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1 China Dredging Environment Protection Holdings Limited (Incorporated in the Cayman Islands with limited liability) Stock Code: Interim Report

2 Contents Corporate Information Definition Group Chart Management Discussion and Analysis Disclosure of Interests and Other Information Report on Review of Condensed Consolidated Financial Statements Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income Condensed Consolidated Statement of Financial Position Condensed Consolidated Statement of Changes in Equity Condensed Consolidated Statement of Cash Flows Notes to the Condensed Consolidated Financial Statements

3 Corporate Information BOARD OF DIRECTORS Executive Directors: Mr. Liu Kaijin (Chief Executive Officer and Joint Chairman) Ms. Zhou Shuhua Non-Executive Director: Mr. Liu Longhua (Joint Chairman) Independent Non-Executive Directors: Mr. Huan Xuedong Mr. Chan Ming Sun Jonathan Mr. Xu Hengju AUDIT COMMITTEE Mr. Chan Ming Sun Jonathan (Chairman) Mr. Huan Xuedong Mr. Xu Hengju REMUNERATION COMMITTEE Mr. Xu Hengju (Chairman) Mr. Liu Longhua Mr. Chan Ming Sun Jonathan NOMINATION COMMITTEE Mr. Liu Longhua (Chairman) Mr. Chan Ming Sun Jonathan Mr. Xu Hengju AUTHORISED REPRESENTATIVES Mr. Liu Kaijin Ms. Wong Kwan Lai COMPANY SECRETARY Ms. Wong Kwan Lai LEGAL ADVISOR Chiu & Partners (as to Hong Kong Law) 02 China Dredging Environment Protection Holdings Limited Interim Report 2016

4 Corporate Information (continued) AUDITOR CWC CPA Limited Certified Public Accountants PRINCIPAL BANKERS China Merchants Bank Co., Ltd. Yancheng Branch Yancheng City Branch office of Agricultural Bank of China Limited China Construction Bank Asia Corporation China Everbright Bank (Nanjing Branch) REGISTERED ADDRESS Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS The People s Republic of China: No. 1 Xingyu Road, Baocai Industrial Zone, Yandu District, Yancheng City, Jiangsu Province, the PRC Hong Kong: Office 19, 36th Floor, China Merchants Tower, Shun Tak Centre, Nos Connaught Road Central, Hong Kong PRINCIPAL SHARE REGISTRAR Codan Trust Company (Cayman) Limited HONG KONG SHARE REGISTRAR Tricor Investor Services Limited WEBSITE Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands Codan Trust Company (Cayman) Limited 03

5 Definition Audit Committee the audit committee of the Company Board the board of Directors CG Code the code provisions as contained in Corporate Governance Code and Corporate Governance Report set out in Appendix 14 to the Listing Rules (as amended from time to time), which are adopted (with modification) by the Board as its corporate governance code Company / China Dredging ENV China Dredging Environment Protection Holdings Limited Contractual Arrangements a series of contracts, pursuant to which all economic benefits and risks arising from the business of Jiangsu Xingyu are transferred to Xiangyu PRC, details of which were set out in the prospectus of the Company dated 8 June 2011 Director(s) director(s) of the Company Group the Company and its subsidiaries HK$ Hong Kong dollars, the lawful currency of Hong Kong Jiangsu Fengyu Jiangsu Fengyu Property Company Limited*, a wholly-owned subsidiary of the Company Jiangsu Jiaolong Jiangsu Jiaolong Salvage Harbour Engineering Co. Ltd.*, a non-wholly owned subsidiary of the Company Jiangsu Xingyu / PRC Operational Entity Jiangsu Xingyu Holdings Group Limited* (formerly known as Jiangsu Xingyu Port Construction Company Limited*), a wholly-owned subsidiary of the Company Listing Rules Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time) 04 China Dredging Environment Protection Holdings Limited Interim Report 2016

6 Definition (continued) Model Code Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules (as amended from time to time) Mr. Liu Mr. Liu Kaijin, joint chairman, chief executive officer and an executive Director (who is the spouse of Ms. Zhou) Ms. Zhou Ms. Zhou Shuhua, an executive Director (who is the spouse of Mr. Liu) Nomination Committee the nomination committee of the Company PRC the People s Republic of China Remuneration Committee the remuneration committee of the Company Reporting Period the six months ended 30 June 2016 RMB Renminbi, the lawful currency of the PRC SFO the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong) (as amended from time to time) 571 Shareholder(s) shareholder(s) of the Company Share(s) ordinary share(s) of the Company Share Option Scheme the share option scheme approved by Shareholders on 24 May 2011 Stock Exchange The Stock Exchange of Hong Kong Limited Xiangyu Environment Protection Jiangsu Xiangyu Environment Protection Equipment Company Limited*, a wholly-owned subsidiary of the Company 05

7 Definition (continued) Xiangyu PRC Jiangsu Xiangyu Port Constructing Project Administration Co. Ltd.*, a wholly-owned subsidiary of the Company Xiangyu Water Management Jiangsu Xiangyu Water Management Company Limited*, a wholly-owned subsidiary of the Company * For identification purpose only 06 China Dredging Environment Protection Holdings Limited Interim Report 2016

8 Group Chart The following sets out the corporate structure of the Group as at 30 June 2016: China Dredging Environment Protection Holdings Limited (incorporated in the Cayman Islands) 80% 100% 100% 100% Huaian Shi Xiangyu Technology Microfinance Ltd. (incorporated in the PRC) Power Wealth Group (BVI) Limited (incorporated in the British Virgin Islands) (BVI) 100% Xiangyu Dredging Company Limited (incorporated in HK) Ever Universe Holdings Limited (incorporated in the British Virgin Islands) Power Wealth Engineering Limited (incorporated in HK) 51% Jiangsu Xingyu Holdings Group Ltd.* (incorporated in the PRC) (Note 1) VIE Contractual Arrangements (Note 2) 100% 100% Jiangsu Xiangyu Port Constructing Project Administration Co. Ltd.* (incorporated in the PRC) 100% 100% Jiangsu Xiangyu Water Management Company Limited* (incorporated in the PRC) 100% 100% Million Able International Limited (incorporated in HK) 100% Jiangsu Jiaolong Salvage Harbour Engineering Co. Ltd.* (incorporated in the PRC) Jiangsu Xingyu Environment Protection Company Limited* (incorporated in the PRC) Jiangsu Xingyu Commerce Co. Ltd.* (incorporated in the PRC) Jiangsu Lifu Infrastructure Construction Co., Ltd.* (incorporated in the PRC) Jiangsu Xiangyu Environment Profection Equipment Company Ltd.* (incorporated in the PRC) 100% Jiangsu Fengyu Property Development Co. Ltd.* (incorporated in the PRC) Jiangsu Xiangyu Environmental Protection Industry Development Ltd* (incorporated in the PRC) 100% Yancheng Juranzhijia Home Building Material Commercial Management Limited* (incorporated in the PRC) Notes: 1. Mr. Liu and Ms. Zhou are the registered holders of the registered capital in Jiangsu Xingyu, and Ms. Zhou holds all her equity interest in Jiangsu Xingyu as trustee for Mr. Liu. 2. On 19 April 2011, Jiangsu Xingyu, Xiangyu PRC, Mr. Liu and Ms. Zhou entered into the Contractual Arrangements, pursuant to which all economic benefits and risks arising from the business of Jiangsu Xingyu are transferred to Xiangyu PRC. * For identification purpose only * 07

9 Management Discussion and Analysis OVERVIEW The Group is primarily engaged in dredging business, which can be divided into three main operating and reportable segments, namely, (i) capital and reclamation dredging business ( CRD Business ); (ii) environmental protection dredging ( EPD ) and water management business ( EPD and Water Management Business ); and (iii) other works operated in marine sites such as salvage and hoisting works ( Other Marine Business ). In addition, the Group also commenced property management business (the Property Management Business ) in respect of the management of (Easyhome Yancheng Shopping Mall*) during the Reporting Period. (i) (ii) (iii) BUSINESS REVIEW During the Reporting Period, the Group recorded a revenue of approximately RMB346.2 million, representing a decrease of 12.6% from approximately RMB395.9 million for the corresponding period last year. Gross profit was approximately RMB118.8 million, representing a decrease of 10.9% as compared with the corresponding period last year. Net profit was approximately RMB64.6 million, representing a decrease of approximately 11.0% from approximately RMB72.6 million for the first half of The Group s profit attributable to Shareholders for the Reporting Period was approximately RMB62.0 million. The decrease in revenue of the Group for the Reporting Period compared to the first half of 2015 was mainly due to the slowdown of the construction projects in domestic dredging industry and the drop in number of newly contracted construction projects as the Group adopted a more prudent strategy in selecting new projects. 346,200, ,900, % 118,800, % 64,600,000 72,600, % 62,000,000 The CRD Business is a core business of the Group. Though revenue generated from the segment decreased during the Reporting Period, gross profit margin from it remained increasing, up 2.7 percentage points from the first half of 2015 to 40.6% attributable to our healthy and prudent operating strategy, reflected by a better understanding of the background and a more detailed and thorough due diligence review of newly contracted constructions, including but not limited to the feasibility of fund raising, natural conditions and construction status of the projects, to ensure a reliable capital return and a more controllable level of gross profit of such new projects % The Group proactively develops and expands the EPD and Water Management Business segment. Due to the sludge dewatering equipment produced by the Group for the sole use of EPD works, our dredging capacity increased by approximately 3 million cubic meters from 5 million cubic meters per annum during the first half of 2015 to 8 million cubic meters per annum in the Reporting Period China Dredging Environment Protection Holdings Limited Interim Report 2016

10 Management Discussion and Analysis (continued) BUSINESS REVIEW (Continued) Other Marine Business includes marine hoisting, installation, salvaging, vessel chartering and other engineering services. The service prices of the segment fell due to the fact of intensified market competition among hoisting and salvaging business. The Group completed the construction of a 8-floor shopping mall located in the core area of Yancheng National High-tech Industrial Development Zone, Yandu District, Yancheng. The land where the shopping mall constructed was acquired by the Group in May 2012 with a gross floor area of 75,600 square meters, mainly used for leasing under the Property Management Business. The shopping mall was officially named (Easyhome Yancheng Shopping Mall*) and commenced operation on 26 March 2016, positioning as a large scale home building material-themed shopping center offering onestop services from furniture, housewares to decoration materials to customers Leveraging on the brand of Easyhome and its mode of operation, the Group wishes to improve its competitiveness to boost the occupancy rate of the shopping mall and pursue higher profitability. In the long run, the Group expects this project to work as another long-term and stable source of revenue providing stable cash flows to the further expansion of the EPD business by the Group in the future. FUTURE PROSPECTS Looking forward, despite continuing slowdown in economic growth of the PRC, demand for environmental protection from both the government and the public keeps rising. Various business opportunities are expected to appear in the future following the enforcement and implementation of a series of environmental governance policies in recent years. Although the overall condition of the dredging industry is far from satisfactory and the materialisation of such business opportunities still needs time, the Group endeavors to seise the opportunity to the development of its business coming along with each environmental protection policy, coupled with greater efforts in the research and development of EPD techniques and related equipment production in a proactively manner for the purpose of development of EPD industry. As set out in the Annual Report 2015 of the Group, with our diversified experience in EPD works, adding to the sludge dewatering equipment designed and produced in-house, the Group will secure more dredging projects. The Group s EPD and Water Management Business is expected to grow in a sustainable way and secure more dredging projects for the Group, while greatly improving the market competitiveness, brand image and industry position of the Group. 09

11 Management Discussion and Analysis (continued) FUTURE PROSPECTS (Continued) In terms of capital operation, the Group will actively identify and materialise healthy and feasible financial plans based on the progress of its construction projects, so as to further optimise the financial position and enhance the capital base of the Group. FINANCIAL REVIEW Revenue During the Reporting Period, the Group recorded a revenue of approximately RMB346.2 million, representing a decrease of 12.6% as compared with approximately RMB395.9 million in the corresponding period of ,200, ,900, % Regarding the CRD Business segment and EPD and Water Management Business segment, the respective revenues generated during the Reporting Period were approximately RMB183.7 million and approximately RMB82.8 million which represented a decrease of 16.6% and a decrease of 20.0% respectively from the corresponding segments revenue in the corresponding period of The decrease in revenue from the CRD Business segment was primarily due to the slowdown of the implementation of the construction projects in the domestic dredging industry, and the drop in number of newly contracted construction projects as the Group implemented a more prudent and careful operating strategy in selecting new projects. The decrease in revenue from EPD and Water Management Business segment for the Reporting Period was due to the slow progress in complementing certain EPD projects. 183,700,000 82,800, % 20.0% Other Marine Business contributed a revenue of approximately RMB78.0 million to the Group for the Reporting Period, which represented an increase of 8.0% as compared with approximately RMB72.2 million in the corresponding period of ,000,000 72,200, % The revenue of the Property Management Business for the Reporting Period was approximately RMB1.7 million. The growth of this business segment is subject to the duration of the marketing and promotion efforts, the cultivation process of customer base as well as the ultimate customers recognition of the brand and shopping mall. 1,700, China Dredging Environment Protection Holdings Limited Interim Report 2016

12 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Operating costs and gross profit The Group s operating costs decreased from approximately RMB262.6 million for the six months ended 30 June 2015 to approximately RMB227.4 million for the Reporting Period, representing a decrease of 13.4%, which was due to the drop of the business volume along with the decrease in overall revenue. 262,600, ,400, % The Group recorded a gross profit of approximately RMB118.8 million for the Reporting Period, representing a decrease of 10.9% as compared with the six months ended 30 June 2015 of RMB133.3 million. The decrease in gross profit was mainly due to lower income during the Reporting Period. 118,800, ,300, % The segment gross profit margin of CRD Business increased from 37.9% for the six months ended 30 June 2015 to 40.6% for the Reporting Period, mainly due to the better gross profit terms for new capital and reclamation dredging projects which had been screened during the Reporting Period. 37.9% 40.6% The segment gross profit margin of EPD and Water Management Business for the Reporting Period was 29.9% which was the same with the corresponding period last year. This segment gross profit margin level was assessed to be reasonable. 29.9% The segment gross profit margin of Other Marine Business decreased by 6.3 percentage points from 15.2% for the six months ended 30 June 2015 to 8.9% for the Reporting Period, mainly due to the more intensive competition in the salvage industry which further lowered the project prices. 15.2% 8.9%6.3 As a result, the overall gross profit margin of the Group slightly increased from 33.7% for the six months ended 30 June 2015 to 34.3% for the Reporting Period. Other income Other income decreased from approximately RMB19.6 million for the six months ended 30 June 2015 to approximately RMB17.5 million for the Reporting Period, mainly due to the decrease in interest income in respect of certain non-current accounts receivables and consideration receivables during the Reporting Period. 33.7% 34.3% 19,600,000 17,500,000 11

13 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Net gain due to fair value changes of derivative financial liabilities During the Reporting Period, there was a non-cash gain of approximately RMB6.6 million due to the change of fair value of convertible bonds while there was a non-cash gain of approximately RMB6.6 million due to the change of fair value of convertible bonds and warrants for the same period last year. The relevant warrants expired on 18 January 2016 and the convertible bonds will mature on 7 November Marketing and promotion expenses Marketing and promotion expenses for the Reporting Period was approximately RMB5.7 million representing an increase of 69.2% as compared with the six months ended 30 June 2015 of approximately RMB3.4 million, which was mainly attributable to the coming into operation of (Easyhome Yancheng Shopping Mall*) during the Reporting Period. The Group launched a series of marketing and promotion activities, including inviting a famous celebrity to attend the grand opening ceremony. Administrative expenses Administrative expenses of the Group for the Reporting Period amounted to approximately RMB26.4 million, representing an increase of 44.3% from approximately RMB18.3 million for the six months ended 30 June This was mainly due to the increase in new staff salary cost as a result of the operation of (Easyhome Yancheng Shopping Mall*), the increase in depreciation and maintenance cost of the property, and the increase in the related professional fees. Foreign Exchange Difference Due to the fluctuation in the foreign exchange rate during the Reporting Period, part of the Group s bank borrowings, bank deposits and convertible bonds were denominated in United States dollars and Hong Kong dollars. The foreign exchange loss of approximately RMB5.9 million was recognised in the Reporting Period (30 June 2015: gain of approximately RMB2.1 million). Finance costs Finance costs decreased by approximately RMB2.7 million to approximately RMB35.6 million for the Reporting Period as compared to the six months ended 30 June ,600,000 6,600,000 5,700,000 3,400, % 18,300, %26,400,000 5,900,000 2,100,000 2,700,000 35,600, China Dredging Environment Protection Holdings Limited Interim Report 2016

14 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Income tax expense Although profit before tax for the Reporting Period decreased, income tax expense increased from approximately RMB27.0 million for the corresponding period in 2015 to approximately RMB28.9 million for the Reporting Period which was mainly due to the increase of the effective tax rate from 27.1% to 31.0%. Profit for the period As a combined effect of the above, the net profit for the period decreased by 11.0% from approximately RMB72.6 million for the six months ended 30 June 2015 to approximately RMB64.6 million for the Reporting Period. Comparing the operating profit of the six months ended 30 June 2015 with the operating profit for the Reporting Period with the non-cash net gain/loss due to fair value changes of derivative financial liability, gain on disposal of Jiangsu Lugang (as defined below) and exchange loss were not taken into account, the operating profit dropped by about 39.8%. Earnings per share Basic earnings per Share for the Reporting Period was RMB0.05 per Share, representing a decrease of about 27.5% as compared to earnings per Share of RMB0.07 for the six months ended 30 June Financial position As at 30 June 2016, total equity of the Group amounted to approximately RMB2,183.8 million (31 December 2015: approximately RMB2,123.4 million). 27,000,000 28,900, % 31.0% 72,600, % 64,600, % % 2,183,800,000 2,123,400,000 The Group s net current liabilities as at 30 June 2016 amounted to approximately RMB49.7 million (31 December 2015: approximately RMB216.6 million). The current ratio, which is calculated by dividing current assets by current liabilities as at 30 June 2016 was 0.97 (31 December 2015: 0.86). 49,700, ,600,

15 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Liquidity and financial resources The Group adopts a prudent cash and financial management policy. In order to achieve better cost control and improve the usage efficiency of funds, the Group s treasury activities are centralised and cash is generally deposited with banks and denominated mostly in Renminbi and Hong Kong dollars. Included in current assets were cash and various bank deposits totaling approximately RMB225.7 million as at 30 June 2016, representing an increase of approximately RMB24.6 million as compared with approximately RMB201.1 million as at 31 December ,700, ,100,000 24,600,000 The Group s accounts receivables as at 30 June 2016 increased by approximately RMB106.2 million from approximately RMB1,121.5 million as at 31 December 2015 to approximately RMB1,227.7 million. 1,121,500, ,200,000 1,227,700,000 Total liabilities of the Group decreased from approximately RMB1,753.7 million as at 31 December 2015 to approximately RMB1,635.3 million as at 30 June The decrease in total liabilities was mainly due to the decrease of bank borrowings and accounts and other payables and derivative financial liabilities embedded in convertible bonds. The Group s gearing ratio (calculated by interest bearing instruments (including bank borrowings, other borrowings and convertible bonds) divided by total equity) decreased to a level of 43.2% (2015: 47.7%), which the Board believes is at a healthy level. Capital Structure of the Group The capital structure of the Group consists of debts, which include amounts due to Directors, amounts due to non-controlling interests of a subsidiary, bank borrowings, other borrowings, convertible bonds and equity reserves attributable to owners of the Company, comprising issued share capital and various reserves. 1,635,300,000 1,753,700, % 47.7% The Directors review the capital structure on a semi-annual basis. As part of this review, the Directors consider the cost of capital and the risks associated with each class of capital. Based on the recommendations of the Directors, the Group will balance its overall capital structure through new share issues and share buy-backs as well as the issue of new debts or the redemption of existing debts. 14 China Dredging Environment Protection Holdings Limited Interim Report 2016

16 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Capital Structure of the Group (Continued) The Group s monetary assets, liabilities and transactions are mainly denominated in Renminbi and Hong Kong dollars. During the Reporting Period, most of the transactions were denominated and settled in Renminbi. The Group believes that its exposure to exchange rate risk is minimal. The Group recorded a net exchange loss amounting to RMB5.9 million during the Period. Charge over assets of the Group As at 30 June 2016, the Group s bank borrowings were secured by pledged bank deposits of approximately RMB115.0 million, charges over certain dredgers, accounts receivables and land owned by the Group, a property owned by a company which Mr. Liu Kaijin ( Mr. Liu ) has beneficial interest, and personal guarantees by Mr. Liu and Ms. Zhou Shuhua. There were also intra-group charges between two of the Company s wholly-owned subsidiaries as a result of the contractual arrangements, pursuant to which all economic benefits and risks arising from the business of (Jiangsu Xingyu Holding Group Limited*) have been transferred to (Jiangsu Xiangyu Port Constructing Project Administration Co. Ltd.*). Risk management policies The Group in its ordinary course of business is exposed to market risks such as currency risk and interest rate risk. The Group s risk management strategy aims to minimise the adverse effects of these risks on its financial performance. 5,900, ,000,000 As most of the Group s trading transactions, monetary assets and liabilities were denominated mainly in Renminbi, which was the Group s functional and reporting currencies, and save for convertible bonds and certain bank borrowing and balances denominated in United States dollars and Hong Kong dollars, the foreign exchange loss recognised for the Reporting Period was approximately RMB5.9 million (30 June 2015: gain of approximately RMB2.1 million). The Group is giving full attention to respond to the related foreign exchange rate risks. 5,900,000 2,100,000 As current interest rates stay at relatively low levels, the Group has not entered into any interest rate hedging contracts or any other interest rate related derivative financial instrument. However, the Group continues to monitor its related interest rate exposure closely. 15

17 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Material acquisitions and disposals On 9 March 2016, Jiangsu Xingyu entered into a share transfer agreement with Ms. Xu Xiulan and Ms. Chou Zhaoxiu (collectively called the Purchasers ) pursuant to which Jiangsu Xingyu agreed to sell the entire equity interest of (Jiangsu Province Lugang Construction Project Co. Limited*) ( Jiangsu Lugang ), an indirect wholly-owned subsidiary of the Company, to the Purchasers, among which 98.89% equity interest should be acquired by Ms. Xu Xiulan and the remaining 1.11% equity interest should be acquired by Ms. Chou Zhaoxiu. The total consideration is RMB85.8 million. Jiangsu Lugang is principally engaged in port and waterway construction and reclamation dredging business. The transaction was completed on 17 March % 1.11% 85,800,000 Pursuant to the above share transfer agreement, the Purchasers shall undertake that after completion of the share transfer, the Purchasers shall continue to cooperate with Jiangsu Xingyu on its business to ensure that the operation of investment projects of Jiangsu Xingyu which tenders have been awarded will not be affected by the sale of Jiangsu Lugang. Capital commitments and contingent liabilities As at 30 June 2016, the Group had capital commitments of approximately RMB88.1 million (31 December 2015: approximately RMB107.5 million) which included the construction cost of approximately RMB71.9 million for (Easyhome Yancheng Shopping Mall*), the capital investment of approximately RMB7.1 million in a micro-financing company, the capital investment of approximately RMB6.0 million in a water management company and the construction cost of approximately RMB3.1 million for an environmental equipment plant. 88,100, ,500,000 71,900,000 7,100,000 6,000,000 3,100,000 As at 30 June 2016, the Group did not have any material contingent liability (31 December 2015: nil). 16 China Dredging Environment Protection Holdings Limited Interim Report 2016

18 Management Discussion and Analysis (continued) FINANCIAL REVIEW (Continued) Employees and remuneration policy As at 30 June 2016, the Group had a workforce of 622 employees (31 December 2015: 620). Total staff cost for the Reporting Period was about RMB25.1 million (30 June 2015: approximately RMB30.0 million). The Group s remuneration policy is basically determined by the Directors, based on the performance of individual employees and the market conditions. In addition to salaries and discretionary bonuses, employee benefits included pension contributions and options which may be granted under the Share Option Scheme (under which options to subscribe for Shares that could be granted to independent non-executive Directors would be subject to the applicable conditions and independence restrictions as set out in the Listing Rules). The Group also provides on-going training to its employees ,100,000 30,000,000 During the Reporting Period, the Group did not experience any strikes, work stoppages or significant labour disputes which affected its operations or any significant difficulties in recruiting and retaining qualified staff. 17

19 Disclosure of Interests and Other Information DIRECTORS AND CHIEF EXECUTIVE S INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY AND ASSOCIATED CORPORATIONS As at 30 June 2016, the Directors and the Company s chief executive, and their respective associates had the following interests in the Shares and underlying shares of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or pursuant to the Model Code, or were required to be entered in the register kept by the Company pursuant to Section 352 of the SFO: Interests in the Company XV XV Long position *Approximate Name of Director Capacity Notes Number of ordinary Shares percentage of total number of Shares * Mr. Liu Kaijin Interest in controlled corporation 1 335,301, % Beneficial owner 1 37,503, % Ms. Zhou Shuhua Interest in spouse 2 372,804, % * These percentages are calculated based on the 1,232,064,000 Shares in issue as at 30 June * 1,232,064,000 Notes: 1. Mr. Liu is the sole beneficial owner of Wangji Limited ( Wangji ), a company incorporated in the British Virgin Islands with limited liability, which is the direct owner of the 335,301,000 Shares. Further, Mr. Liu is the beneficial owner of 37,503,000 Shares ,301,000 37,503, Ms. Zhou is the spouse of Mr. Liu who is also a Director. By virtue of the SFO, Ms. Zhou is deemed to be interested in all interests of Mr. Liu in the Company including long position and short position. China Dredging Environment Protection Holdings Limited Interim Report

20 Disclosure of Interests and Other Information (continued) DIRECTORS AND CHIEF EXECUTIVE S INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY AND ASSOCIATED CORPORATIONS (Continued) Interests in associated corporations Name of Director Long position Name of associated corporation Capacity Notes Share capital Approximate percentage of total number of shareholding Mr. Liu Kaijin Wangji Beneficial owner 200 ordinary shares 100% 200 Jiangsu Xingyu Beneficial owner 1 Register capital of RMB39,315, % 39,315,800 Ms. Zhou Shuhua Wangji Interest in spouse ordinary shares 100% 200 Jiangsu Xingyu Interest in spouse 2 Register capital of RMB39,315, % 39,315,800 Notes: 1. Mr. Liu is the sole beneficial owner of the entire registered capital of Jiangsu Xingyu. Mr. Liu and Ms. Zhou are the registered holders of 98.47% and 1.53% respectively in the registered capital in Jiangsu Xingyu. The 1.53% interest in the registered capital of Jiangsu Xingyu were held on trust by Ms. Zhou for Mr. Liu pursuant to a shareholding confirmation dated 12 July Ms. Zhou is the spouse of Mr. Liu who is a Director. By virtue of the SFO, Ms. Zhou is deemed to be interested in all interests of Mr. Liu in the associated corporations including long position and short position. Saved as disclosed above, none of the Directors and chief executive of the Company or any of their associates had any interests or short positions in the Shares, underlying Shares or debentures of the Company or any associated corporation as at 30 June 2016 (within the meaning of Part XV of the SFO), which had been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors or chief executive of the Company were deemed or taken to have under such provisions of the SFO) or as recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code % 1.53% 1.53% 2. XV XV

21 Disclosure of Interests and Other Information (continued) SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY As at 30 June 2016, other than the Directors and the chief executive s interests and short positions in the Shares and underlying Shares as recorded in the register required to be kept under Section 336 of the SFO, to the best of the knowledge and belief of the Directors, the following substantial Shareholders had interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO or otherwise notified to the Company and the Stock Exchange: Interests in the Company 336 XV Name of Shareholder Capacity Notes Long position Number of ordinary Shares *Approximate percentage of total number of Shares * Short position Number of ordinary Shares Approximate percentage of total number of Shares Wangji Beneficial owner 335,301, % Beneficial owner 171,120, % CITIC Capital China Access Fund Limited ( CITIC ) Beneficial owner 1 90,000, % CITIC Capital Holdings Limited Interest in controlled corporations 2 90,000, % Leung Ka Kit Beneficial owner 73,184, % Beneficial owner 85,560, % * These percentages are calculated based on the 1,232,064,000 Shares in issue as at 30 June * 1,232,064, China Dredging Environment Protection Holdings Limited Interim Report 2016

22 Disclosure of Interests and Other Information (continued) SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY (Continued) Interests in the Company (Continued) Note: 1. CITIC is the beneficial owner of the 90,000,000 Shares of the Company by virtue of the convertible bonds issued by the Company to it on 8 November CITIC 90,000, CITIC is wholly owned by CITIC Capital Investment Management (Cayman) Limited, which is wholly owned by CITIC Capital Asset Management Limited, which is wholly owned by CITIC Capital Holdings Limited. 2. CITIC CITIC Capital Investment Management (Cayman) Limited CITIC Capital Investment Management (Cayman) Limited CITIC Capital Asset Management LimitedCITIC Capital Asset Management Limited Saved as disclosed above, as at 30 June 2016, no person (other than Directors and the Company s chief executive whose interests are set out in the section headed Directors and Chief Executive s Interests and Short Positions in Shares and Underlying Shares of the Company and Associated Corporations above) had interest or short position in the Shares or underlying shares of the Company and associated corporations that was required to be recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO or which would fall to be disclosed to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO. 336 XV2 3 SHARE OPTION SCHEME The Company has adopted the Share Option Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group s operations. The Directors consider the Share Option Scheme, with its broadened basis of participation, will enable the Group to reward the employees, the Directors and other selected participants for their contributions to the Group. During the Reporting Period, no share options was granted or exercised nor cancelled or lapsed under the Share Option Scheme. As at 30 June 2016, the Company had no outstanding options under the Share Option Scheme. The total number of Shares available for issue under the Share Option Scheme and the percentage to the total issued share capital of the Company that it represents as at 30 June 2016 were 85,560,000 Shares and approximately 6.94% respectively. 85,560, % 21

23 Disclosure of Interests and Other Information (continued) COMPLIANCE WITH CORPORATE GOVERNANCE CODE The Company is committed to high standards of corporate governance. The Directors believe that the Company has complied with all the applicable code provisions of the CG Code contained in Appendix 14 of the Listing Rules for the Reporting Period and there was no material deviation from the CG Code. AUDIT COMMITTEE AND REVIEW OF UNAUDITED FINANCIAL STATEMENTS The Audit Committee has been set up in accordance with the Listing Rules. Members of the Audit Committee as at 30 June 2016 comprised Mr. Chan Ming Sun Jonathan (chairman), Mr. Xu Hengju and Mr. Huan Xuedong, all of whom are independent non-executive Directors. The Audit Committee has reviewed with the management the accounting principles and practices adopted by the Group, financial reporting matters including a review of the unaudited consolidated results for the Reporting Period prior to recommending them to the Board for approval. The unaudited condensed consolidated interim financial statements for the Reporting Period have been reviewed by the Company s auditor, CWC CPA Limited. REMUNERATION COMMITTEE The Remuneration Committee has been set up in accordance with Appendix 14 to the Listing Rules with written terms of reference. The principal responsibilities of the Remuneration Committee include making recommendations to the Board on the Group s policy and structure for all remuneration of Directors and senior management and reviewing the specific remuneration packages of all executive Directors and senior management by reference to corporate goals and objectives resolved by the Board from time to time. As at 30 June 2016, the Remuneration Committee comprised of Mr. Xu Hengju (chairman) and Mr. Chan Ming Sun Jonathan, both of whom are independent non-executive Directors, and Mr. Liu Longhua, a non-executive Director. 22 China Dredging Environment Protection Holdings Limited Interim Report 2016

24 Disclosure of Interests and Other Information (continued) NOMINATION COMMITTEE The Nomination Committee has been set up in accordance with Appendix 14 to the Listing Rules with written terms of reference. The principal responsibilities of the Nomination Committee include formulating nomination policy and making recommendations to the Board on nomination and appointment of Directors and Board succession, developing selection procedures for nomination of candidates, reviewing the size, structure and composition of the Board, as well as assessing the independence of the independent non-executive Directors. As at 30 June 2016, the Nomination Committee comprised of Mr. Liu Longhua (chairman), a non-executive Director, Mr. Chan Ming Sun Jonathan and Mr. Xu Hengju, both of whom are independent non-executive Directors. INTERIM DIVIDEND The Directors have determined that no dividend will be paid in respect of the Reporting Period (six months ended 30 June 2015: Nil). PURCHASE, SALE OR REDEMPTION OF THE COMPANY S LISTED SECURITIES During the Reporting Period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company s securities. UPDATE ON DIRECTORS INFORMATION Pursuant to Rule 13.51B(1) of the Listing Rules, the change in information of a Director since the date of the Company s 2015 Annual Report is set out below: 13.51B(1) Mr. Chan Ming Sun Jonathan has been appointed as an independent nonexecutive director of Dining Concepts Holdings Limited (stock code: 8056), which is listed on the Growth Enterprise Market of the Stock Exchange, since July

25 Disclosure of Interests and Other Information (continued) DIRECTORS COMPLIANCE WITH THE MODEL CODE The Company has adopted the Model Code as set out in Appendix 10 to the Listing Rules as its own code of conducts regarding Directors securities dealings. Specific enquiries had been made to all Directors, who confirmed that they had compiled with the required standard set out in the Model Code during the Reporting Period. 24 China Dredging Environment Protection Holdings Limited Interim Report 2016

26 Report on Review of Condensed Consolidated Financial Statements TO THE BOARD OF DIRECTORS OF CHINA DREDGING ENVIRONMENT PROTECTION HOLDINGS LIMITED (incorporated in the Cayman Islands with limited liability) INTRODUCTION We have reviewed the condensed consolidated financial statements of China Dredging Environment Protection Holdings Limited (the Company ) and its subsidiaries (collectively referred to as the Group ) set out on pages 27 to 64, which comprise the condensed consolidated statement of financial position as of 30 June 2016 and the related condensed consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the six-month period then ended, and certain explanatory notes. The Main Board Listing Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 Interim Financial Reporting ( HKAS 34 ) issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with HKAS 34. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review, and to report our conclusion 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

27 Report on Review of Condensed Consolidated Financial Statements (continued) SCOPE OF REVIEW We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. A review of these condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS CWC CPA Limited Certified Public Accountants (Practising) Wong On Yee Practising Certificate Number: P05485 Hong Kong P August China Dredging Environment Protection Holdings Limited Interim Report 2016

28 Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended 30 June 2016 Six months ended 30 June Notes RMB 000 RMB 000 (Unaudited) (Unaudited) Revenue 5 346, ,886 Operating costs (227,362) (262,572) Gross profit 118, ,314 Other income 6 17,480 19,641 Other gains and losses 7 24,886 6,590 Marketing and promotion expenses (5,679) (3,356) Administrative expenses (26,437) (18,323) Finance costs 8 (35,619) (38,271) Profit before tax 93,456 99,595 Income tax expense 9 (28,867) (27,008) Profit and total comprehensive income for the period 10 64,589 72,587 Profit and total comprehensive income for the period attributable to: Owners of the Company 62,040 68,577 Non-controlling interests 2,549 4,010 64,589 72,587 Earnings per share 11 basic (RMB cents) diluted (RMB cents)

29 Condensed Consolidated Statement of Financial Position At 30 June 2016 At 30 June 2016 At 31 December 2015 Notes RMB 000 RMB 000 (Unaudited) (Audited) NON-CURRENT ASSETS Property, plant and equipment 13 1,614,922 1,658,604 Prepaid land lease payments 13 99, ,773 Investment properties ,462 Investment properties under construction ,702 Goodwill 201 2,956 Other intangible asset 13 4,917 Available-for-sale investment 15 6,000 20,921 Deposit paid for acquisition of property, plant and equipment 78,769 79,377 Deferred tax assets 100, ,354 Accounts and other receivables due after one year , ,442 Pledged bank deposits 15,000 15,000 2,357,264 2,492,129 CURRENT ASSETS Prepaid land lease payments 13 2,908 2,908 Accounts and other receivables and prepayments 16 1,233,202 1,180,985 Pledged bank deposits 100,000 47,572 Bank balances and cash 125, ,569 1,461,806 1,385,034 CURRENT LIABILITIES Accounts and other payables , ,670 Amounts due to directors 20,081 19,098 Amounts due to non-controlling interests of a subsidiary 6,100 1,644 Tax payable 135, ,827 Bank borrowings , ,405 Other borrowings 1, Convertible bonds , ,510 Derivative financial liabilities embedded in convertible bonds ,030 1,511,465 1,601,679 NET CURRENT LIABILITIES (49,659) (216,645) TOTAL ASSETS LESS CURRENT LIABILITIES 2,307,605 2,275, China Dredging Environment Protection Holdings Limited Interim Report 2016

30 Condensed Consolidated Statement of Financial Position (continued) At 30 June 2016 At 30 June 2016 At 31 December 2015 Notes RMB 000 RMB 000 (Unaudited) (Audited) CAPITAL AND RESERVES Share capital , ,045 Reserves 1,925,525 1,863,236 Equity attributable to owners of the Company 2,027,570 1,965,281 Non-controlling interests 156, ,136 TOTAL EQUITY 2,183,799 2,123,417 NON-CURRENT LIABILITIES Amounts due to non-controlling interests of a subsidiary 70,212 85,533 Deferred tax liabilities 15,201 16,046 Bank borrowings 18 5,740 18,195 Other borrowings 32,653 32, , ,067 2,307,605 2,275,484 29

31 Condensed Consolidated Statement of Changes in Equity For the six months ended 30 june 2016 Attributable to owners of the Company PRC Non- Share capital Share premium statutory reserve Other reserve Retained profits Total controlling interests Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 (Note (i)) (Note (ii)) (i) (ii) At 1 January 2015 (audited) 71, ,567 19, , ,761 1,784, ,783 1,934,915 Profit and total comprehensive income for the period (unaudited) 68,577 68,577 4,010 72,587 Placing of shares (Note 19) 19 13, , , ,461 At 30 June 2015 (unaudited) 85, ,510 19, ,554 1,036,338 2,039, ,793 2,193,963 At 1 January 2016 (audited) 102, ,127 19, , ,897 1,965, ,136 2,123,417 Profit and total comprehensive income for the period (unaudited) Dividend paid to non-controlling interests (unaudited) ,040 62,289 2,549 64,838 (4,456) (4,456) At 30 June 2016 (unaudited) 102, ,127 19, , ,937 2,027, ,229 2,183,799 Notes: (i) According to the rules and regulations in the People s Republic of China (the PRC ), a portion of the profit after taxation of the Company s PRC subsidiaries is required to be transferred to a PRC statutory reserve before distribution of a dividend to their equity owners. The transfer can cease when the balance of the reserve reaches 50% of the registered capital of the respective subsidiaries. The reserve can be applied either to set off accumulated losses or to increase capital. (i) 50% (ii) The other reserve of the Group represents the difference between the nominal amount of the share capital issued by the Company in exchange for the nominal amount of the share capital and share premium of its subsidiaries pursuant to the (ii) group reorganisation in China Dredging Environment Protection Holdings Limited Interim Report 2016

32 Condensed Consolidated Statement of Cash Flows For the six months ended 30 June 2016 Six months ended 30 June Notes RMB 000 RMB 000 (Unaudited) (Unaudited) OPERATING ACTIVITIES Operating cash flows before movements in working capital 154, ,576 Increase in accounts and other receivables and prepayments (43,937) (151,497) Increase in accounts and other payables 22,015 76,245 Cash generated from operations 132,215 97,324 PRC income tax paid (7,175) (3,688) NET CASH FROM OPERATING ACTIVITIES 125,040 93,636 INVESTING ACTIVITIES Consideration received from Hongji Construction 15 70,774 15,000 Repayment from shareholder s loan to Yongheng 15 14,804 Interest received Purchase of property, plant and equipment (5,654) (2,993) Additions to investment properties under construction (20,812) (109,597) Placement of pledged bank deposits (60,000) (68,156) Withdrawal of pledged bank deposits 7,572 5,141 Purchase of leasehold land (8,693) Purchase of available-for-sale investment 15 (6,000) Deposit paid for acquisition of property, plant and equipment Proceeds on disposal of available-for-sale investment Settlement of other payables in relation to purchase of property, plant and equipment in prior year Settlement of other payables in relation to purchase of investment properties (80,790) 15 20,921 (30,620) (14,526) (5,066) Disposal of a subsidiary 22 (8) NET CASH USED IN INVESTING ACTIVITIES (13,896) (264,446) 31