Contents Corporate Information 2 Definitions 5 Financial Highlights 8 Management Discussion and Analysis 9 Disclosure of Interests 25 Corporate Govern

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2 Contents Corporate Information 2 Definitions 5 Financial Highlights 8 Management Discussion and Analysis 9 Disclosure of Interests 25 Corporate Governance 31 Interim Condensed Consolidated Statement of Comprehensive Income 35 Interim Condensed Consolidated Balance Sheet 37 Interim Condensed Consolidated Statement of Changes in Equity 39 Interim Condensed Consolidated Statement of Cash Flows 40 Notes to the Interim Condensed Consolidated Financial Information 41 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report

3 Corporate Information BOARD OF DIRECTORS Executive Directors Mr. Yu Long (Chief Executive Officer) Mr. Dai Richeng (Appointed on 7 June 2016) Mr. Liu Xujun (Deputy Chief Executive Officer) Mr. Huang Yunjian (Deputy Chief Executive Officer) Non-executive Directors Mr. Xu Lei (Chairman) Mr. Jiao Jun Mr. He Yuanping Mr. Feng Zhuangzhi Independent Non-executive Directors Mr. Kwok For Chi Mr. Hu Song Mr. Ma Shihao Mr. Ren Gangfeng AUDIT COMMITTEE Mr. Kwok For Chi (Chairman) Mr. Hu Song Mr. Ma Shihao Mr. Ren Gangfeng REMUNERATION COMMITTEE Mr. Hu Song (Chairman) Mr. Yu Long Mr. Ren Gangfeng NOMINATION COMMITTEE Mr. Xu Lei (Chairman) Mr. Hu Song Mr. Ren Gangfeng 2 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

4 Corporate Information COMPLIANCE COMMITTEE Mr. Yu Long (Chairman) Mr. Kwok For Chi Mr. Hu Song Mr. Ren Gangfeng Ms. Yang Chuanyun (Supervisor) COMPANY SECRETARY Mr. Li Bo AUTHORISED REPRESENTATIVES Mr. Yu Long Mr. Liu Xujun HEADQUARTER AND PRINCIPAL PLACE OF BUSINESS IN THE PEOPLE S REPUBLIC OF CHINA 15th and 16th Floor, Block A He Cheng International 1088 Haiyuan Zhong Road Gaoxin District Kunming, Yunnan PRC PRINCIPAL PLACE OF BUSINESS IN HONG KONG Suite /F, Central Plaza 18 Harbour Road Wanchai, Hong Kong BRANCH SHARE REGISTRAR IN HONG KONG Tricor Investor Services Limited Level 22, Hopewell Centre 183 Queen s Road East Wanchai, Hong Kong LEGAL ADVISERS As to Hong Kong law: Troutman Sanders 34th Floor, Two Exchange Square 8 Connaught Place Central Hong Kong 1088 A

5 Corporate Information As to PRC law: Jia Yuan Law Offices 4th Floor Ocean Plaza 158 Fuxing Men Nei Street Xicheng District, Beijing PRC COMPLIANCE ADVISER Somerley Capital Limited 20/F, China Building 29 Queen s Road Central Hong Kong PRINCIPAL BANKERS Industrial Bank Co., Ltd. China Guangfa Bank Co., Ltd. China CITIC Bank Corporation Limited The Hongkong and Shanghai Banking Corporation Limited Bank of China Limited Bank of Communications Co., Ltd. China Minsheng Banking Corp., Ltd. China Construction Bank Corporation China Merchants Bank The Bank of East Asia, Limited Agricultural Bank of China AUDITOR PricewaterhouseCoopers Certified Public Accountants 22/F, Prince s Building Central Hong Kong 22 STOCK CODE COMPANY S WEBSITE YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

6 Definitions In this interim report, unless the context otherwise requires, the following expressions shall have the following meanings: associate(s) Beijing OriginWater Board or Board of Directors Company controlling shareholder(s) Corporate Governance Code Director(s) Domestic Share(s) Group has the meaning ascribed to it under the Listing Rules Beijing OriginWater Technology Co., Ltd.*, a limited liability company established in the PRC, the shares of which are listed on the Shenzhen Stock Exchange (stock code: ) the board of Directors of the Company Yunnan Water Investment Co., Limited*, a joint stock limited liability company established in the PRC, the H Shares of which are listed on the Main Board of the Stock Exchange (stock code: 6839) H 6839 has the meaning ascribed to it under the Listing Rules the Corporate Governance Code and Corporate Governance Report, as set out in Appendix 14 to the Listing Rules the director(s) of our Company the issued ordinary shares at the nominal value of RMB1.00 per share in the share capital of the Company which are subscribed for or credited as paid up in RMB 1.00 the Company and its subsidiaries from time to time H Share(s) the issued ordinary shares at the nominal value of RMB1.00 per share in the share capital of the Company which are listed on the Main Board of the Stock Exchange H HK$ 1.00 Hong Kong dollar(s), the lawful currency of Hong Kong

7 Definitions Hong Kong IPO Listing Rules Model Code PRC Prospectus the Hong Kong Special Administrative Region of the PRC the initial public offering of the Company s Shares through the Stock Exchange in May 2015 the Rules Governing the Listing of Securities on the Stock Exchange the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Listing Rules the People s Republic of China, and for the purpose of this report only, excluding Hong Kong, Macau Special Administrative Region of the People s Republic of China and Taiwan the prospectus of the Company dated 13 May 2015, issued in relation to the IPO and listing of H Shares on the Stock Exchange H Reporting Period the 6-month period from 1 January 2016 to 30 June 2016 RMB SFO Share(s) Shareholder(s) Stock Exchange subsidiary(ies) Renminbi, the lawful currency of the PRC the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) 571 ordinary share(s) in the share capital of our Company with a nominal value of RMB1.00 each, including the H Shares and Domestic Shares 1.00 H holder(s) of the Share(s) The Stock Exchange of Hong Kong Limited has the meaning ascribed to it under the Listing Rules 6 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

8 Definitions Supervisor(s) Supervisory Committee THB YMCI US dollar, US$ Yunnan Province Water supervisor(s) of the Company the supervisory committee of the Company Thai Baht, the lawful currency of Thailand Yunnan Metropolitan Construction Investment Co., Ltd.*, a limited liability company established in the PRC and is the sole shareholder of Yunnan Province Water, the Company s controlling shareholder United States dollar, the lawful currency of United States Yunnan Province Water Industry Investment Co., Ltd.*, a limited liability company incorporated in the PRC % per cent % * For identification purposes only *

9 Financial Highlights The Board is pleased to announce the following financial highlights: Six months ended 30 June Percentage Change RMB 000 RMB 000 (Unaudited) (Unaudited) Revenue 867, , % Gross profit 277, , % Profit before income tax 106,643 63, % Profit for the period 89,294 54, % EBITDA (Note) 277, , % Profit attributable to owners of the Company 80,201 47, % Return on shareholders equity half year (%) (%) 1.75% 1.31% 33.6% Basic earnings per share (RMB) % Note: EBITDA is the profit for the Reporting Period before deduction of interest, taxation, depreciation and amortisation. 8 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

10 Management Discussion and Analysis INDUSTRY OVERVIEW Having entered into a New Normal under a new round of economic reform and continuous and steady development, the PRC macroeconomy has shifted from rapid growth in the past to a state of steady growth, while the growth of the Gross Domestic Product of the PRC remains in the leading position among other major economies in the world. As the PRC government accelerates and strengthens the comprehensive reform and pushes towards a new growth model focusing on green, low-carbon and recycling development under the New Normal, the green economy and environmental protection industries in the PRC are set to embrace an unprecedented opportunity for long-term growth. Since the Company s listing on the Stock Exchange, the PRC government has successively introduced a number of policies to support the environmental protection industry, placing the utmost importance to air, water and soil pollution control and ecological civilization construction. The newly revised Environmental Protection Law of the People s Republic of China (), the Opinions on Promoting the Third-party Treatment of Environmental Pollution ( ), the Implementation Opinions on Promoting Public Private Partnership in the Water Pollution Prevention and Control Area ( ), the Action Plan for Prevention and Treatment of Water Pollution ( ), the Law on the Prevention and Control of Atmospheric Pollution ( ), the Action Plan for Prevention and Treatment of Soil Pollution ( ), the Opinions on Accelerating the Ecological Civilization Construction ( ) and the Overall Plan for the Reform of Ecological Civilization System () have been released in succession. These rules and regulations provide guidance for enterprises to strictly control their emission standards, introduce advanced technologies and promote diversified investment, including introduction of social capital and increase of government funding, and further enhance supervision and strictly implement environmental laws to accelerate the construction of a comprehensive ecological civilization system which thereby generates huge investment opportunities and growth potential for the environmental protection market

11 Management Discussion and Analysis 2016 is a year with an explosion of the environmental protection industry and the rise of market segments including, among others, sponge city, soil restoration, black and odorous water treatment, publicprivate-partnership ( PPP ) projects, atmospheric pollution treatment, waste treatment and kitchen waste treatment. Driven by the national policies, it is expected that the water and solid waste treatment-related environmental protection industries in the PRC are set to embrace huge market opportunities and growth potential. The water supply, wastewater treatment and solid waste treatment enterprises will benefit from the rapid acceleration of the urbanization process in the PRC and the policy support of the PRC government for the environmental protection industry. The Board expects that the business scale of these markets will further expand and investors in the capital market will also gradually pay more attention to the environmental protection industry PPP DEVELOPMENT STRATEGIES AND PROSPECT The Group is committed to becoming a leading integrated service provider in municipal environment in the PRC and its principal businesses include investing in and operating urban wastewater treatment, water supply, solid waste treatment facilities, and construction and sales of equipment. The Company has a solid base of Shareholders comprising state-owned and private enterprises, and has unique competitive advantages in the development of wastewater treatment, water supply and solid waste treatment projects as well as identifying suitable targets for investment and acquisition in the PRC and Southeast Asia. The Group has extensive experience in the design, investment, construction and operation of water supply, wastewater treatment and solid waste treatment projects, and has accumulated extensive technical expertise, enabling the Group to implement appropriate measures according to preliminary assessment of the projects and to fully satisfy customers requirements by timely selecting a precise technical process and utilizing professional and systematic management. In order to improve synergy, efficiency and the collaborative strength of various projects to keep up with the Group s expansion and creation of new business segments, the Group developed a new model of regional centralized management, establishing a total of 5 regional management centers in Shandong area, Northeast area, Southwest area, East China area and North China area. In addition, the Group also created a new management structure which not only optimizes the regional centralized management, but also strengthens the core competitive advantages of the three main business segments, namely water supply, wastewater treatment and solid waste treatment, reinforcing them as the engines of growth and development. 10 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

12 Management Discussion and Analysis Looking forward, the corporate strategy of the Group will still focus on operating its businesses based in Yunnan Province while continuing to seek investment opportunities to expand its business to the regions in the PRC where the Group has competitive advantage, in particular the south-east coastal area, northern, north-western and south-western regions. The Group will also pay close attention to certain overseas emerging markets, such as Southeast Asian countries. The Group will capture opportunities in the environmental protection industry and combine its practical experience in the PPP model to acquire suitable projects which are complementary to its existing business in order to further increase its market share. The Group will continue to enhance its technological and project management standards to further improve operational efficiency. The Group will continue to adopt the Build-Operate-Transfer ( BOT ), Build-Own-Operate ( BOO ), Transfer-Own-Operate ( TOO ), Transfer- Operate-Transfer ( TOT ), Build and Transfer ( BT ), Engineering- Procurement-Construction ( EPC ) and Operation and Maintenance ( O&M ) models and licensed operation model to provide turnkey solutions of water supply, wastewater treatment and solid waste treatment as well as system integration services of core technologies to customers, and increase water supply and wastewater treatment capacities of the Group to lay the foundation for realizing the development plans. The Group will continue to steadily develop its various business segments in the second half of Due to the support of the relevant favorable policies introduced by governments of the PRC and the Southeast Asian countries and the growing market demands, in addition to consolidating and expanding the achievements gained in the existing business segments, the Group will continue its expansion in industrial hazardous wastes, medical hazardous wastes, waste power generation and other areas of solid waste treatment, striving to maintain its leading position in a highly competitive market environment. PPP BOTBOO TOO TOT BT EPC O&M

13 Management Discussion and Analysis BUSINESS REVIEW The Group is one of the leading integrated service providers in the wastewater treatment and water supply industries in the PRC. The Group s principal businesses include investing in and operating urban wastewater treatment, water supply, solid waste treatment facilities, and construction and sales of equipment. The Group mainly adopts the BOT, BOO, TOO, TOT, BT, EPC and O&M project models to provide customized and integrated turnkey solutions for water supply and wastewater treatment as well as system integration services of core technologies to customers, mainly municipal, district or county level governments of the PRC or their designated institutions. As at 30 June 2016, the Group s relevant water projects had the total daily treatment capacity of 2,311,000 tonnes, representing an increase of 22.0% as compared to the total daily treatment capacity of 1,895,000 tonnes as at 31 December As at 30 June 2016, the Group s relevant solid waste treatment projects had the total annual solid waste treatment capacity of 952,000 tonnes, representing an increase of 35.4% as compared to the total annual capacity of 703,000 tonnes as at 31 December Wastewater Treatment Projects As at 30 June 2016, the Group had a total of 60 wastewater treatment concession projects under construction and in operation, including 5 BOO projects, 42 BOT projects, 2 TOO projects and 11 TOT projects, with the total daily wastewater treatment capacity of 1,234,000 tonnes, representing an addition of 4 BOT projects and 4 TOT projects and an increase in the total daily wastewater treatment capacity of 210,000 tonnes or approximately 20.5% as compared with 31 December As at 30 June 2016, wastewater treatment concession projects which commenced commercial operation had the total daily wastewater treatment capacity of 899,000 tonnes, representing an addition of 2 BOT projects, 3 TOT projects and 1 BOO project and an increase in the total daily wastewater treatment capacity of 130,000 tonnes as compared with 31 December As at 30 June 2016, the Group s effective wastewater treatment utilization rate was approximately 65.4%, and the average unit charge of wastewater treatment was approximately RMB1.18 per tonne. BOT BOO TOO TOT BT EPC O&M 2,311,000 1,895, % 952, , % 60 5 BOO 42 BOT 2 TOO 11 TOT 1,234,000 4 BOT 4 TOT 210, % 899,000 2 BOT 3 TOT 1 BOO 130, % YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

14 Management Discussion and Analysis As at 30 June 2016, 10 wastewater treatment concession projects which had not commenced commercial operation had the total daily wastewater treatment capacity of 335,000 tonnes, representing an addition of 2 BOT projects and 1 TOT project with an increase in the total daily wastewater treatment capacity of 80,000 tonnes as compared with 31 December With an outstanding track record for project operation and management, the Group has established a leading position as a professional service provider in the water supply and wastewater treatment industries. This will enable the Group to secure future projects arising from active market development and existing customers and further enhance its market position. Water Supply Projects As at 30 June 2016, the Group had 28 water supply concession projects with the total daily capacity of 806,000 tonnes, representing an addition of 1 BOT project and 4 TOT projects and an increase in the total daily capacity of 160,000 tonnes as compared with 31 December As at 30 June 2016, water supply concession projects which commenced commercial operation had a total daily capacity of 505,000 tonnes, representing an addition of 4 TOT projects and an increase in the total daily capacity of 140,000 tonnes as compared with 31 December As at 30 June 2016, the Group s effective water supply utilization rate was approximately 62.3%, and the average unit charge of water supply was approximately RMB2.03 per tonne. As at 30 June 2016, there were 11 concession projects pending for operation with a total daily capacity of 301,000 tonnes, representing an addition of 1 BOT project pending for operation, and an increase in the total daily capacity of 20,000 tonnes as compared with 31 December Solid Waste Treatment Projects As at 30 June 2016, the Group had 5 solid waste treatment projects with an annual treatment capacity of 587,000 tonnes, of which 4 of them with an annual treatment capacity of 331,000 tonnes had commenced commercial operation and 1 of them with an annual treatment capacity of 256,000 tonnes was pending for operation. As compared to 31 December 2015, 1 additional solid waste treatment project commenced operation and the total annual treatment capacity increased by 30,000 tonnes. As at 30 June 2016, the Group s effective solid waste treatment utilization rate was approximately 71.8%. 335, BOT 1 TOT 80, ,000 1 BOT 4 TOT 160, ,000 4 TOT 140, % ,000 1BOT 20, , , , , %

15 Management Discussion and Analysis Construction and Equipment Sales The Group s construction and equipment sales segment comprises BT projects, EPC projects and equipment sales. As at 30 June 2016, the Group had a total of 11 BT projects, which were either under construction and/or completed, among which income of 8 BT projects were recognised during the Reporting Period, representing an addition of 2 BT projects under construction as compared with 31 December As at 30 June 2016, the Group had a total of 6 EPC projects, representing an addition of 1 EPC project as compared with 31 December The Group engages in the production, sales and installation of equipment necessary for wastewater treatment, water supply and solid waste treatment facilities. The major water equipment produced by the Group is membrane products. All of the membrane products are produced by the production plant owned by the Group. Others During the Reporting Period, the Group also undertook O&M projects through the utilisation of wastewater treatment, water supply and solid waste treatment facilities owned by third parties, whereby the provision of technical and consultancy services in relation to environmental protection is currently underway. As at 30 June 2016, the Group had 29 O&M projects, including 2 solid waste treatment projects with an annual treatment capacity of approximately 365,000 tonnes, 1 water project with the daily capacity of approximately 5,000 tonnes and 26 wastewater treatment projects with the daily wastewater treatment capacity of approximately 266,000 tonnes, representing an addition of 2 wastewater treatment projects, 1 solid waste treatment O&M project and an increase in the total daily treatment capacity of approximately 46,000 tonnes as compared with 31 December BT EPC BT 11 BT 8 2 BT EPC 6 1 EPC O&M 29 O&M 2 365, , , O&M 46, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

16 Management Discussion and Analysis FINANCIAL REVIEW Results of Operation During the Reporting Period, the Group recorded a revenue of RMB867,692,000, representing a year-on-year increase of 82.7% as compared with the six months ended 30 June During the Reporting Period, the Group realized a net profit of RMB89,294,000, representing a year-on-year increase of 64.3% as compared with the six months ended 30 June Profit attributable to the owners of the Company was RMB80,201,000, representing a year-on-year increase of 70.4% as compared with the six months ended 30 June Revenue The Group recorded a revenue of RMB867,692,000 during the Reporting Period, representing a year-on-year increase of RMB392,777,000 or 82.7% as compared with RMB474,915,000 for the six months ended 30 June In respect of the business segments of the Group, revenue from the water supply segment amounted to RMB309,291,000 for the Reporting Period, representing a year-on-year increase of RMB192,309,000 as compared with RMB116,982,000 for the six months ended 30 June Revenue from the wastewater treatment segment for the Reporting Period amounted to RMB252,242,000, representing a year-on-year increase of RMB89,288,000 as compared with RMB162,954,000 for the six months ended 30 June Revenue from the solid waste treatment segment for the Reporting Period amounted to RMB108,510,000 as compared with nil for the six months ended 30 June Revenue from the construction and sales of equipment segment for the Reporting Period amounted to RMB165,983,000, representing a year-on-year increase of RMB4,240,000 as compared with RMB161,743,000 for the six months ended 30 June Revenue from other businesses for the Reporting Period amounted to RMB31,666,000, representing a year-on-year decrease of RMB1,570,000 as compared with RMB33,236,000 for the six months ended 30 June The increase in revenue from the water supply segment was mainly due to (i) the BOT projects acquired in the first half of 2016 which realized a revenue during the Reporting Period; and (ii) the increase in construction revenue generated by certain water supply projects previously under construction. 867,692, % 89,294, % 80,201, % 867,692, ,915, ,777, % 309,291, ,982, ,309, ,242, ,954,000 89,288, ,510, ,983, ,743,000 4,240,000 31,666,000 33,236,000 1,570,000 (i) BOT (ii)

17 Management Discussion and Analysis The increase in revenue from wastewater treatment segment was mainly due to (i) the increase in wastewater treatment capacity and the unit price of wastewater treatment charged by certain wastewater treatment plants; (ii) the wastewater treatment projects acquired in 2015 and the first half of 2016 which realized a revenue during the Reporting Period, and concession projects which were previously under construction in 2015 having commenced commercial operation in Reporting Period; and (iii) the increase in construction revenue and financial revenue generated by certain wasterwater treatment projects previously under construction. The build-up of revenue from the solid waste treatment segment was mainly attributable to the active market development and the Group s acquisition of solid waste treatment business during the Reporting Period. Certain solid waste treatment projects acquired in 2015 and the first half of 2016 realised revenue during the Reporting Period. The increase in revenue from the construction and equipment sales segment was mainly attributable to certain ongoing projects in EPC and equipment sales business. Other Income The Group s other income for the Reporting Period amounted to RMB44,485,000, representing a year-on-year increase of RMB29,042,000 or 188.1% as compared with RMB15,443,000 for the six months ended 30 June The increase in other income during the Reporting Period was mainly attributable to the refund of value-added tax ( VAT ). Pursuant to the preferential VAT policies issued by the PRC State Administration of Taxation, the wastewater and solid waste treatment businesses of the Group were eligible for full exemption of VAT prior to 1 July However, effective from 1 July 2015, the VAT policies were changed and the full exemption of VAT was superseded by 70% refund of the net VAT paid. Selling Expenses For the Reporting Period, selling expenses of the Group amounted to RMB13,212,000, representing a year-on-year increase of RMB5,349,000 or 68.0% as compared with RMB7,863,000 for the six months ended 30 June The increase was due to expansion of the Group s businesses since the second half of (i) (ii) (iii) EPC 44,485,000 15,443,000 29,042, % 70% 13,212,000 7,863,000 5,349, % 16 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

18 Management Discussion and Analysis Administrative Expenses Administrative expenses of the Group for the Reporting Period amounted to RMB142,286,000, representing a year-on-year increase of RMB59,972,000 or 72.9% as compared with RMB82,314,000 for the six months ended 30 June The increase in administrative expenses was primarily due to (i) the increase in employee benefit expenses, office expenses and rental expenses, which was mainly due to the expansion of the Group s operations as a result of the Group s acquisition of a number of wastewater treatment, water supply and solid waste treatment projects and other projects in the first half of 2016; and (ii) the increase in audit fees and legal and professional fees as a result of the Group s acquisitions. Finance Costs - net Net finance costs for the Reporting Period amounted to RMB63,321,000, representing a year-on-year increase of RMB43,404,000 or 217.9% as compared with RMB19,917,000 for the six months ended 30 June The increase in net finance costs was mainly due to the increased scale of debt financing. The Group s borrowings as at 30 June 2016 carried weighted average interest rate of 4.79% per annum (31 December 2015: 5.21% per annum). Income Tax Expenses Income tax expenses for the Reporting Period amounted to RMB17,349,000, representing a year-on-year increase of RMB8,188,000 or 89.4% as compared with RMB9,161,000 for the six months ended 30 June Increase in income tax expenses was primarily due to the increase in revenue. 142,286,000 82,314,000 59,972, % (i) (ii) 63,321,000 19,917,000 43,404, % 4.79% 5.21% 17,349,000 9,161,000 8,188, %

19 Management Discussion and Analysis Profit and Net Profit Margin for the Reporting Period Profit for the Reporting Period amounted to RMB89,294,000, representing a year-on-year increase of RMB34,946,000 or 64.3% as compared with RMB54,348,000 for the six months ended 30 June Net profit margin for the Reporting Period was 10.3%, which decreased slightly from 11.4% for the six months ended 30 June 2015, primarily because of the increase in finance costs due to the increased scale of debt financing. 89,294,000 54,348,000 34,946, % 10.3% 11.4% Receivables under Service Concession Arrangements The Group s receivables under service concession arrangements as at 30 June 2016 amounted to RMB2,428,417,000, representing an increase of RMB475,138,000 or 24.3% as compared with RMB1,953,279,000 as at 31 December Such increase was primarily due to the additional investment in BOT/TOT projects by the Group which led to an increase in the outstanding receivables under the service concession arrangements. Cash and Cash Equivalents The Group s total cash and cash equivalents as at 30 June 2016 amounted to RMB2,090,364,000, representing an increase of RMB418,243,000 or 25.0% as compared with RMB1,672,121,000 as at 31 December Such increase was primarily due to the increase in the scale of debt financing. 2,428,417,000 1,953,279, ,138, % BOT/TOT 2,090,364,000 1,672,121, ,243, % 18 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

20 Management Discussion and Analysis Borrowings As at 30 June 2016, the Group had borrowings of RMB5,519,195,000 (31 December 2015: RMB3,064,315,000), out of which RMB3,844,282,000 (31 December 2015: RMB2,076,272,000) was at fixed interest rates and RMB1,674,913,000 (31 December 2015: RMB988,043,000) was at floating interest rates. As at 30 June 2016, the Group had unsecured borrowings of RMB4,606,892,000 (31 December 2015: RMB2,250,955,000) and secured borrowings of RMB912,303,000 (31 December 2015: RMB813,360,000). Current Liabilities The Group is in a capital intensive industry and primarily finances its operations by long-term borrowings or capital contribution from equity owners when most of its construction projects are in the early stage of their business cycles. As at 30 June 2016, the current liabilities of the Group amounted to RMB5,408,484,000, representing a year-onyear increase of RMB3,218,062,000 or 146.9% as compared with RMB2,190,422,000 as at 31 December 2015, and the Group recorded net current liabilities of RMB798,982,000. The increase in current liabilities was primarily due to the Group has utilised certain shortterm borrowings to tentatively finance its acquisitions and construction projects. The Group is in the progress of obtaining different types of longterm debts, out of which 1) the three-year private placement notes of RMB1,000,000,000 have been issued; 2) the agreement for a threeyear syndicated loan of US$130,000,000 has been signed; and 3) the applications for issuance of several long-term debt instruments have been submitted to stock exchanges and respective government departments for review and approval. The Group is also seeking facility lines from commercial banks as an alternative source to refinance the short-term borrowings. With the realisation of the Group s refinancing plan, the Group is expected to return to net current assets position at the end of ,519,195,000 3,064,315,000 3,844,282,000 2,076,272,000 1,674,913, ,043,000 4,606,892,000 2,250,955, ,303, ,360,000 5,408,484,000 2,190,422,000 3,218,062, % 798,982,000 1) 1,000,000,000 2) 130,000,000 3)

21 Management Discussion and Analysis Pledge of Assets As at 30 June 2016, the Group had borrowings of RMB138,480,000 which were secured by land use rights and properties of the Group, non-controlling interests and external parties (31 December 2015: RMB153,860,000). As at 30 June 2016, the Group had borrowings of RMB773,823,000 (31 December 2015: RMB659,500,000) which were secured by right of charges from water supply and wastewater treatment concession projects. Capital Commitments The Group s capital commitments as at 30 June 2016 amounted to RMB2,425,291,000, representing an increase of RMB614,518,000 or 33.9% as compared with RMB1,810,773,000 as at 31 December 2015, primarily due to the Company s increased investments in properties, plants, equipment, land use right, BT/concession projects and equity interests as a result of its expansion. Gearing Ratio As at 30 June 2016, the Group s gearing ratio (calculated as total borrowings divided by total assets) was 41.3% (31 December 2015: 31.9%). The increase in gearing ratio was mainly due to increase in borrowings to finance the acquisitions. 138,480, ,860, ,823, ,500,000 2,425,291,000 1,810,773, ,518, % BT 41.3% 31.9% 20 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

22 Management Discussion and Analysis The Initial Public Offering The H Shares of the Company were listed on the Stock Exchange on 27 May 2015, and 287,521,000 H Shares with a nominal value of RMB1.00 each had been issued by the Company at the price of HK$5.8 per Share, with a total amount received from the issuance (before deduction of expenses) of HK$1,667,621,800. On 10 June 2015, the over-allotment option was fully exercised and 43,128,000 H Shares with a nominal value of RMB1.00 each were issued at the price of HK$5.8 per Share, with a total amount received from the issuance (before deduction of expenses) of HK$250,142,400. After completion of the IPO, the total number of the Company s H Shares was 363,713,900 (including the H Shares converted from Domestic Shares on a one-forone basis). Net proceeds from the IPO were HK$1,738,613,976, the utilization of which was in line with the information as disclosed in the Prospectus. As at 30 June 2016, the Group had utilized proceeds of HK$1,547,312,778 and unutilized proceeds of HK$191,301,198. Employees and Remuneration Policy As at 30 June 2016, the Group had 3,031 employees (31 December 2015: 2,005). For the six months ended 30 June 2016, staff cost was RMB103,664,000 (six months ended 30 June 2015: RMB66,900,000). The Group will strive to ensure that the remuneration level of employees is in line with industry practices and prevailing market conditions, and remunerations of employees will be determined based on their performance. The remuneration package provided to employees also included basic and floating salaries, discretionary bonus and staff benefits. The Group also provides external and internal training programs for its employees. The Group did not experience any significant labour disputes causing any material impact on its normal business operations. H ,521, H 1,667,621, ,128, H 250,142,400 H 363,713,900 H 1,738,613,976 1,547,312, ,301,198 3,031 2, ,664,000 66,900,

23 Management Discussion and Analysis Foreign Exchange Risk The majority of the Group s operations are in the PRC and most of the transactions conducted by the group companies in the PRC are settled in RMB, which is their functional currency. The Group also conducts businesses in Thailand and Hong Kong where the functional currencies of these group companies are THB and Hong Kong dollars, respectively. The Group s reported results in RMB are exposed to exchange gains or losses on the group companies foreign currency earnings and on the foreign currency monetary assets and liabilities of the Group includes mainly cash and cash equivalents and borrowings of the PRC group companies denominated in Hong Kong dollar and US dollar. The Group s net investments in Thailand and Hong Kong are also subject to foreign currency translation risk. The Group does not have a foreign currency hedging policy, and the Group manages its foreign currency risk by closely monitoring the scale of its foreign currency transactions and its foreign currency assets and liabilities. Currently, the Group does not have any derivative financial instrument to hedge its foreign currency risk. However, the Group is discussing measures for foreign exchange risk control with relevant financial institutions and may prudently enter into forward foreign currency contracts and currency swaps for selective foreign currencies to limit the potential foreign currency exposure. Contingent Liabilities As at 30 June 2016, the Group did not have any significant contingent liabilities or guarantees (31 December 2015: Nil). INTERIM DIVIDEND The Board does not recommend any distribution of interim dividend for the six months ended 30 June 2016 (six months ended 30 June 2015: Nil). 22 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

24 Management Discussion and Analysis SIGNIFICANT INVESTMENTS AND ACQUISITIONS The Group acquired 65% of the share capital of Future International Group Co., Ltd. ( Future International ) from an external third party at a consideration of RMB292,500,000. Future International holds water supply projects in Qingzhou, Shandong Province. The acquisition was completed on 8 January On 11 January 2016, the Company entered into the equity transfer agreement with Environmental Experts (China) Development & Investment Company Limited (( )) and Hong Kong Rich Investment Limited ( ) to acquire 100% equity interest of Harbin Guo Huan Medical Solid Waste Harmless Centralized Disposal Center Co., Ltd.* ( ) ( Guo Huan ) at a consideration of RMB290,641,420. Guo Huan s principal activities include hazardous waste disposal and road transportation of hazardous wastes. For details, please refer to the Company s announcement dated 11 January The acquisition was completed on 2 June On 21 April 2016, the Company entered into the equity transfer agreement with Heilongjiang Chenergy Investment Group Company Limited* ( ) and Heilongjiang Chenergy Hit High-Tech Venture Capital Co., Ltd* ( ) (collectively Chenergy Group ) to acquire 75.51% equity interest of Harbin Yun Shui Gong DA Environmental Technology Co., Ltd.* ( ) (formerly known as Harbin Chenergy & Hit Environmental Technology Co., Ltd.* ( ) ) and its subsidiaries ( Harbin Yun Shui Group ) at a consideration of RMB158,000,000. Harbin Yun Shui Group is principally engaged in solid waste treatment. For details, please refer to the Company s announcement dated 21 April Future International Group Co., Ltd. Future International 65% 292,500,000 Future International 100% 290,641, % 158,000,

25 Management Discussion and Analysis Subsequent Events On 28 July 2016, Yunnan Water (Hong Kong) Company Limited, the Company s wholly-owned subsidiary, entered into a sale and purchase agreement with Mitsui & Co., Ltd* ( ) to acquire the 50% interests in Galaxy NewSpring Pte. Ltd. at a consideration of US$100,000,000. The principal businesses of Galaxy NewSpring Pte. Ltd. include carrying out the origination, investment, development, construction, operation and maintenance of water supply, wastewater treatment and reclaimed water plants. For details, please refer to the Company s announcement dated 28 July On 21 April 2016, the Company has entered into the equity transfer agreement with the Chenergy Group to acquire 75.51% equity interest of Harbin Yun Shui Group at a cash consideration of RMB158,000,000. Harbin Yun Shui Group is principally engaged in solid waste treatment business in Harbin, Heilongjiang Province. The acquisition was completed on 4 August The Company has received a notice of acceptance of registration from the National Association of Financial Market Institutional Investors that the private placement notes in the amount of RMB1,000,000,000 (the PPNs ) have been duly registered. The issuance of the PPNs has been completed on 26 August China CITIC Bank Corporation Limited and Huatai Securities Company Limited* ( ) are the lead underwriter and joint lead underwriter of the issuance of the PPNs, respectively. Net proceeds from such issuance will be used for the Group s general working capital and the repayment of bank loans. For details, please refer to the Company s announcement dated 24 August Galaxy NewSpring Pte. Ltd. 50% 100,000,000 Galaxy NewSpring Pte. Ltd % 158,000,000 1,000,000, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

26 Disclosure of Interests INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 30 June 2016, Directors, Supervisors and chief executives of the Company had the following interests in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required, pursuant to Section 352 of the SFO or otherwise, to be entered in the register maintained thereunder, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange, or held interests in the Company as follows: XV 352 Name of Director, Supervisor and chief executive Capacity Type of Shares Number of Shares held Percentage of Percentage of the respective the total number type of Shares of Shares in issue (%) in issue (%) (%) (%) Mr. Huang Yunjian 1 1 Mr. Liu Xujun 2 2 Beneficial owner, interests held jointly with another person Beneficial owner, interests held jointly with another person Domestic Shares 361,487,162 (L) ,487,162 (L) Domestic Shares 361,487,162 (L) ,487,162 (L) Mr. Yu Long Beneficial owner Domestic Shares 10,690,000 (L) ,690,000 (L) Mr. Yu Long Beneficial owner H Shares 230,000 (L) H 230,000 (L) (L) refers to long position (L)

27 Disclosure of Interests Notes: (1) Huang Yunjian is the beneficial owner of 1,950,000 Domestic Shares. By virtue of the acting in concert agreement (the Acting in Concert Agreement ) dated 24 July 2014 entered into between Yunnan Province Water, Liu Xujun, Huang Yunjian and Wang Yong, pursuant to which each of Liu Xujun, Huang Yunjian and Wang Yong agreed to act in concert with Yunnan Province Water in exercising their voting rights in the Shareholders meeting of the Company. Mr. Huang is deemed to be interested in all the Domestic Shares held by Yunnan Province Water, Liu Xujun, Wang Yong and Mr. Huang himself in aggregate pursuant to the SFO. (2) Liu Xujun is the beneficial owner of 195,000 Domestic Shares. By virtue of the Acting in Concert Agreement, he is deemed to be interested in all the Domestic Shares held by Yunnan Province Water, Huang Yunjian, Wang Yong and himself in aggregate by pursuant to the SFO. Save as disclosed above, to the knowledge of the Company, as at 30 June 2016, none of the Directors, Supervisors and chief executives of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code. ARRANGEMENT FOR PURCHASE OF SHARES OR DEBENTURES There was no arrangement to which the Company, its holding company or any of its subsidiaries was a party to enable the Directors, Supervisors or chief executives of the Company and their respective associates to acquire benefits by means of the purchase of shares in, or debt securities (including debentures) of, the Company or any other related body corporate during any time of the Reporting Period. SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES To the best knowledge of the Company, as at 30 June 2016, the following persons (other than Directors or Supervisors whose interests are disclosed in the section headed Interests and Short Positions of Directors, Supervisors and Chief Executives in Shares, Underlying Shares and Debentures above) had interests or short positions in the Shares, underlying Shares or debentures of the Company which were required to be notified to the Company under 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 had interests or short positions in 5% or more of the respective type of share capital in issue of the Company: (1) 1,950,000 (2) 195, XV % 26 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

28 Disclosure of Interests Name of Shareholder Capacity Type of Shares Number of Shares held Percentage of the respective type of Shares in issue (%) (%) Percentage of the total number of Shares in issue (%) (%) Yunnan Province Water 1 1 Wang Yong 2 2 YMCI 1 1 Beneficial owner, interests held jointly with another person Beneficial owner, interests held jointly with another person Interests in controlled corporation, interests held jointly with another person Domestic Shares 361,487,162 (L) ,487,162 (L) Domestic Shares 361,487,162 (L) ,487,162 (L) Domestic Shares 361,487,162 (L) ,487,162 (L) Beijing OriginWater Beneficial owner Domestic 286,650,000 (L) Shares 286,650,000 (L) CNPC Assets Interests in Domestic 137,880,000 (L) Management Co., Ltd. controlled corporation Shares 137,880,000 (L) China National Petroleum Interests in Domestic 137,880,000 (L) Corporation 3 controlled corporation Shares 3 137,880,000 (L) Kunlun Trust Co., Ltd. 3 Interests in Domestic 137,880,000 (L) controlled corporation Shares 3 137,880,000 (L) Finergy Development (Tianjin) Equity Investment Partnership (Limited Partnership) 3 3 Beneficial owner Domestic Shares 137,880,000 (L) ,880,000 (L)

29 Disclosure of Interests Name of Shareholder Capacity Type of Shares Number of Shares held Percentage of the respective type of Shares in issue (%) (%) Percentage of the total number of Shares in issue (%) (%) Value Partners Interests in H Shares 36,348,000 (L) Group Limited 4 controlled corporation Value Partners Group Limited 4 H 36,348,000 (L) the National Council for Beneficial owner H Shares 30,454,900 (L) Social Security Fund of the PRC H 30,454,900 (L) Value Partners Classic Fund Value Partners Classic Fund Beneficial owner H Shares 25,332,000 (L) H 25,332,000 (L) Rays Capital Investment Manager H Shares 24,832,000 (L) Partners Limited 5 Rays Capital Partners Limited 5 H 24,832,000 (L) Ruan David Ching-chi 5 Interests in H Shares 24,832,000 (L) controlled corporation 5 H 24,832,000 (L) Yip Yok Tak Amy 5 Interests in H Shares 24,832,000 (L) controlled corporation 5 H 24,832,000 (L) YMCI 1 Interests in H Shares 2,189,000 (L) controlled corporation 1 H 2,189,000 (L) Caiyun International Beneficial owner H Shares 2,189,000 (L) Investment Limited* 1 1 H 2,189,000 (L) Notes: (L) refers to long position (L) 28 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

30 Disclosure of Interests (1) Yunnan Province Water is wholly owned by YMCI and is the beneficial owner of 361,487,162 Domestic Shares. Caiyun International Investment Limited is wholly owned by YMCI and is the beneficial owner of 2,189,000 H Shares. YMCI is deemed to be interested in all the Domestic Shares held by Yunnan Province Water and H Shares held by Caiyun International Investment Limited pursuant to the SFO which representing approximately 30.48% of total issued Shares. By virtue of the Acting in Concert Agreement, each of Yunnan Province Water and YMCI is deemed to be interested in all the Domestic Shares held by Huang Yunjian, Liu Xujun, Wang Yong and each of Yunnan Province Water and YMCI in aggregate pursuant to the SFO. (2) Wang Yong is the beneficial owner of 585,000 Domestic Shares. By virtue of the Acting in Concert Agreement, he is deemed to be interested in all the Domestic Shares held by himself, Yunnan Province Water, Huang Yunjian and Liu Xujun in aggregate pursuant to the SFO. (3) Finergy Development (Tianjin) Equity Investment Partnership (Limited Partnership) is controlled as to 84.86% by Kunlun Trust Co., Ltd., its general partner, and the beneficial owner of 137,880,000 Domestic Shares; Kunlun Trust Co., Ltd. is owned as to 82.18% by CNPC Assets Management Co., Ltd., which in turn is wholly-owned by China National Petroleum Corporation. Under the SFO, each of Kunlun Trust Co., Ltd., CNPC Assets Management Co., Ltd. and China National Petroleum Corporation is deemed to be interested in all the Domestic Shares held by Finergy Development (Tianjin) Equity Investment Partnership (Limited Partnership). (4) Value Partners Group Limited holds interests in the Company indirectly through two wholly-owned subsidiaries, namely Value Partners Hong Kong Limited and Value Partners Limited. (5) RAYS Capital Partners Limited is the beneficial owner of 24,832,000 H Shares. RAYS Capital Partners Limited is beneficially owned as to 50% by Yip Yok Tak Amy and 50% by Ruan David Ching-chi respectively. Each of Yip Yok Tak Amy and Ruan David Ching-chi is deemed to be interested in all the H Shares held by RAYS Capital Partners Limited pursuant to the SFO. (1) 361,487,162 2,189,000 H H 30.48% (2) 585,000 (3) 84.86% 137,880, % (4) Value Partners Group Limited Value Partners Hong K o n g L i m i t e d V a l u e P a r t n e r s Limited (5) RAYS Capital Partners Limited 24,832,000 H RAYS Capital Partners Limited 50% RAYS Capital Partners Limited H

31 Disclosure of Interests Save as disclosed above, to the best knowledge of the Company, as at 30 June 2016, no person (other than the Directors, Supervisors and chief executives) had informed the Company that he had interests or short positions in the Shares or underlying Shares of equity derivatives of the Company which were required to be notified to the Company under 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 held any interests or short positions in 5% or more of the respective type of share capital in issue of the Company. XV % 30 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

32 Corporate Governance AUDIT COMMITTEE The Audit Committee consists of four independent non-executive Directors, Mr. Kwok For Chi, Mr. Hu Song, Mr. Ma Shihao and Mr. Ren Gangfeng. Mr. Kwok For Chi is the chairman of the committee. The principal responsibilities of the Audit Committee include reviewing and supervising the financial reporting process, risk management and internal control systems of the Company, including making recommendations on appointing or changing the external auditor and its terms of engagement; reviewing and monitoring external auditor s independence objectively and audit process; monitor the integrity of the Company s financial statements, annual report and accounts and half year report; oversight of the Company s financial reporting system, risk management and internal control system; other matters that the Board has authorized it to deal with. Terms of reference of the Audit Committee has been published on the website of the Company. During the Reporting Period, the Audit Committee has reviewed the Group s unaudited interim condensed consolidated financial information for the Reporting Period. The Audit Committee has also discussed matters with respect to the accounting policies and practices adopted by the Company and internal control with senior management members of the Company. NOMINATION COMMITTEE The Nomination Committee consists of one non-executive Director, Mr. Xu Lei, and two independent non-executive Directors, Mr. Hu Song and Mr. Ren Gangfeng. Mr. Xu Lei is the chairman of the committee. The principal responsibilities of the Nomination Committee include reviewing and monitoring the structure, size, composition and diversity of the Board in light of the Company s strategy; identifying suitably qualified individuals and making recommendations to the Board to be new Board members; reviewing and making recommendations to the Board on individuals nominated to be Directors by Shareholders to ensure that all nominations are fair and transparent; assessing the independence of independent non-executive Directors; reviewing and monitoring the implementation of the Board diversity policy of the Company. Terms of reference of the Nomination Committee has been published on the website of the Company

33 Corporate Governance REMUNERATION COMMITTEE The Remuneration Committee consists of one executive Director, Mr. Yu Long, and two independent non-executive Directors, Mr. Hu Song and Mr. Ren Gangfeng. Mr. Hu Song is the chairman of the committee. The principal responsibilities of the Remuneration Committee are, among others, to make recommendations to the Board on the policy and structure for all Directors and senior management remuneration and on the establishment of a formal and transparent procedure for developing remuneration policy; to review and approve the management s remuneration proposals; to make recommendations to the Board on the remuneration packages of individual executive Directors and senior management; and to advise Shareholders with respect to any service contracts of Directors that require Shareholders approval under the Listing Rules. Terms of reference of the Remuneration Committee has been published on the website of the Company. COMPLIANCE COMMITTEE The Compliance Committee consists of one executive Director, Mr. Yu Long, three independent non-executive Directors, Mr. Kwok For Chi, Mr. Hu Song and Mr. Ren Gangfeng and one Supervisor, Ms. Yang Chuanyun. Mr. Yu Long is the chairman of the committee. The principal responsibilities of the Compliance Committee are to conduct independent investigation and make decisions on compliance matters with respect to our business operations by authorization from the Board. The Company has established the Compliance Committee to ensure the operation of any projects acquired and operated by us are in compliance with our internal control standards and the relevant PRC laws and regulations. Terms of reference of the Compliance Committee has been published on the website of the Company. 32 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

34 Corporate Governance DIRECTORS PARTICULARS Change in Directors particulars which are required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules since the publication of the annual report of the Company for the year ended 31 December 2015 is set out as follows: Mr. Wen Jianping resigned as a non-executive Director with effect from 17 March Mr. Dai Richeng was appointed as an executive Director with effect from 7 June Save as disclosed above, after having made all reasonable enquiries, the Company is not aware of any other information which is required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules since the date of the Company s annual report for the year ended 31 December B(1) 13.51B(1) COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE The Group is committed to maintaining a high standard of corporate governance with a view to safeguarding the interests of Shareholders and enhancing corporate value. The Board believes that good corporate governance is one of the key factors leading to the success of the Company and balancing the interests of Shareholders, customers and employees. The Company has complied with all code provisions as set out in the Corporate Governance Code throughout the six months ended 30 June MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS The Company has adopted the Model Code as the code of conduct regarding securities transactions by the Directors and Supervisors. The Company has made specific enquiries with all of its Directors and Supervisors, and all Directors and Supervisors have confirmed that they have fully complied with the required standard set out in the Model Code throughout the six months ended 30 June

35 Corporate Governance DIRECTORS INTERESTS IN COMPETING BUSINESS During the six months ended 30 June 2016, to the best knowledge of the Board, none of the Directors and Supervisors and their respective associates has any business or interest that competes or may compete with the business of the Group or has or may have any conflict of interest with the Group. PURCHASE, SALE OR REDEMPTION OF THE LISTED SECURITIES OF THE COMPANY During the six months ended 30 June 2016, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any listed securities of the Company. PUBLIC FLOAT According to public information available to the Company and to the best knowledge of the Board, as at the date of this interim report, at least 25% of the total issued share capital of the Company was held in public hands. REVIEW OF THE INTERIM RESULTS The Group s unaudited interim condensed consolidated financial information for the six months ended 30 June 2016 have been reviewed by the auditor of the Company, PricewaterhouseCoopers, in accordance with the Hong Kong Review Engagement Standards 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by Hong Kong Institute of Certified Public Accountants. The unaudited interim condensed consolidated financial information of the Group for the six months ended 30 June 2016 has also been reviewed by the Audit Committee of the Company. By Order of the Board Yunnan Water Investment Co., Limited* Xu Lei Chairman Kunming, PRC 30 August 2016 * For identification purposes only 25% 2410 * 34 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

36 Interim Condensed Consolidated Statement of Comprehensive Income Six months ended 30 June Note RMB 000 RMB 000 (Unaudited) (Unaudited) Revenue 7 867, ,915 Cost of sales (590,189) (318,659) Gross profit 277, ,256 Other income 8 44,485 15,443 Other gains - net 3, Selling expenses (13,212) (7,863) Administrative expenses (142,286) (82,314) Operating profit 170,021 81,619 Finance income 9 16,142 18,519 Finance costs 9 (79,463) (38,436) Finance costs - net (63,321) (19,917) Share of (loss)/profit of investments accounted for using equity method (57) 1,807 Profit before income tax 106,643 63,509 Income tax expenses 10 (17,349) (9,161) Profit for the period 89,294 54,348 Other comprehensive income (Items that may be reclassified subsequently to profit or loss) Currency translation differences 769 (786) Total comprehensive income for the period 90,063 53,

37 Interim Condensed Consolidated Statement of Comprehensive Income Six months ended 30 June Note RMB 000 RMB 000 (Unaudited) (Unaudited) Profit attributable to: Owners of the Company 80,201 47,071 Non-controlling interests 9,093 7,277 89,294 54,348 Total comprehensive income attributable to: Owners of the Company 80,970 46,285 Non-controlling interests 9,093 7,277 90,063 53,562 Earnings per share for profit attributable to owners of the Company (expressed in RMB per share) Basic and diluted The notes on pages 41 to 84 are an integral part of this unaudited interim condensed consolidated financial information YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

38 Interim Condensed Consolidated Balance Sheet Note 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) ASSETS Non-current assets Property, plant and equipment 13 1,749,969 1,617,329 Investment properties 17,480 17,764 Land use rights 129, ,311 Receivables under service concession arrangements 14 2,403,054 1,941,739 Amounts due from customers for contract works , ,142 Intangible assets 13 3,210,870 1,711,249 Investments accounted for using equity method 34,868 34,925 Trade and other receivables , ,236 Deferred income tax assets ,364 56,173 8,744,369 6,677,868 Current assets Receivables under service concession arrangements 14 25,363 11,540 Inventories 33,502 20,595 Amounts due from customers for contract works 15 12,326 3,477 Trade and other receivables 16 2,386,198 1,197,087 Cash and cash equivalents 17 2,090,364 1,672,121 Restricted cash 61,749 19,603 4,609,502 2,924,423 Total assets 13,353,871 9,602,291 EQUITY Equity attributable to owners of the Company Share capital 1,193,213 1,193,213 Other reserves 2,262,432 2,264,254 Retained earnings 561, ,956 4,017,481 4,058,423 Non-controlling interests 1,086, ,189 Total equity 5,103,877 4,942,

39 Interim Condensed Consolidated Balance Sheet Note 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) LIABILITIES Non-current liabilities Borrowings 19 1,878,369 2,025,960 Trade and other payables 18 57,048 54,514 Deferred income 420, ,876 Deferred income tax liabilities , ,116 Provision 21 57,496 25,791 2,841,510 2,469,257 Current liabilities Borrowings 19 3,640,826 1,038,355 Trade and other payables 18 1,716,698 1,074,341 Amounts due to customers for contract works 15 3,333 4,552 Current income tax liabilities 47,627 73,174 5,408,484 2,190,422 Total liabilities 8,249,994 4,659,679 Total equity and liabilities 13,353,871 9,602,291 Net current (liabilities)/assets (798,982) 734,001 Total assets less current liabilities 7,945,387 7,411,869 The notes on pages 41 to 84 are an integral part of this unaudited interim condensed consolidated financial information YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

40 Interim Condensed Consolidated Statement of Changes in Equity Unaudited Attributable to owners of the Company Share capital Other reserves Retained earnings Total Noncontrolling interests Total Equity RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance at 1 January ,193,213 2,264, ,956 4,058, ,189 4,942,612 Total comprehensive income for the period Profit for the period 80,201 80,201 9,093 89,294 Currency translation differences ,201 80,970 9,093 90,063 Total transactions with owners of the Group, recognised directly in equity Acquisition of subsidiaries 144, ,273 Capital injection by non-controlling interests 50,370 50,370 Acquisition of additional interests in a subsidiary Dividends for the year ended 31 December 2015 (2,591) (2,591) (1,529) (4,120) (119,321) (119,321) (119,321) (2,591) (119,321) (121,912) 193,114 71,202 Balance at 30 June ,193,213 2,262, ,836 4,017,481 1,086,396 5,103,877 Balance at 1 January ,564 1,155, ,542 2,384, ,078 2,721,324 Total comprehensive income for the period Profit for the period 47,071 47,071 7,277 54,348 Currency translation differences (786) (786) (786) (786) 47,071 46,285 7,277 53,562 Total transactions with owners of the Group, recognised directly in equity Issue of ordinary shares 330,649 1,183,137 1,513,786 1,513,786 Shares issuance costs (126,732) (126,732) (126,732) 330,649 1,056,405 1,387,054 1,387,054 Balance at 30 June ,193,213 2,210, ,613 3,817, ,355 4,161,940 The notes on pages 41 to 84 are an integral part of this unaudited interim condensed consolidated financial information

41 Interim Condensed Consolidated Statement of Cash Flows Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Cash flows from operating activities Cash used in operations (512,024) (161,102) Income tax paid (50,568) (70,405) Interest paid (98,106) (49,906) Net cash used in operating activities (660,698) (281,413) Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (428,539) Prepayments and deposits for acquisition of subsidiaries (759,245) (97,572) Capital injection to a joint venture (35,000) Purchases of property, plant and equipment, land use right and other intangible assets (4,648) (70,413) Loans granted to related parties (149) Loans repaid from related parties 17 Proceeds from disposal of property, plant and equipment and land use rights 826 2,961 Interest received 14,281 2,058 Net cash used in investing activities (1,177,325) (198,098) Cash flows from financing activities Proceeds from issuance of ordinary shares 1,513,786 Payments of listing expenses (111,342) Capital injections from non-controlling interests 50,370 Proceeds from borrowings 2,491, ,000 Repayments of borrowings (290,775) (261,528) Payments of acquisition of additional interests in a subsidiary (4,120) Restricted cash pledged for borrowings (35,000) Net cash generated from financing activities 2,247,175 1,360,916 Net increase in cash and cash equivalents 409, ,405 Cash and cash equivalents at beginning of the period 1,672, ,649 Exchange gains on cash and cash equivalents 9,091 15,710 Cash and cash equivalents at end of the period 2,090,364 1,509,764 The notes on pages 41 to 84 are an integral part of this unaudited interim condensed consolidated financial information YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

42 1. GENERAL INFORMATION Yunnan Water Investment Co., Limited (the Company ) was incorporated in Yunnan Province of the People s Republic of China (the PRC ) on 21 June On 22 July 2014, the Company was converted from a limited liability company into a joint stock limited liability company with registered capital of RMB787,880,000. The address of its registered office is 16th Floor, Block A Hecheng International, 1088 Haiyuan Zhong Road, Gaoxin District, Kunming, Yunnan Province, the PRC. The Company is an investment holding company. The Company and its subsidiaries (together the Group ) are principally engaged in the development, design, construction, operation and maintenance of municipal water supply, wastewater treatment and solid waste treatment facilities in the PRC. The Company s H shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited on 27 May The financial information is presented in thousands of Renminbi ( RMB ), unless otherwise stated. This interim condensed consolidated financial information was approved for issue by the board of directors of the Company on 30 August ,880, A 16 H 2. BASIS OF PREPARATION This interim condensed consolidated financial information for the six months ended 30 June 2016 has been prepared in accordance with HKAS 34, Interim financial reporting. The interim condensed consolidated financial information should be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2015, which have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs )

43 2. BASIS OF PREPARATION (Cont d) The Group is in a capital intensive industry and primarily finances its operation by long-term borrowings or capital contribution from equity owners when most of its construction projects are in early stage of their business cycles. The Group recorded net current liabilities of approximately RMB799 million as at 30 June 2016, which is mainly due to the fact that the Group has utilised certain short-term borrowings to tentatively finance its acquisitions and construction projects. The Group is in the progress of obtaining different types of longterm debts, out of which a three-year private placement note of RMB1,000 million (note 25(iv)) has been issued and the agreement for a three-year syndicated loan of US$130 million (equivalent to RMB860 million) (note 25(iii)) has been signed. The Group is also seeking facility lines from commercial banks as an alternative source to refinance the short-term borrowings. Considering the probability of issuing the PRC bonds and obtaining facilities from commercial banks and the Group s fund raising history, the directors of the Company believe that the Group can gain access to adequate financing resources. Accordingly, the directors of the Company are of the opinion that it is appropriate to prepare the financial information on a going concern basis ,000 25(iv) (iii) 42 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

44 3. ACCOUNTING POLICIES The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2015, as described in those financial statements. 3. (a) Effect of adopting new standards and amendments to standards (a) The following new standards and amendments to standards are mandatory for the Group s financial year beginning 1 January The adoption of these new standards and amendments to standards does not have significant impact to the results or financial position of the Group. Annual Improvements 2014 Annual improvements cycle HKFRS 14 Regulatory deferral accounts 14 HKFRS 11 (Amendment) Accounting for acquisition of interests in joint operations 11 HKAS 16 and HKAS 38 (Amendments) Clarification of acceptable methods of depreciation and amortisation HKAS 27 (Amendment) Equity method in separate financial statements 27 HKRFS 10, HKFRS 12 and Investment entities: applying the consolidation exception HKAS 28 (Amendments) HKAS 1 (Amendment) Disclosure initiative

45 3. ACCOUNTING POLICIES (Cont d) 3. (b) New standards and amendments to standards that have been issued but are not effective (b) HKAS 12 (Amendments) Income taxes HKAS 7 (Amendments) Statement of cash flows HKFRS 15 Revenue from contracts with consumers 2 15 HKFRS 9 Financial instruments HKFRS 16 Leases HKFRS 10 and HKAS 28 (Amendments) Sale or contribution of assets between an investor and its associate or joint venture Effective for annual periods beginning on 1 January Effective for annual periods beginning on 1 January Effective for annual periods beginning on 1 January Effective date to be determined YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

46 4. ESTIMATES The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. In preparing this interim condensed consolidated financial information, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual financial statements of the Group for the year ended 31 December FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS 5.1 Financial risk factors The Group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The interim condensed consolidated financial information does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements for the year ended 31 December There have been no changes in the risk management policies since year end

47 5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Cont d) 5.2 Liquidity risk Cash flow forecast is performed by the operating entities of the Group and aggregated by the Group s finance department. The Group s finance department monitors rolling forecasts of the Group s liquidity requirements to ensure that it has sufficient cash and cash equivalents to meet operational needs while maintaining sufficient liquidity reserves at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. The Group expects to fund its future cash flow needs through internally generated cash flows from operations and borrowings from financial institutions. The table below analyses the Group s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

48 5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Cont d) 5.2 Liquidity risk (Cont d) Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 As at 30 June 2016 (Unaudited) Financial liabilities Borrowings 3,809, ,473 1,206, ,069 5,976,163 Trade and other payables (*) (*) 1,552,280 8,728 22,888 25,432 1,609,328 5,361, ,201 1,228, ,501 7,585,491 As at 31 December 2015 (Audited) Financial liabilities Borrowings 1,183, ,083 1,272, ,415 3,521,120 Trade and other payables (*) (*) 947,368 8,728 22,888 22,899 1,001,883 2,130, ,811 1,294, ,314 4,523,003 * Excluding staff welfare benefit payable, other taxes payable and advances. *

49 5. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Cont d) 5.3 Fair value estimation The different levels have been defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). As at 30 June 2016 and 31 December 2015, the Group did not have any financial assets or liabilities that are measured at fair value. 6. SEASONALITY OF OPERATIONS There is a seasonal factor in the Group s revenue. In general, revenue in the second half of the year is higher than the first half. In the financial year ended 31 December 2015, 31% of revenues accumulated in the first half of the year, with 69% accumulating in the second half % 69% 48 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

50 7. SEGMENT INFORMATION The executive directors of the Company are the chief operating decision-maker of the Group. Management has determined the operating segments based on reports reviewed by the executive directors of the Company for the purpose of allocating resources and assessing performance. The executive directors of the Company consider the business from product and service perspective. The Group is organised into five business segments as below: 7. (a) Wastewater treatment; (a) (b) Water supply; (b) (c) Construction and sales of equipment; (c) (d) Solid waste treatment*; (d) * (e) Others, including operation and maintenance services and other businesses. (e) * With the acquisition of several companies in the PRC and Thailand, solid waste treatment business became significant to the Group for the six months ended 31 December It has been disclosed as a separate segment in the annual financial statements of the Group for the year ended 31 December 2015, and the disclosure of segment information for the six months ended 30 June 2015 has been revised for comparison purpose. Management monitors the results of the Group s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment results, which is a measure of revenue and gross profit of each operating segment. The amounts provided to the executive directors of the Company with respect to total assets and total liabilities are measured in a manner consistent with that of the financial statements. These assets and liabilities are allocated based on the operations of the segment. Unallocated assets mainly represented cash and cash equivalents and certain receivables of the Company and subsidiaries engaging in multiple business segments. Management considered that it is impracticable or not meaningful in allocating to different segments. *

51 7. SEGMENT INFORMATION (Cont d) Unallocated liabilities mainly represented borrowings, certain payables and deferred income of the Company and subsidiaries engaging in multiple business segments. Management considered that it is impracticable or not meaningful in allocating to different segments. 7. (i) Segment results for the six months ended 30 June 2016 are as follows: Six months ended 30 June 2016 (Unaudited): (i) Wastewater treatment Water supply Construction and sales of equipment Solid waste treatment Others Unallocated Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Total segment revenue 252, , , ,510 31, ,992 Inter-segment revenue (34,300) (34,300) Revenue from external customers 252, , , ,510 31, ,692 Gross profit 128,260 70,078 37,976 31,332 9, ,503 Share of loss of investments accounted for using equity method (57) (57) Finance income 16,142 Finance costs (79,463) Other income 44,485 Other gains - net 3,531 Selling expenses (13,212) Administrative expenses (142,286) Profit before income tax 106,643 Income tax expenses (17,349) Profit for the period 89,294 Depreciation and amortisation (17,159) (31,768) (4,618) (34,891) (1,187) (2,913) (92,536) 50 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

52 7. SEGMENT INFORMATION (Cont d) 7. (i) Segment results for the six months ended 30 June 2016 are as follows: (Cont d) (i) Six months ended 30 June 2015 (Unaudited): Wastewater treatment Water supply Construction and sales of equipment Solid waste treatment Others Unallocated Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Total segment revenue 162, , ,766 33, ,938 Inter-segment revenue (4,023) (4,023) Revenue from external customers 162, , ,743 33, ,915 Gross profit 72,888 38,114 26,910 18, ,256 Share of profit of investments accounted for using equity method 1,807 1,807 Finance income 18,519 Finance costs (38,436) Other income 15,443 Other gains - net 97 Selling expenses (7,863) Administrative expenses (82,314) Profit before income tax 63,509 Income tax expenses (9,161) Profit for the period 54,348 Depreciation and amortisation (16,143) (11,645) (3,848) (34) (383) (1,759) (33,812)

53 7. SEGMENT INFORMATION (Cont d) 7. (ii) Segment assets and liabilities as at 30 June 2016 are as follows: (ii) As at 30 June 2016 (Unaudited): Wastewater treatment Water supply Construction and sales of equipment Solid waste treatment Others Unallocated Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Segment assets 3,657,414 2,236,631 1,054,585 2,468, ,740 3,301,037 13,353,871 Segment assets include: Investments accounted for using equity method 34,868 34,868 Segment liabilities 772, , , , ,756 4,966,293 8,249,994 As at 31 December 2015 (Audited): Wastewater treatment Water supply Construction and sales of equipment Solid waste treatment Others Unallocated Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Segment assets 2,756, ,567 1,192,471 2,168, ,268 2,275,679 9,602,291 Segment assets include: Investments accounted for using equity method 34,925 34,925 Segment liabilities 610,785 97, , , ,984 2,519,830 4,659, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

54 7. SEGMENT INFORMATION (Cont d) 7. (ii) Segment assets and liabilities as at 30 June 2016 are as follows: (Cont d) (ii) Inter-segment transfers or transactions are entered into at terms and conditions agreed upon by respective parties. Eliminations comprise inter-segment trade and non-trade balances. Pricing policy for inter-segment transactions is determined by reference to market price. (iii) For the six months ended 30 June 2016 and 2015, the Group s business were primarily carried out in the PRC, thus the geographical segment information has not been prepared. (iii) (iv) Breakdown of the revenue from all services and sales of goods is as follows: (iv) Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Operating services 320, ,647 Construction services 349, ,295 Finance income 74,411 45,562 Engineering-Procurement-Construction and equipment sales 91,302 32,175 Others 31,666 33, , ,915 Revenue of approximately RMB159,399,000 (six months ended 30 June 2015: RMB120,386,000) is derived from the largest single customer for the six months ended 30 June 2016, representing 18% (six months ended 30 June 2015: 25%) of the Group s total revenue, which is attributable to revenue from construction services. 159,399, ,386,000 18% 25%

55 8. OTHER INCOME 8. Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Government grants (note a) (a) 14,887 9,099 Value-Added Tax ( VAT ) refunds (note b) (b) 27,600 Miscellaneous income 1,998 6,344 44,485 15,443 (a) Amounts represented the subsidies granted by certain local governments to the Group in respect of the Group s provision of sewage and reclaimed water treatments, distribution and sale of piped water or construction of sewage and reclaimed water treatment plants. (a) (b) Pursuant to the preferential VAT policies issued by the PRC State Administration of Taxation, the wastewater and solid waste treatment businesses of the Group was eligible for full exemption of VAT prior to 1 July 2015, effective from 1 July 2015, the policies were changed and the full exemption of VAT is superseded by 70% refund of the net VAT paid. The Group recognised the VAT refund as other income during the six months ended 30 June (b) 70% 54 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

56 9. FINANCE COSTS - NET 9. Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Finance income Interest income from bank deposits 14,281 Net exchange gains on financing activities (note a) a 1,861 18,519 16,142 18,519 Finance costs Borrowing costs (104,566) (63,119) Less: amounts capitalised on qualifying assets 25,762 25,046 (78,804) (38,073) Unwinding of provision (note 21) 21) (659) (363) Finance costs - net (63,321) (19,917) (a) Amounts mainly represented the exchange gains/losses of translating cash and cash equivalents and borrowings denominated in foreign currencies. (a)

57 10. INCOME TAX EXPENSES 10. Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Current income tax PRC corporate income tax 22,963 6,959 Deferred income tax (5,614) 2,202 17,349 9,161 (a) PRC corporate income tax (a) Certain subsidiaries in certain industries operating in the western region of Mainland China can enjoy a preferential corporate income tax rate of 15%, provided their revenues from principal activities amounting to more than 70% of their total revenues of the period. 15% 70% Certain subsidiaries operating wastewater and solid waste treatment projects in Mainland China are eligible for a tax holiday of three-year full exemption followed by three-year half exemption of corporate income tax commencing from their first year generating operating revenue. Except for preferential treatments available to certain subsidiaries as mentioned above, other subsidiaries within the Group in the PRC are subject to corporate income tax at the statutory rate of 25%. 25% (b) Thailand corporate income tax (b) The subsidiaries operating solid waste treatment project in Thailand are eligible for a tax holiday of eight-year full exemption from their first year generating operating revenue. (c) Hong Kong profits tax (c) Hong Kong profits tax has not been provided for as the Group did not have any assessable profits during the six months ended 30 June 2016 (six months ended 30 June 2015: nil). 56 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

58 11. EARNINGS PER SHARE 11. (a) Basic (a) The basic earnings per share is calculated by dividing the profit attributable to the owners of the Company by the weighted average number of ordinary shares issued during the six months ended 30 June 2016 and Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Profit attributable to the owners of the Company (RMB 000) Weighted average number of ordinary shares in issue (thousands) Basic earnings per share (RMB per share) 80,201 47,071 1,193, , (b) Diluted (b) Diluted earnings per share is the same as basic earnings per share as there were no potential diluted ordinary shares outstanding during the six months ended 30 June 2016 and DIVIDENDS Pursuant to the resolution of the Company s Annual General Meeting, the Company has declared 2015 dividends of RMB119,321,000 (2014 dividends: RMB110,500,000) on 7 June The 2015 dividends were paid on 28 July No interim dividend for the six months ended 30 June 2016 (six months ended 30 June 2015: nil) has been proposed by the board of directors of the Company ,321, ,500,

59 13. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS 13. Property, plant and equipment Intangible assets RMB 000 RMB 000 Six months ended 30 June 2016 (Unaudited) Net book value Opening amount as at 1 January ,617,329 1,711,249 Acquisition of subsidiaries 105,499 1,182,026 Additions 64, ,264 Depreciation/amortisation (36,987) (53,669) Disposals (218) Closing amount as at 30 June 2016 Six months ended 30 June 2015 (Unaudited) 1,749,969 3,210,870 Net book value Opening amount as at 1 January ,378, ,641 Additions 92,529 6,067 Depreciation/amortisation (27,989) (4,290) Reclassification (20,852) Disposals (2,005) Closing amount as at 30 June ,441, ,566 (a) As at 30 June 2016, buildings of RMB18,697,000 (31 December 2015: RMB18,890,000) were pledged as collateral for the Group s borrowings. (a) 18,697,000 18,890, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

60 14. R E C E I V A B L E S U N D E R S E R V I C E C O N C E S S I O N ARRANGEMENTS The following is the summarised information of the financial asset component (receivable under a service concession arrangement) with respect to the Group s service concession arrangements: 14. As at 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) Receivables under service concession arrangements Less: portion classified as current assets 2,428,417 1,953,279 (25,363) (11,540) Non-current portion 2,403,054 1,941,739 In respect of the Group s receivables under service concession arrangements, credit risks varied amongst the Group s projects operated in different locations of the PRC. The collection of receivables under services concession arrangements is closely monitored in order to minimise any credit risk associated with the receivables. The receivables under service arrangements were billable receivables. They were mainly due from governmental authorities in Mainland China, who are the grantors in respect of the Group s service concession arrangements. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable

61 14. R E C E I V A B L E S U N D E R S E R V I C E C O N C E S S I O N ARRANGEMENTS (Cont d) As at 30 June 2016, the receivables under service concession arrangements with net carrying amount of RMB225,978,000 (31 December 2015: RMB241,220,000) were pledged to certain banks as security of the Group s borrowings ,978, ,220, AMOUNTS DUE FROM/(TO) CUSTOMERS FOR CONTRACT WORKS 15. As at 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) Costs incurred to date plus recognised profits less recognised losses 564, ,120 Less: progress billings (67,177) (57,053) 497, ,067 Analysed for reporting purposes as: Amount due from customers for contract works Non current 488, ,142 Current 12,326 3,477 Amounts due to customers for contract works Current (3,333) (4,552) 497, , YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

62 16. TRADE AND OTHER RECEIVABLES 16. As at 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) Trade receivables Related parties (note 24(d)) 24(d) 265, ,098 Local governments 372, ,831 Third parties 417, ,196 Less: provision for impairment (34,833) (13,271) 1,020, ,854 Other receivables: Related parties (note 24(d)) 24(d) 6,577 6,111 Third parties 1,371, ,517 Less: provision for impairment (132,383) (134,696) 1,245, ,932 Prepayments Related parties (note 24(d)) 24(d) 94, ,778 Third parties 595, , , ,537 2,956,490 1,970,323 Less: non-current portion Prepayments (532,963) (715,826) Other receivables (37,329) (57,410) Current portion 2,386,198 1,197,087 The carrying amount of trade and other receivables approximate their fair values and are mainly denominated in RMB

63 16. TRADE AND OTHER RECEIVABLES (Cont d) In general, the Group grants credit periods of 90 to 180 days to its customers. Aging analysis of gross trade receivables (including amounts due from related parties of trading in nature) at the respective balance sheet dates, based on the invoice dates or contractual terms, is as follows: As at 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) Within one year 863, ,501 One to two years 109, ,948 Two to three years 56,616 50,621 Over three years 25,641 32,055 1,055, ,125 Movements of the provision for impairment of trade receivables are as follows: Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Opening balance at 1 January 13,271 10,973 Impairment provision 21,824 1,087 Unused amounts reversed (262) (51) Closing balance at 30 June 34,833 12, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

64 16. TRADE AND OTHER RECEIVABLES (Cont d) Movements of the provision for impairment of other receivables are as follows: 16. Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Opening balance at 1 January 134,696 11,602 Impairment provision 181 4,290 Unused amounts reversed (2,494) Closing balance at 30 June 132,383 15, CASH AND CASH EQUIVALENTS 17. As at 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) Cash at bank and on hand 2,090,364 1,672,121 Denominated in: RMB 1,647,626 1,487,510 USD 272,129 9,785 HKD 137, ,924 THB 33,039 11,902 2,090,364 1,672,

65 18. TRADE AND OTHER PAYABLES 18. As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Trade payables Related parties (note 24(d)) 24(d) 213, ,638 Third parties 740, , , ,205 Other payables Related parties (note 24(d)) 24(d) 1,767 15,037 Third parties 533, , , ,678 Advances from customers 99,987 15,243 Staff welfare benefit payable 6,263 25,869 Other taxes payable 58,168 85,860 Dividend payables 119,321 Less: non-current portion Other payables due to a third party (57,048) (54,514) Current portion 1,716,698 1,074, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

66 18. TRADE AND OTHER PAYABLES (Cont d) As at 30 June 2016, the aging analysis of the trade payables (including amounts due to related parties of trading in nature) based on invoice date were as follows: 18. As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Within one year 648, ,269 One to two years 221, ,226 Two to three years 67,013 63,523 Over three years 17,716 11, , ,

67 19. BORROWINGS 19. As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Non-current 1,878,369 2,025,960 Current 3,640,826 1,038,355 5,519,195 3,064,315 Movements in borrowings is analysed as follows: RMB 000 Six months ended 30 June 2016 (Unaudited) Opening amount as at 1 January ,064,315 Proceeds from borrowings 2,491,700 Repayments of borrowings (290,775) Acquisition of subsidiaries 237,580 Exchange losses on financing activities 6,645 Currency translation differences 9,730 Closing amount as at 30 June ,519,195 Six months ended 30 June 2015 (Unaudited) Opening amount as at 1 January ,139,315 Proceeds from borrowings 255,000 Repayments of borrowings (261,528) Exchange gains on financing activities (1,502) Closing amount as at 30 June ,131,285 The Group s borrowings as at 30 June 2016 carried weighted average interest rates of 4.79% per annum (31 December 2015: 5.21%). 4.79% 5.21% 66 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

68 20. DEFERRED INCOME TAX ASSETS/(LIABILITIES) The table of deferred income tax assets/(liabilities) after the offsetting of balances within the same tax jurisdiction, is as follows: 20. As at 30 June 31 December RMB 000 RMB 000 (Unaudited) (Audited) Deferred income tax assets 139,364 56,173 Deferred income tax liabilities (427,960) (198,116) The movement in deferred income tax assets and liabilities during the year, without taking into accounts for the offsetting of balances within the same tax jurisdiction, is as follows: Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Deferred income tax assets Opening balance 1 January 64,307 44,837 Credited to income statement 10,016 6,005 Acquisition of subsidiaries 74,414 Closing balance at 30 June 148,737 50,

69 20. DEFERRED INCOME TAX ASSETS/(LIABILITIES) (Cont d) 20. Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Deferred income tax liabilities Opening balance 1 January (206,249) (58,298) Charge to income statement (4,402) (8,207) Acquisition of subsidiaries (226,682) Closing balance at 30 June (437,333) (66,505) 68 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

70 21. PROVISIONS 21. Maintenance cost Employee benefit Total RMB 000 RMB 000 RMB 000 (note (a)) (a) Six months ended 30 June 2016 (Unaudited) Opening amount at 1 January ,951 3,840 25,791 Acquisition of subsidiaries 27,904 27,904 Provision capitalised in intangible assets 3,183 3,183 Unwinding of provision (note 9) Utilised during the period (41) (41) Closing amount at 30 June ,697 3,799 57,496 Six months ended 30 June 2015 (Unaudited) Opening amount at 1 January ,480 3,928 14,408 Provision charged to income statement (note 9) Utilised during the period (28) (28) Closing amount at 30 June ,843 3,900 14,743 (a) Pursuant to the service concession agreements entered into by the Group, the Group has the contractual obligations to maintain the facilities it operates to specified level of serviceability and/or to restore the plants to a specified condition before they are handed over to the governmental authorities at the end of the service concession periods. These contractual obligations to maintain or restore the facilities, except for any upgrade elements, are recognised and measured in accordance with HKAS 37 at the best estimate of the expenditure that would be required to settle the present obligation at the end of each of the related periods. (a)

71 22. COMMITMENTS 22. (a) Capital commitment (a) Capital expenditure contracted for but not yet incurred as of 30 June 2016 and 31 December 2015, is as follows: As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Property, plant and equipment, land use right and construction projects 1,731, ,701 Acquisition of equity interests 693, ,072 2,425,291 1,810, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

72 22. COMMITMENTS (Cont d) 22. (b) Operating lease commitments where the Group is the lessee (b) The Group has leased various offices and warehouses under non-cancellable operating lease agreements. The lease terms are between 1 and 10 years The Group had future aggregate minimum lease rental payments under non-cancellable operating leases as follows: As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Within one year 6,256 6,500 One to five years 4,006 6,074 Over five years 1, ,549 13,

73 23. BUSINESS COMBINATION The general information and fair values of the identifiable assets/ liabilities of the material business combinations in the period as at their respective dates of acquisition are set out as follows: 23. (a) F u t u r e I n t e r n a t i o n a l G r o u p C o., L t d. ( F u t u r e International ) (a) F u t u r e I n t e r n a t i o n a l Group Co., Ltd. Future International Future International is principally engaged in water supply in the PRC. On 8 January 2016, the Group acquired 65% equity interest of Future International from an independent third party. Future International Future International 65% The acquired business has contributed revenues of RMB84,306,000 and net profit of RMB13,899,000 to the Group for the period from acquisition date to 30 June Had Future International been consolidated from 1 January 2016, the interim condensed consolidated statement of comprehensive income of the Group for the six months ended 30 June 2016 would show pro-forma revenue of RMB867,692,000 and net profit of RMB89,294, ,306,000 13,899,000 Future International 867,692,000 89,294, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

74 23. BUSINESS COMBINATION (Cont d) 23. (a) F u t u r e I n t e r n a t i o n a l G r o u p C o., L t d. ( F u t u r e International ) (Cont d) (a) F u t u r e I n t e r n a t i o n a l Group Co., Ltd. Future International RMB 000 Consideration: Cash 200,000 Unpaid consideration 92,500 Total consideration 292,500 Fair value of identifiable net assets acquired Restricted cash 293,000 Trade and other receivables 518,131 Intangible assets 800,078 Other assets 91,140 Borrowings (206,300) Trade and other payables (675,367) Provision (27,904) Deferred income tax liabilities (139,189) Deferred Income (268,403) Total identifiable net assets 385,186 Non-controlling interests (134,815) 250,371 Goodwill 42,129 Acquisition-related costs of Future International were charged to the administrative expenses and were not material to the Group. The goodwill of RMB42,129,000 arises from a number of factors include expected synergies through combining a highly skilled workforce and obtaining greater efficiencies in water supply business, which cannot be separately recognised as an intangible asset. Future International 42,129,

75 23. BUSINESS COMBINATION (Cont d) 23. (b) Harbin Guo Huan Medical Solid Waste Harmless Centralised Disposal Center Co., Ltd. ( Guo Huan ) (b) Guo Huan is principally engaged in solid waste treatment in the PRC. On 2 June 2016, the Group acquired 100% equity interest of Guo Huan from an independent third party. 100% The acquired business has contributed revenues of RMB3,458,000 and net loss of RMB3,015,000 to the Group for the period from acquisition date to 30 June Had Guo Huan been consolidated from 1 January 2016, the interim condensed consolidated statement of comprehensive income of the Group for the six months ended 30 June 2016 would show pro-forma revenue of RMB881,610,000 and net profit of RMB93,141,000. 3,458,000 3,015, ,610,000 93,141, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

76 23. BUSINESS COMBINATION (Cont d) 23. (b) Harbin Guo Huan Medical Solid Waste Harmless Centralised Disposal Center Co., Ltd. ( Guo Huan ) (Cont d) (b) RMB 000 Consideration: Cash 191,558 Unpaid consideration 99,083 Total consideration 290,641 Fair value of identifiable net assets acquired Property, plant and equipment 103,826 Intangible assets 328,301 Other assets 15,709 Trade and other payables (72,441) Deferred income tax liabilities (85,459) Other liabilities (3,990) Total identifiable net assets 285,946 Goodwill 4,695 Acquisition-related costs of Guo Huan were charged to the administrative expenses and were not material to the Group. The goodwill of RMB4,695,000 is attributable to Guo Huan s strong position and profitability in solid waste treatment business, which cannot be separately recognised as an intangible asset. 4,695,

77 24. RELATED PARTY TRANSACTIONS 24. (a) Name and relationship with related parties (a) Name Yunnan Province Water Industry Investment Co., Ltd. ( Yunnan Province Water ) Beijing OriginWater Technology Co., Ltd. ( Beijing OriginWater ) Wenshan Water Industry Investment Co., Ltd. ( Wenshan Water ) (note (i)) (i) Yunnan Metropolitan Construction Investment Co., Ltd. ( YMCI ) Jinghong Municipal Investment and Development Co., Ltd. ( Jinghong Investment ) Yunnan Chengjiang Eagle Tourist Resort Co., Ltd. ( Yunnan Chengjiang Eagle ) Yunnan City Voted Erhai Real Estate Ltd. ( Yunnan Erhai Estate ) Kunming NO.1 Construction Group Co., Ltd ( Kunming NO.1 Construction ) Relationship Shareholder of the Company Shareholder of the Company Joint venture of the Group before 30 December 2015 Shareholder of Yunnan Province Water Subsidiary of YMCI Subsidiary of YMCI Subsidiary of YMCI Subsidiary of YMCI 76 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

78 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (a) Name and relationship with related parties (Cont d) (a) Name Yunnan City Voted Banna Investment and Development Co., Ltd. ( Banna Investment ) Yunnan City Voted Longjiang Real Estate Limited ( Yunnan Longjiang Estate ) ZTE Yunnan City Investment Information Technology Co. Ltd. ( ZTE Yunnan City Investment ) Kunming University Of Science And Technology Oxbridge College ( Kunming Oxbridge College ) Yunnan City Voted Chinese Business Family Investment and Development Co., Ltd. ( Yunnan Chinese Business Family ) Yunnan Construction and Investment Holding Group Co., Ltd. ( Yunnan Construction and Investment ) (note (ii)) (ii) Relationship Subsidiary of YMCI Subsidiary of YMCI Subsidiary of YMCI Subsidiary of YMCI Subsidiary of YMCI State-owned enterprise (i) Wenshan Water became a wholly owned subsidiary of the Company since 30 December Before that, it was a joint venture of the Group. (i) (ii) On 19 April 2016, Yunnan Construction Engineering Group Co., Ltd. merged with The 14th Metallurgical Construction Corporation Ltd., both of which are state-owned enterprises and related parties of the Group. The merged group was renamed to Yunnan Construction and Investment Holding Group Co., Ltd. (ii)

79 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (b) Transactions with related parties (b) During the six months ended 30 June 2016 and 2015, the Group had the following significant transactions with related parties which are carried out on terms agreed with the counter parties in the ordinary course of business: (i) Purchase of goods and services (i) Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Yunnan Construction and Investment 193, ,280 Beijing OriginWater 2,317 1, , ,837 (ii) Sales of goods (ii) Six months ended 30 June RMB 000 RMB 000 (Unaudited) (Unaudited) Yunnan Construction and Investment 4,796 27,715 Yunnan Erhai Estate Yunnan Chengjiang Eagle Yunnan Longjiang Estate 815 2,034 Kunming Oxbridge College 29 Yunnan Chinese Business Family 835 7,605 30, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

80 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (b) Transactions with related parties (Cont d) (b) (iii) Key management compensation (iii) Key management includes executive directors. The compensation paid or payable to key management for employee services is shown below: Six months ended 30 June RMB 000 RMB 000 RMB 000 RMB 000 (Unaudited) (Unaudited) Salaries and other benefits 2,937 2,049 (iv) Guarantee (iv) Guarantee provided by related parties in respect of the borrowings of the Group Six months ended 30 June RMB 000 RMB 000 RMB 000 RMB 000 (Unaudited) (Unaudited) Jinghong Investment 7,500 20,

81 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (c) Transactions with other state-owned enterprises (c) In accordance with Hong Kong Accounting Standard 24 Related Party Disclosures, state-owned enterprises and their subsidiaries, directly or indirectly controlled by the PRC Government are regarded as related parties of the Group. 24 The Group operates in an economic environment predominated by state-owned enterprises. During the six months ended 30 June 2016 and 2015, the Group had transactions with state-owned enterprises including, but not limited to, operating services, construction services and equipment sales. These transactions are conducted in the ordinary course of the Group s business on terms comparable to those with other entities that are not state-owned. The Group has established its pricing strategy and approval process for purchase and sales of products and services. Such pricing strategy approval processes are consistently applied regardless of the counterparties are state-owned entities or not. Having due regard to the substance of the relationships, the directors of the Company are of the opinion that none of these transactions are material related party transactions that require separate disclosure except for the transactions with Yunnan Construction and Investment as disclosed above. 80 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

82 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (d) Balance with related parties (d) As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Trade receivables - current Yunnan Construction and Investment 252, ,312 Kunming NO.1 Construction 5,077 6,946 Yunnan Erhai Estate 3,110 2,260 Yunnan Chengjiang Eagle 2,411 2,502 Yunnan Longjiang Estate 1,078 1,078 Yunnan Chinese Business Family , ,098 As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Prepayments for purchase of goods Beijing OriginWater 25,064 24,560 Yunnan Construction and Investment 68,906 83,519 ZTE Yunnan City Investment , ,

83 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (d) Balance with related parties (Cont d) (d) As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Amounts due from related parties, not interest bearing Yunnan Construction and Investment 6,111 6,111 Yunnan Longjiang Estate 466 6,577 6,111 As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Trade payables - current Yunnan Construction and Investment 210, ,292 Beijing OriginWater 3,096 3, , , YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016

84 24. RELATED PARTY TRANSACTIONS (Cont d) 24. (d) Balance with related parties (Cont d) (d) As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Advances from Customers Banna Investment Yunnan Construction and Investment 502 1, As at 30 June December 2015 RMB 000 RMB 000 (Unaudited) (Audited) Amounts due to related parties, not interest bearing Yunnan Construction and Investment 1,130 14,413 Yunnan Province Water ,767 15,

85 25. EVENTS OCCURRING AFTER BALANCE SHEET DATE 25. (i) On 28 July 2016, the Group has entered into the Equity Transfer Agreement with the vendors to acquire 50% equity interest of Galaxy NewSpring Pte. Ltd. ( Target Company ) at a consideration of US$100 million. The Target Company owns and operates a number of plants engaged in water supply, wastewater treatment and reclaimed water in the PRC. (i) 100 Galaxy NewSpring Pte. Ltd. 50% (ii) The Group acquired 75.51% of the equity interest of Harbin Yun Shui Gong DA Environmental Technology Co., Ltd. ( Harbin Yun Shui, formerly known as Harbin Chenergy & Hit Environmental Technology Co., Ltd. ) and its subsidiaries (together, "Harbin Yun Shui Group") at a consideration of RMB158 million. Harbin Yun Shui Group is principally engaged in solid waste treatment business in Harbin, Heilongjiang Province. The acquisition was completed on 4 August Details of the assets acquired and liabilities assumed, revenue and profit contribution of Harbin Yun Shui Group and the effect on the cash flows of the Group are not disclosed, as the accounting for this acquisition is still incomplete at the time this interim condensed consolidated financial information have been approved for issue. Harbin Yun Shui Group will be consolidated with effect from 4 August (ii) % (iii) On 8 August 2016, the Group has entered into a threeyear syndicated loan facility agreement of US$130 million (equivalent to RMB860 million) with interest rate of Libor+2.2% per annum. (iii) Libor+2.2% (iv) On 26 August 2016, the Group has issued a three-year private placement note with a principal amount of RMB1,000 million and interest rate of 4% per annum. (iv) 1,000 4% 84 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2016