China Lesso : FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2016

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CHINA LESSO GROUP HOLDINGS LIMITED

中 國 聯 塑 集 團 控 股 有 限 公 司*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2128) FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2016

The Board is pleased to announce the audited consolidated financial results of the Group for the year ended 31 December 2016.

HIGHLIGHTS

Compared to the last year consolidated financial results:

•

Revenue increased by 12.8% to RMB17,221 million

•

Gross profit increased by 16.4% to RMB4,582 million

•

Profit for the year increased by 18.2% to RMB1,914 million

•

Basic earnings per share was RMB0.62, increased by 19.2%

•

The payment of a final dividend of HK15 cents per share is recommended for the year

ended 31 December 2016

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Year ended 31 December 2016

Note	2016 RMB'000	2015 RMB'000
REVENUE	3	17,221,052	15,264,401
Cost of sales	(12,639,274)	(11,326,830)
Gross profit	4,581,778	3,937,571
Other revenue, income and gains	3	138,021	119,927
Selling and distribution expenses	(821,557)	(697,214)
Administrative expenses	(758,583)	(579,132)
Other expenses	(608,619)	(630,259)
Finance costs	4	(107,061)	(87,323)
Share of profit of a joint venture	813	1,101
PROFIT BEFORE TAX	5	2,424,792	2,064,671
Income tax expense	6	(511,088)	(446,221)
PROFIT FOR THE YEAR	1,913,704	1,618,450
OTHER COMPREHENSIVE INCOME/

(EXPENSE)

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign

operations (113,554) (50,973)

Changes in fair value of available-for-sale

investments 24,236 1,777

OTHER COMPREHENSIVE EXPENSE FOR THE YEAR (89,318) (49,196) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,824,386 1,569,254

Note	2016 RMB'000	2015 RMB'000
Profit attributable to: Owners of the Company	1,922,027	1,621,117
Non-controlling interests	(8,323)	(2,667)
1,913,704	1,618,450
Total comprehensive income attributable to: Owners of the Company	1,827,904	1,570,682
Non-controlling interests	(3,518)	(1,428)
1,824,386	1,569,254
EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY	8
Basic and diluted	RMB0.62	RMB0.52

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

Note	2016 RMB'000	2015 RMB'000
NON-CURRENT ASSETS Property, plant and equipment	6,621,953	6,011,812
Prepaid land lease payments	1,249,367	1,157,926
Investment properties	2,469,488	318,431
Goodwill	76,554	-
Other intangible assets Deposits paid for the purchase of land, property, plant and equipment	183,615 549,919	35,790 745,175
Interest in a joint venture	7,988	7,175
Available-for-sale investments	9	730,814	48,363
Held-to-maturity investments	10	59,655	62,435
Loan receivables	11	63,191	-
Other long-term receivables	37,623	-
Derivative financial instruments	32,566	-
Deferred tax assets	53,869	29,724
Total non-current assets	12,136,602	8,416,831
CURRENT ASSETS Inventories	12	2,747,065	2,206,543
Amounts due from customers for contract work	163,279	-
Loan receivables	11	325,764	83,000
Trade and bills receivables	13	1,517,248	1,397,797
Prepayments, deposits and other receivables	1,419,645	651,408
Cash and bank deposits	3,885,683	3,893,544
Total current assets	10,058,684	8,232,292

Note	2016 RMB'000	2015 RMB'000
CURRENT LIABILITIES Amounts due to customers for contract work	40,049	-
Trade and bills payables	14	3,603,162	1,681,582
Other payables and accruals	1,731,570	1,525,902
Borrowings	15	4,252,154	1,065,502
Tax payable	94,957	104,562
Total current liabilities	9,721,892	4,377,548
NET CURRENT ASSETS	336,792	3,854,744
TOTAL ASSETS LESS CURRENT LIABILITIES	12,473,394	12,271,575
NON-CURRENT LIABILITIES Borrowings	15	442,407	2,175,238
Other long-term payables	106,439	-
Deferred tax liabilities	272,568	136,653
Deferred income	114,308	94,232
Total non-current liabilities	935,722	2,406,123
Net assets	11,537,672	9,865,452
EQUITY Share capital	16	135,344	135,686
Reserves	11,096,165	9,635,199
Equity attributable to owners of the Company	11,231,509	9,770,885
Non-controlling interests	306,163	94,567
Total equity	11,537,672	9,865,452

Note:

1. BASIS OF PREPARATION

   These consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties, certain available-for-sale investments and derivative financial instruments which have been measured at fair value. These consolidated financial statements are presented in Renminbi and all values are rounded to the nearest thousand except when otherwise indicated.

2. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the following new and revised standards for the first time for the current year's consolidated financial statements.

HKFRS 14 Regulatory Deferral Accounts

Amendments to HKFRS 10, HKFRS 12 and HKAS 28

Investment Entities: Applying the Consolidation Exception

Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations

Amendments to HKAS 1 Disclosure Initiative

Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and

Amortisation Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants

Amendments to HKAS 27 Equity Method in Separate Financial Statements Annual Improvements 2012 - 2014 Cycle Amendments to a number of HKFRSs

The application of these new and revised standards in the current year has had no material impact on the Group's financial performance and position for the current and prior periods and/or on the disclosures set out in these consolidated financial statements.

1. OPERATING SEGMENT INFORMATION

   The Group is principally engaged in the manufacture and sale of building materials and interior decoration products; the provision of renovation and installation works, environmental engineering and other related services and financial services. For management purposes, the Group's businesses are organised by geographical areas based on the location of the customers and assets are attributable to the geographical unit based on the location of the assets. The Group has eight reportable operating segments as follows:

2. Southern China, including Guangdong Province, Guangxi Zhuang Autonomous Region, Hunan Province, Fujian Province and Hainan Province;

3. Southwestern China, including Chongqing Municipality, Sichuan Province, Guizhou Province, Yunnan Province and Xizang (Tibet) Autonomous Region;

4. Central China, including Hubei Province, Jiangxi Province and Henan Province;

5. Eastern China, including Shanghai Municipality, Jiangsu Province, Zhejiang Province and Anhui Province;

6. Northern China, including Beijing Municipality, Tianjin Municipality, Hebei Province, Shandong Province, Inner Mongolia Autonomous Region and Shanxi Province;

7. Northwestern China, including Shaanxi Province, Ningxia Hui Autonomous Region, Qinghai Province, Gansu Province and Xinjiang Uygur Autonomous Region;

8. Northeastern China, including Liaoning Province, Jilin Province and Heilongjiang Province; and

9. Outside China.

   Management monitors the results of its operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted profit before tax. The adjusted profit before tax is measured consistently with the Group's profit before tax except that changes in fair value of investment properties, changes in fair value of derivative financial instruments, exchange differences, finance costs, interest income, gain on early redemption of held-to-maturity investments, investment income, share of result of a joint venture and other unallocated income and expenses are excluded from such measurement.

   Segment assets exclude interest in a joint venture, available-for-sale investments, held-to-maturity investments, derivative financial instruments, deferred tax assets, cash and bank deposits and other unallocated head office and corporate assets as these assets are managed on a group basis.

   Intersegment revenue is eliminated on consolidation. Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

   The Group's revenue from external customers is derived from its operations in the mainland China, special administrative regions of the PRC and foreign countries.

   During the years ended 31 December 2016 and 2015, no revenue from transactions with a single external customer amounted to 10% or more of the Group's total revenue.

   Operating segment information for the year ended 31 December 2016

   Southern China

   Southwestern

   China

   Central China

   Eastern China

   Northern China

   Northwestern

   China

   Northeastern

   China

   Outside

   China Eliminations Consolidated

   RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

   Segment revenue:

   Sales to external customers 10,082,151 1,561,330 1,712,343 1,064,953 1,052,288 562,002 371,154 535,436 - 16,941,657

   Intersegment sales 2,397,464 360,909 441,075 133,941 167,401 109,249 94,902 591,967 (4,296,908) -

   12,479,615 1,922,239 2,153,418 1,198,894 1,219,689 671,251 466,056 1,127,403 (4,296,908) 16,941,657

   Contract revenue from renovation and

   installation works 118,180 - 881 - - - 382 - - 119,443

   Income from environmental engineering

   and other related services	81,161	10,779 7,941 1,728 21,991 8,922 532 - - 133,054
   Financial service income	26,898	- - - - - - - - 26,898

   Total 12,705,854 1,933,018 2,162,240 1,200,622 1,241,680 680,173 466,970 1,127,403 (4,296,908) 17,221,052

   Segment results 3,349,344 534,107 626,430 239,738 325,786 143,524 99,788 86,290 (823,229) 4,581,778

   Reconciliations:

   Gain on fair value changes of

   investment properties 31,885

   Gain on fair value changes of derivative

   financial instruments 1,942

   Exchange loss (17,614)

   Finance costs (107,061)

   Interest income 61,591

   Gain on early redemption of held-

   to-maturity investments 206

   Investment income 5,781

   Share of profit of a joint venture 813

   Unallocated income and expenses (2,134,529)

   Profit before tax 2,424,792

   Segment assets 9,850,734 1,140,737 1,048,774 867,512 726,365 581,190 420,668 2,788,731 - 17,424,711

   Reconciliations:

   Interest in a joint venture 7,988

   Available-for-sale investments 730,814

   Held-to-maturity investments 59,655

   Derivative financial instruments 32,566

   Deferred tax assets 53,869

   Cash and bank deposits 3,885,683

   Total assets 22,195,286

   Other segment information:

   Depreciation and amortisation 321,449 57,461 64,224 40,383 36,858 37,202 22,249 13,540 - 593,366

   Write-down of inventories to

   net realisable value, net 21,693 365 431 4,361 78 (121) 10,730 12,908 - 50,445

   Impairment of trade receivables, net 30,087 - 274 - 1,086 - (1,675) 455 - 30,227

   Impairment of property,

   plant and equipment - - - 15,467 - - - - - 15,467

   Capital expenditure# 1,658,042 121,701 42,506 76,731 45,807 23,588 24,642 1,597,381 (20,900) 3,569,498

   # Capital expenditure consists of additions to property, plant and equipment, prepaid land lease payments, investment properties and other intangible assets.

   Operating segment information for the year ended 31 December 2015

   Southern China

   Southwestern

   China

   Central China

   Eastern China

   Northern China

   Northwestern

   China

   Northeastern

   China

   Outside

   China Eliminations Consolidated

   RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

   Segment revenue:

   Sales to external customers 9,046,199 1,386,118 1,576,233 838,664 976,207 601,410 320,496 453,082 - 15,198,409

   Intersegment sales 1,899,833 272,862 351,981 87,818 120,655 105,044 80,778 504,905 (3,423,876) -

   10,946,032 1,658,980 1,928,214 926,482 1,096,862 706,454 401,274 957,987 (3,423,876) 15,198,409

   Contract revenue from renovation and

   installation works	64,497	- - - - - - - - 64,497
   Financial service income	1,495	- - - - - - - - 1,495

   Total 11,012,024 1,658,980 1,928,214 926,482 1,096,862 706,454 401,274 957,987 (3,423,876) 15,264,401

   Segment results	2,833,026	419,184	580,776	199,592	269,017	132,559	70,040	72,002	(638,625)	3,937,571
   Reconciliations:
   Gain on fair value changes of
   investment properties	55
   Exchange loss	(114,516)
   Finance costs	(87,323)
   Interest income	82,248
   Investment income	2,426
   Share of profit of a joint venture	1,101
   Unallocated income and expenses	(1,756,891)

   Profit before tax 2,064,671

   Segment assets	7,317,952	974,045	1,046,339	805,163	634,496	566,085	443,009	820,793	- 12,607,882
   Reconciliations:
   Interest in a joint venture	7,175
   Available-for-sale investments	48,363
   Held-to-maturity investments	62,435
   Deferred tax assets	29,724
   Cash and bank deposits	3,893,544

   Total assets 16,649,123

   267,173	51,828	63,675	29,069	29,453	37,061	15,225	7,631	-	501,115
   41,208	-	1,161	641	3,961	573	1,601	(581)	-	48,564
   8,194	-	5,456	-	161	923	23,110	5,733	-	43,577
   -	-	-	-	-	-	-	379	-	379
   763,250	112,167	74,645	230,291	140,617	22,217	2,083	337,051	(24,980)	1,657,341

   Other segment information: Depreciation and amortisation Write-down of inventories to net

   realisable value, net

   Impairment of trade receivables, net Impairment of property, plant,

   and equipment Capital expenditure#

   # Capital expenditure consists of additions to property, plant and equipment, prepaid land lease payments, investment properties and other intangible assets.

10. REVENUE, OTHER REVENUE, INCOME AND GAINS

An analysis of the Group's revenue, other revenue, income and gains is as follows:

2016 RMB'000	2015 RMB'000
Revenue Sale of goods	16,941,657	15,198,409
Contract revenue from renovation and installation works Income from environmental engineering and other related services	119,443 133,054	64,497 -
Financial service income	26,898	1,495
17,221,052	15,264,401
Other revenue, income and gains Bank interest income	55,391	72,421
Interest income from held-to-maturity investments	6,200	9,827
Total interest income	61,591	82,248
Government grants and subsidies	16,118	20,110
Gain on fair value changes of investment properties	31,885	55
Gain on fair value changes of derivative financial instruments	1,942	-
Gain on early redemption of held-to-maturity investments	206	-
Investment income	5,781	2,426
Others	20,498	15,088
138,021	119,927

Government grants and subsidies mainly represent funding received from government authorities to support certain of the Group's research and development activities. There are no unfulfilled conditions or contingencies related to these grants and subsidies.

4.	FINANCE COSTS	2016	2015
RMB'000	RMB'000
Interest expenses on bank and other loans	108,781	87,733
Less: Interest capitalised	(1,720)	(410)
107,061	87,323
5.	PROFIT BEFORE TAX
The Group's profit before tax is arrived at after charging/(crediting):
2016 RMB'000	2015 RMB'000
Cost of inventories sold	12,413,090	11,225,023
Direct cost of renovation and installation works Direct cost of environmental engineering and other related services	105,569 70,170	53,243 -
Depreciation	553,375	467,004
Amortisation of prepaid land lease payments	25,227	22,362
Amortisation of other intangible assets	14,764	11,749
Total depreciation and amortisation	593,366	501,115
Research and development costs# Loss on disposal of items of other intangible assets and property, plant and equipment	514,024 7,309	447,346 12,357
Write-down of inventories to net realisable value, net	50,445	48,564
Impairment of trade receivables, net#	30,227	43,577
Impairment of property, plant and equipment#	15,467	379
Changes in fair value of investment properties	(31,885)	(55)
Changes in fair value of derivative financial instruments	(1,942)	-
Foreign exchange differences, net#	17,614	114,516

# These items are included in the "other expenses" in profit or loss.

6. INCOME TAX EXPENSE

2016 2015

RMB'000 RMB'000

Current tax

PRC 471,713 408,266

Other jurisdiction 421 88

472,134 408,354

Overprovision in prior years

PRC (26,641) (14,097)

Deferred tax 65,595 51,964

Total tax charge for the year 511,088 446,221

The Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which members of the Group are domiciled and operate.

Hong Kong profits tax

The statutory rate of Hong Kong profits tax was 16.5% (2015: 16.5%) on the estimated assessable profits arising in Hong Kong. No provision for Hong Kong profits tax was made as the Group had no assessable profits arising in Hong Kong during the year (2015: Nil).

PRC corporate income tax

The Group's income tax provision in respect of its operations in mainland China has been calculated at the applicable tax rates on the taxable profits for both years, based on the existing legislation, interpretations and practices in respect thereof.

Certain of the Group's PRC subsidiaries are qualified as High and New Technology Enterprises and are entitled to a preferential corporate income tax rate of 15% during both years.

Income tax for other jurisdictions

The Group's tax provision in respect of other jurisdictions has been calculated at the applicable tax rates in accordance with the prevailing practices of the jurisdictions in which the Group operates.