Zhejiang Expressway Co., Ltd Annual Report 2015

Plain-text annual report

Stock code : 0576 Work relentlessly to reform and innovate 2015 is the final year of comprehensive reforms in the Company’s three- year development plan. Amid a complex economic environment, under the leadership of the Communications Group, the Company achieved record high operating results by focusing on reform and innovation as main themes, and striving to enhance its competitiveness in the expressway business. Content 56 65 66 68 70 Report of the Directors Report of the Supervisory Committee Continuing Connected Transactions Independent Auditor’s Report Consolidated Financial 2 4 5 Definition of Terms Company Profile Corporate Structure of the Group 6 Review of Major Corporate Events Particulars of Major Road Projects 7 8 Financial and Operating Highlights Statements & Notes 10 Chairman’s Statement 177 Independent Auditor’s Report 14 Management Discussion (Issued by a third country auditor and Analysis registered with the UK Financial 28 Principal Risks and Uncertainties Reporting Council) 32 42 Corporate Governance Report Directors, Supervisors and Senior 179 181 Corporate Information Location Map of Expressways in Management Profiles Zhejiang Province 2 ADR(s) ADS(s) Advertising Co American Depositary Receipt(s) American Depositary Share(s) Zhejiang Expressway Advertising Co., Ltd.（浙江高速廣告有限責任公司）, a 70% owned subsidiary of Development Co Audit Committee the audit committee of the Company Board the board of directors of the Company Company or Zhejiang Expressway Communications Group Development Co Zhejiang Expressway Co., Ltd., a joint stock limited company incorporated in the PRC with limited liability on March 1, 1997 Z h e j i a n g C o m m u n i c a t i o n s I n v e s t m e n t G r o u p C o . , Ltd.（浙江省交通投資集團有限公司）, a wholly State- owned enterprise established on December 29, 2001 Zhejiang Expressway Investment Development Co., Ltd. （浙江高速投資發展有限公司）, a 100% owned subsidiary of the Company Directors GDP Group H Shares the directors of the Company gross domestic product the Company and its subsidiaries the overseas listed foreign shares of Rmb1.00 each in the share capital of the Company which are primarily listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars since May 15, 1997 Hanghui Co Zhejiang Hanghui Expressway Co., Ltd.（浙江杭徽高速公路有限公司）, a 88.674% owned subsidiary of the Company Hong Kong Stock Exchange The Stock Exchange of Hong Kong Limited Jiaxing Co Zhejiang Jiaxing Expressway Co., Ltd.（浙江嘉興高速公路有限責任公司）, a 99.9995% owned subsidiary of the Company Definition of TermsZHEJIANG EXPRESSWAY CO., LTD.3 Jinhua Co Listing Rules Maintenance Co Period Petroleum Co PRC Rmb SFO Shangsan Co Shareholders Shengxin Co Zhejiang Jinhua Yongjin Expressway Co., Ltd.（浙江金華甬金高速公路有限公司）, a 100% owned subsidiary of the Company the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited Zhejiang Expressway Maintenance Co., Ltd.（浙江滬杭甬養護工程有限公司）, a 100% owned subsidiary of the Company the period from January 1, 2015 to December 31, 2015 Zhejiang Expressway Petroleum Development Co., Ltd. （浙江高速石油發展有限公司）, a 50% owned associate of the Company the People’s Republic of China Renminbi, the lawful currency of the PRC Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) Zhejiang Shangsan Expressway Co., Ltd.（浙江上三高速公路有限公司）, a 73.625% owned subsidiary of the Company the shareholders of the Company Shengxin Expressway Co., Ltd.（浙江紹興嵊新高速公路有限公司）, a 50% owned joint venture of the Company Supervisory Committee the supervisory committee of the Company Towing Co Yuhang Co Zhejiang Expressway Vehicle Towing and Rescue Services Co., Ltd.（浙江高速公路清障施救服務公司）, a 100% owned subsidiary of the Company Zhejiang Yuhang Expressway Co., Ltd.（浙江余杭高速公路有限責任公司）, a 51% owned subsidiary of the Company Zheshang Securities Zheshang Securities Co., Ltd.（浙商證券股份有限公司）, a 70.83% owned subsidiary of the Shangsan Co Zhejiang Communications Finance Zhejiang Communications Investment Group Finance Co., Ltd. （浙江省交通投資集團財務有限責任公司）, a 35% owned associate of the Company 2015 ANNUAL REPORT4 Zhejiang Expressway is an infrastructure company principally engaged in investing in, developing and operating of high-grade roads. The Company and its subsidiaries also carry out certain ancillary businesses such as automobile servicing, operation of gas stations and billboard advertising along expressways, as well as securities business. Major assets under management of the Group include the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142 km Shangsan Expressway, the 70 km Jinhua section of Ningbo-Jinhua Expressway and the 122 km Hanghui Expressway, ancillary facilities along the four expressways, and Zheshang Securities. All of the four expressways are situated within Zhejiang Province in the PRC. As at December 31, 2015, total assets of the Company and its subsidiaries amounted to Rmb73,891.76 million. The Company was incorporated on March 1, 1997 as the main vehicle of the Zhejiang Provincial Government for investing in, developing and operating expressways and Class 1 roads in Zhejiang Province. Incorporated on December 29, 2001, Communications Group, the controlling shareholder of the Company, is a provincial-level communications company which is wholly-owned by the State and established by the Zhejiang Provincial Government. It mainly operates a diversity of businesses, such as investment, operations, maintenance, toll collection and ancillary services of expressways; construction and building of transportation project, ocean and coastal transport; as well as real estates. As at December 31, 2015, consolidated assets of Communications Group totaled Rmb188,227.57 million. The H Shares of the Company, which represent approximately 33% of the issued share capital of the Company, were listed on the Hong Kong Stock Exchange on May 15, 1997, and the Company subsequently obtained a secondary listing on the London Stock Exchange on May 5, 2000. On February 14, 2002, a Level I American Depositary Receipt program sponsored by the Company in respect of its H Shares, with the Bank of New York as the depositary, was established in the United States and became effective. With a solid foundation built on the Group’s expressway business, the Company will expand its main businesses scale, enhance its core competitiveness, and grow its financial and securities business so as to increase its profit contribution to the Group. In addition, the Company will seize investment opportunities to acquire new projects, and strive to develop the Company into a first- tier conglomerate with strong competitiveness, profitability and growth potential. Company ProfileZHEJIANG EXPRESSWAY CO., LTD.5 Corporate Structure of the Group Set out below is the corporate and business structure of the Group as at December 31, 2015 Holders of H Shares Communications Group 33% 67% The Company 100% 100% 88.674% 73.625% 100% 100% 99.9995% 51% 50% 35% 50% Maintenance Co Jinhua Co Hanghui Co Shangsan Co Development Co Towing Co Jiaxing Co Yuhang Co Petroleum Co Zhejiang Communications Finance Shengxin Co Operation of road maintenance 70.83% Zheshang Securities Operation of service areas, toll plazas and expressway interchanges advertising Operation of expressway vehicle towing and rescue Operation of gas stations and sale of petroleum related products Financial Service Shaoxing Section of Ningbo-Jinhua Expressway 73.4 km 100% 100% Jinhua Section of Ningbo-Jinhua Expressway 69.7 km Hanghui Expressway 122 km Shangsan Expressway 142.0 km Jiaxing Section 88.1 km Yuhang Section 11.1 km Hangzhou Section 3.4 km Shanghai – Hangzhou Expressway 102.6 km Hangzhou – Ningbo Expressway 145.0 km subsidiary associate joint venture 1. T h e C o m p a n y c o m p l e t e d t h e d i s p o s a l o f M a i n t e n a n c e C o ( Z h e j i a n g E x p r e s s w a y M a i n t e n a n c e C o . , L t d . ) o n September 14, 2015 2. The Company completed the disposal of Petroleum Co (Zhejiang Expressway Petroleum Development Co., Ltd) on January 4, 2016 2015 ANNUAL REPORT6 1. 2. 3. 4. 5. 6. 7. 8. 9. On March 19, 2015, the Company announced its 2014 annual results in Hong Kong and thereafter conducted its annual results presentations in Hong Kong and Japan. On March 23, 2015, Yangtze United Financial Leasing Co., Ltd. was approved by China Banking Regulatory Commission and commenced official operation on 18 June. Financial Leasing Co is held by the Company as to 9.0% after a capital contribution of Rmb90 million is made by the Company. On April 1, 2015, the first meeting of the labour union member representative and employee representative meeting for the fifth session of the Company was held at which members of the union committee for the next session, members of the funding review committee and employee supervisors were elected. On April 21, 2015, the office headquarters of the Company was relocated to 5/F, No. 2 Mingzhu International Business Center, 199 Wuxing Road, Hangzhou. On May 18, 2015, the Company announced its 2015 first quarterly results. On June 18, 2015, the Company held its Annual General Meeting, among others, to approve the payment of a final dividend of Rmb0.25 per share, the re-appointment of Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong as the international auditors of the Company, the re-appointment of Pan-China Certified Public Accountants Ltd. as the PRC auditors of the Company, and the election of members of the Board and the Supervisory Committee for the seventh session. On July 1, 2015, the first meeting of the Board for the seventh session of the Company was held at which chairman of the Board, chairman of each of the committees, senior management and authorised representative were elected. O n t h e s a m e d a t e , t h e C o m p a n y a g r e e d t o m a n a g e t h e 8 8 k m s e c t i o n o f t h e Shen-Su-Zhe-Wan Expressway and 93 km section of the Shen-Jia-Hu-Hang Expressway on behalf of the Communications Group. On August 23, 2015, the Company announced its 2015 interim results in Hong Kong and thereafter conducted its interim results presentations in Hong Kong and the US. O n A u g u s t 3 1 , 2 0 1 5 , t h e C o m p a n y e n t e r e d i n t o a n a g r e e m e n t w i t h Z h e j i a n g Communications Resources Investment Co., Ltd. for the disposal of 100% equity interest in Maintenance Co, an associate of the Company at a consideration of Rmb41.08 million. 10. O n O c t o b e r 1 2 , 2 0 1 5 , t h e C o m p a n y e n t e r e d i n t o a n a g r e e m e n t w i t h Z h e j i a n g Communications Investment Group Industrial Development Co., Ltd. for the disposal of 50% equity interest in Petroleum Co, an associate of the Company at a consideration of Rmb142 million. 11. On October 15, 2015, the Company held an Extraordinary General Meeting at which the payment of an interim dividend of Rmb0.06 per share was approved. 12. On November 12, 2015, the Company announced its 2015 third quarterly results. On the same date, the Company completed the acquisition of 80.614% equity interest in Hanghui Expressway upon approval by the independent shareholders at the general meeting in order to further improve the existing expressway network. 13. On November 26, 2015, Zhejiang Zheshang Transformation Upgrade Parent Fund (Limited Partnership) (浙江浙商轉型升級母基金合夥企業（有限合夥）), a company owned as to 24.994% equity interest by the Company was officially established. Review of Major Corporate EventsZHEJIANG EXPRESSWAY CO., LTD. 7 Expressway Shanghai-Hangzhou Expressway – Jiaxing Section – Yuhang Section – Hangzhou Section Hangzhou-Ningbo Expressway – Hangzhou to Hongken section – Hongken to Duantang section – Duantang to Dazhujia section Shangsan Expressway Ningbo-Jinhua Expressway – Jinhua Section Hanghui Expressway – Changyu Section – Changhang Section Percentage of Ownership Length in Kilometers Number of Lanes Number of Toll Stations Number of Service Areas Start of Operation Remaining Years of Operation 99.9995% 51% 100% 100% 100% 100% 73.625% 100% 88.674% 88.674% 88.1 11.1 3.4 16.0 124.0 5.0 142.0 69.7 36.68 85.606 8 6 4 4 8 4 4 4 4 4 7 1 2 1 9 1 11 7 5 8 2 0 0 0 2 0 3 1 1 1 1998 1995-1998 1995 1992 1995 1996 2000 2005 2004 2006 13 13 13 12 12 12 15 15 14 16 Current Toll rates on the Shanghai-Hangzhou-Ningbo Expressway 1. Passenger vehicle classification and toll rates Vehicle Class Classification Standard Entrance Fee (Rmb/vehicle) Mileage Fee (Rmb/vehicle/km) 1 2 3 4 5 Passenger vehicle with up to 7 seats Truck with tonnage of 2 tons or below Passenger vehicle with seats 8 to 19 Truck with tonnage of above 2 tons and up to 5 tons Passenger vehicle with seats 20 to 39 Truck with tonnage of above 5 tons and up to 10 tons Passenger vehicle with seats above 40 Truck with tonnage above 10 tons and up to 15 tons Truck with tonnage above 15 tons 5 5 5 10 10 15 15 15 20 0.45 0.45 0.45 0.80 0.80 1.20 1.20 1.40 1.60 2. Toll rates on goods vehicles Toll standards Load Legally loaded Up to 5 tons Above 5 tons and up to 15 tons Above 15 tons and up to 30 tons Rmb0.09/ton per km is reduced in a linear manner to Rmb0.06/ton per km Over 30 tons Based on 30 tons calculation Rmb0.09/ton per km Rmb0.09/ton per km x 1.5 is reduced in a linear manner to Rmb0.09/ton per km Overloaded vehicle Overloaded below 10% Overloaded up to 30% Overloaded above 30% and up to 50% Overloaded above 50% and up to 100% Overloaded over 100% Calculation based on the basic fee standard for legally loaded The overloaded portion over 10% is calculated based on Rmb0.09/ton per km x 1.2; the remaining portion is calculated based on the fee standard of “Overloaded below 10%” The legally loaded portion and the overloaded portion up to 30% is calculated based on the fee standard of “Overloaded up to 30%”; the remaining portion is calculated based on Rmb0.09/ton per km x 2 The legally loaded portion and the overloaded portion up to 30% is calculated based on the fee standard of “Overloaded up to 30%”; the remaining portion is calculated based on Rmb0.09/ton per km x 3 The legally loaded portion and the overloaded portion up to 30% is calculated based on the fee standard of “Overloaded up to 30%”; the remaining portion is calculated based on Rmb0.09/ton per km x 4 * The mileage fee for Class 1 vehicle on the Shangsan Expressway, Jinhua section of Ningbo-Jinhua Expressway and Hanghui Expressway is Rmb0.40/vehicle/km. The toll rates for other passenger vehicles and trucks are the same as those for the Shanghai-Hangzhou-Ningbo Expressway. 2015 ANNUAL REPORTParticulars of Major Road Projects 8 Results Year ended December 31, 2011 2012 2013 2014 2015 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Restated) (Restated) (Restated) (Restated) Revenue 7,280,061 7,238,675 8,210,666 9,460,308 12,507,394 Profit Before Tax 2,503,552 2,263,721 2,826,319 3,651,440 5,446,652 Income Tax Expense (687,067) (618,751) (742,563) (905,468) (1,416,872) Profit for the year 1,816,485 1,644,970 2,083,756 2,745,972 4,029,780 Attributable to: Owners of the Company 1,601,188 1,503,048 1,801,687 2,264,994 2,989,680 Non-controlling interests 215,297 141,922 282,069 480,978 1,040,100 Earnings Per Share (EPS) 36.87 cents 34.61 cents 41.48 cents 52.15 cents 68.84 cents Return on Equity (ROE) 2011 2012 2013 2014 2015 (Restated) (Restated) (Restated) (Restated) ROE 9.89% 9.26% 11.22% 13.32% 17.86% Segmental Revenue (year 2015) Segmental Net Profit (year 2015) 0.3% Other Business -0.8% Other Business 45.3% Securities Business 39.7% Toll Road Business 46.0% Securities Business 52.3% Toll Road Business 14.7% Toll Road-Related Business 2.5% Toll Road-Related Business Financial and Operating HighlightsZHEJIANG EXPRESSWAY CO., LTD.9 12,507 2015 2,990 2015 68.84 2015 17.86 Revenue (Rmb Million) 7,280 7,239 8,211 9,460 15,000 12,000 9,000 6,000 3,000 0 2011 (Restated) 2012 (Restated) 2013 (Restated) 2014 (Restated) Net profit (Rmb Million) 1,601 1,503 1,802 2,265 3,000 2,500 2,000 1,500 1,000 500 0 2011 (Restated) 2012 (Restated) 2013 (Restated) 2014 (Restated) EPS (Rmb Cents) 36.87 34.61 41.48 52.15 2011 (Restated) 2012 (Restated) 2013 (Restated) 2014 (Restated) 80 70 60 50 40 30 20 10 0 ROE (%) 20 15 10 5 0 9.89 9.26 11.22 13.32 2011 (Restated) 2012 (Restated) 2013 (Restated) 2014 (Restated) 2015 2015 ANNUAL REPORT10 10 ZHEJIANG EXPRESSWAY CO., LTD. Chairman ZHAN Xiaozhang Chairman’s Statement ZHEJIANG EXPRESSWAY CO., LTD.Chairman ZHAN Xiaozhang 11 Dear Shareholders, It is my pleasure to present the annual results of Zhejiang Expressway (“ZJE” or “the Company”, collectively referred to as “the Group” with subsidiaries) for the year 2015 on behalf of the Board of Directors. In 2015, amid the complex and volatile economic conditions at home and abroad, China’s GDP grew 6.9% year-over-year, a 25-year low. Despite this, China’s economy made steady progress as economic growth continued to maintain within a reasonable range, economic structure was further optimized, and ongoing transformation and upgrading were accelerated. In 2015, Zhejiang’s economy saw high and stable growth. GDP growth reached 8% and ranked fourth among all provinces in China. In face of slower economic growth, our Company focused on reform and innovation. We constantly looked to enhance our competitiveness in the expressway business and sought to mitigate some of the risks brought on by turmoil in the capital markets. All in all, we successfully accomplished the goals set out in the three-year development plan that we published in 2013, and we were able to achieve record-high operating results. In 2015, with strong support from our shareholders, we completed the 80.614% equity stake acquisition in Zhejiang Hanghui Expressway Co., Ltd. in November and successfully increased our shareholding to 88.674% in December. As a result, the total length of the expressways that we own and operate increased from 460km to 582km. Together with the Shanghai-Jiaxing-Huzhou-Hangzhou Expressway and the Shen-Su-Zhe-Wan Expressway that the Company was entrusted to manage, the total length of expressways managed by our company is further extended to 763km. Over the course of the year, we strengthened our efforts to enhance the operation of our expressways, increased toll income by plugging loopholes, reduced costs, and enhanced road safety and road quality. Our securities business posted solid results as we took advantage of the market volatility, strengthened our compliance and risk management practices, and effectively mitigated risks. In terms of transformation, we capitalized on our financial strength and utilized our resources to explore and nurture new business opportunities. One of the companies that we have a minority stake in, Yangtze United Financial Leasing Co., Ltd., has already turned profitable. In addition, Zhejiang Zheshang Transformation Upgrade Parent Fund, a fund of funds, as well as Taiping Science and Technology Insurance Co., Ltd., both of which the Company holds minority stakes, are in the process of being established and becoming operational. During the period, we sold 100% of the equity interest that we held in Maintenance Co. and 50% of the equity interest that we held in Petroleum Co. to Zhejiang Communications Investment, our controlling shareholder. Our strong operating results and successful execution of our strategic plan have helped us focus on our two core businesses in expressways and financial securities, and have laid a solid foundation for future sustainable development. 2015 ANNUAL REPORT12 Looking ahead to 2016, despite the forecast for greater downward pressure on China's economy, we feel that the economic fundamentals remain promising, and that opportunities and challenges coexist. We will continue to strengthen our expressway business, develop our financial and securities business, and actively nurture other new businesses. Within our expressway business, to ensure our position as the industry leader, we will focus on improving our management and operations by streamlining and standardizing our processes, enhancing technological deployment, and reinforcing cost controls. Meanwhile, we will also actively seek opportunities to expand within and outside the province, aiming to acquire new expressway assets. Within our financial and securities business, we will closely monitor new opportunities for Zheshang Securities that will arise from the ongoing establishment of a multi-level capital market system. We will also look to actively expand into other areas within the financial industry to complement Zheshang Securities and push forward its IPO process. On behalf of the Board, I would like to express my gratitude to all of our shareholders and stakeholders for their continuous confidence and support. I would also like to thank our management team and all of our staff for their relentless dedication and remarkable achievements. Looking to the future, we will continue to work hard in the next year and maximize value for all of our shareholders. ZHAN Xiaozhang Chairman March 17, 2016 ZHEJIANG EXPRESSWAY CO., LTD.Chairman’s Statement2015 ANNUAL REPORT 13 13 Guided by the 13th five-year plan, the Company will closely adhere to the themes of “Reform and Innovation”. The Company looks to build an industry structure, in which the expressway business remains our foundation and the financial and securities business to be our competitive strength, with a focus on nurturing new businesses. 2015 ANNUAL REPORT14 14 ZHEJIANG EXPRESSWAY CO., LTD. Director and General Manager LUO Jianhu Management Discussion and Analysis ZHEJIANG EXPRESSWAY CO., LTD.Management Discussion and Analysis15 BUSINESS REVIEW In 2015, China’s economy grew at a slower pace with a 6.9% increase in GDP compared with last year due to downward pressure caused by a combination of complex domestic and overseas factors. However, Zhejiang Province’s economy benefited from a stable increase in fixed assets investment and consumption, as well as from a solid increase in exports against the market trend. In 2015, Zhejiang Province’s GDP increased 8.0% year-on-year and demonstrated a healthy growth trend. As Zhejiang Province’s economy steadily improved and foreign exports increased during the Period, traffic volume on the Group’s expressways continued to maintain solid organic growth. In terms of the Group’s securities business, in 2015, trading in the domestic stock market was active despite the high volatility. As a result, income from the Group’s overall operations increased 33.1% year-on-year. Total income reached Rmb13,001.10 million, of which Rmb5,133.38 million was generated from the four major expressways operated by the Group, representing an increase of 6.4% year-on-year and 39.5% of the total income; Rmb1,854.39 million was from the Group’s toll road- related businesses, representing a decrease of 22.5% year-on-year and 14.3% of the total income; and Rmb5,968.41 million was from the securities business, representing an increase of 134.2% year-on-year and 45.9% of the total income. 2015 ANNUAL REPORT16 45.9% Securities Business Income 14.3% Toll Road- Related Business Operations Income 39.5% Toll Road Operations Income 0.3% Other Operation Income A breakdown of the Group’s income for the Period is set out below: 2015 Rmb’000 2014 Rmb’000 (Restated) % Change Toll income Shanghai-Hangzhou-Ningbo Expressway 3,257,257 3,111,048 Shangsan Expressway Jinhua section, Ningbo-Jinhua Expressway Hanghui Expressway Toll road-related business Service areas Advertising External road maintenance Securities business income Commission Interest income Other operation income Hotel operation Subtotal Less: Revenue taxes Revenue 1,055,023 356,994 464,104 987,429 309,222 417,683 1,749,857 2,222,332 42,882 61,648 85,362 86,257 4,168,427 1,808,953 1,799,980 739,116 44,931 – 13,001,103 9,767,402 (493,709) (307,094) 12,507,394 9,460,308 4.7% 6.8% 15.4% 11.1% –21.3% –49.8% –28.5% 130.4% 143.5% N/A 33.1% 60.8% 32.2% ZHEJIANG EXPRESSWAY CO., LTD. 2015 ANNUAL REPORT 17 17 Expand expressway business scale Enhance operational management capabilities The company completed the 80.614% equity stake acquisition in Huanghui Co in November 2015 and successfully increased its shareholding to 88.674% in December. As a result, the total length of the expressways that the Company owns and operates increased to 582km. Concurrently, the Company strengthened its efforts to enhance the operation of its expressways, increased toll income by plugging loopholes, reduced costs, and enhanced road safety and road quality. Management Discussion and Analysis2015 ANNUAL REPORT18 Toll Road Operations Driven by Zhejiang Province’s steady economic development, during the Period, traffic volume on the Group’s expressways registered solid organic growth. During the Period, the organic traffic volume growth rates for the Group’s four expressways, namely the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway, the Jinhua Section of the Ningbo-Jinhua Expressway and the Hanghui Expressway, were 6.3%, 8.0%, 9.5% and 8.3%, respectively, with the varied rates of growth due to the different regions where the four expressways are located. Construction on the Hangzhou Airport Road started on April 15, 2014, resulting in a truck traffic restriction for the 23.7 km section of the Group’s neighboring Shanghai-Hangzhou-Ningbo Expressway. To reduce the negative impact from this traffic restriction, the Group made an effort to reduce the restriction time by 2 hours per day in late August, 2015, leading to a recovery in truck traffic volume. During the Period, the Huangtuling Tunnel on the Ningbo-Taizhou-Wenzhou Expressway was closed due to construction in August, 2015, causing a slightly adverse impact on traffic volume on the Shangsan Expressway in the second half of the year. Despite this, overall traffic volume on the Shangsan Expressway during the Period still recorded steady growth. The Jinhua Section of the Ningbo-Jinhua Expressway continued to record decent growth in traffic volume, thanks to strong economic growth in regions such as Yiwu, as well as the booming development of e-commerce, foreign trade and exports in the surrounding areas. Despite a slight diversion impact on traffic volume from the Dongyang-Yongkang Expressway that was opened to traffic since July, 2015, there was a substantial increase in the overall traffic volume on the Jinhua Section of the Ningbo-Jinhua Expressway during the Period as the neighboring Hangzhou- Jinhua-Quzhou Expressway was closed from June 6, 2015 to the end of September, 2015 due to construction. Due to the factors above, during the Period, the average daily traffic volume in full-trip equivalents along the Group’s Shanghai-Hangzhou-Ningbo Expressway was 47,862, representing an increase of 5.9% year-on-year. In particular, the average daily traffic volume in full-trip equivalents along the Shanghai-Hangzhou section of the Shanghai-Hangzhou-Ningbo Expressway was 46,264, representing an increase of 6.2% year-on-year, and that along the Hangzhou-Ningbo Section was 49,004, representing an increase of 5.7% year-on-year. Average daily traffic volume in full- trip equivalents along the Shangsan Expressway was 24,949, representing an increase of 9.0% year-on-year. Average daily traffic volume in full-trip equivalents along the Jinhua Section of the Ningbo-Jinhua Expressway was 18,801, representing an increase of 18.2% year-on-year. Average daily traffic volume in full-trip equivalents along the Hanghui Expressway was 15,391, representing an increase of 12.7% year-on-year. During the Period, total toll income from the 248km Shanghai-Hangzhou-Ningbo Expressway, the 142km Shangsan Expressway, the 70km Jinhua Section of the Ningbo-Jinhua Expressway and the 122km Hanghui Expressway was Rmb5,133.38 million, representing an increase of 6.4% year- on-year. Toll income from the Shanghai-Hangzhou-Ningbo Expressway was Rmb3,257.26 million, representing an increase of 4.7% year-on-year; toll income from the Shangsan Expressway was Rmb1,055.02 million, representing an increase of 6.8% year-on-year. Toll income from the Jinhua Section of the Ningbo-Jinhua Expressway was Rmb356.99 million, representing an increase of 15.4% year-on-year. Toll income from the Hanghui Expressway was Rmb464.11 million, representing an increase of 11.1% year-on-year. ZHEJIANG EXPRESSWAY CO., LTD.Management Discussion and Analysis19 Traffic Volume (Full-trip equivalents/day) Toll Income (RMB million) 50,000 47,862 45,198 2014 2015 40,000 30,000 20,000 10,000 0 24,949 22,898 18,801 15,911 15,391 13,668 3,257 3,111 2014 2015 1,055 987 357 309 464 418 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Shangsan Expressway Shanghai- Hangzhou- Ningbo Expressway Jinhua Section of the Ningbo- Jinhua Expressway Hanghui Expressway Shangsan Expressway Shanghai- Hangzhou- Ningbo Expressway Jinhua Section of the Ningbo- Jinhua Expressway Hanghui Expressway Toll Road-Related Business Operations The Company also operates certain toll road-related businesses along its expressways through its subsidiaries and associated companies, including gas stations, restaurants and shops in service areas, as well as expressway advertisements and external road maintenance. Zhejiang Province took action in 2014 to remove billboards from along sides of the expressways, which gradually narrowed most of the advertising business of the Group’s subsidiary to expressway service areas. As a result, advertising income was substantially reduced within the Period. Moreover, during the Period, the overall income of the toll road-related business operations was adversely affected due to several reductions in retail prices of domestics refined oil products. During the Period, income from toll road-related operations was Rmb1,854.39 million, representing a decrease of 22.5% year-on-year. Securities Business During the Period, despite the mass turbulence in the Shanghai and Shenzhen stock markets since mid-June last year, trading remained relatively active in these two markets and their trading volume increased 218.0% year-on-year in total. As a result, the brokerage business of Zheshang Securities recorded substantial growth in trading volume amid a continued decline in average brokerage commission rate. During the Period, the brokerage commission income of Zheshang Securities increased 154.5% year-on-year. Additionally, Zheshang Securities actively expanded into innovative businesses while pushing forward the comprehensive development of each business to improve its income and profit structure on an ongoing basis. During the Period, income from Zheshang Securities’ investment banking business, interest income from margin financing and securities lending, as well as income from asset management businesses all recorded substantial year-on-year growth of 25.8%, 198.9% and 108.8% respectively. 2015 ANNUAL REPORT20 20 ZHEJIANG EXPRESSWAY CO., LTD. Zheshang securities has significantly improved its market position and made steady progress in transformational development On the securities business side, the Company took advantage of market volatility, strengthened its compliance and risk management practices, and effectively mitigated risks. In terms of transformation, the Company capitalized on its financial strength and utilized its resources to explore and nurture new business opportunities. ZHEJIANG EXPRESSWAY CO., LTD.21 Meanwhile, the China Securities Regulatory Commission (the “CSRC”) has allowed IPOs to resume since November 2015. The IPO application of Zheshang Securities was submitted to the Shanghai Stock Exchange in May 2013 and is currently waiting for the CSRC’s review and approval. During the Period, Zheshang Securities recorded total operating income of Rmb5,968.41 million, an increase of 134.2% year-on-year. Of which, commission income rose 130.4% year-on-year to Rmb4,168.43 million, and interest income from the securities business was Rmb1,799.98 million, representing an increase of 143.5% year-on-year. Moreover, during the Period, securities investment gains of Zheshang Securities included in the consolidated statement of profit or loss and other comprehensive income of the Group was Rmb571.50 million (2014: gains of Rmb262.39 million). Hotel Operation Grand New Century Hotel, owned by Zhejiang Yuhang Expressway Co., Ltd. (a 51% owned subsidiary of the Company), began trial operation on April 28, 2015, and realized income (before sales tax and additional tax) of Rmb44.93 million for the Period. Long-Term Investments Zhejiang Expressway Petroleum Development Co., Ltd. (a 50% owned associate company of the Company), was affected by a series of reductions in retail prices of domestic refined oil products, and recorded income of Rmb5,043.67 million, representing a decrease of 20.8% year-on-year. During the Period, net profit of this associate company was Rmb22.47 million (2014: net profit of Rmb26.83 million). The Company completed the disposal of this associate company on January 4, 2016. Zhejiang Shaoxing Shengxin Expressway Co., Ltd. (“Shengxin Co”, a 50% owned joint venture of the Company) operates the 73.4 km-long Shaoxing Section of the Ningbo-Jinhua Expressway. During the Period, the average daily traffic volume in full-trip equivalents was 15,029, representing an increase of 7.4% year-on-year. Toll income during the Period was Rmb331.21 million. However, due to increased road maintenance expenses and its relatively heavy financial burden, the joint venture reported a loss of Rmb50.14 million during the Period (2014: loss of Rmb66.55 million). During the Period, Zhejiang Communications Investment Group Finance Co., Ltd. (a 35% owned associate company of the Company), derived income mainly from interest, fees and commission for providing financial services, including arranging loans and receiving deposits, to subsidiaries of Zhejiang Communications Investment Group Co., Ltd., the controlling shareholder of the Company. During the Period, this associate company realized a net profit of Rmb139.61 million (2014: net profit of Rmb153.20 million). FINANCIAL ANALYSIS The Group adopts a prudent financial policy with an aim to provide shareholders of the Company with sound returns over the long term. 2015 ANNUAL REPORT22 22 ZHEJIANG EXPRESSWAY CO., LTD. Continuously strengthen core businesses Actively nurture new businesses The Company will continue to strengthen its expressway business, develop its financial and securities business, and nurture other new businesses. The management will continue to work hard in the next year and maximize value for all of our shareholders. ZHEJIANG EXPRESSWAY CO., LTD.23 During the Period, profit attributable to owners of the Company was approximately Rmb2,989.68 million, representing an increase of 32.0% year-on-year, return on owners’ equity was 17.9%, representing an increase of 34.1% year-on-year, while earnings per share for the Company was Rmb68.84 cents. Liquidity and financial resources As at December 31, 2015, current assets of the Group amounted to Rmb54,359.48 million in aggregate (December 31, 2014 (restated): Rmb35,826.44 million), of which bank balances and cash accounted for 9.7% (December 31, 2014 (restated): 11.5%), bank balances held on behalf of customers accounted for 49.8% (December 31, 2014 (restated): 46.3%) held for trading investments accounted for 6.9% (December 31, 2014 (restated): 5.9%) and loans to customers arising from margin financing business accounted for 19.4% (December 31, 2014 (restated): 23.9%). The current ratio (current assets over current liabilities) of the Group as at December 31, 2015 was 1.3 (December 31, 2014 (restated): 1.2). Excluding the effect of the customer deposits arising from the securities business, the resultant current ratio of the Group (current assets less bank balances held on behalf of customers over current liabilities less balance of accounts payable to customers arising from securities business) was 1.8 (December 31, 2014 (restated): 1.4). The amount of held for trading investments of the Group as at December 31, 2015 was Rmb3,761.22 million (December 31, 2014: Rmb2,124.74 million), of which 89.0% was invested in bonds, 5.9% was invested in stocks, and the rest was invested in open-end equity funds. During the Period, net cash used in the Group’s operating activities amounted to Rmb2,676.33 million, net cash generated from the Company’s operating activities amounted to Rmb1,553.03 million. The Directors of the Company do not expect the Company to experience any problems with liquidity and financial resources in the foreseeable future. Cash and cash equivalents Rmb US$ in Rmb equivalent HK$ in Rmb equivalent Time deposits - Rmb Held for trading investments - Rmb Available-for-sale investments - Rmb Total Rmb US$ in Rmb equivalent HK$ in Rmb equivalent As at December 31, 2015 Rmb’000 4,935,103 33,386 14,562 270,000 3,761,224 1,032,750 10,047,025 9,999,077 33,386 14,562 2014 Rmb’000 (Restated) 3,321,633 28,832 6,098 761,320 2,124,740 570,021 6,812,644 6,777,714 28,832 6,098 Management Discussion and Analysis2015 ANNUAL REPORT24 Borrowings and solvency As at December 31, 2015, total liabilities of the Group amounted to Rmb51,893.11 million (December 31, 2014 (restated): Rmb33,858.59 million), of which 6.5% was bank and other borrowings, 20.4% was bonds payable, 10.4% was financial assets sold under repurchase agreements and 52.0% was accounts payable to customers arising from securities business. As at December 31, 2015, total interest-bearing borrowings of the Group amounted to Rmb14,584.05 million, representing an increase of 154.4% compared to that as at December 31, 2014. The borrowings comprised outstanding balances of domestic commercial bank loans of Rmb2,297.95 million, borrowings from other domestic financial institution of Rmb500.00 million, entrusted loans from Communication Group of Rmb570.00 million, subordinated bonds of Rmb7.20 billion, corporate bonds of Rmb1.50 billion, short-term financing note of Rmb600.00 million and beneficial certificates of Rmb1,916.10 million. Of the interest-bearing borrowings, 63.0% was not payable within one year. As at December 31, 2015, the Group’s loans from domestic commercial banks include short- term and long-term loans (of which long-term loans due in one year amounted to Rmb300.00 million), with annual fixed interest rates ranging from 4.1325% to 4.6% and floating interest rates ranging from 4.41% to 5.9% per annum. The annual fixed interest rate and floating interest rates for borrowings from other domestic financial institutions was 5.1% and ranged from 4.275% to 4.513%, respectively. The annual interest rates for entrusted loans from Communication Group were fixed at 4.55%. The annual coupon rates for short-term financing note ranged from 2.93% to 3.2%. The annual coupon rate for beneficial certificates ranged from 0.7% to 7.0%. The annual interest rates for subordinated bonds were fixed at rates between 5.69% and 6.3%. The annual interest rates for corporate bonds were fixed at 4.9%, while the annual interest rate for accounts payable to customers arising from the securities business was fixed at 0.35%. Floating rates Domestic commercial bank loans Borrowings from other domestic financial institution Fixed rates Domestic commercial bank loans Borrowings from other domestic financial institution Entrusted loans from Communication Group Short-term loan notes Beneficial certificates Subordinated bonds Corporate bonds Total as at December 31,2015 Total as at December 31,2014 (Restated) Maturity Profile Gross amount Rmb’000 Within 1 year Rmb’000 2-5 years inclusive Rmb’000 Beyond 5 years Rmb’000 870,000 450,000 100,000 200,000 440,000 250,000 330,000 - 1,427,951 50,000 570,000 600,000 1,916,100 7,200,000 1,500,000 14,584,051 5,733,570 1,427,951 50,000 - 600,000 16,100 3,000,000 - 5,394,051 2,573,570 - - 570,000 - 1,900,000 4,200,000 1,500,000 8,860,000 2,460,000 - - - - - - - 330,000 700,000 ZHEJIANG EXPRESSWAY CO., LTD.Management Discussion and Analysis25 Total interest expenses for the Period amounted to Rmb635.75 million, of which capitalized interest amounted to Rmb3.25 million, while profit before interest and tax amounted to Rmb6,079.15 million. The interest cover ratio (profit before interest and tax over interest expenses) stood at 9.6 (2014 (restated): 14.0) times. Profit before tax and interest Interest expenses Interest cover ratio 2015 Rmb’000 6,079,147 635,748 9.6 2014 Rmb’000 (Restated) 3,924,340 280,268 14.0 As at December 31, 2015, the asset-liability ratio (total liabilities over total assets) of the Group was 70.2% (December 31, 2014 (restated): 61.6%). Excluding the effect of customer deposits arising from the securities business, the resultant asset-liability ratio (total liabilities less balance of accounts payable to customers arising from securities business over total assets less bank balances held on behalf of customers) of the Group was 53.2% (December 31, 2014 (restated): 45.1%). Capital structure As at December 31, 2015, the Group had Rmb21,998.65 million in total equity, Rmb45,859.07 million in fixed-rate liabilities, Rmb1,320.00 million in floating-rate liabilities, and Rmb4,714.04 million in interest-free liabilities, representing 29.8%, 62.1%, 1.8% and 6.3% of the Group’s total capital, respectively. The gearing ratio, which is computed by dividing the total liabilities less accounts payable to customers arising from the securities business by total equity, was 113.1% as at December 31, 2015 (December 31, 2014 (restated): 89.1%). Total equity Fixed rate liabilities Floating rate liabilities Interest-free liabilities Total Long-term interest-bearing liabilities Gearing ratio 1 (note) Gearing ratio 2 (note) Asset-liabilities ratio1 (note) Asset-liabilities ratio 2 (note) 21,998,649 45,859,072 1,320,000 4,714,042 73,891,763 9,190,000 As at December 31, 2015 % Rmb’000 1.8% 6.3% Rmb’000 (Restated) 29.8% 21,128,470 62.1% 27,037,773 3,030,000 3,790,813 100.0% 54,987,056 3,160,000 As at December 31, 2014 % (Restated) 38.4% 49.2% 5.5% 6.9% 100.0% 5.7% 81.9% 15.0% 61.6% 45.1% 12.4% 113.1% 41.8% 70.2% 53.2% Note: Gearing ratio 1 represents the total liabilities less balance of accounts payable to customers arising from securities business to the total equity; Gearing ratio 2 represents the total amount of the long-term interest-bearing liabilities to the total equity; Asset-liabilities ratio 1 represents total liabilities to total assets; Asset-liabilities ratio 2 represents total liabilities less balance of accounts payable to customers arising from securities business to total assets less bank balances held on behalf of customers. 2015 ANNUAL REPORT26 Capital expenditure commitments and utilization During the Period, capital expenditure of the Group totaled Rmb2,222.94 million. Amongst the total capital expenditure, Rmb1,699.35 million was incurred for acquiring 80.614% equity interest in Hanghui Co, Rmb102.10 million was incurred for other equity investments, Rmb199.57 million was incurred for acquisition and construction of properties, Rmb184.44 million was incurred for purchase and construction of equipment and facilities, and Rmb37.48 million was incurred for service area renovation and expansion. As at December 31, 2015, the capital expenditure committed by the Group totaled Rmb661.19 million. Amongst the total capital expenditures committed by the Group, Rmb317.63 million will be used for acquisition and construction of properties, Rmb312.22 million for acquisition and construction of equipment and facilities, and Rmb31.34 million for service area renovation and expansion. The Group will consider financing the above-mentioned capital expenditure commitments with internally generated cash flow first and then will comprehensively consider using debt financing and equity financing to meet any shortfalls. Contingent liabilities and pledge of assets Pursuant to the board resolution of the Company dated November 16, 2012, the Company and Shaoxing Communications Investment Group Co., Ltd. (the other joint venture partner that holds 50% equity interest in Shengxin Co) provided Shengxin Co with joint guarantee for its bank loans of Rmb2.20 billion, in accordance with their proportionate equity interest in Shengxin Co. During the Period, Rmb110.00 million of the bank loans had been repaid. Pursuant to the board resolution dated June 24, 2008 of Zhejiang Jinhua Yongjin Expressway Co., Ltd. (“Jinhua Co”, a 100% owned subsidiary of the Company), Jinhua Co provided the operating right of the expressway operated by it as pledged asset for its domestic commercial bank loans. The outstanding balance of such commercial loan was Rmb100.00 million. As at December 31, 2015, the carrying amount of the pledged asset was Rmb1,666.19 million. The commercial bank loan was fully repaid on January 29, 2016 before it was due. Pursuant to a pledge agreement, Hanghui Co provided operating right of certain parts of the expressway operated by it as pledged asset for its domestic commercial bank loans. The outstanding balance of such commercial loan was Rmb620.00 million. As at December 31, 2015, the carrying amount of the pledged asset was Rmb2,420.32 million. Except for the above, as at December 31, 2015, the Group did not have any other contingent liabilities, pledge of assets or guarantees. Foreign exchange exposure During the Period, save for (i) dividend payments to the holders of H shares in Hong Kong dollars and (ii) setting up Zheshang Futures (Hong Kong) Co., Limited with HK$10.00 million contributed capital by Zheshang Futures Co., Ltd., a wholly owned subsidiary of Zheshang Securities, the Group’s principal operations were transacted and booked in Renminbi. Therefore, the Group’s exposure to exchange fluctuation is limited. During the Period, the Group has not used any financial instruments for hedging purpose. ZHEJIANG EXPRESSWAY CO., LTD.Management Discussion and Analysis27 Although the Directors do not foresee any material foreign exchange risks for the Group, there is no assurance that foreign exchange risks will not affect the operating results of the Group in the future. Human Resources During the Period, the Company actively revamped its human resource management, enhanced its remuneration and performance policy, and prompted the increase in overall payment of remuneration to be linked to the operating performance of Company and the productivity of employees. As at December 31, 2015, there were 7,271 employees within the Group, amongst whom 1,714 worked in the managerial, administrative and technical positions, while 5,457 worked in fields such as toll collection, maintenance, service areas, securities and futures business outlets. OUTLOOK The pace of global economic recovery has been slower than expected while China’s economy is in a key phase of structural adjustment and transformation, and still faces certain downward pressure. Looking into 2016, given varied regional economic development and traffic demand, the toll performance of each expressway operated by the Group is expected to vary. We expect overall traffic volume in 2016 will continue to grow at a steady pace, albeit slower than that in 2015. Additionally, the Dongyang-Yongkang Expressway, which opened to traffic in July 2015, is expected to continue to have a slight diversion impact on traffic for the Jinhua Section of the Ningbo-Jinhua Expressway. Therefore, the Group will endeavor to not only enhance the quality of its expressway operations and services and adopt measures to ensure smooth and safe travel, but will also strengthen the analysis of these newly opened networks and intensify promotional and marketing efforts to direct and attract more vehicles to use the expressways operated by the Group and minimize the diversion impact. Although the Shenzhen and Shanghai stock markets experienced significant turbulences in 2015, we believe the Group’s securities business is still facing new opportunities as the Chinese government continues to actively promote the healthy development of capital markets and deepen the establishment of a multi-level capital market. Meanwhile, it is expected that Zheshang Securities’ A-Share listing application on the Shanghai Stock Exchange may progress further as the CSRC has allowed A-Share IPOs to resume. Zheshang Securities will strengthen its cost and risk control and ensure its businesses maintain their healthy growth path, while deploying strategic measures to be more resilient to challenges from the current market environment and intense industry competition through expanding its efforts in developing innovative businesses. Facing a complicated new environment, the Company’s management will strongly unite all of our employees to develop our core expressway business, and further enhance our core competencies. The Company will also strengthen its securities business and seek new drivers for profit growth. Under the premise of controlling risks, the Company will continue to search for suitable investments and development projects, while also cultivating management’s capabilities to handle diversified operations in order to enlarge the potential of its future development and profitability to deliver solid results for shareholders. 2015 ANNUAL REPORT28 28 ZHEJIANG EXPRESSWAY CO., LTD. Principal Risks and Uncertainties ZHEJIANG EXPRESSWAY CO., LTD.29 TOLL ROAD BUSINESS RISKS Economic Environment As the global economy continues to struggle for recovery, China’s economy is moving into a “new normal” as it downshifts from rapid growth to more moderate levels of growth. The overall economy is still subject to downside pressure to a certain extent. As the expressway toll road business is closely related to the macroeconomy, it is subject to the macroeconomic performance. Growth in the traffic volume and toll revenue of the Group’s expressways is expected to remain uncertain, creating uncertainties for the operations, financial conditions and operating results of the Group. Roads Competition The slight diversion impact on traffic from the Jinhua section of the Ningbo-Jinhua Expressway caused by the Dongyang-Yongkang Expressway, which commenced service in July 2015. Accordingly, we cannot be assured as to whether traffic volume to be generated on the Group’s expressways will be maintained at the same levels as before or will increase in the future, or whether or not the operating results of the Group will be negatively affected. Toll Policy With the implementation of the toll waiver policy on small passenger vehicles on key festivals and holidays by the PRC government on September 30, 2012, the expressway operators who charge for toll are negatively affected. In addition, due to the introduction of a special project by five ministries and commissions for the rectification of the toll road policy in Zhejiang province, a number of new policies focusing on adjusting the toll policy of expressways within the province were successively issued. At the same time, as the consultation paper “Regulation on Administration of Toll Roads” (《高速公路收費管理條例》) 2015 has not been officially promulgated at present, despite that we expect the possibility of further significant changes in the policies of the expressway industry in the near term is minimal, we cannot be assured that they will not have any adverse effects on the toll revenue of the Group. 2015 ANNUAL REPORT30 SECURITIES BUSINESS RISKS Market Fluctuations The securities business is highly susceptible to market fluctuations and may experience periods of high volatility accompanied by reduced liquidity. It may be materially affected by economic and other factors such as the global market conditions; the availability and cost of capital; the liquidity of the global markets; the level and volatility of stock prices, commodity prices and interest rates; currency values and other market indices; inflation; natural disasters; acts of war or terrorism; as well as investor sentiment and confidence in the financial markets. There is no assurance as to whether our securities business will be adversely affected by fluctuations in the market, or whether our securities business will continue to contribute to our overall profit margin. Regulation of the Securities Business We are subject to extensive regulations in the PRC that govern how we conduct our securities business, and we are subject to risks of intervention by the PRC regulatory authorities. We could be fined, prohibited from engaging in some of our business activities or subject to limitations or conditions on our business activities, among other things. Significant regulatory actions against us could have material adverse impacts on our financial position, cause us significant reputational harm, or harm our business prospects. New laws, regulations or changes in the enforcement of existing laws or regulations applicable to our clients may also adversely affect our business. FINANCIAL RISKS For financial risks and uncertainties of the Group, please see notes 5, 6 and 7 to the Consolidated Financial Statements. ZHEJIANG EXPRESSWAY CO., LTD.Management Discussion and Analysis31 STATEMENT OF RESPONSIBILITY FROM THE DIRECTORS WITH RESPECT TO THE ANNUAL REPORT AND THE COMPANY’S ACCOUNTS The Directors of the Company, whose names and functions are listed on pages 42 to 47, duly confirm that to the best of their knowledge: — the consolidated financial statements prepared and subject to disclosure under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants give a true and fair view of the assets, liabilities, financial position and profit of the Group, and cover the enterprises that have been consolidated into the Company; and — the “Management Discussion and Analysis” section included in this annual report includes a fair review of the development and performance of the business and the position of the Group, covers the enterprises that have been consolidated into the Company and describes the principal risks and uncertainties faced by the Group. From the beginning of year 2015 up to now, there has been no occurrence of significant events that would have a material impact on the normal operation of the Group. By Order of the Board Tony ZHENG Company Secretary Hangzhou, Zhejiang Province, the PRC March 17, 2016 2015 ANNUAL REPORT32 CORPORATE GOVERNANCE PRACTICES To govern the daily functioning of the Board of Directors of the Company, the Company has adopted its own Guidelines on Corporate Governance that closely followed the principles of good governance in Appendix 14 of the Listing Rules (available at www.hkex.com.hk) (“CG Code”). During the Period, the Company has complied with all code provisions in the CG Code and adopted the recommended best practices in the CG Code as and when applicable. DIRECTORS’ SECURITIES TRANSACTIONS The Company has adopted the Rules on Securities Dealings (“Rules on Securities Dealings”) for the Directors, supervisors, senior management personnel and other employees of the Company on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 of the Listing Rules. Upon specific inquiries to all the Directors, the Directors have confirmed their respective compliance with the required standards for securities transactions by Directors as set out in the Model Code and the Rules on Securities Dealings during the Period. BOARD OF DIRECTORS OF THE COMPANY (THE “BOARD”) The executive directors of the Company during the Period were: Mr. ZHAN Xiaozhang (Chairman) Mr. CHENG Tao (Appointed on July 1, 2015) Ms. LUO Jianhu (General Manager) Mr. DING Huikang (Ended of Appointment Term on July 1, 2015) The non-executive directors of the Company during the Period were: Mr. WANG Dongjie Mr. DAI Benmeng Mr. ZHOU Jianping The independent non-executive directors of the Company during the Period were: Mr. ZHOU Jun Mr. PEI Ker-Wei Ms. LEE Wai Tsang Rosa Corporate Governance ReportZHEJIANG EXPRESSWAY CO., LTD.33 During the Period, the Board held a total of ten meetings. Individual attendances by the directors (as indicated by the numbers of meetings attended/numbers of relevant meetings held) are as follows: Mr. ZHAN Xiaozhang (Chairman) Mr. CHENG Tao (Appointed on July 1, 2015) Ms. LUO Jianhu (General Manager) Mr. DING Huikang (Ended of Appointment Term on July 1, 2015) Mr. WANG Dongjie Mr. DAI Benmeng Mr. ZHOU Jianping Mr. ZHOU Jun Mr. PEI Ker-Wei Ms. LEE Wai Tsang Rosa Attendance in person Attendance by proxy 9/10 6/6 10/10 4/4 8/10 7/10 8/10 9/10 9/10 10/10 1/10 2/10 3/10 2/10 1/10 1/10 During the Period, the Company held three general meetings of the shareholders. The meetings were chaired by Chairman, and all executive directors were present at the meetings. The Board is charged with duties as well as given powers that are expressly specified in the articles of association of the Company, the scope of which includes, amongst others: to determine the business plans and investment proposals of the Company; to prepare the financial budget and final accounts of the Company; to determine the dividend policy of the Company; to appoint or dismiss senior managerial officers of the Company as well as to determine their remuneration; and to draw up proposals for any material acquisition or sale by the Company. To assist the Board to effectively discharge its duties, the Board has set up the Audit Committee, the Nomination Committee, the Remuneration Committee, and the Strategic Committee. While the Board fully retains its power to decide on matters within its scope of duties and powers, relevant preparation and drawing up of plans or proposals were usually delegated to the management. The Company has complied with the requirements under Rules 3.10(1) and (2) of the Listing Rules regarding the appointment of independent non-executive directors, with three independent non-executive directors appointed, at least one of whom possessing the appropriate professional qualification or accounting or related financial management expertise. 2015 ANNUAL REPORT34 Pursuant to Rule 3.13 of the Listing Rules, the Company had specifically inquired with all three independent non-executive directors and received their respective confirmation of independence during the Period. The three independent non-executive directors have all confirmed their compliance with requirements regarding independence under Rule 3.13 of the Listing Rules. The Company still considers the independent non-executive directors to be independent. There were no financial, business, family or other material or relevant relationships between members of the Board, including that between the Chairman and the General Manager of the Company. Each newly appointed director receives induction on the first occasion of his or her appointment, so as to ensure that he or she has appropriate understanding of the business and operations of the Company and that he or she is fully aware of his or her responsibilities and obligations under the Listing Rules and relevant regulatory requirements. Directors are also regularly updated on the Group’s business and industry environments where appropriate in the management’s monthly reports to the Board as well as briefings and materials circulated to the Board before board meetings. In addition, during the Period, the Company has arranged for all its executive and non-executive directors to undergo continuous trainings designed to develop and refresh their knowledge and skills so as to ensure that their contribution to the Board remains informed and relevant. However, as the management considers that the independent non-executive directors of the Company are very experienced, knowledgeable and resourceful, the Company did not arrange any professional briefings or training programs for its independent non-executive directors and has decided to leave it to the independent non-executive directors to undergo appropriate training as they see fit. CHAIRMAN AND GENERAL MANAGER During the Period, Mr. ZHAN Xiaozhang served as Chairman, and Ms. LUO Jianhu served as General Manager of the Company, respectively. The roles of Chairman and General Manager are fully segregated as expressly set out in the articles of association of the Company. NON-EXECUTIVE DIRECTORS Terms for the non-executive directors of current session of the Board started on July 1, 2015 and will expire on June 30, 2018. Corporate Governance ReportZHEJIANG EXPRESSWAY CO., LTD.35 SPECIAL COMMITTEES UNDER THE BOARD The Board has set up the Audit Committee, the Nomination Committee, the Remuneration Committee, and the Strategic Committee. Roles and responsibilities for each committee are specified in its terms of reference, details of which can be found under the “Corporate Governance” section in the Company’s website. The Audit Committee comprised of the three independent non-executive directors and two non- executive directors, namely Mr. ZHOU Jun, Mr. PEI Ker-Wei, Ms. LEE Wai Tsang Rosa, Mr. WANG Dongjie and Mr. ZHOU Jianping, of whom Mr. ZHOU Jun serves as the Chairman of the Audit Committee. The Nomination Committee comprised of the three independent non-executive directors, one executive director and one non-executive director, namely Mr. ZHAN Xiaozhang, Mr. ZHOU Jun, Mr. PEI Ker-Wei, Ms. LEE Wai Tsang Rosa and Mr. DAI Benmeng, of whom Mr. ZHAN Xiaozhang serves as Chairman of the Nomination Committee. The Company believes that diversification of board members is a key element to maintain the Company’s competitive advantage, improve business performances, and promoting the Company’s continued development. When setting up the board member composition, the Company takes into consideration a number of aspects that determine board member diversification, including but not limited to gender, age, culture, education background, professional experience, work and living background, knowledge and skill, etc. The Company’s Nomination Committee is responsible for assessing the board’s structure, number of members, as well as a diversified composition, providing recommendation or suggestion on candidates to serve as new directors of the Company to the board when needed. The assessment as well as recommendation or suggestion above would have fully taken into consideration any pros and cons to the diversification of board members. The Remuneration Committee comprised of the three independent non-executive directors and two non-executive directors, namely, Mr. PEI Ker-Wei, Mr. ZHOU Jun, Ms. LEE Wai Tsang Rosa, Mr. DAI Benmeng and Mr. ZHOU Jianping, of whom Mr. PEI Ker-Wei, serves as Chairman of the Remuneration Committee. The Strategic Committee comprised of the three executive directors, namely Mr. ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu as well as Mr. ZHANG Jingzhong, Mr. WANG Dehua, Mr. Tony ZHENG and several outside experts and advisors, of whom Mr. ZHAN Xiaozhang serves as Chairman of the Strategic Committee. 2015 ANNUAL REPORT36 During the Period, the Audit Committee held a total of five meetings. Individual attendances by the members of the Audit Committee (as indicated by the numbers of meetings attended/numbers of meetings held) are as follows: Mr. ZHOU Jun Mr. PEI Ker-Wei Ms. LEE Wai Tsang Rosa Mr. WANG Dongjie Mr. ZHOU Jianping Attendance in person Attendance by proxy Attendance through communication 4/5 4/5 4/5 4/5 3/5 1/5 1/5 1/5 1/5 1/5 In the meetings held during the Period, the Audit Committee conducted, amongst others, review of financial statements for the quarterly, interim and annual results, discussed the internal audit, the effectiveness of internal control system, and risk management of the Company, as well as recommendation on the re-appointment of external auditors. During the Period, the Nomination Committee held a total of one meeting. Individual attendances by the members of the Nomination Committee (as indicated by the numbers of meetings attended/ numbers of meetings held) are as follows: Mr. ZHAN Xiaozhang Mr. ZHOU Jun Mr. PEI Ker-Wei Ms. LEE Wai Tsang Rosa Mr. DAI Benmeng Attendance through communication 1/1 1/1 1/1 1/1 1/1 Corporate Governance ReportZHEJIANG EXPRESSWAY CO., LTD.37 During the Period, the Nomination Committee mainly discussed the candidates for senior management of the Company. Proposed candidates for senior management of the Company that were reviewed by the Nomination Committee were later reviewed and approved by the Board. During the Period, the Remuneration Committee held a total of one meeting. Individual attendances by the members of the Nomination Committee (as indicated by the numbers of meetings attended/numbers of meetings held) are as follows: Mr. PEI Ker-Wei Mr. ZHOU Jun Ms. LEE Wai Tsang Rosa Mr. DAI Benmeng Mr. ZHOU Jianping Attendance through communication 1/1 1/1 1/1 1/1 1/1 During the Period, the Remuneration Committee mainly discussed the remuneration and allowance packages for directors of the Board, supervisors of the Supervisory Committee and senior management of the Company. Proposed remuneration and allowance packages for directors of the Board, supervisors of the Supervisory Committee and senior management of the Company that were reviewed by the Remuneration Committee were later reviewed and approved by the Board. During the Period, the Strategic Committee did not hold any meeting. The Board is responsible for developing and reviewing the Company’s corporate governance policies and practices, monitoring the Company’s compliance with the Code and its disclosure within this report; the Board reviews and monitors the training and continuous professional development of Directors and senior management through the works of human resources department, and review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements through the works of legal and internal audit department. During the Period, the Directors have all confirmed their responsibility for preparing the accounts, and that there were no events or conditions which would have a material impact on the Company’s ability to continue to operate as a going concern basis. 2015 ANNUAL REPORT38 AUDITORS’ REMUNERATION During the Period, the Company had paid Rmb approximately 3.28 million and Rmb1.45 million to Deloitte Touche Tohmatsu Certified Public Accountants (the Hong Kong auditors) and Pan-China Certified Public Accountants Ltd. (the PRC auditors), respectively, for audit services conducted in 2014. Besides, the Company had paid Rmb890,000 to Deloitte Touche Tohmatsu Certified Public Accountants (the Hong Kong auditors) for other assurance service provided. SECRETARY TO THE BOARD During the Period, the Secretary to the Board had complied with Rule 3.29 of the Listing Rules regarding undergoing relevant professional trainings. DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE’S INTERESTS IN SHARES AND UNDERLYING SHARES OF THE COMPANY As at December 31, 2015, none of the Directors, Supervisors and General Manager had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code. INTERESTS AND SHORT POSITIONS OF OTHER PERSONS IN SHARES AND UNDERLYING SHARES As at December 31, 2015, the interests and short positions of other persons in the shares and underlying shares of the Company according to the register required to be kept by the Company pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange are set out below: Substantial shareholders Capacity Total interests in number of ordinary shares of the Company Percentage of the issued share capital of the Company (domestic shares) Communications Group Beneficial owner 2,909,260,000 100% Corporate Governance ReportZHEJIANG EXPRESSWAY CO., LTD.39 Substantial shareholders Capacity Total interests in number of ordinary shares of the Company Percentage of the issued share capital of the Company (H shares) JP Morgan Chase & Co. BlackRock, Inc. Beneficial owner, investment manager and custodian corporation/ approved lending agent Interest of controlled corporations 186,356,024(L) 12.99% (L) 1,582,000(S) 74,335,779(P) 0.11%(S) 5.18%(P) 169,469,960(L) 11.82%(L) The Bank of New York Mellon Corporation Investment manager/ approved lending agent 72,365,466(L) 70,150,710(P) 5.05%(L) 4.89%(P) The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interest in a lending pool. Save as disclosed above, as at December 31, 2015, no other persons had any interests or short positions in the shares or underlying shares of the Company that was required to be recorded pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange. SHAREHOLDERS’ RIGHTS Pursuant to the Articles of Association of the Company, two or more Shareholders who in aggregate hold 10% or more of the voting rights of all the shares of the Company having the right to vote may write to the Board to request the convening of an extraordinary general meeting and specifying the agenda of the meeting. Upon receipt of the request in writing, the Board shall convene the extraordinary general meeting as soon as possible. Shareholders who hold in aggregate 5% or more of the voting rights of all the shares of the Company having the right to vote are entitled to propose additional motions in annual general meeting, provided that such motions are served on the Company within 30 days after the issue of the notice of annual general meeting. Written requests, proposals and enquiries may be sent to the Company through contact details listed on page 179 of this report. 2015 ANNUAL REPORT40 INVESTOR RELATIONS The Board is committed to ensuring that all shareholders and the investment community have equal and timely access to information about the Company so as to enable their accurate assessment of the Company’s fair value. Such information is available through channels including financial reports, shareholder meetings, statutory announcements, the Hong Kong Stock Exchange website (www.hkexnews.hk) and the Company’s own website (www.zjec.com.cn). Activities such as investor and analyst briefings, one-on-one meetings, conference calls, roadshows, and press conferences are held regularly by senior management of the Company, particularly after results announcements. Great importance is also attached to maintaining clear and effective communications channels with investors as part of the Company’s bid to enhance its transparency and to promote the understanding of its business in the investment community. Any parties who wish to learn more about the Company may do so via the contact details listed below: Mr. Tony ZHENG Company Secretary 5/F, #2 Mingzhu International Business Center, 199 Wuxing Road, Hangzhou, Zhejiang 310020 China Tel: 86-571-87987700 Fax: 86-571-87950329 E-mail: zhenghui@zjec.com.cn During the Period, the last shareholders’ meeting of the Company took place at 10:00 a.m. on Tuesday, December 22, 2015 at the headquarters of the Company. Details of this extraordinary general meeting of the shareholders were set out in the announcement dated December 22, 2015 on resolutions passed at the extraordinary general meeting of the shareholders. The next annual general meeting of the Company is expected to be held in May, 2016 with exact date and resolutions for review to be specified in notice of annual general meeting when it is published. The Company has an issued share capital of 4,343,114,500 shares comprised of domestic shares and H shares. The domestic shares are held by Zhejiang Communications Investment Group Co., Ltd. as to 2,909,260,000 shares, representing approximately 67% of the total issued capital of the Company. The remaining 1,433,854,500 shares are H shares, representing approximately 33% of the total issued capital of the Company. As at the date of this report, and to the best of the Directors’ knowledge, 100% of the H shares of the Company are held by the public. Corporate Governance ReportZHEJIANG EXPRESSWAY CO., LTD.41 There were no changes made to the articles of association of the Company during the Period. INTERNAL CONTROLS AND RISK MANAGEMENT The Company has set up an internal monitoring system that aims to protect assets, preserve accounting and financial information, as well as to ensure the accuracy of financial statements, including the establishment of departments and units, setting out responsibilities, execution of management systems and quality control mechanisms, and the management system on environment, occupational health and safety. The system is capable of taking necessary steps to react to possible changes in our businesses as well as external operating environments. Throughout the operating process, the Company’s various internal control measures are being continuously enhanced, fulfilled and are deemed effective. The Company attaches great importance to risk management. As of the end of 2015, the Company established its risk management mechanism and relevant regulations, established risk management strategy and took risk control measures in response to major risks faced by the Company. The Company’s Audit Committee is charged with the duties of reviewing internal controls, directing monitoring activities. Aside from reviewing the annual reporting by external auditors, the committee also reviews the effectiveness of internal control system and risk management mechanism through reviewing the internal special audit report on the Company’s various core businesses prepared by internal audit department on a regular basis. During the Period, the Audit Committee focused on management of various projects, as well as compliance and risk control of margin financing and securities lending businesses. The internal audit department carried out specific audit into these compliance issues and monitored relevant rectifications, ensuring the effectiveness of the Company’s management systems. During the Period, the Directors of the Company had carried out a review on the effectiveness of the Company’s internal control system, covering all material aspects of internal control, including financial control, operational control, compliance control and risk management functions. There were no major breaches in the internal control system that may have had an impact to Shareholders’ interests, and the internal control system was deemed to be effective and sufficient. The risk management of the Company was deemed to be effective and controllable. MANAGEMENT FUNCTIONS The management functions of the Board and the management are expressly stipulated in the articles of association of the Company. Pursuant to the articles of association of the Company, the management of the Company is assigned the functions to be in charge of the production and business operation of the Company and to organize the implementation of the resolutions of the board of directors, to organize the implementation of the annual business plan and investment program of the Company, to prepare plans for the establishment of the internal management structure of the Company, to prepare the basic management systems of the Company, and to formulate basic rules and regulations of the Company, etc. 2015 ANNUAL REPORT42 DIRECTORS Executive Directors Mr. ZHAN Xiaozhang born in 1964, is a Senior Economist. Mr. Zhan holds a bachelor’s degree in law. He further obtained a master’s degree in public administration from the Business Institute of Zhejiang University in 2005. He has been appointed as the Chairman of the Company since June 2012. From 1985 to 1991, Mr. Zhan worked as an officer at Transport Administrative Division under Waterway Transport Authority of Zhejiang Provincial Bureau of Construction. From 1991 to 1998, he served as Deputy Secretary and Secretary of the Communist Youth League Commission at Zhejiang Provincial Bureau of Communications. From 1998 to 2002, he was Deputy Director of Waterway Transport Authority under Zhejiang Provincial Bureau of Communications. From 2002 to 2003, he was Deputy Director of Human Resources Department at Zhejiang Provincial Bureau of Communications. From 2003 to 2006, Mr. Zhan was Chairman of Zhejiang Wenzhou Yongtaiwen Expressway Co., Ltd. From 2006 to 2008, he became Chairman of Zhejiang Jinji Property Co., Ltd. Mr. Zhan has been Assistant to General Manager and Manager of Research and Development Department at Zhejiang Communications Investment Group Co., Ltd from 2006 to 2009. He served as an Executive Director and the General Manager of the Company from March 2009 to June 2012. Mr. ZHAN currently also serves as Deputy General Manager of Zhejiang Communications Investment Group Co., Ltd. Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.43 Mr. CHENG Tao born in 1964, is the party committee secretary of the Company. Mr. Cheng graduated from Changsha University of Science & Technology with a bachelor’s degree in transportation engineering. He is a Senior Administration Engineer and Senior Economist. Mr. Cheng has been appointed as an Executive Director of the Company since July 2015. Mr. Cheng began his career in September 1983 and held the positions of Secretary of CYL Committee at Zhejiang Shipping and Technical School ( 浙江省航運技工學校 ); Secretary of CYL Committee at Zhejiang Road and Bridge Engineering Office ( 浙江省路橋工程處 ); Secretary of Party General branch at No.3 Company of Zhejiang Provincial Transportation Engineering & Construction Group Co., Ltd. ( 浙江省交通工程建設集團三公司 ); Party Committee Deputy Secretary of Zhejiang Provincial Transportation Engineering & Construction Group Co., Ltd.; Vice Chairman, Party Committee Secretary and Chairman of Zhejiang Provincial Transportation Engineering & Construction Group Co., Ltd. Ms. LUO Jianhu born in 1971, graduated from the Department of Law at Hangzhou University with a bachelor’s degree in law, majoring in Economic Law. She is a lawyer and Senior Economist. Ms. Luo has been appointed as an Executive Director and the General Manager of the Company since June 2012. Since she started her career in August 1994, Ms. Luo had held such positions as the board secretary of Zhejiang Transportation Engineering Construction Group Co., Ltd., the Deputy Director, Director of the Legal Affairs Department, the Deputy Director, Director of the Secretarial Office to the Board, Board Secretary and the Manager of the Investment and Development Department of Zhejiang Communications Investment Group Co., Ltd. 2015 ANNUAL REPORT44 Non-Executive Directors Mr. WANG Dongjie born in 1977, graduated from Southeast University majoring in Highway and Railway Engineering with a master’s degree in engineering. He is a Senior Engineer. Since he started his career in March 2002, Mr. Wang had served as an Engineer of the Executive Commission of Hangzhou Ring Road North Line Project, the Deputy Executive Chief of the Executive Commission for the interflow renovation of Hangzhou airport road, the Engineering Division Chief of Management Office of Chun’an section of Hangqian Expressway and the Director and Deputy General Manager of Hangzhou Transportation Road and Bridge Construction Company. He joined Zhejiang Communications Investment Group Co., Ltd. in January 2007 and is currently the General Manager of the Strategic Development and Legal Affairs Department. Mr. DAI Benmeng born in 1965, graduated from the Party School of the Zhejiang Committee of the Communist Party of China (浙江省委黨校) with a bachelor’s degree specialising in economics and management and is a Senior Economist. He began working in February 1987 and has been a director and the Deputy General Manager of Wenzhou Shipping Co., Ltd. (溫州海運有限公司), a Director and the General Manager of Zhejiang Wenzhou Yongtaiwen Expressway Co., Ltd. (浙江溫州甬台溫高速公路有限公司), a Director and the General Manager of Zhejiang Jinji Property Co., Ltd. (浙江金基置業有限公司), the person in charge of Zhejiang Province North Zhejiang Expressway Management Co., Ltd. (浙江浙北高速公路管理有限公司), the Chairman of Zhejiang ShenSuZheWan Expressway Co., Ltd. (浙江申蘇浙皖高速公路有限公司), and the General Manager of the Shanghai-Jiaxing-Huzhou-Hangzhou branch of the Communications Group (交通集團申嘉湖杭分公司). Mr. Dai is currently the Department Head of Organization Department of the Communications Group. Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.45 Mr. ZHOU Jianping born in 1957, graduated from Xi’an Highway College (西安公路學院) with a bachelor’s degree specialising in vehicular transport and is a Senior Engineer at professor level. He began working in September 1975 and has been the Deputy Supervisor of the Business Management Office, Supervisor of the office, Assistant of the General Manager, and Deputy General Manager of Zhejiang Province Vehicular Transport General Company (浙江省汽車運輸總公司), the Deputy Head of Quzhou Municipal Communications Bureau, Zhejiang Province, the manager of the Asset Management Department of the Communications Group, and the person in charge of the Hangjinqu Branch of the Communications Group (交通集團杭金衢分公司). Mr. Zhou is currently the Deputy Chief Economist and the Manager of the Operations Department of the Communications Group. 2015 ANNUAL REPORT46 Independent Non-Executive Directors Mr. ZHOU Jun born in 1969, is the Executive Director and Vice President of Shanghai Industrial Investment (Holdings) Co. Ltd. (“SIIC”). Mr. Zhou graduated from Nanjing University and Fudan University with a bachelor’s degree of arts and a master’s degree of economics in international finance. He also serves as the Chairman of S.I. Infrastructure Holdings Ltd. and seven other companies, the Chairman of SIIC Environment Holdings Ltd. in Singapore (SGX: 5GB), Executive Director and Deputy CEO of Shanghai Industrial Holdings Ltd. (HK: 0363), Executive Director of Shanghai Industrial Urban Development Group Ltd. (HK: 0563). He worked for Guotai Securities Co., Ltd. (now Guotai Junan Securities Co). Before joining SIIC in April 1996, the management positions he had held within the SIIC group of companies were Deputy General Manager of SIIC Real Estate Holdings (Shanghai) Co., Ltd., Deputy General Manager of Shanghai United Holdings Co., Ltd. (SH: 600607), Managing Director of Shanghai Cyber Galaxy Investment Co., Ltd. and General Manager of the Strategic Investment Department of SIIC. Mr. Zhou has about 20 years’ professional experience in general management, financial investment, real estate and project planning. Mr. Zhou is a member of the Standing Committee of the CPC Shanghai Municipal Committee and is currently the Chairman of Shanghai Lantai Investment Management Co., Ltd. (上海藍太投資管理有限公司 ) of Shanghai Charity Foundation. Mr. PEI Ker-Wei born in 1957, is a Professor of Accountancy and Executive Dean for China Region at W. P. Carey School of Business, Arizona State University. Mr. Pei received his Ph.D. degree in Accounting from University of North Texas in 1986. He is currently the director of W.P. Carey EMBA programs in China. He served as the chairman of the Globalization Committee of the American Accounting Association in 1997 and as the president of the Chinese Accounting Professors Association-North America in 1993 to 1994. Mr. Pei currently serves as an External Director of Baosteel Group and China Merchant Group, and Independent Director of Want Want China Holdings (00151.hk), Zhong An Real Estate (00672.hk) and MMG Limited (01208.hk). Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.47 Ms. LEE Wai Tsang, Rosa born in 1977, is the chairman and an executive director of Grand Investment International Ltd. (a company listed on the Main Board of the Stock Exchange, Stock Code: 1160) and oversees its day-to-day investment, operation and administration. Ms. Lee holds a bachelor degree from the University of Southern California, a Master of Science in Finance from Boston College and a MBA from the University of Chicago. Ms. Lee is a licensed person for the regulated activities of dealing in securities and futures under the SFO. Ms. Lee is a director of Grand Finance Group Company Ltd. and Tianjin Yishang Friendship Holdings Co., Ltd. Ms. Lee has extensive experience in management, investment, securities and auditing. 2015 ANNUAL REPORT48 SUPERVISOR Supervisor Representing Shareholders Mr. YAO Huiliang born in 1972, graduated from the Zhejiang University and is a senior accountant. Since he started his career in August 1990, Mr. YAO had served as Project Management Manager at Zhejiang Zhetong Road Operation Co., Ltd., Finance Manager of the Management Committee of the Ningbo Second Phase of Yongtaiwen Expressway, Assistant to the General Manager and Finance Manager of the Ningbo Expressway Co., and Deputy Manager of the Finance Management Department, and Vice Manager of the Finance Center of the Communications Group. Mr. YAO currently serves as Manager of the Finance Management Department of the Communications Group. Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.49 Independent Supervisors Mr. WU Yongmin born in 1963, is an Assistant Professor. Mr. Wu graduated from China University of Political Science and Law with a master’s degree. He was the Deputy Dean of the Department of Law at Hangzhou University, Deputy Dean of the Department of Law at Zhejiang University’s Law School, and Director of Zheda Law Firm. Mr. Wu studied at the Christian-Albrechts-Universitat zu Kiel in 1996 as a visiting scholar. He is currently the Dean of the Department of Law at the Law School of Zhejiang University, a Supervisor for master’s degree candidates in Business Law, a member of China Business Law Research Council, Deputy Director of Zhejiang Tax Law Research Council, an Arbitrator of Hangzhou Arbitration Committee, and a Lawyer at Zhejiang Zeda Law Firm. Mr. ZHANG Guohua born in 1963, obtained a doctorate degree in human resources management. He is a Senior Economist and the President of China Everbright Bank, Hangzhou Branch. Mr. Zhang graduated from Hangzhou University in 1985 with a bachelor’s degree in education and then received a master’s degree in educational psychology in 1988. In 2000, he was granted the Graduate Certificate of Completion in finance by the School of Economics of Zhejiang University, and then obtained a doctorate degree in psychology from the College of Science of Zhejiang University in 2007. Since 1988, Mr. Zhang had successively worked in the headquarters of Industrial and Commercial Bank of China, Hangzhou Institute of Financial Managers, Hangzhou Financial Urban Credit Cooperative and China Everbright Bank, Hangzhou Branch and Wuxi Branch, and Ping An Bank, Hangzhou Branch. He had held the positions of Deputy Director of the Office, Supervisor of the Credit Union, Vice President and President, respectively. Mr. Zhang resigned from his position as an Independent Supervisor of the Company, with effect from March 17, 2016. 2015 ANNUAL REPORT50 Mr. SHI Ximin born in 1960, obtained a doctorate degree in Accounting from the Central University of Finance and Economics, and holds a doctorate degree in Management. Since he started his career in July 1983, Mr. Shi had served as Deputy Dean of the Accounting Department, and Director of Graduate School of the Zhejiang University of Finance & Economics, as well as Dean of the Zhejiang Business College. Mr. Shi currently serves as a professor in the Accounting Department of the Zhejiang University of Finance & Economics, Deputy Chairman of the Zhejiang Association of CFO, and independent director of Wolong Real Group Estate Co., Ltd. (SH: 600173) and Zhejiang Jianfeng Group Co.,Ltd. (SH: 600668) (both companies listed on the Shanghai Stock Exchange). Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.51 Supervisor Representing Employees Mr. LU Xinghai born in 1967, graduated from the Department of Psychology of the Hangzhou University with a doctorate degree in Management Psychology and is a Senior Economist, the Supervisor Representing Employees of the Company. Mr. Lu had served as Manager of the Human Resources Department of Hangzhou BC Foods Co., Ltd., Deputy Manager of the Human Resources Department of the Company. He currently also serves as the Head of the Party-Staff Work Department and Director of Labour Union Office of the Company. 2015 ANNUAL REPORT52 Labour Union Chairman Mr. ZHAN Huagang born in 1961, is the party committee member and labour union chairman of the Company. He is a professor-level Senior Engineer. Mr. Zhan graduated from Zhejiang University with a bachelor’s degree of engineering in internal combustion engine from the department of thermophysical engineering. From July 1982 to June 1991, he worked at Zhejiang Province Vehicular Transport Company ( 浙江省汽車運輸公司 ), Zhejiang Office of Motor Vehicles ( 浙江省車輛監理所 ) and Zhejiang Highway Management Bureau ( 浙江省公路管理局 ). From June 1991 to January 1996, he worked at Zhejiang Road and Bridge Engineering Office ( 浙江省路橋工程處 ). From January 1996 to March 1997, he worked at the Operation Division and Maintenance Division of the Zhejiang Provincial Expressway Executive Commission as Senior Engineer. Since March 1997, he has been working at Zhejiang Expressway Co., Ltd. as Deputy Manager and Manager of the Operations Management Department, Manager of the Investment Development Division, Manager of the Equipment Management Department, Manager of the Engineering Management Department and Head of the Maintenance Management Office. He is concurrently the Deputy General Manager of Zhejiang Expressway Investment Development Co., Ltd. and Chairman and General Manager of Zhejiang Expressway Advertising Co., Ltd. Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.53 OTHER MEMBERS OF SENIOR MANAGEMENT Mr. FANG Zhexing born in 1965, is a Senior Engineer, the Deputy General Manager of the Company. Mr. Fang graduated from Zhejiang University where he received a master’s degree in engineering in 1991. From 1986 to 1988 he was the Assistant Engineer in the Project Management Office of the Electric Power and Water Conservancy Bureau in Taizhou, Zhejiang Province. From 1991 until 1997, he was the Engineer in the Project Management Office of Zhejiang Provincial Expressway Executive Commission, where he participated in the project management of Shanghai-Hangzhou-Ningbo Expressway. Since March 1997, he has served as the Deputy Manager and the Manager of the Planning and Development Department, the Manager of the Project Development Department, the Director of Quality Management Office, the Director of Internal Audit Department of the Company, the Manager of the Human Resources Department and the Secretary of Disciplinary Committee. Mr. Fang is currently the Chairman of Development Co. and Jiaxing Co. Mr. ZHU Yimin born in 1961, is an Engineer, Mr. Zhu graduated from Chang’an University with professional programme in Roads and Transportation Engineering in July 2007. He joined the People’s Liberation Army garrison 83026 from December 1978 to January 1982. From January 1982 to December 1998, he worked in Anji County Water Traffic Control Department, Huzhou Port and Water Traffic Administration Department and Huzhou City Water Traffic Administration Department. From June 1994 to December 1998, he was the Director of Huzhou City Traffic Engineering Department. From December 1998 to September 2000, he served as the Assistant to Director of Huzhou City Water Traffic Control and Administration Department. From January 2003 to August 2004, he was the Assistant Manager of Huzhou City Transportation Investment and Development Corporation. From August 2004 to May 2015, Mr. Zhu has served in different positions including the Deputy General Manager of Zhejiang Shenjiahuhang Expressway Co., Ltd, the Deputy General Manager of Zhejiang Province North Zhejiang Expressway Management Co., Ltd., the Deputy General Manager of Zhejiang Shensuzhewan Expressway Co. Ltd., the Deputy General Manager of Zhejiang Province West Zhejiang Expressway Co., Ltd., and Deputy General Manager of Zhejiang Hanghui Expressway Co. Ltd. He has been the Deputy General Manager and party committee member of the Company since July 1, 2015. 2015 ANNUAL REPORT54 Mr. WANG Dehua born in 1974, graduated with an undergraduate degree in Accounting from Hangzhou Institute of Electronics Engineering in 1996. He worked in the Foreign Funds Utilization Audit Department of Zhejiang Provincial Audit Office from 1996 to 2003. Mr. Wang worked at the Corporation Division of the Administrative and Finance Department of Liaison Office of the Central Government in the Hong Kong S.A.R. from 2003 to 2011, serving as its Deputy Director upon departure. Mr. Wang studied at School of Economics and Finance of the Faculty of Business and Economics of the University of Hong Kong from 2005 to 2007, and graduated in 2007 with a master’s degree in Economics. Mr. Wang has professional accounting qualifications, including CPA, HKICPA, ACCA, etc. He worked at Zhejiang Communications Investment Group Co., Ltd. from 2011 to 2014, serving as its Deputy General Manager upon departure. Mr. Wang Dehua has been appointed as the Chief Financial Officer of the Company with effect from March 17, 2014. Mr. Tony ZHENG born in 1969, is the Deputy General Manager and Company Secretary of the Company. Mr. Zheng graduated from University of California at Berkeley in 1995 with a BS degree in Civil Engineering. He joined the Company in June 1997, and has served as Deputy Director of the Secretarial Office to the Board and Assistant Company Secretary. Mr. Zheng continues to serve as Director of the Secretarial Office to the Board, and Director of Hong Kong Representative Office of the Company. Directors, Supervisors and Senior Management ProfilesZHEJIANG EXPRESSWAY CO., LTD.55 Ms. ZHANG Xiuhua born in 1969, is a Senior Economist. Ms. Zhang graduated from Chongqing Jiaotong University majoring in transportation management with a bachelor’s degree in science, and obtained a master’s degree in business administration from Zhejiang University in 2006. From July 1991 to February 1997, she worked in the Operation Division of the Zhejiang Provincial Expressway Executive Commission. She joined the Company since March 1997, and had served as Assistant manager, Deputy Manager, Manager of the Operation Department and Assistant to General Manager. Ms. Zhang currently serves as the Deputy General Manager. She is also the Chairman and General Manager of Jinhua Co., the Director of Yuhang Co, and Jiaxing Co,. 2015 ANNUAL REPORT56 The Directors of the Company hereby present their report and the audited financial statements of the Group for the year ended December 31, 2015. PRINCIPAL ACTIVITIES The principal activities of the Group comprise the operation, maintenance and management of high grade roads, development and operation of certain ancillary services, such as advertising and fuel facilities, as well as provision of security broking service and proprietary securities trading. SEGMENT INFORMATION During the year, the entire revenue and segment profit of the Group were derived from the People’s Republic of China (“PRC”). Accordingly, no further analysis of the revenue and segment profit by geographical area is presented. An analysis of the Group’s revenue and segment profit by principal activities for the year ended December 31, 2015 is set out in note 8 to the financial statements. RESULTS AND DIVIDENDS The Group’s profit for the year ended December 31, 2015 and the state of financial position at that date are set out in the financial statements on pages 70 to 176. An interim dividend of Rmb 0.06 per share (approximately HK$0.073) was paid on November 12, 2015. The Directors have recommended the payment of a final dividend of Rmb 0.28 (approximately HK$ 0.334) per share in respect of the year. The final dividend is subject to shareholders’ approval at the 2015 annual general meeting of the Company. This recommendation has been incorporated in the financial statements as an allocation of retained earnings within the capital and reserves section in the consolidated statement of financial position. The dividend payout ratio reached 49.4% during the Period. Further details of the dividends are set out in note 17 to the financial statements. Report of the DirectorsZHEJIANG EXPRESSWAY CO., LTD.57 FIVE YEAR SUMMARY FINANCIAL INFORMATION The following is a summary of the published consolidated results, and of the assets, liabilities and non-controlling interests of the Group prepared on the basis set out in the notes below. Results 2015 Rmb’000 Year ended December 31, 2014 Rmb’000 (Restated) 2013 Rmb’000 (Restated) 2012 Rmb’000 (Restated) 2011 Rmb’000 (Restated) Revenue 12,507,394 9,460,308 8,210,666 7,238,675 7,280,061 Operating costs (7,060,298) (5,898,198) (5,256,706) (4,874,283) (4,578,440) Gross profit 5,447,096 3,562,110 2,953,960 2,364,392 2,701,621 Security investment gains 584,114 278,252 99,663 99,783 7,925 Other income 295,918 262,244 255,315 318,532 303,553 Administrative expenses (108,627) (105,703) (100,741) (100,934) (105,447) Other expenses (162,576) (104,306) (71,944) (59,241) (44,691) Finance costs (632,495) (272,900) (295,461) (350,782) (368,343) Share of profit(loss) of associates Share of loss of a joint venture 48,289 65,020 21,537 (4,513) 8,934 (25,067) (33,277) (36,010) (3,516) – Profit before tax 5,446,652 3,651,440 2,826,319 2,263,721 2,503,552 Income tax expense (1,416,872) (905,468) (742,563) (618,751) (687,067) Profit for the year 4,029,780 2,745,972 2,083,756 1,644,970 1,816,485 Attributable to: Owners of the Company 2,989,680 2,264,994 1,801,687 1,503,048 1,601,188 Non-controlling interests 1,040,100 480,978 282,069 141,922 215,297 Earnings per share– Basic and diluted 68.84 cents 52.15 cents 41.48 cents 34.61 cents 36.87 cents 2015 ANNUAL REPORT58 Assets and liabilities As at December 31, 2015 Rmb’000 2014 Rmb’000 (Restated) 2013 Rmb’000 (Restated) 2012 Rmb’000 (Restated) 2011 Rmb’000 (Restated) Total assets 73,891,763 54,987,056 35,947,318 35,532,636 35,679,240 Total liabilities 51,893,114 33,858,586 16,175,239 15,676,614 15,864,176 Net assets 21,998,649 21,128,470 19,772,079 19,856,022 19,815,064 Notes: 1. The consolidated results of the Group for the four years ended December 31, 2014 have been restated in accordance with Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by Hong Kong Institute of Certified Public Accountants, while those for the year ended December 31, 2015 were prepared based on the consolidated statement of profit or loss and other comprehensive income as set out on page 70 of the financial report. 2. The 2015 earnings per share is based on the profit attributable to owners of the Company for the year ended December 31, 2015 of Rmb2,989,680,000 (2014 (Restated): Rmb 2,264,994,000) and the 4,343,114,500 (2014:4,343,114,500) Ordinary shares in issue during the year. Report of the DirectorsZHEJIANG EXPRESSWAY CO., LTD.59 3. Differences in Financial Statements prepared under PRC GAAP and HKFRSs Profit for the year ended December 31, 2015 Rmb’000 2014 Rmb’000 (Restated) Net assets as at December 31, 2015 Rmb’000 2014 Rmb’000 (Restated) As reported in the statutory financial statements of the Group prepared in accordance with PRC GAAP 4,038,913 2,755,166 22,272,330 21,393,908 HK GAAP adjustments: (a) (b) Goodwill – – (199,769) (199,769) Amortization provided, net of deferred tax (1,952) (1,952) (167,060) (165,108) (c) Assessment on impact of appreciation, net of deferred tax (d) (e) Others Non-controlling interests (3,658) (334) (3,189) (3,656) (399) (3,187) 52,791 7,666 32,691 56,449 7,110 35,880 As restated in the financial statements 4,029,780 2,745,972 21,998,649 21,128,470 MAJOR CUSTOMERS AND SUPPLIERS In the year under review, the five largest customers and suppliers of the Group accounted for less than 30% of the total turnover and purchases, respectively. None of the directors of the Company or any of their associates or any shareholders (which, to the best knowledge of the directors, own more than 5% of the Company’s issued share capital) had any beneficial interest in the Group’s five largest customers. 2015 ANNUAL REPORT 60 RELATED PARTY TRANSACTIONS During the year, details of the related party transactions that the Company has entered into with its subsidiary and fellow subsidiary are set out in note to the financial statements. The deposit services provided by Zhejiang Communications Finance constitute non-exempt continuing connected transactions as defined in Chapter 14A of the Listing Rules. Please refer to the section headed “Connected Transactions” below for further details about such connected transactions. The Company has complied with the disclosure requirements in respect of such connected transactions in accordance with Chapter 14A of the Listing Rules. DONATION During the year, the total amount of donation made by the group is Rmb 3,202,000 for charitable or other purposes. PROPERTY, PLANT AND EQUIPMENT Details of movements in property, plant and equipment of the Group during the year are set out in note 19 to the financial statements. CAPITAL COMMITMENTS Details of the capital commitments of the Group as at December 31, 2015 are set out in note 50 to the financial statements. RESERVES Details of movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity on page 73 to the financial statements. DISTRIBUTABLE RESERVES As at December 31, 2015, before the proposed final dividend, the Company’s reserves available for distribution by way of cash or in kind, as determined based on the lower of the amount determined under PRC accounting standards and the amount determined under HKGAAP, amounted to Rmb 2,743,963,000. In addition, in accordance with the Company Law of the PRC, the amount of approximately Rmb 3,645,726,000 standing to the credit of the Company’s share premium account as prepared in accordance with the PRC accounting standards was available for distribution by way of capitalization issues. Report of the DirectorsZHEJIANG EXPRESSWAY CO., LTD.61 TRUST DEPOSITS As at December 31, 2015, other than the deposits placed with a non-bank financial institution of Rmb 545,471,000, the Group’s deposits have been placed with commercial banks in the PRC and the Group has not encountered any difficulty in the withdrawal of funds. PURCHASE, REDEMPTION OR SALE OF THE LISTED SECURITIES OF THE COMPANY Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities during the year. DIRECTORS The Directors of the Company during the year and as at the date of this report are: EXECUTIVE DIRECTORS Mr. ZHAN Xiaozhang (Chairman) Mr. CHENG Tao (Appointed on July 1, 2015) Ms. LUO Jianhu (General Manager) Mr. DING Huikang (Ended of Appointment Term on July 1, 2015) NON-EXECUTIVE DIRECTORS Mr. WANG Dongjie Mr. DAI Benmeng Mr. ZHOU Jianping INDEPENDENT NON-EXECUTIVE DIRECTORS Mr. ZHOU Jun Mr. PEI Ker-Wei Ms. LEE Wai Tsang Rosa 2015 ANNUAL REPORT62 DIRECTORS’ AND SENIOR MANAGEMENT’S BIOGRAPHIES Biographical details of the Directors of the Company and the senior management of the Group are set out on pages 42 to 55 in the Company’s annual report. DIRECTORS’ SERVICE CONTRACTS Each of the Directors of the Company has entered into a service agreement with the Company, which effect from July 1, 2015 to June 30, 2018. Save as disclosed above, none of the Directors and Supervisors has entered into any service contract with the Company which is not terminable by the Company within one year without payment of compensation, other than statutory compensation. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN CONTRACTS As at December 31, 2015 or during the year, none of the Directors or Supervisors had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company, its holding company, or any of its subsidiaries or fellow subsidiaries was a party. D I R E C T O R S , S U P E R V I S O R S A N D C H I E F E X E C U T I V E ’ S R I G H T S T O SUBSCRIBE FOR SHARES OR DEBENTURES At no time during the year were there rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any Director, Supervisor and chief executive or their respective spouse or minor children, or were any such rights exercised by them; or was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable any such persons to acquire such rights in any other body corporate. SHARE CAPITAL There were no movements in the Company’s issued share capital during the year. PRE-EMPTIVE RIGHTS There is no provision for pre-emptive rights in the Company’s Articles of Association or the laws of the PRC which would require the Company to offer new shares on a pro rata basis to existing shareholders. Report of the DirectorsZHEJIANG EXPRESSWAY CO., LTD.63 TAXATION AND TAX RELIEF According to a Notice issued jointly by PRC Ministry of Finance and State Administration of Taxation regarding individual income tax policies (Caishuizi 【1994】 No.020), the dividend incomes received by foreign individuals from a foreign-invested enterprise are exempt from individual income tax. As stipulated by a Notice issued by the PRC State Administration of Taxation in relation to the withholding and payment of enterprise income tax by Chinese resident enterprises for payment of dividend to H shareholders Who are overseas non-resident enterprises (Guoshuihan 【 2008 】 No.897), the Company as a Chinese resident enterprises is required to withhold 10% enterprise income tax when it distributes dividends for the year 2008 and thereafter to all non-resident enterprise holders of H shares of the Company (including HKSCC Nominees Limited, other nominees, trustees or other entities and organizations, who will be deemed as non-resident enterprise holders of H shares) whose names appear on the H share register of members of the Company on the record date. Dividends payable to the Shareholders who are mainland individual investors or corporate investors investing in the H Shares via the Shanghai-Hong Kong Stock Connect will be paid in Rmb by China Securities Depository and Clearing Corporation Limited Shanghai Branch (“CSDC Shanghai Branch”) as entrusted by the Company. According to the requirements of the “Notice on Taxation Policies Concerning the Shanghai- Hong Kong Stock Connect Pilot Program (Finance Tax 【2014】 No. 81) (《關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知》（財稅【2014】 81號）) jointly published by the Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission, the Shanghai-Hong Kong Stock Connect tax arrangements are as follows: (i) for Chinese mainland individual investors who invest in the H Shares via the Shanghai-Hong Kong Stock Connect, the Company will withhold individual income tax at the rate of 20% in the distribution of dividends. Individual investors may, by producing valid tax payment proofs, apply to the competent tax authority of China Securities Depository and Clearing Company Limited for tax credit relating to the withholding tax already paid abroad; and (ii) for Chinese mainland securities investment funds that invest in the H Shares via the Shanghai-Hong Kong Stock Connect, the Company will withhold individual income tax in the distribution of dividends pursuant to the foregoing provisions. For Chinese mainland corporate investors that invest in the H Shares via the Shanghai-Hong Kong Stock Connect, the Company will not withhold the income tax in the distribution of interim dividend and such investors shall file the tax returns on their own. 2015 ANNUAL REPORT64 Under current practice of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by the Company. Shareholders of the Company are taxed and/or enjoy tax relief in accordance with the aforementioned regulations. SUFFICIENCY OF PUBLIC FLOAT Based on the information that is publicly available to the Company and within the knowledge of the Directors, as at the latest practicable date prior to the issue of this annual report, the Company has maintained sufficient amount of public float as required under the Listing Rules. AUDITORS Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, who had served as the Company’s Hong Kong auditors since 2005, will retire and a resolution for their re-appointment as Hong Kong auditors of the Company will be proposed at the forth coming Annual General Meeting of the shareholders. By Order of the Board ZHAN Xiaozhang Chairman Hangzhou, Zhejiang Province, the PRC March 17, 2016 Report of the DirectorsZHEJIANG EXPRESSWAY CO., LTD.65 During the Period, the Supervisory Committee duly performed its supervisory responsibilities, and safe guarded the legitimate interests of the shareholders and the Company in accordance with relevant rules and regulations under the Company Law of the PRC, the Company’s Articles of Association and the Rules of the Supervisory Committee. Main tasks undertaken by the Supervisory Committee during the Period were to assess and supervise lawfulness and appropriateness of the activities of the Directors, General Manager and other senior management of the Company in their business decision-making and daily management processes, through a combination of activities including holding meetings of the Supervisory Committee and attending general meetings of shareholders and meetings of the Board. The Supervisory Committee has carefully examined the operating results and the financial standing of the Company, discussed and reviewed the financial statements to be submitted by the Board to the general meeting of shareholders. During the Period, the Supervisory Committee held a total of three meetings of its own, and attended ten meetings held by the Board and three general meetings of shareholders. The Supervisory Committee considered that the Company took active efforts and fully accomplished the targets set at the beginning of the year by adhering to its strategic positioning and focusing on reform and innovation. The operating results of the Company set a record high alongside with accelerating transformation development and strengthening management capabilities of toll road operations. The effective implementation of reform measures in the areas of asset injection, business consolidation, cost control and IT development generated fruitful results. The Supervisory Committee has reviewed the financial statements of the Company for 2015 prepared by the Board for submission to the general meeting of shareholders, and concluded that the financial statements accurately reflected the financial position of the Company in 2015, and complied with the relevant laws, regulations and the Company’s Articles of Association. The Company maintained a relatively stable dividend in recent years, providing satisfactory return to its shareholders. During the Period, the members of the Board, General Manager and other senior management of the Company have complied with their fiduciary duties and have acted in good faith and diligently while carrying out their responsibilities. There was no incident of abuse of power or infringement of the interests of shareholders or employees. The Supervisory Committee is satisfied with the performances across various lines of business achieved by the Board and the management of the Company. By the order of the Supervisory Committee YAO Huiliang Chairman of the Supervisory Committee Hangzhou, Zhejiang Province, the PRC March 17, 2016 Report of the Supervisory Committee2015 ANNUAL REPORT66 During the year ended 31 December, 2015, the Company had the following non-exempt continuing connected transactions. Deposit services with Zhejiang Communications Finance Pursuant to a financial services agreement (the “Financial Services Agreement”) dated July 18, 2013 entered into between the Company and Zhejiang Communications Finance, Zhejiang Communications Finance agreed to provide the Company with a range of financial services including certain deposit services (the “Deposit Services”) for a term of three years from the date of the Financial Services Agreement subject to the terms and conditions provided therein. And on March 28, 2014, the Company and Zhejiang Communications Finance entered into a supplemental agreement (the “Supplemental Agreement”) to supplement the Financial Services Agreement with retrospective effect from July 18, 2013, so as to make clear that the definition of “the Company” used in the Financial Services Agreement as the proposed recipient of the financial services under the agreement, was intended to refer to the Group. As the Company, Communications Group (a substantial shareholder of the Company), Zhejiang Ningbo Yongtaiwen Expressway Co., Ltd (浙江寧波甬台溫高速公路有限公司) and Zhejiang Taizhou Yongtaiwen Expressway Co., Ltd (浙江台州甬台溫高速公路有限公司) beneficially own 35%, 40%, 15.625% and 9.375% of the issued share capital of Zhejiang Communications Finance, respectively, Zhejiang Communications Finance is a connected person of the Company and as a result, the Deposit Services constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. Under the Financial Services Agreement (as supplemented by the Supplemental Agreement), Zhejiang Communications Finance may provide Deposit Services including current deposit, time deposit, call depositor agreement deposit services to the Group. The Deposit Services will be provided under the Financial Services Agreement on a non-exclusive basis and the Group is entitled to determine whether to accept the Deposit Services provided by Zhejiang Communications Finance or decide to accept deposit services provided by other financial institutions. The Group is not obliged to accept any Deposit Services provided by Zhejiang Communications Finance under the Financial Services Agreement (as supplemented by the Supplemental Agreement). The interest rate to be paid by Zhejiang Communications Finance for the Group’s deposits with Zhejiang Communications Finance shall be determined based on the prevailing deposit interest rate promulgated by the People’s Bank of China for the same period and should not be lower than the deposit interest rates offered by major commercial banks in the PRC for comparable deposits of comparable periods. The maximum amount of the daily deposit balance (including any interest accrued thereon) for the Group’s deposits with Zhejiang Communications Finance shall not be more than Rmb700,000,000 during the term of the Financial Services Agreement. Continuing Connected TransactionsZHEJIANG EXPRESSWAY CO., LTD.67 During the year under review, the maximum amount of the daily deposit balance (including any interest accrued thereon) for the Group’s deposits with Zhejiang Communications Finance under the Financial Services Agreement (as supplemented by the Supplemental Agreement) was Rmb662,017,000. The independent non-executive Directors have reviewed the continuing connected transactions described above and confirmed that the continuing connected transactions have been entered into: (a) In the ordinary and usual course of business of the Company; (b) On normal commercial terms or on terms no less favorable to the Company than terms available to or from independent third parties; and (c) In accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements HKSAE3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditors have issued their unqualified letter containing their findings and conclusions in respect of the continuing connected transactions in accordance with the Rule 14A.56 of the Listing Rules. A copy of the auditor’s letter has been provided to the Hong Kong Stock Exchange. 2015 ANNUAL REPORT68 TO THE MEMBERS OF ZHEJIANG EXPRESSWAY CO., LTD. 浙江滬杭甬高速公路股份有限公司 (Incorporated in the People’s Republic of China with limited liability) We have audited the consolidated financial statements of Zhejiang Expressway Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 70 to 176, which comprise the consolidated statement of financial position as at December 31, 2015, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors’ Responsibility for the Consolidated Financial Statements The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants 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. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. ZHEJIANG EXPRESSWAY CO., LTD.Independent Auditor’s Report2015 ANNUAL REPORT 69 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2015, and of its financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 17 March 2016 70 Revenue Operating costs Gross profit Securities investment gains Other income Administrative expenses Other expenses Share of profit of associates Share of loss of a joint venture Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Available-for-sale financial assets: – Fair value gain during the year – Reclassification adjustments for cumulative gain included in profit or loss upon disposal Share of differences arising on translation Income tax relating to items that may be reclassified subsequently Other comprehensive income for the year, net of income tax Year ended NOTES 12/31/2015 Rmb’000 12,507,394 Year ended 12/31/2014 Rmb’000 (Restated) 9,460,308 8 9 10 11 12 13 14 (7,060,298) (5,898,198) 5,447,096 3,562,110 584,114 295,918 (108,627) (162,576) 48,289 (25,067) (632,495) 5,446,652 (1,416,872) 4,029,780 278,252 262,244 (105,703) (104,306) 65,020 (33,277) (272,900) 3,651,440 (905,468) 2,745,972 137,431 68,301 (65,826) 367 (17,901) 54,071 – – (17,075) 51,226 Total comprehensive income for the year 4,083,851 2,797,198 Profit for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive income attributable to: Owners of the Company Non-controlling interests 2,989,680 1,040,100 4,029,780 3,017,800 1,066,051 4,083,851 2,264,994 480,978 2,745,972 2,291,596 505,602 2,797,198 EARNINGS PER SHARE – Basic and diluted 18 Rmb68.84 cents Rmb52.15 cents ZHEJIANG EXPRESSWAY CO., LTD.Consolidated Statement of Profit or Loss and Other Comprehensive IncomeFor the year ended December 31, 2015 2015 ANNUAL REPORT 71 NON-CURRENT ASSETS Property, plant and equipment Prepaid lease payments Expressway operating rights Goodwill Other intangible assets Interests in associates Interest in a joint venture Available-for-sale investments Other receivables Deferred tax assets CURRENT ASSETS Inventories Trade receivables Loans to customers arising from margin financing business Other receivables and prepayments Prepaid lease payments Dividend receivable Derivative financial assets Available-for-sale investments Held for trading investments Financial assets held under resale agreements Bank balances held on behalf of customers Bank balances and cash – Time deposits with original maturity over three months – Cash and cash equivalents NOTES 12/31/2015 12/31/2014 01/01/2014 Rmb’000 Rmb’000 Rmb’000 (Restated) (Restated) 19 20 21 22 23 25 26 27 31 45 28 29 30 31 20 44 27 32 33 34 35 35 3,178,494 3,289,047 2,058,513 57,745 66,001 68,156 13,229,442 14,265,387 15,250,850 86,867 155,219 583,537 275,600 1,635,858 – 329,526 86,867 155,590 627,866 300,667 221,232 50,828 97,135 86,867 154,564 574,733 333,944 143,514 401,400 84,655 19,532,288 19,160,620 19,157,196 316,528 151,083 170,654 136,158 73,576 104,498 10,550,590 8,545,913 2,946,911 1,231,799 1,939 20,494 2,288 1,032,750 3,761,224 4,959,155 857,563 2,155 – – 477,901 2,155 – – 570,021 281,924 2,124,740 1,181,025 2,724,598 874,254 27,078,574 16,576,751 8,228,160 270,000 4,983,051 761,320 704,459 3,356,563 1,915,259 54,359,475 35,826,436 16,790,122 Consolidated Statement of Financial PositionAt December 31, 201572 CURRENT LIABILITIES Placements from other financial institutions Accounts payable to customers arising from securities business Trade payables Tax liabilities Other taxes payable Other payables and accruals Dividends payable Derivative financial liabilities Bank and other borrowings Short-term financing note payable Bonds payable Financial assets sold under repurchase agreements NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings Bonds payable Deferred tax liabilities CAPITAL AND RESERVES Share capital Reserves Equity attributable to owners of the Company Non-controlling interests NOTES 12/31/2015 12/31/2014 01/01/2014 Rmb’000 Rmb’000 Rmb’000 (Restated) (Restated) 36 37 38 39 44 40 41 43 42 40 43 45 46 47 200,000 1,940,000 310,000 27,009,641 16,545,146 8,167,103 908,616 641,606 88,022 996,651 463,648 71,021 754,953 331,611 54,942 2,809,079 1,588,312 1,026,016 333 4,258 76,139 94,976 – – 1,777,951 1,690,000 980,000 616,100 3,000,000 5,385,380 883,570 1,000,000 – 6,299,057 – – 42,440,986 30,553,544 12,719,601 11,918,489 5,272,892 4,070,521 31,450,777 24,433,512 23,227,717 1,590,000 7,600,000 262,128 9,452,128 1,960,000 3,250,000 1,200,000 – 145,042 205,638 3,305,042 3,455,638 21,998,649 21,128,470 19,772,079 4,343,115 4,343,115 4,343,115 12,393,543 12,657,782 11,712,552 16,736,658 17,000,897 16,055,667 5,261,991 4,127,573 3,716,412 21,998,649 21,128,470 19,772,079 The consolidated financial statements on pages 70 to 176 were approved and authorised for issue by the board of directors on 17 March 2016 and are signed on its behalf by: ZHAN Xiaozhang DIRECTOR LUO Jianhu DIRECTOR ZHEJIANG EXPRESSWAY CO., LTD.Consolidated Statement of Financial PositionAt December 31, 2015 2015 ANNUAL REPORT 73 Attributable to owners of the Company Share of Investment differences Share Share Statutory Capital revaluation arising on Dividend Special Retained Non- controlling capital premium reserve reserve reserve translation reserve reserves profits Total interests Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Note i) (Note ii) At January 1, 2014 (Originally stated) 4,343,115 3,645,726 3,545,859 1,712 1,801 Merger accounting restatement – – – – – At January 1, 2014 (Restated) 4,343,115 3,645,726 3,545,859 1,712 1,801 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Deregistration of a subsidiary Dividend paid to non-controlling-interests Interim dividend Final dividend Proposed final dividend Transfer to reserves – – – – – – – – – – – – – – – – – – – – – – – – – – 361,196 – – – – – – – – – – 26,602 26,602 – – – – – – At December 31, 2014 (Restated) 4,343,115 3,645,726 3,907,055 1,712 28,403 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend paid to non-controlling-interests Arising from the acquisition of a subsidiary under common control Contribution by non-controlling-interests Acquisition of additional interest of a non- wholly owned subsidiary (note iii) Interim dividend Final dividend Proposed final dividend Transfer to reserves At December 31, 2015 – – – – – – – – – – – – – – – (118,926) – (171,179) – – – – – – – – – – – – – – 598,718 – – – – – – – – – – – – 27,929 27,929 – – – – – – – – – – – – – – – – – – – – – – 191 191 – – – – – – – – 1,085,779 138,132 3,210,414 15,972,538 3,696,421 19,668,959 – 1,460,956 (1,377,827) 83,129 19,991 103,120 1,085,779 1,599,088 1,832,587 16,055,667 3,716,412 19,772,079 – – – – – – (1,085,779) 1,150,925 – – – – – – – – – – 2,264,994 2,264,994 480,978 2,745,972 – 26,602 24,624 51,226 2,264,994 2,291,596 505,602 2,797,198 – – – – (1,420) (1,420) (93,021) (93,021) (260,587) (260,587) – (1,085,779) (1,150,925) (361,196) – – – – – – (260,587) (1,085,779) – – 1,150,925 1,599,088 2,324,873 17,000,897 4,127,573 21,128,470 – – – – – – – – (1,150,925) 1,216,072 – – – – – (1,580,422) – – – – – – 2,989,680 2,989,680 1,040,100 4,029,780 – 28,120 25,951 54,071 2,989,680 3,017,800 1,066,051 4,083,851 – – – – – (107,812) (107,812) (1,699,348) – (1,699,348) – 5,000 5,000 (171,179) 171,179 – (260,587) (260,587) – (1,150,925) (1,216,072) (598,718) – – – – – – (260,587) (1,150,925) – – 4,343,115 3,355,621 4,505,773 1,712 56,332 191 1,216,072 18,666 3,239,176 16,736,658 5,261,991 21,998,649 Consolidated Statement of Changes in EquityFor the year ended December 31, 201574 Notes: (i) Statutory reserves comprise: (a) Statutory surplus reserve In accordance with the Company Law of the people’s Republic of China (the “PRC”) and the respective articles of association of the Company and its subsidiaries (collectively the “Entities”), the Entities are required to allocate 10% of the profit after tax, as determined in accordance with the PRC accounting standards and regulations applicable to the Entities, to the statutory surplus reserve until such reserve reaches 50% of the registered capital of the respective Entities. Subject to certain restrictions set out in the Company Law of the PRC and the respective articles of association of the Entities, part of the statutory surplus reserve may be converted to increase the respective Entities’ capital. (b) General risk reserve In accordance with the Finance Regulation for Financial Enterprises, securities companies are required to allocate 10% of the profit after tax, as determined in accordance with the PRC accounting standards and regulations, to the general risk reserve. This general risk reserve may be used to cover potential losses on risk exposures. (c) Transaction risk reserve In accordance with the securities law of the PRC, securities companies are required to allocate not less than 10% of the profit after tax, as determined in accordance with the PRC accounting standards and regulations, to the transaction risk reserve. This transaction risk reserve may be used to cover potential losses on securities transactions. (ii) Special reserves mainly comprise: (a) Other reserve which was arising from the Group’s acquisition of additional interest in a subsidiary and the difference between the carrying value of net assets attributable to the Group acquired and the payment consideration arising from acquisition; and (b) Merger reserve which was arising from the acquisition of subsidiaries under common control using the merger accounting method. This includes the capital of the combining entities at their existing book values since the first date they were under common control and were reduced by the Group’s payment of cash consideration to the controlling party and the excess in payment for the acquisition of additional interest to non-controlling interest of its carrying amount to the controlling party. (iii) It represented the effect in relation to an additional capital contribution of Rmb1,500,000,000 unilaterally made by the Group to Zhejiang Hanghui Expressway Co., Ltd., (“Hanghui Co”) a subsidiary of the Group, in December 2015, which resulted in a debt of share premium amounting to Rmb171,179,000. ZHEJIANG EXPRESSWAY CO., LTD.Consolidated Statement of Changes in EquityFor the year ended December 31, 20152015 ANNUAL REPORT 75 Year ended 12/31/2015 Rmb’000 5,446,652 Year ended 12/31/2014 Rmb’000 (Restated) 3,651,440 632,495 (62,193) (48,289) 25,067 243,599 991,800 2,004 23,632 (58) (65,826) (69,419) (52,500) 6,746 – 1,850 531 36,182 44,836 (879) (916) 7,155,314 91,612 (62,698) (2,040,859) (204,687) (1,636,484) (2,279,393) (10,501,823) 1,970 (1,740,000) 10,464,495 (86,008) 17,001 753,661 (913,677) (981,576) (1,372,120) (322,638) (2,676,334) 272,900 (59,924) (65,020) 33,277 222,154 988,148 2,155 20,293 6,554 – – – 13,416 830 – (1,156) 10,911 – – (29,890) 5,066,088 (97,908) (31,940) (5,609,913) (83,495) (943,715) (1,850,344) (8,348,591) – 1,630,000 8,378,043 55,800 16,079 425,126 6,299,057 4,904,287 (863,582) (283,366) 3,757,339 Profit before tax Adjustments for: Finance costs Interest income Share of profit of associates Share of loss of a joint venture Depreciation of property, plant and equipment Amortisation of expressway operating rights Release of prepaid lease payments Amortisation of other intangible assets (Reversal of) impairment loss on available-for-sale investments Cumulative gain relcassified from equity on disposal of available-for-sale investments Interest income from available-for-sale investments Gain on disposal of part of expressway operating rights Loss on disposal of property, plant and equipment Loss on write-down of inventories Loss on disposal of prepaid lease payment (Reversal of) allowance for trade receivables and other receivables Allowance for advance to customers arising from margin financing business Allowance for financial assets held on the resale agreement Gain on disposal of a subsidiary Gain on disposal of an associate Operating cash flows before movements in working capital Decrease (increase) in inventories Increase in trade receivables Increase in loans to customers arising from margin financing business Increase in other receivables and prepayments Increase in held for trading investments Increase in financial assets held under resale agreements Increase in bank balances held on behalf of customers Decrease in derivative financial instrument (Decrease) increase in placements from other financial institutions Increase in accounts payable to customers arising from securities business (Decrease) increase in trade payables Increase in other taxes payable Increase in other payables and accruals (Decrease) increase in financial assets sold under repurchase agreement Cash (used in) generated from operations Income taxes paid Interest paid NET CASH (USED IN) FROM OPERATING ACTIVITIES Consolidated Statement of Cash FlowsFor the year ended December 31, 2015 76 INVESTING ACTIVITIES Interest received Investment in associates Proceeds from disposal of an associate Proceeds from disposal of a subsidiary Proceeds from disposal of part of expressway operating rights Proceeds from disposal of prepaid lease payment Refundable deposit received for the disposal an associate Dividends received from an associate Proceeds on disposal of property, plant and equipment Entrusted loans to a related party Purchases of financial products investment Settlement of financial products investment Purchases of property, plant and equipment Purchases of intangible assets Purchase of available-for-sale investments Proceeds on disposal of available-for-sale investments Decrease (increase) in time deposits Repayment of entrusted loans from a related party NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends paid Dividends paid to non-controlling shareholders NOTES Year ended 12/31/2015 Rmb’000 49 70,522 (102,100) 100,000 18,741 53,891 4,618 62,100 33,122 2,313 (550,000) – 17,000 (326,517) (23,261) (2,901,830) 1,231,383 491,320 450,000 Year ended 12/31/2014 Rmb’000 (Restated) 22,725 – 29,234 – – – 103,500 9,701 13,757 (100,000) (89,000) 240,000 (1,270,485) (21,319) (508,490) 204,422 (56,861) 50,000 (1,368,698) (1,372,816) (1,411,512) (183,618) (1,699,348) 2,597,951 (2,880,000) 9,400,000 3,833,560 (1,346,366) (111,858) – 912,500 (1,492,500) 1,200,000 4,033,570 (4,101,030) (4,150,000) (3,253) 5,000 113,403 – 5,671,153 1,626,121 3,356,563 367 (7,145) – 20,000 (1,420) (943,219) 1,441,304 1,915,259 – Payment for the acquisition of a subsidiary under common control 2 New bank and other borrowings raised Repayment of bank and other borrowings New issue of bonds payable Issue of short-term financing note payable Repayment of short-term financing note payable Interest paid Capital contribution by non-controlling interests Contribution from limited partnership in a subsidiary Distribution made to the non-controlling shareholders for the deregistration of a subsidiary NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT JANUARY 1 Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT DECEMBER 31 35 4,983,051 3,356,563 ZHEJIANG EXPRESSWAY CO., LTD.Consolidated Statement of Cash FlowsFor the year ended December 31, 2015 2015 ANNUAL REPORT 77 1. CORPORATE INFORMATION Zhejiang Expressway Co., Ltd. (the “Company”) was established in the People’s Republic of China (the “PRC”) with limited liability on March 1, 1997. The H shares of the Company (“H Shares”) were subsequently listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on May 15, 1997. All of the H Shares of the Company were admitted to the Official List of the United Kingdom Listing Authority (the “Official List”). Dealings in the H Shares on the London Stock Exchange commenced on May 5, 2000. On July 18, 2000, with the approval of the Ministry of Foreign Trade and Economic Co-operation of the PRC, the Company changed its business registration into a Sino-foreign joint stock limited company. On February 14, 2002, the United States Securities and Exchange Commission, following the approval by the Board of Directors and the China Securities Regulatory Commission, declared the registration statement in respect of the American Depositary Shares (“ADSs”) evidenced by the American Depositary Receipts (“ADRs”) representing the deposited H Shares of the Company effective. In the opinion of the directors, the immediate and ultimate holding company of the Company is Zhejiang Communications Investment Group Co., Ltd. (the “Communications Group”), a state-owned enterprise established in the PRC. The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information section of the annual report. The consolidated financial statements are presented in Renminbi (“Rmb”), which is also the functional currency of the Company. The Company is an investment holding company. The Company and its subsidiaries (collectively referred to as the “Group”) are involved in the following principal activities: (a) the operation, maintenance and management of high grade roads; (b) the development and provision of certain ancillary services such as advertising, and fuel facilities; (c) the provision of the toll road maintenance service, automobile servicing and others; (d) the provision of securities broking services, margin financing and securities lending services, securities underwriting and sponsorship services, asset management, advisory services and proprietary trading; (e) the operation of hotel, the provision of catering service and sales of properties. Notes to the Consolidated Financial StatementsFor the year ended December 31, 201578 2. MERGER ACCOUNTING RESTATEMENT On August 5, 2015, the Group entered into a share transfer agreement with Communications Group to acquire 80.614% equity interest in Zhejiang Hanghui Expressway Co., Ltd. (“Hanghui Co”) from Communications Group for a cash consideration of Rmb1,699,348,000. Hanghui Co is principally engaged in the operation and management of the Hanghui Expressway, which is the Zhejiang section of Hangzhou–Ruili Expressway (G56) within the national expressway network. Before the above acquisition, Hanghui Co was 80.614% owned by Communications Group and 19.386% owned by non-controlling shareholders. The acquisition has been approved by independent shareholders on October 15, 2015 and subsequently completed on November 10, 2015. After the completion of the acquisition, Hanghui Co then became a 80.614% owned subsidiary of the Group. In December 2015, the equity interest held by the Group was increased to 88.674% after the Company made an additional capital contribution to Hanghui Co. Since Communications Group is the parent company of the Company, the Group’s acquisition of the 80.614% equity interest from Communications Group was regarded as a business combination involving entities under common control and was accounted for using merger accounting method, in accordance with the guidance set out in Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG5”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). As a result, the comparative consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows for the year ended December 31, 2014 and the consolidated statement of financial position as at December 31, 2014 have therefore been restated, in order to include the losses, assets and liabilities of the combining entities since the date on which they first come under common control. The adopting of merger accounting method in respect of the Group’s acquisition of 80.614% equity interest in Hanghui Co has resulted in a decrease in total comprehensive income attributable to owners of the Company and a decrease in profit attributable to owners of the Company for the year ended December 31, 2014 by Rmb84,058,000 and Rmb84,058,000, respectively. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 79 2. MERGER ACCOUNTING RESTATEMENT (Continued) The effect of the merger accounting restatement in respect of the Group’s acquisition of 80.614% equity interest in Hanghui Co described above on the consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2014 by line items is as follows: Merger Year ended accounting Year ended 12/31/2014 restatement 12/31/2014 Rmb’000 Rmb’000 (Originally stated) Revenue Operating costs Gross profit Securities investment gains Other income Administrative expenses Other expenses Share of profit of associates Share of loss of a joint venture Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Available-for-sale financial assets: – Fair value gain during the year Income tax relating to items that may be reclassified subsequently Other comprehensive income for the year, net of income tax 9,051,123 (5,576,211) 3,474,912 278,252 250,492 (85,533) (103,443) 65,020 (33,277) (78,231) 3,768,192 (917,948) 2,850,244 68,301 (17,075) 51,226 Rmb’000 (Restated) 9,460,308 (5,898,198) 3,562,110 278,252 262,244 (105,703) (104,306) 65,020 (33,277) (272,900) 3,651,440 (905,468) 2,745,972 409,185 (321,987) 87,198 – 11,752 (20,170) (863) – – (194,669) (116,752) 12,480 (104,272) – – – 68,301 (17,075) 51,226 Total comprehensive income for the year 2,901,470 (104,272) 2,797,198 Profit for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive income attributable to: Owners of the Company Non-controlling interests EARNINGS PER SHARE – Basic and diluted 2,349,052 501,192 2,850,244 2,375,654 525,816 2,901,470 (84,058) (20,214) (104,272) (84,058) (20,214) (104,272) 2,264,994 480,978 2,745,972 2,291,596 505,602 2,797,198 Rmb54.09 cents Rmb(1.94) cents Rmb52.15 cents 80 2. MERGER ACCOUNTING RESTATEMENT (Continued) The effects of the merger accounting restatement in respect of the Group’s acquisition of 80.614% equity interest in Hanghui Co described above on the consolidated statements of financial position as at January 1, 2014 and December 31, 2014 by line items are as follows: Merger Merger January 1, accounting January 1, December 31, accounting December 31, 2014 restatement 2014 2014 restatement 2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Originally stated) (Originally (Restated) stated) (Restated) NON-CURRENT ASSETS Property, plant and equipment 1,762,042 296,471 2,058,513 2,987,465 301,582 3,289,047 Prepaid lease payments 68,156 – 68,156 66,001 – 66,001 Expressway operating rights 11,911,133 3,339,717 15,250,850 11,112,507 3,152,880 14,265,387 Goodwill Other intangible assets Interests in associates Interest in a joint venture Available-for-sale investments Other receivables Deferred tax assets CURRENT ASSETS Inventories Trade receivables Loans to customers arising from 86,867 154,564 574,733 333,944 143,514 401,400 – – – – – – – 84,655 86,867 154,564 574,733 333,944 143,514 401,400 84,655 86,867 155,590 627,866 300,667 221,232 50,828 – – – – – – – 97,135 86,867 155,590 627,866 300,667 221,232 50,828 97,135 15,436,353 3,720,843 19,157,196 15,609,023 3,551,597 19,160,620 73,576 101,428 – 3,070 73,576 104,498 170,654 135,609 – 549 170,654 136,158 margin financing business 2,946,911 – 2,946,911 8,545,913 – 8,545,913 Other receivables and prepayments Prepaid lease payments Available-for-sale investments Held for trading investments Financial assets held under resale agreements 451,968 2,155 281,924 1,181,025 874,254 Bank balances held on behalf of customers 8,228,160 Bank balances and cash – Time deposits with original maturity over three months 704,459 25,933 477,901 832,238 25,325 857,563 – – – – – – 2,155 2,155 281,924 570,021 1,181,025 2,124,740 874,254 2,724,598 8,228,160 16,576,751 704,459 761,320 – – – – – – 2,155 570,021 2,124,740 2,724,598 16,576,751 761,320 – Cash and cash equivalents 1,806,981 108,278 1,915,259 3,301,722 54,841 3,356,563 16,652,841 137,281 16,790,122 35,745,721 80,715 35,826,436 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 81 2. MERGER ACCOUNTING RESTATEMENT (Continued) The effects of the merger accounting restatement in respect of the Group’s acquisition of 80.614% equity interest in Hanghui Co described above on the consolidated statements of financial position as at January 1, 2014 and December 31, 2014 by line items are as follows: (Continued) Merger Merger January 1, accounting January 1, December 31, accounting December 31, 2014 restatement 2014 2014 restatement 2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Originally stated) (Originally (Restated) stated) (Restated) CURRENT LIABILITIES Placements from other financial institutions 310,000 Accounts payable to customers arising from securities business 8,167,103 Trade payables Tax liabilities Other taxes payable Other payables and accruals Dividends payable Bank and other borrowings 421,994 331,611 53,417 995,496 94,976 540,000 Short-term financing note payable 1,000,000 Financial assets sold under repurchase agreements NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES – – 332,959 – 1,525 30,520 – 440,000 – – 310,000 1,940,000 8,167,103 16,545,146 754,953 331,611 54,942 693,604 463,648 67,642 1,026,016 1,561,274 94,976 980,000 1,000,000 76,139 150,000 883,570 – 6,299,057 – – 303,047 – 3,379 27,038 – 1,940,000 16,545,146 996,651 463,648 71,021 1,588,312 76,139 1,540,000 1,690,000 – – 883,570 6,299,057 – 11,914,597 805,004 12,719,601 28,680,080 1,873,464 30,553,544 4,738,244 (667,723) 4,070,521 7,065,641 (1,792,749) 5,272,892 20,174,597 3,053,120 23,227,717 22,674,664 1,758,848 24,433,512 82 2. MERGER ACCOUNTING RESTATEMENT (Continued) The effects of the merger accounting restatement in respect of the Group’s acquisition of 80.614% equity interest in Hanghui Co described above on the consolidated statements of financial position as at January 1, 2014 and December 31, 2014 by line items are as follows: (Continued) Merger Merger January 1, accounting January 1, December 31, accounting December 31, 2014 restatement 2014 2014 restatement 2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Originally stated) (Originally (Restated) stated) (Restated) NON-CURRENT LIABILITIES Bank and other borrowings 300,000 2,950,000 3,250,000 200,000 1,760,000 1,960,000 Bonds payable Deferred tax liabilities CAPITAL AND RESERVES Share capital Reserves Equity attributable to owners – 205,638 – – – 1,200,000 205,638 145,042 – – 1,200,000 145,042 505,638 2,950,000 3,455,638 1,545,042 1,760,000 3,305,042 19,668,959 103,120 19,772,079 21,129,622 (1,152) 21,128,470 4,343,115 – 4,343,115 4,343,115 – 4,343,115 11,629,423 83,129 11,712,552 12,658,711 (929) 12,657,782 of the Company 15,972,538 83,129 16,055,667 17,001,826 (929) 17,000,897 Non-controlling interests 3,696,421 19,991 3,716,412 4,127,796 (223) 4,127,573 19,668,959 103,120 19,772,079 21,129,622 (1,152) 21,128,470 The effects of merger accounting restatement in respect of the Group’s acquisition of 80.614% equity interest in Hanghui Co described above on the Group’s equity as at January 1, 2014 and December 31, 2014 are as follows: Merger Merger January 1, accounting January 1, December 31, accounting December 31, 2014 restatement 2014 2014 restatement 2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Originally stated) 4,343,115 3,645,726 3,545,859 1,712 1,801 1,085,779 – – – – – – 138,132 1,460,956 (Restated) 4,343,115 3,645,726 3,545,859 1,712 1,801 1,085,779 1,599,088 (Originally stated) 4,343,115 3,645,726 3,907,055 1,712 28,403 1,150,925 – – – – – – 138,132 1,460,956 (Restated) 4,343,115 3,645,726 3,907,055 1,712 28,403 1,150,925 1,599,088 3,210,414 (1,377,827) 1,832,587 3,786,758 (1,461,885) 2,324,873 Share capital Share premium Statutory reserve Capital reserve Investment revaluation reserve Dividend reserve Special reserve Retained profits Non-controlling interests 3,696,421 19,991 3,716,412 4,127,796 (223) 4,127,573 19,668,959 103,120 19,772,079 21,129,622 (1,152) 21,128,470 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 83 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) Application of new and revised HKFRSs The Group has applied the following amendments to HKFRSs issued by the HKICPA for the first time in the current year. Amendments to HKAS 19 Amendments to HKFRSs Amendments to HKFRSs Defined Benefit Plans: Employee Contributions Annual Improvements to HKFRSs 2010 – 2012 Cycle Annual Improvements to HKFRSs 2011 – 2013 Cycle The application of the amendments to HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements. New and revised HKFRSs in issue but not yet effective The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective: HKFRS 9 HKFRS 15 HKFRS 16 Amendments to HKFRS 11 Amendments to HKAS 1 Amendments to HKAS 16 and HKAS 38 Amendments to HKFRSs Amendments to HKAS 16 and HKAS 41 Financial Instruments1 Revenue from Contracts with Customers1 Lease2 Accounting for Acquisitions of Interests in Joint Operations3 Disclosure Initiative3 Clarification of Acceptable Methods of Depreciation and Amortisation3 Annual Improvements to HKFRSs 2012–2014 Cycle3 Agriculture: Bearer Plants3 Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture4 Amendments to HKFRS 10, HKFRS 12 and HKAS 28 Investment Entities: Applying the Consolidation Exception3 1 2 3 4 Effective for annual periods beginning on or after January 1, 2018. Effective for annual periods beginning on or after January 1, 2019. Effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. Effective for annual periods beginning on or after a date to be determined. HKFRS 9 Financial Instruments HKFRS 9 issued in 2009 introduced new requirements for the classification and measurement of financial assets. HKFRS 9 was subsequently amended in 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and further amended in 2013 to include the new requirements for general hedge accounting. Another revised version of HKFRS 9 was issued in 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (“FVTOCI”) measurement category for certain simple debt instruments. 84 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (Continued) HKFRS 9 Financial Instruments (Continued) Key requirements of HKFRS 9: • All recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss. • With regard to the measurement of financial liabilities designated as at fair value through profit or loss, HKFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities’ credit risk are not subsequently reclassified to profit or loss. Under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in profit or loss. • In relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. The directors of the Company anticipate that the application of HKFRS 9 in the future may have a material impact on amounts reported in respect of the Group’s financial assets and financial liabilities (e.g. the Group’s investments in unlisted equity securities currently classified as available-for-sale investments may have to be measured at fair value at the end of subsequent reporting periods, with changes in the fair value being recognised in profit or loss). Regarding the Group’s financial assets, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 85 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (Continued) HKFRS 15 Revenue from Contracts with Customers In July 2014, HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 Revenue, HKAS 11 Construction Contracts and the related Interpretations when it becomes effective. The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition: • • • • • Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15. The directors of the Company anticipate that the application of HKFRS 15 in the future may have an impact on the amounts reported and disclosures made in the Group’s consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of HKFRS 15 until the Group performs a detailed review. 86 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (Continued) HKFRS 16 Leases HKFRS 16, which upon the effective date will supersede HKAS 17 Leases, introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Specifically, under HKFRS 16, a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under the predecessor standard, HKAS 17. In respect of the lessor accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Directors of the Company will assess the impact of the application of HKFRS 16. For the moment, it is not practicable to provide a reasonable estimate of the effect of the application of HKFRS 16 until the Group performs a detailed review. Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation The amendments to HKAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to HKAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in the following two limited circumstances: a) when the intangible asset is expressed as a measure of revenue; or b) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are highly correlated. The amendments apply prospectively for annual periods beginning on or after January 1, 2016. Currently, the Group uses the straight-line method for depreciation and amortisation for its property, plant and equipment, expressway operating rights and other intangible assets respectively. The directors of the Company believe that the straight-line method is the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, the directors of the Company do not anticipate that the application of these amendments to HKAS 16 and HKAS 38 will have a material impact on the Group’s consolidated financial statements. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 87 3. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (Continued) Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments to HKFRS 10 Consolidated Financial Statements and HKAS 28 Investments in Associates and Joint Ventures deal with situations where there is a sale or contribution of assets between an investor and its associates or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) are recognised in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture. The amendments should be applied prospectively to transactions occurring in annual periods beginning on or after a date to be determined. The directors of the Company do not anticipate that the application of these amendments to HKFRS 10 and HKAS 28 will have a material impact on the Group’s consolidated financial statements. Annual Improvements to HKFRSs 2012-2014 Cycle The Annual Improvements to HKFRSs 2012-2014 Cycle include a number of amendments to various HKFRSs, which are summarised below. The amendments to HKFRS 5 introduce specific guidance in HKFRS 5 for when an entity reclassifies an asset (or a disposal group) from held for sale to held for distribution to owners (or vice versa). The amendments clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in HKFRS 5 regarding the change of sale plan do not apply. The amendments also clarifies the guidance for when held-for-distribution accounting is discontinued. The amendments to HKFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets. The directors of the Company do not anticipate that the application of these amendments will have a material effect on the amounts recognised in the Group’s consolidated financial statements. 88 4. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”) and by the Hong Kong Companies Ordinance (“CO”). The provision of the new Hong Kong Companies Ordinance (Cap 622) regarding preparation of accounts and directors’ reports and audits became effective for the Company for the financial year ended 31 December 2015. Further, the disclosure requirements set out in the Listing Rules regarding annual accounts have been amended with reference to the new CO and to streamline with HKFRSs. Accordingly the presentation and disclosure of information in the consolidated financial statements for the financial year ended 31 December 2015 have been changed to comply with these new requirements. Comparative information in respect of the financial year ended 31 December 2014 are presented or disclosed in the consolidated financial statements based on the new requirements. Information previously required to be disclosed under the predecessor CO or Listing Rules but not under the new CO or amended Listing Rules are not disclosed in these consolidated financial statements. The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except leasing transactions that are within the scope of HKAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 or value in use in HKAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 89 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: • • • has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns 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 listed above. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group`s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Change in the Group’s ownership interests in existing subsidiaries Changes in the Group’s ownership interests in existing subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. 90 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Change in the Group’s ownership interests in existing subsidiaries (Continued) When the Group loses control of a subsidiary, a gain or loss is recognised in the profit or loss and is calculated as the difference between (i) the aggregate fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in related to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e., reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when the control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39, when applicable, the cost on initial recognition of an investment in an associate of a joint venture. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred 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. Acquisition-related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date (see the accounting policy below); and • assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition- date amounts of the identifiable assets acquired and the liabilities assumed. Allocation of total comprehensive income to non-controlling interests Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 91 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Merger accounting for business combination involving entities under common control The consolidated financial statements incorporate the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest. The consolidated statement of profit or loss and other comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination. The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the end of the previous reporting period or when they first came under common control, whichever is shorter. Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash- generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. The Group’s policy for goodwill arising on the acquisition of associates and joint venture is described below. 92 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Interests in associates and a joint venture An associate is an entity over which the Group has 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 joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. 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 results and assets and liabilities of associates or a joint venture are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or a joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 93 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Interests in associates and a joint venture (Continued) The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment (or a portion thereof) is classified as held for sale. When the Group retains an interest in the former associate or joint venture and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with HKAS 39. The difference between the carrying amount of the associate or joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When the Group reduces its ownership interest in an associate or a joint venture but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a group entity transacts with an associate or a joint venture of the Group (such as a sale or contribution of assets), profits and losses resulting from the transactions with the associate or joint venture is recognised in the Group’s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns and other similar allowances. Toll income from the operation of tolled roads is recognised when the tolls are received or become receivable. 94 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue recognition (Continued) Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: • • • • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Service income, including advertising income, is recognised when services are provided. Revenue from room rental, food and beverage sales and other ancillary service in the hotel are recognised when the relevant service have been rendered. Commission income from securities broking business is recognised on a trade date basis. Advisory and handling fee income are recognised when the relevant transactions have been provided or the relevant services have been rendered. Underwriting and sponsors fees are recognised as income in accordance with the terms of the underwriting agreement or deal mandate when the relevant significant acts have been completed. Asset management fee income is recognised when management services are provided in accordance with the management contracts. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. The Group’s accounting policy for recognition of revenue from operating leases is described in the accounting policy for leasing below. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 95 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, plant and equipment Property, plant and equipment including buildings and leasehold land (classified as finance leases) held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction as described below), are stated in the consolidated statement of financial position at cost, less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any. Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is recognised so as to write off the cost of assets (other than properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Hotel buildings Leasehold land and buildings Ancillary facilities Communication and signaling equipment Motor vehicles Machinery and equipment Estimated Annual useful life depreciation rate 30 years 20 – 50 years 10 – 30 years 5 years 5 – 8 years 5 – 8 years 3.2% 1.9% – 4.9% 3.2% – 9% 19.4% 12.1% – 19.4% 12.1% – 19.4% An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 96 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Intangible assets Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below). Intangible assets acquired in a business combination Intangible assets acquired in a business combination are recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination with finite useful lives are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Alternatively, intangible assets with indefinite useful lives are carried at cost less subsequent accumulated impairment losses (see accounting policy in respect of impairment losses on tangible and intangible assets below). An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible assets are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss in the period when the asset is derecognised. Expressway operating rights under service concession arrangements When the Group has a right to charge for usage of concession infrastructure, it recognises concession intangible assets based on fair value of the consideration paid upon initial recognition. Subsequent costs incurred on expressway widening projects and upgrading services are recognised as additional costs of the expressway operating rights. The concession intangible assets representing expressway operating rights are carried at cost less accumulated amortisation and any accumulated impairment losses. The concession intangible assets are amortised to write-off their cost over their expected useful lives in the remaining concession period on a straight-line basis. Costs in relation to the day-to-day servicing, repairs and maintenance of the expressway infrastructures are recognised as expenses in the periods in which they are incurred. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 97 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment losses on tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above) At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash- generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash- generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs of disposal and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Inventories Inventories include properties held for sale, consumables and parts for toll road operation, maintenance and hotel service and those commodities held for sale arising from the securities business. Inventories are stated at the lower of cost and net realisable value. Cost of properties held for sale includes the costs of land, development expenditure incurred and, where appropriate, borrowing costs capitalised. Costs of other inventories are calculated using the weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 98 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessor Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease. The Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Leasehold land and building When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lumpsum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease. To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as ‘prepaid lease payments’ in the consolidated statement of financial position and is amortised over the lease term on a straight-line basis. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 99 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in they arise. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. Retirement benefit costs Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered services entitling them to the contributions. 100 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Short-term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the amount of benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and interests in associates and a joint venture, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 101 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Taxation (Continued) The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (“FVTPL”), available-for-sale (“AFS”) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL, of which interest income is included in net gains or losses. 102 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial assets (Continued) Financial assets at FVTPL Financial assets are classified as at FVTPL include financial asset held for trading. A financial asset is classified as held for trading if: • • it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial asset and is included in the ‘securities investment gains’ line item. Fair value is determined in the manner described in Note 6(c). AFS financial assets AFS financial assets are non-derivatives that are not either designated or classified as (a) loans and receivables, (b) held-to- maturity investments or (c) financial assets at FVTPL. Equity and debt securities held by the Group that are classified as AFS financial assets and are traded in an active market are measured at fair value at the end of each reporting period. Changes in the carrying amount of AFS monetary financial assets relating to interest income calculated using the effective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of AFS financial assets are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial assets below). Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established. AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period (see the accounting policy in respect of impairment loss on financial assets below). ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 103 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial assets (Continued) Loan and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade receivables, loans to customers arising from margin financing business, other receivables, financial assets held under resale agreements, bank balances held on behalf of customers and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment losses on financial assets below). Impairment loss on financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. For an AFS equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: • • • • significant financial difficulty of the issuer or counterparty; or breach of contract, such as default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or the disappearance of an active market for that financial asset because of financial difficulties. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate. 104 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial assets (Continued) Impairment loss on financial assets (Continued) For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods (see the accounting policy below). The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables and loans to customers arising from margin financing business, where the carrying amount is reduced through the use of an allowance account. When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. For the loans to customers arising from margin financing business, the Group reviews its advances to customers to assess impairment on a periodic basis. In determining whether an impairment loss should be recognised in profit or loss, the Group reviews the value of the securities collateral received from the customers firstly on individual basis, then on collective basis in determining the impairment. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity investments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. In respect of AFS debt investments, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 105 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial liabilities and equity instruments Financial liabilities and equity Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Other financial liabilities Other financial liabilities (including accounts payable to customers arising from securities business, trade payables, other payables, dividends payable, bank and other borrowings, placements from other financial institutions, short-term financing note payable, financial assets sold under repurchase agreements and bonds payable) are subsequently measured at amortised cost using the effective interest method. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fee and points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis other than financial liabilities classified as at FVTPL. Derivative financial instruments Derivatives are initially recognized at fair value at the date derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately, unless the derivative is designated and effective as a hedging instruments, in which event the timing of recognition in profit or loss depends on the nature of the hedge relationship. Embedded derivatives Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value through profit or loss. 106 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial assets held under resale agreements Financial assets held under resale agreements where the Group acquires financial assets which will be resold at a predetermined price at a future date under resale agreements, the cash advanced by the Group is recognised as secured loans and receivables and presented as amounts held under resale agreements in the consolidated statement of financial position. The difference between the purchase and resale consideration is amortised over the period of the respective agreements using the effective interest method and is included in interest income. Financial assets sold under repurchase agreements Financial assets sold subject to agreements with a commitment to repurchase at a specific future date and price are not derecognised in the consolidated statement of financial position. The proceeds from selling such assets are presented under “financial assets sold under repurchase agreements” in the consolidated statement of financial position. The difference between the selling price and repurchasing price is recognised as interest expense during the term of the agreement using the effective interest method. Securities lending arrangement The Group lends investment securities to clients and requires cash and/or equity securities from customers held as collaterals under such securities lending agreements. The cash collaterals arisen from these are included in “accounts payable to customers arising from securities business”. For those securities held by the Group and lent to client that do not result in the derecognition of financial assets, they are included in AFS investments. Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts issued by the Group are initially measured at their fair values and are subsequently measured at the higher of: (i) the amount of obligation under the contract, as determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 107 4. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (Continued) Financial guarantee contracts (Continued) Derecognition The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 108 5. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY Critical judgements in applying accounting policies The following is the critical judgement, apart from those involving estimations (see below), that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements. Determination of consolidation scope All facts and circumstances must be taken into consideration in the assessment of whether the Group, as an investor, controls the investee. The principle of control sets out the following three elements of control: (a) power over the investee; (b) exposure, or rights, to variable returns from involvement with the investee; and (c) the ability to use power over the investee to affect the amount of the investor’s returns. An investor’s initial assessment of control or its status as a principal or an agent would not change simply because of a change in market conditions (e.g. a change in the investee’s returns driven by market conditions), unless the change in market conditions changes one or more of the three elements of control listed above or changes the overall relationship between a principal and an agent. At the end of each reporting period, the Group assesses the variable returns arising from other equities and uses plenty of judgments, in combination with historical exposure to variable returns, to determine the consolidation scope. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year. Estimated impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2015, the carrying amount of goodwill is Rmb86,867,000 (without accumulated impairment loss) (2014: Rmb86,867,000 (without accumulated impairment loss)). Details of the impairment testing are disclosed in Note 24. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 109 5. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued) Key sources of estimation uncertainty (Continued) Estimated impairment of intangible assets with indefinite useful lives Determining whether intangible assets with indefinite useful lives are impaired requires an estimation of the value in use of themselves or the cash-generating unit to which they belong. The value in use calculation requires the Group to estimate the future cash flows expected to arise from themselves or the cash-generating unit to which they belong and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2015, the carrying amounts of intangible assets with indefinite useful lives were Rmb66,563,000 (without accumulated impairment loss) (2014: Rmb66,563,000 (without accumulated impairment loss)). Details of the impairment testing are disclosed in Note 24. Impairment of loans to customers arising from margin financing business and financial assets held under resale agreements The Group reviews its loans to customers arising from margin financing business and financial assets held under resale agreements to assess impairment on a periodic basis. When there is objective evidence of impairment loss for loans to customers arising from margin financing business and financial assets held under resale agreements, the Group takes into consideration the estimation of future cash flows. Specifically, the Group reviews the value of the cash and securities collateral received from the customers firstly on an individual basis, then on a collective basis in determining the impairment. The policy for collective impairment allowances for loans to customers arising from margin financing business and financial assets held under resale agreements of the Group is based on the evaluation of probability of default, loss given default and exposure at default of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these loans to customers arising from margin financing business and financial assets held under resale agreements, including the current creditworthiness, and the past collection history. Details are set out in Note 30 and 33. Estimated impairment of interest in a joint venture and associates The Group regularly reviews whether there are any indications of impairment and recognises an impairment loss if the carrying amount of the Group’s interest in a joint venture or associates are lower than their respective recoverable amount. The Group tests for impairment for the interest in a joint venture and associate whenever there is an indication that the asset may be impaired. The recoverable amounts have been determined based on the higher of the fair value less costs of disposal and value in use calculations. These calculations require the use of estimates, such as discount rates, future profitability and growth rates. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at December 31, 2015, the carrying amount of interest in a joint venture was Rmb275,600,000 (without accumulated impairment loss) (2014: Rmb300,667,000 (without accumulated impairment loss)), and the carrying amount of interest in associates was Rmb583,537,000 (without accumulated impairment loss) (2014: Rmb627,866,000 (without accumulated impairment loss)). 110 5. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued) Key sources of estimation uncertainty (Continued) Provision for financial guarantee contract The directors of the Company based on its best estimate of the financial position and credit rating of the guarantee to determine the probability of incurring a claim by the counterparty to the Company to estimate fair value or the respective obligation under the financial guarantee contract. Based on expectations at the end of the reporting period, the Group considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses. As at December 31, 2015, in respect of the financial guarantee contract provided to a joint venture of the Group in the amount of Rmb1,021,374,000 (2014: Rmb1,076,910,000), the directors of the Company considered that the fair value of the financial guarantee obligation was insignificant in both years. Fair value measurements and valuation processes Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. The board of directors of the Group has set up a valuation team, which is headed up by the Chief Financial Officer (“CFO”) of the Group, to determine the appropriate valuation techniques and inputs for fair value measurements. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available, Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation. The CFO works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The CFO reports the valuation committee’s findings to the board of directors of the Group at the end of each reporting period to explain the cause of fluctuations in the fair value of the assets and liabilities. As at 31 December 2015, the fair value of the held-for-trading investment, available-for-sale investments (excluding those unlisted equity securities investments measured at cost), derivative financial assets and derivative financial liabilities,was estimated at an asset of Rmb3,761,224,000 (2014: Rmb2,124,740,000), Rmb2,624,011,000 (2014: Rmb752,753,000), Rmb2,288,000 (2014: nil) and Rmb4,258,000 (2014: nil), respectively. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 111 6. FINANCIAL INSTRUMENTS (a) Categories of financial instruments Financial assets AFS investments – at cost – at fair value Fair value through profit or loss Held for trading investments Derivative financial assets 12/31/2015 12/31/2014 01/01/2014 Rmb’000 Rmb’000 Rmb’000 (Restated) (Restated) 44,597 2,624,011 38,500 752,753 11,000 414,438 3,761,224 2,124,740 1,181,025 2,288 – – Loans and receivables (including cash and cash equivalents) 49,182,275 32,922,414 15,621,927 Financial liabilities Fair value through profit or loss Derivative financial liabilities Amortised cost 4,258 – – 48,314,488 31,648,954 14,541,943 (b) Financial risk management objectives and policies The Group’s major financial instruments include AFS investments, held for trading investments, trade and other receivables, loans to customers arising from margin financing business, financial assets held under resale agreements, bank balances and cash, bank balances held on behalf of customers, trade and other payables, placements from other financial institutions, accounts payable to customers arising from securities business, derivative financial assets, derivative financial liabilities, bank and other borrowings, short-term financing note payable, financial assets sold under repurchase agreements, bonds payable and financial guarantee. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (interest rate risk, currency risk and other price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. Market risk (i) Interest rate risk The Group is exposed to fair value interest rate risk in relation to loans to customers arising from margin financing business, fixed-rate entrusted loans, financial assets held under resale agreements, fixed-rate time deposits, placement from other financial institutions, fixed-rate bank and other borrowings, short-term financing note payable, financial assets sold under repurchase agreements and bonds payable (see Notes 30, 31, 33, 35, 36, 40, 41, 42 and 43 for details). The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances held on behalf of customers, bank balances and bank and other borrowings (see Notes 34, 35 and 40 for details). 112 6. FINANCIAL INSTRUMENTS (Continued) (b) Financial risk management objectives and policies (Continued) Market risk (Continued) (i) Interest rate risk (Continued) The Group currently does not have an interest rate risk hedging policy as the management considers the Group is not exposed to significant interest rate risk. The management will continue to monitor interest rate risk exposure and consider hedging against it should the need arise. The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. Sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments, comprising variable-rate bank balances held on behalf of customers, bank balances and bank and other borrowings at the end of the reporting period. The analysis is prepared assuming the balances outstanding at the end of the reporting period were outstanding for the whole year. A 30 basis points (2014: 30 basis points) increase or decrease represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 30 basis points (2014: 30 basis points) higher/lower and all other variables were held constant, the Group’s post-tax profit for the year ended December 31, 2015 would have increased/decreased by Rmb69,169,000 (2014 (restated): Rmb38,370,000). This was mainly attributable to the Group’s exposure to interest rates on its variable-rate bank balances. (ii) Currency risk Several subsidiaries of the Group have foreign currency denominated monetary assets and liabilities, which expose the Group to foreign currency risk. The Group is mainly exposed to HKD and USD relative to Rmb. The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities at the end of the reporting date are as follows: Hong Kong dollar (“HKD”) United States dollar (“USD”) Assets Liabilities 12/31/2015 12/31/2014 12/31/2015 12/31/2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 36,788 158,445 18,352 71,693 22,226 120,058 12,490 42,862 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 113 6. FINANCIAL INSTRUMENTS (Continued) (b) Financial risk management objectives and policies (Continued) Market risk (Continued) (ii) Currency risk (Continued) Sensitivity analysis The Group did not maintain significant assets and liabilities denominated in the currency other than the Group’s functional currencies, the impact of the change in foreign exchange rate would not have significant impact to the Group and the sensitivity analysis on the increase and decease of the foreign exchange rate is not presented, accordingly. (iii) Other price risk The Group is exposed to equity and debt security price risk in relation to its held for trading and AFS listed investments. The Group currently does not have a price risk hedging policy and the management will continue to monitor price risk exposure and consider hedging against it should the need arise. Sensitivity analysis The sensitivity analyses below have been determined based on the exposure to equity and debt security price risks at the reporting date. If the prices of the respective equity and debt instruments had been 5% (2014: 5%) higher/lower, • post-tax profit for the year ended December 31, 2015 would have increased/decreased by Rmb141,046,000 (2014: Rmb79,678,000) as a result of the changes in fair value of held for trading investments; and • investment valuation reserve would have increased by Rmb98,400,000 (2014: Rmb28,228,000) for the Group as a result of the changes in fair value of AFS listed investments, or the investment revaluation reserve would decrease by the same amount and the Group would consider any potential impairment effect, if necessary. • post-tax profit for the year ended December 31, 2015 would have net decreased/increased by Rmb74,000 (2014: nil) as a result of the changes in fair value of derivative financial assets and liabilities. 114 6. FINANCIAL INSTRUMENTS (Continued) (b) Financial risk management objectives and policies (Continued) Credit risk As at December 31, 2015, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties provided by the Group is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position and the amount of contingent liability in relation to financial guarantee issued by the Group as disclosed in Note 53. The Group reviews the recoverable amount of each individual trade debt and entrusted loan receivables at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced. The Group has no credit period granted to its trade customers of toll operation businesses. All the Group’s trade receivable balance for toll operation business are toll receivables from the government-operated organisation. The Group also provides clients with margin financing business, and have financial assets held under resale agreements which are secured by clients’ securities or deposits held as collateral. In respect of the margin financing and securities lending business of the Group’s securities operation, which was carried out by Zheshang Securities Co., Ltd. (“Zheshang Securities”), Zheshang Securities has appointed a group of authorised persons who are charged with the responsibility of determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Each client has a maximum credit limit based on the quality of collateral held and the financial background of the client. In addition, Zheshang Securities reviews the recoverable amount of each individual loan at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. Margin calls are made when the trades of margin clients exceed their respective limits. Any such excess is required to be made good within the next trading day. Failure to meet margin calls will result in the liquidation of the customers’ position. Zheshang Securities seeks to maintain strict control over its outstanding receivables. It will also adhere to the Group’s policies and procedures to conduct periodic credit assessment and manage any concentration in the following exposures and perform regular reporting to the management: (i) exposures to a particular client/counterparty or group of related clients/counterparties; and (ii) exposures to a particular investment product. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 115 6. FINANCIAL INSTRUMENTS (Continued) (b) Financial risk management objectives and policies (Continued) Credit risk (Continued) The Investment Committee of Zheshang Securities is also responsible to the credit risk arising from its proprietary trading operation, including the investments in AFS investments and held for trading investments. The Investment Committee assesses the financial performance of the issuers to ensure that the issuers can satisfy the repayment of the principal and interest as they fall due. It has set portfolio size limits and single issuer limits to limit Zheshang Securities’ exposure to the credit risk. Zheshang Securities also monitors the credit rating and market news of the issuers for any indication of potential credit deterioration. The credit risk on liquid funds is limited because the counterparties are state-owned banks or banks with high credit ratings assigned by international credit-rating agencies. As at December 31, 2015, other than the concentration of credit risk on trade receivables, entrusted loan receivables and financial guarantee contract amounting to Rmb151,083,000 (2014 (restated): Rmb136,158,000), Rmb634,436,000 (2014: Rmb542,739,000), and Rmb1,021,374,000 (2014: Rmb1,076,910,000) as disclosed in Notes 29, 31 and 53, respectively, of which these balances were only limited and concentrated to a few counterparties, the Group does not have any other significant concentration of credit risk. There are also no concentration risks on its margin financing business and financial assets held under resale agreements as at December 31, 2015 and December 31 2014 respectively as the Group has a large number of clients who are dispersed. The Group’s concentration of credit risk by geographical location is mainly in the PRC. Liquidity risk Most of the bank balances and cash at December 31, 2015 and 2014 were denominated in Rmb which is not a freely convertible currency in the international market. The exchange rate of Rmb is regulated by the PRC government and the remittance of these Rmb funds out of the PRC is subject to foreign exchange controls imposed by the PRC government. The Group closely monitors its cash position resulting from its operations and maintains a level of cash and cash equivalents deemed adequate by the management to enable the Group to meet in full its financial obligations as they fall due for the foreseeable future. 116 6. FINANCIAL INSTRUMENTS (Continued) (b) Financial risk management objectives and policies (Continued) Liquidity risk (Continued) The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Liquidity tables 2015 Non-derivative financial Liabilities Placements from other financial institutions Accounts payable to customers arising from securities business Trade payables Other payables Bank and other borrowings – fixed rate – variable rate Short-term financing note payable Financial assets sold under repurchase agreements Bonds payable Financial guarantee 2014 (Restated) Non-derivative financial Liabilities Weighted On demand average or Less than 3 months- interest rate % 3 months Rmb’000 1 year Rmb’000 1-3 years Rmb’000 3-5 years Rmb’000 +5 years Rmb’000 6.30 200,414 – – – 50,000 1,537,881 240,893 – – – – – 611,780 509,255 – 27,009,641 908,616 176,800 21,664 115,321 620,739 – – – 4.40 4.86 3.13 4.11 5.51 – 4,421,097 510,106 536,649 145,500 3,399,945 5,229,723 3,098,022 1,021,374 – – – – – – – – – – – – – 296,738 344,905 – – – – – – Total undiscounted Carrying amount at cash flows 31/12/2015 Rmb’000 Rmb’000 200,414 200,000 27,009,641 27,009,641 908,616 226,800 908,616 226,800 2,171,325 1,507,112 620,739 2,047,951 1,320,000 616,100 5,467,852 5,385,380 11,873,190 10,600,000 1,021,374 – 34,641,166 5,738,825 6,887,407 3,394,760 344,905 51,007,063 48,314,488 Placements from other financial institutions 6.40 1,830,181 154,423 Accounts payable to customers arising from securities business Trade payables Other payables Bank and other borrowings – fixed rate – variable rate Short-term financing note payable Financial assets sold under repurchase agreements Bonds payable Financial guarantee – – – 5.25 5.80 6.14 6.27 6.13 – 16,545,146 996,651 134,530 8,030 152,623 891,566 6,331,969 18,400 1,076,910 – – – – – – – – – – – – – – – 1,984,604 1,940,000 16,545,146 16,545,146 996,651 134,530 996,651 134,530 639,372 620,000 – – – 631,342 1,081,714 1,120,719 398,704 753,557 3,507,317 3,030,000 – – – – 55,200 1,287,704 – – – – – – – – – – 891,566 6,331,969 1,361,304 1,076,910 883,570 6,299,057 1,200,000 – 27,986,006 1,922,679 2,408,423 398,704 753,557 33,469,369 31,648,954 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 117 6. FINANCIAL INSTRUMENTS (Continued) (b) Financial risk management objectives and policies (Continued) Liquidity risk (Continued) Liquidity tables (Continued) The amounts included above for financial guarantee contracts are the maximum amounts the Group could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee. Based on expectations at the end of the reporting period, the Group considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses. The amounts included above for variable interest rate instruments for non-derivative financial liabilities are subject to change if changes in variable interest rates differ to those estimates of the interest rates determined at the end of the reporting period. As at December 31, 2015 and 2014, the Group has not entered into any master netting arrangements with counterparties. The collaterals of which, such as financial assets held under resale agreement, held-for-trading investments, loans to customers arising from margin financing business, placements from other financial institutions and financial assets sold under repurchase agreements, etc., are disclosed in the corresponding notes, which are generally not on the net basis in financial position. However, the risk exposure associated with favourable contracts is significantly reduced by the collaterals received by the Group which could be recovered to the extent if a default occurs, in respect of the outstanding receivable amounts from the counterparty. The analysis above does not include the cash flow of derivatives, which do not have material impact on the cash flow of the group or the company. (c) Fair value measurements of financial instruments This note provides information about how the Group determines fair values of various financial assets and financial liabilities. Fair value measurements recognised in the statement of financial position that are measured at fair value on a recurring basis Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used). 118 6. FINANCIAL INSTRUMENTS (Continued) (c) Fair value measurements of financial instruments (Continued) Financial Assets Classified as 31/12/2015 Rmb’000 31/12/2014 Rmb’000 hierarchy valuation technique(s) and key input(s) input(s) inputs to fair value Fair value as at Fair value as at Fair value Basis of fair value measurement/ unobservable unobservable Significant Relationship of 1) Equity investments listed in Held for trading Assets – 221,699 Assets – 89,877 Level 1 Quoted bid prices in an active market. exchange investments 2) Equity securities listed in Available-for-sale Assets – 237,260 Assets – 8,761 exchange (inactive due to low investments Assets – 202,441 N/A Level 2 Level 3 transaction volume) N/A N/A N/A N/A Recent transaction prices.. Discounted cash flow. The fair value is Discounted for lack The higher the determined with reference to the quoted of marketability. discount, the lower market prices with an adjustment of discount the fair value. for lack of marketability. 3) Listed open-ended equity funds Held for trading Assets – 191,967 Assets – 97,718 Level 1 Quoted bid prices in an active market. investments 4) Fund listed in exchange Available-for-sale Assets – 55,982 Assets – 35,233 Level 1 Quoted bid prices in an active market. 5) Debt investments listed in Held for trading Assets – Assets – 621,813 Level 1 Quoted bid prices in an active market. investments N/A N/A N/A N/A N/A N/A exchange and debt investment investments 1,170,952 in interbank market Available-for-sale N/A Assets – 122,000 investments Held for trading Assets – Assets – 1,315,332 Level 2 Discounted cash flow. Future cash flows are N/A N/A investments 2,176,606 estimated based on applying the interest yield curves of different types of bonds as the key parameter. Available-for-sale Assets – 50,000 N/A Level 2 Discounted cash flow. Future cash flows are N/A N/A investments estimated based on applying the interest yield curves of different types of bonds as the key parameter. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 119 6. FINANCIAL INSTRUMENTS (Continued) (c) Fair value measurements of financial instruments (Continued) Fair value as at Fair value as at Fair value Basis of fair value measurement/ unobservable unobservable Financial Assets Classified as 31/12/2015 Rmb’000 31/12/2014 Rmb’000 hierarchy valuation technique(s) and key input(s) input(s) inputs to fair value 6) Investments in structured products Available-for-sale Assets- 544,597 Assets – 246,053 Level 2 Shares of the net assets of the products, N/A N/A Significant Relationship of investments determined with reference to the net asset value of the products, calculated by observable (quoted) prices of underlying investment portfolio and adjustments of related expenses. Assets-141,418 Assets – 251,191 Level 3 Discounted cash flow. Future cash flows are Actual yield of The higher the actual estimated based on expected applicable yield the underlying yield, the higher the of the underlying investment portfolio and investment portfolio fair value adjustments of related expenses. and the discount rate 7) Investments in trust products Available-for-sale Assets – 10,000 Assets – 89,515 Level 3 Discounted cash flow. Future cash flows are Actual yield of The higher the actual investments estimated based on expected applicable yield the underlying yield, the higher the of the underlying investment portfolio and investment portfolio fair value adjustments of related expenses. and the discount 8) Unlisted equity investment at fair Available-for-sale Assets-1,382,313 N/A Level 2 Calculated based on the fair value of the rate N/A N/A value investments underlying investments which are listed equity securities, after making adjustments of related expenses. 120 6. FINANCIAL INSTRUMENTS (Continued) (c) Fair value measurements of financial instruments (Continued) As at December 31, 2015 Held for trading investments – Equity securities a. Manufacturing b. Financial services c. information technology service d. Transportation, storage and portal service – Open-ended fund – Bonds Sub-total Available-for-sale investments – Equity a. Manufacturing b. Information technology service c. Financial services d. Transportation, storage and postal service e. Construction f. Energy service g. Wholesaling h. Agriculture, forestry, fishing and Animal husbandry i. Others – Fund – Debt investments – Structured products – Trust products Sub-total Level 1 Level 2 Level 3 Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 99,732 45,814 21,284 54,869 221,699 191,967 – – – – – – 1,170,952 2,176,606 1,584,618 2,176,606 – – – – – – – – – – 55,982 – – – 104,309 58,688 3,919 2,305 18,837 3,108 9,210 6,706 1,412,491 1,619,573 – 50,000 544,597 – – – – – – – – – – 202,441 – – – – – – – 99,732 45,814 21,284 54,869 221,699 191,967 3,347,558 3,761,224 104,309 261,129 3,919 2,305 18,837 3,108 9,210 6,706 1,412,491 202,441 1,822,014 – – 141,418 10,000 55,982 50,000 686,015 10,000 55,982 2,214,170 353,859 2,624,011 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 121 6. FINANCIAL INSTRUMENTS (Continued) (c) Fair value measurements of financial instruments (Continued) As at December 31, 2014 Held for trading investments – Equity securities a. Manufacturing b. Financial services c. Energy and water services d. Mining – Open-ended fund – Bonds Sub-total Available-for-sale investments – Equity a. Manufacturing b. Information technology service – Fund – Corporate bonds – Structured products – Trust products Sub-total Level 1 Level 2 Level 3 Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 14,915 73,395 1,543 24 89,877 97,718 621,813 809,408 – – – 35,233 122,000 – – – – – – 1,315,332 1,315,332 1,763 6,998 8,761 – – – – – – – – – – – – – – – – – 246,053 – 157,233 254,814 251,191 89,515 340,706 14,915 73,395 1,543 24 89,877 97,718 1,937,145 2,124,740 1,763 6,998 8,761 35,233 122,000 497,244 89,515 752,753 122 6. FINANCIAL INSTRUMENTS (Continued) (c) Fair value measurements of financial instruments (Continued) The following table represents the changes in Level 3 available-for-sale investments during the year ended December 31, 2015 and 2014. For the year ended December 31, 2015 Structured Trust Restricted products products shares Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 At beginning of the year Addition Disposal Total loss recognised in other comprehensive income Transfer out of Level 3 At end of the year For the year ended December 31, 2014 251,191 20,080 (20,000) (21,337) (88,516) 141,418 At beginning of the year Addition Total gain recognised in other comprehensive income At end of the year 89,515 20,000 (93,000) (6,515) – – 200,000 340,706 240,080 – (113,000) 2,441 – 10,000 202,441 Structured products Rmb’000 74,402 154,870 21,919 251,191 Trust products Rmb’000 41,514 42,000 6,001 89,515 (25,411) (88,516) 353,859 Total Rmb’000 115,916 196,870 27,920 340,706 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 123 7. CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year. The capital structure of the Group consists of net debt, which includes the borrowings disclosed in Notes 40, 41, 42 and 43, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital, reserves and retained profits. The directors of the Company review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of dividends and new share issues as well as the issue of new debt or the redemption of existing debt. 8. SEGMENT INFORMATION Information reported to the Chief Executive Officer of the Company, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on types of goods or services delivered or provided. Specifically, the Group’s reportable and operating segments under HKFRS 8 are as follows: (i) Toll operation – the operation and management of high grade roads and the collection of the expressway tolls. (ii) Toll related operation – (1) service area and advertising businesses, including the sale of food, restaurant operation, automobile servicing, operation of petrol stations, design and rental of advertising billboards at toll plazas, and (2) the toll road maintenance service and others. (iii) Securities operation – the securities broking, margin financing and securities lending, securities underwriting and sponsorship, asset management, advisory services and proprietary trading. (iv) Other operation – properties development, hotel operation and other ancillary services. 124 8. SEGMENT INFORMATION (Continued) Segment revenue and results The following is an analysis of the Group’s revenue and results by reportable and operating segment. For the year ended December 31, 2015 Toll Toll related Securities Total operation operation operation Others Segment Elimination Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Revenue External sales 4,961,928 1,842,417 5,660,628 42,421 12,507,394 – 12,507,394 Inter-segment sales – 4,674 – – 4,674 (4,674) – Total Segment profit 4,961,928 1,847,091 5,660,628 42,421 12,512,068 (4,674) 12,507,394 2,105,911 99,512 1,851,706 (27,349) 4,029,780 4,029,780 For the year ended December 31, 2014 (Restated) Toll Toll related Securities Total operation operation operation Others Segment Elimination Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Revenue External sales 4,662,897 2,379,051 2,418,360 Inter-segment sales – 4,631 – 4,662,897 2,383,682 2,418,360 Total Segment profit – – – 9,460,308 – 9,460,308 4,631 (4,631) – 9,464,939 (4,631) 9,460,308 1,833,289 153,607 753,028 6,048 2,745,972 2,745,972 The accounting policies of the operating segments are the same as the Group’s accounting policies described in Note 4. Segment profit represents the profit after tax of each operating segment. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment. Inter-segment sales are charged at prevailing market rates. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 125 8. SEGMENT INFORMATION (Continued) Segment assets and liabilities The following is an analysis of the Group’s assets and liabilities by reportable and operating segment: Segment assets Segment liabilities 12/31/2015 12/31/2014 01/01/2014 12/31/2015 12/31/2014 01/01/2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Restated) (Restated) (Restated) (Restated) 16,112,291 17,632,061 18,233,801 (4,806,764) (5,188,933) (5,767,114) 1,069,499 1,291,913 1,172,423 (164,374) (253,992) (234,708) 55,593,321 35,163,763 15,980,470 (46,729,548) (28,187,371) (10,102,539) 1,029,785 812,452 473,757 (192,428) (228,290) (70,878) Toll operation Toll related operation Securities operation Others Total segment assets (liabilities) 73,804,896 54,900,189 35,860,451 (51,893,114) (33,858,586) (16,175,239) Goodwill 86,867 86,867 86,867 – – – Consolidated assets (liabilities) 73,891,763 54,987,056 35,947,318 (51,893,114) (33,858,586) (16,175,239) Segment assets and segment liabilities represent the assets and liabilities of the subsidiaries operating in the respective reportable and operating segment. Other segment information Amounts included in the measure of segment profit or segment assets: For the year ended December 31, 2015 Toll Toll related Securities operation operation operation Others Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Income tax expense Interest income Interest expense Interests in associates Interest in a joint venture 699,845 53,529 182,406 28,622 6,830 – – 400,180 275,600 – 688,405 1,813 448,621 42,309 – – 21 1,468 141,048 – Share of profit (loss) of associates – 60,006 (1,609) (10,108) Share of loss of a joint venture Gain on fair value changes on held for trading investments Additions to non-current assets (Note) Depreciation and amortisation Loss on disposal of property, plant and equipment (25,067) 6,732 158,218 1,128,185 – – 47,367 41,460 – 413,554 127,686 77,517 – – 190,319 13,873 1,261,035 2,371 4,124 251 – 6,746 1,416,872 62,193 632,495 583,537 275,600 48,289 (25,067) 420,286 523,590 126 8. SEGMENT INFORMATION (Continued) Other segment information (Continued) For the year ended December 31, 2014 (Restated) Toll Toll related Securities operation operation operation Others Total Income tax expense Interest income Interest expense Interests in associates Interest in a joint venture Rmb’000 Rmb’000 623,740 49,375 212,706 23,420 8,002 – – 534,893 300,667 – Rmb’000 258,308 2,547 60,194 31,818 – Share of profit (loss) of associates – 67,035 (8,063) Share of loss of a joint venture (33,277) Gain on fair value changes on held for trading investments Additions to non-current assets (Note) Depreciation and amortisation Loss on disposal of property, plant and equipment – – 25,341 45,753 – 262,388 746,439 77,404 15,864 480,216 1,109,593 3,499 9,459 458 Rmb’000 Rmb’000 – – – 61,155 – 6,048 – – 905,468 59,924 272,900 627,866 300,667 65,020 (33,277) 278,252 260,495 1,512,491 – – 1,232,750 13,416 Note: Non-current assets excluded financial instruments. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20158. SEGMENT INFORMATION (Continued) Revenue from major services An analysis of the Group’s revenue, net of discounts and taxes, for the year is as follows: Toll operation revenue Service area businesses revenue (mainly sales of goods) Advertising business revenue Toll road maintenance service Commission and fee income from securities operation Interest income from securities operation Hotel and catering revenue 2015 ANNUAL REPORT 127 Year ended 12/31/2015 Rmb’000 4,961,928 1,741,134 41,478 59,805 3,932,791 1,727,837 42,421 Year ended 12/31/2014 Rmb’000 (Restated) 4,662,897 2,213,770 83,297 81,984 1,679,244 739,116 – 12,507,394 9,460,308 Geographical information The Group’s operations are located in the PRC. All non-current assets of the Group are located in the PRC. All of the Group’s revenue from external customers is attributed to the group entities’ country of domicile (i.e., the PRC). Information about major customers During the years ended December 31, 2015 and 2014, there are no individual customer with sales over 10% of the total sales of the Group. 9. SECURITIES INVESTMENT GAINS Gain on fair value changes on held for trading investments Cumulative gain reclassified from equity on disposal of AFS investments Interest income from AFS investments Gain on fair value changes on derivatives financial instruments Year ended 12/31/2015 Rmb’000 420,286 65,826 69,419 28,583 584,114 Year ended 12/31/2014 Rmb’000 278,252 – – – 278,252 128 10. OTHER INCOME Interest income on bank balances, entrusted loan receivables and financial products investment Rental income (Note) Handling fee income Towing income Gain on disposal of an associate Gain on disposal of a subsidiary Exchange (loss) gain, net Loss on commodity trading, net Gain on disposal of part of expressway operating rights Others Year ended 12/31/2015 Rmb’000 Year ended 12/31/2014 Rmb’000 (Restated) 62,193 123,734 2,398 8,321 916 879 (3,330) (17,973) 52,500 66,280 295,918 59,924 122,265 2,142 9,372 29,890 – 1,173 (20,785) – 58,263 262,244 Note: Rental income included contingent rent of approximately Rmb30,475,000 (2014: Rmb44,552,000) during the year. 11. FINANCE COSTS Bank and other borrowings Short-term loan note Bonds payable Total borrowing costs Less: Amount capitalised in the cost of qualifying assets (Note) Year ended 12/31/2015 Rmb’000 187,127 64,390 384,231 635,748 (3,253) 632,495 Year ended 12/31/2014 Rmb’000 (Restated) 221,300 43,543 15,425 280,268 (7,368) 272,900 Note: Borrowing costs capitalised during the year ended 31 December 2015 includes all the interest expenses, net of interest income, arising from the specific borrowings to the expenditure on qualifying assets. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 12. PROFIT BEFORE TAX The Group’s profit before tax has been arrived at after charging (crediting): Depreciation of property, plant and equipment Release of prepaid lease payments Amortisation of expressway operating rights (included in operating costs) Amortisation of other intangible assets (included in operating costs) Total depreciation and amortisation Staff costs (including directors and supervisors): – Wages, salaries and bonuses – Pension scheme contributions Auditors’ remuneration Allowance for loans to customers arising from margin financing business Allowance for trade receivables Allowance (reversal of) for other receivables Allowance for financial assets held under resale agreements Loss on disposal of property, plant and equipment Loss on disposal of prepaid lease payment Gain on disposal of part of expressway operating rights Cost of inventories recognised as an expense (Reversal of) impairment loss on available-for-sale investments Allowance for write-down of inventories 13. INCOME TAX EXPENSE Current tax: PRC Enterprise Income Tax Deferred tax (Note 45) 2015 ANNUAL REPORT 129 Year ended 12/31/2015 Rmb’000 243,599 2,004 991,800 23,632 Year ended 12/31/2014 Rmb’000 (Restated) 222,154 2,155 988,148 20,293 1,261,035 1,232,750 1,804,299 99,226 1,903,525 7,810 36,182 340 191 44,836 6,746 1,850 (52,500) 1,045,597 81,161 1,126,758 6,933 10,911 280 (1,436) – 13,416 – – 1,547,565 2,037,575 (58) – 6,554 830 Year ended 12/31/2015 Rmb’000 1,550,078 (133,206) 1,416,872 Year ended 12/31/2014 Rmb’000 (Restated) 995,619 (90,151) 905,468 130 13. INCOME TAX EXPENSE (Continued) Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25%. Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit. No Hong Kong Profits Tax has been provided as the Group has no estimated assessable profit for both years. The tax charge for the year can be reconciled to the profit before tax per the consolidated statement of profit or loss and other comprehensive income as follows: Profit before tax Tax at the PRC enterprise income tax rate of 25% (2014:25%) Tax effect of share of profit of associates Tax effect of share of loss of a joint venture Utilisation of unused tax loss previously not recognised Tax effect of expenses not deductible for tax purposes Tax effect of realised gain on disposal of an associate and a subsidiary Tax charge for the year 14. OTHER COMPREHENSIVE INCOME Tax effect relating to other comprehensive income as follows: Year ended 12/31/2015 Rmb’000 5,446,652 1,361,663 (12,072) 6,267 (15,135) 65,322 10,827 1,416,872 Year ended 12/31/2014 Rmb’000 (Restated) 3,651,440 912,860 (16,255) 8,319 (22,201) 22,745 – 905,468 Year ended 12/31/2015 Year ended 12/31/2014 Before- income- Before- Net-of- Net-of- income- tax Tax tax tax Tax tax amount impact amount amount impact amount Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Fair value gain on AFS financial assets arising during the year 137,431 (34,358) 103,073 68,301 (17,075) 51,226 Reclassification adjustments for the cumulative gain included in profit or loss upon disposal of AFS financial assets (65,826) 16,457 (49,369) Share of exchange differences of a subsidiary 367 – 367 – – – – – – Total 71,972 (17,901) 54,071 68,301 (17,075) 51,226 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 131 ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ’ 0 0 0 b m R ) i e t o n ( ) i e t o n ( ) i e t o n ( ) v e t o n ( ) v i e t o n ( ) i i i e t o n ( ) v i e t o n ( ) v i e t o n ( ) i i i e t o n ( ) i i i e t o n ( ) i i e t o n ( ) i e t o n ( ) i v e t o n ( 2 4 6 , 1 1 9 0 , 1 0 7 3 0 8 , 2 8 9 4 , 1 8 5 9 7 5 3 1 5 , 2 5 – – 5 6 – – 6 5 – – 5 6 – – 6 5 – – 5 – – – – 5 – – 5 – – – – 5 – – 5 3 – – 3 6 – – 6 4 – – 4 5 – – 5 – – – – – – – – 1 – – 1 – – – – 4 5 – – 4 5 6 – – 6 – – – – – – 1 0 2 1 0 2 – – 0 0 2 0 0 2 3 – – 3 – – – – – – – – 5 – – 5 – – – – 4 – – 4 7 – – 7 – – – – 6 – – 6 – – – – 7 – – 7 2 – – 2 7 2 2 – 0 1 7 3 2 0 6 4 2 8 1 9 1 1 6 6 4 7 4 4 5 0 2 8 4 5 – – – – 8 7 4 6 2 3 0 2 4 2 8 0 6 4 6 9 2 9 1 5 7 7 7 9 1 1 1 7 0 2 8 2 9 3 9 2 0 8 4 9 1 2 9 7 d n a s e c n a w o l l a , s e i r a a S l d n k i n i s t i f e n e b l e b a y a p d n a i d a p s e s u n o B s n o i t u b i r t n o c e m e h c s i n o s n e P 5 1 0 2 d n a s e c n a w o l l a , s e i r a a S l d n k i n i s t i f e n e b l e b a y a p d n a i d a p s e s u n o B s n o i t u b i r t n o c e m e h c s i n o s n e P s t n e m u o m e l l a t o T s t n e m u o m e l l a t o T 4 1 0 2 . p u o r G e h t d n a y n a p m o C e h t f o s r i a f f a e h t f o t n e m e g a n a m e h t h t i w n o i t c e n n o c n i s e c i v r e s r i e h t r o f l i y n a m e r e w e v o b a n w o h s s t n e m u o m e l e h T . s r o t c e r i d e v i t u c e x E . e v i t u c e x E i f e h C e h t s a r e h y b d e r e d n e r s e c i v r e s e s o h t e d u c n l i e v o b a d e s o c s d l i s t n e m u o m e l r e h d n a y n a p m o C e h t f o e v i t u c e x E i f e h C e h t o s a l s i u h n a J i o u L . s M . y n a p m o C e h t f o s r o s i v r e p u s s a s e c i v r e s r i e h t r o f l i y n a m e r e w e v o b a n w o h s s t n e m u o m e l e h T . s r o s i v r e p u S . 4 1 0 2 , 9 2 r e b m e c e D n o d e t i n o p p A . 4 1 0 2 , 9 2 r e b m e c e D n o d e n g s e R i . 4 1 0 2 , 8 l i r p A n o d e n g s e R i . 5 1 0 2 , 1 l y u J n o d e t i n o p p A . 5 1 0 2 , 0 3 e n u J n o d e r i t e R . y n a p m o C e h t f o s r o t c e r i d s a s e c i v r e s r i e h t r o f l i y n a m e r e w e v o b a n w o h s s t n e m u o m e l e h T . s r o t c e r i d e v i t u c e x e - n o n t n e d n e p e d n I i . s e i r a d s b u s i s t i r o y n a p m o C e h t f o s r o t c e r i d s a s e c i v r e s r i e h t r o f l i y n a m e r e w e v o b a n w o h s s t n e m u o m e l e h T . s r o t c e r i d e v i t u c e x e - n o N @ ^ * # : s e t o N ) i ( ) i i ( ) i i i ( ) v i ( ) v ( ) i v ( s e s i r p m o c i h c h w , y n a p m o C e h t f o e e t t i m m o C n o i t a r e n u m e R e h t y b i d e n m r e t e d e r a d n a d e t a r - e c n a m r o f r e p e r a s r o s i v r e p u s d n a s r o t c e r i d o t i d a p s e s u n o B s r o s i v r e p u s r o s r o t c e r i d y n a o t i d a p s a w e v i t n e c n i o n d n a s t n e m u o m e l y n a i d e v a w s r o s i v r e p u s r o s r o t c e r i d o N . s r o t c e r i d e v i t u c e x e - n o n t n e d n e p e d n i e e r h t s r o s i v r e p u s t s a p r o s r o t c e r i d t s a p , s r o s i v r e p u s , s r o t c e r i d y n a o t i d a p s a w e c i f f o f o s s o l r o f n o i t a s n e p m o c o n d n a y n a p m o C e h t n o i j o t t n e m e c u d n i n a s a . s r a e y h t o b g n i r u d l a t o T # a u h u X i # i g n a x e h Z # i a h g n X i # i n m X i # a u h o u G # i g n m g n o Y # g n a i l i u H # g n e h s a H i * g n e h s n u J * g n a s T i a W * i e w - r e K * n u J ^ g n e h s g n o Z ^ i l i e W i ^ g n p n a J i ^ g n e m n e B ^ e i j g n o D @ g n a k u H i @ o a T @ u h n a J i @ g n a h z o a X i g n a h Z u F u L i h S g n a h Z u W o a Y u L i g n a h Z e e L i e P u o h Z i L g n a W u o h Z i a D g n a W g n D i g n e h C o u L n a h Z S T N E M U L O M E ’ S T N E M E G A N A M R O N E S D N A I ’ I S R O S V R E P U S , ’ S R O T C E R D I . 5 1 : s w o l l o f s a e r a s r o s i v r e p u s ) 5 : 4 1 0 2 ( 7 d n a s r o t c e r i d ) 2 1 : 4 1 0 2 ( 0 1 e h t f o h c a e o t l e b a y a p r o i d a p s t n e m u o m e l e h T 132 15. DIRECTORS’, SUPERVISORS’ AND SENIOR MANAGEMENTS’ EMOLUMENTS (Continued) The emoluments paid or payable to each of the 8 (2014: 8) senior managements are as follows: Ding Zhang Fang Huikang Jingzhong Zhexing Zhu Yimin Wang Zhan Dehua Huagang Zheng Hui Zhang Xiuhua Cheng Tao Wu Junyi Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (note i) (note i) (note ii and iv) (note iii) 2015 Salaries, allowances and benefits in kind Bonuses paid and payable Pension scheme contributions Total emoluments 2014 Salaries, allowances and benefits in kind Bonuses paid and payable Pension scheme contributions Total emoluments 223 218 10 451 – – – – 445 218 20 683 456 182 19 657 445 218 20 683 456 182 19 657 223 – 10 233 – – – – 445 188 20 653 345 – 14 359 445 218 20 683 456 182 19 657 445 215 20 680 439 54 19 512 445 58 20 523 439 54 19 512 – – – – 78 – 3 81 – – – – – 230 – 230 3,116 1,333 140 4,589 2,669 884 112 3,665 Notes: (i) (ii) (iii) (iv) Appointed on July 1, 2015. Appointed on October 28, 2014. Resigned on March 17, 2014. Mr. Cheng Tao is appointed executive director of the Company on July 1, 2015. As such, his emoluments for those services rendered by him as the senior management in 2015 was included in the director’s and supervisor’s emoluments. The emoluments of each of the senior managements were below HK$1,000,000 (equivalent to Rmb837,800 (2014: Rmb788,900)) in both years. Bonuses paid to senior managements are performance-rated and are determined by the board of directors of the Company. No senior management waived any emoluments and no incentive was paid to any senior management as an inducement to join the Company and no compensation for loss of office was paid to any senior management, past senior management during both years. Bonuses are determined by reference to the individual performance of the senior managements. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 201516. EMPLOYEES’ EMOLUMENTS The emoluments of the five highest paid individuals in the Group are as follows: Salaries, allowances and benefits in kind Bonuses paid and payable (Note) Pension scheme contributions 2015 ANNUAL REPORT 133 Year ended 12/31/2015 Rmb’000 3,040 14,815 116 17,971 Year ended 12/31/2014 Rmb’000 5,539 10,875 101 16,515 Note: The bonuses paid and payable are determined by reference to the performance of the relevant business of the Group for the years ended December 31, 2015 and 2014. No emoluments nor incentive was waived as an inducement to join the Company and no compensation for loss of office was paid to any five highest paid individuals in the Group during both years. Bonuses are determined by reference to the individual performance of the five highest paid individuals in the Group. The five individuals with the highest emoluments in the Group during the year included five (2014: five) non-director employees. Their emoluments are within the following bands: HK$3,000,001 to HK$3,500,000 (equivalent to Rmb2,513,401 (2014: Rmb2,366,701) to Rmb2,932,300 (2014: Rmb2,761,150)) HK$3,500,001 to HK$4,000,000 (equivalent to Rmb 2,932,301 (2014: Rmb2,761,001) to Rmb3,351,200 (2014: Rmb3,156,000)) HK$4,500,001 to HK$5,000,000 (equivalent to Rmb3,770,101 (2014: Rmb3,550,001) to Rmb4,189,000 (2014: Rmb3,945,000)) HK$5,500,001 to HK$6,000,000 (equivalent to Rmb4,607,901 (2014: Rmb4,339,001) to Rmb5,026,800 (2014: Rmb4,733,000)) No. of individuals Year ended 12/31/2015 Year ended 12/31/2014 1 2 1 1 – 4 – 1 134 17. DIVIDENDS Dividends recognised as distribution during the year: 2015 Interim – Rmb6 cents (2014: 2014 interim Rmb6 cents) per share 2014 Final – Rmb26.5 cents (2014: 2013 Final Rmb25 cents) per share Year ended 12/31/2015 Rmb’000 Year ended 12/31/2014 Rmb’000 (Restated) 260,587 1,150,925 1,411,512 260,587 1,085,779 1,346,366 The final dividend of Rmb28 cents per share in respect of the year ended December 31, 2015 (2014: final dividend of Rmb26.5 cents per share in respect of the year ended December 31, 2014) in the total amount of Rmb1,216,072,000(2014: Rmb1,150,925,000) has been proposed by the directors and is subject to approval by the shareholders in the annual general meeting. 18. EARNINGS PER SHARE The calculation of the basic earnings per share is based on profit for the year attributable to owners of the Company of Rmb2,989,680,000(2014 (Restated): Rmb2,264,994,000) and the 4,343,114,500 (2014: 4,343,114,500) ordinary shares in issue during the year. Diluted earnings per share presented is the same as basic earnings per share as there were no potential ordinary shares outstanding for the years ended December 31, 2015 and 2014. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 135 19. PROPERTY, PLANT AND EQUIPMENT Leasehold land and buildings Rmb’000 Communication Ancillary and signaling Motor Machinery and Construction Hotel Rmb’000 facilities Rmb’000 equipment Rmb’000 vehicles Rmb’000 equipment in progress Total Rmb’000 Rmb’000 Rmb’000 COST At January 1, 2014 (Originally Stated) 638,239 1,591,310 549,543 1,232,092 At January 1, 2014 (Originally Stated) 203,781 Merger accounting restatement At January 1, 2014 (Restated) Additions Transfer Disposals At December 31, 2014 (Restated) Additions Transfer Transfer to inventory Disposals Disposal of a subsidiary (Note 49) At December 31, 2015 DEPRECIATION Merger accounting restatement At January 1, 2014 (Restated) Provided for the year Disposals At December 31, 2014 (Restated) Provided for the year Disposals Disposal of a subsidiary (Note 49) At December 31, 2015 CARRYING VALUES At December 31, 2015 – 638,239 244,574 10,145 – 892,958 17,125 681,227 – – – – 203,781 40,660 1,637 246,078 62,541 (115) – – – – – – – – – 549,543 – – – 819,311 268,546 1,087,857 14,823 14,616 (9,005) 1,108,291 35,629 89,901 – (1,729) – – – – – – – 10,365 – – 247,967 60,357 308,324 54,769 (6,255) 356,838 70,460 (1,657) – 470,202 – 470,202 15,703 3,025 (95,980) 392,950 29,952 40,603 – (49,971) (94) 413,440 323,124 – 323,124 46,680 (84,587) 285,217 36,384 (45,008) (39) 276,554 136,886 107,733 147,078 220,002 35,871 255,873 19,951 – (22,753) 253,071 22,502 – – (44,927) (3,517) 227,129 146,790 33,272 180,062 16,656 (14,093) 182,625 15,783 (42,854) (573) 154,981 72,148 70,446 75,811 546,426 193,613 740,039 52,601 1,296 (47,573) 746,363 42,914 78,798 – (37,086) (12,431) 818,558 396,266 144,670 540,936 63,389 (36,214) 568,111 48,066 (35,020) (1,455) 579,702 238,856 178,252 199,103 385,790 36,740 422,530 1,140,835 (29,082) – 1,534,283 250,107 (1,440,072) (242,149) – – 3,079,970 534,770 3,614,740 1,488,487 – (175,311) 4,927,916 398,229 – (242,149) (133,713) (16,042) 102,169 4,934,241 – – – – – – – – – – 102,169 1,534,283 422,530 1,317,928 238,299 1,556,227 222,154 (139,512) 1,638,869 243,599 (124,654) (2,067) 1,755,747 3,178,494 3,289,047 2,058,513 308,504 10,365 425,641 1,282,806 539,178 At December 31, 2014 (Restated) At January 1, 2014 (Restated) 646,880 434,458 – – The property, plant and equipment are located in the PRC. 806,451 751,453 779,533 As at December 31, 2014, certain property, plant and equipment have been pledged as collaterals to secure general banking facilities granted to the Group. Details of which were set out in Note 52. During the year ended December 31, 2014, the Group acquired several units of a building, a whole block of building under renovation and a number of car parking spaces located in Hangzhou from a related party, Hangzhou Jinji Real Estate Co., Ltd. (“Jinji Co”), a subsidiary of Communications Group, for a cash consideration totalling Rmb899,334,000, of which was fully paid during the same year. The whole block of building was included in construction in progress since the building was under renovation and has not reached the usable condition as at December 31, 2014 and was transferred to leasehold land and buildings during the year ended December 31, 2015. 136 20. PREPAID LEASE PAYMENTS Analysed for reporting purposes as: Current assets Non-current assets 12/31/2015 12/31/2014 Rmb’000 Rmb’000 1,939 57,745 59,684 2,155 66,001 68,156 The amount represents prepayment of rentals under operating leases for “land use rights” of land situated in the PRC. As at December 31, 2015, certain prepaid lease payments have been pledged as collaterals to secure general banking facilities granted to the Group. Details of which were set out in Note 52. 21. EXPRESSWAY OPERATING RIGHTS COST At January 1, 2014 (Originally stated) Merger accounting restatement At January 1, 2014 (Restated) Additions At December 31, 2014 (Restated) Disposal Adjustment due to completion of settlement At December 31, 2015 AMORTISATION At January 1, 2014 (Originally stated) Merger accounting restatement At January 1, 2014 (Restated) Charge for the year At December 31, 2014 (Restated) Charge for the year Disposal At December 31, 2015 CARRYING VALUES At December 31, 2015 At December 31, 2014(Restated) At January 1, 2014(Restated) Rmb’000 19,508,332 4,498,452 24,006,784 2,685 24,009,469 (3,653) (42,754) 23,963,062 7,597,199 1,158,735 8,755,934 988,148 9,744,082 991,800 (2,262) 10,733,620 13,229,442 14,265,387 15,250,850 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 137 21. EXPRESSWAY OPERATING RIGHTS (Continued) The above expressway operating rights were granted by the Zhejiang Provincial Government for a period ranging from 25 to 30 years. During the expressway concessionary period, the Group has the rights of operations and management of Shanghai- Hangzhou-Ningbo Expressway, Shangsan Expressway, Jinhua Section of the Ningbo-Jinhua Expressway and Hanghui Expressway and the toll-collection rights thereof. The Group is required to manage and operate the expressways in accordance with the regulations promulgated by the Ministry of Communication and relevant government authorities. Upon the end of the respective concession service periods, the toll expressways and their toll station facilities without residual value, will be returned to the grantors at nil consideration. As at December 31, 2015 and 2014, the expressway operating rights in respect of Jinhua Section of the Ningbo-Jinhua Expressway and Hanghui Expressway has been pledged as collaterals to secure general banking facilities granted to the Group. Details of which were set out in Note 52. During the year ended December 31, 2015, a portion of land where the Yuhang section of Shanghai-Hangzhou expressway occupied was requisitioned by the government, with the consideration of Rmb53,891,000, leading to the decrease in expressway operating right with carrying amount of Rmb1,391,000 and recognition of a gain in other income with amount of Rmb52,500,000. 22. GOODWILL COST AND CARRYING VALUES At January 1 2014 December 31, 2014 and December 31, 2015 Particulars regarding impairment testing on goodwill are disclosed in Note 24. Rmb’000 86,867 138 23. OTHER INTANGIBLE ASSETS COST At January 1, 2014 Additions At December 31, 2014 Additions At December 31, 2015 AMORTISATION At January 1, 2014 Charge for the year At December 31, 2014 Charge for the year At December 31, 2015 CARRYING VALUES At December 31, 2015 At December 31, 2014 Securities/ Customer futures firm Trading bases licenses seats Software Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 101,147 63,083 – – 3,480 – 81,111 21,319 248,821 21,319 101,147 63,083 3,480 102,430 270,140 – – – 23,261 23,261 101,147 63,083 3,480 125,691 293,401 54,147 6,266 60,413 6,266 66,679 34,468 40,734 – – – – – – – – – – 63,083 63,083 3,480 3,480 40,110 14,027 54,137 17,366 71,503 54,188 48,293 94,257 20,293 114,550 23,632 138,182 155,219 155,590 The customer bases of Zheshang Securities and Zheshang Futures Broker Co., Ltd. (“Zheshang Futures”) are amortised on a straight-line basis over fifteen years and three years, respectively. The securities/futures firm licenses of the securities operation are considered by the management of the Group to have indefinite useful lives because they can be renewed at minimal cost even though the current licenses are effective for three years. The trading seats of the securities operation is considered by the management of the Group to have an indefinite useful life because there is no economic or regulatory limit to their useful life. Software are amortised on a straight-line basis over three to five years. Particulars of the impairment testing on intangible assets with indefinite useful lives are disclosed in Note 24. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 139 IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE 24. USEFUL LIVES For the purposes of impairment testing, goodwill and other intangible assets with indefinite useful lives set out in Notes 22 and 23 have been allocated to four individual cash generating units (“CGUs”), comprising two subsidiaries in toll operation segment and two subsidiaries in securities operation segment. The carrying amounts of goodwill and other intangible assets (net of accumulated impairment losses) as at December 31, 2015 and 2014 allocated to these units are as follows: Securities/futures Goodwill firm licenses Trading seats 12/31/2015 12/31/2014 12/31/2015 12/31/2014 12/31/2015 12/31/2014 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Toll operation – Zhejiang Jiaxing Expressway Co., Ltd. (“Jiaxing Co”) 75,137 75,137 – Zhejiang Shangsan Expressway Co., Ltd. (“Shangsan Co”) Securities operation – Zheshang Securities – Zheshang Futures 10,335 10,335 – 1,395 86,867 – 1,395 86,867 – – 51,783 11,300 63,083 – – 51,783 11,300 63,083 – – 2,080 1,400 3,480 – – 2,080 1,400 3,480 During the years ended December 31, 2015 and 2014, management of the Group determines that there are no impairment of any of its CGUs containing goodwill and other intangible assets with indefinite useful lives. The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below: Jiaxing Co and Shangsan Co The recoverable amounts of Jiaxing Co and Shangsan Co are determined based on value in use calculations. The key assumptions for the value in use calculations relate to discount rates, growth rates, and expected changes in toll revenue and direct costs during the forecast period. Those calculations use cash flow projections based on financial budgets approved by management covering a five-year period and a discount rate the management considered appropriate. No growth rate has been assumed beyond the five-year period up to the remaining toll road operating rights which are 13 years (2014: 14 years) and 15 years (2014: 16 years) for Jiaxing Co. and Shangsan Co., respectively. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of Jiaxing Co’s and Shangsan Co’s goodwill to exceed their aggregate recoverable amounts. 140 IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE 24. USEFUL LIVES (Continued) Zheshang Securities & Zheshang Futures The recoverable amounts of Zheshang Securities & Zheshang Futures are determined based on value in use calculations. The key assumptions for the value in use calculations relate to the discount rate, growth rates and profit margin during the forecast period. Those calculations use cash flow projections based on financial budgets approved by management covering a five-year period with discount rates management believe appropriate. Growth rate beyond the five-year period is assumed to be zero. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of Zheshang Securities & Zheshang Futures’ other intangible assets to exceed its aggregate recoverable amounts. 25. INTERESTS IN ASSOCIATES Unlisted investments in associates, at cost less impairment Share of post-acquisition profit, net of dividends received 12/31/2015 12/31/2014 Rmb’000 482,749 100,788 583,537 Rmb’000 488,542 139,324 627,866 At December 31, 2015 and 2014, the Group had interests in the following associates: Name of entity Form of business structure Place of registration and Percentage of equity interest operation attributable to the Group Principal activities 12/31/2015 12/31/2014 Zhejiang Expressway Petroleum Development Corporate The PRC Co., Ltd. (“Petroleum Co”) (Note i) Zhejiang Concord Property Investment Corporate The PRC Co., Ltd. (“Zhejiang Concord Property”) Zhejiang Communications Investment Group Corporate The PRC Finance Co., Ltd. (“Zhejiang Communications Finance”) Zheshang Fund Management Co., Ltd. Corporate The PRC (“Zheshang Fund”) (Note ii) Yangtze United Financial Leasing Co., Ltd. Corporate The PRC (“Yangtze United Financial Leasing”) (Note iii) Zhejiang Zheshang Innovation Capital Corporate The PRC Management Co., Ltd. (“Zheshang Innovation Capital Management”) (Note iv) % – 45 35 25 9 40 % 50 Operation of petrol stations and sale of petroleum products 45 Investment and real estate development 35 Finance and investment 25 Asset fund management – Provision of printing services and property leasing – Investment management and consulting All of the above associates are accounted for using the equity method in these consolidated financial statements. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 141 25. INTERESTS IN ASSOCIATES (Continued) Notes: (i) On 12 October 2015, the Company entered into an agreement with Zhejiang Communications Investment Group Industrial Development Co., Ltd. (“Zhejiang Communications Investment”), a wholly owned subsidiary of Communications Group, pursuant to which the Company sold the 50% equity interest in Petroleum Co to Zhejiang Communications Investment at a cash consideration of Rmb142,018,000. The disposal has been substantially completed when the necessary approvals and consents obtained by the end of 2015. Subsequently, the change of registration process has been completed on 4 January 2016. Disposal gain of Rmb916,000 was made through the transaction. (ii) The Group is able to exercise significant influence over Zheshang Fund because it has the power to appoint one out of four directors of that company under the provisions stated in the Articles of Association of that company. On August 14, 2014, Zheshang Securities, together with one of the shareholders of Zheshang Fund, Yangshengtang Co., Ltd., auctioned off their respective 25% equity interest (totalling 50%) in Zheshang Fund. The hammer price reached at Rmb414,000,000 offered by Tonglian Capital Management Co., Ltd. (“Tonglian Capital”), another shareholder of Zheshang Fund which is independent to the Group, and Zheshang Securities will receive a consideration of Rmb207,000,000 accordingly. As at December 2015, the disposal transaction has not been completed and Zheshang Securities received a refundable deposit of Rmb165,600,000 in respect of such transfer, of which was included in other payables in Note 39. The directors of the Company consider the disposal required approval by China Securities Regulatory Commission and equity transfer registration, which was a lengthy process and they are not able to estimate the timing when and whether such approval would be granted. The amount of deposit received would be refundable to Tonglian Capital if the transfer eventually cannot be completed. (iii) When established, the Group is able to exercise significant influence over Yangtze United Financial Leasing because it has the power to appoint one out of eight directors of that company under the provisions stated in the Articles of Association of that company. (iv) Zheshang Innovation Capital Management was established on May 29, 2015. Zheshang Capital Management Co., Ltd. (“Zheshang Capital Management”), the subsidiary of the group contributed capital of RMB 12,000, 000 for 40% shareholding. The Group is able to exercise significant influence over Zheshang Innovation Capital Management. 142 25. INTERESTS IN ASSOCIATES (Continued) The summarised financial information in respect of the Group’s material associates at the end of the reporting period is set out below. This represents amounts shown in the associate’s financial statements prepared in accordance with HKFRSs: Zhejiang Communications Finance Current assets Non-current assets Current liabilities Revenue Profit for the year Dividends received from the associate during the year 12/31/2015 12/31/2014 Rmb’000 3,168,911 3,101,430 5,126,968 For the year ended 12/31/2015 Rmb’000 258,851 139,608 13,121 Rmb’000 2,849,318 3,331,312 5,139,374 For the year ended 12/31/2014 Rmb’000 293,370 153,204 – Reconciliation of the above summarised financial information to the carrying amount of the interest in Zhejiang Communications Finance recognised in the consolidated financial statements: Net asset of the associate Proportion of the Group’s ownership interest in Zhejiang Communications Finance Carrying amount of the Group’s interest in Zhejiang Communications Finance Yangtze United Financial Leasing Current assets Non-current assets Current liabilities 12/31/2015 12/31/2014 Rmb’000 1,143,373 35% 400,181 Rmb’000 1,041,256 35% 364,440 12/31/2015 Rmb’000 63,564 5,826,108 4,884,944 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 201525. INTERESTS IN ASSOCIATES (Continued) Yangtze United Financial Leasing Revenue Profit for the period Dividends received from the associate during the period 2015 ANNUAL REPORT 143 For the date of acquisition to 12/31/2015 Rmb’000 84,461 4,728 – Reconciliation of the above summarised financial information to the carrying amount of the interest in Yangtze United Financial Leasing recognised in the consolidated financial statements: Net asset of the associate Proportion of the Group’s ownership interest in Yangtze United Financial Leasing Carrying amount of the Group’s interest in Yangtze United Financial Leasing Aggregate information of associates that are not individually material The Group’s share of loss (profit) Aggregate carrying amount of the Group’s interests in these associates 12/31/2015 Rmb’000 1,004,728 9% 90,426 12/31/2015 12/31/2014 Rmb’000 (999) 92,930 Rmb’000 11,399 263,426 144 26. INTEREST IN A JOINT VENTURE Unlisted investment in a joint venture, at cost less impairment Share of post-acquisition loss 12/31/2015 12/31/2014 Rmb’000 373,470 (97,870) 275,600 Rmb’000 373,470 (72,803) 300,667 At December 31, 2015 and 2014, the Group had interest in the following joint venture: Name of entity Form of business structure Place of Percentage of equity registration interest attributable to and operation the Group Principal activities Zhejiang Shaoxing Shengxin Corporate The PRC Expressway Co., Ltd. (“Shengxin Co”) 12/31/2015 12/31/2014 % 50 % 50 Management of the Shaoxing section of the Ningbo-Jinhua Expressway The summarised financial information in respect of the Group’s interest in Shengxin Co which is accounted for using the equity method at the end of the reporting period is set out below. This represents amounts shown in the joint venture’s financial statements prepared in accordance with HKFRSs: Shengxin Co Current assets Non-current assets Current liabilities Non-current liabilities The above amounts of assets and liabilities include the following: Cash and cash equivalents Non-current financial liabilities (excluding trade and other payables and provisions) 12/31/2015 12/31/2014 Rmb’000 41,371 2,672,775 55,988 2,106,959 37,152 2,040,000 Rmb’000 41,410 2,831,259 49,912 2,221,423 37,139 2,150,000 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 145 26. INTEREST IN A JOINT VENTURE (Continued) The summarised financial information in respect of the Group’s interest in Shengxin Co which is accounted for using the equity method at the end of the reporting period is set out below. This represents amounts shown in the joint venture’s financial statements prepared in accordance with HKFRSs: (Continued) Shengxin Co (Continued) Revenue Loss for the year Dividend received from the joint venture The above loss for the year includes the following: Depreciation and amortisation Interest income Interest expense Income tax expense For the year ended 12/31/2015 Rmb’000 319,882 (50,135) – For the year ended 12/31/2014 Rmb’000 306,827 (66,553) – (175,837) (172,559) 838 (111,978) (4,464) 996 (129,244) (4,464) Reconciliation of the above summarised financial information to the carrying amount of the interest in Shengxin Co recognised in the consolidated financial statements: Net asset of the joint venture Proportion of the Group’s ownership interest in the joint venture Carrying amount of the Group’s interest in Shengxin Co 12/31/2015 12/31/2014 Rmb’000 551,199 50% 275,600 Rmb’000 601,334 50% 300,667 146 27. AVAILABLE-FOR-SALE INVESTMENTS AFS investments comprise: Non-current assets: Unlisted equity securities investments, at cost (Note i) Listed equity securities investments, at fair value (Note ii) Corporate bonds listed in the PRC (Note iii) Trust products Financial products (Note iv) Unlisted equity investment at fair value (Note v) Current assets: Equity securities Funds Trust products Corporate bonds Financial products (Note iv) 12/31/2015 Rmb’000 12/31/2014 Rmb’000 44,597 202,441 – – 6,507 1,382,313 1,635,858 237,260 55,982 10,000 50,000 679,508 1,032,750 2,668,608 38,500 – 122,000 32,131 28,601 – 221,232 8,761 35,233 57,384 – 468,643 570,021 791,253 As at December 31, 2015, the Group has entered into securities lending arrangement with clients that resulted in the transfer of listed AFS investments with total fair value of Rmb173,000 (2014: Rmb29,922,000) to external clients, which did not result in derecognition of the financial assets. Details of the collaterals were set out in Note 33. Notes: (i) Unlisted equity securities investments represent investments in unlisted equity securities issued by private entities established in the PRC. They are measured at cost less impairment at the end of the reporting period because the range of reasonable fair value estimated is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably. (ii) Listed equity securities investments represent stocks listed in PRC with lock-up period for 3 years since the subscription. The financial instrument was measured at fair value based on a valuation taking into account the quote stock prices with adjustment of restriction factors. (iii) The corporate bonds carried fixed interest of 9.6% per annum with maturity date on May 31, 2017, and were early redeemed during the year ended December 31, 2015. (iv) The financial products comprise products offered by fund or asset management companies where funds are mainly invested in listed securities, open-ended funds or asset management plan and the Group’s return of investment is tied to the result of such investments. (v) Unlisted equity investment mainly includes investment in a special account managed by China Securities Finance Corporation Limited (the “CSFCL”). Pursuant to the agreement the Company entered into with the CSFCL, the Company contributed to a special account managed by the CSFCL in 2015. The Company is entitled to the profit or loss derived from the special account in proportion to the funding portion contributed. As at December 31, 2015, the Company determined the total fair value of the investment according to the Evaluation Report provided by the CSFCL. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 147 28. INVENTORIES As at December 31, 2015, the inventories of the Group includes residential properties held for sales with carrying amount of Rmb272,933,000, which has been transferred from construction in progress when the management of the Group decided to sell and obtained the property sales permit. 29. TRADE RECEIVABLES Trade receivables comprise: Fellow subsidiaries Third parties Total trade receivables Less: Allowance for doubtful debts 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 10,331 142,044 152,375 (1,292) 151,083 3,212 133,898 137,110 (952) 136,158 3,077 102,093 105,170 (672) 104,498 The Group has no credit period granted to its trade customers of toll operation and service area businesses. The Group’s trade receivable balance for toll operation is toll receivables from the Expressway Fee Settlement Centre of the Highway Administration Bureau of Zhejiang Province, which are normally settled within 3 months. All of these trade receivables were neither past due nor impaired in both years. In respect of the Group’s asset management service, security commission and financial advisory service operated by Zheshang Securities Co., Ltd. (“Zheshang Securities”), trading limits are set for customers. The Group seeks to maintain tight control over its outstanding accounts receivable in order to minimise credit risk. Overdue balances are regularly monitored by management. The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period, which approximated the respective revenue recognition dates: Within 3 months 3 months to 1 year 1 to 2 years Over 2 years 12/31/2015 Rmb’000 80,949 64,493 4,679 962 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 117,022 18,111 971 54 93,882 10,453 – 163 151,083 136,158 104,498 148 29. TRADE RECEIVABLES (Continued) Movement of allowance for doubtful debts At the beginning of the year Impairment recognised for the year Amount reversed during the year At the end of the year 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 952 340 – 1,292 672 280 – 952 956 7 (291) 672 The Group determines the allowance for impaired debts based on the evaluation of collectability and aged analysis of accounts and on management’s judgement including the assessment of change in credit quality and the past collection history of each client. The directors consider the credit risk of the balance to be minimal. 30. LOANS TO CUSTOMERS ARISING FROM MARGIN FINANCING BUSINESS Loans to margin clients Less: Allowance for doubtful debts 12/31/2015 12/31/2014 Rmb’000 10,606,160 (55,570) Rmb’000 8,565,301 (19,388) 10,550,590 8,545,913 The Group has provided customers with margin financing and security lending for securities transactions, the credit facility limits to margin clients are determined by the discounted market value of the pledged securities accepted by the Group or the market value of cash collateral. All of the loans to margin clients which are secured by the underlying pledged securities are interest bearing. The Group maintains a list of approved stocks for margin lending at a specified loan to collateral ratio. Any excess in the lending ratio will trigger a margin call which the customers have to make good of the shortfall. The Group has the right to process forced liquidation if the customer fails to make good of the shortfall within a short period of time. As at December 31, 2015, loans to customers under the margin financing and securities lending activities carried out in the PRC were secured by the customers’ stock securities and cash collaterals. The undiscounted market value of the stock security collaterals was amounted to Rmb31,224,317,000 (2014:Rmb24,411,134,000). Cash collateral of Rmb1,061,658,000 (2014: Rmb975,337,000) received from clients was included in accounts payable to customers arising from securities business in Note 37. As of 31 December 2015 and 2014, no individual customer with fair value of pledged securities fell below the carry amount of margin loan. No aged analysis is disclosed as in the opinion of the directors, the aged analysis does not give additional value in view of the nature of business of securities margin financing. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 149 30. L O A N S TO C U S TO M E R S A R I S I N G F R O M M A R G I N F I N A N C I N G B U S I N E S S (Continued) Movement in the allowance for doubtful debts Allowance for doubtful debts at the beginning of the year Impairment recognised for the year At end of the year 12/31/2015 12/31/2014 Rmb’000 Rmb’000 19,388 36,182 55,570 8,477 10,911 19,388 The Group determines the allowance for impaired debts based on the evaluation of collectability and aged analysis of accounts and on management’s judgement including the assessment of change in credit quality, collateral and the past collection history of each client. As at December 31, 2015, the balance of allowance for doubtful debts include individual assessment of Rmb2,552,000 (2014: Rmb2,263,000) and collective assessment of Rmb53,018,000 (2014: Rmb17,125,000) The concentration of credit risk is limited due to the customer base being large and unrelated. 31. OTHER RECEIVABLES AND PREPAYMENTS Current Entrusted loan and interest receivable from a related party (Note 54(ii)) Interest receivables Financial products investment receivables (Note) Prepayments Bond and listed equity subscription deposit Consideration receivable in relation to the disposal to Communications Group of an associate (Note 25) and a subsidiary (Note 49) Others Non-Current Entrusted loans and interest receivables from a related party (Note 54(ii)) 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 634,436 269,080 – 41,977 176,377 44,759 65,170 1,231,799 491,911 163,609 17,000 87,280 – – 54,000 122,392 168,000 30,915 – – 97,763 857,563 102,594 477,901 – 1,231,799 50,828 908,391 401,400 879,301 Note: The amount represents short-term fixed-yield and principal protected bank financial products, which have been matured and fully redeemed during the year ended December 31, 2015. 150 32. HELD FOR TRADING INVESTMENTS Held for trading investments include: Listed securities in the PRC, at fair value: Equity securities Open-end equity funds Bonds in the PRC, at fair value: Listed in Shanghai/Shenzhen Stock Exchange with fixed interest ranging from 0.2% to 8.5% (2014: 4.36% to 8.5%) per annum Unlisted with fixed interest ranging from 3.18% to 8.70% (2014: 4.33% to 8.70%) per annum 33. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS Analysed by collateral type: Bonds Stock securities Analysed by market: Inter bank market Shanghai/Shenzhen Stock Exchange 12/31/2015 12/31/2014 Rmb’000 Rmb’000 221,699 191,967 89,877 97,718 1,170,952 621,813 2,176,606 3,761,224 1,315,332 2,124,740 12/31/2015 12/31/2014 Rmb’000 Rmb’000 1,921,876 3,037,279 4,959,155 1,521,876 3,437,279 4,959,155 1,316,942 1,407,656 2,724,598 1,316,942 1,407,656 2,724,598 The collaterals include both equity and debt securities listed in the PRC. As at December 31, 2015, the fair value of equity securities and debt securities held as collaterals was Rmb6,394,246,000 (2014: Rmb4,762,681,000) and Rmb1,947,197,000 (2014: Rmb1,320,746,000), respectively. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 151 34. BANK BALANCES HELD ON BEHALF OF CUSTOMERS For the Group’s securities operation carried out by Zheshang Securities, the Group receives and holds money deposited by customers (including other institution). These customers’ money is maintained in one or more segregated bank accounts. The Group has recognised the corresponding accounts payable to respective customers and other institution. Bank balances held on behalf of customers carry interest at market rates which range from 1.62% to 2.12% (2014: 1.62% to 1.98%) per annum. Bank balances held on behalf of customers that are denominated in currencies other than the functional currency of the respective group entities are set out below: As at December 31, 2015 As at December 31, 2014 35. BANK BALANCES AND CASH Time deposits with original maturity over three months Unrestricted bank balances and cash Time deposits with original maturity of less than three months Cash and cash equivalents HKD Rmb’000 22,226 12,490 USD Rmb’000 125,058 42,862 12/31/2015 Rmb’000 270,000 4,207,862 775,189 4,983,051 5,253,051 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 761,320 2,744,222 612,341 3,356,563 4,117,883 704,459 1,239,037 676,222 1,915,259 2,619,718 Bank balances carry interest at the average market rate of 0.35% (2014: 0.35%) per annum. Time deposits carry interest at fixed rates ranging from 1.35% to 6.50% (2014: 1.35% to 3.30%) per annum. Bank balances and cash that are denominated in currencies other than the functional currency of the respective group entities are set out below: As at December 31, 2015 As at December 31, 2014 HKD USD Rmb’000 Rmb’000 14,562 6,098 33,387 28,832 152 36. PLACEMENTS FROM OTHER FINANCIAL INSTITUTIONS Placements from Industrial Bank Co., Ltd (unsecured) CSFCL (secured) 12/31/2015 12/31/2014 Rmb’000 Rmb’000 – 200,000 200,000 500,000 1,440,000 1,940,000 These placements with interest rate of 6.30% (2014: 5.8% to 7.5%) per annum are repayable within 1 year from the end of the reporting period. The placements from CSFCL were secured by a cash deposit of Rmb86,704,000 (2014: Rmb168,161,000) and debt and equity securities with total fair value of Rmb184,400,000 (2014: Rmb178,608,000) as at December 31, 2015. 37. ACCOUNTS PAYABLE TO CUSTOMERS ARISING FROM SECURITIES BUSINESS The amounts mainly represent money held on behalf of clients at the banks and at the clearing houses by the Group. The amounts also include payables for securities/futures business as well as cash collateral from customers for securities lending and/or margin financing arrangement. The majority of the accounts payable balance is repayable on demand except where certain accounts payable to brokerage clients represent margin deposits received from clients for their trading activities under normal course of business. No aged analysis is disclosed as in the opinion of the directors an aged analysis does not give any additional value in view of the nature of the business. As at December 31, 2015, Rmb1,971,098,000 (2014: Rmb975,337,000) cash collateral have been received from clients for securities lending or margin financing arrangement, of which under normal course of business. Only the excess amounts over the required margin deposits stipulated are repayable on demand. Accounts payable to customers arising from securities business that are denominated in currencies other than the functional currency of the respective group entities are set out below: As at December 31, 2015 As at December 31, 2014 HKD Rmb’000 22,226 12,490 USD Rmb’000 125,058 42,862 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 153 38. TRADE PAYABLES Trade payables mainly represent the construction payables for the improvement projects of toll expressways. The following is an aged analysis of trade payables presented based on the invoice date: Within 3 months 3 months to 1 year 1 to 2 years 2 to 3 years Over 3 years 39. OTHER PAYABLES AND ACCRUALS Other liabilities: Accrued payroll and welfare Advance from rental and advertising customers Toll collected on behalf of other toll roads Retention payable Deposit received for disposal of an associate (Note 25(ii)) Deposits of equity return swaps (Note) Payables to limited partnership in subsidiaries Others Other accruals 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 422,424 230,650 117,341 35,425 102,776 908,616 464,221 127,906 76,657 11,889 315,978 996,651 235,778 86,391 37,974 13,641 381,169 754,953 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 1,609,626 62,151 2,758 123,917 165,600 77,000 133,088 287,673 2,461,813 347,266 2,809,079 855,620 96,763 2,759 181,242 103,500 – 19,737 245,684 1,505,305 83,007 559,204 94,124 5,057 148,050 – – – 197,940 1,004,375 21,641 1,588,312 1,026,016 Note: Equity return swaps contain non-closely related embedded derivatives as their returns are linked to the fluctuation of specific stock price. The embedded derivatives are accounted for under note 44 after being bifurcated from their respective host contracts. 154 40. BANK AND OTHER BORROWINGS Bank loans Loan from related parties (See Note54(i)(a), 54(ii)) Secured (Note) Unsecured Carrying amount repayable: Within one year More than one year, but not exceeding two years More than two years but not more than five years More than five years Less: Amounts due within one year 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 12/31/2015 Rmb’000 2,297,951 1,070,000 3,367,951 630,000 2,737,951 3,367,951 2,580,000 1,070,000 3,650,000 2,480,000 1,170,000 3,650,000 1,777,951 1,690,000 400,000 860,000 330,000 550,000 710,000 700,000 3,367,951 3,650,000 4,230,000 (1,777,951) (1,690,000) (980,000) 3,120,000 1,110,000 4,230,000 2,920,000 1,310,000 4,230,000 980,000 1,640,000 760,000 850,000 Amounts shown under non-current liabilities 1,590,000 1,960,000 3,250,000 The bank and other borrowings comprise: Fixed-rate borrowings Variable-rate borrowings 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 2,047,951 1,320,000 3,367,951 620,000 3,030,000 3,650,000 1,110,000 3,120,000 4,230,000 The range of effective interest rates (which are also agreed to contracted interest rates) on the Group’s borrowings are as follows: Effective interest rate: Fixed-rate borrowings Variable-rate borrowings 12/31/2015 Rmb’000 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 4.13%-5.10% 5.24% – 5.40% 5.04% – 5.40% 4.275%-5.90% 5.40% – 6.60% 5.54% – 6.77% Note: Details of the securities pledged for the grant of borrowings to the Group were set out in Note 52. The Group’s borrowings were all dominated in the functional currency of the group entities as at December 31, 2015 and 2014. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 155 12/31/2015 12/31/2014 Rmb’000 Rmb’000 600,000 16,100 616,100 – 883,570 883,570 41. SHORT-TERM FINANCING NOTE PAYABLE Unsecured Short-term loan note (Note i) Beneficial certificates (Note ii) Notes: (i) During the year ended December 31, 2015, Zheshang Securities issued a short-term loan note at the principal amount of Rmb11,000,000,000, which was interest bearing at of from 2.93% to 3.20% per annum, out of which Rmb500,000,000 was matured and repaid. As at December 31, 2015,the remaining Rmb600,000,000 was repayable upon maturity. (ii) As at December 31, 2014, there was Rmb883,570,000 principals received from investors for subscription of beneficial certificates issued by Zheshang Securities, which bear fixed rate interest ranging from 5.1% to 7.0% per annum. The amount was matured in 2015 and had been repaid in full on the maturity date. During the year ended December 31, 2015, there were Rmb2,733,560,000 principals received from investors for subscription of beneficial certificates issued by Zheshang Securities, which bear interest rates ranging from 0.7% to 6.47% per annum, out of which Rmb2,717,460,000 was matured and repaid. As at December 31, 2015, the remaining beneficial certificates of the remaining Rmb16,100,000 and its interests are repayable upon maturity. 42. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS Analysed as collateral type: Bonds Other rights and interests in debt instruments Analysed by market: Shanghai Stock Exchange Inter-bank market Other financial institutions 12/31/2015 12/31/2014 Rmb’000 Rmb’000 3,485,380 1,900,000 5,385,380 350,000 3,135,380 1,900,000 5,385,380 2,400,257 3,898,800 6,299,057 70,000 2,330,257 3,898,800 6,299,057 As of 31 December 2015, the above financial assets sold under repurchase agreements include those repurchase agreements entered into with qualified investors, which amounted to Rmb5,385,380,000 (31 December 2014: 6,299,057,000), with maturities within 1 year. 156 42. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS (Continued) Sales and repurchase agreements are transactions in which the Group sells a security and simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date. Since the repurchase prices are fixed, the Group is still exposed to substantially all the credit risks and market risks and rewards of those securities sold. These securities are not derecognised from the financial statements but regarded as “collateral” for the liabilities because the Group retains substantially all the risks and rewards of these securities. The cash proceed received is recognised as financial liability. As at 31 December 2015, the Group enters into repurchase agreements with certain counterparties. The proceeds from selling such securities are presented as financial assets sold under repurchase agreements. Because the Group sells the contractual rights to the cash flows of the securities, it does not have the ability to use the transferred securities during the term of the arrangement. The following tables provides a summary of carrying amounts and fair values related to transferred financial assets that are not derecognised in their entirety and the associated liabilities as at December 31, 2015: Loans to customers Financial arising Held for assets held from margin trading under resale investments agreements Rmb’000 Rmb’000 financing business Rmb’000 Others Total Rmb’000 Rmb’000 Carrying amount of transferred assets 1,466,278 1,521,876 2,052,846 718,769 5,759,769 Carrying amount of associated liabilities (1,301,409) (1,513,971) (1,900,000) (670,000) (5,385,380) Net position 164,869 7,905 152,846 48,769 374,389 43. BONDS PAYABLE Subordinated bonds (Note) Long term beneficial certificates Less: subordinated bonds due within 1year Amounts shown under non-current liabilities Notes: 12/31/2015 12/31/2014 Rmb’000 8,700,000 1,900,000 Rmb’000 1,200,000 – 10,600,000 1,200,000 3,000,000 7,600,000 – 1,200,000 On September 22, 2014, Zheshang Securities issued a four-year subordinated bond in the principal amount of Rmb1,000,000,000, with a redemption option exercisable at par value plus the unpaid interests at the second anniversary since the date of issue, out of which a principal amount of Rmb300,000,000 was subscribed by the Company. The annual interest rate in first two years is 6.30%, and which will be 9.30% for the remaining two years if the issuer does not exercise the option of redemption. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 157 43. BONDS PAYABLE (Continued) Notes: (Continued) On March 17, 2015, Zheshang Securities issued a four-year subordinated bond in the principal amount of Rmb1,500,000,000, with a redemption option exercisable at par value plus the unpaid interests at the second anniversary since the date of issue. The annual interest rate in first two years is 5.80%, and which will be 8.80% for the remaining two years if the issuer does not exercise the option of redemption. On February 3, 2015, Zheshang Securities issued a five-year unsecured corporate bond at the principal amount of Rmb1,500,000,000, with the redemption option exercisable by the bondholders at the third anniversary of the date of issue. The corporate bond bears fixed interest rate of 4.9% per annum with interest to be paid annually in arrears for the first three years. At the third anniversary of the date of issue, the bondholders has the right to require Zheshang Securities to redeem the outstanding corporate bond at an amount equals to its principal amount. If the redemption option is not exercised, the interest rate would be re- priced for the remaining period of two years till maturity at that time. Other subordinated bonds without redemption option bear fixed interest rates. 44. DERIVATIVE FINANCIAL ASSETS/LIABILITIES The Group entered into numbers of equity return swaps contracts with its customers of securities business. The notional principal amounts of the Group’s equity return swaps contracts as at December 31, 2015 in relation to equity return swaps contracts were Rmb205,000,000 (December 31, 2014: Rmb nil). Derivative financial assets of Rmb2,288,000 and derivative financial liabilities of Rmb4,258,000 has been recognized for the fair values of those embedded derivatives as at December 31, 2015. 45. DEFERRED TAXATION For the purpose of presentation in the consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes: Deferred tax assets Deferred tax liabilities 12/31/2015 Rmb’000 329,526 (262,128) 67,398 12/31/2014 01/01/2014 Rmb’000 Rmb’000 (Restated) (Restated) 97,135 (145,042) (47,907) 84,655 (205,638) (120,983) 158 45. DEFERRED TAXATION (Continued) The following are the major deferred tax liabilities and assets recognised and movements thereon during the current and prior years: Difference in tax and Changes in accounting fair value of depreciation of Temporary differences held for trading property plant Fair value of accrued and available- and equipment adjustment expenses and for-sale and expressway of long impairment investments operating rights term assets At January 01, 2014 (Originally stated) Merger accounting restatement At January 01, 2014 (Restated) Charge (credit) to profit or loss Charge to other comprehensive income At December 31, 2014 (Restated) Charge (credit) to profit or loss Charge to other comprehensive income At December 31, 2015 Rmb’000 27,276 – 27,276 10,079 17,075 54,430 11,219 17,901 83,550 Rmb’000 147,536 (84,655) 62,881 (24,123) – 38,758 (15,408) – 23,350 Rmb’000 113,327 – 113,327 (8,866) – 104,461 (8,866) – losses Rmb’000 (82,501) – (82,501) (67,241) – (149,742) (120,151) – 95,595 (269,893) Total Rmb’000 205,638 (84,655) 120,983 (90,151) 17,075 47,907 (133,206) 17,901 (67,398) As at December 31, 2015, the Group had unused tax losses of approximately Rmb430,964,000 (2014 (Restated): Rmb600,877,000). No deferred taxation asset has been recognised due to the unpredictability of future profit streams. Such unrecognised tax losses will expire within 2019. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 201546. SHARE CAPITAL Registered, issued and fully paid: Domestic shares of Rmb1 each H Shares of Rmb1 each 2015 ANNUAL REPORT 159 Number of shares Share capital 12/31/2015 12/31/2015 and 2014 Rmb’000 2,909,260 1,433,855 4,343,115 and 2014 Rmb’000 2,909,260 1,433,855 4,343,115 The domestic shares are not currently listed on any stock exchange. The H Shares have been listed on the Stock Exchange since May 15, 1997. The H Shares were admitted to the Official List on May 5, 2000 and their dealings on the London Stock Exchange commenced on the same day. On February 14, 2002, the United States Securities and Exchange Commission, following the approval by the Board of Directors and the China Securities Regulatory Commission, declared the registration statement in respect of the ADSs evidenced by ADRs representing the deposited H Shares of the Company effective. All the domestic shares and H Shares rank pari passu with each other as to dividends and voting rights. 47. NON-CONTROLLING INTERESTS At January 1, 2014 (Originally stated) Merger accounting restatement Balance at January 1, 2014 (Restated) Share of total comprehensive income Deregistration of a subsidiary (Note i) Dividend paid to non-controlling interests At December 31, 2014 (Restated) Share of total comprehensive income Contribution by non-controlling-interests Acquisition of additional interest of a non-wholly owned subsidiary (Note ii) Dividend paid to non-controlling interests At December 31, 2015 Rmb’000 3,696,421 19,991 3,716,412 505,602 (1,420) (93,021) 4,127,573 1,066,051 5,000 171,179 (107,812) 5,261,991 160 47. NON-CONTROLLING INTERESTS (Continued) Notes: (i) During the year ended December 31, 2014, the Group has deregistered Hangzhou Roadtone Advertising Co., Ltd., a 51% owned subsidiary, resulting in the reduction of non-controlling interest of Rmb1,420,000. (ii) As detailed in Note 2, in December 2015, the equity interest held by the group increased from 80.614% to 88.674% as the company has made an additional capital contribution to Hangui Co. The acquisition of additional interest in the subsidiary resulted in an increase of non- controlling interest by Rmb171,179,000. The summarised financial information in respect of the Group’s subsidiary that has material non-controlling interests, namely Shangsan Co and its subsidiaries and Yuhang Co (as defined in Note 55) at the end of the reporting period are set out below. The summarised financial information below represents amounts before intragroup elimination. Shangsan Co and its subsidiaries Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to owners of the Company Non-controlling interests Revenue Expenses Profit for the year Other comprehensive income Total comprehensive income Profit attributable to owner of the Company Profit attributable to non-controlling interests Total comprehensive income attributable to owner of the Company Total comprehensive income attributable to non-controlling interests 12/31/2015 12/31/2014 Rmb’000 52,844,339 5,272,372 39,320,773 8,000,644 6,106,965 4,688,329 Rmb’000 34,149,648 3,633,244 27,550,416 1,474,595 5,014,542 3,743,339 For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 6,680,544 Rmb’000 3,392,626 (4,342,360) (2,172,342) 2,338,184 54,229 2,392,413 1,329,195 1,008,989 2,338,184 1,357,473 1,034,940 2,392,413 1,220,284 51,458 1,271,742 738,815 481,469 1,220,284 765,649 506,093 1,271,742 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 201547. NON-CONTROLLING INTERESTS (Continued) Shangsan Co and its subsidiaries (Continued) Dividends paid to non-controlling shareholders Net cash (outflow) inflow from operating activities Net cash outflow used in investing activities Net cash inflow from financing activities Net cash inflow Yuhang Co Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to owners of the Company Non-controlling interests Revenue Expenses Profit for the year 2015 ANNUAL REPORT 161 For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 (94,950) (5,201,354) (1,235,019) 8,602,933 2,166,560 Rmb’000 (75,960) 1,443,261 (1,113,220) 983,570 1,313,611 12/31/2015 12/31/2014 Rmb’000 345,139 881,847 310,993 158,035 386,558 371,400 Rmb’000 70,876 1,068,890 311,917 108,391 366,924 352,534 For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 Rmb’000 133,966 (72,899) 61,067 92,944 (61,015) 31,929 162 47. NON-CONTROLLING INTERESTS (Continued) Yuhang Co (Continued) Profit and total comprehensive income – attributable to owner of the Company – attributable to non-controlling interests Dividends paid to non-controlling shareholders Net cash inflow from operating activities Net cash outflow used in investing activities Net cash inflow from financing activities Net cash outflow For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 Rmb’000 31,143 29,924 61,067 (11,058) 30,456 (101,279) 52,281 (18,542) 16,284 15,645 31,929 (11,058) 50,048 (119,571) 20,279 (49,244) 48. RETIREMENT BENEFITS SCHEMES The employees of the Group are members of the state-managed retirement benefits scheme operated by the PRC government. To supplement this existing retirement benefits scheme, the Group adopted a corporate annuity scheme in accordance with relevant rules and regulations. The Group is required to contribute a certain percentage of payroll costs to these retirement benefits schemes to fund the benefits. The only obligation of the Group with respect to these retirement benefits schemes is to make the specified contributions. No forfeited contributions are available to reduce the contribution payable in future years. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 163 49. DISPOSAL OF A SUBSIDIARY On August 31, 2015, the Company entered into an agreement with Zhejiang Communications Resources Investment Co., Ltd. (“Zhejiang Communications Resources”), a fellow subsidiary of the Communications Group, pursuant to which the Company sold the 100% equity interest in Zhejiang Expressway Maintenance Co., Ltd. (“Maintenance Co”) to Zhejiang Communications Resources at a cash consideration of Rmb41,084,000. The disposal was completed on September 14, 2015. Consideration received: Cash received Deferred cash consideration Total consideration Analysis of assets and liabilities over which control was lost: Property, plant and equipment Inventories Trade receivables Other receivables and prepayments Bank balances and cash Trade payables Other payables and accruals Net assets disposed of Gain on disposal of a subsidiary: Consideration received and receivable Net assets disposed of Gain on disposal Net cash inflow arising on disposal: Cash received Less: bank balances and cash disposed of Rmb’000 38,343 2,741 41,084 9/14/2015 Rmb’000 13,975 4,663 47,433 544 19,602 (27,646) (18,366) 40,205 41,084 40,205 879 38,343 (19,602) 18,741 164 50. COMMITMENTS Authorised but not contracted for: – Purchase of machinery and equipment – Renovation of service areas – Acquisition and construction of properties – Equity investments 51. OPERATING LEASES The Group as lessee Minimum lease payments Contingent rental expenses 12/31/2015 12/31/2014 Rmb’000 Rmb’000 312,220 31,340 317,630 – 431,405 67,700 308,049 213,000 661,190 1,020,154 Year ended 12/31/2015 Rmb’000 84,973 183 85,156 Year ended 12/31/2014 Rmb’000 (Restated) 76,766 1,721 78,487 At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: Within one year In the second to fifth years inclusive Over five years 12/31/2015 12/31/2014 Rmb’000 73,567 81,930 502 155,999 Rmb’000 (Restated) 50,789 85,594 725 137,108 Operating lease payments represent rentals payable by the Group for certain service areas along expressways located in Zhejiang, Tianjin, Shandong and Henan and the operating branches of Zheshang Securities and Zheshang Futures. They are negotiated for an average term of three to ten years and some of the rentals contain both a fixed element and a contingent element linked to sales. The above commitment represented the minimum lease payments payable to lessors only and do not include any contingent rent elements. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 165 51. OPERATING LEASES (Continued) The Group as lessor The Group leased their service areas and communication ducts and part of spare office premises under operating lease arrangements. Leases are negotiated for terms ranging from 1 to 25 years and rentals are fixed annually. At the end of the reporting period, the Group had contracted with tenants for the following future minimum lease payments: Within one year In the second to fifth years inclusive After five years 12/31/2015 12/31/2014 Rmb’000 114,063 141,642 43,711 299,416 Rmb’000 (Restated) 102,743 102,860 29,708 235,311 For certain of the Group’s service areas, the rental income are variable and being calculated at the higher of a pre-agreed percentage of revenue of the relevant service areas made by the lessees or the minimum lease payments. The above commitment represented the minimum lease payments from lessees only and do not include any contingent rent elements. 52. PLEDGE OF ASSETS At the end of reporting period, the Group had pledged the following assets to banks as securities against general banking facilities granted to the Group: Property, plant and equipment Expressway operating rights Prepaid lease payments 12/31/2015 12/31/2014 Rmb’000 – 4,086,513 – 4,086,513 Rmb’000 (Restated) 747,456 4,930,148 39,251 5,716,855 166 53. CONTINGENT LIABILITIES Guarantees given to bank, in respect of a joint venture (Note) 12/31/2015 12/31/2014 Rmb’000 1,021,374 Rmb’000 1,076,910 Note: The Group provided a financial guarantee to Shengxin Co, a 50% owned joint venture of the Group, in favour of a bank for 50% of its outstanding bank borrowings and interest. As at December 31, 2015, the bank borrowings of Shengxin Co and accrued interest amounted to Rmb2,040,000,000 (2014: Rmb2,150,000,000) and Rmb2,749,000 (2014: 3,820,000), respectively. The directors of the Company consider that the fair value of the guarantee is insignificant at initial recognition and default by the guaranteed party is not probable as at December 31, 2015 and 2014. 54. RELATED PARTY TRANSACTIONS AND BALANCES Other than disclosed elsewhere in the consolidated financial statements, during the year, the Group also entered into the following significant transactions with related parties: (i) Transactions and balances with government related parties The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“government-related entities”). In addition, the Group itself is part of a larger group of companies under the Communications Group which is controlled by the PRC government. However, due to the business nature, in respect of the Group’s toll road and securities business, the directors are of the opinion that it is impracticable to ascertain the identity of counterparties and accordingly whether the transactions are with other government-related entities in the PRC. Details of other significant transactions with government related parties are summarised below: (a) Communications Group Equity transactions As disclosed in Note 2, on August 5, 2015, the Company entered into an agreement with Communications Group pursuant to which the Company purchased from Communications Group a 80.614% equity interest in the Hanghui Co held by Communications Group at a cash consideration of Rmb1,699,348,000. As disclosed in Note 25, on October 12, 2015, the Company entered into an agreement with Zhejiang Communications Investment, pursuant to which the Company sold the 50% equity interest in an associate, Petroleum Co to Zhejiang Communications Investment at a cash consideration of Rmb142,018,000. As at December 31, 2015, Rmb100,000,000 has been paid by Zhejiang Communications Investment. Rmb35,676,000 out of the remaining Rmb42,018,000 has been paid in January 2016. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 20152015 ANNUAL REPORT 167 54. RELATED PARTY TRANSACTIONS AND BALANCES (Continued) (i) Transactions and balances with government related parties (Continued) (a) Communications Group (Continued) As disclosed in Note 49, on August 31, 2015, the Company entered into an agreement with Zhejiang Communications Resources, pursuant to which the Company sold the 100% equity interest in Maintenance Co to Zhejiang Communications Resources at a cash consideration of Rmb41,084,000. Entrusted loans Pursuant to the entrusted loan contracts entered into between Hanghui Co and Communications Group on March 12, 2013, Communications Group agreed to provide Hanghui Co with entrusted loans amounting to Rmb570,000,000 at a fixed interest rate of 5.24% per annum, which have been renewed for another three years on August 10, 2015, at a fixed interest rate of 4.55% per annum, with maturity date of August 10, 2018. Interest expenses incurred Management and Administrative services For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 26,982 Rmb’000 (Restated) 30,227 In July 1, 2015, the Company entered into agreements with the Communications Group, pursuant to which, the Company would provide management and administrative services to two toll roads of the Communications Group, including Shenjiahuhang Expressway and Shensuzhewan Expressway. According to the agreements, the Company would charge the Communications Group management fee based on actual cost basis. During this year, a total management fee of Rmb397,000 has been charged to the Communications Group. 168 54. RELATED PARTY TRANSACTIONS AND BALANCES (Continued) (i) Transactions and balances with government related parties (Continued) (a) Communications Group (Continued) Other transactions Toll road service area leasing income earned (Note i) Toll road service area management fee paid (Note i) Property leasing income earned Road maintenance service expenses incurred (Note ii) Toll road related inspection services income earned Toll road related inspection services expense incurred Notes: For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 9,736 2,600 4,202 115,953 – 6,788 Rmb’000 (Restated) 9,162 2,300 3,552 61,451 6,517 – (i) Pursuant to the leasing and operation agreement entered into between Jinhua Co (as defined in Note 55) and Zhejiang Communications Investment, Jinhua Co leased the toll road service area to Zhejiang Communications Investment and Zhejiang Communications Investment managed the operation of the service area and the advertising business in respect of the toll road service area. Such business began from January 1, 2011 and will be expired at the same time with the operating right in 2030. Pursuant to the leasing and operation agreements entered into between Hanghui Co and Zhejiang Communications Investment, Hanghui Co leased the toll road service area to Zhejiang Communications Investment and Zhejiang Communications Investment managed the operation of the service. Such business began from January 1, 2011 and will be expired at the same time with the operating right for respective expressway sections in 2029 to 2031. (ii) Among the road maintenance service expenses charged by Communications Group, Rmb56,208,000 and Rmb46,048,000 have been incurred by Hanghui Co, during the period from January 1, 2015 till November 9, 2015 and the year ended December 31, 2014 respectively, which is prior to the date when Hanghui Co, has been merged into the Group. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 169 54. RELATED PARTY TRANSACTIONS AND BALANCES (Continued) (i) Transactions and balances with government related parties (Continued) (b) Transactions with other government related parties Petroleum Co Purchase of petroleum products For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 1,445,196 Rmb’000 1,931,466 Pursuant to the operation management agreement entered into between Zhejiang Expressway Investment Development Co., Ltd. (“Development Co”), a wholly owned subsidiary of the Company, and Petroleum Co in respect of the petrol stations in the service areas along the Shanghai-Hangzhou-Ningbo and Shangsan Expressways, Petroleum Co assist Development Co in running their petrol stations along these roads. Petroleum Co is a government related entity. Others The Group has entered into various significant transactions, including deposit placements, borrowings and other general banking facilities, with certain banks and financial institution which are government-related entities in its ordinary course of business. In view of the nature of those banking transactions, the directors are of the opinion that separate disclosure would not be meaningful. (ii) Transactions and balances with associates and other non-government related parties Financial service provided by Zhejiang Communications Finance The Group entered into a financial services agreement with Zhejiang Communications Finance. Pursuant to the agreement, Zhejiang Communications Finance agreed to provide the Group with the deposit services, the loan and financial leasing services, the clearing services and other financial services. Loan advanced from Zhejiang Communications Finance Zhejiang Communications Finance provided Hanghui Co with several long-term loans with aggregated amount of Rmb450,000,000 at variable interest rates ranging from 4.275% to 4.513% per annum, with maturities in 2016 and 2017. Also, Zhejiang Communications Finance provided Hanghui Co with short-term loans amounted to Rmb50,000,000 and Rmb50,000,000, at fixed interest rates of 5.40% and 5.10% per annum, in 2014 and 2015 respectively. The short-term loan of Rmb50,000,000 due in 2015 was fully repaid during the year. 170 54. RELATED PARTY TRANSACTIONS AND BALANCES (Continued) (ii) Transactions and balances with associates and other non-government related parties (Continued) Loan advanced from Zhejiang Communications Finance (Continued) During the year, the Group had obtained advance of Rmb350,000,000 from Zhejiang Communications Finance which carried interest at a fixed interest rate of 4.46% per annum. The loan was fully repaid during the same year. Outstanding loan payable balances: repayable within one year repayable over one year Interest expenses incurred Deposits to Zhejiang Communications Finance Bank balances and cash – Time deposits with original maturity over three months – Cash and cash equivalents Interest income earned 12/31/2015 12/31/2014 Rmb’000 250,000 250,000 Rmb’000 (Restated) 50,000 450,000 For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 26,290 Rmb’000 (Restated) 27,189 12/31/2015 12/31/2014 Rmb’000 65,000 480,471 545,471 Rmb’000 (Restated) 20,000 575,929 595,929 For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 3,295 Rmb’000 (Restated) 2,321 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 171 54. RELATED PARTY TRANSACTIONS AND BALANCES (Continued) (ii) Transactions and balances with associates and other non-government related parties (Continued) Short-term loan advanced to Zhejiang Concord Property Outstanding loan receivable balances Interest receivables Analysed for reporting purpose as: Current assets (Note 31) Non-current assets (Note 31) Interest income earned 12/31/2015 12/31/2014 Rmb’000 600,000 34,436 634,436 634,436 – 634,436 Rmb’000 500,000 42,739 542,739 491,911 50,828 542,739 For the year For the year ended ended 12/31/2015 12/31/2014 Rmb’000 44,912 Rmb’000 43,024 During the year, the Group advanced additional entrusted loans to Zhejiang Concord Property totalling Rmb100,000,000 (2014: Rmb100,000,000) and received settlement of loan principals and interests amounting to Rmb450,000,000 (2014: Rmb50,000,000) and Rmb53,215,000 (2014: Rmb5,686,000), respectively. The amounts were unsecured and repayable in accordance with the terms of entrusted loan agreements entered into between the Group and Hangzhou Concord Group. The amounts carried interests at an effective interest rate of 8% (2014: 10%) per annum. All entrusted loans in both years were guaranteed by Zhejiang World Trade Property Development Co., Ltd., which is the controlling shareholder of Zhejiang Concord Property, an independent third party of the Group, in full. (iii) Key management emoluments The remuneration of the directors, supervisors and key management personnel during the year was Rmb7,392,000 (2014 (Restated): Rmb6,178,000) including retirement benefit scheme contribution of Rmb210,000 (2014 (Restated): Rmb169,000) which is determined by the performance of the individuals and the market trends. 172 55. PARTICULARS OF SUBSIDIARIES OF THE COMPANY Name of subsidiary Date and place Registered and of registration paid-in capital Percentage of equity interest attributable to the Company Rmb Direct Indirect Principal activities 12/31/2015 12/31/2014 12/31/2015 12/31/2014 Zhejiang Yuhang Expressway Co., Ltd. Note 1 75,223,000 % 51 % (Restated) 51 (“Yuhang Co”) Jiaxing Co Shangsan Co Development Co Zhejiang Expressway Advertising Co., Ltd. (“Advertising Co”) Zhejiang Expressway Vehicle Towing and Rescue Services Co., Ltd. (“Towing Co”) Zheshang Securities Zheshang Futures Zheshang Capital Management Note 2 1,859,200,000 99.999454 99.999454 2,400,000,000 120,000,000 73.625 100 73.625 100 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 16,000,000 8,000,000 3,000,000,000 500,000,000 100,000,000 500,000,000 – 100 – – – – – – – – 100 – – – – – – – 100 100 Zheshang Securities Co., Ltd. Asset Management Note 10 (“Asset Management”) Ningbo Dongfang Jujin Investment Management Note 11 1,000,000 Co., Ltd (“Dongfang Jujin”) Ningbo Dongfang Jujin Jiahua Investment Note 12 29,150,000 Management Center (Limited Partnership) (“Dongfang Jujin Jiahua”) Zhejiang Zheqi Co., Ltd. (“Zhejiang Zheqi”) Zhejiang Jinhua Yongjin Expressway Co., Ltd. Note 13 Note 14 200,000,000 1,900,000,000 (“Jinhua Co”) Hanghui Co Note 15 1,812,280,000 88.674 80.614 Hangzhou Jujin Jiawei Investment Mangement Note 16 206,103,000 (Limited Partnership) (“Jujin Jiawei”) Zheshang Futures (Hong Kong) Co., Limited Maintenance Co Note 17 Note 18 8,011,000 30,000,000 – – – – – 100 % – – – – *70 – **52.15 ***52.15 ***52.15 ***52.15 % (Restated) – – – – Management of the Yuhang Section of the Shanghai-Hangzhou Expressway Management of the Jiaxing Section of the Shanghai-Hangzhou Expressway Management of the Shangsan Expressway Operation of service areas as well as roadside advertising along the expressways operated by the Group *70 Provision of advertising Services – Provision of vehicle towing, repair and emergency rescue services **52.15 Operation of securities business ***52.15 Operation of securities business ***52.15 Operation of securities business ***52.15 Provision of asset management service ***52.15 ***52.15 Provision of investment management and advisory services ***16.37 ***16.37 Provision of investment management and advisory and private equity investments ***52.15 ***52.15 Trading of future – – ***23.48 ***52.15 – – – – – – Management of the Jinhua Section of the Ningbo–Jinhua Expressway Management of the Zhejiang Section of the Hangzhou-Ruili Expressway Provision of investment management and advisory and private equity investments Trading of future Management of toll road ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 173 55. PARTICULARS OF SUBSIDIARIES OF THE COMPANY (Continued) * The company is a subsidiary of Development Co, a wholly-owned subsidiary of the Company, and, accordingly, are accounted for as subsidiaries by virtue of the Group’s control over them. ** The company is a subsidiary of Shangsan Co, a non-wholly-owned subsidiary of the Company, and, accordingly, is accounted for as a subsidiary by virtue of the Group’s control over it. *** These companies and partnership entities are subsidiaries of Zheshang Securities, a non-wholly-owned subsidiary of Shangsan Co, and accordingly, are accounted for as subsidiaries by virtue of the Group’s control over it. Note 1: Yuhang Co was established on June 7, 1994 in the PRC as a joint stock limited company and was subsequently restructured into a limited liability company under its current name on November 28, 1996. The Company is able to control over Yuhang Co because it has the power to appoint five out of nine directors of that company and under the provisions stated in the Articles of Association of that company, the passing of ordinary resolutions at the board meetings required one-half of the directors attending the meetings. Note 2: Jiaxing Co was established on June 30, 1994 in the PRC as a joint stock limited company and was subsequently restructured into a limited liability company under its current name on November 29, 1996. Note 3: Shangsan Co was established on January 1, 1998 in the PRC as a limited liability company. Note 4: Development Co was established on May 28, 2003 in the PRC as a limited liability company. Note 5: Advertising Co was established on June 1, 1998 in the PRC as a limited liability company. Note 6: Towing Co was established on July 31, 2003 in the PRC as a limited liability company. Note 7: Zheshang Securities was established on May 9, 2002 in the PRC as a limited liability company. On November 16, 2013, the board of directors of the Company announced that Zheshang Securities proposed to seek a separate listing of its shares as A shares on the Shanghai Stock Exchange. This proposed spin-off for separate listing has not yet been completed at the end of the reporting period. Note 8: Zheshang Futures was established on September 7, 1995 in the PRC as a limited liability company. Note 9: Zheshang Capital Management was established on February 9, 2012 in the PRC as a limited liability company. The registered capital of Zheshang Capital Management has been reduced from Rmb300,000,000 to Rmb100,000,000 during the year ended December 31, 2014. 174 55. PARTICULARS OF SUBSIDIARIES OF THE COMPANY (Continued) Note 10: Asset Management was established on July 22, 2013 in the PRC as a limited liability Company. Note 11: Dongfang Jujin was established on March 25, 2014 in the PRC as a limited liability company. Note 12: Dongfang Jujin Jiahua was established on April 11, 2014 in the PRC as a limited partnership. Pursuant to the partnership agreement, Dongfang Jujin is a general partner, while Zheshang Capital Management and other two individuals are limited partners of the partnership. The directors of the Company consider that the Group has the practical ability to direct the relevant activities of Dongfang Jujin Jiahua unilaterally, and it is therefore classified as a subsidiary of the Group. Note 13: Zhejiang Zheqi was established on April 9, 2013 in in the PRC as a limited liability Company, and its paid-in share capital was increased by Rmb100,000,000 to Rmb200,000,000 during the year ended December 31, 2014. Note 14: Jinhua Co was established in February 2002 in the PRC as a limited liability Company. Jinhua Co became a wholly owned subsidiary and directly held by the Company during the year ended December 31, 2013. Note 15: Hanghui Co was established in December 2008 in the PRC as a limited liability Company. During the year ended December 31, 2015, the Company acquired the 80.614% equity interests in Hanghui Co from Communications Group, and Hanghui Co then became a subsidiary and directly held by the Company as at December 31, 2015. In December 2015, the equity interest held by the Group increased to 88.674% as the Company has made a capital contribution to Hanghui Co. Note 16: Jujin Jiawei was established on April 15, 2015 in the PRC as a limited partnership. Pursuant to the partnership agreement, Dongfang Jujin is a general partner, while Zheshang Capital Management and other three individuals are limited partners of the partnership. The directors of the Company consider that the Group has the practical ability to direct the relevant activities of Jujin Jiawei unilaterally, and it is therefore classified as a subsidiary of the Group. Note 17: Zheshang Futures (Hong Kong) Co., Limited was established on April 23, 2015 in Hong Kong as a limited liability Company. Note 18: Maintenance Co was established on January 28, 2014 in the PRC as a limited liability company. As disclosed in Note 49, Maintenance Co was disposed during the year ended December 31, 2015. Except that Zheshang Futures (Hong Kong) Co., Limited is operating in Hong Kong, all of the Company’s other subsidiaries are operating in Mainland China. As at December 31, 2015, Zheshang Securities has issued subordinated bonds, corporate bonds, short-term loan note and beneficial certificates at the total principal amount of Rmb7,200,000,000, Rmb1,500,000,000, Rmb600,000,000 and Rmb1,916,100,000, respectively. As at December 31, 2014, Zheshang Securities has issued long- term subordinated bonds to the public and beneficial certificates at the total principal amount of Rmb1,200,000,000 and Rmb883,570,000, respectively. Except for Zheshang Securities, none of the other subsidiaries had any debt securities in issue at any time during the year. ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 201556. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY NON-CURRENT ASSETS Property, plant and equipment Prepaid lease payments Expressway operating rights Other intangible assets Investments in subsidiaries Investments in associates Investment in a joint venture Bonds receivables Available-for-sale investments Other receivables CURRENT ASSETS Inventories Trade receivables Other receivables Prepaid lease payments Available-for-sale investments Held for trading investment Amount due from subsidiaries Dividend receivable Bank balances and cash – Time deposits with original maturity over three months – Cash and cash equivalents CURRENT LIABILITIES Trade payables Tax liabilities Other taxes payable Other payables and accruals Amount due to subsidiaries Bank borrowings NET CURRENT (LIABILITIES) ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES 2015 ANNUAL REPORT 175 12/31/2015 12/31/2014 Rmb’000 Rmb’000 502,595 1,500 478,498 1,594 3,882,369 4,227,602 1,760 2,552 9,809,369 6,640,021 377,484 373,470 305,230 – – 395,484 373,470 300,000 101,554 50,828 15,253,777 12,571,603 1,597 20,275 662,059 95 19,994 80,000 9,419 20,494 10,000 131,338 955,271 91,662 119,337 7,715 284,758 1,011,286 1,350,000 2,864,758 (1,909,487) 3,064 17,867 481,536 95 10,650 80,000 230,619 – 50,000 581,014 1,454,845 99,989 106,092 9,164 267,028 891,630 – 1,373,903 80,942 13,344,290 12,652,545 176 56. SUMMARY OF FINANCIAL INFORMATION OF THE COMPANY (Continued) NON-CURRENT LIABILITIES Deferred tax liabilities CAPITAL AND RESERVES Share capital Reserves 12/31/2015 12/31/2014 Rmb’000 Rmb’000 90,498 90,498 94,478 94,478 13,253,792 12,558,067 4,343,115 8,910,677 4,343,115 8,214,952 13,253,792 12,558,067 Investment Share capital Share Statutory valuation premium reserves reserve Dividend reserves Special Retained reserves profits Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 At December 31, 2014 4,343,115 3,645,726 2,160,070 153 1,150,925 18,666 1,239,412 12,558,067 Total comprehensive income for the year Interim dividend Final dividend Proposed final dividend Transfer to reserves – – – – – – – – – – – – – – 205,788 (158) – – – – – – (1,150,925) 1,216,072 – – – – – – 2,107,395 2,107,237 (260,587) (260,587) – (1,150,925) (1,216,072) (205,788) – – At December 31, 2015 4,343,115 3,645,726 2,365,858 (5) 1,216,072 18,666 1,664,360 13,253,792 ZHEJIANG EXPRESSWAY CO., LTD.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2015 2015 ANNUAL REPORT 177 (Issued by a Third Country Auditor registered with The UK Financial Reporting Council) TO THE MEMBERS OF ZHEJIANG EXPRESSWAY CO., LTD. 浙江滬杭甬高速公路股份有限公司 (Incorporated in the People’s Republic of China with limited liability) We have audited the consolidated financial statements of Zhejiang Expressway Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 70 to 176, which comprise the consolidated statement of financial position as at December 31, 2015, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors’ Responsibility for the Consolidated Financial Statements The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants 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. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Independent Auditor’s Report(Issued by a Third Country Auditor registered with The UK Financial Reporting Council)178 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2015, and of its financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. Deloitte Touche Tohmatsu Certified Public Accountants LLP Certified Public Accountants (Registered as a Third Country Auditor with the UK Financial Reporting Council) Shanghai, China March 17, 2016 ZHEJIANG EXPRESSWAY CO., LTD.Independent Auditor’s Report(Issued by a Third Country Auditor registered with The UK Financial Reporting Council)2015 ANNUAL REPORT 179 EXECUTIVE DIRECTORS STATUTORY ADDRESS ZHAN Xiaozhang (Chairman) CHENG Tao (Appointed on July 1, 2015) LUO Jianhu (General Manager) 12/F, Block A, Dragon Century Plaza 1 Hangda Road Hangzhou City, Zhejiang Province DING Huikang (Ended of Appointment Term on July 1, 2015) PRC 310007 NON-EXECUTIVE DIRECTORS Tel : 86-571-8798 5588 Fax: 86-571-8798 5599 WANG Dongjie DAI Benmeng ZHOU Jianping INDEPENDENT NON-EXECUTIVE DIRECTORS ZHOU Jun PEI Ker-Wei LEE Wai Tsang Rosa SUPERVISORS WU Yongmin ZHANG Guohua (Resigned , with effect from March 17, 2016) YAO Huiliang (Appointed on July 1, 2015) SHI Ximin (Appointed on July 1, 2015) LU Xinghai (Appointed on July 1, 2015) PRINCIPAL PLACE OF BUSINESS 5/F., No. 2, Mingzhu International Business Center 199 Wuxing Road Hangzhou City Zhejiang Province PRC 310020 Tel : 86-571-8798 5588 Fax: 86-571-8798 5599 LEGAL ADVISERS As to Hong Kong and US law: Herbert Smith Freehills 23rd Floor, Gloucester Tower 15 Queen’s Road Central Hong Kong FU Zhexiang (Ended of Appointment Term on July 1, 2015) ZHANG Xiuhua (Ended of Appointment Term on July 1, 2015) As to English law: Herbert Smith Freehills LLP COMPANY SECRETARY Tony ZHENG AUTHORIZED REPRESENTATIVES ZHAN Xiaozhang LUO Jianhu (Appointed on July 1, 2015) ZHANG Jingzhong (Ended of Appointment Term on July 1, 2015) Exchange House Primrose Street London EC2A 2HS United Kingdom As to PRC law: T & C Law Firm 11/F, Block A, Dragon Century Plaza 1 Hangda Road Hangzhou City, Zhejiang Province PRC 310007 Corporate Information180 AUDITORS Deloitte Touche Tohmatsu 35/F, One Pacific Place 88 Queensway Hong Kong H SHARES LISTING INFORMATION The Stock Exchange of Hong Kong Limited Code: 0576 LONDON STOCK EXCHANGE PLC INVESTOR RELATIONS CONSULTANT Code: ZHEH PR Concepts Asia Limited 16/F., Methodist House 36 Hennessy Road, Wanchai Hong Kong Tel : 852-2117 0861 Fax: 852-2117 0869 PRINCIPAL BANKERS Industrial and Commercial Bank of China, Zhejiang Branch Shanghai Pudong Development Bank, Hangzhou Branch H SHARE REGISTRAR AND TRANSFER OFFICE Hong Kong Registrars Limited Room 1712-1716, 17/F, Hopewell Centre 183 Queen’s Road East Hong Kong ADRS INFORMATION US Exchange: OTC Symbol: ZHEXY CUSIP: 98951A100 ADR: H Shares 1:10 REPRESENTATIVE OFFICE IN HONG KONG Suite 2910 29/F, Bank of America Tower 12 Harcourt Road Hong Kong Tel : 852-2537 4295 Fax: 852-2537 4293 WEBSITE www.zjec.com.cn ZHEJIANG EXPRESSWAY CO., LTD.Corporate InformationLocation Map of Expressways in Zhejiang Province

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