumptions (Continued)
- (iii) Impairment of long-term assets

The Group determines at each balance sheet date whether there is any indication that assets may be impaired. When the current market price of assets decreases significantly compared with the expected significant decline due to the passage of time or normal use and the economic, technological, or legal environment in which the Group operates has undergone major adverse changes recently; market interest rates or other market investment returns increase which affects the discount rate of the present value of future cash flows and the assets are obsolete or has been damaged or has become idle, the Group considers that there are signs of asset impairment. At each balance sheet date, the Group will evaluate the recoverable amount of the long-term assets that have shown signs of impairment. The assessment of the recoverable amount requires the Group to estimate the future cash flow and other conditions. When accounting estimates change, the book value of long-term assets and the amount included in asset impairment losses will also change. Once the impairment provision is accrued, it cannot be reversed.

(26) Significant changes in accounting policies

The Ministry of Finance promulgated the question and answer on the implementation of accounting standards for business enterprises in 2020 (issued on 11 December, 2020). The group has adopted above document to prepare the financial statements for 2020, which has no impact on the presentation of the financial statements of the group and the company.

3 TAXATION

(1) The main categories and rates of taxes applicable to the Group are set out below:

Category	Tax base	Tax rate
Enterprise income tax	Taxable income	0%-25%
Value added tax (“VAT”) (Note(a))	Taxable value added amount (Tax payable is calculated using	3%-13%
	the taxable sales amount multiplied by the applicable tax
	rate less deductible VAT input of the current year)
City maintenance and construction tax	The payment amount of VAT	5%-7%
Educational surcharge	The payment amount of VAT	3%

156

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 TAXATION (Continued)
(1) The main categories and rates of taxes applicable to the Group are set out below: (Continued)
- (a) Pursuant to the ‘2019 Circular on Deeply Reform of Adjustment of Tax Rate of Value Added Tax’ (The General Administration of Customs of the State Administration of Taxation [2019] 39) jointly issued by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs, the applicable tax rate of revenue arising from VAT-taxable sales is 13% from 1 April 2019, while it was 16% before then. The applicable tax rate of the Group’s VAT taxable income is adjusted accordingly.
- (b) According to the announcement of the State Administration of taxation on clarifying the collection and management of VAT on second hand car distribution and other issues, if the goods are not produced after professional treatment by means of landfill, incineration, etc., and the trustee belongs to the “professional and technical services” in the “modern services” provided in the “sales services, intangible assets, real estate notes” (Cai Shui [2016] 36), and the treatment fee charged by the trustee is subject to the VAT rate of 6%.

(2) Preferential tax policies for enterprise income tax

The information of preferential tax policies granted to the subsidiaries is as below:

Enterprise income Name of subsidiaries tax rate for 2020 Reason for the preferential tax policy The Company 15% According to The Corporate Income Tax Policy of Third-party Enterprises Engaged in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60, 2019, issued by the Ministry of finance, the Taxation Administration, the National Development and Reform Commission and the Ministry of Ecology and Environment), corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to 31 December 2021. Fuyang Capital 15% According to The Corporate Income Tax Policy of Third-party Enterprises Water Co., Ltd. Engaged in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60, 2019, issued by the Ministry of finance, the Taxation Administration, the National Development and Reform Commission and the Ministry of Ecology and Environment), corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to 31 December 2021. Gui Zhou Capital 15% According to Notice of Guizhou Provincial SAT on Implementation of Water Co., Ltd. Preferential Tax Policy Relating to Development of Western Regions, (Qian Guo shui Han [2011] No.19) from 2011 to 2020.

157

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 TAXATION (Continued)

(2) Preferential tax policies for enterprise income tax (Continued)

The information of preferential tax policies granted to the subsidiaries is as below:

	Enterprise income
Name of subsidiaries	tax rate for 2020	Reason for the preferential tax policy
Xi’an Capital	15%	According to Notice of Shaanxi Provincial SAT on Issuing Measures for
Water Co., Ltd.		Review and Management of Preferential Tax Policy of Enterprises Relating to
		Development of Western Regions, (Notice [2010] No. 3) from 2011 to 2020.
Hangzhou Tianchuang	15%	According to The Corporate Income Tax Policy of Third-party Enterprises
Capital Water		Engaged in Pollution Prevention and Control issued on April 13, 2019
Co., Ltd.		(Announcement No.60, 2019, issued by the Ministry of finance, the Taxation
		Administration, the National Development and Reform Commission and the
		Ministry of Ecology and Environment), corporate income tax shall be levied at a
		reduced rate of 15% from 1 January 2019 to 31 December 2021.
Tianjin Caring	15%	In 2020, Caring Company has obtained the High-tech Enterprise Certificate
Technology		(Certificate No. GR201812000566) issued by Tianjin Science and Technology
Development		Bureau, Tianjin Finance Bureau and Tianjin Taxation Bureau of the State
Co., Ltd		Administration of Taxation. The certificate is valid for 3 years. According
		to relevant provisions of Article 28 of the Enterprise Income Tax Law of the
		People’s Republic of China, the enterprise income tax rate applicable in 2020 is
		15% (2019:15%).
Tianjin Water	The taxable	According to Cai Shui [2008] No. 47, since 1 January 2008, for revenues
Recycling Co., Ltd.	income is 90%	generated from products which were in line with national or industry standards,
	of revenue	the taxable income amount is 90% of the total revenue.
Karamay Tianchuang	12.5%	Income from engagement in qualified projects of environmental protection and
Capital Water		energy and water conservation is subject to exemption from enterprise income
Co., Ltd.		tax commence from 2017 for the first 3 years and reduction half for the next 3
		years.
Linxia Capital	0%	Income from engagement in qualified projects of environmental protection and
Water Co., Ltd.		energy and water conservation is subject to exemption from enterprise income
		tax commence from 2018 for the first 3 years and reduction half for the next 3
		years.
Bayannur Capital	Sewage water:	Income from engagement in qualified projects of environmental protection and
Water Co., Ltd.	0%	energy and water conservation is subject to exemption from enterprise income
		tax commence from 2018 for the first 3 years and reduction half for the next 3
		years.
	Recycled water:	According to Cai Shui [2008] No. 47, since 1 January 2008, for revenues
	The taxable	generated from products which were in line with national or industry standards,
	income is 90%	the taxable income amount is 90% of the total revenue.
	of revenue

158

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 TAXATION (Continued)

(2) Preferential tax policies for enterprise income tax (Continued)

The information of preferential tax policies granted to the subsidiaries is as below:

	Enterprise income
Name of subsidiaries	tax rate for 2020	Reason for the preferential tax policy
Yingshang Capital	0%	Income from engagement in qualified projects of environmental protection and
Water Co., Ltd.		energy and water conservation is subject to exemption from enterprise income
		tax commence from 2018 for the first 3 years and reduction half for the next 3
		years.
Dalian Oriental	0%	Income from engagement in qualified projects of environmental protection and
Chunliuhe Water		energy and water conservation is subject to exemption from enterprise income
Quality Purification		tax commence from 2018 for the first 3 years and reduction half for the next 3
Co., Ltd.		years.
Shandong Capital	0%	According to Cai Shui [2009] No. 166, income from engagement in qualified
Environmental		industrial solid waste treatment projects and hazardous waste treatment projects
Protection Technology		is subject to exemption from enterprise income tax commence from 2019 for
Consultant Co., Ltd.		the first 3 years and reduction half for the next 3 years.
Hanshou Tianchuang	0%	According to Cai Shui [2019] No. 67, income from rural drinking water safety
Capital Water		projects is subject to exemption from enterprise income tax commence from
Co., Ltd.		2019 for the first 3 years and reduction half for the next 3 years.
Jiuquan Capital	0%	Income from engagement in qualified projects of environmental protection and
Water Co., Ltd.		energy and water conservation is subject to exemption from enterprise income
		tax commence from 2019 for the first 3 years and reduction half for the next 3
		years.
Huize Capital	15%	According to The Corporate Income Tax Policy of Third-party Enterprises
Water Co., Ltd.		Engaged in Pollution Prevention and Control issued on April 13, 2019
		(Announcement No. 60, 2019, issued by the Ministry of finance, the Taxation
		Administration, the National Development and Reform Commission and the
		Ministry of Ecology and Environment), corporate income tax shall be levied at a
		reduced rate of 15% from 1 January 2019 to 31 December 2021.
Huoqiu Capital	15%	According to The Corporate Income Tax Policy of Third-party Enterprises
Water Co., Ltd.		Engaged in Pollution Prevention and Control issued on April 13, 2019
		(Announcement No. 60, 2019, issued by the Ministry of finance, the Taxation
		Administration, the National Development and Reform Commission and the
		Ministry of Ecology and Environment), corporate income tax shall be levied at a
		reduced rate of 15% from 1 January 2019 to 31 December 2021.
Wuhan Tianchuang	15%	According to The Corporate Income Tax Policy of Third-party Enterprises
Capital Water		Engaged in Pollution Prevention and Control issued on April 13, 2019
Co., Ltd.		(Announcement No. 60, 2019, issued by the Ministry of finance, the Taxation
		Administration, the National Development and Reform Commission and the
		Ministry of Ecology and Environment), corporate income tax shall be levied at a
		reduced rate of 15% from 1 January 2019 to 31 December 2021.

159

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 TAXATION (Continued)

(3) Preferential tax policies for value-added tax

On 12 June 2015, the Ministry of Finance and the State Administration of Taxation issued the preferential value-added tax catalogue of products and services which comprehensively utilize resources Caishui [2015] No.78 (hereinafter referred to as the No. 78). According to the No.78, the sewage water processing and recycled water business are required to pay value-added tax since July 1, 2015. 70% of value-added tax paid by the sewage water processing business and 50% value-added tax paid by recycled water business will be refunded. On April 15, 2019, the Ministry of Finance and the State Administration of Taxation issued the “Announcement on Continued Implementation of Tax Preferential Policies for Rural Drinking Water Safety Projects” Caishui [2019] No. 67, stipulating that from January 1, 2019 to December 31, 2020, in the tap water supply business of the Group, the tap water sales income obtained by providing rural residents with domestic water is exempt from value-added tax.

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1) Cash at bank and on hand

Cash on hand Cash at bank Other cash balances Including: Bank deposits overseas (a) Cash listed in the cash flow statement comprises: Cash at bank and on hand Less: Restricted bank deposits (Note (i)) Cash listed in cash flow statement (Note 4(38))	31 December 2020 14 1,652,643 10,989 1,663,646 7,987 31 December 2020 1,663,646 (10,989) 1,652,657	31 December 2019 37 2,066,264 13,312 2,079,613 8,420 31 December 2019 2,079,613 (13,312) 2,066,301

(i) The restricted bank deposits represent the deposit for the purpose of applying for unconditional, irrevocable bank letters of guarantee.

160

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2) Notes receivable

Bank acceptance notes Less: Provision for bad debts	31 December 2020 2,656 – 2,656	31 December 2019 16,131 – 16,131

(a) As at 31 December 2020, the Group has no pledged notes receivable.
(b) As at 31 December 2020, the Group had no endorsements or discounted notes receivable that were not yet due.
(c) Provision for bad debts:

As at 31 December 2020, the notes receivable of the group are generated from daily business activities such as selling goods and providing services, regardless of whether there is a significant financing component. 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.

(3) Trade receivables

Trade receivables Less: Provision for bad debts	31 December 2020 2,127,612 (168,529) 1,959,083	31 December 2019 2,573,720 (80,956) 2,492,764

(a) The ageing analysis of trade receivable is as follows:

Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years	31 December 2020 1,853,362 139,324 69,336 45,704 10,538 9,348 2,127,612	31 December 2019 1,854,529 641,788 52,987 15,037 7,947 1,432 2,573,720

161

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Trade receivables (Continued)
- (b) As at 31 December 2020, the trade receivables from the top five debtors in respect of outstanding balance are analyzed as below:

Trade receivables from the top five debtors	Amount 1,472,417	Provision for bad debts (69,727)	% of total balance 69%

For the Group’s trade receivables, regardless of whether there is a significant financing component, the Group measures the loss according to the expected credit loss for the entire life.

(i) As at 31 December 2020, provision for bad debts by individual is analyzed as below:

Tianjin Water Authority Bureau Qujing Sewage Company Hangzhou City Water Facilities and River Protection Management Center Guiyang Water Authority Bureau Xi’an Infrastructure Investment Group Tianjin City Appearance Sanitation Construction Development Co. Ltd Jinghai Development Area Management Committee Tianjin Ziya Environmental Protection Industrial Park Co. Ltd Tianjin Shuangkou Municipal Solid Waste Landfill Urad Front Banner Finance Bureau Urad Rear Banner Finance Bureau Zhejiang Xinsanyin Dyeing Co. Ltd Tianjin Tianbao Municipal Administration Co. Ltd Tianjin Goldin International Club Co. Ltd. Tianjin City Investment Urban Resources Management Co., Ltd. Tianjin Ziya Circular Economy Industry Investment Development Co., Ltd. Total	Carrying amount ECL rate 1,012,083 0.05% 187,137 22.25% 107,811 0.05% 60,391 0.05% 36,547 0.05% 31,100 41.52% 26,650 52.88% 16,797 100.00% 13,776 100.00% 10,928 100.00% 10,392 100.00% 5,731 65.03% 3,612 100.00% 1,548 100.00% 1,200 100.00% 1,020 100.00% 1,526,723	Provision Reasons (554) 1) (41,630) 2) (59) 1) (33) 1) (20) 1) (12,913) 3) (14,093) 4) (16,797) 5) (13,776) 3) (10,928) 6) (10,392) 6) (3,727) 7) (3,612) 5) (1,548) 8) (1,200) 9) (1,020) 10) (132,302)

162 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Trade receivables (Continued)
- (c) Provision for bad debts: (Continued)
  - (i) As at 31 December 2020, provision for bad debts by individual is analyzed as below: (Continued)
    - 1) As these clients are provincial and municipal 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, Hangzhou City Water Facilities and River Protection Management Center, from Guiyang Water Authority Bureau, and Xi’an Infrastructure Investment Group, have a lower credit risk. Based on the historical experience of operation, the Group maintains continuous receipts and there is no actual bad debt loss. Therefore, the Group estimates that the lifetime ECL rate of the receivables is 0.05%.
    - 2) Receivables of Qujing Capital Water Co., Ltd. from Qujing Sewage Company comprise regular sewage treatment fee, tap water fee. As the receivables of regular sewage treatment fee and tap water fee have a longer collection period than ordinary government clients and they have higher credit risk, the Group estimates that the lifetime ECL rate is 22.25%.
    - 3) Receivables of the Company from Tianjin Shuangkou Municipal Solid Waste Landfill and Tianjin City Appearance Sanitation Construction Development Co. Ltd comprise technical services fees. The repayment period of Tianjin City Appearance Sanitation Construction Development Co. Ltd is longer than that of general government customers. There were no transactions between the Company and Tianjin Shuangkou Municipal Solid Waste Landfill during the last year. The receivables from them are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that they have defaulted and estimates that the lifetime ECL rate are respectively 41.52%和100.00%.

163

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Trade receivables (Continued)
- (c) Provision for bad debts: (Continued)
  - (i) As at 31 December 2020, provision for bad debts by individual is analyzed as below: (Continued)
    - 4) Receivables of Tianjin Jinghai Capital Water Co., Ltd from Jinhai Development Area Management Committee comprise conventional sewage treatment fees, whose repayment period is longer than that of general government customers, and are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that it has defaulted and estimates that the lifetime ECL rate is 52.88%.
    - 5) Receivables of the Company from Tianjin Tianbao Municipal Administration Co. Ltd and Tianjin Ziya Environmental Protection Industrial Park Co. Ltd comprise contract operation fees. They had no transactions with the Company, and are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that they have defaulted and estimates that the lifetime ECL rate of them are 100%.
    - 6) Receivables from Urad Front Banner Finance Bureau and Urad Rear Banner Finance Bureau comprise conventional sewage treatment fees, whose repayment period is longer than that of general government customers, and are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that it has defaulted and estimates that the lifetime ECL rate of them are 100.00%
    - 7) Receivables of Tianjin Caring Technology Development Co., Ltd. from Zhejiang Xinsanyin Dyeing Co.Ltd comprise construction of related facility and contract operation fees, whose repayment period is longer than that of general customers, and are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that it has defaulted and estimates that the lifetime ECL rate is 65.03%.

164

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Trade receivables (Continued)
- (c) Provision for bad debts: (Continued)
  - (i) As at 31 December 2020, provision for bad debts by individual is analyzed as below: (Continued)
    - 8) Receivables of the Company from Tianjin Goldin International Club Co. Ltd. comprise contract operation fees. Tianjin Goldin International Club Co. Ltd. had no transactions with Tianjin Water Recycling Co., Ltd., whose receivables are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that they have defaulted and estimates that the lifetime ECL rate of them is 100%.
    - 9) Receivables of the Company from Tianjin City Investment Urban Resources Management Co., Ltd. comprise rental fees. Tianjin City Investment Urban Resources Management Co., Ltd. had no transactions with the Company, whose receivables are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that they have defaulted and estimates that the lifetime ECL rate of them is 100%.
    - 10) Receivables of the Company from Tianjin Ziya Circular Economy Industry Investment Development Co., Ltd., comprise sales income of Environment protection equipments. Tianjin Ziya Circular Economy Industry Investment Development Co., Ltd., had no transactions with the Company, whose receivables are under high credit risk. Taking into account factors such as the debtor’s actual performance ability, historical repayment experience, and aging, the Group presumes that they have defaulted and estimates that the lifetime ECL rate of them is 100%.

165

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Trade receivables (Continued)
- (c) Provision for bad debts: (Continued)
  - (ii) Provision for bad debts by group is analyzed as below:

Group – Government clients except those in provincial capitals and municipalities

Undue 1-180 days overdue >180 days overdue	31 December 2020 Carrying amount Provision Amount ECL rate Amount 145,974 0.05% (80) 164,318 5.41% (8,886) 76,037 8.64% (6,565) 386,329 (15,531)	31 December 2019 Carrying amount Provision Amount ECL rate Amount 102,406 5.31% (5,438) 107,386 5.31% (5,702) 57,014 7.46% (4,255) 266,806 (15,395)

Group – other clients

Undue 1-90 days overdue >90 days overdue	31 December 2020 Carrying amount Provision Amount ECL rate Amount 67,571 6.85% (4,631) 64,180 6.85% (4,399) 82,809 14.09% (11,666) 214,560 (20,696)	31 December 2019 Carrying amount Provision Amount ECL rate Amount 41,844 6.70% (2,804) 27,352 6.70% (1,833) 58,983 15.08% (8,897) 128,179 (13,534)

166

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Advances to suppliers
- (a) The ageing of advances to suppliers is analyzed as follows:

Within 1 year 1 to 2 years Over 2 years	31 December 2020 Amount % of total balance 25,199 96% 262 1% 759 3% 26,220 100%	31 December 2019 Amount % of total balance 37,407 97% 428 1% 748 2% 38,583 100%	31 December 2019 Amount % of total balance 37,407 97% 428 1% 748 2% 38,583 100%
			100%

As at 31 December 2020, advances to suppliers of RMB1.0 million (31 December 2018: RMB1.2 million) with aging over one year were mainly for prepaid electricity deposit.

(b) As at 31 December 2020, the top five advances to suppliers in respect of outstanding balance of the Group are analyzed as follows:

Total amounts of advances to suppliers to the top five debtors in respect of outstanding balance	Amount 6,340	% of total balance 24%

(5) Other receivables

Project deposits VAT refund Others Less: Provision for bad debts	31 December 2020 6,846 5,007 12,280 24,133 (16) 24,117	31 December 2019 26,847 31,670 6,660
		65,177 (21)
		65,156

167

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Other receivables (Continued)
- (a) The ageing analysis of other receivables is as follows:

Within 1 year 1 to 2 years 2 to 3 years Over 3 years Total	31 December 2020 15,344 4,353 1,599 2,837 24,133	31 December 2019 48,815 4,626 9,046 2,690
		65,177

(b) As at 31 December 2020 and 31 December 2019, other receivables provisioned bad debts by group were all belong to stage 1. The analysis is as below:

Project deposit Group: Within 1 year 1-2 years 2 to 3 years Over 3 years subtotal Other Group： Within 1 year 1-2 years 2 to 3 years Over 3 years subtotal total	31 Carrying amount Amount 3,631 879 61 2,275 6,846 6,706 3,474 1,538 562 12,280 19,126	December 2020 Provision Amount % (2) 0.05% (0) 0.05% (0) 0.05% (1) 0.05% (3) (7) 0.10% (3) 0.10% (2) 0.10% (1) 0.10% (13) (16)	31 Carrying amount Amount 12,688 2,985 8,950 2,224 26,847 4,457 1,641 96 466 6,660 33,507	December 2019 Provision Amount % (7) 0.05% (2) 0.05% (5) 0.05% (1) 0.05% (15) (4) 0.10% (2) 0.10% – 0.10% – 0.10% (6) (21)

(c) In 2020, the changes of other receivables’ provision of the Group is not significant.
(d) As of 31 December, 2020, the Group had no other receivables that were past due but not impaired (31 December 2019: Nil).

168

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Other receivables (Continued)
- (e) As at 31 December 2020, other receivables from the top five debtors in respect of outstanding balance are analyzed as below:

Nature Tianjin Installation Engineering Co., Ltd Deposits of migrant workers’ wages Tianjin Installation Engineering Co., Ltd Deposits of migrant workers’ wages Tianjin State Taxation Bureau VAT receivable State Grid Tianjin electric power company Project deposits Fuyang City Administration and Law Enforcement Bureau Advance payment of sludge disposal Fees Huoqiu County Public Resources Trading Center Project deposits Ningxiang Economic and Technological Development Zone Management Committee Deposits of migrant workers’ wages	Amount Aging 1,955 1 to 2 years 1,173 Within 1 year 1,718 Within 1 year 1,000 More than 3 years 885 Within 1 year 800 1 to 2 years 800 2 to 3 years 8,331	% of total balance 8.10% 4.86% 7.12% 4.14% 3.67% 3.31% 3.31% 34.51%	Provision for bad debts (1) (1) – (1) – – –
			(3)

(f) As at 31 December 2020, the Group’s analysis of government grants confirmed by the amount receivables is as follows：

Government
grants program
The Company
VAT refund
Wuhan Tianchuang Capital Water Co.,Ltd.
VAT refund
Deqing Capital Environmental Protection Water Co., Ltd.
VAT refund
Tianjin Water Recycling Co., Ltd.
VAT refund
Baoying Capital Water Co., Ltd.
VAT refund
Xi’an Capital Water Co., Ltd.
VAT refund
Guizhou Capital Water Co., Ltd.
VAT refund
Fuyang Capital Water Co., Ltd.
VAT refund
Wendeng Capital Water Co., Ltd.
VAT refund
Anguo Capital Water Co., Ltd.
VAT refund

Amount
Aging
1,718
Within 1 year
1,077
Within 1 year
793
Within 1 year
401
Within 1 year
369
Within 1 year
271
Within 1 year
197
Within 1 year
129
Within 1 year
33
Within 1 year
19
Within 1 year
5,007

Based on the previous year’s collection situation, the VAT refund is expected to be fully collected in 2021.

169

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6) Inventories

(a) The Group’s inventory is classified as follows:

Raw materials Finished goods Spare parts and low cost consumables	31 December 2020 Ending balance Provision for decline in the value of inventories Carrying amount 11,868 – 11,868 5,118 – 5,118 474 – 474 17,460 – 17,460	31 December 2019 Ending balance Provision for decline in the value of inventories Carrying amount 10,888 – 10,888 3,529 – 3,529 388 – 388 14,805 – 14,805	31 December 2019 Ending balance Provision for decline in the value of inventories Carrying amount 10,888 – 10,888 3,529 – 3,529 388 – 388 14,805 – 14,805
			14,805

(7) Other current and non-current assets

Other current assets: Input VAT to be deducted Input VAT to be verified Income tax prepaid Anguo Sewage Assets (a)	31 December 2020 76,774 2,970 2,484 – 82,228	31 December 2019 52,605 13,642 – 6,257
		72,504

(a) As at 31 December, 2020, the Group conducted an impairment assessment of the relevant assets of Anguo Sewage Treatment Plant and made provision for asset impairment of RMB6 million.

Other non-current assets: Input VAT to be deducted Prepayments of construction Prepayment for land use rights Others	31 December 2020 193,783 108,316 20,454 8,418 330,971	31 December 2019 49,122 50,927 – 9,132
		109,181

170 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8) Long-term receivables and non-current assets due within one year

Receivables from Tianjin Water Authority Bureau (a) Toll road concession (b) Less: Bad debt provision Less: Listed in non-current assets due within one year	31 December 2020 1,431,761 236,592 (902) 1,667,451 (20,049) 1,647,402	31 December 2019 – 253,812 (138) 253,674 (17,224) 236,450

(a) In 2020, with the influence of Coronavirus Disease 2019 (the “COVID-19”), the actual collection of receivables from Tianjin Water Authority Bureau was significantly below expectation. Based on the historical collection experience and the expectation of future payment scheme, the Group has reclassified the present value of receivables of which collection is expected to be exceeding 12 months as long-term receivables. The expected credit loss rate for the aforesaid long-term receivables is 0.05%, which is consistent with expected credit loss rate as applied for the remaining trade receivables with Tianjin Water Authority Bureau. The balance of loss allowances is RMB1 million.
(b) Receivables from toll road concession represent the amortized cost, using effective interest method, calculated with reference to a guaranteed minimum future traffic flow over the concession period.

Tianjin Municipal Transportation Commission is a public institution under the Tianjin municipal government, which has low credit risk. According to historical experience, the Company can collect the receivables within the agreed period. Therefore, the Company estimates that the ECL rate of this receivable item is 0.05%.

(9) Long-term equity investments

Investment in an associate (a) Less: Impairment of Long-term equity investments (b)	31 December 2020 217,358 (22,358) 195,000	31 December 2019 217,358 (22,358) 195,000

171

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) Long-term equity investments (Continued)
- (a) Investment in associate

		Place of	Registered	Shareholding/
	Type	registration	capital	Voting rights (%)
Tianjin International Machinery Co., Ltd. (i)	Limited company	Tianjin	120,000	27.50%
Tianjin Bihai Sponge City Co., Ltd. (ii)	Limited company	Tianjin	650,000	30.00%

(i) Tianjin International Machinery Co., Ltd. (“International Machinery”) is a Sino-foreign joint venture registered in the Tianjin Economics Development Area. The businesses of International Machinery include research and development, production and sale of valve and actuating device, heater exchanger and the whole set, environment protection equipment, and general mechanical equipment.

The movements of the Group’s investment in International Machinery are as follows:

International Machinery	Initial investment cost 33,000	31 December 2019 –	New investment –	Share of net loss under equity method –	Cash dividends or profit declared –	Provision for impairment accrued –	31 December 2020 –	Provision for impairment at the end of the year (22,358)

The Group fully provided provision of impairment of RMB22 million for long-term equity investment in International Machinery in 2016.

(ii) Tianjin Bihai Sponge City Co., Ltd. (“Bihai Sponge City”) is a limited liability company registered in Tianjin. The businesses of Bihai Sponge City include construction and operation of water treatment projects; procurement and maintenance of water treatment equipment; ecological maintenance; tourism development; ecological management; construction, operation and management of sponge city project; construction and operation of municipal engineering. Bihai Sponge City was registered and established on 30 July 2018 and is still in the initial construction period.

The movements of the Group’s investment in Bihai Sponge City are as follows:

Bihai Sponge City	Initial investment cost 195,000	31 December 2019 195,000	New investment –	Share of net loss under equity method –	Cash dividends or profit declared –	Provision for impairment accrued –	31 December 2020 195,000	Provision for impairment at the end of the year –

172

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) Long-term equity investments (Continued)
- (b) Provision for impairment of long-term equity investments

International Machinery	31 December 2019 22,358	Additions –	Disposals –	31 December 2020 22,358

(10) Other equity instruments investment

Equity of unlisted company – Tianjin Beifang Rencaigang Company Ltd. Tianjin Beifang Rencaigang Company Ltd. – Cost – Accumulated fair value changes	31 December 2020 2,000 31 December 2020 2,000 – 2,000	31 December 2019 2,000
		31 December 2019 2,000 –
		2,000

Other equity instruments investment is the unlisted equity investments of Tianjin Beifang Rencaigang Co., Ltd. held by the Group and the shareholding ratio is 6.10%. The Group does not participate in or influence the financial and operational decisions of Tianjin Beifang Rencaigang Co., Ltd. in any way. Therefore, the Group has no significant influence on the above-mentioned invested company and accounts for it as other equity instruments.

173

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11) Fixed assets and construction in progress

(a) Fixed assets

Cost – 31 December 2019 Transfers from construction in progress Other additions in the current year Disposals in the current year 31 December 2020 Accumulated depreciation – 31 December 2019 Other additions in the current year (note (i)) Disposals in the current year 31 December 2020 Carrying Amount – 31 December 2020 31 December 2019	Buildings and structures (note (i)) Self-use 531,461 101,834 1,861 – 635,156 (149,539) (12,092) – (161,631) 473,525 381,922	Machinery and equipment Self-use 443,180 81,294 3,728 (66) 528,136 (209,580) (34,257) 1 (243,836) 284,300 233,600	Motor vehicles & others Self-use 77,607 24,375 9,494 (1,017) 110,459 (51,336) (7,933) 480 (58,789) 51,670 26,271	Total 1,052,248 207,503 15,083 (1,083) 1,273,751 (410,455) (54,282) 481 (464,256) 809,495 641,793

(i) The Group’s depreciation expenses of RMB44 million (2019: RMB35 million) have been included in cost of sales and RMB10 million (2019: RMB9 million) in general and administrative expenses.
(ii) As at 31 December 2020, the certificate of title to outsourced assets included in fixed assets, land use rights with cost of RMB172 million and carrying amount of RMB109 million (31 December 2019: cost of RMB172 million and carrying amount of RMB111 million) and non-monetary exchange assets with cost of RMB12 million and carrying amount of RMB9 million (31 December 2019: cost of RMB12 million and carrying amount of RMB9 million) has yet to be or is in the process of being transferred to the Group. As these assets are supported by legal sale and purchase agreements, the management of the Company believes that the titles will be received in due course without any legal barrier or additional significant cost.
(iii) As at 31 December 2020, fixed assets with cost of RMB190 million (31 December 2019: RMB206 million) and a carrying amount of approximately RMB185 million (31 December 2019: RMB204 million) were used as collateral for long-term borrowings of RMB139 million (Note 4(16) (a)).

174

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11) Fixed assets and construction in progress (Continued)

(b) Construction in progress

							Proportion of		The	Including:
			Increase				expenditures		accumulated	borrowing
		31	in the		Transfer to	31	incurred to		balance of	costs
	Budgeted	December	current	Transfer to	intangible	December	budgeted		capitalization of	capitalized in	Capitalisation
Name	amount	2019	year	fixed assets	assets	2020	amount	Progress	requested fee	current year	rate	Source of funds
Xianyang Road Sewage Plant 150	121,022	–	12,979	–	(12,979)	–	100%	100%	47	–	–	Special loan and
thousand tons emergency project												Self-raised fund
Fuyang- yindong sewage water	175,421	–	98,963	–	(98,963)	–	90%	100%	2,558	2,079	4.80%	Special loan and
processing Plant project												Self-raised fund
Hefei- Heifei Taochong sewage water	585,895	–	26,591	–	(26,591)	–	38%	38%	11,583	3,417	4.41%	Special loan and
processing plant PPP project												Self-raised fund
Guizhou-Shibing PPP Project	99,500	–	34,114	–	(34,114)	–	85%	85%	1,062	331	4.34%	Special loan and
												Self-raised fund
Guojin-Gaocheng district water	724,990	–	41,854	–	(41,854)	–	6%	6%	998	998	4.40%	Special loan and
environment upgrading PPP project												Self-raised fund
Chibi sewage water processing	214,680	–	62,306	–	(62,306)	–	85%	85%	6,459	4,219	4.66%	Special loan and
plant upgrading project												Self-raised fund
Baoying- xianhe sewage water	99,806	–	27,133	–	(27,133)	–	69%	69%	4,011	2,871	5.10%	Special loan and
processing plant project												Self-raised fund
Hanshou- Hanshou Yuanquan	150,000	–	29,464	–	(29,464)	–	21%	21%	2,626	515	4.34%	Special loan and
water plant concession project												Self-raised fund
Shandong- Yishui&Tancheng City	572,986	157,558	46,331	(199,925)	–	3,964	71%	71%	19,611	10,654	4.95%	Special loan and
Solid Waste Treatment project												Self-raised fund
Huoqiu PPP project	206,415	–	47,784	–	(47,784)	–	23%	23%	438	438	4.10%	Special loan and
												Self-raised fund
Huize-Huize urban sewage water	141,231	–	47,383	–	(47,383)	–	34%	34%	755	755	4.34%	Special loan and
processing facilities construction project												Self-raised fund
Xi’an-Xi’an Beishiqiao Dengjiacun	473,910	–	34,438	–	(34,438)	–	9%	9%	1,615	1,615	4.66%	Special loan and
upgrading and deodorant projects												Self-raised fund
Changsha-Ningxiang sewage water	16,473	–	13,045	–	(13,045)	–	79%	79%	90	90	4.90%	Special loan and
processing and recycling project												Self-raised fund
Fuyang-Jinzhai business park BOT Project	60,999	–	14,502	–	(14,502)	–	100%	100%	8,429	8,141	4.90%	Special loan and
												Self-raised fund
Tianjin- Jiayuan Tianchuang Heiniucheng	209,975	–	21,544	–	(21,544)	–	88%	100%	855	688	4.45%	Special loan and
Roads energy station project												Self-raised fund
JiuQuan Suzhou Sewage Treatment	512,505	–	251,379	–	(251,379)	–	100%	100%	781	–	–	Special loan and
Plant PPP Project												Self-raised fund
Xinjiang- Karamay PPP Project of	269,980	–	10,202	–	(10,202)	–	87%	100%	4,712	742	4.90%	Special loan and
sewage operation												Self-raised fund
Others		1,656	38,102	(7,578)	(26,285)	5,895			36,568	2,153	4.34%	Special loan and
												Self-raised fund
		159,214	858,114	(207,503)	(799,966)	9,859			103,198	39,706

As at 31 December 2020, bank borrowing of RMB139 million is secured by property and equipment under construction with original cost of RMB3 million (31 December 2019: RMB13 million) (note 4(16) (a)).

As at 31 December 2020, the Group has no provision for construction in progress (31 December 2019: Nil).

175

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Intangible assets

Concession rights (a) Land use rights (b) Technical know-how and computer software (c) (a) The movements of concession rights are as follows: Cost 31 December 2019 Transfers from construction in progress Other decrease (v) 31 December 2020 Accumulated amortisation 31 December 2019 Charge for the year 31 December 2020 Provision for impairment 31 December 2019 Charge for the year (vi) 31 December 2020 Net Book Value 31 December 2020 31 December 2019	31 December 2020 11,918,617 77,607 3,594 11,999,818	31 December 2019 11,697,244 58,080 4,118 11,759,442 14,288,762 799,966 (33,833) 15,054,895 (2,539,435) (516,209) (3,055,644) (52,083) (28,551) (80,634) 11,918,617 11,697,244

176

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Intangible assets (Continued)
(a) The movements of concession rights are as follows: (Continued)
- (i) As at 31 December 2020, concession right with cost of RMB770 million (2019: RMB449 million) is still under the construction period. The Group adopted the discounted cash flow model to main intangible assets under the construction which are not yet ready for their intended use. The estimated price is based on price in the concession right agreements. Other main assumptions are as follows:

Name of project
Jieshou sewage operation PPP project
(second batch)
Chibi sewage water processing plant
upgrading project
Guizhou – Shibing PPP project
Baoying – xianhe sewage water
processing plant project
Huoqiu PPP project
Huize urban sewage water processing
facilities construction project
Guojin – Gaocheng district water
environment upgrading PPP project
Xi’an Beishiqiao Dengjiacun upgrading and
deodorant projects
Hanshou Yuanquan water plant
concession project

Carrying
amount on
31 December
2020
(RMB’000)
Forecast
period
growth rate
Stable
period
growth rate
Discount
rate
198,529
5.5%
2.5%
11%
183,185
15.5%
2.5%
11%
81,745
12.6%
2.5%
11%
67,747
5.9%
2.5%
11%
47,784
4.6%
2.5%
11%
47,383
16.4%
2.5%
11%
42,345
16.7%
2.5%
11%
34,438
13.3%
2.5%
11%
33,711
14.1%
2.5%
11%
736,867

177

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Intangible assets (Continued)
(a) The movements of concession rights are as follows: (Continued)

(ii) According to the policies of the Tianjin Municipal Government (the “Tianjin Government”), the Company is mandated to improve the quality standards of the effluent from its sewage treatment plants in Tianjin. As a result, the operations of the Company’s Xianyang Road Sewage Plant and Dongjiao Water Plant (include matched recycling water plant) have to be relocated and conducted in another new plants to be constructed by the Tianjian Government (namely the “New Xianyang Road Sewage Plant and the New Dongjiao Water Plant”). All of the construction costs for the new plants (together with the associated land costs) and relocation costs will be borne by the Tianjin Government.

The New Dongjiao Sewage Plant as freely provided by the Tianjin Government becomes ready for use on 1 September 2020 and all of the operations of the Dongjiao Sewage Plant has been relocated to the New Dongjiao Sewage Plant. All of the key terms of the service concession right agreement governing the operations of the Dongjiao Sewage Plant (the “Concession Right Agreement”) remains unchanged and will be inherited by the New Dongjiao Sewage Plant. The Tianjin Government has also approved that the Company can increase the tariff rates for its sewage processing services (to certain extent) so as to compensate the higher operating costs for maintaining the improved quality standards of the effluent from the New Dongjiao Sewage Plant.

As of the assets transfer date, the concession right as recognised by the Group in connection with operations of the Dongjiao Sewage Plant were included in intangible assets with the carrying amounts of RMB556 million (with cost amounts and accumulated depreciation amounts of RMB1,241 million and RMB685 million respectively).

The entire relocation and non-monetary assets exchange arrangement is conducted based on the instructions of the Tianjin Government and the Group has not been exposed to or benefit from any significant changes in risks and rewards as a result of that arrangement. In view of this, the Directors of the Company are of the view that the relocation and non-monetary assets exchange arrangement will not have any impact on the carrying amounts of right-of-use assets and intangible assets as previously recognised by the Group and the related assets (including the concession right) will continue to be depreciated or amortised on a consistent straight-line basis over their respective remaining useful lives or concession right period (as applicable).

178

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Intangible assets (Continued)
(a) The movements of concession rights are as follows: (Continued)
- (iii) As at 31 December 2020, certain concession rights with carrying amounts of RMB2,508 million (cost of RMB3,241 million) (2019: carrying amounts of RMB2,646 million (cost of RMB3,323 million)) have been pledged as securities for bank borrowing of RMB1,211 million (2019: RMB527 million) (Note 4(16)(a)).
- (iv) The amortisation period of concession rights ranges from 9 to 30 years.
- (v) In the first and second phases of Hangzhou’s upgrading and renovation project, the provisional project cost as recognised in prior year was adjusted according to the final accounts of completion this year, resulting in a decrease of RMB34 million in the original value of intangible assets this year.
- (vi) According to estimated future operating conditions, the Group has conducted an impairment assessment on the concession right of Tianjin Jinghai Capital Water Co., Ltd. and recognised assets impairment of approximately RMB29 million.
(b) The movements of land use rights are as follows:

Cost 31 December 2019 Increase in the current year 31 December 2020 Accumulated amortisation 31 December 2019 Charge for the year 31 December 2020 Net Book Value 31 December 2020 31 December 2019	65,445 21,549 86,994 (7,365) (2,022) (9,387) 77,607 58,080

(i) As at 31 December 2020, bank borrowing of RMB311 million (31 December 2019: RMB194 million) is secured by land use right with carrying amount of RMB58 million and original cost of RMB62 million (31 December 2019: carrying amount of RMB26 million and original cost of RMB28 million) (Note 4(16)(a)).

179

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Intangible assets (Continued)
(b) The movements of land use rights are as follows: (Continued)
- (ii) As at 31 December 2020, the land use right includes assets exchanged for non-monetary assets with an original cost of RMB5 million and a carrying amount of approximately RMB4 million (31 December 2019: original cost of RMB5 million and a carrying amount of approximately RMB4 million). Whose certificate of title to outsourced assets included has yet to be or is in the process of being transferred to the Group. As these assets are supported by legal sale and purchase agreements, the management of the Company believes that the titles will be received in due course without any legal barrier or additional significant cost.
(c) The movements of technical know-how and software are as follows:

Cost 31 December 2019 Increase in the current year 31 December 2020 Accumulated amortisation 31 December 2019 Charge for the year 31 December 2020 Net Book Value 31 December 2020 31 December 2019	12,183 184 12,367 (8,065) (708) (8,773) 3,594 4,118

(d) In 2020, the amounts of amortization charged to cost of sales and general and administrative expenses were RMB516 million (2019: RMB462 million) and RMB3 million (2019: RMB3 million), respectively.
(e) The Research and development expenses of the Group in 2020 are all related to the Research and development of the production process of environmental protection equipment, which are all included in profit or loss when incurred.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises

Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(13) Provision for asset impairment and loss

Provision for trade receivables (Notes(i))	31 December 2019 80,956	Reclassification –	Increase in the current year 98,162	Decrease in the current year Reversal Write-off (10,589) –	Decrease in the current year Reversal Write-off (10,589) –	31 December 2020 168,529
Including: Individual provision for bad debts Combined provision for bad debts	52,027 28,929	1,792 (1,792)	78,920 19,242	(437) (10,152)	– –	132,302 36,227
Provision for other receivables Provision for long-term receivables (including other non-current assets due with one year) Subtotal Provision for intangible assets Provision for other current assets Provision for Long-term equity investments Subtotal	21 138 81,115 52,083 26,808 22,358 101,249	– – – – – – –	7 764 98,933 28,551 6,257 – 34,808	(12) – (10,601) – – – –	– – – – – – –	16 902 169,447 80,634 33,065 22,358 136,057

(i) In 2020, the Company’s subsidiary Tianjin Jiayuan Xingchuang Energy Technology Co., Ltd has collected part of the trade receivables which had been recognised bad debt provision.

(14) Trade payables, other payables, taxes payable and contract liabilities

Trade payables (a) Other payables (b) Taxes payable (c) Contract liabilities (d)	31 December 2020 294,973 955,773 56,841 527,410 1,834,997	31 December 2019 231,293 1,534,014 86,188 558,472 2,409,967

181

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(14) Trade payables, other payables, taxes payable and contract liabilities (Continued)
(a) As at 31 December 2020, trade payables are mainly for inventory purchase. Trade payables aged over one year are RMB89 million (31 December 2019: RMB67 million), mainly representing payables for source water of RMB43 million from the subsidiary Qujing Capital Water Co., Ltd, and the subsidiary Tianjin Zhongshui Co., Ltd.’s project payable of RMB30 million. Since such amount has not been received from Qujing City Water General Company and the pipeline connection project of Zhongshui Company has not been completed, so the payment has not been finalized.

(b) Other payables comprise:

Construction costs payable and deposits Payable for purchase of fixed assets and concession rights Interests payable for debentures payable Dividends payable Others	31 December 2020 838,871 18,930 2,097 142 95,733 955,773	31 December 2019 1,224,453 171,392 42,974 1,172 94,023
		1,534,014

As at 31 December 2020, other payables of RMB642 million (31 December 2019: RMB665 million) are aged over one year, which mainly represent construction costs payable and guarantee deposits for Dalian Oriental Chunliuhe sewage processing project, Karamay Sewage processing PPP project and Honghu sewage plants construction upgrading projects and etc. The balance is yet to be settled as the projects have not been completed.

182

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(14) Trade payables, other payables, taxes payable and contract liabilities (Continued)

(c) Balances of taxes payable

Unpaid VAT Enterprise income tax payable Others	31 December 2020 24,234 18,092 14,515 56,841	31 December 2019 37,256 32,083 16,849 86,188

(d) Contract Liabilities

For pipeline connection service For cooling and heating service Received from project of Han Gu For hazard waste treatment For sale of equipment For Sewage processing service fee Others	31 December 2020 509,271 7,190 4,876 3,145 2,028 – 900 527,410	31 December 2019 508,138 8,014 4,876 6,197 11,263 12,071 7,913 558,472

In 2020, the amount of RMB236 million (2019: RMB173 million) which is included in the beginning balance of contract liabilities has realized to income. The Group expects that contract liabilities will be carried forward to recognize revenue through normal operating processes, and therefore will be recognized as current liabilities.

(15) Accrued payroll

Short-term employee benefits payable (a) Defined contribution plans payable (b)	31 December 2020 85,362 258 85,620	31 December 2019 65,891 209 66,100

183

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(15) Accrued payroll (Continued)

(a) Short-term employee benefits payable

Wages and salaries, bonuses, allowances and subsidies Staff welfare Social security contributions	31 December 2019 58,212 101 121	Increase in the current year 274,637 16,532 17,769	Decrease in the current year (256,893) (16,622) (17,778)	31 December 2020 75,956 11 112
Including: Medical insurance Work injury insurance Maternity insurance	108 2 11	17,020 85 664	(17,016) (87) (675)	112 – –
Housing funds Labor union funds and employee education funds	64 7,393 65,891	44,449 7,633 361,020	(44,401) (5,855) (341,549)	112 9,171 85,362

(b) Defined contribution plans payable

Basic pensions Annuity Unemployment	31 December 2019 192 9 8 209	Increase in the current year 7,679 8,509 111 16,299	Decrease in the current year (7,743) (8,392) (115) (16,250)	31 December 2020 128 126 4 258

184

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities

Note Non-current: Long-term borrowings (a) Less: Current portion due within one year (a) Debentures payable (b) Less: Current portion due within one year (b) Long-term payables (c) Less: Current portion due within one year (c) Other non-current liabilities (e) Current: Current portion of long-term borrowings (a) Current portion of debentures payable (b) Current portion of debentures payable interests (b) Current portion of long-term payables (c) Current portion of provision (Note 4(17)) Current portion of non-current liabilities Short-term borrowings (d) Other current liabilities (e)	31 December 2020 5,033,225 (805,331) 4,227,894 1,798,419 (699,571) 1,098,848 282,840 (35,106) 247,734 34,000 805,331 699,571 42,974 35,106 13,281 1,596,263 – –	31 December 2019 3,818,136 (811,380) 3,006,756 1,797,389 – 1,797,389 290,891 (28,239) 262,652 36,000 811,380 – – 28,239 12,933 852,552 200,000 20,250

(a) Long-term borrowings

Summary of current portion of long-term borrowings by terms:

Note Secured (i) Guaranteed (ii) Unsecured Pledged (iii)	31 December 2020 26,641 431,700 251,590 95,400 805,331	31 December 2019 22,221 247,459 504,000 37,700 811,380

185

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities (Continued)
- (a) Long-term borrowings (Continued)

Summary of non-current portion of long-term borrowings by terms:

Note Secured (iv) Guaranteed (v) Unsecured Pledged (vi)	31 December 2020 284,395 2,065,686 761,690 1,116,123 4,227,894	31 December 2019 172,210 1,656,915 646,000 531,631
		3,006,756

(i) As at 31 December 2020, the current portion of bank borrowings of RMB22 million (31 December 2019: RMB22 million) is mortgaged by land use right (Note 4(12) (b)), property and equipment under construction (Note 4(11) (b)) and fixed assets (Note 4(11) (a)) of Shandong Capital Environmental Protection Technology Development Co., Ltd..
(ii) As at 31 December 2020, the current portion of bank borrowings of RMB40 million (31 December 2019: RMB39 million) is guaranteed by City Infrastructure Construction and Investment for Xi’an Capital Water Co., Ltd., the subsidiary of the Company (Note 8(5) (b)). The current portion of bank borrowings of RMB392 million (2019: RMB208 million) is guaranteed by the company for its subsidiaries.
(iii) As at 31 December 2020, the current portion of bank borrowings of RMB75 million (31 December 2019: RMB38 million) is pledged by all earnings and equity of Jingu and Beicang upgrading project under the Group’s concession right (Note 4(12) (a)). The current portion of bank borrowings of RMB20 million (31 December 2019: Nil) is pledged by the account receivables of “JiuQuan Suzhou the first and the second Sewage Treatment Plant PPP Project” (Note 4(12) (a)).
(iv) As at 31 December 2020, the non-current portion of bank borrowings of RMB150 million (31 December 2019: RMB172 million) is mortgaged by land use right (Note 4(12) (b)). The non-current portion of bank borrowings of RMB134 million (31 December 2019: Nil) is mortgaged by land use right (Note 4(12) (b)), the property and equipment under construction (Note 4(11) (b)) and fixed assets (Note 4(11) (a)) of Shandong Capital Environmental Protection Technology Development Co., Ltd..

186

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities (Continued)
- (a) Long-term borrowings (Continued)
  - (v) As at 31 December 2020, the non-current portion of bank borrowings of RMB31 million (31 December 2019: RMB71 million) is guaranteed by City Infrastructure Construction and Investment for Xi’an Capital Water Co., Ltd, the subsidiary of the Company (Note 8(5) (b)), the non-current portion of bank borrowings of RMB2,035 million (31 December 2019: RMB1,586 million) is guaranteed by the company for its subsidiaries.
  - (vi) As at 31 December 2020, the non-current portion of bank borrowing of RMB635 million (31 December 2019: RMB489 million) is pledged by all earnings and equity of Jingu and Beicang upgrading project under the Group’s concession right (Note 4(12) (a)). The non-current portion of bank borrowing of RMB51 million (2018: RMB43 million) is secured by account receivables of Hebei Gaocheng Economic Development Zone Management Committee under the concession service agreement. The non-current portion of bank borrowings of RMB395 million (31 December 2019: Nil) is pledged by the account receivables of “JiuQuan Suzhou the first and the second Sewage Treatment Plant PPP Project” (Note 4(12) (a)). The non-current portion of bank borrowings of RMB35 million (31 December 2019: Nil) is pledged by all earnings and equity of Huoqiu Capital Water Co., Ltd. under “PPP project contract for phase I of Chengbei No.2 sewage treatment plant in Huoqiu County, Lu’an City, Anhui Province” (Note 4(12) (a)).
  - (vii) As at 31 December 2020, these long-term borrowings bear interest rates between 3.330% and 5.150% (31 December 2019: between 4.275% and 5.463%).
  - (viii) According to different loan contracts, the asset-liability ratio of the borrower shall not be higher than 65% to 90% during the credit period. Without the consent of the lender, the assets formed from the loan under the loan contract shall not be used to provide guarantee to the third party.

187

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities (Continued)

(b) Debentures payable

Debentures payable – Par value – Transaction cost Less: Current portion of debentures payable	31 December 2019 1,800,000 (2,611) 1,797,389 – 1,797,389	Issue – – – – –	Payment – – – – –	Amortization – 1,030 1,030 – 1,030	31 December 2020 1,800,000 (1,581)
					1,798,419 (699,571)
					1,098,848

General information of debentures payable are as follows:

	Per Value	Issuance date	Maturity	Issuance amount
Corporate Debenture (note (i))	700,000	2016-10-25	5 years	700,000
Corporate Debenture (note (ii))	1,100,000	2018-04-26	5 years	1,100,000

Interests payable of debentures are analyzed as follows:

Corporate Debenture (note (i)) Corporate Debenture (note (ii))	31 December 2019 4,022 38,952 42,974	Interest Accrued Interest accrued in the current year Interest paid in the current year (21,910) 21,910 (56,870) 56,870 (78,780) 78,780	31 December 2020 4,022 38,952
			42,974

188

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities (Continued)
- (b) Debentures payable (Continued)
  - (i) On 25 October 2016, the Company issued a debenture at par value of RMB700 million on The Shanghai Stock Exchange as approved by the Securities Regulatory Commission of China [2016]1896. The fixed interest rate of 3.13% has been accrued and settled per annum. The principal will be repaid on maturity. As at 31 December 2020, the interest accrued on debentures payable to be paid within one year is RMB4 million, which is listed in Current portion of non-current liabilities.
  - (ii) On 26 April 2018, the Company issued a debenture at par value of RMB1,100 million on The Shanghai Stock Exchange as approved by the Securities Regulatory Commission of China [2016]1896. The fixed interest rate of 5.17% has been accrued and settled per annum. The principal will be repaid on maturity. As at 31 December 2020, the interest accrued on debentures payable to be paid within one year is RMB39 million, which is listed in Current portion of non-current liabilities.

(c) Long-term payables

Payable for assets acquisition	31 December 2020 Payables Unrecognised financial charges Total 415,275 (132,435) 282,840	31 December 2019 Payables Unrecognised financial charges Total 445,444 (154,553) 290,891

(i) Information of long-term payables is as follows:

Maturity date Effective interest rate Tianjin Sewage Company (“Sewage Company”) 20 March 2041 5.94% Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd. 3 September 2023 3.80%	Total 290,891 16,200 282,840	Current portion 28,239 (7,600) (35,106)	Ending balance 262,652 8,600
			247,734

189

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities (Continued)
- (c) Long-term payables (Continued)
  - (i) Information of long-term payables is as follows: (Continued)

As at 31 December 2020, long-term payable to Sewage Company is the consideration payable in respect of the acquisition of sewage water processing assets from Sewage Company, net of unrecognised financing charges.

Pursuant to Assets Transfer Agreement From Foreign Banks Loans About Haihe River Tianjin Sewage Processing Project and Beicang Sewage Processing Project (the “Transfer Agreement”), Sewage Company sold to the Company certain sewage processing assets. The down payment is RMB261 million, and remaining payments will be settled in RMB translated at exchange rates prevailing on each repayment date over the remaining years. The fair value of the initial recognition of the payable balance is RMB430 million, which was calculated based on discounted future cash payments and discount rate of 5.94%.

The balance of the long-term payables to Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd. is the amount of sale-leaseback assets of Shandong Capital Environmental Protection Technology Consultant Co., Ltd..

(ii) The balance of long-term payable are denominated in the following currencies:

JPY USD CNY	31 December 2020 196,100 70,540 16,200 282,840	31 December 2019 205,685 85,206 –
		290,891

(iii) The amounts of long-term payables (including interest) are denominated in the following currencies:

JPY USD CNY	31 December 2020 321,972 77,103 16,200 415,275	31 December 2019 344,880 100,564 –
		445,444

The balance denominated in USD bears an interest rate at 6-month LIBOR plus 0.6%, whilst the balance denominated in JPY bears fixed interest rates at 1% and 1.55% per annum respectively.

190 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(16) Long-term borrowings, debentures payable, long-term payables, short-term borrowings and other liabilities (Continued)

(c) Long-term payables (Continued)

(iv) The long-term payables mature as follows. As at 31 December 2020, the current portion of long-term payables of RMB35 million (31 December 2019: RMB28 million) was classified as current liabilities.

Within 1 year 1-2 years 2-5 years Over 5 years (d) Short-term borrowings China Merchants Bank Summary of short-term borrowings by terms Unsecured (e) Other liabilities Non-current: – Cooling service fee Current: – Entrusted loan to be paid within one year	31 December 2020 35,106 29,188 76,901 141,645 282,840 31 December 2020 – 31 December 2020 – 31 December 2020 34,000 –	31 December 2019 28,239 27,465 78,625 156,562 290,891 31 December 2019 200,000 31 December 2019 200,000 31 December 2019 36,000 20,250

191

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(17) Provisions

Maintenance cost of sewage water processing plants Others Less: Provisions expected to be paid within one year	31 December 2019 24,598 – (12,933) 11,665	Increase in the current year 2,072 3,546 (3,546) 2,072	Decrease in the current year (3,198) – 3,198 –	31 December 2020 23,472 3,546 (13,281) 13,737

(18) Deferred income

Deferred revenue represents the subsidies received from governmental authorities with respects to Group’s certain construction and research and development projects. Details of deferred revenue are as below:

Sewage water processing project: – Jingu – Jingu upgrading project – Beichen upgrading project – Xianyang Road-upgrading project – Dongjiao upgrading project – Ningxiang upgrading project – Linxia reconstruction and extension project – Beishiqiao upgrading project – Chibi upgrading project Water recycling project: – Jingu – Dongjiao – Beichen – Xianyanglu Heating and cooling supply service project Others Total	31 December 2019 1,207,260 156,480 86,400 56,716 39,798 17,348 9,392 9,635 5,500 199,498 20,406 17,587 12,344 210,269 11,069 2,059,702	Additions – – – – – – – – 2,250 – – – – 6,207 683 9,140	Recognised in other income (51,285) (6,520) (3,600) (2,363) (1,658) (931) (326) (719) – (5,564) (675) (525) (441) (9,057) (3,744) (87,408)	31 December 2020 Relating to assets/costs 1,155,975 assets 149,960 assets 82,800 assets 54,353 assets 38,140 assets 16,417 assets 9,066 assets 8,916 assets 7,750 assets 193,934 assets 19,731 assets 17,062 assets 11,903 assets 207,419 assets 8,008 costs 1,981,434

192

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(19) Deferred tax assets and deferred tax liabilities
- (a) Deferred income tax assets before offsetting

Provision for assets Unrecognised financing income Accrued expenses Accrued liabilities Including: Expected to be recovered within one year (inclusive) Expected to be recovered after one year	31 December 2020 Deductible temporary difference Deferred income tax assets 145,668 36,417 61,224 15,306 26,870 6,717 19,557 2,934 253,319 61,374 9,237 52,137 61,374	31 December 2019 Deductible temporary difference Deferred income tax assets 69,322 17,330 – – 10,000 2,500 16,010 2,402 95,332 22,232 4,440 17,792 22,232

(b) Unrecognised deferred income tax assets
(i) Deductible temporary differences and deductible losses that are not recognised as deferred tax assets are analyzed as follows:

Deductible temporary difference – provision for assets Deductible losses Accrued liabilities	31 December 2020 167,999 77,775 7,461 253,235	31 December 2019 121,205 58,667 8,588 188,460

(ii) Deductible losses that are not recognised as deferred tax assets will expire in the following years:

2020 2021 2022 2023 2024 2025	31 December 2020 – 5,124 3,466 11,061 32,774 25,350 77,775	31 December 2019 6,243 5,124 3,466 11,061 32,773 – 58,667

193

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(19) Deferred tax assets and deferred tax liabilities (Continued)

Amortization of intangible assets Business combination Including: Expected to be recovered within one year (inclusive) Expected to be recovered after one year	31 December 2020 Taxable temporary differences Deferred income tax liabilities 545,687 136,422 51,146 12,786 596,833 149,208 5,123 144,085 149,208	31 December 2019 Taxable temporary differences Deferred income tax liabilities 521,412 130,353 53,028 13,257 574,440 143,610 4,848 138,762 143,610	31 December 2019 Taxable temporary differences Deferred income tax liabilities 521,412 130,353 53,028 13,257 574,440 143,610 4,848 138,762 143,610
			143,610
			4,848 138,762
			143,610

(d) The net balances of deferred income tax assets and deferred income tax liabilities after offsetting are shown below:

	31 December	2020	31 December	2019
		After offsetting		After offsetting
	Set-off amount	the balance	Set-off amount	the balance
Deferred income tax assets	(48,409)	12,965	(18,023)	4,209
Deferred income tax liabilities	(48,409)	100,799	(18,023)	125,587

(20) Share capital

Movement of the Company’s authorized, issued and fully paid up capital is set out below. All of the Company’s shares are ordinary shares with par value of RMB1.

								Circulating	Circulating
								A shares	H shares	Total
At	31	December	2020,	31	December	2019	and
	31	December	2018					1,087,228	340,000	1,427,228

All the A-shares and H-shares rank pari passu in all respects.

194 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(21) Capital surplus, surplus reserve and undistributed profits

(a) Capital surplus

Share premium A subsidiary reformed as a stock limited company Capital Increase by minority shareholders	31 December 2020, 31 December 2019 & 31 December 2018 382,311 16,804 31,909
	431,024

(b) Surplus reserve

Statutory surplus reserve Statutory surplus reserve	31 December 2019 558,250 31 December 2018 517,107	Increase in the current year 60,804 Increase in the current year 41,143	Decrease in the current year – Decrease in the current year –	31 December 2020 619,054
				31 December 2019 558,250

Pursuant to the PRC Companies Law and the Company’s Articles of Association, the Company is required to appropriate 10% of its net profit for the year to the statutory surplus reserve, which can be ceased till the reserve reaches 50% of the registered capital. The statutory surplus reserve can be used to make up for the loss or increase the paid in capital after approval from the appropriate authorities.

195

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(21) Capital surplus, surplus reserve and undistributed profits (Continued)
(c) Undistributed profits

Undistributed profits at the beginning of the year Add: Net profit attributable to owners of the parent for the current year Less: Appropriation for statutory surplus reserve Ordinary share dividends payable (note (i)) Undistributed profits at the end of the year	2020 3,757,523 570,039 (60,804) (152,713) 4,114,045	2019 3,442,844 507,107 (41,143) (151,285)
		3,757,523

(i) As at 13 May 2020, the board of shareholders proposed a cash of RMB1.07 (gross tax) for every 10 shares to all shareholders on the basis of 1,427 million shares issued. Cash dividends to be distributed amounted to RMB153 million.
(ii) As at 25 March 2021, the board of directors proposed that the Company shall distribute a cash dividend of RMB1.20 (gross tax) for every 10 shares to all shareholders, a total of RMB171 million based on the issued shares. The above proposal is subject to the approval of the general meeting of shareholders (note10 (1)).

(22) Revenue and cost of sales

Principal operations Other operations	2020 Revenue Cost of sales 3,127,127 2,025,418 236,747 159,701 3,363,874 2,185,119	2019 Revenue Cost of sales 2,662,361 1,799,789 189,092 140,015 2,851,453 1,939,804	2019 Revenue Cost of sales 2,662,361 1,799,789 189,092 140,015 2,851,453 1,939,804
			1,939,804

196

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(22) Revenue and cost of sales (Continued)
- (a) Revenue from principal operations and cost of sales

Analysis by the nature of services is as below:

Processing of sewage water Water recycling and connection project Tap water supplying Hazardous waste treatment Heating and cooling supply services Sale of environmental protection equipment Others	2020 Revenue from principal operations Cost of sales 2,392,487 1,554,079 317,109 226,520 99,299 80,755 77,375 46,359 100,610 67,103 43,232 14,829 97,015 35,773 3,127,127 2,025,418	2019 Revenue from principal operations Cost of sales 2,025,026 1,387,280 283,813 211,365 105,374 76,523 14,100 4,939 101,377 70,126 44,386 19,374 88,285 30,182 2,662,361 1,799,789	2019 Revenue from principal operations Cost of sales 2,025,026 1,387,280 283,813 211,365 105,374 76,523 14,100 4,939 101,377 70,126 44,386 19,374 88,285 30,182 2,662,361 1,799,789
			1,799,789

Analysis by locations is as follows:

Tianjin Hangzhou Xi’an Fuyang Others	2020 Revenue from principal operations Cost of sales 1,774,475 1,105,418 259,286 160,279 163,275 115,318 129,627 74,687 800,464 569,716 3,127,127 2,025,418	2019 Revenue from principal operations Cost of sales 1,599,439 1,026,646 254,208 181,455 146,976 110,642 113,447 74,851 548,291 406,195 2,662,361 1,799,789	2019 Revenue from principal operations Cost of sales 1,599,439 1,026,646 254,208 181,455 146,976 110,642 113,447 74,851 548,291 406,195 2,662,361 1,799,789
			1,799,789

(b) Revenue from other operations and cost of sales

Contract operation income Technical service fee Agent construction services Rental income (i) Others	2020 Revenue from other operations Cost of sales 173,563 142,643 45,242 6,994 7,197 4,336 768 26 9,977 5,702 236,747 159,701	2019 Revenue from other operations Cost of sales 168,871 125,866 10,727 7,837 1,936 917 1,013 2,260 6,545 3,135 189,092 140,015	2019 Revenue from other operations Cost of sales 168,871 125,866 10,727 7,837 1,936 917 1,013 2,260 6,545 3,135 189,092 140,015
			140,015

(i) The Group’s rental income comes from the rental of its own buildings and structures. For year ending 31 December 2020, there’s no variable rental income based on a certain percentage of the lessee’s sales.

197

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(22) Revenue and cost of sales (Continued)

Revenue Of which: confirm at a point in time Confirm over time Other operating income Of which: confirm at a point in time Confirm over time Revenue Of which: confirm at a point in time Confirm over time Other operating income Of which: confirm at a point in time Confirm over time	Processing of sewage Tianjin Hangzhou Others 1,270,965 259,286 862,236 – – – 1,270,965 259,286 862,236 – – – – – – – – – 1,270,965 259,286 862,236 Processing of sewage Tianjin Hangzhou Others 1,122,467 254,208 648,351 – – – 1,122,467 254,208 648,351 – – – – – – – – – 1,122,467 254,208 648,351	Recycled water and pipeline connection 317,109 – 317,109 – – – 317,109 Recycled water and pipeline connection 283,813 – 283,813 – – – 283,813	2020 Heating and cooling supply 100,610 – 100,610 – – – 100,610 2019 Heating and cooling supply 101,377 – 101,377 – – – 101,377	Tap water 99,299 – 99,299 – – – 99,299 Tap water 105,374 – 105,374 – – – 105,374	Sale of environmental protection equipment 43,232 – 43,232 – – – 43,232 Sale of environmental protection equipment 44,386 – 44,386 – – – 44,386	Others 174,390 27,049 147,341 236,747 – 236,747 411,137 Others 102,385 18,875 83,510 189,092 – 189,092 291,477	Group 3,127,127 27,049 3,100,078 236,747 – 236,747
							3,363,874
							Group 2,662,361 18,875 2,643,486 189,092 – 189,092
							2,851,453

As at 31 December 2020, based on the pre-determined agreement price, and actual processing and supplying amount, the Group issues bills to customers at fixed period for its sewage operation services, supplies of recycled water and tap water. The bill can represent the value that the Group has transferred to customers. All consideration is included in the bills amount thus the Group did not disclose the transaction price allocated to the remaining performance obligations.

As at 31 December 2020, the consideration for pipeline connection services of approximately RMB557 million (2019: RMB556 million) of which the contracts were signed but the performance obligation is not yet fully completed, and revenue will be recognised over time based on the progress towards the completion of related performance obligations in the following years.

198 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(22) Revenue and cost of sales (Continued)
- (c) The Group’s operating income listed as follows: (Continued)

As at 31 December 2020, the consideration for heating supply services of approximately RMB7 million (2019: RMB8 million) of which the contracts were signed but the performance obligation is not yet fully completed. The related revenue is expected to be recognised in 2021.

As at 31 December 2020, the consideration for certain entrusted sewage operation services of RMB91 million (2019: RMB61 million) of which the contracts were signed but the performance obligations is not yet fully completed, among which the Group expects the related revenue of approximately RMB90 million and RMB1 million will be recognised in 2021 and 2022 respectively.

As at 31 December 2020, the consideration for agent construction project of RMB6 million (2019: RMB13 million) of which the contracts were signed but the performance obligations are not yet fully completed. The related revenue is expected to be recognised in 2021.

As at 31 December 2020, a contract of tolls road service fee of RMB509 million (2019: RMB571 million) was signed but the performance obligations is not yet fully completed, among which the Group expects to recognise revenue of approximately RMB62 million in every year from 2020 to 2028, and revenue of approximately RMB13 million in 2029.

(23) Taxes and surcharges

Land use tax Property tax City maintenance and construction tax Educational surcharge Local educational surcharge Others	2020 17,110 12,150 10,161 4,559 3,029 1,760 48,769	2019 Tax base 16,820 RMB1.5-30 per square meter Self-use: 1.2% (deducted 30% of the original value of the property) 7,591 Rental: 12% of the rental income 10,740 7%/5% of the VAT paid 4,956 2%/3% of the VAT paid 2,958 2% of the VAT paid 2,651 45,716

199

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(24) Selling expenses and general and administrative expenses

Employee benefits Consulting service fees Depreciation of fixed assets General office expenses Travelling, meeting and business entertainment expenses Expenses of secretary of the board Repair and maintenance expenses Audit fees Amortisation of intangible assets Utilities Other taxes Others	2020 General and administrative expenses Selling expenses 124,623 5,865 13,060 8,718 9,558 17 6,415 61 5,521 653 4,378 – 3,430 – 3,300 – 2,813 – 2,027 – 1,173 – 1,780 565 178,078 15,879	2019 General and administrative expenses Selling expenses 114,069 3,660 10,786 2,054 8,564 17 6,114 23 5,874 611 4,789 – 3,358 – 3,300 – 2,884 – 2,506 – 1,638 – 4,779 710 168,661 7,075	2019 General and administrative expenses Selling expenses 114,069 3,660 10,786 2,054 8,564 17 6,114 23 5,874 611 4,789 – 3,358 – 3,300 – 2,884 – 2,506 – 1,638 – 4,779 710 168,661 7,075
			7,075

(25) Research and development expenses

Employee benefits Raw materials consumption Consulting service fees General office expenses Travelling, meeting and business entertainment expenses Others	2020 7,128 3,735 103 79 37 2,119 13,201	2019 6,775 7,680 70 7 192 3,201
		17,925

(26) Financial expenses

Loan Interest expenses Less: Amount capitalized on qualifying assets Interest expenses Less: Interest income Including: From long-term receivables From bank deposits Exchange (gains)/losses Others	2020 311,736 (39,706) 272,030 (23,035) (8,631) (14,404) (10,490) 595 239,100	2019 250,341 (36,359)
		213,982 (23,951) (9,405) (14,546) 8,813 552
		199,396

In 2020, the exchange gains on the long-term payables denominated in JPY and US dollar were RMB10 million (In 2019: RMB9 million of the exchange loss).

200

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(27) Expenses listed by nature

The cost of sales, selling expenses, general and administrative expenses and research and development expenses in the income statement are listed as follows by nature:

Amortisation of intangible assets Raw materials consumption Employee benefits Utilities Repair and maintenance expenses Recycled water pipeline connection cost Sewage mud processing expenses Depreciation of fixed assets and investment properties Factory environment, detection and fire prevention fee Construction cost of environmental equipment Consulting service fees Network maintenance expenses Travelling, meeting and business entertainment expenses General office expenses Toll road management fee Expenses of secretary of the board Audit fees Other taxes Others	2020 518,939 439,438 371,557 353,804 201,931 100,629 97,742 54,282 43,015 40,378 34,062 24,263 20,509 10,251 7,120 5,328 3,300 1,652 64,077 2,392,277	2019 465,243 352,215 350,018 342,274 181,978 92,234 93,930 44,240 36,759 36,202 20,416 17,330 21,390 9,412 7,120 4,789 3,300 2,663 51,952
		2,133,465

(28) Other Income Government Grants (a) VAT refund Withholding and paying individual income tax refund	2020 96,577 65,700 133 162,410	2019 Related to assets/incomes 108,103 Assets/Incomes 58,874 Incomes 12 166,989

201

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(28) Other Income (Continued)

(a) Details of government grants

Compensation for construction of Jingu sewage processing plant Capital Alternative cooling and heating subsidy Allowance for Jingu-upgrading energy conservation Compensation for construction of Jingu recycling water plant Allowance for Beichen-upgrading energy conservation Special funds for Research and development center projects Special construction fund of Xianyanglu upgrading project Special construction fund of Dongjiao sewage water processing plant Municipal sludge allowance of Xi’an company Xianning Green Industry Support Fund Electricity subsidy for sewage treatment in Hanzhou Operation subsidy for Bayannur Capital Water Co., Ltd. Special allowance for sewage treatment in Qujing Others-Related to assets Others-Related to assets	2020 51,285 9,057 6,520 5,564 3,600 3,454 2,363 1,658 1,200 – – – – 3,617 8,259 96,577	2019 Related to assets/incomes 51,285 Assets 8,385 Assets/Incomes 6,520 Incomes 6,895 Assets 3,600 Incomes 5,939 Incomes 2,363 Assets 1,658 Assets 1,457 Incomes 5,989 Incomes 3,392 Incomes 1,547 Incomes 752 Incomes 2,311 6,010 Assets/Incomes 108,103

(29) Assets impairment losses Provision for impairment of intangible assets (note 4 (12)(a)(vi)) Provision for impairment of other current assets (note 4 (7)(a)) (30) Credit impairment losses Trade receivables losses Other receivables losses Long-term receivables losses	2020 28,551 6,257 34,808 2020 87,573 (5) 764 88,332	2019 – 26,808
		26,808
		2019 31,372 11 –
		31,383

202

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(31) Gains on disposals of assets

Gains on disposals of other current assets (i) Gains on disposals of fixed assets	2020 – 67 67	2019 Amount recognised in non-recurring profit or loss in 2020 48,703 – 1,294 67 49,997 67	2019 Amount recognised in non-recurring profit or loss in 2020 48,703 – 1,294 67 49,997 67
			67

(i) In July 2019, the group received compensation for tap water assets of Anguo about 53 million yuan and confirmed the asset disposal income of about RMB49 million.

(32) Non-operating income

2020 Write off accounts payable 830 Others 977 1,807 (33) Non-operating expenses 2020 Donation 2,388 Losses on disposal of fixed assets 46 Others 4,254 6,688 (34) Income tax expenses Current income tax calculated based on tax law and related regulations Deferred income tax	2019 Amount recognised in non-recurring profit or loss in 2020 – 830 2,469 977 2,469 1,807 2019 Amount recognised in non-recurring profit or loss in 2020 2,379 2,388 590 46 1,622 4,254 4,591 6,688 2020 2019 145,590 118,021 (33,544) (17,434) 112,046 100,587	2019 Amount recognised in non-recurring profit or loss in 2020 – 830 2,469 977 2,469 1,807 2019 Amount recognised in non-recurring profit or loss in 2020 2,379 2,388 590 46 1,622 4,254 4,591 6,688 2020 2019 145,590 118,021 (33,544) (17,434) 112,046 100,587
		6,688
		2019 118,021 (17,434)
		100,587

203

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(34) Income tax expenses (Continued)

The reconciliation from income tax calculated based on the applicable tax rates and total profits presented in the consolidated financial statements to the income tax expenses is set below:

Total profit Calculated at applicable income tax rates (25%) Effect of favorable tax rates Income not subject to tax Costs, expenses and losses not deductible for tax purposes Utilization of previously tax temporary differences for which no deferred income tax asset was recognised Recognition of previously unrecognized deductible temporary differences Utilization of previously deductible tax losses for which no deferred income tax assets was recognised Deductible losses for which no deferred income tax asset was recognised Deductible temporary differences for which no deferred income tax asset was recognised Income tax expenses	2020 718,184 179,546 (57,102) (51,925) 24,017 (282) – (2,44) 6,337 11,699 112,046	2019 629,549
		157,387 (33,195) (37,070) 21,664 (7,818) (6,118) (2,456) 8,193 –
		100,587

(35) Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated based on the profit attributable to owners of the parent of RMB570 million (2019: RMB507 million) and weighted average number of ordinary shares of 1,427 million shares in issue during the year (2019: 1,427 million shares).

Consolidated net profit attributable to ordinary shareholders of the Company Weighted average number of ordinary shares in issue (thousand shares) Basic earnings per share (RMB Yuan) Including: – Basic earnings per share for operations on a going concern – Basic earnings per share for discontinued operations	2020 570,039 1,427,228 0.40 0.40 –	2019 507,107 1,427,228
		0.36
		0.36 –

204 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(35) Earnings per share (Continued)
(b) Diluted earnings per share

Diluted earnings per share is calculated by dividing net profit attributable to ordinary shareholders of the Company adjusted based on the dilutive potential ordinary shares by the adjusted weighted average number of ordinary shares outstanding. As there were no dilutive potential ordinary shares in 2020 (2019: Nil), diluted earnings per share equal to basic earnings per share.

(36) Notes to the cash flow statements and supplementary information

(a) Reconciliation of net profit to cash flows from operating activities

Net profit Add: Provision for asset impairments Credit impairment losses Depreciation of fixed assets and investment properties Amortisation of intangible assets Net (gains)/losses from disposal of fixed assets Net financial expenses Increase in deferred income assets Amortisation of deferred income Decrease/(increase) in deferred tax liabilities (Increase)/decrease in inventories Decrease in operating receivables Increase/(decrease) in operating payables Net cash flows from operating activities Net movement in cash Cash at the end of the year Less: Cash at the beginning of the year Net increase/(decrease) in cash	2020 606,138 34,808 88,332 54,282 518,939 (21) 261,540 (8,756) (87,408) (24,788) (2,655) (942,036) 34,061 532,436 1,652,657 (2,066,301) (413,644)	2019 528,962 26,808 31,383 44,240 465,243 (49,407) 222,795 (4,209) (91,117) (13,225) (814) (535,682) 259,956 884,933 2,066,301 (1,808,543) 257,758

(b) Under the Restoration and Non-monetary Assets Exchange Arrangement as mentioned in Note 12(a) (iii), the Company has transferred its entire interests in the Dongjiao Sewage Plant (including the land) to the Tianjin Government on 1 September 2020 in exchange for the new operating plant as freely provided by the Tianjin Government to continue the related sewage processing operations till the end of the related concession right agreement.

205

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(36) Notes to the cash flow statements and supplementary information (Continued)

Cash Including: Cash on hand Cash at bank Cash listed in cash flow statement (d) Cash received relating to other operating activities Government grants received Interest income from bank deposits Deposit on project bids received Others (e) Cash paid relating to other operating activities Deposit on project bids paid Consulting service fees Travelling, meeting and business entertainment expenses Repair and maintenance expenses Expenses of secretary of the board Financial expenses Others (f) Net cash received from disposals of fixed assets Carrying amount of disposals of fixed assets Carrying amount of disposals of other current assets Net gains from disposal of other current assets Net losses from disposal of fixed assets Net gains/(losses) from disposal of fixed assets Net cash received from disposals of fixed assets	2020 14 1,652,643 1,652,657 2020 18,309 14,404 28,800 1,946 63,459 2020 8,799 24,776 6,211 3,526 4,378 595 12,789 61,074 2020 602 – – (46) 67 623	2019 37 2,066,264 2,066,301 2019 66,720 14,546 9,865 2,467 93,598 2019 17,790 16,210 6,677 5,159 4,789 552 15,078 66,255 2019 1,881 3,848 48,703 (590) 1,294 55,136

206

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises

Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

5 CHANGE IN CONSOLIDATION SCOPE

In 2020, the Company contributed RMB33 million to set up Huize Capital Water Co., Ltd.; RMB37 million to set up Huoqiu Capital Water Co., Ltd. and RMB3 million to set up Dongying Tianchi Environmental Protection Technology Consultant Co., Ltd.. The shareholding ratio is 79%,90% and 51% respectively.

6 EQUITY IN OTHER ENTITIES

(a) Subsidiaries

	Type of	Major business	Place of	Nature of business
Name of subsidiaries	subsidiary	location	registration	and business activity	Shareholding (%)		Establishment
					Direct	Indirect
Qujing Capital Water Co., Ltd.	A	Qujing	Qujing	Processing of sewage water, tap water supply	87	–	Capital contribution
Guizhou Capital Water Co., Ltd.	A	Guizhou	Guizhou	Processing of sewage water	95	–	Capital contribution
Baoying Capital Water Co., Ltd.	A	Baoying	Baoying	Processing of sewage water	70	–	Capital contribution
Hangzhou Tianchuang Capital Water Co., Ltd.	A	Hangzhou	Hangzhou	Processing of sewage water	70	–	Capital contribution
Tianjin Capital New Materials Co., Ltd.	A	Tianjin	Tianjin	Manufacturing and sale of	71	–	Capital contribution
				new building materials
Fuyang Capital Water Co., Ltd.	B	Fuyang	Fuyang	Processing of sewage water	100	–	Capital contribution
Tianjin Capital Environmental Protection	B	Hong Kong	Hong Kong	Processing of sewage water	100	–	Capital contribution
(Hong Kong) Co., Ltd.
Wendeng Capital Water Co., Ltd.	B	Wendeng	Wendeng	Processing of sewage water	100	–	Capital contribution
Tianjin Jing Hai Capital Water Co., Ltd.	B	Tianjin	Tianjin	Processing of sewage water	100	–	Capital contribution
Tianjin Water Recycling Co., Ltd.	B	Tianjin	Tianjin	Production and sales of recycled water,	100	–	Capital contribution
				development and construction of water
				recycling facilities, and technical consulting
				for water recycling business
Xi’an Capital Water Co., Ltd.	B	Xi’an	Xi’an	Processing of sewage water	100	–	Capital contribution
Tianjin Caring Technology Development Co., Ltd	A	Tianjin	Tianjin	Environment governance, technical consulting, etc.	48	12	Capital contribution
Anguo Capital Water Co., Ltd.	B	Anguo	Anguo	Processing of sewage	100	–	Capital contribution
Wuhan Tianchuang Capital Water Co.,Ltd.	B	Wuhan	Wuhan	Processing of sewage water, tap water supply	100	–	Capital contribution
Tianjin Jinning Capital Water Co., Ltd.	B	Tianjin	Tianjin	Processing of sewage water	100	–	Capital contribution
Tianjin Capital Alternative Energy	B	Tianjin	Tianjin	Energy saving, innovative energy research,	100	–	Capital contribution
Technology Co., Ltd				consulting and transfer services,
				property management
Yingshang Capital Water Co., Ltd.	B	Yingshang	Yingshang	Processing of sewage water	100	–	Capital contribution
Shandong Capital Environmental Protection	A	Shandong	Shandong	Investment in and construction of	55	–	Capital contribution
Technology Development Co., Ltd.				sewage water processing facilities
Changsha Tianchuang Environmental	A	Changsha	Changsha	Processing of sewage water	81	–	Capital contribution
Protection Co., Ltd.
Karamay Tianchuang Capital Water Co., Ltd.	A	Karamay	Karamay	Processing of sewage water	90	–	Capital contribution
Anhui Tianchuang Capital Water Co., Ltd.	B	Hefei	Hefei	Processing of sewage water	100	–	Capital contribution
Linxia Capital Water Co., Ltd	B	Linxia	Linxia	Processing of sewage water	100	–	Capital contribution
Dalian Oriental Chunliuhe Water Quality	A	Dalian	Dalian	Processing of sewage water	64	–	Capital contribution
Purification Co., Ltd.
Changsha Tianchuang Capital Water Co., Ltd.	A	Changsha	Changsha	Processing of sewage water	80	–	Capital contribution
Inner Mongolia Bayannur Capital Water Co., Ltd.	A	Bayannur	Bayannur	Processing of sewage water, producing	70	–	Business combination
				and sailing of recycled water, supplying tap water
Honghu Tianchuang Capital Water Co., Ltd.	A	Honghu	Honghu	Processing of sewage water	85	–	Capital contribution
Hefei Capital Water Co., Ltd.	B	Hefei	Hefei	Processing of sewage water	100	–	Capital contribution
Deqing Capital Water Co., Ltd.	A	Deqing	Deqing	Processing of sewage water	90	–	Capital contribution
Hebei Guojin Tianchuang Sewage	A	Gaocheng	Gaocheng	Processing of sewage water,	59	–	Capital contribution
Water Processing Co., Ltd.				producing and sailing of recycled water
Hanshou Tianchuang Capital Water Co., Ltd.	A	Hanshou	Hanshou	Supplying tap water	75	–	Capital contribution
Jiuquan Capital Water Co., Ltd.	A	Jiuquan	Jiuquan	Processing of sewage water and reusing of	89	–	Capital contribution
				reclaimed water
Huize Capital Water Co., Ltd.	A	Huize	Huize	Centralized water supply,	79	–	Capital contribution
				Processing of sewage water
Huoqiu Capital Water Co., Ltd.	A	Huoqiu	Huoqiu	Processing of sewage water	90	–	Capital contribution
Dongying Tianchi Environmental Protection	A	Dongying	Dongying	Solid waste treatment	51	–	Capital contribution
Technology Consultant Co., Ltd.

A: Holding subsidiary

B: Wholly-owned subsidiary

207

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

6 EQUITY IN OTHER ENTITIES (Continued)

(b) Subsidiaries with significant minority interests

			Declared
			distribution of	Minority
	Minority	Minority	cash dividends	interests as at
Name	interests ratio	interests in 2020	in 2020	31 December 2020
Hangzhou Tianchuang Capital Water Co., Ltd.
(“Hangzhou Company”)	30.00%	23,813	25,683	212,188
Bayannur Capital Water Co., Ltd.
(“Bayannur Company”)	30.00%	(4,192)	–	333,206
Tianjin Caring Technology Development Co., Ltd.
(“Caring Company”)	40.00%	4,749	4,800	49,598
Shandong Capital Environmental Protection
Technology Development Co., Ltd.
(“Shandong Company”)	45.00%	2,228	–	84,341
Hebei Guojin Tianchuang Sewage Water
Processing Co., Ltd.(“Guojin Company”)	41.00%	2,302	–	91,450

The major financial information of the significant holding subsidiaries of the Group is listed below:

Balance Sheet

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	Current assets Non-current assets 257,033 634,735 111,109 1,023,152 154,949 6,522 59,411 504,874 27,572 270,892 610,074 2,440,175 Current assets Non-current assets 277,436 722,580 90,362 1,061,028 146,105 8,032 57,661 425,597 58,759 200,676 630,323 2,417,913	31 December 2020 Total assets Current liabilities Non-current liabilities 891,768 83,606 100,870 1,134,261 17,762 5,811 161,471 37,246 229 564,285 81,836 293,825 298,464 24,072 51,343 3,050,249 244,522 452,078 31 December 2019 Total assets Current liabilities Non-current liabilities 1,000,016 153,740 132,751 1,151,390 14,870 11,861 154,137 29,747 266 483,258 104,957 194,431 259,435 – 42,000 3,048,236 303,314 381,309	Total liabilities 184,476 23,573 37,475 375,661 75,415
			696,600
			Total liabilities 286,491 26,731 30,013 299,388 42,000
			684,623

208

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

6 EQUITY IN OTHER ENTITIES (Continued)

(b) Subsidiaries with significant minority interests (Continued)

Income Statement

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	Revenue 259,560 82,657 129,356 77,425 12,567 561,565 Revenue 254,539 85,615 122,493 14,387 – 477,034	2020 Net profit Total comprehensive income 79,377 79,377 (13,972) (13,972) 11,872 11,872 4,754 4,754 5,615 5,615 87,646 87,646 2019 Net profit Total comprehensive income 31,091 31,091 13,466 13,466 8,785 8,785 (4,590) (4,590) (62) (62) 48,690 48,690	Net cash flows from operating activities 94,918 15,918 8,366 2,118 (1,579)
			119,741
			Net cash flows from operating activities 130,900 9,578 12,899 4,873 (56)
			158,194

The information above is the amount before offsetting between the companies in the Group.

(c) Non-essential information of associates

	2020	2019
Joint ventures:
Total book value of investment	195,000	195,000
The total of the following items calculated according to the shareholding ratio
Net profit (i)	–	–
Other comprehensive income (i)	–	–
Total comprehensive income	–	–

(i) Both net profit and other comprehensive income have considered the fair value of identifiable assets and liabilities at the time of investment and the adjustment effect of the unified accounting policies.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

7 SEGMENT INFORMATION

The reportable segments of the Group are the business units that provide different products or service, or operate in the different areas. Different businesses or areas require different technologies and marketing strategies, the Group, therefore, separately manages the production and operation of each reportable segment and evaluates their operating results respectively, in order to make decisions about resources to be allocated to these segments and to assess their performance.

The Group considers the business from both service and geographical perspective. From a service perspective, management assesses the performance of processing of sewage water, recycled water, pipeline connection, heating and cooling service, sales of tap water 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 sold by the Group is mainly the result of scientific research transformation of the technical know-how in the environment protection area. Other services include contract operation services, rental income and technical services etc. These are not separately presented within the reportable operating segments, but included in the ‘all other segments’ column. The assets are allocated based on the operations of the segment and the physical location of the asset. 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.

(a) Segment information as at and for the year ended 31 December 2020 is as follows:

Revenue from external customers (Note 4(22)) Cost for operations Interest income (Note 4(26)) Interest expenses (Note 4(26)) Results before share of profits of an associate Segment total profit Income tax expenses Segment net profit Net profit Depreciation expenses Amortization Segment assets Long-term equity investment in associate Total assets Total liabilities Non-current assets addition (i)	Recycled water and pipeline connection Processing of sewage Tianjin Hangzhou Others 1,270,965 259,286 862,236 317,109 (802,567) (160,279) (591,233) (226,520) 12,536 877 3,184 4,130 (176,528) (5,662) (77,468) (696) 256,142 81,367 150,986 84,941 256,142 81,367 150,986 84,941 (50,483) (2,214) (12,353) (25,738) 205,659 79,153 138,633 59,203 (13,334) – (3,302) (17,195) (147,568) (53,941) (226,138) (7,810) 7,072,581 880,871 7,204,756 976,934 (5,883,576) (184,476) (3,158,339) (915,864) 16,322 – 700,661 13,570	Heating and cooling supply 100,610 (67,103) 478 (1,945) 43,149 43,149 (10,656) 32,493 (1,338) (24,286) 672,597 (326,655) 32,284	Tap water 99,299 (80,755) 30 (768) 1,122 1,122 (696) 426 (41) (15,813) 464,438 (7,375) 28,154	Sale of environ- mental protection equipment 43,232 (14,829) 1,503 – 21,435 21,435 (959) 20,476 (300) – 53,894 (12,525) 21	All other segments 411,137 (241,833) 297 (8,963) 79,042 79,042 (8,947) 70,095 (18,772) (43,383) 1,281,898 (732,516) 103,918	Group 3,363,874 (2,185,119) 23,035 (272,030) 718,184 718,184 (112,046) 606,138
						606,138
						(54,282) (518,939)
						18,607,969 195,000
						18,802,969
						(11,221,326)
						894,930

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises

Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

7 SEGMENT INFORMATION (Continued)

(b) Segment information as at and for the year ended 31 December 2019 is as follows:

Revenue from external customers (Note 4(22)) Cost for operations Interest income (Note 4(26)) Interest expenses (Note 4(26)) Results before share of profits of an associate Segment total profit Income tax expenses Segment net profit Net profit Depreciation expenses Amortization Segment assets Long-term equity investment in associate Total assets Total liabilities Non-current assets addition (i)	Recycled water and pipeline connection Processing of sewage Tianjin Hangzhou Others 1,122,467 254,208 648,351 283,813 (731,946) (181,455) (473,879) (211,365) 12,498 1,820 2,874 4,463 (126,783) (11,077) (69,493) (56) 244,286 43,250 137,120 84,287 244,286 43,250 137,120 84,287 (31,569) (12,410) (15,234) (23,099) 212,717 30,840 121,886 61,188 (19,523) – (605) (19,108) (170,702) (62,648) (177,327) (7,996) 6,779,197 981,119 6,625,106 985,548 (6,090,474) (286,491) (2,714,905) (846,306) 121,112 – 1,585,870 54,656	Heating and cooling supply 101,377 (70,126) 855 (3,197) 38,342 38,342 (7,753) 30,589 (296) (23,186) 705,829 (374,378) 53,621	Tap water 105,374 (76,523) 28 (1,712) 24,583 24,583 (920) 23,663 (1,132) (17,330) 507,909 (32,434) 73,918	Sale of environ- mental protection equipment 44,386 (19,374) 1,186 (9) 16,219 16,219 (374) 15,845 (521) (1) 57,814 (11,257) –	All other segments 291,477 (175,136) 227 (1,655) 41,462 41,462 (9,228) 32,234 (3,055) (6,053) 1,153,285 (492,375) 226,177	Group 2,851,453 (1,939,804) 23,951 (213,982) 629,549 629,549 (100,587) 528,962
						528,962
						(44,240) (465,243)
						17,795,807 195,000
						17,990,807
						(10,848,620)
						2,115,354

(i) Non-current assets do not include financial assets, long-term equity investments, or deferred tax assets.

The Group’s revenue from external customers comes from China.

The Group’s non-current assets are located within China.

The income from processing of sewage water segment of RMB1,258 million is derived from a single customer, accounting for 37% of the Group’s total revenue (For the year ended 31 December 2019: RMB1,110 million, 39%).

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

8 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS

(1) Information of the parent of the Company

(a) General information of the parent company

	Type	Place of registration	Legal representative	Nature of business and principal activities
Municipal	Limited company	Tianjin, China	Yu Zhongpeng	Development and management of
Investment				municipal infrastructures

The Company’s ultimate controlling party is City Infrastructure Construction and Investment.

(b) Registered capital and changes in registered capital of the parent company

Municipal Investment	31 December 2019 1,820,000	Increase in the year –	Decrease in the year –	31 December 2020 1,820,000

Municipal Investment	31 December 2020 Share holding (%) Voting Rights (%) 50.14% 50.14%	31 December 2019 Share holding (%) Voting Rights (%) 50.14% 50.14%

(2) Information of subsidiaries

The general information and other related information of the subsidiaries is set out in Note 6.

(3) Information of associates

The general information and other related information of the associates is set out in Note 4(9) (a).

(4) Information of other related parties

Relationship with the Group

Tianjin Lecheng Properties Co., Ltd. Tianjin City Resource Operation Co., Ltd. Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd.

Controlled by the same ultimate holding company Controlled by the same ultimate holding company Controlled by the same ultimate holding company

212 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

8 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (Continued)

(5) Related party transactions

In addition to the related party information shown elsewhere in the financial statements, the following is a summary of significant related party transactions between the Group and its related parties during the year:

(a) Purchase or sale of goods, provide or receive of services

Purchase of goods, receive of services:

Related Party Name Nature of Transaction City Infrastructure Construction and Investment Contracted operating expenses Rendering of services Related party name Nature of transaction City Infrastructure Construction and Investment Commission income from contract operation Tianjin Lecheng Properties Co., Ltd. Income from heating and cooling supply City Infrastructure Construction and Investment Commission income from technical services	2020 7,426 2020 84,004 28,763 6,467 119,234	2019 –
		2019 84,738 33,165 1,936
		119,839

Pricing on heating supply service with related parties is based on the reference price stipulated by government. Pricing on other services with related parties is negotiated by counter parties and referred to the market price.

(b) Sale-leaseback

Rent payment

Funders Type of leased assets Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd. Fixed assets	2020 3,800	2019 –

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

8 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (Continued)
(5) Related party transactions (Continued)
- (c) Guarantee:

The Group serves as guarantee.

==> picture [427 x 140] intentionally omitted <==

----- Start of picture text -----

Fully performed
Guarantor Guarantee Amount Starting date Due date or not
City Infrastructure Xi’an Capital Water 71,000 28 September 2008 27 September 2022 No
Construction and Co., Ltd.
Investment
(d) Key management compensation
2020 2019
Key management compensation 12,137 11,998
----- End of picture text -----

(6) Receivables from and payables to related parties

Receivables from related parties

Related party name Trade receivable City Infrastructure Construction and Investment Tianjin Lecheng Properties Co., Ltd. Tianjin City Resource Operation Co., Ltd.	31 December 2020 Carrying amount Provision 46,537 2,495 21,342 146 401 401 68,280 3,042	31 December 2019 Carrying amount Provision 60,423 3,208 4,650 312 401 136 65,474 3,656	31 December 2019 Carrying amount Provision 60,423 3,208 4,650 312 401 136 65,474 3,656
			3,656

The receivables from related parties arise mainly from daily transactions and are due within one year after the date of sales. The receivables are unsecured in nature and bear no interest. RMB3 million provisions are held against receivables from related parties.

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

8 RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (Continued)
(6) Receivables from and payables to related parties (Continued)

Payables to related parities

Related party Non-current liabilities due within one year Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd. Long-term payables Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd.	2020 7,600 8,600	2019 –
		–

(7) Transactions/balances with other state owned enterprises in the PRC

The Group operates in an economic environment currently predominated by enterprises directly or indirectly owned or controlled by the PRC government (hereinafter collectively referred to as “state-owned entities”). The company is also a state-owned entity.

During the year, the Group’s significant transactions with these state controlled entities include treatment of sewage and construction and management of related facility, supply of tap water and recycled water, and supply of heating and cooling services. At the end of the year, the majority of the Group’s cash and cash equivalents and borrowings are with state controlled banks.

9 COMMITMENTS

(1) Capital commitments

The Group’s capital commitments at the balance sheet date are as follows:

Intangible assets – Concession right – Sewage processing project – Tap water project – Heating and cooling supply project Property, plant and Equipment – Solid waste treatment project	Contracted but n 31 December 2020 RMB million 469 31 3 – 503	ot provided for 31 December 2019 RMB million 1,312 56 46 31 1,445	Authorised but no 31 December 2020 RMB million 220 – – – 220	t contracted for 31 December 2019 RMB million 908 68 112 34
				1,122

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

9 COMMITMENTS (Continued)

(2) Investment commitments

According to the announcement of the 43rd meeting of the 21st Board of Directors of the Company in January 2021, the Company plans to set up Honghu Tianchuang environmental protection Co., Ltd.. Honghu Tianchuang environmental protection Co., Ltd has a registered capital of RMB60 million yuan, in which the Company invested RMB53.40 million yuan, accounting for 89.00% of the shares.

10 IMPACT OF EVENTS AFTER THE BALANCE SHEET DATE

(1) Profit distribution

	Amount
Proposed dividend (a)	171,267
Dividends declared	152,713

(a) According to the resolution of the board of directors on 25 March 2021, the board of directors proposed that the Company distribute a dividend of RMB171 million to all shareholders, which was not recognized as a liability in this financial statement (note 4 (21) (c)).
(2) Acquisition of 100% equity interest in Gaoyou Compro Environmental Resources Co., Ltd. (“Gaoyo Compro”) and Jiangsu Yonghui Resources Utilization Co., Ltd. (“Jiangsu Yonghui”)

According to the approval of the meeting of Board of directors of the Group dated 24 December 2020, the Group proposed acquisition of 100% equity interest in Gaoyou Compro and Jiangsu Yonghui from their controlling shareholder, Bosideng Co., Ltd.. (collectively the “Target Companies”). The Target Companies are principally engaged in the provision of waste recycling and industrial solid waste incineration disposal services. The considerations for the aforesaid acquisitions are RMB383 million and RMB397 million respectively. The Group completed the payment of the consideration and industrial and commercial registration on 26 January 2021 (“the acquisition date”). As of the date of these consolidated financial statements, the Group is still assessing the fair value of the identifiable net assets of the Target Companies acquired on the acquisition date.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

10 IMPACT OF EVENTS AFTER THE BALANCE SHEET DATE (Continued)

(3) A Share Option Incentive Scheme

According to the approval of the meeting of Board of directors dated 27 November 2020, the Group is authorised to grant share options to certain directors and senior management. The number of share options proposed to be granted under the scheme is 14,270,000 and the corresponding number of underlying shares is 14,270,000 A shares, representing not more than 1.0% of the Company’s total issued share capital; where 12,170,000 options was granted on 21 January 2021, representing approximately 0.85% of the total issued capital of the Company; and 2,100,000 options will be reserved, representing approximately 0.15% of the total issued capital of the Company. The current share options shall not be exercised before the expiration of 24 months from the date of grant. The participants shall exercise the options if exercise conditions and performance indicators assessment are fulfilled. The exercise price of the share option granted under the scheme is RMB6.98 per share.

The exercise arrangement is as follows:

		Proportion of
Exercise period	Exercise time	exercise
First Exercise Period	From the first trading day after 24 months has passed	1/3
	since the date of grant to the last trading day within 36 months
	from the date of grant
Second Exercise Period	From the first trading day after 36 months has passed	1/3
	since the date of grant to the last trading day within 48 months
	from the date of grant
Third Exercise Period	From the first trading day after 48 months has passed	1/3
	since the date of grant to the last trading day within 60 months
	from the date of grant

During the vesting period, based on the best estimation of the number of viable equity instruments, the services acquired in the current period shall be included into relevant costs or expenses according to the fair value of the grant date of the share option, and the capital reserves shall be increased accordingly. If subsequent information indicates that the number of vestable interest instruments is different from previously estimation, it will be adjusted to the actual number of vestable equity instruments on the vestable date. On the exercise date, the amount to be transferred into the share capital shall be calculated based on the number of equity instruments actually exercised and transferred to the share capital. As of the date of these consolidated financial statements, the fair value of share options at the date of grant is still under valuation to be conducted by an independent valuer.

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

11 FINANCIAL INSTRUMENTS AND THEIR RISKS

The Group’s activities expose it to a variety of financial risks: market risk (primarily including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Those financial risks and the Group’s overall risk management program which focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance are as below:

The board of directors is responsible for the planning and establishment of the risk management framework of the Group, the formulation of the risk management policies and related guidelines of the Group and the supervision of the implementation of risk management measures. The Group has developed risk management policies to identify and analyze the risks faced by the Group. These risk management policies have specified specific risks, covering many aspects such as market risk, credit risk and liquidity risk management etc. The Group regularly assesses the market environment and changes in the Group’s business activities to determine whether the risk management policies and systems are updated. The risk management of the Group shall be conducted by the risk management committee in accordance with the policy approved by the board of directors. The risk management committee identifies and assesses and avoids risks through close cooperation with other business units of the Group. The internal audit department of the Group conducts regular audits on risk management control and procedures and reports the results to the audit committee of the Group.

(1) Market risk:

(a) Foreign exchange risk:

The Group has no significant foreign exchange risk as the operations and customers of the Group are located in the PRC with most of the operating assets and transactions denominated and settled in RMB. All of the Group’s borrowings are denominated in RMB. The sole foreign exchange risk of the Group arises from fluctuation of USD and JPY pursuant to the long-term payment scheme set out in the asset transfer agreement of foreign loan financed assets from Sewage Company (Note 4(16)(c)(ii)).

As at 31 December 2020, if RMB had strengthened/weakened by 5% against the USD with all other variables held constant, post-tax profit for the year would have been RMB3 million (31 December 2019: RMB4 million) higher/lower. Similarly, if RMB had strengthened/weakened by 5% against the JPY with all other variables held constant, post-tax profit for the year would have been RMB8 million (31 December 2019: RMB9 million) higher/lower.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

11 FINANCIAL INSTRUMENTS AND THEIR RISKS (Continued)

(1) Market risk: (Continued)
(b) Interest rate risk:

The Group’s interest rate risk arises mainly from interest-bearing liabilities including borrowings, long-term payables and debentures payable.

The Group has significant borrowings, long-term payables and debentures payable. Those taken at variable rates expose the Group to cash flow interest-rate risk, whilst those taken at fixed rates expose the Group to fair value interest-rate risk.

The Group’s finance department at its headquarters continuously monitor the interest rate position of the Group. Increases in interest rates will increase the cost of new borrowing and the interest expenses with respect to the Group’s outstanding floating rate borrowings, and therefore could have a material adverse effect on the Group’s financial performance. The Group makes adjustments timely with reference to the latest market conditions and may enter into interest rate swap agreements to mitigate its exposure to interest rate risk. During 2020 and 2019, the Group did not enter into any interest rate swap agreements.

The tables below set out the Group’s and the Company’s exposure to interest rate risks. Included in the tables are the liabilities at carrying amounts, categorized by the maturity dates.

At 31 December 2020 Non-current liabilities due within one year: Current portion of long-term borrowings Current portion of long-term payables Current portion of Debentures payable and interest Long-term borrowings Long-term payables Debentures payable Total	Fixed – 15,756 742,545 – 180,344 1,098,848 2,037,493	Floating 805,331 19,350 – 4,227,894 67,390 – 5,119,965	Total 805,331 35,106 742,545 4,227,894 247,734 1,098,848
			7,157,458

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

11 FINANCIAL INSTRUMENTS AND THEIR RISKS (Continued)

(1) Market risk: (Continued)
(b) Interest rate risk: (Continued)

At 31 December 2019 Short-term borrowings Other current liabilities Non-current liabilities due within one year: Current portion of long-term borrowings Current portion of long-term payables Long-term borrowings Long-term payables Debentures payable Total	Fixed 200,000 20,250 – 16,427 – 189,258 1,797,389 2,223,324	Floating – – 811,380 11,812 3,006,756 73,394 – 3,903,342	Total 200,000 20,250 811,380 28,239 3,006,756 262,652 1,797,389
			6,126,666

As at 31 December 2020, if interest rates on bank borrowings had been 1% higher/lower with all other variables held constant, post-tax profit for the year would have been lower/higher by RMB41 million (2019: RMB31 million).

The Group analyses its interest rate exposure by considering refinancing, renewal of existing positions and alternative financing resolution.

(2) Credit risk:

Credit risk arises from cash at bank, notes receivable, trade receivables, other receivables and contract assets. As at 31 December 2020, the book value of the Group’s financial assets represents its maximum credit exposure.

The Group manages credit risk on cash at bank by placing the majority of its cash at state owned/listed banks in the PRC. The Group has not had any significant loss arising from non-performance by these parties in the past and management does not expect so in the future.

In addition, the Group has policies to limit the credit exposure on notes receivable, trade receivables, other receivables and contract assets. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial position, the availability of guarantee from third parties, their credit history and other factors such as current market conditions. The credit history of the customers is regularly monitored by the Group. In respect of customers with a poor credit history, the Group will use written payment reminders, or shorten or cancel credit periods, to ensure the overall credit risk of the Group is limited to a controllable extent.

As at 31 December 2020, the Group has no significant collateral or other credit enhancements held as a result of the debtor’s mortgage (31 December 2019: Nil).

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

11 FINANCIAL INSTRUMENTS AND THEIR RISKS (Continued)

(3) Liquidity risk:

Cash flow forecasting is performed by each subsidiary of the Group and aggregated by the Group’s finance department in its headquarters. The Group monitors rolling forecasts of the Group’s short-term and long-term liquidity requirements to ensure it has sufficient cash and securities that are readily convertible to cash to meet operational needs, while maintaining sufficient headroom on its undrawn committed borrowing facilities from major financial institutions so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities to meet the short-term and long-term liquidity requirements.

The Group’s financial liabilities are analyzed at the balance sheet date to the contractual maturity date, using the contracted undiscounted cash flows, as follows:

Long-term borrowings Long-term payables Trade payables Other payables Debentures payable Short-term borrowings Other current liabilities Long-term borrowings Long-term payables Trade payables Other payables Debentures payable	Within 1 year 1,008,415 39,447 294,973 955,773 818,102 3,116,710 Within 1 year 205,738 21,131 970,469 32,058 231,293 1,534,014 78,780 3,073,483	1-2 years 816,994 39,064 – – 56,870 912,928 1-2 years – – 808,529 33,037 – – 775,128 1,616,694	31 December 2020 2-5 years Over 5 years 1,873,550 2,664,569 108,369 228,395 – – – – 1,118,957 – 3,100,876 2,892,964 31 December 2019 2-5 years Over 5 years – – – – 1,250,571 1,726,434 106,222 274,126 – – – – 1,175,827 – 2,532,620 2,000,560	Total 6,363,528 415,275 294,973 955,773 1,993,929 10,023,478 Total 205,738 21,131 4,756,003 445,443 231,293 1,534,014 2,029,735 9,223,357	Carrying amount 5,033,225 282,840 294,973 955,773 1,841,393 8,408,204 Carrying amount 200,000 20,250 3,818,136 290,891 231,293 1,534,014 1,797,389 7,891,973

12 FAIR VALUE ESTIMATION

The level in which fair value measurement is categorised is determined by the level of the fair value hierarchy of the lowest level input that is significant to the entire fair value measurement:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Inputs for the asset or liability that are not based on observable market data.

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

12 FAIR VALUE ESTIMATION (Continued)

(1) Assets measured at fair value on a recurring basis:

As at 31 December 2020 and 31 December 2019, the assets measured at fair value on a recurring basis by the above three levels are analysed below:

Other equity instruments investment – Unlisted equity instrument investments of Tianjin Beifang Rencaigang Co., Ltd Total financial assets Total assets	Level 3 2,000 2,000 2,000	Total 2,000
		2,000
		2,000

The fair value of financial instruments traded in an active market is determined at the quoted market price; and the fair value of those not traded in an active market is determined by the Group using valuation technique. The valuation models used mainly comprise discounted cash flow model and market comparable corporate model. The inputs of the valuation technique mainly include illiquidity discount.

Amounts of the Group’s financial instruments not traded in an active market are of no significance.

(2) Assets and liabilities not measured at fair value but disclosed

Financial assets and liabilities of the Group measured at amortized cost mainly include notes receivable, trade receivables, other receivables, long-term receivables, payables, short-term borrowings, long-term borrowings, debenture payable and long-term payables.

The carrying amount of the financial assets and liabilities of the Group not measured at fair value is a reasonable approximation of their fair value.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

13 CAPITAL MANAGEMENT

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and noncurrent borrowings, debentures payable, long-term payables and government loan of the Group) less cash. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.

The Group’s strategy is to maintain a gearing ratio below 50%. The gearing ratio of the Group is as follows:

Total borrowings Short-term borrowings Other current liabilities Long-term borrowings Debentures payable Long-term payables Less: Cash Net debt Total equity Total capital Gearing ratio	31 December 2020 7,157,458 – – 5,033,225 1,841,393 282,840 (1,652,657) 5,504,801 7,581,643 13,086,444 42%	31 December 2019 6,126,666 200,000 20,250 3,818,136 1,797,389 290,891 (2,066,301) 4,060,365 7,142,187 11,202,552 36%

As at 31 December 2020, the gearing ratio of the Group is increased compared to last year, which was mainly due to the increase of borrowings for new and upgrading projects.

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS

(1) Trade receivables

Trade receivables Less: Provision for bad debts	31 December 2020 1,183,519 (57,042) 1,126,477	31 December 2019 1,977,087 (19,006)
		1,958,081

(a) The ageing analysis of trade receivable is as follows:

Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total	31 December 2020 1,119,758 25,758 13,471 21,969 1,357 1,206 1,183,519	31 December 2019 1,370,989 576,139 25,132 3,620 – 1,207
		1,977,087

(b) As at 31 December 2020, the trade receivables from the top five debtors in respect of outstanding balance are analyzed as below:

Trade receivables from the top five debtors	Amount 1,135,497	Provision for bad debts (35,407)	% of total balance 96%

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)
(1) Trade receivables (Continued)
- (c) Provision for bad debts:

For the Company’s trade receivables, regardless of whether there is a significant financing component, the Company measures the loss allowance according to the expected credit loss for the entire life.

(i) As at 31 December 2020, provision for bad debts by individual is analyzed as below:

Tianjin Water Authority Bureau Tianjin City Appearance Sanitation Construction Development Co. Ltd. Tianjin Ziya Environmental Protection Industrial Park Co. Ltd. Tianjin Shuangkou Municipal Solid Waste Landfill Tianjin Tianbao Municipal Administration Co. Ltd Tianjin Water Recycling Co., Ltd. Tianjin City Investment Urban Resources Management Co., Ltd. Tianjin Ziya Circular Economy Industry Investment Development Co., Ltd. Total	Carrying amount ECL rate 1,012,083 0.05% 31,100 41.52% 16,797 100.00% 13,776 100.00% 3,612 100.00% 3,510 0.05% 1,200 100.00% 1,020 100.00% 1,083,098	Provision Reasons (554) Note 4 (3)(c)(i) (12,913) Note 4 (3)(c)(i) (16,797) Note 4 (3)(c)(i) (13,776) Note 4 (3)(c)(i) (3,612) Note 4 (3)(c)(i) (2) (1,200) Note 4 (3)(c)(i) (1,020) Note 4 (3)(c)(i) (49,874)

Tianjin Water Recycling Co., Ltd. is a subsidiary of the Company and has good operating conditions. The credit risk of receivables from Tianjin Water Recycling Co., Ltd. is low and the Company estimates that the lifetime ECL rate is 0.05%.

(ii) As at 31 December 2020, provision for bad debts by individual is analyzed as below:

Group – Government clients except those in provincial capitals and municipalities

Undue 1-180 days overdue >180 days overdue	31 December 2020 Carrying amount Provision Amount ECL rate Amount 7,762 0.05% (4) 39,152 5.41% (2,117) 293 22.87% (67) 47,207 (2,188)	31 December 2019 Carrying amount Provision Amount ECL rate Amount 33,595 5.31% (1,784) 16,645 5.31% (884) 10,475 5.68% (595) 60,715 (3,263)	31 December 2019 Carrying amount Provision Amount ECL rate Amount 33,595 5.31% (1,784) 16,645 5.31% (884) 10,475 5.68% (595) 60,715 (3,263)
			(3,263)

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(1) Trade receivables (Continued)
(c) Provision for bad debts: (Continued)
- (ii) As at 31 December 2020, provision for bad debts by individual is analyzed as below (Continued):

Group – other clients

Undue 1-90 days overdue >90 days overdue	31 December 2020 Carrying amount Provision Amount ECL rate Amount 5,333 6.85% (365) 13,479 6.85% (923) 34,402 10.73% (3,692) 53,214 (4,980)	31 December 2019 Carrying amount Provision Amount ECL rate Amount 3,085 6.70% (207) 5,986 6.70% (401) 19,467 12.40% (2,414) 28,538 (3,022)

The amount of provision for bad debts withdrawn in this year is about RMB40 million, of which the amount of provision for bad debts recovered is about RMB2 million and the related carrying amount of bad debt provision is about RMB57 million.

(2) Other receivables

Receivables from subsidiaries Project deposits VAT refund receivable (note (e)) Dividends receivable from subsidiaries Others Less: Provision for bad debts	31 December 2020 20,010 2,212 1,718 – 1,959 25,899 (16) 25,883	31 December 2019 37,361 23,496 24,004 1,820 1,299 87,980 (35) 87,945

As at 31 December 2020, there were no other receivables overdue but unimpaired (31 December 2019: Nil).

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)
(2) Other receivables (Continued)
- (a) The ageing analysis of other receivable is as follow:

Within 1 year 1 to 2 years 2 to 3 years Over 3 years Total	31 December 2020 22,892 1,696 7 1,304 25,899	31 December 2019 75,708 2,968 8,112 1,192
		87,980

(b) As at 31 December 2020 and 2019, the Group has no other receivables belonging to stage 2 and stage 3. Provisions for bad debts of other receivables in stage 1 are analyzed as follows：

Project Deposits Group: Within 1 year 1-2 years 2-3 years Over 3 years Subtotal Others： Within 1 year 1-2 years 2-3 years Over 3 years Subtotal Total	31 Carrying amount Amount 286 800 – 1,126 2,212 20,888 896 7 178 21,969 24,181	December 2020 Provision Amount Percentage – 0.05% – 0.05% – 0.05% (1) 0.05% (1) (14) 0.05% (1) 0.10% – 0.10% – 0.10% (15) (16)	31 Carrying amount Amount 11,450 2,920 8,060 1,066 23,496 38,434 48 52 126 38,660 62,156	December 2019 Provision Amount Percentage (6) 0.05% (2) 0.05% (4) 0.05% (1) 0.05% (13) (22) 0.05% – 0.10% – 0.10% – 0.10% (22) (35)

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(2) Other receivables (Continued)

(c) In 2020, the changes of other receivables’ provision of the Company is not significant.
(d) As at 31 December 2020, other receivables from the top five debtors in respect of outstanding balance are analyzed as below:

Nature Tianjin State Taxation Bureau VAT refund receivable State Grid Tianjin Electric Power Company Project deposits Huoqiu County Public Resources Trading Center Project deposits Tianjin Chenjin Technology Consulting Co., Ltd Project deposits Linde Gas (Langfang) Co., Ltd Rental of liquid chlorine tank	Balance Aging 1,718 Within 1 year 1,000 Above 3 years 800 1 to 2 years 120 Within 1 year 166 Within 1 year 3,804	% of total balance 6.63% 3.86% 3.09% 0.46% 0.64% 14.68%	Provision for bad debts – (1) – – – (1)

(e) As at 31 December 2020, government grants confirmed according to receivables are analyzed as below:

Name Amount Aging Estimated time, amount and basis of collection VAT refund 1,718 Within 1 year It’s expected to received fully in 2021 because the nature is VAT refund.

(3) Long-term equity investments

Investment in subsidiaries (a) Associate (b) Less: Impairment of Long-term equity investments (c)	31 December 2020 4,181,549 195,000 (153,004) 4,223,545	31 December 2019 4,012,806 195,000 (140,754) 4,067,052

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(3) Long-term equity investments (Continued)
(a) Subsidiaries

Xi’an Capital Water Co., Ltd. Hangzhou Tianchuang Capital Water Co., Ltd. Qujing Capital Water Co., Ltd. Guizhou Capital Water Co., Ltd Fuyang Capital Water Co., Ltd. (note(i)) Tianjin Water Recycling Co., Ltd. Wuhan Tianchuang Capital Water Co., Ltd. Tianjin Capital Environmental Protection (Hong Kong) Co., Ltd. Wendeng Capital Water Co., Ltd. Tianjin Jiayuan Xingchuang Energy Technology Co., Ltd Anguo Capital Water Co., Ltd. Baoying Capital Water Co., Ltd. Tianjin Capital New Materials Co., Ltd. Tianjin Caring Technology Development Co., Ltd Subtotal	Investment cost 424,000 264,212 154,918 114,000 390,111 100,436 197,229 62,987 61,400 191,600 41,000 58,100 26,500 16,000 2,102,493	31 December 2019 334,000 264,212 154,918 114,000 390,111 100,436 197,229 12,706 61,400 191,600 – 58,100 – 16,000 1,894,712	Movement for the year Additions Disposals Provision 90,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 90,000 – –	31 December 2020 424,000 264,212 154,918 114,000 390,111 100,436 197,229 12,706 61,400 191,600 – 58,100 – 16,000 1,984,712	Provision for impairment Cash dividends declared/ Investment income in the current year – 42,200 – 59,927 – – – 6,650 – 58,000 – 143,200 – – (50,281) – – 7,000 – 10,000 (41,000) – – 1,820 (26,500) – – 5,760 (117,781) 334,557	Provision for impairment Cash dividends declared/ Investment income in the current year – 42,200 – 59,927 – – – 6,650 – 58,000 – 143,200 – – (50,281) – – 7,000 – 10,000 (41,000) – – 1,820 (26,500) – – 5,760 (117,781) 334,557
						334,557

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(3) Long-term equity investments (Continued)
(a) Subsidiaries (Continued)

Tianjin Jinning Capital Water Co., Ltd. Tianjin Jing Hai Capital Water Co., Ltd Yingshang Capital Water Co., Ltd. Shangdong Capital Environmental Protection Technology Development Co., Ltd. Changsha Tianchuang Environmental Protection Co., Ltd. (note(i)) Karamay Tianchuang Capital Water Co., Ltd. Anhui Tianchuang Capital Water Co., Ltd. Linxia Capital Water Co., Ltd. Dalian Oriental Chunliuhe Water Quality Purification Co., Ltd. Changsha Tianchuang Capital Water Co., Ltd. (note(ii)) Inner Mogolia Bayannur Capital Water Co.Ltd. Honghu Tianchuang Capital Water Co., Ltd. Hefei Capital Water Co., Ltd. Deqing Capital Water Co., Ltd. Hebei Guojin Tianchuang Sewage Water Processing Co., Ltd. Hanshou Tianchuang Capital Water Co., Ltd. Jiuquan Capital Water Co., Ltd. Huize Capital Water Co., Ltd. (note(iii)) Huoqiu Capital Water Co., Ltd. (note(iii)) Dongying Tianchi Environmental Protection Technology Consultant Co., Ltd. (note(iii)) Subtotal Total	Investment cost 22,560 37,553 53,000 105,600 37,469 108,000 63,670 45,000 47,981 17,002 776,957 111,631 205,957 54,000 128,323 33,750 158,238 32,660 37,155 2,550 2,079,056 4,181,549	31 December 2018 7,560 29,580 53,000 105,600 32,775 108,000 63,670 45,000 47,981 15,318 776,957 111,631 205,957 54,000 128,323 33,750 158,238 – – – 1,977,340 3,872,052	Movement for the year Additions Disposals Provision – – – – – (12,250) – – – – – – 4,694 – – – – – – – – – – – – – – 1,684 – – – – – – – – – – – – – – – – – – – – – – – 32,660 – – 37,155 – – 2,550 – – 78,743 – (12,250) 168,743 – (12,250)	31 December 2019 7,560 17,330 53,000 105,600 37,469 108,000 63,670 45,000 47,981 17,002 776,957 111,631 205,957 54,000 128,323 33,750 158,238 32,660 37,155 2,550 2,043,833 4,028,545	Provision for impairment Cash dividends declared/ Investment income in the current year (15,000) – (20,223) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (35,223) – (153,004) 334,557	Provision for impairment Cash dividends declared/ Investment income in the current year (15,000) – (20,223) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (35,223) – (153,004) 334,557
						–
						334,557

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(3) Long-term equity investments (Continued)
(a) Subsidiaries (Continued)
- (i) In 2020, the Company increased capital of RMB4.7 million to its subsidiary Changsha Tianchuang Capital Environmental Protection Co., Ltd., to ensure the treatment effect and normal operation of the sewage treatment plant of the PPP project. It is used to add an emergency pool on the existing basis of the sewage treatment plant.
- (ii) In 2020, the Company increased capital of RMB1.68 million to Changsha Tianchuang Capital Water Co., Ltd. for the additional investment in the PPP project construction, due to the increasing work from the change of local land regulation and environmental protection requirements.
- (iii) In 2019, the Company contributed RMB33 million to set up Hebei Guojin Tianchuang Sewage Water Processing Co., Ltd. RMB34 million to set up Huize Capital Water Co., Ltd., RMB37 million to set up Huoqiu Capital Water Co., Ltd., and RMB3 million to set up Dongying Tianchi Environmental Protection Technology Consultant Co., Ltd.. The shareholding ratio is 79%, 90% and 51% respectively.

(b) Associate

In 2018, the consortium formed by Bishuiyuan Technology Co., Ltd., Jiu ‘an Investment Group Co., Ltd. and the Company won the bidding for the PPP project of sponge city construction in the Jiefang Nan road of Tianjin. After winning the bid, the parties jointly set up the project company Tianjin Bihai Sponge City Co., Ltd. The Company invested 195 million yuan, and the shareholding ratio is 30%.(Note 4(9)(a))

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(3) Long-term equity investments (Continued)
(c) Provision for impairment of long-term equity investments

Tianjin Capital Environmental Protection (Hong Kong) Co., Ltd. Anguo Capital Water Co., Ltd. Tianjin Capital New Materials Co., Ltd. Tianjin Jinning Capital Water Co., Ltd. Tianjin Jing Hai Capital Water Co., Ltd (i)	31 December 2019 50,281 41,000 26,500 15,000 7,973 140,754	Additions – – – – 12,250 12,250	Disposals – – – – – –	31 December 2020 50,281 41,000 26,500 15,000 20,223
				153,004

(i) According to estimated future operating conditions, the Group has conducted an impairment assessment on the Long term equity investment of Tianjin Jinghai Capital Water Co., Ltd. and recognised impairment provision of approximately RMB12 million in 2020.

(4) Revenue and cost of sales

Principal operations Other operations	2020 Revenue Cost of sales 1,320,960 799,368 167,247 128,440 1,488,207 927,808	2019 Revenue Cost of sales 1,172,834 733,854 142,458 119,339 1,315,292 853,193	2019 Revenue Cost of sales 1,172,834 733,854 142,458 119,339 1,315,292 853,193
			853,193

(a) Revenue from principal operations and cost of sales

Analysis by the nature of services is as below:

Processing of sewage water Road tolls Others	2020 Revenue from principal operations Cost of sales 1,258,356 792,248 62,604 7,120 – – 1,320,960 799,368	2019 Revenue from principal operations Cost of sales 1,110,318 726,516 62,302 7,120 214 218 1,172,834 733,854	2019 Revenue from principal operations Cost of sales 1,110,318 726,516 62,302 7,120 214 218 1,172,834 733,854
			733,854

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)
(4) Revenue and cost of sales (Continued)
- (b) Revenue from other operations and cost of sales

Contract operation income Technical service Construction services Rental (i) Others	2020 Revenue from other operations Cost of sales 119,287 109,171 35,422 3,751 6,467 4,336 3,131 9,592 2,940 1,590 167,247 128,440	2019 Revenue from other operations Cost of sales 120,254 101,459 7,816 2,923 1,936 917 12,452 14,040 – – 142,458 119,339

(i) The company gets its rental income from renting its buildings and structures. As of 2020, there’s no rental income recognized based on a certain portion of the lessee’ sales revenue.
(c) The Company’s operating income is analyzed as follows:

Revenue Of which: confirm at a point in time Confirm over time Other operating income Of which: confirm at a point in time Confirm over time Revenue Of which: confirm at a point in time Confirm over time Other operating income Of which: confirm at a point in time Confirm over time	Processing of sewage water Tianjin 1,258,356 – 1,258,356 – – – 1,258,356 Processing of sewage water Tianjin 1,110,318 – 1,110,318 – – – 1,110,318	Road tolls 62,604 – 62,604 – – – 62,604 Road tolls 62,302 – 62,302 – – – 62,302	Contract operation income – – – 119,287 – 119,287 119,287 Contract operation income – – – 120,254 – 120,254 120,254	2020 Rental Construction services – – – – – – 3,131 6,467 – – 3,131 6,467 3,131 6,467 2019 Rental Construction services – – – – – – 12,452 1,936 – – 12,452 1,936 12,452 1,936	Technical service – – – 35,422 – 35,422 35,422 Technical service – – – 7,816 – 7,816 7,816	Others – – – 2,940 – 2,940 2,940 Others 214 – 214 – – – 214	Total 1,320,960 – 1,320,960 167,247 – 167,247
							1,488,207
							Total 1,172,834 – 1,172,834 142,458 – 142,458
							1,315,292

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Notes to the Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued)

(4) Revenue and cost of sales (Continued)
(c) The Company’s operating income is analyzed as follows: (Continued)

As at 31 December 2020, service bills of the Company’s sewage water processing service are regularly issued to customers, based on contract agreed price and actual sewage water treatment capacity. And the amount of bills represent the entity’s progress toward complete satisfaction of the performance obligation to transfer each distinct good or service in the series to customers. And there is no consideration amount which is not included in the transaction price, thus it’s not included in the required information to be disclosed for the transaction price allocated to the remaining performance obligation.

As at 31 December 2020, the consideration for contract operation services of RMB91 million (31 December 2019: RMB37 million) of which the contracts were signed but the performance obligations is not yet fully completed. Among them, the company expects that about RMB90 million and about RMB1 million will be recognized in 2021 and 2022 respectively; the consideration for agent construction service of RMB6 million (31 December 2019: RMB13 million) of which the contracts were signed but the performance obligations is not yet fully completed. Among them, the company expects to recognize revenue of RMB6 million in 2021; a contract of road tolls service fee of RMB509 million (31 December 2019: RMB571 million) was signed but the performance obligations is not yet fully completed, among which the Group expects to recognise RMB62 million as revenue in every year from 2021 to 2028, and RMB13 million as revenue in 2029.

(5) Investment income

Dividend income from other equity instruments investment Interest income from entrusted loans	2020 334,557 21,946 356,503	2019 184,590 34,807
		219,397

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12. Financial Statements prepared in accordance with PRC Accounting Standards for Business Enterprises Supplement of the Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

1 STATEMENT OF NONRECURRING PROFIT OR LOSS

Government Grants Gains on disposal of other non-current assets Losses on disposal of fixed assets Net gains/(losses) on disposal of fixed assets Other non-operating income and expenses – net Reversal of provision for trade receivables bad debts by individual Effect of income tax Effect of minority interests (after tax) Total	2020 96,577 – (46) 67 (4,702) 437 92,333 (15,506) 52 76,879	2019 108,103 48,703 (590) 1,294 (1,520) –
		155,990 (31,496) (1,839)
		122,655

Basis for preparation of statement of non-recurring profit or loss

Under the requirements in Explanatory Announcement No. 1 on Information Disclosure by Companies Offering Securities to the Public – Non-recurring Profit or Loss [2008] from China Security Regulatory Commission (“CSRC”), non-recurring profit or loss refers to those arises from transactions and events that are not directly relevant to ordinary activities, or that are relevant to ordinary activities, but are extraordinary and not expected to recur frequently that would have an influence on users of financial statements making economic decisions on the financial performance and profitability of an enterprise.

2 RECONCILIATION STATEMENT OF INLAND AND ABROAD FINANCIAL STATEMENT

There is no difference on inland and abroad financial statement of the Group.

3 RATE OF RETURN ON NET ASSETS AND EARNINGS PER SHARE

	Weighted average income	rate of net assets (%)	Basic/Diluted	earnings per share
	For the year ended	For the year ended	For the year ended	For the year ended
	31 December 2020	31 December 2019	31 December 2020	31 December 2019
Net profit attributable to ordinary shareholders
of the Company	8.95	8.48	0.40	0.36
Net profit attributable to ordinary shareholders
of the Company after deducting non-recurring profit or loss	7.74	6.43	0.35	0.27

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13. Independent Auditor’s Report

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Tianjin Capital Environmental Protection Group Company Limited

(incorporated in the People’s Republic of China with limited liability)

OPINION

What we have audited

The consolidated financial statements of Tianjin Capital Environmental Protection Group Company Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 242 to 339, which comprise:

the consolidated balance sheet as at 31 December 2020;
the consolidated statement of profit or loss and other comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Our opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

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13. Independent Auditor’s Report

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter identified in our audit is the assessment of expected credit losses for trade receivables.

Key Audit Matter

How our audit addressed the Key Audit Matter

Assessment of expected credit losses for trade receivables

Refer to Notes 3.1(b)(ii), 19 and 22 to the consolidated financial statements

We performed the following procedures to address the key audit matter:

As at 31 December 2020, the Group’s gross trade receivables amounted to approximately RMB3,559,373,000 (including the portion of the trade receivables due from a government authority of approximately RMB1,431,761,000 as included in the Group’s longterm receivables (Note 19(a))), represented approximately 19% of the total assets of the Group, and a loss allowance of RMB169,312,000 (including a loss allowance of approximately RMB783,000 as included in the Group’s long-term receivables) was recognised on these trade receivables.

The balance of loss allowance for trade receivables represent the management’s best estimates on the expected credit losses (“ECL”) for these trade receivables as of the balance sheet date.

Obtained an understanding of the key management’s internal control and process for the assessment of ECL for trade receivables and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity, changes and susceptibility to management bias or fraud.
Evaluated the outcome of prior period assessment of ECL for trade receivables to assess the effectiveness of management’s estimation process.
Evaluated the appropriateness of the methodology and model as adopted by management for the calculation of credit loss allowance by considering the nature and characteristics of trade debtors;
Assessed the reasonableness of management’s assessment of ECL by considering the reasonableness of grouping category of trade debtors, checking the accuracy of the aging analysis of trade receivables to invoices and related supporting documentation on a sample basis, and comparing the estimated default rate to existing market data.

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13. Independent Auditor’s Report

KEY AUDIT MATTERS (Continued)

Key Audit Matter (Continued)

How our audit addressed the Key Audit Matter (Continued)

Assessment of expected credit losses for trade receivables (Continued)

Evaluated the reasonableness of the economic growth data as selected by management for the forward-looking adjustments on the applied ECL rates by comparing with those as obtained from our research on the macroeconomic data as published in China.
Checked the mathematical accuracy of the calculation of the provision for loss allowance.

OTHER INFORMATION

The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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13. Independent Auditor’s Report

RESPONSIBILITIES OF DIRECTORS AND AUDIT COMMITTEE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The audit committee of the Company is responsible for overseeing the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

13. Independent Auditor’s Report

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the audit committee of the Company regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the audit committee of the Company with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

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13. Independent Auditor’s Report

From the matters communicated with the audit committee of the Company, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Chong Heng Hon.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 25 March 2021

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14. Financial Statements prepared in accordance with Hong Kong Financial Reporting Standards Consolidated Statement of Profit or Loss and Other Comprehensive Income

		For the year ended 31 December 2020	For the year ended 31 December 2020
		(All amounts in RMB yuan unless otherwise stated)
	Notes	2020	2019
		RMB’000	RMB’000
Revenue from contracts with customers	5	3,363,874	2,851,453
Cost of sales	7	(2,233,128)	(1,984,537)
Tax expenses and surcharge		(48,769)	(45,716)
Gross profit		1,081,977	821,200
Distribution costs	7	(15,879)	(7,075)
Administrative expenses	7	(178,078)	(168,661)
Net impairment losses on financial assets	3.1(b)	(88,332)	(31,383)
Other income	6	162,410	166,989
Other – (losses)/gains – net	10	(4,814)	47,875
Operating profit		957,284	828,945
Finance income		23,035	23,951
Finance costs		(262,135)	(223,347)
Finance costs – net	9	(239,100)	(199,396)
Profit before income tax		718,184	629,549
Income tax expense	12	(112,046)	(100,587)
Profit for the year		606,138	528,962
Other comprehensive income for the year, net of tax		–	–
Total comprehensive income for the year		606,138	528,962
Profit and total comprehensive income for the year is attributable to:
Owners of the Company		570,039	507,107
Non-controlling interests		36,099	21,855
		606,138	528,962
Earnings per share for profit attributable to the owners
of the Company (in RMB Yuan):
Basic earnings per share	11	0.40	0.36
Diluted earnings per share	11	0.40	0.36

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Consolidated Balance Sheet

As at 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

Notes ASSETS Non-current assets Right-of-use assets 14 Property, plant and equipment 15 Intangible assets 16 Deferred income tax assets 31 Investments accounted for using the equity method 17b Financial asset at fair value through other comprehensive income 18 Long-term receivables 19 Other non-current assets 20 Total non-current assets Current assets Inventories 21 Trade receivables 22 Prepayments Other receivables 23 Other current assets 20 Restricted cash 24 Cash and cash equivalents 24 Total current assets Total assets	2020 RMB’000 77,607 819,354 11,922,211 12,965 195,000 2,000 1,647,402 330,971 15,007,510 17,460 1,961,739 26,220 24,117 102,277 10,989 1,652,657 3,795,459 18,802,969	2019 RMB’000 58,080 801,007 11,701,362 4,209 195,000 2,000 236,450 195,919
		13,194,027
		14,805 2,508,895 38,583 65,156 89,728 13,312 2,066,301
		4,796,780
		17,990,807

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Consolidated Balance Sheet

			As at 31 December 2020
		(All amounts in RMB yuan unless otherwise stated)
	Notes	2020	2019
		RMB’000	RMB’000
LIABILITIES
Non-current liabilities
Borrowings	28	5,574,476	5,066,797
Deferred revenue	30	1,981,434	2,059,702
Deferred income tax liabilities	31	100,799	125,587
Provisions for other liabilities and charges	32	13,737	11,665
Other non-current liabilities	29	34,000	36,000
Total non-current liabilities		7,704,446	7,299,751
Current liabilities
Trade payables	33(a)	294,973	231,293
Contract liabilities	5(c)	527,410	558,472
Salaries and wages payables		85,620	66,100
Income tax and other taxes payables	33(c)	56,841	86,188
Dividend payable		142	1,172
Other payables	33(b)	955,631	1,532,842
Borrowings	28	1,582,982	1,059,869
Provisions for other liabilities and charges	32	13,281	12,933
Total current liabilities		3,516,880	3,548,869
Total liabilities		11,221,326	10,848,620
Net assets		7,581,643	7,142,187
EQUITY
Share capital	25	1,427,228	1,427,228
Other reserves	26	1,050,078	989,274
Retained earnings	27	4,114,045	3,757,523
Equity attributable to owners of the Company		6,591,351	6,174,025
Non-controlling interests		990,292	968,162
Total equity		7,581,643	7,142,187

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

The consolidated financial statements on pages 242 to 339 were approved by the Board of Directors on 25 March 2021 and were signed on its behalf.

Liu Yujun Chairman

Niu Bo Director

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Consolidated Statement of Changes in Equity

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

Balance at 1 January 2019 Comprehensive income Profit for the year Transactions with owners in their capacity as owners – Capital contribution from non-controlling interests – Profit appropriation to statutory reserves – Dividends declared Balance at 31 December 2019 Balance at 1 January 2020 Comprehensive income Profit for the year Transactions with owners in their capacity as owners – Capital contribution from non-controlling interests – Profit appropriation to statutory reserves – Dividends declared Balance at 31 December 2020	Attributable to owne	Attributable to owne	rs of the Company Retained earnings Total RMB’000 RMB’000 3,442,844 5,818,203 507,107 507,107 – – (41,143) – (151,285) (151,285) 314,679 355,822 3,757,523 6,174,025 3,757,523 6,174,025 570,039 570,039 – – (60,804) – (152,713) (152,713) 356,522 417,326 4,114,045 6,591,351	Non- controlling interests RMB’000 796,764 21,855 150,715 – (1,172) 171,398 968,162 968,162 36,099 18,306 – (32,275) 22,130 990,292	Total Equity RMB’000 6,614,967 528,962 150,715 – (152,457) 527,220 7,142,187 7,142,187 606,138 18,306 – (184,988) 439,456 7,581,643
	Share capital RMB’000 1,427,228 – – – – – 1,427,228 1,427,228 – – – – – 1,427,228	Other reserves RMB’000 948,131 – – 41,143 – 41,143 989,274 989,274 – – 60,804 – 60,804 1,050,078	Retained earnings RMB’000 3,442,844 507,107 – (41,143) (151,285) 314,679 3,757,523 3,757,523 570,039 – (60,804) (152,713) 356,522 4,114,045

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Consolidated Statement of Cash Flows

Financial Reporting Standards Consolidated Statement of Cash Flows
		For the year ended 31 December 2020
		(All amounts in RMB yuan unless otherwise stated)
		2020	2019
	Note	RMB’000	RMB’000
Cash flows from operating activities
Cash generated from operations	34(a)	671,640	934,737
Income taxes paid		(162,065)	(109,998)
Bank deposit interest received		14,404	14,547
Net cash inflow from operating activities		523,979	839,286
Cash flows from investing activities
Payments for property, plant and equipment, and intangible assets		(1,543,318)	(2,058,617)
Proceeds from sale of property, plant and equipment and other current assets	34(c)	623	55,136
Receipts of restricted cash		6,237	19,791
Payment for restricted cash		(3,914)	(15,445)
Government grants received		8,457	45,647
Net cash outflow from investing activities		(1,531,915)	(1,953,488)
Cash flows from financing activities
Proceeds from borrowings		2,700,168	2,403,553
Repayments of borrowings		(1,689,129)	(831,072)
Dividends paid to Company’s shareholders		(152,571)	(153,197)
Dividends paid to non-controlling interests		(33,447)	–
Interest paid		(249,035)	(198,039)
Capital contributions by non-controlling interests		18,306	150,715
Net cash inflow from financing activities		594,292	1,371,960
Net (decrease)/increase cash and cash equivalents		(413,644)	257,758
Cash and cash equivalents at beginning of the year		2,066,301	1,808,543
Cash and cash equivalents at end of the year	24	1,652,657	2,066,301

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

1 GENERAL INFORMATION

Tianjin Capital Environmental Protection Group Company Limited (the “Company”) was established on 8 June 1993 in Tianjin, the People’s Republic of China (the “PRC”) as a joint stock limited liability Company. The immediate holding company and the ultimate holding company of the Company are Tianjin Municipal Investment Co., Ltd. (“Municipal Investment”) and Tianjin City Infrastructure Construction and Investment Group Co., Ltd. (“City Infrastructure Construction and Investment”) respectively. The address of the Company’s registered office is 12/F, TCEP building, 76 Weijin South Road, Nankai District, Tianjin. The Company’s H-shares are listed on The Stock Exchange of Hong Kong Limited and the Company’s A-shares are listed on The Shanghai Stock Exchange. These consolidated financial statements are presented in Renminbi Yuan (‘RMB’), unless otherwise stated.

The principal activities of the Company and its subsidiaries (collectively the “Group”) include processing of sewage water, supply of tap water and recycled water, supply of heating and cooling and provision of waste treatment and disposal service as described below:

(a) Processing of sewage water

Pursuant to relevant agreements (“Service concession right agreements”), the Group currently provides sewage water processing services via the following plants:

Plant	Location	Agreement date	Customer
Guiyang	Guizhou	16 September 2004	Guiyang City Administration Bureau
Baoying	Jiangsu	13 June 2005	Baoying Construction Bureau
Chibi	Hubei	15 July 2005	Chibi Construction Bureau
Fuyang	Anhui	18 December 2005	Anhui Fuyang Construction Committee
Qujing	Yunnan	25 December 2005	QuJing Construction Bureau
			(Renamed as “QuJing Housing and Urban
			Construction Bureau”)
Honghu	Hubei	29 December 2005	Honghu Construction Bureau
Hangzhou	Zhejiang	20 November 2006	Hangzhou Municipal Facilities Development Center
			(Changed to Hangzhou City Water Facilities and
			River Protection Management Center)
Jinghai	Tianjin	12 September 2007	Tianjin Tianyu Science Technology Park
Wendeng	Shandong	19 December 2007	Wendeng Construction Bureau
Xi’an	Shaanxi	18 March 2008	Xi’an Infrastructure Investment Group
Xianning	Hubei	16 October 2008	Xianning Construction Committee
Yingdong	Anhui	10 August 2009	Fuyang Yingdong Construction Bureau
Ninghe	Tianjin	21 September 2010	Management Committee of Modern Industrial Zone of Ninghe
Qujing	Yunnan	16 August 2011	QuJing Housing and Urban Construction Bureau
Chaohu	Anhui	25 August 2011	Hanshan Housing and Urban Construction Bureau
Jingu	Tianjin	18 February 2014	Tianjin Urban-rural Construction Commission
			(“TUCC”) and Tianjin Water Authority Bureau(“TWAB”)
Xianyanglu	Tianjin	18 February 2014	TUCC and TWAB
Dongjiao	Tianjin	18 February 2014	TUCC and TWAB
Beicang	Tianjin	18 February 2014	TUCC and TWAB
Yingshang	Anhui	16 June 2016	Yingshang Housing and Urban Construction Bureau
Karamay	Xinjiang	4 November 2016	Karamay Construction Bureau
Linxia	Gansu	13 May 2017	Linxia Housing and Urban Construction Bureau
Changsha	Hunan	5 June 2017	Ningxiang Economic & Technology Development zone
			Management Committee
Hefei	Anhui	16 June 2017	Hefei Urban Construction Committee

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

1 GENERAL INFORMATION (Continued)

(a) Processing of sewage water (Continued)

Plant	Location	Agreement date	Customer
Dalian	Liaoning	1 November 2017	Dalian Construction Bureau
Bayannur	Inner Mongolia	12 December 2017	Bayannur Water Authority Bureau and
			Bayannur River Water Group Co., Ltd.
Changsha	Hunan	27 April 2018	Ningxiang Economic and Technological
			Development Zone Management Committee
Honghu	Hubei	9 June 2018	Honghu Housing and Urban Construction Bureau
Shibing	Guizhou	12 July 2018	Shibing Water Authority Bureau
Hefei	Anhui	28 November 2018	Hefei Urban-rural Construction Commission
Deqing	Zhejiang	1 January 2019	Deqing Qianyuan Municipal Government
Jieshou	Anhui	2 March 2019	Jieshou Urban and Rural Construction Committee
Gaocheng	Hebei	2 April 2019	Hebei Gaocheng Economic Development Zone
			Management Committee
Jiuquan	Gansu	22 June 2019	Jiuquan Suzhou Municipal Government
Yingdong	Fuyang	26 August 2019	Fuyang Urban-rural Construction Commission
Huoqiu	Anhui	2 January 2020	Huoqiu Urban-rural Construction Commission
Huize	Yunnan	24 February 2020	Huize Urban-rural Construction Commission

Based on the sewage water processing agreements and the supplemental agreements, initial prices for sewage water processing are predetermined, thereafter processing prices may be revised taking into account various factors including renovation of equipment, additional investment, power and energy and labour force, and significant changes in government policy.

(b) Supply of tap water

Pursuant to the relevant agreements, the Group provides tap water supply service initially at pre-determined price and the prices as pre-determined may be revised subsequently taking into account various cost factors.

(c) Recycled water supply and pipeline connection

The Group’s recycled water business includes developing, constructing and operating of recycled water projects, production, and supply of recycled water, and provision of related research and development and technical consultation services.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

1 GENERAL INFORMATION (Continued)

(d) Heating and cooling supply services

The heating and cooling supply services include design, construction, operations and transfer of centralised heating and cooling infrastructures; and provision of heating and cooling supply services.

The Group has signed several service concession agreements with several customers of providing heating and cooling supply services to third parties.

(e) Waste treatment and disposal service

The Group’s waste treatment and disposal service includes hazardous wastes and general solid waste. Currently, the Group conducts the disposal by way of incineration, landfill, and physicochemical treatment and solidify.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements are for the Group consisting of the Company and its subsidiaries.

2.1 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 (“HKCO”) Cap.622.

(b) Historical cost convention

The financial statements have been prepared on the historical cost basis expect for some financial assets at fair value through other comprehensive income which are measured at fair value.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.1 Basis of preparation (Continued)
(c) New and amended standards adopted by the Group

The Group has applied the following amended standards and revised conceptual framework for the first time for their annual reporting period commencing 1 January 2020:

Definition of Material – amendments to HKAS 1 and HKAS 8
Definition of a Business – amendments to HKFRS 3
Interest Rate Benchmark Reform – amendments to HKFRS 9, HKAS 39 and HKFRS 7
Revised Conceptual Framework for Financial Reporting

The Group also elected to adopt the following amended standard and annual improvements early.

Annual Improvements to HKFRS Standards 2018-2020 Cycle.

The adoption of the abovementioned amended standards, revised conceptual framework and annual improvements did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

(d) New standards and interpretations not yet adopted

Certain other new accounting standards and interpretations have also been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These amended standards and interpretations are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.2 Principles of consolidation and equity accounting

(a) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 2.3).

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

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

(b) Associates

Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost.

(c) Equity method

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.2 Principles of consolidation and equity accounting (Continued)
(c) Equity method (Continued)

When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in associates. Unrealised losses are also eliminated unless the transaction provides the evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in Note 2.9.

(d) Changes in ownership interests

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of the Group.

When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRS.

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

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.3 Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

fair values of the assets transferred;
liabilities incurred to the former owners of the acquired business;
equity interests issued by the Group;
fair value of any asset or liability resulting from a contingent consideration arrangement; and
fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any noncontrolling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the noncontrolling interest’s proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred.

The excess of the:

consideration transferred,
amount of any non-controlling interest in the acquired entity, and
acquisition-date fair value of any previous equity interest in the acquired entity

over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the

fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.

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14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.3 Business combinations (Continued)

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

2.4 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost also includes direct attributable costs

of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

2.5 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.

The Board of Director of the Company has appointed a strategic steering committee which assesses the financial performance and position of the Group, and makes strategic decisions. The steering committee, which has been identified as being the chief operating decision maker, consists of the chief executive officer, the chief financial officer and the manager for corporate planning.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.6 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in RMB, which is the Company’s functional and Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings are presented in the consolidated statement of profit or loss and other comprehensive income, within finance costs.

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

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.6 Foreign currency translation (Continued)
(c) Group companies

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

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
income and expenses for each consolidated statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and
all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.7 Property, plant and equipment

Property, plant and equipment comprise buildings and constructions, machinery and equipment, motor vehicles and others.

All property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment (if any). Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives as follows:

	Estimated	Estimated rate of	Annual rate of
	useful lives	residual value	depreciation
Buildings and constructions	10-50 years	0%-5%	1.9%-10%
Machinery and equipment	10-20 years	0%-5%	4.8%-10%
Motor vehicles and others	5-10 years	0%-5%	9.5%-20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.9).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘Other (losses)/gains – net’ in the consolidated statement of profit or loss and other comprehensive income.

257

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.7 Property, plant and equipment (Continued)

Construction-in-progress (‘CIP’) is measured at actual cost. Actual cost comprises construction costs, installation costs, other costs necessary to bring the property, plant and equipment ready for their intended use and borrowing costs that are eligible for capitalisation. Depreciation begins from the month when the assets are ready for their intended use. When the recoverable amount of CIP is lower than its carrying value, the carrying value shall be reduced to its recoverable amount.

One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets. The cost of such property, plant and equipment received is measured at carrying amount of the asset given up if the exchange transaction lacks commercial substance.

An exchange transaction has commercial substance if:

(a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or
(b) the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange; and
(c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

2.8 Intangible assets

(a) Service concession rights

As described in Note 1(a), (b) and (d), the Group contracts with government bodies and their subordinate enterprises and participates in the development, financing, operation and maintenance of infrastructure for public services (“Concession Services”) over a specified period of time (“Concession services period”). The Group has access to operate the infrastructures to provide the Concession Services in accordance with the terms specified in the arrangements.

The arrangements are governed by the relevant concession services agreements which set out performance standards and mechanisms for adjusting prices.

258

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.8 Intangible assets (Continued)
- (a) Service concession rights (Continued)

The concession services arrangement is within the scope of HK (IFRIC) – Interpretation 12, and the Group recognises the related rights in the services concession arrangements as intangible assets or financial assets. The operator shall recognise an intangible asset to the extent that it receives a right (license) to charge users of the public service and shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial assets from the grantor. Concession right as intangible assets is recognised for the right under these service concession arrangements by the Group, which are amortised on a straight-line basis over the terms of operation ranging from 20 to 30 years.

One or more intangible assets may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The cost of such an intangible asset is measured at carrying amount of the assets given up if the exchange transaction lacks commercial substance. The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up.

An exchange transaction has commercial substance if:

(a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or
(b) the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange; and
(c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.
(b) Technical know-how and software

Separately acquired technical know-how and software is recognised at historical cost. Technical know-how and software has a finite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of technical know-how and software over their estimated useful lives of 5 to 10 years.

259

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.9 Impairment of non-financial assets

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

2.10 Investments and other financial assets

2.10.1 Classification

The Group classifies its financial assets in the following measurement categories:

those to be measured subsequently at fair value (either through OCI or through profit or loss), and
those to be measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

The Group reclassifies debt investments when and only when its business model for managing those assets changes.

260

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.10 Investments and other financial assets (Continued)

2.10.2 Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

2.10.3 Measurement

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

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

(a) Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in ‘other (losses)/gains-net’ together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated statement of comprehensive income.

261

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.10 Investments and other financial assets (Continued)

2.10.3 Measurement (Continued)

(a) Debt instruments (Continued)
FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in ‘other (losses)/gains-net’. Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in ‘other (losses)/gains-net’ and impairment expenses are presented as separate line item in the consolidated statement of profit or loss and other comprehensive income.
FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within ‘other (losses)/gains-net’ in the period in which it arises.
(b) Equity instruments

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

Changes in the fair value of financial assets at FVPL are recognised in ‘other (losses)/gains-net’ in the consolidated statement of profit or loss and other comprehensive income as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

262

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.10 Investments and other financial assets (Continued)

2.10.4 Impairment

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by HKFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see Note 3.1(b) for further details.

2.11 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet where the Group currently has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

2.12 Inventories

Inventories include raw materials, finished goods, spare parts and low value consumables, and are stated at the lower of cost and net realisable value.

Costs of raw materials, finished goods, spare parts and low value consumables are determined using the weightedaverage method. The cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Provision for decline in the value of inventories is determined at the excess amount of the carrying value of the inventories over their net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

263

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.13 Trade receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current.

Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. See Note 22 for further information about the Group’s accounting for trade receivables and Note 3.1 for a description of the Group’s impairment policies.

2.14 Cash and cash equivalents

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

2.15 Share capital

Ordinary shares are classified as equity (Note 25). Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.

2.16 Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within one year from date of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

264

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.17 Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

2.18 Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

Other borrowing costs are expensed in the period in which they are incurred.

265

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.19 Current and deferred income tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred income tax assets and liabilities attributable to temporary differences and to unused tax losses.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.

(b) Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

266

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.19 Current and deferred income tax (Continued)
- (b) Deferred income tax (Continued)

Deferred income tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets and liabilities and when the deferred income tax balances relate to the same taxation authority income. Current income tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred income tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

2.20 Employee benefits

(a) Short-term obligations

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.

267

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.20 Employee benefits (Continued)

(b) Pension obligations

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

2.21 Provisions

Provisions for legal claims and other obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

268

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.22 Revenue recognition

(a) Sewage water processing and heating and cooling supply services

Revenues from sewage water processing and heating and cooling supply services are recognised when services are rendered.

A receivable is recognised when the services are provided that the consideration is unconditional because only the passage of time is required before the payment is due.

(b) Sales of customised environmental protection equipment

The Group provides customised services for environmental protection and other deodorant equipment. The environmental protection equipment customised by the Group is mainly the scientific research and transformation results of environmental protection patent technology. Revenue from sales of customised environmental protection equipment is 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 contract costs incurred up to the end of the reporting period as a percentage of total estimated costs of each contract.

Revenue from the supply of tap water and recycled water is recognised when the tap water and recycled water are delivered to customers.

A receivable is recognised when the consideration is unconditional because only the passage of time is required before the payment is due.

269

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.22 Revenue recognition (Continued)
(d) Pipeline connection service for recycled water

Revenue from pipeline connection service for recycled water is 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 quantity.

The Group received the consideration in advance and recognised contract liabilities for the performance obligation not fully completed.

(e) Waste treatment and disposal service

Revenue from waste treatment and disposal service is recognised when the services actually provided. The entire waste process normally lasts 30 to 120 minutes, and the disposal time for landfill treatment is less than one week. The Group recognised the revenue according to the amount of waste disposal confirmed by both parties and the unit price agreed in the contract.

(f) Contract operation income

Revenue from contract operation income is recognised by the service contract which include the fix amount contract and the unit price contract. The fixed amount contract is recognised on average during the service period. The unit price contract is recognised on service quantity provided during the service delivery period.

A receivable is recognised when the services are provided that the consideration is unconditional because only the passage of time is required before the payment is due.

270

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.22 Revenue recognition (Continued)
- (g) Technical services income

Revenue from technical service shall be recognised within the period of service delivery as agreed in the contract according to the unit price of the service and the quantity of the service actually provided.

A receivable is recognised when the consideration is unconditional because only the passage of time is required before the payment is due.

(h) Financing components

For contract where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year, the promised amount of consideration is adjusted for the effects of a significant financing components.

2.23 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing:

the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares
by the weighted average number of ordinary shares outstanding during the financial year, adjusted for

bonus elements in ordinary shares issued during the year and excluding treasury shares.

271

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.23 Earnings per share (Continued)
- (b) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and
the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

2.24 Leases

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. The Group obtained land-use-right from government with one-off payment.

Land-use-right assets are initially measured at cost.

Land-use-right assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

2.25 Dividend distribution

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

272

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.26 Government grants

Government grants refer to the monetary or non-monetary assets obtained by the Group from the government, including tax return, financial subsidy and etc.

Government grants are recognised when the grants can be received and the Group can comply with all attached conditions. If a government grant is a monetary asset, it will be measured at the amount received or receivable. If a government grant is a non-monetary asset, it will be measured at its fair value. If it is unable to obtain its fair value reliably, it will be measured at its nominal amount.

Government grants related to assets are recorded as deferred income and recognised in profit or loss on a systemic basis over the useful lives of the assets. Government grants related to income that compensate the future costs, expenses or losses are recorded as deferred income and recognised in profit or loss in reporting the related expenses; government grants related to income that compensate the incurred costs, expenses or losses are recognised in profit or loss, directly in current period. The Group applies the presentation method consistently to the similar government grants in the financial statements.

Government grants that are related to ordinary activities are included in ‘Other income’.

2.27 Interest income

Interest income on financial assets at amortised cost calculated using the effective interest method is recognised in the consolidated statement of profit or loss and other comprehensive income as part of finance income.

Interest income is presented as finance income where it is earned from financial assets that are held for cash management purposes.

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

273

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of market risks (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance.

(a) Market risk

(i) Foreign currency risk

The Group has no significant foreign currency risk as the operations and customers of the Group are located in the PRC with most of the operating assets and transactions denominated and settled in RMB. All of the Group’s bank borrowings are denominated in RMB. The sole foreign currency exposure of the Group arises from fluctuation of US dollar (‘USD’) and Japanese Yen (‘JPY’) pursuant to the longterm payment scheme set out in the asset transfer agreement of foreign loan financed assets from Tianjin Sewage Company (‘Sewage Company’) (Note 28(c)).

As at 31 December 2020, if RMB had strengthened/weakened by 5% against the US dollar with all other variables held constant, post-tax profit for the year would have been approximately RMB3 million (2019: RMB4 million) higher/lower. Similarly, if RMB had strengthened/weakened by 5% against the JPY with all other variables held constant, post-tax profit for the year would have been approximately RMB8 million (2019: RMB9 million) higher/lower.

The aggregate net foreign exchange gains recognised in profit or loss were:

Exchange (gains)/losses on foreign currency borrowing included in finance costs and profit before income tax	2020 RMB’000 (10,490)	2019 RMB’000 8,813

274

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)
(a) Market risk (Continued)
- (ii) Interest rate risk

The Group’s interest rate risk arises mainly from borrowings and long-term payables.

Borrowings and long-term payables obtained at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash held at variable rates. Borrowings obtained at fixed rates expose the Group to fair value interest rate risk.

The tables below set out the Group’s exposure to interest rate risks associated with interest-bearing liabilities. Included in the tables are the liabilities at carrying amounts, categorised by the maturity dates.

At 31 December 2020 Non-current liabilities due within one year: – Current portion of long-term bank borrowings – Current portion of long-term payables – Current portion of debentures Long-term borrowings (non-current portion) Long-term payables (non-current portion) Debentures (non-current portion) Total At 31 December 2019 Short-term borrowings Other current liabilities Non-current liabilities due within one year: – Current portion of long-term bank borrowings – Current portion of long-term payables Long-term borrowings (non-current portion) Long-term payables (non-current portion) Debentures (non-current portion) Total	Fixed interest rate RMB’000 – 15,756 742,545 – 180,344 1,098,848 2,037,493 200,000 20,250 – 16,427 – 189,258 1,797,389 2,223,324	Floating interest rate RMB’000 805,331 19,350 – 4,227,894 67,390 – 5,119,965 – – 811,380 11,812 3,006,756 73,394 – 3,903,342	Total RMB’000 805,331 35,106 742,545 4,227,894 247,734 1,098,848
			7,157,458
			200,000 20,250 811,380 28,239 3,006,756 262,652 1,797,389
			6,126,666

275

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)

(a) Market risk (Continued)

(ii) Interest rate risk (Continued)

The Group analyses its interest rate exposure monthly by considering refinancing, renewal of existing positions and alternative financing.

The exposure of the Group’s borrowings to interest rate changes and the contractual re-pricing dates of the borrowings at the end of the reporting period are as follows:

Borrowings – repricing dates: 6 months or less 6 – 12 months	2020 RMB’000 % of total borrowings – – 5,119,965 100 5,119,965 100	2019 RMB’000 % of total borrowings – – 3,903,342 100 3,903,342 100	2019 RMB’000 % of total borrowings – – 3,903,342 100 3,903,342 100
			100

(b) Credit risk

Credit risk mainly arises from cash and cash equivalents, contractual cash flows of debt instruments carried at

amortised cost as well as credit exposures to customers, including outstanding receivables.

(i) Risk management

The Group manages credit risk on bank deposits by placing the majority of its cash and cash equivalents with state owned/listed banks in the PRC. The Group does not have any significant loss arising from non-performance by these parties in the past and management does not expect so in the future.

The credit risk on trade receivables is concentrated on a few customers, all of which are the bodies with PRC government background. Therefore, the directors of the Company are of the view that the credit risk is limited.

276 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)
(b) Credit risk (Continued)
- (ii) Impairment of financial assets

The Group has two types of financial assets that are subject to the expected credit loss model

trade receivables and long-term receivables
other financial assets at amortised cost

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

Trade receivables and long-term 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 and long-term receivables.

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

The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2020 or 1 January 2020 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forwardlooking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Group has identified the GDP of China, the country where the Group operates to be the most relevant factor, the default rate by client’s industry group, the defaulted unsecured loan recoveries and accordingly adjusts the historical loss rates based on expected changes in this factor.

277

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)
(b) Credit risk (Continued)
- (ii) Impairment of financial assets (Continued)

Group – Bank notes receivable

The Group measures provision for loss allowance in accordance with the lifetime expected credit loss for the entire duration. The Group considers that there is no significant credit risk in bank notes receivable and no major loss will be caused by the issuing bank’s default and no provision is deemed necessary.

On that basis, the loss allowance as at 31 December 2020 and 31 December 2019 was determined as follows for trade receivables:

By individual with specific credit risks:

31 December 2020 Tianjin Water Authority Bureau Qujing Sewage Company Hangzhou City Water Facilities and River Protection Management Center Guiyang Water Authority Bureau Xi’an Infrastructure Investment Group Tianjin City Appearance Sanitation Construction Development Co. Ltd Jinghai Development Area Management Committee Tianjin Ziya Environmental Protection Industrial Park Co. Ltd Tianjin Shuangkou Municipal Solid Waste Landfill Urad Front Banner Finance Bureau Urad Rear Banner Finance Bureau Zhejiang New No.3 Printing&dyeing Co. Ltd Tianjin Tianbao Municipal Administration Co. Ltd Tianjin Goldin International Club Co. Ltd. Tianjin City Investment Urban Resources Management Co., Ltd. Tianjin Ziya Circular Economy Industry Investment Development Co., Ltd. Total	Carrying amount Expected credit loss rate RMB’000 1,012,083 0.05% 187,137 22.25% 107,811 0.05% 60,391 0.05% 36,547 0.05% 31,100 41.52% 26,650 52.88% 16,797 100.00% 13,776 100.00% 10,928 100.00% 10,392 100.00% 5,731 65.03% 3,612 100.00% 1,548 100.00% 1,200 100.00% 1,020 100.00% 1,526,723	Loss allowance RMB’000 (554) (41,630) (59) (33) (20) (12,913) (14,093) (16,797) (13,776) (10,928) (10,392) (3,727) (3,612) (1,548) (1,200) (1,020) (132,302)

278 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)

(b) Credit risk (Continued)

(ii) Impairment of financial assets (Continued)

31 December 2019 Tianjin Water Authority Bureau Qujing Sewage Company Hangzhou Municipal Facilities Development Center Guiyang Water Authority Bureau Jinghai Development Area Management Committee Xi’an Infrastructure Investment Group Tianjin Ziya Environmental Protection Industrial Park Co. Ltd Tianjin City Appearance Sanitation Construction Development Co. Ltd Tianjin Shuangkou Municipal Solid Waste Landfill Zhejiang New No.3 Printing&dyeing Co.Ltd Tianjin Tianbao Municipal Administration Co. Ltd Total	Carrying amount Expected credit loss rate RMB’000 1,809,061 0.05% 163,735 18.40% 56,757 0.05% 52,612 0.05% 21,723 24.88% 18,424 0.05% 16,797 15.97% 14,513 15.73% 14,208 36.98% 5,731 65.03% 5,174 28.91% 2,178,735	Loss allowance RMB’000 (990) (30,120) (31) (29) (5,405) (10) (2,682) (2,283) (5,254) (3,727) (1,496) (52,027)

279

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)
(b) Credit risk (Continued)
- (ii) Impairment of financial assets (Continued)

On that basis, the loss allowance as at 31 December 2020 and 31 December 2019 was determined as follows for trade receivables (Continued):

Group – Non-provincial government customers

31 December 2020 Expected loss rate Gross carrying amount Loss allowance 31 December 2019 Expected loss rate Gross carrying amount Loss allowance	Current 0.05% 145,974 80 Current 5.31% 102,406 5,438	Less than 180 days past due 5.41% 164,318 8,886 Less than 180 days past due 5.31% 107,386 5,702	More than 180 days past due 8.64% 76,037 6,565 More than 180 days past due 7.46% 57,014 4,255	Total 386,329 15,531
				Total 266,806 15,395

Group – Non-government customers

31 December 2020 Expected loss rate Gross carrying amount Loss allowance 31 December 2019 Expected loss rate Gross carrying amount Loss allowance	Current 6.85% 67,571 4,631 Current 6.70% 41,844 2,804	Less than 90 days past due 6.85% 64,180 4,399 Less than 90 days past due 6.70% 27,352 1,833	More than 90 days past due 14.09% 82,809 11,666 More than 90 days past due 15.08% 58,983 8,897	Total 214,560 20,696
				Total 128,179 13,534

280 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)
(b) Credit risk (Continued)
- (ii) Impairment of financial assets (Continued)

The loss allowances for trade receivables as at 31 December 2020 reconcile to the opening loss allowances as follows:

Opening loss allowance at 1 January Net impairment losses recognised in profit or loss during the year Closing loss allowance at 31 December	2020 RMB’000 80,956 87,573 168,529	2019 RMB’000 49,584 31,372
		80,956

For the trade receivable with no expectation of recover, the Group will write off the accounts according to the information after appropriate approval.

Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

Other financial assets at amortised cost include other receivables and long-term receivables.

Other receivables such as deposits paid are considered to have low credit risk and the loss allowance recognised during the period was therefore limited to 12 months expected losses. Management consider ‘low credit risk’ for financial instruments when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

281

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)
(b) Credit risk (Continued)
- (ii) Impairment of financial assets (Continued)

The loss allowance for other receivables and long-term receivable assets at amortised cost as at 31 December 2020 reconciles to the opening loss allowance as follows:

Opening loss allowance as at 1 January 2019 Increase in the allowance recognised in profit or loss during the year Closing loss allowance as at 31 December 2019 Increase in the allowance recognised in profit or loss during the year Closing loss allowance as at 31 December 2020	Other receivables RMB’000 10 11 21 (5) 16	Long-term receivable RMB’000 138 – 138 764 902

Net impairment losses on financial assets recognised in profit or loss

During the year, the following losses were recognised in profit or loss in relation to impaired financial assets measured at amortised cost:

Impairment losses – movement in loss allowance for trade receivables – impairment losses on other financial assets – reversal of previous impairment losses for trade receivable Net impairment losses on financial assets	2020 RMB’000 98,162 759 (10,589) 88,332	2019 RMB’000 40,901 11 (9,529) 31,383

282

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)

(c) Liquidity risk

Cash flow forecasting is performed in the operating entities and aggregated by Group finance. The Group’s Finance Department monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities (Note 28). Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal consolidated balance sheet ratio targets and, if applicable external regulatory or legal requirements-for example, currency restrictions.

(i) Maturities of financial liabilities

The Group’s financial liabilities (inclusive of interests) are analysed into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date, using the contracted undiscounted cash flows, as follows:

Contractual maturities of financial liabilities As at 31 December 2020 Long-term bank borrowings Long-term payables Debentures Trade payables Other payables Dividends payable Contractual maturities of financial liabilities As at 31 December 2019 Short-term bank borrowings Other current liabilities Trade payables Dividends payable Long-term bank borrowings Long-term payables Other payables Debentures	Less than 1 year RMB’000 1,008,415 39,447 818,102 294,973 955,631 142 3,116,710 Less than 1 year RMB’000 205,738 21,131 231,293 1,172 970,469 32,058 1,532,842 78,780 3,073,483	Between 1 and 2 year RMB’000 816,994 39,064 56,870 – – – 912,928 Between 1 and 2 year RMB’000 – – – – 808,529 33,037 – 775,128 1,616,694	Between 2 and 5 year RMB’000 1,873,550 108,369 1,118,957 – – – 3,100,876 Between 2 and 5 year RMB’000 – – – – 1,250,571 106,222 – 1,175,827 2,532,620	Over 5 years RMB’000 2,664,569 228,395 – – – – 2,892,964 Over 5 years RMB’000 – – – – 1,726,434 274,126 – – 2,000,560	Total RMB’000 6,363,528 415,275 1,993,929 294,973 955,631 142 10,023,478 Total RMB’000 205,738 21,131 231,293 1,172 4,756,003 445,443 1,532,842 2,029,735 9,223,357	Carrying amount RMB’000 5,033,225 282,840 1,841,393 294,973 955,631 142
						8,408,204
						Carrying amount RMB’000 200,000 20,250 231,293 1,172 3,818,136 290,891 1,532,842 1,797,389
						7,891,973

283

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.2 Capital management

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.

For the year ended 31 December 2020, the Group’s strategy is to maintain a gearing ratio below 50%. The gearing ratio of the Group is as follows:

Total borrowings Less: Cash and cash equivalents Net debt Total equity Total capital Gearing ratio	As at 31 December 2020 2019 RMB’000 RMB’000 7,157,458 6,126,666 (1,652,657) (2,066,301) 5,504,801 4,060,365 7,581,643 7,142,187 13,086,444 11,202,552 42% 36%

As at 31 December 2020, the gearing ratio of the Group increased compared to last year, which was mainly due to the increase in the Group’s borrowings for financing the capital expenditure on new and upgrading projects.

284

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.2 Capital management (Continued)
(a) Loan covenants

Under the terms of the major borrowing facilities, the Group is required to comply with the following financial covenants:

The borrower’s debt to asset ratio should not to be higher than the range of 65%-90% according to different borrowing contracts;
The borrower shall not provide guarantee to third party before the approval of the lender in certain circumstances.

3.3 Fair value estimation

Financial instruments are carried at fair value as at 31 December 2020 by level of the inputs to valuation techniques used to measure fair value. Such inputs are categorised into three levels within a fair value hierarchy as follows:

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted (unadjusted) market prices at the end of the reporting period. The quoted marked price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.

As at 31 December 2020, the Group only has immaterial amount of financial assets which are required to be measured at fair value (Note 8). For all of these instruments, the fair value are not materially different from their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short term in nature.

285

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the

actual results. Management also needs to exercise judgement in applying the Group’s accounting policies.

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Recognition of non-monetary assets exchange that lack of commercial substance

An exchange transaction has commercial substance if:

(a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or
(b) the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of the exchange; and
(c) the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

The entire relocation and non-monetary assets exchange arrangement of the Company’s Xianyang Road Sewage Plant and Dongjiao Water Plant are conducted based on the instructions of the Tianjin Government and the Group has not been exposed to or benefit from any significant changes in risks and rewards as a result of that arrangement. In view of this, the directors of the Company are of the view that the non-monetary assets exchange arrangement has no commercial substance. Therefore, the carrying amounts of the exchanged-in assets is measured at the carrying amounts of the exchanged-out assets given up.

(b) Measurement of expected credit losses

286

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

(b) Measurement of expected credit losses (Continued)

		The economic situation
	Benchmark	Adverse	Favourable
Estimated GDP in China	5.5%	4.5%	7.0%

(c) Income tax and deferred income tax

As mentioned in Note 12, some subsidiaries of the Group are high-tech enterprises. The qualification of high-tech enterprises are for an initial term of three years. After the termination of the qualification, it is necessary to submit a new application to the relevant government departments for the high-tech enterprises status renewal. According to historical status renewal experience and the actual situation of each subsidiaries in the past, the Group believes the subsidiaries can continue to obtain the approval for the renewal of the status of being high-tech enterprises. Hence, the Group calculates subsidiaries’ corresponding deferred income tax at the preferential rate of 15%. If some of the subsidiaries’ renewal application has not been approved after the expiry of the high-tech enterprises status, the income tax shall be calculated at the statutory tax rate of 25%. Deferred income tax assets, deferred income tax liabilities will be affected.

287

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

(c) Income tax and deferred income tax (Continued)

(d) Impairment of long-term assets

The Group estimates whether there is any indication of impairment of assets on each balance sheet date. When the current decline in the estimated value of the asset is significantly higher than the expected substantial decline due to the passage of time or normal use; when significant adverse changes in the economic, technical or legal environment in which the Group operates in the recent past; when the market interest rate or the rate of return on investment in other markets increases which affect the discount rate of the present value of the future cash flow; or when the assets have become obsolete or the asset has been damaged or left idle, the Group considers that there are signs of impairment of the assets. On each balance sheet date, the Group will assess the recoverable amount of the longterm assets with evidence of impairment. The assessable amount requires the Group to estimate the future cash flows for the determination of the recoverable amounts of long-term assets. The carrying amount and the impairment provision will change, when the accounting estimate changes.

288

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

5 SEGMENT INFORMATION

(a) Description of segments and principal activities

Management has determined the operating segments based on the reports reviewed by the strategy steering committee held regularly that are used to make strategic decisions for the purpose of allocating resources and assessing performance.

The strategy steering committee meeting considers the business primarily from service perspective and for the most significant business segments geographical perspectives will also be considered. From a service perspective, management assesses the performance of processing of sewage water, recycled water and pipeline connection, heating and cooling services, tap water operations and sales of customised 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 respective segments and the physical location of assets. The liabilities are allocated based on the operations of the respective segment. Expenses indirectly attributable to each segment are allocated to the segments based on the proportion of each segment’s revenue.

Other services include provision of contract operation services, technical services, and waste treatment and disposal 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.

289

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

5 SEGMENT INFORMATION (Continued)

(b) Operating segment analysis

(i) For the year ended 31 December 2020

Sewage waterprocessing Tianjin plants Hangzhou plant Other plants RMB’000 RMB’000 RMB’000 1,270,965 259,286 862,236 – – – 1,270,965 259,286 862,236 (1,014,823) (177,919) (711,250) 256,142 81,367 150,986 7,072,581 880,871 7,204,756 (5,883,576) (184,476) (3,158,339) 12,536 877 3,184 (176,528) (5,662) (77,468) (160,902) (53,941) (229,440) 16,322 – 700,661	Sewage waterprocessing Tianjin plants Hangzhou plant Other plants RMB’000 RMB’000 RMB’000 1,270,965 259,286 862,236 – – – 1,270,965 259,286 862,236 (1,014,823) (177,919) (711,250) 256,142 81,367 150,986 7,072,581 880,871 7,204,756 (5,883,576) (184,476) (3,158,339) 12,536 877 3,184 (176,528) (5,662) (77,468) (160,902) (53,941) (229,440) 16,322 – 700,661	Group RMB’000 3,363,874 27,049 3,336,825 (2,645,690)
Tianjin plants RMB’000 1,270,965 – 1,270,965 (1,014,823) 256,142 7,072,581 (5,883,576) 12,536 (176,528) (160,902) 16,322	Hangzhou plant RMB’000 259,286 – 259,286 (177,919) 81,367 880,871 (184,476) 877 (5,662) (53,941) –
		718,184
		718,184 (112,046)
		606,138
		18,607,969
		195,000
		18,802,969
		(11,221,326)
		23,035 (272,030) (573,221) 894,930

290

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

5 SEGMENT INFORMATION (Continued)

(b) Operating segment analysis (Continued)
(ii) For the year ended 31 December 2019

Sewage waterprocessing Tianjin plants Hangzhou plant Other plants RMB’000 RMB’000 RMB’000 1,122,467 254,208 648,351 – – – 1,122,467 254,208 648,351 (878,181) (210,958) (511,231) 244,286 43,250 137,120 6,779,197 981,119 6,625,106 (6,090,474) (286,491) (2,714,905) 12,498 1,820 2,874 (126,783) (11,077) (69,493) (190,225) (62,648) (177,932) 121,112 – 1,585,870	Sewage waterprocessing Tianjin plants Hangzhou plant Other plants RMB’000 RMB’000 RMB’000 1,122,467 254,208 648,351 – – – 1,122,467 254,208 648,351 (878,181) (210,958) (511,231) 244,286 43,250 137,120 6,779,197 981,119 6,625,106 (6,090,474) (286,491) (2,714,905) 12,498 1,820 2,874 (126,783) (11,077) (69,493) (190,225) (62,648) (177,932) 121,112 – 1,585,870	Group RMB’000 2,851,453 18,875 2,832,578 (2,221,904)
Tianjin plants RMB’000 1,122,467 – 1,122,467 (878,181) 244,286 6,779,197 (6,090,474) 12,498 (126,783) (190,225) 121,112	Hangzhou plant RMB’000 254,208 – 254,208 (210,958) 43,250 981,119 (286,491) 1,820 (11,077) (62,648) –
		629,549
		629,549 (100,587)
		528,962
		17,795,807
		195,000
		17,990,807
		(10,848,620)
		23,951 (213,982) (509,483) 2,115,354

(iii) The Group’s revenue from contracts with customers are all derived from customers in China.

The non-current assets are all located in China.

Revenue derived from one customer of the sewage water processing segment amounted to approximately RMB1,258 million, representing approximately 37% of the Group’s total revenue (2019: RMB1,110 million, 39%).

291

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

5 SEGMENT INFORMATION (Continued)

(c) Liabilities related to contracts with customers – contract liabilities

For recycled water and pipeline connection services For heating supply services For Hangu project For hazardous wastes For equipment sales For sewage water services Others	31 December 2020 RMB’000 509,271 7,190 4,876 3,145 2,028 – 900 527,410	31 December 2019 RMB’000 508,138 8,014 4,876 6,197 11,263 12,071 7,913
		558,472

(i) Revenue recognised in relation to contract liabilities

The following table shows how much of the revenue recognised in the current reporting period relates to carried-forward contract liabilities.

Revenue recognised that was included in the contract liability balance at the beginning of the period Pipeline connection service for recycled water Heating supply services Others	31 December 2020 RMB’000 191,064 8,014 36,561 235,639	31 December 2019 RMB’000 166,190 4,074 3,131
		173,395

The Group classified these contract liabilities as current because the Group expects to realise them in its normal operating cycle.

292

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

5 SEGMENT INFORMATION (Continued)

(c) Liabilities related to contracts with customers – contract liabilities (Continued)

(ii) Unsatisfied long-term contracts

As at 31 December 2020, the consideration for certain entrusted sewage operation services of approximately RMB91 million (2019: RMB61 million) of which the contracts were signed but the performance obligations is not yet fully completed, among which the Group expects the related revenue of approximately RMB90 million and RMB1 million will be recognised in 2021 and 2022 respectively.

As at 31 December 2020, the consideration for agent construction project of approximately RMB6 million (2019: RMB13 million) of which the contracts were signed but the performance obligations are not yet fully completed. The related revenue is expected to be recognised in 2021.

As at 31 December 2020, a contract of tolls road service fee of approximately RMB509 million (2019: RMB571 million) was signed but the performance obligations is not yet fully completed, among which the Group expects to recognise revenue of approximately RMB62 million in every year from 2020 to 2028, and revenue of approximately RMB13 million in 2029.

All other contracts are for periods of one year or less or are billed based on time incurred. As permitted under HKFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

293

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

6 OTHER INCOME

OTHER INCOME
Government grants VAT refund Others	2020 RMB’000 96,577 65,700 133 162,410	2019 RMB’000 108,103 58,874 12
		166,989

7 EXPENSES BY NATURE

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

Amortisation – intangible assets Raw materials and consumables used Employee benefit expenses Utilities Repair and maintenance expenses Subcontract cost of recycling water pipeline connection service, environmental equipment and toll road management Sewage mud processing fee Depreciation – property, plant and equipment Factory environment, detection and fire prevention expenses Consulting service expenses Travel, meeting and business entertainment expenses Network maintenance costs Impairment loss on intangible assets (Note 16(vi)) Office expenses Impairment loss on other current assets (Note 20(a)) Expenses of secretary of the Board Auditors’ remuneration – audit services Depreciation – right-of-use assets Other taxes Depreciation – investment properties Others	2020 RMB’000 516,917 439,438 371,557 353,804 201,931 148,127 97,742 54,282 43,015 34,062 20,509 24,263 28,551 10,251 6,257 5,328 3,300 2,022 1,652 – 64,077 2,427,085	2019 RMB’000 462,965 352,215 350,018 342,274 181,978 135,556 93,930 43,862 36,759 20,416 21,390 17,330 – 9,412 26,808 4,789 3,300 2,278 2,663 378 51,952
		2,160,273

294

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

8 EMPLOYEE BENEFIT EXPENSES

EMPLOYEE BENEFIT EXPENSES
Wages and salaries Social security costs Pension costs – defined contribution plans Other benefits	2020 RMB’000 271,468 65,211 11,204 23,674 371,557	2019 RMB’000 236,651 67,485 27,062 18,820
		350,018

(a) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year included one (2019: two) directors whose emoluments are reflected in the analysis shown in Note 39. The emoluments to the remaining four (2019: three) highest paid individuals during the year are as follows:

Wages and salaries Discretionary bonuses Social security costs Pension costs – defined contribution plans Total The emoluments fell within the following bands: Emolument bands (in HK dollar) HK$500,000 – HK$1,000,000 HK$1,000,000 – HK$1,500,000	2020 RMB’000 1,325 1,622 474 111 3,532 2020 2 2	2019 RMB’000 1,419 478 360 178
		2,435
		2019 3 –

295

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

9 FINANCE COSTS  NET

Interest expenses on borrowings Less: Capitalised interest (a) Net interest expenses Net exchange (gains)/losses (b) Others Less: Interest income –long-term receivables –bank deposits Finance costs – net	2020 RMB’000 311,736 (39,706) 272,030 (10,490) 595 262,135 (23,035) (8,631) (14,404) 239,100	2019 RMB’000 250,341 (36,359) 213,982 8,813 552 223,347 (23,951)
		(9,405) (14,546)
		199,396

(a) Capitalised borrowing costs

The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the Group’ general borrowings during the year, which is 4.34% in 2020 (2019: 4.44%).

(b) Net exchange (gains)/losses

As at 31 December 2020, the exchange gains of long-term payables of the Group calculated in Japanese yen and US dollars are approximately RMB10 million (2019: RMB9 million).

10 OTHER LOSSES/GAINS  NET

Gain on disposal of property, plant and equipment Gain on disposal of other current assets Others	2020 RMB’000 21 – (4,835) (4,814)	2019 RMB’000 704 48,703 (1,532) 47,875

296

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

11 EARNINGS PER SHARE

Basic earnings per share is calculated based on the profit attributable to owners of the Company of approximately RMB570 million (2019: RMB507 million) and weighted average number of ordinary shares of 1,427 million shares in issue during the year (2019: 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. Therefore, diluted earnings per share equal to basic earnings per share and the calculations of which are as below:

Profit attributable to owners of the Company (RMB’ 000) Weighted average number of ordinary shares in issue (million shares) Basic and diluted earnings per share (RMB Yuan)	2020 570,039 1,427 0.40	2019 507,107
		1,427
		0.36

12 INCOME TAX EXPENSE

Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%) on the estimated assessable profit generated in Hong Kong for the year. Taxation on PRC profits has been calculated on the estimated assessable profit for the year at the statutory corporate income tax rates of 25% except that the Company and certain subsidiaries are eligible to preferential income tax rates, or arrangement as describe below.

	Corporate
	income tax rate
Name of group entities	for 2020	Reason for the preferential tax policy
The Company	15%	According to The Corporate Income Tax Policy of Third-party Enterprises Engaged
		in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60,
		2019, issued by the Ministry of finance, the Taxation Administration, the National
		Development and Reform Commission and the Ministry of Ecology and Environment),
		corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to
		31 December 2021.
Fuyang Capital Water	15%	According to The Corporate Income Tax Policy of Third-party Enterprises Engaged
Co., Ltd.		in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60,
		2019, issued by the Ministry of finance, the Taxation Administration, the National
		Development and Reform Commission and the Ministry of Ecology and Environment),
		corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to
		31 December 2021.
Gui Zhou Capital Water	15%	According to Notice of Guizhou Provincial SAT on Implementation of Preferential
Co., Ltd.		Tax Policy Relating to Development of Western Regions, (Qian Guo shui Han[2011]
		No.19) from 2011 to 2020.
Xi’an Capital Water	15%	According to Notice of Shanxi Provincial SAT on Issuing Measures for Review and
Co., Ltd.		Management of Preferential Tax Policy of Enterprises Relating to Development of
		Western Regions, (Notice [2010] No. 3) from 2011 to 2020.

297

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

12 INCOME TAX EXPENSE (Continued)

	Corporate
	income tax rate
Name of group entities	for 2020	Reason for the preferential tax policy
Hangzhou Tianchuang	15%	According to The Corporate Income Tax Policy of Third-party Enterprises Engaged
Capital Water		in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60,
Co., Ltd.		2019, issued by the Ministry of finance, the Taxation Administration, the National
		Development and Reform Commission and the Ministry of Ecology and Environment),
		corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to
		31 December 2021.
Tianjin Caring	15%	In 2020, Caring Company has obtained the High-tech Enterprise Certificate (Certificate
Technology		No. GR201812000566) issued by Tianjin Science and Technology Bureau, Tianjin
Development		Finance Bureau and Tianjin Taxation Bureau of the State Administration of Taxation.
Co., Ltd		The certificate is valid for 3 years. According to relevant provisions of Article 28 of the
(“Caring Company”)		Enterprise Income Tax Law of the People’s Republic of China, the corporate income
		tax rate applicable in 2020 is 15% (2019:15%).
Tianjin Water Recycling	Taxable income	According to Cai Shui [2008] No. 47, since 1 January 2008, for revenues generated
Co., Ltd.	amount is 90%	from products which were in line with national or industry standards, taxable income
	of the total revenue	amount is 90% of the total revenue.
Karamay Tianchuang	12.5%	Income from engagement in qualified projects of environmental protection and energy
Capital Water		and water conservation is subject to exemption from corporate income tax commence
Co., Ltd.		from 2017 for the first 3 years and reduction half for the next 3 years.
Linxia Capital Water	0%	Income from engagement in qualified projects of environmental protection and energy
Co., Ltd.		and water conservation is subject to exemption from corporate income tax commence
		from 2018 for the first 3 years and reduction half for the next 3 years.
Bayannur Capital Water	Sewage water: 0%	Income from engagement in qualified projects of environmental protection and energy
Co., Ltd.		and water conservation is subject to exemption from corporate income tax commence
		from 2018 for the first 3 years and reduction half for the next 3 years.
	Recycle water:	According to Cai Shui [2008] No. 47, since 1 January 2008, for revenues generated
	taxable income	from products which were in line with national or industry standards, taxable income
	amount is 90% of	amount is 90% of the total revenue.
	the total revenue
Yingshang Capital Water	0%	Income from engagement in qualified projects of environmental protection and energy
Co., Ltd.		and water conservation is subject to exemption from corporate income tax commence
		from 2018 for the first 3 years and reduction half for the next 3 years.
Dalian Oriental	0%	Income from engagement in qualified projects of environmental protection and energy
Chunliuhe Water		and water conservation is subject to exemption from corporate income tax commence
Quality Purification		from 2018 for the first 3 years and reduction half for the next 3 years.
Co., Ltd.
Shandong Capital	0%	According to Cai Shui [2009] No. 166, income from engagement in qualified industrial
Environmental		solid waste treatment projects and hazardous waste treatment projects is subject to
Protection Technology		exemption from corporate income tax commence from 2019 for the first 3 years and
Consultant Co., Ltd.		reduction half for the next 3 years.

298 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

12 INCOME TAX EXPENSE (Continued)

	Corporate
	income tax rate
Name of group entities	for 2020	Reason for the preferential tax policy
Hanshou Tianchuang	0%	According to Cai Shui [2019] No. 67, income from rural drinking water safety projects
Capital Water		is subject to exemption from corporate income tax commence from 2019 for the first 3
Co., Ltd.		years and reduction half for the next 3 years.
Jiuquan Capital Water	0%	Income from engagement in qualified projects of environmental protection and energy
Co., Ltd.		and water conservation is subject to exemption from corporate income tax commence
		from 2019 for the first 3 years and reduction half for the next 3 years.
Huize Capital Water	15%	According to The Corporate Income Tax Policy of Third-party Enterprises Engaged
Co., Ltd.		in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60,
		2019, issued by the Ministry of finance, the Taxation Administration, the National
		Development and Reform Commission and the Ministry of Ecology and Environment),
		corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to
		31 December 2021.
Huoqiu Capital Water	15%	According to The Corporate Income Tax Policy of Third-party Enterprises Engaged
Co., Ltd.		in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60,
		2019, issued by the Ministry of finance, the Taxation Administration, the National
		Development and Reform Commission and the Ministry of Ecology and Environment),
		corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to
		31 December 2021.
Wuhan Tianchuang	15%	According to The Corporate Income Tax Policy of Third-party Enterprises Engaged
Capital Water		in Pollution Prevention and Control issued on April 13, 2019 (Announcement No.60,
Co., Ltd.		2019, issued by the Ministry of finance, the Taxation Administration, the National
		Development and Reform Commission and the Ministry of Ecology and Environment),
		corporate income tax shall be levied at a reduced rate of 15% from 1 January 2019 to
		31 December 2021.

299

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

12 INCOME TAX EXPENSE (Continued)

Current income tax Deferred income tax (Note 31)	2020 RMB’000 145,590 (33,544) 112,046	2019 RMB’000 118,021 (17,434) 100,587

Reconciliation between profit before income tax and the aggregate tax at the statutory corporate income tax rates in the PRC applicable to profits in the respective entities concerned is set below:

Profit before income tax Tax at PRC tax rate of 25% (2019: 25%) Effect of preferential tax rates Income not subject to tax Expenses not deductible for taxation purposes – Revenue recognition differences from VAT filing – Depreciation not deductible – Expenses without tax invoices Utilisation of previously unrecognised tax losses and deductible temporary differences Recognition of previously unrecognised deductible temporary differences Previous year tax losses for which no deferred income tax asset was recognised Current year tax losses for which no deferred income tax asset was recognised Current year unrecognised deductible temporary differences for which no deferred income tax assets was recognised Under/(over) provision in the prior year Others Income tax expense	2020 RMB’000 718,184 179,546 (57,102) (51,925) 21,164	2019 RMB’000 629,549 157,387 (33,195) (37,070) 23,151
	– 20,671 493	5,724 15,112 2,315
	(282) – (244) 6,337 11,699 4,107 (1,254) 112,046	(7,818) (6,118) (2,456) 8,193 – (1,124) (363) 100,587

300 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

13 DIVIDENDS (i) Ordinary shares Final dividend for the year ended 31 December 2019 of 10.7 cents (2018 – 10.6 cents) per fully paid share Dividends paid in cash in the year (ii) Dividends not recognised at the end of the reporting period In addition to the above dividends, since year end the directors of the Company have recommended the payment of a final dividend of 12.0 cents per fully paid ordinary share (2019: 10.7 cents). The aggregate amount of the proposed dividend expected to be paid on 30 June 2021 out of retained earnings at 31 December 2020, but not recognised as a liability at year end, is	2020 RMB’000 152,713 152,713 2020 RMB’000 171,267	2019 RMB’000 151,285
		151,285
		2019 RMB’000 152,713

14 RIGHTOFUSE ASSETS

The Group’s right-of-use assets represent the Group’s interests in land use rights in respect of lease payments made for the

use of land located in the PRC under medium term leases of 25 to 50 years. The Group’s interests in land use rights are analysed as follows:

Cost At 31 December 2019 Addition At 31 December 2020 Accumulated depreciation At 1 January 2020 Charges for the year At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019	RMB’000 65,445 21,549
	86,994
	(7,365) (2,022)
	(9,387)
	77,607
	58,080

301

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

14 RIGHTOFUSE ASSETS (Continued)
(i) As at 31 December 2020, bank borrowings of approximately RMB311 million (Note 28(a)(i)) (2019: approximately RMB194 million) are secured by right-of-use assets with carrying amount of approximately RMB58 million (2019: approximately RMB26 million).
(ii) As at 31 December 2020, depreciation expense of approximately RMB2 million (2019: approximately RMB2 million) has been charged in “Administrative expenses”.
(iii) Except for the land use rights as classified as right-of-use assets as mentioned above, the Group does not have any other leasing activities which may give rise to right-of-use assets or lease liabilities to be recognised in accordance with HKFRS 16.
(iv) As at 31 December 2020, the legal title certificates of certain land use rights with carrying amount of approximately RMB14 million and cost of approximately RMB18 million (2019: carrying amount of approximately RMB14 million and cost of approximately RMB18 million) are yet to be obtained. As these assets are supported by legal sale and purchase agreements, management of the Company is of the view that the legal titles will be obtained in due course without additional significant costs to the Group.

302

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

15 PROPERTY, PLANT AND EQUIPMENT

Cost At 1 January 2019 Additions Transfer from investment properties Transfer to intangible assets (Note 16) Disposals At 31 December 2019 Additions Transfer to intangible assets (Note 16) Disposals At 31 December 2020 Accumulated depreciation At 1 January 2019 Charge for the year Transfer from investment properties Disposals At 31 December 2019 Charge for the year Disposals At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019	Buildings and constructions RMB’000 312,739 101,599 118,408 - (1,285) 531,461 103,695 – – 635,156 (101,369) (13,436) (34,734) – (149,539) (12,092) – (161,631) 473,525 381,922	Machinery and equipment RMB’000 299,585 144,675 - - (1,080) 443,180 85,022 – (66) 528,136 (183,760) (26,426) – 606 (209,580) (34,257) 1 (243,836) 284,300 233,600	Motor vehicles and others RMB’000 69,933 10,947 - - (3,273) 77,607 33,869 – (1,017) 110,459 (50,487) (4,000) – 3,151 (51,336) (7,933) 480 (58,789) 51,670 26,271	Construction in progress RMB’000 150,939 1,100,576 – (1,092,301) – 159,214 650,611 (799,966) – 9,859 – – – – – – – – 9,859 159,214	Total RMB’000 833,196 1,357,797 118,408 (1,092,301) (5,638) 1,211,462 873,197 (799,966) (1,083) 1,283,610 (335,616) (43,862) (34,734) 3,757 (410,455) (54,282) 481 (464,256) 819,354 801,007

(i) As at 31 December 2020, the certificate of legal title to the building included in property, plant and equipment with carrying amount of RMB104 million and cost of RMB166 million (2019: carrying amount of RMB106 million and cost of RMB166 million) has yet to be obtained. As these assets are supported by legal sale and purchase agreements, management of the Company is of the view that the legal titles will be obtained in due course without additional significant costs to the Group.
(ii) As at 31 December 2020, depreciation expense of RMB44 million (2019: RMB35 million) has been charged to “cost of sales” and RMB10 million (2019: RMB9 million) in “administrative expenses”.
(iii) As at 31 December 2020, bank borrowing of RMB139 million (Note 28(a)(i)) is secured by property, plant and equipment with cost of RMB193 million (2019: RMB219 million).

303

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

16 INTANGIBLE ASSETS

Cost At 1 January 2019 Transfer from construction in progress (Note 15) Other additions At 31 December 2019 (i) Transfer from construction in progress (Note 15) Other decrease (vi) At 31 December 2020 (i) Accumulated amortisation At 1 January 2019 Charges for the year At 31 December 2019 Charges for the year At 31 December 2020 Impairment At 1 January 2019 and 31 December 2019 Impairment loss for this year (vii) At 31 December 2020 Net book value At 31 December 2020 At 31 December 2019	Concession rights RMB’000 12,439,141 1,092,301 757,320 14,288,762 799,966 (33,833) 15,054,895 (2,077,283) (462,152) (2,539,435) (516,209) (3,055,644) (52,083) (28,551) (80,634) 11,918,617 11,697,244	Technical know-how and software RMB’000 11,946 – 237 12,183 – 184 12,367 (7,252) (813) (8,065) (708) (8,773) – – – 3,594 4,118	Total RMB’000 12,451,087 1,092,301 757,557 14,300,945 799,966 (33,649) 15,067,262 (2,084,535) (462,965) (2,547,500) (516,917) (3,064,417) (52,083) (28,551) (80,634) 11,922,211 11,701,362

304

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

16 INTANGIBLE ASSETS (Continued)

(i) As at 31 December 2020, concession right with cost of RMB770 million (2019: RMB449 million) is still under the construction period. The Group adopted the discounted cash flow model to main intangible assets under the construction which are not yet ready for their intended use. The estimated price is based on price in the concession right agreements. Other main assumptions are as follows:

Name of project
Jieshou sewage operation PPP project
(second batch)
Chibi sewage water processing plant
upgrading project
Guizhou – Shibing PPP project
Baoying – xianhe sewage water
processing plant project
Huoqiu PPP project
Huize urban sewage water processing
facilities construction project
Guojin – Gaocheng district water
environment upgrading PPP project
Xi’an Beishiqiao Dengjiacun upgrading
and deodorant projects
Hanshou Yuanquan water plant
concession project

Carrying
amount on
31 December
2020
(RMB’000)
Forecast
period
growth rate
Stable period
growth rate
Discount rate
198,529
5.5%
2.5%
11%
183,185
15.5%
2.5%
11%
81,745
12.6%
2.5%
11%
67,747
5.9%
2.5%
11%
47,784
4.6%
2.5%
11%
47,383
16.4%
2.5%
11%
42,345
16.7%
2.5%
11%
34,438
13.3%
2.5%
11%
33,711
14.1%
2.5%
11%
736,867

(ii) According to the policies of the Tianjin Municipal Government (the “Tianjin Government”), the Company is mandated to improve the quality standards of the effluent from its sewage treatment plants in Tianjin. As a result, the operations of the Company’s Xianyang Road Sewage Plant and Dongjiao Water Plant (include matched recycling water plant) have to be relocated and conducted in another new plants to be constructed by the Tianjin Government (namely the “New Xianyang Road Sewage Plant and the New Dongjiao Water Plant”). All of the construction costs for the new plants (together with the associated land costs) and relocation costs will be borne by the Tianjin Government.

305

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

16 INTANGIBLE ASSETS (Continued)

(ii) (Continued)

(iii) As at 31 December 2020, certain concession rights with carrying amounts of RMB2,508 million (cost of RMB3,241 million) (2019: carrying amounts of RMB2,646 million (cost of RMB3,323 million)) have been pledged as securities for bank borrowing of RMB1,211 million (2019: RMB527 million) (Note 28(a)(i)).
(iv) As at 31 December 2020, amortisation expense of RMB516 million (2019: RMB462 million) has been charged to “cost of sales” and RMB1 million (RMB1 million) in “Administrative expenses”.
(v) The amortisation period of concession rights ranges from 9 to 30 years.
(vi) In the first and second phases of Hangzhou’s upgrading and renovation project, the provisional project cost as recognised in prior year was adjusted according to the final accounts of completion this year, resulting in a decrease of RMB34 million in the original value of intangible assets this year.
(vii) According to estimated future operating conditions, the Group has conducted an impairment assessment on the concession right of Tianjin Jinghai Capital Water Co., Ltd. and recognised assets impairment of approximately RMB29 million.

306

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

17A SUBSIDIARIES

The following is a list of the principal subsidiaries at 31 December 2020:

				Equity	Equity interest
	Place of			interest	held by the
	registration		Registered	held by the	non-controlling
Name	and operation	Nature of business and business scope	capital	Group (%)	interest (%)
			RMB’000	2020/2019	2020/2019
Qujing Capital Water Co., Ltd. (“Qujing Company”)	Qujing, PRC	Sewage processing, tap water supply	178,983	87/87	13/13
Guizhou Capital Water Co., Ltd.	Guizhou, PRC	Sewage processing	120,000	95/95	5/5
Baoying Capital Water Co., Ltd. (“Baoying Company”)	Baoying, PRC	Sewage processing	83,000	70/70	30/30
Hangzhou Tianchuang Capital Water Co., Ltd. (“Hangzhou Company”)	Hangzhou, PRC	Sewage processing	377,445	70/70	30/30
Tianjin Capital New Materials Co., Ltd.	Tianjin, PRC	Production and sales of new	37,500	71/71	29/29
		types of construction materials
Fuyang Capital Water Co., Ltd.	Fuyang, PRC	Sewage processing	390,111	100/100	–/–
Tianjin Capital Environmental Protection (Hong Kong) Co., Ltd.	Hong Kong, PRC	Sewage processing	62,987	100/100	–/–
Wendeng Capital Water Co., Ltd.	Wendeng, PRC	Sewage processing	61,400	100/100	–/–
Tianjin Jinghai Capital Water Co., Ltd	Tianjin, PRC	Sewage processing	37,553	100/100	–/–
Tianjin Water Recycling Co., Ltd.	Tianjin, PRC	Production and sales of recycled water,	100,000	100/100	–/–
		development and construction of
		facilities of recycle water and technical
		consulting for water recycling business
Xi’an Capital Water Co., Ltd.	Xi’an, PRC	Sewage processing	334,000	100/100	–/–
Caring Company	Tianjin, PRC	Environmental engineering, protection	33,333	60/60	40/40
		and technical consultation material
Anguo Capital Water Co., Ltd.	Anguo, PRC	Sewage processing	41,000	100/100	–/–
Wuhan Tianchuang Environmental Protection Co., Ltd	Wuhan, PRC	Sewage processing and supply of tap water	201,969	100/100	–/–
Tianjin Jinning Capital Water Co., Ltd.	Tianjin, PRC	Sewage processing	22,560	100/100	–/–
Tianjin Capital Alternative Energy Technology Co., Ltd.	Tianjin, PRC	Energy saving, innovative energy	191,951	100/100	–/–
		research, consulting and transfer
		service property management
Yingshang Capital Water Co., Ltd.	Yingshang,PRC	Sewage processing	53,000	100/100	–/–
Shandong Capital Environmental Protection Technology	Shandong, PRC	Collection, storage and	105,600	55/55	45/45
Consultant Co., Ltd. (“Shandong Company”)		transfer of hazardous waste
Changsha Tianchuang Capital Environmental Protection Co., Ltd.	Changsha, PRC	Sewage processing	40,250	81/81	19/19
Karamay Tianchuang Capital Water Co., Ltd.	Karamay, PRC	Sewage processing	120,000	90/90	10/10
Anhui Tianchuang Capital Water Co., Ltd.	Hefei, PRC	Sewage processing	63,670	100/100	–/–
Linxia Capital Water Co., Ltd.	Linxia, PRC	Sewage processing	45,000	100/100	–/–
Dalian Oriental Chunliuhe Water Quality Purification Co., Ltd.	Dalian, PRC	Sewage processing	94,079	64/64	36/36
(“Dalian Company”)
Changsha Tianchuang Capital Water Co., Ltd.	Changsha, PRC	Sewage processing	19,148	80/80	20/20
Inner Mongolia Bayannur Capital Water Co., Ltd.	Bayannur, PRC	Sewage processing, production, and sales of	1,067,578	70/70	30/30
(“Bayannur Company”)		recycled water and supply of tap water
Honghu Tianchuang Capital Water Co., Ltd.	Honghu, PRC	Sewage processing	131,331	85/85	15/15
Hefei Capital Water Co., Ltd.	Hefei, PRC	Sewage processing	205,957	100/100	–/–
Deqing Capital Water Co., Ltd.	Deqing, PRC	Sewage processing	60,000	90/90	10/10
Hebei Guojin Tianchuang Capital Water Co., Ltd.	Gaocheng, PRC	Sewage processing, production and	217,497	59/59	41/41
(“Guojin Company”)		sales of recycled water
Hanshou Tianchuang Capital Water Co., Ltd.	Hanshou, PRC	Supply of tap water	45,000	75/75	25/25
Jiuquan Capital Water Co., Ltd. (“Jiuquan Company”)	Jiuquan, PRC	Sewage processing	178,238	89/89	11/11
Huize Capital Water Co., Ltd. (Note)	Huize, PRC	Sewage processing, centralized water supply	412,368	79/–	21/–
Huoqiu Capital Water Co., Ltd. (“Huoqiu Company”) (Note)	Huoqiu, PRC	Sewage processing	412,830	90/–	10/–
Dongying Tianchi Environmental Protection	Dongying, PRC	Solid waste treatment	136,300	51/–	49/–
Technology Consultant Co., Ltd. (Note)

Note:

Those three subsidiaries are newly established in 2020.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

17A SUBSIDIARIES (Continued)

(i) Material non-controlling interests

The total non-controlling interests as at 31 December 2020 are approximately RMB990 million (2019: RMB968 million), of which approximately RMB771 million (2019: RMB772 million) are attributable to following subsidiaries that material to the Group:

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	At 31 December 2020 RMB’000 212,188 333,206 49,598 84,341 91,450 770,783	At 31 December 2019 RMB’000 214,057 337,398 49,650 82,112 89,148
		772,365

The individual non-controlling interests in other subsidiaries are not material. Summarised financial information on subsidiaries with material non-controlling interests is set out as below:

Summarised balance sheet

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	Current assets RMB’000 257,033 111,109 154,949 59,411 27,572 610,074	Current liabilities RMB’000 83,606 17,762 37,246 81,836 24,072 244,522	At 31 December 2020 Current net assets/ (liabilities) Non-current assets Non-current liabilities RMB’000 RMB’000 RMB’000 173,427 634,735 100,870 93,347 1,023,152 5,811 117,703 6,522 229 (22,425) 504,874 293,825 3,500 270,892 51,343 365,552 2,440,175 452,078	Non-current net assets RMB’000 533,865 1,017,341 6,293 211,049 219,549 1,988,097	Net assets RMB’000 707,292 1,110,688 123,996 188,624 223,049
					2,353,649

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

17A SUBSIDIARIES (Continued)

(i) Material non-controlling interests (Continued)

Summarised balance sheet (Continued)

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	Current assets RMB’000 277,436 90,362 146,105 57,661 58,759 630,323	Current liabilities RMB’000 153,740 14,870 29,747 104,957 – 303,314	At 31 December 2019 Current net assets/ (liabilities) Non-current assets Non-current liabilities RMB’000 RMB’000 RMB’000 123,696 722,580 132,751 75,492 1,061,028 11,861 116,358 8,032 266 (47,296) 425,597 194,431 58,759 200,676 42,000 327,009 2,417,913 381,309	Non-current net assets RMB’000 589,829 1,049,167 7,766 231,166 158,676 2,036,604	Net assets RMB’000 713,525 1,124,659 124,124 183,870 217,435
					2,363,613

Summarised income statement

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	Revenue RMB’000 259,560 82,657 129,356 77,425 12,567 561,565 Revenue RMB’000 254,539 85,615 122,493 14,387 – 477,034	Year ended 31 December 2020 Profit/(loss) for the year Profit/(loss) allocated to NCI RMB’000 RMB’000 79,377 23,813 (13,972) (4,192) 11,872 4,749 4,754 2,228 5,615 2,302 87,646 28,900 Year ended 31 December 2019 Profit/(loss) for the year Profit/(loss) allocated to NCI RMB’000 RMB’000 31,091 9,327 13,466 4,040 8,785 1,602 (4,590) (2,066) (62) (25) 48,690 12,878	Dividends paid to NCI RMB’000 25,683 – 4,800 – –
			30,483
			Dividends paid to NCI RMB’000 – – – – –
			–

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

17A SUBSIDIARIES (Continued)

(i) Material non-controlling interests (Continued)

Summarised statement of cash flows

Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company Hangzhou Company Bayannur Company Caring Company Shandong Company Guojin Company	Cash flows from/(used in) operating activities RMB’000 94,918 15,918 8,366 2,118 (1,579) 119,741 Cash flows from/(used in) operating activities RMB’000 130,900 9,578 12,899 4,873 (56) 158,194	Year ended 31 December 2020 Cash flows (used in)/from investing activities Cash flows (used in)/from financing activities Net (decrease)/ increase in cash and cash equivalents RMB’000 RMB’000 RMB’000 (15,501) (148,149) (68,732) (814) – 15,104 21 (12,000) (3,613) (95,353) 74,241 (18,994) (53,412) 9,342 (45,649) (165,059) (76,566) (121,884) Year ended 31 December 2019 Cash flows used in investing activities Cash flows (used in)/from financing activities Net (decrease)/ increase in cash and cash equivalents RMB’000 RMB’000 RMB’000 (27,530) (148,281) (44,911) (4,651) – 4,927 (712) – 12,187 (212,072) 217,894 10,695 (200,682) 259,497 58,759 (445,647) 329,110 41,657	Cash and cash equivalents at the end of the year RMB’000 146,664 28,359 91,553 18,147 13,110 297,833 Cash and cash equivalents at the end of the year RMB’000 215,396 13,255 95,210 37,141 58,759 419,761

17B INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Associates Less: provision for long-term equity investment (a)	31 December 2020 RMB’000 217,358 (22,358) 195,000	31 December 2019 RMB’000 217,358 (22,358) 195,000

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

17B INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)

Details of the associates are as below:

	Registration	Registration	Shareholding/
	place	capital	voting %
		RMB’000
Tianjin International Machinery Co., Ltd. (a)	Tianjin	120,000	27.50%
Tianjin Bihai Sponge City Co., Ltd. (b)	Tianjin	650,000	30.00%

(a) Tianjin International Machinery Co., Ltd. (“International Machinery”) is a sino-foreign joint venture company registered in the Tianjin Economic-technological Development Area. The principal activities of International Machinery include research and development, production and sale of valve and actuating devices; heater exchanger; environment protection equipment; engineering technical consultation; trading; manufacturing and sale of general equipment. The Group’s investment in International Machinery is considered as fully impaired and full provision for impairment had been recognised in 2016 to reduce the Group’s interest in the associate to zero.
(b) Tianjin Bihai Sponge City Co., Ltd. (“Bihai Sponge City”) is a limited liability company registered in Tianjin. The principal activities of Bihai Sponge City include construction and operation of water processing projects; purchase and manufacture of water processing equipments ecological restoration; tourism development; ecological management; Bihai Sponge City project construction and operating management; municipal engineering construction and operation. Bihai Sponge City was registered on 30 July 2018 and is still in the initial construction and pre-operation period.

Summarised investing movement for Bihai Sponge City

Net book value of investments Attributable comprehensive income for the year: – Net profit – Other comprehensive income Total comprehensive income	31 December 2020 RMB’000 195,000 – – –	31 December 2019 RMB’000 195,000
		– –
		–

311

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

18 FINANCIAL ASSET AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME:

	31 December	31 December
	2020	2019
	RMB’000	RMB’000
Unlisted securities at fair value:
– Equity securities	2,000	2,000

The investments represents an investment in the equity shares of an unlisted entity which do not have a quoted market price in an active market. The investment is stated at costs as the Group were of the view that the fair value were not materially different with the costs. The investment is denominated in RMB.

19 LONGTERM RECEIVABLES

Receivables from Tianjin Water Authority Bureau (a) Receivables from toll road concession right (b) Less: loss allowance for impairment of long-term receivables Less: current portion	31 December 2020 RMB’000 1,431,761 236,592 (902) 1,667,451 (20,049) 1,647,402	31 December 2019 RMB’000 – 253,812 (138)
		253,674 (17,224)
		236,450

(a) In 2020, with the influence of Coronavirus Disease 2019 (the “COVID-19”), the actual collection of receivables from Tianjin Water Authority Bureau was significantly below expectation. Based on the historical collection experience and the expectation of future payment scheme, the Group has reclassified the present value of receivables of which collection is expected to be exceeding 12 months as long-term receivables. The expected credit loss rate for the aforesaid long-term receivables is 0.05%, which is consistent with expected credit loss rate as applied for the remaining trade receivables with Tianjin Water Authority Bureau. The balance of loss allowances is approximately RMB1 million.

(b) The Group receives toll road fee from Tianjin Municipal and Highway Management Bureau (the ‘Bureau’) over the concession period till 2029. Receivables from toll road concession represent the amortised costs of the related receivables as calculated using effective interest method with reference to the guaranteed minimum future traffic flow over the concession period.

The Bureau is a public institution of the Tianjin Municipal Government. The credit risk level of the Bureau is low. Based on past experience, the receivables can be collected within agreed period. Therefore, management has assessed and determined that the expected credit loss rate for this receivable item is 0.05%.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

20 OTHER NONCURRENT ASSETS

Other current assets: Input tax of VAT Current portion of long-term receivables (Note 19) Income tax prepaid Input VAT to be verified Concession right assets to be returned (a) Other non-current assets: Input tax of VAT Prepayments for construction projects Prepayment for land use rights Others	31 December 2020 RMB’000 76,774 20,049 2,484 2,970 – 102,277 193,783 108,316 20,454 8,418 330,971	31 December 2019 RMB’000 52,605 17,224 – 13,642 6,257
		89,728
		169,965 18,221 – 7,733
		195,919

(a) As at 31 December 2020, the Group has conducted an impairment assessment on the related assets of Anguo Capital Water Co., Ltd. and recognised an asset impairment charge of approximately RMB6 million on the concession right assets to be returned.

21 INVENTORIES

Raw materials Finished goods Spare parts and low value consumables	31 December 2020 RMB’000 11,868 5,118 474 17,460	31 December 2019 RMB’000 10,888 3,529 388
		14,805

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

22 TRADE RECEIVABLES

TRADE RECEIVABLES
Trade receivables Bank notes receivable Receivables from third parties Receivables from related parties (Note 36) Less: loss allowance (see Note 3.1(b))	31 December 2020 RMB’000 2,054,241 2,656 2,056,897 73,371 2,130,268 (168,529) 1,961,739	31 December 2019 RMB’000 2,508,246 16,131
		2,524,377 65,474
		2,589,851 (80,956)
		2,508,895

(i) The majority of the Group’s sales are on credit or documents against payment. The ageing analysis of the trade receivables based on invoice date were as follows:

Within 1 month 1 month to 1 year 1 to 2 years 2 to 3 years More than 3 years Total	31 December 2020 RMB’000 347,063 1,508,955 139,324 69,336 65,590 2,130,268	31 December 2019 RMB’000 517,692 1,352,969 641,788 52,987 24,415
		2,589,851

(ii) Impairment and risk exposure

The Group applies the HKFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Note 3.1(b) provides for details about the calculation of the loss allowance and the related movement during the years ended 31 December 2020 and 2019.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

23 OTHER RECEIVABLES

Deposits VAT refund receivables (i) Others Less: loss allowance (Note 3.1(b))	31 December 2020 RMB’000 6,846 5,007 12,280 24,133 (16) 24,117	31 December 2019 RMB’000 26,847 31,670 6,660
		65,177 (21)
		65,156

(i) The VAT refund is due from the local tax authorities at balance sheet date.

24 CASH AND CASH EQUIVALENTS

Cash in hand Bank balance and deposits Less: Restricted cash (i) Cash and cash equivalents	31 December 2020 RMB’000 14 1,663,632 1,663,646 (10,989) 1,652,657	31 December 2019 RMB’000 37 2,079,576
		2,079,613 (13,312)
		2,066,301

(i) As at 31 December 2020, bank balance and deposits of approximately RMB11 million (2019: RMB13 million) are restricted as borrowing guarantee deposits.

25 SHARE CAPITAL

Movement of the Company’s authorised, issued and fully paid share capital is set out below. All of the Company’s shares are ordinary shares with par value of RMB1.

							Number of	Number of	Total
							circulating	circulating	number of	Total
							A-shares	H-shares	shares	share
							(thousands)	(thousands)	(thousands)	capital
										RMB’000
At	31	December	2018,	2019	and	2020	1,087,228	340,000	1,427,228	1,427,228

315

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

25 SHARE CAPITAL (Continued)

A-shares represent shares listed on the Shanghai Stock Exchange and H-shares represent shares listed on the Main Board of The Stock Exchange of Hong Kong Limited. All the A-shares and H-shares rank pari passu in all respects.

There is no movement in the Group’s issued A-shares and H-shares during the years ended 31 December 2020 and 2019.

26 OTHER RESERVES

Balance at 1 January 2019 Profit appropriation to statutory reserve (Note(i)) Balance at 31 December 2019 Profit appropriation to statutory reserve (Note(i)) Balance at 31 December 2020	Capital reserve (Note(i)) RMB’000 431,024 – 431,024 – 431,024	Statutory reserves RMB’000 517,107 41,143 558,250 60,804 619,054	Total RMB’000 948,131 41,143
			989,274 60,804
			1,050,078

(i) In accordance with PRC laws and regulations, companies established in the PRC are required to transfer at least 10% of their net profit for the year, as determined under the PRC accounting standards, to relevant reserves until the reserve reaches 50% of the registered capital. Such reserves can be used to offset accumulated losses, capitalisation into capital and expansion of production.

27 RETAINED EARNINGS

RETAINED EARNINGS
Balance at 1 January Net profit for the year Profit appropriation to statutory reserves (Note 26) Dividends declared (Note 13) Balance at 31 December	2020 RMB’000 3,757,523 570,039 (60,804) (152,713) 4,114,045	2019 RMB’000 3,442,844 507,107 (41,143) (151,285)
		3,757,523

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

27 RETAINED EARNINGS (Continued)

(i) According to the approval of the general meeting of shareholders on 13 May 2020, the Company paid a cash dividend of RMB10.7 cents per fully paid ordinary share to all shareholders of the Company. The total dividend approximately RMB153 million was paid, based on 1,427 million issued shares.
(ii) According to the approval of the meeting of the Board on 25 March 2021, the Board of Directors proposed that the Company shall pay a cash dividend of RMB12.0 cents per fully paid ordinary share to all shareholders of the Company. The total dividend approximately RMB171 million will be paid, based on 1,427 million issued shares. The above proposal has yet to be approved by the general meeting of shareholders (Note 37(1)).

28 BORROWINGS

Non-current: Long-term bank borrowings (Note (a)) Less: Current portion Debentures (Note (b)) Less: Current portion Long-term payables (Note (c)) Less: Current portion Total non-current borrowings Current: Unsecured short-term bank borrowings Current portion of long-term bank borrowings (Note (a)) Current portion of debentures (Note (b)) Current portion of interest payable for the debentures Current portion of long-term payables (Note (c)) Other current liabilities (Note (d)) Total current borrowings Total borrowings	31 December 2020 RMB’000 5,033,225 (805,331) 4,227,894 1,798,419 (699,571) 1,098,848 282,840 (35,106) 247,734 5,574,476 – 805,331 699,571 42,974 35,106 1,582,982 – 1,582,982 7,157,458	31 December 2019 RMB’000 3,818,136 (811,380) 3,006,756 1,840,363 (42,974) 1,797,389 290,891 (28,239) 262,652 5,066,797 200,000 811,380 – – 28,239 1,039,619 20,250 1,059,869 6,126,666

317

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

28 BORROWINGS (Continued)
(a) Long-term bank borrowings

Secured (Note (i)) Guaranteed (Note (ii)) Unsecured	31 December 2020 RMB’000 1,522,559 2,497,386 1,013,280 5,033,225	31 December 2019 RMB’000 763,762 1,904,374 1,150,000
		3,818,136

(i) As at 31 December 2020, bank borrowing of RMB172 million (2019: RMB194 million) is secured by right-of-use assets (Note 14) of Shandong Capital Environmental Protection Technology Consultant Co., Ltd.. Bank borrowing of RMB139 million (2019: Nil) is secured by right-of-use assets (Note 14) and property and equipment (Note 15).

As at 31 December 2020, bank borrowing of RMB710 million (2019: RMB527 million) is secured by all earnings and equity of Jingu and Beicang upgrading project under the Group’s concession rights (Note 16). As at 31 December 2020, bank borrowing of RMB51 million (2019: RMB43 million) is secured by certain concession right of a subsidiary, the Guojin Company. (Note 16) As at 31 December 2020, bank borrowing of RMB415 million (2019: Nil) is secured by certain concession right, of the Jiuquan Company (Note 16). As at 31 December 2020, bank borrowing of RMB35 million (2019: Nil) is secured by all earnings and equity of Huoqiu Company under the Group’s concession right (Note 16).

(ii) As at 31 December 2020, bank borrowings of RMB71 million (2019: RMB110 million) is guaranteed by ultimate shareholder, City Infrastructure Construction and Investment. As at 31 December 2020, bank borrowings of RMB2,426 million (2019:RMB1,794 million) is guaranteed by the Company for certain of its subsidiaries.
(iii) The interest rates of the long-term bank borrowings range from 3.330% to 5.150% per annum as at 31 December 2020 (2019: 4.275% to 5.463% per annum).
(iv) The carrying amounts of the Group’s long-term bank borrowings are denominated in RMB.

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

28 BORROWINGS (Continued)

(a) Long-term bank borrowings (Continued)
(v) As at 31 December 2020, the Group’s long-term bank borrowings were repayable as follows:

Within 1 year 1 to 2 years 2 to 5 years Over 5 years	31 December 2020 RMB’000 805,331 645,730 1,500,982 2,081,182 5,033,225	31 December 2019 RMB’000 811,380 684,304 995,356 1,327,096
		3,818,136

(vi) The carrying amounts of long-term bank borrowings approximate their fair values as at 31 December 2020 because they bear interests at prevailing floating market rates throughout their maturity periods.

(b) Debentures

Par value Transaction cost	31 December 2019 RMB’000 1,800,000 (2,611) 1,797,389	Additions RMB’000 – – –	Repayment RMB’000 – – –	Amortisation RMB’000 – 1,030 1,030	31 December 2020 RMB’000 1,800,000 (1,581)
					1,798,419

Debentures are analysed as follows:

	Par value	Issue date	Duration	Issue amount
	RMB’000			RMB’000
Debenture I(i)	700,000	25 October 2016	5 years	700,000
Debenture II(ii)	1,100,000	26 April 2018	5 years	1,100,000

319

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

28 BORROWINGS (Continued)
(b) Debentures (Continued)

Interest accrued/paid for the debentures is analysed as follows:

Debenture I(i) Debenture II(ii)	31 December 2019 RMB’000 4,022 38,952 42,974	Interest accrued/paid Interest accrued in current year Interest paid in current year RMB’000 RMB’000 21,910 (21,910) 56,870 (56,870) 78,780 (78,780)	31 December 2020 RMB’000 4,022 38,952
			42,974

(i) On 25 October 2016, the Company issued a debenture at par value of RMB700 million on The Shanghai Stock Exchange. Interests are payable annually at the fixed interest of 3.13% per annum. The debenture will be due for repayment on 25 October 2021.
(ii) On 26 April 2018, the Company issued a debenture at par value of RMB1,100 million on The Shanghai Stock Exchange. Interests are payable annually at the fixed interest of 5.17% per annum. The debenture will be due for repayment on 26 April 2023.

(c) Long-term payables

Payable for assets acquisition	31 December 2020 Principal amounts of the payable Unrecognised financing charges Carrying amounts RMB’000 RMB’000 RMB’000 415,275 (132,435) 282,840	31 December 2019 Principal amounts of the payable Unrecognised financing charges Carrying amounts RMB’000 RMB’000 RMB’000 445,444 (154,553) 290,891

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Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

28 BORROWINGS (Continued)
(c) Long-term payables (Continued)
- (i) Summary of terms of long-term payables above:

Tianjin Sewage Company (Sewage Company) Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd.	Maturity date 20 March 2041 03 March 2023	Effective interest rate 5.94% 3.80%	Ending balance at 31 December 2020 RMB’000 266,640 16,200	Current portion at 31 December 2020 RMB’000 27,506 7,600

The balance of the long-term payables to Sewage Company is the consideration payable in respect of the acquisition of sewage processing assets from Sewage Company, net of unrecognised financing charges.

Pursuant to the ‘Assets transfer agreement from foreign banks loans about Haihe River Tianjin sewage processing project and Beicang sewage processing project’, Sewage Company sold to the Company certain sewage processing assets. The first instalment of RMB261 million was settled in cash and the remaining amount is to be settled on a quarterly basis in RMB translating at exchange rates prevailing on each repayment date over the remaining 22 years till March 2041. The fair value of the initial recognition of the payable balance was RMB430 million, assessed based on discounted future cash payments and the discount rate of 5.94%.

The carrying amounts of long-term payables are denominated in the following currencies:

JPY US dollar CNY	31 December 2020 RMB’000 196,100 70,540 16,200 282,840	31 December 2019 RMB’000 205,685 85,206 –
		290,891

The balance denominated in US dollar bears interests at the rate of 6 month LIBOR plus 0.6% and the balance denominated in JPY bears interests at the fixed interest rates carrying from 1% or 1.55% per annum.

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Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

28 BORROWINGS (Continued)

(c) Long-term payables (Continued)
(ii) The long-term payables is maturing as follows:

Within 1 year 1 to 2 years 2 to 5 years Over 5 years (d) Other current liabilities Entrusted loans due within one year 29 OTHER LIABILITIES Other non-current liabilities Receipt in advance of subsidies for provision of cooling services	31 December 2020 RMB’000 35,106 29,188 76,901 141,645 282,840 31 December 2020 RMB’000 – 31 December 2020 RMB’000 34,000	31 December 2019 RMB’000 28,239 27,465 78,625 156,562
		290,891
		31 December 2019 RMB’000 20,250
		31 December 2019 RMB’000 36,000

322

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

30 DEFERRED REVENUE

Deferred revenue represents the subsidies received from governmental authorities with respects to the Group’s certain

construction and research and development projects. Details of the deferred revenue are as below:

Sewage water processing project: – Jingu project – Jingu upgrading project – Beichen upgrading project – Xianyanglu-upgrading project – Dongjiao-upgrading project – Ningxiang project – Beishiqiao-upgrading project – Linxia project – Chibi project Water recycling project: – Jingu – Dongjiao – Beichen – Xianyanglu Heating and cooling supply service project Others Total	31 December 2019 RMB’000 1,207,260 156,480 86,400 56,716 39,798 17,348 9,635 9,392 5,500 199,498 20,406 17,587 12,344 210,269 11,069 2,059,702	Additions RMB’000 – – – – – – – – 2,250 – – – – 6,207 683 9,140	Recognised in other income RMB’000 (51,285) (6,520) (3,600) (2,363) (1,658) (931) (719) (326) – (5,564) (675) (525) (441) (9,057) (3,744) (87,408)	31 December 2020 Assets Related/ income Related RMB’000 1,155,975 Assets related 149,960 Assets related 82,800 Assets related 54,353 Assets related 38,140 Assets related 16,417 Assets related 8,916 Assets related 9,066 Assets related 7,750 Assets related 193,934 Assets related 19,731 Assets related 17,062 Assets related 11,903 Assets related 207,419 Assets related 8,008 Income related 1,981,434

31 DEFERRED INCOME TAX

(i) Deferred income tax assets before offsetting

Provisions for assets Unrecognised financing income Accrued expenses Accrued liabilities Deferred income tax assets to be recovered within 1 year Deferred income tax assets to be recovered after more than 1 year	31 December 2020 Deductible temporary differences and deductible losses Deferred income tax assets RMB’000 RMB’000 145,668 36,417 61,224 15,306 26,870 6,717 19,557 2,934 253,319 61,374 9,237 52,137 61,374	31 December 2019 Deductible temporary difference and deductible loss Deferred income tax assets RMB’000 RMB’000 69,322 17,330 – – 10,000 2,500 16,010 2,402 95,332 22,232 4,440 17,792 22,232	31 December 2019 Deductible temporary difference and deductible loss Deferred income tax assets RMB’000 RMB’000 69,322 17,330 – – 10,000 2,500 16,010 2,402 95,332 22,232 4,440 17,792 22,232
			22,232
			4,440 17,792
			22,232

323

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

31 DEFERRED INCOME TAX (Continued)

(i) Deferred income tax assets before offsetting (Continued)
(a) The movement in deferred income tax assets during the year is as follows:

At 1 January Credited to profit or loss (Note 12) At 31 December	2020 RMB’000 22,232 39,142 61,374	2019 RMB’000 – 22,232
		22,232

(ii) Deferred income tax liabilities before offsetting

Amortisation of concession rights (a) Business combination Deferred income tax liabilities to be settled within 1 year Deferred income tax liabilities to be settled after more than 1 year	31 December 2020 Taxable temporary differences Deferred income tax liabilities (a) RMB’000 RMB’000 545,687 136,422 51,146 12,786 596,833 149,208 5,123 144,085 149,208	31 December 2019 Taxable temporary differences Deferred income tax liabilities RMB’000 RMB’000 521,412 130,353 53,028 13,257 574,440 143,610 4,848 138,762 143,610	31 December 2019 Taxable temporary differences Deferred income tax liabilities RMB’000 RMB’000 521,412 130,353 53,028 13,257 574,440 143,610 4,848 138,762 143,610
			143,610
			4,848 138,762
			143,610

(a) Deferred income tax liabilities were recognised on temporary differences arising between the tax bases of concession right and their carrying amounts, which is to be recovered within the concession period.

(b) The movement in deferred income tax liabilities during the year is as follows:

At 1 January Charged to profit or loss (Note 12) At 31 December	2020 RMB’000 143,610 5,598 149,208	2019 RMB’000 138,812 4,798
		143,610

324 Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

31 DEFERRED INCOME TAX (Continued)

(ii) Deferred income tax liabilities before offsetting (Continued)
(c) Unrecognised temporary differences

The deductible temporary differences of which deferred income tax assets have not been recognised are analysed as follows:

Impairment of assets Provision for restoration costs (Note 32)	2020 RMB’000 167,999 7,461 175,460	2019 RMB’000 121,205 8,588
		129,793

(d) Unrecognised deferred income tax assets of tax losses

Deferred income tax assets were recognised for tax losses carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets of approximately RMB19 million (2019: RMB16 million) in respect of losses amounting to RMB78 million (2019: RMB59 million).

The unrecognised tax losses will expire in the following years:

Year 2020 2021 2022 2023 2024 2025	2020 RMB’000 – 5,124 3,466 11,061 32,774 25,350 77,775	2019 RMB’000 6,243 5,124 3,466 11,061 32,773 –
		58,667

The net balances of deferred income tax assets and deferred income tax liabilities after offsetting are shown below:

	31 December	2020	31 December	2019
		After offsetting		After offsetting
	Set-off amount	the balance	Set-off amount	the balance
	RMB’000	RMB’000	RMB’000	RMB’000
Deferred income tax assets	(48,409)	12,965	(18,023)	4,209
Deferred income tax liabilities	(48,409)	100,799	(18,023)	125,587

325

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

32 PROVISIONS FOR OTHER LIABILITIES AND CHARGES

Provision for restoration costs Others To be utilised: – within 1 year – after 1 year	31 December 2019 RMB’000 24,598 – 24,598 12,933 11,665 24,598	Increase RMB’000 2,072 3,546 5,618	Decrease RMB’000 (3,198) – (3,198)	31 December 2020 RMB’000 23,472 3,546
				27,018 13,281 13,737
				27,018

33 TRADE PAYABLES, OTHER PAYABLES, INCOME TAX AND OTHER TAXES PAYABLE

Notes Trade payables (a) Other payables (b) Income tax and other taxes payables (c)	2020 RMB’000 294,973 955,631 56,841 1,307,445	2019 RMB’000 231,293 1,532,842 86,188
		1,850,323

(a) Trade payable

The aging analysis of trade payables based on supplier’s invoice date is as below:

Within 1 year Overdue more than 1 year	2020 RMB’000 205,716 89,257 294,973	2019 RMB’000 164,526 66,767
		231,293

As at 31 December 2020, trade payables are mainly payable for purchases of inventories. The trade payable with aging more than 1 year are mainly source water charges payable by Qujing Company of RMB43 million, and the subcontract costs payable by Tianjin Water Recycling Co., Ltd of RMB30 million. As the Group has not yet recovered the relevant sewage treatment charges and the related projects have not yet been completed, the Group has not settled the related payable balances.

326

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

33 TRADE PAYABLES, OTHER PAYABLES, INCOME TAX AND OTHER TAXES PAYABLE (Continued)

(b) Other payables

Construction costs payable Payable for purchases of property, plant and equipment and concession rights Interest payable for borrowings and debentures Others	31 December 2020 RMB’000 838,871 18,930 2,097 95,733 955,631	31 December 2019 RMB’000 1,224,453 171,392 42,974 94,023
		1,532,842

As at 31 December 2020, other payables of approximately RMB642 million (2019: RMB665 million) were aged over one year, which are mainly payables and deposits received in connection with the Dalian Oriental Chunliuhe sewage processing project, Karamay sewage water processing PPP project and Honghu sewage plants construction upgrading projects. The balances had yet to be settled as those projects and their final accounts have not been completed.

(c) Income tax and other taxes payables

VAT payables Income tax payables Others	31 December 2020 RMB’000 24,234 18,092 14,515 56,841	31 December 2019 RMB’000 37,256 32,083 16,849
		86,188

327

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

34 CASH FLOW INFORMATION

(a) Cash generated from operations

Profit before income tax Adjustments for: – Amortisation of deferred revenue (Note 30) – Depreciation and amortisation – Gain on disposal of property, plant and equipment and other current assets (Note 10) – Net impairment losses on financial assets – Impairment loss on other current assets and intangible assets – Interest income on bank deposit (Note 9) – Interest expense of borrowings (Note 9) – Net exchange (gains)/losses (Note 9) Changes in working capital – Increase in inventories – Increase in receivables – Increase in other operating assets (i) – (Decrease)/increase in other taxes payables – (Decrease)/increase in contract liabilities – Increase in other operating liabilities (ii) Cash generated from operations	2020 RMB’000 718,184 (83,664) 573,221 (21) 88,332 34,808 (14,404) 272,030 (10,490) 1,577,996 (2,655) (913,914) (25,637) (15,356) (31,062) 82,268 671,640	2019 RMB’000 629,549 (84,470) 509,483 (49,407) 31,383 26,808 (14,546) 213,982 8,813 1,271,595 (814) (454,711) (91,566) 19,870 89,287 101,076 934,737

(i) Other operating assets mainly include prepayment and other current assets.
(ii) Other operating liabilities mainly include trade and other payables.

(b) Major non-cash transactions

Under the restoration and non-monetary assets exchange arrangement as mentioned in Note 16(ii), the Company has transferred its entire interests in the Dongjiao Sewage Plant (including the land) to the Tianjin Government on 1 September 2020 in exchange for the New Dongjiao Sewage Plant as freely provided by the Tianjin Government to continue the related sewage processing operations till the end of the related concession right agreement.

328

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

34 CASH FLOW INFORMATION (Continued)

(c) In the consolidated statement of cash flows, proceeds from disposal of property, plant and equipment and other current assets comprise:

Net book amount of the related assets being disposed (Notes 15 and 20) Gain on disposal of property, plant and equipment and other current assets Proceeds from disposal of property, plant and equipment and other current assets	2020 RMB’000 602 21 623	2019 RMB’000 5,729 49,407
		55,136

(d) Net debt reconciliation

This section sets out an analysis of net debts and the movements in net debts for each of the periods presented.

Net debts Cash and cash equivalents Borrowings – repayable within one year Borrowings – repayable after one year Net debts Cash and cash equivalents Gross debts – fixed interest rates Gross debts – variable interest rates Net debts Net debts as at 1 January 2019 Cash flows Foreign exchange adjustments Other non-cash movements Net debts as at 31 December 2019 Cash flows Foreign exchange adjustments Other non-cash movements Net debts as at 31 December 2020	Cash and cash equivalents RMB’000 1,808,543 257,758 – – 2,066,301 (413,644) – – 1,652,657	As at 31 December 2020 2019 RMB’000 RMB’000 1,652,657 2,066,301 (1,582,982) (1,059,869) (5,574,476) (5,066,797) (5,504,801) (4,060,365) 1,652,657 2,066,301 (2,037,493) (2,223,324) (5,119,965) (3,903,342) (5,504,801) (4,060,365) Liabilities from financing activities Borrowings due within 1 year Borrowings due after 1 year Total of net debts RMB’000 RMB’000 RMB’000 (443,369) (4,114,683) (2,749,509) (614,119) (928,945) (1,285,306) (856) (7,957) (8,813) (1,525) (15,212) (16,737) (1,059,869) (5,066,797) (4,060,365) (477,855) (496,776) (1,388,275) 768 6,680 7,448 (46,026) (17,583) (63,609) (1,582,982) (5,574,476) (5,504,801)	As at 31 December 2020 2019 RMB’000 RMB’000 1,652,657 2,066,301 (1,582,982) (1,059,869) (5,574,476) (5,066,797) (5,504,801) (4,060,365) 1,652,657 2,066,301 (2,037,493) (2,223,324) (5,119,965) (3,903,342) (5,504,801) (4,060,365) Liabilities from financing activities Borrowings due within 1 year Borrowings due after 1 year Total of net debts RMB’000 RMB’000 RMB’000 (443,369) (4,114,683) (2,749,509) (614,119) (928,945) (1,285,306) (856) (7,957) (8,813) (1,525) (15,212) (16,737) (1,059,869) (5,066,797) (4,060,365) (477,855) (496,776) (1,388,275) 768 6,680 7,448 (46,026) (17,583) (63,609) (1,582,982) (5,574,476) (5,504,801)
			(4,060,365)
			2,066,301 (2,223,324) (3,903,342)
			(4,060,365)
			Total of net debts RMB’000 (2,749,509) (1,285,306) (8,813) (16,737)
			(4,060,365)
			(1,388,275) 7,448 (63,609)
			(5,504,801)

329

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

35 COMMITMENTS

The Group’s capital expenditure contracted for at the end of the year but not yet recognised as liabilities is as follows:

Property, plant and equipment Intangible assets	Contracted but n 31 December 2020 RMB’ million – 503 503	ot provided for 31 December 2019 RMB’ million 31 1,414 1,445	Authorised but no 31 December 2020 RMB’ million – 220 220	t contracted for 31 December 2019 RMB’ million 34 1,088
				1,122

36 RELATED PARTY TRANSACTIONS

(1) Information of the parent of the Company

(a) General information of the parent Company

Name	Type	Place of registration	Legal representative	Nature of business
Municipal	Limited liability	Tianjin, the PRC	Yu Zhongpeng	Development and management
Investment	company			of municipal infrastructures

The Company’s ultimate controlling party is City Infrastructure Construction and Investment.

(b) Registered capital and changes in registered capital of the parent company

Municipal Investment	31 December 2019 RMB’000 1,820,000	Increase in current year RMB’000 –	Decrease in current year RMB’000 –	31 December 2020 RMB’000 1,820,000

Municipal Investment	31 December 2020 Shareholding (%) Voting rights (%) 50.14 50.14	31 December 2019 Shareholding (%) Voting rights (%) 50.14 50.14

330

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

36 RELATED PARTY TRANSACTIONS (Continued)

(2) Information of subsidiaries

The information of the subsidiaries is set out in Note 17a.

(3) Information of associate

The information of the associate is set out in Note 17b.

(4) Information of other related parties

Relationship with the Group

Tianjin Lecheng Properties Limited Tianjin City Resource Operation Co., Ltd. Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd.

Controlled by the same ultimate holding company Controlled by the same ultimate holding company Controlled by the same ultimate holding company

(5) Related party transactions

In addition to those disclosed elsewhere in the consolidated financial statements, the following transactions were carried out with related parties:

(a) Purchase of goods and sales of services

Purchases of goods Related party Nature of transaction City Infrastructure Construction and Investment Contracted operating expenses Sales of services Related party Nature of transaction City Infrastructure Construction and Investment Commission income from contract operation Tianjin Lecheng Properties Limited Income from heating and cooling supply City Infrastructure Construction and Investment Commission income from technical services	2020 RMB’000 7,426 2020 RMB’000 84,004 28,763 6,467 119,234	2019 RMB’000 –
		2019 RMB’000 84,738 33,165 1,936
		119,839

331

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

36 RELATED PARTY TRANSACTIONS (Continued)

(5) Related party transactions (Continued)
(a) Purchase of goods and sales of services (Continued)

The Group’s pricing on pipeline construction contract service and heating supply service with related parties are based on the reference price stipulated by the local government. Other transactions were conducted at terms as agreed with the respective related parties in the ordinary course of business.

(b) Sale-leaseback

Rent payment

Founders Type of leased assets 2020 2019 RMB’000 RMB’000 Tianjin City Infrastructure Construction and Fixed assets Investment Chuangzhan Leasing Co., Ltd. 3,800 – Guarantee：： Guarantor Guarantee Amount Starting date Due date RMB’000 City Infrastructure Xi’an Capital Water Co., Ltd. 71,000 28 September 2008 27 September 2022 Construction and Investment

(c) Guarantee：：

(d) Key management compensation:

Key management compensation	31 December 2020 RMB’000 12,137	31 December 2019 RMB’000 11,998

332

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

36 RELATED PARTY TRANSACTIONS (Continued)

(6) Year-end balances arising from sales/purchases of services/goods

(a) Receivables from related parities

Receivables from related parities: Trade receivables – City Infrastructure Construction and Investment – Tianjin Lecheng Properties Limited – Tianjin City Resource Operation Co., Ltd.	31 December 2020 RMB’000 46,537 21,342 401 68,280	31 December 2019 RMB’000 60,423 4,650 401
		65,474

The receivables from related parties arise mainly from services provided and are due within one year after the date of sales. The receivables are unsecured in nature and interest free. As at 31 December 2020, provisions for loss allowance of RMB3 million has been recognised on the receivables from related parties.

(b) Payables to related parities

Related party Non-current liabilities due within one year Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd. Long-term payables Tianjin City Infrastructure Construction and Investment Chuangzhan Leasing Co., Ltd.	2020 RMB’000 7,600 8,600	2019 RMB’000 –
		–

333

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

36 RELATED PARTY TRANSACTIONS (Continued)
(7) Transactions/balances with other state-owned enterprises in the PRC

During the year, the Group’s significant transactions with these state controlled entities include processing of sewage water, construction and management of related facility, processing of tap water and supply of heating. As at 31 December 2020, majority of the Group’s cash and cash equivalents and borrowings are deposited/arranged with state controlled banks.

37 EVENTS AFTER THE REPORTING PERIOD

(1) Dividend distribution

	Dividend
Proposed dividend	171,267
Declared dividend	152,713

At the Board meeting held on 25 March 2021, the resolution in respect of the proposed adoption of profit available for dividend to all shareholders is approximately RMB171 million, have been approved by the Board.

(2) Acquisition of 100% equity interest in Gaoyou Compro Environmental Resources Co., Ltd. (“Gaoyou Compro”) and Jiangsu Yonghui Resources Utilization Co., Ltd. (“Jiangsu Yonghui”)

334

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

37 EVENTS AFTER THE REPORTING PERIOD (Continued)

(3) A Share Option Incentive Scheme

The exercise arrangement is as follows:

		Proportion of
Exercise period	Exercise time	exercise
First Exercise Period	From the first trading day after 24 months has passed since the date of	1/3
	grant to the last trading day within 36 months from the date of grant
Second Exercise Period	From the first trading day after 36 months has passed since the date of	1/3
	grant to the last trading day within 48 months from the date of grant
Third Exercise Period	From the first trading day after 48 months has passed since the date of	1/3
	grant to the last trading day within 60 months from the date of grant

335

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

38 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY

ASSETS Non-current assets Property, plant and equipment Intangible assets Right-of-use assets Investments in subsidiaries Financial assets at fair value through other comprehensive income Long-term receivables Other non-current assets Current assets Inventories Trade receivables Prepayments Other current assets Other receivables Restricted cash Cash and cash equivalents Total assets	As at 31 December 2020 2019 RMB’000 RMB’000 148,891 161,611 3,862,526 4,018,932 3,330 3,002 4,223,545 4,067,052 2,000 2,000 1,647,402 236,450 40,832 115,332 9,928,526 8,604,379 5,995 4,811 1,126,477 1,958,081 – 1,916 395,060 495,790 25,883 87,945 5,151 5,075 617,960 736,182 2,176,526 3,289,800 12,105,052 11,894,179	As at 31 December 2020 2019 RMB’000 RMB’000 148,891 161,611 3,862,526 4,018,932 3,330 3,002 4,223,545 4,067,052 2,000 2,000 1,647,402 236,450 40,832 115,332 9,928,526 8,604,379 5,995 4,811 1,126,477 1,958,081 – 1,916 395,060 495,790 25,883 87,945 5,151 5,075 617,960 736,182 2,176,526 3,289,800 12,105,052 11,894,179
		8,604,379
		4,811 1,958,081 1,916 495,790 87,945 5,075 736,182
		3,289,800
		11,894,179

336

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

(All amounts in RMB yuan unless otherwise stated)

38 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (Continued)

LIABILITIES Non-current liabilities Borrowings Deferred revenue Deferred income tax liabilities Provisions for other liabilities and charges Current liabilities Trade payables Contract liabilities Salaries and wages payable Income tax and other taxes payables Other payables Borrowings Provisions for other liabilities and charges Total liabilities Net assets EQUITY Equity attributable to owners of the Company Share capital Other reserves Retained earnings Total equity	As at 31 December 2020 2019 RMB’000 RMB’000 3,114,454 3,865,673 1,524,402 1,593,830 36,085 60,642 11,665 11,665 4,686,606 5,531,810 43,558 65,904 4,950 4,950 43,202 30,463 4,688 31,101 230,454 417,707 1,597,151 769,939 9,735 12,933 1,933,738 1,332,997 6,620,344 6,864,807 5,484,708 5,029,372 1,427,228 1,427,228 999,842 939,038 3,057,638 2,663,106 5,484,708 5,029,372	As at 31 December 2020 2019 RMB’000 RMB’000 3,114,454 3,865,673 1,524,402 1,593,830 36,085 60,642 11,665 11,665 4,686,606 5,531,810 43,558 65,904 4,950 4,950 43,202 30,463 4,688 31,101 230,454 417,707 1,597,151 769,939 9,735 12,933 1,933,738 1,332,997 6,620,344 6,864,807 5,484,708 5,029,372 1,427,228 1,427,228 999,842 939,038 3,057,638 2,663,106 5,484,708 5,029,372
		5,531,810
		65,904 4,950 30,463 31,101 417,707 769,939 12,933
		1,332,997
		6,864,807
		5,029,372
		1,427,228 939,038 2,663,106
		5,029,372

The financial statements on pages 336 to 338 were approved by the Board of Directors on 25 March 2021 and were signed on its behalf.

Liu Yujun Chairman

Niu Bo Director

337

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

38
BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY(Continued)
Share capital
Other reserves
Retained earnings
RMB’000
RMB’000
RMB’000
Total equity at 1 January 2019
1,427,228
897,895
2,444,111
Comprehensive income
– Profit for the year
–
–
411,423
Transactions with owners in
their capacity as owners
– Profit appropriation to statutory reserves
–
41,143
(41,143)
– Dividends declared
–
–
(151,285)
Total transactions with owners
–
41,143
218,995
Balance at 31 December 2019
1,427,228
939,038
2,663,106
Total equity at 1 January 2020
1,427,228
939,038
2,663,106
Comprehensive income
– Profit for the year
–
–
608,049
Transactions with owners in
their capacity as owners
– Profit appropriation to statutory reserves
–
60,804
(60,804)
– Dividends declared
–
–
(152,713)
Total transactions with owners
–
60,804
394,532
Balance at 31 December 2020
1,427,228
999,842
3,057,638

Total
RMB’000
4,769,234
411,423
–
(151,285)
260,138
5,029,372
5,029,372
608,049
–
(152,713)
455,336
5,484,708

338

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

14. Financial Statements Prepared in accordance with Hong Kong Financial Reporting Standards Notes to the Consolidated Financial Statements

For the year ended 31 December 2020 (All amounts in RMB yuan unless otherwise stated)

39 BENEFITS AND INTERESTS OF DIRECTORS

Directors’ emoluments

The remuneration of directors of the Company for the year ended 31 December 2020 was as follows:

Name Chairman: Liu Yujun Executive directors: Wang Jing Niu Bo Independent non-executive directors: Wang Xiangfei Guo Yongqing Di Xiaofeng	Fees RMB’000 – – – 220 220 220 660	Emoluments paid in respect of person’s services as a director of the Company Salary Discretionary bonuses Housing fund and other social security contributions RMB’000 RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – – –	Employer’s contribution to a retirement benefit scheme RMB’000 – – – – – – –	Emoluments paid in respect of director’s other services with the management of the affairs of the Company Salary Discretionary bonuses Housing fund and other social security contributions Employer’s contribution to a retirement benefit scheme RMB’000 RMB’000 RMB’000 RMB’000 336 607 119 28 305 358 119 28 287 278 119 28 – – – – – – – – – – – – 928 1,243 357 84	Total RMB’000 1,090 810 712 220 220 220
					3,272

The remuneration of directors of the Company for the year ended 31 December 2019 was as follows:

Name Chairman: Liu Yujun Executive directors: Wang Jing Niu Bo Independent non-executive directors: Wang Xiangfei Guo Yongqing Di Xiaofeng	Fees RMB’000 – – – 220 220 220 660	Emoluments paid in respect of person’s services as a director of the Company Salary Discretionary bonuses Housing fund and other social security contributions RMB’000 RMB’000 RMB’000 – – – – – – – – – – – – – – – – – – – – –	Employer’s contribution to a retirement benefit scheme RMB’000 – – – – – – –	Emoluments paid in respect of director’s other services with the management of the affairs of the Company Salary Discretionary bonuses Housing fund and other social security contributions Employer’s contribution to a retirement benefit scheme RMB’000 RMB’000 RMB’000 RMB’000 479 160 120 59 445 146 120 59 385 110 120 59 – – – – – – – – – – – – 1,309 416 360 177	Total RMB’000 818 770 674 220 220 220
					2,922

339

Tianjin Capital Environmental Protection Group Company Limited Annual Report 2020

15. List of Documents Available for Inspection

Financial statements with the signatures and seals of the officer in charge of the Company, the officer in charge of the accounting function, and the officer in charge of the accounting department (the accounting management officer)
Original of the audit report with the seal of the accounting firm and the signatures and seals of certified public accountants
Originals of all documents and announcements of the Company publicly disclosed on the website designated by the China Securities Regulatory Commission during the reporting period
Annual report published in other securities markets

340

Annual Report 2020 Tianjin Capital Environmental Protection Group Company Limited

AI assistant

Rego Interactive Co., Ltd — Annual Report 2020

50588_rns_2021-04-19_7713efce-40db-4674-95d0-801ac649d2b7.pdf

2020

No

1. Definitions

I. DEFINITIONS

I. INFORMATION OF THE COMPANY

天津創業環保集團股份有限公司

創業環保

II. CONTACT PERSON AND METHOD

III. COMPANY PROFILE

2. Company Profile and Major Financial Indicators

IV. PLACES WHERE INFORMATION IS DISCLOSED AND AVAILABLE FOR INSPECTION

VI. OTHER RELEVANT INFORMATION

(I) Major accounting data

2. Company Profile and Major Financial Indicators

IX. EXTRAORDINARY PROFIT AND LOSS ITEMS AND AMOUNTS

X. ITEMS MEASURED BY FAIR VALUE

XI. PREPARATION BASED ON HONG KONG FINANCIAL REPORTING STANDARDS

Results

2. Company Profile and Major Financial Indicators

XI. PREPARATION BASED ON HONG KONG FINANCIAL REPORTING STANDARDS (Continued) Assets and Liabilities

I. EXPLANATION OF THE PRINCIPAL BUSINESS OF THE COMPANY, ITS BUSINESS MODEL, AND THE INDUSTRY SITUATION DURING THE REPORTING PERIOD

(I) Principal Business of the Company and its Business Model

(II) Explanation of Industry Situation

III. ANALYSIS OF CORE COMPETITIVENESS DURING THE REPORTING PERIOD

(1) Our ability to operate in a safe, stable, up-to-standard, and efficient manner

(2) Our practical, leading, systematic, and sustainable research and development capabilities

(3) Our professional, dedicated, cooperative, and innovative staff team

(4) Our corporate reputation for being trustworthy, responsible, standardized, and reliable

I. OPERATION DISCUSSION AND ANALYSIS

1. Analysis of the overall operation condition during the reporting period

II. OPERATION SITUATION OF THE PRINCIPAL BUSINESS DURING THE REPORTING PERIOD

1. Analysis of the principal business

2. Analysis of the overall results of operations during the reporting period

I ANALYSIS OF THE PRINCIPAL BUSINESS

1. Analysis of income and costs

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

Principal business by industry

Principal business by region

(2). Analysis of production and sales volume

(3). Cost analysis

By industry

Cost analysis and other explanation

(4). Major customers and major suppliers

Other explanation

2. Expenses

3. Research and development investment

(1). Research and development investment

(2). Explanation

4. Cash flow

III ANALYSIS OF ASSETS AND LIABILITIES

Assets and liabilities

IV ANALYSIS OF INDUSTRY OPERATIONAL INFORMATION

4. Management Discussion and Analysis

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

VI DISPOSAL OF MAJOR ASSETS AND EQUITY INTEREST

VII ANALYSIS OF MAJOR COMPANIES IN WHICH THE COMPANY HAS INVESTED

4. Management Discussion and Analysis

VIII STRUCTURED ENTITIES CONTROLLED BY THE COMPANY

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

(I) STATUS AND TRENDS OF THE INDUSTRY

4. Elevate from heavy asset expansion to combined light-and-heavy asset model

(II) DEVELOPMENT STRATEGY OF THE COMPANY

(III) OPERATING PLANS

(1) Adhere to the business promotion principle

(3) Innovate in capital guarantee

(4) Strengthen the Party’s leadership

(5) Optimize internal control

(6) Build talents system

(IV) POSSIBLE RISKS

1. Possible risks

2. Risk control measures

(V) OTHERS

5. Major Events

Rego Interactive Co., Ltd Annual Report 2020