22nd Floor CITIC Tower 1 Tim Mei Avenue Central Hong Kong. 25 June 2014

Transcription

1 The following is the text of a report on Beijing Urban Construction Design & Development Group Co., Limited, prepared for the purpose of incorporation in this prospectus received from the auditors and reporting accountants of our Company, Ernst & Young, Certified Public Accountants, Hong Kong. 22nd Floor CITIC Tower 1 Tim Mei Avenue Central Hong Kong 25 June 2014 The Directors Beijing Urban Construction Design & Development Group Co., Limited UBS Securities Hong Kong Limited CITIC Securities Corporate Finance (HK) Limited ( ) Dear Sirs, We set out below our report on the financial information of Beijing Urban Construction Design & Development Group Co., Limited (, the Company ) and its subsidiaries (hereinafter collectively referred to as the Group ) comprising the consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group for each of the three years ended 31 December 2011, 2012 and 2013 (the Relevant Periods ), and the consolidated statements of financial position of the Group and the statements of financial position of the Company as at 31 December 2011, 2012 and 2013, together with the notes thereto (the Financial Information ), prepared on the basis of presentation set out in note 2.1 of Section II below, for inclusion in the prospectus of the Company dated 25 June 2014 (the Prospectus ) in connection with the listing of the shares of the Company on the Main Board of the Stock Exchange of Hong Kong Limited (the Stock Exchange ). The Company began the operations in 1958 in the People s Republic of China (the PRC, or Mainland China, which excludes for the purpose of this report, the Hong Kong Special Administrative Region of the PRC or Hong Kong, the Macau Special Administrative Region of the PRC or Macau, and Taiwan) as a State-owned professional survey and design institute founded specifically for the survey and design of Beijing Subway Line 1. In 1983, the name of the Company was changed to Beijing Urban Construction Engineering Design Institute. Thereafter, the Company became an affiliate of Beijing Urban Construction Engineering Corporation, the predecessor of Beijing Urban Construction Group Co., Ltd. ( BUCG ). In August 1990, the predecessor of the Company in the name of Beijing Urban Construction Engineering Design Institute was registered as an enterprise owned by the whole people ( ). In June 1991, it was renamed as Beijing Urban Construction Design & Research Institute. In September 2001, the Company was converted into a company with limited liability and renamed as Beijing Urban Construction Design & Research Institute Limited Liability Company. In December 2002, it was further renamed as Beijing Urban Construction Design & Research Institute Co., Ltd. I-1

2 Pursuant to a group reorganisation as described in note 1 of Section II below, which was completed on 31 December 2012, the Company became the holding company of the subsidiaries now comprising the Group (the Reorganisation ). The injection of capital from seven strategic investors was completed on 24 May 2013 as set out in note 1 of Section II below and these strategic investors became the beneficial shareholders (the Beneficial Shareholders ) of the Company. On 28 October 2013, the Company was converted and registered as a joint stock company with limited liability under the Company Law of the PRC, and the name of the Company was changed to Beijing Urban Construction Design & Development Group Co., Limited ( ). At the date of this report, the Company has direct and indirect interests in the subsidiaries as set out in note 1 of Section II below. All companies now comprising the Group have adopted 31 December as their financial year end date. The statutory financial statements of the companies now comprising the Group were prepared in accordance with the Accounting Standards for Business Enterprises issued by the Ministry of Finance (the MOF ) of the PRC in 2006, and other related regulations issued by the MOF (collectively the PRC GAAP ). Details of their statutory auditors during the Relevant Periods are set out in note 1 of Section II below. For the purpose of this report, the directors of the Company (the Directors ) have prepared the consolidated financial statements of the Group (the Underlying Financial Statements ) in accordance with International Financial Reporting Standards ( IFRSs ) issued by the International Accounting Standards Board. The Underlying Financial Statements for each of the three years ended 31 December 2011, 2012 and 2013 were audited by us in accordance with International Standards on Auditing issued by the International Auditing and Assurance Standards Board (the IAASB ). The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustment made thereon. DIRECTORS RESPONSIBILITY The Directors are responsible for the preparation of the Underlying Financial Statements and the Financial Information that give a true and fair view in accordance with IFRSs, and for such internal control as the Directors determine is necessary to enable the preparation of the Underlying Financial Statements and the Financial Information that are free from material misstatement, whether due to fraud or error. REPORTING ACCOUNTANTS RESPONSIBILITY It is our responsibility to form an independent opinion on the Financial Information and to report our opinion thereon to you. For the purpose of this report, we have carried out procedures on the Financial Information in accordance with Auditing Guideline Prospectuses and the Reporting Accountant issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ). I-2

3 OPINION IN RESPECT OF THE FINANCIAL INFORMATION In our opinion, for the purpose of this report and on the basis of presentation set out in note 2.1 of Section II below, the Financial Information gives a true and fair view of the state of affairs of the Group and the Company as at 31 December 2011, 2012 and 2013 and of the consolidated results and cash flows of the Group for each of the Relevant Periods. I-3

4 I. FINANCIAL INFORMATION (A) Consolidated Statements of Comprehensive Income Section II Notes Year ended 31 December REVENUE ,409,655 2,693,540 2,923,485 Cost of sales... 8 (2,963,459) (2,215,699) (2,336,783) Gross profit , , ,702 Other income and gains ,697 18,514 11,667 Selling and distribution expenses... (32,967) (36,056) (44,068) Administrative expenses... (187,225) (193,847) (211,996) Other expenses... (29,446) (32,148) (31,853) Finance costs... 7 (2,272) (2,430) (1,376) Share of profits and losses of: Joint ventures (431) (651) Associates (395) 1,893 PROFIT BEFORE TAX , , ,318 Income tax expense (40,072) (33,000) (74,052) PROFIT FOR THE YEAR , , ,266 OTHER COMPREHENSIVE INCOME Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Re-measurement gains/(losses) on defined benefit plans, net of tax (4,540) 2,170 4,630 TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX , , ,896 Profit attributable to: Owners of the parent , , ,563 Non-controlling interests... 4,966 3, , , ,266 Total comprehensive income attributable to: Owners of the parent , , ,193 Non-controlling interests... 4,702 3, , , ,896 Earnings per share attributable to the ordinary equity holders of the parent: Basic and diluted (expressed in RMB per share) I-4

5 (B) Consolidated Statements of Financial Position Section II Notes NON-CURRENT ASSETS Property, plant and equipment , , ,751 Prepaid land lease payments ,580 34,776 34,066 Intangible assets ,173 3,817 5,869 Investments in joint ventures ,651 2,288 1,637 Investments in associates ,064 7,552 9,225 Available-for-sale investments ,650 3,650 3,650 Deferred tax assets ,894 78,768 66,079 Trade receivables ,130 3,956 13,609 Prepayments, deposits and other receivables ,438 18,104 18,598 Total non-current assets , , ,484 CURRENT ASSETS Prepaid land lease payments Inventories ,099 23,275 21,366 Trade and bills receivables ,155,563 1,055,911 1,393,723 Prepayments, deposits and other receivables ,188, , ,143 Amounts due from contract customers ,677,841 2,172,297 1,340,086 Pledged deposits ,987 31,220 27,032 Cash and bank balances , ,808 1,790,728 Total current assets... 4,408,070 4,323,415 4,783,788 CURRENT LIABILITIES Trade payables ,902,276 1,613,393 1,381,210 Amounts due to contract customers , , ,103 Other payables, advances from customers and accruals ,652,364 1,663,940 1,349,592 Provisions for supplementary retirement benefits ,682 5,169 5,250 Tax payable , , ,097 Total current liabilities... 4,138,790 4,018,672 3,586,252 NET CURRENT ASSETS , ,743 1,197,536 TOTAL ASSETS LESS CURRENT LIABILITIES , ,740 1,639,020 I-5

6 Section II Notes NON-CURRENT LIABILITIES Provisions for supplementary retirement benefits ,230 69,911 64,150 Other payables and accruals ,655 13,565 16,303 Total non-current liabilities ,885 83,476 80,453 Net assets , ,264 1,558,567 EQUITY Equity attributable to owners of the parent Paid-in capital/share capital , , ,000 Reserves... 31(a) 476, , , , ,650 1,548,935 Non-controlling interests... 32, ,632 Total equity , ,264 1,558,567 I-6

7 (C) Consolidated Statements of Changes in Equity Attributable to owners of the parent Paid-in capital/ Share capital Capital reserve* Special reserve* Statutory surplus reserve* Retained profits* Total Noncontrolling interests Total equity RMB 000 RMB 000 As at 1 January , ,290 21, , ,452 28, ,364 Profit for the year , ,643 4, ,609 Other comprehensive income/ (loss) for the year: Re-measurement losses on defined benefit plans, net of tax... (4,276) (4,276) (264) (4,540) Total comprehensive income/(loss) for the year... (4,276) 157, ,367 4, ,069 Capital contribution from BUCG (note (i))... 2,353 2,353 2,353 Dividends declared... (36,257) (36,257) (1,269) (37,526) Appropriation to statutory surplus reserve... 12,551 (12,551) Transfer to special reserve (note (v))... 46,097 (46,097) Utilisation of special reserve (note (v))... (46,097) 46, and 1 January , ,367 34, , ,915 32, ,260 Profit for the year , ,423 3, ,048 Other comprehensive income for the year: Re-measurement gains on defined benefit plans, net of tax... 2,064 2, ,170 Total comprehensive income for the year... 2, , ,487 3, ,218 Capital contribution from BUCG (note (ii))... 33,906 33,906 33,906 Increase in paid-in capital by capitalisation of statutory surplus reserve (note 30(i))... 18,800 (18,800) Increase in paid-in capital by capitalisation of retained profits (note 30(i))... 99,200 (99,200) Dividends declared... (59,584) (59,584) (10,011) (69,595) Acquisition of non-controlling interests (note (iii)) (25,451) (24,525) Appropriation to statutory surplus reserve... 16,769 (16,769) Transfer to special reserve (note (v))... 29,928 (29,928) Utilisation of special reserve (note (v))... (29,928) 29,928 I-7

8 Attributable to owners of the parent Paid-in capital/ Share capital Capital reserve* Special reserve* Statutory surplus reserve* Retained profits* Total Noncontrolling interests Total equity RMB 000 RMB and 1 January , ,263 32, , , ,264 Profit for the year , , ,266 Other comprehensive income for the year Re-measurement gains on defined benefit plans, net of tax... 4,630 4,630 4,630 Total comprehensive income for the year... 4, , , ,896 Capital contributions from the Beneficial Shareholders (note (iv))... 80, , , ,160 Capitalisation of capital reserve on transformation into a joint stock company (note 30 (iii)) ,231 (689,231) Capital contribution from non-controlling interests... 8,500 8,500 Dividends declared... (75,068) (75,068) (185) (75,253) Appropriation to statutory surplus reserve... 19,341 (19,341) Transfer to special reserve (note (v))... 26,698 (26,698) Utilisation of special reserve (note (v))... (26,698) 26, , ,053 51, ,207 1,548,935 9,632 1,558,567 * 2011, 2012 and 2013, these reserve accounts comprise the consolidated reserves of RMB476,915,000, RMB530,650,000 and RMB628,935,000, respectively, in the consolidated statements of financial position. Notes: (i) (ii) (iii) (iv) (v) The amounts represent the contributions of net assets relating to the construction contracting business from BUCG pursuant to part of the Reorganisation as set out in note 1 of section II during the Relevant Periods. The amount represents the land transfer fee waived by BUCG relating to the leasehold land where the Company s office has been located on pursuant to the Reorganisation as set out in note 1 of section II. The non-controlling interests in a subsidiary were held by the subsidiary s employees through Employees Share Ownership Committee and a third party. During the year ended 31 December 2012, the Company entered into purchase agreements with the Employees Share Ownership Committee and the third party to acquire the non-controlling interests, respectively. The acquisition was completed during the year ended 31 December Pursuant to the capital injection agreement in May 2013, the Beneficial Shareholders contributed cash of RMB703 million into the Company, of which RMB81 million was recorded as paid-in capital and the remaining RMB622 million was recorded as capital reserve. In preparation of the Financial Information, the Group has appropriated certain amount of retained profits to a special reserve fund for each of the three years ended 31 December 2011, 2012 and 2013 respectively for safety production expense purposes as required by directives issued by relevant PRC government authorities. The Group charged the safety production expense to the statement of profit or loss when such expense was incurred, and at the same time an equal amount of such special reserve fund was utilised and transferred back to retained earnings until such special reserve was fully utilised. I-8

9 (D) Consolidated Statements of Cash Flows Section II Notes Year ended 31 December CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax , , ,318 Adjustments for: Finance costs ,272 2,430 1,376 Foreign exchange differences, net... 1, ,863 Interest income... 6 (5,209) (4,651) (11,143) Share of losses/(profits) of associates and joint ventures... (698) 826 (1,242) Gain on disposal of an associate... 8 (151) Gain on disposal of a joint venture... 8 (13,180) Gains on disposal of financial products included in prepayments, deposits and other receivables 8 (183) (109) Depreciation of items of property, plant and equipment ,683 24,663 40,157 Amortisation of intangible assets ,527 1,332 1,549 Amortisation of prepaid land lease payments Impairment of trade receivables ,194 28,980 18,705 Impairment/(reversal of impairment) of deposits and other receivables ,518 (940) 2,128 Provision for foreseeable losses on contracts ,123 3,563 7,872 Loss on disposal of items of property, plant and equipment, net , , ,461 I-9

10 Year ended 31 December Decrease/(increase) in inventories... (5,788) (8,176) 1,909 Decrease/(increase) in amounts due from/(to) contract customers... (284,751) (364,541) 900,225 Decrease/(increase) in trade and bills receivables... (564,637) 83,846 (366,170) Decrease/(increase) in prepayments, deposits and other receivables... 4,141 (33,520) 24,955 Increase/(decrease) in trade payables ,607 (288,883) (172,316) Increase/(decrease) in other payables, advances from customers and accruals... (51,077) 138,231 (161,252) Increase in provisions for supplementary retirement benefits... 1,067 1,662 1,050 Cash flows from/(used in) operations... (412,056) (196,522) 600,862 Interest received... 4,971 4,714 9,461 Income tax paid... (24,795) (25,650) (23,219) Net cash flows from/(used in) operating activities... (431,880) (217,458) 587,104 I-10

11 Section II Notes Year ended 31 December CASH FLOWS FROM INVESTING ACTIVITIES Payments for acquisition of items of property, plant and equipment... (75,134) (68,325) (22,298) Payments for acquisition of intangible assets (519) (1,976) (3,601) Purchase of financial products included in prepayments, deposits and other receivables... (10,000) Purchase of an available-for-sale investment... (3,650) Addition of investment in an associate... (4,000) Addition of investment in a joint venture... (2,450) Proceeds from disposal of items of property, plant and equipment Proceeds from disposal of financial products included in prepayments, deposits and other receivables... 10,183 10,109 Dividends received from associates and joint ventures Proceeds from disposal of a joint venture... 16,112 Proceeds from disposal of an associate Increase in amounts due from related parties included in other receivables... (37,880) (18,290) Increase in amounts due from third parties included in other receivables... (170) (2,745) (950) Decrease in amounts due from BUCG , , ,959 Increase in non-pledged time deposits with original maturity of more than three months... (304,583) Decrease in pledged deposits... 6,633 2,767 4,188 Net cash flows from/(used in) investing activities. 267, ,238 (25,969) I-11

12 Section II Notes Year ended 31 December CASH FLOWS FROM FINANCING ACTIVITIES Net increase/(decrease) in amount due to BUCG.. 274,367 (150,000) (221,619) Interest paid... (2,272) (2,432) (1,376) Dividends paid to shareholders... (36,257) (59,584) Dividends paid to non-controlling interests... (1,320) (8,878) (1,133) Acquisition of non-controlling interests... (21,715) (2,810) Capital contribution from non-controlling interests 8,500 Payment of listing expenses... (5,147) Capital contribution from the Beneficial Shareholders ,160 Net cash flows from/(used in) financing activities.. 234,518 (242,609) 479,575 NET INCREASE IN CASH AND CASH EQUIVALENTS 70, ,171 1,040,710 Cash and cash equivalents at beginning of year , , ,808 Effect of exchange rate changes on cash and cash equivalents... (1,308) (243) (3,373) CASH AND CASH EQUIVALENTS AT END OF YEAR , ,808 1,486,145 I-12

13 (E) Statements of Financial Position Section II Notes NON-CURRENT ASSETS Property, plant and equipment , , ,487 Prepaid land lease payments ,580 34,776 34,066 Intangible assets ,173 3,186 5,253 Investments in subsidiaries ,976 47,525 49,525 Investments in joint ventures ,766 2,600 2,600 Investments in associates ,600 5,600 5,600 Available-for-sale investments ,650 3,650 3,650 Deferred tax assets ,709 68,715 54,767 Trade receivables ,130 3,956 13,609 Prepayments, deposits and other receivables ,150 16,960 18,353 Total non-current assets , , ,910 CURRENT ASSETS Prepaid land lease payments Inventories ,099 23,275 21,366 Trade and bills receivables ,058, ,126 1,304,996 Prepayments, deposits and other receivables ,193, , ,988 Amounts due from contract customers ,510,291 1,945,249 1,129,653 Pledged deposits ,471 16,044 11,922 Cash and bank balances , ,318 1,633,535 Total current assets... 4,044,194 3,889,271 4,324,170 CURRENT LIABILITIES Trade payables ,855,309 1,552,996 1,306,581 Amounts due to contract customers , , ,218 Other payables, advances from customers and accruals ,529,708 1,466,087 1,214,871 Provisions for supplementary retirement benefits ,014 4,570 4,660 Tax payable... 82, , ,765 Total current liabilities... 3,837,770 3,640,391 3,230,095 NET CURRENT ASSETS , ,880 1,094,075 TOTAL ASSETS LESS CURRENT LIABILITIES , ,684 1,539,985 NON-CURRENT LIABILITIES Provisions for supplementary retirement benefits ,394 60,504 55,504 Other payables and accruals ,655 13,565 16,303 Total non-current liabilities ,049 74,069 71,807 Net assets , ,615 1,468,178 EQUITY Paid-in capital/share capital , , ,000 Reserves... 31(b) 438, , ,178 Total equity , ,615 1,468,178 I-13

14 II. NOTES TO FINANCIAL INFORMATION 1. CORPORATE INFORMATION The Company began the operations in 1958 in the PRC as a State-owned professional survey and design institute founded specifically for the survey and design of Beijing Subway Line 1. In 1983, the name of the Company was changed to Beijing Urban Construction Engineering Design Institute. Thereafter, the Company became an affiliate of Beijing Urban Construction Engineering Corporation, the predecessor of BUCG. In August 1990, the predecessor of the Company in the name of Beijing Urban Construction Engineering Design Institute was registered as an enterprise owned by the whole people ( ). In June 1991, it was renamed as Beijing Urban Construction Design & Research Institute. In September 2001, the Company was converted into a company with limited liability and renamed as Beijing Urban Construction Design & Research Institute Limited Liability Company. In December 2002, it was further renamed as Beijing Urban Construction Design & Research Institute Co., Ltd. Pursuant to the Reorganisation of urban rail transit construction contracting and consultancy services of BUCG and its subsidiaries (collectively, the BUCG Group ) in preparation for the initial listing (the Listing ) of the Company s shares on the Stock Exchange, the Company became the holding company of the subsidiaries now comprising the Group. Pursuant to the Reorganisation, BUCG transferred to the Company the following equity interests and businesses related to the urban rail transit construction contracting and consultancy services: 60% equity interest in Beijing Urban Construction Xinjie Rail Transit Engineering Consulting Co., Ltd. ( Xinjie Consulting ); the operation relating to urban rail transit construction contracting together with the related assets and liabilities; and as part of the Reorganisation, BUCG assisted the Company to obtain the land certification related to the leasehold land where the Company s office has been located, paid the related land transfer fee on behalf of the Company and waived the liability of related land transfer fee. Subsequent to the Reorganisation completed on 31 December 2012, the capital injection of RMB703 million to the Company from the Beneficial Shareholders was completed on 24 May 2013 and the shareholding in the Company held by the Beneficial Shareholders is 35%. The Company was then converted into a joint stock company with limited liability and renamed as Beijing Urban Construction Design & Development Group Co., Limited ( ) on 28 October The registered office address of the Company is No.5 Fuchengmen North Street, Xicheng District, Beijing, the PRC. During the Relevant Periods, the Group s principal activities were as follows: Design, survey and consultancy Construction contracting I-14

15 In the opinion of the Directors, throughout the Relevant Periods and up to the date of this report, the Company s holding company is BUCG, which is wholly-owned by the State-owned Assets Supervision and Administration Commission ( SASAC ) of the People s Government of Beijing Municipality of the PRC. As at the date of this report, the Company had direct and indirect interests in the following subsidiaries, all of which are private companies with limited liability, the particulars of which are set out below: Subsidiaries Place and date of Percentage of registration and Registered and equity interest attributable Company name* Notes business paid-in capital to the Company Principal activities Direct Indirect Beijing Urban Construction Exploration & Surveying Design Research Institute Co., Ltd. ( ) (i) The PRC/ Mainland China 3 May 1992 RMB30,000, % Surveying, designing, engineering exploration Beijing Huan an Engineering Inspection Co., Ltd. ( ) (i) The PRC/ Mainland China 18 June 2008 RMB1,000, % Engineering consulting, monitoring and testing China Metro Engineering Consulting Co., Ltd. ( ) (i) The PRC/ Mainland China 27 October 2006 RMB13,340, % Rail transit, engineering consulting Beijing Urban Construction Xingjie Property Management Co., Ltd. ( ) (ii) The PRC/ Mainland China 21 November 2011 RMB500, % Property management I-15

16 Place and date of registration and business Percentage of equity interest attributable to the Company Registered and paid-in capital Company name* Notes Principal activities Direct Indirect Xinjie Consulting ( ) (i) The PRC/ Mainland China 2 January 2004 RMB3,000,000 60% 40% Rail transit engineering consulting Beijing Urban Construction Taijie Engineering Consulting Co., Ltd. ( ) (iii) The PRC/ Mainland China 19 August 2013 RMB5,000,000 40% Engineering consulting * The English names of the companies registered in the PRC represent the best efforts of the management of the Company in directly translating the Chinese names of the companies as no English names have been registered. Notes: (i) (ii) The statutory financial statements of these subsidiaries for the years ended 31 December 2011, 2012 and 2013 prepared under the PRC GAAP were audited by Beijing Zhongtianyongxin Certified Public Accountants ( ), certified public accountants registered in the PRC. The statutory financial statements of this subsidiary for the years ended 31 December 2012 and 2013 prepared under the PRC GAAP were audited by Beijing Zhongtianyongxin Certified Public Accountants ( ), certified public accountants registered in the PRC. No statutory financial statements were prepared for this subsidiary for the year ended 31 December 2011 as this entity was newly established in (iii) On 19 August 2013, Beijing Urban Construction Taijie Engineering Consulting Co., Ltd. ( Taijie Consulting ) was established and the Company owned directly a 40% equity interest in the entity. Since the establishment, the Company signed the shareholders voting agreement with the other equity owners holding 60% equity interests in aggregate, who have unconditionally and irrevocably agreed to vote unanimously with the Company. Therefore the Company is able to exercise control over Taijie Consulting. No statutory financial statements were prepared for this subsidiary for the year ended 31 December 2013 as this entity was newly established in BASIS OF PRESENTATION Pursuant to the Reorganisation as more fully explained in the paragraph headed Reorganisation in History, Reorganisation and Corporate Structure in this Prospectus, the Company became the holding company of the companies now comprising the Group on 31 December The companies now comprising the Group were under the common control of the controlling shareholders before and after the Reorganisation. Accordingly, for the purpose of this report, the Financial Information has been prepared by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Relevant Periods. I-16

17 The consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group for the Relevant Periods include the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the controlling shareholders, where this is a shorter period. The consolidated statements of financial position of the Group as at 31 December 2011, 2012 and 2013 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the controlling shareholders perspective. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation. Equity interests in subsidiaries and/or businesses held by parties other than the controlling shareholders, and changes therein, prior to the Reorganisation are presented as non-controlling interests in equity in applying the principles of merger accounting. All intra-group transactions and balances have been eliminated on consolidation. 2.2 BASIS OF PREPARATION The Financial Information has been prepared in accordance with IFRSs, which comprise all standards and interpretations approved by the IASB. All IFRSs effective for the accounting period commencing from 1 January 2013, together with the relevant transitional provisions, have been early adopted by the Group in the preparation of the Financial Information throughout the Relevant Periods. This Financial Information has been prepared under the historical cost convention. The Financial Information is presented in Renminbi ( RMB ) and all values are rounded to the nearest thousand, except when otherwise indicated. 3.1 ISSUED BUT NOT YET EFFECTIVE IFRSs The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in the Financial Information herein. IFRS 9 Financial Instruments 4 IFRS 9, IFRS 7 and IAS 39 Hedge Accounting and amendments to IFRS 9, Amendments IFRS 7 and IAS 39 4 IFRS 10, IFRS 12 and Amendments to IFRS 10, IFRS 12 and IAS 27 IAS 27 (Revised) Amendments (Revised) Investment Entities 1 IFRS 14 Regulatory Deferral Accounts 3 IFRS 15 Revenue from Contracts with Customers 5 IAS 19 Amendments Amendments to IAS 19 Employee Benefits Defined Benefit Plans: Employee Contributions 2 IAS 32 Amendments Amendments to IAS 32 Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities 1 IAS 36 Amendments Amendments to IAS 36 Impairment of Assets Recoverable Amount Disclosures for Non-Financial Assets 1 I-17

18 IAS 39 Amendments Amendments to IAS 39 Financial instruments: Recognition and Measurement Novation of Derivatives and Continuation of Hedge Accounting 1 IFRIC 21 Levies 1 Annual Improvements & Amendments to a number of IFRSs Cycles Effective for annual periods beginning on or after 1 January 2014 Effective for annual periods beginning on or after 1 July 2014 Effective for annual periods beginning on or after 1 January 2016 No mandatory effective date yet determined but is available for adoption Effective for annual periods beginning on or after 1 January 2017 The Group is in the process of making an assessment of the impact of these new and revised IFRSs upon initial application. So far, the Group considers that these new and revised IFRSs may result in changes in accounting policies and are unlikely to have a significant impact on the Group s results of operations and financial position. 3.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The Financial Information includes the financial statements of the Company and its subsidiaries for the Relevant Periods. The financial statements of the subsidiaries are prepared for the same reporting periods as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries below. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. Subsidiaries A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its I-18

19 involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee). When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: (a) (b) (c) the contractual arrangement with the other vote holders of the investee; rights arising from other contractual arrangements; and the Group s voting rights and potential voting rights. The results of subsidiaries are included in the Company s profit or loss to the extent of dividends received and receivable. The Company s investments in subsidiaries that are not classified as held for sale in accordance with IFRS 5 are stated at cost less any impairment losses. Investments in associates and joint ventures An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group s investments in associates and joint ventures are stated in the consolidated statement of financial position at the Group s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The Group s share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated statement of comprehensive income. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group s investments in the associates or joint ventures, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group s investments in associates or joint ventures. If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference I-19

20 between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. The results of associates and joint ventures are included in the Company s profit or loss to the extent of dividend received and receivable. The Company s investments in associates and joint ventures are treated as non-current assets and are stated at cost less any impairment losses. When an investment in an associate or a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Business combinations and goodwill Business combinations not under common control are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 is measured at fair value with changes in fair value either recognised in profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRSs. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of I-20

21 goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period. Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed in these circumstances is measured based on the relative value of the disposed operation and the portion of the cash-generating unit retained. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the Financial Information are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly Level 3 based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the Financial Information on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. I-21

22 Impairment of non-financial assets Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction and service contract assets and financial assets), the asset s recoverable amount is estimated. An asset s recoverable amount is the higher of the asset s or cash-generating unit s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset. An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises. Related parties A party is considered to be related to the Group if: (a) the party is a person or a close member of that person s family and that person (i) (ii) has control or joint control over the Group; has significant influence over the Group; or (iii) is a member of the key management personnel of the Group or of a parent of the Group; or (b) the party is an entity where any of the following conditions applies: (i) (ii) the entity and the Group are members of the same group; one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity); (iii) the entity and the Group are joint ventures of the same third party; I-22

23 (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group; (vi) the entity is controlled or jointly-controlled by a person identified in (a); and (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with IFRS 5. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Except for that the depreciation of certain machineries for shield tunneling construction are calculated on the units of production method, the depreciation of other property, plant and equipment is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Categories Annual rates Buildings % Machinery % 24.3% Production equipment % Motor vehicles % 12.1% Measurement and experimental equipment % 16.2% Office equipment and others % 32.3% Leasehold improvement... 10% 20% I-23

24 Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. Construction in progress represents property, plant and equipment under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. Intangible assets (other than goodwill) Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Software Purchased software is stated at cost less any impairment losses and is amortised on the straight-line basis over its estimated useful life. Research and development costs All research costs are charged to profit or loss as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. Deferred development costs are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding five to seven years, commencing from the date when the products are put into commercial production. I-24