China Water Affairs : INTERIM REPORT 2019/20

* For identication purposes only

中國水務集團有限公司

China Water Affairs Group Limited

Stock code : 855

Interim Report 2019/20

Interim Report 2019/20 • China Water Affairs Group Limited

1

	CONTENTS
	Pages
Corporate Information	2
Financial Highlights	4
Interim Financial Information
Condensed Consolidated Income Statement	8
Condensed Consolidated Statement of Comprehensive Income	10
Condensed Consolidated Statement of Financial Position	11
Condensed Consolidated Statement of Cash Flows	14
Condensed Consolidated Statement of Changes in Equity	15
Notes to the Condensed Consolidated Financial Information	17
Business Review, Corporate Governance and Other Information	39

2	China Water Affairs Group Limited • Interim Report 2019/20

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive

Mr. Duan Chuan Liang (Chairman) Ms. Ding Bin

Ms. Liu Yu Jie

Mr. Li Zhong

Mr. Duan Jerry Linnan

  (appointed on 15 October 2019)

Non-executive

Mr. Zhao Hai Hu

Mr. Zhou Wen Zhi

Mr. Makoto Inoue

Ms. Wang Xiaoqin

Independent Non-executive

Mr. Chau Kam Wing

Mr. Siu Chi Ming

Ms. Ho Ping

Ms. Zhou Nan

• (appointed on 22 November 2019) Mr. Ong King Keung
• (resigned on 22 November 2019)

AUDIT COMMITTEE

Mr. Chau Kam Wing

(Chairman of committee)

Mr. Siu Chi Ming

Ms. Ho Ping

Ms. Zhou Nan

• (appointed on 22 November 2019) Mr. Ong King Keung
• (resigned on 22 November 2019)

REGISTERED OFFICE

Clarendon House

2 Church Street

Hamilton HM11

Bermuda

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS

Suite 6408, 64/F

Central Plaza

18 Harbour Road

Wanchai

Hong Kong

HONG KONG BRANCH SHARE REGISTRAR

Tricor Tengis Limited

Level 54, Hopewell Centre

183 Queen's Road East

Hong Kong

LEGAL ADVISERS

As to Bermuda law

Conyers Dill & Pearman

AUDITOR

PricewaterhouseCoopers

REMUNERATION COMMITTEE

Mr. Chau Kam Wing

• (Chairman of committee) Mr. Siu Chi Ming
  Ms. Ho Ping Ms. Zhou Nan
• (appointed on 22 November 2019) Mr. Ong King Keung
• (resigned on 22 November 2019)

NOMINATION COMMITTEE

Mr. Duan Chuan Liang

(Chairman of committee)

Mr. Chau Kam Wing

Mr. Siu Chi Ming

Ms. Ho Ping

PRINCIPAL BANKER

Bank of Communications

China Merchants Bank

Asian Development Bank

Australia and New Zealand Banking

Group Limited

Far Eastern International Bank

STOCK CODE

855

WEBSITE

www.chinawatergroup.com

Interim Report 2019/20 • China Water Affairs Group Limited

3

Water supply business

City water supply operation and construction

• Connected users of approximately 5.4 million
• Potential reaching population of approximately 30 million people
• Water pipelines over 150,000 km

Environmental protection business

Sewage treatment operation and construction (including water environmental renovation construction projects)

Drainage operation

Heilongjiang

Xinjiang			Inner Mongolia	Jilin
					Liaoning
Gansu				Beijing
				Tianjin
	Ningxia		Hebei
Qinghai	Shanxi	Shandong
	Shaanxi		Henan	Jiangsu
	Sichuan		Hubei	Anhui	Shanghai
Tibet
Chongqing
			Zhejiang
	Guizhou	Hunan Jiangxi
			Fujian
	Yunnan
	Guangxi	Guangdong
	Hainan

4 China Water Affairs Group Limited • Interim Report 2019/20

FINANCIAL HIGHLIGHTS

	Six months ended
	30 September
	2019		2018
	(unaudited)		(unaudited)
	HK$'000		HK$'000	Change
RESULTS HIGHLIGHTS
Revenue	4,354,710		4,141,820	5.1%
Gross profit	1,862,265		1,820,156	2.3%
Profit for the period	1,283,968		985,783	30.2%
Profit for the period attributable to owners
of the Company	881,080		645,810	36.4%
Basic earnings per share (HK cents)	54.83		40.14	36.6%
Diluted earnings per share (HK cents)	54.83		40.14	36.6%
Interim dividend (HK cents)	14		12	16.7%
	As at
	30 September		31 March
	2019		2019
	(unaudited)		(audited)
	HK$'000		HK$'000	Change
BALANCE SHEET HIGHLIGHTS AND RATIOS
Total assets	38,420,377		35,824,636	7.2%
Total liabilities	25,247,219		22,922,166	10.1%
Net assets	13,173,158		12,902,470	2.1%
Net assets per share1	5.05		4.95	2.0%
Current ratio	1.04		1.13
Gearing ratio2	65.7%		64.0%

1

2

Equity attributable to owners of the Company

Net assets per share =

Ordinary shares in issue at period/year end

Total liabilities

Gearing ratio =

Total assets

Interim Report 2019/20 • China Water Affairs Group Limited

5

FINANCIAL HIGHLIGHTS

The Group's total revenue and profit for the period:

Total revenue (HK$ million)

5,500		Increase
5,000		5.1%
4,500	4,141.8	4,354.7
4,000
3,500

3,000

2,500

2,000

1,500

1,000

500

0

3030

September September

2018 2019

Total profit (HK$ million)

1,600			Increase
1,400			30.2%
1,200			1,284.0
1,000	985.8
800
600
400
200
0
	30	30
		September	September
	2018	2019

Total segment revenue (HK$ million)

Total segment revenue (HK$ million)

20.1%	3.4%	13.6%
140.4
834.6		591.0

	Total
76.5%	4,141.8	82.4%
3,166.8		3,589.7

4.0%

174.0

Total

4,354.7

30 September 2018	30 September 2019
Water supply business	Environmental protection business	Others
Total segment profit (HK$ million)	Total segment profit (HK$ million)

18.9%	1.3%	11.6%
19.4
295.0		191.9

	Total
79.8%	1,557.1	87.6%
1,242.7		1,449.7

0.8%

14.1

Total

1,655.7

30 September 2018

30 September 2019

Water supply business

Environmental protection business

Others

6 China Water Affairs Group Limited • Interim Report 2019/20

1. Water Supply Business Analysis

Revenue (HK$ million)
4,500		Increase
4,000		13.4%
3,500	3,166.8	3,589.7
3,000

2,500

2,000

1,500

1,000

500

0

3030

September September

2018 2019

Profit (HK$ million)
1,800		Increase
1,600		16.7%
1,400		1,449.7
1,242.7
1,200
1,000
800
600
400
200
0
	30	30
	September	September
	2018	2019

Revenue by nature (HK$ million)

Revenue by nature (HK$ million)

41.1%

1,299.8

Total

3,166.8

1.5%

47.5

21.8% 42.8%

691.4 1,536.9

32.6%

1,128.1 1.2%

43.0

21.2%

761.6

Total

3,589.7

34.8%

1,248.2

30 September 2018			30 September 2019
Water supply operation services	Water supply connection income		Water supply construction services		Others

Interim Report 2019/20 • China Water Affairs Group Limited

7

2. Environmental Protection Business Analysis

Revenue (HK$ million) 1,000

900	834.6
800	Decrease
700		29.2%
600		591.0

500

400

300

200

100

0

3030

September September

2018 2019

Profit (HK$ million)

360

330

300	295.0
270		Decrease
240		34.9%
210		191.9
180
150
120
90
60
30
0
	30	30
	September	September
	2018	2019

Revenue by nature (HK$ million)

Revenue by nature (HK$ million)

3.9%
32.7
78.5%	Total
654.9	834.6

3.9%	11.0%			5.0%
32.3	64.8				29.6

13.7%	24.5%
144.8
114.7
59.5%	Total
351.8	591.0

30 September 2018			30 September 2019
Sewage treatment operation services		Drainage operation services		Sewage treatment and water		Others
				environmental renovation
				construction services

8 China Water Affairs Group Limited • Interim Report 2019/20

The board of directors (the "Board") of China Water Affairs Group Limited (the "Company") is pleased to announce the unaudited condensed consolidated interim results of the Company and its subsidiaries (collectively the "Group") for the six months ended 30 September 2019, together with the comparative figures for the corresponding period in 2018, as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

			Six months ended
			30 September
		2019		2018
		(unaudited)		(unaudited)
	Notes		HK$'000		HK$'000
Revenue	6	4,354,710		4,141,820
Cost of sales		(2,492,445)	(2,321,664)
Gross profit		1,862,265		1,820,156
Other income	6	207,509		103,674
Selling and distribution costs		(98,919)	(91,668)
Administrative expenses		(361,813)	(324,090)
Gain on disposal of subsidiaries, net		878	6,071
Operating profit	8	1,609,920		1,514,143
Finance costs	9	(239,523)	(177,203)
Share of results of associates		291,389		30,387
Profit before income tax		1,661,786		1,367,327
Income tax expense	10	(377,818)	(381,544)
Profit for the period		1,283,968		985,783

Interim Report 2019/20 • China Water Affairs Group Limited

9

CONDENSED CONSOLIDATED INCOME STATEMENT (Continued)

			Six months ended
			30 September
		2019		2018
		(unaudited)		(unaudited)
	Notes		HK$'000		HK$'000
Profit for the period attributable to:
Owners of the Company		881,080		645,810
Non-controlling interests		402,888		339,973
		1,283,968		985,783
Earnings per share for profit attributable
to owners of the Company
during the period	11		HK cents		HK cents
Basic			54.83			40.14
Diluted		54.83		40.14

10 China Water Affairs Group Limited • Interim Report 2019/20

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Six months ended
		30 September
	2019		2018
	(unaudited)		(unaudited)
		HK$'000		HK$'000
Profit for the period	1,283,968		985,783
Other comprehensive income
Items that have been or may be reclassified subsequently
to profit or loss:
- Currency translation	(643,847)	(458,039)
- Recycling of currency translation differences upon
disposal of subsidiaries	(313)	(5,363)
Items that will not be reclassified to profit or loss:
- Change in fair value of financial assets at fair value
through other comprehensive income	10,227			-
- Share of other comprehensive income of associates	(6,617)		-
Other comprehensive loss for the period, net of tax	(640,550)	(463,402)
Total comprehensive income for the period	643,418		522,381
Total comprehensive income attributable to:
Owners of the Company	392,782		313,226
Non-controlling interests	250,636		209,155
	643,418		522,381

Interim Report 2019/20 • China Water Affairs Group Limited

11

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

			As at
			30 September			31 March
		2019				2019
			(unaudited)			(audited)
	Notes		HK$'000			HK$'000
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment	13	2,081,026				2,019,900
Prepaid land lease payments	3		-			901,423
Right-of-use assets	3, 13	1,102,841				-
Investment properties		1,014,136				912,335
Interests in associates	14	2,080,757				676,035
Financial assets at fair value through
other comprehensive income		365,730				349,225
Goodwill		1,241,981				1,220,394
Other intangible assets	13	16,120,815				15,293,235
Prepayments, deposits and
other receivables	16	1,065,881				1,500,105
Contract assets		837,060				540,779
Receivables under service concession
arrangements		1,037,845				1,079,365
		26,948,072				24,492,796
Current assets
Properties under development		1,353,107				1,273,890
Properties held for sale		782,650				816,189
Inventories		640,618				530,990
Contract assets		205,365				233,484
Receivables under service concession
arrangements		61,360				61,967
Trade and bills receivables	15	1,206,031				1,242,864
Financial assets at fair value through
profit or loss		393,903				489,340
Due from non-controlling equity holders
of subsidiaries		345,169				288,194
Due from associates		130,469				227,416
Prepayments, deposits and
other receivables	16	1,596,144				1,549,667
Pledged deposits		746,287				644,524
Cash and cash equivalents		4,011,202				3,973,315
		11,472,305				11,331,840

12 China Water Affairs Group Limited • Interim Report 2019/20

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

			As at
			30 September			31 March
		2019				2019
			(unaudited)			(audited)
	Notes		HK$'000			HK$'000
Current liabilities
Lease liabilities	3	36,747				-
Contract liabilities		891,133				648,134
Trade and bills payables	17	2,862,825				2,410,098
Accrued liabilities, deposits received and
other payables	18	2,328,003				1,979,082
Due to associates		48,106				46,093
Borrowings	19	3,263,156				3,437,483
Due to non-controlling equity holders
of subsidiaries		206,862				219,048
Provision for tax		1,378,802				1,278,874
		11,015,634				10,018,812
Net current assets		456,671				1,313,028
Total assets less current liabilities		27,404,743				25,805,824
Non-current liabilities
Borrowings	19	12,489,993				11,494,131
Lease liabilities	3	170,728				-
Contract liabilities		268,249				273,133
Due to non-controlling equity holders
of subsidiaries		196,663				27,784
Deferred government grants		208,510				225,583
Deferred tax liabilities		897,442				882,723
		14,231,585				12,903,354
Net assets		13,173,158				12,902,470

Interim Report 2019/20 • China Water Affairs Group Limited

13

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Continued)

			As at
			30 September			31 March
		2019				2019
			(unaudited)			(audited)
	Notes		HK$'000			HK$'000
EQUITY
Equity attributable to owners of the
Company
Share capital	21	16,040				16,089
Reserves		8,091,648				7,954,377
		8,107,688				7,970,466
Non-controlling interests		5,065,470				4,932,004
Total equity		13,173,158				12,902,470

14 China Water Affairs Group Limited • Interim Report 2019/20

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

		Six months ended
		30 September
	2019		2018
	(unaudited)		(unaudited)
		HK$'000		HK$'000
Net cash inflow from operating activities	1,530,208		1,019,600
Net cash outflow from investing activities	(2,365,865)	(1,625,979)
Net cash inflow from financing activities	908,790		1,880,367
Increase in cash and cash equivalents	73,133		1,273,988
Cash and cash equivalents at beginning of period	3,973,315		2,511,390
Effect of foreign exchange rates, net	(35,246)	22,500
Cash and cash equivalents at end of period	4,011,202		3,807,878
Analysis of balances of cash and cash equivalents
Bank and cash balances	4,011,202		3,807,878

Interim Report 2019/20 • China Water Affairs Group Limited

15

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

											Equity attributable to owners of the Company
																	Financial
																	assets at
																	fair value
																	through other
							Capital			Exchange	Share			comprehensive
			Share	Proposed					income							Non-
			redemption	Contributed	fluctuation	options	Other	revaluation	Statutory	Retained			controlling	Total
			capital	dividend	reserve	surplus	reserve	reserve	reserves	reserve	reserves	earnings	Total	interests	equity
			HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
Balance at 1 April 2019	16,089		257,424	3,064		661,918		5,484		96,808		(220,028)	108,617		479,193	6,561,897		7,970,466		4,932,004		12,902,470
Share repurchase (note 21)	(49)	-	-	(34,168)	-	-	-	-	-	-	(34,217)	-	(34,217)
Share repurchase expenses
(note 21)	-	-	-	(119)	-	-	-	-	-	-	(119)	-	(119)
Arising from acquisition of
subsidiaries	-	-	-	-	-	-	-	-	-	-	-	32,940	32,940
Acquisition of additional interests
in subsidiaries	-	-	-	-	-	-	40,375	-	-	-	40,375	(117,036)	(76,661)
Disposal of a subsidiary	-	-	-	-	-	-	-	-	(31)	31	-	(140)	(140)
Deemed disposal of a subsidiary	-	-	-	-	-	-	(4,954)	-	-	-	(4,954)	4,954	-
Capital contribution by non-controlling
equity holders of subsidiaries	-	-	-	-	-	-	-	-	-	-	-	81,704	81,704
Final dividend approved	-	(257,424)	-	779	-	-	-	-	-	-	(256,645)	-	(256,645)
Dividend paid to non-controlling
interests of subsidiaries	-	-	-	-	-	-	-	-	-	-	-	(119,592)	(119,592)
Transactions with owners	(49)	(257,424)	-	(33,508)	-	-	35,421	-	(31)	31	(255,560)	(117,170)	(372,730)
Proposed interim dividend	-	224,564	-	(224,564)	-	-	-	-	-	-	-	-	-
Transfer to capital
redemption reserve (note 21)	-	-	49	-	-	-	-	-	-	(49)	-	-	-
Profit for the period	-	-	-	-	-	-	-	-	-	881,080	881,080	402,888	1,283,968
Other comprehensive income/(loss)
- Change in fair value of
	financial assets at fair value
	through other comprehensive
	income	-	-	-	-	-	-	-	10,227		-	-	10,227	-	10,227
- Currency translation	-	-	-	-	(491,595)	-	-	-	-	-	(491,595)	(152,252)	(643,847)
- Share of other
	comprehensive income of
	associates	-	-	-	-	-	-	511	(7,128)	-	-	(6,617)	-	(6,617)
- Recycling of currency
	translation differences
	upon disposal of
	subsidiaries	-	-	-	-	(313)	-	-	-	-	-	(313)	-	(313)
Total comprehensive
income/(loss) for the period	-	-	-	-	(491,908)	-	511		3,099		-	881,080		392,782		250,636		643,418
Balance at 30 September 2019
(unaudited)	16,040		224,564	3,113		403,846		(486,424)	96,808		(184,096)	111,716		479,162		7,442,959		8,107,688		5,065,470		13,173,158

16 China Water Affairs Group Limited • Interim Report 2019/20

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

															Equity attributable to owners of the Company
																															Financial
																															assets at
																															fair value
																														through other
																														comprehensive
																															income
																															revaluation
																															reserve/
																															Available-
							Share	Capital					Exchange									for-sale													Non-
		Share		Proposed					Share				financial assets	Statutory	Retained
			premium	redemption	Contributed	fluctuation	options	Other		revaluation					controlling	Total
		capital		dividend	account	reserve	surplus	reserve	reserve	reserves		reserve	reserves	earnings	Total	interests	equity
		HK$'000		HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000		HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
At 1 April 2018 (as previously
reported)	16,089	241,335		995,193	3,064	117,217	353,809	96,808	(326,786)		-	354,751				5,317,104				7,168,584				3,985,825				11,154,409
Effect on adoption of HKFRS 9	-		-	-	-	-	-	-	-	48,617				-	-	48,617				-	48,617
At 1 April 2018 (as restated)	16,089	241,335		995,193	3,064	117,217	353,809	96,808	(326,786)	48,617				354,751				5,317,104				7,217,201				3,985,825				11,203,026
Share premium reduction	-		-	(995,193)	-	995,193	-	-	-		-	-	-	-	-	-
Arising from acquisition of
subsidiaries	-		-	-	-	-	-	-	-		-	-	-	-	124,101				124,101
Acquisition of additional interests
in subsidiaries	-		-	-	-	-	-	-	(75,167)		-	-	-	(75,167)	(16,110)	(91,277)
Disposal of subsidiaries	-		-	-	-	-	-	-	-		-	-	-	-	(116,014)	(116,014)
Capital contribution by
non-controlling equity
holders of subsidiaries	-		-	-	-	-	-	-	-		-	-	-	-	66,335				66,335
Final dividend approved	-	(241,335)	-	-	-	-	-	-		-	-	-	(241,335)	-	(241,335)
Dividend paid to non-controlling
interests of subsidiaries	-		-	-	-	-	-	-	-		-	-	-	-	(81,119)	(81,119)
Transactions with owners	-	(241,335)	(995,193)	-	995,193	-	-	(75,167)		-	-	-	(316,502)	(22,807)	(339,309)
Proposed interim dividend	-	193,068		-	-	(193,068)	-	-	-		-	-	-	-	-	-
Profit for the period	-		-	-	-	-	-	-	-		-	-	645,810				645,810				339,973				985,783
Other comprehensive income/
(loss)
- Currency translation	-		-	-	-	-	(327,221)	-	-		-	-	-	(327,221)	(130,818)	(458,039)
- Recycling of currency
translation differences upon
disposal of subsidiaries	-		-	-	-	-	(5,363)	-	-		-	-	-	(5,363)	-	(5,363)
Total comprehensive
income/(loss) for the period	-		-	-	-	-	(332,584)	-	-		-	-	645,810	313,226	209,155	522,381
Balance at 30 September 2018
(unaudited)	16,089	193,068			-	3,064				919,342				21,225				96,808				(401,953)	48,617				354,751				5,962,914				7,213,925				4,172,173				11,386,098

Interim Report 2019/20 • China Water Affairs Group Limited

17

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL INFORMATION

1. Basis of preparation
   The unaudited interim condensed consolidated financial statements for the six months ended 30 September 2019 have been prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). The unaudited interim condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2019, which have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs").
2. Principal accounting policies
   The principal accounting policies adopted in preparing these interim condensed consolidated financial statements are consistent with those adopted in the preparation of the Group's annual financial statements for the year ended 31 March 2019 except for the adoption of the new standards and amendments to HKFRSs issued by the HKICPA that have become effective for accounting period beginning on 1 April 2019.
   In the current interim period, the Group has applied the following new standard and amendments to HKFRSs issued by HKICPA:

		Effective for
		accounting periods
		beginning on
		or after
Annual Improvements Project	Annual Improvements 2015-2017	1 January 2019
	Cycle
HKAS 19 (Amendments)	Plan Amendment, Curtailment or	1 January 2019
	Settlement
HKAS 28 (Amendments)	Long-term Interests in Associates and	1 January 2019
	Joint Ventures
HKFRS 9 (Amendments)	Prepayment Features with Negative	1 January 2019
	Compensation
HKFRS 16	Leases	1 January 2019
HK(IFRIC) Interpretation 23	Uncertainty over Income Tax Treatments	1 January 2019

The impacts of the adoption of HKFRS 16 are disclosed in note 3 below. The amendments to standards and interpretations adopted by the Group did not have any impact on the Group's accounting policies.

The Group has not early applied new and revised standards, amendments or interpretations that have been issued but are not yet effective. The Group is currently assessing the impact of the adoption of the new and revised standards, amendments or interpretations to the Group but is not yet in a position to state whether they would have material financial impact on the Group's results of operations and financial position.

18	China Water Affairs Group Limited • Interim Report 2019/20

3. Changes in accounting policies

This note explains the impact of the adoption of HKFRS 16 "Leases" ("HKFRS 16") on the Group's financial information and the new accounting policies that have been applied from 1 April 2019.

The Group has adopted HKFRS 16 retrospectively from 1 April 2019, but has not restated comparative information, as permitted under the specific transitional provisions under HKFRS 16. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening condensed consolidated statement of financial position on 1 April 2019.

1. Adjustments recognised on the adoption of HKFRS 16
   On adoption of HKFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of HKAS 17 "Leases". These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 April 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 April 2019 was 4.95%.
   All the right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the condensed consolidated statement of financial position as at 31 March 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
   The following is a reconciliation of the opening effect on adoption of HKFRS 16 as at 1 April 2019:

					Lease	Lease
Condensed consolidated	Right-of-		Prepaid	liabilities -	liabilities -
statement of financial position	use		land lease	current	non-current
(extract)	assets		payments	portion	portion
	HK$'000		HK$'000	HK$'000	HK$'000
At 31 March 2019, as previously
reported (Audited)	-	901,423	-	-
Reclassification to right-of-use
assets on adoption of HKFRS 16	901,423	(901,423)	-	-
Adjustment on adoption of HKFRS 16	230,248		-	40,361	189,887
At 1 April 2019, as restated
(Unaudited)	1,131,671		-	40,361	189,887

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19

The Group had operating lease commitments of HK$374,674,000 as disclosed as at 31 March 2019 and on adoption of HKFRS 16, the Group recognised lease liabilities of HK$230,248,000 as at 1 April 2019. The key differences between the disclosed operating lease commitments and the recognised lease liabilities have mainly arisen from the discounting impact on operating lease commitments in using the lessee's incremental borrowing rate as of 1 April 2019, additional lease liabilities recognised under the scope of HKFRS 16 and exclusion of short-term and low-value leases recognised on a straight-line basis as expense.

The recognised right-of-use assets relate to the following types of assets:

	30 September		1 April
	2019		2019
		(unaudited)		(unaudited)
		HK$'000		HK$'000
Leasehold land and land use right	897,710		901,423
Buildings	205,131		230,248
Total right-of-use assets	1,102,841		1,131,671

The change in accounting policy affected the right-of-use assets and lease liabilities, and both increased by HK$230.2 million on 1 April 2019. In addition, prepaid land lease payments of HK$901.4 million were reclassified to right-of-use assets on 1 April 2019. There was no material impact on retained earnings on 1 April 2019.

PRACTICAL EXPEDIENTS APPLIED

In applying HKFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
• the use of recognition exemption to leases with a remaining lease term of 12 months or less at 1 April 2019.
• the use of recognition exemption to leases for which the underlying asset is of low value.
• the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.
• the use of hindsight in determining lease term at the date of initial application.

20 China Water Affairs Group Limited • Interim Report 2019/20

1. The Group's leasing activities and how these are accounted for
   The Group leases certain of its leasehold land, properties and plant and machinery. Rental contracts are typically made for fixed periods. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
   Until the end of the financial year ended 31 March 2019, leases of property, plant and equipment were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.
   From 1 April 2019, leases are recognised as a right-of-use assets and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use assets is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
   Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
2. • fixed payments (including in-substance fixed payments), less any lease incentives receivable;
   • variable lease payments that are based on an index or a rate;
   • amounts expected to be payable by the lessee under residual value guarantees;
   • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
   • payments of penalties for terminating the lease, if the lease term reflects such option of the lessee.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate (being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions) is used.

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21

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

Extension and termination options are included in a number of leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

Critical judgements in determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

22	China Water Affairs Group Limited • Interim Report 2019/20

1. 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 and liabilities, income and expense. Actual results may differ from these estimates.
   In preparing these condensed consolidated interim 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 consolidated financial statements for the year ended 31 March 2019.
2. Financial risk management and fair value measurements
3. 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 do 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 as at 31 March 2019.
      There have been no changes in the risk management policies since year ended 31 March 2019.
   2. Fair value estimation
      The following table provides an analysis of financial instruments carried at fair value by level of fair value hierarchy:
      Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
      Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
      Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Interim Report 2019/20 • China Water Affairs Group Limited

23

The following table presents the Group's financial assets that are measured at fair value at

30 September 2019:

	Level 1	Level 2	Level 3	Total
	HK$'000	HK$'000	HK$'000	HK$'000
Assets
Financial assets at fair value through
other comprehensive income	13,701		-	352,029	365,730
Financial assets at fair value through
profit or loss	721	-	393,182	393,903
Net fair values (unaudited)	14,422		-	745,211	759,633

The following table presents the Group's financial assets that are measured at fair value at

31 March 2019:

	Level 1	Level 2	Level 3	Total
	HK$'000	HK$'000	HK$'000	HK$'000
Assets
Financial assets at fair value through
other comprehensive income	13,701		-	335,524	349,225
Financial assets at fair value through
profit or loss	692	-	488,648	489,340
Net fair values (audited)	14,393		-	824,172	838,565

There have been no significant transfers between the levels in the reporting periods.

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

24 China Water Affairs Group Limited • Interim Report 2019/20

5.3 Information about Level 3 fair value measurement

The fair value of financial assets at fair value through other comprehensive income was valued by APAC Appraisal and Consulting Limited, an independent firm of professional valuer, or by the Group. The Group used market approach to determine its fair value.

Financial assets at fair value through profit or loss comprise financial products with licensed banks in the PRC. The Group used income method of discounted cash flows to determine its fair value.

The movements during the period/year in the balance of these Level 3 fair value measurements are as follows:

	30 September		31 March
	2019		2019
		(unaudited)		(audited)
		HK$'000		HK$'000
Financial assets at fair value through other
comprehensive income:
Opening balance	335,524			-
Adoption of HKFRS 9		-	211,364
Opening balance (as restated)	335,524		211,364
Residual interest in a subsidiary disposed of		-	65,786
Purchase of financial assets at fair value through
other comprehensive income	17,659			-
Changes in fair value recognised in
other comprehensive income	10,227		60,000
Acquisition of subsidiaries	57	4,118
Exchange realignment	(11,438)	(5,744)
Ending balance	352,029		335,524
Financial assets at fair value through profit or loss:
Opening balance	488,648		396,342
Net (disposal)/purchase of financial assets at fair
value through profit or loss	(95,466)	92,306
Ending balance	393,182		488,648

Interim Report 2019/20 • China Water Affairs Group Limited

25

6. Revenue and other income

Revenue derived from the Group's principal activities, which is also the Group's turnover, recognised during the period is as follows:

		Six months ended
		30 September
	2019		2018
		(unaudited)		(unaudited)
		HK$'000		HK$'000
Revenue:
Water supply operation services	1,248,212		1,128,073
Water supply connection income	761,578		691,441
Water supply construction services	1,536,915		1,299,785
Sewage treatment and drainage operation services	174,406		147,016
Sewage treatment and water environmental renovation
construction services	351,808		654,875
Sales of properties	88,205		73,399
Sales of goods	12,111		7,077
Hotel and rental income	48,372		47,163
Finance income	21,951		12,987
Handling income	15,333		11,438
Others	95,819		68,566
Total	4,354,710		4,141,820
Other income:
Interest income	56,807		41,787
Government grants and subsidies#	105,537		26,307
Amortisation of deferred government grants	4,703		2,174
Gain on disposal of property, pant and equipment, net	6,544			-
Dividend income from financial assets	10,432		8,833
Miscellaneous income	23,486		24,573
Total	207,509		103,674

• Government grants and subsidies mainly comprised unconditional subsidies for subsidising the Group's water supply and other businesses.

26	China Water Affairs Group Limited • Interim Report 2019/20

7. Segment information

The Group has identified the following reportable segments:

1. "City water supply operation and construction" involves the provision of water supply operation and construction services;
2. "Environmental protection" involves the provision of sewage treatment and drainage operation and construction services, solid waste and hazardous waste business, environmental sanitation and water environment management; and
3. "Property development and investment" segment involves development of properties for sale and investment in properties for long-term rental yields or for capital appreciation.

Information about other business activities and operating segments that are not reportable are combined and disclosed in "All other segments".

The measurement policies the Group uses for reporting segment results under HKFRS 8 are the same as those used in its consolidated financial statements prepared under HKFRSs, except that finance costs, share of results of associates, corporate income, corporate expense, income tax expense, gain on disposal of subsidiaries, net are excluded from segment results.

Segment assets exclude corporate assets (mainly comprises cash and cash equivalents and pledged deposits), financial assets at fair value through other comprehensive income, financial assets at fair value through profit or loss and interests in associates.

Unallocated corporate income mainly comprises interest income and dividend income from financial assets.

Unallocated corporate expenses mainly comprises salaries and wages, operating leases and other operating expenses of the Company and the investment holding companies.

Interim Report 2019/20 • China Water Affairs Group Limited

27

For the period ended 30 September 2019
		City water
		supply					Property
	operation and	Environmental		development	All other
		construction		protection	and investment	segments	Total
		(unaudited)		(unaudited)		(unaudited)	(unaudited)	(unaudited)
		HK$'000		HK$'000		HK$'000	HK$'000	HK$'000
Revenue
From external customers	3,589,694		590,965		106,230		67,821		4,354,710
From inter-segment		-		-		-	-	-
Segment revenue		3,589,694			590,965			106,230		67,821		4,354,710
Segment profit	1,449,730		191,922		13,240		841		1,655,733
Unallocated corporate income												69,292
Unallocated corporate expense												(115,983)
Gain on disposal of subsidiaries, net												878
Finance costs												(239,523)
Share of results of associates	31,466		260,416		-	(493)	291,389
Profit before income tax												1,661,786
Income tax expense												(377,818)
Profit for the period												1,283,968
Total segment assets	20,876,657		3,360,606		3,432,220		2,285,369		29,954,852

28 China Water Affairs Group Limited • Interim Report 2019/20

For the period ended 30 September 2018
	City water
	supply			Property
	operation and	Environmental	development	All other
	construction	protection	and investment	segments	Total
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
Revenue
From external customers	3,166,836		834,557		91,722		48,705		4,141,820
From inter-segment	-	-	-	-	-
Segment revenue
3,166,836		834,557		91,722		48,705		4,141,820
Segment profit
1,242,658		294,983		17,212		2,269		1,557,122
Unallocated corporate income									50,755
Unallocated corporate expense									(99,805)
Gain on disposal of subsidiaries									6,071
Finance costs									(177,203)
Share of results of associates	28,461		195	(711)	2,442		30,387
Profit before income tax									1,367,327
Income tax expense									(381,544)
Profit for the period
								985,783
Total segment assets
17,557,694		2,783,479		3,125,607		2,017,136		25,483,916

The Group's revenue from external customers and its non-current assets located in geographical areas other than the PRC are less than 10% of the aggregate amount of all segments.

Interim Report 2019/20 • China Water Affairs Group Limited

29

8. Operating profit

Operating profit is arrived at after charging:

Six months ended

30 September

2019 2018

(unaudited) (unaudited)

HK$'000 HK$'000

Depreciation of property, plant and equipment	35,142		25,804
Depreciation of right-of-use assets	29,205		-
Amortisation of prepaid land lease payments	-	10,601
Amortisation of other intangible assets	239,691		198,248

9. Finance costs

				Six months ended
				30 September
			2019		2018
				(unaudited)		(unaudited)
				HK$'000		HK$'000
Interest on bank loans	311,240		192,690
Interest on other loans	80,576		110,048
Interest on lease liabilities	5,354			-
Total borrowing costs	397,170		302,738
Less: interest capitalised included in property, plant and
		equipment, other intangible assets and
		properties under development	(157,647)	(125,535)
			239,523		177,203

30 China Water Affairs Group Limited • Interim Report 2019/20

10. Income tax expense

Hong Kong profits tax has not been provided as the Group did not generate any assessable profits arising in Hong Kong during the period (2018: Nil). Income tax expense for other jurisdictions is calculated at the rates of taxation prevailing in the relevant jurisdictions.

		Six months ended
		30 September
	2019		2018
		(unaudited)		(unaudited)
		HK$'000		HK$'000
Current income tax:
- the PRC (Note)	333,312		344,652
Deferred tax	44,506		36,892
Total income tax expense	377,818		381,544

Note: The provision for PRC current income tax is based on a statutory income tax rate of 25% (2018: 25%) of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC.

Certain subsidiaries operating in the PRC enjoy a preferential income tax rate of 15% (2018: 15%) of their assessable income.

11. Earnings per share for profit attributable to owners of the Company

The calculation of basic earnings per share is based on the profit for the period attributable to owners of the Company of HK$881,080,000 (2018: HK$645,810,000) and the weighted average of 1,606,933,000 (2018: 1,608,901,000) ordinary shares in issue during the period.

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 September 2019 and 2018.

Interim Report 2019/20 • China Water Affairs Group Limited

31

12. Dividend

Dividend attributable to the interim period:

Six months ended

30 September

2019 2018

(unaudited) (unaudited)

HK$'000 HK$'000

Interim dividend
- HK$0.14 (2018: HK$0.12) per ordinary share	224,564	193,068

The interim dividend proposed after the reporting date for the financial period ended 30 September 2019 and 2018 were not recognised as a liability at the reporting date.

1. Property, plant and equipment, right-of-use assets and other intangible assets
   During the six months ended 30 September 2019, the addition in property, plant and equipment amounted to HK$144,649,000 (31 March 2019: HK$244,615,000); right-of-use assets amounted to HK$14,299,000 (31 March 2019: HK$Nil); and other intangible assets amounted to HK$1,524,925,000 (31 March 2019: HK$2,619,549,000).
2. Interests in associates
   During the six months ended 30 September 2019, the Group acquired 600,000,000 ordinary shares of Kangda International Environmental Company Limited ("Kangda International") at the price of HK$2.00 per share, representing its 29.52% equity interest, at a total consideration of HK$1,200,000,000. The shares of Kangda International are listed on the Mainboard of The Stock Exchange of Hong Kong Limited (stock code: 6136) and it was accounted for as an associate of the Group since 4 April 2019. Excess of share of the net fair value of associate's identifiable assets and liabilities over the cost of the investment of HK$214,776,000 was included in the share of results of associates.
   The carrying amount of interests in associates has changed as follows in the six months to 30 September 2019:

	Six months ended
		30 September
		2019
			(unaudited)
			HK$'000
Opening balance		676,035
Additions		1,200,000
Disposals		(12,067)
Credited to profit or loss		291,389
Charged to other comprehensive income		(6,617)
Dividend paid		(11,699)
Exchange realignment		(56,284)
Ending balance		2,080,757

32 China Water Affairs Group Limited • Interim Report 2019/20

15. Trade and bills receivables

The ageing analysis of trade and bills receivables based on invoice dates is as follows:

		As at
	30 September			31 March
	2019				2019
		(unaudited)			(audited)
		HK$'000			HK$'000
0 to 90 days	566,744				612,672
91 to 180 days	99,146				167,899
Over 180 days	540,141				462,293
	1,206,031				1,242,864

The Group has a policy of allowing trade customers with credit terms of normally within 90 days except for construction projects for which settlement is made in accordance with the terms specified in the contracts governing the relevant transactions.

16. Prepayments, deposits and other receivables

			As at
		30 September			31 March
		2019				2019
			(unaudited)			(audited)
	Notes		HK$'000			HK$'000
Non-current		42,409
Deposits for acquisition of equity securities					26,267
Prepayments and other receivables	(i)	1,023,472				1,473,838
		1,065,881				1,500,105
Current
	173,936
Prepayments					201,965
Other receivables	(ii)	1,422,208				1,347,702
		1,596,144				1,549,667

Notes:

1. As at 30 September 2019, the balances mainly represented the prepayments for city water supply and water environmental renovation construction.
   As at 31 March 2019, the balances mainly included an earnest money which bore interest rate at 8.0% per annum for the proposed acquisition of 29.52% equity interest in Kangda International amounting to HK$588,235,000 and the proposed acquisition was completed on 4 April 2019 (note 14). The remaining balances mainly represented the prepayments for city water supply and water environmental renovation construction.
2. The balances mainly represented receivables from customers for sewage treatment fees and various municipal service charges on behalf of certain government authorities in the PRC; receivables from certain government authorities for funds advancements; and various other receivables.

None of the above deposits and other receivables is either past due or impaired. Deposits and other receivables relate to counterparties for which there were no recent history of default.

Interim Report 2019/20 • China Water Affairs Group Limited

33

17. Trade and bills payables

The ageing analysis of trade and bills payables based on invoice dates is as follows:

		As at
	30 September			31 March
	2019				2019
		(unaudited)			(audited)
		HK$'000			HK$'000
0 to 90 days	1,751,118				1,678,905
91 to 180 days	244,447				308,239
Over 180 days	867,260				422,954
	2,862,825				2,410,098

The credit terms of trade and bills payables vary according to the terms agreed with different suppliers.

As at 30 September 2019, the bills payables of HK$208,758,000 (31 March 2019: HK$220,211,000) were secured by the pledged bank deposits of HK$78,964,000 (31 March 2019: HK$76,965,000).

18. Accrued liabilities, deposits received and other payables

		As at
	30 September			31 March
	2019				2019
		(unaudited)			(audited)
		HK$'000			HK$'000
Accrued liabilities	415,510				374,985
Deposits received	69,499				64,514
Other payables (Note)	1,842,994				1,539,583
	2,328,003				1,979,082

Note: Other payables mainly included water supply and sewage treatment fees and various municipal service charges received on behalf of certain government authorities in the PRC of HK$473,868,000 (31 March 2019: HK$413,554,000), payables for other PRC tax surcharges and construction costs, and payables for the Company's final dividend of HK$256,645,000 (31 March 2019: HK$ Nil).

34 China Water Affairs Group Limited • Interim Report 2019/20

19. Borrowings

			As at
		30 September			31 March
		2019				2019
	Original		(unaudited)			(audited)
	currency		HK$'000			HK$'000
Current
Bank loans - unsecured	RMB	739,162				713,174
Bank loans - secured	RMB	1,307,461				914,359
Bank loans - unsecured	USD	975,267				1,104,747
Other loans - unsecured	RMB	26,420			28,412
Other loans - secured	RMB		-			476,471
Other loans - unsecured	USD	18,353			-
Other loans - secured	USD	62,400			62,400
Government loans - unsecured	RMB	134,093			137,920
		3,263,156				3,437,483
Non-current
Bank loans - unsecured	RMB	1,207,643				1,322,440
Bank loans - secured	RMB	2,447,584			2,221,490
Bank loans - unsecured	USD	5,752,338			5,112,621
Other loans - unsecured	RMB	340,204			351,885
Other loans - unsecured	USD	2,586,631			2,288,540
Other loans - secured	USD	29,101			59,365
Government loans - unsecured	RMB	126,492			137,790
		12,489,993				11,494,131
		15,753,149				14,931,614

Interim Report 2019/20 • China Water Affairs Group Limited

35

20. Pledge of assets

Details of the pledge of assets of the Group for securing certain loan facilities and bills payables at

30 September 2019 were as follows:

1. pledge of water and sewage treatment revenue of certain subsidiaries;
2. charges over shares of certain subsidiaries of the Group;
3. charges over property, plant and equipment in which their aggregate carrying amount as at 30 September 2019 was HK$109,120,000 (31 March 2019: HK$798,255,000);
4. charges over prepaid land lease payments in which their aggregate carrying amount as at 31 March 2019 was HK$336,809,000;
5. charges over the right-of-use assets in which their aggregate carrying amount as at 30 September 2019 was HK$190,978,000 (31 March 2019: HK$Nil);
6. charges over investment properties in which their aggregate carrying amount as at 30 September 2019 was HK$304,432,000 (31 March 2019: HK$315,176,000);
7. charges over properties held for sale in which their aggregate carrying amount as at 30 September 2019 was HK$47,727,000 (31 March 2019: HK$Nil);
8. charges over other intangible assets in which their aggregate carrying amount as at 30 September 2019 was HK$954,448,000 (31 March 2019: HK$933,356,000);
9. charges over the financial assets at fair value through other comprehensive income in which their aggregate carrying amount as at 30 September 2019 was HK$237,500,000 (31 March 2019: HK$235,294,000); and
10. charges over the Group's bank deposits in amount of HK$746,287,000 as at 30 September 2019 (31 March 2019: HK$644,524,000).

36 China Water Affairs Group Limited • Interim Report 2019/20

21. Share capital

					Number of
					shares	Par value
					'000	HK$'000
Authorised:
Ordinary shares of HK$0.01 each
At 30 September 2019 and 31 March 2019	20,000,000		200,000
Issued and fully paid:
Ordinary shares of HK$0.01 each
At 31 March 2018 and at 31 March 2019
(audited)				1,608,901		16,089
Repurchased and cancelled (Note)		(4,872)	(49)
At 30 September 2019 (unaudited)		1,604,029		16,040
Note: During the six month
ended	30	September 2019,	the Company repurchased a total
of 4,872,000 ordinary	shares	of	the Company at	an aggregate cost of	approximately

HK$34,217,000 (excluding expenses). The highest price paid and the lowest price paid were HK$7.46 and HK$6.08 per share respectively. All repurchased shares were cancelled and the issued share capital of the Company was reduced by the nominal value of these shares accordingly. The premium payable on repurchase was charged against the contributed surplus. An amount equivalent to the nominal value of the shares cancelled was transferred from retained earnings to the capital redemption reserve.

Interim Report 2019/20 • China Water Affairs Group Limited

37

22. Related party transactions

In addition to the transactions and balances disclosed elsewhere in this interim report, the Group had the following material related party transactions during the interim period:

Compensation of key management personnel of the Group:

		Six months ended
		30 September
	2019		2018
		(unaudited)		(unaudited)
		HK$'000		HK$'000
Total remuneration of directors and other members
of key management during the period
- Short term employee benefits	35,643		35,428
- Retirement scheme contribution	336	349
	35,979		35,777

23. Commitments and guarantees

1. Capital commitments
   At the reporting date, the Group had the following capital commitments:

		As at
	30 September			31 March
	2019				2019
		(unaudited)			(audited)
		HK$'000			HK$'000
Contracted, but not provided for
- Other intangible assets	509,631				332,477
- Property, plant and equipment	14,809			20,844
	524,440				353,321

38 China Water Affairs Group Limited • Interim Report 2019/20

1. Operating lease arrangement
   The Group leases its investment properties under operating lease arrangements for terms ranging from one to ten years. Certain leases contain an option to renew the lease and renegotiate the terms at the expiry dates or at dates mutually agreed between the Group and the lessees. None of the leases include contingent rentals.
   At the reporting date, the Group had total future minimum lease receipts under non- cancellable operating leases falling due as follows:

		As at
	30 September			31 March
	2019				2019
		(unaudited)			(audited)
		HK$'000			HK$'000
Within one year	33,398				37,557
In the second to fifth years, inclusive	43,923				52,591
After five years	1,551				5,631
	78,872				95,779

1. As at 30 September 2019, the Group had given guarantees to the banks for mortgage loans granted to purchasers of certain subsidiaries' properties of approximately HK$1,481,000 (31 March 2019: HK$1,722,000).
   In the opinion of the directors of the Company, the financial impact arising from the above guarantees is insignificant due to the low applicable default rate and accordingly, they are not accounted for in the consolidated financial statements.

24. Contingent liabilities

At the reporting date, the Group had no material contingent liabilities.

Interim Report 2019/20 • China Water Affairs Group Limited

39

BUSINESS REVIEW, CORPORATE GOVERNANCE AND OTHER INFORMATION

INTERIM DIVIDEND

The Board has resolved to declare an interim dividend of HK$0.14 per ordinary share (2018: HK$0.12 per ordinary share) for the six months ended 30 September 2019. The interim dividend is expected to be paid on or about Friday, 31 January 2020 to the shareholders whose names appear on the register of members on Wednesday, 18 December 2019.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Monday, 16 December 2019 to Wednesday, 18 December 2019 both days inclusive, during which period no transfer of shares of the Company will be registered. In order to qualify for the entitlement to the interim dividend for the six months ended 30 September 2019, all transfers of shares accompanied by the relevant share certificates and appropriate transfer forms must be lodged with the office of the Company's Share Registrar in Hong Kong, Tricor Tengis Limited, Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong, for registration not later than 4:30 p.m. on Friday, 13 December 2019.

BUSINESS REVIEW

The Group's total revenue continuously increased from HK$4,141.8 million for the six months ended 30 September 2018 to HK$4,354.7 million for the six months ended 30 September 2019, representing a steady increase of 5.1%. The Group continued its strategy to focus on core business. For the period under review, the Group recorded a steady growth in its "City water supply operation and construction" and "Environmental protection" segments. The total revenue attributable to the "City water supply operation and construction" and "Environmental protection" segments increased from HK$4,001.4 million to HK$4,180.7 million. This represented a steady and continuous growth of segments revenue by 4.5%, which was mainly attributable to the successful strategy of the Group through procurement of more construction and connection work, increase in operating efficiency and tariff of the water supply and sewage treatment plants and various mergers and acquisition.

40 China Water Affairs Group Limited • Interim Report 2019/20

1. Water Supply Business Analysis
   City water supply projects of the Group are well spread in various provincial cities and regions across China, including Hunan, Hubei, Henan, Hebei, Hainan, Jiangsu, Jiangxi, Shenzhen, Guangdong, Beijing, Chongqing, Shandong, Shanxi and Heilongjiang.
   For the period under review, the revenue from city water supply operation and construction segment amounted to HK$3,589.7 million (2018: HK$3,166.8 million), representing a steady increase of 13.4% as compared with the last corresponding period. The city water supply segment profit (including city water supply, water related connection works and construction services) amounted to HK$1,449.7 million (2018: HK$1,242.7 million), representing a steady increase of 16.7% as compared with the last corresponding period. This was mainly because of increase in volume of water sold, procurement of more construction and connection work driven by the continuation of urban-rural integration and the promotion of the Public-Private Partnership model in the water sector and the additional contribution from the new water projects during the period.
2. Environmental Protection Business Analysis
   Environmental protection projects of the Group are well spread in various provincial cities and regions across China, including Beijing, Tianjin, Shenzhen, Guangdong, Henan, Hebei, Hubei, Jiangxi, Shaanxi, Heilongjiang and Sichuan.
   For the period under review, the revenue from environmental protection segment amounted to HK$591.0 million (2018: HK$834.6 million), representing a significant decrease of 29.2% as compared with the last corresponding period. The environmental protection segment profit (including sewage treatment and drainage operating and construction, solid waste and hazardous waste business, environmental sanitation and water environment management) amounted to HK$191.9 million (2018: HK$295.0 million), representing a significant decrease of 34.9% as compared with the last corresponding period. This was mainly due to the decrease in the work for upgrade of facilities for higher operating standard and water environmental renovation construction services in current period.

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41

1. Property Business Analysis
   The Group held various property development and investment projects which are mainly located in Beijing, Chongqing, Jiangxi, Hunan, Hubei and Henan provinces of China.
   For the period under review, the revenue from the property business segment amounted to HK$106.2 million (2018: HK$91.7 million). The total property business segment profit amounted to HK$13.2 million (2018: HK$17.2 million), representing a decrease of 23.3% as compared with the last corresponding period. This was mainly due to the decrease of profit margin in sales of property projects in current period.

The Group acquired 600,000,000 ordinary shares of Kangda International Environmental Company Limited ("Kangda International") at the price of HK$2.00 per share, representing its 29.52% equity interest, at a total consideration of HK$1.2 billion in April 2019. The audited net asset value per ordinary share of Kangda International attributable to the shareholders as at 31 December 2018 was approximately RMB2.02 (equivalent to approximately HK$2.35). The shares of Kangda International are listed on the Mainboard of The Stock Exchange of Hong Kong Limited (the "Stock Exchange") (stock code: 6136) and it was accounted for as an associate of the Group during the period under review. During the period under review, the total contribution to the Group by Kangda International amounting to HK$259.6 million, which comprised the excess of the investor's share of the net fair value of associate's identifiable assets and liabilities over the cost of the investment of HK$214.8 million and share of post-acquisition results of Kangda International of HK$44.8 million, was included in the share of results of associates.

For the corresponding period under review, the Group recorded a gain on disposal of subsidiaries amounting to HK$6.1 million, which was mainly because of the disposal of 55% equity interest in 江西仙女湖旅游股份有限公司. The Group considered that realisation of the above non-core investments at a gain can provide resources to the Group in developing its core businesses in China.

42 China Water Affairs Group Limited • Interim Report 2019/20

PROSPECTS

Although the global economy is slowing down, China's economy is expected to maintain stable development. Given the healthy and rapid development of urbanisation in the country, there is a pressing need for the upgrading and capacity expansion of water infrastructure, thus creating huge and sustainable opportunities for the growth of water industry.

In the middle of this year, the State Council issued the "Regulations on Government Investments", and the Ministry of Finance issued earlier this year the "Opinions on Promoting the Normative Development of Public-Private Partnership". They call for further deepening of the reforms in government investment and financing systems, and clearly define the respective roles of government investments and social capital investments in public service infrastructures. With the increasing government support to private enterprises' participation in public services, the Company is in a better position to invest in more market-oriented water projects and steadily improve the return of such projects.

Looking forward, the Group shall continue to expand its business through the long-termpublic-private partnership which has been actively promoted by the government. As to infrastructure and public services, it shall deepen cooperation with local governments, and make joint efforts to enhance its overall services capability in the value chain of urban water supply and water services as well as the efficiency and quality of its all-round services. As to the direction of future business development, the Group shall focus on the development of its core water supply business, and adhere to the two core development strategies, namely urban-rural water supply integration and supply-drainage integration. It shall accelerate the development of its value-added businesses of secondary water supply and direct drinking water, and improve the smart pipeline network system in order to enhance its core competitiveness and provide better services to the society and people. As a public utility company, the Group shall continue to generate stable cash flow and create higher returns for its shareholders.

LIQUIDITY AND FINANCIAL RESOURCES

As at 30 September 2019, the Group has total cash and cash equivalents and pledged deposits of approximately HK$4,757.5 million (31 March 2019: HK$4,617.8 million). The gearing ratio, calculated as a percentage of total liabilities to total assets, is 65.7% (31 March 2019: 64.0%) as at 30 September 2019. The current ratio is 1.04 times (31 March 2019: 1.13 times) as at 30 September 2019. In the opinion of the directors, the Group will have sufficient working capital to meet its financial obligations in full as they fall due in the foreseeable future.

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43

HUMAN RESOURCES

As at 30 September 2019, the Group has employed approximately 8,600 staff. Most of them are stationed in the PRC and the remaining in Hong Kong. The remuneration package of the employees is determined by various factors including their experience and performance, the market condition, industry practice and applicable employment law.

DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS AND SHORT POSITIONS

At 30 September 2019, the interests and short positions of the directors and chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the "SFO")) (the "Associated Corporations") as recorded in the register maintained by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code") were as follows:

Shares, Underlying Shares and Debentures

					Approximate
		Number of Shares	percentage of
	Capacity/Nature	shareholding in
Name of director	of interest	Long position	Short position	the Company
Mr. Duan Chuan Liang (Notes (i) & (ii))	Corporate and	470,880,301	-	29.36%
	personal
Ms. Ding Bin	Personal	5,500,000	-	0.34%
Ms. Liu Yu Jie	Personal	12,000,000	-	0.75%
Mr. Li Zhong (Notes (iii) & (iv))	Personal	37,627,457	-	2.35%
Mr. Zhao Hai Hu	Personal	4,306,000	-	0.27%
Mr. Zhou Wen Zhi	Personal	870,000	-	0.05%
Ms. Wang Xiaoqin	Personal	8,660,000	-	0.54%
Ms. Ho Ping	Personal	978,000	-	0.06%

44 China Water Affairs Group Limited • Interim Report 2019/20

Notes:

1. These 470,880,301 shares consist of 218,044,301 shares held by Asset Full Resources Limited ("AFRL"), which is wholly and beneficially owned by Mr. Duan Chuan Liang, and 252,836,000 shares held by Mr. Duan Chuan Liang personally.
2. Mr. Duan Chuan Liang is also interested in USD3,000,000 senior notes of the Company due 2022 through AFRL.
3. These 37,627,457 shares consist of 8,420,000 shares held by Mr. Li Zhong and 29,207,457 shares held by his spouse, Ms. Lu Hai personally.
4. Mr. Li Zhong is also interested in 0.64% equity interest in Shenzhen Gold Tact Environmental Holdings Co. Ltd (a non-wholly owned subsidiary of the Company) through Total Happy Investment Limited, his controlled corporation.

Other than as disclosed above, none of the directors or chief executives of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations ((within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Division 7 and 8 of Part XV of the SFO including interests or short positions which the directors and the chief executives were taken or deemed to have under the provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code contained in the Listing Rules.

SUBSTANTIAL SHAREHOLDERS

As at 30 September 2019, so far as is known to any director or chief executive of the Company, the following persons had interests or short positions in the shares or underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register kept by the Company pursuant to section 336 of the SFO.

						Approximate percentage of
		Number of shares			shareholding in the Company
	Capacity/Nature	Long	Short	Lending	Long	Short	Lending
Name of shareholder	of interest	position	position	pool	position	position	pool
Duan Chuan Liang	Beneficial	470,880,301	-	-	29.36%	-	-
Asset Full Resources Limited
(Note)	Beneficial	218,044,301	-	-	13.59%	-	-
ORIX Corporation	Beneficial	291,170,277	-	-	18.15%	-	-

Note: These shares are beneficially owned by AFRL, a company incorporated in the British Virgin Islands, whose entire issued capital is wholly and beneficially owned by Mr. Duan Chuan Liang, the Chairman and executive director of the Company.

Save as disclosed above, as at 30 September 2019, so far as is known to any director or chief executive of the Company, no person had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register kept by the Company pursuant to section 336 of the SFO.

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45

CORPORATE GOVERNANCE

The Company is committed to maintaining good corporate governance standard and procedures to ensure the integrity, transparency and quality of disclosure in order to enhance the shareholders' value. The board of directors (the "Board") reviews its corporate governance system from time to time in order to meet the rising expectations of shareholders and comply with the increasingly tightened regulatory requirements.

During the six months ended 30 September 2019, the Company has complied with all the applicable provisions of the Corporate Governance Code ("CG Code") as set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules"), save and except for the deviations from code provisions A.2.1, A.4.2 and A.6.7.

Under code provision A.2.1, the roles of chairman and chief executive should be separate and should not be performed by the same individual. Mr. Duan Chuan Liang serves as the Chairman of the Company. The function of chief executive officer is collectively performed by the executive directors. The Board considers that this structure will not impair the balance of power and authority between the Board and the management of the Company. The Board continues to believe that this structure is conducive to strong and consistent leadership, enabling the Company to make and implement decisions promptly and efficiently. The Board has strong confidence in the executive directors and believes that this structure is beneficial to the business prospects of the Company.

Under code provision A.4.2, every director should be subject to retirement by rotation at least once every three years. According to the Company's bye-laws, at each annual general meeting, one third of the directors shall retire from office by rotation provided that notwithstanding anything therein, the Chairman of the Board of the Company shall not be subject to retirement by rotation or taken into account in determining the number of directors to retire. As continuation is a key factor to the successful long term implementation of business plans, the Board believes that the role of the chairman provides the Group with strong and consistent leadership and allow more effective planning and execution of long- term business strategy. As such, the Board is of the view that the chairman of Board should not be subject to retirement by rotation.

Under code provision A.6.7, independent non-executive directors and other non-executive directors should attend general meetings and develop a balanced understanding of the views of shareholders. Certain independent non-executive directors and non-executive directors were unable to attend the Company's annual general meeting held on 6 September 2019 due to their other business commitments.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code") as set out in Appendix 10 to the Listing Rules as its code of conduct regarding securities transactions of Directors. The Company has made specific enquiry to all Directors regarding any non-compliance with the Model Code throughout the six months ended 30 September 2019 and they all confirmed that they have fully complied with the required standard set out in the Model Code.

46 China Water Affairs Group Limited • Interim Report 2019/20

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the six months ended 30 September 2019, the Company repurchased its own shares on the Stock Exchange as follows:

				Aggregate
	Number of			consideration
	shares	Highest price	Lowest price	(excluding
Month/Year	repurchased	per share	per share	expenses)
		HK$	HK$	HK$
July 2019	3,758,000	7.46	6.99	27,008,000
August 2019	1,114,000	6.98	6.08	7,209,000

During the period ended 30 September 2019, the Company repurchased and cancelled a total of 4,872,000 ordinary shares of HK$0.01 each in the capital of the Company. Accordingly, the issued share capital of the Company was reduced by the nominal value thereof. The premium payable on repurchase was charged against the contributed surplus of the Company.

The purchase of the Company's shares during the period was effected by the directors, pursuant to the mandate from shareholders received at the last annual general meeting, with a view to benefiting shareholders as a whole by enhancing the net asset value per share and earnings per share of the Group.

Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the period.

AUDIT COMMITTEE

The Audit Committee which comprises the four independent non-executive directors of the Company has reviewed with management the accounting principles and practices adopted by the Group and discussed internal controls and financial reporting matters including a general review of the unaudited interim condensed consolidated financial statements for the six months ended 30 September 2019 with the directors.

On behalf of the Board

China Water Affairs Group Limited

Duan Chuan Liang

Chairman

Hong Kong, 27 November 2019

As at the date of this report, the Board comprises five executive Directors, being Mr. Duan Chuan Liang, Ms. Ding Bin, Ms. Liu Yu Jie, Mr. Li Zhong

and	Mr.	Duan Jerry Linnan,	four non-executive Directors, being Mr.	Zhao
Hai	Hu,	Mr. Zhou Wen Zhi,	Mr. Makoto Inoue and Ms. Wang Xiaoqin,	and
f o u r i n d e p e n d e n t n o n - e x e c u t i v e	D i r e c t o r s , b e i n g M r . C h a u K a m W i n g ,
Mr. Siu Chi Ming, Ms. Ho Ping and Ms.	Zhou Nan.