Contents Corporate Information 2 Definitions 5 Financial Highlights 9 Management Discussion and Analysis 10 Disclosure of Interests 25 Corporate Gover

Transcription

1

2 Contents Corporate Information 2 Definitions 5 Financial Highlights 9 Management Discussion and Analysis 10 Disclosure of Interests 25 Corporate Governance 30 Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income 36 Interim Condensed Consolidated Balance Sheet 38 Interim Condensed Consolidated Statement of Changes in Equity 41 Interim Condensed Consolidated Statement of Cash Flows

3 Corporate Information BOARD OF DIRECTORS Executive Directors Mr. Dai Richeng (Vice-Chairman) Mr. Yang Fang (Deputy Chief Executive Officer) Non-executive Directors Mr. Yang Tao (Chairman) Mr. He Yuanping Ms. Li Bo Mr. Feng Zhuangzhi Independent Non-executive Directors Mr. Kwok For Chi Mr. Hu Song Mr. Ma Shihao AUDIT COMMITTEE Mr. Kwok For Chi (Chairman) Mr. Hu Song Mr. Ma Shihao REMUNERATION COMMITTEE Mr. Hu Song (Chairman) Mr. Yang Fang Mr. Ma Shihao NOMINATION COMMITTEE Mr. Yang Tao (Chairman) Mr. Hu Song Mr. Ma Shihao 2 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

4 Corporate Information COMPLIANCE COMMITTEE Mr. Dai Richeng (Chairman) Mr. Kwok For Chi Mr. Yang Fang Mr. Hu Song Mr. Ma Shihao Ms. Yang Chuanyun (Supervisor) COMPANY SECRETARY Mr. Li Bo AUTHORIZED REPRESENTATIVES Mr. Yang Fang Mr. Dai Richeng HEADQUARTER AND PRINCIPAL PLACE OF BUSINESS IN THE PRC 15th and 16th Floor, Block A He Cheng International 1088 Haiyuan Zhong Road Gaoxin District Kunming, Yunnan PRC 1088 A 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: Holman Fenwick Willan 15th Floor, Tower 1 Lippo Centre 89 Queensway, Admiralty, Hong Kong Hong Kong

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 Bank of China Limited Ping An Bank Co., Ltd. Industrial Bank Co., Ltd. DBS Bank (Hong Kong) Limited The Bank of East Asia (China) Limited Bank of Communications Co., Ltd. China Bohai Bank Co., Ltd. China Merchants Bank Co., Ltd. Hang Seng Bank Limited 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 2017

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 Chairman Company controlling shareholder(s) Corporate Governance Code Director(s) has the meaning ascribed to it under the Listing Rules Beijing OriginWater Technology Co., Ltd.* ( ), a limited liability company incorporated in the PRC, the shares of which are listed on the Shenzhen Stock Exchange (stock code: ) the board of Directors of the Company the chairman of the Board Yunnan Water Investment Co., Limited* (), a joint stock limited liability company incorporated 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 the Company

7 Definitions Domestic Share(s) Group 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$ HKFRS Hong Kong IPO Listing Rules Model Code PRC 1.00 Hong Kong dollar(s), the lawful currency of Hong Kong Hong Kong Financial Reporting Standards, including Hong Kong Accounting Standards and Interpretations promulgated by the Hong Kong Accounting Standard Board 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 as 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 6 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

8 Definitions Prospectus 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 2017 to 30 June 2017 RMB SFO Share(s) Shareholder(s) Stock Exchange subsidiary(ies) Supervisor(s) YMCI Yunnan Province Water 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 the Company with a nominal value of RMB1.00 each, including the H Shares and the 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 supervisor(s) of the Company Yunnan Metropolitan Construction Investment Co., Ltd.* ( ), a limited liability company incorporated in the PRC and is the sole shareholder of Yunnan Province Water, the Company s controlling shareholder Yunnan Province Water Industry Investment Co., Ltd.* ( ), a limited liability company incorporated in the PRC

9 Definitions Yunnan Water (Hong Kong) Yunnan Solid Waste Yunnan Water (Hong Kong) Company Limited, a company incorporated in Hong Kong with limited liability, and a wholly-owned subsidiary of the Company Yunnan Solid Waste Investment Co., Ltd., a company established in the PRC with limited liability, and a 75% owned subsidiary of the Company 75% % per cent % * For identification purposes only * 8 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

10 Financial Highlights The Board is pleased to announce the following financial highlights: Six months ended 30 June Percentage Change (Unaudited) (Unaudited) Revenue 1,657, , % Gross profit 413, , % Profit before income tax 186, , % Profit for the period 155,542 89, % EBITDA (Note) 595, , % Profit attributable to ordinary 91,766 80, % shareholders of the Company Return on shareholders equity 2.51% 1.75% 43.4% half year (%) (%) Basic earnings per share (RMB) % Note: EBITDA is the profit for the Reporting Period before deduction of finance cost-net, income taxation, depreciation and amortisation

11 Management Discussion and Analysis INDUSTRY OVERVIEW In recent years, the environmental protection industry in the PRC has been developing rapidly which is driven by various factors, such as the rapid development of ecological civilization system, tightened and strict enforcement of environmental laws and regulations, and enhanced public awareness towards energy saving and environmental protection. In 2017, enhanced monitoring from the PRC government and the introduction of new and tightened laws and regulations for the prevention and treatment of air, water and soil pollution are expected to continue to provide a platform for an intensive growth of the environmental protection industry. During the Reporting Period, the PRC government has introduced certain new environmental protection policies, for example, the Law of the PRC on Water Pollution Prevention and Control ( ), the Law of the PRC on Prevention and Control of Soil Pollution (Draft) ( ()), the 13th Five-Year Development Plan for the National Standards of Environmental Protection ( ), the Proposal on Implementation of Domestic Waste Classification System (), the Implementation Regulation on the Environmental Protection Tax Law of the PRC (Draft for Comment) ( ( )) and the Belt and Road Ecological and Environmental Cooperation Plan ( ). During the 13th Five-Year Plan period, the environmental protection industry has seen an upward trend. There has been stable growth in the traditional market segments, such as rural wastewater treatment, sponge city development, river watercourse treatment, municipal wastewater treatment, sludge treatment and municipal solid waste incineration market, as well as the emergence of new market segments, such as soil remediation and sanitation is an important year since it is the first year with the full implementation of the ecological and environmental protection plan under the 13th Five-Year Plan. The parallel implementation and the promotion of various reforms for ecological and environmental protection and the strict enforcement of environmental laws and regulation are believed and guaranteed to provide a strong platform for realizing the phrasal objectives of environmental management and continue to drive the rapid development of the environmental protection industry. 10 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

12 Management Discussion and Analysis DEVELOPMENT STRATEGIES AND PROSPECT The environmental protection market has become increasingly challenging with intensified market competition and a decline of liquidity in the market with increased interest rate. In order to deal with these challenges, on one hand, the Group has actively explored and adopted new models for centralized regional project management whereby the Group has successfully achieved synergies across different projects in different regions; on the other hand, the Group has actively broadened its financing sources both locally and internationally as well as exploring new financing method for example, the issuance of financial products and debt securities, which have become an important capital source of the Group. The Group believes that its overall liquidity structure has been stable and reasonable. In the second half of 2017, the Group will adhere to its primary business strategy of steady development and will continue to strengthen the management of the newly acquired projects in terms of project operation, financial management and corporate governance, with the aim of generating investment return for the Group as soon as possible. Furthermore, the Group will further promote the application of centralized project management for its solid waste treatment projects and will increase its investment in the research and development of technologies relating to solid waste treatments, such as sludge carbonization and waste gasification, with a view to strengthening its core technologies and manufacturing of equipment in this area which the Company believes may serve as a new source of income for the Group and enhance the Group s overall competitiveness and profitability. As part of its future strategic development plan, the Group plans to set up integrated platform of investment, financing and project management in Xinjiang, Shandong, Shanghai, Heilongjiang and Fujian, to integrate regional resources and to improve operational efficiency. The Company believes that with an optimized project network, the Company will be able to further achieve synergy effect and operate in a more cost-effective manner in terms of project operation, project management and financing

13 Management Discussion and Analysis BUSINESS REVIEW The Group is one of the leading municipal environment integrated services providers in the PRC. The Group mainly adopts 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 ), Operation and Maintenance ( O&M ) and Public-Private-Partnership ( PPP ) project models to provide customized and integrated turnkey solutions for water supply, wastewater treatment and solid waste treatment as well as the comprehensive treatment of urban environment (which includes watercourse treatment, black and odorous water treatment, reservoir work and etc.) to customers. The Group s businesses are principally carried out in the PRC and Southeast Asian countries. The Group s principal businesses comprise five major segments, namely, wastewater treatment, water supply, solid waste treatment, construction and sales of equipment, and others. As at 30 June 2017, the Group s relevant water projects (including all water related projects under the following wastewater treatment, water supply and others segments) had a total daily treatment capacity of approximately 3,874,000 tonnes, representing an increase of approximately 47.1% as compared to the total daily treatment capacity of 2,634,000 tonnes as at 31 December As at 30 June 2017, the Group s relevant solid waste treatment projects (including all solid waste treatment related projects under the following solid waste treatment and others segments) had a total annual solid waste treatment capacity of approximately 1,454,000 tonnes, representing an increase of approximately 7.7% as compared to the total annual capacity of 1,350,000 tonnes as at 31 December Wastewater Treatment Projects As at 30 June 2017, the Group had a total of 85 concession wastewater treatment projects under construction and in operation, including 5 BOO projects, 62 BOT projects, 2 TOO projects and 16 TOT projects, with a total daily wastewater treatment capacity of 2,038,000 tonnes, representing an addition of 14 BOT projects and 4 TOT projects, and an increase in the total daily wastewater treatment capacity of 659,000 tonnes or a growth rate of approximately 47.8% as compared with 31 December BOT BOO TOO TOT BT EPC O&M PPP 3,874,000 2,634, % 1,454,000 1,350, % 85 5 BOO 62 BOT 2 TOO 16 TOT 2,038, BOT 4 TOT 659, % 12 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

14 Management Discussion and Analysis As at 30 June 2017, 71 concession projects had commenced commercial operation with a total daily wastewater treatment capacity of 1,629,000 tonnes, representing an addition of 9 BOT projects and 4 TOT projects and an increase in the total daily wastewater treatment capacity of 505,000 tonnes as compared with 31 December During the Reporting Period, the Group s effective wastewater treatment utilization rate was approximately 74.0%, and the average unit charge of wastewater treatment was approximately RMB1.24 per tonne. As at 30 June 2017, 14 concession projects had not commenced commercial operation with a total daily wastewater treatment capacity of 409,000 tonnes, representing an addition of 5 BOT projects and an increase in the total daily wastewater treatment capacity of 154,000 tonnes as compared with 31 December Water Supply Projects As at 30 June 2017, the Group had a total of 47 concession water supply projects, including 14 BOO projects, 21 BOT projects and 12 TOT projects, with a total daily capacity of 1,547,000 tonnes, representing an addition of 12 BOT projects and 4 TOT projects, and an increase in the total daily capacity of 531,000 tonnes or a growth rate of approximately 52.3% as compared with 31 December As at 30 June 2017, 33 concession projects with a total daily capacity of 1,155,000 tonnes had commenced commercial operation, representing an addition of 9 BOT projects, 3 TOT projects and 1 BOO project and an increase in the total daily capacity of 480,000 tonnes as compared with 31 December During the Reporting Period, the Group s effective water supply utilization rate was approximately 70.3%, and the average unit charge of water supply was approximately RMB 2.33 per tonne. As at 30 June 2017, 14 concession projects with a total daily capacity of approximately 392,000 tonnes had not commenced commercial operation, representing an addition of 3 BOT projects and 1 TOT project and an increase in the total daily capacity of approximately 61,000 tonnes as compared with 31 December During the Reporting Period, 1 BOO project had commenced commercial operation with a total daily capacity of 10,000 tonnes. 71 1,629,000 9 BOT 4 TOT 505, % , BOT 154, BOO 21 BOT 12 TOT 1,547, BOT 4 TOT 531, % 1,155, BOT 3 TOT 1 BOO 480, % , BOT 1 TOT 61,000 10,000 1 BOO

15 Management Discussion and Analysis Solid Waste Treatment Projects As at 30 June 2017, the Group had 9 solid waste treatment projects with a total annual treatment capacity of 1,308,000 tonnes, among which 6 of them with an annual treatment capacity of 729,000 tonnes had commenced commercial operation and 3 of them with an annual treatment capacity of 579,000 tonnes were pending for operation. As compared with 31 December 2016, 2 additional solid waste treatment projects were pending for operation and the total annual treatment capacity increased by 323,000 tonnes. During the Reporting Period, the Group s effective solid waste treatment utilization rate was approximately 91.0%. PPP Projects The Group has been actively capturing opportunities brought upon by the PPP projects introduced by the Chinese government and carried out PPP projects since As at 30 June 2017, the Group had been awarded tenders of five main PPP projects, including Erhai main river inflow watercourse comprehensive treatment in Dali city, Yunnan Province, Comprehensive utilization of water resources and integration of urban and rural sanitation in Luoyuan County, Fujian Province and Environment upgrade and ecological restoration works for Yanjin Lake within Chishui river areas in Renhuai City, Guizhou Province. The total investment amount of the above-mentioned PPP projects was approximately RMB6.6 billion, with business involving water treatment, solid waste treatment, watercourse comprehensive treatment and reservoir building, etc.. Construction and Sales of Equipment The Group s construction and sales of equipment segment comprises BT projects, EPC projects and sales of equipment. As at 30 June 2017, the Group had a total of 11 BT projects, which were either under construction and/or completed, among which the income of 10 BT projects were recognized during the Reporting Period. During the Reporting Period, the Group had a total of 9 EPC projects, representing an addition of 2 EPC projects as compared with 31 December The Group engages in the production, sales and installation of equipment for wastewater treatment, water supply and solid waste treatment facilities. The major category of water treatment equipment in the Group s production is membrane products. All of the membrane products are produced by the own plant of the Group. 9 1,308, , , , % PPP PPPPPP PPP 66 BT EPC BT 11 BT 10 EPC 9 2 EPC 14 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

16 Management Discussion and Analysis Others During the Reporting Period, the Group also undertook O&M projects for wastewater treatment, water supply and solid waste treatment facilities owned by third parties, as well as the provision of technical and consultancy services in relation to environmental protection projects. As at 30 June 2017, the Group had 27 O&M projects, including 25 wastewater treatment projects with a daily wastewater treatment capacity of approximately 284,000 tonnes, 1 water supply project with a daily capacity of approximately 5,000 tonnes and 1 solid waste treatment project with an annual treatment capacity of approximately 146,000 tonnes, representing an addition of 1 wastewater treatment O&M project, and an increase in the daily capacity of 50,000 tonnes as compared with 31 December During the Reporting Period, an O&M agreement of a solid waste treatment project with an annual treatment capacity of approximately 219,000 tonnes was terminated. O&M 27 O&M , , ,000 1 O&M 50, ,000 O&M FINANCIAL REVIEW Results of Operation During the Reporting Period, the Group recorded a revenue of approximately RMB1,657.7 million, representing a year-on-year increase of 91.0% as compared with the corresponding period in During the Reporting Period, the Group realized a net profit of approximately RMB155.5 million, representing a year-on-year increase of 74.1% as compared with the corresponding period in Profit attributable to the ordinary shareholders of the Company was approximately RMB91.8 million, representing a year-on-year increase of 14.5% as compared with the corresponding period in Earnings per share for the six months ended 30 June 2017 was approximately RMB Revenue Revenue of the Group increased from approximately RMB867.7million for the six months ended 30 June 2016 to approximately RMB1,657.7 million for the Reporting Period, representing an increase of approximately 91.0%. 1, % % % , %

17 Management Discussion and Analysis In respect of the business segments of the Group, revenue from the wastewater treatment business segment increased by approximately 136.6% from approximately RMB252.2 million for the six months ended 30 June 2016 to approximately RMB596.8 million for the Reporting Period. Revenue from the water supply segment increased by approximately 100.5% from approximately RMB309.3 million for the six months ended 30 June 2016 to approximately RMB620.2 million for the Reporting Period. Revenue from solid waste treatment business segment increased by approximately 119.8% from RMB108.5 million for the six months ended 30 June 2016 to approximately RMB238.5 million for the Reporting Period. Revenue from construction and sales of equipment business segment increased by approximately 7.2% from approximately RMB166.0 million for the six months ended 30 June 2016 to approximately RMB178.0 million for the Reporting Period. Revenue from other business decreased by approximately 23.7% from approximately RMB31.7million for the six months ended 30 June 2016 to approximately RMB24.2 million for the Reporting Period. The increase in revenue from the wastewater treatment business segment was mainly attributable to (i) an increase in construction revenue generated by certain wastewater treatment projects under construction; and (ii) the commencement of commercial operation of certain wastewater treatment projects newly acquired by the Group in the second half of 2016 and in the first half of The increase in revenue from the water supply business segment was mainly attributable to (i) the increase in construction revenue generated by certain water supply projects under construction; and (ii) the commencement of commercial operation of certain water supply projects newly acquired by the Group in the second half of 2016 and in the first half of The increase in revenue from the solid waste treatment business segment was mainly attributable to (i) the commencement of commercial operation of certain solid waste treatment projects acquired by the Group in the second half of 2016 which realized a half-year revenue during the Reporting Period; and (ii) the construction revenue generated by solid waste treatment projects under construction. The increase in revenue from the construction and sales of equipment business segment was mainly attributable to (i) business expansion of EPC and sales of equipment in wastewater treatment, water supply, watershed management and solid waste treatment industries; and (ii) the increasing construction and interest income of existing BT projects under construction during the Reporting Period % % % % % 24.2 (i) (ii) (i) (ii) (i) (ii) (i) EPC (ii) BT 16 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

18 Management Discussion and Analysis Cost of Sales During the Reporting Period, the Group recorded cost of sales of approximately RMB1,244.6 million, representing a year-on-year increase of RMB654.4 million or a growth rate of approximately 110.9% as compared with approximately RMB590.2 million for the six months ended 30 June The increase was primarily due to (i) the acquisitions of certain wastewater treatment and water supply projects in the Reporting Period which resulted in an increase in operating costs; (ii) certain solid waste treatment projects acquired in the second half of 2016 recorded a half-year operation cost during the Reporting Period; and (iii) the increase in construction costs of a number of existing BT, BOT and PPP projects which entered critical construction period. Gross Profit Margin During the Reporting Period, gross profit margin of the Group was approximately 24.9%, representing a decrease of approximately 7.1% as compared with approximately 32.0% for the six months ended 30 June The decrease was primarily due to (i) the gross profit margins of certain newly acquired water supply and wastewater treatment projects being slightly lower than the margins of the existing water plant projects; and (ii) certain newly-operated BOO projects recording a lower gross profit margin as a result of a relatively higher depreciation and other fixed cost against a lower initial unit price and utilization rate. Other Income During the Reporting Period, the Group recorded other income of approximately RMB155.0 million as compared with approximately RMB44.5 million for the six months ended 30 June 2016, representing an increase of more than a double as compared to the same period ended 30 June The increase in other income during the Reporting Period was mainly attributable to the recovery of certain other receivables which had been considered as unrecoverable in previous years. 1, % (i) (ii) (iii) BT BOT PPP 24.9% 32.0% 7.1% (i) (ii)boo Other Gains - net During the Reporting Period, the Group recorded other net gains of approximately RMB59.5 million, representing a substantial increase as compared with approximately RMB3.5 million for the six months ended 30 June The increase was mainly attributable to fair value gains on the remeasurement of a joint venture and an associate

19 Management Discussion and Analysis Selling Expenses During the Reporting Period, selling expenses of the Group were approximately RMB18.3 million, representing a year-on-year increase of RMB5.1 million or a growth rate of approximately 38.6% from approximately RMB13.2 million for the six months ended 30 June The increase in selling expenses was mainly due to the increase in selling expenses from newly acquired businesses in the second half of 2016 and in the first half of Administrative Expenses During the Reporting Period, administrative expenses of the Group were approximately RMB202.5 million, representing a year-on-year increase of RMB60.2 million or a growth rate of approximately 42.3% from approximately RMB million for the six months ended 30 June The increase in administrative expenses was primarily due to the expansion of the Group s business by acquisitions, which resulted in an increase in expenses such as employee remuneration expenses and legal and professional fees for the acquisitions. Finance Costs - net Net finance costs increased by RMB152.8 million from approximately RMB63.3 million for the six months ended 30 June 2016 to approximately RMB216.1 million for the Reporting Period, representing an increase of more than a double as compared with the corresponding period ended 30 June The increase in net finance costs was primarily due to a number of additional bank borrowings and the issuance of debt securities to support the Group s business acquisitions and operation. The average interest rate on borrowings of the Group for the Reporting Period was approximately 4.26% per annum, representing a year-onyear decrease of 0.44% as compared with 4.70% per annum for the year ended 31 December Decrease in the average borrowing rate was due to the diversified financing sources in the Reporting Period. Profit Before Income Tax As a result of the above factors, the Group recorded a profit before income tax of approximately RMB186.3 million for the six months ended 30 June 2017, representing an increase of approximately 74.8% as compared with approximately RMB106.6 million recorded for the six months ended 30 June % % % 4.70% 0.44% % 18 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

20 Management Discussion and Analysis Income Tax Expenses Income tax expenses increased by RMB13.5 million from approximately RMB17.3 million for the six months ended 30 June 2016 to approximately RMB30.8 million for the Reporting Period, representing an increase of approximately 78.0%. The weighted average effective tax rate was approximately 16.5% (for the year ended 31 December 2016: 19.8%). The fluctuation was caused by the change in the profitability of the Group s subsidiaries in respective countries or regions applying different corporate income tax rates. Profit and Net Profit Margin for the Reporting Period As a result of the foregoing, profit for the Reporting Period increased by RMB66.2 million from approximately RMB89.3 million for the six months ended 30 June 2016 to approximately RMB155.5 million for the Reporting Period, representing an increase of approximately 74.1%. Net profit margin decreased from approximately 10.3% for the six months ended 30 June 2016 to approximately 9.4% for the Reporting Period. Receivables under Service Concession Arrangements The Group s receivables under service concession arrangements increased by RMB1,008.1 million from approximately RMB2,891.2 million as at 31 December 2016 to approximately RMB3,899.3 million as at 30 June 2017, representing an increase of approximately 34.9%. Such increase was primarily due to (i) the receivables of the wastewater and water supply concession projects newly acquired during the Reporting Period; and (ii) the additional investments on BOT projects under construction by the Group which led to an increase in receivables under the service concession arrangements. Trade and Other Receivables and Prepayments The Group s trade and other receivables and prepayments increased by RMB1,067.8 million from approximately RMB4,216.1 million as at 31 December 2016 to approximately RMB5,283.9 million as at 30 June 2017, representing an increase of approximately 25.3%. Such increase was primarily due to (i) an increase in trade and other receivables and prepayments from the projects acquired by the Group during the Reporting Period; (ii) a continuous increase of sales of equipment; and (iii) an increase in prepayments for ongoing construction projects % 16.5% 19.8% % 10.3% 9.4% 2, , , % (i) (ii)bot 4, , , % (i) (ii) (iii)

21 Management Discussion and Analysis Cash and Cash Equivalents The Group s total cash balance decreased by RMB116.0 million from approximately RMB4,129.9 million as at 31 December 2016 to approximately RMB4,013.9 million as at 30 June 2017, representing a slight decrease of approximately 2.8%. Perpetual capital instruments During the Reporting Period, the Company issued perpetual capital instruments with an aggregate proceeds of RMB1,200.0 million to a financial institution in the PRC (for the six months ended 30 June 2016: nil); and redeemed perpetual capital instruments amounted to RMB2,000.0 million from a financial institution in the PRC (for the six months ended 30 June 2016: nil). The perpetual capital instruments have no maturity date, and the payments of distribution can be deferred at the discretion of the Company. The profit attributable to the holders of perpetual capital instruments for the six months ended 30 June 2017 was approximately RMB42.6 million (for the six months ended 30 June 2016: nil). Trade and Other Payables The Group s trade and other payables increased by RMB902.9 million from approximately RMB2,907.6 million as at 31 December 2016 to approximately RMB3,810.5 million as at 30 June 2017, representing an increase of approximately 31.1%. Such increase was primarily due to (i) the increase in trade and other payables of the newly acquired projects; and (ii) an increase in the construction investments in BOT, PPP and BT projects. Borrowings As at 30 June 2017, the Group had borrowings of approximately RMB12,752.4 million (31 December 2016: approximately RMB8,298.5 million). As at 30 June 2017, the Group had unsecured borrowings of approximately RMB9,952.4 million (31 December 2016: approximately RMB6,468.7 million), and secured borrowings of approximately RMB2,800.0 million (31 December 2016: approximately RMB1,829.8 million). 4, , % 1, , , , % (i) (ii)bot PPP BT 12, , , , , , YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

22 Management Discussion and Analysis Pledge of Assets As at 30 June 2017, the Group had borrowings of approximately RMB1,572.5 million which were secured by the Group s land use rights and shares of subsidiaries (31 December 2016: borrowings of approximately RMB688.5 million which were secured by the Group s land use rights, shares of a subsidiary and a joint venture). As at 30 June 2017, the Group had borrowings of approximately RMB1,227.5 million (31 December 2016: approximately RMB1,141.3 million) which were secured by right of charges from concession and BT projects of water supply and wastewater treatment. Capital Commitments The Group s capital commitments decreased by RMB1,444.3 million from approximately RMB4,683.2 million as at 31 December 2016 to approximately RMB3,238.9 million as at 30 June 2017, representing a decrease of approximately 30.8%. Such decrease was primarily due to the completion of several acquisitions during the Reporting Period. Gearing Ratio The Group s gearing ratio (calculated as net debt divided by total capital) increased from approximately 36.52% as at 31 December 2016 to approximately 58.52% as at 30 June The increase in gearing ratio was mainly due to the increased scale of debt financing to support the acquisitions and investments in multiple long-term operational assets during the Reporting Period. The IPO The H shares of the Company were listed on the Stock Exchange on 27 May 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-for-one basis). The proceeds from the IPO after deducting the relevant listing expenses were approximately HK$1,739 million. The utilization of the proceeds is in line with the information as disclosed in the prospectus of the Company dated 13 May As at 30 June 2017, the Group had utilized proceeds of approximately HK$1,716 million, and unutilized proceeds amounted to approximately HK$23 million. 1, , ,141.3 BT 4, , , % 36.52% 58.52% H H 363,713,900 H 1,739 1,

23 Management Discussion and Analysis Employees and Remuneration Policy As at 30 June 2017, the Group had 4,748 employees (31 December 2016: 3,666). For the six months ended 30 June 2017, employee benefit expenses of the Group were approximately RMB174.8 million (for the six months ended 30 June 2016: approximately RMB103.7 million). 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. Remuneration package provided to employees also includes 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. Foreign Exchange Risk The Group principally operates in the PRC with most of the transactions being settled in RMB, which is the functional currency of most of the Group s entities. The Group also has certain subsidiaries which conduct foreign operations. Foreign exchange risk arises from the identifiable assets and liabilities and net investments in foreign operations. Currency exposure arising from the net assets of the Group s foreign operations is managed primarily through operating and financing activities denominated in the relevant foreign currencies. The group entities are exposed to foreign exchange risk of foreign currencies other than their functional currencies, primarily with respect to the US dollars, Euro, and Hong Kong dollars. 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 is seeking to limit its exposure to foreign currency risk by closely monitoring and minimizing its net foreign currency position. Contingent Liabilities As at 30 June 2017, the Group did not have any significant contingent liabilities. 4,748 3, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

24 Management Discussion and Analysis INTERIM DIVIDEND The Board does not recommend any distribution of interim dividend for the six months ended 30 June 2017 (six months ended 30 June 2016: Nil). SIGNIFICANT INVESTMENTS AND ACQUISITIONS On 25 January 2017, the Company entered into a joint venture agreement with Yunnan Sidu Investment Management Co., Ltd.* () in relation to the establishment of Yunnan Solid Waste as a joint venture company in Kunming, Yunnan Province, the PRC, with a total investment amount of RMB500,000, ,000,000 On 13 April 2017, Yunnan Water (Hong Kong) entered into an equity transfer agreement with Ms. Zhang Hui in relation to the acquisition of 97% equity interest of Pan Asia International (Sishui) Co., Limited at a consideration of RMB376,400,000 (equivalent to approximately US$54,606,122). Zhang Hui 376,400,000 54,606,122 97% On 12 May 2017, Yunnan Solid Waste entered into an equity transfer agreement with Zhongshan Chuangzhi Building Materials Technology Co., Ltd.* ( ) in relation to the acquisition of 90% equity interest of Sanming Jinliya Environmental Protection Technological Investment Co., Ltd.* ( ) at a consideration of RMB276,520, ,520,900 90% On 12 May 2017, the comprehensive utilization of water resources and integration of urban and rural sanitation PPP project in Luoyuan County, Fujian Province, the PRC, which is granted by the Water Conservancy Bureau of Luoyuan County* ( ) and is authorized by the People s Government of Luoyuan County, Fujian Province, the PRC, has been formally granted to the Company together with Fujian Dongfei Environmental Group Co., Ltd.* ( ) and Xiamen Anneng Construction Co., Ltd.* (), by way of public tender. The total estimated investment amount of the Project is RMB1,335,000,000. PPP 1,335,000,

25 Management Discussion and Analysis On 27 June 2017, the Environment Upgrade and Ecological Restoration Works for Yanjin Lake within Chishui River Areas PPP project, which is granted by the Renhuai Environmental Protection Bureau* ( ) and is authorized by the People s Government of Renhuai City, Guizhou Province, the PRC, has been formally awarded to the Company, by way of public tender. The total estimated investment amount of the Project is RMB 2,600,000,000. PPP 26 On 26 October 2016, Yunnan Water (Hong Kong) and the Company entered into an equity transfer agreement with Hyflux Asset Management Pte. Ltd and Hyflux Ltd. in relation to the acquisition of 50% interest in Galaxy NewSpring Capital Pte. Ltd., Limited at a consideration of US$136,500,000. The acquisition was completed on 15 March Hyflux Asset Management Pte. Ltd Hyflux Ltd 136,500,000 Galaxy NewSpring Capital Pte. Ltd. 50% For details of the above-mentioned significant investments and acquisitions, please refer to the announcements published by the Company on 25 January 2017, 13 April 2017, 12 May 2017, 12 May 2017, 27 June 2017 and 15 March 2017, respectively. Subsequent Events On 26 July 2017, the Company entered into a joint venture agreement with Renhuai Urban Development Construction and Investment Operation Co., Ltd.* ( ) in relation to the establishment of Guizhou Renhuai Yunshui Environment Co., Ltd.* () as a joint venture company in Renhuai City, Guizhou Province, the PRC, with a total investment amount of RMB522,838,800. For details, please refer to the Company s announcement dated 26 July ,838, YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

26 Disclosure of Interests INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 30 June 2017, 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 the respective type of Shares in issue (%) (%) Percentage of the total number of Shares 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 Domestic Shares Mr. Yu Long Beneficial owner Domestic Shares 361,487,162 (L) ,487,162 (L) ,820,000 (L) Mr. Yu Long Beneficial owner H Shares 770,000 (L) H Note: (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 best knowledge of the Company, as at 30 June 2017, 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. (1) 1,950,000 (2) 195, A R R A N G E M E N T F O R P U R C H A S E O F S H A R E S O R 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. 26 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

28 Disclosure of Interests SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES To the best knowledge of the Company, as at 30 June 2017, 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: XV % Name of Shareholder Capacity Type of Shares Number of Shares 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 Domestic Shares Domestic Shares Beijing OriginWater Beneficial owner Domestic Shares 361,487,162 (L) ,487,162 (L) ,487,162 (L) ,650,000 (L)

29 Disclosure of Interests Name of Shareholder Capacity Type of Shares Number of Shares Percentage of the respective type of Shares in issue (%) (%) Percentage of the total number of Shares in issue (%) (%) CNPC Assets Interests in controlled Domestic Management Co., Ltd. corporation Shares China National Petroleum Interests in controlled Domestic Corporation 3 corporation Shares 3 Kunlun Trust Co. Ltd. 3 Interests in controlled Domestic corporation Shares 3 Finergy Development (Tianjin) Equity Investment Partnership (Limited Partnership) 3 Beneficial owner Domestic Shares 3 137,880,000 (L) ,880,000 (L) ,880,000 (L) ,880,000 (L) the National Council Beneficial owner H Shares 30,454,900 (L) for Social Security Fund of the PRC H Caiyun International Beneficial owner H Shares 2,189,000 (L) Investment Limited* 1 1 H Note: (L) refers to long position (L) 28 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017

30 Disclosure of Interests Note: (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 H Shares held by Yunnan Province Water and 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 Yunnan Province Water, Huang Yunjian, Liu Xujun and himself 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). Save as disclosed above, to the best knowledge of the Company, as at 30 June 2017, 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. (1) 361,487,162 2,189,000 H 30.48% (2) 585,000 (3) 84.86% 137,880, % XV %

31 Corporate Governance AUDIT 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 and audit process objectively; monitoring the integrity of the Company s financial statements, annual report and accounts and half-year report; overseeing of the Company s financial reporting system, risk management and internal control system; attending to other matters that the Board has authorized it to deal with. Terms of reference of the Audit Committee have been published on the website of the Company. During the Reporting Period, the former Audit Committee consisted of four independent non-executive Directors, Mr. Kwok For Chi (as chairman), Mr. Hu Song, Mr. Ma Shihao and Mr. Ren Gangfeng. The former Audit Committee had reviewed the unaudited consolidated financial information of the Group for the Reporting Period. The former Audit Committee had also discussed matters with respect to the accounting policies and practices adopted by the Company and internal control matters with senior management of the Company. Pursuant to the Company s announcement dated 28 August 2017 regarding, among others, the appointment and re-appointment of Directors and Supervisors and the changes in the composition of the Board Committees (the EGM Announcement ), the Audit Committee consists of three independent non-executive Directors, Mr. Kwok For Chi (as chairman), Mr. Hu Song and Mr. Ma Shihao, with effect from 28 August REMUNERATION COMMITTEE The principal responsibilities of the Remuneration Committee include: making recommendations to the Board on the policy and structure of remuneration for all Directors and senior management members and on the establishment of a formal and transparent procedure for developing remuneration policy; reviewing and approving of the remuneration proposals from the management; making recommendations to the Board on the remuneration packages of individual executive Directors and senior management members; and advising Shareholders with respect to the service contracts of Directors that require Shareholders approval under the Listing Rules. Terms of reference of the Remuneration Committee have been published on the website of the Company. During the Reporting Period, the former Remuneration Committee consisted of one executive Director, Mr. Yu Long, and two independent non-executive Directors, Mr. Hu Song (as chairman) and Mr. Ren Gangfeng. 30 YUNNAN WATER INVESTMENT CO., LIMITED Interim Report 2017